Draft registration statement as confidentially submitted to the U.S. Securities and Exchange Commission on November 27, 2023. This draft registration statement is not being filed publicly with the U.S. Securities and Exchange Commission and all information herein remains strictly confidential.
Registration No. [ ]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Global Mofy Metaverse Limited
(Exact name of registrant as specified in its charter)
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Cayman Islands |
7370 |
Not Applicable |
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(State or other jurisdiction of |
(Primary Standard Industrial |
(I.R.S. Employer |
No. 102, 1st Floor, No. A12, Xidian Memory Cultural and Creative Town
Gaobeidian Township, Chaoyang District, Beijing
People’s Republic of China, 100000
+86-10-64376636
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
__________________________________________
Cogency Global Inc.
122 East 42nd Street, 18th Floor
New York, NY 10168
+1 (800) 221-0102
(Name, address, including zip code, and telephone number, including area code, of agent for service)
__________________________________________
With a Copy to:
William S. Rosenstadt, Esq. |
Joan Wu, Esq. |
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Approximate date of commencement of proposed sale to the public: Promptly after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we are not soliciting any offer to buy these securities in any jurisdiction where such offer or sale is not permitted.
SUBJECT TO COMPLETION |
PRELIMINARY PROSPECTUS DATED NOVEMBER 27, 2023 |
Global Mofy Metaverse Limited
Up to [*] Units
Each Unit Consisting of One Ordinary Share and
One Warrant to Purchase [*] Ordinary Share
We are offering in a best-efforts offering of up to [*] units (each a “Unit” and collectively the “Units”), with each Unit consisting of one ordinary share, par value $0.000002 per share of Global Mofy Metaverse Limited (“GMM”, the “Company”, “we”, “our”, “us”) and one warrant to purchase [*]ordinary share at an assumed offering price of US$[*] per Unit, which is the last reported sale price of our ordinary share, as reported on the Nasdaq Capital Market on [*DATE], 2023. Each our ordinary share is being sold together with one warrant to purchase [*] ordinary share. Each ordinary share exercisable pursuant to the warrants will have an exercise price per share of $[*], equal to [*]% of the offering price per Unit in this offering. The warrants will be immediately exercisable and will expire on the [*] anniversary of the original issuance date. The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The ordinary shares and related warrants are immediately separable and will be issued separately in this offering.
Our ordinary shares are listed on the Nasdaq Capital Market under the symbol “GMM”. On [ ], 2023, the last reported sales price of our ordinary share on the Nasdaq Capital Market was $[ ] per share. There is no established public trading market for the warrants, and we do not expect a market to develop. We do not intend to apply for listing of the Units or the warrants on any securities exchange or other nationally recognized trading system. Without an active trading market, the liquidity of the warrants will be limited.
Because there is no minimum offering amount required as a condition to closing this offering, we may sell fewer than all of the Units offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell an amount of Units sufficient to pursue the business goals outlined in this prospectus. Because there is no minimum offering amount, investors could be in a position where they have invested in our Company, but we are unable to fulfill our objectives due to a lack of interest in this offering. Also, any proceeds from the sale of Units offered by us will be available for our immediate use, despite uncertainty about whether we would be able to use such funds to effectively implement our business plan. See “Risk Factors” on page 25 for more information. We intend to complete one closing of this offering, but may undertake one or more additional closings for the sale of the additional Units to the investors in the initial closing. We expect to hold an initial closing on [*], 2023, but the offering will be terminated by [*], 2023, provided that the closing(s) of the offering for all of the Units have not occurred by such date, and may be extended by written agreement of the Company and the placement agent. Any extensions or material changes to the terms of the offering will be contained in an amendment to this prospectus.
Investors are cautioned that you are not buying shares of a China-based operating company but instead are buying shares of a Cayman Islands holding company with operations conducted by our subsidiaries based in China and that this structure involves unique risks to investors.
This is an offering of the ordinary shares of the Cayman Islands holding company. We conduct our business through the PRC subsidiaries. You will not and may never have direct ownership in the operating entity based in China. After the restructure that dissolved the Variable Interest Entity (“VIE”) structure, Global Mofy Metaverse Limited now controls and receives the economic benefits of the PRC subsidiaries’ business operation, if any, through equity ownership. We do not use a VIE structure.
Unless otherwise stated, as used in this prospectus, the terms “Global Mofy Cayman,” “we,” “us,” “our Company,” and the “Company” refer to Global Mofy Metaverse Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands; the terms the “PRC subsidiaries” and the “operating subsidiaries” refer to Global Mofy (Beijing) Technology Co., Ltd., or Global Mofy China and its subsidiaries, Mofy (Beijing) Film Technology Co., Ltd., or Beijing Mofy, Kashi Mofy Interactive Digital Technology Co., Ltd., or Kashi Mofy, Shanghai Mo Ying Fei Huan Technology Co., Ltd., or Shanghai Mofy, and Xi’an Digital Cloud Technology Co., Ltd., or Xi’an Mofy, entities organized under the laws of the PRC.
Global Mofy Cayman is a Cayman Islands holding company and is not a Chinese operating company. As a holding company with no material operations of its own, it conducts all of its operations and operates its business in China through its PRC subsidiaries, in particular, Global Mofy China and its subsidiaries, Beijing Mofy, Kashi Mofy, Shanghai Mofy, and Xi’an Mofy. Because of our corporate structure as a Cayman Islands holding company with operations conducted by our PRC subsidiaries, it involves unique risks to investors. Furthermore, Chinese regulatory authorities could change the rules and regulations regarding foreign ownership in the industry in which the Company operates, which would likely result in a material change in our operations and/or a material change in the value of the securities we are registering for sale, including that it could cause the value of such securities to significantly decline or become worthless. Investors in our ordinary shares should be aware that they do not directly hold equity interests in the Chinese operating entities, but rather are purchasing equity solely in Global Mofy Cayman, our Cayman Islands holding company, which indirectly owns 100% equity interests in the PRC subsidiaries. Our ordinary shares offered in this offering are shares of our Cayman Islands holding company instead of shares of our subsidiaries in China. See “Risk Factors — Risks Related to Doing Business in China — The filing, approval or other administration requirements of the Chinese Securities Regulatory Commission (the “CSRC”) or other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable.” on page 26.
Investing in our ordinary shares involves a high degree of risk. Before buying any ordinary shares, you should carefully read the discussion of material risks of investing in our ordinary shares in “Risk Factors” beginning on page 25 of this prospectus.
In particular, as substantially all of our operations are conducted through the PRC subsidiaries, we are subject to certain legal and operational risks associated with our operations in China, including that changes in the legal, political and economic policies of the Chinese government, the relations between China and the United States, or Chinese or United States regulations may materially and adversely affect our business, financial condition and results of operations. PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and therefore, these risks could result in a material change in our operations and/or the value of our ordinary shares or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our ordinary shares to significantly decline or be worthless. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.
As confirmed by our PRC counsel, Jiangsu Junjin Law Firm, we will not be subject to cybersecurity review with the Cyberspace Administration of China, or the “CAC,” after the Cybersecurity Review Measures became effective on February 15, 2022, since we currently do not have over one million users’ personal information and do not anticipate that we will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise subject us to the Cybersecurity Review Measures; we are also not subject to network data security review by the CAC if the Draft Regulations on the Network Data Security Administration are enacted as proposed, since we currently do not have over one million users’ personal information and do not collect data that affects or may affect national security and we do not anticipate that we will be collecting over one million users’ personal information or data that affects or may affect national security in the foreseeable future, which we understand might otherwise subject us to the Security Administration Draft. See “Risk Factors — Risks Related to Doing Business in China — The filing, approval or other administration requirements of the Chinese Securities Regulatory Commission (the “CSRC”) or other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable.” on page 26.
On February 17, 2023, the China Securities Regulatory Commission, or the CSRC, announced the Circular on the Administrative Arrangements for Filing of Securities Offering and Listing by Domestic Companies, or the Circular, and released a set of new regulations which consists of the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines. On the same date, the CSRC also released the Notice on the Arrangements for the Filing Management of Overseas Listing of Domestic Companies, or the Notice. The Trial Measures came into effect on March 31, 2023. The Trial Measures refine the regulatory system by subjecting both direct and indirect overseas offering and listing activities to the CSRC filing-based administration. Requirements for filing entities, time points and procedures are specified. A PRC domestic company that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC per the requirements of the Trial Measures. Where a PRC domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. The Trial Measures also lay out requirements for the reporting of material events. Breaches of the Trial Measures, such as offering and listing securities overseas without fulfilling the filing procedures, shall bear legal liabilities, including a fine between RMB 1.0 million (approximately $150,000) and RMB 10.0 million (approximately $1.5 million), and the Trial Measures heighten the cost for offenders by enforcing accountability with administrative penalties and incorporating the compliance status of relevant market participants into the Securities Market Integrity Archives.
According to the Circular, since the date of effectiveness of the Trial Measures on March 31, 2023, PRC domestic enterprises falling within the scope of filing that have been listed overseas or met the following circumstances are “existing enterprises”: before the effectiveness of the Trial Measures on March 31, 2023, the application for indirect overseas issuance and listing has been approved by the overseas regulators or overseas stock exchanges (such as the registration statement has become effective on the U.S. market), it is not required to perform issuance and listing supervision procedures of the overseas regulators or overseas stock exchanges, and the overseas issuance and listing will be completed by September 30, 2023. Existing enterprises are not required to file with the CSRC immediately, and filings with the CSRC should be made as required if they involve refinancings and other filing matters. PRC domestic enterprises that have submitted valid applications for overseas issuance and listing but have not been approved by overseas regulatory authorities or overseas stock exchanges at the date of effectiveness of the Trial Measures on March 31, 2023 can reasonably arrange the timing of filing applications with the CSRC and shall complete the filing with the CSRC before the overseas issuance and listing. According to the Circular, we can reasonably arrange the timing for submitting the filing application with the CSRC, and shall complete the filing with the CSRC in accordance with the Trial Measures before this offering. In sum, we are subject to the filing requirements of the CSRC for this offering under the Trial Measures.
In addition, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified by the Trial Measures. As a result, we will be required to file with the CSRC within three business days after the completion of this offering. We begin the process of preparing a report and other required materials in connection with the CSRC filing, which will be submitted to the CSRC in due course after this offering. However, if we do not maintain the permissions and approvals of the filing procedure in a timely manner under PRC laws and regulations, we may be subject to investigations by competent regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in our operations, limit our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. As the Circular and Trial Measures were newly published, there exists uncertainty with respect to the filing requirements and their implementation. Any failure or perceived failure of us to fully comply with such new regulatory requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, cause significant disruption to our business operations, and severely damage our reputation, which could materially and adversely affect our financial condition and results of operations and could cause the value of our securities to significantly decline or be worthless. See “Risk Factors — Risks Related to Doing Business in China — The filing, approval or other administration requirements of the Chinese Securities Regulatory Commission (the “CSRC”) or other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable” on page 26.
As of the date of this prospectus, according to our PRC counsel, Jiangsu Junjin Law Firm, although we are required to complete the filing procedure in connection with our offering (including this offering and any subsequent offering) under the Trial Measures, no relevant PRC laws or regulations in effect require that we obtain permission from any PRC authorities to issue securities to foreign investors, and we have not received any inquiry, notice, warning, sanction, or any regulatory objection to this offering from the CSRC, the CAC, or any other PRC authorities that have jurisdiction over our operations.
The Standing Committee of the National People’s Congress, or the SCNPC, or other PRC regulatory authorities may in the future promulgate laws, regulations or implementing rules that requires our company or any of our subsidiaries to obtain regulatory approval from Chinese authorities before listing in the U.S. In other words, although the Company has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly; our ability to offer, or continue to offer, securities to investors would be potentially hindered and the value of our securities might significantly decline or be worthless, by existing or future laws and regulations relating to its business or industry or by intervene or interruption by PRC governmental authorities, if we or our subsidiaries (i) do not receive or maintain such permissions or approvals, (ii) inadvertently conclude that such permissions or approvals are not required, (iii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future, or (iv) any intervention or interruption by PRC governmental with little advance notice. See “Risk Factors — Risks Related to Doing Business in China” beginning on page 25 and “— Risks Related to this Offering,” beginning on page 54 of this prospectus for a discussion of these legal and operational risks and information that should be considered before making a decision to purchase our ordinary shares.
In addition, since 2021, the Chinese government has strengthened its anti-monopoly supervision, mainly in three aspects: (1) establishing the National Anti-Monopoly Bureau; (2) revising and promulgating anti-monopoly laws and regulations, including: the Anti-Monopoly Law (draft Amendment published on October 23, 2021 for public opinions), the anti-monopoly guidelines for various industries, and the detailed Rules for the Implementation of the Fair Competition Review System; and (3) expanding the anti-monopoly law enforcement targeting Internet companies and large enterprises. As of the date of this prospectus, the Chinese government’s recent statements and regulatory actions related to anti-monopoly concerns have not impacted our ability to conduct business, accept foreign investments, or list on a U.S. or other foreign exchange because neither the Company nor its PRC subsidiaries engage in monopolistic behaviors that are subject to these statements or regulatory actions.
Pursuant to the Holding Foreign Companies Accountable Act, or the HFCAA, if the Public Company Accounting Oversight Board, or the PCAOB, is unable to inspect an issuer’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a U.S. stock exchange. The PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. Furthermore, the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and amended the HFCAA by requiring the SEC to prohibit an issuer’s securities from trading on any U.S stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. On August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol (the “SOP”) with the China Securities Regulatory Commission and the Ministry of Finance of China. The SOP, together with two protocol agreements governing inspections and investigations (together, the “SOP Agreement”), establishes a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting
firms headquartered in mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed.
As of the date of the prospectus, Marcum Asia CPAs LLP, our auditor, is not subject to the determinations as to inability to inspect or investigate completely as announced by the PCAOB on December 16, 2021. The Company’s auditor is based in the U.S. and is registered with PCAOB and subject to PCAOB inspection. See “Risk Factors — Risks Related to Doing Business in China — The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering” on page 43.
Our management monitors the cash position of each entity within our organization regularly and prepare budgets on a monthly basis to ensure each entity has the necessary funds to fulfill its obligation for the foreseeable future and to ensure adequate liquidity. In the event that there is a need for cash or a potential liquidity issue, it will be reported to our Chief Financial Officer and subject to approval by our board of directors, we will enter into an intercompany loan for the subsidiary in accordance with the applicable PRC laws and regulations. However, the funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to transfer cash or assets. See “Risk Factors — Risks Related to Doing Business in China — To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to transfer cash or assets.”
Under existing PRC foreign exchange regulations, payment of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulations, such as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents. Approval from, or registration with, appropriate government authorities is, however, required where the 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 in the future to foreign currencies for current account transactions. Current PRC regulations permit our PRC subsidiaries to pay dividends to the Company only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. As of the date of this prospectus, there are no restrictions or limitations imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to the PRC), except for transfer of funds involving money laundering and criminal activities. Cayman Islands law prescribes that a company may only pay dividends out of its profits or share premium, and that a company may only pay dividends if, immediately following the date on which the dividend is paid, the company remains able to pay its debts as they fall due in the ordinary course of business. Other than that, there is no restrictions on Global Mofy Cayman’s ability to pay dividends to its shareholders. See “Prospectus Summary — Transfers of Cash to and from Our Subsidiaries,” “Prospectus Summary — Summary of Risk Factors,” and “Risk Factors — Risks Related to Doing Business in China — To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to transfer cash or assets,” “Risk Factors — Risks Related to Doing Business in China — We are a holding company and we rely on our subsidiaries for funding dividend payments, which are subject to restrictions under PRC laws,” and “Risk Factors — Risks Related to Doing Business in China — Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business.”
As a holding company, we may rely on dividends and other distributions on equity paid by our subsidiaries, including those based in the PRC, for our cash and financing requirements. If any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to us. Global Mofy Cayman is permitted under the laws of the Cayman Islands to provide funding to our subsidiaries incorporated in Hong Kong through loans or capital contributions without restrictions on the amount of the funds. Our subsidiaries are permitted under the respective laws of Hong Kong to provide funding to Global Mofy Cayman through dividend distribution without restrictions on the amount of the funds. There are no restrictions on dividend transfers from Hong Kong to the Cayman Islands. Current PRC regulations permit Mofy Metaverse (Beijing) Technology Co., Ltd. (“Global Mofy WFOE” or “WFOE”) to pay dividends to the Company only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. The transfer of funds among companies are subject to the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases (2020 Revision, the “Provisions on Private Lending Cases”), which was implemented on August 20, 2020 to regulate the financing activities between natural persons, legal persons and unincorporated organizations. As advised by our PRC counsel, Jiangsu Junjin Law Firm, the Provisions on Private Lending Cases does not prohibit using cash generated from one subsidiary to fund another subsidiary’s operations. We have not been notified of any other restriction which could limit our PRC subsidiaries’ ability to transfer cash between PRC subsidiaries. As of the date of this prospectus, neither the Company nor its subsidiaries have made transfers, dividends, or distributions to investors and no investors have made transfers, dividends, or distributions to the Company or its subsidiaries. As of the date of this prospectus, no dividends, distributions or transfers have been made between Global Mofy Cayman and any of its subsidiaries. We do not expect to pay any cash dividends in the foreseeable future. Also, as of the date of this prospectus, no cash generated from one subsidiary is used to fund another subsidiary’s operations and we do not anticipate any difficulties or limitations on our ability to transfer cash between subsidiaries. See “Prospectus Summary — Transfers of Cash to and from Our Subsidiaries,” on page 10, “Prospectus Summary — Summary of Financial Position and Cash Flows of Global Mofy Cayman” on page 20, and “Consolidated Financial Statements” starting from page F-1.
We are an “emerging growth company” as defined under federal securities laws and, as such, will be subject to reduced public company reporting requirements. See “Prospectus Summary — Implications of Being an Emerging Growth Company and a Foreign Private Issuer” on page 18 for additional information.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
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Offering price(1) |
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Placement agent’s fees(2) |
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Non-accountable expense allowance(3) |
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US$ |
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Proceeds to our company before expenses(4) |
US$ |
US$ |
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(1) We assume the Units are offered at an assumed offering price of US$[*] per Unit, which is the last reported sale price of our ordinary share, as reported on the Nasdaq Capital Market on [*], 2023.
(2) We have agreed to pay Prime Number Capital LLC (the “placement agent”) a cash fee of seven percent (7%) of the aggregate gross proceeds raised in this offering. We have also agreed to reimburse the placement agent for certain expenses. For a description of compensation payable to the placement agent, see “Plan of Distribution.”
(3) We also agreed to pay the placement agent a non-accountable expense allowance in the amount equal to one percent (1%) of the gross proceeds of this offering.
(4) We estimate the total expenses of this offering payable by us, excluding the placement agent’s fees, will be approximately US$[*].
We have engaged Prime Number Capital LLC as our exclusive placement agent to use its reasonable best efforts to solicit offers to purchase our Securities in this offering. The placement agent has no obligation to buy any of the Securities from us or to arrange for the purchase or sale of any specific number or dollar amount of the Securities. Because there is no minimum offering amount required as a condition to closing in this offering the actual offering amount, the placement agent’s fee, and proceeds to us, if any, are not presently determinable and may be substantially less than the total maximum offering amounts set forth above and throughout this prospectus. We have agreed to pay the placement agent the placement agent’s fees set forth in the table above and to provide non-accountable expense allowance and certain other compensation to the placement agent. See “Plan of Distribution” of this prospectus for more information regarding these arrangements.
We will deliver ordinary shares being issued to the investors electronically and will mail such investors physical warrant certificates for the warrants sold in this offering, upon closing and receipt of investor funds for the purchase of the Units offered pursuant to this prospectus. We expect the delivery of such securities against payment in U.S. dollars will be made in New York, New York on or about , 2023.
Prime Number Capital LLC
Prospectus dated , 2023.
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We and the Placement Agent have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by us or on our behalf or to which we have referred you and which we have filed with the U.S. Securities and Exchange Commission (the “SEC”). We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the ordinary shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. For the avoidance of doubt, no offer or invitation to subscribe for our ordinary shares is made to the public in the Cayman Islands. The information contained in this prospectus is current only as of the date on the front cover of the prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
Commonly Used Defined Terms
Unless otherwise indicated or the context requires otherwise, references in this prospectus to:
• “Beijing Mofy” refers to Mofy (Beijing) Film Technology Co., Ltd., a limited liability company organized under the laws of the PRC, which is 60% owned by Global Mofy China;
• “Global Mofy Cayman” refers to Global Mofy Metaverse Limited, an exempted company incorporated under the laws of the Cayman Islands;
• “Global Mofy HK” refers to Global Mofy HK Limited, a limited liability company organized under the laws of Hong Kong, which is wholly-owned by Global Mofy Cayman;
• “Global Mofy WFOE” refers to Mofy Metaverse (Beijing) Technology Co., Ltd., a limited liability company organized under the laws of the PRC, which is wholly-owned by Global Mofy HK;
• “Global Mofy Zhejiang WFOE” refers to Zhejiang Mofy Metaverse Technology Co., Ltd., a limited liability company organized under the laws of the PRC, which is wholly-owned by Global Mofy HK;
• “Global Mofy China” refers to Global Mofy (Beijing) Technology Co., Ltd., a limited liability company organized under the laws of PRC, which is wholly-owned by Global Mofy WFOE;
• “Kashi Mofy” refers to Kashi Mofy Interactive Digital Technology Co., Ltd., a limited liability company organized under the laws of the PRC, which is wholly-owned by Global Mofy China;
• “ordinary shares” refers to the ordinary shares of the Company, par value US$0.000002 per share;
• “RMB” refers to the legal currency of China;
• “Shanghai Mofy” Shanghai Mo Ying Fei Huan Technology Co., Ltd., a limited liability company organized under the laws of the PRC, which is wholly-owned by Global Mofy China;
• “U.S. dollars,” “$,” “US$,” and “dollars” refer to the legal currency of the United States;
• “we,” “us,” “our Company,” “the Company,” “our,” “Global Mofy Cayman” refer to Global Mofy Metaverse Limited;
• “Xi’an Mofy” refers to Xi’an Digital Cloud Technology Co., Ltd., a limited liability company organized under the laws of the PRC, which is 60% owned by Global Mofy China.
Global Mofy China and its subsidiaries conduct business in the PRC, using Renminbi, or RMB, the official currency of China. Our consolidated financial statements are presented in United States dollars. In this prospectus, we refer to assets, obligations, commitments and liabilities in our consolidated financial statements in United States dollars. These dollar references are based on the exchange rate of RMB to United States dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets, including accounts receivable (expressed in dollars).
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We have relied on statistics provided by a variety of publicly-available sources regarding China’s expectations of growth. We did not directly or indirectly sponsor or participate in the publication of such materials, and these materials are not incorporated in this prospectus other than to the extent specifically cited in this prospectus. We have commissioned the industry datasheet from Frost & Sullivan Inc. (“Frost & Sullivan”). We have sought to provide current information in this prospectus and believe that the statistics provided in this prospectus remain up-to-date and reliable, and these materials are not incorporated in this prospectus other than to the extent specifically cited in this prospectus.
On September 16, 2022, we amended our Memorandum and Articles of Association and effected a 1-to-5 stock split (“Stock Split”) of our ordinary shares. We had 5,130,631 ordinary shares issued and outstanding immediately prior to the Stock Split. After the Stock Split, there were 25,653,155 ordinary shares issued and outstanding. All shareholders then subsequently surrendered in an aggregative of 1,653,155 ordinary shares on a pro-rata basis, which were cancelled by the Company.
On November 15, 2022, all existing shareholders surrendered in an aggregative of 381,963 ordinary shares on a pro-rata basis, which were cancelled by the Company. On the same date, the Company, together with Mr. Haogang Yang, our founder and CEO, certain BVI founder entities and all its subsidiaries in Hong Kong and mainland China, entered into a share purchase agreement with Standard International Capital Partners SPC (for and on behalf of Standard International Capital Partners Fund I SP) (“Standard International Capital”) (the “Share Purchase Agreement”), pursuant to which we issued 381,963 ordinary shares of the Company, par value US$0.000002 each, to Standard International Capital, for an aggregate issue price of USD1,500,000.
On February 10, 2023, the Company entered into a share purchase agreement with Anguo Jijian Enterprise Management Co., Ltd (“Anguo”), Anjiu Jiheng Enterprise Management Co., Ltd (“Anjiu”), and Anling Management Co., Ltd (“Anling”), pursuant to which we issued 740,829, 740,829, and 444,497 ordinary shares, par value US$0.000002, of the Company to Anguo, Anjiu, and Anling, respectively, for an aggregate issue price of $9.4 million (RMB65,000,000). As of March 31, 2023, we have received the $9.4 million from these three investors.
The issued and outstanding shares then became 25,926,155 before the initial public offering.
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The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements included elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ordinary shares, discussed under “Risk Factors,” before deciding whether to buy our ordinary shares.
Overview
We are a technology solutions provider engaged in virtual content production, digital marketing, and digital assets development for the metaverse industry. Utilizing our proprietary “Mofy Lab” technology platform which consists of cutting-edge three-dimensional (“3D”) rebuilt technology and artificial intelligence (“AI”) interactive technology, we are able to create 3D high definition virtual version of a wide range of physical world objects such as characters, objects and scenes which can be used in different applications. According to the industry datasheet generated by Frost & Sullivan, we believe we are one of the leading digital asset banks in China, which consists of more than 7,000 high precision 3D digital assets. High precision means 4K (4096*2160) resolution of movie precision. With our strong technology platform and industry track record, we are able to attract high-profile customers such as L’Oreal and Pepsi and earn repeat business. We primarily operate in three lines of business (i) virtual technology service, (ii) digital marketing, and (iii) digital asset development and others.
Virtual Technology Service
We provide comprehensive technology solution to assist customers in virtual content production, which can be used in a variety of settings such as movies, television series, animations advertising and gaming, etc. Leveraging our proprietary “Mofy Lab” technology platform, we are able to produce high-quality virtual content quickly and cost-effectively to meet highly differentiated customers’ needs. The virtual content production contracts are primarily quoted in fixed price, payable on a milestone basis, which requires us to perform services for visual effect design, content development, production and integration based on customers’ specific needs.
Digital Marketing
Previously in fiscal year 2021, we primarily provided advertisement production and promotion services to customers with integrated digital marketing services from content planning, technical services and content production assistance to omni-channel online placement. Technical services under advertisement production uses the same technologies with our virtual technology service. For content planning and content production, unlike focusing on the storyline under virtual technology service, we focus on the promotion products provided by the digital marketing customers under advertisement production. The advertisements are in different format, including but not limited to short video, landing pages and static materials. We consider that both of the advertisement production and promotion services are highly interrelated and not separately identifiable. It is not practical to quantify the portion of revenue from our advertisement production and revenue that derives from advertising placement/promotion services.
Following our business expansion to the new business line of digital asset development by the last quarter of fiscal year 2021 and the decision of focusing more on the higher margin business lines to better cope with the impact of the COVID-19 pandemic, we adjusted the business strategies for the digital marketing in the fiscal year 2022. Instead of providing integrated digital marketing services from content planning, technical services and content production assistance to omni-channel online placement as in fiscal year 2021, we acted as an agent to purchase ad inventories and advertise services on behalf of the advertisers for the fiscal year 2022. We expect to continuously reduce the input in digital marketing business line, and the proportion of digital marketing of total revenues will further reduce in the future.
Digital Asset Development
Through our virtual content production business and opportunistic acquisition of certain digital assets, we are able to build a robust digital asset bank with more than 7,000 3D digital assets. We grant specific use right of these digital assets to customers who use them based on their specific needs across different applications such as movies, television series, AR/VR, animation, adverting and gaming. Our digital assets, which build up our digital asset bank, mainly consist of high precision 3D renders of scenes, characters, objects and, items that can be licensed for use in virtual environment. Depending on customers’ needs, these digital assets can be quickly deployed and integrated with minimal
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customization, thus reducing project costs and expedite completion time. With the rapid development of metaverse, we believe digital assets will be become increasingly valuable and have abundant use cases. We plan to actively expand our digital asset bank and build digital assets which we believe have more use case to serve this fast-growing market.
Global Mofy China has its own technology platform, called “Mofy Lab”. Mofy Lab contains self-developed and optimized technologies, including 3D rebuilt technology and AI interactive technology, which can: (i) create 3D high definition virtual version of real world objects, or the digital assets; and (ii) provide a one-stop, low barrier, low-cost solution to assist metaverse companies in creating high quality virtual content.
For the six months ended March 31, 2023, our revenues were $12.8 million of which approximately 62% and 38% were generated from our two lines of business, virtual technology service and digital asset development and others, respectively. For the six months ended March 31, 2022, our revenues were $8.7 million of which approximately 99% and 1% were generated from our two lines of business, virtual technology service and digital marketing, respectively. For the year ended September 30, 2021, our revenues were $14.3 million of which approximately 47%, 43% and 10% were generated from our three lines of business, virtual technology service, digital marketing, digital asset development and others, respectively. We started business expansion and generate revenues from the digital asset development in the fiscal year of 2021, and due to the boom of the concept of the metaverse, nearly 10% of our revenues were generated from the digital asset development in the fiscal year ended September 30, 2021. For the year ended September 30, 2022, following our continually expansion of the higher margin business lines of virtual technology service and digital asset development, we generated approximately 73%, 4% and 23% from virtual technology service, digital marketing, and digital development and others lines of business, respectively.
As of the date of this prospectus, none of our 7,000 3D digital assets in the asset library that are currently available for licensing have registered copyrights under PRC or any international authority. We convert and create these 3D digital assets from real-world objects using our hardware and software in the Mofy Lab and therefore we have ownership over these assets. Although these 3D digital assets are not registered, they are still protected under the PRC copyrights laws. However, the lack of copyright protection may impact our ability to generate licensing fees or protect our intellectual property from unauthorized use or piracy. Further, if other companies preemptively register the intellectual property rights of the same digital assets, our use may involve infringement and may lead to litigation and compensation to others. We plan to register these 3D digital assets using part of the proceeds from this offering. The estimated cost to register all of our existing copyrights for 3D digital assets and images is $1 million.
Competitive Advantages
We are committed to provide our customers with quality technology service and to become the largest 3D digital asset provider in China. We believe that we have a number of competitive advantages that will enable us to maintain and further improve our market position in the industry. Our competitive advantages include:
• We own proprietary “Mofy Lab” technology platform. Our technology platform consists of 3D rebuilt technology and AI interactive technology which enable us to precisely convert almost all physical world objects into high definition 3D digital assets. With this technology platform, we are able to create high-quality virtual contents and digital assets quickly and cost-effectively to meet highly differentiated needs of our customers.
• We are an established player in the metaverse industry. We are one of the early entrants in the metaverse industry in China. Through our virtual content production business and opportunistic acquisition of certain digital assets, we are able to build a robust digital asset bank with more than 7,000 3D digital assets. These digital assets can be quickly deployed and integrated by our customers with minimal customization, thus reducing project costs and expedite completion time.
• Our staff and management are experienced and diversified in operations and managements. Our key team members have more than 10 years of experience in their respective fields. The founder, Haogang Yang, is a seasoned entrepreneur with extensive experience in business management and operation. He realized the value of digital assets in the field of virtual contents as early as in early 2019 and firmly led Global Mofy China to reserve digital assets, which has brought Global Mofy China to occupy the dominant position. In addition, Global Mofy China features with a diverse senior management team. Ms. Wenjun Jiang, the Chief Technology Officer of the Company, has more than 15 years’ experience
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in virtual technology. Global Mofy China’s principal operation is intelligence intensive. Since inception, Global Mofy China has pooled a large number of managerial talents in the industry forming a professional and stable operation and management team.
Our Growth Strategy
We position ourselves as a comprehensive technology solutions provider that act as a building block for the development of the metaverse industry. Our goal is to become a leading digital asset provider to empower companies in the metaverse value chain with high quality and cost-effective solutions and products. We plan to implement the following growth strategies to achieve our goal:
• We will continue to focus on the research and development of our technologies. Global Mofy China has been focusing on research and development since its inception and there were approximately 17 employees engaging in research and development as of the date of this prospectus. Global Mofy China is a national certified high-tech enterprise by both the Beijing Municipal Science & Technology Commission and the Administrative Commission of Zhongguancun Science Park for its cutting-edge 3D rebuilt and AI interactive technologies. As our company continues to grow in size and the rapid development of technologies in the metaverse industry, Global Mofy China is placing an increasing emphasis on research and development. In addition to continuously optimizing our technology, we, through our PRC subsidiaries, will accelerate the development of digital assets, with the expectation to convert at least 10,000 assets a year to expand our competitive advantage.
• We aim to maintain and further develop business relationships with our customers and potential players in the metaverse industry. We have developed years of relationships with both upstream and downstream entities of the industry. Our founding team has built solid connections with Tencent, Alibaba, and other first-line leading metaverse platforms in China. We have also developed business relationships with Youku, Perfect World, Wimi Hologram, and other content companies across many varied segments of the industry.
• We plan to cooperate with or acquire similar digital assets providers to expand our digital assets content in order to implement our business strategy. Besides Global Mofy China, there are currently handful independent high-definition 3D digital asset providers worldwide. However, they achieve merely average performance due to outdated operating concepts. Within 12 to 24 months of listing on Nasdaq, Global Mofy China plans to develop strategic partnership, or to eventually acquire similar digital assets providers to further expand our digital assets reserve.
Recent Development
In October 2023, the Company completed its initial public offering of 1,200,000 ordinary shares at a price of $5.00 per share. The gross proceeds received from the initial public offering totaled US$6 million. The underwriter for the initial public offering exercised its over-allotment option in part to purchase 40,000 ordinary shares at a price of $5.00 less underwriting discount on November 6, 2023. The ordinary shares began trading on October 10, 2023 on The Nasdaq Capital Market under the ticker symbol “GMM.”
Our Corporate History and Structure
Global Mofy Metaverse Limited, or Global Mofy Cayman, is a holding company incorporated in the Cayman Islands. As a holding company with no material operations, Global Mofy Cayman conducts its operations in China through Global Mofy China and its PRC subsidiaries. After the restructure that dissolved the VIE structure, Global Mofy Cayman now controls and receives the economic benefits of the PRC subsidiaries’ business operation, if any, through equity ownership. We do not use a VIE structure.
The following diagram illustrates our corporate structure as of the date of this prospectus. For more detail on our corporate history, please refer to “Business — Corporate History and Structure” beginning on page 86 of this prospectus.
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Global Mofy Cayman is a Cayman Islands exempted company incorporated on September 29, 2021. As a holding company with no significant assets or operation, it conducts business in China through Global Mofy China and its subsidiaries.
Global Mofy HK was incorporated on October 21, 2021 under the law of Hong Kong SAR. Global Mofy HK is the wholly-owned subsidiary of Global Mofy Cayman and is currently not engaging in any active business and merely acting as a holding company.
Global Mofy WFOE was incorporated on December 9, 2021, under the laws of the People’s Republic of China. It is a wholly-owned subsidiary of Global Mofy HK and a wholly foreign-owned entity under the PRC laws. The registered principal activity of the company is technology development, technical services, and software development.
Global Mofy Zhejiang WFOE was incorporated on April 3, 2023, under the of the People’s Republic of China. It is a wholly-owned subsidiary of Global Mofy HK and a wholly foreign-owned entity under the PRC laws. The registered principal activity of the company is technology development, technical services, and software development. It is currently not engaging in any active business.
Global Mofy China was incorporated on November 22, 2017 under the laws of the People’s Republic of China. The registered principal activity of the company is technology development, technical services, design and produce advertisement, and film screening. Global Mofy China is one of our operating entities.
Shanghai Mofy was incorporated on May 11, 2020 under the laws of the PRC. Shanghai Mofy is a wholly owned subsidiary of Global Mofy China and is one of our operating entities.
Kashi Mofy was incorporated on July 31, 2019 under the laws of the PRC. Kashi Mofy is a wholly owned subsidiary of Global Mofy China and is one of our operating entities.
Xi’an Mofy was incorporated on June 8, 2018 under the laws of the PRC. Xi’an Mofy is a majority owned subsidiary of Global Mofy China and is one of our operating entities.
Beijing Mofy was incorporated on February 7, 2018 under the laws of the PRC. Beijing Mofy is a majority owned subsidiary of Global Mofy China and is one of our operating entities.
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The Restructure
On January 5, 2022, Global Mofy WFOE entered into a series of VIE agreements (the “VIE Agreements”) with Global Mofy China and all the shareholders of Global Mofy China, which established the VIE structure. As a result of the VIE Agreements, Global Mofy WFOE was regarded as the primary beneficiary of Global Mofy China, and we treated Global Mofy China and its subsidiaries as the variable interest entities under U.S. GAAP for accounting purposes. We have consolidated the financial results of Global Mofy China and its subsidiaries in our consolidated financial statements in accordance with the U.S. GAAP.
On June 28, 2022, Global Mofy WFOE entered into equity transfer agreements with each shareholder of Global Mofy China to purchase all the equity interest in Global Mofy China. On July 8, 2022, Global Mofy WFOE, Global Mofy China and shareholders of Global Mofy China signed a termination agreement of the VIE Agreements. The VIE structure was dissolved. The restructure was completed on July 8, 2022. As a result, Global Mofy China became a wholly owned subsidiary of Global Mofy WFOE. Global Mofy China was a foreign-invested joint venture at the time of the acquisition of its 100% equity interests by Global Mofy WFOE.
With respect to the application of the M&A Rules, we acquired the domestic operating entities through a “two-step slow-walk” method, so the approval process of the Ministry of Commerce is not applicable. The acquisition was broken into two steps: 1) adding a non-PRC shareholder so that the domestic operating entity will be categorized as a Sino-foreign joint venture (an entity with mixed capital between one or more foreign and Chinese shareholders); 2) Global Mofy WFOE to complete the equity acquisition of Global Mofy China from both the Chinese and foreign shareholders so that it would become a foreign-owned enterprise. Our PRC counsel, Jiangsu Junjin Law Firm, has completed substantial amount of research and study of the regulation and precedents and found that this approach has been widely used in the past. In addition, it has never been penalized or challenged with respect to the legality of this matter. While our PRC counsel, Jiangsu Junjin Law Firm, believes that it is permitted to structure the acquisition in this manner and the acquisition, in fact, has been completed without any challenge by any regulator, there is uncertainty with respect to the interpretation of the current regulation as it is still evolving. In the event that this approach is deemed invalid or illegal and it is applied retroactively, Global Mofy WFOE’s acquisition of Global Mofy China could be deemed invalid and we will not be able to consolidate the financial statements of Global Mofy China. We have added a risk factor to disclose such risk on page 45 under “Risk Factors — Risks Related to Doing Business in China — We circumvent the application of M&A rules by taking a “two-step slow-walk” method. In the event that this approach is deemed invalid or illegal and it is applied retroactively, Global Mofy WFOE’s acquisition of Global Mofy China could be deemed invalid and we will not be able to consolidate the financial statements of Global Mofy China.”
Global Mofy China previously planned to provide radio and television program production and film projection services and obtained a related business license in order to do so. According to the Foreign Investment Law and the Special Administrative Measures for Access of Foreign Investment (Negative List), foreign investment ratio in entities for the provision of such radio and television program production and film projection services shall not exceed 50% and consequently it was agreed that the VIE agreements be entered so that Global Mofy China would not run afoul of such laws. However, those services were not operated by Global Mofy China and the reason to use the VIE structure was no longer relevant. Global Mofy China excluded the radio and television program production and film projection services as its business scope in June 2022 and the related business license was canceled in June 2022. Global Mofy China is then able to be held by Global Mofy WFOE directly. Currently, the Chinese securities laws does not differentiate a VIE structure and an equity holding structure when it comes to overseas listing. However, we concern about the risk of future changes in the Chinese securities laws that may disallow the VIE structure, and decided that it would be in the best interest of our shareholders to dissolve the VIE structure and assume a direct parent-subsidiary holding structure between Global Mofy WFOE and Global Mofy China.
One of our beneficial owners, Zhenquan Ren, who is a PRC resident, has not and will not completed the Circular 37 Registration. Mr. Ren owns 970,701 shares, through Mofy Yi Limited, a BVI company, which is 3.74% of the Company’s issued and outstanding shares. We will ask our prospective shareholders who are Chinese residents to make the necessary applications and filings as required by Circular 37. However, not each of our shareholders, who are PRC residents will, in the future, complete the registration process as required by Circular 37. Failure to comply with the registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of the foreign-invested enterprise that is established through round-trip investment,
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may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested enterprise, including restrictions on its ability to receive registered capital as well as additional capital from PRC resident shareholders who fail to complete Circular 37 registration; and repatriation of profits and dividends derived from special purpose vehicles to China, by the PRC resident shareholders who fail to complete Circular 37 registration, are also illegal. In addition, the failure of the PRC resident shareholders to complete Circular 37 registration may subject each of the shareholders to fines less than RMB50,000. Please see “Risk Factors — Risks Related to Doing Business in China — One of our shareholders has not and will not completed the Circular 37 Registration. The Chinese resident shareholders’ failure to comply with Circular 37 registration may result in restrictions being imposed on part of foreign exchange activities of the offshore special purpose vehicles, including restrictions on its ability to receive registered capital as well as additional capital from Chinese resident shareholders who fail to complete Circular 37 registration” on page 39 of this prospectus.
Coronavirus (COVID-19) Update
The ongoing outbreak of a novel strain of coronavirus (COVID-19) has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities globally for the past years. In March 2020, the World Health Organization declared the COVID-19 to be a pandemic. In light of the uncertain and rapidly evolving situation relating to the spread of COVID-19, we have taken precautionary measures intended to minimize the risk of the virus to our employees and the communities in which we operate, including temporarily closing our offices and virtualizing, postponing, or canceling user, developer, creator, employee, or industry events, which may negatively impact our business.
The business of Global Mofy China was affected in the first half of 2020 because Global Mofy China’s main customers at the time are in the film, television and animation industries, which were impacted by the quarantine measures and travel restrictions. In the second half of 2020, Global Mofy China embraced a diversified business development pattern by engaging in the digital marketing services and exploiting customers in industries such as games, AR/VR, and advertising, which were less impacted by the restrictive measures, and thus the business returned to normal by the end of 2020. With the COVID-19 pandemic brought under control in China and the success of Global Mofy China in its diversified business development, our revenue was increased from $8.7 million for the six months ended March 31, 2022 to $12.8 million for the six months ended March 31, 2023. Also, we believe that the COVID-19 pandemic could accelerate adoption of metaverse, which we expect will generate additional opportunities for us in the future.
From 2020 to 2022, China implemented various restrictive measures in response to the COVID-19 pandemic, including imposing lockdowns and other restrictions from time to time. Since January 8, 2023, China government has loosen its restrictions. However, there are still uncertainties of the COVID-19 pandemic’s future impact, and the extent of the impact will depend on a number of factors, including the duration and severity of the COVID-19 variations; and the macroeconomic impact of government measures to contain the spread of COVID-19 variations and related government stimulus measures. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
The full extent to which the COVID-19 pandemic and the various responses to it impact our business, operations, and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including:
• the duration and scope of the pandemic, including any potential future waves of the pandemic;
• governmental, business, and individuals’ actions that have been and continue to be taken in response to the pandemic;
• the availability of and cost to access the capital markets;
• the effect of the pandemic on our developers;
• disruptions or restrictions on our employees’ ability to work and travel; and
• interruptions related to our infrastructure and partners.
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Summary of Risk Factors
Investing in our ordinary shares involves a high degree of risk. Below is a summary of material factors that make an investment in our ordinary shares speculative or risky. Importantly, this summary does not address all of the risks that we face. Please refer to the information contained in and incorporated by reference under the heading “Risk Factors” on page 25 of this prospectus.
Risks Related to Our Corporate Structure
Risks related to our corporate structure, beginning on page 25 of this prospectus, include but are not limited to the following:
• “We are a holding company and will rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our ordinary shares.” See page 25.
Risks Related to Doing Business in China
Risks related to doing business in China, beginning on page 25 of this prospectus, include but are not limited to the following:
• “Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us.” See page 25.
• “The filing, approval or other administration requirements of the Chinese Securities Regulatory Commission (the “CSRC”) or other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable.” See page 26.
• “Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our ordinary shares to investors and cause the value of our ordinary shares to significantly decline or be worthless. The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.” See page 29.
• “There are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities.” See page 29.
• “PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from this offering and/or future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.” See page 30.
• “We must remit the offering proceeds to China before they may be used to benefit our business in China, and this process may take several months to complete.” See page 31.
• “PRC regulation of loans to and direct investment in PRC entities by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries.” See page 31.
• “Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and services and materially and adversely affect our competitive position.” See page 32.
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• “We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers.” See page 39.
• “Trading in our securities may be prohibited under the HFCAA and as a result an exchange may determine to delist our securities if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction.” See page 45.
• “The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.” See page 43.
• “The approval of the China Securities Regulatory Commission may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval.” See page 45.
• “You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in the prospectus. “It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China.” See page 42.
• “To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to transfer cash or assets.” See page 36.
Risks Related to Our Business and Industry
Risks related to our business and industry, beginning on page 46 of this prospectus, include but are not limited to the following:
• “We have a limited history operating our business at its current scale, and as a result, our past results may not be indicative of future operating performance.” See page 46.
• “We enter service agreements with our customers. If we fail to meet these contractual commitments, we could be obligated to provide refunds of prepaid amounts or cannot receive final payments, which would lower our revenue and harm our business, financial condition and results of operations.” See page 47.
• “Our efforts and investments in technology development may not always produce the expected results.” See page 48.
• “Our business is dependent on certain major customers and suppliers and changes or difficulties in our relationships with them may harm our business and financial results.” See page 47.
• “We are expanding fast. If we are unable to recruit, train and retain talents, our business may be materially and adversely affected.” See page 48.
• “We face intense competition in metaverse and digital entertainment industry, if we fail to compete effectively, we may lose market share. Our performance, prospects, and results of operations will be materially and negatively impacted.” See page 49.
• “Our business is highly dependent on our brand strength and reputation, and if we fail to maintain and enhance our brand and reputation, consumer recognition of and trust in our services could be materially and adversely affected.” See page 49.
• “We may fail to protect our intellectual properties.” See page 50.
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Risks Related to the Offering and Our Ordinary Shares
Risks related to the offering and our ordinary shares, beginning on page 54 of this prospectus, include but are not limited to the following:
• “This is a best efforts offering, no minimum number or dollar amount of securities is required to be sold, and we may not raise the amount of capital we believe is required for our business plans.” See page 54.
• “Because there is no minimum required for the offering to close, investors in this offering will not receive a refund in the event that we do not sell an amount of securities sufficient to pursue the business goals outlined in this prospectus.” See page 54.
• “There is no public market for the Units or the warrants.” See page 54.
• “The warrants in this offering are speculative in nature.” See page 54.
• “Holders of the warrants will not have rights of holders of our ordinary shares until such warrants are exercised.” See page 54.
• “The sale or availability for sale of substantial amounts of our ordinary shares could adversely affect their market price.” See page 54.
• “The trading price of our ordinary shares may be volatile, which could result in substantial losses to you.” See page 55.
• “Certain recent initial public offerings of companies with public floats comparable to the public float of the Company have experienced extreme volatility, including extreme stock price run-ups followed by rapid price decline, that was seemingly unrelated to the underlying performance of the respective company. We may experience similar volatility, which may make it difficult for prospective investors to assess the value of our ordinary shares.” See page 56.
Implication of Holding Foreign Companies Accountable Act
U.S. laws and regulations, including the Holding Foreign Companies Accountable Act, or HFCAA, may restrict or eliminate our ability to complete a business combination with certain companies, particularly those acquisition candidates with substantial operations in China.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. An identified issuer will be required to comply with these rules if the SEC identifies it as having a “non-inspection” year under a process to be subsequently established by the SEC. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and amended the HFCAA by requiring the SEC to prohibit an issuer’s securities from trading on any U.S stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions. On August 26, 2022, the PCAOB announced that it had
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signed a Statement of Protocol (the “SOP”) with the China Securities Regulatory Commission and the Ministry of Finance of China. The SOP, together with two protocol agreements governing inspections and investigations (together, the “SOP Agreement”), establishes a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed.
Our auditor, Marcum Asia CPAs LLP, the independent registered public accounting firm that issues the audit report included in this prospectus, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess Marcum Asia CPAs LLP’s compliance with applicable professional standards. Marcum Asia CPAs LLP is headquartered in Manhattan, New York with no branches or offices outside the United States and has been inspected by the PCAOB on a regular basis, with the last inspection in 2020. Therefore, we believe that, as of the date of this prospectus, our auditor is not subject to the determinations as to the inability to inspect or investigate registered firms completely announced by the PCAOB on December 16, 2021.
However, we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. See “Risk Factors — Risks Related to Doing Business in China — The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering” on page 43.
Transfers of Cash to and from Our Subsidiaries
Our management monitors the cash position of each entity within our organization regularly and prepare budgets on a monthly basis to ensure each entity has the necessary funds to fulfill its obligation for the foreseeable future and to ensure adequate liquidity. In the event that there is a need for cash or a potential liquidity issue, it will be reported to our Chief Financial Officer and subject to approval by our board of directors, we will enter into an intercompany loan for the subsidiary in accordance with the applicable PRC laws and regulations. However, the funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to transfer cash or assets. Global Mofy Cayman will need to fund its activities by self-financing in the absence of dividends from the PRC subsidiaries.
Under existing PRC foreign exchange regulations, payment of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulations, such as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents. Approval from, or registration with, appropriate government authorities is, however, required where the 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 in the future to foreign currencies for current account
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transactions. Current PRC regulations permit our PRC subsidiaries to pay dividends to the Company only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. As of the date of this prospectus, there are no restrictions or limitations imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to the PRC), except for transfer of funds involving money laundering and criminal activities. Cayman Islands law prescribes that a company may only pay dividends out of its profits or share premium, and that a company may only pay dividends if, immediately following the date on which the dividend is paid, the company remains able to pay its debts as they fall due in the ordinary course of business. Other than that, there is no restrictions on Global Mofy Cayman’s ability to pay dividends to its shareholders. See “Risk Factors — Risks Related to Doing Business in China — To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to transfer cash or assets,” “Risk Factors — Risks Related to Doing Business in China — We rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business,” and “Risk Factors — Risks Related to Doing Business in China — Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business.”
As a holding company, we may rely on dividends and other distributions on equity paid by our subsidiaries, including those based in the PRC, for our cash and financing requirements. If any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to us. Global Mofy Cayman is permitted under the laws of the Cayman Islands to provide funding to our subsidiaries incorporated in Hong Kong through loans or capital contributions without restrictions on the amount of the funds. Our subsidiaries are permitted under the respective laws of Hong Kong to provide funding to Global Mofy Cayman through dividend distribution without restrictions on the amount of the funds. There are no restrictions on dividends transfers from Hong Kong to the Cayman Islands. Current PRC regulations permit our WFOE to pay dividends to the Company only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations.
The PRC has currency and capital transfer regulations that require us to comply with certain requirements for the movement of capital. The Company is able to transfer cash (US Dollars) to its PRC subsidiaries through an investment (by increasing the Company’s registered capital in a PRC subsidiary). The Company’s subsidiaries within China can transfer funds to each other when necessary through the way of current lending. The transfer of funds among companies are subject to the Provisions on Private Lending Cases, which was implemented on August 20, 2020 to regulate the financing activities between natural persons, legal persons and unincorporated organizations. As advised by our PRC counsel, Jiangsu Junjin Law Firm, the Provisions on Private Lending Cases does not prohibit using cash generated from one subsidiary to fund another subsidiary’s operations. We have not been notified of any other restriction which could limit our PRC subsidiaries’ ability to transfer cash between PRC subsidiaries. The Company’s subsidiaries in the PRC have not transferred any earnings or cash to the Company to date. As of the date of this prospectus, there has not been any assets or cash transfer between the holding company and its subsidiaries. As of the date of this prospectus, there has not been any dividends or distributions made to US investors. The Company’s business is primarily conducted through its subsidiaries. The Company is a holding company and its material assets consist solely of the ownership interests held in its PRC subsidiaries. The Company relies on dividends paid by its subsidiaries for its working capital and cash needs, including the funds necessary: (i) to pay dividends or cash distributions to its shareholders, (ii) to service any debt obligations and (iii) to pay operating expenses. As a result of PRC laws and regulations (noted below) that require annual appropriations of 10% of after-tax income to be set aside in a general reserve fund prior to payment of dividends, the Company’s PRC subsidiaries are restricted in that respect, as well as in other respects noted below, in their ability to transfer a portion of their net assets to the Company as a dividend.
With respect to transferring cash from the Company to its subsidiaries, increasing the Company’s registered capital in a PRC subsidiary requires the filing of the local commerce department, while a shareholder loan requires a filing with the State Administration of Foreign Exchange or its local bureau. Aside from the declaration to the State Administration of Foreign Exchange, there is no restriction or limitations on such cash transfer or earnings distribution.
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With respect to the payment of dividends, we note the following:
1. PRC regulations currently permit the payment of dividends only out of accumulated profits, as determined in accordance with accounting standards and PRC regulations (an in-depth description of the PRC regulations is set forth below);
2. Our PRC subsidiaries are required to set aside, at a minimum, 10% of their net income after taxes, based on PRC accounting standards, each year as statutory surplus reserves until the cumulative amount of such reserves reaches 50% of their registered capital;
3. Such reserves may not be distributed as cash dividends;
4. Our PRC subsidiaries may also allocate a portion of their after-tax profits to fund their staff welfare and bonus funds; except in the event of a liquidation, these funds may also not be distributed to shareholders; the Company does not participate in a Common Welfare Fund; and
5. The incurrence of debt, specifically the instruments governing such debt, may restrict a subsidiary’s ability to pay stockholder dividends or make other cash distributions.
If, for the reasons noted above, our subsidiaries are unable to pay shareholder dividends and/or make other cash payments to the Company when needed, the Company’s ability to conduct operations, make investments, engage in acquisitions, or undertake other activities requiring working capital may be materially and adversely affected. However, our operations and business, including investment and/or acquisitions by our subsidiaries within China, will not be affected as long as the capital is not transferred in or out of the PRC.
As of the date of this prospectus, the Company or its subsidiaries have made no transfers, dividends, or distributions to investors and no investors have made transfers, dividends, or distributions to the Company or its subsidiaries.
As of the date of this prospectus, no dividends, distributions or transfers has been made between Global Mofy Cayman and any of its subsidiaries. For the foreseeable future, the funds raised through our initial public offering and this offering will be used by the Chinese operating subsidiaries for research and development, to develop new products and to expand its production capacity. As a result, we do not expect to pay any cash dividends in the foreseeable future. Also, as of the date of this prospectus, no cash generated from one subsidiary is used to fund another subsidiary’s operations and we do not anticipate any difficulties or limitations on our ability to transfer cash between subsidiaries.
Regulatory Permissions
Our subsidiaries have obtained material permissions and approvals required for our operations in compliance with the relevant laws and regulations in the PRC. As of the date of this prospectus, the only permission required for operations are the business licenses of the PRC subsidiaries. The business license in PRC is a permit issued by Market Supervision and Administration that allows the company to conduct specific business within the government’s geographical jurisdiction. As of the date of this prospectus, we and our PRC subsidiaries have received from PRC authorities all requisite licenses, permissions or approvals needed to engage in the businesses currently conducted in China, and no permission or approval has been denied. The following table provides details on the licenses and permissions held by our PRC subsidiaries.
Approval |
Recipient |
Issuing body |
Issuing Date |
Terms of Operation |
Regions |
The Scope of Conduct Allowed |
||||||
Business License |
Global Mofy WFOE |
Beijing Chaoyang District Market Supervision and Administration |
April 13, 2022 |
December 9, 2021 to December 8, 2051 |
Beijing City |
Technology development; technology consultation; technology service; design; production; agency; advertising (excluding publishing and distribution); software development. |
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Approval |
Recipient |
Issuing body |
Issuing Date |
Terms of Operation |
Regions |
The Scope of Conduct Allowed |
||||||
Business License |
Global Mofy China |
Beijing Chaoyang District Market Supervision and Administration |
July 8, 2022 |
November 22, 2017 to June 22, 2032 |
Beijing City |
Technology services, technology development, technology consultancy, technology exchange, technology transfer, technology promotion; advertising design and agency; advertising; video and video production services (excluding publishing and distribution); copyright agency; graphic design; professional design services. |
||||||
Business License |
Shanghai Mofy |
Shanghai Pudong New Area Market Supervision and Administration |
June 14, 2022 |
Unlimited |
Shanghai City |
Technology services, technology development, technology consulting, technology exchange, technology transfer, technology promotion; organization of cultural and artistic exchange activities; information consulting services (excluding licensing information consulting services); software development; conference and exhibition services; business management consulting; corporate image planning; advertising design, agency. |
||||||
Business License |
Kashi Mofy |
Kashgar Regional Market Supervision and Administration |
April 28, 2022 |
Unlimited |
Xinjiang Uygur Autonomous Region |
Technology services, technology development, technology consulting, technology exchange, technology transfer, technology promotion; graphic design; professional design services; organization of cultural and artistic exchange activities; social and economic consulting services; software development; research and development of Internet of things technology; Internet of things technology services; consulting and planning services; digital content production services (excluding publishing |
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Approval |
Recipient |
Issuing body |
Issuing Date |
Terms of Operation |
Regions |
The Scope of Conduct Allowed |
||||||
and distribution); camera and video production services; conference and exhibition services; business management Consulting; information consulting services (excluding licensing information consulting services); corporate image planning; marketing planning; advertising design, agency. |
||||||||||||
Business License |
Xi’an Mofy |
Xi’an Market Supervision and Administration |
July 4, 2022 |
Unlimited |
Shanxi Province |
3D scanning technology research and development; copyright agent; intellectual property agency, consulting; Internet information services; website design, construction; software development and sales and technology promotion; computer software and hardware technology consulting, technical services; economic information consulting; marketing planning; advertising design, agency (excluding medical, pharmaceutical, medical device, health food advertising); corporate image planning; business management consulting; import and export operation of goods and technology (except for goods and technology that are restricted, prohibited and subject to approval by the state). |
||||||
Business License |
Beijing Mofy |
Beijing Chaoyang District Market Supervision and Administration |
January 27, 2022 |
February 7, 2018 to February 6, 2038 |
Beijing City |
Technology services, technology transfer, technology development, technology promotion, technology consulting. |
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As of the date of this prospectus, according to our PRC counsel, Jiangsu Junjin Law Firm, although we are required to complete the filing procedure in connection with our offering (including this offering and any subsequent offering) and listing under the Trial Measures, no relevant PRC laws or regulations in effect require that we obtain permission from any PRC authorities to issue securities to foreign investors, and we have not received any inquiry, notice, warning, sanction, or any regulatory objection to this offering from the CSRC, the CAC, or any other PRC authorities that have jurisdiction over our operations.
On August 8, 2006, six PRC regulatory agencies jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules requires that an offshore special purpose vehicle formed for overseas listing purposes and controlled directly or indirectly by the PRC Citizens shall obtain the approval of the CSRC prior to overseas listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. Based on our understanding of the Chinese laws and regulations in effect at the time of this prospectus, we will not be required to submit an application to the CSRC for its approval of this offering and the listing and trading of our ordinary shares on the Nasdaq under the M&A Rules. However, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented, and the opinions of our PRC counsel summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant Chinese government agencies, including the CSRC, would reach the same conclusion.
Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Strictly Cracking Down on Illegal Securities Activities, which were made available to the public on July 6, 2021. The Opinions on Strictly Cracking Down on Illegal Securities Activities emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems will be taken to deal with the risks and incidents of China-based overseas listed companies, and cybersecurity and data privacy protection requirements and similar matters. It is still uncertain how PRC governmental authorities will regulate overseas listing in general and whether we are required to obtain any specific regulatory approvals. Furthermore, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering and any follow-on offering, we may be unable to obtain such approvals which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors. On December 24, 2021, the CSRC, together with other relevant government authorities in China issued the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), and the Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (“Draft Overseas Listing Regulations”). The Draft Overseas Listing Regulations requires that a PRC domestic enterprise seeking to issue and list its shares overseas (“Overseas Issuance and Listing”) shall complete the filing procedures of and submit the relevant information to CSRC. The Overseas Issuance and Listing includes direct and indirect issuance and listing. Where an enterprise whose principal business activities are conducted in PRC seeks to issue and list its shares in the name of an overseas enterprise (“Overseas Issuer”) on the basis of the equity, assets, income or other similar rights and interests of the relevant PRC domestic enterprise, such activities shall be deemed an indirect overseas issuance and listing (“Indirect Overseas Issuance and Listing”) under the Draft Overseas Listing Regulations. Therefore, the proposed offering would be deemed an Indirect Overseas Issuance and Listing under the Draft Overseas Listing Regulations. As such, the Company would be required to complete the filing procedures of and submit the relevant information to CSRC after the Draft Overseas Listing Regulations become effective.
On December 28, 2021, the Cyberspace Administration of China jointly with the relevant authorities formally published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022 and replace the former Measures for Cybersecurity Review (2020). Measures for Cybersecurity Review (2021) stipulates that operators of critical information infrastructure purchasing network products and services, and online platform operator (together with the operators of critical information infrastructure, the “Operators”) carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, any online platform operator who controls more than one million users’ personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country. Since we are not an Operator, nor do we control more than one million users’ personal information, we would not be required to apply for a cybersecurity review under the Measures for Cybersecurity Review (2021).
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On February 17, 2023, the China Securities Regulatory Commission, or the CSRC, announced the Circular on the Administrative Arrangements for Filing of Securities Offering and Listing by Domestic Companies, or the Circular, and released a set of new regulations which consists of the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines. On the same date, the CSRC also released the Notice on the Arrangements for the Filing Management of Overseas Listing of Domestic Companies, or the Notice. The Trial Measures came into effect on March 31, 2023. The Trial Measures refine the regulatory system by subjecting both direct and indirect overseas offering and listing activities to the CSRC filing-based administration. Requirements for filing entities, time points and procedures are specified. A PRC domestic company that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC per the requirements of the Trial Measures. Where a PRC domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. The Trial Measures also lay out requirements for the reporting of material events. Breaches of the Trial Measures, such as offering and listing securities overseas without fulfilling the filing procedures, shall bear legal liabilities, including a fine between RMB 1.0 million (approximately $150,000) and RMB 10.0 million (approximately $1.5 million), and the Trial Measures heighten the cost for offenders by enforcing accountability with administrative penalties and incorporating the compliance status of relevant market participants into the Securities Market Integrity Archives.
According to the Circular, since the date of effectiveness of the Trial Measures on March 31, 2023, PRC domestic enterprises falling within the scope of filing that have been listed overseas or met the following circumstances are “existing enterprises”: before the effectiveness of the Trial Measures on March 31, 2023, the application for indirect overseas issuance and listing has been approved by the overseas regulators or overseas stock exchanges (such as the registration statement has become effective on the U.S. market), it is not required to perform issuance and listing supervision procedures of the overseas regulators or overseas stock exchanges, and the overseas issuance and listing will be completed by September 30, 2023. Existing enterprises are not required to file with the CSRC immediately, and filings with the CSRC should be made as required if they involve refinancings and other filing matters. PRC domestic enterprises that have submitted valid applications for overseas issuance and listing but have not been approved by overseas regulatory authorities or overseas stock exchanges at the date of effectiveness of the Trial Measures on March 31, 2023 can reasonably arrange the timing of filing applications with the CSRC and shall complete the filing with the CSRC before the overseas issuance and listing. According to the Circular, we can reasonably arrange the timing for submitting the filing application with the CSRC, and shall complete the filing with the CSRC in accordance with the Trial Measures before this offering. In sum, we are subject to the filing requirements of the CSRC for this offering under the Trial Measures.
In addition, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified by the Trial Measures. As a result, we will be required to file with the CSRC within three business days after the completion of this offering. We begin the process of preparing a report and other required materials in connection with the CSRC filing, which will be submitted to the CSRC in due course after this offering. However, if we do not maintain the permissions and approvals of the filing procedure in a timely manner under PRC laws and regulations, we may be subject to investigations by competent regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in our operations, limit our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. As the Circular and Trial Measures were newly published, there exists uncertainty with respect to the filing requirements and their implementation. Any failure or perceived failure of us to fully comply with such new regulatory requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, cause significant disruption to our business operations, and severely damage our reputation, which could materially and adversely affect our financial condition and results of operations and could cause the value of our securities to significantly decline or be worthless. See “Risk Factors — Risks Related to Doing Business in China — The filing, approval or other administration requirements of the Chinese Securities Regulatory Commission (the “CSRC”) or other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable” on page 26.
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As of the date of this prospectus, according to our PRC counsel, Jiangsu Junjin Law Firm, although we are required to complete the filing procedure in connection with our offering (including this offering and any subsequent offering) under the Trial Measures, none of the Company or any our subsidiaries is currently required to obtain any other approval from Chinese authorities, to list on U.S exchanges or issue securities to foreign investors, given that: (i) our PRC subsidiary was incorporated as a wholly foreign-owned enterprise by means of direct investment rather than by merger or acquisition of equity interest or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules that are our beneficial owners; (ii) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to the M&A Rules; and (iii) no provision in the M&A Rules clearly classifies contractual arrangements as a type of transaction subject to the M&A Rules.
However, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and the opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC counsel does, and hence we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China, restrict or prohibit the payments or remittance of dividends by our PRC subsidiaries or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of the shares. It is uncertain when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded.
The PRC government may intervene or influence our operations at any time, which could result in a material change in our operations. For example, the PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding any industry that could adversely affect the business, financial condition and results of operations of our company. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. As confirmed by our PRC counsel, we currently are not subject to cybersecurity review with the CAC, to conduct business operations in China, given that: (i) we do not possess a large amount of personal information in our business operations; and (ii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. In addition, as confirmed by our PRC counsel, we are not subject to merger control review by China’s anti-monopoly enforcement agency due to the level of our revenues which provided from us and audited by our auditor Marcum Asia CPAs LLP, and the fact that we currently do not expect to propose or implement any acquisition of control of, or decisive influence over, any company with revenues within China of more than RMB 400 million.
Although we have not received any denial to list on the U.S. exchange or conduct our daily business operation, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list our securities on an U.S. or other foreign exchange. For more detailed information, see “Risk Factors — Risks Related to Doing Business in China — The approval of the China Securities Regulatory Commission may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval” on page 45 and “We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers.” on page 39.
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Corporate Information
Our principal executive office is located at No. 102, 1st Floor, No. A12, Xidian Memory Cultural and Creative Town, Gaobeidian Township, Chaoyang District, Beijing People’s Republic of China. The telephone number of our principal executive offices is +86-10-64376636. Our registered office in the Cayman Islands is located at the offices of ICS Corporate Services (Cayman) Limited located at 3-212 Governors Square, 23 Lime Tree Bay Avenue, P.O. Box 30746, West Bay, Grand Cayman KY1-1203, Cayman Islands. Our agent for service of process in the United States is Cogency Global Inc. located at 122 East 42nd Street, 18th Floor, New York, NY 10168.
Implications of Being an Emerging Growth Company
As a company with less than $1.235 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012, and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
• being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our filings with the SEC;
• not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
• reduced disclosure obligations regarding executive compensation in periodic reports, proxy statements and registration statements; and
• exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our ordinary shares pursuant to this offering. However, if certain events occur before the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company before the end of such five-year period.
In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards and acknowledge such election is irrevocable pursuant to Section 107 of the JOBS Act.
Foreign Private Issuer Status
We are a foreign private issuer within the meaning of the rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:
• we are not required to provide as many Exchange Act reports, or as frequently, as a U.S. domestic public company;
• for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies;
• we are not required to provide the same level of disclosure on certain issues, such as executive compensation;
• we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;
18
• we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; and
• we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.
We intend to comply with the Nasdaq corporate governance rules applicable to foreign private issuers, which permit us to follow certain corporate governance rules that conform to the Cayman Islands requirements in lieu of many of the Nasdaq corporate governance rules applicable to U.S. companies. As a result, our corporate governance practices may differ from those you might otherwise expect from a U.S. company listed on Nasdaq.
19
Summary of Financial Position and Cash Flows of Global Mofy Metaverse Limited
The consolidated financial statements included in this prospectus reflect financial position, operations and cash flows of Global Mofy Cayman and its subsidiaries on a consolidated basis. The tables below are condensed consolidating schedules summarizing separately the financial position and cash flows of Global Mofy Cayman (“Parent” in the tables below), Global Mofy HK and Global Mofy WFOE (“Subsidiaries” in the tables below), Global Mofy China and the subsidiaries of Global Mofy China, which were deemed variable interest entities before the restructure that dissolved the VIE structure completed in July 8, 2022 (“Pre-VIE and its Subsidiaries” in the table below), for the fiscal years ended and as of September 30, 2022 and 2021. After the restructure, Global Mofy China, and its subsidiaries became subsidiaries of Global Mofy Cayman and Global Mofy Cayman now controls and receives the economic benefits of the business operation, if any, of these subsidiaries through equity ownership. Our historical results are not necessarily indicative of results expected for future periods. You should read this Selected Condensed Consolidating Financial Data section together with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
In preparation for listing in a stock market of the United States of America, the Company underwent a reorganization through entering into various contractual arrangements (the “Contractual Arrangements”), which, effective from January 5, 2022, between Global Mofy WFOE, Global Mofy China and their respective equity holders. The VIE inception date was January 5, 2022. In this respect, the Parent do not show any investment or share of income/(loss) from VIE and VIE’s Subsidiaries until commencement of the contractual arrangements with the VIE, which is January 5, 2022. On June 28, 2022, Global Mofy WFOE entered into equity transfer agreements with each shareholder of Global Mofy China to purchase all the equity interest in Global Mofy China. On July 8, 2022, Global Mofy WFOE, Global Mofy China and shareholders of Global Mofy China entered into the termination agreement of the Contractual Arrangements. The VIE structure was dissolved on July 8, 2022. On July 11, 2022, Global Mofy WFOE and Global Mofy China signed a supplemental agreement, pursuant to which Global Mofy WFOE agreed not to charge Global Mofy China any service fee for the period from the effective date of the Contractual Arrangements to its termination date. Therefore, there were no service fees charged to Global Mofy China by Global Mofy WFOE for the year ended September 30, 2022.
Unaudited Consolidating Statements of Operations Information
For the six months ended March 31, 2023 |
||||||||||||||||
|
|
Pre-VIE and its |
|
|
||||||||||||
Revenues |
$ |
— |
|
$ |
— |
$ |
12,823,586 |
$ |
— |
$ |
12,823,586 |
|||||
Share of income from Subsidiaries |
$ |
— |
|
$ |
— |
$ |
— |
$ |
— |
$ |
— |
|||||
Net (loss) income |
$ |
(295,881 |
) |
$ |
10,652 |
$ |
811,852 |
$ |
— |
$ |
526,623 |
|||||
Comprehensive income |
$ |
(295,881 |
) |
$ |
10,652 |
$ |
943,037 |
$ |
— |
$ |
657,808 |
For the six months ended March 31, 2022 |
||||||||||||||||
|
|
Pre-VIE and its |
|
|
||||||||||||
Revenues |
$ |
— |
|
$ |
— |
$ |
8,741,253 |
$ |
— |
$ |
8,741,253 |
|||||
Share of income from Subsidiaries |
$ |
— |
|
$ |
— |
$ |
— |
$ |
— |
$ |
— |
|||||
Net (loss) income |
$ |
(492 |
) |
$ |
— |
$ |
401,466 |
$ |
— |
$ |
400,974 |
|||||
Comprehensive income |
$ |
(492 |
) |
$ |
— |
$ |
439,719 |
$ |
— |
$ |
439,227 |
For the year ended September 30, 2022 |
|||||||||||||||||||
|
|
Pre-VIE and its |
|
|
|||||||||||||||
Revenues |
$ |
— |
|
$ |
— |
|
$ |
17,188,293 |
|
$ |
— |
$ |
17,188,293 |
|
|||||
Share of income from Subsidiaries |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
$ |
— |
|
|||||
Net (loss) income |
$ |
(83,073 |
) |
$ |
(2,136 |
) |
$ |
(180,032 |
) |
$ |
— |
$ |
(265,241 |
) |
|||||
Comprehensive income |
$ |
(83,073 |
) |
$ |
(2,136 |
) |
$ |
(380,292 |
) |
$ |
— |
$ |
(463,365 |
) |
20
For the year ended September 30, 2021 |
|||||||||||||||
|
|
Pre-VIE and its |
|
|
|||||||||||
Revenues |
$ |
— |
$ |
— |
$ |
14,268,184 |
$ |
— |
$ |
14,268,184 |
|||||
Share of loss from Subsidiaries |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
|||||
Net income |
$ |
— |
$ |
— |
$ |
1,414,167 |
$ |
— |
$ |
1,414,167 |
|||||
Comprehensive income |
$ |
— |
$ |
— |
$ |
1,422,150 |
$ |
— |
$ |
1,422,150 |
Unaudited Consolidating Balance Sheets Information
As of March 31, 2023 |
||||||||||||||||
|
|
Pre-VIE and its |
|
|
||||||||||||
Cash |
$ |
7,056,751 |
$ |
2,267 |
$ |
1,122,233 |
$ |
— |
|
$ |
8,181,251 |
|||||
Current assets |
$ |
12,487,209 |
$ |
1,236,019 |
$ |
9,318,536 |
$ |
(3,703,891 |
) |
$ |
19,337,873 |
|||||
Equity in Subsidiaries |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
|
$ |
— |
|||||
Non-current assets |
$ |
106,862 |
$ |
— |
$ |
2,194,880 |
$ |
— |
|
$ |
2,301,742 |
|||||
Total Assets |
$ |
12,594,071 |
$ |
1,236,019 |
$ |
11,513,416 |
$ |
(3,703,891 |
) |
$ |
21,639,615 |
|||||
Current liabilities |
$ |
49,973 |
$ |
621,508 |
$ |
8,721,273 |
$ |
(3,083,891 |
) |
$ |
6,308,863 |
|||||
Non-current liabilities |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
|
$ |
— |
|||||
Total liabilities |
$ |
49,973 |
$ |
621,508 |
$ |
8,721,273 |
$ |
(3,083,891 |
) |
$ |
6,308,863 |
|||||
Shareholders’ equity |
$ |
12,544,098 |
$ |
614,511 |
$ |
2,792,143 |
$ |
(620,000 |
) |
$ |
15,330,752 |
As of September 30, 2022 |
||||||||||||||||
|
|
Pre-VIE and its |
|
|
||||||||||||
Cash |
$ |
4,170 |
$ |
102 |
$ |
1,131,792 |
$ |
— |
|
$ |
1,136,064 |
|||||
Current assets |
$ |
1,874,178 |
$ |
134,065 |
$ |
7,797,775 |
$ |
(2,052,602 |
) |
$ |
7,753,416 |
|||||
Equity in Subsidiaries |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
|
$ |
— |
|||||
Non-current assets |
$ |
92,722 |
$ |
— |
$ |
680,391 |
$ |
— |
|
$ |
773,113 |
|||||
Total Assets |
$ |
1,966,900 |
$ |
134,065 |
$ |
8,478,166 |
$ |
(2,052,602 |
) |
$ |
8,526,529 |
|||||
Current liabilities |
$ |
49,973 |
$ |
70,008 |
$ |
6,531,717 |
$ |
(1,982,602 |
) |
$ |
4,669,096 |
|||||
Non-current liabilities |
$ |
— |
$ |
— |
$ |
107,542 |
$ |
— |
|
$ |
107,542 |
|||||
Total liabilities |
$ |
49,973 |
$ |
70,008 |
$ |
6,639,259 |
$ |
(1,982,602 |
) |
$ |
4,776,638 |
|||||
Shareholders’ equity |
$ |
1,916,927 |
$ |
134,065 |
$ |
1,838,907 |
$ |
70,000 |
|
$ |
3,749,891 |
As of September 30, 2021 |
|||||||||||||||
|
|
Pre-VIE and its |
|
|
|||||||||||
Cash |
$ |
— |
$ |
— |
$ |
1,088,694 |
$ |
— |
$ |
1,088,694 |
|||||
Current assets |
$ |
— |
$ |
— |
$ |
8,107,979 |
$ |
— |
$ |
8,107,979 |
|||||
Equity in Subsidiaries |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
|||||
Non-current assets |
$ |
— |
$ |
— |
$ |
927,208 |
$ |
— |
$ |
927,208 |
|||||
Total Assets |
$ |
— |
$ |
— |
$ |
9,035,187 |
$ |
— |
$ |
9,035,187 |
|||||
Current liabilities |
$ |
— |
$ |
— |
$ |
6,688,989 |
$ |
— |
$ |
6,688,989 |
|||||
Non-current liabilities |
$ |
— |
$ |
— |
$ |
132,942 |
$ |
— |
$ |
132,942 |
|||||
Total liabilities |
$ |
— |
$ |
— |
$ |
6,821,931 |
$ |
— |
$ |
6,821,931 |
|||||
Shareholders’ equity |
$ |
— |
$ |
— |
$ |
2,213,256 |
$ |
— |
$ |
2,213,256 |
21
Unaudited Consolidating Cash Flows Information
For the six months ended March 31, 2023 |
||||||||||||||||||||
|
|
Pre-VIE and its |
|
|
||||||||||||||||
Net cash used in operating activities |
$ |
(1,456,331 |
) |
$ |
(537,636 |
) |
$ |
(597,726 |
) |
$ |
620,000 |
|
$ |
(1,971,693 |
) |
|||||
Net cash used in investing activities |
$ |
(2,400,000 |
) |
$ |
— |
|
$ |
(846,318 |
) |
$ |
— |
|
$ |
(3,246,318 |
) |
|||||
Net cash provided by financing activities |
$ |
10,908,913 |
|
$ |
550,000 |
|
$ |
1,333,006 |
) |
$ |
(620,000 |
) |
$ |
12,171,919 |
|
For the six months ended March 31, 2022 |
||||||||||||||||||
|
|
Pre-VIE and its |
|
|
||||||||||||||
Net cash (used in) provided by operating activities |
$ |
(590,486 |
) |
$ |
8 |
$ |
1,045,570 |
|
$ |
— |
$ |
455,092 |
|
|||||
Net cash provided by investing activities |
$ |
— |
|
$ |
— |
$ |
38,762 |
|
$ |
— |
$ |
38,762 |
|
|||||
Net cash provided by (used in) financing activities |
$ |
598,000 |
|
$ |
— |
$ |
(858,604 |
) |
$ |
— |
$ |
(260,604 |
) |
For the year ended September 30, 2022 |
|||||||||||||||||||
|
|
Pre-VIE and its |
|
|
|||||||||||||||
Net cash (used in) provided by operating activities |
$ |
(1,903,108 |
) |
$ |
(66,091 |
) |
$ |
761,972 |
|
$ |
70,000 |
$ |
(1,137,227 |
) |
|||||
Net cash provided by investing activities |
$ |
— |
|
$ |
— |
|
$ |
(166,176 |
) |
$ |
— |
$ |
(166,176 |
) |
|||||
Net cash provided by (used in) financing activities |
$ |
1,907,278 |
|
$ |
— |
|
$ |
(437,686 |
) |
$ |
— |
$ |
1,469,592 |
|
For the year ended September 30, 2021 |
|||||||||||||||||
|
|
Pre-VIE and its |
|
|
|||||||||||||
Net cash (used in) operating activities |
$ |
— |
$ |
— |
$ |
(1,473,281 |
) |
$ |
— |
$ |
(1,473,281 |
) |
|||||
Net cash (used in) investing activities |
$ |
— |
$ |
— |
$ |
(81,189 |
) |
$ |
— |
$ |
(81,189 |
) |
|||||
Net cash provided by financing activities |
$ |
— |
$ |
— |
$ |
2,623,352 |
|
$ |
— |
$ |
2,623,352 |
|
22
THE OFFERING
Issuer |
Global Mofy Metaverse Limited |
|
Units offered by us |
Up to [*] Units at an assumed offering price of US$[*] per Unit, which is the last reported sale price of our ordinary shares on Nasdaq on [*], 2023 with each Unit consisting of one ordinary share and one warrant to purchase [*] ordinary share at an exercise price of US$[*] (or [*]% of the offering price of each Unit sold in the offering) which will be immediately exercisable and will expire on the [*] anniversary of the original issuance date. The Units will not be certificated and the ordinary shares and the warrants are immediately separable and will be issued separately in this offering. |
|
Assumed offering price per Unit |
US$[*] per Unit, which is the last reported sale price of our ordinary shares on Nasdaq on [*], 2023 |
|
Ordinary Shares offered by us: |
Up to [*] ordinary shares |
|
Warrants offered by us: |
Up to [ ] warrants. Each ordinary share being sold together with one warrant to purchase [*] ordinary share. Each share exercisable pursuant to the warrants will have an exercise price per ordinary share equal to US$[*] (or [*]% of the offering price per Unit sold in this offering), will be immediately exercisable and will expire on the [*] anniversary of the original issuance date. Warrants may be exercised only for a whole number of shares. No fractional shares will be issued upon exercise of the warrants. The ordinary shares and warrants are immediately separable and will be issued separately, but must be purchased together in this offering as Units. This prospectus also relates to the offering of the ordinary shares issuable upon exercise of the warrants. |
|
Best-efforts offering |
We are offering the Units on a best-efforts basis. We have engaged Prime Number Capital LLC as our exclusive placement agent to use their reasonable best efforts to solicit offers to purchase the Units in this offering. The placement agent has no obligation to buy any of the Units from us or to arrange for the purchase or sale of any specific number or dollar amount of the Units. No minimum offering amount is required as a condition to closing this offering. We intend to hold only one closing of this offering. Investor funds that are held in escrow will be released to us in our sole discretion at any time, and without regard to meeting any particular contingency. We expect to hold the closing of this offering on [*], 2023. We will deliver the ordinary shares being issued to the investors electronically and will mail such investors physical warrant certificates for the warrants sold in this offering, upon closing and receipt of investor funds for the purchase of the Units offered pursuant to this prospectus, if any. |
|
Ordinary Shares outstanding immediately after this offering |
[*] ordinary shares assuming the sales of all the Units being offered in this offering and no exercise of the warrants included in the Units. |
|
Use of proceeds |
We estimate that we will receive net proceeds of approximately US$[*] million from this offering, assuming the sales of all of the Units we are offering and no exercise of the warrants included in the Units, after deducting estimated placement agent’s fees and non-accountable expense allowance and estimated offering expenses payable by us. We anticipate using the net proceeds of this offering primarily for [*]. See “Use of Proceeds” on page 64 for additional information. |
23
Listing |
Our ordinary shares are listed on the Nasdaq Capital Market under the symbol “GMM.” There is no established public trading market for the warrants, and we do not expect a market to develop. We do not intend to apply for listing of the Units or the warrants on any securities exchange or other nationally recognized trading system. Without an active trading market, the liquidity of the Units or the warrants will be limited. |
|
Lock-up |
We will not issue, enter into any agreement to issue or announce the issuance or proposed issuance of any ordinary shares or any securities which would entitle the holder thereof to acquire at any time ordinary shares, during the 180-day period from the date of completion of this offering, subject to certain exemptions. We will also, during the 90-day period from the date of completion of this offering, not effectuate or enter into an agreement to effect any issuance of ordinary shares or any securities which would entitle the holder thereof to acquire at any time ordinary shares (or a combination of units thereof) involving, among others, transactions in which we (i) issue or sell any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional ordinary shares either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the ordinary shares at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to our business or the market for the ordinary shares (but not including antidilution protections related to future share issuances) or (ii) enter into, or effect a transaction under, any agreement, including, but not limited to, an equity line of credit, whereby we may issue securities at a future determined price, subject to certain exemptions. |
|
Transfer Agent |
Transhare Corporation |
|
Payment and Settlement |
We expect that the delivery of the ordinary shares and the related warrants for the initial closing against payment therefor will occur on or about [*], 2023. |
|
Risk factors |
See “Risk Factors” beginning on page 25 for a discussion of risks you should carefully consider before investing in our ordinary shares. |
24
An investment in our ordinary shares involves a high degree of risk. Before deciding whether to invest in our ordinary shares, you should consider carefully the risks described below, together with all of the other information set forth in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. If any of these risks actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected, which could cause the trading price of our ordinary shares to decline, resulting in a loss of all or part of your investment. The risks described below and in the documents referenced above are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business. You should only consider investing in our ordinary shares if you can bear the risk of loss of your entire investment.
Risks Related to Our Corporate Structure
We are a holding company and will rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our ordinary shares.
We are a holding company and conduct substantially all of our business through our PRC subsidiaries, which are limited liability companies established in China. We may rely on dividends to be paid by our PRC subsidiaries to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. If our PRC subsidiaries incur debt on its own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.
Under PRC laws and regulations, our PRC subsidiaries may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital.
Our PRC subsidiaries generate primarily all of their revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to use its Renminbi revenues to pay dividends to us. The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by State Administration of Foreign Exchange (the “SAFE”) for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
Risks Related to Doing Business in China
Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations are sometimes vague and may be
25
subject to future changes, and their official interpretation and enforcement could be unpredictable, with little advance notice. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our current understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. In addition, any new or changes in PRC laws and regulations related to foreign investment in China could affect the business environment and our ability to operate our business in China.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and results of operations.
Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability towards our contractual, property and procedural rights could adversely affect our business and impede our ability to continue our operations.
The financial and taxation solution services industry in China is subject to extensive regulation. Related laws and regulations are relatively new and evolving. The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the financial and taxation solution services industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, financial and taxation solution services businesses in China, including our business. We cannot assure you that we will be able to maintain our existing licenses or obtain new ones. If our operations do not comply with these new regulations at the time they become effective, or if we fail to obtain any licenses required under these new laws and regulations, we could be subject to penalties.
The PRC government has significant oversight and discretion over the conduct of our business and may intervene or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries, such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.
The filing, approval or other administration requirements of the Chinese Securities Regulatory Commission (the “CSRC”) or other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors (the “M&A Rules”), adopted by six PRC regulatory agencies in 2006 and amended in 2009, include, among other things, provisions that purport to require that an offshore special purpose vehicle, formed for the purpose of an overseas listing of securities through acquisitions of domestic enterprises in China or assets and controlled by enterprises or individuals in China, to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, pursuant to the M&A Rules and other PRC laws, the CSRC published
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on its official website relevant guidance regarding its approval of the listing and trading of special purpose vehicles’ securities on overseas stock exchanges, including a list of application materials. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose vehicles.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. These opinions and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. As of the date hereof, no official guidance or related implementation rules have been issued. As a result, the Opinions on Strictly Cracking Down on Illegal Securities Activities remain unclear on how they will be interpreted, amended and implemented by the relevant PRC governmental authorities. We cannot assure that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all.
Pursuant to Cybersecurity Review Measures which were issued on December 28, 2021 and became effective on February 15, 2022, network platform operators holding over one million users’ personal information must apply with the Cybersecurity Review Office for a cybersecurity review before any public offering at a foreign stock exchange. However, given the Cybersecurity Review Measures were relatively new, there are substantial uncertainties as to the interpretation, application and enforcement of the Cybersecurity Review Measures. It remains uncertain whether we should apply for cybersecurity review prior to any offshore offering and that we would be able to complete the applicable cybersecurity review procedures in a timely manner, or at all, if we are required to do so. In addition, on November 14, 2021, the Cyberspace Administration of China (the “CAC”) published the Administration Regulations on Network Data Security (Draft for Comments), or the Draft Measures for Network Data Security, which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) merger, reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests affects or may affect national security; (ii) overseas listing of data processors processing over one million users’ personal information; (iii) listing in Hong Kong which affects or may affect national security; (iv) other data processing activities that affect or may affect national security. In addition, the Draft Measures for Network Data Security also require Internet platform operators to establish platform rules, privacy policies and algorithm strategies related to data, and solicit public comments on their official websites and personal information protection related sections for no less than 30 working days when they formulate platform rules or privacy policies or makes any amendments that may have significant impacts on users’ rights and interests. The CAC solicited comments on this draft, but there is no timetable as to when it will be enacted.
On February 17, 2023, the China Securities Regulatory Commission, or the CSRC, announced the Circular on the Administrative Arrangements for Filing of Securities Offering and Listing by Domestic Companies, or the Circular, and released a set of new regulations which consists of the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines. On the same date, the CSRC also released the Notice on the Arrangements for the Filing Management of Overseas Listing of Domestic Companies, or the Notice. The Trial Measures came into effect on March 31, 2023. The Trial Measures refine the regulatory system by subjecting both direct and indirect overseas offering and listing activities to the CSRC filing-based administration. Requirements for filing entities, time points and procedures are specified. A PRC domestic company that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC per the requirements of the Trial Measures. Where a PRC domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. The Trial Measures also lay out requirements for the reporting of material events. Breaches of the Trial Measures, such as offering and listing securities overseas without fulfilling the filing procedures, shall bear legal liabilities, including a fine between RMB 1.0 million (approximately $150,000) and RMB 10.0 million (approximately $1.5 million), and the Trial Measures heighten the cost for offenders by enforcing accountability with administrative penalties and incorporating the compliance status of relevant market participants into the Securities Market Integrity Archives.
According to the Circular, since the date of effectiveness of the Trial Measures on March 31, 2023, PRC domestic enterprises falling within the scope of filing that have been listed overseas or met the following circumstances are “existing enterprises”: before the effectiveness of the Trial Measures on March 31, 2023, the application for indirect
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overseas issuance and listing has been approved by the overseas regulators or overseas stock exchanges (such as the registration statement has become effective on the U.S. market), it is not required to perform issuance and listing supervision procedures of the overseas regulators or overseas stock exchanges, and the overseas issuance and listing will be completed by September 30, 2023. Existing enterprises are not required to file with the CSRC immediately, and filings with the CSRC should be made as required if they involve refinancings and other filing matters. PRC domestic enterprises that have submitted valid applications for overseas issuance and listing but have not been approved by overseas regulatory authorities or overseas stock exchanges at the date of effectiveness of the Trial Measures on March 31, 2023 can reasonably arrange the timing of filing applications with the CSRC and shall complete the filing with the CSRC before the overseas issuance and listing. According to the Circular, we can reasonably arrange the timing for submitting the filing application with the CSRC, and shall complete the filing with the CSRC in accordance with the Trial Measures before this offering. In sum, we are subject to the filing requirements of the CSRC for this offering under the Trial Measures.
In addition, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified by the Trial Measures. As a result, we will be required to file with the CSRC within three business days after the completion of this offering. We begin the process of preparing a report and other required materials in connection with the CSRC filing, which will be submitted to the CSRC in due course after this offering. However, if we do not maintain the permissions and approvals of the filing procedure in a timely manner under PRC laws and regulations, we may be subject to investigations by competent regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in our operations, limit our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. As the Circular and Trial Measures were newly published, there exists uncertainty with respect to the filing requirements and their implementation. Any failure or perceived failure of us to fully comply with such new regulatory requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, cause significant disruption to our business operations, and severely damage our reputation, which could materially and adversely affect our financial condition and results of operations and could cause the value of our securities to significantly decline or be worthless.
As of the date of this prospectus, according to our PRC counsel, Jiangsu Junjin Law Firm, although we are required to complete the filing procedure in connection with our offering (including this offering and any subsequent offering) under the Trial Measures, no relevant PRC laws or regulations in effect require that we obtain permission from any PRC authorities to issue securities to foreign investors, and we have not received any inquiry, notice, warning, sanction, or any regulatory objection to this offering from the CSRC, the CAC, or any other PRC authorities that have jurisdiction over our operations. If it is determined that we are subject to filing requirements imposed by the CSRC under the Overseas Listing Regulations or approvals from other PRC regulatory authorities or other procedures, including the cybersecurity review under the revised Cybersecurity Review Measures, for our future offshore offerings, it would be uncertain whether we can or how long it will take us to complete such procedures or obtain such approval and any such approval could be rescinded. Any failure to obtain or delay in completing such procedures or obtaining such approval for our offshore offerings, or a rescission of any such approval if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to file with the CSRC or failure to seek approval from other government authorization for our offshore offerings. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our ordinary shares. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery of the securities offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our ordinary shares.
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Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our ordinary shares to investors and cause the value of our ordinary shares to significantly decline or be worthless. The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, and some other 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, including requirements in some instances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. For example, the M&A Rules require that 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 Anti-Monopoly Law promulgated by the SCNPC effective in 2008 requires 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 RMB400 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 MOFCOM before they can be completed.
Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our 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 the MOC or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
There are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities.
We conduct substantially all of our business operations in China, and a majority of our directors and senior management are based in China, which is an emerging market. The SEC, U.S. Department of Justice and other authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain emerging markets, including China. Additionally, our public shareholders may have limited rights and few practical remedies in emerging markets where we operate, as shareholder claims that are common in the United States, including class action securities law and fraud claims, generally are difficult to pursue as a matter of law or practicality in many emerging markets, including China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, the regulatory cooperation with the securities regulatory authorities in the Unities States has not been efficient in the absence of a mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March 2020, no foreign securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to foreign securities regulators.
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As a result, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from this offering and/or future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaces the previous SAFE Circular 75. SAFE Circular 37 requires PRC residents, including PRC individuals and PRC corporate entities, to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we may make in the future.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, are required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE to reflect any material change. If any PRC resident shareholder of such SPV fails to make the required registration or to update the registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiaries in China. In February, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations under the supervision of SAFE. We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all other shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, and limit our PRC subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, as these foreign exchange and outbound investment related regulations are relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border investments and transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. We cannot assure you that we have complied or will be able to comply with all applicable foreign exchange and outbound investment related regulations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
As an offshore holding company with PRC subsidiaries, we may transfer funds to our operating entity or finance our operating entity by means of loans or capital contributions. Any capital contributions or loans that we, as an offshore entity, make to our Company’s PRC subsidiaries, including from the proceeds of this offering, are subject to the above PRC regulations. We may not be able to obtain necessary government registrations or approvals on a timely basis, if at all. If we fail to obtain such approvals or make such registration, our ability to make equity contributions or provide
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loans to our Company’s PRC subsidiaries or to fund their operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations and commitments. As a result, our liquidity and our ability to fund and expand our business may be negatively affected.
We must remit the offering proceeds to China before they may be used to benefit our business in China, and this process may take several months to complete.
The process for sending the proceeds from this offering back to China may take as long as six months after the closing of this offering. In utilizing the proceeds of this offering in the manner described in “Use of Proceeds” on page 64 of this prospectus, we may make additional capital contributions or loans to Global Mofy WFOE and our PRC subsidiaries.
Any loans to Global Mofy WFOE or the PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are foreign-invested enterprises, to finance their activities cannot exceed statutory limits and must be registered with SAFE.
To remit the proceeds of the offering, we must take the following steps:
• First, we will open a special foreign exchange account for capital account transactions. To open this account, we must submit to SAFE certain application forms, identity documents, transaction documents, form of foreign exchange registration of overseas investments of the domestic residents, and foreign exchange registration certificate of the invested company. As of the date of this prospectus, we have already opened a special foreign exchange account for capital account transactions.
• Second, we will remit the offering proceeds into this special foreign exchange account.
• Third, we will apply for settlement of the foreign exchange. In order to do so, we must submit to SAFE certain application forms, identity documents, payment order to a designated person, and a tax certificate.
The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary significantly. Ordinarily the process takes several months but is required by law to be accomplished within 180 days of application.
We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by MOFCOM or its local counterpart. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries.
As an offshore holding company of our PRC subsidiaries, we may make loans to our PRC subsidiaries or may make additional capital contributions to our PRC subsidiaries, subject to satisfaction of applicable governmental registration and approval requirements.
Any loans we extend to our PRC subsidiaries cannot exceed the statutory limit and must be registered with the local counterpart of the SAFE.
We may also decide to finance our PRC subsidiaries by means of capital contributions. According to the relevant PRC regulations on foreign-invested enterprises in China, these capital contributions are subject to registration with or approval by the MOFCOM or its local counterparts. In addition, the PRC government also restricts the convertibility of foreign currencies into Renminbi and use of the proceeds. On March 30, 2015, SAFE promulgated Circular 19, which took effect and replaced certain previous SAFE regulations from June 1, 2015. SAFE further promulgated Circular 16, effective on June 9, 2016, which, among other things, amend certain provisions of Circular 19. According to SAFE Circular 19 and SAFE Circular 16, the flow and use of the Renminbi capital converted from foreign currency denominated registered capital of a foreign-invested company is regulated such that Renminbi capital may not be used
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for business beyond its business scope or to provide loans to persons other than affiliates unless otherwise permitted under its business scope. Violations of the applicable circulars and rules may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Regulations. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to use Renminbi converted from the net proceeds of this offering to fund our PRC operating subsidiaries, to invest in or acquire any other PRC companies through our PRC Subsidiaries, which may adversely affect our business, financial condition and results of operations.
Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and services and materially and adversely affect our competitive position.
Substantially all of our business operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects are subject to economic, political and legal developments in China. Although the Chinese economy is no longer a planned economy, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and results of operations.
Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect our business and impede our ability to continue our operations.
These government involvements have been instrumental in China’s significant growth in the past 30 years. In response to the recent global and Chinese economic downturn, the PRC government has adopted policy measures aimed at stimulating the economic growth in China. If the PRC government’s current or future policies fail to help the Chinese economy achieve further growth or if any aspect of the PRC government’s policies limits the growth of our industry or otherwise negatively affects our business, our growth rate or strategy, our results of operations could be adversely affected as a result.
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations.
All of our operations are located in China. Accordingly, our business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.
The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit
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the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, and since 2012, China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations.
The Chinese government may intervene or influence our operations at any time, which could result in a material change in our operations and/or the value of our ordinary shares.
Our business is subject to governmental supervision and regulation by the relevant PRC governmental authorities, including but not limited to the State Administration for Market Regulation and the State Administration for Industry and Commerce. Together, these governmental authorities promulgate and enforce regulations that cover many aspects of our day-to-day operations. If we are deemed to be not in compliance with these requirements, we may be subject to fines and other administrative penalties from the relevant PRC government authorities. In case of our failure to rectify our noncompliance within required period by the relevant PRC government authorities, we may be forced to suspend our operation.
Existing and new laws and regulations may be enforced from time to time and substantial uncertainties exist regarding the interpretation and implementation of current and any future PRC laws and regulations applicable to us. If the PRC government promulgates new laws and regulations that impose additional restrictions on our operations, or tightens enforcements of existing or new laws or regulations, it has the authority, among other things, to levy fines, confiscate income, revoke business licenses, and require us to discontinue our relevant business or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material and adverse effect on our results of operations. As a result, our business, reputation, value of our ordinary shares, financial condition and results of operations may be materially and adversely affected.
We may lose the ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless if the Chinese government may exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers.
The recently issued Opinions on Strictly Cracking Down on Illegal Securities Activities emphasized the need to strengthen the administration over illegal securities activities and the supervision on listings by China-based companies in foreign countries, and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based companies listed in foreign countries, and provided that the special provisions of the State Council on offering and listing by those companies in foreign countries limited by shares will be revised and therefore the duties of domestic industry competent authorities and regulatory agencies will be clarified. As these opinions were newly issued and there are no further explanations or detailed rules and regulations with respect to such opinions, there are still uncertainties regarding the interpretation and implementation of such opinions. And new rules or regulations promulgated in future could impose additional requirements on us.
In addition, on July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Cybersecurity Review Measures for public comments, according to which, among others, an “operator of critical information infrastructure” or a “data processor”, who has personal information of more than one million users and is going to list in foreign countries, must report to the relevant cybersecurity review office for a cybersecurity review. On December 28, 2021, the Cyberspace Administration of China jointly with the relevant authorities formally published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022 and replace the former Measures for Cybersecurity Review (2020). Measures for Cybersecurity Review (2021) stipulates that operators of critical information infrastructure purchasing network products and services, and online platform operator (together with the operators of critical information infrastructure, the “Operators”) carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, any online platform operator who controls more than one million users’ personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country. Since we are not an Operator, nor do we control more than one million users’ personal information, we would not be required to apply for a cybersecurity review under the Measures for Cybersecurity Review (2021).
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However, if the CSRC or other relevant PRC regulatory agencies subsequently determine that prior approval is required, failure of obtaining such approval may lead us face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from this Offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the Offering of the Shares.
Under the PRC Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.
China passed the PRC Enterprise Income Tax Law, or the EIT Law, and its implementing rules, both of which became effective on January 1, 2008, and as amended in December 2018. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.
On April 22, 2009, the State Administration of Taxation of China issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate stamps, board and shareholder minutes are kept in China; and (iv) all of its directors with voting rights or senior management reside in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC shareholders. Because substantially all of our operations and senior management are located within the PRC and are expected to remain so for the foreseeable future, we may be considered a PRC resident enterprise for enterprise income tax purposes and therefore subject to the PRC enterprise income tax at the rate of 25% on its worldwide income. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise controlled by a Chinese natural person. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.
If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Currently, we do not have any non-China source income, as we conduct our sales in China. However, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiary would be deemed as “qualified investment income between resident enterprises” and therefore qualify as “tax-exempt income” pursuant to clause 26 of the EIT Law. Second, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which the dividends we pay with respect to our ordinary shares, or the gain our non-PRC shareholders may realize from the transfer of our ordinary shares, may be treated as PRC-sourced income and may therefore be subject to a 10% PRC withholding tax. The EIT Law and its implementing regulations are, however, relatively new and ambiguities exist with respect to the interpretation and identification of PRC-sourced income, and the application and assessment of withholding taxes. If we are required under the EIT Law and its implementing regulations to withhold PRC income tax on dividends payable to our non-PRC shareholders, or if non-PRC shareholders are required to pay PRC income tax on gains on the transfer of their ordinary shares, our business could be negatively impacted and the value of your investment may be materially reduced. Further, if we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both China and such countries in which we have taxable income, and our PRC tax may not be creditable against such other taxes.
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We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.
In connection with this offering, we will become subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes to government officials. We have operations agreements with third parties, and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments.
Although we believe, to date, we have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption law, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, or distributors may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us.
We conduct all of our business through our PRC subsidiaries. Our operations in China are governed by PRC laws and regulations. The PRC subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value.
Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.
PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to the PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
In utilizing the proceeds of this offering in the manner described in “Use of Proceeds” on page 64 of this prospectus, as an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries.
Any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are foreign invested entities (“FIEs”), to finance their activities cannot exceed statutory limits and must be registered with SAFE. On March 30, 2015, SAFE promulgated Hui Fa 2015 No.19, a notice regulating the conversion by a foreign-invested company of foreign currency into RMB. The foreign exchange capital, for which the monetary contribution has been confirmed by the foreign exchange authorities (or for which the monetary contribution has been registered for account entry) in the capital account of a foreign-invested enterprise may be settled at a bank as required by the enterprise’s actual management needs. Foreign-invested enterprises with investment as their main business (including foreign-oriented companies, foreign-invested venture capital enterprises and foreign-invested equity investment enterprises) are allowed to, under the premise of authenticity and compliance of their domestic investment projects, carry out based on their actual investment scales direct settlement of foreign exchange capital or transfer the RMB funds in the foreign exchange settlement account for pending payment to the invested enterprises’ accounts.
On May 10, 2013, SAFE released Circular 21, which came into effect on May 13, 2013. According to Circular 21, SAFE has simplified the foreign exchange administration procedures with respect to the registration, account openings and conversions, settlements of FDI-related foreign exchange, as well as fund remittances.
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Circular 21 may significantly limit our ability to convert, transfer and use the net proceeds from this offering and any offering of additional equity securities in China, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.
We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by MOFCOM or its local counterpart, which usually takes no more than 30 working days to complete. We may not be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our PRC subsidiaries. If we fail to receive such approvals, we will not be able to capitalize our PRC operations, which could adversely affect our liquidity and our ability to fund and expand our business.
Governmental control of currency conversion may affect the value of your investment.
The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our security-holders.
We are a holding company and we rely on our subsidiaries for funding dividend payments, which are subject to restrictions under PRC laws.
We are a holding company incorporated in the Cayman Islands, and we operate our core businesses through our PRC subsidiaries. Therefore, the availability of funds for us to pay dividends to our shareholders and to service our indebtedness depends upon dividends received from the PRC subsidiaries. If the PRC subsidiaries incur debt or losses, their ability to pay dividends or other distributions to us may be impaired. As a result, our ability to pay dividends and to repay our indebtedness will be restricted. PRC laws require that dividends be paid only out of the after-tax profit of our subsidiaries in the PRC calculated according to PRC accounting principles, which differ in many aspects from generally accepted accounting principles in other jurisdictions. PRC laws also require enterprises established in the PRC to set aside part of their after-tax profits as statutory reserves. These statutory reserves are not available for distribution as cash dividends. In addition, restrictive covenants in bank credit facilities or other agreements that we or our subsidiaries may enter into in the future may also restrict the ability of our subsidiaries to pay dividends to us. These restrictions on the availability of our funding may impact our ability to pay dividends to our shareholders and to service our indebtedness.
To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to transfer cash or assets.
The transfer of funds and assets among Global Mofy Cayman, its Hong Kong and PRC subsidiaries is subject to restrictions. The PRC government imposes controls on the conversion of the RMB into foreign currencies and the remittance of currencies out of the PRC. See “Risk Factors — Governmental control of currency conversion may affect the value of your investment.” In addition, the PRC Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises, unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the non-PRC resident enterprises are tax resident. See “Risk Factors — Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business.”
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As of the date of this prospectus, there are no restrictions or limitations imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to the PRC), except for the transfer of funds involving money laundering and criminal activities. However, there is no guarantee that the Hong Kong government will not promulgate new laws or regulations that may impose such restrictions in the future.
As a result of the above, to the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to transfer cash or assets.
Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business.
We are a holding company incorporated in the Cayman Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC 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 us.
Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of their respective after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. These limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments, or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
Our business may be materially and adversely affected if any of our PRC subsidiary declare bankruptcy or become subject to a dissolution or liquidation proceeding.
The Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts.
Our PRC subsidiaries hold certain assets that are important to our business operations. If our PRC subsidiaries undergo a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
Fluctuations in exchange rates could adversely affect our business and the value of our securities.
Changes in the value of the RMB against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S. dollars we receive from our initial public offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of paying dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products of foreign manufacturers or products relying on foreign inputs.
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Since July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.
Increases in labor costs in the PRC may adversely affect our business and results of operations.
The currently effective PRC Labor Contract Law, or the Labor Contract Law was first adopted on June 29, 2007 and later amended on December 28, 2012. The PRC Labor Contract Law has reinforced the protection of employees who, under the Labor Contract Law, have the right, among others, to have written employment contracts, to enter into employment contracts with no fixed term under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. Furthermore, the Labor Contract Law sets forth additional restrictions and increases the costs involved with dismissing employees. To the extent that we need to significantly reduce our workforce, the Labor Contract Law could adversely affect our ability to do so in a timely and cost-effective manner, and our results of operations could be adversely affected. In addition, for employees whose employment contracts include noncompetition terms, the Labor Contract Law requires us to pay monthly compensation after such employment is terminated, which will increase our operating expenses.
We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our buyers by increasing the prices of our products and services, our financial condition and results of operations would be materially and adversely affected.
Failure to make adequate contributions to various employee benefits plans as required by PRC regulations may subject us to penalties.
Pursuant to the Social Security Law of the PRC, or the Social Security Law, which was promulgated by the Standing Committee of the National People’s Congress (“SCNPC”) on October 28, 2010 and amended on December 29, 2018, employers shall pay the basic pension insurance, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance for all eligible employees. Our PRC subsidiaries have been making social security premium payments at least at the minimum wage level for all eligible employees.
In accordance with the Regulations on Management of Housing Provident Fund (the “Regulations of HPF”), which were promulgated by the PRC State Council on April 3, 1999, and last amended on March 24, 2002, employers must register at the designated administrative centers and open bank accounts for employees’ housing funds deposits. Employers and employees are also required to pay and deposit housing funds, in an amount no less than 5% of the monthly average salary of each of the employees in the preceding year in full and on time. Our PRC subsidiaries have opened bank accounts for its employees’ housing funds deposits, and deposited housing funds at least at the minimum wage level for all eligible employees.
The applicable PRC laws and regulations on employee benefits stipulate that employers shall be responsible for making social security premium payments and housing provident funds contributions based on the actual wage paid to employees. In practice, given the different economic development levels in different regions, the relevant employment benefit regulations have not been implemented consistently by local governments in China, and each provincial or municipal governing Social Security Bureau (“SSB”) has its own discretion to enforce the compliance of these regulations by employers. The Company has estimated that the additional contributions of social security premium and housing funds based on the actual wages of eligible employees to be approximately $110,986 and $81,760 for the years ended September 30, 2022 and 2021, respectively, which have been recorded as accruals in our consolidated financial statements for each fiscal year.
In respect of the social insurance, our PRC legal counsel has advised that, if an enterprise fails to pay the full amount of the social insurance contributions as legally required, the social insurance authority may order it to pay the outstanding amount of the social insurance contributions within a prescribed time limit and may impose a late fee at a daily rate of 0.05% of the outstanding amount, accruing from the date when the social insurance contributions were due. If the enterprise still fails to make such payment within the prescribed time, the social insurance authority may further impose an additional fine ranging from one to three times of the total outstanding balance. In respect of the housing provident fund, our PRC legal counsel has advised that, if an enterprise fails to pay the full amount of the housing provident fund contributions as legally required, the housing provident fund authority may order it to pay the outstanding amount of
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the housing provident fund within a prescribed time limit. If the enterprise still fails to make such payment within the prescribed time, the housing provident fund authority may apply for an order from the relevant people’s courts to make such payment. As of the date of this prospectus, our PRC subsidiaries have not received any notification from the PRC governmental authorities requiring us to pay any outstanding amount of the social insurance and housing provident fund contributions. The management believes that the likelihood the Company may be required to make these additional contributions is very low. In the event that our PRC subsidiaries are notified to make sufficient contributions, we have to pay the outstanding amount plus late fee or fines in relation to the underpaid employee benefits. The financial condition and results of operations of us and our PRC subsidiaries may be adversely affected.
One of our shareholders has not and will not completed the Circular 37 Registration. The Chinese resident shareholders’ failure to comply with Circular 37 registration may result in restrictions being imposed on part of foreign exchange activities of the offshore special purpose vehicles, including restrictions on its ability to receive registered capital as well as additional capital from Chinese resident shareholders who fail to complete Circular 37 registration.
In July 2014, the State Administration of Foreign Exchange promulgated the Circular on Issues Concerning Foreign Exchange Administration over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents via Special Purpose Vehicles, or “Circular 37”. According to Circular 37, prior registration with the local SAFE branch is required for Chinese residents to contribute domestic assets or interests to offshore companies, known as SPVs. Circular 37 further requires amendment to a PRC resident’s registration in the event of any significant changes with respect to the SPV, such as an increase or decrease in the capital contributed by PRC individuals, share transfer or exchange, merger, division, or other material event. Further, foreign investment enterprises established by way of round-tripping shall complete the relevant foreign exchange registration formalities pursuant to the prevailing foreign exchange control provisions for direct investments by foreign investors, and disclose the relevant information such as actual controlling party of the shareholders truthfully.
One of our beneficial owners, Zhenquan Ren, who is a PRC resident, has not and will not completed the Circular 37 Registration. Mr. Ren owns 970,701 shares, through Mofy Yi Limited, a BVI company, which is 3.74% of the Company’s issued and outstanding shares. We will ask our prospective shareholders who are Chinese residents to make the necessary applications and filings as required by Circular 37. However, not each of our shareholders, who are PRC residents will, in the future, complete the registration process as required by Circular 37. Failure to comply with the registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of the foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested enterprise, including restrictions on its ability to receive registered capital as well as additional capital from PRC resident shareholders who fail to complete Circular 37 registration; and repatriation of profits and dividends derived from special purpose vehicles to China, by the PRC resident shareholders who fail to complete Circular 37 registration, are also illegal. In addition, the failure of the PRC resident shareholders to complete Circular 37 registration may subject each of the shareholders to fines less than RMB50,000.
We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers.
We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data. Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.
We expect to obtain information about various aspects of our operations as well as regarding our employees and third parties. We also maintain information about various aspects of our operations as well as regarding our employees. The integrity and protection of our customer, employee and company data is critical to our business. Our customers and employees expect that we will adequately protect their personal information. We are required by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to safeguard such information.
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The PRC Criminal Law, as amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained during the course of performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which became effective on June 1, 2017.
Pursuant to the Cyber Security Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.
The Civil Code of the PRC (issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration of China, MIIT, and the Ministry of Public Security have been increasingly focused on regulation in the areas of data security and data protection.
The PRC regulatory requirements regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China, the Ministry of Public Security and the SAMR, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security.
In November 2016, the Standing Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became effective in June 2017. The CSL is the first PRC law that systematically lays out the regulatory requirements on cybersecurity and data protection, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny. The legal consequences of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for rectification, shutting down the websites, and revocation of business license or relevant permits. In April 2020, the Cyberspace Administration of China and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective in June 2020. Pursuant to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments (“Draft Measures”), which required that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has said that under the proposed rules companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments,” The cybersecurity review will also investigate the potential national security risks from overseas IPOs. We do not know what regulations will be adopted or how such regulations will affect us and our listing on Nasdaq. In the event that the Cyberspace Administration of China determines that we are subject to these regulations, we may be required to delist from Nasdaq and we may be subject to fines and penalties. On June 10, 2021, the Standing Committee of the NPC promulgated the PRC Data Security Law, which took effect on September 1, 2021. The Data Security Law also sets forth the data security protection obligations for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing or other illegal means, and the collection and use of such data should not exceed the necessary limits The costs of compliance with, and other burdens imposed by, CSL and any other cybersecurity and related laws may limit the use and adoption of our products and services and could have an adverse impact on our business. Further, if the enacted version of the Measures for Cybersecurity Review mandates clearance of cybersecurity review and other specific actions to be completed by companies like us, we face uncertainties as to whether such clearance can be timely obtained, or at all.
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On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments (the “Review Measures”), and on December 28, 2021, the Cyberspace Administration of China jointly with the relevant authorities published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022 and replace the Review Measures, which required that, operators of critical information infrastructure purchasing network products and services, and data processors (together with the operators of critical information infrastructure, the “Operators”) carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, any operator who controls more than one million users’ personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country.
Under the Data Security Law enacted on September 1, 2021 and the Measures for Cybersecurity Review (2021) implemented on February 15, 2022, since we are not an Operator, nor do we control more than one million users’ personal information, we would not be required to apply for a cybersecurity review by the CAC. However, if the CSRC, CAC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering and any follow-on offering, we may be unable to obtain such approvals and we may face sanctions by the CSRC, CAC or other PRC regulatory agencies for failure to seek their approval which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors and the securities currently being offered may substantially decline in value and be worthless.
On August 17, 2021, the State Council promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure, or the Regulations, which took effect on September 1, 2021. The Regulations supplement and specify the provisions on the security of critical information infrastructure as stated in the Cybersecurity Review Measures. The Regulations provide, among others, that protection department of certain industry or sector shall notify the operator of the critical information infrastructure in time after the identification of certain critical information infrastructure.
On August 20, 2021, the Standing Committee of the NPC approved the Personal Information Protection Law (“PIPL”), which became effective on November 1, 2021. The PIPL regulates collection of personal identifiable information and seeks to address the issue of algorithmic discrimination. Companies in violation of the PIPL may be subject to warnings and admonishments, forced corrections, confiscation of corresponding income, suspension of related services, and fines. We had not collected identifiable or sensitive personal information of individual end-users, such as ID card numbers and real names, which means our potential access or exposure to customers’ personal information is limited. However, in the event we inadvertently access or become exposed to customers’ personal identifiable information, then we may face heightened exposure to the PIPL.
We cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that we can fully or timely comply with such laws. In the event that we are subject to any mandatory cybersecurity review and other specific actions required by the CAC, we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty, we may be further required to suspend our relevant business, shut down our website, or face other penalties, which could materially and adversely affect our business, financial condition, and results of operations.
If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, this offering and our reputation and could result in a loss of your investment in our ordinary shares, especially if such matter cannot be addressed and resolved favorably.
Recently, U.S. public companies that have substantially all of their operations in China, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear
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what effect this sector-wide scrutiny, criticism and negative publicity will have on our Company, our business and this offering. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our Company and business operations will be severely hampered and your investment in our ordinary shares could be rendered worthless.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in the prospectus. It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China.
We are a company incorporated under the laws of the Cayman Islands, and we conduct most of our operations in China and most of our assets are located in China. In addition, substantially all our senior executive officers reside within China, are physically there for a significant portion of each year, and are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or those persons inside mainland China. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of U.S. securities laws or those of any U.S. state.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the U.S. that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the U.S. See “Enforceability of Civil Liabilities” on page 63.
It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the authorities in China may establish a regulatory cooperation mechanism with its counterparts of another country or region to monitor and oversee cross-border securities activities, such regulatory cooperation with the securities regulatory authorities in the U.S. may not be efficient in the absence of a practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or “Article 177,” which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection activities within the territory of the PRC. Article 177 further provides that Chinese entities and individuals are not allowed to provide documents or materials related to securities business activities to foreign agencies without prior consent from the securities regulatory authority of the PRC State Council and the competent departments of the PRC State Council. While the detailed interpretation of or implementing of rules under Article 177 have to be promulgated, the inability of an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase the difficulties faced by you in protecting your interests.
You may face difficulties in protecting your interests and exercising your rights as a shareholder since we conduct substantially all of our operations in China, and all of our officers and directors reside outside the U.S.
Although we are incorporated in the Cayman Islands, we conduct substantially all of our operations in China. All of our current officers and all of our directors reside outside the U.S. and substantially all of the assets of those persons are located outside of the U.S. It may be difficult for you to conduct due diligence on the Company or such directors in your election of the directors and attend shareholders meeting if the meeting is held in China. We plan to have one shareholder meeting each year at a location to be determined, potentially in China. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation doing business entirely or predominantly within the U.S.
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Our financial and operating performance may be adversely affected by general economic conditions, natural catastrophic events, epidemics, and public health crises that impact the metaverse industry.
Our operating results will be subject to fluctuations based on general economic conditions, in particular those conditions that impact the metaverse industry. Deterioration in economic conditions could cause decreases in both volume and reduce and/or negatively impact our short-term ability to grow our revenues. Further, any decreased collectability of accounts receivable or early termination of agreements due to deterioration in economic conditions could negatively impact our results of operations.
Our business is subject to the impact of natural catastrophic events such as earthquakes, floods or power outages, political crises such as terrorism or war, and public health crises, such as disease outbreaks, epidemics, or pandemics in the U.S. and global economies, our markets and business locations. Currently, the rapid spread of coronavirus (COVID-19) globally has resulted in increased travel restrictions and disruption and shutdown of businesses. Our buyers may experience financial distress, file for bankruptcy protection, go out of business, or suffer disruptions in their business due to the coronavirus outbreak; as a result, our revenues may be impacted. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and will include emerging information concerning the severity of the coronavirus and the actions taken by governments and private businesses to attempt to contain the coronavirus, but is likely to result in a material adverse impact on our business, results of operations and financial condition at least for the near term.
Similarly, natural disasters, wars (including the potential of war), terrorist activity (including threats of terrorist activity), social unrest and heightened travel security measures instituted in response, and travel-related accidents, as well as geopolitical uncertainty and international conflict, will affect travel volume and may in turn have a material adverse effect on our business and results of operations. In addition, we may not be adequately prepared in contingency planning or recovery capability in relation to a major incident or crisis, and as a result, our operational continuity may be adversely and materially affected, which in turn may harm our reputation.
The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.
On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national securities exchange or in the over the counter trading market in the U.S. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable Act. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law.
On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit
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documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant.
On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and amended the HFCAA by requiring the SEC to prohibit an issuer’s securities from trading on any U.S stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading.
On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.
On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions.
On August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol (the “SOP”) with the China Securities Regulatory Commission and the Ministry of Finance of China. The SOP, together with two protocol agreements governing inspections and investigations (together, the “SOP Agreement”), establishes a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed.
Our auditor, Marcum Asia CPAs LLP, the independent registered public accounting firm that issues the audit report included in this prospectus, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess Marcum Asia CPAs LLP’s compliance with applicable professional standards. Marcum Asia CPAs LLP is headquartered in Manhattan, New York with no branches or offices outside the United States and has been inspected by the PCAOB on a regular basis, with the last inspection in 2020. Therefore, we believe that, as of the date of this prospectus, our auditor is not subject to the determinations as to the inability to inspect or investigate registered firms completely announced by the PCAOB on December 16, 2021.
However, we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements.
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Trading in our securities may be prohibited under the HFCAA and as a result an exchange may determine to delist our securities if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction.
The HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit such shares from being traded on a national securities exchange or in the over-the-counter trading market in the U.S.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. A company will be required to comply with these rules if the SEC identifies it as having a “non-inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCAA, including the listing and trading prohibition requirements described above.
Despite that we have a U.S.-based auditor that is registered with the PCAOB and subject to PCAOB inspection, there are still risks to the company and investors if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction. Such risks include, but are not limited to that trading in our securities may be prohibited under the HFCAA and as a result an exchange may determine to delist our securities.
We circumvent the application of M&A rules by taking a “two-step slow-walk” method. In the event that this approach is deemed invalid or illegal and it is applied retroactively, Global Mofy WFOE’s acquisition of Global Mofy China could be deemed invalid and we will not be able to consolidate the financial statements of Global Mofy China.
We acquired the domestic operating entities through a “two-step slow-walk” method, so the approval process of the Ministry of Commerce is not applicable. The acquisition was broken into two steps: 1) adding a non-PRC shareholder so that the domestic operating entity will be categorized as a Sino-foreign joint venture (an entity with mixed capital between one or more foreign and Chinese shareholders); 2) Global Mofy WFOE to complete the equity acquisition of Global Mofy China from both the Chinese and foreign shareholders so that it would become a foreign-owned enterprise. Our PRC counsel, Jiangsu Junjin Law Firm, has completed substantial amount of research and study of the regulation and precedents and found that this approach has been widely used in the past. In addition, it has never been penalized or challenged with respect to the legality of this matter. While our PRC counsel, Jiangsu Junjin Law Firm, believes that it permitted to structure the acquisition in this manner and the acquisition, in fact, has been completed without any challenge by any regulator, there is uncertainty with respect to the interpretation of the current regulation as it is still evolving. In the event that this approach is deemed invalid or illegal and it is applied retroactively, Global Mofy WFOE’s acquisition of Global Mofy China could be deemed invalid and we will not be able to consolidate the financial statements of Global Mofy China.
The approval of the China Securities Regulatory Commission may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled 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 an overseas stock exchange.
We believe that the CSRC’s approval is not required for the listing and trading of our ordinary shares on Nasdaq in the context of this offering, given that: (i) our PRC subsidiary was incorporated as a wholly foreign-owned enterprise by means of direct investment rather than by merger or acquisition of equity interest or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules that are our beneficial owners; (ii) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to the M&A Rules; and (iii) no provision in the M&A Rules clearly classifies contractual arrangements as a type of transaction subject to the M&A Rules.
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However, there remains some uncertainties as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as we do. If it is determined that CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek CSRC approval for this offering. These sanctions may include fines and penalties on our operations in the PRC, limitations on our operating privileges in the PRC, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiary, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ordinary shares. Furthermore, the CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the ordinary shares that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the ordinary shares we are offering, you would be doing so at the risk that the settlement and delivery may not occur.
Risks Related to Our Business and Industry
We have a limited history operating our business at its current scale, and as a result, our past results may not be indicative of future operating performance.
In recent years, we have significantly grown the scale of our business. For example, we expanded into digital asset development in 2021 and set foot in the metaverse industry. For the six-month ended March 31, 2023, our revenue on this business line is $4.9 million. For the year ended September 30, 2022, our revenue on this business line is $4.02 million. For the fiscal year ended September 30, 2021, our revenue on this new business line is $1.35 million. However, we have a limited history operating our business at its current scale and scope. You should not rely on our past results of operations as indicators of future performance. You should consider and evaluate our prospects in light of the risks and uncertainties frequently encountered by growing companies in rapidly evolving markets. These risks and uncertainties include challenges in accurate financial planning as a result of limited historical data relevant to the current scale and scope of our business and the uncertainties resulting from having had a relatively limited time period in which to implement and evaluate our business strategies as compared to companies with longer operating histories.
Our limited operating history and evolving business model make it difficult to evaluate our business and future prospects and the risks and challenges we may encounter.
We commenced our operation in 2017. Our evaluations of the business and prediction about our future performance may not be as accurate as they would be if we had a longer operating history. In the event that actual results differ from our expectation or we adjust our estimates in future periods, the investors’ perceptions of our business and future prospects could change materially, which may adversely affect the price of our ordinary shares.
We have a history of net losses and negative cash flows from operating activities, which may continue in the future.
We made profits of $0.5 million and negative cash flow of $2.0 million from operating activities for the six-month ended March 31, 2023. We have incurred net losses of $0.3 million for the fiscal year ended September 30, 2022 and we may not be able to achieve or maintain profitability or positive cash flow in the future.
We anticipate that our operating costs and expenses will increase in the foreseeable future as we continue to grow our business, acquire new users, invest and innovate in our technology infrastructure and further develop our product and service offering and increase brand recognition. Any of these efforts may incur significant capital investment and recurring costs, have different revenue and cost structures and take time to achieve profitability. We may have to finance ourselves with equity or debt financing, which may not be available at price term favorable to us or at all.
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We enter service agreements with our customers. If we fail to meet these contractual commitments, we could be obligated to provide refunds of prepaid amounts or cannot receive final payments, which would lower our revenue and harm our business, financial condition and results of operations.
We enter service agreements with our customers. If we are unable to meet the stated service-level commitments, including failure to meet the delivered time requirements under our customers’ agreements, or the quality of our productions not reaching customers’ expectations, we could face terminations with refunds of prepaid amounts or may not be able to receive final payments, which could significantly affect both our current and future revenue. Any service-level failures could also damage our reputation, which could also adversely affect our business, financial condition and results of operations.
Our business is dependent on certain major customers and changes or difficulties in our relationships with our major customers may harm our business and financial results.
Global Mofy China had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows: For the six months ended March 31, 2023, one customer accounted for approximately 13% of total revenues. For the six months ended March 31, 2022, three customers accounted for approximately 32%, 23%, and 13% of total revenues, respectively. As of March 31, 2023, the balance due from four customers accounted for approximately 30%, 23%, 19% and 14% of the Company’s total accounts receivable, respectively. For the year ended September 30, 2022, two customers accounted for approximately 20% and 17% of total revenues, respectively.
As of September 30, 2022, the balance due from three customers accounted for approximately 42%, 24% and 21% of the Company’s total accounts receivable, respectively. As of September 30, 2021, the balance due from four customers accounted for approximately 38%, 13%, 12% and 12% of the Company’s total accounts receivable, respectively.
If Global Mofy China cannot maintain long-term relationships with major customers or replace major customers from period to period with equivalent customers, the loss of such sales could have an adverse effect on our business, financial condition and results of operations.
Our business is dependent on our collaboration with our suppliers and changes or difficulties in our relationships with our suppliers may harm our business and financial results.
Our business is substantially dependent on our collaboration with our suppliers. We consider major suppliers in each period to be those suppliers that accounted for more than 10% of overall purchases in such period. For the six months ended March 31, 2023, four suppliers accounted for approximately 26%, 17%, 10% and 10% of the total purchases, respectively. For the six months ended March 31, 2022, three suppliers accounted for approximately 41%, 27%, and 15% of the total purchases, respectively. As of March 31, 2023, one supplier accounted for approximately 65% of the Company’s accounts payable, respectively. For the year ended September 30, 2022, four suppliers accounted for approximately 32%, 19%, 17% and 10% of the total purchases, respectively. As of September 30, 2022, three suppliers accounted for approximately 37%, 22% and 12% of the Company’s accounts payable. As of September 30, 2021, two suppliers accounted for approximately 49% and 16% of the Company’s accounts payable, respectively.
Our suppliers may fail to meet timelines or contractual obligations, which may adversely affect our business. Global Mofy China generally enters into agreements with them without imposing any contractual obligations requiring them to maintain their relationships with us beyond the contractual term. Accordingly, there is no guarantee for future cooperation and there is no assurance that Global Mofy China can maintain stable and long-term business relationships with any suppliers. If a significant number of our industry suppliers terminate or do not renew their agreements with Global Mofy China and Global Mofy China is not able to replace these business partners on commercially reasonable terms in a timely manner or at all, our business, results of operations and financial condition would be materially and adversely affected.
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Our efforts and investments in technology development may not always produce the expected results.
We are continually developing and seeking to develop technologies that are closely related to virtual technology that will be used in our services. As of the date of this prospectus, our core research and development team consisted of a total of 17 employees. Currently, our R&D team has been working on the development of 3D rebuilt technology and AI interactive technology with some success. However, we cannot assure you that our future efforts to develop related technologies will be successful, in which case our products may lose their competitive edge.
In addition, we cannot assure you that the technologies we develop will be well accepted by customers, in which case our business, financial condition, results of operations and prospects may be materially and adversely affected.
Our success depends on the continuing efforts of our senior management and key employees.
Our future success is significantly dependent upon the continued service of our senior management and other key employees. If we lose their service, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new staff, which could severely disrupt our business and growth. Our founder and chief executive officer, Mr. Haogang Yang, and other management members are critical to our vision, strategic direction, culture and overall business success. If there is any internal organizational structure change or change in responsibilities for our management or key personnel, or if one or more of our senior management members were unable or unwilling to continue in their present positions, the operation of our business and our business prospects may be adversely affected. Our employees, including members of our management, may choose to pursue other opportunities. If we are unable to motivate or retain key employees, our business may be severely disrupted and our prospects could suffer. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that our management members would not join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may not be able to enforce them at all.
We are expanding fast. If we are unable to recruit, train and retain talents, our business may be materially and adversely affected.
We are expanding fast. Although the company adopts assembly line work and the work content of employees can be replaced, it still faces the risk of losing key talents in the future. We believe our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for personnel with expertise in virtual technology, digital marketing, and digital asset development is extremely intense in China. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we invest significant time and resources in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training new employees, and our ability to serve users and business partners could diminish, resulting in a material adverse effect to our business.
We expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our share price and the value of your investment could decline.
Our results of operations have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance. In addition to the other risks described herein, factors that may affect our results of operations include the following:
• our ability to maintain and grow our digital asset base;
• increases in marketing, sales, and other operating expenses that we may incur to grow and expand our operations and to remain competitive;
• our ability to successfully expand internationally and penetrate key demographics;
• our ability to maintain operating margins, cash used in operating activities, and free cash flow;
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• adverse litigation judgments, settlements, or other litigation and dispute-related costs;
• changes in the legislative or regulatory environment, including with respect to privacy and data protection, consumer protection, and user-uploaded content, or enforcement by government regulators, including fines, orders, or consent decrees;
• fluctuations in currency exchange rates and changes in the proportion of our revenue, bookings and expenses denominated in foreign currencies;
• fluctuations in the market values of our portfolio investments and interest rates or impairments of any assets on our balance sheet;
• changes in our effective tax rate;
• changes in accounting standards, policies, guidance, interpretations, or principles; and
• changes in domestic and global business or macroeconomic conditions.
Any of these and other factors, or the cumulative effect of some of these factors, may cause our results of operations to vary significantly. If our results of operations fall below the expectations of investors and securities analysts who follow our securities, the price of our ordinary shares could decline substantially, and we could face costly lawsuits, including securities class action suits.
We face intense competition in metaverse and digital entertainment industry, if we fail to compete effectively, we may lose market share. Our performance, prospects, and results of operations will be materially and negatively impacted.
The market for our services is highly competitive. Global Mofy China faces fierce competition in the two lines of business of virtual technology service and digital marketing. One of the strongest competitors in China is BaseFX in terms of virtual technology service. In terms of digital marketing, there are few competitors providing full package services like Global Mofy China, and the biggest competitor is SVHQ Media from Singapore. The main line of business of Global Mofy China will be the digital asset development and others in the future. “Digital asset development” refers to the development and licensing of Global Mofy China’s 3D digital assets. “Others” refers to licensing our customers the right to use the works copyrights Global Mofy China currently owns. See “Business — Our Products and Services — Digital Asset Development and Others” and the list under “Business — Intellectual Property — Copyrights” for more information. We began to convert digital assets two years ago. At present, we are one of the largest high precision 3D digital asset banks with the widest categories in China according to Frost & Sullivan, and can provide more than 7,000 digital assets. Global Mofy China has the first-mover advantage for more than one year. We have no direct competitors in digital asset development business, but we expect a large number of companies to enter the industry due to the boom of metaverse starting from 2021, and compete with us in the future. Therefore, we should continue to grow to maintain the existing advantages.
Some of our competitors or potential competitors have a longer operating history and therefore may have better funding, managerial, technical, marketing resources and other resources than we do. They may use their experience and resources to compete with us in a number of ways, including competing more aggressively for customer and completing more acquisitions. Competitors in our industry may be acquired, merged with, or partnered with integrated groups in our industry that are able to invest significant resources in the operations for further investment. If we are unable to compete effectively with our existing and future competitors at reasonable cost, our business, prospects, and results of operations could be materially and negatively affected.
Our business is highly dependent on our brand strength and reputation, and if we fail to maintain and enhance our brand and reputation, consumer recognition of and trust in our services could be materially and adversely affected.
The brand recognition and reputation of our “Global Mofy” brand and the successful maintenance and enhancement of our brand and reputation have contributed and will continue to contribute significantly to our success and growth.
We rely heavily on our brand strength and reputation in the promotion and sale of our services. We believe that our corporate brand and our product brands are recognized by consumers for their quality and reliability. However, customer complaints, accidents in relation to quality of services, including inappropriate behavior, intellectual property
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infringement or negative publicity or media coverage may damage our brand and reputation. Any negative claims against us, even if unethical or unsuccessful, could distract our management’s attention and other resources from our day-to-day business operations, which could adversely affect our business, results of operations, and financial condition. Negative media coverage and resulting negative publicity of our services could result in a material adverse effect on customer’s acceptance of and trust in us and our services.
Further, our competitors may fabricate complaints or negative publicity about us for the purpose of vicious competition. With the increased use of social network, adverse publicity can be disseminated quickly and broadly, making it increasingly difficult for us to respond and mitigate effectively. In addition, adverse publicity regarding any regulatory or legal action against us could damage our reputation and brand image, undermine customers’ confidence in us and reduce long-term demand for our services, even if such regulatory or legal action is unfounded or insignificant to our business.
If our business becomes constrained by changing legal and regulatory requirements, our operating results will suffer.
Our future success will depend in part on market acceptance and widespread adoption across demographics and geographies of metaverse. If the PRC governments issue relevant regulations against the metaverse industry that are not conducive to our development, we will have to change our main development direction in the future. If we are obligated to fundamentally change our business activities and practices, we may be unable to make these required changes and modifications in a commercially reasonable manner, or at all, and our ability to further develop and enhance our platform may be limited. The costs of compliance with, and other burdens imposed by, these laws, regulations, standards and obligations, or any inability to adequately address these, may limit the use of our platform or reduce overall demand for our platform, which could harm our business, financial condition and results of operations.
Regulatory actions, legal proceedings and customer complaints against us could harm our reputation and have a material adverse effect on our business, results of operations, financial condition and prospects.
Along with growth and expansion of our business, we may be involved in litigations, regulatory proceedings and other disputes arising outside the ordinary course of our business. Such litigations and disputes may result in claims for actual damages, freezing of our assets, diversion of our management’s attention and reputational damage in to us and our management, as well as legal proceedings against our directors, officers or employees, and the probability and amount of liability, if any, may remain unknown for long periods of time. Given the uncertainty, complexity and scope of many of these litigation matters, their outcome generally cannot be predicted with any reasonable degree of certainty. Therefore, our reserves for such matters may be inadequate. Moreover, even if we eventually prevail in these matters, we could incur significant legal fees or suffer significant reputational harm.
We may fail to protect our intellectual properties.
We regard our software registrations, trademarks, patents, domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality and non-compete agreements with our employees and others to protect our proprietary rights. See “Business — Intellectual Property.” Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages.
As of the date of this prospectus, none of our 7,000 3D digital assets in the asset library that are currently available for licensing have registered copyrights under PRC or any international authority. We convert and create these 3D digital assets from real-world objects using our hardware and software in the Mofy Lab and therefore we have ownership over these assets. Although these 3D digital assets are not registered, they are still protected under the PRC copyrights laws. However, the lack of copyright protection may impact our ability to generate licensing fees or protect our intellectual property from unauthorized use or piracy. Further, if other companies preemptively register the intellectual property rights of the same digital assets, our use may involve infringement and may lead to litigation and compensation to others. We plan to register these 3D digital assets using part of the proceeds from this offering. The estimated cost to register all of our existing copyrights for 3D digital assets and images is $1 million.
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It is often difficult to maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. In particular, some of our trademark applications for certain categories have been rejected, and we have applied for administrative reviews on such rejections. However, there can be no assurance that we will obtain such trademarks and any other trademarks that are crucial to our business in the future. Thus, we may be unable to prevent others from using such trademarks or suing us for infringement, or even unable to continue to use such trademarks in our business.
Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can also provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors.
We may be subject to intellectual property infringement claims.
We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. We may be from time to time in the future subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights, know-how or other intellectual property rights that are infringed by our services, products, or other aspects of our business without our awareness. If any third-party infringement claims are brought against us, we may be forced to divert management’s time and other resources from our business and operations to defend against these claims, regardless of their merits.
Our business is subject to risks generally associated with the metaverse and digital entertainment industry.
The substantial majority of our revenue is currently derived from customers in the metaverse and digital entertainment industry, and we rely to a significant extent on the health of the industry to maintain and increase our revenue. Accordingly, we are especially susceptible to market conditions and risks associated with the metaverse and digital entertainment industry, including the popularity, customers’ preferences, and potential regulations, all of which are difficult to predict and are beyond our control.
In addition, economic conditions that negatively impact discretionary consumer spending, including inflation, slower growth, unemployment levels, tax rates, interest rates, energy prices, declining consumer confidence, recession and other macroeconomic conditions, including those resulting from COVID-19 and from geopolitical issues and uncertainty, could have a material adverse impact on our business and results of operations.
We may fail to make necessary or desirable strategic alliance, acquisition or investment, and we may not be able to achieve the benefits we expect from the alliances, acquisition or investments we make.
We may pursue selected strategic alliances and potential strategic acquisitions that are supplemental to our business and operations, including opportunities that can help us further expand our product and service offerings and improve our technology system. However, strategic alliances with third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance or default by counterparties, and increased expenses in establishing these new alliances, any of which may materially and adversely affect our business. In addition, we may have limited ability to control or monitor the actions of our strategic partners. To the extent a strategic partner suffers any negative publicity as a result of its business operations, our reputation may be negatively affected by virtue of our association with such party.
The costs of identifying and consummating strategic acquisitions may be significant and subsequent integrations of newly acquired companies, businesses, assets and technologies would require significant managerial and financial resources and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our growth and business operations. In addition, investments and acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities and exposure to potential unknown liabilities of the acquired business. The acquired businesses or assets may not generate the financial results we expect
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and may incur losses. The cost and duration of integrating newly acquired businesses could also materially exceed our expectations. If our portfolio does not perform as we expect, our results of operation and profitability may be adversely affected.
We may not be able to raise additional capital when desired, on favorable terms or at all.
We need to make continued investments in facilities, hardware, software, technological systems and to retain talents to remain competitive. Due to the unpredictable nature of the capital markets and our industry, there can be no assurance that we will be able to raise additional capital on terms favorable to us, or at all, if and when required, especially if we experience disappointing operating results. If adequate capital is not available to us as required, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure or respond to competitive pressures could be significantly limited. If we do raise additional funds through the issuance of equity or convertible debt securities, the ownership interests of our shareholders could be significantly diluted. These newly issued securities may have rights, preferences or privileges on par with or senior to those of existing shareholders.
If we fail to implement and maintain an effective system of internal controls to remediate our material weaknesses over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.
In connection with the audits of our consolidated financial statements included in this prospectus, we and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses identified relate to (i) our lack of sufficient financial reporting and accounting personnel with appropriate knowledge of the U.S. GAAP and SEC reporting requirements to properly address complex U.S. GAAP accounting issues and to prepare and review consolidated financial statements and related disclosures to fulfill U.S. GAAP and SEC financial reporting requirements and (ii) our lack of comprehensive accounting policies and procedures manual in accordance with U.S. GAAP. Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control for purposes of identifying and reporting material weaknesses and other deficiencies in our internal control over financial reporting. Had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional deficiencies may have been identified.
Following the identification of the material weaknesses and other deficiencies, we have taken measures and plan to continue to take measures to remediate these control deficiencies. However, the implementation of these measures may not fully address the material weaknesses and other deficiencies in our internal control over financial reporting, and we cannot conclude that they have been fully remediated. Our failure to correct the material weaknesses and other deficiencies or our failure to discover and address any other deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud.
We are subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) as well as rules and regulations of Nasdaq Stock Exchange. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We are required by Section 404 of the Sarbanes-Oxley Act to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Form 20-F beginning with our annual report in our second annual report after becoming a public company.
Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue an adverse report if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.
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If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to produce timely and accurate financial statements and may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If that were to happen, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which could lead to a decline in the market price of our ordinary shares and we could be subject to sanctions or investigations by SEC or other regulatory authorities. We may also be required to restate our financial statements for prior periods.
We are exposed to risks associated with outbreaks of epidemics, infectious diseases and other disease outbreaks, including the recent COVID-19 outbreak. Our business could be materially and adversely affected by outbreaks of infectious diseases (such as SARS, H5N1 avian influenza, human swine flu or, most recently, COVID-19) or other outbreaks of epidemics or diseases.
The COVID-19 outbreak in early 2020 has already had an adverse and long-term impact on economic and social conditions worldwide and will likely continue, and the worsening, continuation or recurrence of the COVID-19 outbreak could have a negative impact on our business operations. In January and February 2020, in response to the COVID-19 outbreak, the Chinese government adopted a home quarantine to avoid the spread of the COVID-19 outbreak.
In addition, while we have closely monitored the health status of our employees, we cannot assure you that there will be no confirmed cases of COVID-19 among our employees and that, in the event of an infection, affected facilities may need to suspend operations and our employees may need to be quarantined.
In addition, an infectious disease outbreak on a global scale could affect the investment climate and lead to intermittent volatility in global capital markets, which could also adversely affect global economies. With the rapid rise in infections, many countries have issued travel advisories restricting travel to affected areas. These policies have severely damaged local and cross-border business activities worldwide. The impact has included a significant reduction in tourist arrivals, business exchanges and social functions in the affected countries and regions, as well as economic slowdowns. Global financial markets have become highly volatile and the risk of a global recession has increased significantly. Even if the COVID-19 outbreak is contained and the policies and recommendations implemented by the relevant governments to combat the virus are withdrawn, there is no assurance that the overall economic performance of the affected countries and regions will improve in a short period of time. The outbreak, worsening, continuation, recurrence, or variant of pandemic COVID-19 or any other infectious disease could have a continuing adverse effect on the global economy, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.
COVID-19 had a severe and negative impact on the Chinese and the global economy commencing in the first quarter of 2020. Whether this will lead to a prolonged downturn in the economy is still unknown. China’s National Bureau of Statistics reported negative GDP growth of 6.8% for the first quarter of 2020. Even before the outbreak of COVID-19, the global macroeconomic environment was facing numerous challenges. The growth rate of the Chinese economy had already been slowing since 2010. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China, even before 2020. Unrest, terrorist threats, and the potential for war in the Middle East and elsewhere may increase market volatility across the globe. There have also been concerns about the relationship between China and other countries, including the surrounding Asian countries, which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the United States and China with respect to trade policies, treaties, government regulations, and tariffs. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition.
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Risks Related to the Offering and Our Ordinary Shares
This is a best efforts offering, no minimum number or dollar amount of securities is required to be sold, and we may not raise the amount of capital we believe is required for our business plans.
The placement agent has agreed to use their reasonable best efforts to solicit offers to purchase the securities in this offering. The placement agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale of any specific number or dollar amount of the securities. There is no required minimum number of securities that must be sold as a condition to completion of this offering. Because there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, placement agent’s fees and proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth above. We may sell fewer than all of the securities offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell an amount of securities sufficient to fund our business plan. Thus, we may not raise the amount of capital we believe is required for our operations in the short-term and may need to raise additional funds, which may not be available or available on terms acceptable to us.
Because there is no minimum required for the offering to close, investors in this offering will not receive a refund in the event that we do not sell an amount of securities sufficient to pursue the business goals outlined in this prospectus.
We have not specified a minimum offering amount in connection with this offering. Because there is no minimum offering amount, investors could be in a position where they have invested in our company, but we are unable to fulfill our objectives due to a lack of interest in this offering. Further, any proceeds from the sale of securities offered by us will be available for our immediate use, despite uncertainty about whether we would be able to use such funds to effectively implement our business plan. Upon closing of this offering, investor funds will not be returned under any circumstances whether during or after this offering.
There is no public market for the Units or the warrants.
There is no established public trading market for the Units or the warrants, and we do not expect a market to develop. In addition, we do not intend to apply to list the Units or the warrants on any national securities exchange or other nationally recognized trading system, including the Nasdaq Stock Market LLC. Without an active market, the liquidity of the Units or the warrants will be limited.
The warrants in this offering are speculative in nature.
The warrants in this offering do not confer any rights of ordinary shares ownership on their holders, but rather merely represent the right to acquire ordinary shares at a fixed price. In addition, following this offering, the market value of the warrants, if any, is uncertain and there can be no assurance that the market value of the warrants will equal or exceed their imputed offering price. The warrants will be not listed or quoted for trading on any market or exchange.
Holders of the warrants will not have rights of holders of our ordinary shares until such warrants are exercised.
Until holders of warrants acquire ordinary shares upon exercise of the warrants, holders of warrants will have no rights with respect to the ordinary shares underlying such warrants.
The sale or availability for sale of substantial amounts of our ordinary shares could adversely affect their market price.
Sales of substantial amounts of our ordinary shares in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of our ordinary shares and could materially impair our ability to raise capital through equity offerings in the future. The ordinary shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements, if any. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ordinary shares. See “Plan of Distribution” and “Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling our securities after this offering.
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The trading price of the ordinary shares is likely to be volatile, which could result in substantial losses to investors.
Recently, there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings, especially among companies with relatively smaller public floats. As a relatively small-capitalized company with relatively small public float after this offering, we may experience greater stock price volatility, lower trading volume and less liquidity than large-capitalized companies. In particular, our ordinary shares may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices due to factors beyond our control. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our ordinary shares. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. In addition to market and industry factors, the price and trading volume for the ordinary shares may be highly volatile for factors specific to our own operations, including the following:
• variations in our revenues, earnings, cash flow;
• fluctuations in operating metrics;
• announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;
• announcements of new solutions and services and expansions by us or our competitors;
• termination or non-renewal of contracts or any other material adverse change in our relationship with our key customers or strategic investors;
• changes in financial estimates by securities analysts;
• detrimental negative publicity about us, our competitors or our industry;
• additions or departures of key personnel;
• release of lockup or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;
• regulatory developments affecting us or our industry; and
• potential litigation or regulatory investigations.
Any of these factors may result in large and sudden changes in the volume and price at which the ordinary shares will trade. Furthermore, the stock market in general experiences price and volume fluctuations that are often unrelated or disproportionate to the operating performance of companies like us. These broad market and industry fluctuations may adversely affect the market price of our ordinary shares. Volatility or a lack of positive performance in our ordinary shares price may also adversely affect our ability to retain key employees, most of whom have been granted share incentives.
In addition, if the trading volumes of our ordinary shares are low, persons buying or selling in relatively small quantities may easily influence prices of our ordinary shares. This low volume of trades could also cause the price of our ordinary shares to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our ordinary shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. If high spreads between the bid and ask prices of our ordinary shares exist at the time of a purchase, the stock would have to appreciate substantially on a relative percentage basis for an investor to recoup their investment. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our ordinary shares. As a result of this volatility, investors may experience losses on their investment in our ordinary shares. A decline in the market price of our ordinary shares also could adversely affect our ability to issue additional ordinary shares or other of our securities and our ability to obtain additional financing in the future. No assurance can be given that an active market in our ordinary shares will develop or be sustained. If an active market does not develop, holders of our ordinary shares may be unable to readily sell the shares they hold or may not be able to sell their shares at all.
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In the past, shareholders of public companies have often brought securities class action suits against companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
We may experience extreme stock price volatility, including any stock-run up, unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our ordinary shares.
In addition to the risks addressed above in “The trading price of the ordinary shares is likely to be volatile, which could result in substantial losses to investors,” our ordinary shares may be subject to extreme volatility that is seemingly unrelated to the underlying performance of our business. In particular, our ordinary shares may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices, given that we will have relatively small public floats after this offering. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, financial condition or prospects.
Holders of our ordinary shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our ordinary shares. As a result of this volatility, investors may experience losses on their investment in our ordinary shares. Furthermore, the potential extreme volatility may confuse the public investors of the value of our stock, distort the market perception of our stock price and our company’s financial performance and public image, negatively affect the long-term liquidity of our ordinary shares, regardless of our actual or expected operating performance. If we encounter such volatility, including any rapid stock price increases and declines seemingly unrelated to our actual or expected operating performance and financial condition or prospects, it will likely make it difficult and confusing for prospective investors to assess the rapidly changing value of our ordinary shares and understand the value thereof.
We have not paid dividends to our shareholders. And we do not expect to pay cash dividends in the foreseeable future.
We have never declared or paid any cash dividends on our stock. We have been retaining funds for our business operation and expansion. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Our ability to pay dividends will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the board of directors may deem relevant. As a result, you may only receive a return on your investment in our ordinary shares if we are successfully listed and the market price of our ordinary shares increases.
For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the requirement to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in the registration statement of which this prospectus forms a part. We are currently utilizing or intend to utilize both of these exemptions. We have not made a decision whether to take advantage of any other exemptions available to emerging growth companies. We do not know if some investors will find our ordinary shares less attractive as a result of our utilization of these or other exemptions. The result may be a less active trading market for our ordinary shares and our share price may be more volatile.
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In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We prepare our consolidated financial statements as of and for the year ended September 30, 2021 in accordance with International Financial Reporting Standards and International Accounting Standards and Interpretations as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union, which do not have separate provisions for publicly traded and private companies. However, in the event we convert to accounting principles generally accepted in the United States of America (“U.S. GAAP”) while we are still an “emerging growth company”, we may be able to take advantage of the benefits of this extended transition period.
We will remain an “emerging growth company” until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the preceding three-year period or (d) the last day of our fiscal year containing the fifth anniversary of the date on which our shares become publicly traded in the United States.
If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we will be required to file a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
The presence of material weaknesses in internal control over financial reporting could result in financial statement errors which, in turn, could lead to errors in our financial reports and/or delays in our financial reporting, which could require us to restate our operating results. We might not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section 404 of the Sarbanes-Oxley Act. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, we will need to expend significant resources and provide significant management oversight. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert management’s attention from other business concerns. These changes may not, however, be effective in maintaining the adequacy of our internal control.
If we are unable to conclude that we have effective internal controls over financial reporting, investors may lose confidence in our operating results, the price of the ordinary shares could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, the ordinary shares may not be able to remain listed on Nasdaq.
As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders.
As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not subject to the proxy rules in the United States and disclosure with respect to our annual general meetings will be governed by Cayman Islands’ requirements. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our ordinary shares.
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Because we are a foreign private issuer and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.
The Nasdaq Listed Company Manual requires listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to, and we may follow home country practice in lieu of the above requirements, or we may choose to comply with the above requirement within one year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent directors. Thus, although a director must act in the best interests of the Company, it is possible that fewer board members will be exercising independent judgment and the level of board oversight on the management of our company may decrease as a result. In addition, the Nasdaq Listed Company Manual also requires U.S. domestic issuers to have a compensation committee, a nominating/corporate governance committee composed entirely of independent directors, and an audit committee with a minimum of three members. We, as a foreign private issuer, may not be subject to all these requirements. The Nasdaq Listed Company Manual may require shareholder approval for certain corporate matters, such as requiring that shareholders be given the opportunity to vote on all equity compensation plans and material revisions to those plans, certain ordinary share issuances. We intend to comply with the requirements of the Nasdaq Listed Company Manual in determining whether shareholder approval is required on such matters and to appoint a nominating and corporate governance committee. However, we may consider following home country practice in lieu of the requirements under the Nasdaq Listed Company Manual with respect to certain corporate governance standards which may afford less protection to investors.
If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.
We expect to qualify as a foreign private issuer upon the completion of this offering. As a foreign private issuer, we will be exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. domestic issuers, and we will not be required to disclose in our periodic reports all of the information that U.S. domestic issuers are required to disclose. While we currently expect to qualify as a foreign private issuer immediately following the completion of this offering, we may cease to qualify as a foreign private issuer in the future, in which case we would incur significant additional expenses that could have a material adverse effect on our results of operations.
The requirements of being a public company may strain our resources and divert management’s attention.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the securities exchange on which we list, and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal, accounting, and financial compliance costs and investor relations and public relations costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results as well as proxy statements.
As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation and results of operations.
We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
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There can be no assurance we will not be a passive foreign investment company (“PFIC”), for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. investors in our ordinary shares or Warrants.
In general, a non-U.S. corporation is a PFIC for U.S. federal income tax purposes for any taxable year in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average value of its assets (generally determined on a quarterly basis) consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% (by value) of the stock.
Based upon the manner in which we currently operate our business, the expected composition of our income and assets and the value of our assets, we do not expect to be a PFIC for the current taxable year or in the foreseeable future. However, this is a factual determination that must be made annually after the close of each taxable year, and the application of the PFIC rules is subject to uncertainty in several respects. The value of our assets for purposes of the PFIC determination will generally be determined by reference to the market price of our ordinary shares, which could fluctuate significantly. In addition, our PFIC status will depend on the manner we operate our workspace business (and the extent to which our income from workspace membership continues to qualify as active for PFIC purposes). Because of these uncertainties, there can be no assurance we will not be a PFIC for the current taxable year, or will not be a PFIC in the future.
If we were a PFIC for any taxable year during which a U.S. investor owns our ordinary shares or Warrants, certain adverse U.S. federal income tax consequences could apply to such U.S. investor. See “Taxation — United States Federal Income Taxation — Passive Foreign Investment Company” on page 143 of this prospectus.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
To the extent (i) we raise more money than required for the purposes explained in the section titled “Use of Proceeds” on page 64 of this prospectus or (ii) we determine that the proposed uses set forth in that section are no longer in the best interests of our Company, we cannot specify with any certainty the particular uses of such net proceeds that we will receive from this offering. Our management will have broad discretion in the application of such net proceeds, including working capital, possible acquisitions, and other general corporate purposes, and we may spend or invest these proceeds in a way with which our shareholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
The price of the ordinary shares and other terms of this offering have been determined by us along with our placement agent.
If you purchase our ordinary shares in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that was determined by us along with our placement agent. The offering price for our ordinary shares may bear no relationship to our assets, book value, historical results of operations or any other established criterion of value. The trading price, if any, of the ordinary shares that may prevail in any market that may develop in the future, for which there can be no assurance, may be higher or lower than the price you paid for our ordinary shares.
The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.
As a public company, we are required to file periodic reports with the Securities and Exchange Commission upon the occurrence of matters that are material to our Company and shareholders. Although we may be able to attain confidential treatment of some of our developments, in some cases, we need to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This may give them advantages in competing with our Company. Similarly, as a U.S. public company, we are governed by U.S. laws that our competitors, which are mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, our public company status could affect our results of operations.
59
Shares eligible for future sale may adversely affect the market price of our ordinary shares as the future sale of a substantial amount of outstanding ordinary shares in the public marketplace could reduce the price of our ordinary shares.
The market price of our ordinary shares could decline as a result of sales of substantial amounts of our shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our ordinary shares. All of the ordinary shares sold in the offering will be freely transferable without restriction or further registration under the Securities Act. The remaining ordinary shares will be “restricted securities” as defined in Rule 144. These ordinary shares may be sold without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act. See “Shares Eligible for Future Sale” on page 139 of this prospectus.
If you purchase our ordinary shares in this offering, you will incur immediate and substantial dilution in the book value of your shares.
Investors purchasing our ordinary shares in this offering will pay a price per share that substantially exceeds the pro forma as adjusted net tangible book value per share. As a result, investors purchasing ordinary shares in this offering will incur immediate dilution of $[ ] per share. For more information on the dilution, you may experience as a result of investing in this offering, see the section of this prospectus entitled “Dilution.”
A sale or perceived sale of a substantial number of our ordinary shares may cause the price of our ordinary shares to decline.
We, our directors and executive officers, and most of our existing beneficial owners of our outstanding ordinary shares have agreed with the placement agent, subject to certain exceptions, not to sell, transfer or otherwise dispose of any ordinary shares for a period ending 180 days from the commencement date of the offering of the ordinary shares. See “Plan of Distribution” on page 146 of this prospectus. Ordinary shares subject to these lock-up agreements will become eligible for sale in the public market upon expiration of these lock-up agreements, subject to limitations imposed by Rule 144 under the Securities Act of 1933, as amended. If our shareholders sell substantial amounts of our ordinary shares in the public market, the market price of our ordinary shares could fall. Moreover, the perceived risk of this potential dilution could cause shareholders to attempt to sell their ordinary shares and investors to short our ordinary shares. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.
Our corporate affairs are governed by our amended and restated memorandum and articles of association, by the Cayman Islands Companies Act and by the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English common law. Decisions of the Privy Council (which is the final Court of Appeal for British overseas territories such as the Cayman Islands) are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court and the Court of Appeal are generally of persuasive authority but are not binding in the courts of the Cayman Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive but not binding authority. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands have a less developed body of securities laws relative to the United States. Therefore, our public shareholders may have more difficulty protecting their interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
60
You may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. These rights, however, may be provided in a company’s articles of association. Our articles of association allow our shareholders holding shares representing in aggregate not less than 10% of our voting share capital in issue, to requisition a general meeting of our shareholders, in which case our directors are obliged to call such meeting. Our articles of association provide no other right to put any proposals before annual general meetings. As a Cayman Islands exempted company, we are not obligated by law to call annual general meetings. However, our corporate governance guidelines require us to call such meetings every year. Advance notice of at least seven clear days is required for the convening of any general meeting of our shareholders. A quorum required for a meeting of shareholders consists of at least one shareholder present in person or by proxy, representing not less than one-third of the total issued shares carrying the right to vote at a general meeting of the Company.
You may be unable to vote for directors if you hold insufficient shares to requisition a general meeting and no general meetings are otherwise convened by the board of directors.
Our directors serve until their successor is duly elected and qualified, or until their earlier death, resignation or removal. Shareholders may remove and appoint directors at any time by ordinary resolution. However, as a Cayman Islands exempted company, we are not required to hold any annual general meetings and, under our articles of association, shareholders are not able to requisition a meeting unless the requisitionists, between them, hold in aggregate not less than 10% of our voting share capital in issue. As a result, shareholders who hold less than 10% of our voting share capital in issue may not have opportunity to vote on directors if no general meetings are convened by the board of directors.
Based on the Economic Substance Legislation of the Cayman Islands, it is anticipated that the Company will be subject to limited substance requirements applicable to a holding company.
The Cayman Islands, together with several other non-European Union jurisdictions, have recently introduced legislation aimed at addressing concerns raised by the Council of the European Union (the “EU”) as to offshore structures engaged in certain activities which attract profits without real economic activity. With effect from January 1, 2019, the International Tax Co-operation (Economic Substance) Act (as amended) (the “Economic Substance Act”) came into force in the Cayman Islands introducing certain economic substance requirements for in-scope Cayman Islands entities which are engaged in certain “relevant activities,” which in the case of exempted companies incorporated before January 1, 2019, applies in respect of financial years commencing July 1, 2019, onwards. As we are a Cayman Islands company, compliance obligations include filing annual notifications for the Company, which need to state whether we are carrying out any “relevant activities” and if so, whether we have satisfied economic substance tests to the extent required under the Economic Substance Act. As it is a relatively new regime, it is anticipated that the Economic Substance Act will evolve and be subject to further clarification and amendments. We may need to allocate additional resources to keep updated with these developments, and may have to make changes to our operations in order to comply with all requirements under the Economic Substance Act. Failure to satisfy these requirements may subject us to penalties under the Economic Substance Act.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that reflect our current expectations and views of future events, all of which are subject to risks and uncertainties. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by the use of words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “will,” “would,” “should,” “could,” “may” or other similar expressions in this prospectus. These statements are likely to address our growth strategy, financial results and product and development programs. You must carefully consider any such statements and should understand that many factors could cause actual results to differ from our forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
• future financial and operating results, including revenues, income, expenditures, cash balances and other financial items;
• our ability to execute our growth, and expansion, including our ability to meet our goals;
• current and future economic and political conditions;
• our ability to compete in an industry with low barriers to entry;
• our capital requirements and our ability to raise any additional financing which we may require;
• our ability to attract customers, win primary agency sale bids, and further enhance our brand recognition; and
• our ability to hire and retain qualified management personnel and key employees in order to enable us to develop our business;
• our ability to retain the services of our directors, officers and key employees;
• trends and competition in the advertising industry; and
• other assumptions described in this prospectus underlying or relating to any forward-looking statements.
We describe material risks, uncertainties and assumptions that could affect our business, including our financial condition and results of operations, under “Risk Factors.” We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may, and are likely to, differ materially from what is expressed, implied or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking statements. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this prospectus, whether as a result of new information, future events, changes in assumptions, or otherwise.
62
ENFORCEABILITY OF CIVIL LIABILITIES
We were incorporated under the laws of the Cayman Islands as an exempted company with limited liability on September 29, 2021. We are incorporated under the laws of the Cayman Islands because of certain benefits associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands have a less developed body of securities laws as compared to the United States and provide significantly less protection for investors than the United States. Additionally, Cayman Islands companies may not have standing to sue before the Federal courts of the United States.
Substantially all of our assets are located in the PRC. In addition, all of our directors and officers are nationals or residents of the PRC and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.
We have appointed Cogency Global Inc. as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.
Mourant Ozannes (Cayman) LLP, our counsel with respect to the laws of the Cayman Islands, and Jiangsu Junjin Law Firm, our counsel with respect to PRC law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands or the PRC would (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or (ii) entertain original actions brought in the Cayman Islands or the PRC against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
Our Cayman Islands counsel has further advised us that there is currently no statutory enforcement or treaty between the United States and the Cayman Islands providing for enforcement of judgments. A judgment obtained in the United States, however, may be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination on the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment: (i) is given by a foreign court of competent jurisdiction; (ii) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given; (iii) is final; (iv) is not in respect of taxes, a fine or a penalty; and (v) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or public policy of the Cayman Islands. Furthermore, it is uncertain that the Cayman Islands courts would enforce: (1) judgments of U.S. courts obtained in actions against us or other persons that are predicated upon the civil liability provisions of the U.S. federal securities laws; or (2) original actions brought against us or other persons predicated upon the Securities Act. Our Cayman Islands counsel has informed us that there is uncertainty with regard to Cayman Islands law relating to whether a judgment obtained from the U.S. courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature.
Jiangsu Junjin Law Firm has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. Jiangsu Junjin Law Firm has advised us further that there are no treaties or other forms of reciprocity between China and the United States for the mutual recognition and enforcement of court judgments, thus making the recognition and enforcement of a U.S. court judgment in China difficult.
63
Based upon an assumed offering price of US$[*] per Unit (the last reported sale price of our ordinary share, as reported on the Nasdaq Capital Market on [*], 2023), we estimate that we will receive net proceeds from this offering of approximately US$[*], assuming the sales of all of the Units we are offering and no exercise of the warrants included in the Units, after deducting the placement agent’s fees, non-accountable expense allowance, and the estimated offering expenses payable by us. However, because this is a best efforts offering and there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, placement agent fees and net proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth on the cover page of this prospectus.
We plan to use the net proceeds we receive from this offering for the following purposes:
Description of Use |
Estimated |
Percentage |
|||
Continued research and development of our core technologies |
$ |
[ ] |
[ ]% |
||
Marketing, potential acquisition and business expansion |
$ |
[ ] |
[ ]% |
||
Talent acquisition and training |
$ |
[ ] |
[ ]% |
||
Working Capital |
$ |
[ ] |
[ ]% |
||
Total |
$ |
[ ] |
100% |
This expected use of the net proceeds from this offering represents our intentions based upon our current plans and prevailing business conditions, which could change in the future as our plans and prevailing business conditions evolve. Predicting the cost necessary to develop product candidates can be difficult and the amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.
The net proceeds from this offering must be remitted to China before we will be able to use the funds to grow our business. The procedure to remit funds may take several months after completion of this offering, and we will be unable to use the offering proceeds in China until remittance is completed. See “Risk Factors — Risks Related to Doing Business in China — We must remit the offering proceeds to China before they may be used to benefit our business in China, and this process may take several months to complete” beginning on page 31 for further information.
64
We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business after this offering. Therefore, we do not expect to pay cash dividends again in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, and future prospects, and other factors the board of directors may deem relevant.
We are a holding company incorporated in the Cayman Islands. Under Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts due in the ordinary course of business. We rely principally on dividends from our PRC subsidiaries for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us.
Current PRC regulations permit our indirect PRC subsidiaries to pay dividends to Global Mofy HK only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiary in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries and affiliates in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations in China, we may be unable to pay dividends on our ordinary shares.
Cash dividends, if any, on our ordinary shares will be paid in U.S. dollars. Global Mofy HK may be considered a non-resident enterprise for tax purposes, so that any dividends Global Mofy WFOE pays to Global Mofy HK may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%. See “Taxation — People’s Republic of China Enterprise Taxation.”
65
The following table sets forth our capitalization as of March 31, 2023
• on an actual basis;
• on an as adjusted basis to reflect the issuance and sale of the ordinary shares, including 40,000 shares of the over-allotment shares, by us in the initial public offering at the offering price of US$5.00 per ordinary share, after deducting the estimated discounts and the estimated offering expenses payable by us; and
• on a pro forma as further adjusted basis to reflect the issuance and sale of up to [*] Units offered in this offering, at an assumed public offering price of US$[*] per Unit, which is the last reported sale price of our ordinary shares on Nasdaq on [*] 2023, after deducting placement agent’s fees, non-accountable expense allowance, and estimated offering expenses payable by us, and assuming the sales of all of the securities we are offering, no exercise of the related warrants and no other change to the number of Units sold by us as set forth on the front cover of this prospectus.
You should read this capitalization table in conjunction with “Use of Proceeds,” “Selected Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes appearing elsewhere in this prospectus.
As of |
Pro Forma as |
||||||||
Actual |
Pro Forma as |
||||||||
Shareholder’s Equity: |
|
|
|
||||||
Ordinary shares (US$0.000002 par value, 25,000,000,000 shares authorized, 25,926,155 shares issued and outstanding; 27,166,155 shares issued and outstanding pro forma; [ ] shares issued and outstanding pro forma as further adjusted) |
|
52 |
|
54 |
|
||||
Additional paid-in capital |
|
16,035,229 |
|
21,079,531 |
|
||||
Statutory reserves |
|
39,620 |
|
39,620 |
|
||||
Accumulated deficit |
|
(538,411 |
) |
(538,411 |
) |
||||
Accumulated other comprehensive loss |
|
(56,997 |
) |
(56,997 |
) |
|
|||
Total Global Mofy Metaverse Limited shareholders’ equity |
|
15,479,493 |
|
20,523,797 |
|
|
|||
Non-controlling interests |
|
(148,741 |
) |
(148,741 |
) |
||||
Total shareholders’ equity |
|
15,330,752 |
|
20,375,056 |
|
|
|||
Total capitalization |
$ |
15,330,752 |
|
20,375,056 |
|
|
____________
(1) Reflects the sale of ordinary shares in the initial public offering, including 40,000 shares of the over-allotment shares, at the initial public offering price of $5.00 per share, and after deducting the underwriting discounts of $434,000 and offering expenses of $865,690 payable by us. Additional paid-in capital reflects the net proceeds we received from the initial public offering, after deducting the underwriting discounts, estimated offering expenses payable by us and advisory fees.
(2) Reflects the sale of [ ] Units in this offering, at the offering price of $[ ] per Unit, and after deducting the estimated placement agent discounts of $[ ] and estimated offering expenses of $[ ] payable by us. Additional paid-in capital reflects the net proceeds we received from this offering, after deducting the placement agent discounts, estimated offering expenses payable by us and advisory fees.
We may also increase or decrease the number of Units we are offering. An increase (decrease) of [ ] Units offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the as adjusted amount of each of cash, cash equivalents and short-term investments, additional paid-in capital, total shareholders’ equity and total capitalization by US$[ ], assuming no change in the assumed public offering price per share and after deducting the estimated placement agent discounts and commissions and estimated offering expenses payable by us. The as adjusted information above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
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If you invest in the Securities in this offering, your ownership interest will be immediately diluted to the extent of the difference between the offering price per ordinary share included in the Units and the net tangible book value per ordinary share after this offering. Dilution results because the offering price per ordinary share included in the Units is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.
Net tangible book value represents the amount of our total consolidated tangible assets, which represent the amount of our total consolidated assets, excluding intangible assets, less total consolidated liabilities. Our historical net tangible book value as of March 31, 2023 was US$14,373,090, or US$0.55 per ordinary share. Our historical net tangible book value is the amount of our total tangible assets less our liabilities. Historical net tangible book value per ordinary share is our historical net tangible book value divided by the number of outstanding ordinary share as of March 31, 2023.
Dilution is determined by subtracting net tangible book value per ordinary share, after giving effect to the additional proceeds we will receive from this offering, from the assumed offering price of US$[*] per Unit which is the last reported sale price of our ordinary share on Nasdaq on [*], 2023, and after deducting placement agent’s fees, non-accountable expense allowance, and estimated offering expenses payable by us.
Without taking into account any other changes in net tangible book value after March 31, 2023 other than to give effect to (i) issuance and sale of 1,200,000 ordinary shares in connection with our initial public offering in October 2023 and the exercise of the over-allotment option of 40,000 ordinary shares; and (ii) the sale of the Units offered in this offering, at an assumed offering price of US$[*] per Unit, which is the last reported sale price of our ordinary share on Nasdaq on [*], 2023, after deducting the placement agent’s fees, non-accountable expense allowance, and estimated offering expenses payable by us and assuming the sales of all of the securities we are offering and no exercise of the related warrants, our pro forma as adjusted net tangible book value as of March 31, 2023 would have been US$[ ] million, or US$[ ] per ordinary share. This represents an immediate increase in net tangible book value of US$[ ] per ordinary share to the existing shareholders and an immediate dilution in net tangible book value of US$[ ] ordinary share to investors purchasing Units in this offering. The following table illustrates such dilution: The following table illustrates this dilution:
Assumed offering price per Unit |
US$ |
|
Net tangible book value per share as of March 31, 2023 |
US$ |
|
Pro forma net tangible book value as of March 31, 2023 |
US$ |
|
Pro forma as adjusted net tangible book value per share after this offering |
US$ |
|
Dilution per share to new investors in this offering |
US$ |
A US$1.00 increase (decrease) in the assumed offering price of US$[*] per Unit, which is the last reported sale price of our ordinary share, as reported on the Nasdaq Capital Market on [*], 2023, would increase (decrease) the as adjusted net tangible book value per share by US$[ ], and increase (decrease) dilution to new investors by US$[ ] per share, in each case assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting placement agent’s fees, non-accountable expense allowance, and estimated offering expenses payable by us.
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The following table illustrates our pro forma as adjusted proportionate ownership, upon completion of this offering between existing shareholders and new investors purchasing Units in this offering with respect to the number of ordinary shares purchased from us, compared to the relative amounts paid by each. The charts reflect payment by existing shareholders as of the date the consideration was received and by investors in this offering at the assumed offering price of US$[*] per Unit, which is the last reported sale price of our ordinary share, as reported on the Nasdaq Capital Market on [*], 2023, before deduction of estimated placement agent’s fees, non-accountable expense allowance, and our estimated offering expenses. The table further assumes no change in net tangible book value other than those resulting from the offering.
|
Total Consideration |
Average |
||||||||
Number |
Percent |
Amount |
Percent |
|||||||
US$ |
US$ |
|||||||||
Existing shareholders(1) |
% |
% |
||||||||
New investors |
|
% |
|
% |
|
|||||
Total |
|
100.00% |
|
100.00% |
|
____________
(1) Reflects the exisiting shareholders after the completion of the intial public offering.
A $1.00 increase (decrease) in the assumed offering price of $[ ] per Unit would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders, average price per ordinary share paid by all shareholders by $[ ] million, $[ ] million and $[ ], respectively, assuming the number of Units offered by us as set forth on the cover page of this prospectus remains the same.
The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual offering price and other terms of this offering determined at pricing. The tables and discussion above are based on a total of [ ] ordinary share issued and outstanding as of [*].
The discussion and tables above assume no exercise of any warrants to be issued in this offering. To the extent that we issue additional ordinary share in the future, there will be further dilution to new investors participating in this offering.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section headed “Summary Consolidated Financial and Operating Data” and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our 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 prospectus. Unless otherwise indicated, all share amounts and per share amounts in this prospectus have been presented giving effect to a split of our ordinary shares at a ratio of 1-to-5 share and share reorganization on September 16, 2022 and a further share reorganization in connection with the Share Purchase Agreement on November 15, 2022.
Overview
We are a technology solutions provider engaged in virtual content production, digital marketing, and digital assets development for the metaverse industry. Utilizing our proprietary “Mofy Lab” technology platform which consists of cutting-edge three-dimensional (“3D”) rebuilt technology and artificial intelligence (“AI”) interactive technology, we are able to create 3D high definition virtual version of a wide range of physical world objects such as characters, objects and scenes which can be used in different applications. According to the industry datasheet generated by Frost & Sullivan, we believe we are one of the leading digital asset banks in China, which consists of more than 7,000 high precision 3D digital assets. High precision means 4K (4096*2160) resolution of movie precision. With our strong technology platform and industry track record, we are able to attract high-profile customers such as L’Oreal and Pepsi and earn repeat business. We primarily operate in three lines of business (i) virtual technology service, (ii) digital marketing, and (iii) digital asset development and others.
Virtual Technology Service
We provide comprehensive technology solution to assist customers in virtual content production, which can be used in a variety of settings such as movies, television series, animations, advertising and gaming, etc. Leveraging our proprietary “Mofy Lab” technology platform, we are able to produce high-quality virtual content quickly and cost-effectively to meet highly differentiated customers’ needs. The virtual content production contracts are primarily on a fixed price basis, payable on a milestone basis, which require us to perform services for visual effect design, content development, production and integration based on customers’ specific needs.
Digital Marketing
Previously in fiscal year 2021, we primarily provided advertisement production and promotion services to customers with integrated digital marketing services from content planning, technical services and content production assistance to omni-channel online placement. Technical services under advertisement production uses the same technologies with our virtual technology service. For content planning and content production, unlike focusing on the storyline under virtual technology service, we focus on the promotion products provided by the digital marketing customers under advertisement production. The advertisements are in different format, including but not limited to short video, landing pages and static materials. We consider that both of the advertisement production and promotion services are highly interrelated and not separately identifiable. It is not practical to quantify the portion of revenue from our advertisement production and revenue that derives from advertising placement/promotion services.
Following our business expansion to the new business line of digital asset development by the last quarter of fiscal year 2021 and the decision of focusing more on the higher margin business lines to better cope with the impact of the COVID-19 pandemic, we adjusted the business strategies for the digital marketing in the fiscal year 2022. Instead of providing integrated digital marketing services from content planning, technical services and content production assistance to omni-channel online placement as in fiscal year 2021, we acted as an agent to purchase ad inventories and advertise services on behalf of the advertisers for the fiscal year 2022. As of and for the six months ended March 31, 2023, we have suspended this business line, and the proportion of digital marketing of total revenues is nil for the period.
69
Digital Asset Development
Through our virtual content production business and opportunistic acquisition of certain digital assets, we are able to build a robust digital asset bank with more than 7,000 3D digital assets. We grant specific use right of these digital assets to customers who use them based on their specific needs across different applications such as television series, movies, AR/VR, animation, adverting and gaming. Our digital assets mainly consist of high precision 3D renders of scenes, characters and objects. Depending on customers’ needs, these digital assets can be quickly deployed and integrated with minimal customization, thus reducing project costs and expediate completion time. With the rapid development of metaverse, we believe digital assets will be become increasingly valuable and have abundant use cases. We plan to actively expand our digital asset bank and build digital assets which we believe have more use case to serve this fast-growing market.
Global Mofy China has its own technology platform, called “Mofy Lab”. Mofy Lab contains self-developed and optimized technologies, including 3D rebuilt technology and AI interactive technology, which can: (i) create 3D high definition virtual version of real world objects, or the digital assets; and (ii) provide a one-stop, low barrier, low-cost solution to assist metaverse companies in creating high quality virtual content.
For the six months ended March 31, 2023, our revenues were $12.8 million of which approximately 62% and 38% were generated from our two lines of business, virtual technology service and digital asset development and others, respectively. For the six months ended March 31, 2022, our revenues were $8.7 million of which approximately 99% and 1% were generated from our two lines of business, virtual technology service and digital marketing, respectively. For the year ended September 30, 2021, our revenues were $14.3 million of which approximately 47%, 43% and 10% were generated from our three lines of business, virtual technology service, digital marketing, digital asset development and others, respectively. We started business expansion and generate revenues from the digital asset development in the fiscal year of 2021, and due to the boom of the concept of the metaverse, nearly 10% of our revenues were generated from the digital asset development in the fiscal year ended September 30, 2021. For the year ended September 30, 2022, following our continuous expansion of the higher margin business lines of virtual technology service and digital asset development, we generated approximately 73%, 4% and 23% from virtual technology service, digital marketing, and digital development and other lines of business, respectively.
We position ourselves as a comprehensive technology solutions provider that act as a building block for the development of the metaverse industry. Our goal is to become a leading digital asset provider to empower companies in the metaverse value chain with high quality and cost-effective solutions and products. We believe that our experienced management team are able to utilize the opportunities from this emerging market to achieve the long-term development and growth of Global Mofy China through our growth strategies.
Factors Affecting Results of Operations
Our ability to compete effectively
Our business and results of operations depend on our ability to compete effectively in the industry in which we operate. The competitive position may be affected by, among other things, the scope of the products, the quality of solutions and abilities to customize our products to meet customers’ business needs. We believe that our proprietary technologies and research and development capabilities help us to develop products tailored to our customers and we are able to retain and develop business with existing customers and to attract new customers. However, if we are unable to keep up with our product development or innovation, we might not be able to develop new customers or expand our business effectively. In addition, we are subject to competition from within our industry. Increased competition could materially and adversely affect business and results of operations.
Government policies may impact our business and operating results.
We have not seen any significant impact of unfavorable government policies upon our business recently. However, our business and operating results will be affected by the overall economic growth and government policies in the PRC. Unfavorable changes in government policies could materially and adversely affect our results of operations. We will seek to make adjustments as required if and when government policies shift.
70
Impact of COVID-19 Outbreak
Our business could be adversely affected by the effects of epidemics. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic — the first pandemic caused by a coronavirus. The outbreak has reached more than 160 countries, resulting in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. The Chinese government has ordered quarantines, travel restrictions, and the temporary closure of stores and facilities. We are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses.
During the six months ended March 31, 2023, COVID-19 has had limited impact on our operations. There are still uncertainties of COVID-19’s future impact, and the extent of the impact will depend on a number of factors, including the duration and severity of the pandemic; and the macroeconomic impact of government measures to contain the spread of COVID-19 and related government stimulus measures.
Results of Operations
Comparison of Results of Operations for the Six Months Ended March 31, 2023 and 2022
The following table summarizes our results of operations for the six months ended March 31, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
For the Six Months Ended March 31, |
|||||||||||||||||||||
2023 |
2022 |
Variance |
|||||||||||||||||||
Amount |
% of |
Amount |
% of |
Amount |
% |
||||||||||||||||
Revenues |
$ |
12,823,586 |
|
100.0 |
% |
$ |
8,741,253 |
|
100.0 |
% |
$ |
4,082,333 |
|
46.7 |
% |
||||||
Cost of revenues |
|
(7,798,985 |
) |
(60.8 |
)% |
|
(6,781,123 |
) |
(77.6 |
)% |
|
(1,017,862 |
) |
15.0 |
% |
||||||
Gross profit |
|
5,024,601 |
|
39.2 |
% |
|
1,960,130 |
|
22.4 |
% |
|
3,064,471 |
|
156.3 |
% |
||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
||||||||||||
Selling expenses |
|
(98,893 |
) |
(0.8 |
)% |
|
(88,036 |
) |
(1.0 |
)% |
|
(10,857 |
) |
12.3 |
% |
||||||
General and administrative expenses |
|
(933,617 |
) |
(7.3 |
)% |
|
(724,214 |
) |
(8.3 |
)% |
|
(209,403 |
) |
28.9 |
% |
||||||
Research and development expenses |
|
(3,316,680 |
) |
(25.9 |
)% |
|
(734,307 |
) |
(8.4 |
)% |
|
(2,582,373 |
) |
351.7 |
% |
||||||
Total operating expenses |
|
(4,349,190 |
) |
(34.0 |
)% |
|
(1,546,557 |
) |
(17.7 |
)% |
|
(2,802,633 |
) |
181.2 |
% |
||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
Income from operations |
|
675,411 |
|
5.2 |
% |
|
413,573 |
|
4.7 |
% |
|
261,838 |
|
63.3 |
% |
||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
Other income (expenses): |
|
|
|
|
|
|
|
|
|
||||||||||||
Interest income |
|
36,693 |
|
0.3 |
% |
|
22,524 |
|
0.3 |
% |
|
14,169 |
|
62.9 |
% |
||||||
Interest expenses |
|
(46,312 |
) |
(0.4 |
)% |
|
(39,440 |
) |
(0.5 |
)% |
|
(6,872 |
) |
17.4 |
% |
||||||
Other income, net |
|
36,748 |
|
0.3 |
% |
|
4,317 |
|
0.0 |
% |
|
32,431 |
|
751.2 |
% |
||||||
Total other income (loss), net |
|
27,129 |
|
0.2 |
% |
|
(12,599 |
) |
(0.2 |
)% |
|
39,728 |
|
(315.3 |
)% |
||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before income taxes |
|
702,540 |
|
5.4 |
% |
|
400,974 |
|
4.5 |
% |
|
301,566 |
|
75.2 |
% |
||||||
Income taxes expense |
|
(175,917 |
) |
(1.4 |
)% |
|
— |
|
0.0 |
% |
|
(175,917 |
) |
0.0 |
% |
||||||
Net income |
|
526,623 |
|
4.0 |
% |
|
400,974 |
|
4.6 |
% |
|
125,649 |
|
31.3 |
% |
71
Revenue
We generate revenue primarily through virtual technology service and digital asset development. Total revenues increased by $4.1 million or 46.7%, from $8.7 million for the six months ended March 31, 2022, to $12.8 million for the six months ended March 31, 2023. The following table sets forth a breakdown of our revenues:
For the Six Months Ended March 31, |
|||||||||||||||||||
2023 |
2022 |
Variance |
|||||||||||||||||
Amount |
% |
Amount |
% |
Amount |
% |
||||||||||||||
Virtual technology service |
$ |
7,923,124 |
61.8 |
% |
$ |
8,620,488 |
98.6 |
% |
$ |
(697,365 |
) |
(8.1 |
)% |
||||||
Digital marketing |
|
— |
— |
|
|
120,765 |
1.4 |
% |
|
(120,765 |
) |
(100 |
)% |
||||||
Digital asset development and others |
|
4,900,462 |
38.2 |
% |
|
— |
— |
% |
|
4,900,462 |
|
NM |
|
||||||
Total |
$ |
12,823,586 |
100.0 |
% |
$ |
8,741,253 |
100.0 |
% |
$ |
4,082,333 |
|
46.7 |
% |
Revenues from virtual technology service
Revenues from virtual technology service accounted for 61.8% and 98.6% of total revenues for the six months ended March 31, 2023 and 2022, respectively. Revenues from virtual technology service decreased by $0.7 million, or 8.1% from $8.6 million for the six months ended March 31, 2022, to $7.9 million for the six months ended March 31, 2023. Such decrease was mainly due to the short negative impact of Covid-19 pandemic outbreak in December 2022 and January 2023 in most cities in China and the Company suspended its operations in December 2022 and early January 2023 due to the resurgence. Overall, the movie and TV industries boomed in China in recently two years led to an increase in the revenue contribution of movies and TV series projects. Revenue from movies and TV series projects increased as a result of the expansion of the overall business scale of the market, and we kept strengthened our relationship with existing customers as most of the new customers were referred by the current customers.
Revenues from digital marketing
Revenues from digital marketing accounted for 0.0% and 1.4% of total revenues for the six months ended March 31, 2023 and 2022, respectively, is primarily due to the fact that we adjusted the business mechanisms for the digital marketing in the fiscal year 2022 followed by our important business strategy expansion to the new business line of digital asset development and to focus more on the higher margin business lines. We earned net fees from advertisers by acting as an agent to purchase ad inventories and advertise services on behalf of the advertisers for the fiscal year 2022. We recognized revenues over the contracted service period. Pursuant to the agreement signed in 2022, we are not principal in these arrangements as we do not obtain control of ad inventories or advertising services, and therefore recorded net revenues which is the fee we charged.
Revenues from digital asset development and others
We launched our digital asset development and others business in the fourth quarter of 2021. Revenues from digital assets development and others accounted for 38.2% and 0.0% of total revenues for the six months ended March 31, 2023 and 2022, respectively. Revenues from digital assets development and others increased by $4.9 million from $nil for the six months ended March 31, 2022, to $4.9 million for the six months ended March 31, 2023. We completed our first digital assets development contract and generated revenue in the fourth quarter of fiscal year 2021. We entered into the second digital assets development agreement in January 2022 and completed the development and delivery of the digital assets in August 2022. Therefore, in the six months ended March 31, 2022, we did not recognize any revenue from digital assets development and others revenue stream. Such increase was mainly driven by the boom of the concept of the metaverse and our business strategies of expanding the new digital asset development continuously and focusing more on the higher margin business line. We enter into copyright licensing contracts to authorize production rights, adaption rights, sublicense rights of licensed copyrights and digital assets with entertainment production companies. In the future, we will contribute more resources in this business line and the proportion of digital asset development of total revenues is expected to further increase.
72
Cost of Revenues
Cost of revenues primarily consists of outsourcing content production costs, payroll and related costs for employees involved with the Company’s operations and product support, such as rental and depreciation expenses. Total cost of revenues increased by $1.0 million or 15.0%, from $6.8 million for the six months ended March 31, 2022, to $7.8 million for the six months ended March 31, 2023. The following table sets forth a breakdown of our cost of revenues by services offered for the six months ended March 31, 2023 and 2022:
For the Six Months Ended March 31, |
|||||||||||||||||||
2023 |
2022 |
Variance |
|||||||||||||||||
Amount |
% |
Amount |
% |
Amount |
% |
||||||||||||||
Virtual technology service |
$ |
5,612,727 |
72.0 |
% |
$ |
6,781,122 |
100.0 |
% |
$ |
(1,168,396 |
) |
(17.2 |
)% |
||||||
Digital marketing |
|
— |
— |
|
|
— |
— |
|
|
— |
|
— |
|
||||||
Digital asset development |
|
2,186,146 |
28.0 |
% |
|
— |
— |
|
|
2,186,146 |
|
— |
|
||||||
Total |
$ |
7,798,985 |
100.0 |
% |
$ |
6,781,122 |
100.0 |
% |
$ |
1,017,862 |
|
15.0 |
% |
Cost of revenues for virtual technology service decreased by $1.1 million, or 17.2%, from $6.8 million for the six months ended March 31, 2022 to $5.6 million for the six months ended March 31, 2023. Our cost of revenues of virtual technology service primarily consists of outsourcing costs, staff cost and allocated overhead related to each content production. The decrease in cost of revenues was in line with decreased revenue as the pandemic outbreak in the end of 2022 has negative impact on our business.
Cost of revenues for digital marketing was $nil for the six months ended March 31, 2022 primarily due to we entered into agency agreements with customers and no longer needs to incur significant cost related to the purchases and development of ad inventories and advertise services from other service providers. We are not a principal in these arrangements as we do not obtain control of ad inventories or advertising services, and therefore recorded net fees which is the difference between the gross billing amount charged to the advertisers and the costs of purchasing ad inventories and advertising services.
Cost of revenues for digital asset development and others was $2.2 million for the six months ended March 31, 2023. No such revenue recognized for the six months ended March 31, 2022. The cost of revenue primarily comprised of salary and benefits incurred by staff responsible for the production of the licensed copyrights and digital assets and out-sourced production and development services.
Gross Profit and Gross Margin
As a result of changes in revenue and cost of revenues, gross profit increased by $3.1 million, or 156.3% from $2.0 million for the six months ended March 31, 2022 to $5.0 million for the six months ended March 31, 2023. Such increase was due to a $2.7 million increase in gross profit from digital asset development and others. The gross margin increased from 22.4% for the six months ended March 31, 2022 to 39.2% for the six months ended March 31, 2023, which was mainly because that (i) the gross profits margin for virtual technology services increased from 21.3% for the six months ended March 31, 2022 to 29.2% for the six months ended March 31, 2023. Gross margin varied in accordance with different projects. The increase in gross margin for virtual technology services is primarily due to completion of additional higher margin projects in the six months ended March 31, 2023 as compared to the same period in the prior fiscal year; and (ii) the gross profits margin for digital asset development business and others was 55.4% for the six months ended March 31, 2023; and contributed 54.0% of the total gross profit for the six months ended March 31, 2023. The margin of digital asset development and others are normally higher than our traditional virtual technology services which also drives the significant increase in our gross margin comparing the six months ended March 31, 2023 to the same period in the prior fiscal year.
Operating Expenses
Operating expenses increased by $2.8 million, or 181.2%, from $1.5 million for the six months ended March 31, 2022, to $4.3 million for the six months ended March 31, 2023. The change was caused by the increase of $0.2 million in general and administrative expenses and the increase of $2.6 million in research and development expenses.
73
Selling Expenses
Selling expenses primarily included salary and benefit expenses incurred by sales and marketing personnel and related office expenses. Selling expenses increased by $10,857, or 12.3%, from $88,036 for the six months ended March 31, 2022 to $98,893 for the six months ended March 31, 2023. Due to industry characteristic, our customer acquisition mainly rely on accumulated reputation in industry and internal recommendations, and there is no direct correlation between selling expenses and revenue growth. Selling expenses represent 0.8% and 1.0% of total revenues for the six months ended March 31, 2023 and 2022, respectively.
General and Administrative Expenses
General and administrative expenses primarily consist of salary and benefit incurred by administration department as well as management, professional service fees, operating lease expenses for office rentals, deprecation, travelling expenses and provision for doubtful accounts. General and administrative expenses increased by $0.2 million, or 28.9%, from $0.7 million for the six months ended March 31, 2022 to $0.9 million for the six months ended March 31, 2023. The increase was mainly due to increased professional service fees of $0.2 million in relation to our initial public offering. General and administrative expenses represent 7.3% and 8.3% of total revenues for the six months ended March 31, 2023 and 2022, respectively.
Research and Development Expenses
Research and development expenses primarily consist of employee salaries and benefits for research and development personnel, allocated overhead and outsourced development expenses. Cost incurred for the internally developed IP of virtual content, scripts and digital assets to be licensed or sold during the planning and designing stage are expensed when incurred and are included in the research and development expenses are expensed when incurred. Research and development expenses increased by $2.6 million, or 351.7%, to $3.3 million for the six months ended March 31, 2023, from $0.7 million for the same period in 2022. This increase is primarily due to an increase in content production fees paid to the outsourcing service provider of $2.6 million for the development of certain non-core features and functions in the self-developed virtual contents projects.
Interest income
Interest income primarily arise from the loans to third parties. Interest income increased by $14,169, or 62.9%, to $36,693 for the six months ended March 31, 2023, from $22,524 for the six months ended March 31, 2022, which was mainly attributable to an increase of $2.4 million in loans to third party.
Interest expenses
Interest expenses primarily arise from bank loans. Interest expenses increased by $6,872, or 17.4%, to $46,312 for the six months ended March 31, 2023, from $39,440 for the six months ended March 31, 2022, which was mainly attributable to an increase of $0.4 million in average outstanding borrowings from banks.
Income tax expense
We recorded an income tax expense of $0.2 million for the six months ended March 31, 2023, compared to an income tax expense of $nil for the six months ended March 31, 2022, due to that Global Mofy China recorded a profit before income taxes for the six months ended March 31, 2023.
Net Income
As a result of the foregoing, we recorded a net income of $0.5 million for the six months ended March 31, 2023, as compared to a net income of $0.4 million for the six months ended March 31, 2022.
74
Comparison of Results of Operations for the Years Ended September 30, 2022 and 2021
The following table summarizes our results of operations for the years ended September 30, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such years.
For the Years Ended September 30, |
|||||||||||||||||||||
2022 |
2021 |
Variance |
|||||||||||||||||||
Amount |
% of |
Amount |
% of |
Amount |
% |
||||||||||||||||
Revenues |
$ |
17,188,293 |
|
100.0 |
% |
$ |
14,268,184 |
|
100.0 |
% |
$ |
2,920,109 |
|
20.5 |
% |
||||||
Cost of revenues |
|
(13,072,732 |
) |
(76.1 |
)% |
|
(10,990,076 |
) |
(77.0 |
)% |
|
(2,082,656 |
) |
19.0 |
% |
||||||
Gross profit |
|
4,115,561 |
|
23.9 |
% |
|
3,278,108 |
|
23.0 |
% |
|
837,453 |
|
25.5 |
% |
||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
||||||||||||
Selling expenses |
|
(153,822 |
) |
(0.9 |
)% |
|
(143,708 |
) |
(1.0 |
)% |
|
(10,114 |
) |
7.0 |
% |
||||||
General and administrative expenses |
|
(1,041,330 |
) |
(6.1 |
)% |
|
(1,077,102 |
) |
(7.5 |
)% |
|
35,772 |
|
(3.3 |
)% |
||||||
Research and development expenses |
|
(3,207,759 |
) |
(18.7 |
)% |
|
(661,134 |
) |
(4.6 |
)% |
|
(2,546,625 |
) |
385.2 |
% |
||||||
Total operating expenses |
|
(4,402,911 |
) |
(25.4 |
)% |
|
(1,881,944 |
) |
(13.1 |
)% |
|
(2,520,967 |
) |
134.0 |
% |
||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income from operations |
|
(287,350 |
) |
(1.8 |
)% |
|
1,396,164 |
|
9.9 |
% |
|
(1,683,514 |
) |
(120.6 |
)% |
||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
Other (expenses) income: |
|
|
|
|
|
|
|
|
|
||||||||||||
Interest income |
|
42,948 |
|
0.2 |
% |
|
42,690 |
|
0.3 |
% |
|
258 |
|
0.6 |
% |
||||||
Interest expenses |
|
(74,888 |
) |
(0.4 |
)% |
|
(25,183 |
) |
(0.2 |
)% |
|
(49,705 |
) |
197.4 |
% |
||||||
Other income, net |
|
54,049 |
|
0.3 |
% |
|
10,488 |
|
0.1 |
% |
|
43,561 |
|
415.3 |
% |
||||||
Total other income, net |
|
22,109 |
|
0.1 |
% |
|
27,995 |
|
0.2 |
% |
|
(5,886 |
) |
(21.0 |
)% |
||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income before income taxes |
|
(265,241 |
) |
(1.7 |
)% |
|
1,424,159 |
|
10.1 |
% |
|
(1,689,400 |
) |
(118.6 |
)% |
||||||
Income taxes expense |
|
— |
|
0.0 |
% |
|
(9,992 |
) |
(0.1 |
)% |
|
9,992 |
|
(100.0 |
)% |
||||||
Net (loss) income |
|
(265,241 |
) |
(1.7 |
)% |
|
1,414,167 |
|
9.9 |
% |
|
(1,679,408 |
) |
(118.8 |
)% |
Revenue
We generate revenue primarily through virtual technology service, digital marketing and digital asset development and others. Total revenues increased by $2.9 million or 20.5%, from $14.3 million for the year ended September 30, 2021, to $17.2 million for the year ended September 30, 2022. The following table sets forth a breakdown of our revenues:
For the Years Ended September 30, |
|||||||||||||||||||
2022 |
2021 |
Variance |
|||||||||||||||||
Amount |
% |
Amount |
% |
Amount |
% |
||||||||||||||
Virtual technology service |
$ |
12,536,957 |
72.9 |
% |
$ |
6,722,143 |
47.1 |
% |
$ |
5,814,814 |
|
86.5 |
% |
||||||
Digital marketing |
|
632,070 |
3.7 |
% |
|
6,191,046 |
43.4 |
|
|
(5,558,975 |
) |
(89.8 |
)% |
||||||
Digital asset development and others |
|
4,019,266 |
23.4 |
% |
|
1,354,995 |
9.5 |
|
|
2,664,271 |
|
196.6 |
% |
||||||
Total |
$ |
17,188,293 |
100.0 |
% |
$ |
14,268,184 |
100.0 |
% |
$ |
2,920,109 |
|
20.5 |
% |
Revenues from virtual technology service
Revenues from virtual technology service accounted for 72.9% and 47.1% of total revenues for the years ended September 30, 2022 and 2021, respectively. Revenues from virtual technology service increased by $5.8 million, or 86.5% from $6.7 million for the year ended September 30, 2021, to $12.5 million for the year ended September 30, 2022. Such increase was mainly driven by the recovery of the movie and TV industries in China. Industries boom led to an increase in the revenue contribution of movies and TV series projects. Revenue from movies and TV series projects increased as a result of the expansion of the overall business scale of the market, and we kept strengthened our relationship with existing customers as most of the new customers were referred by the current customers.
75
Revenues from digital marketing
Revenues from digital marketing accounted for 3.7% and 43.4% of total revenues for the years ended September 30, 2022 and 2021, respectively. Revenues from digital marketing decreased by $5.6 million, or 89.8% from $6.2 million for the year ended September 30, 2021, to $0.6 million for the year ended September 30, 2022, is primarily due to the fact that we adjusted the business mechanisms for the digital marketing in the fiscal year 2022 followed by our important business strategy expansion to the new business line of digital asset development and to focus more on the higher margin business lines. Instead of providing integrated digital marketing services from content planning, technical services and content production assistance to omni-channel online placement as in fiscal year 2021, we earned net fees from advertisers by acting as an agent to purchase ad inventories and advertise services on behalf of the advertisers for the fiscal year 2022. We recognized revenues over the contracted service period. Pursuant to the agreement signed in 2022, we are not principal in these arrangements as we do not obtain control of ad inventories or advertising services, and therefore recorded net revenues which is the fee we charged. In the future, we expect to further reduce the proportion of digital marketing of total revenues to be consistent with our business strategies of expanding the new digital asset development continuously and focusing more on the higher margin business lines.
Revenues from digital asset development and others
We launched our digital asset development and others business in the fourth quarter of 2021. Revenues from digital assets development and others accounted for 23.4% and 9.5% of total revenues for the years ended September 30, 2022 and 2021, respectively. Revenues from digital assets development and others increased by $2.7 million, or 196.6% from $1.4 million for the year ended September 30, 2021, to $4.0 million for the year ended September 30, 2022. We started to generate revenues from the digital asset development in the second quarter of 2021. Such increase was mainly driven by the boom of the concept of the metaverse. In the future, we will contribute more resources in this business line and the proportion of digital asset development of total revenues is expected to further increase.
Cost of Revenues
Cost of revenues primarily consists of outsourcing content production costs, payroll and related costs for employees involved with the Company’s operations and product support, such as rental and depreciation expenses. Total cost of revenues increased by $2.1 million or 19.0%, from $11.0 million for the year ended September 30, 2021, to $13.1 million for the year ended September 30, 2022. The following table sets forth a breakdown of our cost of revenues by services offered for the years ended September 30, 2022 and 2021:
For the Years Ended September 30, |
|||||||||||||||||||
2022 |
2021 |
Variance |
|||||||||||||||||
Amount |
% |
Amount |
% |
Amount |
% |
||||||||||||||
Virtual technology service |
$ |
9,512,606 |
72.8 |
% |
$ |
5,204,186 |
47.4 |
% |
$ |
4,308,420 |
|
82.8 |
% |
||||||
Digital marketing |
|
370,229 |
2.8 |
% |
|
5,716,527 |
52.0 |
|
|
(5,346,298 |
) |
(93.5 |
)% |
||||||
Digital asset development and others |
|
3,189,898 |
24.4 |
% |
|
69,363 |
0.6 |
|
|
3,120,535 |
|
4,498.9 |
% |
||||||
Total |
$ |
13,072,732 |
100.0 |
% |
$ |
10,990,076 |
100.0 |
% |
$ |
2,082,657 |
|
19.0 |
% |
Cost of revenues for virtual technology service increased by $4.3 million, or 82.8%, from $5.2 million for the year ended September 30, 2021 to $9.5 million for the year ended September 30, 2022. Our cost of revenues of virtual technology service primarily consists of outsourcing costs, staff cost and allocated overhead related to each content production. The increase in cost of revenues was primarily due to an increase in in line with increased revenue as our business expansion.
Cost of revenues for digital marketing decreased to $0.4 million for the year ended September 30, 2022 from $5.7 million for the same period in 2021, primarily due to we entered into agency agreements with customers and no longer needs to incur significant cost related to the purchases and development of ad inventories and advertise services from other service providers as we did in the same period in 2021. We are not a principal in these arrangements as we do not obtain control of ad inventories or advertising services, and therefore recorded net fees which is the difference between the gross billing amount charged to the advertisers and the costs of purchasing ad inventories and advertising services. The cost of revenue was primarily comprised of salary and benefits incurred by staff responsible for advertisement production and out-sourced promotion services.
76
Cost of revenues for digital asset development and others increased by $3.1 million, or 4,498.9%, from $0.07 million for the year ended September 30, 2021 to $3.2 million for the year ended September 30, 2022, primarily due to the majority of IP licenses authorized are outsourced from third party service providers during the fiscal year 2022, rather than derived from the Company’s self-developed virtual content production in the same period in 2021. The cost of revenue primarily comprised of salary and benefits incurred by staff responsible for the production of the licensed copyrights and digital assets and out-sourced production and development services.
Gross Profit and Gross Margin
As a result of changes in revenue and cost of revenues, gross profit increased by $0.8 million, or 25.5% from $3.3 million for the year ended September 30, 2021 to $4.1 million for the year ended September 30, 2022. Such increase was due to a $1.5 million increase in gross profit from virtual technology service, offset by a $0.2 million decrease in gross profit from digital marketing and a $0.5 million decrease in gross profit from digital asset development and others. The gross margin slightly increased from 23.0% for the year ended September 30, 2021 to 23.9% for the year ended September 30, 2022, which was mainly because that (i) the gross profits margin for virtual technology services slightly increased from 22.6% for the year ended September 30, 2021 to 24.1% for the year ended September 30, 2022; and the virtual technology services contributed 73.8% of the total gross profit for the year ended September 30, 2022; and (ii) the gross profits margin for digital asset development business and others decreased from 94.9% in 2021 to 20.6% in 2022 as the majority of IP licenses authorized are purchased from third party service providers during the fiscal year 2022, rather than derived from the Company’s self-developed virtual content production in the same period of 2021.
Operating Expenses
Operating expenses increased by $2.5 million, or 131.7%, from $1.9 million for the year ended September 30, 2021, to $4.4 million for the year ended September 30, 2022. The change was mainly caused by the increase of $2.5 million in research and development expenses.
Selling Expenses
Selling expenses primarily included salary and benefit expenses incurred by sales and marketing personnel and related office expenses. Selling expenses increased by $10,114, or 7.0%, from $143,708 for the year ended September 30, 2021 to $153,822 for the year ended September 30, 2022. The increase was primarily due to an increase of $0.04 million in salary and benefits expenses as a result of an increase in the number of marketing department personnel, offset by a decrease of $0.03 million in business travel and entertainment expenses as we increased the utilization of online communication in response to the travel restrictions in China related to the resurgence of COVID-19 cases. Selling expenses represent 0.9% and 1.0% of total revenues for the years ended September 30, 2022 and 2021, respectively.
General and Administrative Expenses
General and administrative expenses primarily consist of salary and benefit incurred by administration department as well as management, professional service fees, operating lease expenses for office rentals, deprecation, travelling expenses and provision for doubtful accounts. General and administrative expenses decreased by $0.04 million, or 3.3%, from $1.1 million for the year ended September 30, 2021 to $1.0 million for the year ended September 30, 2022. The decrease was mainly due to a decrease of $0.09 million in business travel and entertainment expenses because we increased the utilization of online communication; decreased provision of doubtful accounts of $0.04 million for accounts receivable which was provided in accordance with the bad debt policy; offset by an increased professional service fees of $0.04 million in relation to our initial public offering. General and administrative expenses represent 6.1% and 7.5% of total revenues for the years ended September 30, 2022 and 2021, respectively.
Research and Development Expenses
Research and development expenses primarily consist of employee salaries and benefits for research and development personnel, allocated overhead and outsourced development expenses. Cost incurred for the internally developed IP of virtual content, scripts and digital assets to be licensed or sold during the planning and designing stage are expensed when incurred and are included in the research and development expenses are expensed when incurred. Research and development expenses increased by $2.5 million, or 385.2%, to $3.2 million for the year ended September 30, 2022,
77
from $0.7 million for the same period in 2021. This increase is primarily due to an increase in content production fees paid to the outsourcing service provider of $2.3 million for the development of certain non-core features and functions in the self-developed virtual contents projects.
Interest income
Interest income primarily arise from the loans to third parties. Interest income increased by $258, or 0.6%, to $42,948 for the year ended September 30, 2022, from $42,690 for the year ended September 30, 2021.
Interest expenses
Interest expenses primarily arise from short bank borrowings. Interest expenses increased by $49,705, or 197.4%, to $74,888 for the year ended September 30, 2022, from $25,183 for the year ended September 30, 2021, which was mainly attributable to an increase of $0.8 million in average outstanding borrowings from banks.
Income tax expense
We recorded an income tax expense of nil for the year ended September 30, 2022, compared to an income tax expense of $9,992 for the year ended September 30, 2021. This is due to that we incurred losses before income taxes in fiscal year 2022 and a full valuation reserve is provided as we expect we will not be able to utilize the deferred tax assets associated the operating losses generated in the current year before it expired. The decrease in income tax expense was in line with the decrease in taxable income in 2022.
Net (loss) income
As a result of the foregoing, we recorded a net loss of $0.3 million for the year ended September 30, 2022, as compared to a net income of $1.4 million for the year ended September 30, 2021.
Liquidity and Capital Resources
In assessing its liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources in the future, and its operating and capital expenditure commitments. To date, we have financed our operations primarily through cash from operations, short-term borrowings from banks and third parties, and capital contributions from shareholders, which have historically been sufficient to meet our working capital requirements.
The Company currently plans to fund its operations mainly through cash flow from its operations, renewal of bank borrowings, supports from controlling shareholders if necessary, to ensure sufficient working capital. As of March 31, 2023, we had cash in the amount of $8.2 million and a total working capital of $13.0 million. As of March 31, 2023, we had accounts receivable of $2.7 million, a total of $1.5 million, or 55% of such accounts receivable balance has been collected as of the date of this prospectus. As of March 31, 2023, we had bank loans of $3.0 million; management expects that it would be able to obtain new bank loans or renew its existing bank loans upon their maturity based on past experience and the Company’s good credit history. On November 15, 2022, the Company, together with Mr. Haogang Yang, our founder and CEO, certain BVI founder entities and all its subsidiaries in Hong Kong and mainland China, entered into an equity investment agreement with Standard International Capital Partners SPC (for and on behalf of Standard International Capital Partners Fund I SP), a segregated portfolio company organized and existing under the laws of the Cayman Islands (the “Investor”), pursuant to which the Investor agreed to invest $1.5 million in Global Mofy Cayman for 381,963 ordinary shares. As of November 23, 2022, all of the $1.5 million was received. On February 10, 2023, the Company entered into a share purchase agreement with Anguo Jijian Enterprise Management Co., Ltd (“Anguo”), Anjiu Jiheng Enterprise Management Co., Ltd (“Anjiu”), and Anling Management Co., Ltd (“Anling”), pursuant to which we issued 740,829, 740,829, and 444,497 ordinary shares of the Company, par value US$0.000002, to Anguo, Anjiu, and Anling, respectively, for an aggregate issue price of $9.4 million (RMB65,000,000). All of the $9.4 million was received at the end of March 2023.
We believe that the current cash and cash flows provided by future operating activities and loans from banks and third parties will be sufficient to meet the working capital needs in the next 12 months from the date the unaudited financial statements were issued. If we experience an adverse operating environment or incurs unanticipated capital expenditure
78
requirements, or if we decide to accelerate growth, then additional financing may be required. We cannot guarantee, however, that additional financing, if required, would be available at all or on favorable terms. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilution to our existing shareholders. If it is determined that the cash requirements exceed the Company’s amounts of cash on hand, the Company may seek to issue additional debt or obtain financial support from shareholders. The principal shareholder of the Company has made pledges to provide financial support to the Company whenever necessary.
Substantially all of our current operations are conducted in China and all of our revenue, expenses, cash are denominated in RMB. Current foreign exchange and other regulations in the PRC may restrict our PRC entities in their ability to transfer their net assets to us. However, we have no present plans to declare dividend and we plan to retain our retained earnings to continue to grow business. In addition, these restrictions had no impact on our ability to meet cash obligations as all of current cash obligations are due within the PRC.
Cash Flows Analysis
For the Six Months Ended March 31, 2023 and 2022
The following table sets forth a summary of our cash flows for the periods indicated:
For the Six Months Ended March 31, |
||||||||
2023 |
2022 |
|||||||
Net cash (used in) provided by operating activities |
$ |
(1,971,693 |
) |
$ |
455,092 |
|
||
Net cash (used in) provided by investing activities |
|
(3,246,318 |
) |
|
38,762 |
|
||
Net cash provided by (used in) financing activities |
|
12,171,919 |
|
|
(260,604 |
) |
||
Effect of foreign exchange rate on cash |
|
91,280 |
|
|
16,153 |
|
||
Net increase in cash |
|
7,045,188 |
|
|
249,403 |
|
||
Cash at the beginning of the year |
|
1,136,064 |
|
|
1,088,694 |
|
||
Cash at the end of the year |
$ |
8,181,251 |
|
$ |
1,338,097 |
|
Operating Activities
Net cash used in operating activities was $2.0 million for the six months ended March 31, 2023, mainly derived from (i) a net income of $0.5 million adjusted for noncash depreciation and amortization of $91,389, (ii) net changes in the operating assets and liabilities, primarily comprising of (a) an increase in accounts receivable of $0.6 million because of the expansion of our business in the six months period; (b) an increase in advance to vendors of $2.0 million mainly for outsourced digital assets, which is in consistent with our business strategy of expanding the new digital asset development and contribute more resources in this business line. We expect to utilize these prepayments before the end of 2023.
Net cash provided by operating activities was $0.5 million for the six months ended March 31, 2022, mainly derived from (i) a net income of $0.4 million adjusted for noncash depreciation and amortization of $14,076 and provision for doubtful accounts of $0.1 million; (ii) net changes in the operating assets and liabilities, primarily comprising of (a) an decrease of $1.1 million of accounts receivable; (b) an increase of $2.4 million of advance to vendors for outsourced research and development of digital assets and the production of virtual content, which were not completed or delivered yet as of March 31, 2022; (c) an increase in tax payable of $0.1 million due to more VAT incurred as a result of increase in revenues.; and (d) an increase in advance from customers of $0.8 million as a result of business expansion.
Investing Activities
Net cash used in investing activities amounted to $3.2 million for the six months ended March 31, 2023, primarily consisting of lend loans to third party of $2.4 million and purchase of intangible assets of $1.0 million, partially offset by collection of loans to third parties of $0.2 million.
79
Net cash provided by investing activities amounted to $38,762 for the six months ended March 31, 2022, primarily consisting of collection of interest of the loan to related parties of $62,800, partially offset by purchase of property and equipment of $24,038.
Financing Activities
Net cash provided by financing activities amounted to $12.2 million for the six months ended March 31, 2023, primarily consisting of proceeds from bank loans of $1.7 million and capital contributions of $10.9 million from investors partially offset by repayments of bank loans of $0.3 million.
Net cash used in financing activities amounted to $0.3 million for the six months ended March 31, 2022, primarily consisting of capital contribution from a new investor of $0.6 million and proceeds from bank loans of $0.4 million, offset by repayments of loans from third parties of $1.3 million, repayments of loans from related parties of $0.3 million and repayments of bank loans of $0.3 million.
For the Years Ended September 30, 2022 and 2021
The following table sets forth a summary of our cash flows for the periods indicated:
For the Years Ended September 30, |
||||||||
2022 |
2021 |
|||||||
Net cash used in operating activities |
$ |
(1,137,227 |
) |
$ |
(1,473,281 |
) |
||
Net cash used in investing activities |
|
(166,176 |
) |
|
(81,189 |
) |
||
Net cash provided by financing activities |
|
1,469,592 |
|
|
2,623,352 |
|
||
Effect of foreign exchange rate on cash |
|
(118,819 |
) |
|
11,054 |
|
||
Net increase (decrease) in cash |
|
47,370 |
|
|
1,079,936 |
|
||
Cash at the beginning of the year |
|
1,088,694 |
|
|
8,758 |
|
||
Cash at the end of the year |
$ |
1,136,064 |
|
$ |
1,088,694 |
|
Operating Activities
Net cash used in operating activities was $1.1 million for the year ended September 30, 2022, mainly derived from (i) a net loss of $0.3 million adjusted for noncash amortization of operating lease right-of-use assets of $151,863, (ii) net changes in the operating assets and liabilities, primarily comprising of (a) an decrease in accounts receivable of $3.6 million; (b) an increase in advance to vendors of $3.4 million for outsourced research and development of digital assets and the production of virtual content, which were not completed or delivered yet as of September 30, 2022; (c) a decrease in accounts payable of $1.8 million was mainly because we make payment in advance for the business of digital assets development and others during the fiscal year 2022; and (d) an increase in advance from customer of $0.7 million.
Net cash used in operating activities was $1.5 million for the year ended September 30, 2021, mainly derived from (i) a net income of $1.4 million adjusted for noncash depreciation and amortization of $23,140 and provision for doubtful accounts of $21,422, (ii) net changes in the operating assets and liabilities, primarily comprising of (a) an increase of $1.4 million of accounts payable because of the expansion of our business in the fiscal year 2021; (b) an increase in tax payable of $0.5 million due to more VAT incurred as a result of increase in revenues.; and (c) an increase in accounts receivable of $5.3 million as a result of business expansion.
Investing Activities
Net cash used in investing activities amounted to $0.2 million for the year ended September 30, 2022, primarily consisting of purchase of property and equipment of $28,839 and lend loans to related party of $0.2 million, partially offset by collection of loans to third parties of $61,039.
Net cash used in investing activities amounted to $81,189 for the year ended September 30, 2021, primarily consisting of purchase of property and equipment of $51,683 and lend loans to third parties of $0.5 million, partially offset by collection of loans to related parties and third parties of $0.1 million and $0.4 million, respectively.
80
Financing Activities
Net cash provided by financing activities amounted to $1.5 million for the year ended September 30, 2022, primarily consisting of capital contribution from a new investor of $2.0 million and proceeds from bank loans of $1.8 million, offset by repayment of third party loans of $1.2 million and repayment of bank loans of $1.2 million.
Net cash provided by financing activities amounted to $2.6 million for the year ended September 30, 2021, primarily consisting of proceeds from third party loans of $1.1 million, proceeds from bank loans of $1.1 million and capital contribution of $0.8 million, partially offset by repayment of bank loans of $0.3 million.
Contractual Obligations
As of March 31, 2023 our contractual obligations were as follows:
Payments due by period |
|||||||||||||||
Total |
Less than |
1 – 2 years |
2 – 3 years |
More than 3 years |
|||||||||||
Contractual Obligations |
|
|
|
|
|
||||||||||
Short-term bank loans |
$ |
3,031,274 |
$ |
3,031,274 |
$ |
— |
$ |
— |
$ |
— |
|||||
Loans from third parties |
$ |
133,234 |
$ |
133,234 |
$ |
— |
$ |
— |
$ |
— |
|||||
Operating Lease Obligations |
|
31,506 |
|
31,506 |
|
— |
|
— |
|
— |
|||||
Total |
$ |
3,196,014 |
$ |
3,196,014 |
$ |
— |
$ |
— |
$ |
— |
Inflation
Inflation does not materially affect our business or the results of operations.
Seasonality
The nature of our business does not appear to be affected by seasonal variations.
Critical Accounting Policies and Management Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared in accordance with U.S. GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenues, costs and expenses, and any related disclosures. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates as a result of changes in our estimates. Some of our accounting policies require higher degrees of judgment than others in their application.
We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.
Accounts receivable, net
Accounts receivables are presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer payment history, customer’s current credit-worthiness, and current economic trends. Accounts are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
81
Revenue recognition
The Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective approach for the year ended September 30, 2020 and has elected to apply it retrospectively for the year ended September 30, 2019. In accordance with ASC 606, revenues from contracts with customers are recognized when control of the promised goods or services are transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following steps: (i) identify the contracts with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when, or as the entity satisfies a performance obligation.
The Company’s revenues are derived principally from virtual technology service, digital marketing and digital asset development and others. Value added taxes (“VAT”) are presented as a reduction of revenues.
Revenue from virtual technology service
The Company engages in virtual technology service for visual effect in movies, television series, animations, games, advertainments, tourisms, and AR/VR technology etc. The virtual content production contracts are primarily on a fixed price basis, which require the Company to perform services for visual effect design, content development, production and integration based on customers’ specific needs. The required production period is generally less than one year. The virtual content production services are considered as a single performance obligation because the Company provides a significant service of integrating different services underlying each contract, which are highly interdependent and interrelated with one another. The Company currently does not have any modification of contract and the contracts currently do not have any variable consideration.
The customer of the virtual content production contract can only obtain control of the produced virtual content after the project is completed. The Company satisfy its performance obligation at a point in time only when it transfers the developed content to the customer. The virtual content are assets when they are developed by the Company. The Company can direct the use of the product and obtain substantially all of the remaining benefits of the asset. The customer can direct the use and obtain benefits of the assets only after the development completed and control transfer occurred from the Company upon acceptance by the customer. The customer does not simultaneously receive or consume the benefits provided by the Company’s performance as the Company performs. The customer can only benefit from the final output of the virtual content as delivered by the Company. The customer does not have control over the content as it is developed. The developed virtual content may be sold as digital assets by the Company and the payment collected in advance based on the contract upon each milestone would be refundable if the Company does not meet the customer’s needs or there is other default. Hence, none of the criteria of ASC 606-10-25-27 is met. Revenue from virtual content production is recognized at a point in time when the Company satisfies the performance obligation by transferring promised virtual content product upon acceptance by customers.
Revenue from digital marketing
The Company enters into two types of digital marketing contracts directly with customers. For one type of contracts, pursuant to which the Company provides advertisement production and promotion services to customers. The advertisements are in different format, including but not limited to short video, landing pages and static materials. The Company considers that both of the advertisement production and promotion services are highly interrelated and not separately identifiable. The Company’s overall promise represents a combined output that is a single performance obligation; there is no multiple performance obligations. The Company engages third-party advising distributor while providing the promotion services. The Company considers itself as principal of the services as it has control of the specified services at any time before it is transferred to the customers which is evidenced by (i) the Company is primarily responsible for the production of content for advertisements and (ii) having latitude in select third party distributors for promotion and establish pricing. Therefore, the Company acts as the principal of these arrangements and reports revenue earned and costs incurred related to these transactions on a gross basis.
Under a framework contract, the Company receives separate purchase orders from customers. Accordingly, each purchase order is identified as a separate performance obligation, containing a bundle of advertisements that are substantially the same and that have the same pattern of transfer to the customer. Where collectability is reasonably assured, revenue is recognized over the service period of the purchase order, which is based on specific action (i.e. cost
82
per mille “CPM”) for online display. The amount of the revenue is the gross billing charged to the customers. Revenue is recognized on a CPM basis as impressions or clicks are delivered through the Group’s display of the advertisements in accordance with the revenue contracts.
The Company entered into another type of contracts with advertisers during the fiscal year 2022, pursuant to which, the Company earns net fees from advertisers by acting as an agent to purchase advertisement inventories and advertise services on behalf of the advertisers. The Company recognizes revenues over the contracted service period. The Company is not a principal in these arrangements as it does not obtain control of ad inventories or advertising services, and therefore recorded net revenues at the difference between the gross billing amount charged to the advertisers and the costs of purchasing ad inventories and advertising services.
Revenue from digital asset development and others
The Company enters into copyright licensing contracts to authorize production rights, adaption rights, sublicense rights of licensed copyrights and digital assets with entertainment production companies. The licensing provides customers the right to use the Company’s IP as it exists since neither the criteria as stated in ASC 610-10-55-62 is met. The specific licensed copyrights and digital assets authorized to customers are all developed IP, which are unique and do not require ongoing maintenance or effort from the Company to assure the usefulness of the license. The Company is entitled to receive the license fee under the licensing arrangements and does not have any future obligation once it has provided the underlying IP content to the licensee. The Company may use such authorized assets as a base model to produce new digital assets, however, these customers will not be contractually or practically required to use them. The revenue is recognized at a point in time when the licensed copyright and digital asset is made available for the customer’s use and benefit.
Contract balance
The Company recognizes accounts receivable in its consolidated balance sheets when it performs a service in advance of receiving consideration and it has the unconditional right to receive consideration. Payments received from its customers are based on the payment terms established in its contracts. Such payments are initially recorded to advance from customers and are recognized into revenue as the Company satisfies its performance obligations.
Income taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or future deductibility is uncertain. The Company’s subsidiaries in the PRC and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. No taxable income was generated outside the PRC for the years ended September 30, 2022 and 2021.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes”, prescribe 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. It also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There were no material uncertain tax positions as of September 30, 2022 and September 30, 2021. As of September 30, 2022, income tax returns for the tax years ended December 31, 2017 through December 31, 2021 remain open for statutory examination.
Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326). The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount
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expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. This ASU is effective for annual and interim periods beginning after September 15, 2019 for issuers and September 15, 2020 for non-issuers. Early adoption is permitted for all entities for annual periods beginning after September 15, 2018, and interim periods therein. In May 2019, the FASB issued ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief. This ASU adds optional transition relief for entities to elect the fair value option for certain financial assets previously measured at amortized cost basis to increase comparability of similar financial assets. The ASUs should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified retrospective approach). On November 19, 2019, the FASB issued ASU 2019-10 to amend the effective date for ASU 2016-13 to be fiscal years beginning after December 15, 2022 and interim periods therein. The Company will adopt this ASU on October 1, 2023 and expects that the adoption will not have a material impact on the Company’s consolidated financial statements and related disclosures.
In October 2020, the FASB issued ASU 2020-10, “Codification Improvements”. The amendments in this Update represent changes to clarify the Codification or correct unintended application of guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments in this Update affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. ASU 2020-10 is effective for annual periods beginning after December 15, 2020 for public business entities. For all other entities, the amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. Early application is permitted. The amendments in this Update should be applied retrospectively. The Company adopted this ASU as of October 1, 2022 and the adoption does not have a material impact on the Company’s consolidated financial statements and related disclosures.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial position, statements of comprehensive income and cash flows.
Off-Balance Sheet Arrangements
We have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
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Overview
We are a technology solutions provider engaged in virtual content production, digital marketing, and digital assets development for the metaverse industry. Utilizing our proprietary “Mofy Lab” technology platform which consists of cutting-edge three-dimensional (“3D”) rebuilt technology and artificial intelligence (“AI”) interactive technology, we are able to create 3D high definition virtual version of a wide range of physical world objects such as human, animal and scenes which can be used in different applications. According to the industry datasheet generated by Frost & Sullivan, we believe we are one of the leading digital asset banks in China, which consists of more than 7,000 high precision 3D digital assets. High precision means 4K (4096*2160) resolution of movie precision. With our strong technology platform and industry track record, we are able to attract high-profile customers such as L’Oreal and Pepsi and earn repeat business. We primarily operate in three lines of business (i) virtual technology service, (ii) digital marketing, and (iii) digital asset development and others.
Virtual Technology Service
We provide comprehensive technology solution to assist customers in virtual content production, which can be used in a variety of settings such as movies, television series, animations, advertising and gaming, etc. Leveraging our proprietary “Mofy Lab” technology platform, we are able to produce high-quality virtual content quickly and cost-effectively to meet highly differentiated customers’ needs. The virtual content production contracts are primarily on a fixed price basis, payable on a milestone basis, which require us to perform services for visual effect design, content development, production and integration based on customers’ specific needs.
Digital Marketing
Previously in fiscal year 2021, we primarily provided advertisement production and promotion services to customers with integrated digital marketing services from content planning, technical services and content production assistance to omni-channel online placement. Technical services under advertisement production uses the same technologies with our virtual technology service. For content planning and content production, unlike focusing on the storyline under virtual technology service, we focus on the promotion products provided by the digital marketing customers under advertisement production. The advertisements are in different format, including but not limited to short video, landing pages and static materials. We consider that both of the advertisement production and promotion services are highly interrelated and not separately identifiable. It is not practical to quantify the portion of revenue from our advertisement production and revenue that derives from advertising placement/promotion services.
Following our business expansion to the new business line of digital asset development by the last quarter of fiscal year 2021 and the decision of focusing more on the higher margin business lines to better cope with the impact of the COVID-19 pandemic, we adjusted the business strategies for the digital marketing in the fiscal year 2022. Instead of providing integrated digital marketing services from content planning, technical services and content production assistance to omni-channel online placement as in fiscal year 2021, we acted as an agent to purchase ad inventories and advertise services on behalf of the advertisers for the fiscal year 2022. We expect to continuously reduce the input in digital marketing business line, and the proportion of digital marketing of total revenues will further reduce in the future.
Digital Asset Development
Through our virtual content production business and opportunistic acquisition of certain digital assets, we are able to build a robust digital asset bank with more than 7,000 3D digital assets. We grant specific use right of these digital assets to customers who use them based on their specific needs across different applications such as movies, TV series, AR/VR, animation, advertising and gaming. Our digital assets, which build up our digital asset bank, mainly consist of high precision 3D renders of scenes, characters, objects and, items that can be licensed for use in virtual environment.
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Depending on customers’ needs, these digital assets can be quickly deployed and integrated with minimal customization, thus reducing project costs and expediate completion time. With the rapid development of metaverse, we believe digital assets will be become increasingly valuable and have abundant use cases. We plan to actively expand our digital asset bank and build digital assets which we believe have more use case to serve this fast-growing market.
Global Mofy China has its own technology platform, called “Mofy Lab”. Mofy Lab contains self-developed and optimized technologies, including 3D rebuilt technology and AI interactive technology, which can: (i) create 3D high definition virtual version of real world objects, or the digital assets; and (ii) provide a one-stop, low barrier, low-cost solution to assist metaverse companies in creating high quality virtual content.
For the six months ended March 31, 2023, our revenues were $12.8 million of which approximately 62% and 38% were generated from our two lines of business, virtual technology service and digital asset development and others, respectively. For the six months ended March 31, 2022, our revenues were $8.7 million of which approximately 99% and 1% were generated from our two lines of business, virtual technology service and digital marketing, respectively. For the year ended September 30, 2022, our revenues were $17.19 million of which approximately 73%, 4% and 23% were generated from our three lines of business, virtual technology service, digital marketing, digital assets development and others, respectively. For the year ended September 30, 2021, our revenues were $14.27 million of which approximately 47%, 43% and 10% were generated from our three lines of business, virtual technology service, digital marketing, digital asset development and others, respectively. Global Mofy China started to generate revenues from the digital asset development in the second quarter of 2021, benefiting from the accumulation of existing customer relations. For the fiscal year ended September 30, 2021, nearly 10% of our revenues were generated from the digital asset development and others due to the boom of the concept of the metaverse. Global Mofy China is in the process of adjusting its business and marketing strategies for the digital asset development and others for the year ended September 30, 2022.
We position ourselves as a comprehensive technology solutions provider that act as a building block for the development of the metaverse industry. Our goal is to become a leading digital asset provider to empower companies in the metaverse value chain with high quality and cost-effective solutions and products. We believe that our experienced management team are able to utilize the opportunities from this emerging market to achieve the long-term development and growth of Global Mofy China through our growth strategies.
Our Corporate History and Structure
Global Mofy Metaverse Limited, or Global Mofy Cayman, is a holding company incorporated in the Cayman Islands. As a holding company with no material operations, Global Mofy Cayman conducts its operations in China through Global Mofy China and its PRC subsidiaries. After the restructure that dissolved the VIE structure, Global Mofy Cayman now controls and receives the economic benefits of the PRC subsidiaries’ business operation, if any, through equity ownership. We do not use a VIE structure.
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The following diagram illustrates our corporate structure as of the date of this prospectus.
Global Mofy Cayman is a Cayman Islands exempted company incorporated on September 29, 2021. As a holding company with no significant assets or operation, it conducts business in China through Global Mofy China and its subsidiaries.
Global Mofy HK was incorporated on October 21, 2021 under the law of Hong Kong SAR. Global Mofy HK is the wholly-owned subsidiary of Global Mofy Cayman and is currently not engaging in any active business and merely acting as a holding company.
Global Mofy WFOE was incorporated on December 9, 2021, under the laws of the People’s Republic of China. It is a wholly-owned subsidiary of Global Mofy HK and a wholly foreign-owned entity under the PRC laws. The registered principal activity of the company is technology development, technical services, and software development.
Global Mofy Zhejiang WFOE was incorporated on April 3, 2023, under the of the People’s Republic of China. It is a wholly-owned subsidiary of Global Mofy HK and a wholly foreign-owned entity under the PRC laws. The registered principal activity of the company is technology development, technical services, and software development. It is currently not engaging in any active business.
Global Mofy China was incorporated on November 22, 2017 under the laws of the People’s Republic of China. The registered principal activity of the company is technology development, technical services, design and produce advertisement, and film screening. Global Mofy China is one of our operating entities.
Shanghai Mofy was incorporated on May 11, 2020 under the laws of the PRC. Shanghai Mofy is a wholly owned subsidiary of Global Mofy China and is one of our operating entities.
Kashi Mofy was incorporated on July 31, 2019 under the laws of the PRC. Kashi Mofy is a wholly owned subsidiary of Global Mofy China and is one of our operating entities.
Xi’an Mofy was incorporated on June 8, 2018 under the laws of the PRC. Xi’an Mofy is a majority owned subsidiary of Global Mofy China and is one of our operating entities.
Beijing Mofy was incorporated on February 7, 2018 under the laws of the PRC. Beijing Mofy is a majority owned subsidiary of Global Mofy China and is one of our operating entities.
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The Restructure
On January 5, 2022, Global Mofy WFOE entered into a series of VIE agreements (the “VIE Agreements”) with Global Mofy China and all the shareholders of Global Mofy China, which established the VIE structure. As a result of the VIE Agreements, Global Mofy WFOE was regarded as the primary beneficiary of Global Mofy China, and we treated Global Mofy China and its subsidiaries as the variable interest entities under U.S. GAAP for accounting purposes. We have consolidated the financial results of Global Mofy China and its subsidiaries in our consolidated financial statements in accordance with the U.S. GAAP.
On June 28, 2022, Global Mofy WFOE entered into equity transfer agreements with each shareholder of Global Mofy China to purchase all the equity interest in Global Mofy China. On July 8, 2022, Global Mofy WFOE, Global Mofy China and shareholders of Global Mofy China signed a termination agreement of the VIE Agreements. The VIE structure was dissolved. The restructure was completed on July 8, 2022. As a result, Global Mofy China became a wholly owned subsidiary of Global Mofy WFOE. Global Mofy China was a foreign-invested joint venture at the time of the acquisition of its 100% equity interests by Global Mofy WFOE.
With respect to the application of the M&A Rules, we acquired the domestic operating entities through a “two-step slow-walk” method, so the approval process of the Ministry of Commerce is not applicable. The acquisition was broken into two steps: 1) adding a non-PRC shareholder so that the domestic operating entity will be categorized as a Sino-foreign joint venture (an entity with mixed capital between one or more foreign and Chinese shareholders); 2) Global Mofy WFOE to complete the equity acquisition of Global Mofy China from both the Chinese and foreign shareholders so that it would become a foreign-owned enterprise. Our PRC counsel, Jiangsu Junjin Law Firm, has completed substantial amount of research and study of the regulation and precedents and found that this approach has been widely used in the past. In addition, it has never been penalized or challenged with respect to the legality of this matter. While our PRC counsel, Jiangsu Junjin Law Firm, believes that it is permitted to structure the acquisition in this manner and the acquisition, in fact, has been completed without any challenge by any regulator, there is uncertainty with respect to the interpretation of the current regulation as it is still evolving. In the event that this approach is deemed invalid or illegal and it is applied retroactively, Global Mofy WFOE’s acquisition of Global Mofy China could be deemed invalid and we will not be able to consolidate the financial statements of Global Mofy China. We have added a risk factor to disclose such risk on page 45 under “Risk Factors — Risks Related to Doing Business in China — We circumvent the application of M&A rules by taking a “two-step slow-walk” method. In the event that this approach is deemed invalid or illegal and it is applied retroactively, Global Mofy WFOE’s acquisition of Global Mofy China could be deemed invalid and we will not be able to consolidate the financial statements of Global Mofy China.”
Global Mofy China previously planned to provide radio and television program production and film projection services and obtained a related business license in order to do so. According to the Foreign Investment Law and the Special Administrative Measures for Access of Foreign Investment (Negative List), foreign investment ratio in entities for the provision of such radio and television program production and film projection services shall not exceed 50% and consequently it was agreed that the VIE agreements be entered so that Global Mofy China would not run afoul of such laws. However, those services were not operated by Global Mofy China and the reason to use the VIE structure was no longer relevant. Global Mofy China excluded the radio and television program production and film projection services as its business scope in June 2022 and the related business license was canceled in June 2022. Global Mofy China is then able to be held by Global Mofy WFOE directly. Currently, the Chinese securities laws does not differentiate a VIE structure and an equity holding structure when it comes to overseas listing. However, we concern about the risk of future changes in the Chinese securities laws that may disallow the VIE structure, and decided that it would be in the best interest of our shareholders to dissolve the VIE structure and assume a direct parent-subsidiary holding structure between Global Mofy WFOE and Global Mofy China.
One of our beneficial owners, Zhenquan Ren, who is a PRC resident, has not and will not completed the Circular 37 Registration. Mr. Ren owns 970,701 shares, through Mofy Yi Limited, a BVI company, which is 3.74% of the Company’s issued and outstanding shares. We will ask our prospective shareholders who are Chinese residents to make the necessary applications and filings as required by Circular 37. However, not each of our shareholders, who are PRC residents will, in the future, complete the registration process as required by Circular 37. Failure to comply with the registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of the foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested enterprise, including restrictions on its ability to receive registered capital as well as additional capital from PRC resident
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shareholders who fail to complete Circular 37 registration; and repatriation of profits and dividends derived from special purpose vehicles to China, by the PRC resident shareholders who fail to complete Circular 37 registration, are also illegal. In addition, the failure of the PRC resident shareholders to complete Circular 37 registration may subject each of the shareholders to fines less than RMB50,000. Please see “Risk Factors — Risks Related to Doing Business in China — One of our shareholders has not and will not completed the Circular 37 Registration. The Chinese resident shareholders’ failure to comply with Circular 37 registration may result in restrictions being imposed on part of foreign exchange activities of the offshore special purpose vehicles, including restrictions on its ability to receive registered capital as well as additional capital from Chinese resident shareholders who fail to complete Circular 37 registration” on page 39 of this prospectus.
Industry
Unless otherwise indicated, estimates and information contained in this prospectus concerning our industry and the market in which we operate, including our general expectations, market position, and market opportunity, are based on industry datasheet generated by Frost and Sullivan, other publicly available studies and our internal sources and estimates. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Although we are responsible for all of the disclosure contained in this prospectus and we believe the information from the industry publications and other third-party sources included in this prospectus is reliable, we have not independently verified the accuracy or completeness of the data contained in such sources. Forecasts and other forward-looking information with respect to industry are subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus. See the section titled “Special Note Regarding Forward Looking Statements.”
We are a technology provider for building the metaverse. Our core technology is 3D rebuilt technology and AI interactive technology, which are used in various segments of the metaverse such as TV/Movie, animation, games, AR/VR and advertising, etc.
Overview of metaverse
Idealistically, the metaverse is a virtual world that offers parallel experiences to the real world, where visitors use hardware devices such as motion-tracking machinery, AR/VR to physically interact in a virtual world, take the form of virtual avatars and live pseudo-anonymous lives. Metaverse comprises four core elements:
• Highly realistic and immersive experiences
• High-quality and rich contents
• Interaction, a social attribute that breaks the boundary between the real world and the virtual space.
• Independent economic systems
The metaverse is still an evolving concept and many industry experts believe it will take three phases to reach the idealistic format. At present, we are in phase 1.0, and the core foundation of this phase is the immersive experiences, which is largely affected by the quality of virtual contents and hardware devices. As the metaverse evolves to phase 2.0, it is expected to form a mature social system and economic system that will reflect the working mechanisms of the real world. And in phase 3.0, it is expected that the virtual world will cover wider ranges of real scenarios that can reflect all aspects of users’ lives and form a complete and sustainable immersive world.
Industrial chain analysis of metaverse
The industrial chain of the metaverse consists of four layers:
• Underlying technology layer: fundamental technologies to build the metaverse, such as cloud computing technology, blockchain technology and etc;
• Device layer: hardware devices which provides immersive experiences for user, examples including AR/VR devices and brain-computer interfaces;
• Platform layer: virtual platforms where users can conduct different activities, such as work platforms, social platforms and game platforms; and
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• Scenario application layer: virtual content providers to provide users or platforms with high-quality virtual contents through virtual technology. This may be game contents for game platforms or virtual video contents for AR/VR platforms. High-quality and rich virtual content is one of the four core elements of building the metaverse. Just as physical objects build our real world, digital assets are not only a necessary element for building virtual content, but also the fundamental building blocks of the metaverse.
Market factors driving the metaverse industry
The metaverse industry is driven by the following factors:
• Continuous improvement of underlying technology: The realization of real-time massive information interaction and immersive experiences inside the metaverse is based on the continuous improvement of underlying technologies such as communication technology and data processing technology. The fast adopting of 5G technology in China and the continuously upgrading compute calculation power will elevate users’ immersive experiences and further advance the development of the metaverse. According to the Ministry of Industry and Information Technology of the PRC, China completed more than 600,000 new 5G base stations in 2020, and the number of 5G users has reached 620 million by the end of March 2023 (Source: The State Council Information Office of the PRC: http://english.scio.gov.cn/pressroom/2023-04/20/content_85242151.htm).
• Rapid development of interactive hardware: Through years of development, interactive hardware technologies have matured quickly and industries is now entering into a rapid development stage. According to IDC’s forecast, global AR and VR shipment will reach 76.72 million units in 2024, an increase of 81.5% compared with the 7.06 million units shipped in 2020. In the same timeframe, BCG and Mordor intelligence forecast the global AR/VR market size is expected to expand to US $296.9 billion in 2024.
• Lifestyle changes due to COVID-19: Under the influence of COVID-19, many of the offline activities have now shifted to online. Such shifting is catalyzing the adaptation and development of the metaverse which the ultimate form is a virtual world parallels to the real world.
• Tech giants are stimulating the industry growth: According to Frost & Sullivan, the number of mobile Internet users in China in 2020 has reached 985.8 million and the year-on-year growth rate of users is expected to decline over the next three years to only 3.6% by 2025. Tech giants are in a dire need of the next high-growth and sustainable market to maintain their own growth after the mobile internet ecology. Since the metaverse concept was sparked by Roblox’s listing in 2021, we have seen many major Tech giants, including Facebook, Unity, and Tencent, have entered the metaverse in order to capitalize on the industry. With the entry of giants and the influx of funds, small and medium-sized companies are also promptly participating, just like we have seen previously in the development history of the mobile internet ecology.
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Future developmental trends of the metaverse industry
As technology matures and tech giants enter the industry with a huge influx of funding, metaverse is developing rapidly. According to PWC, the global metaverse size will grow at the CAGR of 36%, to reach RMB 3073.4 billion (approximately US$ 473 billion) in 2025. In China, the market size of metaverse reached RMB 73.8 billion (approximately US$ 11.35 billion) in 2020 and will reach RMB 316.1 billion (approximately US$ 48.6 billion) by 2025.
Overview of the market for scenario application layer of metaverse in China
Participants in the scenario application layer of the metaverse are creating contents for users and platforms of the metaverse, and high-quality virtual content is one of the four core elements in the development of the metaverse. Because digital asset is the essential element for building virtual contents, which can be recognized as the fundamental building blocks for metaverse.
Since its establishment, the Company has been committed to providing high-quality virtual technology services for customers in the entertainment sectors to assist them in producing high-quality virtual entertainment contents, and so accumulated years of experience in virtual technology and production quality control. As early as 2019, two years before the rise of the concept of the metaverse, the Company recognized the value of digital assets in the realm of technical services: they can bring low-cost, highly efficient, and high-quality solutions to the content production industry. With this in mind, the Company started to convert digital assets along with the daily business activities. At the same time, the Company kept improving its conversion efficiency and conversion quality through technology
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accumulation, industry know-how, and continuous iterative technologies. Over the past two years, the Company has totally converted more than 7,000 high precision 3D digital assets and gained a leading advantage in the scenario application layer of the metaverse especially in the area of high precision 3D digital assets in China.
According to the statistics by Sullivan, it is expected that virtual technology service of the metaverse will usher in large financial growth with the explosion of the overall size of the metaverse market. By 2025, the global market size of virtual technology services in the metaverse entertainment industry alone is estimated to reach RMB 1,813.3 billion (approximately US$ 279 billion) in 2025, five times that of 2020. The rapid growth of the industry has also been a driving force for the Company’s virtual technology services.
The market size of 3D digital assets, the essential element of virtual contents and fundamental blocks of metaverse, also shows a strong growth trend. According to the statistics by Sullivan, the market size of 3D digital assets in the metaverse was RMB 195.3 billion (approximately US$ 30 billion) in 2020 and is expected to reach RMB 1,124.3 billion (approximately US$ 173 billion) in 2025.
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Competitive Advantages
We are committed to provide our customers with quality technology service and to become the largest 3D digital asset provider in China. We believe that we have a number of competitive advantages that will enable us to maintain and further improve our market position in the industry. Our competitive advantages include:
• We own proprietary “Mofy Lab” technology platform. Our technology platform consists of 3D rebuilt technology and AI interactive technology which enable us to precisely convert almost all physical world objects into high definition 3D digital assets. With this technology platform, we are able to create high-quality virtual contents and digital assets quickly and cost-effectively to meet the needs of our customers.
• We are an established player in the metaverse industry. We are one of the early entrants in the metaverse industry. Through our virtual content production business and opportunistic acquisition of certain digital assets, we are able to build a robust digital asset bank with more than 7,000 3D digital assets. These digital assets can be quickly deployed and integrated by our customers with minimal customization, thus reducing project costs and expediate completion time.
• Our staff and management are experienced and diversified in operations and managements. Our key team members have more than 10 years of experience in their respective fields. The founder, Haogang Yang, is a serial entrepreneur with extensive experience in business management and operation. He realized the value of digital assets in the field of virtual contents as early as in early 2019 and firmly led Global Mofy China to reserve digital assets, which has brought Global Mofy China to occupy the dominant position. In addition, Global Mofy China features with a diverse senior management team. Ms. Wenjun Jiang, the Chief Technology Officer of the Company, has more than 15 years’ experience in virtual technology. Global Mofy China’s principal operation is intelligence intensive. Since inception, Global Mofy China has pooled a large number of managerial talents in the industry forming a professional and stable operation and management team.
Our Growth Strategy
We plan to implement the following growth strategies to further expand our business operations:
• We will continue to focus on the research and development of our technologies. Global Mofy China has been focusing on research and development since its inception and there were approximately 18 full time employees engaging in research and development as of the date of this prospectus. Global Mofy China is a national certified high-tech enterprise by both the Beijing Municipal Science & Technology Commission and the Administrative Commission of Zhongguancun Science Park for its cutting-edge 3D rebuilt and AI interactive technologies. As our company continues to grow in size and the rapid development of technologies in the metaverse industry, Global Mofy China is placing an increasing emphasis on research and development. In addition to continuously optimizing our technology, we, through our PRC subsidiaries, will accelerate the development of digital assets, with the expectation to convert at least 10,000 assets a year to expand our competitive advantage.
• We aim to maintain and further develop business relationships with our customers and potential players in the metaverse industry. We have developed years of relationships with both upstream and downstream entities of the industry. Our founding team has built solid connections with Tencent, Alibaba, and other first-line leading metaverse platforms in China. We have also developed business relationships with Youku, Perfect World, Wimi Hologram, and other content companies across many varied segments of the industry.
• We plan to cooperate with or acquire similar digital assets providers to expand our digital assets content in order to implement our business strategy. Besides Global Mofy China, there are currently handful other independent high-definition 3D digital asset providers worldwide. However, they achieve merely average performance due to outdated operating concepts. Within 12 to 24 months of listing on Nasdaq, Global Mofy China plans to develop strategic partnership, or to eventually acquire similar digital assets providers to further expand our digital assets reserve.
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Our Products and Services
Utilizing our proprietary “Mofy Lab” technology platform, we offer three main services as follows: (i) virtual technology service, (ii) digital marketing and, (iii) digital asset development and others.
Virtual technology service
We provide comprehensive technology solution to assist customers in virtual content production, which can be used in a variety of settings such as movies, television series, animations, adverting and gaming, etc. Leveraging our proprietary “Mofy Lab” technology platform, we are able to produce high-quality virtual content quickly and cost-effectively to meet highly differentiated customers’ needs.
From the beginning stage of the project, we provide the customer with a full set of virtual technology solutions, including the production of 3D digital assets, the planning of the shooting scheme and the guidance on virtual content production. We participate in the shooting and production of the project throughout the production process, and help the customer optimize the production scheme at any time to ensure the cost and quality.
The workflow is illustrated as follows:
We have served many high-profile customers from different industries. Some of the notable customers include Tencent’s affiliates, Youku’s affiliates, listed companies such as Perfect World (Nasdaq: PWRD), L’OREAL (Nasdaq: LRLCY), and H&R Century Pictures (Shenzhen Stock Exchange: 000892).
The virtual content production contracts are primarily on a fixed price basis, payable on a milestone basis, which require us to perform services for visual effect design, content development, production and integration based on customers’ specific needs. Generally, majority of our virtual content production contacts are payable by two to four instalments as agreed with customers based on general industry practice: i) 50% of the total contract price as the deposit payable upon signing contact and 50% of the total contract price upon the production completion and acceptance by the customers; or ii) 20-30% of the total contract price as the deposit payable upon signing contact; 40%-60% of the total contact price payable during the production process or when the production nearly completed, which is normally collected in one or two payment terms; 20%-30% of the total contract price upon the production completion and acceptance by the customer. The required production period is generally less than one year with most projects last from four to eight months.
For the six months ended March 31, 2023 and 2022, approximately 62% and 99% of our revenues were generated from virtual technology services, respectively. For the years ended September 30, 2022 and 2021, approximately 73% and 47% of our revenues were generated from virtual technology services, respectively.
Digital Marketing
Previously, in fiscal year 2021, we provide advertisement production and promotion services to customers with integrated digital marketing services from content planning, technical services and content production assistance to omni-channel online placement. Technical services under advertisement production uses the same technologies with our virtual technology service. For content planning and content production, unlike focusing on the storyline under virtual technology service, we focus on the promotion products provided by the digital marketing customers under advertisement production. The advertisements are in different format, including but not limited to short video, landing pages and static materials.
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We consider that both of the advertisement production and promotion services are highly interrelated and not separately identifiable. It is not practical to quantify the portion of revenue from our advertisement production and revenue that derives from advertising placement/promotion services. Pursuant to the digital marketing agreements entered into by the Company and customers, the Company provides both advertisement production and promotion services to customers. The Company will produce advertisements and carefully select suitable advertising distributor based on the understanding of customers’ needs such as product characteristics and targeting groups. In practice, each distributor has a certain level of advertising conversion randomness when respond to the different advertising contents. The Company needs to modify or produce new advertisement contents continuously in accordance with the third-party advertising distributor’s feedbacks for the best advertising conversion rate during the promotion service cycle. The Company considers that both of the advertisement production and promotion services together combined an output which as agreed and specified in the agreements signed with our customers is a single performance obligation, so these two services are highly interrelated and not separately identifiable.
The Company provides integrated digital marketing services and weighted both production and promotion services while quoting to and signing agreements with customers. In practice, the quality of the production is measured by the advertising conversion rate rather than the amount been spent. High advertising conversion rate is one of the core advantages of the Company as it produces the advertisement with the advanced production experience, technology and content creativity, which allows the Company to achieve higher conversion performance with a budgeted production cost. Historically, the cost of revenues related to digital marketing revenues accounted for approximately 10% of the total digital marketing service costs. The Company always weighted production services with a premium due to the advertising conversion effectiveness.
We use our virtual technology to create virtual content for the advertisement production. As we have developed business relationships with a number of brand owners and advertising channels while providing virtual technology services, we are able to directly contact advertisers to complete the promotion services after we complete the advertisement production, at a competitive pricing. We provide digital marketing services to large customers including L’OREAL and Pepsi, etc.
Following our business expansion to the new business line of digital asset development by the last quarter of fiscal year 2021 and the decision of focusing more on the higher margin business lines to better cope with the impact of the COVID-19 pandemic, we adjusted the business strategies for the digital marketing in the fiscal year 2022. Instead of providing integrated digital marketing services from content planning, technical services and content production assistance to omni-channel online placement as in fiscal year 2021, we acted as an agent to purchase ad inventories and advertise services on behalf of the advertisers for the fiscal year 2022. We expect to continuously reduce the input in digital marketing business line, and the proportion of digital marketing of total revenues will further reduce in the future.
The Company’s integrated digital marketing service process is as follows:
We first conduct in-depth research on customer’s products from dimensions such as its product orientation, product features and audience portraits, and the production team will then carry out the technical design and assist in content production. Upon customer’s approval of the proposed contents, we then obtain visibility on various social media
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platforms such as online content-based platforms (e.g. Tik-Tok) and popular apps. In a typical project, we insert such customer’s promotion materials on the platform and apps with high traffic, to attract more click views. Based on the customer’s specification about the promotion content, the expected frequency of and views, our operation staff tracks the work progress and ensure the customer’s expectation has been met at the end of the promotion cycle. Our technology team monitors the traffic and analyses the results of the promotion and produces a traffic report to the customer. The customer is able to track the number of clicks and views.
We enter into digital marketing contracts with customers, pursuant to which we provide advertisement production and promotion services to customers. We receive commissions from our customers based on specific action (i.e. cost per mille “CPM”) for online display.
For the six months ended March 31, 2023 and 2022, we generated approximately 0% and 1% of our revenues from digital marketing services, respectively. For the years ended September 30, 2022 and 2021, we generated approximately 4% and 43% of our revenues from digital marketing services, respectively.
Digital Asset Development and Others
Digital Asset Development
Through our virtual content production business and opportunistic acquisition of certain digital assets, we are able to build a robust digital asset bank with more than 7,000 3D digital assets. We license specific use right of these digital assets to customers who use them based on their specific needs across different applications such as animation and gaming. The licensing provides customers the right to use our 3D digital assets within certain scope of use, and we are entitled to receive the license fee under the licensing arrangements. Generally, unless the digital assets are customized specifically as requested by the customers, the licensing of the digital assets is non-exclusive and the digital assets may be licensed repeatedly to other customers.
Our digital assets, which build up our digital asset bank, mainly consist of high precision 3D renders of scenes, characters, objects and, items that can be licensed for use in virtual environment. Depending on customers’ needs, these digital assets can be quickly deployed and integrated with minimal customization, thus reducing project costs and expediate completion time. With the rapid development of metaverse, we believe digital assets will be become increasingly valuable and have abundant use cases. We plan to actively expand our digital asset bank and build digital assets which we believe have more use case to serve this fast-growing market.
The core technologies of digital asset development service are the 3D rebuilt technology and AI interactive technology which is the foundation of our “Mofy Lab” technology platform. Through years of research and development, we can precisely convert almost all physical world objects including human, animal, subjects, scenes into high definition 3D digital assets to be used in the virtual world.
Others
We also enter into copyright licensing agreements with entertainment production companies to authorize production rights, adaption rights, sublicense rights of works copyrights Global Mofy China currently owns. The licensing provides customers the right to use of the intellectual property. See the list under “Business — Intellectual Property — Copyrights” for more information.
For the six months ended March 31, 2023, we generated approximately 38% of our revenues from digital asset development and others. For the six months ended March 31, 2022, we do not recognized revenue of digital assets development due to the development was not completed as of March 31, 2022. For the year ended September 30, 2022 and 2021, our revenue generated from this line of business reached nearly 23% and 10% of our total revenues, respectively.
Our Technology
Global Mofy China has its own technology platform called “Mofy Lab.” The in-house developed “Mofy Lab” contains self-developed and optimized technologies, including 3D rebuilt technology and AI interactive technology, which can precisely convert real word objects into 3D digital assets, which to be used in the metaverse and provide one-stop,
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low barrier, low cost method to assist our customers to create high quality virtual contents in TV/movie, animations, games, AR/VR and advertisements, etc. We use these two technologies in all three of our lines of business including virtual technology service, digital marketing, and digital asset development and others.
3D Rebuilt Technology
The 3D rebuild technology is the key to transfer a physical object in the real world into a 3D digital asset in metaverse. The principle of the 3D rebuilt technology is to transfer the characters, objects and scenarios of the real world into 3D digital assets that can be used by computer languages, or the “virtual world”, through the process of in-depth data acquisition, pre-processing, point cloud registration and fusion, surface generation and so on, done by the computer after high-precision, 3D structured omni-directional scanning of real objects. When we transfer physical objects into 3D digital assets in the Mofy Lab, hardware devices, such as scanners owned by Global Mofy China, are required for majority of these 3D digital assets. In other words, we use scanners during our 3D digital assets conversation process. They are one of our operation equipment and within the possession of the Company.
Metaverse is essentially a virtual world parallel to the real physical world. Just as physical objects build the real world, 3D digital assets can be regarded as the fundamental bricks building the virtual world of metaverse. Through our 3D rebuilt technology, the character images, article images and real scenarios of the real world can be efficiently converted into high-fidelity 3D digital images.
AI Interactive Technology
We use artificial intelligence (AI) interactive technology to generate or synthesize virtual digital human. Global Mofy China has cooperated with the Alibaba DAMO Academy to integrate the virtual digital human technology with the intelligent voice technology. Through the cooperation, Global Mofy China registered two software copyrights: AI We-media Resource Network Cloud Platform and AI Visual Effect Platform.
Global Mofy China is one of the first companies in China to combine virtual digital human with intelligent voice and integrate the voice-expression matching technology at the same time. Virtual digital humans are generally considered to be digital humans with human appearance, language, and physical expression capabilities. Behind it is the coordination of multiple intelligent voice and multi-modal modules such as speech generation, animation generation, audio and video synthesis, and dialogue interaction. Through our AI interactive technology, our virtual digital human can be hyper-realistic with smooth fiscal expression and body movement. At present, the virtual digital humans we produce are mainly used as the extension of real humans’ digital identity in metaverse. In the future, we will consider the expansion of virtual anchors, virtual customer services and even virtual celebrities.
We create virtual digital humans through the following process: we first complete omni-directional fine scanning to produce intelligent modeling/binding; virtual images are then produced after real-time engine rendering through 3D capture technology. Based on text to speech (TTS) technology, real-time emotional speech synthesis and timbre conversion of virtual digital humans can be generated, displaying multiple rounds of dialogues at the same time. The semantics can be intelligently understood in the process of dialogue, with actions and expressions generated in real time to match the semantics. Virtual humans with real-time interaction and high fidelity can be generated.
By using the 3D rebuilt technology and AI interactive technology, we can efficiently convert characters, objects and scenarios of the real world into high-fidelity and interactive 3D digital assets to be used in the metaverse.
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Our Customers
For the six months ended March 31, 2023, one customer accounted for approximately 13% of total revenues. For the six months ended March 31, 2022, three customers accounted for approximately 32%, 23%, and 13% of total revenues, respectively. As of March 31, 2023, the balance due from four customers accounted for approximately 30%, 23%, 19% and 14% of the Company’s total accounts receivable, respectively.
For the year ended September 30, 2022, two customers accounted for approximately 20% and 17% of total revenues, respectively. As of September 30, 2022, the balance due from three customers accounted for approximately 42%, 24% and 21% of the Company’s total accounts receivable, respectively.
For the year ended September 30, 2021, three customers accounted for approximately 20%, 10% and 10% of total revenues, respectively. As of September 30, 2021, the balance due from four customers accounted for approximately 38%, 13%, 12% and 12% of the Company’s total accounts receivable, respectively.
Our Suppliers
For the six months ended March 31, 2023, four suppliers accounted for approximately 26%, 17%, 10% and 10% of the total purchases, respectively. For the six months ended March 31, 2022, three suppliers accounted for approximately 41%, 27%, and 15% of the total purchases, respectively. As of March 31, 2023, one supplier accounted for approximately 65% of the Company’s accounts payable.
For the year ended September 30, 2022, four suppliers accounted for approximately 32%, 19%, 17% and 10% of the total purchases, respectively. As of September 30, 2022, three suppliers accounted for approximately 37%, 22% and 12% of the Company’s accounts payable, respectively.
For the year ended September 30, 2021, three suppliers accounted for approximately 24%, 12% and 10% of the total purchases, respectively. As of September 30, 2021, two suppliers accounted for approximately 49% and 16% of the Company’s accounts payable, respectively. The three largest suppliers are related to our digital marketing service and they are online distributors, who mainly provide the service of distributing the advertisements. The term of these suppliers agreements ranges from several months to a year depending on the projects. In addition, the amount paid to the suppliers are also varied case by case.
Sales and Marketing
Global Mofy China has won many awards, including national high-tech enterprise certification issued by both the Beijing Municipal Science & Technology Commission and the Administrative Commission of Beijing Zhongguancun Science Park, taken the lead in technology and won the recognition of its technical strengths in the industry. We conduct our sales and marketing through various sources as follows:
• Our experienced management team: Haogang Yang, the Chief Executive Officer of the Company, and Wenjun Jiang, the Chief Technology Officer of the Company, both have many years of experience in the industry and have developed business and personal relationship with industry leaders.
• Existing and former customers who have used our services: We have established a good reputation for the quality of our services in the industry spread through word of mouth. Global Mofy China’s previous projects have won high customer satisfaction and have worked with many different customers. The business department has established an archive for the maintenance of new and repeating customers and contacts customers regularly. We believe these factors have increased the likelihood that both existing and former customers will recommend our services to their networks.
• Participating in various domestic summits: We are often invited to attend various domestic summits including these organized by 36Kr Media and China International Capital Corporation where we can reach potential new customers.
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Research and Development
Metaverse is often used to describe the concept of persistent, shared, 3D virtual spaces in a virtual universe. With the advent of increasingly powerful consumer computing devices, cloud computing, and high bandwidth internet connections, the concept of the metaverse is finally materializing in the actual world.
Global Mofy China has kept iterating and optimizing the virtual technology. Since its inception, Global Mofy China has invested heavily in core technology and have constantly recruited new technical talents to help the growth. As of the date of this prospectus and September 30, 2022, Global Mofy China has 18 full time research and development personnel, respectively, among them, there are 8 research and development personnel related to the core technology platform, Mofy Lab, which is in the charge by Wenjun Jiang, the Chief Technology Officer of the Company. For the six months ended March 31, 2023 and 2022, we had US$3.32 million and US$0.73 million for research and development expenses, respectively. For the fiscal years ended September 30, 2022 and 2021, we had US$3.21 million and US$0.66 million for research and development expenses, respectively.
Competition
We face fierce competition in the two lines of business of virtual technology service and digital marketing. One of the strongest competitors in China is BaseFX in terms of virtual technology service. In terms of digital marketing, there are few competitors providing full package services like us, and the biggest competitor is SVHQ Media from Singapore. We expect that our main line of business will be the digital asset development and others in the future. “Digital asset development” refers to the development and licensing of Global Mofy China’s 3D digital assets. “Others” refers to licensing our customers the right to use the works copyrights Global Mofy China currently owns. See “Business — Our Products and Services — Digital Asset Development and Others” and the list under “Business — Intellectual Property — Copyrights” for more information. We began to convert real world objects into digital assets two years ago. At present, according to the industry datasheet generated by Frost & Sullivan, we believe we are one of the leading digital asset banks with the widest categories in China, and own more than 7,000 digital assets. We entered into the industry at a relatively early stage. Currently we have no direct competitors in digital asset development business, but we expect a large number of companies to enter the industry due to the boom of metaverse in 2021. Therefore, we should continue to grow to maintain the existing advantages.
Intellectual property
We rely on trademarks, patents and know-how, as well as contractual restrictions on information disclosure to protect our intellectual property rights. Global Mofy China has signed relevant confidentiality agreements or clauses with our employees, certain customers and suppliers. We rely on these confidentiality agreements, clauses, and other protections of our technical knowledge to maintain our technological advantages in products and designs.
Protecting our intellectual property is a strategic focus of our business. Global Mofy China does not rely on intellectual property rights authorized by third parties for our business operation.
As of the date of this prospectus, Global Mofy China has 3 registered trademarks, 1 registered domain name, and 44 registered copyrights. Xi’an Mofy has 5 registered copyrights.
As for the 3D digital assets, we convert and create them from real-world objects using our hardware and software in the Mofy Lab and therefore we have ownership over these assets. Currently, these 3D digital assets are not registered under any PRC laws or international intellectual property laws. Although these 3D digital assets are not registered, they are still protected under the PRC copyrights laws. We plan to register these 3D digital assets using part of the IPO proceeds.
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Trademarks
Global Mofy China owns the following 3 registered trademarks.
No. |
Trademark name |
Application/ |
Application |
Application category |
Trademark |
|||||
1 |
Mo Fei Shi Xiao (literally the Mofy Visual Effects) |
56144678 |
May 18, 2021 |
Class 40 |
Registered |
|||||
2 |
Mo Fei Ying Ye (literally the Mofy Movie Group) |
56167214 |
May 18, 2021 |
Class 41 |
Registered |
|||||
3 |
Huan Qiu Mo Fei (Literally the Global Mofy) |
64536301 |
January 21, 2023 |
Class 41 |
Registered |
Copyrights
Works copyright
No. |
Works name |
Registration number |
Completion date of works |
Registration date |
Registration category |
Copyright owner |
||||||
1 |
Wu Gen Zhi Guo (literally the Rootless Country) |
GZDZ-2018-A-00624455 |
July 20, 2018 |
September 25, 2018 |
Written Works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
2 |
Ba Luo Tu (literally the Barlow Rabbit) |
GZDZ-2021-F-00176083 |
January 27, 2020 |
August 3, 2021 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
3 |
Cai Hong Shou (literally the Rainbow Beast) |
GZDZ-2021-F-00176086 |
November 26, 2020 |
August 3, 2021 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
4 |
Chou Chou Mei (literally the Less Good-looking But Cute Girl) |
GZDZ-2021-F-00176084 |
January 19, 2020 |
August 3, 2021 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
5 |
Chou Chou Wa (literally the Less Good-looking But Cute Baby) |
GZDZ-2021-F-00176085 |
January 16, 2020 |
August 3, 2021 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
6 |
Guan Jun Zhi Lu (literally the Road of Champion) |
QZDZ-2021-F-00349474 |
January 18, 2021 |
November 11, 2021 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
7 |
Jian Bao Jin Tong (literally the Golden Pupils For Identifying Treasures) |
QZDZ-2021-F-00349234 |
January 18, 2021 |
November 11, 2021 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
8 |
Jin Yi Wei Mi Dang (literally the Secret Files of Royal Guards) |
QZDZ-2021-F-00348994 |
January 18, 2021 |
November 11, 2021 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
9 |
Ling Dang (literally the Small Bells) |
GZDZ-2021-F-00176081 |
January 3, 2020 |
August 3, 2021 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
10 |
Ru Lian Shi Tui Li Shi Jian Bu (literally the Mortician’s Reasoning Event Book) |
QZDZ-2021-F-00348995 |
January 18, 2021 |
November 11, 2021 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
11 |
Wan Zi (literally the Meatballs) |
GZDZ-2021-F-00176082 |
August 3, 2020 |
August 3, 2021 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
12 |
Xun Zhi Wu Yu (literally the Xun’s Story) |
GZDZ-2020-F-01010206 |
May 30, 2019 |
March 27, 2020 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
13 |
Xun Zhi Wu Yu (literally the Xun’s Story) |
GZDZ-2020-F-01010207 |
May 30, 2019 |
March 27, 2020 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
||||||
14 |
Zui Hou Yi Ge Shou Shan Ren (literally the Last Mountain Guard) |
QZDZ-2021-F-00349235 |
January 18, 2021 |
November 11, 2021 |
Art works |
Global Mofy (Beijing) Technology Co., Limited |
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Software copyright
No. |
Software name |
Version number |
Software abbreviation |
Registration number |
Approval date of registration |
Certificate number |
Owner |
|||||||
1 |
Global Mofy Maya Assets Batch Importing Plug-in System |
V1.3 |
Global Mofy Maya Assets Batch Importing Plug-ins |
2019SR1042371 |
October 14, 2019 |
RZDZ No. 4463128 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
2 |
Global Mofy Batch Renaming Software |
V1.4 |
Global Mofy Batch Renaming |
2019SR1036780 |
October 12, 2019 |
RZDZ No. 4457537 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
3 |
Global Mofy Management System for Project Working Time |
V1.17 |
Global Mofy Project Working Time System |
2019SR1034394 |
10/12/2019 |
RZDZ No. 4455151 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
4 |
Global Mofy 3dsMax Plug-in System for Polygon Conversion |
V1.54 |
Global Mofy 3dsMax Plug-ins for Polygon Conversion |
2019SR1034386 |
10/12/2019 |
RZDZ No. 4455143 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
5 |
Global Mofy 3dsMax Plug-in System for Batch Rendering |
V1.12 |
Global Mofy 3dsMax Plug-ins for Batch Rendering |
2019SR1029565 |
October 11, 2019 |
RZDZ No. 4450322 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
6 |
Network Technology System for Digital Vision |
V1.0 |
— |
2019SR0891875 |
8/27/2019 |
RZDZ No. 4312632 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
7 |
Global Mofy AI Visual Effect Platform |
V1.0 |
— |
2019SR0891498 |
August 27, 2019 |
RZDZ No. 4312255 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
8 |
Digital IP Image Storage System |
V1.0 |
— |
2019SR0891684 |
8/27/2019 |
RZDZ No. 4312441 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
9 |
Network Cloud Platform Based on AI We-media Resources |
V1.0 |
— |
2019SR0891876 |
8/27/2019 |
RZDZ No. 431233 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
10 |
Global Mofy Nuke Management System for Default Values of Node Attributes |
V1.0 |
Global Mofy Nuke Management Tool for Default Values of Nodes |
2019SR0824052 |
August 8, 2019 |
RZDZ No. 4244809 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
11 |
Global Mofy Nuke Plug-in System for Grid Effect Generation |
V1.0 |
Global Mofy Nuke Plug-ins for Grid Effect Generation |
2019SR0824061 |
8/8/2019 |
RZDZ No. 4244818 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
12 |
Global Mofy Nuke Plug-in System for Pixel Analysis |
V1.0 |
Global Mofy Nuke Pixel Analysis Plug-ins |
2019SR0824045 |
August 8, 2019 |
RZDZ No. 4244802 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
13 |
Global Mofy Nuke Batch Modification System for Node Attribute |
V1.0 |
Global Mofy Nuke Batch Modification Tools for Attributes |
2019SR0824707 |
8/8/2019 |
RZDZ No. 4245464 |
Global Mofy (Beijing) Technology Co., Limited |
101
No. |
Software name |
Version number |
Software abbreviation |
Registration number |
Approval date of registration |
Certificate number |
Owner |
|||||||
14 |
Global Mofy Nuke Plug-in System for Lens Halo |
V1.0 |
Global Mofy Nuke Lens Halo Plug-ins |
2019SR0797783 |
August 1, 2019 |
RZDZ No. 4218540 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
15 |
Global Mofy Nuke Project Management System |
V1.0 |
Global Mofy Nuke Project Management |
2019SR0797113 |
July 31, 2019 |
RZDZ No. 4217870 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
16 |
Global Mofy Nuke 2D Lighting Plug-in System |
V1.0 |
Global Mofy Nuke 2D Lighting Plug-ins |
2019SR0797404 |
7/31/2019 |
RZDZ No. 4218161 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
17 |
Global Mofy Nuke Plug-in System for Batch Rendering |
V1.0 |
Global Mofy Nuke Batch Rendering Plug-ins |
2019SR0797267 |
7/31/2019 |
RZDZ No. 4218024 |
Global Mofy (Beijing) Technology Co., Limited |
|||||||
18 |
Virtual Test Management Software |
V1.0 |
2022SR1626810 |
12/29/2022 |
RZDZ No. 10581009 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
19 |
Virtual Operation Control System |
V1.0 |
2022SR1626811 |
12/29/2022 |
RZDZ No. 10581010 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
20 |
Virtual Port Settings Software |
V1.0 |
2022SR1626812 |
12/29/2022 |
RZDZ No. 10581011 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
21 |
Virtual Communication Access Software |
V1.0 |
2022SR1619059 |
12/28/2022 |
RZDZ No. 10573258 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
22 |
Virtual Portal System |
V1.0 |
2022SR1619058 |
12/28/2022 |
RZDZ No. 10573257 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
23 |
Virtual Platform Business Management System |
V1.0 |
2022SR1614036 |
12/26/2022 |
RZDZ No. 10568235 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
24 |
Virtual Data Collection Management Software |
V1.0 |
2022SR1614035 |
12/26/2022 |
RZDZ No. 10568234 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
25 |
Virtual Database Backup System |
V1.0 |
2022SR1626813 |
12/29/2022 |
RZDZ No. 10581012 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
26 |
Virtual Asset Identification and Analysis Software |
V1.0 |
2022SR1626952 |
12/29/2022 |
RZDZ No. 10581151 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
27 |
Virtual Asset Parameter Optimization Software |
V1.0 |
2022SR1557543 |
11/22/2022 |
RZDZ No. 10511742 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
28 |
Virtual Asset Correction Software |
V1.0 |
2022SR1517798 |
11/16/2022 |
RZDZ No. 10471997 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
29 |
Virtual Asset Visualization Ending System |
V1.0 |
2022SR1517745 |
11/16/2022 |
RZDZ No. 10471944 |
Global Mofy (Beijing) Technology Co., Limited |
||||||||
30 |
Virtual Asset Conversion Software |
V1.0 |
2022SR1520771 |
11/17/2022 |
RZDZ No. 10474970 |
Global Mofy (Beijing) Technology Co., Limited |
102
No. |
Software name |
Version number |
Software abbreviation |
Registration number |
Approval date of registration |
Certificate number |
Owner |
|||||||
31 |
Digital Cloud Library 3dsMax Plug-in System for Multi-scenario Queue Rendering |
V1.13 |
Digital Cloud Library 3dsMax Plug-in System for Multi-scenario Queue Rendering |
2019SR1435524 |
December 26, 2019 |
RZDZ No. 4856281 |
Xi’an Digital Cloud Library Technology Co., Ltd. |
|||||||
32 |
Digital Cloud Library 3dsMax Quick Rendering Plug-in System |
V1.13 |
Digital Cloud Library 3dsMax Quick Rendering Plug-ins |
2019SR1436175 |
12/26/2019 |
RZDZ No. 4856932 |
Xi’an Digital Cloud Library Technology Co., Ltd. |
|||||||
33 |
Digital Cloud Library Maya Plug-in System for Camera Distance Materials |
V1.1 |
Digital Cloud Library Maya Camera Distance Materials |
2019SR1439640 |
12/26/2019 |
RZDZ No. 4860397 |
Xi’an Digital Cloud Library Technology Co., Ltd. |
|||||||
34 |
Digital Cloud Library Maya View Watermark Plug-in System |
V1.2 |
Digital Cloud Library Maya View Watermark Nodes |
2019SR1437211 |
12/26/2019 |
RZDZ No. 4857968 |
Xi’an Digital Cloud Library Technology Co., Ltd. |
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35 |
Digital Cloud Library 3dsMax Vertex Light Plug-in System |
V1.104 |
Digital Cloud Library 3dsMax Vertex Light Plug-ins |
2019SR1437204 |
July 19, 2019 |
RZDZ No. 4857961 |
Xi’an Digital Cloud Library Technology Co., Ltd. |
Domain
Global Mofy China has the right to use the following domain registration issued in the PRC:
Number |
Domain Name |
Owner |
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1 |
globalmofy.cn |
Global Mofy (Beijing) Technology Co., Limited |
Our Employees
As of the date of this prospectus, March 31, 2023, and September 30, 2022, we have 31, 39, and 31 full-time employees, respectively, in the following departments:
Departments |
As of the date of this prospectus |
As of March 31, 2023 |
As of September 30, 2022 |
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Management and Administration Department |
11 |
10 |
8 |
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Operation and Commerce Department |
3 |
3 |
3 |
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R & D Department – Mofy Lab |
7 |
8 |
8 |
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R & D Department – Others |
10 |
18 |
12 |
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Total |
31 |
39 |
31 |
Global Mofy China’s employees are not protected by representatives of labor organizations and collective bargaining agreements. We believe that Global Mofy China maintains a good working relationship with our employees and we have not experienced any major labor disputes. According to the local laws and regulations, Global Mofy China is required to make contributions to the employee welfare plan based on specific percentages of employee salaries, bonuses and certain allowances, and the maximum amount is set by the local government from time to time. Global Mofy China participate in various employee social security programs organized by local governments and has paid social insurance for all employees, including housing provident fund and five types of social insurance including pension, medical care, work-related injury, unemployment, and maternity.
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Global Mofy China strengthened staff training, implemented performance appraisal and other measures to improve staff monetization and work efficiency. We believe that Global Mofy China maintains a good relationship with our employees.
Facilities
Our operating office is located at No. 102, 1st Floor, No. A12, Xidian Memory Cultural and Creative Town, Gaobeidian Township, Chaoyang District, Beijing, People’s Republic of China, which covers an area of 1962.14 square meters. Global Mofy China leased the office for three years starting from September 18, 2023. The rent is RMB 266,360 per month (approximately US$36,675), payable every three months.
Legal proceedings
As of the date of this prospectus, we are not involved in any legal or administrative litigation that may have a material adverse effect on the company’s business, balance sheet, operating performance and cash flow.
We have taken measures to reduce the potential liability in relevant regulations, such as data security, network security, etc. Our main subsidiaries registered under Chinese laws have complied with the relevant Chinese laws and regulations currently in force in all major aspects, and have obtained all the necessary licenses and approvals required for our business operations in China from the relevant government departments, and these licenses and approvals are still valid.
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This section sets forth a summary of the most significant rules and regulations that affect our business activities in China.
Regulations on Digital Assets
In November 2019, the General Office of the CPC Central Committee and the General Office of the State Council issued the Opinions on Strengthening the Protection of Intellectual Property, requiring that the government (i) adhere to the principles of strict protection, overall coordination, key breakthroughs, and equal protection; and (ii) constantly reform and improve the intellectual property protection system, strengthen protection by comprehensive use of legal, administrative, economic, technological and social governance means, so as to promote the overall improvement of protection capacity and level; firmly establishing the idea that to protect intellectual property is to protect innovation. The digital copyright protection has embraced the driving forces from the strengthening awareness of copyright protection in the cultural industry through the official inauguration of the Working Committee for Text Copyright Protection under the Copyright Society of China and the establishment of a genuine content protection mechanism.
On November 11, 2020, the Copyright Law of the People’s Republic of China (hereinafter referred to as the “Copyright Law”) was adopted and promulgated at the 23rd Session of the Standing Committee of the 13th National People’s Congress of the People’s Republic of China.
The new Copyright Law of 2020, which entered into force as of June 1, 2021, contains several revisions which will deliver a significant impact on the cultural and entertainment industries. The Copyright Law has made an adjustment to a number of aspects, including subject, definition, and scope of works, and rights content of copyright. In particular, it has made major changes to both the definition and scope of works. In addition to the original enumeration method for the scope of works, it also stipulates the definition of works, thereby providing the foundation and basis for the protection of new forms of works. Meanwhile, it now defines audio-visual works.
As to the right contents of copyright, it has added the provision regarding the “digital” reproduction method. As to the restriction over rights, it has modified the conditions for the reasonable use. As to the copyright protection, it has introduced the punitive penalty and increased the legal compensation ceiling to RMB5 million to further strengthen the copyright protection. The recent revision of the Copyright Law has expanded the scope of works, added the contents of copyright protection, and reinforced the penalty against the infringement. It will strengthen the protection of intellectual results from this perspective and will further boost the vibrant development of the cultural and entertainment industries.
Judging from industry regulation, the competent authorities of the state successively issued a series of regulatory measures to regulate and normalize the industry in 2020 to promote the healthy and sustainable development of Internet marketing. These measures include the Interim Provisions on Normalizing Promotional Behaviors, the Guiding Opinions on Strengthening the Regulation of Webcast Marketing Activities, the Notice on Strengthening the Administration of Webcast Shows and Live E-commerce Broadcasts, and the Provisions on the Administration of Information Content Services in Internet Webcast Marketing (Exposure Draft).
Regulations on Advertising
The Advertising Law of the People’s Republic of China was adopted at the 10th Session of the Standing Committee of the 8th National People’s Congress on October 27, 1994, revised at the 14th Session of the Standing Committee of the 12th National People’s Congress on April 24, 2015, amended for the first time in accordance with the Decision on Amending Fifteen Laws at the 6th Session of the Standing Committee of the 13th National People’s Congress on October 26, 2018, and amended for the second time in accordance with the Decision on Amending Eight Laws at the 28th Session of the Standing Committee of the 13th National People’s Congress on April 29, 2021.
The advertising industry shall abide by the Advertising Law of the People’s Republic of China, a law that is formulated to regulate advertising activities, protect the legitimate rights and interests of consumers, promote the healthy development of the advertising industry, and maintain the social and economic orders. It was revised and adopted at the 14th Session of the Standing Committee of the 12th National People’s Congress of the People’s Republic of China on April 24, 2015 and implemented as of September 1, 2015.
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In China, the legal attributes of many virtual assets remain controversial. However, from a traditional legal perspective, the primary key to judging whether the metaverse works to carry users’ properties is whether it can confer a similar “appearance of right” on users. However, only with such an “appearance of right”, can we infer or evaluate whether the certain virtual property belongs to a particular user or content creator in a virtual world such as the metaverse. In fact, this function is realizable in metaverse through virtual currencies and NFT. According to the Prevention of Bitcoin Speculation Risks issued in 2013, virtual currencies such as Bitcoin are defined as “a special virtual commodity” in China. Then, it is also clearly stipulated in Article 127 of the Civil Code that legal provisions, if any, shall prevail with regard to the protection of data and virtual Internet properties. It can be seen that a virtual currency itself is recognized and protected by Chinese laws as a special virtual commodity with value.
Regulations on Metaverse
In the context of the metaverse, the right of personal information is of vital importance. The right of personal information can be defined as the right of the information’s subject to control, in various ways, the personal information he enjoys and precludes the illegal use of such information by others. Dealing with the algorithm issue from the perspective of personal data empowerment overlaps, to some extent, with the regulation of algorithms from the perspective of algorithm disclosure and algorithm interpretability. However, the relevant laws concerning the personal data empowerment rely more on the personal control of data and the attempt to regulate the algorithms from the perspective of data, the object on which the algorithms depend. First, the relevant laws pertaining to the personal data empowerment endow individuals with a series of data rights to strengthen their knowledge and control of personal data. For example, many pieces of personal data legislation in Europe and the United States vest individuals with a series of rights over personal data collection. These include the right to make the informed choice, the right to access data, the right to correct data, the right to delete data, and the right to oppose automatic processing. The personal data empowerment imposes the responsibilities on data controllers and processors and requires them to satisfy a series of requirements regarding individuals’ data rights and assume the responsibilities of maintaining personal data security and data quality. In addition to stipulating the protection of privacy rights, the Personality Right Volume of the Civil Code in PRC also provides for the individuals’ right to retrieve, copy, correct and otherwise dispose of their personal information. In the metaverse, the objects concerning digital ownership rights are principally expressed in the forms of virtual properties, mainly including game device, game props, and online game coins, which, in essence, are the narrow digital and non-physical property and convertible into physical property under certain conditions.
On September 4, 2017, seven ministries and commissions, including the People’s Bank of China, jointly issued the Circular on Preventing the Financing Risk from Token Issuance, which defines all virtual currencies such as Bitcoin (BTC) and Ethereum (ETH) as virtual commodities, so virtual currencies should belong, in terms of legal nature, to the category of virtual property in a broad sense. It is also clearly stipulated in Article 127 of the Civil Code (2020) that “where laws contain the provisions pertaining to the protection of data and virtual Internet properties, such provisions shall prevail.” However, the definition, nature and protection modes of virtual properties are not elaborated.
Therefore, data and virtual Internet properties shall be adapted to the scope of protected objects under traditional civil property rights as soon as possible. Virtual Internet properties shall be particularly stipulated, that is, to define the Internet and its contents with property values as virtual immovable property and virtual movable property. Virtual property in the metaverse features anonymity, complexity, quick transaction and wide use that don’t require the face-to-face meeting, thereby posing a high money laundering risk. According to the Shanghai Municipal Higher People’s Procuratorate, in 2020, the upstream crimes of money laundering cases mainly focused on the illegal fund raising on the Internet, and the money laundering associated with these crimes made it more difficult for the surveillance and judicial organs to recover the laundered money and losses. In December 2019, Singapore proposed in the advisory opinions on its payment services act to include the virtual asset services as proposed and operated by FATF in Singapore, in the regulatory scope. At the same time, virtual property transactions should produce transactions and income at the reality level, which are fundamentally taxable, but special attention should be paid to how to collect relevant taxes and subsequent criminal considerations in time.
According to the statistics from the Risk Based Security, 3,813 data leakage incidents happened worldwide in the first half of 2019, involving the leakage of up to 4.1 billion entries of data, and representing an increase of 54% compared with the number of data leakage incidents one year earlier. Various industries around the world are suffering from high-frequency data leakage incidents and data security is becoming an important challenge faced by all countries and
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industries. China’s attitude towards data security and personal information protection has drastically changed from ignorance to directed attention. The formal implementation of the Data Security Law on September 1, 2021 marks the law-based governance of data security. The Data Security Law has established the all-round regulation, governance and protection, from incorporating the data security of individuals, enterprises and public institutions into the security system, thus normalizing the obligations of subjects such as industry organizations and scientific research institutions to protect the data security, in the data field. The promulgation of the Civil Code is also a landmark achievement of personal information protection in China. The Civil Code of China has first distinguished the personal information from the privacy and defined the personal as a separate personality right for protection. This is different from the general protection model of including the scope of personal information for generalized protection adopted in most European countries, also different from the protection model which deems personal information as a type of property right. Article 111 of the Civil Code specifies that “the personal information of natural persons shall be protected by law. Any organization or individual that needs to obtain other persons’ personal information shall obtain the information according to laws and ensure the information security, and shall neither illegally collect, use, process or transmit other persons’ personal information, nor illegally buy, sell, provide or disclose other persons’ personal information”. The Personality Right Volume of the Civil Code stipulates the privacy right and personal information protection in a separate chapter, which reflects the importance China attaches to personal information protection. The Law of the People’s Republic of China on Personal Information Protection, which officially came into force on November 1, 2021, marks a new development stage of personal information protection has arrived in China. Therefore, while building the metaverse space, relevant legislators and industry players must continue to assume the responsibility for personal information protection, promote the improvement of legislation, strengthen industry autonomy and enhance the regulation intensity so as to create green, open, safe and efficient digital platforms.
Regulations Relating to Foreign Investment
On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which has come into effect on January 1, 2020 and has replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The existing foreign-invested enterprises established prior to the effective of the Foreign Investment Law may keep their corporate forms, among other things, within five years after January 1, 2020. Pursuant to the Foreign Investment Law, “foreign investors” means natural person, enterprise, or other organization of a foreign country, “foreign-invested enterprises” (FIEs) means any enterprise established under PRC law that is wholly or partially invested by foreign investors and “foreign investment” means any foreign investor’s direct or indirect investment in mainland China, including: (i) establishing FIEs in mainland China either individually or jointly with other investors; (ii) obtaining stock shares, stock equity, property shares, other similar interests in Chinese domestic enterprises; (iii) investing in new projects in mainland China either individually or jointly with other investors; and (iv) making investment through other means provided by laws, administrative regulations, or State Council provisions.
The Foreign Investment Law stipulates that China implements the management system of pre-establishment national treatment plus a negative list to foreign investment and the government generally will not expropriate foreign investment, except under special circumstances, in which case it will provide fair and reasonable compensation to foreign investors. Foreign investors are barred from investing in prohibited industries on the negative list and must comply with the specified requirements when investing in restricted industries on that list. When a license is required to enter a certain industry, the foreign investor must apply for one, and the government must treat the application the same as one by a domestic enterprise, except where laws or regulations provide otherwise. In addition, foreign investors or FIEs are required to file information reports and foreign investment shall be subject to the national security review.
The Industry Guidelines on Encouraged Foreign Investment (Year 2019) approved by the State Council is hereby promulgated and shall be implemented with effect from 30 July 2019. China has introduced an Industry Guidelines on Encouraged Foreign Investment to encourage and allow foreign-invested enterprises to set up businesses in China. The scope of encouragement mainly includes Agriculture, forestry, husbandry, fishing, Mining, Manufacturing, Information transfer, software and technical services Chinese subsidiaries are principally engaged in the provision of investment and financing consulting and technical services, which fall into the category of “encouraged” or “allowed” under the directory.
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According to the Foreign Investment Law, the State Council will publish or approve to publish the “negative list” for special administrative measures concerning foreign investment. The Foreign Investment Law grants national treatment to foreign-invested entities, or FIEs, except for those FIEs that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list.” The Foreign Investment Law provides that FIEs operating in foreign restricted or prohibited industries will require market entry clearance and other approvals from relevant PRC governmental authorities. If a foreign investor is found to invest in any prohibited industry in the “negative list,” such foreign investor may be required to, among other aspects, cease its investment activities, dispose of its equity interests or assets within a prescribed time limit and have its income confiscated. If the investment activity of a foreign investor is in breach of any special administrative measure for restrictive access provided for in the “negative list,” the relevant competent department shall order the foreign investor to make corrections and take necessary measures to meet the requirements of the special administrative measure for restrictive access. On June 30, 2019, MOFCOM and NDRC jointly issued the Negative List (Edition 2019). On June 23, 2020, MOFCOM and NDRC jointly issued the Special Administrative Measures for Access of Foreign Investment (Negative List), or the Negative List (Edition 2020), which replaced the Negative List (Edition 2019). The latest version of the Negative List (Edition 2021) was issued on December 27, 2021, which took effect on January 1, 2022 and superseded the previous lists.
Industry Catalog Relating to Foreign Investment
Investment activities in the PRC by foreign investors are subject to the Catalogue for the Guidance of Foreign Investment Industry, or the Catalogue, which was promulgated and is amended from time to time by the MOFCOM and the NDRC. The Foreign Investment Catalogue which was promulgated jointly by MOFCOM and the NDRC, on June 28, 2017 and became effective on July 28, 2017, classifies industries into three categories with regard to foreign investment: (1) “encouraged,” (2) “restricted,” and (3) “prohibited.” The latter two categories are included in a negative list, which was first introduced into the Foreign Investment Catalog in 2017 and specified the restrictive measures for the entry of foreign investment.
On June 28, 2018, MOFCOM and NDRC jointly promulgated the Special Administrative Measures (Negative List) for Foreign Investment Access, or the Negative List (Edition 2018), which replaced the negative list attached to the Foreign Investment Catalogue in 2017. On June 30, 2019, MOFCOM and NDRC jointly issued the Special Administrative Measures (Negative List) for Foreign Investment Access, or the Negative List (Edition 2019), which replaced the Negative List (Edition 2018), and the Catalogue of Industries for Encouraging Foreign Investment (Edition 2019), or the Encouraging Catalogue (Edition 2019), which replaced the encouraged list attached to the Foreign Investment Catalogue in 2017. On June 23, 2020, MOFCOM and NDRC jointly issued the Special Administrative Measures for Access of Foreign Investment (Negative List), or the Negative List (Edition 2020), which replaced the Negative List (Edition 2019). On December 27, 2021, the NDRC and the MOFCOM promulgated the latest Special Entry Management Measures (Negative List) for the Access of Foreign Investment (Edition 2021), or the Negative List (Edition 2021), which came into effect on January 1, 2022.
Pursuant to the Negative List (Edition 2021), any industry that is not listed in any of the restricted or prohibited categories is classified as a permitted industry for foreign investment. Establishment of wholly foreign-owned enterprises is generally allowed for industries outside of the Negative List. For the restricted industries within the Negative List, some are limited to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. Industries not listed in the Negative List are generally open to foreign investment unless specifically restricted by other PRC regulations.
On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-Owned Assets Supervision and Administration Commission, or the SASAC, the State Administration of Taxation, or the SAT, the SAIC, the CSRC, and the State Administration of Foreign Exchange, or the SAFE jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules include, among other things, provisions that purport to require that an offshore special purpose vehicle formed for the purpose of an overseas listing of securities in a PRC company obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles.
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Our PRC subsidiaries are mainly engaged in providing virtual content production and digital marketing, and a digital assets provider in the metaverse industry, which fall into the “encouraged” or “permitted” category under the Catalog. Our PRC subsidiaries have obtained all material approvals required for its business operations.
Company Law
Pursuant to the PRC Company Law, promulgated by the Standing Committee of the National People’s Congress (the “SCNPC”) on December 29, 1993, effective as of July 1, 1994, and as revised on December 25, 1999, August 28, 2004, October 27, 2005, December 28, 2013 and October 26, 2018, the establishment, operation and management of corporate entities in the PRC are governed by the PRC Company Law. The PRC Company Law defines two types of companies: limited liability companies and companies limited by shares.
Our PRC subsidiaries are limited liability company. Unless otherwise stipulated in the related laws on foreign investment, foreign invested companies are also required to comply with the provisions of the PRC Company Law.
Regulations Relating to Overseas Listings
In August 2006, six PRC regulatory authorities, including the China Securities Regulatory Commission, or the CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, amended in June 2009. The M&A Rules, among other things, require that if an overseas company established or controlled by PRC companies or individuals, or PRC Citizens, intends to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC Citizens, such acquisition must be submitted to the MOFCOM for approval. The M&A Rules also require that an Overseas SPV formed for overseas listing purposes and controlled directly or indirectly by the PRC Citizens shall obtain the approval of the CSRC prior to overseas listing and trading of such Overseas SPV’s securities on an overseas stock exchange.
On December 24, 2021, the CSRC, together with other relevant government authorities in China issued the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), and the Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (“Draft Overseas Listing Regulations”). The Draft Overseas Listing Regulations requires that a PRC domestic enterprise seeking to issue and list its shares overseas (“Overseas Issuance and Listing”) shall complete the filing procedures of and submit the relevant information to CSRC. The Overseas Issuance and Listing includes direct and indirect issuance and listing. Where an enterprise whose principal business activities are conducted in PRC seeks to issue and list its shares in the name of an overseas enterprise (“Overseas Issuer”) on the basis of the equity, assets, income or other similar rights and interests of the relevant PRC domestic enterprise, such activities shall be deemed an indirect overseas issuance and listing (“Indirect Overseas Issuance and Listing”) under the Draft Overseas Listing Regulations. Therefore, the proposed offering would be deemed an Indirect Overseas Issuance and Listing under the Draft Overseas Listing Regulations. As such, the Company would be required to complete the filing procedures of and submit the relevant information to CSRC after the Draft Overseas Listing Regulations become effective.
We believe that we will not be required to submit an application to the CSRC for the approval of the listing and trading of us on the Nasdaq. However, our PRC legal counsel has further advised us that there are substantial uncertainties as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering, and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules.
On February 17, 2023, the China Securities Regulatory Commission, or the CSRC, announced the Circular on the Administrative Arrangements for Filing of Securities Offering and Listing by Domestic Companies, or the Circular, and released a set of new regulations which consists of the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines. On the same date, the CSRC also released the Notice on the Arrangements for the Filing Management of Overseas Listing of Domestic Companies, or the Notice. The Trial Measures came into effect on March 31, 2023. The Trial Measures refine the regulatory system by subjecting both direct and indirect overseas offering and listing activities to the CSRC filing-based administration. Requirements for filing entities, time points and procedures are specified. A PRC
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domestic company that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC per the requirements of the Trial Measures. Where a PRC domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. The Trial Measures also lay out requirements for the reporting of material events. Breaches of the Trial Measures, such as offering and listing securities overseas without fulfilling the filing procedures, shall bear legal liabilities, including a fine between RMB 1.0 million (approximately $150,000) and RMB 10.0 million (approximately $1.5 million), and the Trial Measures heighten the cost for offenders by enforcing accountability with administrative penalties and incorporating the compliance status of relevant market participants into the Securities Market Integrity Archives.
According to the Circular, since the date of effectiveness of the Trial Measures on March 31, 2023, PRC domestic enterprises falling within the scope of filing that have been listed overseas or met the following circumstances are “existing enterprises”: before the effectiveness of the Trial Measures on March 31, 2023, the application for indirect overseas issuance and listing has been approved by the overseas regulators or overseas stock exchanges (such as the registration statement has become effective on the U.S. market), it is not required to perform issuance and listing supervision procedures of the overseas regulators or overseas stock exchanges, and the overseas issuance and listing will be completed by September 30, 2023. Existing enterprises are not required to file with the CSRC immediately, and filings with the CSRC should be made as required if they involve refinancings and other filing matters. PRC domestic enterprises that have submitted valid applications for overseas issuance and listing but have not been approved by overseas regulatory authorities or overseas stock exchanges at the date of effectiveness of the Trial Measures on March 31, 2023 can reasonably arrange the timing of filing applications with the CSRC and shall complete the filing with the CSRC before the overseas issuance and listing. According to the Circular, we can reasonably arrange the timing for submitting the filing application with the CSRC, and shall complete the filing with the CSRC in accordance with the Trial Measures before this offering. In sum, we are subject to the filing requirements of the CSRC for this offering under the Trial Measures.
In addition, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified by the Trial Measures. As a result, we will be required to file with the CSRC within three business days after the completion of this offering. We begin the process of preparing a report and other required materials in connection with the CSRC filing, which will be submitted to the CSRC in due course after this offering. However, if we do not maintain the permissions and approvals of the filing procedure in a timely manner under PRC laws and regulations, we may be subject to investigations by competent regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in our operations, limit our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. As the Circular and Trial Measures were newly published, there exists uncertainty with respect to the filing requirements and their implementation. Any failure or perceived failure of us to fully comply with such new regulatory requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, cause significant disruption to our business operations, and severely damage our reputation, which could materially and adversely affect our financial condition and results of operations and could cause the value of our securities to significantly decline or be worthless. See “Risk Factors — Risks Related to Doing Business in China — The filing, approval or other administration requirements of the Chinese Securities Regulatory Commission (the “CSRC”) or other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable” on page 26.
The Circular and Trial Measures, and any related implementing rules to be enacted may subject us to additional compliance requirements in the future. See “Risk Factors — Risks Related to Doing Business in China.”
Regulations on Intellectual Property Rights
Patents. Patents in the PRC are principally protected under the Patent Law of the PRC. Patents in the PRC are classified into three categories, namely, inventions, utility models and designs. The protection period of a patent right is 10 years for utility models and designs and 20 years for inventions from the date of application.
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Copyrights. Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software for legal persons is 50 years and ends on December 31 of the 50th year from the date of first publishing of the software.
Trademarks. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Registered trademarks are protected under the Trademark Law of the PRC and related rules and regulations. Trademarks are registered with the Trademark Office of the SAIC. Where registration is sought for a trademark that is identical or similar to another trademark which has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of such trademark may be rejected. The validity period of registered trademarks is 10 years from the date of approval of trademark application, and may be renewed for another 10 years provided relevant application procedures have been completed within 12 months before the end of the validity period.
Regulations Relating to Dividend Withholding Tax
Pursuant to the Enterprise Income Tax Law and its implementation rules, if a non-resident enterprise has not set up an organization or establishment in the PRC, or has set up an organization or establishment but the income derived has no actual connection with such organization or establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reduced withholding tax: (i) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (ii) it must have directly owned such percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations. In August 2015, the State Administration of Taxation promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or Circular 60, which became effective on November 1, 2015. Circular 60 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. Accordingly, Global Mofy HK, our Hong Kong subsidiary, may be able to enjoy the 5% withholding tax rate for the dividends they receive from our PRC subsidiary, respectively, if they satisfy the conditions prescribed under Circular 81 and other relevant tax rules and regulations. However, according to Circular 81 and Circular 60, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.
Regulations Relating to Foreign Exchange
Regulations on Foreign Currency Exchange
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital account items, such as direct investments, repayment of foreign currency-denominated loans, repatriation of investments and investments in securities outside of China.
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In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated another circular in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way of registration and banks must process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. On February 28, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conduct the registration.
On March 30, 2015, SAFE promulgated Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 came into force and replaced both previous Circular 142 and Circular 36 on June 1, 2015. On June 9, 2016, SAFE promulgated Circular 16 to further expand and strengthen such reform. Under Circular 19 and Circular 16, foreign-invested enterprises in the PRC are allowed to use their foreign exchange funds under capital accounts and RMB funds from exchange settlement for expenditure under current accounts within its business scope or expenditure under capital accounts permitted by laws and regulations, except that such funds shall not be used for (i) expenditure beyond the enterprise’s business scope or expenditure prohibited by laws and regulations; (ii) investments in securities or other investments than banks’ principal-secured products; (iii) granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) construction or purchase of real estate for purposes other than self-use (except for real estate enterprises).
Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents
SAFE issued SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, that became effective in July 2014, replacing the previous SAFE Circular 75. SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. Under SAFE Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate onshore or offshore assets or interests, while “round trip investment” refers to direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 provides that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
PRC residents or entities who had contributed legitimate onshore or offshore interests or assets to SPVs but had not obtained registration as required before the implementation of the SAFE Circular 37 must register their ownership interests or control in the SPVs with qualified banks. An amendment to the registration is required if there is a material change with respect to the SPV registered, such as any change of basic information (including change of the PRC residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure to comply with the registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of the foreign-invested enterprise
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that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested enterprise, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations. Currently, one of our beneficial owners, Zhenquan Ren, who is a PRC resident, has not completed the Circular 37 Registration.
Regulations on Dividend Distribution
The principal laws and regulations regulating the distribution of dividends by FIEs in China include the PRC Company Law, as amended in 2004, 2005, 2013, and 2018, and the 2019 PRC Foreign Investment Law and its Implementation Rules. Under the current regulatory regime in China, FIEs in China may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. A PRC company is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches 50% of its registered capital, unless laws regarding foreign investment provide otherwise. A PRC company cannot distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. Wholly foreign-owned companies may, at their discretion, allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserves are not distributable as cash dividends.
PRC Laws and Regulations on Wholly Foreign-owned Enterprises
The establishment, operation and management of corporate entities in China are governed by the PRC Company Law, which was promulgated by the SCNPC on December 29, 1993 and became effective on July 1, 1994. It was last amended on October 26, 2018 and the amendments became effective on October 26, 2018. Under the PRC Company Law, companies are generally classified into two categories, namely, limited liability companies and joint stock limited companies. The PRC Company Law also applies to limited liability companies and joint stock limited companies with foreign investors. Where there are otherwise different provisions in any law on foreign investment, such provisions shall prevail.
The Law of the PRC on Wholly Foreign-invested Enterprises was promulgated and became effective on April 12, 1986, and was last amended and became effective on October 1, 2016. The Implementing Regulations of the PRC Law on Foreign-invested Enterprises were promulgated by the State Council on October 28, 1990. They were last amended on February 19, 2014 and the amendments became effective on March 1, 2014. The Provisional Measures on Administration of Filing for Establishment and Change of Foreign Investment Enterprises were promulgated by MOFCOM and became effective on October 8, 2016, and were last amended on July 20, 2017 with immediate effect. The above-mentioned laws form the legal framework for the PRC Government to regulate Foreign-invested Enterprises. These laws and regulations govern the establishment, modification, including changes to registered capital, shareholders, corporate form, merger and split, dissolution and termination of Foreign-invested Enterprises.
According to the above regulations, a Foreign-invested Enterprise should get approval by MOFCOM before its establishment and operation. Global Mofy WFOE is a Foreign-invested Enterprise since established, and has obtained the approval of the local administration of MOFCOM. Its establishment and operation are in compliance with the above-mentioned laws. Global Mofy China is a PRC domestic company, and it is not subject to the record-filling or examination applicable to Foreign-invested Enterprises.
Regulations Relating to Employment
The PRC Labor Law and the Labor Contract Law require that employers must execute written employment contracts with full-time employees. If an employer fails to enter into a written employment contract with an employee within one year from the date on which the employment relationship is established, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee twice the employee’s salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to the day prior to the execution of the written employment contract. All employers must compensate their employees with wages equal to at least the local minimum wage standards. Violations of the PRC Labor Law and the Labor Contract Law may result in the imposition of fines and other administrative sanctions, and serious violations may result in criminal liabilities.
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Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their businesses or where they are located. Failure to make adequate contributions to various employee benefit plans may be subject to fines and other administrative sanctions.
According to the Social Insurance Law of the PRC, which was promulgated by the Standing Committee of the NPC on October 28, 2010 and became effective on July 1, 2011, without force majeure reasons, employers must not suspend or reduce their payment of social insurance for employees, otherwise, competent governmental authorities will have the power to enforce employers to pay up social insurance within a prescribed time limit, and a fine of 0.05% of the unpaid social insurance will be charged on the part of the employers per day commencing from the first day of default. Provided that the employers still fail to make the payment within the prescribed time limit, a fine of over one time and up to three times of the unpaid sum of social insurance will be charged.
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The following individuals are members of our Board and/or executive management.
Name |
Age |
Position(s) |
||
Haogang Yang |
33 |
Chief Executive Officer, Director, Chairman of the Board |
||
Chen Chen |
37 |
Chief Financial Officer, Director |
||
Wenjun Jiang |
39 |
Chief Technology Officer |
||
Qing Li |
41 |
Chief Operating Officer |
||
Chi Chen(1)(2)(3) |
45 |
Independent Director, Chair of Audit Committee |
||
Cai Feng(1)(2)(3) |
64 |
Independent Director, Chair of Nominating Committee |
||
Xiaohong Qi(1)(2)(3) |
50 |
Independent Director, Chair of Compensation Committee |
____________
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
Haogang Yang, Chief Executive Officer, Director, Chairman of the Board
Mr. Haogang Yang has served as the CEO, Director and Chairman of Global Mofy Cayman since its inception and the CEO and Director of Global Mofy China since July 2017. From June 2014 to June 2017, he co-founded Hangzhou Shixingren Film Technology Co., Ltd. and was mainly responsible for the company’s strategic planning and business development. From August 2012 to May 2014, Mr. Yang served as the marketing supervisor of Shanghai Crystal Digital Technology Co., Ltd. and was mainly responsible for market, public relations and commercial services. Mr. Yang earned his Executive MBA degree from the Cheung Kong Graduate School of Business in 2020 and his bachelor’s degree in project management from Beijing Jiaotong University in 2019.
Chen Chen, Chief Financial Officer, Director
Mr. Chen Chen has served as the financial director of Global Mofy China since November 2022 and he is familiar with the Company’s operation. Mr. Chen has 10 years’ experience in financial management. From December 2020 to November 2022, he served as the financial director of Star Okay Super Order (Beijing) Network Technology Co., where he was mainly responsible for making financial decisions and managing the operation of the company. From December 2015 to September 2019, Mr. Chen worked as a financial director of Macrolink Holding Group, where he was primarily responsible for conducting major company financial decisions and overseeing daily business activities. From December 2013 to December 2015, he was a financial director of China Textile Information Center, where he was in charge of the preparation of company’s financial statements and financial business review and tax planning. From 2009 to August 2013, Mr. Chen worked at Angelantoni of Italy, Beijing branch, as a financial director, where he was mainly responsible for preparing company’s financial statements, handling export tax rebates, participating in company’s major business discussions, and issuing financial opinions. Mr. Chen obtained his bachelor’s degree from China Youth University of Political Studies in 2014, majoring in financial management.
Wenjun Jiang, Chief Technology Officer
Ms. Wenjun Jiang has been served as the Chief Technology Officer of Global Mofy Cayman since its inception and as the Chief Technology Officer and Director of Global Mofy China since June 2016. Ms. Jiang is concurrently a mentor of the Central Academy of Fine Arts. From April 2010 to June 2016, she was a project supervisor of Beijing Base Media International Visual Art Exchange Co., Ltd. (Base FX), in charge of virtual technology aspect. Prior to that, Ms. Jiang had more than 3 years of working experience in the virtual technology area. Ms. Jiang earned her bachelor’s degree in animation from Hebei University of Economics and Business in 2008.
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Qing Li, Chief Operating Officer
Ms. Qing Li has been the Chief Operating Officer of Global Mofy Cayman since March 2021. From October 2018 to February 2021, she served as the General Manager of Beijing Shixing Universe Culture and Media Co., Ltd. and was mainly responsible for the company’s daily production, operation and management activities. Prior to that, Mr. Li served as a partner of Crystal Stone Education from July 2007 to September 2018 and mainly oversaw the company’s daily operation and management activities. At present, Ms. Li is taking the MBA program at Beijing Institute of Technology and earned her bachelor’s degree in interior design from the Beijing Construction University in 2006.
Chi Chen, Independent Director, Chair of Audit Committee
Mr. Chen is a financial professional with over 13 years of auditing and management experience. Mr. Chen specializes in S-1filing, U.S. GAAP and SEC compliance, and corporate risk control including SOX testing and compliance. Mr. Chen has been Risks and Controls manager of National Grid Plc., a U.S. and U.K. dual listed public company (NYSE: NGG; LSE: NG) since February 2020. From October 2015 to January 2020, Mr. Chen worked as the auditor in BDO USA LLP (New Jersey) and Grant Thornton LLP (New York) respectively, where he was involved extensively in S-1 filing, 10K and 10Q filings, and U.S. GAAP and SEC regulatory compliance for both private and public companies in the States. Prior to that, Mr. Chen has 6 years auditing experience in Australia at BDO Audit Pty Ltd (Australia) and Grant Thornton Adelaide (Australia) respectively. Mr. Chen graduated from University of Adelaide with a bachelor’s degree in Commerce in Accounting in 2007. Mr. Chen is a Certified Public Accountant (State of New York) and Chartered Accountant (Institute of Chartered Accountants of Australia and New Zealand). We believe that Mr. Chen is qualified to serve on our board by reasons of professional experiences and qualifications.
Cai Feng, Independent Director, Chair of Nominating Committee
Ms. Feng has more than 20 years of management experience in both U.S. and China. Ms. Feng has been the Director of Innovation, China Insurance and Pension Research Center at Tsinghua University since May 2017, where she was responsible for directing the research of innovative technologies and their application in the financial industry and promotion of entrepreneurship. Before joining Tsinghua University, Ms. Feng was the Vice General Manager of IT Department at BOCOM MSIG Life Insurance Company Limited for 5 years, where she was in charge of IT operations. Prior to that, Ms. Feng worked nearly 12 years in U.S., including various technical and managerial positions at Ipreo LLC (New York), Deloitte & Touche, LLP (New York) and at CA Technologies (New York). Ms. Feng earned her Master of Science at Arizona State University in 1999, Master of Laws at University of Arizona in 1998, and bachelor’s degree in laws at Peking University in 1994. We believe that Ms. Feng is qualified to serve on our board by reasons of professional experiences and qualifications.
Xiaohong Qi, Independent Director, Chair of Compensation Committee
Ms. Xiaohong Qi founded and established Shanghai Tongda Asset Management Co., Ltd. in December 2019, well-known domestic PE funds in China. As a founding partner, she reviews and decides on investment proposals together with the investments committee members. Prior that that, Ms. Qi had more than 8 years of interior design and management experiences in two architectural design firms, Shanghai United Architecture Design Co., Ltd. and Shanghai Tianhua Architectural Design Co., Ltd, respectively. Ms. Qi graduated from Qingdao University of Technology with a bachelor’s degree in Construction Engineering in 1997.
Family Relationships
None of the directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past 10 years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K.
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Terms of Directors and Executive Officers
Each of our directors holds office until her or his successor is duly elected and qualified, or until her or his earlier death, resignation or removal. Shareholders may remove and appoint directors at any time by ordinary resolution. All of our executive officers are appointed by and serve at the discretion of our board of directors.
However, as a Cayman Islands exempted company, we are not required to hold any annual general meetings and, under our articles of association, shareholders are not able to requisition a meeting unless the requisitionists, between them, hold in aggregate not less than 10% of our voting share capital in issue. As a result, shareholders who hold less than 10% of our voting share capital in issue may not have opportunity to vote on directors if no general meetings are convened by the board of directors.
Board of Directors
Our board of directors consists of five directors, three of whom shall be “independent” within the meaning of the corporate governance standards of Nasdaq. A director is not required to hold any shares in our company to qualify to serve as a director. Subject to the rules of the relevant stock exchange and disqualification by the chairman of the board of directors, a director may vote with respect to any contract, proposed contract, or arrangement in which he or she is materially interested. A director may exercise all the powers of the company to borrow money, mortgage its business, property and uncalled capital and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party. There are no directors’ service contracts with the Company or its subsidiaries providing for benefits upon termination of employment.
Committees of the Board of Directors
We establish an audit committee, a compensation committee and a nominating and corporate governance committee under the board of directors. We adopt a charter for each of the three committees prior to the completion of this offering. Each committee’s members and functions are described below.
Audit Committee. Our audit committee consists of Chi Chen, Cai Feng, and Xiaohong Qi, and is chaired by Chi Chen. We have determined that these three individuals satisfy the “independence” requirements of Nasdaq Rule 5605 and Rule 10A-3 under the Securities Exchange Act of 1934. We have determined that qualifies as an “audit committee financial expert.” The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:
• selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm;
• reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response;
• reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;
• discussing the annual audited financial statements with management and the independent registered public accounting firm;
• reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;
• annually reviewing and reassessing the adequacy of our audit committee charter;
• meeting separately and periodically with management and the independent registered public accounting firm; and
• reporting regularly to the board of directors.
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Compensation Committee. Our compensation committee consists of Chi Chen, Cai Feng, and Xiaohong Qi, and is chaired by Xiaohong Qi. We have determined that these three individuals satisfy the “independence” requirements of Nasdaq Rule 5605 and Rule 10A-3 under the Securities Exchange Act of 1934. The compensation committee will assist the board of directors in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated upon. The compensation committee will be responsible for, among other things:
• reviewing the total compensation package for our executive officers and making recommendations to the board of directors;
• reviewing the compensation of our non-employee directors and making recommendations to the board of directors with respect to it; and
• periodically reviewing and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, and employee pension and welfare benefit plans.
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Chi Chen, Cai Feng, and Xiaohong Qi, and is chaired by Cai Feng. We have determined that these three individuals satisfy the “independence” requirements of Nasdaq Rule 5605 and Rule 10A-3 under the Securities Exchange Act of 1934. The nominating and corporate governance committee will assist the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board of directors and its committees. The nominating and corporate governance committee will be responsible for, among other things:
• recommending nominees to the board of directors for election or re-election to the board of directors, or for appointment to fill any vacancy on the board of directors;
• reviewing annually with the board of directors the current composition of the board with regards to characteristics such as independence, age, skills, experience and availability of service to us;
• selecting and recommending to the board of directors the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself; and
• monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
Duties of Directors
Under Cayman Islands law, all of our directors owe three types of duties to us: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties. The Cayman Islands Companies Act imposes a number of statutory duties on a director. A Cayman Islands director’s fiduciary duties are not codified, however the courts of the Cayman Islands have held that a director owes the following fiduciary duties: (a) a duty to act in what the director bona fide considers to be in the best interests of the company, (b) a duty to exercise their powers for the purposes they were conferred, (c) a duty to avoid fettering his or her discretion in the future and (d) a duty to avoid conflicts of interest and of duty. The common law duties owed by a director are those to act with skill, care and diligence that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and, also, to act with the skill, care and diligence in keeping with a standard of care commensurate with any particular skill they have which enables them to meet a higher standard than a director without those skills. In fulfilling their duty of care to us, our directors must ensure compliance with our articles of association, as amended and restated from time to time. We have the right to seek damages if a duty owed by any of our directors is breached.
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Code of Business Conduct and Ethics
We have a code of business conduct and ethics applicable to our directors, officers and employees.
Foreign Private Issuer Exemption
We are a foreign private issuer within the meaning of the rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:
• we are not required to provide as many Exchange Act reports, or as frequently, as a U.S. domestic public company;
• for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies;
• we are not required to provide the same level of disclosure on certain issues, such as executive compensation;
• we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;
• we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; and
• we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.
Because we are a foreign private issuer and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer. Nasdaq listing rules require listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to, and we may follow home country practice in lieu of the above requirements, or we may choose to comply with the above requirement within one year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent directors. Thus, although a director must act in the best interests of the Company, it is possible that fewer board members will be exercising independent judgment and the level of board oversight on the management of our Company may decrease as a result. In addition, Nasdaq listing rules also require U.S. domestic issuers to have a compensation committee, a nominating/corporate governance committee composed entirely of independent directors, and an audit committee with a minimum of three members. We, as a foreign private issuer, are not subject to these requirements. However, we intend to meet this Nasdaq standard that our committees consist entirely of independent directors. Per Nasdaq listing rules, shareholder approval is required for domestic companies, prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) transactions other than public offerings. We voluntarily comply with the requirements of the rules and will seek shareholder approval under all situations stated above.
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Summary Compensation Table
The following table sets forth certain information with respect to compensation for the years ended September 30, 2023 and 2022, earned by or paid to our chief executive officer and principal executive officer, our principal financial officer, and our other most highly compensated executive officers (the “named executive officers”).
Name and Principal Position |
Year |
Salary (US$) |
Bonus (US$) |
Stock Awards (US$) |
Option Awards (US$) |
Non-Equity Incentive |
Deferred Compensation Earnings |
Other |
Total (US$) |
|||||||||||
Haogang Yang, |
2023 |
$ |
55,000 |
— |
— |
— |
— |
— |
— |
$ |
55,000 |
|||||||||
CEO |
2022 |
$ |
55,000 |
— |
— |
— |
— |
— |
— |
$ |
55,000 |
|||||||||
Wei Zhang, |
2023 |
$ |
37,000 |
— |
— |
— |
— |
— |
— |
$ |
37,000 |
|||||||||
Former CFO |
2022 |
$ |
37,000 |
— |
— |
— |
— |
— |
— |
$ |
37,000 |
|||||||||
Chen Chen, |
2023 |
$ |
20,000 |
— |
— |
— |
— |
— |
— |
$ |
20,000 |
|||||||||
CFO |
2022 |
|
— |
— |
— |
— |
— |
— |
— |
|
— |
|||||||||
Wenjun Jiang, |
2023 |
$ |
28,000 |
— |
— |
— |
— |
— |
— |
$ |
28,000 |
|||||||||
CTO |
2022 |
$ |
28,000 |
— |
— |
— |
— |
— |
— |
$ |
28,000 |
|||||||||
Qing Li |
2023 |
$ |
28,000 |
— |
— |
— |
— |
— |
— |
$ |
28,000 |
|||||||||
COO |
2022 |
$ |
28,000 |
— |
— |
— |
— |
— |
— |
$ |
28,000 |
Agreements with Named Executive Officers
On August 1, 2019, Global Mofy China entered into an employment agreement with our Chief Executive Officer, Haogang Yang, for a term of three years. Mr. Yang is entitled to an annual base salary of RMB360,000 (approximately USD55,000). The termination of this agreement is subject to PRC Labor Law and PRC Labor Contract Law. On August 1, 2022, Global Mofy China renewed the employment agreement with Mr. Yang to extend the term of three years and the annual base salary remained as RMB360,000 (approximately USD55,000).
On April 30, 2021, Global Mofy China entered into an at-will employment agreement with our Chief Financial Officer, Wei Zhang. Ms. Zhang is entitled to an annual base salary of RMB240,000 (approximately USD37,000). The termination of this agreement is subject to PRC Labor Law and PRC Labor Contract Law. On November 15, 2023, Wei Zhang has resigned as the CFO.
On November 15, 2023, Global Mofy Metaverse Limited entered into an employment agreement with our Chief Financial Officer, Chen Chen. Mr. Chen is entitled to an annual base salary of RMB114,000 (approximately UD$20,000). The term of the employment agreement is two years.
On March 3, 2021, Global Mofy China entered into an employment agreement with our Chief Technology Officer, Wenjun Jiang, for a term of three years. Ms. Jiang is entitled to an annual base salary of RMB180,000 (approximately USD28,000). Based on prior employment agreement, Ms. Jiang’s annual base salary was RMB132,000 (approximately USD19,000) in 2020. The termination of this agreement is subject to PRC Labor Law and PRC Labor Contract Law.
On March 24, 2021, Global Mofy China entered into an employment agreement with our Chief Operating Officer, Qing Li, for a term of three years. Ms. Li is entitled to an annual base salary of RMB180,000 (approximately USD28,000). The termination of this agreement is subject to PRC Labor Law and PRC Labor Contract Law.
Compensation of Directors
For the year ended September 30, 2023 and 2022, we did not compensate our directors for their services other than to reimburse them for out-of-pocket expenses incurred in connection with their attendance at meetings of the board of directors.
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Offer Letters to Independent Directors
On August 18, 2022, Mr. Chi Chen has received and signed the offer letter provided by Global Mofy Cayman. The term shall continue until his successor is duly elected and qualified. The board of directors may terminate the position as a director for any or no reason. The position shall be up for re-appointment every year by the board of directors of the Company. Mr. Chen is entitled to compensation of US$40,000 for each calendar year, payable on a quarterly basis.
On August 18, 2022, Ms. Cai Feng has received and signed the offer letter provided by Global Mofy Cayman. The term shall continue until her successor is duly elected and qualified. The board of directors may terminate the position as a director for any or no reason. The position shall be up for re-appointment every year by the board of directors of the Company. Ms. Feng is entitled to compensation of US$20,000 for each calendar year, payable on a quarterly basis.
On August 18, 2022, Ms. Xiaohong Qi has received and signed the offer letter provided by Global Mofy Cayman. The term shall continue until her successor is duly elected and qualified. The board of directors may terminate the position as a director for any or no reason. The position shall be up for re-appointment every year by the board of directors of the Company. Ms. Qi is entitled to compensation of US$20,000 for each calendar year, payable on a quarterly basis.
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The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our ordinary shares as of the date of this prospectus, and as adjusted to reflect the sale of the ordinary shares offered in this offering for
• each of our directors and executive officers; and
• each person known to us to own beneficially more than 5% of our ordinary shares.
Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them. Percentage of beneficial ownership of each listed person prior to this offering is based on (i) 27,166,155 ordinary shares issued and outstanding prior to the effectiveness of the registration statement of which this prospectus is a part and (ii) ordinary shares underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this prospectus. Percentage of beneficial ownership of each listed person after this offering includes (i) ordinary shares outstanding immediately after the completion of this offering and (ii) ordinary shares underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this prospectus, but excludes any shares issuable upon the exercise of the over-allotment option.
Ordinary Shares |
Ordinary Shares |
|||||||||
Number |
Percent |
Number |
Percent |
|||||||
Directors and Executive Officers: |
|
|
||||||||
Haogang Yang(1) |
12,723,036 |
46.83 |
% |
12,723,036 |
[ ] |
% |
||||
Chen Chen |
— |
— |
% |
— |
— |
% |
||||
Wenjun Jiang(2) |
746,330 |
2.75 |
% |
746,330 |
[ ] |
% |
||||
Qing Li |
— |
— |
% |
— |
— |
% |
||||
Chi Chen |
— |
— |
% |
— |
— |
% |
||||
Cai Feng |
— |
— |
% |
— |
— |
% |
||||
Xiaohong Qi |
— |
— |
% |
— |
— |
% |
||||
All directors and executive officers as a group (7 persons) |
13,469,366 |
49.58 |
% |
13,469,366 |
[ ] |
% |
||||
|
|
|||||||||
5% Shareholders: |
|
|
||||||||
James Yang Mofy Limited(3) |
10,913,894 |
40.17 |
% |
10,913,894 |
[ ] |
% |
||||
Lianhe Universe Holding Group Limited(4) |
2,269,693 |
8.35 |
% |
2,269,693 |
[ ] |
% |
||||
New JOLENE&R L.P.(5) |
1,809,142 |
6.66 |
% |
1,809,142 |
[ ] |
% |
____________
(1) Haogang Yang beneficially owns 12,723,036 ordinary shares in total through James Yang Mofy Limited, a company incorporated under the laws of the BVI and of which Mr. Yang has voting and dispositive control over the 10,913,894 ordinary shares and through New JOLENE&R L.P., a limited partnership formed under the laws of the BVI and of which Mr. Yang holds 75% interest and has voting and dispositive control to the 1,809,142 ordinary shares.
(2) Wenjun Jiang beneficially owns 746,330 ordinary shares indirectly through New Jiang Wen Jun Limited, a company incorporated under the laws of the BVI and of which Ms. Jiang has voting and dispositive control.
(3) Haogang Yang beneficially owns 10,913,894 ordinary shares indirectly through James Yang Mofy Limited, a company incorporated under the laws of the BVI and of which Mr. Yang has voting and dispositive control.
(4) Dengrao Jia beneficially owns 2,269,693 ordinary shares indirectly through Lianhe Universe Holding Group Limited, a company incorporated under the laws of the BVI and of which Mr. Jia has voting and dispositive control.
(5) Haogang Yang, Nan Zhang, Qing Li, and Jing Huang beneficially own 1,809,142 ordinary shares indirectly through New JOLENE&R L.P., a limited partnership formed under the laws of the BVI and of which Haogang Yang holds 75% interest and has voting and dispositive control to the 1,809,142 ordinary shares.
122
Employment Agreements
See “Management — Employment Agreements.”
Other Transactions with Related Parties
Nature of relationships with related parties:
Name |
Relationship with the Company |
|
Mr. Jianru Yang |
Business officer of the Company |
|
Ms. Yang Li |
Finance Controller of the Company |
|
Mr. Yuchao Lu |
Directly hold a 5.7% equity interest in the Company |
|
Lianyungang Zongteng Film Studio |
Controlled by Mr. Yuchao Lu |
|
Moxing Shangxing (Beijing) Technology Co., Ltd |
Controlled by Mr. Jianru Yang |
|
Mofy Filming (Hainan) Co., Ltd. (“Mofy Hainan”) |
Ms. Yang Li is finance controller of Mofy Hainan |
Transactions with related parties
For the Six Months Ended March 31, |
||||||
2023 |
2022 |
|||||
(Unaudited) |
(Unaudited) |
|||||
Revenue earned from related parties |
|
|
||||
Mofy Filming (Hainan) Co., Ltd. |
$ |
— |
$ |
1,481,138 |
||
|
|
|||||
Service fees charged by related parties |
|
|
||||
Lianyungang Zongteng Film Studio |
$ |
— |
$ |
11,120 |
For the Years Ended September 30, |
||||||
2022 |
2021 |
|||||
US$ |
US$ |
|||||
Revenue earned from related parties |
|
|
||||
Mofy Filming (Hainan) Co., Ltd. |
$ |
1,439,596 |
$ |
— |
||
Moxing Shangxing (Beijing) Technology Co., Ltd |
|
1,208,397 |
|
— |
||
$ |
2,647,993 |
$ |
— |
|||
|
|
|||||
Service fees charged by related parties |
|
|
||||
Lianyungang Zongteng Film Studio |
$ |
10,808 |
$ |
16,028 |
Balances with related parties
As of the date of this prospectus and September 30, 2022, the balances with related parties were as follows:
As of the date of this prospectus |
September 30 2022 |
||||
Accounts receivable – Related Party |
|
||||
Moxing Shangxing (Beijing) Technology Co. |
$ |
— |
298,587 |
||
|
|||||
Due from related party |
|
||||
Moxing Shangxing (Beijing) Technology Co.(a) |
$ |
— |
182,751 |
____________
(a) As of September 30, 2022, the balance of $182,751 (or RMB1,300,000) represented the interest-free loan lent to Moxing Shangxing (Beijing) Technology Co., Ltd. for the working capital purpose, with the maturity date of August 24, 2023. The loan was fully collected in December 2022.
123
Short-term bank loans guaranteed by the chairperson of the Company’s board of directors and CEO
On March 12, 2021, Global Mofy China entered into a loan agreement with Bank of Nanjing to obtain a loan of $155,198 (or RMB 1,000,000) for a term from March 12, 2021 to March 11, 2022. As of the date of this filing, Global Mofy China has fully repaid the total outstanding balance upon the maturity on March 11, 2022.
On July 29, 2021, Global Mofy China entered into another loan agreement with Bank of Nanjing to obtain a loan of $155,198 (or RMB 1,000,000) for a term from July 29, 2021 to July 28, 2022. Both of these loans bore a fixed annual interest rate of 6.08%. On July 29, 2022, the Company renewed the loan agreement with Bank of Nanjing to obtain a loan of $140,578 (or RMB1,000,000) for the period from July 29, 2022 to July 29, 2023 with an annual interest rate of 6%.
On March 31, 2022, Global Mofy China and Bank of Nanjing entered into a loan agreement to borrow $315,492 (or RMB2,000,000) of loan for the period from March 31, 2022 to March 31, 2023 with an annual interest rate of 6.0%.
Mr. Haogang, Yang, the Chairman of the Company’s board of directors and CEO, together with his wife, Ms. Mingxing Dong, guaranteed the repayment of the above three loans.
On November 14, 2021, Global Mofy China and Huaxia Bank entered into a loan agreement to borrow $126,197 (or RMB800,000) of loan for the period from November 14, 2021 to November 14, 2022 with an annual interest rate of 5.225%. The Company’s CEO, Mr. Haogang Yang, and his wife, Ms. Mingxing Dong, provided guarantee to this loan. The Company is required to make monthly interest payment with principal due at maturity. On July 8, 2022, the Company repaid loan in advance.
On July 27, 2022, Global Mofy China and Huaxia Bank entered into a loan agreement to borrow $728,056 (or RMB5,000,000) of loan for the period from July 27, 2022 to July 27, 2023 with a floating interest rate. The Company’s CEO, Mr. Haogang Yang, and his wife, Ms. Mingxing Dong, provided guarantee to this loan. The Company is required to make monthly interest payment with principal due at maturity.
124
A copy of our amended and restated memorandum and articles of association is filed as an exhibit to the registration statement of which this prospectus is a part (and which is referred to in this section as, respectively, the “memorandum” and the “articles”).
We were incorporated as an exempted company with limited liability under the Companies Act (as amended) of the Cayman Islands, or the “Cayman Islands Companies Act,” on September 29, 2021. A Cayman Islands exempted company:
• is a company that conducts its business mainly outside the Cayman Islands;
• is prohibited from trading in the Cayman Islands with any person, firm or corporation except in furtherance of its business carried on outside the Cayman Islands (and for this purpose can effect and conclude contracts in the Cayman Islands and exercise in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands);
• does not have to hold an annual general meeting;
• does not have to make its register of members open to inspection by shareholders of that company;
• may obtain an undertaking against the imposition of any future taxation;
• may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
• may register as a limited duration company; and
• may register as a segregated portfolio company.
We include summaries of material provisions of our amended and restated memorandum and articles of association and the Cayman Islands Companies Act insofar as they relate to the material terms of our share capital.
Ordinary Share
All of our issued and outstanding ordinary shares are fully paid and non-assessable. Our ordinary shares are issued in registered form, and are issued when registered in our register of members. Unless the board of directors determines otherwise, each holder of our ordinary shares will not receive a certificate in respect of such ordinary shares. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their ordinary share. We may not issue shares or warrants to bearer.
Our authorized share capital is US$50,000 divided into 25,000,000,000 ordinary shares, par value US$0.000002 per share. Subject to the provisions of the Cayman Islands Companies Act and our articles regarding redemption and purchase of the shares, the directors have general and unconditional authority to allot (with or without confirming rights of renunciation), grant options over or otherwise deal with any unissued shares to such persons, at such times and on such terms and conditions as they may decide. Such authority could be exercised by the directors to allot shares which carry rights and privileges that are preferential to the rights attaching to ordinary share. No share may be issued at a discount except in accordance with the provisions of the Cayman Islands Companies Act. The directors may refuse to accept any application for shares, and may accept any application in whole or in part, for any reason or for no reason.
As of the date of this prospectus, there are 27,166,155 ordinary shares issued and outstanding.
Dividends
Subject to the provisions of the Cayman Islands Companies Act and any rights attaching to any class or classes of shares under and in accordance with the Articles:
(a) the directors may declare dividends or distributions out of our funds which are lawfully available for that purpose; and
(b) the Company’s shareholders may, by ordinary resolution, declare dividends but no such dividend shall exceed the amount recommended by the directors.
125
Subject to the requirements of the Cayman Islands Companies Act regarding the application of a company’s share premium account and with the sanction of an ordinary resolution, dividends may also be declared and paid out of any share premium account. The directors when paying dividends to shareholders may make such payment either in cash or in specie.
Unless provided by the rights attached to a share, no dividend shall bear interest against the Company.
Voting Rights
Subject to any rights or restrictions as to voting attached to any shares, unless any share carries special voting rights, on a show of hands every shareholder who is present in person and every person representing a shareholder by proxy shall have one vote. On a poll, every shareholder who is present in person and every person representing a shareholder by proxy shall have one vote for each share of which he or the person represented by proxy is the holder. In addition, all shareholders holding shares of a particular class are entitled to vote at a meeting of the holders of that class of shares. Votes may be given either personally or by proxy.
Variation of Rights Attaching to Shares
Whenever our capital is divided into different classes of shares, the rights attaching to any class of share (unless otherwise provided by the terms of issue of the shares of that class) may be varied either with the consent in writing of the holders of more than one half of the issued shares of that class, or with the sanction of a resolution passed by a majority of more than one half of the holders of shares of the class present in person or by proxy at a separate general meeting of the holders of shares of that class.
Unless the terms on which a class of shares was issued state otherwise, the rights conferred on the shareholder holding shares of any class shall be deemed not to be varied by the creation or issue of further shares ranking pari passu with the existing shares of that class.
Alteration of Share Capital
Subject to the Cayman Islands Companies Act, our shareholders may, by ordinary resolution:
(a) increase our share capital by new shares of the amount fixed by that ordinary resolution and with the attached rights, priorities and privileges set out in that ordinary resolution;
(b) consolidate and divide all or any of our share capital into shares of larger amount than our existing shares;
(c) convert all or any of our paid up shares into stock, and reconvert that stock into paid up shares of any denomination; and
(d) sub-divide our shares or any of them into shares of an amount smaller than that fixed, so, however, that in the sub-division, the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived.
Subject to the Cayman Islands Companies Act and to any rights for the time being conferred on the shareholders holding a particular class of shares, our shareholders may, by special resolution, reduce its share capital in any way.
Calls on Shares and Forfeiture
Subject to the terms of allotment, the directors may make calls on the shareholders in respect of any monies unpaid on their shares including any premium and each shareholder shall (subject to receiving at least 14 clear days’ notice specifying when and where payment is to be made), pay to us the amount called on his shares. Shareholders registered as the joint holders of a share shall be jointly and severally liable to pay all calls in respect of the share. If a call remains unpaid after it has become due and payable the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid at the rate fixed by the terms of allotment of the share or in the notice of the call or if no rate is fixed, at the rate of 10 percent per annum. The directors may, at their discretion, waive payment of the interest wholly or in part.
126
We have a first and paramount lien on every partly-paid or unpaid share for all monies called or payable to us in respect of that share. Our liens on such shares extends to dividends payable thereon.
At any time the directors may declare any share to be wholly or partly exempt from the lien on shares provisions of the articles.
We may sell, in such manner as the directors may determine, any share on which the sum in respect of which the lien exists is presently payable, if due notice that such sum is payable has been given (as prescribed by the articles) and, within 14 days of the date on which the notice is deemed to be given under the articles, such notice has not been complied with.
Unclaimed Dividend
A dividend that remains unclaimed for a period of six years after it became due for payment shall be forfeited to, and shall cease to remain owing by, the Company.
Forfeiture or Surrender of Shares
If a shareholder fails to pay any call the directors may give to such shareholder not less than 14 clear days’ notice requiring payment and specifying the amount unpaid including any interest which may have accrued, any expenses which have been incurred by us due to that shareholder’s default and the place where payment is to be made. The notice shall also contain a warning that if the notice is not complied with, the shares in respect of which the call is made will be liable to be forfeited.
If such notice is not complied with, the directors may, before the payment required by the notice has been received, resolve that any share the subject of that notice be forfeited (which forfeiture shall include all dividends or other monies payable in respect of the forfeited share and not paid before such forfeiture). The directors may determine that any share the subject of such notice be accepted by the Company as surrendered by the shareholder holding that share in lieu of forfeiture.
A forfeited or surrendered share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the directors determine and at any time before a sale, re-allotment or disposition the forfeiture may be cancelled on such terms as the directors think fit.
A person whose shares have been forfeited or surrendered shall cease to be a shareholder in respect of the forfeited or surrendered shares, but shall, notwithstanding such forfeit or surrender, remain liable to pay to us all monies which at the date of forfeiture or surrender were payable by him to us in respect of the shares, together with all expenses and interest from the date of forfeiture or surrender until payment, but his liability shall cease if and when we receive payment in full of the unpaid amount.
A declaration, whether statutory or under oath, made by a director or the secretary shall be conclusive evidence that the person making the declaration is a director or secretary of us and that the particular shares have been forfeited or surrendered on a particular date.
Subject to the execution of an instrument of transfer, if necessary, the declaration shall constitute good title to the shares.
Share Premium Account
The directors shall establish a share premium account and shall carry the credit of such account from time to time to a sum equal to the amount or value of the premium paid on the issue of any share or capital contributed or such other amounts required by the Cayman Islands Companies Act.
127
Redemption and Purchase of Own Shares
Subject to the Cayman Islands Companies Act and any rights for the time being conferred on the shareholders holding a particular class of shares, we may:
(a) issue shares that are to be redeemed or liable to be redeemed, at our option or the shareholder holding those redeemable shares, on the terms and in the manner its directors determine before the issue of those shares;
(b) with the consent in writing of holders of more than one half of the issued shares of a particular class, or with the sanction of a resolution passed by a majority of more than one half of the holders of shares of a particular class, vary the rights attaching to that class of shares so as to provide that those shares are to be redeemed or are liable to be redeemed at our option on the terms and in the manner which the directors determine at the time of such variation; and
(c) purchase all or any of our own shares of any class including any redeemable shares on the terms and in the manner which the directors determine at the time of such purchase.
We may make a payment in respect of the redemption or purchase of our shares in any manner authorized by the Cayman Islands Companies Act, including out of any combination of capital, our profits and the proceeds of a fresh issue of shares.
When making a payment in respect of the redemption or purchase of shares, the directors may make the payment in cash or in specie (or partly in one and partly in the other) if so authorized by the terms of the allotment of those shares or by the terms applying to those shares, or otherwise by agreement with the shareholder holding those shares.
Transfer of Shares
Provided that a transfer of ordinary shares complies with applicable rules of Nasdaq, a shareholder may transfer ordinary shares to another person by completing an instrument of transfer in a common form or in a form prescribed by Nasdaq or in any other form approved by the directors, executed:
(a) where the ordinary shares are fully paid, by or on behalf of that shareholder; and
(b) where the ordinary shares are unpaid or partly paid, by or on behalf of that shareholder and the transferee.
The transferor shall be deemed to remain the holder of an ordinary share until the name of the transferee is entered into the register of members of the Company.
Where the ordinary shares in question are not listed on or subject to the rules of Nasdaq, our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share that has not been fully paid up or is subject to a company lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
(a) the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary share to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;
(b) the instrument of transfer is in respect of only one class of ordinary share;
(c) the instrument of transfer is properly stamped, if required;
(d) the ordinary share transferred is fully paid and free of any lien in favor of us;
(e) any fee related to the transfer has been paid to us; and
(f) the transfer is not to more than four joint holders.
If our directors refuse to register a transfer, they are required, within one month after the date on which the instrument of transfer was lodged, to send to each of the transferor and the transferee notice of such refusal.
128
The registration of transfers may, on 14 calendar days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and our register of members closed at such times and for such periods as our board of directors may from time to time determine. The registration of transfers, however, may not be suspended, and the register may not be closed, for more than 30 calendar days in any year.
Inspection of Books and Records
Holders of our ordinary shares will have no general right under the Cayman Islands Companies Act to inspect or obtain copies of our register of members or our corporate records.
General Meetings
As a Cayman Islands exempted company, we are not obligated by the Cayman Islands Companies Act to call shareholders’ annual general meetings; accordingly, we may, but shall not be obliged to, in each year hold a general meeting as an annual general meeting. Any annual general meeting held shall be held at such time and place as may be determined by our board of directors.
The directors may convene general meetings whenever they think fit. General meetings shall also be convened on the written requisition of one or more of the shareholders entitled to attend and vote at our general meetings who (together) hold not less than 10 percent of the rights to vote at such general meeting in accordance with the notice provisions in the articles, specifying the purpose of the meeting and signed by each of the shareholders making the requisition. If the directors do not convene such meeting for a date not later than 45 clear days after the date of receipt of the written requisition, those shareholders who requested the meeting may convene the general meeting themselves within three months after the end of such period of 45 clear days in which case reasonable expenses incurred by them as a result of the directors failing to convene a meeting shall be reimbursed by us.
At least seven clear days’ notice of an annual general meeting or any other general meeting shall be given to shareholders entitled to attend and vote at such meeting. The notice shall specify the place, the day and the hour of the meeting and the general nature of that business. In addition, if a resolution is proposed as a special resolution, the text of that resolution shall be given to all shareholders. Notice of every general meeting shall also be given to the directors and our auditors.
Subject to the Cayman Islands Companies Act and with the consent of the shareholders who, individually or collectively, hold at least 90 percent of the voting rights of all those who have a right to vote at a general meeting, a general meeting may be convened on shorter notice.
A quorum shall consist of the presence (whether in person or represented by proxy) of one or more shareholders holding shares that represent not less than one third of the outstanding shares carrying the right to vote at such general meeting.
If within half an hour 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 same day in the next week, at the same time and place, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the Shareholder or Shareholders present and entitled to vote shall be a quorum.
At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before, or on, the declaration of the result of the show of hands) demanded by the chairman of the meeting or by at least two shareholders having the right to vote on the resolutions or one or more shareholders present who together hold not less than 10 percent of the voting rights of all those who are entitled to vote on the resolution. Unless a poll is so demanded, a declaration by the chairman as to the result of a resolution and an entry to that effect in the minutes of the meeting, shall be conclusive evidence of the outcome of a show of hands, without proof of the number or proportion of the votes recorded in favor of, or against, that resolution.
If a poll is duly demanded it shall be taken in such manner as the chairman directs and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.
In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall not be entitled to a second or casting vote.
129
Directors
Shareholders may by ordinary resolution, from time to time, fix the maximum and minimum number of directors to be appointed and, unless and until so fixed, we are required to have a minimum of one director under Cayman Islands law and there will be no maximum number of directors.
A director may be appointed by ordinary resolution or by the directors. Any appointment may be to fill a vacancy or as an additional director.
Unless the remuneration of the directors is determined by the shareholders by ordinary resolution, the directors shall be entitled to such remuneration as the directors may determine.
The shareholding qualification for directors may be fixed by our shareholders by ordinary resolution and, unless and until so fixed, there shall be no shareholding qualification.
A director will hold office until her or his successor is duly elected and qualified, or until her or his earlier death, resignation or removal. A director may be removed by ordinary resolution of our shareholders at any time.
A director may at any time resign or retire from office by giving us notice in writing. Unless the notice specifies a different date, the director shall be deemed to have resigned on the date that the notice is delivered to us.
Under the articles, the office of a director shall be vacated forthwith if:
(a) he is prohibited by the law of the Cayman Islands from acting as a director;
(b) he is made bankrupt or makes an arrangement or composition with his creditors generally;
(c) he resigns his office by notice to us;
(d) he only held office as a director for a fixed term and such term expires;
(e) in the opinion of a registered medical practitioner by whom he is being treated he becomes physically or mentally incapable of acting as a director;
(f) he is given notice by the majority of the other directors (not being less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to the provision of the services of such director);
(g) he is made subject to any law relating to mental health or incompetence, whether by court order or otherwise; or
(h) without the consent of the other directors, he is absent from meetings of directors for continuous period of six months.
Each of the compensation committee and the nominating and corporate governance committee shall consist of at least three directors and the majority of the committee members shall be independent within the meaning of the Nasdaq corporate governance rules. The audit committee shall consist of at least three directors, all of whom shall be independent within the meaning of the Nasdaq corporate governance rules and will meet the criteria for independence set forth in Rule 10A-3 or Rule 10C-1 of the Exchange Act.
Powers and Duties of Directors
Subject to the provisions of the Cayman Islands Companies Act and the memorandum and articles, our business shall be managed by the directors, who may exercise all our powers. No prior act of the directors shall be invalidated by any subsequent alteration of our amended and restated memorandum or articles of association. However, to the extent allowed by the Cayman Islands Companies Act, shareholders may by special resolution validate any prior or future act of the directors which would otherwise be in breach of their duties.
130
The directors may delegate any of their powers to any committee consisting of one or more persons who need not be shareholders and may include non-directors so long as the majority of those persons are directors; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the directors. Upon the initial closing of this offering, our board of directors will have established an audit committee, compensation committee, and nomination and corporate governance committee.
The board of directors may establish any local or divisional board of directors or agency and delegate to it its powers and authorities (with power to sub-delegate) for managing any of our affairs whether in the Cayman Islands or elsewhere and may appoint any persons to be members of a local or divisional board of directors, or to be managers or agents, and may fix their remuneration.
The directors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, either generally or in respect of any specific matter, to be our agent with or without authority for that person to delegate all or any of that person’s powers.
The directors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, whether nominated directly or indirectly by the directors, to be our attorney or our authorized signatory and for such period and subject to such conditions as they may think fit. The powers, authorities and discretions, however, must not exceed those vested in, or exercisable, by the directors under the articles.
The board of directors may remove any person so appointed and may revoke or vary any delegation.
The directors may exercise all of our powers to borrow money and to mortgage or charge its undertaking, property and assets both present and future and uncalled capital or any part thereof, to issue debentures and other securities whether outright or as collateral security for any debt, liability or obligation of ours or our parent undertaking (if any) or any subsidiary undertaking of us or of any third party.
A director shall not, as a director, vote in respect of any contract, transaction, arrangement or proposal in which he has an interest which (together with any interest of any person connected with him) is a material interest (otherwise then by virtue of his interests, direct or indirect, in shares or debentures or other securities of, or otherwise in or through, us) and if he shall do so his vote shall not be counted, nor in relation thereto shall he be counted in the quorum present at the meeting, but (in the absence of some other material interest than is mentioned below) none of these prohibitions shall apply to:
(a) the giving of any security, guarantee or indemnity in respect of:
(i) money lent or obligations incurred by him or by any other person for our benefit or any of our subsidiaries; or
(ii) a debt or obligation of ours or any of our subsidiaries for which the director himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security;
(b) where we or any of our subsidiaries is offering securities in which offer the director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which the director is to or may participate;
(c) any contract, transaction, arrangement or proposal affecting any other body corporate in which he is interested, directly or indirectly and whether as an officer, shareholder, creditor or otherwise howsoever, provided that he (together with persons connected with him) does not to his knowledge hold an interest representing one percent or more of any class of the equity share capital of such body corporate (or of any third body corporate through which his interest is derived) or of the voting rights available to shareholders or members of the relevant body corporate;
(d) any act or thing done or to be done in respect of any arrangement for the benefit of the employees of us or any of our subsidiaries under which he is not accorded as a director any privilege or advantage not generally accorded to the employees to whom such arrangement relates; or
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(e) any matter connected with the purchase or maintenance for any director of insurance against any liability or (to the extent permitted by the Cayman Islands Companies Act) indemnities in favor of directors, the funding of expenditure by one or more directors in defending proceedings against him or them or the doing of any thing to enable such director or directors to avoid incurring such expenditure.
A director may, as a director, vote (and be counted in the quorum) in respect of any contract, transaction, arrangement or proposal in which he has an interest which is not a material interest or as described above.
Capitalization of Profits
The directors may resolve to capitalize:
(a) any part of our profits not required for paying any preferential dividend (whether or not those profits are available for distribution); or
(b) any sum standing to the credit of our share premium account or capital redemption reserve, if any.
The amount resolved to be capitalized must be appropriated to the shareholders who would have been entitled to it had it been distributed by way of dividend and in the same proportions.
Liquidation Rights
If we are wound up, the shareholders may, subject to the articles and any other sanction required by the Cayman Islands Companies Act, pass a special resolution allowing the liquidator to do either or both of the following:
(a) to divide in specie among the shareholders the whole or any part of our assets and, for that purpose, to value any assets and to determine how the division shall be carried out as between the shareholders or different classes of shareholders; and
(b) to vest the whole or any part of the assets in trustees for the benefit of shareholders and those liable to contribute to the winding up.
The directors have the authority to present a petition for our winding up to the Grand Court of the Cayman Islands on our behalf without the sanction of a resolution passed at a general meeting.
Register of Members
Under the Cayman Islands Companies Act, we must keep a register of members and there should be entered therein:
• the names and addresses of our shareholders, a statement of the shares held by each shareholder, and of the amount paid or agreed to be considered as paid, on the shares of each shareholder;
• the date on which the name of any person was entered on the register as a shareholder; and
• the date on which any person ceased to be a shareholder.
Under the Cayman Islands Companies Act, the register of members of our company is prima facie evidence of the matters set out therein (that is, the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a person who has agreed to become a shareholder and who is registered in the register of members is deemed, as a matter of the Cayman Islands Companies Act, to be a shareholder. Furthermore., as a matter of the Cayman Islands Companies Act, the registration of any person in the register of members as holder of any shares shall be prima facie evidence of such person having legal title to the shares as set against its name in the register of members. Upon the completion of this offering, the register of members will be immediately updated to record and give effect to the issuance of shares by us to the custodian or its nominee. Once our register of members has been updated, the shareholders recorded in the register of members will be deemed to have legal title to the shares set against their name.
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If the name of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a shareholder of our company, the person or shareholder aggrieved (or any shareholder of our company or our company itself) may apply to the Grand Court of the Cayman Islands for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
Issuance of Share Capital
On November 15, 2022, all existing shareholders surrendered in an aggregative of 381,963 ordinary shares on a pro-rata basis, which were cancelled by the Company. On the same date, the Company, together with Mr. Haogang Yang, our founder and CEO, certain BVI founder entities and all its subsidiaries in Hong Kong and mainland China, entered into the Share Purchase Agreement with Standard International Capital, pursuant to which we issued 381,963 ordinary shares of the Company, par value US$0.000002 each, to Standard International Capital, for an aggregate issue price of USD1,500,000.
On February 10, 2023, the Company entered into a share purchase agreement with Anguo Jijian Enterprise Management Co., Ltd (“Anguo”), Anjiu Jiheng Enterprise Management Co., Ltd (“Anjiu”), and Anling Management Co., Ltd (“Anling”), pursuant to which we issued 740,829, 740,829, and 444,497 ordinary shares of the Company, par value US$0.000002, to Anguo, Anjiu, and Anling, respectively, for an aggregate issue price of $9.4 million (RMB65,000,000). As of March 31, 2023, we have received all $9.4 million from these three investors.
Differences in Corporate Law
The Cayman Islands Companies Act is derived, to a large extent, from the older Companies Acts of England and Wales but does not follow recent United Kingdom statutory enactments, and accordingly there are significant differences between the Cayman Islands Companies Act and the current Companies Act of England and Wales. In addition, the Cayman Islands Companies Act differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Cayman Islands Companies Act applicable to us and the comparable laws applicable to companies incorporated in the State of Delaware in the United States.
Mergers and Similar Arrangements
The Cayman Islands Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The plan must be filed with the Registrar of Companies in the Cayman Islands together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the shareholders and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.
A merger between a Cayman Islands parent company and its Cayman Islands subsidiary or subsidiaries does not require authorization by a resolution of shareholders. For this purpose a subsidiary is a company of which at least 90% of the issued shares entitled to vote are owned by the parent company.
The consent of each holder of a fixed or floating security interest of a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
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Except in certain limited circumstances, a dissenting shareholder of a Cayman Islands constituent company is entitled to payment of the fair value of his or her shares upon dissenting from a merger or consolidation in accordance with the statutory dissent procedures provided under the Cayman Islands Companies Act. The exercise of such dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, except for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must, in addition, represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
(a) the statutory provisions as to the required majority vote have been met;
(b) the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class;
(c) the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and
(d) the arrangement is not one that would more properly be sanctioned under some other provision of the Cayman Islands Companies Act.
When a takeover offer is made and accepted by holders of 90% of the shares affected within four months the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is thus approved, or if a takeover offer is made and accepted, a dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders’ Suits
In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company and as a general rule, a derivative action may not be brought by a minority shareholder. However, based on English law authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands courts can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the Company to challenge:
(a) an act which is illegal or ultra vires with respect to the Company and is therefore incapable of ratification by the shareholders;
(b) an act which, although not ultra vires, requires authorization by a qualified (or special) majority (that is, more than a simple majority) which has not been obtained; and
(c) an act which constitutes a “fraud on the minority” where the wrongdoers are themselves in control of the company.
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Indemnification of Directors and Executive Officers and Limitation of Liability
The Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our amended and restated articles of association provide that, to the extent permitted by law, we shall indemnify each existing or former secretary, director (including alternate director), and any of our other officers (including an investment adviser or an administrator or liquidator) and their personal representatives against:
(a) all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by the existing or former director (including alternate director), secretary or officer in or about the conduct of our business or affairs or in the execution or discharge of the existing or former director (including alternate director), secretary’s or officer’s duties, powers, authorities or discretions; and
(b) without limitation to paragraph (a) above, all costs, expenses, losses or liabilities incurred by the existing or former director (including alternate director), secretary or officer in defending (whether successfully or otherwise) any civil, criminal, administrative or investigative proceedings (whether threatened, pending or completed) concerning us or our affairs in any court or tribunal, whether in the Cayman Islands or elsewhere.
No such existing or former director (including alternate director), secretary or officer, however, shall be indemnified in respect of any matter arising out of his own dishonesty.
To the extent permitted by law, we may make a payment, or agree to make a payment, whether by way of advance, loan or otherwise, for any legal costs incurred by an existing or former director (including alternate director), secretary or any of our officers in respect of any matter identified in above on condition that the director (including alternate director), secretary or officer must repay the amount paid by us to the extent that it is ultimately found not liable to indemnify the director (including alternate director), the secretary or that officer for those legal costs.
This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we intend to enter into indemnification agreements with our directors and executive officers that will provide such persons with additional indemnification beyond that provided in our articles.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Anti-Takeover Provisions in Our Articles
Some provisions of our articles may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue shares at such times and on such terms and conditions as the board of directors may decide without any further vote or action by our shareholders.
Under the Cayman Islands Companies Act, our directors may only exercise the rights and powers granted to them under our articles for what they believe in good faith to be in the best interests of our company and for a proper purpose.
Directors’ Fiduciary Duties
Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interests of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been
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made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director owes three types of duties to the company: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties. The Cayman Islands Companies Act imposes a number of statutory duties on a director. A Cayman Islands director’s fiduciary duties are not codified, however the courts of the Cayman Islands have held that a director owes the following fiduciary duties (a) a duty to act in what the director bona fide considers to be in the best interests of the company, (b) a duty to exercise their powers for the purposes they were conferred, (c) a duty to avoid fettering his or her discretion in the future and (d) a duty to avoid conflicts of interest and of duty. The common law duties owed by a director are those to act with skill, care and diligence that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and, also, to act with the skill, care and diligence in keeping with a standard of care commensurate with any particular skill they have which enables them to meet a higher standard than a director without those skills. In fulfilling their duty of care to us, our directors must ensure compliance with our amended articles of association, as amended and restated from time to time. We have the right to seek damages if a duty owed by any of our directors is breached.’
Shareholder Proposals
Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. The Delaware General Corporation Law does not provide shareholders an express right to put any proposal before the annual meeting of shareholders, but in keeping with common law, Delaware corporations generally afford shareholders an opportunity to make proposals and nominations provided that they comply with the notice provisions in the certificate of incorporation or bylaws. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
The Cayman Islands Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our articles provide that general meetings shall be convened on the written requisition of one or more of the shareholders entitled to attend and vote at our general meetings who (together) hold not less than 10 percent of the rights to vote at such general meeting in accordance with the notice provisions in the articles, specifying the purpose of the meeting and signed by each of the shareholders making the requisition. If the directors do not convene such meeting for a date not later than twenty-one clear days’ after the date of receipt of the written requisition, those shareholders who requested the meeting may convene the general meeting themselves within three months after the end of such period of twenty-one clear days in which case reasonable expenses incurred by them as a result of the directors failing to convene a meeting shall be reimbursed by us. Our articles provide no other right to put any proposals before annual general meetings. As a Cayman Islands exempted company, we are not obligated by law to call shareholders’ annual general meetings. However, our corporate governance guidelines require us to call such meetings every year.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under the Cayman Islands Companies Act, our articles do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors
Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Subject to the provisions of our articles (which include the removal of a director by
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ordinary resolution), the office of a director shall be vacated forthwith if (a) he is prohibited by the laws of the Cayman Islands from acting as a director, (b) he is made bankrupt or makes an arrangement or composition with his creditors generally, (c) he resigns his office by notice to us, (d) he only held office as a director for a fixed term and such term expires, (e) in the opinion of a registered medical practitioner by whom he is being treated he becomes physically or mentally incapable of acting as a director, (f) he is given notice by the majority of the other directors (not being less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to the provision of the services of such director), (g) he is made subject to any law relating to mental health or incompetence, whether by court order or otherwise, or (h) without the consent of the other directors, he is absent from meetings of directors for continuous period of six months.
Transactions with Interested Shareholders
The Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation or bylaws that is approved by its shareholders, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting stock or who or which is an affiliate or associate of the corporation and owned 15% or more of the corporation’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
The Cayman Islands Companies Act has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although the Cayman Islands Companies Act does not regulate transactions between a company and its significant shareholders, under Cayman Islands law such transactions must be entered into bona fide in the best interests of the Company and for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding Up
Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board of directors.
Under the Cayman Islands Companies Act and our articles, the Company may be wound up by a special resolution of our shareholders or, if the Company is unable to pay its debts as they fall due, by an ordinary resolution of our members. In addition, a company may be wound up by an order of the courts of the Cayman Islands. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Variation of Rights Attaching to Shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under the Cayman Islands Companies Act and our articles, if our share capital is divided into more than one class of shares, the rights attaching to any class of share (unless otherwise provided by the terms of issue of the shares of that class) may be varied either with the consent in writing of the holders of not less than two-thirds of the issued shares of that class, or with the sanction of a resolution passed by a majority of not less than two-thirds of the holders of shares of the class present in person or by proxy at a separate general meeting of the holders of shares of that class.
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Amendment of Governing Documents
Under the Delaware General Corporation Law, a corporation’s certificate of incorporation may be amended only if adopted and declared advisable by the board of directors and approved by a majority of the outstanding shares entitled to vote, and the bylaws may be amended with the approval of a majority of the outstanding shares entitled to vote and may, if so provided in the certificate of incorporation, also be amended by the board of directors. Under the Cayman Islands Companies Act, our articles may only be amended by special resolution of our shareholders.
Anti-money Laundering — Cayman Islands
In order to comply with legislation or regulations aimed at the prevention of money laundering, we may be required to adopt and maintain anti-money laundering procedures, and may require subscribers to provide evidence to verify their identity. Where permitted, and subject to certain conditions, we may also delegate the maintenance of our anti-money laundering procedures (including the acquisition of due diligence information) to a suitable person.
We reserve the right to request such information as is necessary to verify the identity of a subscriber. In the event of delay or failure on the part of the subscriber in producing any information required for verification purposes, we may refuse to accept the application, in which case any funds received will be returned without interest to the account from which they were originally debited.
We also reserve the right to refuse to make any redemption payment to a shareholder if our directors or officers suspect or are advised that the payment of redemption proceeds to such shareholder might result in a breach of applicable anti-money laundering or other laws or regulations by any person in any relevant jurisdiction, or if such refusal is considered necessary or appropriate to ensure our compliance with any such laws or regulations in any applicable jurisdiction.
If any person resident in the Cayman Islands knows or suspects or has reason for knowing or suspecting that another person is engaged in criminal conduct or is involved with terrorism or terrorist property and the information for that knowledge or suspicion came to their attention in the course of their business in the regulated sector, or other trade, profession, business or employment, the person will be required to report such knowledge or suspicion to (i) a nominated officer (appointed in accordance with the Proceeds of Crime Act (as amended) of the Cayman Islands) or the Financial Reporting Authority of the Cayman Islands, pursuant to the Proceeds of Crime Act (as amended) of the Cayman Islands, if the disclosure relates to criminal conduct or money laundering or (ii) to a police constable or a nominated officer (pursuant to the Terrorism Act (as amended) of the Cayman Islands) or the Financial Reporting Authority, pursuant to the Terrorism Act (as amended), if the disclosure relates to involvement with terrorism or terrorist financing and terrorist property. Such a report shall not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by any enactment or otherwise.
Listing
We have our ordinary shares listed on the Nasdaq Capital Market under the symbol “GMM.”
Transfer Agent and Registrar
The transfer agent and registrar for the ordinary shares is Transhare Corporation.
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SHARES ELIGIBLE FOR FUTURE SALE
In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who at the time of a sale is not, and has not been during the three months preceding the sale, an affiliate of ours and has beneficially owned our restricted securities for at least six months is entitled to sell the restricted securities without registration under the Securities Act, subject to the availability of current public information about us, and will be entitled to sell restricted securities beneficially owned for at least one year without restriction. Persons who are our affiliates (including persons beneficially owning 10% or more of our outstanding shares) and have beneficially owned our restricted securities for at least six months may sell within any three-month period a number of restricted securities that does not exceed the greater of the following:
• 1% of the then outstanding ordinary shares, which will equal approximately [ ] ordinary shares immediately after this offering, assuming the sale of all of the securities we are offering and no exercise of the warrants included in the Units; and
• the average weekly trading volume of our ordinary shares on the Nasdaq Capital Market during the four calendar weeks preceding the date on which notice of the sale on Form 144 is filed with the SEC.
Such sales are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about us.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases our ordinary shares from us in connection with a compensatory stock or option plan or other written agreement relating to compensation is eligible to resell such ordinary shares 90 days after we became a reporting company under the Exchange Act in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144.
Regulation S
Regulation S provides generally that sales made in offshore transactions are not subject to the registration or prospectus-delivery requirements of the Securities Act.
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People’s Republic of China Enterprise Taxation
Unless otherwise noted in the following discussion, this section is the opinion of Jiangsu Junjin Law Firm, our PRC counsel, insofar as it relates to legal conclusions with respect to matters of People’s Republic of China Enterprise Taxation below.
The following brief description of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, which will affect the amount of dividends, if any, we are ultimately able to pay to our shareholders. See “Dividend Policy” on page 65 of this prospectus.
We are a holding company incorporated in Cayman Islands and we gain income by way of dividends paid to us from our PRC subsidiaries. The EIT Law and its implementation rules provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a preferential tax rate or a tax exemption.
Under the EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Although the implementation rules of the EIT Law define “de facto management body” as a managing body that actually, comprehensively manage and control the production and operation, staff, accounting, property and other aspects of an enterprise, the only official guidance for this definition currently available is set forth in SAT Notice 82, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although Global Mofy Cayman does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of SAT Notice 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in SAT Notice 82 to evaluate the tax residence status of Global Mofy Cayman and its subsidiaries organized outside the PRC.
According to SAT Notice 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal and salary and wages) are decided or need to be decided by organizations or persons located within the territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetings of the enterprise are located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior management staff having the right to vote habitually reside within the territory of China.
Currently, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we believe that Global Mofy Cayman and its offshore subsidiaries should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in SAT Notice 82 were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we will continue to monitor our tax status.
The implementation rules of the EIT Law provide that, (i) if the enterprise that distributes dividends is domiciled in the PRC or (ii) if gains are realized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or gains are treated as China-sourced income. It is not clear how “domicile” may be interpreted under the EIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered as a PRC tax resident enterprise for PRC tax purposes, any dividends we pay to our overseas shareholders which are non-resident enterprises as well as gains realized by such shareholders from the transfer of our shares may be regarded as China-sourced income and as a result become subject to PRC withholding tax at a rate of up to 10%. We are unable to provide a “will” opinion because Jiangsu Junjin Law Firm, our PRC counsel, believes that it is more
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likely than not that the Company and its offshore subsidiaries would be treated as a non-resident enterprise for PRC tax purposes because we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities as of the date of the prospectus. Therefore, we believe that it is possible but highly unlikely that the income received by our overseas shareholders will be regarded as China-sourced income.
See “Risk Factors — Risks Related to Doing Business in China — Under the PRC Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such Classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders” on page 34 of this prospectus.
Our company pays an EIT rate of 25% for WFOE and its subsidiaries. The EIT is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. If the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders may be subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of our ordinary share, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of the 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 the Company is treated as a PRC resident enterprise. There is no guidance from the PRC government to indicate whether or not any tax treaties between the PRC and other countries would apply in circumstances where a non-PRC company was deemed to be a PRC tax resident, and thus there is no basis for expecting how tax treaty between the PRC and other countries may impact non-resident enterprises.
Hong Kong Taxation
Entities incorporated in Hong Kong are subject to profits tax in Hong Kong at the rate of 16.5% for each of the years ended September 30, 2022 and 2021.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on the issue of shares by, or any transfers of shares of, Cayman Islands companies (except those which hold interests in land in the Cayman Islands). There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our ordinary shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares, as the case may be, nor will gains derived from the disposal of our ordinary shares be subject to Cayman Islands income or corporation tax.
United States Federal Income Taxation
WE URGE POTENTIAL PURCHASERS OF OUR ORDINARY SHARES TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR ORDINARY SHARES.
The following does not address the tax consequences to any particular investor or to persons in special tax situations such as:
• banks;
• financial institutions;
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• insurance companies;
• regulated investment companies;
• advertising investment trusts;
• broker-dealers;
• persons that elect to mark their securities to market;
• U.S. expatriates or former long-term residents of the U.S.;
• governments or agencies or instrumentalities thereof;
• tax-exempt entities;
• persons liable for alternative minimum tax;
• persons holding our ordinary share as part of a straddle, hedging, conversion or integrated transaction;
• persons that actually or constructively own 10% or more of our voting power or value (including by reason of owning our ordinary share);
• persons who acquired our ordinary share pursuant to the exercise of any employee share option or otherwise as compensation;
• persons holding our ordinary share through partnerships or other pass-through entities;
• beneficiaries of a Trust holding our ordinary share; or
• persons holding our ordinary share through a Trust.
The discussion set forth below is addressed only to U.S. Holders that purchase ordinary share in this offering. Prospective purchasers are urged to consult their own tax advisors about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our ordinary share.
Material Tax Consequences Applicable to U.S. Holders of Our ordinary share
The following sets forth the material U.S. federal income tax consequences related to the ownership and disposition of our ordinary share. It is directed to U.S. Holders (as defined below) of our ordinary share and is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This description does not deal with all possible tax consequences relating to ownership and disposition of our ordinary share or U.S. tax laws, other than the U.S. federal income tax laws, such as the tax consequences under non-U.S. tax laws, state, local and other tax laws.
The following brief description applies only to U.S. Holders (defined below) that hold ordinary share as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the federal income tax laws of the United States in effect as of the date of this prospectus and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this prospectus, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.
The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of ordinary share and you are, for U.S. federal income tax purposes,
• an individual who is a citizen or resident of the United States;
• a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;
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• an estate whose income is subject to U.S. federal income taxation regardless of its source; or
• a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
Taxation of Dividends and Other Distributions on our ordinary share
Subject to the passive foreign investment company (PFIC) rules (defined below) discussed below, the gross amount of distributions made by us to you with respect to the ordinary share (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the ordinary share are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a PFIC (defined below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is no income tax treaty between the United States and the Cayman Islands, clause (1) above can be satisfied only if the ordinary shares are readily tradable on an established securities market in the United States. Under U.S. Internal Revenue Service authority, ordinary shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on certain exchanges, which presently include the Nasdaq. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our ordinary share, including the effects of any change in law after the date of this prospectus.
Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our ordinary share will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”
To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your ordinary share, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of ordinary share
Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the ordinary share. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ordinary share for more than one year, you will generally be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes which will generally limit the availability of foreign tax credits.
Passive Foreign Investment Company (“PFIC”)
If we are a PFIC for any taxable year during which a U.S. Holder holds the ordinary shares or ordinary shares, and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution
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paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ordinary shares or ordinary shares), and (ii) any gain realized on the sale or other disposition including, under certain circumstances, a pledge, of ordinary shares or ordinary shares. Under the PFIC rules:
• the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares or ordinary shares;
• the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are a PFIC (each, a “pre-PFIC year”) will be taxable as ordinary income; and
• the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or corporations, as appropriate, for that year, increased by an additional tax equal to the interest on the resulting tax deemed deferred with respect to each such taxable year.
If we are a PFIC for any taxable year during which a U.S. Holder holds the ordinary shares or ordinary shares, and any of our subsidiaries is also a PFIC (a “lower-tier PFIC”), such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election with respect to such stock. If a U.S. Holder makes this election with respect to the ordinary shares, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ordinary shares held at the end of the taxable year over the adjusted tax basis of such ordinary shares and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ordinary shares over the fair market value of such ordinary shares held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ordinary shares would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of the ordinary shares and we cease to be a PFIC, the holder will not be required to take into account the gain or loss described above during any period that we are not a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of the ordinary shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.
The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market, as defined in applicable United States Treasury regulations. We anticipate that the ordinary shares should qualify as being regularly traded, but no assurances may be given in this regard.
Because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.
If a U.S. Holder owns the ordinary shares or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621. You should consult your tax advisor regarding the U.S. federal income tax consequences of owning and disposing of the ordinary shares or ordinary shares if we are or become a PFIC.
Information Reporting and Backup Withholding
Dividend payments with respect to our ordinary share and proceeds from the sale, exchange or redemption of our ordinary share may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding under Section 3406 of the US Internal Revenue Code with at a current flat rate of 24%. Backup withholding
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will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders. However, transactions effected through certain brokers or other intermediaries may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.
Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our ordinary share, subject to certain exceptions (including an exception for ordinary share held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold ordinary share.
Taxation of the Warrants
Sale or Other Taxable Disposition of Warrants
Upon the sale, exchange or other taxable disposition of a warrant, in general, a U.S. Holder will recognize taxable gain or loss measured by the difference, if any, between (i) the amount of cash and the fair market value of any property received upon such taxable disposition, and (ii) such U.S. Holder’s adjusted tax basis in the warrant as determined above. Such gain or loss generally will be capital gain or loss and generally will be long-term capital gain or loss if, at the time of the sale or other disposition, a holder’s holding period for the warrant is more than one year. The deductibility of capital losses is subject to limitations.
Exercise of Warrants
Upon the exercise of a warrant for cash, in general, holders will not recognize gain or loss for U.S. federal income tax purposes. A U.S. Holder’s initial tax basis in ordinary shares received will equal such U.S. Holder’s adjusted tax basis in the warrant exercised. A U.S. Holder’s holding period for ordinary shares received on exercise generally will commence on the day of exercise.
In certain limited circumstances, a U.S. Holder may be permitted to undertake a cashless exercise of warrants into our ordinary shares. The U.S. federal income tax treatment of a cashless exercise of warrants into our ordinary shares is unclear, and the tax consequences of a cashless exercise could differ from the consequences upon the exercise of a warrant described in the preceding paragraph. U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax consequences of a cashless exercise of warrants.
Expiration of Warrants
A U.S. Holder who allows a warrant to expire will generally recognize a loss for U.S. federal income tax purposes equal to the adjusted tax basis of the warrant. In general, such a loss will be a capital loss, and will be a short-term or long-term capital loss depending on the holder’s holding period for the warrant.
Certain Adjustments to the Warrants
Under Section 305 of the Code, an adjustment to the number of warrant shares that will be issued on the exercise of the warrants, or an adjustment to the exercise price of the warrants, may be treated as a constructive distribution to holders if, and to the extent that, such adjustment has the effect of increasing the holder’s proportionate interest in our earnings and profits or assets, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash or other property to our stockholders). Adjustments to the exercise price of warrants made pursuant to a bona fide reasonable adjustment formula that has the effect of preventing dilution of the interest of the holders of the warrants should generally not be considered to result in a constructive distribution. Any such constructive distribution would be taxable whether or not there is an actual distribution of cash or other property.
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Pursuant to a placement agency agreement, dated [•], 2023, we have engaged Prime Number Capital LLC (the “placement agent”) to act as our placement agent in connection with this offering. The placement agent is not purchasing or selling any such securities, nor is it required to arrange for the purchase and sale of any specific number or dollar amount of such securities, other than to use their “reasonable best efforts,” to arrange for the sale of such securities by us. The terms of this offering are subject to market conditions and negotiations between us, the placement agent, and prospective investors. The placement agency agreement does not give rise to any commitment by the placement agent to purchase any of our securities, and the placement agent will have no authority to bind us by virtue of the placement agency agreement. Further, the placement agent does not guarantee that it will be able to raise new capital in any prospective offering. The placement agent may engage sub-agents or selected dealers to assist with this offering.
We will deliver to the investors the ordinary shares underlying the Units electronically and will mail such investors physical warrant certificates for the warrants underlying the Units, upon closing and receipt of investor funds for the purchase of the Units offered pursuant to this prospectus. We intend to complete one closing of this offering, but may undertake one or more additional closings for the sale of the additional Units to the investors in the initial closing. We expect to hold an initial closing on [•], 2023, but the offering will be terminated by [•], 2023, provided that the closing(s) of the offering for all of the Units have not occurred by such date, and may be extended by written agreement of the Company and the placement agent. Any extensions or material changes to the terms of the offering will be contained in an amendment to this prospectus. We expect initial delivery of the [•] Units being offered pursuant to this prospectus against payment in U.S. dollars will be made on or about [•], 2023.
Fees and Expenses
The following table shows the total placement agent’s fees we will pay in connection with the sale of the Units in this offering, assuming the purchase of all of the Units we are offering.
Per Unit |
||
Placement agent’s fees |
|
|
Non-accountable expense allowance |
|
|
Total |
|
We have agreed to pay to the placement agent a cash fee equal to seven percent (7%) of the aggregate gross proceeds raised in this offering. We have agreed to pay to the placement agent by deduction from the net proceeds of this offering a non-accountable expense allowance equal to one percent (1%) of the aggregate gross proceeds raised in this offering.
We have also agreed to pay or reimburse the placement agent up to US$100,000 for its actual and accountable out-of-pocket expenses related to the offering, including any fees and disbursements of the placement agent’s legal counsel and, if applicable, any electronic road show service used in connection with the offering.
We estimate the total expenses payable by us for this offering to be approximately US$[•] million, which amount includes (i) a placement agent’s fee of US$[•] million, assuming the purchase of all of the Units we are offering; (ii) the placement agent’s non-accountable expense allowance in the amount of US$[•] in connection with this offering; and (iii) other estimated expenses of approximately US$0.1 million which include legal, accounting, printing costs and various fees associated with the registration of the Securities.
Right of First Refusal
We have agreed that for a period of twelve (12) months from the closing date of this offering, to grant the placement agent the right, on at least the same terms and conditions offered to us by other investment banking service providers, to provide investment banking services to us on an exclusive basis in all matters for which investment banking services are sought by us (such right, the “Right of First Refusal”), which right is exercisable in the placement agent’s sole discretion. For these purposes, investment banking services shall include, without limitation, (a) acting as lead manager for any underwritten public offering; (b) acting as a lead placement agent, initial purchaser or financial advisor in connection with any private offering of securities of the Company; and (c) acting as financial advisor in connection with any sale or other transfer by the Company, directly or indirectly, of a majority or controlling portion of its capital stock or assets to another entity, any purchase or other transfer by another entity, directly or indirectly, of a majority or controlling portion of the capital stock or assets of the Company, and any merger or consolidation of the Company
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with another entity. The placement agent shall notify the Company of its intention to exercise the Right of First Refusal within seven (7) business days following notice in writing by the Company. The Right of First Refusal granted hereunder may be terminated by the Company for “cause,” which shall mean a material breach by the placement Agent of its obligations under, or a material failure by the placement agent to provide the services as contemplated by, the placement agency agreement.
Listing
Our ordinary shares have been listed on the Nasdaq Capital Market since October 10, 2023. Our ordinary shares trade under the symbol “GMM.” There is no established public trading market for the warrants, and we do not plan to list the warrants on the Nasdaq Capital Market or any other securities exchange or trading market. Without an active trading market, the liquidity of the warrants will be limited.
Regulation M
The placement agent may be deemed to be underwriters within the meaning of Section 2(a)(11) of the Securities Act and any fees received by them and any profit realized on the sale of the securities by them while acting as principal might be deemed to be underwriting commissions under the Securities Act. The placement agent will be required to comply with the requirements of the Securities Act and the Exchange Act including, without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of the Units by the placement agent. Under these rules and regulations, the placement agent may not (i) engage in any stabilization activity in connection with our securities; and (ii) bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until they have completed their participation in the distribution.
Other Relationships
From time to time, the placement agent may provide, various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which it may receive customary fees and commissions. However, except as disclosed in this prospectus, we have no present arrangements with the placement agent for any services.
We have agreed to indemnify the placement agent against certain liabilities, including liabilities under the Securities Act. If we are unable to provide this indemnification, we will contribute to payments that the placement agent may be required to make for these liabilities.
Selling Restrictions
No action may be taken in any jurisdiction other than the United States that would permit a public offering of the Securities or the possession, circulation or distribution of this prospectus in any jurisdiction where action for that purpose is required. The ordinary shares offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any ordinary shares offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Notice to Prospective Investors in Hong Kong
The contents of this prospectus have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice. Please note that (i) our shares may not be offered or sold in Hong Kong, by means of this prospectus or any document other than to “professional investors” within the meaning of Part I of Schedule 1 of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) (SFO) and any rules made thereunder, or in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32, Laws of Hong Kong) (CO) or which do not constitute an offer or invitation to the public for the purpose of the CO or the SFO, and (ii) no advertisement, invitation or document relating to our shares may be issued or may be in the possession of any person for the purpose
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of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the SFO and any rules made thereunder.
Notice to Prospective Investors in the People’s Republic of China
This prospectus may not be circulated or distributed in the PRC and the shares may not be offered or sold, and will not offer or sell to any person for re-offering or resale directly or indirectly to any resident of the PRC except pursuant to applicable laws, rules and regulations of the PRC. For the purpose of this paragraph only, the PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.
Notice to Prospective Investors in Taiwan, the Republic of China
The ordinary shares have not been and will not be registered with the Financial Supervisory Commission of Taiwan, the Republic of China, pursuant to relevant securities laws and regulations and may not be offered or sold in Taiwan through a public offering or in any manner which would constitute an offer within the meaning of the Securities and Exchange Act of Taiwan or would otherwise require registration with or the approval of the Financial Supervisory Commission of Taiwan.
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EXPENSES RELATING TO THIS OFFERING
Set forth below is an itemization of the total expenses, excluding placement agent’s fees and non-accountable expense allowance, expected to be incurred in connection with this offering by us. With the exception of the SEC registration fee and the FINRA filing fee, all amounts are estimates.
Securities and Exchange Commission Registration Fee |
$ |
||
FINRA Filing Fee |
$ |
||
Legal Fees and Expenses |
$ |
||
Accounting Fees and Expenses |
$ |
||
Printing and Engraving Expenses |
$ |
||
Transfer Agent |
$ |
||
Miscellaneous |
$ |
|
|
Total Expenses |
$ |
|
We will bear these expenses and the placement agent’s fees and expenses incurred in connection with the offer and sale of the Units by us.
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The validity of the ordinary shares offered in this offering and certain other legal matters as to Cayman Islands law will be passed upon for us by Mourant Ozannes (Cayman) LLP, our counsel as to Cayman Islands law. Ortoli Rosenstadt LLP is acting as counsel to our company regarding U.S. securities law matters. Legal matters as to PRC law will be passed upon for us by Jiangsu Junjin Law Firm. Ortoli Rosenstadt LLP may rely upon Jiangsu Junjin Law Firm with respect to matters governed by PRC law and Mourant Ozannes (Cayman) LLP with respect to matters as to Cayman Islands law. Hunter Taubman Fischer & Li LLC is acting as counsel to the Placement Agent.
The consolidated financial statements for the years ended September 30, 2022 and 2021, included in this Registration Statement have been so included in reliance on the reports of Marcum Asia CPAs LLP and Friedman LLP, independent registered public accounting firms, given on the authority of said firm in auditing and accounting. The office of Marcum Asia CPAs LLP is located at 7 Pennsylvania Plaza Suite 830, New York, NY 10001. The office of Friedman LLP is located at One Liberty Plaza, 165 Broadway 21st Floor, New York, NY 10006.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Effective September 1, 2022, Friedman, our then independent registered public accounting firm, combined with Marcum LLP and continued to operate as an independent registered public accounting firm. On November 7, 2022, we engaged Marcum Asia to serve as our independent registered public accounting firm. The services previously provided by Friedman are now provided by Marcum Asia.
Friedman’s reports on our consolidated financial statements for the years ended September 30, 2021 and 2020 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. Furthermore, during our two most recent fiscal years and through November 7, 2022, there have been no disagreements with Friedman on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Friedman’s satisfaction, would have caused Friedman to make reference to the subject matter of the disagreement in connection with its reports on our financial statements for such periods.
For the fiscal years ended September 30, 2021 and 2020 and the subsequent interim period through September 29, 2022, there were no “reportable events” as that term is described in Item 16F(a)(1)(v) of the Form 20-F, other than the material weaknesses reported by management in the Risk Factors section of our Registration Statement on Form F-1 filed with the SEC on November 23, 2022.
We provided Friedman with a copy of the above disclosure and requested that Friedman furnish us with a letter addressed to the U.S. Securities and Exchange Commission stating whether or not it agrees with the above statement. A copy of Friedman’s letter is filed as Exhibit 16.1 to the registration statement of which this prospectus is a part.
During the fiscal years ended September 30, 2021 and 2020 and through November 7, 2022, neither our Company nor anyone acting on our behalf consulted Marcum Asia with respect to any of the matters or reportable events set forth in Item 16F(a)(2)(i) and (ii) of the Form 20-F.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to periodic reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with the SEC. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements to shareholders under the federal proxy rules contained in Sections 14(a), (b) and (c) of the Exchange Act, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
The registration statements, reports and other information so filed can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains a website that contains reports, proxy statements and other information about issuers, such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov. The information on that website is not a part of this prospectus.
No dealers, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
151
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
GLOBAL MOFY METAVERSE LIMITED
TABLE OF CONTENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Global Mofy Metaverse Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Global Mofy Metaverse Limited (the “Company”) as of September 30, 2022, the related consolidated statements of comprehensive income (loss), changes in equity (deficit) and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ Marcum Asia CPAs LLP
We have served as the Company’s auditor since 2022.
New York, New York
February 7, 2023, except for Note 13, for which the date is March 22, 2023.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Global Mofy Metaverse Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Global Mofy Metaverse Limited and its subsidiaries (collectively, the “Company”) as of September 30, 2021 and 2020, and the related consolidated statements of comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended September 30, 2021, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Friedman LLP
New York, New York
March 4, 2022, except for Note 11, as to which date is July 8, 2022, and Note 10, as to which date is November 23, 2022
We have served as the Company’s auditor since 2021.
F-3
GLOBAL MOFY METAVERSE LIMITED
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars, except for the number of shares)
As of September 30, |
||||||||
2022 |
2021 |
|||||||
US$ |
US$ |
|||||||
ASSETS |
|
|
|
|
||||
Current Assets |
|
|
|
|
||||
Cash |
$ |
1,136,064 |
|
$ |
1,088,694 |
|
||
Accounts receivable, net |
|
2,101,665 |
|
|
5,929,638 |
|
||
Accounts receivable – related party |
|
298,587 |
|
|
— |
|
||
Advance to vendors |
|
1,543,294 |
|
|
277,604 |
|
||
Due from related party |
|
182,751 |
|
|
— |
|
||
Loans receivable – current |
|
295,213 |
|
|
387,994 |
|
||
Prepaid expenses and other current assets, net |
|
395,842 |
|
|
424,049 |
|
||
Total current assets |
|
5,953,416 |
|
|
8,107,979 |
|
||
|
|
|
|
|||||
Non-current assets |
|
|
|
|
||||
Property and equipment, net |
|
37,806 |
|
|
40,735 |
|
||
Operating lease right-of-use assets |
|
147,099 |
|
|
316,848 |
|
||
Loans receivable – noncurrent |
|
458,986 |
|
|
506,720 |
|
||
Advance to vendor – noncurrent |
|
1,800,000 |
|
|
— |
|
||
Prepaid expenses and other non-current assets, net |
|
129,222 |
|
|
62,905 |
|
||
Total non-current assets |
|
2,573,113 |
|
|
927,208 |
|
||
Total Assets |
$ |
8,526,529 |
|
$ |
9,035,187 |
|
||
|
|
|
|
|||||
LIABILITIES AND EQUITY |
|
|
|
|
||||
Current Liabilities |
|
|
|
|
||||
Short-term bank loans |
$ |
1,532,073 |
|
$ |
1,070,343 |
|
||
Loans from third parties |
|
108,245 |
|
|
1,264,860 |
|
||
Accounts payable |
|
952,249 |
|
|
2,905,682 |
|
||
Advance from customers |
|
1,154,100 |
|
|
522,895 |
|
||
Tax payable |
|
474,370 |
|
|
493,614 |
|
||
Accrued expenses and other liabilities |
|
327,641 |
|
|
237,892 |
|
||
Operating lease liabilities – current |
|
120,418 |
|
|
193,703 |
|
||
Total current liabilities |
|
4,669,096 |
|
|
6,688,989 |
|
||
|
|
|
|
|||||
Non-current Liabilities |
|
|
|
|
||||
Loan from third party, noncurrent |
|
107,542 |
|
|
— |
|
||
Operating lease liabilities – noncurrent |
|
— |
|
|
132,942 |
|
||
Total non-current liabilities |
|
107,542 |
|
|
132,942 |
|
||
Total Liabilities |
|
4,776,638 |
|
|
6,821,931 |
|
||
|
|
|
|
|||||
Commitments |
|
|
|
|
||||
|
|
|
|
|||||
Equity: |
|
|
|
|
||||
Ordinary shares (US$0.000002 par value, 25,000,000,000 shares authorized, 23,618,037 and 23,015,777 shares issued and outstanding as of September 30, 2022 and 2021, respectively)* |
|
47 |
|
|
46 |
|
||
Additional paid-in capital |
|
5,112,181 |
|
|
3,112,182 |
|
||
Statutory reserves |
|
39,620 |
|
|
39,620 |
|
||
Accumulated deficit |
|
(1,065,073 |
) |
|
(797,850 |
) |
||
Accumulated other comprehensive (loss) income |
|
(193,323 |
) |
|
5,123 |
|
||
Total Global Mofy Metaverse Limited shareholders’ equity |
|
3,893,452 |
|
|
2,359,121 |
|
||
Non-controlling interests |
|
(143,561 |
) |
|
(145,865 |
) |
||
Total equity |
|
3,749,891 |
|
|
2,213,256 |
|
||
Total liabilities and equity |
$ |
8,526,529 |
|
$ |
9,035,187 |
|
____________
* Retrospectively restated for effect of stock split and share reorganization (see Note 11).
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GLOBAL MOFY METAVERSE LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Expressed in U.S. Dollars, except for the number of shares)
For the Years Ended |
||||||||
2022 |
2021 |
|||||||
US$ |
US$ |
|||||||
Revenue |
|
|
|
|
||||
Revenue from third parties |
$ |
14,540,300 |
|
$ |
14,268,184 |
|
||
Revenue from related parties |
|
2,647,993 |
|
|
— |
|
||
Revenue |
|
17,188,293 |
|
|
14,268,184 |
|
||
Cost of revenue |
|
(13,072,732 |
) |
|
(10,990,076 |
) |
||
Gross profit |
|
4,115,561 |
|
|
3,278,108 |
|
||
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
||||
Selling expenses |
|
(153,822 |
) |
|
(143,708 |
) |
||
General and administrative expenses |
|
(1,041,330 |
) |
|
(1,077,102 |
) |
||
Research and development expenses |
|
(3,207,759 |
) |
|
(661,134 |
) |
||
Total operating expenses |
|
(4,402,911 |
) |
|
(1,881,944 |
) |
||
|
|
|
|
|||||
(Loss) income from operations |
|
(287,350 |
) |
|
1,396,164 |
|
||
|
|
|
|
|||||
Other income (expenses): |
|
|
|
|
||||
Interest income |
|
42,948 |
|
|
42,690 |
|
||
Interest expenses |
|
(74,888 |
) |
|
(25,183 |
) |
||
Other income, net |
|
54,049 |
|
|
10,488 |
|
||
Total other income, net |
|
22,109 |
|
|
27,995 |
|
||
|
|
|
|
|||||
(Loss) income before income taxes |
|
(265,241 |
) |
|
1,424,159 |
|
||
Income tax expense |
|
— |
|
|
(9,992 |
) |
||
Net (loss) income |
|
(265,241 |
) |
|
1,414,167 |
|
||
Net income (loss) attributable to non-controlling interest |
|
1,981 |
|
|
(2,295 |
) |
||
Net (loss) income attributable to Global Mofy Metaverse Limited |
$ |
(267,222 |
) |
$ |
1,416,462 |
|
||
|
|
|
|
|||||
Comprehensive (loss) income |
|
|
|
|
||||
Net (loss) income |
$ |
(265,241 |
) |
$ |
1,414,167 |
|
||
Foreign currency translation (loss) gain |
|
(198,124 |
) |
|
7,983 |
|
||
Total comprehensive (loss) income |
|
(463,365 |
) |
|
1,422,150 |
|
||
Comprehensive income attributable to non-controlling interests |
|
2,304 |
|
|
4,259 |
|
||
Comprehensive (loss) income attributable to Global Mofy Metaverse Limited |
$ |
(465,669 |
) |
$ |
1,417,891 |
|
||
|
|
|
|
|||||
(Loss) earnings per common share |
|
|
|
|
||||
– Basic and diluted* |
$ |
(0.01 |
) |
$ |
0.06 |
|
||
|
|
|
|
|||||
Weighted average number of common shares outstanding |
|
|
|
|
||||
– Basic and diluted* |
|
23,441,484 |
|
|
23,015,777 |
|
____________
* Retrospectively restated for effect of stock split and share reorganization (see Note 11).
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GLOBAL MOFY METAVERSE LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(Expressed in U.S. Dollars, except for the number of shares)
|
Additional |
Statutory |
Accumulated |
Accumulated |
Non- |
Total Equity |
|||||||||||||||||||||
Shares* |
Amount* |
||||||||||||||||||||||||||
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
|||||||||||||||||||||
Balance as of October 1, 2020 |
23,015,777 |
$ |
46 |
$ |
2,293,919 |
$ |
650 |
$ |
(2,175,342 |
) |
$ |
3,694 |
|
$ |
(150,124 |
) |
$ |
(27,157 |
) |
||||||||
Capital contribution |
— |
|
— |
|
818,263 |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
818,263 |
|
||||||||
Net income for the year |
— |
|
— |
|
— |
|
— |
|
1,416,462 |
|
|
— |
|
|
(2,295 |
) |
|
1,414,167 |
|
||||||||
Appropriation to statutory reserve |
— |
|
— |
|
— |
|
38,970 |
|
(38,970 |
) |
|
— |
|
|
— |
|
|
— |
|
||||||||
Foreign currency translation adjustment |
— |
|
— |
|
— |
|
— |
|
— |
|
|
(1,429 |
) |
|
6,554 |
|
|
7,983 |
|
||||||||
Balance as of September 30, 2021 |
23,015,777 |
$ |
46 |
$ |
3,112,182 |
$ |
39,620 |
$ |
(797,850 |
) |
$ |
5,123 |
|
$ |
(145,865 |
) |
$ |
2,213,256 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Capital contribution |
602,260 |
|
1 |
|
1,999,999 |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
2,000,000 |
|
||||||||
Net loss for the year |
— |
|
— |
|
— |
|
— |
|
(267,222 |
) |
|
— |
|
|
1,981 |
|
|
(265,242 |
) |
||||||||
Appropriation to statutory reserve |
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
||||||||
Foreign currency translation adjustment |
— |
|
— |
|
— |
|
— |
|
— |
|
|
(198,447 |
) |
|
323 |
|
|
(198,124 |
) |
||||||||
Balance as of September 30, 2022 |
23,618,037 |
$ |
47 |
$ |
5,112,181 |
$ |
39,620 |
$ |
(1,065,073 |
) |
$ |
(193,324 |
) |
$ |
(143,561 |
) |
$ |
3,749,891 |
|
____________
* Retrospectively restated for effect of stock split and share reorganization (see Note 11).
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GLOBAL MOFY METAVERSE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
For the Years Ended |
||||||||
2022 |
2021 |
|||||||
US$ |
US$ |
|||||||
Cash flows from operating activities |
|
|
|
|
||||
Net (loss) income |
$ |
(265,241 |
) |
$ |
1,414,167 |
|
||
Adjustments to reconcile net (loss) income to net cash used in operating activities: |
|
|
|
|
||||
Depreciation |
|
27,852 |
|
|
23,140 |
|
||
Amortization of operating lease right-of-use assets |
|
151,863 |
|
|
147,482 |
|
||
Provision for doubtful accounts, net of recovery |
|
(16,084 |
) |
|
21,422 |
|
||
|
|
|
|
|||||
Changes in operating assets and liabilities: |
|
|
|
|
||||
Accounts receivable, net |
|
3,565,011 |
|
|
(5,302,583 |
) |
||
Accounts receivable – related party |
|
(324,116 |
) |
|
— |
|
||
Advances to vendors |
|
(3,356,195 |
) |
|
662,025 |
|
||
Prepaid expenses and other current assets |
|
(16,901 |
) |
|
(323,016 |
) |
||
Prepaid expenses and other noncurrent assets |
|
61,142 |
|
|
— |
|
||
Accounts payable |
|
(1,823,331 |
) |
|
1,405,228 |
|
||
Advance from customers |
|
738,642 |
|
|
49,877 |
|
||
Taxes payable |
|
29,585 |
|
|
485,017 |
|
||
Accrued expenses and other liabilities |
|
281,003 |
|
|
33,716 |
|
||
Lease liabilities |
|
(190,457 |
) |
|
(89,756 |
) |
||
Net cash used in operating activities |
|
(1,137,227 |
) |
|
(1,473,281 |
) |
||
|
|
|
|
|||||
Cash flows from investing activities |
|
|
|
|
||||
Purchase of property and equipment |
|
(28,839 |
) |
|
(51,683 |
) |
||
Collection of loans to related parties |
|
— |
|
|
112,644 |
|
||
Loans to third parties |
|
— |
|
|
(501,752 |
) |
||
Loans to related party |
|
(198,376 |
) |
|
— |
|
||
Collection of loans to third parties |
|
61,039 |
|
|
359,602 |
|
||
Net cash used in investing activities |
|
(166,176 |
) |
|
(81,189 |
) |
||
|
|
|
|
|||||
Cash flows from financing activities |
|
|
|
|
||||
Borrowings from third parties |
|
234,237 |
|
|
1,060,364 |
|
||
Repayments of third parties loans |
|
(1,243,667 |
) |
|
— |
|
||
Proceeds from short-term bank loans |
|
1,785,143 |
|
|
1,059,849 |
|
||
Repayments of short-term bank loans |
|
(1,174,487 |
) |
|
(302,583 |
) |
||
Deferred offering cost |
|
(131,634 |
) |
|
— |
|
||
Capital contributions |
|
2,000,000 |
|
|
805,722 |
|
||
Net cash provided by financing activities |
|
1,469,592 |
|
|
2,623,352 |
|
||
|
|
|
|
|||||
Effect of foreign exchange rate on cash |
|
(118,819 |
) |
|
11,054 |
|
||
Net increase in cash |
|
47,370 |
|
|
1,079,936 |
|
||
Cash at the beginning of the year |
|
1,088,694 |
|
|
8,758 |
|
||
Cash at the end of the year |
$ |
1,136,064 |
|
$ |
1,088,694 |
|
||
|
|
|
|
|||||
Supplemental disclosures of cash flow information: |
|
|
|
|
||||
Income taxes paid |
$ |
— |
|
$ |
739 |
|
||
Interest paid |
$ |
74,888 |
|
$ |
25,183 |
|
||
|
|
|
|
|||||
Non-cash transactions of investing and financing activities: |
|
|
|
|
||||
Initial recognition of right-of-use assets |
$ |
— |
|
$ |
313,741 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-7
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION
Global Mofy Metaverse Limited (“Global Mofy Cayman”) was incorporated on September 29, 2021 under the laws of the Cayman Islands with limited liability.
Global Mofy Cayman owns 100% of the equity interests of Global Mofy HK Limited (“Global Mofy HK”), a business company incorporated in accordance with the laws and regulations of Hong Kong on October 21, 2021.
Global Mofy HK owns 100% of the equity interests of Mofy Metaverse (Beijing) Technology Co., Ltd (“Global Mofy WFOE”), a business company incorporated in accordance with the laws and regulations of the People’s Republic of China (“China” or “PRC”) on December 09, 2021.
Global Mofy Cayman, Global Mofy HK, and Global Mofy WFOE are currently not engaging in any active business operations and merely acting as holding companies.
Prior to the reorganization described below, the main operating activities of the Company were carried out by Global Mofy (Beijing) Technology Co., Ltd. (“Global Mofy China”) and its subsidiaries. Global Mofy China was established on November 22, 2017 under the laws of the PRC. Global Mofy China has three wholly-owned subsidiaries, Kashi Mofy Interactive Digital Technology Co., Ltd. (“Kashi Mofy”), Shanghai Moying Feihuan Technology Co., Ltd. (“Shanghai Mofy”) and Mofy Filming (Hainan) Co., Ltd. (“Mofy Hainan”), which were established on July 31, 2019, May 11, 2020 and January 4, 2021 in China, respectively. Global Mofy China acquired 60% shares of Mofy (Beijing) Filming Technology Co., Ltd. (Beijing Mofy) and Xi’an Digital Cloud Database Technology Co., Ltd. (“Mofy Xi’an”) on February 7, 2018 and June 8, 2018, respectively. On December 1, 2021, Global Mofy China entered into an equity share transferring agreement with a third-party individual and transferred its 100% equity interest in Mofy Hainan for consideration of RMB1. Such transferring was completed on December 3, 2021. Mofy Hainan has no active business operation since its inception on January 4, 2021.
In preparation for listing in a stock market of the United States of America, the Company underwent a reorganization through entering into various contractual arrangements (the “Contractual Arrangements”), which, effective from January 5, 2022, between Global Mofy WFOE, Global Mofy China and their respective equity holders (the “Corporate Reorganization”) due to regulatory restrictions on foreign ownership in the radio and television program production and operation business and value-added telecommunications business in the PRC. In June, 2022, the Company removed the radio and television program production from its business scope and the reason to use the VIE structure was no longer relevant. Historically, the Company did not produce any radio or television program.
On June 28, 2022, Global Mofy WFOE entered into equity transfer agreements with each shareholder of Global Mofy China to purchase all the equity interest in Global Mofy China. On July 8, 2022, Global Mofy WFOE, Global Mofy China and shareholders of Global Mofy China signed a termination agreement of the VIE Agreements. The VIE structure was dissolved. The restructure was completed on July 8, 2022. As a result, Global Mofy China became a wholly owned subsidiary of Global Mofy WFOE. Immediately before this acquisition, Global Mofy China was a foreign-invested joint venture.
Global Mofy Cayman together with its wholly owned subsidiaries Global Mofy HK, Global Mofy WFOE and Global Mofy China and its subsidiaries were effectively controlled by the same shareholders before and after the reorganization and therefore the Reorganization was considered under common control and included at their historical carrying values. The consolidation of the Company has been prepared on the basis as if the reorganization had become effective as of the beginning of the first period presented in the consolidated financial statements.
Global Mofy Cayman and its subsidiaries (the “Company”), mainly engaged in providing virtual content production and online advertising services. The Company’s headquarters are located in the city of Beijing, China.
F-8
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION (cont.)
As of September 30, 2022, the Company’s major subsidiaries are as follows:
Name of Entity |
Date of |
Place of Incorporation |
% of |
Principal Activities |
||||
Global Mofy HK Limited (“Global Mofy HK”) |
October 21, 2021 |
Hong Kong |
100% |
Investment holding |
||||
Mofy Metaverse (Beijing) Technology Co., Ltd (“Global Mofy WFOE”) |
December 09, 2021 |
PRC |
100% |
Investment holding |
||||
Global Mofy (Beijing) Technology Co., Ltd. (“Global Mofy China”) |
November 22, 2017 |
PRC |
100% |
Virtual technology service, digital marketing and digital asset development |
||||
Kashi Mofy Interactive Digital Technology Co., Ltd. (“Kashi Mofy”) |
July 31, 2019 |
PRC |
100% |
Virtual technology service and digital marketing |
||||
Shanghai Moying Feihuan Technology Co., Ltd. (“Shanghai Mofy”) |
May 11, 2020 |
PRC |
100% |
Virtual technology service and digital marketing |
||||
Xi’an Shuzi Yunku Technology Co., Ltd (Xi’an Mofy) |
June 8, 2018 |
PRC |
60% |
Virtual technology service |
||||
Mofy (Beijing) Filming Technology Co., Ltd. (Beijing Mofy) |
February 7, 2018 |
PRC |
60% |
Virtual technology service |
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied for information pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
(b) Principles of consolidation
The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.
(c) 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 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 shareholder approval of any golden parachute payments not previously approved.
F-9
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 us.
(a) Non-controlling interests
Non-controlling interests are recognized to reflect the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. For the Company’s consolidated subsidiaries, non-controlling interests represent a minority shareholder’s 40% and 40% ownership interest in Beijing Mofy and Xi’an Mofy as of September 30, 2022 and 2021, respectively.
Non-controlling interests are presented as a separate line item in the equity section of the Company’s Consolidated Balance Sheets and have been separately disclosed in the Company’s Consolidated Statements of Comprehensive Income (Loss) to distinguish the interests from that of the Company.
(b) Use of estimates
In preparing the consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the assessment of the allowance for doubtful accounts, useful lives of property and equipment, the recoverability of long-lived assets, uncertain tax position and valuation allowance for deferred tax assets. Actual results could differ from those estimates.
(c) Cash
Cash includes cash on hand and demand deposits placed with commercial banks. The Company maintains most of the bank accounts in mainland China.
(d) Accounts receivable, net
Accounts receivables are presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer payment history, customer’s current credit-worthiness, and current economic trends. Accounts are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
F-10
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(e) Property and equipment, net
Property and equipment are stated at cost, net of accumulated depreciation and impairment, if any. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for repairs and maintenance, which do not materially extend the useful lives of the assets, are expensed as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation and amortization are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Depreciation expense was $27,852 and $23,140 for the years ended September 30, 2022 and 2021, respectively.
Estimated useful lives are as follows:
Category |
Estimated useful lives |
|
Office equipment |
3 years |
|
Leasehold improvement |
Shorter of lease terms and estimated useful lives |
(f) Impairment of long-lived assets Other Than Goodwill
Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful life is shorter than the Company had originally estimated. When such events occur, the Company evaluates the impairment for the long-lived assets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Company recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. No impairment charge was recognized for the years ended September 30, 2022 and 2021.
(g) Fair value of financial instruments
The Company applies ASC 820, Fair Value Measurements and Disclosures, (‘‘ASC 820’’). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
• Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
• Level 2 — Include other inputs that are directly or indirectly observable in the marketplace.
• Level 3 — Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, advances to suppliers, prepaid expenses and other current assets, short-term bank loans, accounts payable, advance from customers, due to related parties, taxes payable, and accrued expenses and other current liabilities approximate their recorded values due to their short-term maturities. The fair value of longer-term leases approximates their recorded values as their stated interest rates approximate the rates currently available.
F-11
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The Company’s non-financial assets, such as property and equipment would be measured at fair value only if they were determined to be impaired.
(h) Leases
The Company early adopted Accounting Standards Update (“ASU”) 2016-02, Leases (as amended by ASU 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01, collectively “ASC 842”) on January 1, 2019 using a modified retrospective approach reflecting the application of the standard to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. The Company elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allows the Company to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. The Company elected not to record assets and liabilities on its consolidated balance sheet for new or existing lease arrangements with terms of 12 months or less. The Company recognizes lease expenses for such lease on a straight-line basis over the lease term.
The most significant impact upon adoption relates to the recognition of new Right-of-use (“ROU”) assets and lease liabilities on the Company’s consolidated balance sheets for office space leases. At the commencement date of a lease, the Company recognizes a lease liability for future fixed lease payments and a right-of-use (“ROU”) asset representing the right to use the underlying asset during the lease term. The lease liability is initially measured as the present value of the future fixed lease payments that will be made over the lease term. The lease term includes periods for which it’s reasonably certain that the renewal options will be exercised and periods for which it’s reasonably certain that the termination options will not be exercised. The future fixed lease payments are discounted using the rate implicit in the lease, if available, or the incremental borrowing rate (“IBR”). The Company will evaluate the carrying value of ROU assets if there are indicators of impairment and review the recoverability of the related asset group. If the carrying value of the asset group is determined to not be recoverable and is in excess of the estimated fair value, the Company will record an impairment loss in other expenses in the consolidated statements of operations.
(i) Revenue recognition
The Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective approach for the year ended September 30, 2020 and has elected to apply it retrospectively for the year ended September 30, 2019. In accordance with ASC 606, revenues from contracts with customers are recognized when control of the promised goods or services are transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following steps: (i) identify the contracts with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when, or as the entity satisfies a performance obligation.
The Company’s revenues are derived principally from virtual technology service, digital marketing and digital asset development and others. Value added taxes (“VAT”) are presented as a reduction of revenues.
Revenue from virtual technology service
The Company engages in virtual content production for visual effect in movies, television series, animations, games, advertainments, tourisms, and augmented reality (“AR”) and virtual reality (“VR”) technology etc. The virtual content production contracts are primarily on a fixed price basis, which require the Company to perform services for visual effect design, content development, production and integration based on customers’ specific needs. The required production period is generally less than one year.
F-12
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The virtual content production services are considered as a single performance obligation because the Company provides a significant service of integrating different services underlying each contract, which are highly interdependent and interrelated with one another. The Company currently does not have any modification of contract and the contracts currently do not have any variable consideration.
The customer of the virtual content production contract can only obtain control of the produced virtual content after the project is completed. The Company satisfy its performance obligation at a point in time only when it transfers the developed content to the customer. The virtual content are assets when they are developed by the Company. The Company can direct the use of the product and obtain substantially all of the remaining benefits of the asset. The customer can direct the use and obtain benefits of the assets only after the development completed and control transfer occurred from the Company upon acceptance by the customer. The customer does not simultaneously receive or consume the benefits provided by the Company’s performance as the Company performs. The customer can only benefit from the final output of the virtual content as delivered by the Company. The customer does not have control over the content as it is developed. The developed virtual content may be sold as digital assets by the Company and the payment collected in advance based on the contract upon each milestone would be refundable if the Company does not meet the customer’s needs or there is other default. Hence, none of the criteria of ASC 606-10-25-27 is met. Revenue from virtual content production is recognized at a point in time when the Company satisfies the performance obligation by transferring promised virtual content product upon acceptance by customers.
Revenue from digital marketing
The Company enters into two types of digital marketing contracts directly with customers. For one type of contracts, pursuant to which the Company provides advertisement production and promotion services to customers. The advertisements are in different format, including but not limited to short video, landing pages and static materials. The Company considers that both of the advertisement production and promotion services are highly interrelated and not separately identifiable. The Company’s overall promise represents a combined output that is a single performance obligation; there is no multiple performance obligations. The Company engages third-party advising distributor while providing the promotion services. The Company considers itself as principal of the services as it has control of the specified services at any time before it is transferred to the customers which is evidenced by (i) the Company is primarily responsible for the production of content for advertisements and (ii) having latitude in select third party distributors for promotion and establish pricing. Therefore, the Company acts as the principal of these arrangements and reports revenue earned and costs incurred related to these transactions on a gross basis.
Under a framework contract, the Company receives separate purchase orders from customers. Accordingly, each purchase order is identified as a separate performance obligation, containing a bundle of advertisements that are substantially the same and that have the same pattern of transfer to the customer. Where collectability is reasonably assured, revenue is recognized over the service period of the purchase order, which is based on specific action (i.e. cost per mille “CPM”) for online display.
The amount of the revenue is the gross billing charged to the customers. Revenue is recognized on a CPM basis as impressions or clicks are delivered through the Group’s display of the advertisements in accordance with the revenue contracts.
The Company entered into another type of contracts with advertisers during the fiscal year 2022. Pursuant to which, the Company earns net fees from advertisers by acting as an agent to purchase advertisement inventories and advertise services on behalf of the advertisers. The Company recognizes revenues over the contracted service period. The Company is not a principal in these arrangements as it does not obtain control of ad inventories or advertising services, and therefore recorded net revenues at the difference between the gross billing amount charged to the advertisers and the costs of purchasing ad inventories and advertising services.
F-13
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Revenue from digital asset development and others
The Company enters into copyright licensing contracts to authorize production rights, adaption rights, sublicense rights of licensed copyrights and digital assets with entertainment production companies. The licensing provides customers the right to use the Company’s IP as it exists since neither the criteria as stated in ASC 610-10-55-62 is met. The specific licensed copyrights and digital assets authorized to customers are all developed IP, which are unique and do not require ongoing maintenance or effort from the Company to assure the usefulness of the license. The Company is entitled to receive the license fee under the licensing arrangements and does not have any future obligation once it has provided the underlying IP content to the licensee. The Company may use such authorized assets as a base model to produce new digital assets, however, these customers will not be contractually or practically required to use them. The revenue is recognized at a point in time when the licensed copyright and digital asset is made available for the customer’s use and benefit.
Disaggregation of revenue
The following table summarized disaggregated revenue for the years ended September 30, 2022 and 2021:
For the Years Ended |
||||||
2022 |
2021 |
|||||
US$ |
US$ |
|||||
Category of Revenue |
|
|
||||
Virtual technology service |
$ |
12,536,957 |
$ |
6,722,143 |
||
Digital marketing |
|
632,070 |
|
6,191,046 |
||
Digital asset development and others |
|
4,019,266 |
|
1,354,995 |
||
$ |
17,188,293 |
$ |
14,268,184 |
|||
Timing of Revenue Recognition |
|
|
||||
Services transferred at a point in time |
$ |
16,556,223 |
$ |
8,077,138 |
||
Services transferred over time |
|
632,070 |
|
6,191,046 |
||
$ |
17,188,293 |
$ |
14,268,184 |
Contract balance
The Company recognizes accounts receivable in its consolidated balance sheets when it performs a service in advance of receiving consideration and it has the unconditional right to receive consideration. Payments received from its customers are based on the payment terms established in its contracts. Such payments are initially recorded to advance from customers and are recognized into revenue as the Company satisfies its performance obligations. As of September 30, 2022 and 2021, the balance of advance from customers amounted to $1,154,100 and $552,895, respectively. Substantially all of advance from customers will be recognized as revenue during the Company’s following fiscal year.
(j) Cost of revenue
Cost of revenues consists primarily of outsourcing content production cost, payroll and related costs for employees involved with the Company’s operations and product support, such as rental and depreciation expenses. These costs are charged to the consolidated statement of comprehensive income (loss) as incurred.
(k) Selling expenses
Selling expenses consist primarily of promotion and advertising expenses, staff costs and other daily expenses which are related to the selling and marketing departments. These expenses are charged to the consolidated statement of comprehensive income (loss) as incurred.
F-14
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(l) General and administrative expenses
General and administrative expenses consist primarily of salaries and welfare expenses and related expenses for employees involved in general corporate functions, including accounting, legal and human resources; and costs associated with use by these functions of facilities and equipment, such as traveling and general expenses, professional service fees and other related expenses. These expenses are charged to the consolidated statement of comprehensive income (loss) as incurred.
(m) Research and development expenses
Research and development expenses consist primarily of employee salaries and benefits for research and development personnel, allocated overhead and outsourced development expenses. Cost incurred for the internally developed IP of virtual content, scripts and digital assets to be licensed or sold during the planning and designing stage are expensed when incurred and are included in the research and development expenses. Costs incurred in the production phase subsequent to establishing technological feasibility of such IP are capitalized. During the fiscal years ended September 30, 2022 and 2021, as no such costs qualified for capitalization, all of the cost incurred for the internally developed IP of virtual content, scripts and digital assets to be licensed or sold are expensed.
(n) Income taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or future deductibility is uncertain. The Company’s subsidiaries in the PRC and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. No taxable income was generated outside the PRC for the years ended September 30, 2022 and 2021.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes”, prescribe 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. Tax positions that meet the “more likely than not” recognition threshold are measured, using a cumulative probability approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. The estimated liability for unrecognized tax benefits are periodically assessed for adequacy and may be affected by changing interpretations of laws, rulings by tax authorities, changes and or developments with respect to tax audits, and the expiration of the statute of limitations. Additionally, in future periods, changes in facts and circumstances, and new information may require the Company and its wholly-owned subsidiaries to adjust the recognition and measurement of estimates with regards to changes in individual tax position. Changes in recognition and measurement of estimates are recognized in the period which the change occurs. ASC 740 also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There were no material uncertain tax positions as of September 30, 2022 and 2021. As of September 30, 2022, income tax returns for the tax years ended December 31, 2017 through December 31, 2021 remain open for statutory examination. When applicable, the Company records interest and penalties related to unrecognized tax benefits on the income tax expense line in the consolidated statement of comprehensive income (loss) and the accrued interest and penalties in the related tax liability line in the consolidated balance sheet. For the years ended September 30, 2022 and 2021, there’s no interest or penalties associated with tax positions.
F-15
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(o) Value added tax (“VAT”)
The Company’s PRC subsidiaries are subject to value added tax (“VAT”) and related surcharges based on gross sales or service price depending on the type of services provided in the PRC (“output VAT”), and the VAT may be offset by VAT paid by the Company on service purchases (“input VAT”). The applicable rate of output VAT or input VAT for the Company is 6%. Gross sales or service price charged to customers is subject to output VAT at a rate of 6% and subsequently paid to PRC tax authorities after netting input VAT on purchases incurred during the period. The Company’s revenues are presented net of VAT collected on behalf of PRC tax authorities and its related surcharges; the VAT is not included in the consolidated statements of comprehensive income (loss). All of the VAT returns filed by the Company’s subsidiaries in the PRC, have been and remain subject to examination by the tax authorities for five years from the date of filing.
(p) Earnings (loss) per share
The Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS are computed by dividing net income (loss) available to ordinary shareholders of the Company by the weighted average ordinary shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised and converted into ordinary shares. Potential ordinary share that has an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted earnings per share. For the years ended September 30, 2022 and 2021, there were no dilutive shares.
(q) Foreign currency translation and transactions
The reporting currency of the Company is U.S. dollars (“US$”) and the accompanying consolidated financial statements have been expressed in US$. The Company’s principal country of operations is the PRC. The financial position and results of its operations are determined using the Chinese Yuan (“RMB”), the local currency, as the functional currency. The Company’s consolidated financial statements have been translated into the reporting currency, US$. The results of operations and the consolidated statements of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income (loss) included in consolidated statements of changes in equity (deficit). Gains and losses from foreign currency transactions and balances are included in the results of operations.
The value of RMB against US$ and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of RMB may materially affect the Company’s financial condition in terms of US$ reporting. The following table outlines the currency exchange rates that were used in preparing the consolidated financial statements:
September 30, |
September 30, |
|||
Year-end spot rate |
7.1135 |
6.4434 |
For the Years Ended |
||||
2022 |
2021 |
|||
Average rate |
6.5532 |
6.5072 |
F-16
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(r) Segment reporting
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and the types of customers to help users of financial statements to better understand the Company’s performance, assess its prospects for future cash net cash flow and make more informed judgements about the Company in a whole.
The Company uses the management approach to determine reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The Company’s CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company.
Based on the management’s assessment, the Company determined that it has only one operating segment and therefore one reportable segment as defined by ASC 280. The Company’s assets are substantially all located in the PRC and substantially all of the Company’s revenue and expense are derived in the PRC. Therefore, no geographical segments are presented.
(s) Significant risks and uncertainties
Currency convertibility risk
Substantially all of the Company’s operating activities are settled in RMB, which 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 People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other Company foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
Concentration and credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.
The Company maintains certain bank accounts in the PRC. As of September 30, 2022 and 2021, cash balances in the PRC are $1,136,064 and $1,088,694, respectively. On May 1, 2015, China’s new Deposit Insurance Regulation came into effect, pursuant to which banking financial institutions, such as commercial banks, established in the PRC are required to purchase deposit insurance for deposits in RMB and in foreign currency placed with them. Such Deposit Insurance Regulation would not be effective in providing complete protection for the Company’s accounts, as its aggregate deposits are much higher than the compensation limit, which is RMB500,000 for one bank. Other than such deposit insurance mechanism, the Company’s bank accounts are not insured by Federal Deposit Insurance Corporation insurance or other insurance. However, the Company believes that the risk of failure of any of these Chinese banks is remote. Bank failure is uncommon in the PRC and the Company believes that those Chinese banks that hold the Company’s cash are financially sound based on public available information.
Accounts receivables are typically unsecured and derived from services rendered to customers that are located in China, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of customers’ creditworthiness and its ongoing monitoring of outstanding balances. The Company has a concentration of its accounts receivable with specific customers.
F-17
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Major Customers
For the year ended September 30, 2022, two customers accounted for approximately 20% and 17% of total revenues, respectively. As of September 30, 2022, the balance due from three customers accounted for approximately 42%, 24% and 21% of the Company’s total accounts receivable, respectively.
For the year ended September 30, 2021, three customers accounted for approximately 20%, 10% and 10% of total revenues, respectively. As of September 30, 2021, the balance due from four customers accounted for approximately 38%, 13%, 12% and 12% of the Company’s total accounts receivable, respectively.
Major Suppliers
For the year ended September 30, 2022, four suppliers accounted for approximately 32%, 19%, 17% and 10% of the total purchases, respectively. As of September 30, 2022, three suppliers accounted for approximately 37%, 22% and 12% of the Company’s accounts payable, respectively.
For the year ended September 30, 2021, three suppliers accounted for approximately 24%, 12% and 10% of the total purchases, respectively. As of September 30, 2021, two suppliers accounted for approximately 49% and 16% of the Company’s accounts payable, respectively.
Interest rate risk
Fluctuations in market interest rates may negatively affect the Company’s financial condition and results of operations. The Company is exposed to floating interest rate risk on cash deposit and floating rate borrowings, and the risks due to changes in interest rates is not material. The Company has not used any derivative financial instruments to manage the Company’s interest risk exposure.
Impact of COVID-19 Outbreak
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic — the first pandemic caused by a coronavirus. The outbreak has reached more than 160 countries, resulting in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. The Chinese government has ordered quarantines, travel restrictions, and the temporary closure of stores and facilities. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses.
During the year ended September 30, 2022, COVID-19 has had limited impact on the Company’s operations. There are still uncertainties of COVID-19’s future impact, and the extent of the impact will depend on a number of factors, including the duration and severity of the pandemic; and the macroeconomic impact of government measures to contain the spread of COVID-19 and related government stimulus measures.
(t) Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326). The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. This ASU is effective for annual and interim periods beginning after September 15, 2019 for issuers and September 15, 2020 for non-issuers. Early adoption is permitted for all entities for annual periods beginning after September 15, 2018, and interim periods therein. In May 2019, the FASB issued ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief. This ASU adds optional transition relief for entities to elect the fair value option for certain financial assets previously measured at amortized cost
F-18
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
basis to increase comparability of similar financial assets. The ASUs should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified retrospective approach). On November 19, 2019, the FASB issued ASU 2019-10 to amend the effective date for ASU 2016-13 to be fiscal years beginning after December 15, 2022 and interim periods therein. The Company will adopt this ASU on October 1, 2023 and expects that the adoption will not have a material impact on the Company’s consolidated financial statements and related disclosures.
In October 2020, the FASB issued ASU 2020-10, “Codification Improvements”. The amendments in this Update represent changes to clarify the Codification or correct unintended application of guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments in this Update affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. ASU 2020-10 is effective for annual periods beginning after December 15, 2020 for public business entities. For all other entities, the amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022.
Early application is permitted. The amendments in this Update should be applied retrospectively. The Company adopted this ASU as of October 1, 2022 and the adoption does not have a material impact on the Company’s consolidated financial statements and related disclosures.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial position, statements of comprehensive income and cash flows.
NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
As of September 30, |
||||||||
2022 |
2021 |
|||||||
US$ |
US$ |
|||||||
Accounts receivable |
$ |
2,106,445 |
|
$ |
5,951,273 |
|
||
Less: allowance for doubtful accounts |
|
(4,780 |
) |
|
(21,635 |
) |
||
Accounts receivable, net |
$ |
2,101,665 |
|
$ |
5,929,638 |
|
The movement of allowance of doubtful accounts is as follows:
As of September 30, |
|||||||
2022 |
2021 |
||||||
US$ |
US$ |
||||||
Balance at beginning of the year |
$ |
21,635 |
|
$ |
— |
||
Addition |
|
45,649 |
|
|
21,422 |
||
Write-off |
|
(61,734 |
) |
|
— |
||
Foreign exchange translation |
|
(770 |
) |
|
213 |
||
Balance at end of the year |
$ |
4,780 |
|
$ |
21,635 |
F-19
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 — ADVANCE TO VENDORS
Advance to vendors consisted of the following:
As of September 30, |
||||||
2022 |
2021 |
|||||
US$ |
US$ |
|||||
Prepayments for virtual technology services |
$ |
567,736 |
$ |
130,942 |
||
Prepayments for digital marketing |
|
400,042 |
|
— |
||
Prepayments for digital assets development |
|
2,375,516 |
|
146,662 |
||
Less: allowance for doubtful accounts |
|
— |
|
— |
||
$ |
3,343,294 |
$ |
277,604 |
Advance to vendors primarily consisted of prepayments for virtual technology services, digital marketing and digital assets development outsourced to third party vendors. As of September 30, 2022 and 2021, there was no allowance recorded as the Company considers all of the advance to vendors balance fully realizable. As of September 30, 2022, $1,800,000 advances made to one vendor for digital assets to be acquired was expected to be utilized after 1 year from September 30, 2022 and before February 8, 2025. The balance is recorded advance to vendor — noncurrent in the balance sheets.
NOTE 5 — LOANS RECEIVABLE, NET
Loans receivable, net consisted of the following:
As of September 30, |
||||||
2022 |
2021 |
|||||
US$ |
US$ |
|||||
Wuyuan Yangyang Culture Media Studio(a) |
$ |
295,213 |
$ |
387,994 |
||
Less: allowance for doubtful accounts |
|
— |
|
— |
||
Total loans receivable, net – current |
$ |
295,213 |
$ |
387,994 |
||
Pingnan Motian Culture Media Studio(b) |
$ |
449,849 |
$ |
496,632 |
||
Hanning Jin(c) |
|
9,137 |
|
10,088 |
||
$ |
458,986 |
$ |
506,720 |
|||
Less: allowance for doubtful accounts |
|
— |
|
— |
||
Total loans receivable, net – noncurrent |
$ |
— |
$ |
506,720 |
||
Total loans receivable, net |
$ |
754,199 |
$ |
894,714 |
____________
(a) On June 28, 2020, Global Mofy China entered into a loan agreement with a third party, Wuyuan Yangyang Culture Media Studio (“Yangyang”) to lend $712,854 (or RMB 4,840,000) for its working capital needs with a fixed interest rate of 5.2% per annum. The amount of $356,427 (or RMB2,420,000) of the loan was due on December 31, 2020. The remaining amount of $356,427 (or RMB2,420,000) of the loan will be due on June 28, 2022. A total of $363,162 (or RMB2,340,000) of the loan was collected in January 2021. As of September 30, 2021, the outstanding balance is $387,994 (or RMB2,500,000). A total of $63,098 (or RMB400,000) of the loan was collected in November 2021. On June 28, 2022, Global Mofy China renewed the loan agreement with Wuyuan Yangyang Culture Media Studio to extend the loan term of the loan receivable balance of $295,213 (or RMB2,100,000) for its working capital needs for one year and interest rate remained the original fixed rate of 5.2% per annum.
(b) On October 20, 2020, Global Mofy China entered into a loan agreement with a third party, Pingnan Motian Culture Media Studio to lend $496,632 (or RMB 3,200,000) for its working capital needs with a maturity date of October 20, 2022. The loan bores a fixed interest rate of 5.2% per annum. On October 20, 2022, Global Mofy China renewed the loan agreement with Pingnan Motian Culture Media Studio to extend the loan term of the loan receivable balance of $449,849 (or RMB3,200,000) for its working capital needs for one year and interest rate remained the original fixed rate of 5.2% per annum.
(c) On January 14, 2021, Global Mofy China entered into an interest-free loan agreement with Hanning Jin, a third party individual, to lend $10,088 (or RMB65,000) for working capital needs with a maturity date of January 14, 2023. On January 14, 2023, Global Mofy China renewed the interest-free loan agreement with Hanning Jin to extend the loan term of the loan receivable balance of $9,137 (or RMB65,000) for its working capital needs for one year.
For the years ended September 30, 2022 and 2021, interest income related to the above loans amounted to $42,456 (or RMB278,221) and $42,164 (or RMB274,370), respectively.
F-20
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — LEASES
The Company’s leasing activities primarily consist of three operating leases for offices. ASC 842 requires leases to recognize right-of-use assets and lease liabilities on the balance sheet. The Company has elected an accounting policy to not recognize short-term leases (one year or less) on the balance sheet.
As of September 30, |
||||||
2022 |
2021 |
|||||
US$ |
US$ |
|||||
Operating lease right-of-use assets |
$ |
147,099 |
$ |
316,848 |
||
Operating lease liabilities – current |
$ |
120,418 |
$ |
193,703 |
||
Operating lease liabilities – noncurrent |
|
— |
|
132,942 |
||
Total operating lease liabilities |
$ |
120,418 |
$ |
326,645 |
The weighted-average remaining lease term and the weighted-average discount rate of leases are as follows:
As of September 30, |
||||||
2022 |
2021 |
|||||
Weighted-average remaining lease term (years) |
0.96 |
|
1.96 |
|
||
Weighted-average discount rate |
4.75 |
% |
4.75 |
% |
During the years ended September 30, 2022 and 2021, the Company incurred total operating lease expenses of $163,552 and $164,899, respectively.
The following table summarizes the maturity of operating lease liabilities as of September 30, 2022:
12 months ending September 30, |
Operating |
|||
US$ |
||||
2023 |
$ |
123,119 |
|
|
Total lease payments |
|
123,119 |
|
|
Less: imputed interest |
|
(2,701 |
) |
|
Total lease liabilities |
$ |
120,418 |
|
NOTE 7 — SHORT-TERM BANK LOANS
Short-term borrowings represent amounts due to various banks maturing within one year. The principal of the borrowings is due at maturity. Accrued interest is due either monthly or quarterly. Short-term borrowings consisted of the following:
As of September 30, |
||||||||
2022 |
2021 |
|||||||
US$ |
US$ |
|||||||
Bank of Beijing(1) |
$ |
— |
|
$ |
465,593 |
|
||
Bank of China(2) |
|
421,733 |
|
|
310,395 |
|
||
Bank of Nanjing(3) |
|
421,733 |
|
|
310,395 |
|
||
Bank of Huaxia(4) |
|
702,889 |
|
|
— |
|
||
Deferred financing costs(5) |
|
(14,283 |
) |
|
(16,040 |
) |
||
Total |
$ |
1,532,073 |
|
$ |
1,070,343 |
|
____________
(1) On March 23, 2021, Global Mofy China entered into a loan agreement with Bank of Beijing to obtain a loan of $155,198 (or RMB 1,000,000) for a term from March 23, 2021 to March 22, 2022 at a fixed annual interest rate of 4.35%. The loan is guaranteed by a third party, Beijing Guohuawenke Financing Guarantee Limited. The Company repaid the loan in full upon maturity on March 23, 2022.
F-21
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — SHORT-TERM BANK LOANS (cont.)
On September 30, 2021, Global Mofy China entered into a loan agreement with Bank of Beijing to obtain a loan of $310,395 (or RMB 2,000,000) for a term from September 30, 2021 to September 29, 2022 at a fixed annual interest rate of 4.35%. The loan is guaranteed by a third party, Beijing Haidian Technology Financing Guarantee Limited. On August 01, 2022, the Company repaid $157,746 (or RMB1,000,000) of loan in advance. The remaining $157,746 (or RMB1,000,000) of loan was repaid in full upon maturity on September 28, 2022.
(2) On September 30, 2021, Global Mofy China entered into a loan agreement with Bank of China to obtain a loan of $310,395 (or RMB 2,000,000) for a term from September 30, 2021 to September 29, 2022 at a fixed annual interest rate of 3.85%. The loan is guaranteed by a third party, Beijing Shichuang Tongsheng Financing Guarantee Limited. The Company repaid the loan in full upon maturity on September 15, 2022.
On September 19, 2022, the Company renewed the loan agreement with Bank of China to obtain a loan of $421,733 (or RMB 3,000,000) for the period from September 19, 2022 to September 19, 2023 with a floating annual interest rate. The loan is guaranteed by a third party, Beijing Shichuang Tongsheng Financing Guarantee Limited. The Company is required to make quarterly interest payment with principal due at maturity.
(3) On March 12, 2021, Global Mofy China entered into a loan agreement with Bank of Nanjing to obtain a loan of $155,198 (or RMB1,000,000) for a term from March 12, 2021 to March 11, 2022. The loan was fully repaid on March 11, 2022.
On July 29, 2021, Global Mofy China entered into another loan agreement with Bank of Nanjing to obtain a loan of $155,198 (or RMB1,000,000) for a term from July 29, 2021 to July 28, 2022. Both of these loans bore a fixed annual interest rate of 6.08%. On July 29, 2022, the Company renewed the loan agreement with Bank of Nanjing to obtain a loan of $140,578 (or RMB1,000,000) for the period from July 29, 2022 to July 29, 2023 with an annual interest rate of 6%.
On March 31, 2022, Global Mofy China and Bank of Nanjing entered into a loan agreement to borrow $281,155 (or RMB2,000,000) of loan for the period from March 31, 2022 to March 31, 2023 with an annual interest rate of 6.0%.
Mr. Haogang, Yang, the Chairman of the Company’s board of directors and CEO, together with his wife, Ms. Dong Mingxing, guaranteed the repayment of these loans.
(4) On November 14, 2021, Global Mofy China and Huaxia Bank entered into a loan agreement to borrow $126,197 (or RMB800,000) of loan for the period from November 14, 2021 to November 14, 2022 with an annual interest rate of 5.225%. The Company’s CEO, Mr. Haogang Yang, and his wife, Ms. Mingxing Dong, provided guarantee to this loan. The Company is required to make monthly interest payment with principal due at maturity. On July 8, 2022, the Company repaid loan in advance.
On July 27, 2022, Global Mofy China and Huaxia Bank entered into a loan agreement to borrow $702,889 (or RMB5,000,000) of loan for the period from July 27, 2022 to July 27, 2023 with a floating annual interest rate. The loan is guaranteed by a third party, Beijing Zhongguancun Technology Financing Guarantee Limited. The Company is required to make monthly interest payment with principal due at maturity.
(5) In order to obtain the guarantees provided by the third-party guaranty company for the loans from banks, the Company incurred guarantee fees, which are deferred and presented on the consolidated balance sheets as a direct deduction from the carrying amount of the loans and amortized to interest expense over the term of the associated loans.
For the years ended September 30, 2022 and 2021, the weighted average annual interest rate for the bank loans was approximately 4.35% and 6.35%, respectively. Interest expenses for the above-mentioned loans amount to $74,888 and $25,183 for the years ended September 30, 2022 and 2021, respectively.
NOTE 8 — LOANS FROM THIRD PARTIES
As of September 30, |
||||||
2022 |
2021 |
|||||
US$ |
US$ |
|||||
Loans from third parties – current |
$ |
108,245 |
$ |
1,264,860 |
||
Loans from third party – noncurrent |
|
107,542 |
|
— |
||
Total loans from third parties |
$ |
215,787 |
$ |
1,264,860 |
In March 2020, Global Mofy China borrowed an interest-free loan of $184,105 (or RMB1,250,000) from a third party, Beijing Innovation Compass Technology Co., Ltd for working capital needs. Global Mofy China repaid the loan in full subsequently in January 2022.
In September 2021, Global Mofy China borrowed an interest-free loan of $139,678 (or RMB900,000) from a third party, Heshengzhongli (Beijing) Technology Co., Ltd, for working capital needs. Global Mofy China repaid the loan in full subsequently in October 2021.
F-22
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — LOANS FROM THIRD PARTIES (cont.)
In September 2021, Global Mofy China borrowed an interest-free loan of $775,988 (or RMB5,000,000) from a third party, Beijing Paimian Culture Media Co., Ltd, for working capital needs. Global Mofy China repaid the loan in full subsequently in October 2021.
In September 2021, Global Mofy China borrowed an interest-free loan of $155,198 (or RMB1,000,000) from a third party individual for working capital needs. Global Mofy China repaid the loan in full subsequently in October 2021.
As of September 30, 2022, the balance of $108,245 (or RMB770,000) represented the interest-free loan borrowed from Beijing Angel Palace Education Technology Co., Ltd. for the Company’s working capital purpose, with the maturity date due on March 9, 2023.
The above loans from third parties are classified as current liabilities on the consolidated balance sheets since the maturity dates of the loan is within 1 year from the balance sheet date or there are no maturity dates specified in the loan agreements and the loans could be due on demand.
As of September 30, 2022, the balance of $107,542 (or RMB765,000) represented the interest-free loan borrowed from Wuxi Huanxiang Culture Co., Ltd. for the Company’s working capital purpose with the maturity date due on January 24, 2023. On January 24, 2023, Global Mofy China renewed the loan agreement with Wuxi Huanxiang Xiniu Culture Co., Ltd. to extend the loan term of the interest-free loan with the balance of $107,542 (or RMB765,000) for the Company’s working capital needs for one year. Accordingly, the outstanding loan balance as of September 30, 2022 was classified as noncurrent.
NOTE 9 — RELATED PARTY TRANSACTIONS AND BALANCES
Nature of relationships with related parties:
Name |
Relationship with the Company |
|
Mr. Jianru Yang |
Business Development Director of the Company |
|
Mr. Yuchao Lu |
Directly hold a 5.7% equity interest in the Company |
|
Ms. Yang Li |
Finance Controller of the Company |
|
Lianyungang Zongteng Film Studio |
Controlled by Mr. Yuchao Lu |
|
Moxing Shangxing (Beijing) Technology Co., Ltd |
Controlled by Mr. Jianru Yang |
|
Mofy Filming (Hainan) Co., Ltd. (“Mofy Hainan”) |
Ms. Yang li is the Finance Controller of Mofy Hainan |
Transactions with related parties
For the Years Ended |
||||||
2022 |
2021 |
|||||
US$ |
US$ |
|||||
Revenue earned from related parties |
|
|
||||
Mofy Filming (Hainan) Co., Ltd. |
$ |
1,439,596 |
$ |
— |
||
Moxing Shangxing (Beijing) Technology Co., Ltd(a) |
|
1,208,397 |
|
— |
||
$ |
2,647,993 |
$ |
— |
|||
Service fees charged by related party |
|
|
||||
Lianyungang Zongteng Film Studio |
$ |
10,808 |
$ |
16,028 |
F-23
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — RELATED PARTY TRANSACTIONS AND BALANCES (cont.)
Balances with related parties
As of September 30, 2022 and 2021, the balances with related parties were as follows:
As of September 30, |
||||||
2022 |
2021 |
|||||
US$ |
US$ |
|||||
Accounts receivable – related party |
|
|
||||
Moxing Shangxing (Beijing) Technology Co., Ltd |
$ |
298,587 |
$ |
— |
||
|
|
|||||
Due from related party |
|
|
||||
Moxing Shangxing (Beijing) Technology Co., Ltd(a) |
$ |
182,751 |
$ |
— |
____________
(a) As of September 30, 2022, the balance of $182,751 (or RMB1,300,000) represented the interest-free loan lend to Moxing Shangxing (Beijing) Technology Co., Ltd. for the working capital purpose, with the maturity date due on August 24, 2023. The loan was fully collected in December 2022.
NOTE 10 — TAXES
Corporation Income Tax (“CIT”)
Cayman Islands
Under the current laws of the Cayman Islands, the Company 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
Global Mofy HK is incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate for the first HKD$2 million of assessable profits is 8.25% and assessable profits above HKD$2 million will continue to be subject to the rate of 16.5% for corporations in Hong Kong, effective from the year of assessment 2018/2019. Global Mofy HK did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax laws, Global Mofy HK is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
PRC
Under the Enterprise Income Tax (“EIT”) Law of the PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% EIT rate while preferential tax rates, tax holidays, and even tax exemption may be granted on case-by-case basis. The PRC tax authorities grant preferential tax treatment to High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. Since Global Mofy China was approved as an HNTE in October 2020, Global Mofy China is entitled to a reduced income tax rate of 15% beginning October 2020 and is able to enjoy the reduced income tax rate in the next three years.
Kashi Mofy is subject to a preferential income tax rate of 0% CIT for 5 years since generating revenues, as it is incorporated in the Kashi Economic District, Xinjiang province. The five-year preferential income tax treatment ends on December 31, 2023 for Kashi Mofy.
Xi’an Mofy and Beijing Mofy were qualified as “small-scaled minimal profit enterprise” and entitled to preferential rate of 5% for the years ended September 30, 2022 and 2021.
F-24
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 — TAXES (cont.)
Shanghai Mofy was qualified as “small-scaled minimal profit enterprise” and entitled to preferential rate of 5% for the years ended September 30, 2022 and 2021, respectively.
Hainan Mofy was qualified as “small-scaled minimal profit enterprise” and entitled to preferential rate of 2.5% for the years ended September 30, 2021.
The provision for income tax consisted of the following:
For the years ended |
||||||
2022 |
2021 |
|||||
US$ |
US$ |
|||||
Current income tax expense |
$ |
— |
$ |
9,992 |
||
Deferred income tax expense |
|
— |
|
— |
||
Income tax provision |
$ |
— |
$ |
9,992 |
The following table reconciles the statutory rate to the Company’s effective tax rate:
For the Years Ended |
||||||
2022 |
2021 |
|||||
PRC statutory tax rate |
25.0 |
% |
25.0 |
% |
||
Effect of preferential tax rate(a) |
(11.6 |
)% |
(21.0 |
)% |
||
Non-deductible expenses |
(10.6 |
)% |
2.8 |
% |
||
Effect of change in valuation allowance |
5.0 |
% |
(6.1 |
)% |
||
Effect of different tax rates in other tax jurisdiction |
(7.8 |
)% |
— |
% |
||
Effective tax rate |
0.0 |
% |
0.7 |
% |
____________
(a) The Company’s subsidiaries, Global Mofy China, Kashi Mofy, Shanghai Mofy, Xi’an Mofy and Beijing Mofy are subject to different favorable tax rates for the years ended September 30, 2022 and 2021. For the years ended September 30, 2022 and 2021, the tax saving as the result of the favorable tax rate amounted to $214 and $299,437, respectively, and per share effect of the favorable tax rate (after stock split and share reorganization) were $0.00 and $0.01, respectively.
Deferred tax assets and liabilities
Components of deferred tax assets and liabilities were as follows:
As of September 30, |
||||||||
2022 |
2021 |
|||||||
US$ |
US$ |
|||||||
Allowance for doubtful debt |
$ |
773 |
|
$ |
5,409 |
|
||
Net operating loss carry forwards |
|
75,595 |
|
|
92,524 |
|
||
Deferred tax assets, gross |
|
76,368 |
|
|
97,933 |
|
||
Valuation allowance |
|
(76,368 |
) |
|
(97,933 |
) |
||
Deferred tax assets |
$ |
— |
|
$ |
— |
|
As of September 30, 2022, the Company has total of net operating loss carry forward of approximately $530,828 in the PRC that expire from 2023 through 2025. Due to the uncertainty of utilizing these carry forwards, the Company provided a 100% valuation allowance on the deferred tax assets of approximately $76,368 and $97,933 as of September 30, 2022 and 2021, respectively.
F-25
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 — TAXES (cont.)
Tax payable
The tax payable consisted of the following:
As of September 30, |
||||||
2022 |
2021 |
|||||
US$ |
US$ |
|||||
VAT payable |
$ |
468,586 |
$ |
487,229 |
||
Corporate income tax payable |
|
5,784 |
|
6,385 |
||
Tax payable |
$ |
474,370 |
$ |
493,614 |
NOTE 11 — EQUITY
Ordinary shares
The Company was established under the laws of the Cayman Islands on September 29, 2021. The authorized number of ordinary shares upon incorporation of the Company was 5,000,000,000 shares with a par value of $0.00001 per share, and 5,000,000 ordinary shares were issued on September 29, 2021. That was retroactively applied as if the transaction occurred at the beginning of the period presented.
On January 15, 2022, the Company issued 130,631 ordinary shares at par value $0.00001 per share to a new investor, Viru Technology Limited (the “Viru Technology”). The total cash consideration of $2,000,000 was received in April 2022.
On September 16, 2022, the Company’s shareholders and Board of Directors approved a 1-to-5 share split, following which the authorized share capital of $50,000 was divided into 25,000,000,000 ordinary shares with a par value of $0.000002 each, and the issued shares was divided into 25,000,000 ordinary shares. On September 16, 2022, all the existing shareholders of the Company surrendered a total of 1,653,155 ordinary shares of $0.000002 par value each for no consideration, of which 41,155 ordinary shares were surrendered by Viru Technology. The Company has cancelled the 1,653,155 of surrendered shares concurrently.
On November 15, 2022, all existing shareholders surrendered in an aggregative of 381,963 ordinary shares on a pro-rata basis for no consideration, of which 9,740 ordinary shares were surrendered by Viru Technology. The Company has cancelled the 381,963 of surrendered shares concurrently. The Company believes it is appropriate to reflect such changes in share structure on a retroactive basis pursuant to ASC 260. The Company has retroactively restated all shares and per share data for all periods presented. As a result, there were 23,618,037 and 23,015,777 ordinary shares issued and outstanding as of September 30, 2022 and 2021, respectively.
Statuary reserve
In accordance with the PRC Company Laws, the Company’s subsidiaries in the PRC are required to provide for statutory reserves, which are appropriated from net profit as reported in the Company’s PRC statutory accounts. They are required to allocate 10% of their after-tax profits to fund statutory reserves until such reserves have reached 50% of their respective registered capital. These reserve funds, however, may not be distributed as cash dividends. As of September 30, 2022 and 2021, the statutory reserves of the Company’s PRC subsidiaries have not reached 50% of their respective registered capital. As of September 30, 2022 and 2021, the Company’s PRC subsidiaries collectively attributed $39,620 and $39,620 of retained earnings for their statutory reserves, respectively.
F-26
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 — EQUITY (cont.)
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.
Foreign exchange and other regulations in the PRC may further restrict the Company’s subsidiaries from transferring funds to the Company in the form of dividends, loans and advances. Amounts restricted include paid-in capital and statutory reserves of the Company’s PRC subsidiaries as determined pursuant to PRC generally accepted accounting principles. As of September 30, 2022, and 2021, restricted net assets of the Company’s PRC subsidiaries were $3,151,848 and $3,151,848, respectively.
NOTE 12 — SUBSEQUENT EVENTS
On November 15, 2022, the Company, together with Mr. Haogang Yang, our founder and CEO, certain BVI founder entities and all its subsidiaries in Hong Kong and mainland China, entered into an equity investment agreement with Standard International Capital Partners SPC (for and on behalf of Standard International Capital Partners Fund I SP), a segregated portfolio company organized and existing under the laws of the Cayman Islands (the “Investor”), pursuant to which the Investor agreed to invest $1.5 million in Global Mofy Cayman for 381,963 ordinary shares. All of the $1.5 million was received at the end of November 2022.
On January 24, 2023, Global Mofy China renewed the loan agreement with Wuxi Huanxiang Xiniu Culture Co., Ltd. to extend the loan term of the interest-free loan with the balance of $107,542 (or RMB765,000) for the Company’s working capital needs for one year.
NOTE 13 — OTHER SUBSEQUENT EVENTS
On February 10, 2023, the Company entered into a share purchase agreement with Anguo Jijian Enterprise Management Co., Ltd (“Anguo”), Anjiu Jiheng Enterprise Management Co., Ltd (“Anjiu”), and Anling Management Co., Ltd (“Anling”), pursuant to which we issued 740,829, 740,829, and 444,497 ordinary shares of the Company, par value US$0.000002, to Anguo, Anjiu, and Anling, respectively, for an aggregate issue price of $9.4 million (RMB65,000,000). The Company evaluated subsequent events and transactions that occurred after the balance sheet date through March 22, 2023, the date that the consolidated financial statements were available to be issued.
NOTE 14 — CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
The Company performed a test on the restricted net assets of the consolidated subsidiaries in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded that it was applicable for the Company to disclose the financial information for the parent company only.
The subsidiaries did not pay any dividends to the Company for the periods presented. Certain information and footnote disclosures generally included in the financial statements prepared in accordance with U.S. GAAP have been condensed and omitted. These statements should be read in conjunction with the notes to the consolidated financial statements of the Company.
The financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the parent company used the equity method to account for investments in its subsidiaries.
F-27
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 — CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (cont.)
The following represents condensed financial information of the parent company:
BALANCE SHEETS
As of September 30, |
|||||||
2022 |
2021 |
||||||
ASSETS |
|
|
|
||||
Cash |
$ |
4,170 |
|
$ |
— |
||
Due from subsidiaries |
|
1,870,008 |
|
|
— |
||
Prepaid expenses and other noncurrent assets, net |
|
92,722 |
|
|
— |
||
Investment in subsidiaries |
|
2,967,699 |
|
|
— |
||
Total Assets |
$ |
4,934,599 |
|
$ |
— |
||
LIABILITIES AND EQUITY |
|
|
|
||||
Current liabilities |
|
|
|
||||
Accrued expenses and other liabilities |
$ |
49,973 |
|
$ |
— |
||
Total current liabilities |
|
49,973 |
|
|
— |
||
Equity: |
|
|
|
||||
Common stock (US$0.000002 par value, 25,000,000,000 shares authorized, 23,618,037 and 23,015,777 shares issued and outstanding as of September 30, 2022 and 2021, respectively) |
|
47 |
|
|
— |
||
Additional paid-in capital |
|
5,112,181 |
|
|
— |
||
Statutory reserves |
|
39,620 |
|
|
— |
||
Accumulated deficit |
|
(267,222 |
) |
|
— |
||
Total equity |
|
4,884,626 |
|
|
— |
||
Total liabilities and shareholders’ equity |
$ |
4,934,599 |
|
$ |
— |
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Years Ended |
|||||||
2022 |
2021 |
||||||
Operating expenses: |
|
|
|
||||
General and administrative expenses |
|
(83,073 |
) |
|
— |
||
Equity (loss) in subsidiaries |
|
(184,149 |
) |
|
— |
||
Net (loss) |
|
(267,222 |
) |
|
— |
||
Foreign currency translation adjustment |
|
— |
|
|
— |
||
Comprehensive (loss) |
$ |
(267,222 |
) |
$ |
— |
STATEMENTS OF CASH FLOWS
For the Years Ended |
|||||||
2022 |
2021 |
||||||
Net cash used in operating activities |
$ |
(1,903,038 |
) |
$ |
— |
||
Net cash provided by financing activities |
|
1,907,208 |
|
|
— |
||
Effect of exchange rate changes on cash |
|
— |
|
|
— |
||
Net increase in cash |
|
4,170 |
|
|
— |
||
Cash at the beginning of the year |
|
— |
|
|
— |
||
Cash at the end of the year |
$ |
4,170 |
|
$ |
— |
F-28
GLOBAL MOFY METAVERSE LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars, except for the number of shares)
March 31, |
September 30, |
|||||||
ASSETS |
|
|
|
|
||||
Current Assets |
|
|
|
|
||||
Cash |
$ |
8,181,251 |
|
$ |
1,136,064 |
|
||
Accounts receivable, net |
|
2,702,619 |
|
|
2,101,665 |
|
||
Accounts receivable – related party |
|
— |
|
|
298,587 |
|
||
Advance to vendors |
|
4,450,364 |
|
|
1,543,294 |
|
||
Due from related party |
|
— |
|
|
182,751 |
|
||
Loans receivable – current |
|
3,181,204 |
|
|
295,213 |
|
||
Prepaid expenses and other current assets, net |
|
822,435 |
|
|
395,842 |
|
||
Total current assets |
|
19,337,873 |
|
|
5,953,416 |
|
||
|
|
|
|
|||||
Non-current assets |
|
|
|
|
||||
Property and equipment, net |
|
32,901 |
|
|
37,806 |
|
||
Intangible assets |
|
962,410 |
|
|
— |
|
||
Operating lease right-of-use assets |
|
77,206 |
|
|
147,099 |
|
||
Loans receivable – noncurrent |
|
— |
|
|
458,986 |
|
||
Advance to vendor – noncurrent |
|
1,084,556 |
|
|
1,800,000 |
|
||
Prepaid expenses and other non-current assets, net |
|
144,669 |
|
|
129,222 |
|
||
Total non-current assets |
|
2,301,742 |
|
|
2,573,113 |
|
||
Total Assets |
$ |
21,639,615 |
|
$ |
8,526,529 |
|
||
|
|
|
|
|||||
LIABILITIES AND EQUITY |
|
|
|
|
||||
Current Liabilities |
|
|
|
|
||||
Short-term bank loans |
$ |
3,031,274 |
|
$ |
1,532,073 |
|
||
Loans from third parties |
|
133,234 |
|
|
108,245 |
|
||
Accounts payable |
|
1,240,395 |
|
|
952,249 |
|
||
Advance from customers |
|
844,331 |
|
|
1,154,100 |
|
||
Tax payable |
|
579,620 |
|
|
474,370 |
|
||
Accrued expenses and other liabilities |
|
448,503 |
|
|
327,641 |
|
||
Operating lease liabilities – current |
|
31,506 |
|
|
120,418 |
|
||
Total current liabilities |
|
6,308,863 |
|
|
4,669,096 |
|
||
|
|
|
|
|||||
Non-current Liabilities |
|
|
|
|
||||
Loan from third party, noncurrent |
|
— |
|
|
107,542 |
|
||
Operating lease liabilities – noncurrent |
|
— |
|
|
— |
|
||
Total non-current liabilities |
|
— |
|
|
107,542 |
|
||
Total Liabilities |
|
6,308,863 |
|
|
4,776,638 |
|
||
|
|
|
|
|||||
Commitments |
|
|
|
|
||||
|
|
|
|
|||||
Equity: |
|
|
|
|
||||
Ordinary Shares (US$0.000002 par value, 25,000,000,000 shares authorized, 25,926,155 shares and 23,618,037 shares issued and outstanding as of March 31, 2023 and September 30, 2022, respectively) |
|
52 |
|
|
47 |
|
||
Additional paid-in capital |
|
16,035,229 |
|
|
5,112,181 |
|
||
Statutory reserves |
|
39,620 |
|
|
39,620 |
|
||
Accumulated deficit |
|
(538,411 |
) |
|
(1,065,073 |
) |
||
Accumulated other comprehensive loss |
|
(56,997 |
) |
|
(193,323 |
) |
||
Total Global Mofy Metaverse Limited shareholders’ equity |
|
15,479,493 |
|
|
3,893,452 |
|
||
Non-controlling interests |
|
(148,741 |
) |
|
(143,561 |
) |
||
Total equity |
|
15,330,752 |
|
|
3,749,891 |
|
||
Total liabilities and equity |
$ |
21,639,615 |
|
$ |
8,526,529 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-29
GLOBAL MOFY METAVERSE LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Expressed in U.S. Dollars, except for the number of shares)
For the Six Months Ended |
||||||||
2023 |
2022 |
|||||||
Revenues |
$ |
12,823,586 |
|
$ |
8,741,253 |
|
||
Cost of revenues |
|
(7,798,985 |
) |
|
(6,781,123 |
) |
||
Gross profit |
|
5,024,601 |
|
|
1,960,130 |
|
||
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
||||
Selling expenses |
|
(98,893 |
) |
|
(88,036 |
) |
||
General and administrative expenses |
|
(933,617 |
) |
|
(724,214 |
) |
||
Research and development expenses |
|
(3,316,680 |
) |
|
(734,307 |
) |
||
Total operating expenses |
|
(4,349,190 |
) |
|
(1,546,557 |
) |
||
|
|
|
|
|||||
Income from operations |
|
675,411 |
|
|
413,573 |
|
||
|
|
|
|
|||||
Other income (expenses): |
|
|
|
|
||||
Interest income |
|
36,693 |
|
|
22,524 |
|
||
Interest expenses |
|
(46,312 |
) |
|
(39,440 |
) |
||
Other income, net |
|
36,748 |
|
|
4,317 |
|
||
Total other income (expenses), net |
|
27,129 |
|
|
(12,599 |
) |
||
|
|
|
|
|||||
Income before income taxes |
|
702,540 |
|
|
400,974 |
|
||
Income tax expense |
|
(175,917 |
) |
|
— |
|
||
Net income |
|
526,623 |
|
|
400,974 |
|
||
Net loss attributable to non-controlling interest |
|
(39 |
) |
|
(333 |
) |
||
Net income attributable to Global Mofy Metaverse Limited |
$ |
526,662 |
|
$ |
401,307 |
|
||
|
|
|
|
|||||
Comprehensive income (loss) |
|
|
|
|
||||
Net income |
$ |
526,623 |
|
$ |
400,974 |
|
||
Foreign currency translation gain |
|
131,185 |
|
|
38,253 |
|
||
Total comprehensive income |
|
657,808 |
|
|
439,227 |
|
||
Comprehensive loss attributable to non-controlling interests |
|
(5,180 |
) |
|
(17,611 |
) |
||
Comprehensive income attributable to Global Mofy Metaverse Limited |
$ |
662,988 |
|
$ |
456,838 |
|
||
|
|
|
|
|||||
Earnings (loss) per common share |
|
|
|
|
||||
– Basic and diluted* |
$ |
0.02 |
|
$ |
0.02 |
|
||
|
|
|
|
|||||
Weighted average number of common shares outstanding |
|
|
|
|
||||
– Basic and diluted* |
|
24,254,421 |
|
|
23,267,270 |
|
____________
* Retrospectively restated for effect of stock split and share reorganization (see Note 11).
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-30
GLOBAL MOFY METAVERSE LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in U.S. Dollars, except for the number of shares)
|
Additional |
Subscription |
Statutory |
Accumulated |
Accumulated |
Non- |
Total Equity |
|||||||||||||||||||||||
Shares* |
Amount* |
|||||||||||||||||||||||||||||
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
|||||||||||||||||||||||
Balance as of September 30, 2021 |
23,015,777 |
$ |
46 |
|
3,112,182 |
$ |
— |
|
$ |
39,620 |
$ |
(797,850 |
) |
$ |
5,123 |
|
$ |
(145,865 |
) |
$ |
2,213,256 |
|||||||||
Capital contribution |
602,260 |
|
1 |
|
1,999,999 |
|
(1,402,000 |
) |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
598,000 |
|||||||||
Net income for the year |
— |
|
— |
|
— |
|
— |
|
|
— |
|
401,307 |
|
|
— |
|
|
(333 |
) |
|
400,974 |
|||||||||
Foreign currency translation adjustment |
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
|
55,531 |
|
|
(17,278 |
) |
|
38,253 |
|||||||||
Balance as of March 31, 2022 |
23,618,037 |
|
47 |
|
5,112,181 |
|
(1,402,000 |
) |
|
39,620 |
|
(396,543 |
) |
|
60,654 |
|
|
(163,476 |
) |
|
3,250,483 |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance as of September 30, 2022 |
23,618,037 |
$ |
47 |
$ |
5,112,181 |
$ |
— |
|
$ |
39,620 |
$ |
(1,065,073 |
) |
$ |
(193,323 |
) |
$ |
(143,561 |
) |
$ |
3,749,891 |
|||||||||
Capital contribution |
2,308,118 |
|
5 |
|
10,923,048 |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
10,923,053 |
|||||||||
Net income for the year |
— |
|
— |
|
— |
|
— |
|
|
— |
|
526,662 |
|
|
— |
|
|
(39 |
) |
|
526,623 |
|||||||||
Foreign currency translation adjustment |
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
|
136,326 |
|
|
(5,141 |
) |
|
131,185 |
|||||||||
Balance as of March 31, 2023 |
25,926,155 |
$ |
52 |
$ |
16,035,229 |
$ |
— |
|
$ |
39,620 |
$ |
(538,411 |
) |
$ |
(56,997 |
) |
$ |
(148,741 |
) |
$ |
15,330,752 |
____________
* Retrospectively restated for effect of stock split and share reorganization (see Note 11).
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-31
GLOBAL MOFY METAVERSE LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
For the Six Months Ended |
||||||||
2023 |
2022 |
|||||||
Cash flows from operating activities |
|
|
|
|
||||
Net income |
$ |
526,623 |
|
$ |
400,974 |
|
||
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
||||
Depreciation and amortisation |
|
91,389 |
|
|
14,076 |
|
||
Amortization of operating lease right-of-use assets |
|
73,991 |
|
|
77,240 |
|
||
Provision for doubtful accounts |
|
112,240 |
|
|
128,128 |
|
||
|
|
|
|
|||||
Changes in operating assets and liabilities: |
|
|
|
|
||||
Accounts receivable, net |
|
(629,764 |
) |
|
1,109,119 |
|
||
Accounts receivable – related party |
|
304,468 |
|
|
— |
|
||
Advances to vendors |
|
(2,039,692 |
) |
|
(2,373,697 |
) |
||
Prepayments and other current assets |
|
1,638,841 |
|
|
(62,626 |
) |
||
Accounts payable |
|
250,099 |
|
|
205,281 |
|
||
Advance from customers |
|
(345,632 |
) |
|
752,897 |
|
||
Advance from customers – related party |
|
— |
|
|
41,975 |
|
||
Taxes payable |
|
86,892 |
|
|
119,365 |
|
||
Accrued expenses and other liabilities |
|
(1,949,375 |
) |
|
129,217 |
|
||
Lease liabilities |
|
(91,774 |
) |
|
(86,857 |
) |
||
Net cash (used in) provided by operating activities |
|
(1,971,693 |
) |
|
455,092 |
|
||
|
|
|
|
|||||
Cash flows from investing activities |
|
|
|
|
||||
Purchase of property and equipment |
|
— |
|
|
(24,038 |
) |
||
Purchase of intangible assets |
|
(1,032,669 |
) |
|
— |
|
||
Loans to third parties |
|
(2,400,000 |
) |
|
— |
|
||
Collection of loans to third parties |
|
186,351 |
|
|
62,800 |
|
||
Net cash (used in) provided by investing activities |
|
(3,246,318 |
) |
|
38,762 |
|
||
|
|
|
|
|||||
Cash flows from financing activities |
|
|
|
|
||||
Borrowings from related parties |
|
— |
|
|
294,062 |
|
||
Borrowings from third parties |
|
(220,037 |
) |
|
— |
|
||
Repayments of third parties |
|
131,162 |
|
|
(1,279,555 |
) |
||
Proceeds from short-term bank loans |
|
1,694,010 |
|
|
440,890 |
|
||
Repayments of short-term bank loans |
|
(272,129 |
) |
|
(314,001 |
) |
||
Deferred offering cost |
|
(14,140 |
) |
|
|
|||
Capital contributions |
|
10,853,053 |
|
|
598,000 |
|
||
Net cash provided by (used in) financing activities |
|
12,171,919 |
|
|
(260,604 |
) |
||
Effect of foreign exchange rate on cash |
|
91,280 |
|
|
16,153 |
|
||
Net increase in cash |
|
7,045,188 |
|
|
249,403 |
|
||
Cash at the beginning of the period |
|
1,136,064 |
|
|
1,088,694 |
|
||
Cash at the end of the period |
$ |
8,181,251 |
|
$ |
1,338,097 |
|
||
|
|
|
|
|||||
Supplemental disclosures of cash flow information: |
|
|
|
|
||||
Income taxes paid |
$ |
— |
|
$ |
— |
|
||
Interest paid |
$ |
43,144 |
|
$ |
28,292 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-32
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION
Global Mofy Metaverse Limited (“Global Mofy Cayman”) was incorporated on September 29, 2021 under the laws of the Cayman Islands with limited liability.
Global Mofy Cayman owns 100% of the equity interests of Global Mofy HK Limited (“Global Mofy HK”), a business company incorporated in accordance with the laws and regulations of Hong Kong on October 21, 2021.
Global Mofy HK owns 100% of the equity interests of Mofy Metaverse (Beijing) Technology Co., Ltd (“Global Mofy WFOE”), a business company incorporated in accordance with the laws and regulations of the People’s Republic of China (“China” or “PRC”) on December 09, 2021.
Global Mofy Cayman, Global Mofy HK, and Global Mofy WFOE are currently not engaging in any active business operations and merely acting as holding companies.
Prior to the reorganization described below, the main operating activities of the Company were carried out by Global Mofy (Beijing) Technology Co., Ltd. (“Global Mofy China”) and its subsidiaries. Global Mofy China was established on November 22, 2017 under the laws of the PRC. Global Mofy China has three wholly-owned subsidiaries, Kashi Mofy Interactive Digital Technology Co., Ltd. (“Kashi Mofy”), Shanghai Moying Feihuan Technology Co., Ltd. (“Shanghai Mofy”) and Mofy Filming (Hainan) Co., Ltd. (“Mofy Hainan”), which were established on July 31, 2019, May 11, 2020 and January 4, 2021 in China, respectively. Global Mofy China acquired 60% shares of Mofy (Beijing) Filming Technology Co., Ltd. (Beijing Mofy) and Xi’an Digital Cloud Database Technology Co., Ltd. (“Mofy Xi’an”) on February 7, 2018 and June 8, 2018, respectively. On December 1, 2021, Global Mofy China entered into an equity share transferring agreement with a third-party individual and transferred its 100% equity interest in Mofy Hainan for consideration of RMB1. Such transferring was completed on December 3, 2021. Mofy Hainan has no active business operation since its inception on January 4, 2021.
In preparation for listing in a stock market of the United States of America, the Company underwent a reorganization through entering into various contractual arrangements (the “Contractual Arrangements”), which, effective from January 5, 2022, between Global Mofy WFOE, Global Mofy China and their respective equity holders (the “Corporate Reorganization”) due to regulatory restrictions on foreign ownership in the radio and television program production and operation business and value-added telecommunications business in the PRC. In June 2022, the Company removed the radio and television program production from its business scope and the reason to use the VIE structure was no longer relevant. Historically, the Company did not produce any radio or television program.
On June 28, 2022, Global Mofy WFOE entered into equity transfer agreements with each shareholder of Global Mofy China to purchase all the equity interest in Global Mofy China. On July 8, 2022, Global Mofy WFOE, Global Mofy China and shareholders of Global Mofy China signed a termination agreement of the VIE Agreements. The VIE structure was dissolved. The restructure was completed on July 8, 2022. As a result, Global Mofy China became a wholly owned subsidiary of Global Mofy WFOE. Immediately before this acquisition, Global Mofy China was a foreign-invested joint venture.
Global Mofy Cayman together with its wholly owned subsidiaries Global Mofy HK, Global Mofy WFOE and Global Mofy China and its subsidiaries were effectively controlled by the same shareholders before and after the reorganization and therefore the Reorganization was considered under common control and included at their historical carrying values. The consolidation of the Company has been prepared on the basis as if the reorganization had become effective as of the beginning of the first period presented in the consolidated financial statements.
Global Mofy Cayman and its subsidiaries (the “Company”), mainly engaged in providing virtual content production, digital asset development, which mainly includes the creation and licensing of three dimensional (“3D”) high definition of physical world objects. The Company’s headquarters are located in the city of Beijing, China.
F-33
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION (cont.)
As of March 31, 2023, the Company’s major subsidiaries are as follows:
Name of Entity |
Date of |
Place of |
% of |
Principal Activities |
||||
Global Mofy HK Limited |
October 21, |
Hong Kong |
100% |
Investment holding |
||||
Mofy Metaverse (Beijing) Technology Co., Ltd |
December 09, |
PRC |
100% |
Investment holding |
||||
Global Mofy (Beijing) Technology Co., Ltd. |
November 22, |
PRC |
100% |
Virtual technology service, digital marketing and digital asset development |
||||
Kashi Mofy Interactive Digital Technology Co., Ltd. |
July 31, 2019 |
PRC |
100% |
Virtual technology service and digital marketing |
||||
Shanghai Moying Feihuan Technology Co., Ltd. |
May 11, 2020 |
PRC |
100% |
Virtual technology service and digital marketing |
||||
Xi’an Shuzi Yunku Technology Co., Ltd (Xi’an Mofy) |
June 8, 2018 |
PRC |
60% |
Virtual technology service |
||||
Mofy (Beijing) Filming Technology Co., Ltd. (Beijing Mofy) |
February 7, |
PRC |
60% |
Virtual technology service |
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and have been consistently applied for information pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”).
Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in elsewhere in this prospectus.
(b) Principles of consolidation
The unaudited condensed consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.
F-34
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(c) 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 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 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.
(a) Non-controlling interests
Non-controlling interests are recognized to reflect the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. For the Company’s consolidated subsidiaries, non-controlling interests represent a minority shareholder’s 40% and 40% ownership interest in Beijing Mofy and Xi’an Mofy as of March 31, 2023 and September 30, 2022, respectively.
Non-controlling interests are presented as a separate line item in the equity section of the Company’s unaudited condensed consolidated balance sheets and have been separately disclosed in the Company’s unaudited condensed consolidated statements of comprehensive income to distinguish the interests from that of the Company.
(b) Use of estimates
In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the assessment of the allowance for doubtful accounts, useful lives of property, equipment and intangible assets, the recoverability of long-lived assets, uncertain tax position. Actual results could differ from those estimates.
(c) Cash
Cash includes cash on hand and demand deposits placed with commercial banks. The Company maintains most of the bank accounts in mainland China.
F-35
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(d) Accounts receivable, net
Accounts receivables are presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer payment history, customer’s current credit-worthiness, and current economic trends. Accounts are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
(e) Property and equipment, net
Property and equipment are stated at cost, net of accumulated depreciation and impairment, if any. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for repairs and maintenance, which do not materially extend the useful lives of the assets, are expensed as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation and amortization are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Depreciation expense was $6,162 and $14,076 for the six months ended March 31, 2023 and 2022, respectively.
Estimated useful lives are as follows:
Category |
Estimated useful lives |
|
Office equipment |
3 years |
|
Leasehold improvement |
Shorter of lease terms and estimated useful lives |
(f) Intangible assets, net
Intangible assets are digital assets acquired from third-party suppliers, which mainly includes 3D models with finite lives are carried at cost less accumulated amortization and impairment loss, if any. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic live. Amortization expense was $85,227 and nil for the six months ended March 31, 2023 and 2022, respectively.
Estimated useful lives are as follows:
Category |
Estimated useful lives |
|
Licensed digital assets |
3 years |
(f) Impairment of long-lived assets other than goodwill
Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful life is shorter than the Company had originally estimated. When such events occur, the Company evaluates the impairment for the long-lived assets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Company recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. No impairment charge was recognized for the six months ended March 31, 2023 and 2022.
(g) Fair value of financial instruments
The Company applies ASC 820, Fair Value Measurements and Disclosures, (‘‘ASC 820’’). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.
F-36
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
• Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
• Level 2 — Include other inputs that are directly or indirectly observable in the marketplace.
• Level 3 — Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, advances to vendors, prepaid expenses and other current assets, due from related party, short-term bank loans, accounts payable, advance from customers, due to related parties, taxes payable, and accrued expenses and other current liabilities approximate their recorded values due to their short-term maturities. The fair value of longer-term leases approximates their recorded values as their stated interest rates approximate the rates currently available.
The Company’s non-financial assets, such as property and equipment would be measured at fair value only if they were determined to be impaired.
(h) Leases
The Company early adopted Accounting Standards Update (“ASU”) 2016-02, Leases (as amended by ASU 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01, collectively “ASC 842”) on January 1, 2019 using a modified retrospective approach reflecting the application of the standard to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. The Company elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allows the Company to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. The Company elected not to record assets and liabilities on its consolidated balance sheet for new or existing lease arrangements with terms of 12 months or less. The Company recognizes lease expenses for such lease on a straight-line basis over the lease term.
The most significant impact upon adoption relates to the recognition of new Right-of-use (“ROU”) assets and lease liabilities on the Company’s consolidated balance sheets for office space leases. At the commencement date of a lease, the Company recognizes a lease liability for future fixed lease payments and a right-of-use (“ROU”) asset representing the right to use the underlying asset during the lease term. The lease liability is initially measured as the present value of the future fixed lease payments that will be made over the lease term. The lease term includes periods for which it’s reasonably certain that the renewal options will be exercised and periods for which it’s reasonably certain that the termination options will not be exercised. The future fixed lease payments are discounted using the rate implicit in the lease, if available, or the incremental borrowing rate (“IBR”). The Company will evaluate the carrying value of ROU assets if there are indicators of impairment and review the recoverability of the related asset group. If the carrying value of the asset group is determined to not be recoverable and is in excess of the estimated fair value, the Company will record an impairment loss in other expenses in the consolidated statements of operations.
(i) Revenue recognition
The Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective approach for the year ended September 30, 2020 and has elected to apply it retrospectively for the year ended September 30, 2019. In accordance with ASC 606, revenues from contracts with customers are recognized when
F-37
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
control of the promised goods or services are transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following steps: (i) identify the contracts with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when, or as the entity satisfies a performance obligation.
The Company’s revenues are derived principally from virtual technology service, digital marketing and digital asset development and others. Value added taxes (“VAT”) are presented as a reduction of revenues.
Revenue from virtual technology service
The Company engages in virtual content production for visual effect in movies, television series, animations, games, advertainments, tourisms, and augmented reality (“AR”) and virtual reality (“VR”) technology etc. The virtual content production contracts are primarily on a fixed price basis, which require the Company to perform services for visual effect design, content development, production and integration based on customers’ specific needs. The required production period is generally less than one year.
The virtual content production services are considered as a single performance obligation because the Company provides a significant service of integrating different services underlying each contract, which are highly interdependent and interrelated with one another. The Company currently does not have any modification of contract and the contracts currently do not have any variable consideration.
The customer of the virtual content production contract can only obtain control of the produced virtual content after the project is completed. The Company satisfy its performance obligation at a point in time only when it transfers the developed content to the customer. The virtual content are assets when they are developed by the Company. The Company can direct the use of the product and obtain substantially all of the remaining benefits of the asset. The customer can direct the use and obtain benefits of the assets only after the development completed and control transfer occurred from the Company upon acceptance by the customer. The customer does not simultaneously receive or consume the benefits provided by the Company’s performance as the Company performs. The customer can only benefit from the final output of the virtual content as delivered by the Company. The customer does not have control over the content as it is developed. The developed virtual content may be sold as digital assets by the Company and the payment collected in advance based on the contract upon each milestone would be refundable if the Company does not meet the customer’s needs or there is other default. Hence, none of the criteria of ASC 606-10-25-27 is met. Revenue from virtual content production is recognized at a point in time when the Company satisfies the performance obligation by transferring promised virtual content product upon acceptance by customers.
Revenue from digital marketing
The Company enters into two types of digital marketing contracts directly with customers. For one type of contracts, pursuant to which the Company provides advertisement production and promotion services to customers. The advertisements are in different format, including but not limited to short video, landing pages and static materials. The Company considers that both of the advertisement production and promotion services are highly interrelated and not separately identifiable. The Company’s overall promise represents a combined output that is a single performance obligation; there is no multiple performance obligations. The Company engages third-party advising distributor while providing the promotion services. The Company considers itself as principal of the services as it has control of the specified services at any time before it is transferred to the customers which is evidenced by (i) the Company is primarily responsible for the production of content for advertisements and (ii) having latitude in select third party distributors for promotion and establish pricing. Therefore, the Company acts as the principal of these arrangements and reports revenue earned and costs incurred related to these transactions on a gross basis.
F-38
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Under a framework contract, the Company receives separate purchase orders from customers. Accordingly, each purchase order is identified as a separate performance obligation, containing a bundle of advertisements that are substantially the same and that have the same pattern of transfer to the customer. Where collectability is reasonably assured, revenue is recognized over the service period of the purchase order, which is based on specific action (i.e. cost per mille “CPM”) for online display.
The amount of the revenue is the gross billing charged to the customers. Revenue is recognized on a CPM basis as impressions or clicks are delivered through the Group’s display of the advertisements in accordance with the revenue contracts.
The Company entered into another type of contracts with advertisers during the fiscal year 2022. Pursuant to which, the Company earns net fees from advertisers by acting as an agent to purchase advertisement inventories and advertise services on behalf of the advertisers. The Company recognizes revenues over the contracted service period. The Company is not a principal in these arrangements as it does not obtain control of ad inventories or advertising services, and therefore recorded net revenues at the difference between the gross billing amount charged to the advertisers and the costs of purchasing ad inventories and advertising services.
Revenue from digital asset development and others
The Company enters into copyright licensing contracts to authorize production rights, adaption rights, sublicense rights of licensed copyrights and digital assets with entertainment production companies. The licensing provides customers the right to use the Company’s IP as it exists since neither the criteria as stated in ASC 610-10-55-62 is met. The specific licensed copyrights and digital assets authorized to customers are all developed IP, which are unique and do not require ongoing maintenance or effort from the Company to assure the usefulness of the license. The Company is entitled to receive the license fee under the licensing arrangements and does not have any future obligation once it has provided the underlying IP content to the licensee. The Company may use such authorized assets as a base model to produce new digital assets, however, these customers will not be contractually or practically required to use them. The revenue is recognized at a point in time when the licensed copyright and digital asset is made available for the customer’s use and benefit.
Disaggregation of revenue
The following table summarized disaggregated revenue for the six months ended March 31, 2023 and 2022:
For the Six Months Ended |
||||||
2023 |
2022 |
|||||
(Unaudited) |
(Unaudited) |
|||||
Category of Revenue |
|
|
||||
Virtual technology service |
$ |
7,923,124 |
$ |
8,620,488 |
||
Digital marketing |
|
— |
|
120,765 |
||
Digital asset development and others |
|
4,900,462 |
|
— |
||
$ |
12,823,586 |
$ |
8,741,253 |
|||
Timing of Revenue Recognition |
|
|
||||
Services transferred at a point in time |
$ |
12,823,586 |
$ |
8,620,488 |
||
Services transferred over time |
|
— |
|
120,765 |
||
$ |
12,823,586 |
$ |
8,741,253 |
Contract balance
The Company recognizes accounts receivable in its unaudited condensed consolidated balance sheets when it performs a service in advance of receiving consideration and it has the unconditional right to receive consideration. Payments received from its customers are based on the payment terms established in its contracts. Such payments are initially
F-39
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
recorded to advance from customers and are recognized into revenue as the Company satisfies its performance obligations. As of March 31, 2023 and September 30, 2022, the balance of advance from customer amounted to $844,331 and $1,154,100, respectively. Substantially all of which will be recognized as revenue during the Company’s following fiscal year.
(j) Cost of revenue
Cost of revenues consists primarily of outsourcing content production cost, payroll and related costs for employees involved with the Company’s operations and product support, such as rental and depreciation expenses. These costs are charged to the unaudited condensed consolidated statement of comprehensive income as incurred.
(k) Selling expenses
Selling expenses consist primarily of promotion and advertising expenses, staff costs and other daily expenses which are related to the selling and marketing departments. These expenses are charged to the unaudited condensed consolidated statement of comprehensive income as incurred.
(l) General and administrative expenses
General and administrative expenses consist primarily of salaries and welfare expenses and related expenses for employees involved in general corporate functions, including accounting, legal and human resources; and costs associated with use by these functions of facilities and equipment, such as traveling and general expenses, professional service fees and other related expenses. These expenses are charged to the unaudited condensed consolidated statement of comprehensive income as incurred.
(m) Research and development expenses
Research and development expenses consist primarily of employee salaries and benefits for research and development personnel, allocated overhead and outsourced development expenses. Cost incurred for the internally developed IP of virtual content, scripts and digital assets to be licensed or sold during the planning and designing stage are expensed when incurred and are included in the research and development expenses. Costs incurred in the production phase subsequent to establishing technological feasibility of such IP are capitalized. During the six months ended March 31, 2023 and 2022, as no such costs qualified for capitalization, all of the cost incurred for the internally developed IP of virtual content, scripts and digital assets to be licensed or sold are expensed.
(n) Income taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or future deductibility is uncertain. The Company’s subsidiaries in the PRC and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. No taxable income was generated outside the PRC for the six months ended March 31, 2023 and 2022.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes”, prescribe 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. It also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There were no material uncertain tax positions as of March 31, 2023 and September 30, 2022. As of March 31, 2023, income tax returns for the tax years ended December 31, 2018 through December 31, 2022 remain open for statutory examination.
F-40
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(o) Value added tax (“VAT”)
The Company’s PRC subsidiaries are subject to value added tax (“VAT”) and related surcharges based on gross sales or service price depending on the type of services provided in the PRC (“output VAT”), and the VAT may be offset by VAT paid by the Company on service purchases (“input VAT”). The applicable rate of output VAT or input VAT for the Company is 6%. Gross sales or service price charged to customers is subject to output VAT at a rate of 6% and subsequently paid to PRC tax authorities after netting input VAT on purchases incurred during the period. The Company’s revenues are presented net of VAT collected on behalf of PRC tax authorities and its related surcharges; the VAT is not included in the consolidated statements of comprehensive income. All of the VAT returns filed by the Company’s subsidiaries in the PRC, have been and remain subject to examination by the tax authorities for five years from the date of filing.
(p) Earnings (loss) per share
The Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS are computed by dividing net income (loss) available to ordinary shareholders of the Company by the weighted average ordinary shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised and converted into ordinary shares. Potential ordinary share that has an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted earnings per share. For the six months ended March 31, 2023 and 2022, there were no dilutive shares.
(q) Foreign currency translation and transactions
The reporting currency of the Company is U.S. dollars (“US$”) and the accompanying unaudited condensed consolidated financial statements have been expressed in US$. The Company’s principal country of operations is the PRC. The financial position and results of its operations are determined using the Chinese Yuan (“RMB”), the local currency, as the functional currency. The Company’s unaudited condensed consolidated financial statements have been translated into the reporting currency. US$. The results of operations and the consolidated statements of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income (loss) included in consolidated statements of changes in shareholders’ equity. Gains and losses from foreign currency transactions and balances are included in the results of operations.
The value of RMB against US$ and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of RMB may materially affect the Company’s financial condition in terms of US$ reporting. The following table outlines the currency exchange rates that were used in preparing the unaudited condensed consolidated financial statements:
March 31, |
September 30, |
|||
Period-end spot rate |
6.8976 |
7.1135 |
For the Six Months Ended |
||||
2023 |
2022 |
|||
Average rate |
6.9761 |
6.3694 |
F-41
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(r) Segment reporting
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments.
The Company uses the management approach to determine reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The Company’s CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company.
Based on the management’s assessment, the Company determined that it has only one operating segment and therefore one reportable segment as defined by ASC 280. The Company’s assets are substantially all located in the PRC and substantially all of the Company’s revenue and expense are derived in the PRC. Therefore, no geographical segments are presented.
(s) Significant risks and uncertainties
Currency convertibility risk
Substantially all of the Company’s operating activities are settled in RMB, which 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 People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other Company foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
Concentration and credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.
The Company maintains bank accounts in the PRC and Cayman Islands. As of March 31, 2023 and September 30, 2022, cash balances in the PRC are $1,123,024 and $1,131,886, respectively. The remaining cash balances are unrestricted time deposits with the banks in Cayman Islands. On May 1, 2015, China’s new Deposit Insurance Regulation came into effect, pursuant to which banking financial institutions, such as commercial banks, established in the PRC are required to purchase deposit insurance for deposits in RMB and in foreign currency placed with them. Such Deposit Insurance Regulation would not be effective in providing complete protection for the Company’s accounts, as its aggregate deposits are much higher than the compensation limit, which is RMB500,000 for one bank. Other than such deposit insurance mechanism, the Company’s bank accounts in the Cayman Islands are not insured by Federal Deposit Insurance Corporation insurance or other insurance. However, the Company believes that the risk of failure of any of these banks is remote. Bank failure is uncommon in the PRC and in Cayman Islands and the Company believes that those banks that hold the Company’s cash are financially sound based on public available information.
Accounts receivables are typically unsecured and derived from services rendered to customers that are located in China, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of customers’ creditworthiness and its ongoing monitoring of outstanding balances. The Company has a concentration of its accounts receivable with specific customers.
Major Customers
For the six months ended March 31, 2023, one customer accounted for approximately 13% of total revenues, respectively. For the six months ended March 31, 2022, three customers accounted for approximately 32%, 23%, and 13% of total revenues, respectively.
F-42
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
As of March 31, 2023, the balance due from four customers accounted for approximately 30%, 23%, 19% and 14% of the Company’s total accounts receivable, respectively. As of September 30, 2022, the balance due from four customers accounted for approximately 38%, 13%, 12% and 12% of the Company’s total accounts receivable, respectively.
Major Suppliers
For the six months ended March 31, 2023, four suppliers accounted for approximately 26%, 17%, 10% and 10% of the total purchases, respectively. For the six months ended March 31, 2022, three suppliers accounted for approximately 41%, 27%, and 15% of the total purchases, respectively.
As of March 31, 2023, one supplier accounted for approximately 65% of the Company’s accounts payable, respectively. As of September 30, 2022, three suppliers accounted for approximately 37%, 22% and 12% of the Company’s accounts payable, respectively.
Interest rate risk
Fluctuations in market interest rates may negatively affect the Company’s financial condition and results of operations. The Company is exposed to floating interest rate risk on cash deposit and floating rate borrowings, and the risks due to changes in interest rates is not material. The Company has not used any derivative financial instruments to manage the Company’s interest risk exposure.
Impact of COVID-19 Outbreak
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic — the first pandemic caused by a coronavirus. The outbreak has reached more than 160 countries, resulting in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. The Chinese government has ordered quarantines, travel restrictions, and the temporary closure of stores and facilities. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses.
During the six months ended March 31, 2023, COVID-19 has had limited impact on the Company’s operations. There are still uncertainties of COVID-19’s future impact, and the extent of the impact will depend on a number of factors, including the duration and severity of the pandemic; and the macroeconomic impact of government measures to contain the spread of COVID-19 and related government stimulus measures.
(t) Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326). The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. This ASU is effective for annual and interim periods beginning after December 15, 2019 for issuers and December 15, 2020 for non-issuers. Early adoption is permitted for all entities for annual periods beginning after September 15, 2018, and interim periods therein. In May 2019, the FASB issued ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief. This ASU adds optional transition relief for entities to elect the fair value option for certain financial assets previously measured at amortized cost basis to increase comparability of similar financial assets. The ASUs should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified retrospective approach). On November 19, 2019, the FASB issued ASU 2019-10 to amend the effective date for ASU 2016-13 to be fiscal years beginning after December 15, 2022 and interim periods therein. The Company will adopt this ASU on October 1, 2023 and expects that the adoption will not have a material impact on the Company’s consolidated financial statements and related disclosures.
F-43
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
In October 2020, the FASB issued ASU 2020-10, “Codification Improvements”. The amendments in this Update represent changes to clarify the Codification or correct unintended application of guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments in this Update affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. ASU 2020-10 is effective for annual periods beginning after December 15, 2020 for public business entities. For all other entities, the amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. Early application is permitted. The amendments in this Update should be applied retrospectively. The Company adopted this ASU as of October 1, 2022 and the adoption does not have a material impact on the Company’s consolidated financial statements and related disclosures.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial position, statements of comprehensive income and cash flows.
(u) Restatement
The Company restated revenue from digital marketing as net revenue for the six months ended March 31, 2022. The Company entered into a new type of contracts with advertisers during the fiscal year 2022 pursuant to which, the Company earns net fees from advertisers by acting as an agent to purchase advertisement inventories and advertise services on behalf of the advertisers. The Company is not a principal in these arrangements as it does not obtain control of ad inventories or advertising services, and therefore recorded net revenues at the difference between the gross billing amount charged to the advertisers and the costs of purchasing ad inventories and advertising services. The Company identified and corrected the misstatement while preparing the consolidated financial statements as of and of the year ended September 30, 2022. The Company has determined that the adjustments were not material to its previously issued unaudited condensed consolidated financial statements for the six months ended March 31, 2022. The impacts of the correction on the Company’s previously issued unaudited condensed consolidated financial statements for the six months ended March 31, 2022 were as follows:
For the six months ended |
||||||||||||
Previously |
Error |
As Adjusted |
||||||||||
Revenues |
$ |
11,236,223 |
|
$ |
(2,494,970 |
) |
$ |
8,741,253 |
|
|||
Cost of revenues |
|
(9,276,093 |
) |
|
2,494,970 |
|
|
(6,781,123 |
) |
|||
Gross profit |
$ |
1,960,130 |
|
$ |
— |
|
$ |
1,960,130 |
|
NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
March 31, |
September 30, |
|||||||
(Unaudited) |
||||||||
Accounts receivable |
$ |
2,821,583 |
|
$ |
2,106,445 |
|
||
Less: allowance for doubtful accounts |
|
(118,964 |
) |
|
(4,780 |
) |
||
Accounts receivable, net |
$ |
2,702,619 |
|
$ |
2,101,665 |
|
F-44
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — ACCOUNTS RECEIVABLE, NET (cont.)
The movement of allowance of doubtful accounts is as follows:
March 31, |
September 30, |
||||||
(Unaudited) |
|||||||
Balance at beginning of the period |
$ |
4,780 |
$ |
21,635 |
|
||
Addition |
|
112,240 |
|
45,649 |
|
||
Write-off |
|
— |
|
(61,734 |
) |
||
Foreign exchange translation |
|
1,944 |
|
(770 |
) |
||
Balance at end of the period |
$ |
118,964 |
$ |
4,780 |
|
NOTE 4 — ADVANCE TO VENDORS
Advance to vendors consisted of the following:
March 31, |
September 30, |
|||||
(Unaudited) |
||||||
Prepayments for virtual technology services |
$ |
502,908 |
$ |
567,736 |
||
Prepayments for digital marketing |
|
414,366 |
|
400,042 |
||
Prepayments for digital assets development |
|
4,617,645 |
|
2,375,516 |
||
Less: allowance for doubtful accounts |
|
— |
|
— |
||
$ |
5,534,920 |
$ |
3,343,294 |
|||
Advance to vendors – current |
|
4,450,364 |
|
1,543,294 |
||
Advance to vendors – noncurrent |
$ |
1,084,556 |
$ |
1,800,000 |
Advance to vendors primarily consisted of prepayments for virtual technology services, digital marketing and digital assets development outsourced to third party vendors. As of March 31, 2023 and September 30, 2022, there was no allowance recorded as the Company considers all of the advance to vendors balance fully realizable. As of March 31, 2023, $1,084,556 advances made to one vendor for digital assets to be acquired was expected to be utilized after 1 year from March 31, 2023 and before February 8, 2025. The balance is recorded advance to vendor — noncurrent in the balance sheets.
NOTE 5 — LOANS RECEIVABLE
Loans receivable, net consisted of the following:
March 31, |
September 30, |
|||||
(Unaudited) |
||||||
Wuyuan Yangyang Culture Media Studio(a) |
$ |
305,784 |
$ |
295,213 |
||
Pingnan Motian Culture Media Studio(b) |
|
465,956 |
|
— |
||
Hanning Jin(c) |
|
9,464 |
|
— |
||
Global Peace International Limited(d) |
|
2,400,000 |
|
— |
||
Less: allowance for doubtful accounts |
|
— |
|
— |
||
Total loans receivable, net – current |
$ |
3,181,204 |
$ |
295,213 |
||
|
|
|||||
Pingnan Motian Culture Media Studio(b) |
$ |
— |
$ |
449,819 |
||
Hanning Jin(c) |
|
— |
|
9,137 |
||
|
— |
|
458,986 |
|||
Less: allowance for doubtful accounts |
|
— |
|
— |
||
Total loans receivable, net – noncurrent |
$ |
— |
$ |
458,986 |
||
Total loans receivable |
$ |
3,181,204 |
$ |
754,199 |
__________
(a) On June 28, 2020, Global Mofy China entered into a loan agreement with a third party, Wuyuan Yangyang Culture Media Studio (“Yangyang”) to lend $712,854 (or RMB 4,840,000) for its working capital needs with a fixed interest rate of 5.2% per annum. As of March 31, 2023 and September 30, 2022, $305,784 (RMB2,100,000) and $295,213 (RMB2,100,000) was
F-45
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 — LOANS RECEIVABLE (cont.)
outstanding. On June 28, 2022, Global Mofy China renewed the loan agreement with Wuyuan Yangyang Culture Media Studio to extend the loan term of the loan receivable balance of $305,784 (or RMB2,100,000) for its working capital needs for one year with a maturity date of June 28, 2023 and interest rate remained the original fixed rate of 5.2% per annum.
(b) On October 20, 2020, Global Mofy China entered into a loan agreement with a third party, Pingnan Motian Culture Media Studio to lend $496,632 (or RMB 3,200,000) for its working capital needs with a maturity date of October 20, 2022. The loan bores a fixed interest rate of 5.2% per annum. On October 20, 2022, Global Mofy China renewed the loan agreement with Pingnan Motian Culture Media Studio to extend the loan term of the loan receivable balance of $465,956 (or RMB3,200,000) for its working capital needs for one year and interest rate remained the original fixed rate of 5.2% per annum.
(c) On January 14, 2021, Global Mofy China entered into an interest-free loan agreement with Hanning Jin, a third party individual, to lend $10,088 (or RMB 65,000) for working capital needs with a maturity date of January 14, 2023. On January 14, 2023, Global Mofy China renewed the interest-free loan agreement with Hanning Jin to extend the loan term of the loan receivable balance of $9,464 (or RMB65,000) for its working capital needs for one year.
(d) On March 21, 2023, Global Mofy Cayman entered into an loan agreement with a third party, Global Peace International Limited, to lend $2,400,000 for working capital needs with a maturity date of March 20, 2024. The loan bores a fixed interest rate of 4.0% per annum. A total of $1,410,000 of the loan was collected as of the date of this report.
For the six months ended March 31, 2023 and 2022, interest income related to the above loans amounted to $22,686 (or RMB158,263) and $21,987 (or RMB140,044) respectively.
NOTE 6 — LEASES
The Company’s leasing activities primarily consist of three operating leases for offices. ASC 842 requires leases to recognize right-of-use assets and lease liabilities on the balance sheet. The Company has elected an accounting policy to not recognize short-term leases (one year or less) on the balance sheet.
March 31, |
September 30, |
|||||
(Unaudited) |
||||||
Operating lease right-of-use assets |
$ |
77,206 |
$ |
147,099 |
||
Operating lease liabilities – current |
$ |
31,506 |
$ |
120,418 |
||
Operating lease liabilities – noncurrent |
|
— |
|
— |
||
Total operating lease liabilities |
$ |
31,506 |
$ |
120,418 |
The weighted-average remaining lease term and the weighted-average discount rate of leases are as follows:
March 31, |
September 30, |
|||||
Weighted-average remaining lease term (years) |
0.47 |
|
0.96 |
|
||
Weighted-average discount rate |
4.75 |
% |
4.75 |
% |
During the six months ended March 31, 2023 and 2022, the Company incurred total operating lease expenses of $76,375 and $84,233, respectively.
The following table summarizes the maturity of operating lease liabilities as of March 31, 2023:
12 months ending March 31, |
Operating lease |
|||
US$ |
||||
2023 |
$ |
31,882 |
|
|
Total lease payments |
|
31,882 |
|
|
Less: imputed interest |
|
(376 |
) |
|
Total lease liabilities |
$ |
31,506 |
|
F-46
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — BANK LOANS
Bank loans represent amounts due to various banks maturing within one year. The principal of the borrowings is due at maturity. Accrued interest is due either monthly or annually. The bank loans consisted of the following:
March 31, |
September 30, |
|||||||
(Unaudited) |
||||||||
Bank of Hangzhou(1) |
$ |
728,056 |
|
$ |
— |
|
||
Bank of China(2) |
|
436,834 |
|
|
421,733 |
|
||
Bank of Nanjing(3) |
|
436,834 |
|
|
421,733 |
|
||
Bank of Huaxia(4) |
|
1,456,113 |
|
|
702,889 |
|
||
Deferred financing costs(5) |
|
(26,562 |
) |
|
(14,283 |
) |
||
Total short-term bank loans |
$ |
3,031,274 |
|
$ |
1,532,073 |
|
____________
(1) On February 13, 2023, Global Mofy China entered into a loan agreement with Bank of Hangzhou to obtain a loan of $291,222 (or RMB 2,000,000) for a term from February 13, 2023 to February 12, 2023 at a fixed annual interest rate of 4.35%. The loan is guaranteed by a third party, Beijing Yizhuang Guoji Financing Guarantee Limited.
On March 30, 2023, Global Mofy China entered into a loan agreement with Bank of Hangzhou to obtain a loan of $436,834 (or RMB 3,000,000) for a term from March 30, 2023 to December 29, 2023 at a fixed annual interest rate of 4.35%. The loan is guaranteed by a third party, Beijing Haidian Technology Financing Guarantee Limited.
(2) On September 19, 2022, Global Mofy China entered into a loan agreement with Bank of China to obtain a loan of $436,834 (or RMB 3,000,000) for a term from September 19, 2022 to September 19, 2023 at a floating annual interest rate. The loan is guaranteed by a third party, Beijing Shichuang Tongsheng Financing Guarantee Limited.
(3) On March 31, 2022, Global Mofy China and Bank of Nanjing entered into a loan agreement to borrow $291,223 (or RMB2,000,000) of loan for the period from March 31, 2022 to March 31, 2023 with an annual interest rate of 6.0%. Mr. Haogang, Yang, the Chairman of the Company’s board of directors and CEO, together with his wife, Ms. Dong Mingxing, guaranteed the repayment of these loans.
The Company repaid the loan on March 16, 2023 and renewed the agreement with Bank of Nanjing to obtain a loan of $291,223 (or RMB2,000,000) for the period from March 17, 2023 to March 17, 2024.
On July 29, 2022, Global Mofy China entered into a loan agreement with Bank of Nanjing to obtain a loan of $145,611 (or RMB 1,000,000) for a term from July 29, 2022 to July 29, 2023 with a fixed annual interest rate of 6.0%.
(4) On July 27, 2022, Global Mofy China and Huaxia Bank entered into a loan agreement to borrow $728,056 (or RMB5,000,000) of loan for the period from July 27, 2022 to July 27, 2023 with a floating interest rate. The Company’s CEO, Mr. Haogang Yang, and his wife, Ms. Mingxing Dong, provided guarantee to this loan. The Company is required to make monthly interest payment with principal due at maturity.
On March 17, 2023, Global Mofy China and Huaxia Bank entered into a loan agreement to borrow $728,056 (or RMB5,000,000) of loan for the period from March 17, 2023 to March 17, 2024 with a fixed annual interest rate of 4.5%.
(5) In order to obtain the guarantees provided by the third-party guaranty company for the loans from banks, the Company incurred guarantee fees, which are deferred and presented on the consolidated balance sheets as a direct deduction from the carrying amount of the loans and amortized to interest expense over the term of the associated loans.
For the six months ended March 31, 2023 and 2022, the weighted average annual interest rate for the bank loans was approximately 5.31% and 5.89%, respectively. Interest expenses for the above-mentioned loans amount to $43,144 and $38,993 for the six months ended March 31, 2023 and 2022, respectively.
NOTE 8 — LOANS FROM THIRD PARTIES
March 31, |
September 30, |
|||||
(Unaudited) |
||||||
Loans from third parties – current |
$ |
133,234 |
$ |
108,245 |
||
Loans from third parties – noncurrent |
|
— |
|
107,542 |
||
Total loans from third parties |
$ |
133,234 |
$ |
215,787 |
F-47
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — LOANS FROM THIRD PARTIES (cont.)
As of March 31, 2023, the balance of $133,234 represented the interest-free loan of $109,208 (or RMB 750,000) borrowed from Beijing Angel Palace Education Technology Co., Ltd. and of $24,026 (or RMB165,000) from Wuxi Huanxiang Culture Co., Ltd. for the Company’s working capital purpose, with the maturity date due in March 2024 and January 2024, respectively.
As of September 30, 2022, the balance of $108,245 (or RMB770,000) represented the interest-free loan borrowed from Beijing Angel Palace Education Technology Co., Ltd. for the Company’s working capital purpose, with the maturity date due on March 9, 2023.
The above loans from third parties are classified as current liabilities on the consolidated balance sheets since there are no maturity dates specified and each loan could be due on demand.
As of September 30, 2022, the balance of $107,542 (or RMB765,000) represented the interest-free loan borrowed from Wuxi Huanxiang Culture Co., Ltd. for the Company’s working capital purpose with the maturity date due on January 24, 2023. On January 24, 2023, Global Mofy China renewed the loan agreement with Wuxi Huanxiang Xiniu Culture Co., Ltd. to extend the loan term of the interest-free loan with the balance of $107,542 (or RMB765,000) for the Company’s working capital needs for one year. Accordingly, the outstanding loan balance as of September 30, 2022 was classified as noncurrent.
NOTE 9 — RELATED PARTY TRANSACTIONS AND BALANCES
Nature of relationships with related parties:
Name |
Relationship with the Company |
|
Mr. Jianru Yang |
Business Development Director of the Company |
|
Mr. Yuchao Lu |
Directly hold a 5.7% equity interest in the Company |
|
Ms. Yang Li |
Finance Controller of the Company |
|
Lianyungang Zongteng Film Studio |
Controlled by Mr. Yuchao Lu |
|
Moxing Shangxing (Beijing) Technology Co., Ltd |
Controlled by Mr. Jianru Yang |
|
Mofy Filming (Hainan) Co., Ltd. (“Mofy Hainan”) |
Ms. Yang li is the Finance Controller of Mofy Hainan |
Transactions with related parties
For the Six Months Ended |
||||||
2023 |
2022 |
|||||
(Unaudited) |
(Unaudited) |
|||||
Revenue earned from related parties |
|
|
||||
Mofy Filming (Hainan) Co., Ltd. |
$ |
— |
$ |
1,481,138 |
||
|
|
|||||
Service fees charged by related parties |
|
|
||||
Lianyungang Zongteng Film Studio |
$ |
— |
$ |
11,120 |
F-48
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — RELATED PARTY TRANSACTIONS AND BALANCES (cont.)
Balances with related parties
The balances with related parties were as follows:
March 31, |
September 30, |
|||||
(Unaudited) |
||||||
Accounts receivable – related party |
|
|
||||
Moxing Shangxing (Beijing) Technology Co., Ltd |
$ |
— |
$ |
298,587 |
||
|
|
|||||
Due from related party |
|
|
||||
Moxing Shangxing (Beijing) Technology Co., Ltd(a) |
$ |
— |
$ |
182,751 |
____________
(a) As of September 30, 2022, the balance of $182,751 represented the interest-free loan lend to Moxing Shangxing (Beijing) Technology Co., Ltd. for the working capital purpose. The loan was fully collected in December 2022.
NOTE 10 — TAXES
Corporation Income Tax (“CIT”)
Cayman Islands
Under the current laws of the Cayman Islands, the Company 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
Global Mofy HK is incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate for the first HKD$2 million of assessable profits is 8.25% and assessable profits above HKD$2 million will continue to be subject to the rate of 16.5% for corporations in Hong Kong, effective from the year of assessment 2018/2019. Global Mofy HK did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax laws, Global Mofy HK is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
PRC
Under the Enterprise Income Tax (“EIT”) Law of the PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% EIT rate while preferential tax rates, tax holidays, and even tax exemption may be granted on case-by-case basis. The PRC tax authorities grant preferential tax treatment to High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. Since Global Mofy China was approved as an HNTE in October 2020, Global Mofy China is entitled to a reduced income tax rate of 15% beginning October 2020 and is able to enjoy the reduced income tax rate in the next three years.
Kashi Mofy is subject to a preferential income tax rate of 0% CIT for 5 years since generating revenues, as it is incorporated in the Kashi Economic District, Xinjiang province. The five-year preferential income tax treatment ends on December 31, 2023 for Kashi Mofy.
Xi’an Mofy and Beijing Mofy were qualified as “small-scaled minimal profit enterprise” and entitled to preferential rate of 5% for the six months ended March 31, 2023 and 2022.
Shanghai Mofy was qualified as “small-scaled minimal profit enterprise” and entitled to preferential rate of 2.5% for the six months ended March 31, 2023 and 2022.
F-49
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 — TAXES (cont.)
The provision for income tax consisted of the following:
For the Six Months ended |
|||||||
2023 |
2022 |
||||||
(Unaudited) |
(Unaudited) |
||||||
Current income tax expense |
$ |
248,796 |
|
$ |
— |
||
Deferred income tax expense |
|
(72,879 |
) |
|
— |
||
Income tax provision |
$ |
175,917 |
|
$ |
— |
The following table reconciles the statutory rate to the Company’s effective tax rate:
For the Six Months Ended |
||||||
2023 |
2022 |
|||||
PRC statutory tax rate |
25.0 |
% |
25.0 |
% |
||
Effect of preferential tax rate(a) |
(2.8 |
)% |
(27.3 |
)% |
||
Non-deductible expenses |
0.0 |
% |
(0.7 |
)% |
||
Effect of change in valuation allowance |
(4.3 |
)% |
3.0 |
% |
||
Effect of different tax rates in other tax jurisdiction |
0.0 |
% |
0.0 |
% |
||
Effective tax rate |
17.9 |
% |
0.0 |
% |
____________
(a) The Company’s subsidiaries, Global Mofy China, Kashi Mofy, Shanghai Mofy, Xi’an Mofy and Beijing Mofy are subject to different favorable tax rates for the six months ended March 31, 2023 and 2022. For the six months ended March 31, 2023 and 2022, the tax saving as the result of the favorable tax rate amounted to $2,073 and $113,791, respectively, and per share effect of the favorable tax rate were $0.00 and $0.02, respectively.
Deferred tax assets and liabilities
Components of deferred tax assets and liabilities were as follows:
March 31, |
September 30, |
|||||||
(Unaudited) |
||||||||
Allowance for doubtful debt |
$ |
29,304 |
|
$ |
773 |
|
||
Net operating loss carry forwards |
|
6,492 |
|
|
75,595 |
|
||
Deferred tax assets, gross |
|
35,796 |
|
|
76,368 |
|
||
Valuation allowance |
|
(35,796 |
) |
|
(76,368 |
) |
||
Deferred tax assets, net |
$ |
— |
|
$ |
— |
|
As of March 31, 2023, the Company has total of net operating loss carry forward of approximately $48,276 in the PRC that expire from 2023 to 2025. Due to the uncertainty of utilizing these carry forwards, the Company provided a 100% valuation allowance on the deferred tax assets of approximately $35,796 and $76,368 as of March 31, 2023 and September 30, 2022, respectively.
F-50
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 — TAXES (cont.)
Tax payable
The tax payable consisted of the following:
March 31, |
September 30, |
|||||
(Unaudited) |
||||||
VAT payable |
$ |
394,933 |
$ |
468,586 |
||
Corporate income tax payable |
|
184,687 |
|
5,784 |
||
Tax payable |
$ |
579,620 |
$ |
474,370 |
NOTE 11 — SHAREHOLDERS’ EQUITY
Ordinary shares
The Company was established under the laws of the Cayman Islands on September 29, 2021. The authorized number of ordinary shares upon incorporation of the Company was 5,000,000,000 shares with a par value of $0.00001 per share, and 5,000,000 ordinary shares were issued on September 29, 2021.
On January 15, 2022, the Company issued 130,631 ordinary shares at par value $0.00001 per share to a new investor, Viru Technology Limited (the “Viru Technology”). As of March 31, 2022, the Company received cash proceeds of $598,000 from Viru Technology and the remaining consideration of $1,402,000 was recorded as subscription receivable, which was received in April 2022.
On September 16, 2022, the Company’s shareholders and Board of Directors approved a 1-to-5 share split, following which the authorized share capital of $50,000 was divided into 25,000,000,000 ordinary shares with a par value of $0.000002 each, and the issued shares was divided into 25,000,000 ordinary shares. On September 16, 2022, all the existing shareholders of the Company surrendered a total of 1,653,155 ordinary shares of $0.000002 par value each for no consideration, of which 41,155 ordinary shares were surrendered by Viru Technology. The Company has cancelled the 1,653,155 of surrendered shares concurrently.
On November 15, 2022, all existing shareholders surrendered in an aggregative of 381,963 ordinary shares on a pro-rata basis for no consideration. The Company has cancelled the 381,963 of surrendered shares concurrently. On the same day, the Company, together with Mr. Haogang Yang, our founder and CEO, certain BVI founder entities and all its subsidiaries in Hong Kong and mainland China, entered into an equity investment agreement with Standard International Capital Partners SPC (for and on behalf of Standard International Capital Partners Fund I SP), a segregated portfolio company organized and existing under the laws of the Cayman Islands (the “Investor”), pursuant to which the Investor agreed to invest $1.5 million in Global Mofy Cayman for 381,963 ordinary shares. All of the $1.5 million was received at the end of November 2022.
On February 10, 2023, the Company entered into a share purchase agreement with Anguo Jijian Enterprise Management Co., Ltd (“Anguo”), Anjiu Jiheng Enterprise Management Co., Ltd (“Anjiu”), and Anling Management Co., Ltd (“Anling”), pursuant to which the Company issued 740,829, 740,829, and 444,497 ordinary shares, par value US$0.000002, to Anguo, Anjiu, and Anling, respectively, for an aggregate issue price of $9.4 million (RMB65,000,000). All of the $9.4 million was received at the end of March 2023.
As a result, there were 25,926,155 and 23,618,037 ordinary shares issued and outstanding as of March 31, 2023 and September 30, 2022, respectively.
F-51
GLOBAL MOFY METAVERSE LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 — SHAREHOLDERS’ EQUITY (cont.)
Statutory reserve
In accordance with the PRC Company Laws, the Company’s subsidiaries in the PRC are required to provide for statutory reserves, which are appropriated from net profit as reported in the Company’s PRC statutory accounts. They are required to allocate 10% of their after-tax profits to fund statutory reserves until such reserves have reached 50% of their respective registered capital. These reserve funds, however, may not be distributed as cash dividends. As of March 31, 2023 and September 30, 2022, the statutory reserves of the Company’s subsidiaries have not reached 50% of their respective registered capital. As of March 31, 2023 and September 30, 2022, the Company’s PRC subsidiaries collectively attributed $39,620 and $39,620 of retained earnings for their statutory reserves, respectively.
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.
Foreign exchange and other regulations in the PRC may further restrict the Company’s subsidiaries from transferring funds to the Company in the form of dividends, loans and advances. Amounts restricted include paid-in capital and statutory reserves of the Company’s PRC subsidiaries as determined pursuant to PRC generally accepted accounting principles. As of March 31, 2023 and September 30, 2022, restricted net assets of the Company’s PRC subsidiaries were $3,151,848 and $3,151,848, respectively.
NOTE 12 — SUBSEQUENT EVENTS
On April 3, 2023, Zhejiang Mofy Metaverse Technology Co., Ltd was incorporated in accordance with the laws and regulations of the People’s Republic of China. Global Mofy HK owns its 100% equity interests.
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through June 28, 2023, the date that the unaudited condensed consolidated financial statements were available to be issued.
F-52
Up to [*] Units
Each Unit Consisting of One Ordinary Share and
One Warrant to Purchase [*] Ordinary Share
Global Mofy Metaverse Limited
––––––––––––––––––––––––––––––
PROSPECTUS
______________________________
Prime Number Capital LLC
[ ], 2023
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our amended and restated articles of association provide to the extent permitted by law, we shall indemnify each existing or former secretary, director (including alternate director), and any of our other officers (including an investment adviser or an administrator or liquidator) and their personal representatives against:
(a) all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by the existing or former secretary or officer in or about the conduct of our business or affairs or in the execution or discharge of the existing or former secretary’s or officer’s duties, powers, authorities or discretions; and
(b) without limitation to paragraph (a) above, all costs, expenses, losses or liabilities incurred by the existing or former secretary or officer in defending (whether successfully or otherwise) any civil, criminal, administrative or investigative proceedings (whether threatened, pending or completed) concerning us or our affairs in any court or tribunal, whether in the Cayman Islands or elsewhere.
No such existing or former secretary or officer, however, shall be indemnified in respect of any matter arising out of his own dishonesty.
To the extent permitted by law, we may make a payment, or agree to make a payment, whether by way of advance, loan or otherwise, for any legal costs incurred by an existing or former secretary or any of our officers in respect of any matter identified in above on condition that the secretary or officer must repay the amount paid by us to the extent that it is ultimately found not liable to indemnify the secretary or that officer for those legal costs.
The Placement Agent Agreement, the form of which has been filed as Exhibit 1.1 to this Registration Statement, will also provide for indemnification of us and our officers and directors.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, we have issued the following securities.
On September 29, 2021, upon incorporation of the Company, we issued 5,000,000 ordinary shares with a par value of US$0.00001 to 13 shareholders, including four shareholders each of whom owns more than 5% of our issued and outstanding ordinary shares. Such four shareholders are James Yang Mofy Limited (holding 2,370,960 ordinary shares), Lianhe Universe Holding Group Limited (holding 492,850 ordinary shares), New JOLENE&R L.P. (holding 392,850 ordinary shares), and New Luyuchao Limited (holding 284,800 ordinary shares). James Yang Mofy Limited, a British Virgin Islands company, and New JOLENE&R L.P., a limited partnership formed under the laws of the British Virgin Islands, are controlled by Haogang Yang, our Chief Executive Officer and Chairman of the Board. No underwriters were involved in these issuances. The above issuances were exempt from registration under the Securities Act in reliance on Regulation S under the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.
On January 15, 2022, we issued 130,631 shares to a non-U.S. investor for $2,000,000. No underwriters were involved in this issuance. The above issuance was exempt from registration under the Securities Act in reliance on Regulation S under the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.
II-1
On September 16, 2022, we amended our Memorandum and Articles of Association and effected a 1-to-5 forward stock split (“Stock Split”) of our ordinary shares. We had 5,130,631 ordinary shares issued and outstanding before. After the Stock Split, there were 25,653,155 ordinary shares issued and outstanding. All shareholders then subsequently surrendered in an aggregative of 1,653,155 ordinary shares on a pro-rata basis, which were cancelled by the Company.
On November 15, 2022, all existing shareholders surrendered in an aggregative of 381,963 ordinary shares on a pro-rata basis, which were cancelled by the Company. On the same date, the Company, together with Mr. Haogang Yang, our founder and CEO, certain BVI founder entities and all its subsidiaries in Hong Kong and mainland China, entered into a share purchase agreement with Standard International Capital Partners SPC (for and on behalf of Standard International Capital Partners Fund I SP) (“Standard International Capital”) (the “Share Purchase Agreement”), pursuant to which we issued 381,963 ordinary shares of the Company, par value US$0.000002 each, to Standard International Capital, for an aggregate issue price of USD1,500,000. No underwriters were involved in this issuance. The above issuance was exempt from registration under the Securities Act in reliance on Regulation S under the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.
On February 10, 2023, the Company entered into a share purchase agreement with Anguo Jijian Enterprise Management Co., Ltd (“Anguo”), Anjiu Jiheng Enterprise Management Co., Ltd (“Anjiu”), and Anling Management Co., Ltd (“Anling”), pursuant to which we issued 740,829, 740,829, and 444,497 ordinary shares of the Company, par value US$0.000002, to Anguo, Anjiu, and Anling, respectively, for an aggregate issue price of $9.4 million (RMB65,000,000). As of March 31, 2023, we have received the $9.4 million from these three investors. No underwriters were involved in this issuance. The above issuance was exempt from registration under the Securities Act in reliance on Regulation S under the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.
The issued and outstanding shares then became 25,926,155 before the initial public offering.
ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
See Exhibit Index beginning on page II-6 of this registration statement.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the Notes thereto.
ITEM 9. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 6, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-2
(3) For the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(4) For the purpose of determining any liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Beijing, China, on November 27, 2023.
Global Mofy Metaverse Limited |
||||
By: |
/s/ Haogang Yang |
|||
Haogang Yang |
||||
Chief Executive Officer |
||||
(Principal Executive Officer) |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Haogang Yang |
Chief Executive Officer and Chairman of the Board of Director |
November 27, 2023 |
||
Name: Haogang Yang |
(Principal Executive Officer) |
|||
/s/ Chen Chen |
Chief Financial Officer and Director |
November 27, 2023 |
||
Name: Chen Chen |
(Principal Accounting and Financial Officer) |
|||
/s/ Wenjun Jiang |
Chief Technology Officer |
November 27, 2023 |
||
Name: Wenjun Jiang |
||||
/s/ Qing Li |
Chief Operating Officer |
November 27, 2023 |
||
Name: Qing Li |
||||
/s/ Chi Chen |
Director |
November 27, 2023 |
||
Name: Chi Chen |
||||
/s/ Cai Feng |
Director |
November 27, 2023 |
||
Name: Cai Feng |
||||
/s/ Xiaohong Qi |
Director |
November 27, 2023 |
||
Name: Xiaohong Qi |
II-4
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933 as amended, the undersigned, the duly authorized representative in the United States of America, has signed this registration statement thereto in New York, NY on November 27, 2023.
Cogency Global Inc. |
||||||
By: |
/s/ Colleen A. De Vries |
|||||
Name: |
Colleen A. De Vries |
|||||
Title: |
Senior Vice President |
II-5
EXHIBIT INDEX
Exhibit No. |
Description |
|
1.1* |
Form of Placement Agency Agreement |
|
3.1+ |
||
4.1* |
Form of Warrant |
|
5.1* |
Opinion of Mourant Ozannes (Cayman) LLP, Company’s Cayman Islands counsel, regarding the validity of the shares being registered |
|
5.2* |
Opinion of Ortoli Rosenstadt LLP, U.S. counsel to Company, as to the enforceability of the Warrants |
|
8.1* |
Opinion of Jiangsu Junjin Law Firm regarding certain PRC tax matters (included in Exhibit 99.1) |
|
10.1* |
Form of Securities Purchase Agreement |
|
10.2* |
Form of Lock-up Agreement (included in exhibit 10.1) |
|
10.3+ |
Business Operation Agreement dated January 5, 2022 between Global Mofy WFOE and Global Mofy China |
|
10.4+ |
||
10.5+ |
||
10.6+ |
||
10.7+ |
||
10.8+ |
||
10.9+ |
||
10.10+ |
||
10.11+ |
||
10.12+ |
||
10.13+ |
||
10.14+ |
||
10.15+ |
||
10.16+ |
||
10.17+ |
||
10.18+ |
Form of Termination Agreement between Global Mofy WFOE and each shareholder of Global Mofy China |
|
10.19+ |
||
10.20+ |
||
10.21+ |
||
10.22+ |
||
10.23+ |
||
21.1+ |
||
23.1* |
Consent of Marcum Asia CPAs LLP |
|
23.2* |
Consent of Friedman LLP |
|
23.3* |
Consent of Mourant Ozannes (Cayman) LLP (included in Exhibit 5.1) |
|
23.4* |
Consent of Ortoli Rosenstadt LLP (included in Exhibit 5.2) |
|
23.5* |
Consent of Jiangsu Junjin Law Firm (included in Exhibit 99.1) |
|
99.1* |
Opinion of Jiangsu Junjin Law Firm, PRC counsel to the Registrant, regarding certain PRC law matters |
____________
* To be filed by amendment.
+ Filed herewith.
II-6
Exhibit 3.1
THE CAYMAN ISLANDS
THE COMPANIES ACT (AS AMENDED)
Amended and Restated
Memorandum of Association of
GLOBAL MOFY METAVERSE LIMITED
(adopted pursuant to Special Resolutions of the Company dated September 16 2022)
THE COMPANIES ACT (AS AMENDED)
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION OF
GLOBAL MOFY METAVERSE LIMITED
(adopted pursuant to Special Resolutions of the Company dated September 16 2022)
1. | The name of the Company is GLOBAL MOFY METAVERSE LIMITED. |
2. | The registered office will be situated at the offices of ICS Corporate Services (Cayman) Limited, 3-212 Governors Square, 23 Lime Tree Bay Avenue, P.O. Box 30746, Seven Mile Beach, Grand Cayman KY1-1203, Cayman Islands or at such other place in the Cayman Islands as the Directors may from time to time decide. |
3. | The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Act (As Amended) or any other law of the Cayman Islands and shall have and be capable of from time to time and at all times exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate in any part of the world whether as principal, agent, contractor or otherwise. |
4. | The Company shall not be permitted to carry on any business where a licence is required under the laws of the Cayman Islands to carry on such a business until such time as the relevant licence has been obtained. |
5. | As an exempted company, the Company’s operations will be carried on subject to the provisions of Section 174 of the Companies Act (As Amended). |
6. | The liability of each Shareholder is limited to the amount from time to time unpaid on such Shareholder’s share. |
7. | The authorised share capital of the Company is USD50,000.00 divided into 25,000,000,000.00 Ordinary Shares of USD0.000002 each, with the power for the Company to increase or reduce the said capital and to issue any part of its capital, original or increased, with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions; and so that, unless the condition of issue shall otherwise expressly declare, every issue of shares, whether declared to be preference or otherwise, shall be subject to the power hereinbefore contained. |
8. | The Company has power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. |
9. | Capitalised terms that are not defined in this Memorandum of Association bear the same meaning as those given in the Articles of Association of the Company. |
2
THE CAYMAN ISLANDS
THE COMPANIES ACT (AS AMENDED)
Amended and Restated
Articles of Association of
GLOBAL MOFY METAVERSE LIMITED
(adopted pursuant to Special Resolutions of the Company dated September 16 2022)
THE COMPANIES ACT (AS AMENDED)
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF
GLOBAL MOFY METAVERSE LIMITED
(adopted pursuant to Special Resolutions of the Company dated September 16 2022)
3
TABLE A
The Regulations contained or incorporated in Table A in the First Schedule to the Companies Act (As Amended) shall not apply to the Company and the following Regulations shall comprise the Articles of Association of the Company:
INTERPRETATION
1. | In these Articles of Association the following terms shall have the meanings set opposite unless the context otherwise requires:- |
“ADS” | means an American depository share representing an ordinary share in the Company. | |
“Articles” | means these Articles of Association. | |
“the Auditors” | means the auditors of the Company for the time being, if appointed. | |
“clear days” | in relation to a period of notice, means that period excluding: (i) the day when the notice is given or deemed to be given; and (ii) the day for which it is given or on which it is to take effect. | |
“Companies Act” | means the Companies Act (As Amended). | |
“Company” | means GLOBAL MOFY METAVERSE LIMITED. | |
“Designated Stock Exchange” | means Nasdaq in the United States of America for so long as the Company’s shares or ADSs are there listed and any other stock exchange on which the Company’s Shares or ADSs are listed for trading from time to time. | |
“Directors” and | means the Directors of the Company for the time. | |
“Board of Directors” | being, or as the case may be, the Directors assembled as a Board or as a committee thereof. | |
“Electronic Record” | has the meaning given to that expression in the Electronic Transactions Law (Revised), as amended from time to time. | |
“in writing” | means written, printed, lithographed, Electronic Record, photographed or telexed or represented by any other substitute for writing or partly one and partly another. | |
“Independent Director” | means a Director who is an independent director as defined in the listing rules of the Designated Stock Exchange as determined by the Board. | |
“Memorandum of Association” | means the Memorandum of Association of the Company, as amended from time to time. |
4
“Ordinary Resolution” | means a resolution:
a. passed by a simple majority of such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of the Company and where a poll is taken regard shall be had in computing a majority to the number of votes to which each Shareholder is entitled; or
b. approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments signed in the aggregate by all of the Shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments if more than one, is signed. | |
“Ordinary Share” | means an ordinary voting share in the capital of the Company. | |
“paid up” | includes credited as paid up. | |
“Registered Office” | means the registered office of the Company as provided in Section 50 of the Companies Act. | |
“Register of Members” | means the register to be kept by the Company in accordance with Section 40 of the Companies Act. | |
“Seal” | means the Common Seal (if any) of the Company including any facsimile thereof for use outside of the Cayman Islands. | |
“Secretary” | means any person appointed by the Directors to perform any of the duties of the secretary of the Company including any assistant secretary. | |
“share” | means a share of any class in the capital of the Company. | |
“Shareholder” | means a person whose name is entered in the Register of Members. | |
“signed” | includes a signature or representation of a signature affixed by mechanical means. | |
“Special Resolution” | means a resolution passed in accordance with Section 60 of the Companies Act, being a resolution:
a. passed by a majority of not less than two-thirds of such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of the Company of which notice specifying the intention to propose the resolution as a Special Resolution has been duly given and where a poll is taken regard shall be had in computing such a majority to the number of votes to which each Shareholder is entitled; or
b. approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments signed in the aggregate by all of the Shareholders and the effective date of the Special Resolution so adopted shall be the date on which the instrument or the last of such instruments if more than one, is executed. |
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2. | In these Articles, save where the context requires otherwise: |
2.1. | words importing the singular number shall include the plural number and vice versa; |
2.2. | words importing the masculine gender only shall include the feminine gender; |
2.3. | words importing persons only shall include companies or associations or bodies of persons, whether corporate or not; |
2.4. | the word “may” shall be construed as permissive and the word “shall” shall be construed as imperative; |
2.5. | a reference to an Article shall be to an Article of these Articles; |
2.6. | a reference to a dollar or dollars or US$ is a reference to United States dollars, the lawful currency of the United States of America; and |
2.7. | a reference to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force. |
3. | Subject to the last two preceding Articles, any words defined in the Companies Act shall, if not inconsistent with the subject or context, bear the same meaning in these Articles. |
PRELIMINARY
4. | The business of the Company may be commenced as soon after incorporation as the Directors see fit. |
5. | The registered office of the Company shall be at such address in the Cayman Islands as the Directors shall from time to time determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such places as the Directors may from time to time determine. |
SHARE CAPITAL
6. | The authorised share capital of the Company at the date of adoption of these Articles is USD50,000.00 divided into 25,000,000,000.00 Ordinary Shares of USD0.000002 each. |
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7. | Subject to any applicable provisions in the Memorandum of Association of the Company, and without prejudice to any special rights previously conferred on the holders of existing shares, any share may be issued with such preferred, deferred, or other special rights, or such restrictions, whether in regard to dividend, voting, return of share capital or otherwise, as the Directors may from time to time determine, and subject to the provisions of section 37 of the Companies Act, any share may be issued on the terms that it is, or at the option of the Company or the holder is liable, to be redeemed. |
8. | Subject as otherwise provided in these Articles, all shares for the time being and from time to time unissued shall be under the control of the Directors, and may be redesignated, allotted, issued or otherwise disposed of in such manner, to such persons and on such terms as the Directors, in their absolute discretion, may think fit. The Directors may issue shares in separate classes and may issue shares of any class in different series. |
9. | The Company shall not issue shares to bearer. |
10. | The Company may, in so far as may be permitted by law, pay a commission to any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any shares. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up shares or partly in one way and partly in the other. The Company may also on any issue of shares pay such brokerage as may be lawful. |
11. | The Directors shall keep or cause to be kept a Register of Members as required by Section 40 of the Companies Act at such place or places as the Directors may from time to time determine, and in the absence of any such determination, the Register of Members shall be kept at the registered office of the Company. The Company shall not be bound to register more than four persons as the joint holders of any share or shares. |
FRACTIONAL SHARES
12. | The Directors may issue fractions of a share up to such number of decimal places as they shall determine of any class or series of shares, and, if so issued, a fraction of a share (calculated to three decimal points) shall be subject to and carry the corresponding fraction of liabilities (whether with respect to any unpaid amount thereon, contribution, calls or otherwise), limitations, preferences, privileges, qualifications, restrictions, rights (including, without limitation, voting and participation rights) and other attributes of a whole share of the same class or series of shares. |
REPURCHASE OF SHARES
13. | Subject to the provisions of the Companies Act and to any rights for the time being conferred on the Shareholders holding a particular class of shares, the Company may purchase all or any of its own shares of any class including any redeemable shares on the terms and in the manner which the Directors determine at the time of such purchase. The Company may make a payment in respect of the redemption or purchase of its own shares in any manner permitted by the Companies Act, including out of any combination of the following: capital, its profits and the proceeds of a fresh issue of shares. |
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VARIATION OF RIGHTS ATTACHING TO SHARES
14. | The rights attaching to any class or series of shares (unless otherwise provided by these Articles or the terms of issue of the shares of that class or series) may be varied or abrogated with the consent in writing of the holders of more than one half of the issued shares of that class or series, or with the sanction of a resolution passed by a majority of more than one half of the holders of shares of the class or series present in person or by proxy and entitled to vote at a separate meeting of the holders of the shares of the class or series. To every such separate general meeting the provisions of these Articles relating to general meetings of the Company shall mutatis mutandis apply, but so that the necessary quorum shall, unless otherwise provided by these Articles, be at least one person holding or representing by proxy at least one-third of the issued shares of the class or series and that any holder of shares of the class or series present in person or by proxy may demand a poll. Unless the terms on which a class of shares was issued state otherwise, the rights attaching to any class or series of shares shall be deemed not to be varied by the creation or issue of further shares ranking pari passu with the existing Shares of that class. |
CERTIFICATES FOR SHARES
15. | A Shareholder shall only be entitled to a share certificate if the Directors resolve that share certificates shall be issued. Share certificates representing shares, if any, shall be in such form as the Directors may determine. Share certificates shall be signed by one or more Directors or another person authorised by the Directors. The Directors may authorise certificates to be issued with the authorised signature(s) affixed by mechanical process. All certificates for shares shall be consecutively numbered or otherwise identified and shall specify the shares to which they relate. |
16. | The Company shall not be bound to issue more than one certificate for Shares held jointly by more than one person and delivery of a certificate to one joint holder shall be a sufficient delivery to all of them. |
17. | If a share certificate is defaced, worn out, lost or destroyed, it may be renewed on such terms (if any) as to evidence and indemnity and on the payment of such expenses reasonably incurred by the Company in investigating evidence, as the Directors may prescribe, and (in the case of defacement or wearing out) on delivery up of the old certificate. |
LIEN
18. | The Company shall have a first priority lien and charge on every partly paid or unpaid share for all moneys (whether presently payable or not) called or payable at a fixed time in respect of that share, and the Company shall also have a first priority lien and charge on all partly paid or unpaid shares standing registered in the name of a Shareholder (whether held solely or jointly with another person) for all moneys presently payable by him or his estate to the Company, but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The Company’s lien, if any, on a share shall extend to all distributions payable thereon. |
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19. | The Company may sell, in such manner as the Directors in their sole and absolute discretion think fit, any shares on which the Company has a lien, but no sale shall be made unless an amount in respect of which the lien exists is presently payable nor until the expiration of 14 days after a notice in writing, stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the share, or the persons entitled thereto by reason of his death or bankruptcy. |
20. | For giving effect to any such sale the Directors may authorise some person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. |
21. | The proceeds of the sale after deduction of expenses, fees and commission incurred by the Company shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as existed upon the shares prior to the sale) be paid to the person entitled to the shares at the date of the sale. |
CALLS ON SHARES
22. | Subject to the terms of allotment, the Board of Directors may make calls on the Shareholders in respect of any monies unpaid on their shares including any premium. The call may provide for payment to be by instalments. Subject to receiving at least 14 clear days’ notice specifying when and where payment is to be made, each Shareholder shall pay to the Company the amount called on his shares as required by the notice. |
23. | The joint holders of a share shall be jointly and severally liable to pay calls in respect thereof. |
24. | If a call remains unpaid after it has become due and payable the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid (i) at the rate fixed by the terms of allotment of the share or in the notice of the call, or (ii) if no rate is so fixed, at the rate of 10% per annum. The Directors shall be at liberty to waive payment of that interest wholly or in part. |
25. | The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the amount of the share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified. |
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26. | The Directors may make arrangements on the issue of partly paid shares for a difference between the Shareholders, or the particular shares, in the amount of calls to be paid and in the times of payment. |
27. | The Directors may, if they think fit, receive from any Shareholder willing to advance the same all or any part of the moneys uncalled and unpaid upon any partly paid shares held by him, and upon all or any of the moneys so advanced may (until the same would, but for such advance, become presently payable) pay interest at such rate as may be agreed upon between the Shareholder paying the sum in advance and the Directors. |
FORFEITURE OR SURRENDER OF SHARES
28. | If a Shareholder fails to pay any call or instalment of a call in respect of partly paid shares on the day appointed for payment, the Directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued. |
29. | The notice shall name a further day (not earlier than the expiration of 14 days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed the shares in respect of which the call was made will be liable to be forfeited. |
30. | If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may, at any time thereafter before the payment required by notice has been made, be forfeited by a resolution of the Directors to that effect. The forfeiture shall include all dividends or other monies payable in respect of the forfeited share and not paid before the forfeiture. Despite the foregoing, the Board of Directors may determine that any share the subject of that notice be accepted by the Company as surrendered by the Shareholder holding that share in lieu of forfeiture. |
31. | A forfeited or surrendered share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the Directors determine either to the former Shareholder who held that share or to any other person. The forfeiture or surrender may be cancelled on such terms as the Directors think fit at any time before a sale, re-allotment or other disposition. Where, for the purposes of its disposal, a forfeited or surrendered share is to be transferred to any person, the Directors may authorise some person to execute an instrument of transfer of the share to the transferee. |
32. | A person whose shares have been forfeited or surrendered shall cease to be a Shareholder in respect of the forfeited or surrendered shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture or surrender were payable by him to the Company in respect of the shares forfeited or surrendered, but his liability shall cease if and when the Company receives payment in full the amount unpaid on the shares forfeited or surrendered. |
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33. | A declaration, whether statutory or under oath, made by a Director or the Secretary shall be conclusive evidence of the following matters stated in it as against all persons claiming to be entitled to forfeited shares: (a) that the person making the declaration is a Director or Secretary of the Company, and (b) that the particular shares have been forfeited or surrendered on a particular date. Subject to the execution of an instrument of transfer, if necessary, the declaration shall constitute good title to the Shares. |
34. | The Company may receive the consideration, if any, given for a share on any sale or disposition thereof pursuant to the provisions of these Articles as to forfeiture or surrender and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of and that person shall be registered as the holder of the share, and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the disposition or sale. |
35. | The provisions of these Articles as to forfeiture or surrender shall apply in the case of non-payment of any sum which by the terms of issue of a share becomes due and payable, whether on account of the amount of the share, or by way of premium, as if the same had been payable by virtue of a call duly made and notified. |
TRANSFER OF SHARES
36. | Subject to the following Articles about the transfer of shares, and provided that such transfer complies with applicable rules of the Designated Stock Exchange, a Shareholder may transfer shares to another person by completing an instrument of transfer in a common form or in a form prescribed by the Designated Stock Exchange or in any other form approved by the Directors, executed: |
(a) | where the shares are fully paid, by or on behalf of that Shareholder; and |
(b) | where the Shares are nil paid or partly paid, by or on behalf of that Shareholder and the transferee. |
The transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the Register of Members in respect thereof.
37. | Where the shares in question are not listed on, or subject to the rules of, the Designated Stock Exchange, the Directors may, in their absolute discretion, decline to register any transfer of shares that has not been fully paid up or is subject to a company lien. The Directors may also, but are not required to, decline to register any transfer of any share unless: |
(a) | the instrument of transfer is lodged with the Company, accompanied by the certificate for the ordinary share to which it relates and such other evidence as the Board of Directors may reasonably require to show the right of the transferor to make the transfer; |
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(b) | the instrument of transfer is in respect of only one class of ordinary share; |
(c) | the instrument of transfer is properly stamped, if required; |
(d) | the share transferred is fully paid and free of any lien in favor of us; |
(e) | any fee related to the transfer has been paid to us; and |
(f) | the transfer is not to more than four joint holders. |
If the Directors refuse to register a transfer of any shares, they shall, within one month after the date on which the transfer was lodged with the Company, send to each of the transferor and the transferee notice of the refusal.
38. | The registration of transfers may, on 14 days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the Register of Members closed at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the Register of Members closed for more than 30 days in any year. |
39. | All instruments of transfer which are registered shall be retained by the Company, but any instrument of transfer which the Directors decline to register shall (except in any case of fraud) be returned to the person depositing the same. |
TRANSMISSION OF SHARES
40. | The legal personal representative of a deceased sole holder of a share shall be the only person recognised by the Company as having any title to the share. In the case of a share registered in the name of two or more holders, the survivor or survivors of the deceased, or the legal personal representatives of the deceased, shall be the only person or persons recognised by the Company as having any title to the share. |
41. | Any person becoming entitled to a share in consequence of the death or bankruptcy of a Shareholder shall, upon such evidence being produced as may from time to time be required by the Directors, have the right either to be registered as a Shareholder in respect of the share or, instead of being registered himself, to make such transfer of the share as the deceased or bankrupt person could have made; but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by the deceased or bankrupt person before the death or bankruptcy. |
42. | A person becoming entitled to a share by reason of the death or bankruptcy of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a Shareholder in respect of the share, be entitled, in respect of it, to exercise any right conferred by membership in relation to meetings of the Company. |
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ALTERATION OF SHARE CAPITAL
43. | The Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into shares of such classes or series and amount, as the resolution shall prescribe. |
44. | The Company may by Ordinary Resolution: |
(a) | consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares; |
(b) | convert all or any of its paid up shares into stock and reconvert that stock into paid up shares of any denomination; and |
(c) | subdivide its existing shares, or any of them, into shares of a smaller amount provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived. |
45. | Subject to the Companies Act and to any rights for the time being conferred on the Shareholders holding a particular class of shares, the Company may, by Special Resolution, reduce its share capital in any way. |
CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE
46. | For the purpose of determining those Shareholders that are entitled to receive notice of, attend or vote at any meeting of Shareholders or any adjournment thereof, or those Shareholders that are entitled to receive payment of any dividend, or in order to make a determination as to who is a Shareholders for any other purpose, the Directors may provide that the Register of Members shall be closed for transfers for a stated period which shall not exceed in any case 45 days. If the Register of Members shall be so closed for the purpose of determining those Shareholders that are entitled to receive notice of, attend or vote at a meeting of Shareholders the Register of Members shall be so closed for at least 10 days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register of Members. |
47. | In lieu of or apart from closing the Register of Members, the Directors may fix in advance a date as the record date for any such determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of the Shareholders and for the purpose of determining those Shareholders that are entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination. |
48. | If the Register of Members is not so closed and no record date is fixed for the determination of those Shareholders entitled to receive notice of, attend or vote at a meeting of Shareholders or those Shareholders that are entitled to receive payment of a dividend, the date on which notice of the meeting is posted or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Shareholders. When a determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of Shareholders has been made as provided in this Article, such determination shall apply to any adjournment thereof. |
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GENERAL MEETINGS
49. | The Directors may, whenever they think fit, convene a general meeting of the Company. |
50. | General meetings shall also be convened on the written requisition of any Shareholder or Shareholders entitled to attend and vote at general meetings of the Company who hold not less than 10 per cent of the paid up voting share capital of the Company deposited at the registered office of the Company specifying the objects of the meeting for a date no later than 21 days from the date of deposit of the requisition signed by the requisitionists, and if the Directors do not convene such meeting for a date not later than 45 clear days after the date of such deposit, the requisitionists themselves may, within three months after the end of that period of 45 clear days, convene the general meeting in the same manner, as nearly as possible, as that in which general meetings may be convened by the Directors, and all reasonable expenses incurred by the requisitionists as a result of the failure of the Directors to convene the general meeting shall be reimbursed to them by the Company. |
51. | If at any time there are no Directors, any two Shareholders (or if there is only one Shareholder then that Shareholder) entitled to vote at general meetings of the Company may convene a general meeting in the same manner as nearly as possible as that in which meetings may be convened by the Directors. |
NOTICE OF GENERAL MEETINGS
52. | At least seven clear days’ notice of any general meeting must be given to Shareholders. A notice of general meeting shall specify the place, the day and the hour of the meeting and, in case of special business, the general nature of that business, shall be given in the manner hereinafter provided to such persons as are, under these Articles, entitled to receive such notices from the Company, but with the consent of Shareholders who, individually or collectively, hold at least 90 percent of the voting rights of all those who have a right to vote at a general meeting, that meeting may be convened by such shorter notice. In addition, if a resolution is proposed as a special resolution, the text of that resolution shall be given to all Shareholders. Notice of every general meeting shall also be given to the Directors and the Auditors. The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Shareholder shall not invalidate the proceedings at any meeting. |
PROCEEDINGS AT GENERAL MEETINGS
53. | All business carried out at a general meeting shall be deemed special with the exception of sanctioning a dividend, the consideration of the accounts, balance sheets, and any report of the Directors or of the Auditors and the fixing of the remuneration of the Auditors. No special business shall be transacted at any general meeting without the consent of all Shareholders entitled to receive notice of that meeting unless notice of such special business has been given in the notice convening that meeting. |
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54. | No business shall be transacted at any general meeting unless a quorum of Shareholders is present at the time when the meeting proceeds to business. Save as otherwise provided by these Articles, one or more Shareholders holding at least one-third of the paid up voting share capital of the Company present in person or by proxy shall be a quorum. |
55. | If within half an hour 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 same day in the next week, at the same time and place, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the Shareholder or Shareholders present and entitled to vote shall be a quorum. |
56. | If the Directors wish to make this facility available to Shareholders for a specific or all general meetings of the Company, a Shareholder who is entitled to participate in any specific or general meeting of the Company, may participate by means of telephone or similar communication equipment by way of which all persons participating in such meeting can hear each other and such participation shall be deemed to constitute presence in person at the meeting. |
57. | The chairman, if any, of the Board of Directors shall preside as chairman at every general meeting of the Company. |
58. | If there is no such chairman, or if at any general meeting he is not present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairman, the Shareholders present shall choose one of their number to be chairman of that meeting. |
59. | The chairman may, with the consent of any general meeting at which a quorum is present (and shall if so directed by the meeting), adjourn a 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. When a meeting is adjourned for 14 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. |
60. | At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded by the chairman or by at least two Shareholders having the right to vote on the resolution or by any Shareholder or Shareholders present who, individually or collectively, hold at least ten per cent of the voting rights of all those who have a right to vote on the resolution, and unless a poll is so demanded, a declaration by the chairman that a resolution has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book of the proceedings of the Company, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of, or against, that resolution. |
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61. | If a poll is duly demanded it shall be taken in such manner as the chairman directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. |
62. | In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall not have a second or casting vote. |
63. | A poll demanded on the election of a chairman of the meeting or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs. |
VOTES OF SHAREHOLDERS
64. | In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members. |
65. | A Shareholder of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, or other person in the nature of a committee appointed by that court, and any such committee or other person, may vote by proxy. |
66. | Shareholders who are entitled to vote at a general meeting shall not be entitled to vote at any general meeting unless all calls or other sums presently payable by him in respect of shares carrying the right to vote held by him have been paid. |
67. | On a poll votes may be given either personally or by proxy. Every Shareholder who is entitled to vote at a general meeting and every person representing such a Shareholder as proxy shall have one vote for each share of which such Shareholder or the Shareholder represented by the proxy is the holder. |
68. | The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised. A proxy need not be a Shareholder. |
69. | An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve. |
70. | The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll. |
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71. | A resolution in writing signed by all the Shareholders for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. Any such resolution may consist of several documents in the like form signed by one or more of the Shareholders. |
CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS
72. | Any corporation which is a Shareholder or a Director may by resolution of its directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Shareholders or of the Board of Directors or of a committee of Directors, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Shareholders or Director. |
DIRECTORS
73. | The name of the first Director(s) shall either be determined in writing by a majority (or in the case of a sole subscriber that subscriber) of, or elected at a meeting of, the subscribers of the Memorandum of Association. |
74. | The Directors shall have the power at any time, and from time to time, to appoint a person as an additional Director or persons as additional Directors. |
75. | The Company may by Ordinary Resolution from time to time fix the maximum and minimum number of Directors to be appointed but unless such number is fixed as aforesaid the number of Directors shall be unlimited and the minimum number of Directors shall be one. The Company may by Ordinary Resolution remove a Director at any time and may by Ordinary Resolution appoint another person in his stead. The Company may by Ordinary Resolution appoint additional Directors from time to time. |
76. | Until otherwise determined by the Company by ordinary resolution, the Directors (other than alternate Directors) shall be entitled to such remuneration by way of fees for their services in the office of Director as the Directors may determine. |
77. | There shall be no shareholding qualification for Directors unless determined otherwise by the Company by Ordinary Resolution. |
78. | Any casual vacancy occurring in the Board of Directors may be filled by the Directors. |
79. | The Directors shall not be required to retire by rotation. |
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ALTERNATE DIRECTOR AND PROXY
80. | Any Director may in writing appoint another person to be his alternate to act in his place at any meeting of the Directors at which he is unable to be present. Every such alternate shall be entitled to notice of meetings of the Directors and to attend and vote thereat as a Director when the person appointing him is not personally present and where he is a Director to have a separate vote on behalf of the Director he is representing, in addition to his own vote. A Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall not be an officer of the Company and shall be deemed to be the agent of the Director appointing him. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them. |
81. | Any Director may appoint any person, whether or not a Director, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, at a meeting or meetings of the Directors which that Director is unable to attend personally. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other form as the Directors may approve, and must be lodged with the chairman of the meeting of the Directors at which such proxy is to be used, or first used, prior to the commencement of the meeting. |
POWERS AND DUTIES OF DIRECTORS
82. | Subject to the provisions of the Companies Act, the Memorandum and these Articles, the business of the Company shall be managed by the Directors who may for that purpose exercise all the powers of the Company. No prior act of the Directors shall be invalidated by any subsequent alteration of the Memorandum or these Articles. However, to the extent allowed by the Companies Act, Shareholders may, by Special Resolution, validate any prior or future act of the Directors which would otherwise be in breach of their duties. |
83. | Without prejudice to the generality of the foregoing, the Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or its parent undertaking (if any) or any subsidiary undertaking of the Company or of any third party. |
84. | The Directors may from time to time appoint any person, whether or not a Director, to hold such office in the Company as the Directors may think necessary for the administration of the Company, including but not limited to, the office of President, one or more Vice-Presidents, Treasurer, Assistant Treasurer, Manager or Controller, and for such term, and with such powers and duties as the Directors may think fit. The Directors may also appoint one or more of their number to the office of Managing Director upon like terms, but any such appointment shall ipso facto determine if any Managing Director ceases from any cause to be a Director, or if the Company by Ordinary Resolution resolves that his tenure of office be terminated. |
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85. | The Directors may appoint a Secretary (and if need be an Assistant Secretary or Assistant Secretaries) who shall hold office for such term, at such remuneration and upon such conditions and with such powers as they think fit. Any Secretary or Assistant Secretary so appointed by the Directors may be removed by the Directors. |
86. | The Directors may delegate any of their powers to any committee consisting of one or more persons who need not be Shareholders. Persons on the committee may include non-Directors so long as the majority of those persons are Directors. Any such committee shall be made up of such number of Independent Directors as required from time to time by the listing rules of the Designated Stock Exchange or otherwise required by applicable law. |
87. | The delegation may be collateral with, or to the exclusion of, the Directors’ own powers. |
88. | The delegation may be on such terms as the Directors think fit, including provision for the committee itself to delegate to a sub-committee; save that any delegation must be capable of being revoked or altered by the Directors at will. |
89. | Unless otherwise permitted by the Directors, a committee must follow the procedures prescribed for the taking of decisions by Directors. |
90. | The Board of Directors shall establish an audit committee, a compensation committee and a nominating and corporate governance committee. Each of these committees shall be empowered to do all things necessary to exercise the rights of such committee set forth in these Articles. Each of the audit committee, compensation committee and nominating and corporate governance committee shall consist of at least three Directors (or such larger minimum number as may be required from time to time by the listing rules of the Designated Stock Exchange). The majority of the committee members on each of the compensation committee and nominating and corporate governance committee shall be Independent Directors. The audit committee shall be made up of such number of Independent Directors as required from time to time by the listing rules of the Designated Stock Exchange or otherwise required by applicable law. |
91. | The Directors may from time to time and at any time, by power of attorney or in any other manner the Directors determine, appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney, agent or authorised signatory of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney, agent or authorised signatory as the Directors may think fit, and may also authorise any such attorney, agent or authorised signatory to delegate all or any of the powers, authorities and discretion vested in him. |
92. | The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following Articles shall not limit the general powers conferred by this Article. |
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93. | The Directors may establish any local or divisional board or agency for managing any of the affairs of the Company whether in the Cayman Islands or elsewhere and may appoint any persons to be members of a local or divisional board, or to be managers or agents, and may fix their remuneration. The Directors may delegate to any local or divisional board, manager or agent any of its powers and authorities (with power to sub-delegate) and may authorise the members of any local or divisional board or any of them to fill any vacancies and to act notwithstanding vacancies. Any appointment or delegation under this Article may be made on such terms and subject to such conditions as the Directors thinks fit and the Directors may remove any person so appointed, and may revoke or vary any delegation. |
DISQUALIFICATION OF DIRECTORS
94. | The office of Director shall be vacated, if the Director: |
(a) | is prohibited by the law of the Cayman Islands from acting as a director; |
(b) | is made bankrupt or makes an arrangement or composition with his creditors generally; |
(c) | resigns his office by notice to us; |
(d) | only held office as a director for a fixed term and such term expires; |
(e) | becomes, in the opinion of a registered medical practitioner by whom he is being treated, physically or mentally incapable of acting as a director; |
(f) | is given notice by the majority of the other Directors (not being less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to the provision of the services of such director); |
(g) | is made subject to any law relating to mental health or incompetence, whether by court order or otherwise; or |
(h) | without the consent of the other Directors, is absent from meetings of Directors for continuous period of six months. |
PROCEEDINGS OF DIRECTORS
95. | The Directors may meet together (either within or without the Cayman Islands) for the despatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. In case of an equality of votes the chairman shall have a second or casting vote. A Director may, and the Secretary or Assistant Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors. |
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96. | A Director or Directors may participate in any meeting of the Board of Directors, or of any committee appointed by the Board of Directors of which such Director or Directors are members, by means of telephone or similar communication equipment by way of which all persons participating in such meeting can hear each other and such participation shall be deemed to constitute presence in person at the meeting. Every Director may be reimbursed for travel, hotel and other expenses incurred by him in attending meetings of the Directors, any committee of the Directors or general meetings of the Company or in connection with the business of the Company. |
97. | The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors, and unless so fixed, if there be two or more Directors shall be two, and if there be one Director the quorum shall be one. A Director represented by proxy or by an alternate Director at any meeting shall be deemed to be present for the purposes of determining whether or not a quorum is present. |
98. | A Director who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the chairman or secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action. |
99. | A Director shall not, as a Director, vote in respect of any contract, transaction, arrangement or proposal in which he has an interest which (together with any interest of any person connected with him) is a material interest (otherwise then by virtue of his interests, direct or indirect, in shares or debentures or other securities of, or otherwise in or through, the Company) and if he shall do so his vote shall not be counted, nor in relation thereto shall he be counted in the quorum present at the meeting, but (in the absence of some other material interest than is mentioned below) none of these prohibitions shall apply to: |
(a) | the giving of any security, guarantee or indemnity in respect of: |
(i) | money lent or obligations incurred by him or by any other person for the benefit of the Company or any of its subsidiaries; or |
(ii) | a debt or obligation of the Company or any of its subsidiaries for which the Director himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security; |
(b) | where the Company or any of its subsidiaries is offering securities in which offer the Director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which the Director is to or may participate; |
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(c) | any contract, transaction, arrangement or proposal affecting any other body corporate in which he is interested, directly or indirectly and whether as an officer, shareholder, creditor or otherwise howsoever, provided that he (together with persons connected with him) does not to his knowledge hold an interest representing one per cent or more of any class of the equity share capital of such body corporate (or of any third body corporate through which his interest is derived) or of the voting rights available to members of the relevant body corporate; |
(d) | any act or thing done or to be done in respect of any arrangement for the benefit of the employees of the Company or any of its subsidiaries under which he is not accorded as a Director any privilege or advantage not generally accorded to the employees to whom such arrangement relates; or |
(e) | any matter connected with the purchase or maintenance for any Director of insurance against any liability or (to the extent permitted by the Cayman Islands Companies Act) indemnities in favour of Directors, the funding of expenditure by one or more Directors in defending proceedings against him or them or the doing of any thing to enable such Director or Directors to avoid incurring such expenditure. |
100. | A Director may, as a Director, vote (and be counted in the quorum) in respect of any contract, transaction, arrangement or proposal in which he has an interest which is not a material interest or which falls within Article 99. |
101. | A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period and on such terms as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested, be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relationship thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting of the Directors whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement. |
102. | Any Director may act by himself or his firm in a professional capacity for the Company, but he or his firm shall not be entitled to any remuneration for such professional services unless approved by the Company by Ordinary Resolution; provided that nothing herein contained shall authorise a Director or his firm to act as auditors to the Company. |
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103. | The Directors shall cause minutes to be made in books provided for the purpose of recording: |
(a) | all appointments of officers made by the Directors; |
(b) | the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and |
(c) | all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors. |
104. | When the chairman of a meeting of the Directors signs the minutes of such meeting those minutes shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings. |
105. | A resolution signed by all the Directors shall be as valid and effectual as if it had been passed at a meeting of the Directors duly called and constituted. Any such resolution may consist of several documents in the like form signed by one or more of the Directors. |
106. | The continuing Directors may act notwithstanding any vacancy in their body but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose. |
107. | The Directors may elect a chairman of their meetings and determine the period for which he is to hold office but if no such chairman is elected, or if at any meeting the chairman is not present within fifteen minutes after the time appointed for holding the meeting, the Directors present may choose one of their number to be chairman of the meeting. |
108. | A committee appointed by the Directors may elect a chairman of its meetings. If no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time appointed for holding the meeting, the members present may choose one of their number to be chairman of the meeting. |
109. | A committee appointed by the Directors may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the committee members present and in case of an equality of votes the chairman shall have a second or casting vote. |
110. | All acts done by any meeting of the Directors or of a committee of Directors, or by any person acting as a Director, shall notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director. |
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THE SEAL AND DEEDS
111. | The Seal shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixings of the Seal. The Seal shall be affixed in the presence of a Director or the Secretary (or an Assistant Secretary) or in the presence of any one or more persons as the Directors may appoint for the purpose and every person as aforesaid shall sign every instrument to which the Seal is so affixed in their presence. |
112. | The Company may maintain a facsimile of the Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixings of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such person or persons as the Directors shall for this purpose appoint and such person or persons as aforesaid shall sign every instrument to which the facsimile Seal is so affixed in their presence and such affixing of the facsimile Seal and signing as aforesaid shall have the same meaning and effect as if the Seal had been affixed in the presence of and the instrument signed by a Director or the Secretary (or an Assistant Secretary) or in the presence of any one or more persons as the Directors may appoint for the purpose. |
113. | Notwithstanding the foregoing, the Secretary or any Assistant Secretary shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company. |
114. | The Company may execute any deed or other instrument which would otherwise be required to be executed under Seal by the signature of such deed or instrument as a deed by a Director, the Secretary (or an Assistant Secretary) or any one or more persons as the Directors may appoint for the purpose. |
DIVIDENDS
115. | Subject to any rights and restrictions for the time being attached to any class or series of shares, the Directors may from time to time declare dividends (including interim dividends) and other distributions on shares in issue and authorise payment of the same out of the funds of the Company lawfully available therefor. Subject to the requirements of the Companies Act regarding the application of a company’s share premium account and with the sanction of an Ordinary Resolution, dividends may also be declared and paid out of any share premium account. |
116. | Subject to any rights and restrictions for the time being attached to any class or series of shares, the Company by Ordinary Resolution may declare dividends, but no dividend shall exceed the amount recommended by the Directors. |
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117. | The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, in the absolute discretion of the Directors be applicable for meeting contingencies, or for equalising dividends or for any other purpose to which those funds may be properly applied and pending such application may, in the absolute discretion of the Directors, either be employed in the business of the Company or be invested in such investments (other than shares) as the Directors may from time to time think fit. |
118. | Any dividend may be paid by cheque sent through the post to the registered address of the Shareholder or person entitled thereto, or in the case of joint holders, to any one of such joint holders at his registered address or to such person and such address as the Shareholder or person entitled, or such joint holders as the case may be, may direct. Every such cheque shall be made payable to the order of the person to whom it is sent or to the order of such other person as the Shareholder or person entitled, or such joint holders as the case may be, may direct. |
119. | The Directors when paying dividends to the Shareholders in accordance with the provisions of these Articles may make such payment either in cash or in specie. |
120. | Subject to any rights and restrictions for the time being attached to any class or classes of shares, all dividends shall be declared and paid according to the amount paid on the shares, but if and so long as nothing is paid up on any of the shares dividends may be declared and paid according to the par value of the shares. No amount paid on a share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the share. |
121. | If several persons are registered as joint holders of any share, any of them may give effectual receipts for any dividend or other moneys payable on or in respect of the share. |
122. | Unless provided for by the rights attaching to a share, no dividend shall bear interest against the Company. |
123. | A dividend that remains unclaimed for a period of six years after it became due for payment shall be forfeited to, and shall cease to remain owing by, the Company. |
ACCOUNTS AND AUDIT
124. | The books of account relating to the Company’s affairs shall be kept in such manner as may be determined from time to time by the Directors. |
125. | The books of account shall be kept at the registered office of the Company, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors. |
126. | The Directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Shareholders not being Directors, and no Shareholder (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by law or authorised by the Directors or by the Company by Ordinary Resolution. |
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127. | The Company may appoint Auditors but shall not be required to do so and if the Company appoints Auditors the Company’s accounts shall be audited in such manner as may be determined from time to time by the Company by Special Resolution or failing such determination by the Directors. The Auditors shall be appointed in general meeting or failing which by the Directors. |
SHARE PREMIUM ACCOUNT
128. | The Directors shall in accordance with Section 34 of the Companies Act establish a share premium account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any share. |
129. | There shall be debited to any share premium account on the redemption or purchase of a share the difference between the nominal value of such share and the redemption or purchase price provided always that at the discretion of the Directors such sum may be paid out of the profits of the Company or, if permitted by Section 37 of the Companies Act, out of capital. |
CAPITALISATION OF PROFITS
130. | The Directors may resolve to capitalise: |
(a) | any part of the Company’s profits not required for paying any preferential dividend (whether or not those profits are available for distribution); or |
(b) | any sum standing to the credit of the Company’s share premium account or capital redemption reserve, if any. |
131. | The amount resolved to be capitalised must be appropriated to the Shareholders who would have been entitled to it had it been distributed by way of dividend and in the same proportions. The benefit to each Shareholder so entitled must be given in either or both of the following ways: |
(a) | by paying up the amounts unpaid on that Shareholder’s shares; |
(b) | by issuing fully paid up shares, debentures or other securities of the Company to that Shareholder or as that Shareholder directs. The Directors may resolve that any shares issued to the Shareholder in respect of partly paid up shares rank for dividend only to the extent that the partly paid up shares rank for dividend for so long as such shares are not fully paid up. |
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NOTICES
132. | Any notice or document may be served by the Company or by the person entitled to give notice to any Shareholder either personally, by facsimile, by email or by sending it through the post in a prepaid letter or via a recognised courier service, fees prepaid, addressed to the Shareholder at his address as appearing in the Register of Members. In the case of joint holders of a share, all notices shall be given to that one of the joint holders whose name stands first in the Register of Members in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders. |
133. | Any Shareholder present, either personally or by proxy, at any meeting of the Company shall for all purposes be deemed to have received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened. |
134. | Any notice or other document, if served by (a) post, shall be deemed to have been served ten days after the time when the letter containing the same is posted or, (b) facsimile or email, shall be deemed to have been served upon transmission to the correct facsimile number or email address, or (c) recognised courier service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service. In proving service by post or courier service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier service. |
135. | Any notice or document delivered or sent by post, left at the registered address of any Shareholder or sent by facsimile transmission or email in accordance with the terms of these Articles shall notwithstanding that such Shareholder be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any share registered in the name of such Shareholder as sole or joint holder, unless his name shall at the time of the service of the notice or document, have been removed from the Register of Members as the holder of the share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share. |
136. | Notice of every general meeting of the Company shall be given to: |
(a) | all Shareholders holding shares with the right to receive notice and who have supplied to the Company an address for the giving of notices to them; and |
(b) | every person entitled to a share in consequence of the death or bankruptcy of a Shareholder, who but for his death or bankruptcy would be entitled to receive notice of the meeting. |
No other person shall be entitled to receive notices of general meetings.
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INDEMNITY
137. | To the extent permitted by law, the Company shall indemnify each existing or former Secretary, Director (including alternate Directors) and other Officer of the Company (including an investment adviser or an administrator or liquidator) and their personal representatives against: |
(a) | all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by the existing or former Secretary, Director (including alternate Directors) or Officer in or about the conduct of the Company’s business or affairs or in the execution or discharge of the existing or former Secretary’s, Director’s (including alternate Directors’) or Officer’s duties, powers, authorities or discretions; and |
(b) | without limitation to paragraph (a), all costs, expenses, losses or liabilities incurred by the existing or former Secretary, Director (including alternate Directors) or Officer in defending (whether successfully or otherwise) any civil, criminal, administrative or investigative proceedings (whether threatened, pending or completed) concerning the Company or its affairs in any court or tribunal, whether in the Cayman Islands or elsewhere. |
No such existing or former Secretary, Director (including alternate Directors) or Officer, however, shall be indemnified in respect of any matter arising out of his own dishonesty.
138. | To the extent permitted by the Companies Act, the Company may make a payment, or agree to make a payment, whether by way of advance, loan or otherwise, for any legal costs incurred by an existing or former Secretary, Director (including alternate Directors) or Officer of the Company in respect of any matter identified in the preceding Article on condition that the Secretary, Director (including alternate Directors) or Officer must repay the amount paid by the Company to the extent that it is ultimately found not liable to indemnify the Secretary, Director (including alternate Directors) or that Officer for those legal costs. |
NON-RECOGNITION OF TRUSTS
139. | No person shall be recognised by the Company as holding any share upon any trust and the Company shall not (unless required by law) be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent or future interest in any of its shares or any other rights in respect thereof except an absolute right to the entirety thereof in each Shareholder registered in the Register of Members. |
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WINDING UP
140. | If the Company is wound up, the Shareholders may, subject to these Articles and any other sanction required by the Companies Act, pass a Special Resolution allowing the liquidator to do either or both of the following: |
(a) | to divide in specie among the Shareholders the whole or any part of the assets of the Company and, for that purpose, to value any assets and to determine how the division shall be carried out as between the Shareholders or different classes of Shareholders; |
(b) | to vest the whole or any part of the assets in trustees for the benefit of Shareholders and those liable to contribute to the winding up. |
141. | No Shareholder shall be compelled to accept any assets if an obligation attaches to them. |
142. | The Directors have the authority to present a petition for the winding up of the Company to the Grand Court of the Cayman Islands on behalf of the Company without the sanction of a resolution passed at a general meeting. |
AMENDMENT OF ARTICLES OF ASSOCIATION
143. | Subject to the Companies Act and the rights attaching to any class or series of shares, the Company may at any time and from time to time by Special Resolution alter or amend these Articles in whole or in part. |
ORGANISATION EXPENSES
144. | The preliminary and organisation expenses incurred in forming the Company shall be paid by the Company and may be amortised in such manner and over such period of time and at such rate as the Directors shall determine and the amount so paid shall in the accounts of the Company, be charged against income and/or capital. |
FINANCIAL YEAR
145. | Unless the Directors otherwise prescribe, the financial year of the Company shall end on 31 December in each year. |
REGISTRATION BY WAY OF CONTINUATION
146. | The Company shall, subject to the provisions of the Companies Act and with the approval of a Special Resolution, have the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. |
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Exhibit 10.3
Business Operation Agreement
This Business Operation Agreement (this “Agreement”) is entered into in the People’s Republic of China (the “PRC”) on January 5, 2022, by and among the following Parties:
Party A: Mofy Metaverse (Beijing) Technology Co., Ltd.
Address: 307, Floor 3, Building 17, Courtyard 1, Balizhuang Bridge Nanli, Chaoyang District, Beijing
Party B: Global Mofy (Beijing) Technology Co., Ltd.
Address: Building A12, Xidian memory cultural and creative Town, Gaobeidian Township, Chaoyang District, Beijing
(In this Agreement, the above parties are hereinafter referred to individually as a “Party” and collectively as the “Parties.”)
WHEREAS:
(1) Party A is a wholly foreign-owned enterprise incorporated and validly existing in accordance with laws of the PRC;
(2) Party B is a company with exclusively domestic capital registered in China;
(3) Party A and Party B have established a business relationship by entering into a certain Exclusive Technical Consultation and Service Agreement, pursuant to which Party B will make various payments to Party A, and therefore Party B’s activities in its ordinary course of business will have a material effect upon its ability to make such payments to Party A; and
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NOW, THEREFORE, the Parties, through amicable negotiations and based on the principle of equality and mutual benefit, hereby agree as follows:
Article 1 Negative Obligations
In order to guarantee the performance of Party B in relation to this Agreement and all of Party B’s in relation to its obligations towards Party A, Party B and the Shareholders hereby acknowledge, agree and jointly and severally warrant that without the prior written consent of Party A or any party designated by Party A, Party B shall not engage in any transaction which may have a material or adverse effect on any of its assets, businesses, employees, obligations, rights or operations (except for those occurring in the due course of business or in day-to-day business operations, or those already disclosed to Party A and with the explicit prior written consent of Party A), including without limitation:
1.1 Conduct any activity beyond the normal business scope of Party B or operate the Party B in a manner inconsistent with its past practice;
1.2 Make any borrowing or undertake any indebtedness from any third party;
1.3 Change or remove any of its directors or senior officers;
1.4 Sell, assign, mortgage or otherwise dispose of any assets or rights, including without limitation any intellectual property rights, with any third party;
1.5 Create or cause the creation of any guarantee, mortgage, pledge, lien or any other security on any of its assets, including intellectual property, in favor of any third party, or create any encumbrance on any such assets;
1.6 Change its articles of association or its scope of business;
1.7 Change its ordinary course of business or materially alter any of its major internal rules and bylaws;
1.8 Transfer any of its rights or obligations under this Agreement to any third party;
1.9 Make or cause any material change to its business pattern, marketing strategy, business plan or customer relationships; and
1.10 Make or cause a distribution of any bonus or dividend to shareholders of Party B.
Article 2 Business Management and Human Resources Arrangement
2.1 Party B and the Shareholders hereby jointly agree to accept and strictly implement any proposal made by Party A from time to time regarding the employment and removal of Party B’s employees, its day-to-day business management and the financial management system of Party B.
2.2 Party B and the Shareholders hereby jointly agree that the Shareholders will elect or appoint, as applicable, any person designated by Party A as Party B’s director, chairman, president, chief financial officer and any other executive officers in accordance with relevant laws, regulations and Party B’s articles of association.
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2.3 Upon termination of his or her employment with Party A, either voluntarily or by Party A, each of the directors or senior officers elected or appointed under Section 2.2 will be simultaneously disqualified to hold any position in Party B; under such circumstance, the Shareholders shall elect any other person designated by Party A for such position.
2.4 For purpose of Section 2.3, the Shareholders will take any actions required under relevant laws and regulations, articles of association and this Agreement to effect the employment and termination provided under Sections 2.2 and 2.3.
Article 3 Other Agreements
3.1 Upon termination or expiration of any agreement between Party A and Party B, Party A may elect to terminate all of its agreements with Party B, including without limitation the Exclusive Technical Consultation and Service Agreement.
3.2 Considering the business relationship established between Party A and Party B based on the executed Exclusive Technical Consultation and Service Agreement, Party B’s activities in its ordinary course of business will have a material effect upon its ability to make relevant payments to Party A. Each of the Shareholders agrees that any bonus, dividend or any other benefit or interest receivable by it as the shareholder of Party B will be unconditionally and automatically paid or transferred to Party A.
Article 4 Confidentiality Obligations
4.1 Regardless of whether this Agreement is terminated or not, each Party shall keep strictly confidential all business secrets, proprietary information, customer information and all other information of a confidential nature concerning the other Parties known by it during the execution and performance of this Agreement (collectively, the “Confidential Information”). Unless a prior written consent is obtained from the Party disclosing the Confidential Information (the “Disclosing Party”) or unless it is required to be disclosed to third parties in accordance with relevant laws, rules and regulations (including those of the United States Securities and Exchange Commission) or the requirements of the place where any affiliate is listed on a stock exchange, the Party receiving the Confidential Information (the “Receiving Party”) shall not disclose to any third party any Confidential Information. The Receiving Party shall not use any Confidential Information other than for the purpose of performing this Agreement.
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4.2 The following information shall not be deemed part of the Confidential Information:
(a) any information that has been lawfully acquired by the Receiving Party prior to entering into the Agreement as evidenced by other written documents;
(b) any information entering the public domain not attributable to the fault of the Party receiving the information; or
(c) any information lawfully acquired by the Party receiving the information through other sources after its receipt of such information.
4.3 If requested by either Party, the other Party shall return, destroy, or otherwise dispose of all documents, materials and software that contains or may contain any Confidential Information as requested, and promptly stop using such Confidential Information.
4.4 For purposes of performing this Agreement, the Receiving Party may disclose the Confidential Information to its relevant employees, agents or professionals retained by it. However, the Receiving Party shall ensure that the aforesaid persons shall comply with all relevant terms and conditions of this Article. In addition, the Receiving Party shall be responsible for any liability incurred as a result of such persons’ breach of the relevant terms and conditions of this Article 4.
4.5 The Parties’ obligations under this Article shall survive the termination of this Agreement. Each Party shall still comply with the confidentiality terms of this Agreement and fulfill the confidentiality obligations as promised, until the other Parties give consent to the release of such obligations or as a matter of fact, violation of the confidentiality terms herein will not cause damage of any form to the other Parties.
Article 5 Effectiveness, Termination and Term of this Agreement
5.1 Any written consent, proposal, appointment and any other decision made in connection with this Agreement which may have a material effect on Party B’s day-to-day business operations shall be made by Party A’s board of directors.
5.2 This Agreement shall become effective upon execution by each of the Parties on the date first written above and shall remain valid until it is terminated by written agreement of the Parties.
5.3 During the term of this Agreement, none of Party B or the Shareholders may terminate this Agreement. Party A shall have the sole right to terminate this Agreement at any time, provided that Party A gives prior written notice of thirty (30) days to Party B and the Shareholders. The parties may terminate this Agreement as they unanimously agree through negotiation.
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Article 6 Liability for Breach of Contract
6.1 Either Party’s direct or indirect violation of any provisions herein, or failure in assuming or untimely or insufficient assumption of, any of its obligations hereunder shall constitute a breach of contract. The non-defaulting Party (the “Non-Defaulting Party”) is entitled to send to the defaulting Party (the “Defaulting Party”) a written notice, requesting the Defaulting Party to rectify its breach, take sufficient, effective and timely measures to eliminate the effects of breach, and compensate the Non-Defaulting Party for any losses incurred by the breach.
6.2 After the occurrence of breach, and in the event that such a breach has made it impossible or unfair for the Non-Defaulting Party to perform its corresponding obligations hereunder based on the Non-Defaulting Party’s reasonable and objective judgments, the Non-Defaulting Party is entitled to send to the Defaulting Party a written notice of its temporary suspension of performance of corresponding obligations hereunder, until the Defaulting Party stops the breach, takes sufficient, effective and timely measures to eliminate the effects of breach, and compensate the Non- Defaulting Party for any losses incurred by the breach.
6.3 The losses of the Non-Defaulting Party that should be compensated by the Defaulting Party include direct economic losses and any foreseeable indirect losses and extra expenses incurred by the breach, including without limitation, attorney’s fees, litigation and arbitration fees, financial expenses and travel charges.
Article 7 Force Majeure
7.1 Force Majeure shall mean events beyond the reasonable control of the Parties that are unforeseeable or foreseeable but unavoidable, which cause obstruction in, impact on or delay in either Party’s performance of part or all of its obligations in accordance with this Agreement, including without limitation, government acts, natural disasters, wars, hacker attacks or any other similar events.
7.2. The Party affected by Force Majeure may suspend the performance of relevant obligations hereunder that cannot be performed due to Force Majeure until the effects of Force Majeure are eliminated, without having to assume any liability for breach of contract, provided however that such Party shall endeavor to overcome such events and reduce the negative effects to the best of its abilities.
7.3 The Party affected by Force Majeure shall provide the other Party with valid certificate documents verifying the occurrence of Force Majeure events, which documents shall be issued by the notary office where the events occur (or other appropriate agencies). In case the Party affected by Force Majeure cannot provide such certificate documents, the other Party may request such certificate documents in order to assume the liability for breach of contract in accordance with this Agreement.
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Article 8 Notices
8.1 Any notice, request, demand and other correspondence required by this Agreement or made in accordance with this Agreement shall be made in written form and delivered to the following address in person, by fax, telegram, telex, email
Party A: Mofy Metaverse (Beijing) Technology Co., Ltd.
Address: 307, Floor 3, Building 17, Courtyard 1, Balizhuang Bridge Nanli, Chaoyang District, Beijing
Attn:
Phone:
Party B: Global Mofy (Beijing) Technology Co., Ltd.
Address: No. 102, 1st Floor, Building A12, Xidian Memory Cultural and Creative Town, Gaobeidian Township, Chaoyang District, Beijing
Attn:
Phone:
8.2 If any such notice or other correspondence is transmitted by fax, telegram, telex or email, it shall be treated as delivered immediately upon transmission; if delivered in person, it shall be treated as delivered at the time of delivery; if delivered by registered mail or express mail, it shall be treated as delivered three (3) days after posting.
Article 9 Miscellaneous
9.1 This Agreement is written in English and translated into Chinese. In the event of any discrepancy between the two versions, the English version shall prevail. This Agreement is made with [ ]( ) original copies, of which Party A, Party B and the Shareholders will each hold one copy respectively.
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9.2 The execution, validity, performance, revision, interpretation and termination of this Agreement and the resolution of any dispute arising from this Agreement shall be governed in accordance with the laws and regulations of the PRC.
9.3 Should any dispute arise in connection with construction or performance of any provision under this Agreement, the Parties shall seek in good faith to resolve such dispute through negotiations. If the negotiations fail, any of the Parties may submit the dispute to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in Beijing in accordance with its arbitration rules then in effect, and the language of arbitration shall be in Chinese. The arbitration judgment shall be final and binding on each of the Parties.
9. 4 None of the rights, powers or remedies granted to any Party by any provision herein shall preclude any other rights, powers or remedies available to such Party at law and under the other provisions of this Agreement. In addition, a Party’s exercise of any of its rights, powers and remedies shall not exclude such Party from exercising any of its other rights, powers and remedies.
9.5 No failure or delay by a Party in exercising any rights, powers and remedies available to it hereunder or at law (“Such Rights”) shall result in a waiver thereof, nor shall the waiver of any single or part of Such Rights shall exclude such Party from exercising Such Rights in any other way and exercising other rights of such Party.
9.6 Each term contained herein shall be severable and independent from each of the other terms. In case any term herein becomes all or partly invalid or unenforceable due to violation of law or governmental regulations or other reasons, the affected part of such term shall be considered to have been removed, provided that the removal of the affected part of such term shall not affect the legal effect of the remaining part of such term or other terms herein. The Parties shall conclude new terms through consultations to replace such invalid or unenforceable terms.
9.7 The headings in this Agreement are written for ease of reference only and in no event shall they affect the interpretation of any terms of this Agreement.
9.8 Any amendment or supplement hereto shall be made in writing and shall become effective only upon due execution by the Parties hereto. Any Amended agreements and supplemental agreements executed by the Parties will become part of this Agreement, having the same legal effect as this Agreement.
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9.9 Matters not covered in this Agreement shall be determined by the Parties separately through consultation.
9.10 This Agreement constitutes all agreements reached by the Parties on the subject matter of the cooperation project, and supersedes any previous or concurrent oral and written agreement, understanding and correspondence relevant to the subject matter of the cooperation project between the Parties. Unless specifically provided herein, there is no other explicit or implicit obligation or covenant between the Parties.
9.11 Party B or shall not transfer any of its rights and/or obligations under this Agreement to any third party without prior written consent of Party A. To the extent not in contravention of the PRC Laws, Party A is entitled to transfer any of its rights and/or obligations under this Agreement to any third party designated by it without prior notice to or consent of Party B o.
9.12 This Agreement shall be binding on the legal successors or assigns of the Parties.
[The remainder of this page is intentionally left blank]
[Signature Page of Business Operation Agreement]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their duly authorized representatives on the date first written above.
Party A:
Authorized Representative (Signature): | /s/ Haogang Yang | |
Name: Haogang Yang |
Party B:
Authorized Representative (Signature): | /s/ Haogang Yang | |
Name: Haogang Yang |
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Exhibit 10.4
Consultation and Service Agreement
This Consultation and Services Agreement (the “Agreement”) is entered into as of January 5, 2022 in Beijing between the following two parties:
Party A: Mofy Metaverse (Beijing) Technology Co., Ltd.
Address: 307, Floor 3, Building 17, Courtyard 1, Balizhuang Bridge Nanli, Chaoyang District, Beijing
Party B: Global Mofy (Beijing) Technology Co., Ltd.
Address: Building A12, Xidian memory cultural and creative Town, Gaobeidian Township, Chaoyang District, Beijing
Whereas,
Party A is a wholly-foreign-owned enterprise established in China, and has the necessary resources to provide management and consulting services;
Party B is a company with exclusively domestic capital registered in China and needs Party A’s support and services during its business.
NOW THEREFORE, through friendly consultation, Party A and Party B hereby agree to enter into and perform this Agreement.
I. ANAGEMENT CONSULTING AND SERVICES
1. Party A hereby agrees to provide consultation and services to Party B in the area of fund, human, management and intellectual properties, and Party B hereby agrees to accept such management consultation and services in accordance with the terms and conditions under this Agreement. The management consultation and services provided by Party A include:
be responsible for providing training and support to the staff of Party B;
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be responsible for providing consultation services regarding the marketing of Party B;
be responsible for providing general advice and assistance relating to the management and operation of Party B’s business;
be responsible for providing other consultation and services which are necessary for Party B’s businesses.
2. Party B shall provide appropriate assistance to Party A for its work, including but not limited to providing the relevant data, requirement and directions.
3. The term of this Agreement is [thirty (30) years]. The Parties agree that, this Agreement can be extended only if Party A gives its written consent of the extension of this Agreement before the expiration of this Agreement and Party B shall agree with this extension without reserve. If Party B’s operation term is required to extended, Party B shall use its best efforts to renew its business license and extend its operation term until and unless otherwise instructed in Party A’s prior written notice.
4. Party A is the exclusive consultation and services provider of Party B; Party B shall not utilize third party to provide services which are same as or similar with Party A’s services and shall not establish similar corporation relationship with any third party regarding the matters contemplated by this Agreement without the prior written consent of Party A. Party A may appoint other parties to provide Party B with the consultations and/or services under this Agreement.
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II. SERVICES FEES
The Parties agree that, Party B shall pay relevant services fees to Party A which shall be determined according to the Appendix of this Agreement. This Appendix can be amended by the Parties in considering the circumstances.
III. INTELLECTUAL PROPERTY AND CONFIDENTIALITY
1. Unless otherwise stipulated in writing by the Parties, Party A shall be the sole and exclusive owner of all rights and interests to any and all intellectual property rights arising from the performance of this Agreement, including, but not limited to, any copyrights, patent, know-how and otherwise, whether developed by Party A or Party B. Party B shall execute all appropriate documents, take all appropriate actions, submit all filings and/or applications, render all appropriate assistance and otherwise conduct whatever is necessary as deemed by Party A in its sole discretion for the purposes of vesting any ownership, right or interest of any such intellectual property rights in Party A, and/or perfecting the protections for any such intellectual property rights in Party A. The Parties agree that this Section shall survive changes to, and rescission or termination of, this Agreement.
2. For the purpose of this Agreement, Confidential Information includes, but not limited to, (i) technical information, materials, program, drawing, data, parameter, standard, software, computer program, web design in connection with the development, design, research, produce and maintenance of technology disclosed by one Party to the other Party; (ii) any contracts, agreement, memo, annexes, draft or record (including this Agreement) entered into by the Parties for the purpose of this Agreement; and (iii) any information designated to be proprietary or confidential when it is disclosed by one Party to the other Party. Upon termination or expiration of this Agreement, Party B shall, return all and any documents, materials or software contained any of such Confidential Information to Party A or destroy it, delete all of such Confidential Information from memory devices, and cease to use them.
3. Any Party shall not disclose any Confidential Information to any third party in any way without the other Party’s prior written consent.
4. The Parties may disclose Confidential Information solely to its employees, agents or consultant who must know such information, subject to such employees, agents or consultant being bound by confidentiality obligations at least as restrictive as this Section 3.
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5. Notwithstanding the foregoing, Confidential Information shall not be deemed to include the following information:
(1) is or will be in the public domain (other than through the receiving Party’s unauthorized disclosure); or
(2) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities, in which case the receiving Party will promptly notify the disclosing Party, and will take reasonable and lawful steps to minimize the extent of the disclosure.
6. Any Party breaching confidentiality obligations under this Section shall indemnity all losses of the other Party.
IV. REPRESENTATIONS AND WARRANTIES
1. Party A hereby represents and warrants as follows:
(1)Party A is a wholly owned foreign enterprise legally registered and validly existing in accordance with the laws of China.
(2)Party A has taken all necessary corporate actions, obtained all necessary authorization and the consent and approval from third parties and government agencies (if any) for the execution and performance of this Agreement. Party A’s execution and performance of this Agreement do not violate any explicit requirements under any law or regulation binding on Party A.
(3)This Agreement constitutes Party A’s legal, valid and binding obligations, enforceable in accordance with its terms.
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2. Party B hereby represents and warrants as follows:
(1)Party B is a company legally registered and validly existing in accordance with the laws of China and has obtained the relevant permit and license for engaging in its business in a timely manner. It has independent legal person status, and has full and independent civil and legal capacity to execute, deliver and perform this Agreement. It can sue and be sued as a separate entity;
(2)Party B has taken all necessary corporate actions, obtained all necessary authorization and the consent and approval from third parties and government agencies (if any) for the execution and performance of this Agreement. Party B’s execution and performance of this Agreement do not violate any explicit requirements under any law or regulation binding on Party B.
(3)This Agreement constitutes Party B’s legal, valid and binding obligations, enforceable in accordance with its terms.
V. LIABILITY FOR BREACH OF AGREEMENT
1. The Parties agree and confirm that, if either Party is in breach of any provisions herein or fails to perform its obligations hereunder, such breach or failure shall constitute a default under this Agreement, which shall entitle the non-defaulting Party to request the defaulting Party to rectify or remedy such default with a reasonable period of time. If the defaulting Party fails to rectify or remedy such default within the reasonable period of time or within 30 days of non-defaulting Party’s written notice requesting for such rectification or remedy, then the non-defaulting Party shall be entitled to elect any one of the following remedial actions: (a) to terminate this Agreement and request the defaulting Party to fully compensate its losses and damages; (b) to request the specific performance by the defaulting Party of its obligations hereunder and request the defaulting Party to fully compensate all losses and damages of the non-defaulting Party.
2. No waiver of rights in respect of any default hereunder shall be valid unless it was made in writing. Any failure to exercise or delay in exercising any rights or remedy by any Party under this Agreement shall not be deemed as a waiver of such Party. Any partial exercise of any right or remedy shall not affect the exercise of any other rights and remedies.
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3. Notwithstanding Clause 5.1 above, the Parties agree and confirm that in no circumstance shall Party B early terminate this Agreement unless the applicable law provides otherwise or it has obtained the prior written consent of Party A.
4. The validity of this Section shall not be affect by the suspension or termination of this Agreement.
VI. FORCE MAJEURE
1. In this Agreement, “Force Majeure” will mean war, earthquake and other events which are unforeseen, inevitable and beyond the control of the Party.
2. If the Force Majeure causes any one party to the Agreement the impossibility to further perform this Agreement, the Parties agree that the suffering party will waive any liability to the other party for any loss that result from any such Force Majeure, provided that the suffering party shall continue to perform this Agreement after the Force Majeure.
VII. AMENDMENT AND TERMINATION
1. Any amendment of this Agreement shall come into force only after a written agreement is signed by both Parties.
2. During the term of this Agreement, unless Party A commits gross negligence, or a fraudulent act, against Party B, Party B shall not terminate this Agreement prior to its expiration date. Nevertheless, Party A shall have the right to terminate this Agreement upon giving 30 days’ prior written notice to Party B at any time.
3. During the term of this Agreement, if any Party is going into liquidation (either voluntary or compulsory), or is prohibited to conduct business by the governmental authority, the other Party shall be entitled to terminate this Agreement. The termination notice shall come into force upon the notice is sent.
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4. The amendment and termination of this Agreement shall not affect the exercise of any other remedies under this Agreement. Except when it may be exempted from liability according to law, the Party that is held responsible shall compensate the other Party for all losses and damages thus caused by such amendment or termination.
VIII. GOVERNING LAW AND DISPUTE RESOLUTION
1. The execution, effectiveness, interpretation, performance, amendment, termination and dispute resolution shall be governed by the law of the People’s Republic of China.
2. In the event of any dispute with respect to this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute, either Party may submit the relevant dispute to the Beijing Commission of China International Economic and Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing,and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.
3. Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.
VIIII. NOTICES
1. All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:
Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of acceptance or refusal at the address specified for notices.
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2. For the purpose of notices, the addresses of the Parties are as follows:
Party A: Mofy Metaverse (Beijing) Technology Co., Ltd.
Address: 307, Floor 3, Building 17, Courtyard 1, Balizhuang Bridge Nanli, Chaoyang District, Beijing
Attn:
Phone:
Party B: Global Mofy (Beijing) Technology Co., Ltd.
Address: Building A12, Xidian memory cultural and creative Town, Gaobeidian Township, Chaoyang District, Beijing
Attn
Phone
3. If any Party change its address for notices or its contact person, a notice shall be delivered to the other Party in accordance with the terms hereof.
X. ASSIGNMENT
1. Without Party A’s prior written consent, Party B shall not assign its rights and obligations under this Agreement to any third party.
2 .Party B agrees that Party A may assign its obligations and rights under this Agreement to any third party upon a prior written notice to Party B but without the consent of Party B.
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XI. MISCELLANEOUS
1. This Agreement shall become effective upon and from the date on which it is signed by the authorized representative and seal of each Party.
2. Any amendments and supplements to this Agreement shall be in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
3. The clauses in connection with confidentiality obligations, disputes resolution and default responsibilities shall survive rescission or termination of this Agreement.
4. In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any aspect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
5. This Agreement shall be signed in Chinese and English language bearing the same legal effect. In the event of any inconsistency between the Chinese and English language, the English version of this Agreement shall prevail. This Agreement shall have two counterparts, with each party holding one original. All counterparts shall be given the same legal effect.
[THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Consultation and Service Agreement as of the date first above written.
Party A: | ||
By: | /s/ Haogang Yang | |
Name: | Haogang Yang | |
Title: | Legal Representative |
Party B: | ||
By: | /s/ Haogang Yang | |
Name: | Haogang Yang | |
Title: | Legal Representative |
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Exhibit Provisions on the payment standard and method of technology service fee
1、Both Parties agreed that Party B should pay service fee relating to Article 1, paragraph 1 to Party A based on the following terms:
(1)Annual Fee
(2)Party B should pay [100%] of net profit after tax of Party B accepted by US GAAP to Party A as the annual fee (the “Annual Fee”) of technology support and service herein. The Annual fee should be paid to the designed bank account of Party A within 15 working days after the first day of each quarter of the year.
(3)Floating Charge
2、Besides the Annual Fee, Party B should pay Floating Charge (the “Floating Charge”), the amount of which should not be exceed total net profit accepted by the US GAAP deducting the Annual Fee of Party B, to Party A in each quarter of the year according to the technology support and service provided by Party A. The amount of the Floating Charge should be determined by both Parties based on the following factors:
(1)The number and qualification of the employees provided by Party A for the technology support and service in a certain quarter;
(2)The service time costed for the technology support and service in a certain quarter;
(3)The investment made for the technology support and service in a certain quarter;
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(4)The service and the value of the service provided for the technology support and service in a certain quarter;
(5)The operation revenue of Party B.
3、Within 15 days of the end of each quarter, Party A should provide all the required financial information to be used to calculate (the “Financial Information”) the Floating Charge on the certain quarter with Party B and should pay the Floating Charge within 30 days of the end each quarter. Both Parties can engage independent accountants with good reputation to audit on the Financial Information, if any Party has a doubt on it. The audit would be conducted during the business hour and should not be affect the normal business of Party B.
4、Party B should negotiate with Party B within 7 working days after receiving the written notice regarding the adjustment of the Annual Fee or the Floating Charge from Party A.
5、If Party B is in a status of loss accepted by the US GAAP, Party A is obliged to absorb all the loss of Party B and to pay the amount of loss to Party B.
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Exhibit 10.5
Equity Pledge Agreement
This Equity Pledge Agreement (this “Agreement”) is entered into in the People’s Republic of China (the “PRC”) on January 【】, 2022, by and among the following Parties:
Party A: (“Shareholder”)
Identity Card No.: 【】
(Shareholders listed above are hereinafter referred to individually as a “Pledgor” and collectively as the “Pledgors.”)
Party B: Mofy Metaverse (Beijing) Technology Co., Ltd. (the “Pledgee”)
Registered address: 307, Floor 3, Building 17, Courtyard 1, Balizhuang Bridge Nanli, Chaoyang District, Beijing
Party C: Global Mofy (Beijing) Technology Co., Ltd. (the “Company”)
Registered address: Building A12, Xidian memory cultural and creative Town, Gaobeidian Township, Chaoyang District, Beijing
(In this Agreement, the above parties are hereinafter referred to individually as a “Party” and collectively as the “Parties.”)
WHEREAS:
(1) The Pledgors are the registered shareholders of the Company, legally holding 【xx%】 equity interest of the Company (the “Company Equity Interest”). Appendix 1 sets forth the capital contribution amount and the shareholding percentage of each Pledgor in the registered capital of the Company on the signing date of this Agreement.
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(2) The Pledgee is a wholly foreign-owned company incorporated and validly existing in accordance with laws of the PRC.
(3) The Company is a limited liability company incorporated and validly existing in accordance with laws of the PRC.
(4) In accordance with the provisions of the Exclusive Call Option Agreement entered into by and among the Parties to this Agreement on January 【】, 2022, the Pledgors shall, to the extent permitted under PRC Law, transfer all or part of its equity interests held in the Company to the Pledgee and/or any other entities or individuals designated by the Pledgee based on the Pledgee’s request.
(5) In accordance with the provisions of the Shareholder Voting Proxy Agreement (the “Entrustment Agreement”) entered into by and among the Parties to this Agreement on January 【】, 2022, the Pledgors entirely entrust the individual designated by the Pledgee to exercise all the voting rights the Pledgors have as the shareholders of the Company.
(6) In accordance with the Consultation and Service Agreement executed between the Company and the Pledgee on January 【】, 2022, the Company has exclusively engaged the Pledgee to provide relevant consultation services for it and agreed to pay corresponding service fees to the Pledgee for such consultation services.
(7) As the Pledgors’ security for the performance of the Contractual Obligations (as defined below) and the repayment of the Secured Liabilities (as defined below) by the Pledgors, the Pledgors are willing to pledge all the Company Equity Interest held by each Pledgor to the Pledgee and grant the Pledgee the right to request for repayment on first priority, and the Company agrees to such equity interest pledge arrangement.
NOW, THEREFORE, the Parties, through amicable negotiations and based on the principle of equality and mutual benefit, hereby agree as follows:
Article 1 Definitions
1.1
Unless otherwise indicated in context of this Agreement, the following terms shall be interpreted as follows.
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“Contractual Obligations” means all the contractual obligations of the Pledgors and/or the Company under the Exclusive Call Option Agreement, the Consultation and Service Agreement, the Entrustment Agreement, the Business Operation Agreement executed by the Parties on January 【】, 2022 and all the contractual obligations of the Pledgors and the Company under this Agreement.
“Secured Liabilities” means all the direct, indirect and consequential losses and loss of foreseeable profits suffered by the Pledgee due to any Event of Default (as defined below) on the part of the Pledgors and/or the Company. The basis for determining the amount of such losses includes but is not limited to the reasonable commercial plan and profit forecast of the Pledgee, and all the expenses incurred by the Pledgee to enforce the performance by the Pledgors and/or the Company of their Contractual Obligations.
“Transaction Documents” means the Exclusive Call Option Agreement, the Entrustment Agreement, the Business Operation Agreement and the Consultation and Service Agreement.
“Event of Default”: means the Pledgors’ violation of any Contractual Obligations under the Exclusive Call Option Agreement, the Business Operation Agreement, the Entrustment Agreement and/or this Agreement, and the Company’s violation of any Contractual Obligations under the Exclusive Call Option Agreement, the Business Operation Agreement, the Entrustment Agreement, the Consultation and Service Agreement and/or this Agreement.
“Pledged Equity Interest” means all of the Company Equity Interest lawfully owned by the Pledgors and to be pledged to the Pledgee in accordance with this Agreement as security for the performance of the Contractual Obligations by the Pledgors and the Company (see Appendix 1) for the specific Pledged Equity Interest of each Pledgor, and the increased capital contribution amount and dividend as provided in Article 2.6 and Article 2.7 of this Agreement.
“PRC” means the People’s Republic of China, for the purpose of this Agreement only, excluding the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan.
“PRC Law” means the then-effective laws, administrative regulations, administrative rules, local regulations, judicial interpretations and other binding regulatory documents of the PRC.
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1.2.
Any reference to any PRC Law in this Agreement shall be deemed (1) to include references to the amendments, changes, supplements and restatement of such PRC Law, irrespective of whether they take effect before or after the execution of this Agreement, and (2) to include the references to other decisions, notices and regulations enacted in accordance therewith or effective as a result thereof.
1.3
Unless otherwise specified in the context herein, any reference to an Article, clause, item or paragraph in this Agreement shall refer only to the corresponding part of this Agreement.
Article 2 Pledge of Equity Interest
2.1
The Pledgors hereby agree to pledge the Pledged Equity Interest, which they lawfully own and are entitled to dispose of, to the Pledgee in accordance with the provisions of this Agreement as the security for the performance of the Contractual Obligations and the discharge of the Secured Liabilities, if any. The Company hereby agrees to the Pledgors’ pledge of the Pledged Equity Interest to the Pledgee in accordance with the provisions of this Agreement. Specifically, on the date of execution of this Agreement, the Pledgors pledge their equity collectively accounting for 【xx%】 of the Company’s registered capital to the Pledgee.
2.2
The Pledgors undertake to be responsible for registering the equity interest pledge arrangement (the “Equity Pledge”) under this Agreement on the Company’s register of shareholders immediately upon the execution date of this Agreement. The Company undertakes that it will do its best to cooperate with the Pledgors to complete the registration with authorities of industry and commerce under this Article. The equity pledge under this Agreement shall be established on the date when the pledge is registered with the registration authorities of industry and commerce where the Company registers. The Pledgors shall provide the Pledgee with evidence of the registration of the Equity Pledge on the register of shareholders in a form satisfactory to the Pledgee and shall, after the registration of the Equity Pledge is completed and as required by the Pledgee, provide the Pledgee with the pledge certificates issued by the administration of industry and commerce in form to the satisfaction of the Pledgee.
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2.3
During the valid term of this Agreement, unless directly attributable to the Pledgee’s willful misconduct or the Pledgee’s gross negligence in relation to the performance of this Agreement and/or the transactions related hereto, the Pledgee shall in no way be held liable for any reduction in the value of the Pledged Equity Interest, and the Pledgors shall have no right to claim any compensation against the Pledgee.
2.4
Without breaching the provisions of Article 2.3 above, if there is any probability that the value of the Pledged Equity Interest will notably reduce in such a way as to jeopardize the rights of the Pledgee, the Pledgee may at any time auction or sell the Pledged Equity Interest on behalf of the Pledgors, and may reach agreement with the Pledgors to use the proceeds from such auction or sales to prepay the Secured Liabilities or to deposit such proceeds with the notary office in the place where the Pledgee is domiciled (all expenses so incurred shall be borne by the Pledgee). Further, if requested by the Pledgee, the Pledgors shall offer additional security interest over other property for the Secured Liabilities.
2.5
Upon the occurrence of any Event of Default, the Pledgee has the right to dispose of the Pledged Equity Interest in accordance with Article 4 of this Agreement.
2.6
The Pledgors shall not increase the registered capital of the Company without the Pledgee’s prior consent. The increased capital contribution amount of the Pledgors in the registered capital of the Company as a result of such capital increase of the Company shall be a part of the Pledged Equity Interest.
2.7
No dividend or capital bonus on the Pledged Equity Interest shall be distributed to the Pledgors without the Pledgee’s prior written consent. The Pledgors agree that during the term of pledge, the Pledgee has the right to collect any dividend or capital bonus out of the Pledged Equity Interest. The Company shall pay such amount into the bank account designated by the Pledgee.
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Article 3 Release of Pledge
3.1
After the Pledgors and the Company have fully and completely performed all of the Contractual Obligations and discharged all of the Secured Liabilities, the Pledgee shall, upon the Pledgors’ request, release the Equity Pledge under this Agreement and cooperate with the Pledgors to go through the formalities to cancel the registration of the Equity Pledge on the Company’s register of shareholders and with the administration of industry and commerce in charge of the Company. The reasonable fees incurred in connection with such release shall be borne by the Pledgee.
Article 4 Disposal of Pledged Equity Interest
4.1
The Parties agree that if any Event of Default occurs, the Pledgee has the right to exercise, upon giving a written notice to the Pledgors, all of the remedial rights and powers that it is entitled to under PRC Law, the Transaction Documents and the provisions of this Agreement, including but not limited to being compensated in first priority with proceeds from auctions or sales of the Pledged Equity Interest. The Pledgee shall not be liable for any loss caused by its reasonable exercise of such rights and powers.
4.2
The Pledgee has the right to delegate in writing to its legal counsels or other agents to exercise all or any part of its rights and powers above, and neither the Pledgors nor the Company may oppose such actions.
4.3.
The Pledgee has the right to deduct the reasonable expenses actually incurred from its exercise of all or any part of its rights and powers set forth above from the proceeds gained from its exercise of such rights and powers.
4.4
The proceeds gained from the Pledgee’s exercise of its rights and powers shall be settled in the following order of priority:
(a)
pay all expenses arising out of the disposal of the Pledged Equity Interest and the Pledgee’s exercise of its rights and powers (including the remuneration paid to its legal counsels and agents);
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(b)
pay all taxes and charges payable owed in relation to the disposal of the Pledged Equity Interest; and
(c)
repay the Secured Liabilities to the Pledgee.
If there is any balance remaining after the payment of the above amounts, the Pledgee shall return the balance to the Pledgors or any other person entitled to such amount pursuant to relevant laws and regulations, or deposit such amount with the notary office in the place where the Pledgee is domiciled (all expenses so incurred shall be borne by the Pledgee).
4.5.
The Pledgee has the discretion to, simultaneously or separately, exercise any remedies it may be entitled to in relation to any Event of Default. The Pledgee may exercise its rights to auction or sell the Pledged Equity Interest under this Agreement without first exercising any other remedy that may be available in an event of default.
Article 5 Costs and Expenses
5.1
All actual expenses related to the creation of the Equity Pledge under this Agreement, including but not limited to, stamp duty, any other taxes, and all legal fees shall be assumed as incurred by each respective Party.
Article 6 Continuity and No Waiver
6.1
The Equity Pledge created under this Agreement is a continuing assurance, which shall be valid until the Contractual Obligations are fully performed or the Secured Liabilities are fully discharged. Neither waiver or grace period of any event of default of the Pledgors given by the Pledgee, nor the Pledgee’s late exercise of any of its rights under the Transaction Documents and this Agreement, shall affect the rights of the Pledgee pursuant to this Agreement, the Transaction Documents or the relevant PRC Law as it may require at any time thereafter the Pledgors’ strict implementation of the Transaction Documents and this Agreement, or the rights the Pledgee is entitled to with respect to the Pledgors’ subsequent breach of the Transaction Documents and/or this Agreement.
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Article 7 Pledgors’ Representations and Warranties
The Pledgors hereby severally and jointly represent and warrant to the Pledgee as follows:
7.1.
Each of the Pledgors is a PRC citizen with full legal capacity, having full civil rights and powers to execute this Agreement and assume the legal obligations in accordance with this Agreement.
7.2
All the reports, documents and information related to the Pledgors and all the matters required under this Agreement that the Pledgors provided to the Pledgee prior to the effectiveness of this Agreement are true and accurate in all material respects as of the effectiveness of this Agreement.
7.3
All the reports, documents and information related to the Pledgors and all the matters required under this Agreement to be provided by the Pledgors to the Pledgee after the effectiveness of this Agreement will be true and valid in all material aspects at the time when they are provided.
7.4.
Upon the effectiveness of this Agreement, each of the Pledgors is the sole legal owner of the Pledged Equity Interest. There are no pending disputes whatsoever concerning the ownership of the Pledged Equity Interest. The Pledgors are entitled to dispose of the Pledged Equity Interest or any part thereof.
7.5
Except the encumbrance set on the Pledged Equity Interest under this Agreement and the rights created under the Transaction Documents, there are no other encumbrance or third party rights over the Pledged Equity Interest.
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7.6
The Pledged Equity Interest can be legally pledged and transferred, and the Pledgors have full rights and powers to pledge the Pledged Equity Interest to the Pledgee in accordance with the provisions of this Agreement.
7.7
This Agreement, upon due execution by the Pledgors, constitutes the lawful, valid and binding obligations of the Pledgors after the signing of this Agreement.
7.8
Any approvals, permits, waivers and authorizations by any third party, or any required governmental approvals, permits and waivers or any registration or filing formalities with any government authorities (if legally required), which are required with respect to the execution and performance of this Agreement and the Equity Pledge under this Agreement, have been obtained or completed (subject to Article 2.2), and will be fully effective during the term of this Agreement.
7.9.
Each Pledgor’s execution and performance of this Agreement does not violate or conflict with any laws applicable thereto, any agreement to which it is a party or by which its assets are bound, or any court adjudication, any arbitration award or any decision of administrative authorities.
7.10
The pledge under this Agreement constitutes a first priority encumbrance over the Pledged Equity Interest.
7.11
All taxes and expenses payable for obtaining the Pledged Equity Interest have been paid by the Pledgors in full.
7.12
There is no pending or, to the knowledge of the Pledgors, threatened litigation, legal process or demand by any court or any arbitral tribunal against the Pledgors, or their property, or the Pledged Equity Interest, nor is there any pending or, to the knowledge of the Pledgors, threatened litigation, legal process or demand by any government authority or any administration authority against the Pledgors, or their property, or the Pledged Equity Interest, which is of material or detrimental effect on the economic status of the Pledgors or their capability to perform the obligations hereunder and the Secured Liabilities.
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7.13
The Pledgors hereby undertake to the Pledgee that the above representations and warranties will all be true and accurate and be fully complied with under any circumstance and at all times before the Contractual Obligations are due to be performed in full or the Secured Liabilities are discharged in full.
7.14
If the Company is required to be dissolved or liquidated as per compulsory provisions of applicable laws, any interest distributed to the Pledgors according to law upon completion of legal dissolution or liquidation of the Company shall be presented to the Pledgee or the entity/individual designated by the Pledgee to the extent not in violation of the PRC Law.
Article 8 Company’s Representations and Warranties
The Company represents and warrants to the Pledgee as follows:
8.1
The Company is a limited liability company duly registered and lawfully existing under the laws of the PRC with independent legal person status, and can be an independent party to a lawsuit.
8.2
All the reports, documents and information related to the Pledged Equity Interest and all the matters required under this Agreement which the Company provided to the Pledgee prior to the effectiveness of this Agreement are true and accurate in all material respects as of the effectiveness of this Agreement.
8.3
All the reports, documents and information related to the Pledged Equity Interest and all the matters required under this Agreement to be provided by the Company to the Pledgee after the effectiveness of this Agreement will be true and valid in all material aspects at the time when they are provided.
8.4
This Agreement, upon due execution by the Company, constitutes the lawful, valid and binding obligations of the Company.
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8.5
The Company has full internal corporate power and authorization to execute and deliver this Agreement and all other documents related to the transaction contemplated in this Agreement and to be executed by it. It has full power and authorization to complete the transaction contemplated in this Agreement.
8.6
There is no pending or, to the knowledge of the Company, threatened litigation, legal process or demand by any court or any arbitral tribunal against the Company, or its property, or the Pledged Equity Interest, nor is there any pending or, to the knowledge of the Company, threatened litigation, legal process or demand by any government authority or any administration authority against the Company, or its property, or the Pledged Equity Interest, which is of material or detrimental effect on the economic status of the Company or its capability to perform the obligations hereunder and the Secured Liabilities.
8.7
The Company hereby agrees to assume the joint and several liability to the Pledgee with respect to the representations and warranties made by the Pledgors under Article 7.4, Article 7.5, Article 7.6, Article 7.8 and Article 7.10 of this Agreement.
8.8
The Company hereby undertakes to the Pledgee that the above representations and warranties will all be true and accurate and be fully complied with under any and all circumstances and at any time up until the Contractual Obligations are performed in full and the Secured Liabilities are discharged in full.
8.9
If the Company is required to be dissolved or liquidated as per compulsory provisions of the PRC Law, the Company assets shall be sold to the Pledgors or qualified entities/individuals designated by the Pledgors at the lowest price permitted by the then-effective PRC Law in accordance with the PRC Law.
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Article 9 Pledgors’ Undertakings
The Pledgors hereby severally and jointly undertake to the Pledgee as follows:
9.1
Without the prior written consent of the Pledgee, the Pledgors shall not create, or allow to be created, any new pledge or any other security interest over the Pledged Equity Interest. Any pledge or other security interest created over all or any part of the Pledged Equity Interest without the prior written consent of the Pledgee shall be invalid.
9.2
Without the prior written notice to and the prior written consent of the Pledgee, the Pledgors shall not transfer the Pledged Equity Interest and all activities of the Pledgors to transfer the Pledged Equity Interest shall be invalid. The proceeds obtained from the Pledgors’ transfer of the Pledged Equity Interest shall be used first to prepay the Secured Liabilities to the Pledgee or to be deposited with a third party as agreed with the Pledgee.
9.3
In the event of the occurrence of any lawsuit, arbitration or other claim which may have an adverse effect on the interests of the Pledgors or the Pledgee under the Transaction Documents and this Agreement or on the Pledged Equity Interest, the Pledgors undertake to notify the Pledgee in writing as soon as possible and in a timely manner, and, as reasonably required by the Pledgee, to take all necessary measures to ensure that the Pledgee secures and maintains all rights, title and interest to the Pledged Equity Interest.
9.4.
The Pledgors undertake to complete the registration formalities to extend the business term of the Company three months before the expiration of the business term of the Company so as to continue the effect of this Agreement.
9.5
The Pledgors shall not take, or allow to be taken, any activity or action which may have an adverse effect on the Pledgee’s interest under the Transaction Documents and this Agreement or on the Pledged Equity Interest. The Pledgors waive the right of first refusal to purchase the Pledged Equity Interest when the Pledgee realizes its pledge rights.
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9.6
The Pledgors shall, after signing this Agreement, use their best efforts and take all necessary measures to register the Equity Pledge under this Agreement with the relevant administration of industry and commerce as soon as possible, and the Pledgors undertake to, as reasonably required by the Pledgee, take all necessary measures and execute all necessary documents (including but not limited to any agreement supplemental to this Agreement) to ensure the exercise and realization of the transfer of all rights, title and interest to the Pledged Equity Interest.
9.7
When the right of pledge of the Pledged Equity Interest is exercised under this Agreement, the Pledgors shall undertake to take all measures to complete such transfer.
9.8
The Pledgors shall ensure that the convening process, voting methods and resolutions of the shareholders meetings and board meetings of the Company convened for the purpose of the exercise of the right of pledge under this Agreement shall not be in conflict with the laws, administrative regulations or the articles of association of the Company.
Article 10 Company’s Undertakings
10.1
If any third party approval, permit, waiver or authorization, or any required governmental approval, permit or waiver, or any registration or filing formalities with any government authorities (if legally required) is required to be obtained or completed for the execution and performance of this Agreement and for the Equity Pledge under this Agreement, the Company shall endeavor to assist the Parties in obtaining it and keeping it fully effective during the valid term of this Agreement.
10.2
Without the prior written consent of the Pledgee, the Company shall not cooperate to establish or permit to establish any new pledge or any other encumbrance on the Pledged Equity Interest.
10.3
Without the prior written consent of the Pledgee, the Company shall not cooperate to transfer or permit to transfer the Pledged Equity Interest.
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10.4
In the event of the occurrence of any lawsuit, arbitration or other claim which may have an adverse effect on the Company, the Pledged Equity Interest or the Pledgee’s interest under the Transaction Documents and this Agreement, the Company undertakes to notify the Pledgee in writing as soon as possible and in a timely manner, and, as reasonably required by the Pledgee, to take all necessary measures to ensure the pledge interest of the Pledgee over the Pledged Equity Interest.
10.5
The Company undertakes to complete the registration formalities to extend its business term three months before the expiration of its business term so as to continue the effect of this Agreement.
10.6
The Company shall not take, or allow to be taken, any activity or action which may have an adverse effect on the Pledgee’s interest under the Transaction Documents and this Agreement or on the Pledged Equity Interest, including but not limited to any activity or action restricted under Article 9.
10.7
The Company shall, in the first month of each calendar quarter, provide the Pledgee with the financial statements of the Company for the immediately preceding calendar quarter, including but not limited to the balance sheet, the profit and loss statements and the cash flow statements.
10.8
The Company undertakes to, as reasonably required by the Pledgee, take all necessary measures and execute all necessary documents (including but not limited to any agreement supplemental to this Agreement) to ensure the exercise and realization of the transfer of the Pledged Equity Interest to the Pledgee.
10.9
At such time as the exercise of the right of pledge under this Agreement results in the transfer of any Pledged Equity Interest, the Company undertakes to take all measures to ensure completion of such transfer.
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Article 11 Change of Circumstances
11.1
As a supplement to and not with the intent of conflicting with the Transaction Documents or other provisions of this Agreement, if at any time, due to the promulgation of or change in any PRC Law, regulations or rules , or the change in interpretation or application of such laws, regulations or rules, or the change of relevant registration procedures, the Pledgee believes that it is illegal or in conflict with such laws, regulations and rules to keep this Agreement effective, to keep the right of pledge under this Agreement effective and/or to dispose of the Pledged Equity Interest in accordance with this Agreement, the Pledgors and the Company shall promptly take any and all actions and/or execute any agreements or other documents upon written instruction by the Pledgee and as reasonably required by the Pledgee, so as to:
(a)
keep this Agreement and the right of pledge under this Agreement effective;
(b)
facilitate the disposal of the Pledged Equity Interest in accordance with this Agreement; and/or
(c)
keep or realize the security created or intended by this Agreement.
Article 12 Effectiveness, Termination and Term of this Agreement
12.1
This Agreement shall come into effect upon execution by each of the Parties on the date first written above.
12.2
The term of this Agreement shall end upon the full performance of the Contractual Obligations or the full discharge of the Secured Liabilities.
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Article 13 Notices
13.1
Any notice, request, demand and other correspondence required by this Agreement or made in accordance with this Agreement shall be made in written form and delivered to the following address in person, by fax, telegram, telex, email, registered mail (postage paid) or express mail.
To the Pledgors:
Address:
Email:
To the Pledgee: Mofy Metaverse (Beijing) Technology Co., Ltd.
Address:
Email:
To the Company: Global Mofy (Beijing) Technology Co., Ltd.
Address:
Email:
13.2
If any such notice or other correspondence is transmitted by fax, telegram, telex or email, it shall be treated as delivered immediately upon transmission; if delivered in person, it shall be treated as delivered at the time of delivery; if delivered by registered mail or express mail, it shall be treated as delivered three (3) days after posting.
Article 14 Miscellaneous
14.1
This Agreement is written in English and translated into Chinese. In the event of any discrepancy between the two versions, the English version shall prevail. This Agreement is made with Four (4) original copies, with one (1) original to be retained by each Party hereto. One (1) original is to be used for the application to the local Administration of Industry and Commerce in charge of the Company for registration of the Equity Pledge under this Agreement.
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14.2
The execution, validity, performance, revision, interpretation and termination of this Agreement and the resolution of any dispute arising from this Agreement shall be governed in accordance with the laws of the PRC.
14.3
Should any dispute arise in connection with construction or performance of any provision under this Agreement, the Parties shall seek in good faith to resolve such dispute through negotiations. If the negotiations fail, any of the Parties may submit the dispute to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in Beijing in accordance with CIETAC’s arbitration rules then in effect at the time of applying for arbitration, and the language of arbitration shall be in Chinese. The arbitration award shall be final and binding on each of the Parties.
14.4
None of the rights, powers or remedies granted to any Party by any provision herein shall preclude any other rights, powers or remedies available to such Party at law and under the other provisions of this Agreement. In addition, a Party’s exercise of any of its rights, powers and remedies shall not exclude such Party from exercising any of its other rights, powers and remedies.
14.5
No failure or delay by a Party in exercising any rights, powers and remedies available to it hereunder or at law (“Such Rights”) shall result in a waiver thereof, nor shall the waiver of any single or part of Such Rights shall exclude such Party from exercising Such Rights in any other way and exercising other rights of such Party.
14.6
Each term contained herein shall be severable and independent from each of the other terms. In case any term herein becomes all or partly invalid or unenforceable due to violation of law or governmental regulations or other reasons, the affected part of such term shall be considered to have been removed, provided that the removal of the affected part of such term shall not affect the legal effect of the remaining part of such term or other terms herein. The Parties shall conclude new terms through consultations to replace such invalid or unenforceable terms.
14.7
The headings in this Agreement are written for ease of reference only and in no event shall they affect the interpretation of any terms of this Agreement.
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14.8
Any amendments or supplements to this Agreement shall be made in writing. Except for any assignment by the Pledgee of its rights hereunder according to Article 14.1, the amendments or supplements to this Agreement shall take effect only upon the due execution by the Parties to this Agreement. If any amendments or supplements to this Agreement legally require any approval of and/or any registration or filing with any government authority, the Parties shall obtain such approval and/or complete such registration or filing in accordance with law.
14.9
Matters not covered in this Agreement shall be determined by the Parties separately through consultation.
14.10
This Agreement constitutes all agreements reached by the Parties on the subject matter of the cooperation project, and supersedes any previous or concurrent oral and written agreement, understanding and correspondence relevant to the subject matter of the cooperation project between the Parties. Unless specifically provided herein, there is no other explicit or implicit obligation or covenant between the Parties.
14.11
The Pledgors or the Company shall not transfer any of its rights and/or obligations under this Agreement to any third party without prior written consent of the Pledgee. To the extent not in contravention of the PRC Laws, the Pledgee may, upon written notice to the Pledgors and the Company, transfer any of its rights and/or obligations under this Agreement to any third party designated by it.
14.12
When the Pledgee exercises its right of pledge to the Pledged Equity Interest pursuant to the provisions hereof, the amount of the Secured Liabilities determined by the Pledgee at its own discretion shall be regarded as the conclusive evidence of the Secured Liabilities hereunder.
14.13
Upon execution of this Agreement, each Pledgor shall sign a Power of Attorney (in the form set out in Appendix hereto, the “Power of Attorney”) to authorize any person designated by the Pledgee to sign on the Pledgors’ behalf according to the terms of this Agreement, any and all legal documents necessary for the exercise of the Pledgee’s rights hereunder. Such Power of Attorney shall be delivered to the Pledgee to keep in custody and, when necessary and as needed, the Pledgee may at any time submit the Power of Attorney to the relevant government authority.
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14.14
This Agreement shall be binding upon the legal successors or assigns of the Parties.
[The remainder of this page is intentionally left blank]
[Signature Page of Equity Pledge Agreement]
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IN WITNESS WHEREOF, the following Parties have executed this Agreement on the date and at the place first above written.
Shareholders:
Mofy Metaverse (Beijing) Technology Co., Ltd. (Seal)
Authorized Representative (Signature): | ||
Name: |
Global Mofy (Beijing) Technology Co., Ltd. (Seal)
Authorized Representative (Signature): | ||
Name: |
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Exhibit 10.6
Exclusive Call Option Agreement
This Exclusive Call Option Agreement (this “Agreement”) is entered into in the People’s Republic of China (the “PRC”) on January 【】, 2022 by and among the following Parties:
Party A: (“Shareholders”)
(Shareholders listed above are hereinafter referred to individually as a “Shareholder” and collectively as the “Shareholders.”)
Party B: Mofy Metaverse (Beijing) Technology Co., Ltd. (the “WFOE”)
Registered address: 307, Floor 3, Building 17, Courtyard 1, Balizhuang Bridge Nanli, Chaoyang District, Beijing
Party C: Global Mofy (Beijing) Technology Co., Ltd. (the “Company”)
Registered address: Building A12, Xidian memory cultural and creative Town, Gaobeidian Township, Chaoyang District, Beijing
(In this Agreement, the above parties are hereinafter referred to individually as a “Party” and collectively as the “Parties.”)
Whereas:
The Pledgors are the registered shareholders of the Company, legally holding 【】% equity interest of the Company (the “Company Equity Interest”). Appendix 1 sets forth the capital contribution amount and the shareholding percentage of each Pledgor in the registered capital of the Company on the signing date of this Agreement.
(1)
The Shareholders are the registered shareholders of the Company, legally holding 【】% equity interest of the Company. Appendix 1 sets forth the capital contribution amount and the shareholding percentage of each of the Shareholders in the registered capital of the Company as of the date of this Agreement.
(2)
To the extent not in violation of PRC Law, the Company intends to transfer its assets to the WFOE and/or any other entity or individual so designated by the WFOE, and the WFOE intends to accept such transfer.
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(3)
For purposes of the foregoing equity interest and asset transfer, the Shareholders and the Company agree to grant to the WFOE the exclusive and irrevocable Equity Transfer Option (as defined below) and Asset Purchase Option (as defined below). Pursuant to such Equity Transfer Option and Asset Purchase Option, at the WFOE’s sole request, the Shareholders or the Company shall, to the extent permitted by the PRC Law, transfer the Shareholder Equity (as defined below) or the Company Assets (as defined below) to the WFOE and/or any other entity or individual so designated by the WFOE pursuant to the provisions of this Agreement.
(4)
The Company agrees that the Shareholders grant the Equity Transfer Option to the WFOE pursuant to the provisions of this Agreement.
(5)
The Shareholders agree that the Company grants the Asset Purchase Option to the WFOE pursuant to the provisions of this Agreement.
NOW, THEREFORE, the Parties, through amicable negotiations and based on the principle of equality and mutual benefit, hereby agree as follows:
Article 1 Definitions
1.1
As used in this Agreement, the following terms shall be interpreted to have the following meanings, unless otherwise interpreted pursuant to the context:
“Asset Purchase Option” shall mean the required option to purchase any Company Assets as granted to the WFOE by the Company pursuant to the terms and conditions of this Agreement.
“Business Permits” shall mean any approvals, permits, filings, or registrations which the Company is required to obtain in order to legally and validly operate all of its businesses, including without limitation, its business license and such other relevant permits and licenses as may be required by the then-effective PRC Law.
“Company Assets” shall mean all the tangible and intangible assets which the Company owns or has the right to dispose of during the term of this Agreement, including without limitation, any immoveable and moveable assets, intellectual property rights such as trademarks, copyrights, patents, know-how, domain names and software use rights, and any investment interests.
“Company Registered Capital” shall mean the registered capital of the Company as of the signing date of this Agreement, which shall include any expanded registered capital as a result of any capital increase in any form during the term of this Agreement.
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“Equity Transfer Option” shall mean the option to purchase all of the Shareholder Equity held by each of the Shareholders as granted to the WFOE by the Shareholders pursuant to the terms and conditions of this Agreement.
“Exercise of Option” shall mean the exercise of the Equity Transfer Option or the Asset Purchase Option by the WFOE.
“Material Asset” shall mean any asset which has a book value of RMB100,000 or more or has a material effect on the business operations of any Party.
“Material Agreement” shall mean, in respect to the Company, any agreement to which the Company is a party and which has a material effect on the business or assets of the Company, including without limitation, the Consultation and Service Agreement entered into by the Company and the WFOE on [ ], 2022 and other important agreements regarding the business of the Company; in respect of a Subsidiary, any agreement to which such Subsidiary is a party and which has a material effect on the business or assets of such Subsidiary.
“PRC” shall mean the People’s Republic of China, which, for purposes of this Agreement only, excluding the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan.
“PRC Law” shall mean the then-effective laws, administrative regulations, administrative rules, local regulations, judicial interpretations and other binding regulatory documents of the PRC.
“Shareholder Equity” shall mean, in respect of each of the Shareholders, all the equity interest held by it in the Company Registered Capital, respectively, in respect of all the Shareholders, the equity interest covering 100% of the Company Registered Capital.
“Transferred Assets” shall mean the Company Assets which the WFOE has the right to require the Company to transfer to it or its designated entity or individual in accordance with Article 3 hereof when the WFOE exercises its Asset Purchase Option, the quantity of which may be all or part of the Company Assets and the details of which shall be determined by the WFOE at its sole discretion in accordance with the then-effective PRC Law and based on its commercial consideration.
“Transferred Equity” shall mean the equity interest in the Company which the WFOE has the right to request either of the Shareholders to transfer to it or its designated entity or individual in accordance with Article 3 hereof when the WFOE exercises its Equity Transfer Option, the quantity of which may be all or part of the Shareholder Equity and the specific amount of which shall be determined by the WFOE at its sole discretion in accordance with the then-effective PRC Law and based on its commercial consideration.
“Transfer Price” shall mean all the consideration that the WFOE or its designated entity or individual is required to pay to the Shareholders or the Company in order to obtain the Transferred Equity or the Transferred Assets upon each Exercise of Option as provided herein.
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1.2
The references to any PRC Law herein shall be deemed to:
(a)
simultaneously include any and all references to the amendments, changes, supplements and restatements of such PRC Law, irrespective of whether they take effect before or after the execution of this Agreement; and
(b)
simultaneously include the references to other decisions, notices and regulations enacted in accordance therewith or effective as a result thereof.
1.3
Except as otherwise stated in the context herein, all references to an article, clause, item or paragraph shall refer to the corresponding part of this Agreement.
Article 2 Grant of Equity Transfer Option and Asset Purchase Option
2.1
The Shareholders hereby severally and jointly agree to grant the WFOE an irrevocable, unconditional and exclusive Equity Transfer Option. Pursuant to such Equity Transfer Option, the WFOE is entitled, to the extent permitted under PRC Law, to request the Shareholders to transfer the Shareholder Equity to the WFOE, or the WFOE’s designated entity or individual, according to the terms and conditions hereunder. The WFOE also agrees to accept such Equity Transfer Option.
2.2
The Company hereby agrees that the Shareholders grant such Equity Transfer Option to the WFOE according to Article 2.1 above and other provisions of this Agreement.
2.3
The Company hereby agrees to grant the WFOE an irrevocable, unconditional and exclusive Asset Purchase Option. Pursuant to such Asset Purchase Option, the WFOE is entitled, to the extent permitted under PRC Law, to request the Company to transfer all or part of the Company Assets to the WFOE, or the WFOE’s designated entity or individual, according to the terms and conditions hereunder. The WFOE also agrees to accept such Asset Purchase Option.
2.4
The Shareholders hereby severally and jointly agree that the Company grants such Asset Purchase Option to the WFOE according to Article 2.3 above and other provisions of this Agreement.
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Article 3 Method of Exercise of Option
3.1.
Subject to the terms and conditions of this Agreement, the WFOE shall have the absolute sole discretion to determine the specific time, method and times of its Exercise of Option to the extent permitted under PRC Law.
3.2.
Subject to the terms and conditions of this Agreement and to the extent not in violation of the then-effective PRC Law, the WFOE shall have the right, at any time, to request to acquire the Transferred Equity from the Shareholders by itself or through any other entity or individual so designated by the WFOE.
3.3.
Subject to the terms and conditions of this Agreement and to the extent not in violation of the then-effective PRC Law, the WFOE shall have the right, at any time, to request to acquire the Transferred Assets from the Company by itself or through any other entity or individual so designated by the WFOE.
3.4.
With regard to the Equity Transfer Option, at each Exercise of Option, the WFOE shall have the right to arbitrarily determine the amount of the Transferred Equity to be transferred by the Shareholders to the WFOE and/or any other entity or individual designated by it. The Shareholders shall respectively transfer the Transferred Equity to the WFOE and/or any other entity or individual designated by it in the amount requested by the WFOE. The WFOE and/or any other entity or individual designated by it shall pay the Transfer Price with respect to the Transferred Equity acquired at each Exercise of Option to the Shareholders transferring such Transferred Equity.
3.5
With regard to the Asset Purchase Option, at each Exercise of Option, the WFOE shall have the right to determine the specific Company Assets to be transferred by the Company to the WFOE and/or any other entity or individual designated by it. The Company shall transfer the Transferred Assets to the WFOE and/or any other entity or individual designated by it in accordance with the WFOE’s requirement. The WFOE and/or any other entity or individual designated by it shall pay the Transfer Price to the Company with respect to the Transferred Assets acquired at each Exercise of Option.
3.6
At each Exercise of Option, the WFOE may acquire the Transferred Equity or Transferred Assets by itself or designate any third party to acquire all or part of the Transferred Equity or Transferred Assets.
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3.7
Having decided each Exercise of Option, the WFOE shall issue to the Shareholders or the Company a notice for exercising the Equity Transfer Option or a notice for exercising the Asset Purchase Option (the “Exercise Notice”, the form of which is set out in Appendix 2 and Appendix 3 hereto). The Shareholders or the Company shall, upon receipt of the Exercise Notice, forthwith transfer all the Transferred Equity or Transferred Assets in accordance with the Exercise Notice to the WFOE and/or any other entity or individual designated by the WFOE in such method as described in Article 3.4 or Article 3.5 hereof.
Article 4 Transfer Price
4.1
With regard to the Equity Transfer Option, the total Transfer Price to be paid by the WFOE or any other entity or individual designated by the WFOE to the Shareholders at Exercise of Option by the WFOE shall be the capital contribution mirrored by the corresponding Transferred Equity in the Company Registered Capital. But if the lowest price permitted by the then-effective PRC Law is lower than the above capital contribution, the Transfer Price shall be the lowest price permitted by the PRC Law.
4.2
With regard to the Asset Purchase Option, the Transfer Price to be paid by the WFOE or any other entity or individual designated by the WFOE to the Company at each Exercise of Option by the WFOE shall be the lowest price permitted by the then-effective PRC Law.
Article 5 Representations and Warranties
5.1
The Shareholders hereby severally and jointly represent and warrant that:
5.1.1.
Each of the Shareholders is a Chinese citizen has the full and independent legal status and legal capacity to execute, deliver and perform this Agreement and may act independently as a party to a lawsuit.
5.1.2
The Company is a limited liability company duly registered and legitimately existing under the PRC Law with an independent legal personality. It has the complete and independent legal status and legal capacity to execute, deliver and perform this Agreement and may act as the subject of litigation independently. The Company has the full power and authority to consummate the transaction contemplated hereby.
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5.1.3
The Shareholders have the full power and authority to execute, deliver and perform this Agreement and all other documents relating to the transaction contemplated hereby and to be executed by them. The Shareholders have the full power and authority to consummate the transaction contemplated hereby.
5.1.4
This Agreement is legally and duly executed and delivered by the Shareholders. This Agreement shall constitute their legal and binding obligations and shall be enforceable against them in accordance with the terms of this Agreement.
5.1.5
The Shareholders are the legitimate owner of the Shareholder Equity as of the effective date of this Agreement, and except for the rights created under the Equity Pledge Agreement executed by the Company, the WFOE and the Shareholders on the date hereof, the Shareholder Equity is free from and clear of any lien, pledge, mortgage and other encumbrances and third party rights. Pursuant to this Agreement, the WFOE and/or any other entity or individual designated by it may, after the Exercise of Option, acquire good and legal title to the Transferred Equity, free from and clear of any lien, pledge, mortgage and other encumbrances or third party rights.
5.1.6
To the knowledge of the Shareholders, the Company Assets are free from and clear of any lien, pledge, mortgage other encumbrances and third party rights. Pursuant to this Agreement, the WFOE and/or any other entity or individual designated by it may, after the Exercise of Option, acquire good title to the Company Assets, free and clear of any lien, pledge, mortgage and other encumbrances or third party rights.
5.1.7
Unless as mandatorily required by the PRC Law, the Shareholders shall not request the Company to declare the distribution of or in practice release any distributable profit, bonus or dividend; the Shareholders shall, in compliance with the PRC Law, promptly gift any profit, bonus or dividend obtained by them from the Company to the WFOE and/or any qualified entity or individual designated by the WFOE.
5.1.8
The execution, delivery and performance by the Shareholders of this Agreement and the consummation by the Shareholders of the transaction contemplated hereby does not violate any PRC Law or any agreement, contract or other arrangement with any third party by which the Shareholders are bound.
5.2.
The Company hereby represents and warrants that:
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5.2.1
The Company is a limited liability company duly registered and legitimately existing under PRC Law with an independent legal personality. It has the full and independent legal status and may act independently as a party to a lawsuit.
5.2.2
The Company has the full internal corporate power and authority to execute, deliver and perform this Agreement and all other documents relating to the transaction contemplated hereby and to be executed by it. It has the full power and authority to consummate the transaction contemplated hereby.
5.2.3
This Agreement is legally and duly executed and delivered by the Company and constitutes a legal and binding obligation against it.
5.2.4
The Company Assets are free from and clear of any lien, mortgage, claim or other encumbrances or third party rights. Pursuant to this Agreement, the WFOE and/or any other entity or individual designated by it will, after the Exercise of Option, acquire good title to the Company Assets, free from and clear of any lien, mortgage, claim or other encumbrances or third party rights.
5.2.5
The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transaction contemplated hereby does not violate any PRC Law or any agreement, contract or other arrangements with any third party by which it is bound.
5.2.6
Unless as mandatorily required by the PRC Law, the Company shall not declare the distribution of or in practice release any distributable profit, bonus or dividend.
5.3.
The WFOE hereby represents and warrants that:
5.3.1
The WFOE is a wholly foreign-owned enterprise duly registered and legally existing under PRC Law. The WFOE has the full and independent legal status and may act independently as a party to lawsuit.
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5.3.2
The WFOE has the full internal corporate power and authority to execute, deliver and perform this Agreement and all other documents relating to the transaction contemplated hereby and to be executed by it. It has the full power and authority to consummate the transaction contemplated hereby.
5.3.3
This Agreement is legally and duly executed and delivered by the WFOE. This Agreement shall constitute a legal and binding obligation against it.
Article 6 Undertakings by the Shareholders
The Shareholders hereby severally undertakes that:
6.1
Within the valid term of this Agreement, without the WFOE’s prior written consent, any Shareholder:
6.1.1
shall not transfer or otherwise dispose of any Shareholder Equity or create any encumbrance or other third party rights on any Shareholder Equity;
6.1.2
shall not increase or decrease the Company Registered Capital or cause or permit the Company to be divided or merged with any other entity;
6.1.3
shall not dispose of or cause the management of the Company to dispose of any Material Asset (other than in the ordinary course of business), or create any encumbrance or other third party rights on any Material Asset;
6.1.4
shall not terminate or cause the management of the Company to terminate any Material Agreement entered into by the Company, or enter into any other agreement in conflict with the existing Material Agreements;
6.1.5
shall not appoint or dismiss and replace any director or supervisor of the Company or any other management personnel of the Company who shall be appointed or dismissed by the Shareholders;
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6.1.6
shall not cause the Company to declare the distribution of or in practice release any distributable profit, dividend, share profit or share interest;
6.1.7
shall ensure that the Company maintains its valid legal existence and that such status is not terminated, liquidated or dissolved;
6.1.8
shall not amend the articles of association of the Company;
6.1.9
shall ensure that the Company will not lend or borrow any money, or provide any guarantee or engage in security activities in any other form, or bear any substantial obligations other than in the ordinary course of business; and
6.1.10
shall not cause the Company or the management of the Company to approve any of the following acts of any of the Company’s subsidiaries or affiliates (individually as a “Subsidiary” and collectively as the “Subsidiaries”), including:
(a)
increase or decrease any Subsidiary’s registered capital or cause or permit any Subsidiary to be divided or merged with any other entity;
(b)
dispose of or cause the management of the Subsidiaries to dispose of any Material Asset of any Subsidiary (other than in the ordinary course of business), or create any encumbrance or other third party rights on such assets;
(c)
terminate or cause the management of the Subsidiaries to terminate any Material Agreement entered into by any Subsidiary, or enter into any other agreement in conflict with the existing Material Agreements;
(d)
appoint or dismiss and replace any director or supervisor of any Subsidiary or any other management personnel of such Subsidiary who shall be appointed or dismissed by the Company;
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(e)
terminate, liquidate or dissolve any Subsidiary or act in any way that damages or is likely to damage the valid existence of any Subsidiary;
(f)
amend the articles of association of any Subsidiary; or
(g)
lend or borrow any money, provide any guarantee, engage in security activities in any other form, or bear any substantial obligations other than in the ordinary course of business.
6.2
During the term of this Agreement, the Shareholders shall endeavor to the best of their ability to develop the business of the Company and ensure that the Company’s operations are legal and in compliance with the regulations, and they will not engage in any act or omission which may damage the Company’s (or its Subsidiaries’) assets and/or goodwill or affect the validity of the Business Permits of the Company.
6.3
During the term of this Agreement, the Shareholders shall notify the WFOE of any circumstances that may have a material adverse effect on the existence, business operations, financial conditions, assets or goodwill of the Company (including the Subsidiaries’) and take all the measures approved by the WFOE to remove such adverse circumstances or take effective remedial measures with respect thereto in a timely manner.
6.4
Once the WFOE gives the Exercise Notice:
6.4.1
the Shareholders shall promptly convene a meeting of the shareholders, pass shareholder’s resolutions and take all other necessary actions to approve any Shareholder and the Company to transfer all the Transferred Equity or the Transferred Assets at the Transfer Price to the WFOE, and/or any other entity or individual designated by the WFOE, and waive any preemptive right to purchase such interests enjoyed by the Shareholders (if any);
6.4.2
the Shareholders shall promptly enter into an equity transfer agreement with the WFOE and/or any other entity or individual designated by the WFOE to transfer all the Transferred Equity at the Transfer Price to the WFOE and/or any other entity or individual designated by the WFOE and provide necessary support to the WFOE (including the provision and execution of all relevant legal documents, performance of all government approval and registration procedures and assumption of all relevant obligations) in accordance with the WFOE’s requirements and the PRC Law so that the WFOE and/or any other entity or individual designated by the WFOE may acquire all the Transferred Equity, free from and clear of any legal defect or any encumbrance, third party restriction or any other restrictions on the Transferred Equity.
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6.5
If the total Transfer Price obtained by any Shareholder with respect to the Transferred Equity held by the shareholder is higher than the capital contribution corresponding with such Transferred Equity in the Company Registered Capital, or any Shareholder receives any form of profit distribution, share profit, share interest or dividend from the Company, then each of the Shareholders agrees, so long as it does not violate any PRC Laws, to waive the premium earnings and any profit distribution, share profit, share interest or dividend (after the deduction of relevant taxes) and the WFOE shall be entitled to such profit distribution, share profit, interest or dividend. Otherwise, the Shareholders shall compensate the WFOE and/or any other entity or individual designated by the WFOE for any loss incurred as a result thereof.
Article 7 Undertakings by the Company
7.1
The Company hereby undertakes that:
7.1.1
If any consent, permit, waiver or authorization by any third party, or any approval, permit or exemption by any government authority, or any registration or filing formalities (if required by law) with any government authority needs to be obtained or handled with respect to the execution and performance of this Agreement and grant of the Equity Transfer Option or Asset Purchase Option hereunder, the Company shall endeavor to assist in satisfying the above conditions.
7.1.2
Without the WFOE’s prior written consent, the Company shall not assist or permit the Shareholders to transfer or otherwise dispose of any Shareholder Equity or create any encumbrance or other third party rights on any Shareholder Equity.
7.1.3
Without the WFOE’s prior written consent, the Company shall not transfer or otherwise dispose of any Material Asset (other than in the ordinary course of business) or create any encumbrance or other third party rights on any Company Assets.
7.1.4
The Company shall not itself nor permit others to act in such a way as to adversely affect the interests of the WFOE under this Agreement, including without limitation, any behavior or action that is subject to Article 6.1.
7.2
Within the valid term of this Agreement, once the WFOE gives its Exercise Notice:
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7.2.1
the Company shall promptly cause the Shareholders to convene a meeting of the Shareholder, pass Shareholder’s resolutions and take all other necessary actions to approve the Company’s transfer of all of the Transferred Assets at the Transfer Price to the WFOE and/or any other entity or individual so designated by the WFOE;
7.2.2
the Company shall promptly enter into an asset transfer agreement with the WFOE and/or any other entity or individual designated by the WFOE to transfer all of the Transferred Assets at the Transfer Price to the WFOE and/or any other entity or individual designated by the WFOE, and cause the Shareholders to provide necessary support to the WFOE (including provision and execution of all relevant legal documents, performing all government approval and registration procedures and assuming all relevant obligations) in accordance with the WFOE’s requirements and the PRC Law so that the WFOE and/or any other entity or individual designated by the WFOE may acquire all the Transferred Assets, free from and clear of any legal defect or any encumbrance, third party restriction or any other restrictions on the Transferred Assets.
Article 8 Confidentiality Obligations
8.1
Regardless of whether this Agreement is terminated or not, each Party shall keep strictly confidential all business secrets, proprietary information, customer information and all other information of a confidential nature concerning the other Parties known by it during the execution and performance of this Agreement (collectively, the “Confidential Information”). Unless a prior written consent is obtained from the Party disclosing the Confidential Information (the “Disclosing Party”) or unless it is required to be disclosed to third parties in accordance with relevant laws, rules and regulations (including those of the United States Securities and Exchange Commission) or the requirements of the place where any affiliate is listed on a stock exchange, the Party receiving the Confidential Information (the “Receiving Party”) shall not disclose to any third party any Confidential Information. The Receiving Party shall not use any Confidential Information other than for the purpose of performing this Agreement.
8.2
The following information shall not be deemed part of the Confidential Information:
(a)
any information that has been lawfully acquired by the Receiving Party prior to entering into the Agreement as evidenced by other written documents;
(b)
any information entering the public domain not attributable to the fault of the Party receiving the information; or
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(c)
any information lawfully acquired by the Party receiving the information through other sources after its receipt of such information.
8.3
If requested by either Party, the other Party shall return, destroy, or otherwise dispose of all documents, materials and software that contains or may contain any Confidential Information as requested, and promptly stop using such Confidential Information.
8.4
For purposes of performing this Agreement, the Receiving Party may disclose the Confidential Information to its relevant employees, agents or professionals retained by it. However, the Receiving Party shall ensure that the aforesaid persons shall comply with all relevant terms and conditions of this Article. In addition, the Receiving Party shall be responsible for any liability incurred as a result of such persons’ breach of the relevant terms and conditions of this Article 8.
8.5
The Parties’ obligations under this Article shall survive the termination of this Agreement. Each Party shall still comply with the confidentiality terms of this Agreement and fulfill the confidentiality obligations as promised, until the other Parties give consent to the release of such obligations or as a matter of fact, violation of the confidentiality terms herein will not cause damage of any form to the other Parties.
Article 9 Effectiveness, Termination and Term of Agreement
9.1
This Agreement shall become effective upon execution by each of the Parties on the date first written above and shall terminate after all the Shareholder Equity and the Company Assets are lawfully transferred to the WFOE and/or any other entity or individual designated by the WFOE pursuant to the provisions of this Agreement.
Article 10 Defaulting Liability
10.1
The Parties agree and confirm that, if any of the Parties (the “Defaulting Party”) substantially violates any agreement herein or substantially fails to perform or delays performance of any of the obligations hereunder, such violation, failure or delay shall constitute a default under this Agreement (a “Default”). The non-defaulting Party shall have the right, within a reasonable period, to request the Defaulting Party to rectify or take remedial actions. If the Defaulting Party fails to rectify such Default or take remedial actions within such reasonable period or within ten (10) days after the non-defaulting Party notifies the Defaulting Party in writing requiring the Default to be rectified, then the non-default Party will be entitled to decide at its own discretion as follows:
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10.1.1
if any Shareholder or the Company is the Defaulting Party, the WFOE shall be entitled to terminate this Agreement and require the Defaulting Party to indemnify the non-defaulting parties for any and all damages;
10.1.2
if the WFOE is the Defaulting Party, the non-defaulting Party shall be entitled to indemnification from the Defaulting Party, but unless otherwise provided for by the PRC Law, the non-defaulting Party has no right to terminate or cancel this Agreement under any circumstances.
10.2 虽然本协议另有规定,但本协议的终止不影响本协议第10条的效力。
Notwithstanding any other provision herein, the effect of this Article 10 shall not be affected by the termination of this Agreement.
Article 11 Notices
11.1
Any notice, request, demand and other correspondence required by this Agreement or made in accordance with this Agreement shall be made in written form and delivered to the following address in person, by fax, telegram, telex, email, registered mail (postage paid) or express mail.
To the Shareholders:
Address:
Email:
To the WFOE: Mofy Metaverse (Beijing) Technology Co., Ltd.
Address:
Email:
To the Company: Global Mofy (Beijing) Technology Co., Ltd.
Address:
Email:
11.2.
If any such notice or other correspondence is transmitted by fax, telegram, telex or email, it shall be treated as delivered immediately upon transmission; if delivered in person, it shall be treated as delivered at the time of delivery; if delivered by registered mail or express mail, it shall be treated as delivered three (3) days after posting.
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Article 12 Miscellaneous
12.1
This Agreement is written in English and translated into Chinese. In the event of any discrepancy between the two versions, the English version shall prevail. This Agreement is made with three (3) original copies, with one (1) original to be retained by each Party hereto.
12.2
The execution, validity, performance, revision, interpretation and termination of this Agreement and the resolution of any dispute arising from this Agreement shall be governed in accordance with the laws of the PRC.
12.3
Should any dispute arise in connection with construction or performance of any provision under this Agreement, the Parties shall seek in good faith to resolve such dispute through negotiations. If the negotiations fail, any of the Parties may submit the dispute to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in Beijing in accordance with CIETAC’s arbitration rules in effect at the time of applying for arbitration, and the language of arbitration shall be in Chinese. The arbitration judgment shall be final and binding on each of the Parties.
12.4
None of the rights, powers or remedies granted to any Party by any provision herein shall preclude any other rights, powers or remedies available to such Party at law and under the other provisions of this Agreement. In addition, a Party’s exercise of any of its rights, powers and remedies shall not exclude such Party from exercising any of its other rights, powers and remedies.
12.5
No failure or delay by a Party in exercising any rights, powers and remedies available to it hereunder or at law (hereinafter referred to as “Such Rights”) shall result in a waiver thereof, nor shall the waiver of any single or part of Such Rights exclude such Party from exercising Such Rights in any other way and exercising other rights of such Party.
12.6
Each term contained herein shall be severable and independent from each of the other terms. In case any term herein becomes all or partly invalid or unenforceable due to violation of law or governmental regulations or other reasons, the affected part of such term shall be considered to have been removed, provided that the removal of the affected part of such term shall not affect the legal effect of the remaining part of such term or other terms herein. The Parties shall conclude new terms through consultations to replace such invalid or unenforceable terms.
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12.7
The headings in this Agreement are written for ease of reference only and in no event shall they affect the interpretation of any terms of this Agreement.
12.8
Any amendment or supplement hereto shall be made in writing and shall become effective only upon due execution by the Parties hereto. Any Amended agreements and supplemental agreements executed by the Parties will become part of this Agreement, having the same legal effect as this Agreement.
12.9
Matters not covered in this Agreement shall be determined by the Parties separately through consultation.
12.10
This Agreement constitutes all agreements reached by the Parties on the subject matter of the cooperation project, and supersedes any previous or concurrent oral and written agreement, understanding and correspondence relevant to the subject matter of the cooperation project between the Parties. Unless specifically provided herein, there is no other explicit or implicit obligation or covenant between the Parties.
12.11
Without the prior written consent of other Parties, none of the Parties shall transfer any of its rights and/or obligations hereunder to any third party.
12.12
This Agreement shall be binding on the legal successors or assigns of the Parties.
[The remainder of this page is intentionally left blank]
[Signature Page of Exclusive Call Option Agreement]
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IN WITNESS WHEREOF, the following Parties have executed this Agreement to be executed on the date and at the place first above written.
Shareholder:
(Signature/Seal): |
Mofy Metaverse (Beijing) Technology Co., Ltd. (Seal) | ||
Authorized Representative (Signature): | ||
Name: |
Global Mofy (Beijing) Technology Co., Ltd. (Seal) | ||
Authorized Representative (Signature): | ||
Name: |
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Appendix 1:
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Appendix 2:
Form of Exercise Notice
To: [Name of Shareholders]
Whereas, we entered into an Exclusive Call Option Agreement with you and Global Mofy (Beijing) Technology Co., Ltd. (the “Company”) on [ ] and we reached an agreement that you shall transfer the equity you hold in the Company to us or any third party designated by us at our request to the extent permitted by the PRC laws and regulations.
Therefore, we hereby give this notice to you as follows:
We hereby require to exercise the Equity Transfer Option under the Exclusive Call Option Agreement and we will acquire the [●]% of the equity you hold in the Company (the “Proposed Acquired Equity”). Upon your receipt of this notice, you shall immediately transfer all the Proposed Acquired Equity to us pursuant to the provisions of the Exclusive Call Option Agreement.
Best regards
Mofy Metaverse (Beijing) Technology Co., Ltd. (Seal)
Signature:
Date:
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Appendix 3:
Form of Exercise Notice
To: Global Mofy (Beijing) Technology Co., Ltd.
Whereas, we entered into an Exclusive Call Option Agreement with you, [Name of Shareholder] on [ ] and we reached an agreement that you shall transfer your assets to us or any third party designated by us at our request to the extent permitted by the PRC laws and regulations.
Therefore, we hereby give this notice to you as follows:
We hereby require to exercise the Asset Purchase Option under the Exclusive Call Option Agreement and we designated by us will acquire the assets owned by you as stated in a separate list (the “Proposed Acquired Assets”). Upon your receipt of this notice, you shall immediately transfer all the Proposed Acquired Assets to us pursuant to the provisions of the Exclusive Call Option Agreement.
Best regards
Mofy Metaverse (Beijing) Technology Co., Ltd. (Seal)
Signature:
Date:
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Exhibit 10.7
Shareholder Voting Proxy Agreement
This Shareholder Voting Proxy Agreement (this “Agreement”) is entered into in the People’s Republic of China (the “PRC”) on [ ], 2022, by and among the following Parties:
Party A: (“Shareholders”)
(Shareholders listed above are hereinafter referred to individually as a “Shareholder” and collectively as the “Shareholders.”)
Party B: Mofy Metaverse (Beijing) Technology Co., Ltd. (the “WFOE”)
Registered address: 307, Floor 3, Building 17, Courtyard 1, Balizhuang Bridge Nanli, Chaoyang District, Beijing
Party C: Global Mofy (Beijing) Technology Co., Ltd. (the “Company”)
Registered address: Building A12, Xidian memory cultural and creative Town, Gaobeidian Township, Chaoyang District, Beijing
(In this Agreement, the above parties are hereinafter referred to individually as a “Party” and collectively as the “Parties.”)
WHEREAS:
(1)
The Shareholders are the registered shareholders of the Company, legally holding 【xx%】 equity interest of the Company (the “Company Equity Interest”). Appendix 1 sets forth the capital contribution amount and the shareholding percentage of each of the Shareholders in the registered capital of the Company on the signing date of this Agreement.
(2)
The Shareholders intend to appoint an individual designated by the WFOE to exercise their voting rights in the Company as a shareholder, and the WFOE intends to appoint an individual to accept such delegation.
NOW, THEREFORE, the Parties, through amicable negotiations and based on the principle of equality and mutual benefit, agree as follows:
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Article 1 Delegation of Voting Rights
1.1
The Shareholders hereby irrevocably undertake that they will execute a power of attorney separately upon the request of the WFOE after execution of the Agreement and authorize the individual (hereinafter referred to as the “Trustee”) appointed by the WFOE at that time to exercise the following rights (hereinafter collectively referred to as the “Entrusted Rights”) as a shareholder of the Company as stipulated in the Articles of Association in force at that time:
(a)
Propose, convene and attend the shareholder meeting of the Company as the agent of the Shareholders;
(b)
Exercise the voting rights on behalf of the Shareholders on all matters that need to be discussed and resolved by the shareholder meeting, including but not limited to the disposal of the assets of the Company, the sale or transfer or pledge or disposal of all or part of the equity of the Company, the dissolution or liquidation of the Company, and the exercise of the rights enjoyed during liquidation according to law;
(c)
Appoint, elect and dismiss the Company’s legal representatives (chairman of the board), directors and supervisors on behalf of the Shareholders, and determine the appointment or dismissal of General Manager, Deputy Managers, principal financial officers and other senior management personnel;
(d)
Exercise the voting rights on behalf of the registered shareholders of the Company in the event of its bankruptcy;
(e)
Propose to convene an interim shareholder meeting;
(f)
Sign and file the documents at the relevant company registry; and
(g)
Other shareholder voting rights under the Articles of Association (including any other shareholder voting rights provided for by any amendment to these Articles).
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1.2
The premise of above-mentioned authorization and delegation is that the WFOE agrees to the above-mentioned authorization and delegation to the Trustee. The Shareholders shall not revoke the entrustment and authorization made to the Trustee, unless the WFOE gives the Shareholders a written notice to remove or replace the Trustee. The Shareholders shall then appoint another person designated by the WFOE to exercise the above Entrusted Rights, and such new authorization and delegation shall supersede, immediately upon its grant, the original authorization and delegation. In addition, the Shareholders shall not revoke the Entrusted Rights made to the Trustee.
1.3
The Trustee shall perform the fiduciary duties in accordance with the law in a prudent and diligent manner within the scope of authorization provided herein; the Shareholders shall acknowledge and assume the corresponding responsibilities for any legal consequences arising from the exercise of the above mentioned Entrusted Rights by the Trustee.
1.4
The Shareholders hereby confirm that the Trustee may exercise the Entrusted Rights at its sole discretion without soliciting prior advice from the Company and the Shareholders. Any act of the Trustee in exercising the above mentioned Entrusted Rights shall be deemed to be the act of the Shareholders, and any document signed by the Trustee shall be deemed to be signed by the Shareholders.
1.5
Each of the Shareholders warrants that, without the prior written consent of the WFOE, it will not exercise any Entrusted Rights, or interfere in the exercise of the Entrusted Rights by the Trustee, but will make best efforts to cooperate with the Trustee in exercising such rights. Each Shareholder further agrees to execute promptly all reasonably necessary agreements, resolutions and other documents and to take all reasonably necessary actions to implement the provisions of the Agreement and to assist the Trustee in exercising Entrusted Rights.
Article 2 Right to Information
2.1
For the purpose of exercising the Entrusted Rights under the Agreement, the Trustee shall be entitled to know about the operation, business, customers, finance, employees and other relevant information of the Company and have access to relevant materials of the Company, and the Company shall provide full cooperation with respect thereto.
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Article 3 Exercise of Entrusted Rights
3.1
The Shareholders shall provide full assistance to the Trustee in exercising the Entrusted Rights, including, when necessary, signing the shareholder’s meeting resolutions adopted by the Trustee or other relevant legal documents in a timely manner (for example, in order to meet the filing requirement of documents required by government authority for examination and approval, registration and filing).
3.2
At any time during the term of the Agreement, if granting or exercise of Entrusted Rights under the Agreement (except for the default of Shareholders or the Company) cannot be achieved for any reason, the Parties shall immediately seek alternatives that are similar to unrealizable provisions, and shall enter into a supplementary agreement to amend or adjust the terms of the Agreement so that the purpose of the Agreement may continue to be achieved.
Article 4 Disclaimer and Compensation
4.1
The Parties acknowledge that in no event shall the WFOE be required to assume any liability or provide any economic or other compensation to any other Party or any third party for the exercise of the Entrusted Rights under the Agreement by the individual designated by the WFOE.
4.2
The Shareholders agree to indemnify and hold the WFOE harmless from all losses incurred or likely to be incurred by the Trustee in the exercise of the Entrust Rights, including but not limited to any loss arising from any action, recourse, arbitration or claims by any third party against the WFOE or any administrative investigation or penalty by any governmental authorities, unless such losses are caused by any willful misconduct or gross negligence of the WFOE.
Article 5 Representations and Warranties
5.1
The Shareholders hereby separately and jointly make the following representations and warranties:
(a)
Each of the Shareholders is a Chinese citizen with full capacity for civil conduct; each Shareholder has a complete and independent legal status and legal capacity, and can independently act as a litigation subject.
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(b)
It has the full power and authorization to sign and deliver this Agreement and all other documents to be executed related to the transactions contemplated by this Agreement. It has the full power and authorization to consummate the transactions contemplated by this Agreement.
(c)
This Agreement shall be lawfully and duly executed and delivered by all Shareholders. This Agreement constitutes legal and binding obligations enforceable against the Shareholders in accordance with the provisions of this Agreement.
(d)
Each Shareholder shall be the legal registered shareholder of the Company at the time of effectiveness of this Agreement. Except for the rights set forth in this Agreement, the Equity Pledge Agreement and the Exclusive Option Agreement among the Shareholders and the Company and the WFOE, there is no third party right in the Entrusted Rights. Under this Agreement, the Trustee may fully exercise the Entrusted Rights in accordance with the then effective articles of association of the Company.
5.2
The WFOE and the Company hereby severally represent and warrant as follows:
(a)
It is a limited liability company duly registered and legally existing in accordance with Chinese Law, with independent legal personality. It has full and independent legal status and legal capacity to sign, deliver and perform this Agreement, and can independently act as a litigation subject.
(b)
It has full power and authorization to sign and deliver this Agreement and all other documents to be executed relating to the transactions contemplated by this Agreement; it has full power and authority to consummate the transactions contemplated by this Agreement.
5.3
The Company further represents and warrants that each Shareholder is a legal owner of record of the Company at the time of effectiveness of this Agreement. Under this Agreement, the Trustee may fully exercise the Entrusted Rights in accordance with the then effective articles of association of the Company.
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5.4
The Company and its Shareholders further represent and warrant that in the event of the merger, split, dissolution, liquidation bankruptcy or other occurrence that may affect Shareholders’ holding of ownership of the Company, any heir of the Shareholder shall be deemed to be a signatory to this Agreement and shall inherit/assume all his or her rights and obligations under this Agreement. The Company undertakes that it has made all appropriate arrangements and signed all necessary documents to ensure that the performance of this Agreement will not be affected or hindered in the event of the merger, split, dissolution, liquidation bankruptcy or other occurrence that may affect Shareholders’ holding of ownership of the Company.
Article 6 Confidentiality Obligations
6.1
Regardless of whether this Agreement is terminated or not, each Party shall keep strictly confidential all business secrets, proprietary information, customer information and all other information of a confidential nature concerning the other Parties known by it during the execution and performance of this Agreement (collectively, the “Confidential Information”). Unless a prior written consent is obtained from the Party disclosing the Confidential Information (the “Disclosing Party”) or unless it is required to be disclosed to third parties in accordance with relevant laws, rules and regulations (including those of the United States Securities and Exchange Commission) or the requirements of the place where any affiliate is listed on a stock exchange, the Party receiving the Confidential Information (the “Receiving Party”) shall not disclose to any third party any Confidential Information. The Receiving Party shall not use any Confidential Information other than for the purpose of performing this Agreement.
6.2
The following information shall not be deemed part of the Confidential Information:
(a)
any information that has been lawfully acquired by the Receiving Party prior to entering into the Agreement as evidenced by other written documents;
(b)
any information entering the public domain not attributable to the fault of the Party receiving the information; or
(c)
any information lawfully acquired by the Party receiving the information through other sources after its receipt of such information.
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6.3
If requested by either Party, the other Party shall return, destroy, or otherwise dispose of all documents, materials and software that contains or may contain any Confidential Information as requested, and promptly stop using such Confidential Information.
6.4
For purposes of performing this Agreement, the Receiving Party may disclose the Confidential Information to its relevant employees, agents or professionals retained by it. However, the Receiving Party shall ensure that the aforesaid persons shall comply with all relevant terms and conditions of this Article. In addition, the Receiving Party shall be responsible for any liability incurred as a result of such persons’ breach of the relevant terms and conditions of this Article 6.
6.5.
The Parties’ obligations under this Article shall survive the termination of this Agreement. Each Party shall still comply with the confidentiality terms of this Agreement and fulfill the confidentiality obligations as promised, until the other Parties give consent to the release of such obligations or as a matter of fact, violation of the confidentiality terms herein will not cause damage of any form to the other Parties.
Article 7 Effectiveness, Termination and Term of Agreement
7.1
Subject to the provisions of Articles 7.2 and 7.3 of this Agreement, this Agreement shall become effective upon execution by each of the Parties on the date first written above. Unless terminated early by the Parties by written agreement or in accordance with the provisions of Article 7.4 or 9.1 of this Agreement, the Agreement shall remain valid for ten (10) years. Upon the expiration of this Agreement, unless the WFOE gives a non-renewal written notice to the other Parties 30 days prior to the expiration, this Agreement shall be renewed automatically thereafter for successive ten (10)-year terms, and so on.
7.2
The Parties to this Agreement shall complete the approval and registration procedures for extending their business terms within three months before the expiration of their respective business terms so that the term of this Agreement may continue to be extended.
7.3
If any of the Shareholders transfers all of its equity in the Company with the prior written consent of the WFOE, such Party shall cease to be a Party hereto, while the obligations and covenants of other Parties under this Agreement shall not be adversely affected in any way. If any Shareholder transfers all or part of its equity in the Company, such Shareholder undertakes to obtain written confirmation of the transferee of such equity whereby such transferee agrees to inherit and perform all liabilities, obligations and covenants of such Shareholder hereunder.
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7.4
During the term of this Agreement, unless otherwise stipulated by law, the Shareholders or the Company shall not early terminate this Agreement. Notwithstanding the foregoing, the WFOE may at any time terminate this Agreement with a written notice being given to other Parties thirty (30) days in advance.
Article 8 Notice
8.1
Any notice, request, demand and other correspondence required by this Agreement or made in accordance with this Agreement shall be made in written form and delivered to the following address in person, by fax, telegram, telex, email, registered mail (postage paid) or express mail.
To the Shareholders:
Address:
Email:
To the WFOE:
Address:
Email:
To the Company:
Address:
Email:
8.2
If any such notice or other correspondence is transmitted by fax, telegram, telex or email, it shall be treated as delivered immediately upon transmission; if delivered in person, it shall be treated as delivered at the time of delivery; if delivered by registered mail or express mail, it shall be treated as delivered three (3) days after posting.
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Article 9 Defaulting Liability
9.1
The Parties agree and confirm that, if any party (hereinafter referred to as the “Defaulting Party”) materially breaches any provision hereof or materially fails to perform any obligation under this Agreement, it constitutes a breach of contract under this Agreement (hereinafter referred to as a “Default”), and any other non-Defaulting Party has the right to require the Defaulting Party to make corrections or take remedial measures within a reasonable period of time. If the Defaulting Party fails to make corrections or take remedial measures within a reasonable period of time or within 15 days after the written notice provided by other non-Defaulting Party requesting for correction, then
(1)
In case the Defaulting Party is a Shareholder, the WFOE shall be entitled to terminate this Agreement and claim damages from the Defaulting Party.
(2)
If the WFOE is the Defaulting Party, the non-Defaulting Party shall have the right to claim damages from the Defaulting Party, but under no circumstances shall it have any right to terminate or suspend this Agreement unless otherwise provided by law.
9.2
Notwithstanding other provisions of this Agreement, the validity of this article shall not be affected by any termination or suspension of this Agreement.
Article 10 Miscellaneous
10.1
This Agreement is written in English and translated into Chinese. In the event of any discrepancy between the two versions, the English version shall prevail. This Agreement is made with three (3 ) original copies, with one (1) original to be retained by each Party hereto.
10.2
The execution, validity, performance, revision, interpretation and termination of this Agreement and the resolution of any dispute arising from this Agreement shall be governed in accordance with the laws of the PRC.
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10.3
Should any dispute arise in connection with construction or performance of any provision under this Agreement, the Parties shall seek in good faith to resolve such dispute through negotiations. If the negotiations fail, any of the Parties may submit the dispute to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in Beijing in accordance with CIETAC’s arbitration rules then in effect at the time of applying for arbitration, and the language of arbitration shall be in Chinese. The arbitration award shall be final and binding on each of the Parties.
10.4
None of the rights, powers or remedies granted to any Party by any provision herein shall preclude any other rights, powers or remedies available to such Party at law and under the other provisions of this Agreement. In addition, a Party’s exercise of any of its rights, powers and remedies shall not exclude such Party from exercising any of its other rights, powers and remedies.
10.5
No failure or delay by a Party in exercising any rights, powers and remedies available to it hereunder or at law (“Such Rights”) shall result in a waiver thereof, nor shall the waiver of any single or part of Such Rights shall exclude such Party from exercising Such Rights in any other way and exercising other rights of such Party.
10.6
Each term contained herein shall be severable and independent from each of the other terms. In case any term herein becomes all or partly invalid or unenforceable due to violation of law or governmental regulations or other reasons, the affected part of such term shall be considered to have been removed, provided that the removal of the affected part of such term shall not affect the legal effect of the remaining part of such term or other terms herein. The Parties shall conclude new terms through consultations to replace such invalid or unenforceable terms.
10.7
The headings in this Agreement are written for ease of reference only and in no event shall they affect the interpretation of any terms of this Agreement.
10.8
Any amendments or supplements to this Agreement shall be made in writing and shall become effective only upon due execution by the Parties hereto. Any Amended agreements and supplemental agreements executed by the Parties will become part of this Agreement, having the same legal effect as this Agreement.
10.9
Matters not covered in this Agreement shall be determined by the Parties separately through consultation.
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10.10
This Agreement constitutes all agreements reached by the Parties on the subject matter of the cooperation project, and supersedes any previous or concurrent oral and written agreement, understanding and correspondence relevant to the subject matter of the cooperation project between the Parties. Unless specifically provided herein, there is no other explicit or implicit obligation or covenant between the Parties.
10.11
Without the prior written consent of the other Parties, no Party may assign to any third party any of its rights and/or obligations under this Agreement.
10.12
This Agreement shall be binding upon the legal successors or assigns of the Parties.
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[Signature Page of Shareholder Voting Proxy Agreement]
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IN WITNESS WHEREOF, the following Parties have executed this Agreement on the date and at the place first above written.
Shareholder:
(Signature/Seal): |
Mofy Metaverse (Beijing) Technology Co., Ltd. (Seal) | ||
Authorized Representative (Signature): | ||
Name: |
Global Mofy (Beijing) Technology Co., Ltd. (Seal) | ||
Authorized Representative (Signature): | ||
Name: |
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Exhibit 10.8
Employment Agreement with Haogang Yang
Party A: Global Mofei (Beijing) Technology Co., Ltd.
Party B: Yang Haogang
This contract is made by the following parties on August 1, 2019. It was signed in Chaoyang District, Beijing, on Monday.
Party A: Global Mo Fei (Beijing) Technology Co., Ltd
Address: A8-3b, qikeshu Creative Park, Chaoyang District, Beijing
Legal representative: Yang Haogang
Party B: Yang Haogang
Address: ______________
Emergency Contact: ______________
Emergency contact information: ______________
In accordance with the Labor Law of the People’s Republic of China, the Labor Contract Law of the People’s Republic of China and other relevant laws and regulations, Party A and Party B agree on the principle of equality, voluntariness and negotiation (hereinafter referred to as the Labor Contract) of the “Contract”, and jointly abide by the provisions listed in this Contract.
I. Term of the labor contract
Article 1 The contract term shall be the following:
There is a fixed-term contract starting from August 1, 2019 to July 31, 2022. After the expiration hereto, if the parties agree to continue their performance, the Contract shall be automatically extended for 30 days from the expiration of the Contract. If the parties have not reached an agreement on the new contract after 30 days of expiration, the performance of this contract shall be terminated.
Article 2 There is no probation period under the contract.
II. Work content and personnel adjustment
Article 3: Party B agrees that, according to Party A’s work needs, in Office of General Manager Department, serving as the CEO, Chairman and founder.
Article 4: Party B shall conscientiously perform the duties designated by Party A, complete its own work tasks and meet the work standards of the corresponding posts.
Article 5: Party A shall have the right to reasonably arrange and adjust Party B’s work position and corresponding salary according to its business needs, expertise, working ability and performance (determined according to the assessment results of Party B). Party B shall obey Party A’s arrangement and management and complete the tasks assigned by Party A on time, in quality and quantity.
III. Labor protection and working conditions
Article 6: Party A shall provide Party B with a safe and hygienic working environment in accordance with the national regulations, and ensure Party B’s personal safety and work in the harmless working environment.
Article 7: Party A shall provide Party B with the necessary working conditions and tools, and establish and constantly improve the working procedures and standards.
Article 8: During the employment of Party B, Party A shall be responsible for educating and training Party B on professional ethics, labor safety, business skills, labor discipline and Party A’s rules and regulations. Party A shall provide Party B with training expenses for technical training to Party B. If Party B signs or leaves for personal reasons during the validity period of the contract, Party A shall have the right to investigate the corresponding compensation for the training expenses (including the travel expenses paid during the training).
Article 9: Besides the working hours, Party A shall provide the environment, various equipment and precious video materials for Party B to independently choose the learning and growth needs. Party B shall operate in accordance with the prescribed procedures, correctly use and maintain and love various equipment and video materials, save various energy, and comply with the confidentiality requirements of the Company.
IV. labor remuneration
Article 10: Party B shall be entitled to obtain corresponding labor remuneration after normal labor attendance, and Party B’s probation period salary and subsidy before tax: _______ RMB / month; after the probation period, if the employment conditions of Party A for Party B are met, the monthly salary and subsidy shall determine the labor relationship: $30,000 in RMB per month, the employee welfare and performance bonus will be determined according to Party B’s work performance, labor results and actual contribution assessment, and the specific implementation method shall be in accordance with Party A’s compensation and welfare and performance management system.
Article 11: Party A shall pay Party B’s salary of the previous month in currency from 11th to 13th days of each month.
Article 12: Party A shall withhold and pay the individual income tax and the state amount payable in accordance with the current laws and provisions of the People’s Republic of China.
V. Insurance and welfare benefits
Article 13: Party A shall provide Party B with the following welfare benefits:
1、 | Party B shall enjoy paid holidays such as wedding, funeral and family planning holidays. |
2、 | Party A shall pay the social insurance stipulated by the state for Party B according to law, and Party B shall pay paid by Party B and Party A shall deduct and pay the salary. |
3、 | If Party B gives up paying social insurance in Party A’s location, Party A shall pay the legal social insurance fee monthly to Party B’s salary card or in cash, Party B shall return to the social insurance fee of the insurance, and shall return the social insurance payment voucher to Party A for future reference. If it does not return to the social security of the residence, the future social insurance disputes shall be unrelated to Party A, and all responsibilities shall be responsible by Party B himself. |
VI. Protection of labor discipline and business secrets
Article 14: Party B shall conscientiously abide by national laws and regulations, various rules and regulations formulated by Party A (including attendance system, employee manual, salary management system, employee performance management system, etc.); strictly implement all work procedures, financial management system, protect Party A’s public property and observe professional ethics; Party B shall confirm the rules and regulations. Party B shall be deemed to agree with various rules and regulations formulated by Party A.
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Article 15: If Party B violates the relevant rules and regulations of the Company, violates labor discipline, damages Party A’s reputation to Party A, and causes economic losses to Party A, Party A shall, according to the circumstances, give it the punishment, compensation, disciplinary action or even termination of the Labor Contract according to the relevant provisions of the Reward and Punishment Management System and other systems of the Company. If Party B violates the national laws and is investigated for criminal responsibility according to law, it will terminate the labor contract immediately.
Article 16: If Party B causes property losses due to intentional or gross negligence, Party A, Party A has the right to ask Party B to fully compensate Party A for the economic losses caused after verification.
Article 17: According to the work characteristics of Party A, Party B promises not to disclose Party A’s company business secrets during the contract period and after leaving office, otherwise it shall be liable for breach of contract and pay Party A liquidated damages as required. If economic losses occur to Party A, Party A shall have the right to require Party B to bear all liability for compensation. If a crime is constituted, Party A shall transfer it to the judicial department for investigated criminal responsibility according to law. In addition, Party B undertakes to maintain no labor relationship or sign a non-competition agreement with any other unit when signing this Agreement. Otherwise, if it causes losses to other units, Party B shall be solely liable and has nothing to do with Party A.
Article 18: The scope of trade secrets of Party A referred to Article 17 refers to the scope included in Article 18 of Chapter 4 of the Intellectual Property Protection Agreement attached hereto this Contract. In addition, Party B cannot be employed by other enterprises or other economic organizations at the same time, otherwise, Party A has the right to terminate the contract or investigate its due responsibilities after verification.
VII. Training service period and non-competition restrictions
Article 19: If Party A provides special training expenses for Party B and provides professional and technical training, it will conclude a separate training agreement with Party B to agree on the service period. If Party B violates the service period agreement, Party B shall pay liquidated damages to Party A. The specific service period, liquidated damages standards and payment methods and other relevant provisions shall be separately agreed upon and followed by the Training / Education Agreement signed by both parties.
Article 20: According to the actual situation of Party B contacting with and mastering the business secrets of Party A and its affiliated companies during his tenure, Party A has the right to sign a non-competition agreement with Party B and clearly agree on the rights and obligations of both parties. This Agreement is signed as a supplementary annex to this Contract and has the same legal effect as this Contract.
VIII. Change, termination, termination and renewal of the labor contract
Article 21: If the laws, administrative regulations and rules based on the formulation of this Contract change, the Contract shall change the relevant contents.
Article 22: If the objective circumstances based on the conclusion of this Contract have been changed significantly, resulting in the failure of this Contract, the relevant contents of this Contract may be changed with the consent of both parties through negotiation.
Article 23: This Contract may be terminated upon the agreement of both parties through negotiation.
Article 24: Party B may terminate the Contract (Party A under any of the following circumstances does not pay compensation or economic compensation).
1、 | If the applicant is proved to not meet the conditions for employment during the trial period; |
2、 | Serious violation of the disciplinary code or the rules and regulations of Party A; |
3、 | Serious dereliction of duty or personal fraud, causing serious damage to Party A’s interests; |
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4、 | Being investigated for criminal responsibility according to law; |
5、 | Party A has the right to terminate the labor contract for the three consecutive monthly absenteeism or four cumulative monthly absenteeism; |
6、 | Women of the right age shall inform the company in advance whether she is pregnant before entering the company. If it intentionally conceals it, the company has the right to refuse to pay the corresponding policy compensation. |
7、 | Party A has the right to terminate the labor contract if it fails continuously or continuously twice after monthly, quarterly or annual assessment or fails to take up the post, and Party A fails to transfer the post or refuses to take up the job. |
Article 25: Party A may terminate this Contract under any of the following circumstances, but it shall notify Party B in writing 30 days in advance.
1、 | If Party B is ill or non-work injured, it cannot engage in the original work or work arranged by Party A after the expiration of medical treatment; |
2、 | Party B fails to pass the performance appraisal, is not competent for the work, and is still incompetent after training or job adjustment; |
3、 | If the objective situation based on at the conclusion of the labor contract has undergone major changes, so that the labor contract cannot be performed, and no agreement is reached on changing the contents of the labor contract after negotiation, such as Party A reduces and adjusts the internal organization, and the work project responsible for Party B is cancelled or terminated. |
Article 26: If Party A is on the verge of bankruptcy for rectification or has serious difficulties in its work and operation, it may be terminated after explaining the situation to all the employees.
Article 27: Party B shall not terminate Party A or terminate this Contract in accordance with any of the following circumstances.
1、 | Sick or non-work injury, within the prescribed medical period. |
2、 | Those who have worked in Party A for at least 15 consecutive years, and are less than five years away from the legal retirement age. |
Article 28: If Party B suffers from occupational disease or injury due to work or medical treatment, completely or partially confirmed by the municipal and district labor appraisal committees shall comply with the relevant provisions of Beijing.
Article 29: If Party B cancels this Contract, it shall notify Party A in writing 30 days in advance, handle the handover procedures within three days before leaving the contract, return the relevant materials and articles in good condition, hand over the work clearly, and settle the accounting reimbursement, punishment, compensation and other related expenses with the financial department. The salary shall be received on the 10th of the next month after the completion of the above handover work. If Party B does not handle the above handover work according to the time and requirements required by Party A after leaving his post, Party A shall suspend the basic salary (including relevant business commission or bonus) until the handover is completed.
Article 30: Party B shall notify Party A 3 working days in advance of any of the following circumstances.
1、 | During the probation period; |
2、 | Party A forces labor by means of violence, threat, imprisonment or illegal restriction of personal freedom; |
3、 | If Party A is unable to pay labor remuneration or provide working conditions in accordance with this Contract. |
Article 31: Within 30 days before the expiration of this Contract, if Party A and Party B terminate the Contract without written notice to the other party, the validity period of this Contract shall be automatically extended for 3 months.
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IX. Liability for breach of contract
Article 32: If Party A has any of the following circumstances, and Party B violates and cancels the labor contract, it shall make economic compensation in accordance with the Labor Law and the relevant provisions of Beijing Municipality:
1、 | Failing to give the laborers economic compensation in accordance with relevant laws and regulations after the termination of the labor contract; |
2、 | If Party A cancels the labor contract or violates the invalid labor contract concluded due to Party A, and causes damage to Party B, Party A shall bear the compensation liability in accordance with the relevant labor provisions. |
3、 | other |
Article 33: If Party B terminates the labor contract in violation of the conditions agreed herein or violates the confidential trade secrets agreed herein, and causes economic losses to Party A, it shall be liable for compensation according to the extent of the losses.
Article 34 A labor dispute arising from the performance of this contract shall be settled through negotiation and fails. If one party requests arbitration, it shall apply for arbitration to the Labor Dispute Arbitration Section 60 days from the date of the occurrence of the labor dispute. One party may also directly apply for arbitration to the labor dispute arbitration committee where Party A is located. If it refuses to accept the award, it may bring a lawsuit to the people’s court where Party A is located.
X. Other agreements
Article 35: Party B shall invest by Party A for training, acceptance, etc., and Party B shall sign a supplementary agreement with Party A.
Article 36: The ownership and right to use any products produced by or produced during Party B shall completely belong to Party A.
Article 37: Party B shall truthfully inform Party A of his identity, address, study, work experience, illegal or criminal acts, participation in working in other units, physical condition (whether serious diseases, infectious diseases, chronic diseases or other diseases affecting normal work). If Party A intentionally informs the false situation or intentionally conceals the truth and discloses the invalid labor contract concluded by fraudulent means, Party A has the right to terminate the labor contract at any time and does not bear the economic compensation and compensation, which thus causes Party A losses, Party B shall compensate according to the actual losses.
Article 38: Matters not covered herein shall be implemented with reference to the Labor Contract Law of the People’s Republic of China and other relevant laws and regulations.
Article 39: This Contract is made in duplicate, with each party holding one copy. Both parties shall effective on the date of signature.
Article 40: The following annex is an integral part of this Contract, and shall have the same agreed force for both parties:
Other supplementary documents signed by the two parties, such as the Employee Code, Intellectual Property Protection Agreement, Confidentiality Agreement, Company Rules and Regulations, and Non-competition Agreement.
Article 41: Party A’s rules and regulations (including but not limited to the employee manual, post manual, training agreement, etc.) are all attached to the contract, and its effectiveness is equivalent to that of the contract. Party A shall have the right to formulate other documents regulating the management system of Party A except the above attachments. Such institutional documents shall automatically become these attachments starting from the date when Party A announces its implementation, which are binding on both parties and the provisions are significantly illegal.
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Party A (signature): /s/ Global Mofei (Beijing) Technology Co., Ltd.
Party B (signature): /s/ Yang Haogang
Date of signing the contract: August 1, 2019
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Exhibit 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (the “AGREEMENT”) is made and entered into on November 15, 2023 by and between Chen Chen (the “EXECUTIVE”) and Global Mofy Metaverse Limited, a Cayman Islands company (the “COMPANY”).
WHEREAS, the Company and the Executive desire to enter into this Agreement to memorialize the terms and conditions of the Executive’s employment with the Company starting on the date hereof.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and representations contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
Article I. | Employment; Responsibilities; Compensation |
Section 1.01 Employment. Subject to ARTICLE III, the Company hereby agrees to employ Executive and Executive hereby agrees to be employed by the Company, in accordance with this Agreement, for the period commencing on November 15, 2023 and ending on November 15, 2025 (“INITIAL TERM”). the Initial Term shall automatically be extended on yearly basis unless either party gives written notice to the other party 60 days prior to expiration of the Initial Term that it or she, as applicable, does not wish to extend this Agreement. Executive’s continued employment after the expiration of the Initial Term shall be in accordance with and governed by this Agreement, unless modified by the parties to this Agreement in writing. For purposes of this Agreement the Initial Term and any extended term shall be referred to as the “TERM”.
Section 1.02 Responsibilities; Loyalty
(a) Subject to the terms of this Agreement, Executive is employed in the position of Chief Financial Officer (“CFO”) of the Company, and shall perform the functions and responsibilities of that position. Additional or different duties may be assigned by the Company from time to time. Executive’s position, job descriptions, duties and responsibilities maybe modified from time to time in the sole discretion of the Company.
(b) Executive shall devote the whole of Executive’s professional time, attention and energies to the performance of Executive’s work. Executive agrees to comply with all policies of the Company, if any, in effect from time to time, and to comply with all laws, rules and regulations, including those applicable to the Company.
Section 1.03 Compensation and Benefits. As consideration for the services and covenants described in this Agreement, the Company agrees to compensate Executive in the following manner:
(a) Base Salary. Commencing in November 2023 and for two consecutive fiscal years during the Executive’s employment with the Company, the Company shall pay annual Base Salary of RMB144,000 (Approximately $20,000) for each calendar year of service under this Agreement on a pro-rated basis, payable on a monthly basis. Annual Base Salary may also be increased from time to time by action of the Board of Directors of the Company (or any committees or delegees thereof) (the “BOARD”). Termination of the employment shall forfeit the rights to such annual Base Salary. The Compensation shall also be subject to the approval of Company’s Board of Directors and/or Compensation Committees.
(b) Vacation. Up to 20 working days per year. Executive may not carry over any unused vacation from prior years. All the unused vacation will be reimbursed based on base salary.
(c) Sick Leave. Absence due to personal illness, excluding pregnancy, shall be allowed up to ten (10) working days per calenda year, and shall not be accumulative from year to year.
(d) Benefit.
(i) The Company shall pay 100% of the medical insurance premium for the medical insurance coverage mutually agreed by the Company and the Executive.
(e) Payment of all compensation to Executive shall be made in accordance with the terms of this Agreement, applicable state or federal law, and applicable Company policies in effect from time to time, including normal payroll practices, and shall be subject to all applicable withholdings and taxes.
Section 1.04 Business Expenses. The Company shall reimburse Executive for all business expenses that are reasonable and necessary and incurred by Executive while performing his duties under this Agreement, upon presentation of expense statements, receipts and/or vouchers or such other information and documentation as the Company may reasonably require.
Section 1.05 Clawback. Any compensation paid to the Executive shall be subject to recovery by the Company, and the Executive shall be required to repay such compensation, if (a) such recovery and repayment is required by applicable law or (b) either in the year such compensation is paid, or within the three (3) year period thereafter the Company is required to prepare an accounting restatement due to material noncompliance of the Company with any financial reporting requirement under applicable securities laws and the Executive is either (i) a named executive officer or (ii) an employee who is responsible for preparation of the Company’s financial statements. The parties agree that the repayment obligations set forth in this Section 1.05 shall only apply to the extent repayment is required by applicable law, or to the extent the Executive’s compensation is determined to be in excess of the amount that would have been deliverable to the Executive taking into account any restatement or correction of any inaccurate financial statements or materially inaccurate performance metric criteria.
Article II. | Confidential Information; Post-Employment Obligations; Company Property |
Section 2.01 Company Property. As used in this Article II, the term the “Company” refers to the Company and each of its direct and indirect subsidiaries. All written materials, records, data and other documents relating to Company business, products or services prepared or possessed by Executive during Executive’s employment by the Company are the Company’s property. All information, ideas, concepts, improvements, discoveries and inventions that are conceived, made, developed or acquired by Executive individually or in conjunction with others during Executive’s employment (whether during business hours and whether on Company’s premises or otherwise) that relate to Company business, products or services are the Company’s sole and exclusive property. All memoranda, notes, records, files, correspondence, drawings, manuals, models, specifications, computer programs, maps and all other documents, data or materials of any type embodying such information, ideas, concepts, improvements, discoveries and inventions are Company property. At the termination of Executive’s employment with the Company for any reason, Executive shall return all of the Company’s documents, data or other Company property to the Company.
Section 2.02 Confidential Information; Non-Disclosure.
(a) Executive acknowledges that the business of the Company is highly competitive and that the Company will provide Executive with access to Confidential Information. Executive acknowledges that this Confidential Information constitutes a valuable, special and unique asset used by the Company in its business to obtain a competitive advantage over competitors. Executive further acknowledges that protection of such Confidential Information against unauthorized disclosure and use is of critical importance to the Company in maintaining its competitive position. Executive agrees that Executive will not, at any time during or after Executive’s employment with the Company, make any unauthorized disclosure of any Confidential Information of the Company, or make any use thereof, except in the carrying out of Executive’s employment responsibilities to the Company. Executive also agrees to preserve and protect the confidentiality of third party Confidential Information to the same extent, and on the same basis, as the Company’s Confidential Information.
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(b) For purposes hereof, “CONFIDENTIAL INFORMATION” includes all non-public information regarding the Company’s business operations and methods, existing and proposed investments and investment strategies, seismic, well-log and other geologic and oil and gas operating and exploratory data, financial performance, compensation arrangements and amounts (whether relating to the Company or to any of its employees), contractual relationships, business partners and relationships (including customers and suppliers), strategies, business plans and other confidential information that is used in the operation, technology and business dealings of the Company, regardless of the medium in which any of the foregoing information is contained, so long as such information is actually confidential and proprietary to the Company.
Section 2.03 Non-Solicitation of Executives. For a period of six (6) months following the Termination Date, Executive will not, either directly or indirectly, call on, solicit or induce any other executive or officer of the Company or its affiliates with whom Executive had contact, knowledge of, or association with in the course of employment with the Company to terminate his employment, and will not assist any other person or entity in such a solicitation; PROVIDED, HOWEVER, that with respect to soliciting any executive or officer whose employment was terminated by the Company or its affiliates, or general solicitations for employment not targeted at current officers or employees of the Company or its affiliates, the foregoing restriction shall not apply.
Article III. | Termination of Employment |
Section 3.01 Termination of Employment.
(a) General: The rights of Executive upon termination will be governed by this ARTICLE III.
(b) Definitions: For purposes hereof:
(i) “CAUSE” shall include (A) continued failure by Executive to perform substantially Executive’s duties and responsibilities (other than a failure resulting from Permanent Disability) that is materially injurious to the Company and that remains uncorrected for 10 days after receipt of appropriate written notice from the Board; (B) engagement in willful, reckless or grossly negligent misconduct that is materially injurious to Company or any of its affiliates, monetarily or otherwise; (C) except as provided by (D), the indictment of Executive with a crime involving moral turpitude or a felony; (D) the indictment of Executive for an act of criminal fraud, misappropriation or personal dishonesty; or (E) a material breach by Executive of any provision of this Agreement that is materially injurious to the Company and that remains uncorrected for 10 days following written notice of such breach by the Company to Executive identifying the provision of this Agreement that Company determined has been breached. For purposes of (C) and (D), if the criminal charge is subsequently dismissed with prejudice or the Executive is acquitted at trial or on appeal then the Executive will be deemed to have been terminated without Cause.
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(ii) “CHANGE OF CONTROL” means the occurrence of any one or more of the following events that occurs after the Effective Date:
1) Any “person” (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “EXCHANGE ACT”)) becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the voting power of the then outstanding securities of the Company; provided that a Change of Control shall not be deemed to occur as a result of a transaction in which the Company becomes a subsidiary of another corporation and in which the stockholders of the Company, immediately prior to the transaction, will beneficially own, immediately after the transaction, shares entitling such stockholders to more than 50% of all votes to which all stockholders of the parent corporation would be entitled in the election of directors; or
2) The consummation of (A) a merger or consolidation of the Company with another corporation where the stockholders of the Company, immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares entitling such stockholders to more than 50% of all votes to which all stockholders of the surviving corporation would be entitled in the election of directors, (B) a sale or other disposition of all or substantially all of the assets of the Company, or (C) a liquidation or dissolution of the Company.
(iii) “GOOD REASON” shall mean one or more of the following conditions arising not more than six months before Executive’s termination date without Executive’s consent: (A) a material breach by the Company of any provision of this Agreement; (B) assignment by the Board or a duly authorized committee thereof to Executive of any duties that materially and adversely alter the nature or status of Executive’s position, job descriptions, duties, title or responsibilities from those of a President and Chief Executive Officer, or eligibility for Company compensation plans; (C) requirement by the Company for Executive to relocate to a primary place of business which is more than [50] miles away from the Executive’s primary place of business as of the Effective Date of this Agreement; or (D) a material reduction in Executive’s Base Salary in effect at the relevant time. Notwithstanding anything herein to the contrary, Good Reason will exist only if Executive provides notice to the Company of the existence of the condition otherwise constituting Good Reason within 90 days of the initial existence of the condition, and the Company fails to remedy the condition on or before the 30th day following its receipt of such notice.
(iv) Involuntary Termination. For purposes of this Agreement, “Involuntary Termination” shall mean either: a termination without Cause or a termination for Good Reason. In no event will it be deemed an independent and sufficient basis for an Involuntary Termination
(c) Involuntary Termination.
(i) Involuntary Termination After Change in Control. If, prior to the expiration of the Employment Period and within twelve (12) months following a Change in Control, Executive is subject to an Involuntary Termination (as defined in Section 3.01.b.iv), then the Company will pay “Change in Control Severance Benefits” to Executive (which shall be the sole benefits Executive is entitled to under these circumstances). The Change in Control Severance Benefits will be a payment (less applicable withholdings and deductions) equivalent to 18 months of Executive’s Base Salary (as in effect immediately prior to the Change in Control, or the date of the termination of Executive’s employment, whichever is greater), payable as a single lump sum within 74 days of Executive’s termination of employment.
(ii) Involuntary Termination — No Change in Control. If, prior to the expiration of the Employment Period, no Change in Control has occurred in the preceding twelve (12) months and Executive is subject to an Involuntary Termination (as defined in Section 3.01.b.iv), then the Company will pay “Severance Benefits” to Executive (which shall be the sole benefits Executive is entitled to under these circumstances). The Severance Benefits will be a payment (less applicable withholdings and deductions) equivalent to 12 months of Executive’s Base Salary as in effect immediately prior to the date of Executive’s termination of employment, payable as a single lump sum within 74 days of the termination of Executive’s employment.
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(iii) Determination of Good Reason. In order for Executive to terminate for Good Reason, (i) Executive must notify the Board, in writing, within ninety (90) days of the event constituting Good Reason of Executive’s intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the facts and events that the Executive believes constitute Good Reason; (ii) the event must remain uncured for thirty (30) days following the date that Executive notifies the Board in writing of Executive’s intent to terminate employment for Good Reason (the “Notice Period”), and; (iii) the termination date must occur within sixty (60) days after the expiration of the Notice Period.
(d) Voluntary Resignation; Termination For Cause. If Executive’s employment with the Company terminates (i) voluntarily by Executive (other than for Good Reason during the period following a Change in Control) or (ii) by the Company for Cause, then Company shall have no duty to make any payments or provide any benefits to Executive pursuant to this Agreement other than the amount of Executive’s Base Salary and Over-Time Allowance, if any, accrued through the Termination Date. The use of the term “Cause” in Section 3.01.b.i in no way limits the right of the Company to terminate Executive’s employment pursuant to the provisions of this Article III. The Company must notify the Executive, in writing, that the Executive is being terminated for Cause, and such notice shall identify in reasonable detail the facts and events that the Company believes constitute Cause.
(e) Accrued Wages; Expenses. Without regard to the reason for, or the timing of, Executive’s termination of employment: (i) the Company will pay Executive any unpaid Base Salary and Over-Time Allowance due for periods prior to the Termination Date, and; (ii) following submission of proper expense reports by Executive, the Company will reimburse Executive for all expenses reasonably and necessarily incurred by Executive in connection with the business of the Company prior to the Termination Date. These payments will be made promptly upon the Termination Date and within the period of time mandated by law, subject to provisions set forth herein.
Article IV. | Miscellaneous |
Section 4.01 Notices. All notices and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, mailed by certified mail (return receipt requested) or sent by overnight delivery service, or electronic mail, or facsimile transmission.
Section 4.02 Severability and Reformation. If any one or more of the terms, provisions, covenants or restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect, and the invalid, void or unenforceable provisions shall be deemed severable. Moreover, if any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be reformed by limiting and reducing it to the minimum extent necessary, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.
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Section 4.03 Assignment. This Agreement shall be binding upon and inure to the benefit of the heirs and legal representatives of Executive and the permitted assigns and successors of the Company, but neither this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to hypothecation by Executive (except by will or by operation of the laws of intestate succession) or by the Company, except that the Company may assign this Agreement to any successor (whether by merger, purchase or otherwise), if such successor expressly agrees to assume the obligations of the Company hereunder.
Section 4.04 Amendment. This Agreement may be amended only by writing signed by Executive and by the Company.
Section 4.05 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO RULES RELATING TO CONFLICTS OF LAW.
Section 4.06 Jurisdiction. Each of the parties hereto hereby irrevocably consents and submits to the exclusive jurisdiction of the state and federal courts located in NEW YORK in connection with any proceeding arising out of or relating to this Agreement or the transactions contemplated hereby and waives any objection to venue in NEW YORK. In addition, each of the parties hereto hereby waives trial by jury in connection with any claim or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
Section 4.07 Entire Agreement. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and supersedes in all respects any prior or other agreement or understanding, written or oral, between the Company or any affiliate of the Company and Executive with respect to such subject matter, including the Employment Agreement.
Section 4.08 Counterparts; No Electronic Signatures. This Agreement may be executed in two or more counterparts, each of which will be deemed an original. For purposes of determining whether a party has signed this Agreement or any document contemplated hereby or any amendment or waiver hereof, only a handwritten signature on a paper document or a facsimile transmission of a handwritten original signature will constitute a signature, notwithstanding any law relating to or enabling the creation, execution or delivery of any contract or signature by electronic means.
Section 4.09 Construction. The headings and captions of this Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Agreement. The language in all parts of this Agreement shall be in all cases construed in accordance to its fair meaning and not strictly for or against the Company or Executive. The words “include,” “includes,” and “including” will be deemed to be followed by “without limitation.”
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above:
Global Mofy Metaverse Limited | ||
Signature: | /s/ Haogang Yang | |
Name: | Haogang Yang | |
Title: | Chief Executive Officer | |
Executive | ||
Signature: | /s/ Chen Chen | |
Name: | Chen Chen | |
Title: | Chief Financial Officer |
[Signature Page to Employment Agreement]
Exhibit 10.10
Employment Agreement with Wenjun Jiang
Party A: Global Mofei (Beijing) Technology Co., Ltd.
Party B: Jiang Wenjun
This contract is made by the following parties on March 3, 2021. It was signed in Chaoyang District, Beijing, on Monday.
Party A: Global Mo Fei (Beijing) Technology Co., Ltd
Address: No.102, Floor 1, Building A12, Xidi Point Memory Cultural and Creative Town, Gaobeidian Township, Chaoyang District, Beijing No.102, Floor 1, Building A12, Xidi Point Memory Cultural and Creative Town, Gaobeidian Township, Chaoyang District, Beijing
Legal representative: Yang Haogang
Party B: Jiang Wenjun
Address: ______________
Emergency Contact: ______________
Emergency contact information: ______________
In accordance with the Labor Law of the People’s Republic of China, the Labor Contract Law of the People’s Republic of China and other relevant laws and regulations, Party A and Party B agree on the principle of equality, voluntariness and negotiation (hereinafter referred to as the Labor Contract) of the “Contract”, and jointly abide by the provisions listed in this Contract.
I. Term of the labor contract
Article 1 The contract term shall be the following:
There is a fixed-term contract starting from March 3, 2021 to March 2, 2024. After the expiration hereto, if the parties agree to continue their performance, the Contract shall be automatically extended for 30 days from the expiration of the Contract. If the parties have not reached an agreement on the new contract after 30 days of expiration, the performance of this contract shall be terminated.
Article 2 There is no probation period under the contract.
II. Work content and personnel adjustment
Article 3: Party B agrees that, according to Party A’s work needs, in Office of General Management Department, serving as the CTO.
Article 4: Party B shall conscientiously perform the duties designated by Party A, complete its own work tasks and meet the work standards of the corresponding posts.
Article 5: Party A shall have the right to reasonably arrange and adjust Party B’s work position and corresponding salary according to its business needs, expertise, working ability and performance (determined according to the assessment results of Party B). Party B shall obey Party A’s arrangement and management and complete the tasks assigned by Party A on time, in quality and quantity.
III. Labor protection and working conditions
Article 6: Party A shall provide Party B with a safe and hygienic working environment in accordance with the national regulations, and ensure Party B’s personal safety and work in the harmless working environment.
Article 7: Party A shall provide Party B with the necessary working conditions and tools, and establish and constantly improve the working procedures and standards.
Article 8: During the employment of Party B, Party A shall be responsible for educating and training Party B on professional ethics, labor safety, business skills, labor discipline and Party A’s rules and regulations. Party A shall provide Party B with training expenses for technical training to Party B. If Party B signs or leaves for personal reasons during the validity period of the contract, Party A shall have the right to investigate the corresponding compensation for the training expenses (including the travel expenses paid during the training).
Article 9: Besides the working hours, Party A shall provide the environment, various equipment and precious video materials for Party B to independently choose the learning and growth needs. Party B shall operate in accordance with the prescribed procedures, correctly use and maintain and love various equipment and video materials, save various energy, and comply with the confidentiality requirements of the Company.
IV. labor remuneration
Article 10: Party B shall be entitled to obtain corresponding labor remuneration after normal labor attendance, and Party B’s probation period salary and subsidy before tax: _______ RMB / month; after the probation period, if the employment conditions of Party A for Party B are met, the monthly salary and subsidy shall determine the labor relationship: $15,000 in RMB per month, the employee welfare and performance bonus will be determined according to Party B’s work performance, labor results and actual contribution assessment, and the specific implementation method shall be in accordance with Party A’s compensation and welfare and performance management system.
Article 11: Party A shall pay Party B’s salary of the previous month in currency from 11th to 13th days of each month.
Article 12: Party A shall withhold and pay the individual income tax and the state amount payable in accordance with the current laws and provisions of the People’s Republic of China.
V. Insurance and welfare benefits
Article 13: Party A shall provide Party B with the following welfare benefits:
1、 | Party B shall enjoy paid holidays such as wedding, funeral and family planning holidays. |
2、 | Party A shall pay the social insurance stipulated by the state for Party B according to law, and Party B shall pay paid by Party B and Party A shall deduct and pay the salary. |
3、 | If Party B gives up paying social insurance in Party A’s location, Party A shall pay the legal social insurance fee monthly to Party B’s salary card or in cash, Party B shall return to the social insurance fee of the insurance, and shall return the social insurance payment voucher to Party A for future reference. If it does not return to the social security of the residence, the future social insurance disputes shall be unrelated to Party A, and all responsibilities shall be responsible by Party B himself. |
VI. Protection of labor discipline and business secrets
Article 14: Party B shall conscientiously abide by national laws and regulations, various rules and regulations formulated by Party A (including attendance system, employee manual, salary management system, employee performance management system, etc.); strictly implement all work procedures, financial management system, protect Party A’s public property and observe professional ethics; Party B shall confirm the rules and regulations. Party B shall be deemed to agree with various rules and regulations formulated by Party A.
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Article 15: If Party B violates the relevant rules and regulations of the Company, violates labor discipline, damages Party A’s reputation to Party A, and causes economic losses to Party A, Party A shall, according to the circumstances, give it the punishment, compensation, disciplinary action or even termination of the Labor Contract according to the relevant provisions of the Reward and Punishment Management System and other systems of the Company. If Party B violates the national laws and is investigated for criminal responsibility according to law, it will terminate the labor contract immediately.
Article 16: If Party B causes property losses due to intentional or gross negligence, Party A, Party A has the right to ask Party B to fully compensate Party A for the economic losses caused after verification.
Article 17: According to the work characteristics of Party A, Party B promises not to disclose Party A’s company business secrets during the contract period and after leaving office, otherwise it shall be liable for breach of contract and pay Party A liquidated damages as required. If economic losses occur to Party A, Party A shall have the right to require Party B to bear all liability for compensation. If a crime is constituted, Party A shall transfer it to the judicial department for investigated criminal responsibility according to law. In addition, Party B undertakes to maintain no labor relationship or sign a non-competition agreement with any other unit when signing this Agreement. Otherwise, if it causes losses to other units, Party B shall be solely liable and has nothing to do with Party A.
Article 18: The scope of trade secrets of Party A referred to Article 17 refers to the scope included in Article 18 of Chapter 4 of the Intellectual Property Protection Agreement attached hereto this Contract. In addition, Party B cannot be employed by other enterprises or other economic organizations at the same time, otherwise, Party A has the right to terminate the contract or investigate its due responsibilities after verification.
VII. Training service period and non-competition restrictions
Article 19: If Party A provides special training expenses for Party B and provides professional and technical training, it will conclude a separate training agreement with Party B to agree on the service period. If Party B violates the service period agreement, Party B shall pay liquidated damages to Party A. The specific service period, liquidated damages standards and payment methods and other relevant provisions shall be separately agreed upon and followed by the Training / Education Agreement signed by both parties.
Article 20: According to the actual situation of Party B contacting with and mastering the business secrets of Party A and its affiliated companies during his tenure, Party A has the right to sign a non-competition agreement with Party B and clearly agree on the rights and obligations of both parties. This Agreement is signed as a supplementary annex to this Contract and has the same legal effect as this Contract.
VIII. Change, termination, termination and renewal of the labor contract
Article 21: If the laws, administrative regulations and rules based on the formulation of this Contract change, the Contract shall change the relevant contents.
Article 22: If the objective circumstances based on the conclusion of this Contract have been changed significantly, resulting in the failure of this Contract, the relevant contents of this Contract may be changed with the consent of both parties through negotiation.
Article 23: This Contract may be terminated upon the agreement of both parties through negotiation.
Article 24: Party B may terminate the Contract (Party A under any of the following circumstances does not pay compensation or economic compensation).
1、 | If the applicant is proved to not meet the conditions for employment during the trial period; |
2、 | Serious violation of the disciplinary code or the rules and regulations of Party A; |
3、 | Serious dereliction of duty or personal fraud, causing serious damage to Party A’s interests; |
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4、 | Being investigated for criminal responsibility according to law; |
5、 | Party A has the right to terminate the labor contract for the three consecutive monthly absenteeism or four cumulative monthly absenteeism; |
6、 | Women of the right age shall inform the company in advance whether she is pregnant before entering the company. If it intentionally conceals it, the company has the right to refuse to pay the corresponding policy compensation. |
7、 | Party A has the right to terminate the labor contract if it fails continuously or continuously twice after monthly, quarterly or annual assessment or fails to take up the post, and Party A fails to transfer the post or refuses to take up the job. |
Article 25: Party A may terminate this Contract under any of the following circumstances, but it shall notify Party B in writing 30 days in advance.
1、 | If Party B is ill or non-work injured, it cannot engage in the original work or work arranged by Party A after the expiration of medical treatment; |
2、 | Party B fails to pass the performance appraisal, is not competent for the work, and is still incompetent after training or job adjustment; |
3、 | If the objective situation based on at the conclusion of the labor contract has undergone major changes, so that the labor contract cannot be performed, and no agreement is reached on changing the contents of the labor contract after negotiation, such as Party A reduces and adjusts the internal organization, and the work project responsible for Party B is cancelled or terminated. |
Article 26: If Party A is on the verge of bankruptcy for rectification or has serious difficulties in its work and operation, it may be terminated after explaining the situation to all the employees.
Article 27: Party B shall not terminate Party A or terminate this Contract in accordance with any of the following circumstances.
1、 | Sick or non-work injury, within the prescribed medical period. |
2、 | Those who have worked in Party A for at least 15 consecutive years, and are less than five years away from the legal retirement age. |
Article 28: If Party B suffers from occupational disease or injury due to work or medical treatment, completely or partially confirmed by the municipal and district labor appraisal committees shall comply with the relevant provisions of Beijing.
Article 29: If Party B cancels this Contract, it shall notify Party A in writing 30 days in advance, handle the handover procedures within three days before leaving the contract, return the relevant materials and articles in good condition, hand over the work clearly, and settle the accounting reimbursement, punishment, compensation and other related expenses with the financial department. The salary shall be received on the 10th of the next month after the completion of the above handover work. If Party B does not handle the above handover work according to the time and requirements required by Party A after leaving his post, Party A shall suspend the basic salary (including relevant business commission or bonus) until the handover is completed.
Article 30: Party B shall notify Party A 3 working days in advance of any of the following circumstances.
1、 | During the probation period; |
2、 | Party A forces labor by means of violence, threat, imprisonment or illegal restriction of personal freedom; |
3、 | If Party A is unable to pay labor remuneration or provide working conditions in accordance with this Contract. |
Article 31: Within 30 days before the expiration of this Contract, if Party A and Party B terminate the Contract without written notice to the other party, the validity period of this Contract shall be automatically extended for 3 months.
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IX. Liability for breach of contract
Article 32: If Party A has any of the following circumstances, and Party B violates and cancels the labor contract, it shall make economic compensation in accordance with the Labor Law and the relevant provisions of Beijing Municipality:
1、 | Failing to give the laborers economic compensation in accordance with relevant laws and regulations after the termination of the labor contract; |
2、 | If Party A cancels the labor contract or violates the invalid labor contract concluded due to Party A, and causes damage to Party B, Party A shall bear the compensation liability in accordance with the relevant labor provisions. |
3、 | other |
Article 33: If Party B terminates the labor contract in violation of the conditions agreed herein or violates the confidential trade secrets agreed herein, and causes economic losses to Party A, it shall be liable for compensation according to the extent of the losses.
Article 34 A labor dispute arising from the performance of this contract shall be settled through negotiation and fails. If one party requests arbitration, it shall apply for arbitration to the Labor Dispute Arbitration Section 60 days from the date of the occurrence of the labor dispute. One party may also directly apply for arbitration to the labor dispute arbitration committee where Party A is located. If it refuses to accept the award, it may bring a lawsuit to the people’s court where Party A is located.
X. Other agreements
Article 35: Party B shall invest by Party A for training, acceptance, etc., and Party B shall sign a supplementary agreement with Party A.
Article 36: The ownership and right to use any products produced by or produced during Party B shall completely belong to Party A.
Article 37: Party B shall truthfully inform Party A of his identity, address, study, work experience, illegal or criminal acts, participation in working in other units, physical condition (whether serious diseases, infectious diseases, chronic diseases or other diseases affecting normal work). If Party A intentionally informs the false situation or intentionally conceals the truth and discloses the invalid labor contract concluded by fraudulent means, Party A has the right to terminate the labor contract at any time and does not bear the economic compensation and compensation, which thus causes Party A losses, Party B shall compensate according to the actual losses.
Article 38: Matters not covered herein shall be implemented with reference to the Labor Contract Law of the People’s Republic of China and other relevant laws and regulations.
Article 39: This Contract is made in duplicate, with each party holding one copy. Both parties shall effective on the date of signature.
Article 40: The following annex is an integral part of this Contract, and shall have the same agreed force for both parties:
Other supplementary documents signed by the two parties, such as the Employee Code, Intellectual Property Protection Agreement, Confidentiality Agreement, Company Rules and Regulations, and Non-competition Agreement.
Article 41: Party A’s rules and regulations (including but not limited to the employee manual, post manual, training agreement, etc.) are all attached to the contract, and its effectiveness is equivalent to that of the contract. Party A shall have the right to formulate other documents regulating the management system of Party A except the above attachments. Such institutional documents shall automatically become these attachments starting from the date when Party A announces its implementation, which are binding on both parties and the provisions are significantly illegal.
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Party A (signature): /s/ Global Mofei (Beijing) Technology Co., Ltd.
Party B (signature): /s/ Jiang Wenjun
Date of signing the contract: December 20, 2019
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Exhibit 10.11
Employment Agreement with Qing Li
Party A: Global Mofei (Beijing) Technology Co., Ltd.
Party B: Li Qing
This contract is made by the following parties on March 24, 2021. It was signed in Chaoyang District, Beijing, on Monday.
Party A: Global Mo Fei (Beijing) Technology Co., Ltd
Address: No.102, Floor 1, Building A12, Xidi Point Memory Cultural and Creative Town, Gaobeidian Township, Chaoyang District, Beijing No.102, Floor 1, Building A12, Xidi Point Memory Cultural and Creative Town, Gaobeidian Township, Chaoyang District, Beijing
Legal representative: Yang Haogang
Party B: Li Qing
Address: ______________
Emergency Contact: ______________
Emergency contact information: ______________
In accordance with the Labor Law of the People’s Republic of China, the Labor Contract Law of the People’s Republic of China and other relevant laws and regulations, Party A and Party B agree on the principle of equality, voluntariness and negotiation (hereinafter referred to as the Labor Contract) of the “Contract”, and jointly abide by the provisions listed in this Contract.
I. Term of the labor contract
Article 1 The contract term shall be the following:
There is a fixed-term contract starting from March 24, 2021 to March 24, 2024. After the expiration hereto, if the parties agree to continue their performance, the Contract shall be automatically extended for 30 days from the expiration of the Contract. If the parties have not reached an agreement on the new contract after 30 days of expiration, the performance of this contract shall be terminated.
Article 2 There is no probation period under the contract.
II. Work content and personnel adjustment
Article 3: Party B agrees that, according to Party A’s work needs, serving as the COO.
Article 4: Party B shall conscientiously perform the duties designated by Party A, complete its own work tasks and meet the work standards of the corresponding posts.
Article 5: Party A shall have the right to reasonably arrange and adjust Party B’s work position and corresponding salary according to its business needs, expertise, working ability and performance (determined according to the assessment results of Party B). Party B shall obey Party A’s arrangement and management and complete the tasks assigned by Party A on time, in quality and quantity.
III. Labor protection and working conditions
Article 6: Party A shall provide Party B with a safe and hygienic working environment in accordance with the national regulations, and ensure Party B’s personal safety and work in the harmless working environment.
Article 7: Party A shall provide Party B with the necessary working conditions and tools, and establish and constantly improve the working procedures and standards.
Article 8: During the employment of Party B, Party A shall be responsible for educating and training Party B on professional ethics, labor safety, business skills, labor discipline and Party A’s rules and regulations. Party A shall provide Party B with training expenses for technical training to Party B. If Party B signs or leaves for personal reasons during the validity period of the contract, Party A shall have the right to investigate the corresponding compensation for the training expenses (including the travel expenses paid during the training).
Article 9: Besides the working hours, Party A shall provide the environment, various equipment and precious video materials for Party B to independently choose the learning and growth needs. Party B shall operate in accordance with the prescribed procedures, correctly use and maintain and love various equipment and video materials, save various energy, and comply with the confidentiality requirements of the Company.
IV. labor remuneration
Article 10: Party B shall be entitled to obtain corresponding labor remuneration after normal labor attendance, and Party B’s probation period salary and subsidy before tax: _______ RMB / month; after the probation period, if the employment conditions of Party A for Party B are met, the monthly salary and subsidy shall determine the labor relationship: $15,000 in RMB per month, the employee welfare and performance bonus will be determined according to Party B’s work performance, labor results and actual contribution assessment, and the specific implementation method shall be in accordance with Party A’s compensation and welfare and performance management system.
Article 11: Party A shall pay Party B’s salary of the previous month in currency from 11th to 13th days of each month.
Article 12: Party A shall withhold and pay the individual income tax and the state amount payable in accordance with the current laws and provisions of the People’s Republic of China.
V. Insurance and welfare benefits
Article 13: Party A shall provide Party B with the following welfare benefits:
1、 | Party B shall enjoy paid holidays such as wedding, funeral and family planning holidays. |
2、 | Party A shall pay the social insurance stipulated by the state for Party B according to law, and Party B shall pay paid by Party B and Party A shall deduct and pay the salary. |
3、 | If Party B gives up paying social insurance in Party A’s location, Party A shall pay the legal social insurance fee monthly to Party B’s salary card or in cash, Party B shall return to the social insurance fee of the insurance, and shall return the social insurance payment voucher to Party A for future reference. If it does not return to the social security of the residence, the future social insurance disputes shall be unrelated to Party A, and all responsibilities shall be responsible by Party B himself. |
VI. Protection of labor discipline and business secrets
Article 14: Party B shall conscientiously abide by national laws and regulations, various rules and regulations formulated by Party A (including attendance system, employee manual, salary management system, employee performance management system, etc.); strictly implement all work procedures, financial management system, protect Party A’s public property and observe professional ethics; Party B shall confirm the rules and regulations. Party B shall be deemed to agree with various rules and regulations formulated by Party A.
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Article 15: If Party B violates the relevant rules and regulations of the Company, violates labor discipline, damages Party A’s reputation to Party A, and causes economic losses to Party A, Party A shall, according to the circumstances, give it the punishment, compensation, disciplinary action or even termination of the Labor Contract according to the relevant provisions of the Reward and Punishment Management System and other systems of the Company. If Party B violates the national laws and is investigated for criminal responsibility according to law, it will terminate the labor contract immediately.
Article 16: If Party B causes property losses due to intentional or gross negligence, Party A, Party A has the right to ask Party B to fully compensate Party A for the economic losses caused after verification.
Article 17: According to the work characteristics of Party A, Party B promises not to disclose Party A’s company business secrets during the contract period and after leaving office, otherwise it shall be liable for breach of contract and pay Party A liquidated damages as required. If economic losses occur to Party A, Party A shall have the right to require Party B to bear all liability for compensation. If a crime is constituted, Party A shall transfer it to the judicial department for investigated criminal responsibility according to law. In addition, Party B undertakes to maintain no labor relationship or sign a non-competition agreement with any other unit when signing this Agreement. Otherwise, if it causes losses to other units, Party B shall be solely liable and has nothing to do with Party A.
Article 18: The scope of trade secrets of Party A referred to Article 17 refers to the scope included in Article 18 of Chapter 4 of the Intellectual Property Protection Agreement attached hereto this Contract. In addition, Party B cannot be employed by other enterprises or other economic organizations at the same time, otherwise, Party A has the right to terminate the contract or investigate its due responsibilities after verification.
VII. Training service period and non-competition restrictions
Article 19: If Party A provides special training expenses for Party B and provides professional and technical training, it will conclude a separate training agreement with Party B to agree on the service period. If Party B violates the service period agreement, Party B shall pay liquidated damages to Party A. The specific service period, liquidated damages standards and payment methods and other relevant provisions shall be separately agreed upon and followed by the Training / Education Agreement signed by both parties.
Article 20: According to the actual situation of Party B contacting with and mastering the business secrets of Party A and its affiliated companies during his tenure, Party A has the right to sign a non-competition agreement with Party B and clearly agree on the rights and obligations of both parties. This Agreement is signed as a supplementary annex to this Contract and has the same legal effect as this Contract.
VIII. Change, termination, termination and renewal of the labor contract
Article 21: If the laws, administrative regulations and rules based on the formulation of this Contract change, the Contract shall change the relevant contents.
Article 22: If the objective circumstances based on the conclusion of this Contract have been changed significantly, resulting in the failure of this Contract, the relevant contents of this Contract may be changed with the consent of both parties through negotiation.
Article 23: This Contract may be terminated upon the agreement of both parties through negotiation.
Article 24: Party B may terminate the Contract (Party A under any of the following circumstances does not pay compensation or economic compensation).
1、 | If the applicant is proved to not meet the conditions for employment during the trial period; |
2、 | Serious violation of the disciplinary code or the rules and regulations of Party A; |
3、 | Serious dereliction of duty or personal fraud, causing serious damage to Party A’s interests; |
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4、 | Being investigated for criminal responsibility according to law; |
5、 | Party A has the right to terminate the labor contract for the three consecutive monthly absenteeism or four cumulative monthly absenteeism; |
6、 | Women of the right age shall inform the company in advance whether she is pregnant before entering the company. If it intentionally conceals it, the company has the right to refuse to pay the corresponding policy compensation. |
7、 | Party A has the right to terminate the labor contract if it fails continuously or continuously twice after monthly, quarterly or annual assessment or fails to take up the post, and Party A fails to transfer the post or refuses to take up the job. |
Article 25: Party A may terminate this Contract under any of the following circumstances, but it shall notify Party B in writing 30 days in advance.
1、 | If Party B is ill or non-work injured, it cannot engage in the original work or work arranged by Party A after the expiration of medical treatment; |
2、 | Party B fails to pass the performance appraisal, is not competent for the work, and is still incompetent after training or job adjustment; |
3、 | If the objective situation based on at the conclusion of the labor contract has undergone major changes, so that the labor contract cannot be performed, and no agreement is reached on changing the contents of the labor contract after negotiation, such as Party A reduces and adjusts the internal organization, and the work project responsible for Party B is cancelled or terminated. |
Article 26: If Party A is on the verge of bankruptcy for rectification or has serious difficulties in its work and operation, it may be terminated after explaining the situation to all the employees.
Article 27: Party B shall not terminate Party A or terminate this Contract in accordance with any of the following circumstances.
1、 | Sick or non-work injury, within the prescribed medical period. |
2、 | Those who have worked in Party A for at least 15 consecutive years, and are less than five years away from the legal retirement age. |
Article 28: If Party B suffers from occupational disease or injury due to work or medical treatment, completely or partially confirmed by the municipal and district labor appraisal committees shall comply with the relevant provisions of Beijing.
Article 29: If Party B cancels this Contract, it shall notify Party A in writing 30 days in advance, handle the handover procedures within three days before leaving the contract, return the relevant materials and articles in good condition, hand over the work clearly, and settle the accounting reimbursement, punishment, compensation and other related expenses with the financial department. The salary shall be received on the 10th of the next month after the completion of the above handover work. If Party B does not handle the above handover work according to the time and requirements required by Party A after leaving his post, Party A shall suspend the basic salary (including relevant business commission or bonus) until the handover is completed.
Article 30: Party B shall notify Party A 3 working days in advance of any of the following circumstances.
1、 | During the probation period; |
2、 | Party A forces labor by means of violence, threat, imprisonment or illegal restriction of personal freedom; |
3、 | If Party A is unable to pay labor remuneration or provide working conditions in accordance with this Contract. |
Article 31: Within 30 days before the expiration of this Contract, if Party A and Party B terminate the Contract without written notice to the other party, the validity period of this Contract shall be automatically extended for 3 months.
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IX. Liability for breach of contract
Article 32: If Party A has any of the following circumstances, and Party B violates and cancels the labor contract, it shall make economic compensation in accordance with the Labor Law and the relevant provisions of Beijing Municipality:
1、 | Failing to give the laborers economic compensation in accordance with relevant laws and regulations after the termination of the labor contract; |
2、 | If Party A cancels the labor contract or violates the invalid labor contract concluded due to Party A, and causes damage to Party B, Party A shall bear the compensation liability in accordance with the relevant labor provisions. |
3、 | other |
Article 33: If Party B terminates the labor contract in violation of the conditions agreed herein or violates the confidential trade secrets agreed herein, and causes economic losses to Party A, it shall be liable for compensation according to the extent of the losses.
Article 34 A labor dispute arising from the performance of this contract shall be settled through negotiation and fails. If one party requests arbitration, it shall apply for arbitration to the Labor Dispute Arbitration Section 60 days from the date of the occurrence of the labor dispute. One party may also directly apply for arbitration to the labor dispute arbitration committee where Party A is located. If it refuses to accept the award, it may bring a lawsuit to the people’s court where Party A is located.
X. Other agreements
Article 35: Party B shall invest by Party A for training, acceptance, etc., and Party B shall sign a supplementary agreement with Party A.
Article 36: The ownership and right to use any products produced by or produced during Party B shall completely belong to Party A.
Article 37: Party B shall truthfully inform Party A of his identity, address, study, work experience, illegal or criminal acts, participation in working in other units, physical condition (whether serious diseases, infectious diseases, chronic diseases or other diseases affecting normal work). If Party A intentionally informs the false situation or intentionally conceals the truth and discloses the invalid labor contract concluded by fraudulent means, Party A has the right to terminate the labor contract at any time and does not bear the economic compensation and compensation, which thus causes Party A losses, Party B shall compensate according to the actual losses.
Article 38: Matters not covered herein shall be implemented with reference to the Labor Contract Law of the People’s Republic of China and other relevant laws and regulations.
Article 39: This Contract is made in duplicate, with each party holding one copy. Both parties shall effective on the date of signature.
Article 40: The following annex is an integral part of this Contract, and shall have the same agreed force for both parties:
Other supplementary documents signed by the two parties, such as the Employee Code, Intellectual Property Protection Agreement, Confidentiality Agreement, Company Rules and Regulations, and Non-competition Agreement.
Article 41: Party A’s rules and regulations (including but not limited to the employee manual, post manual, training agreement, etc.) are all attached to the contract, and its effectiveness is equivalent to that of the contract. Party A shall have the right to formulate other documents regulating the management system of Party A except the above attachments. Such institutional documents shall automatically become these attachments starting from the date when Party A announces its implementation, which are binding on both parties and the provisions are significantly illegal.
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Party A (signature): /s/ Global Mofei (Beijing) Technology Co., Ltd.
Party B (signature): /s/ Li Qing
Date of signing the contract: March 24, 2021
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Exhibit 10.12
Form of Agreement for Virtual Technology Service
This contract shall be signed by the following parties in Chaoyang District of Beijing.
Party A:
business address:
contacts:
contact number:
Party B:
Office address:
contacts:
contact number:
In view of,
Party A invests and shoots the network drama XXX (tentative name, modification and change of the drama name shall not affect the validity of the Contract and the rights and obligations of both parties, hereinafter referred to as “the drama”), and needs to make virtual content footage for the drama; Party B is the virtual content producer and service provider with rich experience.
Now, on the principle of integrity, equality, voluntary, on party A entrust party B to provide virtual content services and make the virtual assets, virtual role, digital virtual lens content, after full consultation agreement, signed the network drama <XXX> virtual content service and production contract (hereinafter referred to as “this contract”), to abide.
I. Special effects services and production
1.1 Party A entrusts Party B to provide professional production services during the shooting and virtual production process: virtual content production (production period).
1.2 Production
1.2.1 Production Content:
1.2.1.1 Make the virtual assets and virtual digital painting scenes of the drama.
1.2.2 Production specifications: 1920 * 1920, Apple ProRes 4444, and provide the result documents according to the compression ratio of the original material. Party B shall make all virtual special effects lenses according to the specifications and contents finally confirmed by Party A, and provide them to Party A in-2K-MOV-or in the format and manner required by Party A.
1.3 Service and production cycle (tentative, subject to the final notice cycle of Party A):
1.3.1 Production cycle of virtual content: 3 months after receipt of all fixed cut and original materials; Party B shall complete the production of all virtual content under this Contract before the expiration of the aforementioned period.
1.4 Delivery, modification, and acceptance:
1.4.1 After this Contract comes into effect, Party A shall provide Party B with the preliminary production plans of the script, art concept, props setting and other departments required for the production of virtual content. And after cutting the production of the required film digital files, drama sample, drama sample, XML files, etc. The creative scheme and production plan confirmed by both parties shall be used as one of the production basis of Party B and the acceptance basis of Party A. Party B shall complete all the production under this Contract in accordance with the production cycle agreed in Article 1.3.2, and submit it to Party A for acceptance.
II. Cost of production
2.1 Both parties confirm that the total production cost under this Contract is RMB XXX (¥ XXX with 6% VAT). The above production expenses shall be for Party B to complete the virtual visual services and production work (relevant virtual content production) specified in all the accessories of the play, and to copy all the data documents to Party A. For all the fees required, unless otherwise agreed or agreed by Party A, Party A shall not pay any other expenses to Party B, and Party B is not entitled to claim any other expenses to Party A. All prices under this Contract shall be tax inclusive, and Party A shall bear their respective taxes according to law. If any party causes all legal lawsuits and disputes arising from tax issues, the party shall be responsible and have nothing to do with the other party.
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2.2 Payment method:
First payment: Within 3 working days from the effective date of the signing of this Contract, Party A shall pay to Party B 30% of the total production expenses as the first payment, that is, RMB XXX whole (in lower case: ¥ XXX).
Second payment: After Party B submits the production list and production schedule to Party A (or partially cut) to Party A and is confirmed by Party A, Party A shall pay Party B 30% of the total production cost, that is, RMB XXX whole (in small case: ¥ XXX).
Third payment: Party B shall submit 60% of the production results of virtual content (including watermark) to Party A, and within 3 working days after Party A pays Party B 30% of the total production expenses, that is, RMB XXX (in lower case: ¥ XXX).
Fourth payment: Party B shall complete all the shots of the virtual content and submit the sample for review. Within 3 working days after Party A, Party A shall pay Party B, that is, 10% of the total production fee, that is, RMB XXX (in case: ¥ XXX). Party B shall provide all the special effects shots of the final version of the play within 3 days after receiving the final payment.
2.5 Collection account of Party B:
Company name:
Bank of account opening:
Receipt account number:
Party B hereby confirms that the relevant funds shall be remitted to the above designated account, and Party B is deemed to receive the receipt by Party B. If the account is not account or incorrect, Party A shall not be liable for payment delay due to the wrong bank information provided by Party B. The payment shall be subject to the electronic receipt time of Party A’s transfer and the arrival time of Party B.
2.6 Party B shall issue Party A a qualified VAT invoice equal to the production fee to Party A within three working days prior to the payment of each production fee. If Party A delays the payment due to Party B’s delayed invoice, Party A shall not be deemed to breach of contract, and Party B shall continue to perform the obligations agreed hereunder. Invoice content: [design service * production fee], invoice coupon rate of 6%, Party A’s invoice information is as follows:
name of organization:
duty paragraph:
bank of deposit:
account number:
address:
telephone:
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2.6.1 On the date of receiving all the virtual content payment fees paid by Party A, it shall be deemed that Party A has fulfilled and completed the payment obligations under this Contract. All the remuneration and expenses (including but not limited to the remuneration, personal income tax, etc.) incurred by Party B and Party B’s staff for collecting the production expenses agreed herein, shall be borne and paid by Party B from the production expenses specified in this Contract. Party B shall settle (if required, payment and relevant taxes) with it and its staff; Party B knows and promises to deduct and pay Party B’s staff from the production expenses received according to law.
2.6.2 If the VAT invoice issued by Party B fails, it shall issue the qualified VAT invoice within 5 working days after receiving Party A’s request and deliver it to Party A. Party B shall bear the relevant expenses by itself.
2.6.3 If the invoice provided by Party B is not certified by the tax authorities or does not comply with the provisions of the relevant invoice legal system, or the VAT invoice provided by Party B, Party B shall pay the tax amount specified in the unqualified or non-compliant invoices as liquidated damages.
2.6.4 If Party B issues and provides invoices in violation of national laws, regulations, rules and policies, Party B shall bear its corresponding legal liabilities.
III. Intellectual property rights
3.1 Party A, the copyright party of the play, owns all the copyright, adjacent rights and other relevant intellectual property rights and derivative rights of the play and any components and elements of the play. All Copyrights of all materials, materials and materials provided by Party A to Party B shall be permanently enjoyed by the copyright owner of the drama, without any restriction.
3.2 If Party A finally adopts and pays all the corresponding expenses, the copyright party of the drama shall have the copyright and relevant intellectual property rights after the completion of all the lenses under this Contract. Party B shall own the virtual assets (including animation, model, CG (Computer Graphics), etc.) generated during the performance of this Contract by Party B.
IV. Rights and obligations of both parties
4.1 Party A shall have the materials, materials and materials provided to Party B owned by the copyright owner. Party B shall keep the materials, Party A shall deliver the hard disk and array of the tools bearing the materials to Party B. Party B shall return the corresponding equipment to Party A as required by Party A.
4.2 Party B shall prepare all equipment required for the special production and technical indicators to meet the industrial or national standards, It shall complete the service and production and modification under this Contract on time and upon other requirements, Copy the final finished version of the play and the relevant data documents to Party A; If due to Party A (such as the materials needed by Party B, Party A fails to deliver to Party B on time) If Party B fails to deliver the work results according to the final schedule approved by Party A, The extension of the delivery time shall be negotiated by both parties, At the same time, Party B shall not bear the corresponding liability for breach of contract. Party A shall have the right to understand the production progress of the virtual lens at any time.
4.3 Party B shall not return or deliver any materials, materials, materials provided by Party A and the virtual content produced by Party B to the personnel not designated by Party A.
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4.4 If Party B fails to implement the production plan confirmed by both parties and causes the work results to fail to pass the acceptance by Party A, Party B shall rework it until approved by Party A. In case of any conflict of opinions, both parties shall carefully study and negotiate. If it cannot be resolved, Party A’s opinions shall be taken as the final solution, and Party B shall not terminate the work or neglect in any way. If Party A puts forward additional ideas or requirements after both parties determine the production plan and Party B has completed the production, the production cycle of the new production content shall be determined by both parties through separate negotiation.
4.5 Party B shall confidential to Party B the materials (including shooting materials, creator information, modeling, costumes, plots, audio, etc.), and all information, pictures, actors’ remarks and behaviors at the shooting scene of the drama, and shall not provide them to any anyone other than the staff designated by Party A. Party B shall properly manage the relevant staff of Party B involved in the work under this contract, and shall sign a confidentiality agreement with the relevant staff, and take all necessary confidentiality measures. Without Party A’s permission, Party B shall not upload the aforementioned confidential information to the network or transfer or store the confidential information through the network (including but not limited to WeChat, Q Q, network disk, cloud disk, cloud storage or other network transmission tools or storage space).
4.6 Party B and its staff shall have corresponding labor relations and labor relations according to law, sign the corresponding contract and pay the corresponding insurance. Any dispute between Party B and its staff (including but not limited to labor disputes, remuneration distribution, industrial injury, taxes, etc.) has nothing to do with Party A, and Party B shall guarantee that such disputes shall not affect the performance of this Contract.
4.8 If Party A completes all expenses in accordance with the provisions herein, Party A has the right to itself or hire a third party to continue to make, add, delete or remake based on the production results completed by Party B, and Party B has no objection with its staff.
V. Statement and Guarantee
5.1 Party A shall have the legal right to dispose of the drama elements provided, and guarantee that the entrustment made hereunder shall not infringe the legitimate rights and interests of any third party, nor violate any laws and regulations. Party B shall guarantee that its creative works or works, services and production services (including but not limited to the production process, methods, tools, software, service content, and work results) shall not violate the provisions of national laws and regulations, and do not violate the legitimate rights and interests of others (including but not limited to intellectual property rights and personal rights), otherwise, the resulting legal liability shall be borne by Party B.
5.2 In order to ensure the service quality, Party B promises and guarantees to accept Party A’s supervision and follow the service requirements. If it does not meet the service requirements, Party B shall adjust and modify them in accordance with Party A’s requirements, and fully cooperate with Party A to modify the service requirements proposed for the project to pass the approval. If Party B fails to complete the production of the virtual content within the manner and period agreed herein, or the work results and service quality still do not meet the agreed service requirements, Party A shall have the right to unilaterally terminate this Contract. If this Contract is thus terminated, Party A shall only settle the production expenses according to the workload that has been actually completed by Party B and approved by Party A.
5.3 Both parties declare, state and guarantee to each other as follows:
5.3.1 The right to sign this Contract.
5.3.2 Ability to perform its obligations hereunder; and such performance shall not violate any limitation of applicable laws binding upon them or the lawful rights and interests of any third party.
5.4 If any party violates the above declaration, statement and guarantee, it shall be deemed to breach this Contract and shall be liable for breach of contract as agreed herein.
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VI. Liability for breach of contract
6.1 Any party to breach this contract shall be liable for breach of contract. If either party violates the contract and causes any damage, or any party fails to perform or fully, all economic liabilities and legal liabilities caused by it shall be borne by the defaulting party, and the defaulting party shall compensate for all economic losses caused to the defaulting party (including but not limited to, their early investment, direct or indirect losses, third party liquidated damages, compensation, fines, legal costs, attorney fees, notary fees, identification fees, preservation fees, security expenses and other reasonable expenses) to investigate the liability for breach of contract).
6.2 Party A has the right to unilaterally terminate this Contract under any of the following circumstances:
6.3.1 If Party B fails to unilaterally cause Party B to deliver the work results within 10 days within the time specified by Party A.
6.3.2 Party B shall stop work or have any behavior that affects the production of virtual content of the drama.
If the Contract is thus terminated, Party B shall, in addition to returning all the production fees collected, pay Party A a liquidated damages of 30% of the total production expenses. If the liquidated damages are insufficient to compensate for the actual losses of Party A, Party B shall continue to compensate for all the losses caused to Party A thereby.
VII. Disclaimer clause
7.1 If force majeure events, such as emergencies beyond the reasonable control of the parties, such as outbreak, war, earthquake, strike, riot, judicial, government restrictions, shall promptly notify the other party and the other of the obligations within the affected scope of breach.
7.2 The Parties may make the following options through negotiation based on the severity of the force majeure:
7.2.1 Extend the completion period of service and production.
7.2.2 Termination of this Contract (including it may be terminated within the agreed extension by the parties).
VIII. Dispute Settlement
The conclusion, validity, performance and interpretation of this Contract shall be subject to protection and governed by the laws of the People’s Republic of China. All disputes arising from or related to the execution of the Contract shall be settled through friendly negotiation. If they cannot be resolved, they shall be submitted to the People’s Court with jurisdiction in Chaoyang District, Beijing, where the Contract is signed, for settlement through litigation.
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IX. Other
9.1 The fax letter, work order, scheme documents, presentation report, bills and other written documents designated by both parties ([] and []) signed by Party B, and the oral confirmation opinions recognized by both parties shall be regarded as effective execution or supplement to this Contract.
9.2 Matters not covered herein shall be settled by both parties through negotiation and sign a supplementary agreement separately. In case of any conflict between the Supplementary Agreement and this Contract, the Supplementary Agreement shall prevail. The attachments and supplementary agreements to this Contract shall have the same legal effect as this Contract.
9.3 This Contract shall come into force from the date of being sealed by both parties in duplicate. Both parties shall hold one copy and have the same legal effect.
(No text is available below)
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(There is no text on this page, which is the signing page of Network Drama <XXX> Virtual Content Service and Production Contract between Party A and Party B.)
Party A:
date:
Party B:
date:
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Exhibit 10.13
Form of Agreement for Digital Marketing
Date:
place of signing:
Party A:
Party B:
In accordance with the provisions of the relevant laws, regulations and rules of the People’s Republic of China, Party A and Party B shall sign this Contract on the basis of equality, voluntary agreement and mutual agreement through consultation.
Article 1 Entrusted project
1. Party A entrusts Party B to carry out product planning, design, promotion, etc., that is, Party B shall plan, creative and manage the advertising activities of Party A and the corresponding products.
2. Party B shall give full play to the overall requirements of Party A’s product strategic planning and the advantages and characteristics of Party A’s ability to Party B’s ability to achieve the effective dissemination of Party A’s products.
Article 2 Term of entrustment
The validity period of this contract is from ___________ to ___________.
Article 3 Project Content
1. Party B shall provide Party A with product planning services composed of strategy promotion part and creative design services.
2. After the signing of this Contract _____ After 1 working days, the contract shall be deemed to come into force.
3. During the specific operation of this Contract, the third-party outsourcing service project shall be signed into a single contract by both parties in accordance with the terms and principles of this Contract. Prior to the implementation of the project, both parties shall contact with the meeting and written work requirements (fax), and confirm the signature documents in writing.
4. In case of any changes and modifications during the operation of the business, both parties must contact them in writing within 24 hours, and take the documents finally signed and confirmed by both parties as the basis for the changes and operation.
5. The work of each project shall start with the signing of Party A or a single project contract. After the completion of various projects, Party A shall conclude with the signing and acceptance of various documents, reports, certificates, manuscripts and relevant financial documents submitted by Party B.
6. Party A may, as necessary, request Party B to attend the communication meeting at the place designated by Party A at any time, and Party B shall report the results according to Party A’s requirements .If Party A attend the relevant meeting at the request of Party A, the head of the project working group shall attend it in person and put forward opinions according to the meeting.
Article 4 Contract payment and settlement method
Payment method: Party A will pay the fees to Party B in the form of bank transfer.
Bank account information of Party B is as follows:
account title:
bank of deposit:
Account, number:
Issue an invoice
(1) Party B shall issue an invoice for Party A that meets the requirements of the national tax authorities.
(2) Party A’s billing information is as follows
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Invoice type:
Invoice head: Company Tax number:
Contents of billing:
Account, No.:
bank of deposit:
Registered address & Phone Number:
Both parties shall bear all kinds of taxes and fees arising from this Contract; the information service fees incurred by Party A’s payment to Party B shall be borne by Party A itself.
For specific information service fees and settlement and payment methods, see the Settlement Form of each period. If there is any difference between the Settlement Form and this contract, the payment amount shall prevail.
Article 5 Rights and obligations of Party A
1. Party A shall provide relevant information of enterprises and products; to ensure the comprehensiveness of Party B’s information, and thus to be conducive to product planning, design, promotion and service work;
2. Party A shall pay the contract payment to Party B on time as agreed herein.
3. Party A shall actively cooperate with Party B to carry out various preparations.
4. Right to require Party B to provide the services stipulated in this Contract on time and with good quality.
5. During Party B performs the services stipulated in this Contract, Party A has the right to send personnel to supervise.
6. If members of Party B’s project working group, working ability and attitude do not meet Party A’s requirements, Party A shall have the right to request immediate replacement.
7. When Party A issues work instructions to Party B, Party B shall be responsible to give a clear work briefing.
8. Party A shall have the right to modify Party B’s project results from time to time.
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Article 6 The rights and obligations of Party B
1. Party B shall diligently and conscientiously complete the project as agreed herein. Party B shall provide services in accordance with current relevant Chinese laws, regulations, regulations, regulations, standards and service requirements confirmed by Party A, submit qualified results according to the progress requirements stipulated in the contract, be responsible for its completeness, correctness and validity, and after analysis, review, demonstration and evaluation by Party A, modify, supplement and improve in accordance with Party A’s requirements.
2. Party B shall complete the entrustment matters in time, inform the work process at the request of Party A, and properly keep all the materials involved in the project. When collecting important documents, documents and materials from Party A in order to complete the entrusted items, it shall issue a standard receipt list to Party A and properly keep them; after completing the entrusted service items, the above documents, documents and materials shall be returned to Party A in time.
3. Ensure that the project team fully invests its time and energy to efficiently meet Party A’s business needs and project schedule.
4. Ensure the stability of the members of the project team, and the members of the project team shall not be replaced without the written permission of Party A.
5. Keep communication with Party A at any time to ensure that Party A can timely understand the work content, expected time and degree of progress.
6. If there are matters beyond the service scope agreed by both parties during the implementation of the project, Party B will fully communicate with Party A and reach an agreement with Party A.
7. During the validity period of the cooperation, Party B shall regularly report the service situation and information, and constantly improve the service quality.
8. Party B and the members of the project working group of Party B shall keep all information, creativity, resources and planning strictly confidential and abide by the relevant confidentiality system formulated by Party A.
9. Party B shall establish a working error and remedial mechanism. In case that any error occurs, the leader of the project working team shall notify Party A in the first time, and take remedial measures immediately after soliciting Party A’s opinions.
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10. Party B shall establish a conflict of interest prevention mechanism and shall not engage in activities that are harmful to Party A’s legitimate rights and interests. Not accepting the entrusted business with the same, similar or similar business within the validity period and 1 year after the expiration or termination of Party A and its subsidiaries; the entrusted business of Party A or its main competitors or rival interests shall not be accepted.
11. Party B shall not violate the current laws and regulations of the state and cause damage to Party A and seek unfair interests.
12. The advertisements and related activities planned and produced by Party B for Party A can be implemented only after written confirmation by Party A or Party A’s representative. Party B shall be responsible for the acts implemented without confirmation by Party A or Party A’s representative. Party B shall compensate for the economic losses caused to Party A.
13. Party B shall not assign its rights and obligations under this Contract to any other third party without its written consent.
Article 7 Intellectual Property rights
1. Any text, pictures, videos, data, charts and other materials involved in any documents and materials submitted by Party B to Party A shall not infringe any intellectual property rights, copyright, trademark rights, patent rights, use right, portrait right and other third parties or any other legal rights. Otherwise, Party B shall bear all liability and compensate Party A for the loss, including losses not limited to damages, liquidated damages, administrative fines, attorney fees, legal costs, investigation expenses, travel expenses and other losses.
2. The intellectual property rights (including market survey data and other trade secrets) and ownership of the project achievements (including all reports, data, conclusions, suggestions, creativity, copywriting, plans, slogans and other creative works) entrusted by Party A belong to Party A. Party A shall have the right to occupy, use and dispose. Party B cannot use or use the above project achievements in any form without the written permission of Party A.
3. After the termination or expiration of this Contract, Party B shall, at the request of Party A, return the articles, materials, documents, company information and data obtained from Party A to Party A or destroy them under the supervision of Party A’s authorized representative. Party B shall not use the aforesaid information or permission in any form or reason.
4. If Party B violates the obligations stipulated in this Article, it shall compensate Party A for breach of contract for any loss of Party A’s economic interests, reputation loss, damages, liquidated damages, administrative fine, investigation fees, attorney fees and other expenses. If the contract is still being performed, Party A has the right to terminate the contract immediately.
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Article 8 Confidentiality
1. Due to the performance of this Contract, Party B’s business information, materials, text, pictures, videos, data, analysis and all related materials provided by Party B are highly confidential and within the confidential scope stipulated in this Article, whether Party A is expressed or implied as a business secret.
2. Without Party A’s written permission, Party B shall not publish it on any communication platform including publications, conferences, media (including we media) and social networks and guarantee that all Party B personnel participating in the project or who may know the project and release the project data shall abide by the confidentiality obligations of this Article.
3. Without Party A’s consent, Party B shall not disclose, publicize, publicize or imply that Party B is Party A’s service company.
4. The confidentiality obligation of this Article is permanent and shall not be exempted by the termination, termination or expiration of this Contract.
5. If Party B violates the obligations stipulated in this Article, it shall compensate Party A for breach of contract for any loss of Party A’s economic interests, reputation loss, damages, liquidated damages, administrative fine, investigation fees, attorney fees and other expenses. If the contract is still being performed, Party A has the right to terminate the contract immediately.
6. Party B shall inform and require its employees and the research project to comply with the provisions in this Article. If the employees participating in the research project violate the provisions of this Article, Party B shall be jointly and severally liable.
Article 9 Liability for breach of contract
1. After the Contract comes into force, either party breaches the contract and shall bear all the economic losses of the non-breaching party caused thereby. The Parties shall perform their obligations and agreements fully, appropriately, and timely in strict accordance with the provisions of this Contract, and each of the following events constitutes a breach of contract:
(1) If any party to this Contract fails to fulfill its substantive obligations hereunder, so that the other party fails to achieve the purpose of signing this Contract;
(2) If any statement or warranty made by any party hereto in this Contract is untrue, inaccurate in any material respect, incomplete or misleading.
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3. If Party B fails to perform its obligations as agreed herein, Party A shall have the right to refuse to pay, and shall not be deemed as a breach of contract.
4. Party B must guarantee to complete the project as agreed. If Party B cannot provide relevant results (including copy, report, briefing, etc.) according to the contract and attachments, Party A shall have the right to terminate the contract.
5. If Party B violates the law or the project, Party A may investigate Party B.
6. If Party B terminates or cancels this Contract early due to its reasons, it shall be deemed as a breach of contract.
8. If Party B conceals important facts or has serious defects in the quality of the service contents and is sufficient to affect the development, investment and promotion, Party A may terminate this Contract by notifying Party B in writing before the expiration of the entrustment period.
9. If the achievement documents and materials and services submitted by Party B provided do not conform to the quality agreed herein, and Party B refuses to modify, supplement and improve by Party B upon the request of Party A, Party A may notify Party B in writing to terminate this Contract in writing.
10. When Party B occurs or has any ongoing or potential major litigation, government investigation, administrative punishment, arbitration, financial difficulties or large-scale layoffs, Party A has the right to notify Party B in writing to terminate this Contract at any time. Except to Party A, the above circumstances do not affect the services agreed in this Contract.
Article 10 Force Majeure
1. Scope of force majeure: war, fire, typhoon, flood, earthquake, strike, changes in government laws or policies, or other causes or events belonging to force majeure.
2. In case of an event of force majeure, the party affected by the force majeure event shall obtain relevant certificates from the authority and timely notify the other party. The party suffering Force Majeure shall be exempted from all or partial liability for breach of contract by this certificate, and the specific scope and method of exemption shall be negotiated by both parties.
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Article 11 Dispute resolution method
This Contract is governed by and construed by the laws of the People’s Republic of China. In case of a dispute between the two parties, it may be settled through negotiation, apply to the relevant departments for mediation, or file a lawsuit to the people’s court where Party A is located according to law.
Article 12 Others
1. Party B and Party B’s personnel cannot bribe the relevant staff of Party A in any way, otherwise Party A has the right to unilaterally terminate the contract and refuse to pay all the funds stipulated in the contract, and reserve the right to investigate the corresponding compensation according to law.
2. In order to safeguard the common interests of both supply and demand, Party B shall actively cooperate with Party A to supervise the whole implementation process of the contract, and Party B shall have the right to complain to the supervision department of Party A.
3. At the time of signing this Contract, Party A and Party B have had a detailed communication and negotiation on all the terms of this Contract. All parties have no doubt about all the terms of the Contract and have an accurate understanding of the legal meaning of the rights, obligations, liability restriction or exemption provisions of all parties. Once signed, it indicates that the parties have fully understood and understood the full terms of the Contract and have voluntarily complied with after careful consideration.
Article 13 Supplementary Provisions
1. This Contract shall come into force upon signature or seal by both parties. For matters not covered, another supplementary agreement may be signed.
2. This Contract and annex are made in duplicate, each holding one copy.
(Contract signing page is shown below)
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Party A (signature):
Party B (Signature):
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Exhibit 10.14
Form of Agreement for Licensing Digital Asset
Date:
Party A:
postal address:
contacts:
telephone:
Party B:
postal address:
legal representative:
telephone:
In view of:
1、 | Party A is a company related to 3D digital assets, and Party A undertakes to have the copyright of the complete authorization chain of the contents authorized in this Agreement. |
2、 | Party B is a production and copyright operation enterprise. |
3、 | On the principle of equal consultation, mutual benefit and mutual win, in accordance with the relevant regulations of the People’s Republic of China, to permit Party B to use 3D of its own digital assets. |
Article 1 Authorized cooperation matters
1、 | Authorization content: 3D digital assets (refers to the scene, image, props, characters, etc. See the “Letter of authorization” of Appendix I for detailed authorization information). |
2、 | Work Type: [Digital Assets] |
3、 | Type and method of authorization rights: |
[Film and television adaptation rights]☐
[Game adaptation rights and derivative development rights]☐
[Animation adaptation right]☐
[Video production rights]☐
[VR VR development rights]☐
[AR augmented reality development rights]☐
[Digital Cultural and Tourism development right]☐
4、 | Term of authorized cooperation: from year to year. |
5、 | Authorized area: Chinese mainland area (excluding Hong Kong, Macao and Taiwan). |
Article 2 The rights and obligations of Party A
1、 | As the provider of 3D digital asset resources, Party A guarantees the integrity and legality of the rights authorized to Party B, is free of any rights defects in the authorized works, meets the provisions of Chinese laws, regulations, rules, and other normative documents, without prohibited, prohibited, copied, reactionary and obscene contents, without infringing the legitimate rights and interests of any third party, without any copyright disputes, and guarantees to provide legal rights certificates to Party B. If Party A violates the aforesaid guarantee in this Article or because Party B infringes on the rights and interests of any third party or violates the state regulations, Party A assumes full liability, and thus causes losses to Party B, Party A shall give full compensation. |
2、 | Party B shall have the right to develop and complete the products to design, produce and sell other derivative products on its own basis, but shall inform Party A in advance and shall obtain the written consent from Party A. |
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3、 | Party A agrees to license Party B to use it within the agreed conditions with the “authorized content” that it owns. After obtaining the authorization, Party B shall have the right to use the authorized contents in accordance with this Agreement. |
4、 | Party A agrees that Party B shall, as necessary, modify the authorized content, including name modification, subject matter, structure, work content and characters, and Party A recognizes that Party B and the third party cooperating with Party B have the right to technically modify, delete or modify the authorized content (but shall not infringe, distort or discredit Party A or the relevant material, image or reputation of the authorized product itself). |
5、 | Without the agreement or the agreement of both parties, Party A has no subsequent obligations to the authorized agreement. |
6、 | Within the authorization period of this Agreement, the above developed assets and any form of derivatives may exercise their own rights as agreed in herein. |
7、 | Within the authorization period, Party B or the third party authorized by Party B shall have the right to decide the name of the final product of the developed products and derivative products according to the market conditions and exercise the right of authorship. Party A shall have the right to request Party B to indicate the author information of the original work in the corresponding location of the products / derivatives developed by Party B or a third party authorized by Party B. |
8、 | Within the authorization period, Party A may authorize others to exercise the authorization rights of this Agreement, but it shall inform Party B in writing. |
Article 3 Rights and obligations of Party B
1、 | Party B shall have the right to reasonably and legally use the Authorized Content within the conditions agreed herein. Party A undertakes that it shall not illegally interfere with Party B when exercising its legal rights in accordance with Article 1 of this Agreement. |
2、 | Party B shall not place the rights granted by Party A as not agreed upon hereunder, including but not limited to guarantee and pledge with authorized content. |
3、 | Party B warrants that it is a company legally established and existing in accordance with Chinese laws, and that it shall have the right to sign this Agreement and perform all its obligations under this Agreement in accordance with relevant laws and relevant agreements. |
4、 | Party B shall respect the intellectual property rights and brand image of Party A’s brand, exercise the license right in strict accordance with this Agreement, and shall not have any act or omission to damage or adversely affect the intellectual property rights of the authorized content or all components thereof. |
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5、 | Party B shall have the obligation to bind its authorized production, processor and sales and distributor to exercise the license rights on the intellectual property rights and brand image of the authorized content in strict accordance with this Agreement, and shall not conduct any act or adversely affect the intellectual property rights of the authorized content or all components thereof. |
6、 | Within 30 days prior to the expiration of the authorization period of this Agreement, if Party B needs to continue to develop the authorized products or the developed products (including but not limited to the elements of the developed products), both parties shall separately negotiate to authorize the corresponding fees and sign the authorization agreement. |
7、 | Within the authorization period of this Agreement, Party B or the third party authorized by Party B shall have the right to reasonably and legally use the relevant videos, logo, words, posters and other materials of the authorized products, subject to the prior written consent of Party A and no relevant fees to Party A, but shall not damage Party A’s image and reputation. |
Article 4 Authorization of gold
1、 | The Parties confirm that the total amount authorized herein this Agreement is RMB (in words:). |
Under this Agreement, as the consideration for which Party B is authorized, Party B shall pay Party A RMB RMB (in words). Party B shall pay Party A a total amount of RMB (in case) in means of bank transfer. Party B shall pay Party A within 10 working days after the signing of the contract. Party A shall provide Party B with authorized work documents within thirty (30) working days after receiving the payment from Party B and issue a special invoice where Party A belongs to Party B.
Account information of Party A:
Bank of Party A:
Account name of Party A:
Party A’s account:
2、 | The Parties shall independently bear any taxes payable because of the performance of their respective obligations under this Agreement. |
Article 5 Intellectual Property rights
1、 | This license is not understood as a transfer or division of intellectual property of “authorized Content”. |
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2. | Party B shall enjoy the intellectual property rights of the products or semi-finished products commercial developed by Party B based on the “authorized content”. Party A shall inform Party B in writing of the use. Party B shall have the right to apply for relevant intellectual property registration after the completion of the developed products. Party B shall exercise without further consent from Party A on the intellectual property rights, but shall not infringe on the legal intellectual property rights enjoyed by Party A and the intellectual property owner of the original work. |
3. | Without Party A’s permission, Party B shall not sell or transfer the original works. If there is any breach of contract, Party B shall bear the corresponding liability for breach of contract. |
Article 6 Confidentiality agreement
1. | Party A and Party B shall be liable to keep confidential and the business secrets of this Agreement (including but not limited to, the management, technology, finance, business or any other information) of the other party without written, special authorization or as required by law, or shall compensate the other party for any improper losses. |
2. | Confidentiality liability shall not be affected by the invalidation, dissolution or termination of this Agreement. |
Article 7 Liability for breach of contract
1、 | Both Party A and Party B shall fully and conscientiously perform the provisions of this Agreement. In case of any breach of contract, they shall compensate for the corresponding losses to the other party caused due to the breach of contract. |
2、 | The breaching party shall compensate the other party for the losses due to its breach of contract, including the direct economic losses and reasonable expenses caused by the breach of the other party, including but not limited to the attorney expenses, litigation and arbitration expenses and travel expenses incurred by the other party due to the breach of the breaching party. |
3、 | If Party B infringes the relevant rights of the third party, Party B shall settle the product by itself; if losses are caused to Party A or the third party, it shall bear all compensation liability to Party A or the third party. |
4、 | If Party B cannot open to the market normally due to the right defects of the commercial development, Party B shall not claim for any refund of any fees for any reason, and Party A reserves the right to claim. |
5、 | Except for the breach expressly specified in this Agreement, if any breach of either party causes the failure of the purpose of the Agreement, the non-reaching Party shall have the right to terminate this Agreement and claim relevant damages to the breaching party. |
6、 | If the liquidated damages or the amount of damages borne by the defaulting party is still insufficient to compensate for the actual losses of the defaulting party, the aforementioned defaulting party shall make up to the defaulting party. |
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Article 8 Force majeure
1、 | “Force Majeure” means an event which is not reasonably controlled, unforeseeable, or even foreseeable, and which prevents, affects, or delays either party in performing all or part of its obligations under the Agreement. The incident includes, but is not limited to, government acts, natural disasters, wars, strikes, hacking, computer viruses (e. g., trojans, worms, etc.), technical adjustments in the telecommunications sector, or any other similar event. |
2、 | In case of a force majeure event, the affected party shall timely and fully notify the other party in writing and inform the other party of the possible impact of this Agreement, and shall provide detailed details within a reasonable period (30 days after the occurrence of the relevant organization, and the affected party is unable to fulfill all or part of its obligations under this Agreement. |
3、 | If part or all of the above force majeure events are impossible or delayed in performing the Agreement, both parties shall terminate the agreement or reasonably share the possible losses, and shall not be liable for any breach of contract between each other. |
Article 9 Cancellation of the Agreement
1、 | This Agreement may be dissolved under the following circumstances: |
1) | Both parties may terminate this Agreement through consultation; |
2) | If the suspension of this Agreement reaches 60 days due to force majeure, both parties shall have the right to unilaterally terminate this Agreement after notifying the other party in writing; |
3) | The circumstances that may be discharged as stipulated by laws and regulations and the other circumstances stipulated in this Agreement. |
2、 | If Party A has any of the following circumstances within the term of cooperation, Party B shall have the right to unilaterally terminate this Agreement: |
1) | Party A’s actions cause Party B to suffer heavy losses; |
2) | Other acts that damage Party B’s reputation and rights and interests; |
3) | Other circumstances as provided for by the law. |
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3、 | If Party B has any of the following circumstances, Party A shall have the right to unilaterally terminate this Agreement: |
1) | Party B’s actions cause Party A to suffer heavy losses; |
2) | Other acts that damage Party A’s reputation and rights and interests of Party A; |
3) | Other circumstances as provided for by the law. |
4、 | If this Agreement is terminated, Party A shall not refund the authorized fees paid by Party B. |
Article 10 Others
1、 | Both Party A and Party B shall be obliged to protect the “authorized content” permitted by this Agreement from infringement by others. Either party found an violation, for the use of “authorized content” permitted in this Agreement, it shall immediately inform the other party in writing and take active and effective measures in time and time To prevent the further occurrence of infringement, to prevent the further expansion of the consequences of damage. |
2、 | Matters not covered herein shall be settled by both parties through negotiation, and both parties shall sign a supplementary agreement as an effective part of this Agreement. The motion shall have equal effect. |
3、 | Any dispute arising from this Agreement shall be resolved by both parties through friendly negotiation, and both parties agree to submit the dispute to the location of Party A’s people’s court to make the settlement. The conclusion, execution and interpretation of this Agreement and the settlement of disputes shall be subject to the laws of the People’s Republic of China. |
4、 | This Agreement is made in duplicate, each holding one copy and shall take effect from the date of seal by both parties. |
(The following has no text, which is signed and sealed by both parties)
Party A:
Party B:
Date signed:
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Annex I:
Letter of authorization
Authorized by:
Licensee:
This letter of authorization is an attachment to the 3D Digital Asset Authorization Cooperation Agreement (hereinafter referred to as the “Original Agreement”) signed by both parties on [], [] [] [], and shall be used together with the original agreement and has the same legal effect. We hereby confirm that the specific authorization is as follows:
Copyright name | Authorization rights | Licensed scope of use | Number of assets / individual | Authorization
amount (RMB) |
3D digital assets | The right to adapt film and TV series, animation adaptation right, video production right, VR virtual reality development right, AR augmented reality development right, digital cultural and tourism development right | Chinese mainland area (Excluding Hong Kong, Macao and Taiwan) |
¥ : | |
amount to | ¥ : |
Authorization period: from ______________ to ________________
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Licensor guarantees:
1. | The contents submitted by the Authorisor shall be consistent with the contents contained in this Letter of Attorney, and all legal disputes and administrative penalties caused by submission errors or other reasons shall be borne by the licensor. |
2. | It has a real and legal source and right to the authorized content and relevant materials provided, and does not infringe on the legitimate rights and interests of any other rights holder (including but not limited to intellectual property rights, portrait right, privacy right, etc.); |
3. | Ensure that the authorized content provided is legal and healthy, does not violate any laws, regulations, norms and policies that should be applied, and does not contain bad information such as reaction, pornography, insult or slander; |
4. | For the copyright or other disputes arising from the authorized content provided, the authorized party is involved in any legal dispute, administrative penalty, litigation or arbitration, and the licensor shall solve and bear the relevant expenses, and the licensor shall also compensate for the losses caused by the above reasons. |
Authorized by:
Date:
9
Exhibit 10.15
Form of Agreement with Supplier
Party A:
address:
contact number:
Party B:
address:
contact number:
Party A and Party B enter into this Contract in accordance with the Contract Law of the People’s Republic of China, the Advertising Law of the People’s Republic of China and other relevant laws and regulations, on the basis of equality, voluntary and consensus consultation and on the basis of the principles of honesty and trustworthiness, mutual benefit and common development.
Article 1. Definition
1. | Cooperative Products: Party A has independent, complete and legal rights (including but not limited to ownership and relevant intellectual property rights), or Party A has the basic products or service rights legally authorized to entrust Party B to carry out specific information services. |
2. | Cooperation mode: the following (5) modes |
1) | CPA (Cost Per Action): by the actual effect of advertising billing model. Users who successfully download, install and open the cooperative products online through Party B’s platform will be regarded as an effective installation and activation, that is, an effective CPA. | |
2) | CPT (Cost Per Time): the mode of charging for display time by advertising location. |
3) | CPD (Cost Per Download) : in the platform bidding advertising system recharge, according to the download charging mode. | |
4) | CPC (Cost Per Click) : by the user effective click billing mode. | |
5) | CPM (Cost Per Mille): cost per thousand persons |
3. | Information service: refers to a service that displays and releases the cooperative product information through the relevant pages or interfaces of Party B’s platform or the third-party channel platform, including but not limited to consulting service, account opening service, after-sales support, product training, content release, activity execution and other projects. |
4. | Information service fee: refers to the information service remuneration of Party B according to the cooperation mode agreed by both parties. |
Article 2. Term of Service
Service period: From _____ to _____
Article 3. Service Content
1. | The original contract can be applied repeatedly during the cooperation period and shall be binding on both parties. The Settlement Statement signed by Party A and Party B for each cooperative product shall serve as an annex to this Contract and have the same legal effect as this Contract. |
2. | Party B shall provide information services to Party A in accordance with the Settlement Form signed by both parties. |
3. | After the Settlement Form is confirmed by both parties, it shall be used as the valid basis for the initial confirmation of Party B’s information service, but both parties shall supplement the original paper copies sealed by both parties within 10 working days after the confirmation by email. |
Article 4 Information service fee and settlement and payment method
1. | Payment method: Party A will pay party B in the form of bank transfer. |
2. | Party B’s bank account information is as follows: |
account title:
bank of deposit:
account number:
3. | Issue an invoice |
(1) | Party B shall issue invoices to Party A that meet the requirements of the national tax authorities. |
(2) | Party A’s billing information is as follows |
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Invoice type: special VAT special invoice Invoice title: Company Tax number:
Contents of billing:
Payment account:
bank of deposit:
Registered address & Telephone Number:
4. | Both parties shall bear various taxes and fees for the income arising hereof; Party A shall pay the information service fees paid by Party A to Party B. |
5. | The specific information service fees and settlement and payment methods are detailed in the Settlement Form of each period. If there is any difference between the Settlement Form and this contract, the Settlement Form shall prevail. |
Article 5. The Rights and Obligations of Party A
1. | Party A shall provide Party B with the cooperative products under this Contract (including but not limited to materials, design samples, product forms, etc.) five working days before the expected promotion of the cooperative products for Party B to provide information services. Party B shall not be liable for any accidents such as delay or failure caused by Party A’s failure to provide the cooperative products on time, and Party A shall bear any losses caused to Party B. |
2. | During the information service period, if Party A needs to update or change, including but not limited to the icon or text, Party A shall notify Party B in writing 5 working days in advance and deliver the replacement icon or text to Party B. |
3. | Party A warrants that the text, pictures, technology, software and other cooperative products provided shall not violate any laws, regulations and public ethics and shall not constitute any infringement of the third party, including but not limited to the intellectual property rights, reputation rights, portrait rights and other legal rights of the third party. If Party A breaches this guarantee and causes any dispute or Party B has reason to believe that Party A’s behavior will lead to such situation, Party A shall be responsible for it alone and completely, and Party B shall not bear any responsibility. Party A shall compensate Party B for all losses incurred thereby, and Party B shall have the right to terminate this Contract at any time. |
4. | Party A guarantees that the cooperative products do not contain viruses, Trojan horses or other harmful programs and codes, no malicious link jump, hidden deduction and other losses of privacy or property in use, after the feedback of the platform. In such case, if Party B, Party B shall bear the corresponding legal liabilities and compensate for all the losses caused thereby. |
5. | If the problems and disputes in paragraphs 3 and 4 of this Article must be directly handled by Party B, Party A shall give maximum support and bear all responsibilities, losses and expenses caused thereby during and after party B’s handling. |
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6. | Party A shall pay the information service fee, security deposit, recharge payment and other funds in time and in full according to the time and amount stipulated in this Contract and relevant terms. |
Article 6. Rights and Obligations of Party B
1. | Party B shall arrange the information service as agreed by both parties and ensure the stability and reliability of its platform. If the information service execution is difficult due to Party B’s platform, Party B may propose corresponding adjustment plan to Party A for Party A for re-confirmation. |
2. | Party B shall have the right to examine the contents and manifestations of the cooperative products provided by Party A, and shall have the right to request Party A to modify the contents and manifestations that do not conform to laws and regulations. Party B shall have the right to refuse to provide corresponding information services before Party A makes the modification. The liability caused thereby shall be borne by Party A, and Party B shall not bear any liability for breach of contract. Party B’s review shall not be deemed as party B’s recognition and guarantee of any content and form of expression. |
3. | During the term of this Contract, Party B shall have the right to use party A’s company name, business name, trademark and relevant materials or contents of the cooperative products in the process of service for the cooperative products, but such use shall not exceed the scope agreed herein. Party B shall have the right to relicense this right to Party B’s platform and be obliged to confirm that the use of Party B’s platform to Party A’s materials provided by Party B shall not exceed the provisions herein. At the same time, Party B shall not disclose the promotion data obtained from Party A to any third party. |
4. | Party B shall provide information services to Party A in accordance with the provisions herein. If Party B has any wrong display position (i.e. “misbroadcast” or insufficient display time (i. e., “missed broadcast”), it shall compensate Party A for the same value according to the principle of “one mistake one, one missing one”. |
5. | Party B shall not, by itself or authorize any third party, modify, update, secondary development, crack, compile, reverse engineering of any cooperative products or any other similar behavior, except for the purpose of this Contract and with the written consent of Party A. |
6. | Party b and party b platform for the normal business, need to regularly or irregularly shutdown equipment maintenance, party a to fully understanding, such as such information service under this contract can not as planned, as a breach, but party B has the obligation to try to avoid service interruption or limit the interruption time in the shortest time. |
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7. | During the cooperation period, if the foreign cooperation and sales policies (including but not limited to price, distribution, discount policies, etc.) of Party B and Party B platform are adjusted, all the effective orders signed shall follow the new sales policy; if Party A does not agree to the new sales policy published by Party B and Party B platform, Party B shall have the right to terminate this Agreement in advance after settling the specific cooperation without any liability for breach of contract. |
8. | Based on the overall market interests and party b or party b platform adjustment, party b may not regularly adjust its service content, layout, page design, such as the impact under this contract (including location and / or during the period), party a will give full understanding, but party B has the obligation to minimize the impact as far as possible. |
Article 7. Confidentiality clause
1. | Either party has the obligation to keep confidential the trade secrets that the other party has not disclosed to the public in the course of cooperation.Without the written permission of the other party, neither party shall disclose it to a third party, otherwise it shall be liable for breach of contract and compensate for the losses, and investigate its relevant legal liabilities according to law.Except that must be disclosed to competent institutions (such as government law enforcement departments, stock exchanges, etc.) in accordance with relevant regulations. |
2. | Trade secrets refer to the technical information, business information, customer information, business data, financial information and other information that can bring the benefits and effects to the party. |
3. | Whether this Contract is terminated or no longer performed for any reason, both parties shall abide by the above confidentiality obligations until the other party releases the obligation in writing, or the trade secret has become the public information in the industry, and will not cause any damage to the other party due to the breach of the confidentiality terms of this Contract. |
Article 8. Modification and termination of the Contract
1. | Party A and Party B may modify the contract content or terminate the contract through consultation and confirm in writing. |
2. | Without mutual agreement and written confirmation by both parties, on the premise that neither party has a breach of contract, either party unilaterally claims the modification or termination of this contract without the legal effect of contract modification and termination, and if the other party suffers losses, it shall compensate the other party for the economic losses suffered. |
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3. | This Contract may be terminated due to legal circumstances, circumstances agreed herein or agreed by both parties; the early termination of this Contract shall not affect the rights and obligations of both parties hereunder prior to the early termination date of this Contract. |
Article 9. Liability for Breach of Contract
1. | If either party breaches its obligations under this Contract, the breaching party shall, upon receipt of the nonbreaching party requesting to correct its breach, immediately stop its breach, continue to perform its obligations in accordance with the Contract, and indemnify the non-breaching party for all losses incurred thereby within ten (10) days.If the breaching party continues to breach or fails to perform its obligations, the non-breaching party shall also have the right to terminate this Contract in advance except for all the damages from the breaching party and the legal liability of the breaching party. |
Article 10. Intellectual Property Rights
1. | Both parties recognize and respect the intellectual property rights owned or legally used by the other party or its affiliates. During the process of cooperation, the intellectual property rights owned by either party shall not be transferred due to the cooperation between both parties. |
2. | In the process of cooperation, both parties shall strictly reasonably and legally use the intellectual property rights of the other party within the scope of authorization for the purpose of performing the contract. |
3. | The parties shall ensure that the performance of their obligations under this Agreement shall not infringe the intellectual property rights of the other party and any third party, and shall ensure that the other party shall not infringe the intellectual property rights by using the advertising content or software provided by the third party. |
4. | All hardware, software, programs, passwords, trade names, technologies, licenses, patents, trademarks, technologies and knowledge used by both parties shall belong to the owners of each party without any right defects, and the other party or the third party shall not have any rights or interests therein. |
5. | For any damage to the other party (including economic damage, goodwill damage, etc.) caused by one party violating the provisions in the preceding paragraph, the breaching party shall bear the corresponding liability to the non-breaching party and shall eliminate the adverse impact for the non-breaching party for the goodwill damage suffered by the non-breaching party. |
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6. | If either party infringes the intellectual property rights provided by the other party, and is involved in litigation, claims, or other judicial procedure, the provider shall immediately assist the other party to handle the other party and bear the attorney fees, costs, travel expenses or damages determined in the arbitration award or the final judgment of the court, and eliminate adverse effects for the injured party. |
Article 11. Force majeure
7. | “Force Majeure Event” means an event or cause which neither party can resist, foresee, or even foresee.Given the special nature of the Internet, force majeure events also include the following conditions affecting the normal operation of the Internet: hacking; significant impact due to technical adjustment in telecommunications departments; temporary shutdown due to government control; and virus invasion. |
8. | If either party hereunder is unable to perform its obligations, according to the extent of the force majeure event, the party unable to perform the force majeure event shall notify the other party within 48 hours from the date of the force majeure event, provide the other party with reasonable and true supporting documents within 5 working days after the end of the force majeure event, and perform the necessary and reasonable obligations to reduce the loss or negative impact.Any party experiencing force majeure after delaying the performance of its obligations shall not be exempted from liability. |
9. | If the force majeure event and its impact are not terminated or eliminated one month after its occurrence, both parties may terminate this Agreement through negotiation and shall not be liable for breach of contract. |
Article 12. Dispute settlement
1. | The conclusion, execution and interpretation of this Contract shall be subject to the laws and regulations of the People’s Republic of China (excluding Hong Kong, Macao and Taiwan). |
2. | Any dispute arising from or in connection with this Contract shall be settled by both parties through friendly negotiation.If the negotiation fails, both parties agree to file a lawsuit with the people’s court with jurisdiction in the place where the defendant is located. |
Article 13. Notices and Service
1. | Any notice, letter or information between party A and Party B shall be subject to the mailing address, email address, contact phone number and other information listed in the first part of this Contract, and shall be sent in the form of express delivery, E-mail and fax.If one party moves the address or changes the contact person, telephone, fax or email address, it shall notify the other party in writing within 3 working days before the change; otherwise, either party served to the other party in accordance with this Agreement shall be deemed to have been delivered. |
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2. | If notices and letters are faxed, they shall be deemed as mail, e-mail, 24 hours from the time of delivery, from the other party. |
Article 14. Others
1. | This contract shall come into force upon signing and seal by both parties until the completion of the rights and obligations of both parties hereunder. |
2. | If the commencement date of the cooperation term agreed herein is earlier than the effective date of this Agreement, the rights and obligations of both parties shall be executed from the commencement date of the cooperation term and shall be subject to the restriction of this Contract. |
3. | During the performance of this Contract, if party A and Party B confirm the cooperation mode, product content, delivery time, fee settlement and other matters through the enterprise email, the confirmed E-mail content shall be a valid part of this Contract and have the same legal effect as this Contract. |
4. | For matters not covered herein, a supplementary contract may be signed by both parties through negotiation. The supplementary contract shall have the same legal effect as this Contract. |
5. | During the performance of this Contract, if any party merges, merges or reorganized with a third party, the successor company shall continue to perform the unfinished part of this Contract. |
6. | This contract is made in duplicate, with each party holding one copy and each copy having the same legal effect. |
Party A:
Signature of the Authorized Representative:
Date:
Party B:
Signature of the Authorized Representative:
Date:
8
Exhibit 10.16
Form of Equity Transfer Agreement
Transferor: [ ]
Assignee: Mofy Metaverse (Beijing) Technology Co., Ltd.
1. | The transferor agrees to transfer the equity interest in Global Mofy (Beijing) Technology Co., Ltd. in the amount of [ ] million (RMB) to the transferee. |
2. | The transferee agrees to receive the transferor’s equity interest in Global Mofy (Beijing) Technology Co., Ltd. in the amount of [ ] million (RMB) |
3. | The transfer will be officially carried out on [DATE]. From the date of the transfer, the transferor will no longer enjoy the rights or assume the obligations as a capital contributor in connection with the transferred capital contribution, and the transferee will enjoy the rights and assume the obligations as a capital contributor of Global Mofy (Beijing) Technology Co., Ltd.in connection with the transferred capital contribution. |
This agreement will take effect after being signed (sealed) by both parties.
Transferor’s signature:
Assignee’s signature:
[DATE]
Exhibit 10.17
咨询与服务、业务合作解除协议
Consulting and service, business operation termination agreement
甲方: | 墨非纪元(北京)科技有限公司 |
Party A: | Mofy Metaverse (Beijing) Technology Co., Ltd. |
地址: | |
Address: | |
乙方: | 环球墨非(北京)科技有限公司 |
Party B: | Global Mofy (Beijing) Technology Co., Ltd. |
地址: | |
Address: | |
鉴于: | |
Whereas: |
乙方股东已将全部股份转让给甲方,甲方已经是乙方的100%控股股东,双方协商如下:
The shareholders of Party B have transferred all their shares to Party A. Party A is already the 100% controlling shareholder of Party B. The parties have negotiated as follows.
甲乙双方于 年 月 日签订的《咨询与服务协议》、《业务合作协议》,于本协议签订之日起终止。
1. The Consultation and Service Agreement and the Business Operation Agreement signed by Party A and Party B shall terminate from the date of signing this Agreement.
2、双方对合同期内的权利义务无异议,亦无纠纷。
2. Both parties have no objection or any disputes over the rights and obligations during the contract period.
3、本协议自双方签署盖章之日起生效。
3. This Agreement shall come into force upon being signed and sealed by both parties.
4、本协议以中文为准, 如中英文有异议的,以中文为准。
4. This agreement shall be in Chinese, if there is any disagreement between Chinese and English, Chinese shall prevail.
甲方(盖章): | 乙方(盖章): |
Party A (seal): | Party B (seal): |
/s/Mofy Metaverse (Beijing) Technology Co., Ltd. | /s/Global Mofy (Beijing) Technology Co., Ltd. |
时间: | 时间: |
Date: July 8, 2022 | Date: July 8, 2022 |
Exhibit 10.18
Termination Agreement
解除协议
甲方:股东
Party A: Shareholder(股东)
身份证号码:
ID card No:
乙方:墨非纪元(北京)科技有限公司
Party B: Mofy Metaverse (Beijing) Technology Co., Ltd.
地址:
Address:
丙方:环球墨非(北京)科技有限公司
Party C: Global Mofy (Beijing) Technology Co., Ltd.
地址:
Address:
鉴于:
Whereas:
甲方已在乙方的通知下,将甲方在丙方的股份全部转让给乙方,各方协议如下:
Party A has transferred all of Party A's shares in Party C to Party B upon Party B's notice, and all parties agree as follows.
1、各方于 年 月 日签订的《股东表决权委托协议》、《股权处分协议》、《股权质押协议》,因甲方已经完成自己的义务,各方确定签订本协议之日起终止。
1. The Shareholder Voting Proxy Agreement, Exclusive Call Option Agreement and Equity Pledge Agreement signed by the parties on [date] shall be terminated from the date when the parties determine to sign this Agreement because Party A has completed its obligations.
2、各方对合同期内的权利义务无异议,亦无纠纷。
2. All parties have no objection or any disputes over the rights and obligations during the contract period.
3、本协议自双方签署盖章之日起生效。
3. This Agreement shall come into force upon being signed or sealed by both parties.
4、本协议以中文为准, 如中英文有异议的,以中文为准。
4. This Agreement shall prevail in Chinese. If there is any objection in Chinese and English, the Chinese language shall prevail.
甲方: | 时间: |
Party A: | Date: |
乙方: | 时间: |
Party B: | Date: |
丙方: | 时间: |
Party C: | Date: |
Exhibit 10.19
![]() |
Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
August 18, 2022
Re: | Director Offer Letter – Chi Chen |
Dear Chi Chen:
Global Mofy Metaverse Limited, a Cayman Islands limited liability company (the “Company” or “we”), is pleased to offer you a position as a Director of the Company. We believe your background and experience will be a significant asset to the Company and we look forward to your participation as a Director in the Company. Should you choose to accept this position as a Director, this letter agreement (the “Agreement”) shall constitute an agreement between you and the Company and contains all the terms and conditions relating to the services you agree to provide to the Company. Your appointment shall begin upon Nasdaq’s approval of Company’s listing.
1. Term. This Agreement is effective as of the date of this Agreement. Your term as a Director shall continue subject to the provisions in Section 9 below or until your successor is duly elected and qualified. The position shall be up for re-appointment every year by the board of the Directors of the Company (the “Board”) and upon re-appointment, the terms and provisions of this Agreement shall remain in full force and effect.
2. Services. You shall render customary services as a Director, member of the Audit Committee, Nomination Committee and Compensation Committee (hereinafter, your “Duties”). During the term of this Agreement, you may attend and participate at each meeting regarding the business and operation issues of the Company as regularly or specially called, via teleconference, video conference or in person. You shall consult with the members of the Board and committee (if any) regularly and as necessary via telephone, electronic mail or other forms of correspondence.
3. Services for Others. You shall be free to represent or perform services for other persons during the term of this Agreement.
4. Compensation. As compensation for your services to the Company, you will receive upon execution of this Agreement a compensation of $40,000 for each calendar year of service under this Agreement on a pro-rated basis, payable on a quarterly basis.
You shall be reimbursed for reasonable expenses incurred by you in connection with the performance of your Duties (including travel expenses for in-person meetings).
5. D&O Insurance Policy. During the term under this Agreement, the Company shall include you as an insured under its officers and directors insurance policy, if available.
6. No Assignment. Because of the personal nature of the services to be rendered by you, this Agreement may not be assigned by you without the prior written consent of the Company.
![]() |
Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
7. Confidential Information; Non-Disclosure. In consideration of your access to certain Confidential Information (as defined below) of the Company, in connection with your business relationship with the Company, you hereby represent and agree as follows:
a. Definition. For purposes of this Agreement the term “Confidential Information” means: (i) any information which the Company possesses that has been created, discovered or developed by or for the Company, and which has or could have commercial value or utility in the business in which the Company is engaged; (ii) any information which is related to the business of the Company and is generally not known by non-Company personnel; and (iii) Confidential Information includes, without limitation, trade secrets and any information concerning products, processes, formulas, designs, inventions (whether or not patentable or registrable under copyright or similar laws, and whether or not reduced to practice), discoveries, concepts, ideas, improvements, techniques, methods, research, development and test results, specifications, data, know-how, software, formats, marketing plans, and analyses, business plans and analyses, strategies, forecasts, customer and supplier identities, characteristics and agreements.
b. Exclusions. Notwithstanding the foregoing, the term Confidential Information shall not include: (i) any information which becomes generally available or is readily available to the public other than as a result of a breach of the confidentiality portions of this Agreement, or any other agreement requiring confidentiality between the Company and you; (ii) information received from a third party in rightful possession of such information who is not restricted from disclosing such information; (iii) information known by you prior to receipt of such information from the Company, which prior knowledge can be documented and (iv) information you are required to disclose pursuant to any applicable law, regulation, judicial or administrative order or decree, or request by other regulatory organization having authority pursuant to the law; provided, however, that you shall first have given prior written notice to the Company and made a reasonable effort to obtain a protective order requiring that the Confidential Information not be disclosed.
c. Documents. You agree that, without the express written consent of the Company, you will not remove from the Company’s premises, any notes, formulas, programs, data, records, machines or any other documents or items which in any manner contain or constitute Confidential Information, nor will you make reproductions or copies of same. You shall promptly return any such documents or items, along with any reproductions or copies to the Company upon the Company’s demand, upon termination of this Agreement, or upon your termination or Resignation (as defined in Section 9 herein).
d. Confidentiality. You agree that you will hold in trust and confidence all Confidential Information and will not disclose to others, directly or indirectly, any Confidential Information or anything relating to such information without the prior written consent of the Company, except as may be necessary in the course of your business relationship with the Company. You further agree that you will not use any Confidential Information without the prior written consent of the Company, except as may be necessary in the course of your business relationship with the Company, and that the provisions of this paragraph (d) shall survive termination of this Agreement. Notwithstanding the foregoing, you may disclose Confidential Information to your legal counsel and accounting advisors who have a need to know such information for accounting or tax purposes and who agree to be bound by the provisions of this paragraph (d).
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![]() |
Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
e. Ownership. You agree that the Company shall own all right, title and interest (including patent rights, copyrights, trade secret rights, mask work rights, trademark rights, and all other intellectual and industrial property rights of any sort throughout the world) relating to any and all inventions (whether or not patentable), works of authorship, mask works, designations, designs, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by you during the term of this Agreement and that arise out of your Duties (collectively, “Inventions”) and you will promptly disclose and provide all Inventions to the Company. You agree to assist the Company, at its expense, to further evidence, record and perfect such assignments, and to perfect, obtain, maintain, enforce, and defend any rights assigned.
8. Non-Solicitation. During the term of your appointment, you shall not solicit for employment any employee of the Company with whom you have had contact due to your appointment.
9. Termination and Resignation. Your services as a Director may be terminated for any or no reason by the determination of the Board. You may also terminate your services as a Director for any or no reason by delivering your written notice of resignation to the Company (“Resignation”), and such Resignation shall be effective upon the time specified therein or, if no time is specified, upon receipt of the notice of resignation by the Company. Upon the effective date of the termination or Resignation, your right to compensation hereunder will terminate subject to the Company’s obligations to pay you any compensation that you have already earned and to reimburse you for approved expenses already incurred in connection with your performance of your Duties as of the effective date of such termination or Resignation.
10. Governing Law; Arbitration. All questions with respect to the construction and/or enforcement of this Agreement, and the rights and obligations of the parties hereunder, shall be determined in accordance with the law of the State of New York. All disputes with respect to this Agreement, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered by the American Arbitration Association at its New York office in force when the Notice of Arbitration is submitted. The law of this arbitration clause shall be New York law. The seat of arbitration shall be in New York. The number of arbitrators shall be one. The arbitration proceedings shall be conducted in English.
11. Entire Agreement; Amendment; Waiver; Counterparts. This Agreement expresses the entire understanding with respect to the subject matter hereof and supersedes and terminates any prior oral or written agreements with respect to the subject matter hereof. Any term of this Agreement may be amended and observance of any term of this Agreement may be waived only with the written consent of the parties hereto. Waiver of any term or condition of this Agreement by any party shall not be construed as a waiver of any subsequent breach or failure of the same term or condition or waiver of any other term or condition of this Agreement. The failure of any party at any time to require performance by any other party of any provision of this Agreement shall not affect the right of any such party to require future performance of such provision or any other provision of this Agreement. This Agreement may be executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement, and may be executed using facsimiles of signatures, and a facsimile of a signature shall be deemed to be the same, and equally enforceable, as an original of such signature.
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![]() |
Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
12. Indemnification. The Company shall, to the maximum extent provided under applicable law, indemnify and hold you harmless from and against any expenses, including reasonable attorney’s fees, judgments, fines, settlements and other legally permissible amounts (“Losses”), incurred in connection with any proceeding arising out of, or related to, your performance of your Duties, other than any such Losses incurred as a result of your gross negligence or willful misconduct. The Company shall advance to you any expenses, including reasonable attorneys’ fees and costs of settlement, incurred in defending any such proceeding to the maximum extent permitted by applicable law. Such costs and expenses incurred by you in defense of any such proceeding shall be paid by the Company in advance of the final disposition of such proceeding promptly upon receipt by the Company of (a) written request for payment; (b) appropriate documentation evidencing the incurrence, amount and nature of the costs and expenses for which payment is being sought; and (c) an undertaking adequate under applicable law made by or on your behalf to repay the amounts so advanced if it shall ultimately be determined pursuant to any non-appealable judgment or settlement that you are not entitled to be indemnified by the Company.
13. Acknowledgement. You accept this Agreement subject to all the terms and provisions of this Agreement. You agree to accept as binding, conclusive, and final all decisions or interpretations of the Board of Directors of the Company of any questions arising under this Agreement.
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The Agreement has been executed and delivered by the undersigned and is made effective as of the date set first set forth above.
Sincerely, | ||
Global Mofy Metaverse Limited | ||
By: | /s/ Haogang Yang | |
Haogang Yang | ||
Chief Executive Officer |
AGREED AND ACCEPTED: | |
/s/ Chi Chen | |
Chi Chen | |
Address: | |
Phone Number: | |
Email: |
Exhibit 10.20
![]() |
Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
August 18, 2022
Re: | Director Offer Letter – Cai Feng |
Dear Cai Feng:
Global Mofy Metaverse Limited, a Cayman Islands limited liability company (the “Company” or “we”), is pleased to offer you a position as a Director of the Company. We believe your background and experience will be a significant asset to the Company and we look forward to your participation as a Director in the Company. Should you choose to accept this position as a Director, this letter agreement (the “Agreement”) shall constitute an agreement between you and the Company and contains all the terms and conditions relating to the services you agree to provide to the Company. Your appointment shall begin upon Nasdaq’s approval of Company’s listing.
1. Term. This Agreement is effective as of the date of this Agreement. Your term as a Director shall continue subject to the provisions in Section 9 below or until your successor is duly elected and qualified. The position shall be up for re-appointment every year by the board of the Directors of the Company (the “Board”) and upon re-appointment, the terms and provisions of this Agreement shall remain in full force and effect.
2. Services. You shall render customary services as a Director, member of the Audit Committee, Nomination Committee and Compensation Committee (hereinafter, your “Duties”). During the term of this Agreement, you may attend and participate at each meeting regarding the business and operation issues of the Company as regularly or specially called, via teleconference, video conference or in person. You shall consult with the members of the Board and committee (if any) regularly and as necessary via telephone, electronic mail or other forms of correspondence.
3. Services for Others. You shall be free to represent or perform services for other persons during the term of this Agreement.
4. Compensation. As compensation for your services to the Company, you will receive upon execution of this Agreement a compensation of $20,000 for each calendar year of service under this Agreement on a pro-rated basis, payable on a quarterly basis.
You shall be reimbursed for reasonable expenses incurred by you in connection with the performance of your Duties (including travel expenses for in-person meetings).
5. D&O Insurance Policy. During the term under this Agreement, the Company shall include you as an insured under its officers and directors insurance policy, if available.
6. No Assignment. Because of the personal nature of the services to be rendered by you, this Agreement may not be assigned by you without the prior written consent of the Company.
![]() |
Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
7. Confidential Information; Non-Disclosure. In consideration of your access to certain Confidential Information (as defined below) of the Company, in connection with your business relationship with the Company, you hereby represent and agree as follows:
a. Definition. For purposes of this Agreement the term “Confidential Information” means: (i) any information which the Company possesses that has been created, discovered or developed by or for the Company, and which has or could have commercial value or utility in the business in which the Company is engaged; (ii) any information which is related to the business of the Company and is generally not known by non-Company personnel; and (iii) Confidential Information includes, without limitation, trade secrets and any information concerning products, processes, formulas, designs, inventions (whether or not patentable or registrable under copyright or similar laws, and whether or not reduced to practice), discoveries, concepts, ideas, improvements, techniques, methods, research, development and test results, specifications, data, know-how, software, formats, marketing plans, and analyses, business plans and analyses, strategies, forecasts, customer and supplier identities, characteristics and agreements.
b. Exclusions. Notwithstanding the foregoing, the term Confidential Information shall not include: (i) any information which becomes generally available or is readily available to the public other than as a result of a breach of the confidentiality portions of this Agreement, or any other agreement requiring confidentiality between the Company and you; (ii) information received from a third party in rightful possession of such information who is not restricted from disclosing such information; (iii) information known by you prior to receipt of such information from the Company, which prior knowledge can be documented and (iv) information you are required to disclose pursuant to any applicable law, regulation, judicial or administrative order or decree, or request by other regulatory organization having authority pursuant to the law; provided, however, that you shall first have given prior written notice to the Company and made a reasonable effort to obtain a protective order requiring that the Confidential Information not be disclosed.
c. Documents. You agree that, without the express written consent of the Company, you will not remove from the Company’s premises, any notes, formulas, programs, data, records, machines or any other documents or items which in any manner contain or constitute Confidential Information, nor will you make reproductions or copies of same. You shall promptly return any such documents or items, along with any reproductions or copies to the Company upon the Company’s demand, upon termination of this Agreement, or upon your termination or Resignation (as defined in Section 9 herein).
d. Confidentiality. You agree that you will hold in trust and confidence all Confidential Information and will not disclose to others, directly or indirectly, any Confidential Information or anything relating to such information without the prior written consent of the Company, except as may be necessary in the course of your business relationship with the Company. You further agree that you will not use any Confidential Information without the prior written consent of the Company, except as may be necessary in the course of your business relationship with the Company, and that the provisions of this paragraph (d) shall survive termination of this Agreement.
2
![]() |
Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
Notwithstanding the foregoing, you may disclose Confidential Information to your legal counsel and accounting advisors who have a need to know such information for accounting or tax purposes and who agree to be bound by the provisions of this paragraph (d).
e. Ownership. You agree that the Company shall own all right, title and interest (including patent rights, copyrights, trade secret rights, mask work rights, trademark rights, and all other intellectual and industrial property rights of any sort throughout the world) relating to any and all inventions (whether or not patentable), works of authorship, mask works, designations, designs, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by you during the term of this Agreement and that arise out of your Duties (collectively, “Inventions”) and you will promptly disclose and provide all Inventions to the Company. You agree to assist the Company, at its expense, to further evidence, record and perfect such assignments, and to perfect, obtain, maintain, enforce, and defend any rights assigned.
8. Non-Solicitation. During the term of your appointment, you shall not solicit for employment any employee of the Company with whom you have had contact due to your appointment.
9. Termination and Resignation. Your services as a Director may be terminated for any or no reason by the determination of the Board. You may also terminate your services as a Director for any or no reason by delivering your written notice of resignation to the Company (“Resignation”), and such Resignation shall be effective upon the time specified therein or, if no time is specified, upon receipt of the notice of resignation by the Company. Upon the effective date of the termination or Resignation, your right to compensation hereunder will terminate subject to the Company’s obligations to pay you any compensation that you have already earned and to reimburse you for approved expenses already incurred in connection with your performance of your Duties as of the effective date of such termination or Resignation.
10. Governing Law; Arbitration. All questions with respect to the construction and/or enforcement of this Agreement, and the rights and obligations of the parties hereunder, shall be determined in accordance with the law of the State of New York. All disputes with respect to this Agreement, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered by the American Arbitration Association at its New York office in force when the Notice of Arbitration is submitted. The law of this arbitration clause shall be New York law. The seat of arbitration shall be in New York. The number of arbitrators shall be one. The arbitration proceedings shall be conducted in English.
3
![]() |
Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
11. Entire Agreement; Amendment; Waiver; Counterparts. This Agreement expresses the entire understanding with respect to the subject matter hereof and supersedes and terminates any prior oral or written agreements with respect to the subject matter hereof. Any term of this Agreement may be amended and observance of any term of this Agreement may be waived only with the written consent of the parties hereto. Waiver of any term or condition of this Agreement by any party shall not be construed as a waiver of any subsequent breach or failure of the same term or condition or waiver of any other term or condition of this Agreement. The failure of any party at any time to require performance by any other party of any provision of this Agreement shall not affect the right of any such party to require future performance of such provision or any other provision of this Agreement. This Agreement may be executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement, and may be executed using facsimiles of signatures, and a facsimile of a signature shall be deemed to be the same, and equally enforceable, as an original of such signature.
12. Indemnification. The Company shall, to the maximum extent provided under applicable law, indemnify and hold you harmless from and against any expenses, including reasonable attorney’s fees, judgments, fines, settlements and other legally permissible amounts (“Losses”), incurred in connection with any proceeding arising out of, or related to, your performance of your Duties, other than any such Losses incurred as a result of your gross negligence or willful misconduct. The Company shall advance to you any expenses, including reasonable attorneys’ fees and costs of settlement, incurred in defending any such proceeding to the maximum extent permitted by applicable law. Such costs and expenses incurred by you in defense of any such proceeding shall be paid by the Company in advance of the final disposition of such proceeding promptly upon receipt by the Company of (a) written request for payment; (b) appropriate documentation evidencing the incurrence, amount and nature of the costs and expenses for which payment is being sought; and (c) an undertaking adequate under applicable law made by or on your behalf to repay the amounts so advanced if it shall ultimately be determined pursuant to any non-appealable judgment or settlement that you are not entitled to be indemnified by the Company.
13. Acknowledgement. You accept this Agreement subject to all the terms and provisions of this Agreement. You agree to accept as binding, conclusive, and final all decisions or interpretations of the Board of Directors of the Company of any questions arising under this Agreement.
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The Agreement has been executed and delivered by the undersigned and is made effective as of the date set first set forth above.
Sincerely, | ||
Global Mofy Metaverse Limited | ||
By: | /s/ Haogang Yang | |
Haogang Yang | ||
Chief Executive Officer |
AGREED AND ACCEPTED: | |
/s/ Cai Feng | |
Cai Feng | |
Address: | |
Phone Number: | |
Email: |
Exhibit 10.21
![]() |
Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
August 18, 2022
Re: | Director Offer Letter – Xiaohong Qi |
Dear Xiaohong Qi:
Global Mofy Metaverse Limited, a Cayman Islands limited liability company (the “Company” or “we”), is pleased to offer you a position as a Director of the Company. We believe your background and experience will be a significant asset to the Company and we look forward to your participation as a Director in the Company. Should you choose to accept this position as a Director, this letter agreement (the “Agreement”) shall constitute an agreement between you and the Company and contains all the terms and conditions relating to the services you agree to provide to the Company. Your appointment shall begin upon Nasdaq’s approval of Company’s listing.
1. Term. This Agreement is effective as of the date of this Agreement. Your term as a Director shall continue subject to the provisions in Section 9 below or until your successor is duly elected and qualified. The position shall be up for re-appointment every year by the board of the Directors of the Company (the “Board”) and upon re-appointment, the terms and provisions of this Agreement shall remain in full force and effect.
2. Services. You shall render customary services as a Director, member of the Audit Committee, Nomination Committee and Compensation Committee (hereinafter, your “Duties”). During the term of this Agreement, you may attend and participate at each meeting regarding the business and operation issues of the Company as regularly or specially called, via teleconference, video conference or in person. You shall consult with the members of the Board and committee (if any) regularly and as necessary via telephone, electronic mail or other forms of correspondence.
3. Services for Others. You shall be free to represent or perform services for other persons during the term of this Agreement.
4. Compensation. As compensation for your services to the Company, you will receive upon execution of this Agreement a compensation of $20,000 for each calendar year of service under this Agreement on a pro-rated basis, payable on a quarterly basis.
You shall be reimbursed for reasonable expenses incurred by you in connection with the performance of your Duties (including travel expenses for in-person meetings).
5. D&O Insurance Policy. During the term under this Agreement, the Company shall include you as an insured under its officers and directors insurance policy, if available.
6. No Assignment. Because of the personal nature of the services to be rendered by you, this Agreement may not be assigned by you without the prior written consent of the Company.
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Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
7. Confidential Information; Non-Disclosure. In consideration of your access to certain Confidential Information (as defined below) of the Company, in connection with your business relationship with the Company, you hereby represent and agree as follows:
a. Definition. For purposes of this Agreement the term “Confidential Information” means: (i) any information which the Company possesses that has been created, discovered or developed by or for the Company, and which has or could have commercial value or utility in the business in which the Company is engaged; (ii) any information which is related to the business of the Company and is generally not known by non-Company personnel; and (iii) Confidential Information includes, without limitation, trade secrets and any information concerning products, processes, formulas, designs, inventions (whether or not patentable or registrable under copyright or similar laws, and whether or not reduced to practice), discoveries, concepts, ideas, improvements, techniques, methods, research, development and test results, specifications, data, know-how, software, formats, marketing plans, and analyses, business plans and analyses, strategies, forecasts, customer and supplier identities, characteristics and agreements.
b. Exclusions. Notwithstanding the foregoing, the term Confidential Information shall not include: (i) any information which becomes generally available or is readily available to the public other than as a result of a breach of the confidentiality portions of this Agreement, or any other agreement requiring confidentiality between the Company and you; (ii) information received from a third party in rightful possession of such information who is not restricted from disclosing such information; (iii) information known by you prior to receipt of such information from the Company, which prior knowledge can be documented and (iv) information you are required to disclose pursuant to any applicable law, regulation, judicial or administrative order or decree, or request by other regulatory organization having authority pursuant to the law; provided, however, that you shall first have given prior written notice to the Company and made a reasonable effort to obtain a protective order requiring that the Confidential Information not be disclosed.
c. Documents. You agree that, without the express written consent of the Company, you will not remove from the Company’s premises, any notes, formulas, programs, data, records, machines or any other documents or items which in any manner contain or constitute Confidential Information, nor will you make reproductions or copies of same. You shall promptly return any such documents or items, along with any reproductions or copies to the Company upon the Company’s demand, upon termination of this Agreement, or upon your termination or Resignation (as defined in Section 9 herein).
d. Confidentiality. You agree that you will hold in trust and confidence all Confidential Information and will not disclose to others, directly or indirectly, any Confidential Information or anything relating to such information without the prior written consent of the Company, except as may be necessary in the course of your business relationship with the Company. You further agree that you will not use any Confidential Information without the prior written consent of the Company, except as may be necessary in the course of your business relationship with the Company, and that the provisions of this paragraph (d) shall survive termination of this Agreement.
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Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
Notwithstanding the foregoing, you may disclose Confidential Information to your legal counsel and accounting advisors who have a need to know such information for accounting or tax purposes and who agree to be bound by the provisions of this paragraph (d).
e. Ownership. You agree that the Company shall own all right, title and interest (including patent rights, copyrights, trade secret rights, mask work rights, trademark rights, and all other intellectual and industrial property rights of any sort throughout the world) relating to any and all inventions (whether or not patentable), works of authorship, mask works, designations, designs, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by you during the term of this Agreement and that arise out of your Duties (collectively, “Inventions”) and you will promptly disclose and provide all Inventions to the Company. You agree to assist the Company, at its expense, to further evidence, record and perfect such assignments, and to perfect, obtain, maintain, enforce, and defend any rights assigned.
8. Non-Solicitation. During the term of your appointment, you shall not solicit for employment any employee of the Company with whom you have had contact due to your appointment.
9. Termination and Resignation. Your services as a Director may be terminated for any or no reason by the determination of the Board. You may also terminate your services as a Director for any or no reason by delivering your written notice of resignation to the Company (“Resignation”), and such Resignation shall be effective upon the time specified therein or, if no time is specified, upon receipt of the notice of resignation by the Company. Upon the effective date of the termination or Resignation, your right to compensation hereunder will terminate subject to the Company’s obligations to pay you any compensation that you have already earned and to reimburse you for approved expenses already incurred in connection with your performance of your Duties as of the effective date of such termination or Resignation.
10. Governing Law; Arbitration. All questions with respect to the construction and/or enforcement of this Agreement, and the rights and obligations of the parties hereunder, shall be determined in accordance with the law of the State of New York. All disputes with respect to this Agreement, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered by the American Arbitration Association at its New York office in force when the Notice of Arbitration is submitted. The law of this arbitration clause shall be New York law. The seat of arbitration shall be in New York. The number of arbitrators shall be one. The arbitration proceedings shall be conducted in English.
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Mofy Metaverse |
3-212 Governors Square 23 Lime Tree Bay Avenue P.O. Box 30746, Seven Mile Beach Grand Cayman KY1-1203 Cayman Islands |
11. Entire Agreement; Amendment; Waiver; Counterparts. This Agreement expresses the entire understanding with respect to the subject matter hereof and supersedes and terminates any prior oral or written agreements with respect to the subject matter hereof. Any term of this Agreement may be amended and observance of any term of this Agreement may be waived only with the written consent of the parties hereto. Waiver of any term or condition of this Agreement by any party shall not be construed as a waiver of any subsequent breach or failure of the same term or condition or waiver of any other term or condition of this Agreement. The failure of any party at any time to require performance by any other party of any provision of this Agreement shall not affect the right of any such party to require future performance of such provision or any other provision of this Agreement. This Agreement may be executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement, and may be executed using facsimiles of signatures, and a facsimile of a signature shall be deemed to be the same, and equally enforceable, as an original of such signature.
12. Indemnification. The Company shall, to the maximum extent provided under applicable law, indemnify and hold you harmless from and against any expenses, including reasonable attorney’s fees, judgments, fines, settlements and other legally permissible amounts (“Losses”), incurred in connection with any proceeding arising out of, or related to, your performance of your Duties, other than any such Losses incurred as a result of your gross negligence or willful misconduct. The Company shall advance to you any expenses, including reasonable attorneys’ fees and costs of settlement, incurred in defending any such proceeding to the maximum extent permitted by applicable law. Such costs and expenses incurred by you in defense of any such proceeding shall be paid by the Company in advance of the final disposition of such proceeding promptly upon receipt by the Company of (a) written request for payment; (b) appropriate documentation evidencing the incurrence, amount and nature of the costs and expenses for which payment is being sought; and (c) an undertaking adequate under applicable law made by or on your behalf to repay the amounts so advanced if it shall ultimately be determined pursuant to any non-appealable judgment or settlement that you are not entitled to be indemnified by the Company.
13. Acknowledgement. You accept this Agreement subject to all the terms and provisions of this Agreement. You agree to accept as binding, conclusive, and final all decisions or interpretations of the Board of Directors of the Company of any questions arising under this Agreement.
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The Agreement has been executed and delivered by the undersigned and is made effective as of the date set first set forth above.
Sincerely, | ||
Global Mofy Metaverse Limited | ||
By: | /s/ Haogang Yang | |
Haogang Yang | ||
Chief Executive Officer |
AGREED AND ACCEPTED: | |
/s/ Xiaohong Qi | |
Xiaohong Qi | |
Address: | |
Phone Number: | |
Email: |
Exhibit 10.22
Private & Confidential
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (together with all exhibits, as amended from time to time, this “Agreement”) is entered into on November 15, 2022 (the “Signing Date”) by and among:
(1) | Global Mofy Metaverse Limited, an exempted company organized and existing under the Laws of the Cayman Islands (the “Company”); |
(2) | the Person listed on Schedule I attached hereto (the “Founder”); |
(3) | the entities listed on Schedule II attached hereto (the “Founder Entities” and, together with the Founder, the “Founder Parties”); |
(4) | New Jolene&R L.P., a limited partnership organized and existing under the Laws of the British Virgin Islands (the “ESOP Platform”); |
(5) | Global Mofy HK Limited, a private company organized and existing under the Laws of Hong Kong with limited liability (the “HK Subsidiary”); |
(6) | 墨非纪元(北京)科技有限公司, a wholly foreign owned enterprise organized and existing under the Laws of the PRC (the “WFOE”); |
(7) | 环球墨非(北京)科技有限公司, a limited liability company organized and existing under the Laws of the PRC (the “Domestic Company”); |
(8) | 上海墨影非寰科技有限公司, a limited liability company organized and existing under the Laws of the PRC (“Shanghai Mofy”); |
(9) | 喀什墨非交互数字科技有限公司, a limited liability company organized and existing under the Laws of the PRC (“Kashi Mofy”); |
(10) | 西安数字云库科技有限公司, a limited liability company organized and existing under the Laws of the PRC (“XiAn Mofy”); |
(11) | 墨非(北京)影视科技有限公司, a limited liability company organized and existing under the Laws of the PRC (“Beijing Mofy”); and |
(12) | Standard International Capital Partners SPC (for and on behalf of Standard International Capital Partners Fund I SP), a segregated portfolio company organized and existing under the laws of the Cayman Islands (or its designated Affiliates and permitted assignees, the “Investor”). |
Each of the foregoing parties is referred to herein individually as a “Party” and collectively as the “Parties”.
RECITALS
A. The Group Companies are engaged in virtual content production, digital marketing, and digital assets development for the metaverse industry (the “Principal Business”). The Company seeks expansion capital to grow the Principal Business and, correspondingly, seeks to secure investment from the Investor, on the terms and conditions set forth herein.
B. The Investor desires to invest in the Company by subscribing for and purchasing certain Ordinary Shares (as defined below), and the Company desires to issue and sell such Ordinary Shares to the Investor, pursuant to the terms of this Agreement.
C. The Parties desire to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
1. DEFINITIONS
Unless otherwise defined in this Agreement, capitalized terms used in this Agreement shall have the meanings set forth in Exhibit B.
2. TRANSACTION
2.1 Authorization. Subject to the terms and conditions hereof, on or prior to the Closing (as defined below), the Company shall have authorized the issuance and sale of an aggregate of 381,963 Ordinary Shares, having the rights, preferences and privileges as set forth in the Memorandum and Articles.
2.2 Purchase and Sale of Ordinary Shares at the Closing. Subject to the terms and conditions of this Agreement, at the Closing, the Investor agrees to subscribe for and purchase, and the Company agrees to issue, allot and sell to the Investor, that number of Ordinary Shares (the “Purchased Shares”) as set forth opposite to the name of the Investor in the column of “Number of Purchased Shares” on Part III of Exhibit A attached hereto, with the Investor to pay as consideration for such Ordinary Shares a per share purchase price of US$3.92708333 and the aggregate purchase price as set forth opposite the Investor in the column of “Investment Amount” on Part III of Exhibit A attached hereto (the “Investment Amount”). The Company’s capitalization table immediately upon the Closing (as defined below) is set forth in Part I(B) of Exhibit A attached hereto.
3. CLOSING
3.1 Closings. The consummation of the purchase and sale of the Purchased Shares (the “Closing”) shall take place remotely via the exchange of documents and signatures as soon as practical (but in no event later than fifteen (15) Business Days) after all closing conditions pursuant to Section 5 hereof have been waived or satisfied (other than those conditions to be satisfied at the Closing, but subject to the satisfaction or waiver thereof at the Closing), or at such other time and place as the Company and the Investor shall agree in writing. At the Closing Date, the Company shall sell and issue to the Investor, and the Investor shall purchase from the Company, the Purchased Shares.
3.2 Closing Deliverables.
(i) At the Closing Date, the Company shall deliver (or cause to be delivered) to the Investor:
(a) a true copy of the Company’s updated register of members duly certified by the corporate secretary of the Company, reflecting the Investor’s ownership of the Purchased Shares; and
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(b) a true copy of the share certificate to the Investor representing the Purchased Shares purchased by the Investor, with the original (duly signed and sealed for and on behalf of the Company) to be delivered to the Investor within ten (10) Business Days after the Closing Date.
(ii) At the Closing Date and against the delivery of the items to an Investor pursuant to Section 3.2(i) above, the Investor shall wire the Investment Amount to the Company, provided that the Company shall provide its bank account information by delivering a wire transfer instruction to the Investor at least ten (10) Business Days prior to the Closing Date.
4. REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Warrantors. Subject to such exceptions as may be specifically set forth in the Disclosure Schedule attached hereto as Exhibit E (the “Disclosure Schedule”), each of the Group Companies, the Founder Parties and the ESOP Platform (each a “Warrantor”, collectively, the “Warrantors”) hereby, jointly and severally, represents and warrants to the Investor that each of the statements contained in Exhibit D attached hereto (the “Warrantor Representations and Warranties”) is true, correct and complete as of the date of this Agreement and as of the Closing Date (other than those representations and warranties that address matters only as of a particular date, which representations and warranties will only need to be true, correct and complete as of such particular date). Between the Signing Date and the Closing Date, without prejudice to the force and effect of the Warrantor Representations and Warranties, the Warrantors shall inform the Investor of all events that the Warrantors believe will likely cause a breach of the Warrantor Representations and Warranties.
4.2 Representations and Warranties of the Investor. The Investor hereby represents and warrants to the Warrantors that its representations and warranties set forth in this Section 4.2 (the “Investor Representations and Warranties”) are true, correct and complete as of the date of this Agreement and as of the Closing Date.
(i) Due Organization. The Investor is duly incorporated, organized, validly existing and in good standing (or equivalent status in the relevant jurisdiction) under the Laws of the jurisdiction of its incorporation or organization.
(ii) Authorization.
(a) | The Investor has all requisite power and authority to enter into the Transaction Documents to which it is a party, and to perform its obligations hereunder and thereunder. All action on the part of the Investor necessary for the authorization, execution, delivery and performance of the Transaction Documents, and the performance of all of the Investor’s obligations under the Transaction Documents, has been taken or will be taken prior to the Closing. |
(b) | Any consent, approval, authorization, order, filing, registration or qualification of or with any court, governmental authority or third Person that is required to be obtained by the Investor in connection with the execution and delivery of the Transaction Documents by the Investor or the performance of the Investor’s obligations hereunder or thereunder, has been obtained or will be obtained prior to the Closing. |
(iii) Binding Effect. This Agreement and the other Transaction Documents have been duly executed and delivered by the Investor and this Agreement and the other Transaction Documents constitute the Investor’s legal, valid and binding obligation, enforceable against the Investor in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting creditors’ rights generally and general equity principles.
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5. CONDITIONS
5.1 Closing Conditions. The obligation of the Investor to purchase the Purchased Shares and pay the Investment Amount at Closing is subject to the satisfaction, or waiver by the Investor, of each of the following conditions:
(i) Representations and Warranties. The Warrantor Representations and Warranties shall be true, correct and complete in any material respect as of the Signing Date and as of the Closing Date, with the same force and effect as if they were made on and as of such date (other than those representations and warranties that address matters only as of a particular date, which representations and warranties shall have been true, correct and complete as of such particular date).
(ii) Performance of Obligations. Each Warrantor shall have performed and complied with all agreements, obligations and conditions that are required by the Transaction Documents to be performed or complied with by it on or before the Closing in any material respect.
(iii) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated under this Agreement and the other Transaction Documents and all documents and instruments incident to such transactions shall be completed.
(iv) Approvals. Each approval, authorization, consent or waiver which is required to be obtained by each Warrantor in connection with the consummation of the transactions contemplated under this Agreement and the other Transaction Documents, shall have been duly obtained prior to and be effective as of the Closing, including (a) the approval by each Group Company’s board of directors and shareholders of the execution, delivery and performance by it of the Transaction Documents to which it is a party and the transactions contemplated thereby, (b) the waiver by the Existing Shareholders of any preemptive rights, anti-dilution rights (if applicable) and all similar rights in connection with the issuance of the Purchased Shares at the Closing, and (c) all permits, authorizations, approvals or consents of, notice or reporting to, or registration or filing with any Governmental Authority or other Person in relation to the transactions contemplated under or as required by this Agreement.
(v) Waiver of Claims. The Existing Shareholders shall have (or if applicable, shall have caused its Affiliates to have) unconditionally and irrevocably released, relinquished and discharged any and all claims which such Existing Shareholders now have, own or hold, or at any time heretofore had, owned or held, or could, shall or may hereafter have, own or hold against any Group Company (or any director, officer, employee, agent or representative of any Group Company) in connection with or relating to any matter or affair of any Group Company (except for claims arising under the investment Contract whereby such Existing Shareholders make their respective investment in the Group Companies).
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(vi) Key Employees’ Employment Agreement and Confidential, Non-competition and Non-solicitation Agreement. The Founder and each other Key Employee shall have entered into an employment agreement, and a confidentiality and intellectual property assignment agreement, with a Group Company, each in form and substance satisfactory to the Investor.
(vii) No Material Adverse Effect. There shall have been no Material Adverse Effect since the Signing Date.
(viii) Internal Approvals. The Investor shall have obtained its internal approvals of the transactions contemplated hereunder.
(ix) Due Diligence. The Investor shall have completed its due diligence investigation over the Group Companies, the result of which is satisfactory to the Investor.
(x) Closing Certificate. The Warrantors shall have executed and delivered to the Investor at the Closing a certificate dated as of the Closing Date (a) stating that the conditions specified in this Section 5.1 (except for items (viii) and (ix), and other conditions that have been waived by the Investor) have been fulfilled as of the Closing Date, and (b) attaching thereto (x) the charter documents of the Company as then in effect, and (y) copies of all resolutions approved by the shareholders and boards of directors of each Group Company related to the transactions contemplated by this Agreement and other Transaction Documents.
6. COVENANTS
6.1 Stamped Memorandum and Articles. The Company shall, and the other Warrantors shall cause the Company to obtain the duly stamped Memorandum and Articles within fifteen (15) days after the Closing (if applicable).
6.2 Use of Proceeds. The Investment Amount shall be used to develop the Principal Business. The Investment Amount shall not be used in the payment of any debts of borrowed money of any Group Company or in the repurchase or cancellation of securities held by any shareholders of any Group Company or for any other purpose without the prior written consent of the Investor.
6.3 Compliance with Laws. The Group Companies shall, and the other Warrantors shall cause the Group Companies to, conduct their respective business as presently conducted and as proposed to be conducted in compliance with all applicable Laws in material respects, hire a full-time legal manager to handle legal-related matters of the Group Companies, and obtain, make and maintain in effect, all material Permits from the relevant Governmental Authority or other Person required. Without limiting the generality of the foregoing, the Founder and each of Individual Holders who is a “domestic resident” (as defined in Circular 37) shall duly complete, obtain and update the foreign exchange registration with the competent local branch of the SAFE with respect to his/her direct and indirect record and beneficial ownership of Equity Securities in the Company and each other Group Company in accordance with the requirement of the applicable SAFE rules and regulations.
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6.4 Confidentiality. Each Party shall, and shall cause its Controlled Affiliates to, keep confidential the Confidential Information except otherwise provided under the Transaction Documents or as the Company and the Investor shall mutually agree in writing otherwise; provided that any Party may disclose Confidential Information or permit the disclosure of Confidential Information (a) to the extent required by applicable Laws or the rules of any stock exchange; provided that such Party shall, where practicable and to the extent permitted by applicable Laws, provide the other Parties with prompt written notice of that fact and use all reasonable efforts to seek (with the cooperation and reasonable efforts of the other Parties) a protective order, confidential treatment or other appropriate remedy; and in such event, such Party shall furnish only that portion of the information which is legally required to be disclosed and shall exercise reasonable efforts to keep such information confidential to the extent reasonably requested by any such other Parties, (b) to its officers, directors, employees, and professional advisors on a need-to-know basis for the performance of its obligations in connection herewith so long as such Party is subject to confidentiality restrictions at least as stringent as the confidentiality provisions herewith and (c) to its current or bona fide prospective investor, investment bankers and any Person otherwise providing substantial debt or equity financing to such Party so long as such Person is subject to confidentiality restrictions at least as stringent as the confidentiality provisions herewith. For the avoidance of doubt, Confidential Information does not include information that (i) was already in the possession of the receiving Party before such disclosure by the disclosing Party, (ii) is or becomes available to the public other than as a result of disclosure by the receiving Party in violation of this Section 6.4, or (iii) is or becomes available to the receiving Party from a third party who has no confidentiality obligations to the disclosing Party.
6.5 Public Announcement. The Parties shall not make any announcement regarding the transaction contemplated by this Agreement, other Transaction Documents and any related documentation (including the existence of any Transaction Document) in a press release, conference, advertisement, announcement, professional or trade publication, marketing materials or otherwise to the general public without the prior written consent of the Company and the Investor.
6.6 Permits. The Group Companies shall, and the other Warrantors shall cause the Group Companies to obtain such Permits required for the operation of the business by any of the Group Companies within the time limit set forth in the applicable Laws, including but not limited to the Permits with respect to the Value-added Telecommunications Services.
6.7 Intellectual Property Rights Protection. The Group Companies shall, and the other Warrantors shall cause the Group Companies to take all necessary steps promptly to protect the Group Companies’ respective Intellectual Property rights, including, wherever reasonable, registering their respective trademarks, brand names, domain names and copyrights and applying for patents on their respective technology. The Group Companies shall, and the other Warrantors shall cause the Group Companies to, make best efforts to fully comply with the Laws in respect of the protection of the Intellectual Property and refrain from interfering the Intellectual Property of others and:
(i) as soon as practicable after the Closing Date, add provisions in the templates of the business Contracts being used by the Group Companies in the ordinary course of business, clarifying the ownership of the Intellectual Property of the virtual assets arising from the performance of the business Contracts, in a manner satisfactory to the Investor; and
(ii) (1) as soon as practicable after the Closing Date, to the extent that any Company IP has been developed or created independently or jointly by an independent contractor or any third party for a Group Company, or is incorporated into any products or services of a Group Company, such Group Company shall enter into a written agreement with such independent contractor or third party, confirming that such Group Company has all the right, title and interest in and to (and is the exclusive owner of) all such Company IP; and (2) each Group Company will enter into an agreement with respect to the Intellectual Property with any independent contractor or any third party used by such Group Company after the Closing Date, confirming that such Group Company has all the right, title and interest in and to (and is the exclusive owner of) all the Intellectual Property created in the work or service provided by such independent contractor or other third party to such Group Company.
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6.8 Tax Base. Each of the Warrantors, jointly and severally, agrees that (i) in the event of a subsequent sale of shares in the Company by the Investor, the Investor shall be entitled to apply its Investment Amount under this Agreement to its indirect basis in the equity of the WFOE with respect to any tax filing, tax position and other communication with the relevant PRC Governmental Authorities for purposes of determining any income tax, capital gains tax or any other tax calculated with reference to gains made by the Investor through the purchase and sale of the Shares in the Company, and (ii) it shall not take any position that is inconsistent with (or would otherwise adversely impact the credibility of) clause (i) above in its filings or other communications with the relevant PRC Governmental Authorities.
7. INDEMNITY
7.1 General Indemnification. To the fullest extent permitted by Law, each of the Warrantors covenants and agrees, jointly and severally, to indemnify and hold harmless each of the Indemnified Party from and against any and all losses, damages, liabilities, claims, proceedings, costs, Tax-related and other expenses (including the fees, disbursements and other reasonable charges of counsel incurred by any Indemnified Party in any action between any Warrantor and any Indemnified Party, in connection with any investigation or evaluation of a claim or otherwise), penalties and interest (collectively, the “Losses”) resulting from or arising out of any breach by any Warrantor of any representations, warranties, covenants or agreements in this Agreement or any other Transaction Documents. If and to the extent that such indemnification is unenforceable for any reason, each Warrantor will make the maximum contribution to the payment and satisfaction of such indemnified liabilities permissible under applicable Laws. The rights contained in this Section 7 shall not be deemed to preclude or otherwise limit in any way the exercise of any other rights or pursuit of other remedies for the breach of this Agreement or with respect to any misrepresentation.
7.2 Special Indemnity. Without limiting the generality of the foregoing, each Warrantor shall, jointly and severally, indemnify and hold harmless each Indemnified Party from and against any Loss suffered by such Indemnified Party, directly or indirectly, as a result of, or based upon or arising from (a) any failure to pay Social Insurance contribution by any Group Company before the Closing, (b) any Group Company’s failure to withhold, or pay any Taxes and any shareholder of any Group Company’s failure to withhold, or pay any Taxes about his/her/its shareholding or share transferring of any Group Company in accordance with the applicable Laws before the Closing, (c) any Liability incurred by any Group Company arising in respect of, by reference to or in consequence of any Group Company’s failure to obtain or maintain the relevant Permit as required by applicable Laws prior to the Closing, (d) any infringement of Intellectual Property rights of any Person by any Group Company existed on or prior to the Closing, (e) any violation by any Group Company of the Advertising Law, (f) the inconsistency between the registered address and the actual business address of the Domestic Company, (g) any violation by any Group Company of relevant Laws with respect to personal information protection and data collection, (h) any violation of a Material Contract (including the loan agreements of the Group Companies), (i) any failure to comply with the non-subcontracting obligation under any Contract entered into between any Group Company, on the one hand, and its clients or customers, on the other hand, (j) any failure to complete the registration with the competent Governmental Authority in respect of any Real Property leasehold of any Group Company, or (k) any violation by any Group Company of labor-related Laws (including any failure to compensate any employee for working overtime, any noncompliance in relation to any employment agreement and the employee handbook).
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8. MISCELLANEOUS
8.1 Governing Law. This Agreement shall be governed by and construed under the Laws of Hong Kong, without regard to principles of conflict of laws thereunder.
8.2 Dispute Resolution.
(i) If the Parties are unable to settle any dispute arising out of or in connection with this Agreement through negotiations within thirty (30) days of initial notification of such dispute, such dispute shall be submitted to the Hong Kong International Arbitration Centre (the “HKIAC”) for arbitration in Hong Kong. Such arbitration shall be conducted in the English language. Unless otherwise expressly stated herein, the arbitration shall be conducted in accordance with the HKIAC’s arbitration rules as in effect at the time of submission to arbitration.
(ii) The arbitral tribunal shall consist of three arbitrators; each side in dispute shall appoint one arbitrator and the third arbitrator shall be appointed by both sides with mutual agreement as the presiding arbitrator. If no agreement can be reached within the time period required by the HKIAC, the presiding arbitrator shall be appointed by the Chairman of the HKIAC. The arbitral award shall be final and binding upon both Parties.
(iii) Each Party shall cooperate with the others in making full disclosure of and providing complete access to all information and documents requested by the others in connection with such arbitration proceedings, subject only to any doctrine of legal privilege or any confidentiality obligations binding on such Party.
(iv) The costs of arbitration shall be borne by the losing Party, unless otherwise determined by the arbitration tribunal.
(v) When any dispute occurs and when any dispute is under arbitration, except for the matters in dispute, the Parties shall continue to fulfil their respective obligations and shall be entitled to exercise their rights under this Agreement.
(vi) The award of the arbitration tribunal shall be final and binding upon the Parties, and the prevailing Party may apply to a court of competent jurisdiction for enforcement of such award.
(vii) Regardless of anything else contained herein, any Party shall be entitled to seek preliminary injunctive relief from any court of competent jurisdiction pending the conclusion of the arbitration.
8.3 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery either in person or by sending it by next-day or second-day courier service, electronic mail or similar means to the respective Parties at the addresses specified on Exhibit C (or at such other address as such Party may designate by ten (10) day’s advance written notice to the other Parties given in accordance with this Section 8.3). Where a notice is given personally, delivery shall be deemed to have been effected on receipt (or when delivery is refused). Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day or second-day service through an internationally-recognized courier a letter containing the notice, with a written confirmation of delivery, and to have been effected at the earlier of (i) delivery (or when delivery is refused) and (ii) expiration of two (2) Business Days after the letter containing the same is sent as aforesaid. Where a notice is sent by electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid if sent during normal business hours of the recipient on a Business Day thereof and otherwise on the next Business Day thereof.
8
8.4 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties whose rights or obligations hereunder are affected by such terms and conditions. This Agreement, and the rights and obligations hereunder, shall not be assigned without the mutual prior written consents of the Investor and the Company; provided that the Investor may assign rights or obligations under this Agreement to any of its Affiliates.
8.5 Rights Cumulative; Specific Performance. Each and all of the various rights, powers and remedies of a Party will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party. Without limiting the foregoing, the Parties acknowledge and agree irreparable harm may occur for which money damages would not be an adequate remedy in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to injunction to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement.
8.6 Fees and Expenses. The Company shall pay or reimburse all legal service fees and expenses (including fees and expenses for lawyers, accountants, auditors, financial advisors, technical consultants and other professions) actually incurred by the Investor in connection with the due diligence investigations and the negotiation, drafting, execution, delivery and performance of this Agreement and other Transaction Documents and the transactions contemplated hereby and thereby. Notwithstanding anything to the contrary herein, the Warrantors shall compensate the Investor for its costs, expenses and Taxes in connection with the Investor’s any subsequent sale of the Shares that the Investor or its Affiliate holds in the Company.
8.7 Severability. In case 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 thereby. If, however, any provision of this Agreement shall be invalid, illegal, or unenforceable under any such applicable Laws in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such Law.
8.8 Waiver and Amendment. This Agreement may only be amended or modified with an instrument in writing signed by the Parties. Any waiver, permit, consent or approval of any kind of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing signed by the Parties. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement. The failure of any Party to assert any of its rights hereunder shall not constitute a waiver of any of such rights.
9
8.9 Interpretation. For all purposes of this Agreement, except as otherwise expressly provided, (a) the defined terms shall have the meanings assigned to them in its definition and include the plural as well as the singular, and pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms, (b) all references in this Agreement to designated “Sections” and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement unless explicitly stated otherwise, and all references in this Agreement to designated exhibits are to the exhibits attached to this Agreement unless explicitly stated otherwise, (c) the words “herein”, “hereof”, and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision, (d) any reference in this Agreement to any “Party” or any other Person shall be construed so as to include its successors in title, permitted assigns and permitted transferees, (e) any reference in this Agreement to any agreement or instrument is a reference to that agreement or instrument as amended or novated, (f) this Agreement is jointly prepared by the Parties and should not be interpreted against any Party by reason of authorship, (g) whenever the words “include,” “includes” or “including” are used in this Agreement, they are deemed to be followed by the words “without limitation”, and (h) the use of “or” is not intended to be exclusive unless expressly indicated otherwise.
8.10 Entire Agreement. This Agreement, together with the other Transaction Documents, constitute the entire agreement of the Parties with respect to the subject matter hereof and thereof and supersede all prior agreements and undertakings, both written and oral, among the Parties with respect to the subject matter hereof and thereof.
8.11 Termination.
(i) Termination of Agreement. This Agreement may be terminated at any time prior to the Closing (a) by mutual written consent of the Parties, or (b) by the Investor, by written notice to the Company, if an injunction, restraining order or decree of any nature of any Governmental Authority of competent jurisdiction is issued that prohibits the consummation of the transactions contemplated hereby due to reasons other than a fault on the part of the Investor, or (c) by the Investor, by written notice to the Company, if the Closing has not been consummated within sixty (60) days after the date hereof, or (d) by the Investor, by written notice to the Company, (i) if any Warrantor shall have breached, in any material respect, any of its representations, warranties, covenants or other obligations under this Agreement and other Transaction Documents and such breach shall be incapable of cure or has not been cured within fourteen (14) days following the giving of written notice of such breach to the breaching Party, or (ii) if there shall have occurred a Material Adverse Effect. Such termination under this Section 8.11 shall be without prejudice to any claims for damages or other remedies that the Parties may have under this Agreement or applicable Law.
(ii) Effect of Termination. If this Agreement is terminated pursuant to the provision of Section 8.11(i), this Agreement will be of no further force or effect. Notwithstanding the foregoing, no such termination shall relieve any Party of any liability for Losses resulting from any breach prior to such termination by such Party of its covenants, agreements, representations or warranties set forth herein.
(iii) Survival. The provisions of Section 6.4 (Confidentiality), Section 7 (Indemnity) and Section 8 (Miscellaneous) of this Agreement shall survive the expiration or early termination of this Agreement.
8.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Facsimile and e-mailed copies of signatures shall be deemed to be originals for purposes of the effectiveness of this Agreement.
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10
IN WITNESS WHEREOF, the Parties have duly executed this SHARE PURCHASE AGREEMENT as of the date first above written.
Company | ||
Global Mofy Metaverse Limited | ||
By: | ||
Name: | ||
Title: |
HK Company | ||
Global Mofy HK Limited | ||
By: | ||
Name: | ||
Title: |
WFOE | ||
墨非纪元(北京)科技有限公司 | ||
(Company Seal) | ||
By: | ||
Name: | ||
Title: |
Domestic Company | ||
环球墨非(北京)科技有限公司 | ||
(Company Seal) | ||
By: | ||
Name: | ||
Title: |
Signature Page to Share Purchase Agreement
IN WITNESS WHEREOF, the Parties have duly executed this SHARE PURCHASE AGREEMENT as of the date first above written.
Shanghai Mofy | ||
上海墨影非寰科技有限公司 | ||
(Company Seal) | ||
By: | ||
Name: | ||
Title: |
Kashi Mofy | ||
喀什墨非交互数字科技有限公司 | ||
(Company Seal) | ||
By: | ||
Name: | ||
Title: |
XiAn Mofy | ||
西安数字云库科技有限公司 | ||
(Company Seal) | ||
By: | ||
Name: | ||
Title: |
Beijing Mofy | ||
墨非(北京)影视科技有限公司 | ||
(Company Seal) | ||
By: | ||
Name: | ||
Title: |
Signature Page to Share Purchase Agreement
IN WITNESS WHEREOF, the Parties have duly executed this SHARE PURCHASE AGREEMENT as of the date first above written.
New Jolene | ||
New Jolene&R L.P. | ||
By: | ||
Name: | ||
Title: |
Founder | ||
YANG Haogang (杨好刚) | ||
By: | ||
Founder Entity | ||
James Yang Mofy Limited | ||
By: | ||
Name: | ||
Title: |
Founder Entity | ||
Yang Hao Gang Limited | ||
By: | ||
Name: | ||
Title: |
Founder Entity | ||
Smart Executive Developments Limited | ||
By: | ||
Name: | ||
Title: |
Signature Page to Share Purchase Agreement
IN WITNESS WHEREOF, the Parties have duly executed this SHARE PURCHASE AGREEMENT as of the date first above written.
Investor | ||
Standard International Capital Partners SPC (for and on behalf of Standard International Capital Partners Fund I SP) | ||
By: | ||
Name: | ||
Title: Authorized Signatory |
Signature Page to Share Purchase Agreement
SCHEDULE I
1. | YANG Haogang (杨好刚), a Chinese citizen (PRC ID No [ ]; Passport No. [ ]) |
SCHEDULE I
SCHEDULE II
1. | James Yang Mofy Limited, a company incorporate under the Laws of the British Virgin Islands, 90% Equity Securities of which are owned by Smart Executive Developments Limited, and 10% Equity Securities of which are owned by Yang Hao Gang Limited. |
2. | Smart Executive Developments Limited, a company incorporate under the Laws of the British Virgin Islands, which is wholly owned by ARK Trust (Singapore) Limited. |
3. | Yang Hao Gang Limited, a company incorporate under the Laws of the British Virgin Islands, which is wholly owned by YANG Haogang (杨好刚). |
SCHEDULE II
EXHIBIT A
COMPANY INFORMATION
Part I CAPITALIZATION TABLE
(A) | As of immediately prior to the Closing: |
Authorized capital: US$50,000 divided into 25,000,000,000 Ordinary Shares, par value of US$0.000002 each, of which 24,000,000 shares are issued and outstanding.
Issued capital (the shareholding percentage is calculated on a fully diluted and as converted basis):
Shareholder | Ordinary Shares | Shareholding Percentage |
Lianhe Universal Holding Group Limited (联合寰宇投资控股集团有限公司) | 2,306,400 | 9.61% |
New Jolene&R L.P. | 1,838,400 | 7.66% |
New Luyuchao Limited | 1,329,600 | 5.54% |
New Shi Xiao Li Holding Limited | 1,140,000 | 4.75% |
New Lvxiaohui Holding Limited | 832,800 | 3.47% |
New Lv Yuan Yuan Limited | 1,053,600 | 4.39% |
New Jiang Wen Jun Limited | 758,400 | 3.16% |
Yangqin Limited | 1,087,200 | 4.53% |
New Vivi.Z Investment Limited | 468,000 | 1.95% |
New Chen Si Han Limited | 163,200 | 0.68% |
James Yang Mofy Limited | 11,090,400 | 46.21% |
Sun Hui | 333,600 | 1.39% |
Mofy Yi Limited | 986,400 | 4.11% |
Viru Technology Limited (微潤科技有限公司) | 612,000 | 2.55% |
Total | 24,000,000 | 100.00% |
(B) | As of immediately after the Closing: |
Authorized capital: US$ 50,000 divided into 25,000,000,000 Ordinary Shares, par value of US$0.000002 each, of which 24,000,000 shares are issued and outstanding.
Issued capital (the shareholding percentage is calculated on a fully diluted and as converted basis):
Shareholder | Ordinary Shares | Shareholding Percentage |
Lianhe Universal Holding Group Limited (联合寰宇投资控股集团有限公司) | 2,269,693 | 9.46% |
New Jolene&R L.P. | 1,809,142 | 7.54% |
New Luyuchao Limited | 1,308,439 | 5.45% |
New Shi Xiao Li Holding Limited | 1,121,857 | 4.67% |
New Lvxiaohui Holding Limited | 819,546 | 3.41% |
New Lv Yuan Yuan Limited | 1,036,832 | 4.32% |
New Jiang Wen Jun Limited | 746,330 | 3.11% |
Yangqin Limited | 1,069,897 | 4.46% |
New Vivi.Z Investment Limited | 460,552 | 1.92% |
New Chen Si Han Limited | 160,603 | 0.67% |
James Yang Mofy Limited | 10,913,894 | 45.48% |
Sun Hui | 328,291 | 1.37% |
Mofy Yi Limited | 970,701 | 4.04% |
Viru Technology Limited (微潤科技有限公司) | 602,260 | 2.51% |
Standard International Capital Partners SPC (for and on behalf of Standard International Capital Partners Fund I SP) | 381,963 | 1.59% |
Total | 24,000,000 | 100.00% |
EXHIBIT A - 1
Part II COMPANY DETAIL
Company Name | Global Mofy Metaverse Limited |
Registered Address |
offices of ICS Corporate Services (Cayman) Limited, 3-212 Governors Square, 23 Lime Tree Bay Avenue, P.O. Box 30746, Seven Mile Beach, Grand Cayman KY1-1203, Cayman Islands |
Date of Incorporation | September 29, 2021 |
Place of Incorporation | Cayman Islands |
Authorized Shares | See Part I of Exhibit A |
Issued Shares | See Part I of Exhibit A |
Shareholders (and shareholding percentage) | See Part I of Exhibit A |
PART III INVESTOR AND PURCHASED SHARES
Name | Number of Purchased Shares | Investment Amount |
Standard International Capital Partners SPC (for and on behalf of Standard International Capital Partners Fund I SP) | 381,963 Ordinary Shares | US$1,500,000 |
PART IV KEY EMPLOYEES
Name | Identification Number | Title |
YANG Haogang (杨好刚) | 320722199007207373 | CEO |
JIANG Wenjun (蒋文君) | 130204198401044824 | CTO |
LI Qing (李青) | 130821198307200025 | COO |
ZHANG Wei (张巍) | 320102198005180848 | CFO |
EXHIBIT A - 2
EXHIBIT B
DEFINITIONS
“Accounting Standards” | means the generally accepted accounting principles of the U.S. or any other accounting standards approved by the Board. |
“Affiliate” | means, with respect to a Person, any other Person directly or indirectly Controlling, Controlled by or under common Control with such Person, or, in the case of a natural Person, any other Person that is Controlled by such Person or is a relative of such Person, or any other Person controlled by such relative, where “relative” of a Person means such Person’s spouse, parent, grandparent, child, grandchild, sibling or the spouse of such Person’s child, grandchild or sibling. In the case of the Investor, the term “Affiliate” shall also include (i) any controlling shareholder of the Investor, (ii) any entity or individual which has a direct or indirect controlling interest in such controlling shareholder referred to in (i) above (including, any general partner or limited partner, or any fund manager thereof, if any) or any fund manager thereof, (iii) any Person that directly or indirectly Controls, is Controlled by, is under common Control with, or is managed by the Investor, any controlling shareholder or any fund manager referred to in (i) and (ii) above, (iv) a child, brother, sister, parent, or spouse of any individual referred to in (ii) above, and (v) any trust controlled by or held for the benefit of such Persons referred to in (i) to (iv) above. |
“Agreement” | has the meaning set forth in the Preamble. |
“Beijing Mofy” | has the meaning set forth in the Preamble. |
“Benefit Plan” | means any bonus plan, incentive plan, profit sharing plan, or any other plan or enforceable agreements which provides or provided benefits (other than basic or monthly salary pursuant to the employment agreement) for any past or present employee, officer, consultant or director of a Person or with respect to which contributions are or have been made on account of any past or present employee, officer, consultant or director of such a Person. |
“Business Day” | means any day other than a Saturday, Sunday or other day on which commercial banks in Hong Kong, the Cayman Islands, New York (the U.S.) or the PRC are required or authorized by law or executive order to be closed or on which a tropical cyclone warning no.8 or above or a “black” rainstorm warning signal is hoisted in Hong Kong or the PRC at any time between 8:00 a.m. and 6:00 p.m. Hong Kong or Beijing time. |
“Closing” | has the meaning set forth in Section 3.1. |
“Closing Date” | means the date upon which the Closing takes place pursuant to this Agreement. |
“Company” | has the meaning set forth in the Preamble. |
“Company IP” | has the meaning set forth in Section 13.3 of Exhibit D. |
“Company Owned IP” | has the meaning set forth in Section 13.3 of Exhibit D. |
“Company Registered IP” | has the meaning set forth in Section 13.3 of Exhibit D. |
EXHIBIT B - 1
“Confidential Information” | means (i) all trade secrets, proprietary information, research plans and directions, research protocol, research data and results, research analysis and reports, scientific discovery and findings, clinical study plan, clinical study data and results, invention, concepts, formula, recipe and process, and other data and information, in any form, belonging to the Company, its Subsidiaries or Affiliates, or any of their customers, clients, consultants or licensees, which are held in confidence or identified or treated as confidential, by the Company, its Subsidiaries or Affiliate, or any of their customers, clients, consultants or licensees including business plans and arrangements, customer lists, marketing materials, financial information, personnel information, survey, statistics, forecast and projections, computer software, and any information in its database, but excludes information which the Company has voluntarily disclosed to the public or any third party without restriction, or which is otherwise known to the public at large; and (ii) the financing terms, including their existence, as well as the transactions as contemplated under the Transaction Documents; and (iii) any information furnished by the Investor, including the Investor’ names, trademarks and logo. |
“Control” | means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and includes (x) ownership directly or indirectly of 50% or more of the shares in issue or other Equity Securities of such Person, (y) possession directly or indirectly of 50% or more of the voting power of such Person or (z) the power directly or indirectly to appoint a majority of the members of the board of directors or similar governing body of such Person, and the terms “Controlling” and “Controlled” have meanings correlative to the foregoing. |
“Contract” | means a contract, agreement, understanding, indenture, note, bond, loan, instrument, lease, mortgage, franchise, license, commitment, purchase order, sale order, and other legally binding arrangement, whether written or oral. |
“Circular 37” | means the Circular on Issues Relating to the Administration of Foreign Exchange of Offshore Investment and Financing through Special Purpose Vehicles and Round-Tripping Investment by PRC Resident (《国家外汇管理局关于境内居民通过特殊目的公司境外投融资及返程投资外汇管理有关问题的通知》[汇发(2014)37号]) issued by the SAFE on July 4, 2014 with effect from July 4, 2014, and any implementation, successor rule or regulation under the PRC Laws. |
“Disclosure Schedule” | has the meaning set forth in Section 4.1. |
“Domestic Company” | has the meaning set forth in the Preamble. |
“Environment” | means land (including surface land, sub-surface strata and natural and man-made structures), water (including coastal and inland waters, surface waters, ground waters and water in drains and sewers) and air. |
EXHIBIT B - 2
“Environmental Matters” | means (i) pollution or contamination of the Environment, (ii) the production, storage, use, transport, disposal, release or discharge of Hazardous Substances, (iii) the exposure of any Person or other living organism to Hazardous Substances, or (iv) the creation of any noise, vibration or other material adverse impact on the Environment. |
“Environmental Permit” | means a Permit concerned with the pollution or protection of the Environment (including any approval of an environmental impact appraisal report, examination and approval of environmental protection facilities and any Permit for the discharge of waste or pollutants, use or discharge of Hazardous Substances or use of natural resources) or the protection of the health of humans, animals or plants. |
“Equity Securities” | means, with respect to any Person, such Person’s capital stock, membership interests, partnership interests, registered capital, joint venture or other ownership interests (including, in the case of the Company, Shares) or any options, warrants or other securities that are directly or indirectly convertible into, or exercisable or exchangeable for, such capital stock, membership interests, partnership interests, registered capital, joint venture or other ownership interests (whether or not such derivative securities are issued by such Person). |
“ESOP” |
means the equity incentive plan of the Company duly adopted or to be duly adopted by the Company. |
“Existing Shareholder” | means each of the James Yang Mofy Limited, Lianhe Universal Holding Group Limited (联合寰宇投资控股集团有限公司), New Jolene&R L.P., New Luyuchao Limited, New Shi Xiao Li Holding Limited, New Lvxiaohui Holding Limited, New Lv Yuan Yuan Limited, New Jiang Wen Jun Limited, Yangqin Limited, New Vivi.Z Investment Limited, New Chen Si Han Limited, Sun Hui, Mofy Yi Limited, and Viru Technology Limited (微潤科技有限公司) and, collectively, the “Existing Shareholders”. |
“Financial Statements” | has the meaning set forth in Section 18 of Exhibit D. |
“Founder” | has the meaning set forth in the Preamble. |
“Founder Entity” or “Founder Entities” | has the meaning set forth in the Preamble. |
“Founder Party” or “Founder Parties” | has the meaning set forth in the Preamble. |
“fully diluted and as converted basis” | means that the calculation is to be made assuming that all outstanding options, warrants, other Equity Securities convertible into, or exercisable or exchangeable for, the Shares (whether or not by their terms then currently convertible) and Equity Securities which have been reserved for issuance pursuant to the ESOP, have been so converted, exercised, exchanged or issued. |
“Group Company” | means, each of the Company, the HK Subsidiary, the WFOE, the Domestic Company, Shanghai Mofy, Kashi Mofy, XiAn Mofy, and Beijing Mofy, together with each Subsidiary and any future Subsidiary (as applicable) of any of the foregoing, and “Group” or “Group Companies” refers to all of Group Companies collectively. |
EXHIBIT B - 3
“Governmental Authority” | means, any government of any nation, federation, province or state or any other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory, taxing or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization. |
“Hazardous Substances” | means a natural or artificial substance, organism, preparation or article which (alone or combined with another substance) is or may be harmful to the Environment or the health of humans, animals or plants, or which is prohibited or restricted under applicable Laws. |
“HKIAC” | has the meaning set forth in Section 8.2(i). |
“Hong Kong” | means the Hong Kong Special Administrative Region of the PRC. |
“HK Subsidiary” | has the meaning set forth in the Preamble. |
“Indemnified Party” | means the Investor and its Affiliates, shareholders, partners, officers, directors, employees, agents, successors and assigns. |
“Individual Holder” | means each of YANG Haogang (杨好刚) (PRC ID number: 320722199007207373, Passport Number: EB5424814), REN Zhenquan (任振泉) (PRC ID number: 310106197303040017), CHEN Sihan (陈思含) (PRC ID number: 610427198902110025), JIANG Wenjun (蒋文君), (PRC ID number: 130204198401044824), YANG Qin (杨琴) (PRC ID number: 320722199205087325),LU Yuchao (陆雨超) (PRC ID number: 32072219860212069X), LV Xiaohui (吕晓惠) (PRC ID number: 230105198508301629), LV Yuanyuan (吕远远) (PRC ID number:320722198912202359 ), SHI Xiaoli (侍小丽) (PRC ID number: 321322199001235022), SUN hui (孙辉) (Passport Number: K1891597B), ZHANG Wei (张巍) (PRC ID number: 320102198005180848). |
“Intellectual Property”
|
means any and all (i) patents, patent rights and applications therefor and reissues, reexaminations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (ii) inventions (whether patentable or not), discoveries, improvements, concepts, innovations and industrial models, (iii) registered and unregistered copyrights, copyright registrations and applications, mask works and registrations and applications therefor, author’s rights and works of authorship (including artwork, software, computer programs, source code, object code and executable code, firmware, development tools, files, records and data, and related documentation), (iv) URLs, web sites, web pages and any part thereof, (v) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications, proprietary data, customer lists, databases, proprietary processes, technology, formulae, and algorithms and other intellectual property, (vi) trade names, trade dress, trademarks, domain names, service marks, logos, business names, and registrations and applications therefor, and (vii) the goodwill symbolized or represented by the foregoing. |
EXHIBIT B - 4
“Investment Amount” | has the meaning set forth in Section 2.2. |
“Investor” | has the meaning set forth in the Preamble. |
“Investor Representations and Warranties” | has the meaning set forth in Section 4.2. |
“Kashi Mofy” | has the meaning set forth in the Preamble. |
“Key Employees” | means the Persons listed on Part IV of Exhibit A hereof. |
“Knowledge” | means, with respect to the Warrantors, the actual knowledge of any of the Warrantors and Key Employees, and any knowledge which should have been acquired by each such Person after making such due inquiry and exercising such due diligence as a prudent business Person would have made or exercised in the management of their business affairs, including due inquiry of all officers, directors, employees, consultants and professional advisers (including attorneys, accountants and auditors) of the Group and of its Affiliates who could reasonably be expected to have knowledge of the matters in question. |
“Law” or “Laws” | means any and all provisions of any applicable constitution, treaty, statute, law, regulation, ordinance, code, rule, or rule of common law, any governmental approval, concession, grant, franchise, license, agreement, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority, in each case as amended, and any and all applicable governmental orders. |
“License” | has the meaning set forth in Section 13.3 of Exhibit D. |
“Lien” | means any claim, charge, easement, encumbrance, lease, covenant, security interest, lien, option, pledge, rights of others, or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by Contract, understanding, Laws, equity or otherwise. |
“Losses” | has the meaning set forth in Section 7.1. |
“Material Adverse Effect” |
means any of the following: (a) a event, occurrence, fact, condition, change or development that has had, has, or could reasonably be expected to have a material adverse effect on the business, properties, assets, operations, results of operations, condition (financial or otherwise), liabilities or prospects of the Group Companies taken as a whole, (b) material impairment of the ability of any Warrantor to perform the material obligations of such Person hereunder or under any other Transaction Documents, as applicable, or (c) material impairment of the validity or enforceability of this Agreement or any other Transaction Documents against any Group Company or Founder Party. For the avoidance of doubts, a Material Adverse Effect shall not include any effect or incident directly or indirectly arising from any of the following matters: (i) any change of overall political or economic environment and conditions; (ii) any change or incident causing a pervasive impact on the industry in which the Group carries out its business; (iii) the outbreak of any war, terrorism, epidemic or infectious disease (including the Covid-19 pandemic), natural disaster or any similar incident; (iv) any actions as required, allowed or permitted under the Transaction Documents; and (v) any change of applicable Laws or Accounting Standards; except, in each case, to the extent such events, changes, developments, effects, conditions, circumstances, matters, occurrences or states of facts have a materially disproportionate adverse effect on the Group relative to other Persons engaged in the industry in which the Group operates. |
EXHIBIT B - 5
“Material Contract” | has the meaning set forth in Section 12 of Exhibit D. |
“Memorandum and Articles” | means the memorandum and articles of association of the Company (as amended and restated from time to time). |
“Ordinary Shares” | means the Company’s ordinary shares, par value US$0.000002 each. |
“Party” or “Parties” | has the meaning set forth in the Preamble. |
“Person” | means an individual, a partnership (including a limited liability partnership), a proprietorship, a company, a corporation, an association, a joint stock company, a limited liability company, a trust, a firm, a joint venture, a legal person, an unincorporated organization, a Governmental Authority, estate or other enterprise or entity. |
“Permits” | has the meaning set forth in Section 8 of Exhibit D. |
“PRC” | means the People’s Republic of China, solely for purposes of this Agreement, excluding Hong Kong, the Macau Special Administrative Region and Taiwan area. |
“Preamble” | means the preamble of this Agreement. |
“Principal Business” | has the meaning set forth in the recitals. |
“Public Software” | means any software that contains, or is derived in any manner (in whole or in part) from, any software that is distributed as free software, open source software (e.g., Linux) or similar licensing or distribution models, including, software licensed or distributed under any of the following licenses or distribution models, or licenses or distribution models similar to any of the following: (a) GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL), (b) the Artistic License (e.g., PERL), (c) the Mozilla Public License, (d) the Netscape Public License, (e) the Sun Community Source License (SCSL), (f) the Sun Industry Standards License (SISL), (g) the BSD License, and (h) the Apache License. |
“Purchased Shares” | has the meaning set forth in Section 2.2. |
“Real Property” | means any and all land, land use rights, buildings, structures, improvements and fixtures located thereon, easement and other rights in real property. |
“Related Party” | means any Affiliate, officer, director, supervisory board member, employee, or holder of any Equity Security, whether direct or indirect, of any Group Company, and any Affiliate or associate of any of the foregoing. |
“RMB” or “Renminbi” | means the lawful currency of the PRC. |
“SAFE” | means the State Administration of Foreign Exchange of the PRC and its local counterparts. |
EXHIBIT B - 6
“SAMR” | means the State Administration for Market Regulation of the PRC and its local counterparts. |
“Shanghai Mofy” | has the meaning set forth in the Preamble. |
“Share” or “Shares” | means a share or shares in the Company and includes a fraction of a share, including Ordinary Shares. |
“Signing Date” | has the meaning set forth in the Preamble. |
“Subsidiary” | means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person. |
“Social Insurance” | means any form of social insurance required under applicable Laws, including the PRC national and local contributions for pensions, medical insurance, unemployment insurance, work-related injury insurance, pregnancy benefits, and housing accumulation funds. |
“Statement Date” | has the meaning set forth in Section 18 of Exhibit D. |
“Taxes” | means, (i) in the PRC: (a) any national, provincial, municipal, or local taxes, charges, fees, levies, or other assessments, including all net income (including enterprise income tax and individual income withholding tax), turnover (including value-added tax, business tax, and consumption tax), resource (including urban and township land use tax), special purpose (including land value-added tax, urban maintenance and construction tax, and additional education fees), property (including urban real estate tax and land use fees), documentation (including stamp duty and deed tax), filing, recording, Social Insurance (including pension, medical, unemployment, housing, and other social insurance withholding), tariffs (including import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Governmental Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Governmental Authority in connection with any item described in clauses (a) and (b) above, and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clauses (i)(a) through (i)(c) above. |
“Tax Return” | means any return, report or statement showing Taxes, used to pay Taxes, or required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated or provisional Tax. |
“Transaction Documents” | means this Agreement, the Memorandum and Articles and each of the other agreements and documents otherwise in connection with the transactions contemplated hereby. |
“U.S.” | means the United States of America. |
“US$” or “USD” | means the United States Dollars, the lawful currency of the U.S.. |
“Warrantor” | has the meaning set forth in Section 4.1. |
“Warrantor Representations and Warranties” | has the meaning set forth in Section 4.1. |
“WFOE” | has the meaning set forth in the Preamble. |
“XiAn Mofy” | has the meaning set forth in the Preamble. |
EXHIBIT B - 7
EXHIBIT C
NOTICE ADDRESS
For the purpose of the notice provisions contained in this Agreement, the following are the initial addresses of each Party:
If to any Warrantor:
Attention: YANG Haogang(杨好刚)
Address:
Email:
Tel:
If to the Investor:
Attn: Huan XU
Address:
Email:
EXHIBIT C - 1
EXHIBIT D
WARRANTOR REPRESENTATIONS AND WARRANTIES
1. Organization, Standing and Qualification. Each of the Group Companies is duly incorporated, organized, validly existing and in good standing (or equivalent status in the relevant jurisdiction) under the Laws of the jurisdiction of its incorporation or organization. Each of the Group Companies has all requisite capacity, power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted, and is duly qualified to transact business in each jurisdiction in which it conducts and proposes to conduct business.
2. Due Authorization. All actions on the part of each Warrantor and, as applicable, their respective officers, directors and shareholders necessary for: (a) the authorization, execution and delivery of, and the performance of all obligations of such Warrantor under this Agreement and the other Transaction Documents to which he or it is a party has been taken or will be taken prior to the Closing, and (b) the authorization, issuance, reservation for issuance and delivery of all the Purchased Shares at the Closing have been obtained or will have been obtained prior to the Closing. Each Warrantor (other than the Founder) has all requisite power and authority, and the Founder possesses full legal capacity, to execute and deliver this Agreement and the other Transaction Documents to which he or it is a party and to perform the obligations hereunder and thereunder. Each Transaction Document to which a Warrantor is a party is a legal, valid and binding obligation of such Warrantor, enforceable against it in accordance with its terms.
3. Approvals. Each approval, authorization or consent which is required to be obtained by each Warrantor in connection with the consummation of the transactions contemplated under this Agreement and the other Transaction Documents will have been obtained prior to and be effective as of the Closing.
4. Non-Contravention. The execution, delivery and performance by each Warrantor of and compliance with this Agreement and the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, will not result in any material respect in (i) any violation, breach or default, or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, a default under (a) the constitutional documents of such Warrantor, (b) any term or provision of any Contract to which such Warrantor is a party or by which it may be bound, or (c) any applicable Law, (ii) the creation or imposition of any Lien upon, or with respect to, any of the properties or rights of any Warrantor, or (iii) any termination, modification, cancellation, or suspension of any right of, or any augmentation or acceleration of any obligation of, any Warrantor.
5. Corporate Structure; Subsidiaries. No Group Company is obligated to make any investment in or capital contribution in or on behalf of any Person other than the Group Companies. No Founder Entity owns or Controls, or has ever owned or Controlled, directly or indirectly, any Equity Security, interest or share in any Person other than the Group Companies or is or was a participant in any joint venture, partnership or similar arrangement. No Founder Entity is obligated to make any investment in or capital contribution in or on behalf of any Person other than the Group Companies. The Founder Entities were formed solely to acquire and hold the Equity Securities in the Company, the Company was formed solely to acquire and hold the Equity Securities in the HK Subsidiary, and the HK Subsidiary was formed solely to acquire and hold the Equity Securities in the WFOE. None of the Company and the HK Subsidiary has engaged in any other business and has not incurred any liability since its formation. The WFOE is or will be mainly engaged in the Principal Business and has no other business which is not disclosed to the Investor. Except for holding no more than 1% share capital of any listed companies, no Founder and no Person owned or Controlled by the Founder (other than a Group Company) participates, renders consulting service to, assists, is concerned with, engaged or interested in, or has participated, rendered consulting service to, assisted, has been concerned with, engaged or interested in, any business or entity in any manner, directly or indirectly, which is the same with, similar to or otherwise in competition with the Principal Business.
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6. Valid Issuance of Shares. The Purchased Shares when issued, delivered and paid in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable Laws and under the Transaction Documents, if any). The presently outstanding Shares are duly and validly issued, fully paid and non-assessable, and all outstanding Equity Securities of the Company have been issued in full compliance with the requirements of all applicable Laws including, to the extent applicable, the registration and prospectus delivery requirements of the United States Securities Act of 1933, as amended, or in compliance with applicable exemptions therefrom, and all other provisions of applicable securities Laws, including anti-fraud provisions.
7. Capitalization and Structure
7.1 Company. The Company’s capital structure (including its authorized and issued share capital, and the holders thereof) as set forth on Part I and Part II of Exhibit A are complete, true and accurate as of the time indicated therein.
7.2 Group Companies. Section 7.2 of the Disclosure Schedule (i) sets forth the capitalization table of each Group Company as of immediately prior to the Closing, and immediately after the Closing, in each case reflecting all then outstanding and authorized Equity Securities of such Group Company, and the record holders, the controlling relationship and beneficial holders thereof; and (ii) indicates the nature of the legal entity of each Group Company, the jurisdiction in which each Group Company is organized, and each jurisdiction in which each Group Company is required to be qualified or licensed to do business as a foreign Person. Each of the Group Companies and the Existing Shareholders is the sole record and beneficial holder of the Equity Securities as set forth opposite its name on Section 7.2 of the Disclosure Schedule, free and clear of all Liens of any kind other than those arising under applicable Laws. None of the shareholders of each Group Company is or has been holding the Equity Securities in such Group Company, directly or indirectly, as a nominee or agent. No Group Company owns or Controls, or has ever owned or Controlled, directly or indirectly, any Equity Security, interest or share in any Person other than the Group Companies or is or was a participant in any joint venture, partnership or similar arrangement.
7.3 Reserved Shares; No Other Securities. Except for (a) certain rights provided in the charter documents of the Group Companies as currently in effect, and (b) certain rights provided in the Memorandum and Articles from and after the Closing, (1) there are no other authorized or outstanding Equity Securities of any Group Company; (2) no Equity Securities of any Group Company are subject to any preemptive rights, rights of first refusal (except to those provided by applicable PRC Laws) or other rights to purchase such Equity Securities or any other rights with respect to such Equity Securities; and (3) no Group Company is a party or subject to any Contract that relates to the voting or giving of written consents with respect to, or the right to cause the redemption, or repurchase of, any Equity Security of such Group Company. The Company has not granted any registration rights or information rights to any other Person, nor is the Company obliged to list, any of the Equity Securities of any Group Companies on any securities exchange. Except as contemplated under the Transaction Documents, there are no voting or similar agreements which relate to the share capital or registered capital of any Group Company.
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7.4 Status. All presently outstanding Equity Securities of each Group Company were duly and validly issued or subscribed for in compliance with all applicable Laws, preemptive rights of any Person, and applicable Contracts. All share capital or registered capital, as the case may be, of each Group Company have been duly and validly issued, are fully and punctually paid and non-assessable, and are and as of the Closing shall be free of any and all Liens (except for any restrictions under the Transaction Documents and applicable Laws). Except as contemplated under the Transaction Documents, there are no (a) resolutions pending to increase the share capital or registered capital of any Group Company or cause the liquidation, winding up, or dissolution of any Group Company, nor has any distress, execution or other process been levied against any Group Company, (b) dividends which have accrued or been declared but are unpaid by any Group Company, (c) obligations, contingent or otherwise, of any Group Company to issue, transfer, repurchase, redeem, or otherwise acquire any Equity Securities of such Group Company, or (d) outstanding or authorized equity appreciation, phantom equity, equity plans or similar rights with respect to any Group Company. All dividends or distributions declared, made or paid by each Group Company (if any), and all repurchases and redemptions of Equity Securities of each Group Company (if any), have been declared, made, paid, repurchased or redeemed, as applicable, in accordance with its charter documents and all applicable Laws.
8. Permits. Each Group Company has all material franchises, permits, licenses, consents, approvals, certificates, qualifications, filings, notifications, registrations and any similar authority necessary (the “Permits”) for the conduct of its respective business and operations (including the Principal Business) as currently conducted or the business as set forth in the business scope of the Group Company and the ownership, possession, occupation or use of its properties and assets, and are in full force and effect. No Group Company (i) is in violation of any of such Permits, (ii) has received any written notice from any Governmental Authority regarding any actual or possible violation of any of such Permits in default under any of the Permits.
9. Compliance. Each Warrantor is, and has been, in compliance with all applicable Laws in material respects, and none of them is under investigation with respect to or, to the Knowledge of any of the Warrantors, has been threatened to be charged with or given notice of any violation of, any applicable Laws in any material respects. The operations of the Group Companies are and have been conducted at all times in compliance with any applicable Laws in material respects including anti-corruption, bribery and money laundering Laws to which relevant Group Companies may be subject to, and to the Knowledge of any of the Warrantors, none of the directors, officers or employees of the Group Companies has directly or indirectly, engaged in activities that are not in compliance with such applicable anti-corruption, bribery and money laundering Laws.
10. Litigation. There is no action, suit, proceeding, claim, arbitration or investigation pending or, to the Knowledge of any of the Warrantors, threatened against any Group Company, any Group Company’s activities, properties or assets or, to the Knowledge of any of the Warrantors, against any officer, director or employee of the Group Companies in connection with such officer’s, director’s or employee’s relationship with, or actions taken on behalf of the Group Companies. None of the Warrantors is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality and there is no action, suit, proceeding, claim, arbitration or investigation by any of the Warrantors currently pending or which it intends to initiate.
EXHIBIT D - 3
11. No Liabilities. No Group Company has any indebtedness, obligation or liability (whether accrued, absolute, contingent or otherwise, and whether due or to become due) except for (i) indebtedness, obligations and liabilities set forth in the Financial Statements that have not been satisfied since the Statement Date, and (ii) current indebtedness, obligations and liabilities incurred since the Statement Date in the ordinary course of the Group’s business consistent with its past practices and which do not exceed RMB3,200,000. None of the Group Companies is a guarantor or indemnitor of any indebtedness, obligation or liability of any other Person (other than a Group Company).
12. Material Contracts. All agreements, contracts, leases, licenses, instruments, commitments (oral or written), indebtedness, liabilities and other obligations to which a Group Company is a party or by which it is bound that (a) are material to the conduct and operations of its business and properties, or (b) obligate such Group Company to share, license or develop any product or technology outside the ordinary course of business are hereinafter referred to as “Material Contracts”. For purposes of clause (a) of this Section, “material” means any agreement, contract, indebtedness, liability, arrangement or other obligation (i) having an aggregate value, cost, liability or amount in excess of RMB5,000,000, (ii) with the term thereof extending for more than one (1) year beyond the date of this Agreement, (iii) containing exclusivity, non-competition, or similar clauses that impair, restrict or impose conditions on any of the Group Companies’ right to offer or sell products or services in specified areas, during specified periods, or otherwise, (iv) not in the ordinary course of business, (v) transferring or licensing any Intellectual Property to or from any of the Group Companies (other than licenses granted under the medical devices sales agreements executed by the Group Company in the ordinary course of business), (vi) involving any provision providing for exclusivity, “change in control”, “most favored nations”, rights of first refusal or first negotiation or similar rights, or granting a power of attorney, agency or similar authority, (vii) involving the ownership or lease of, title to, use of, or any leasehold or other interest in, any real or personal property with an annual rental exceeding US$200,000 (except for movable property leases in the ordinary course of business and involving payments of less than US$100,000), (viii) involving a loan (other than accounts receivable from trade debtors in the ordinary course of business) or advance to, or investment in, any Person that is not a Group Company, (ix) providing for the incurrence of indebtedness of any Group Company with a financial institute, (x) involving any provision providing for the guarantee of any indebtedness, (xi) being between, on the one hand, any Group Company and, on the other hand, (x) the Founder or his/her Affiliates or (y) any Related Party of any Group Company, or (xii) being with a Governmental Authority, or sole-source supplier of any material product or service. Each Material Contract is a valid and binding agreement of the parties thereto, the performance of which does not and will not violate any applicable Laws in any material respects, and is in full force and effect against the parties thereto. Each Group Company has duly performed all of its obligations under each Contract in material respects to the extent that such obligations to perform have accrued, and no breach or default, to the Knowledge of any of the Warrantors, alleged breach or alleged default, or event which would constitute a breach or default thereunder by such Group Company or any other party or obligor with respect thereto, has occurred. No Group Company has given notice that it intends to terminate a Material Contract or, to the Knowledge of any of the Warrantors, that any other party thereto has breached, violated or defaulted under any Material Contract, and no Group Company has received any notice that it has breached, violated or defaulted under any Material Contract or, to the Knowledge of any of the Warrantors, that any other party thereto intends to terminate such Material Contract.
13. Properties
13.1 Title. The Group Companies have good and valid title to, or a valid leasehold interest in (if any), all of their properties, free from any Lien. Except for leased properties, no Person other than the Group Companies owns any interest in any such properties. All leases of properties leased by the Group Companies are fully effective and afford the Group Companies the right to use and process such leased properties. The Group Companies’ properties collectively represent all assets, rights, properties necessary for the conduct of the business of the Group Companies in the manner currently conducted. All plant, machinery, vehicles and equipment owned, possessed or used by each Group Company are in good condition and working order, have been regularly and properly maintained and are in compliance with all safety regulations under applicable Laws.
EXHIBIT D - 4
13.2 Real Property. The Group Companies do not own any Real Property. Section 13.2 of the Disclosure Schedule sets forth a true, accurate and complete list of all Real Properties leased or otherwise used by the Group Companies, and any such listed lease in the Disclosure Schedule is a valid, binding and enforceable lease. The existing use of the Real Properties is permitted under applicable Laws, urban planning regulations, and Permits for the construction of buildings.
13.3 Intellectual Property.
(a) | Company IP. Each Group Company owns or otherwise has sufficient rights (including the rights of development, maintenance, licensing and sale) to or otherwise has the licenses to use all of the Intellectual Property necessary and sufficient to conduct its business as currently conducted and proposed to be conducted by the Group Company (the “Company IP”), to the Knowledge of the Warrantors, without any conflict with or infringement of the rights of any other Person. Section 13.3(a) of the Disclosure Schedule sets forth a true, complete and accurate list of all patents, trademarks, service marks, trade names, domain names, copyrights and other forms of Intellectual Property (the “Company Registered IP”) for which registrations have been obtained throughout the world (and all applications for, or extensions or reissues of, any of the foregoing throughout the world) that are owned by, or registered or applied for in the name of, a Group Company. “Company Owned IP” means all Intellectual Property owned by the Group Company but not covered under Company Registered IP and the Company Registered IP. |
(b) | IP Ownership. All Company Registered IP is owned by and registered or applied for solely in the name of the Group Companies, is valid and subsisting and has not been abandoned, and all necessary registration, maintenance and renewal fees with respect thereto and currently due have been satisfied. None of the Group Companies or, to the Knowledge of any of the Warrantors, any of its employees, officers or directors has taken any actions or failed to take any actions that would cause any Company Owned IP to be invalid, unenforceable or not subsisting. No funding or facilities of a Governmental Authority or a university, college, other educational institution or research center was used in the development of any Company Owned IP. No Company Owned IP is the subject of any Lien, license or other Contract granting rights therein to any other Person (except the non-exclusive Licenses in the ordinary course of business). No Group Company is or has been a member or promoter of, or contributor to, any industry standards bodies, patent pooling organizations or similar organizations that could require or obligate the Group Company to grant or offer to any Person any license or right to any Company Owned IP. No Company Owned IP is subject to any proceeding or outstanding governmental order or settlement agreement or stipulation that (a) restricts in any manner the use, transfer or licensing thereof, or the making, using, sale, or offering for sale of a Group Company’s products or services, by a Group Company, or (b) may affect the validity, use or enforceability of such Company Owned IP. No Group Company has (a) transferred or assigned any Company Owned IP, (b) authorized the joint ownership of any Company Owned IP, or (c) permitted its rights in any Company Owned IP to lapse or enter the public domain. |
EXHIBIT D - 5
(c) | Infringement, Misappropriation and Claims. To the Knowledge of the Warrantors, none of the Group Companies has violated, infringed or misappropriated any Intellectual Property of any other Person. None of the Group Companies has received any written notice alleging any of the foregoing. To the Knowledge of any of the Warrantors, no Person has violated, infringed or misappropriated any Company IP of the Group Companies, and the Group Companies have not given any written notice to any other Person alleging any of the foregoing. No Person has challenged the ownership or use of any Company IP by the Group Companies. None of the Group Companies has agreed to indemnify any Person for any infringement, violation or misappropriation of any Intellectual Property by such Person. |
(d) | Assignments and Prior Intellectual Properties. All inventions and know-how conceived by employees of a Group Company related to the business of such Group Company are currently owned exclusively by a Group Company. All employees, contractors, agents and consultants of a Group Company who are or were involved in the creation of any Intellectual Property for such Group Company have executed an assignment of inventions agreement that vests in a Group Company exclusive ownership of all right, title and interest in and to such Intellectual Property, to the extent not already provided by Laws. To the Knowledge of any of the Warrantors, it will not be necessary to utilize any Intellectual Property of any such Person made prior to his/her employment by a Group Company, except for those that are exclusively owned by a Group Company, and none of such Intellectual Property has been utilized by any Group Company. To the Knowledge of any of the Warrantors, none of the employees, currently or previously employed or otherwise engaged by any Group Company, (a) has violated of any current or prior confidentiality, non-competition or non-solicitation obligations to such Group Company or to any other Persons, including former employers, or (b) is obligated under any Contract, or subject to any governmental order, that would severely conflict with the business of such Group Company as presently conducted. |
(e) | Licenses. Section 13.3(e) of the Disclosure Schedule sets forth a complete and accurate list of the Licenses. The “Licenses” means, collectively, (a) all licenses, sublicenses, and other contracts to which a Group Company is a party and pursuant to which any third party is authorized to use, exercise or receive any benefit from any Company IP, and (b) all licenses, sublicenses and other contracts to which a Group Company is a party and pursuant to which the Group Company is authorized to use, exercise, or receive any benefit from any Intellectual Property of another Person, in each case except for (1) agreements involving “off-the-shelf” commercially available software, and (2) non-exclusive licenses in the ordinary course of business consistent with past practice. The Group Companies have paid all license and royalty fees required to be paid under the Licenses, except for the default of payment for which that would not have an adverse effect on the Group Companies. |
(f) | Protection of Intellectual Properties. Each Group Company has taken reasonable and appropriate steps to protect, maintain and safeguard Company IP and made all applicable filings, registrations and payments of fees in connection with the foregoing. To the extent that any Company IP has been developed or created independently or jointly by an independent contractor or other third party for a Group Company, or is incorporated into any products or services of a Group Company, the Group Company has a written agreement with such independent contractor or third party and has thereby obtained ownership of, and is the exclusive owner of all such independent contractor’s or third party’s Intellectual Property in such work, material or invention by operation of law or valid assignment. |
EXHIBIT D - 6
(g) | No Public Software. No Public Software forms part of any product or service provided by the Group Companies or was or is used in connection with the development of any product or service provided by the Group Companies or is incorporated into, in whole or in part, or has been distributed with, in whole or in part, any product or service provided by the Group Companies. No software included in any Company Owned IP has been or is being distributed, in whole or in part, or was used, or is being used in conjunction with any Public Software in a manner which would require that such software be disclosed or distributed in source code form or made available at no charge. |
14. Employment Matters.
14.1 Each Group Company has complied with all applicable employment and labor Laws in material respects, including the applicable PRC Laws pertaining to Social Insurance, and has withheld and reported all amounts required by any applicable Laws or any Contract to be withheld and reported with respect to wages, salaries and other payments to employees and is not liable for any arrear of wages, Tax or penalty for failure to comply with any of the foregoing.
14.2 Section 14.2 of the Disclosure Schedule sets forth a true and complete list of each Benefit Plan currently or previously adopted, maintained, or contributed to by any Group Company or under which any Group Company has any liability or under which any employee or former employee of any Group Company has any present or future right to benefits. Except for required contributions or benefit accruals for the current plan year, no liability has been or is expected to be incurred by any Group Company under or pursuant to any applicable Laws relating to any Benefit Plan or individual employment compensation agreement, and to the Knowledge of any of the Warrantors, no event, transaction or condition has occurred or exists that would result in any such liability to any Group Company. Each of the Benefit Plans of the Group Companies is and has at all times been in compliance with all applicable Laws (including Laws of Tax, if applicable), and all contributions to, and payments for each such Benefit Plan have been timely made. Each Group Company maintains, and has fully funded, each Benefit Plan and any other labor-related plans that it is required by Law or by Contract to maintain.
14.3 There has not been, and there is not now pending or, to the Knowledge of any of the Warrantors, threatened, any strike, union organization activity, lockout, slowdown, picketing, or work stoppage or any unfair labor practice charge against any Group Company. No Group Company is bound by or subject to (and none of their assets or properties is bound by or subject to) any written or oral Contract, commitment or arrangement with any labor union or any collective bargaining agreements.
14.4 None of the Key Employees is obligated under any Contract, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with such Person’s ability to promote the interest of the Group Company or that would conflict with the Group Company’s business. Neither the execution or delivery of the Transaction Documents, nor the carrying on of the Group Company’s business by the employees of the Group Company, nor the conduct of the Group Company’s business as now conducted and as proposed to be conducted, will, to the Knowledge of any of the Warrantors, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such Key Employee is now obligated.
EXHIBIT D - 7
14.5 No Key Employee intends to terminate employment with applicable Group Company or is otherwise likely to become unavailable to continue as a Key Employee, nor does applicable Group Company have a present intention to terminate the employment of any of the foregoing. Each of the Key Employees is currently devoting his or her full working time to the conduct of the business of the Group Companies. No Warrantor has received any notice or application from any Key Employee that he/she will work less than full time with the Group Companies. None of the Key Employees or the Founder is currently working for a competitive enterprise, whether or not such Person is or will be compensated by such enterprise.
14.6 None of the Key Employees or the Founder: (a) is currently subject to any non-competition, investment restriction or other obligations owed to any other Person, including former employers, and is not in violation of or has not violated any current or prior confidential, non-competition or non-solicitation obligations to the Group Companies or to any other Person; or (b) is obligated under any Contract, or subject to any governmental order, that would interfere with the interests of the Group Companies or that would conflict with the business of the Group Companies as currently conducted.
15. Tax Matters.
15.1 Each Group Company (a) has timely filed all Tax Returns that are required to have been filed by it with any Governmental Authority, (b) has timely paid all Taxes owed by it which are due and payable (whether or not shown on any Tax Return) and withheld and remitted to the appropriate Governmental Authority all Taxes which it is obligated to withhold and remit from amounts owing to any employee, creditor, customer or third party, and (c) has not waived any statute of limitations with respect to Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency other than, in the case of clauses (a) and (b), unpaid Taxes that are in contest with Tax authorities by such Group Company in good faith or nonmaterial in amount.
15.2 Each Tax Return referred to in Section 15.1 above was properly prepared in compliance with applicable Laws and was (and will be) true, correct and complete in all material respects. None of such Tax Returns contains a statement that is false or misleading in any material respects or omits any material matter that is required to be included or without which the statement would be false or misleading in any material respects. No reporting position was taken on any such Tax Return which has not been disclosed to the appropriate Tax authorities or in such Tax Return, as may be required by Laws. All records relating to such Tax Returns or to the preparation thereof required by applicable Laws to be maintained by applicable Group Company have been duly maintained. No written claim has been made by a Governmental Authority in a jurisdiction where the Group does not file Tax Returns that any Group Company is or may be subject to taxation by that jurisdiction.
15.3 The assessment of any additional Taxes with respect to the applicable Group Company for periods for which Tax Returns have been filed is not expected to exceed the recorded liability therefor in the most recent balance sheet in the Financial Statements, and there are no unresolved questions or claims concerning any Tax liability of any Group Company. Since the Statement Date, no Group Company has incurred any liability for Taxes outside the ordinary course of business or otherwise inconsistent with past custom and practice. There is no pending dispute with, or notice from, any Tax authority relating to any of the Tax Returns filed by any Group Company, and to the Knowledge of any of the Warrantors, there is no liability for a significant deficiency in any Tax imposed upon the properties or assets of any Group Company.
EXHIBIT D - 8
15.4 No Group Company has been the subject of any examination or investigation by any Tax authority relating to the conduct of its business or the payment or withholding of Taxes that has not been resolved or is currently the subject of any examination or investigation by any Tax authority relating to the conduct of its business or the payment or withholding of Taxes. No Group Company is responsible for the Taxes of any other Person by reason of contract, successor liability or otherwise incurred outside the ordinary course of business or otherwise inconsistent with past custom and practice.
15.5 All Tax credits and Tax holidays enjoyed by the Group Companies established under the Laws of the PRC under applicable Laws since its establishment have been in compliance with all applicable Laws and to the Knowledge of any of the Warrantors, is not subject to reduction, revocation, cancellation or any other changes (including retroactive changes) in the future, except through change in applicable Laws published by relevant Governmental Authority.
15.6 No Group Company is or has ever been anticipated that it will be a “controlled foreign corporation” or “passive foreign investment company” as defined under the U.S. tax Laws. No Group Company is or has ever been a U.S. real property holding corporation. The Company is treated as a corporation for U.S. federal income tax purposes.
16. Related Party Transactions. No Related Party (i) has any direct or indirect ownership interest in any Person (other than the Group Companies) with which a Group Company competes with, (ii) is indebted to any Group Company or is any Group Company indebted (or committed to make loans or extend or guarantee credit) to any Related Party (other than for accrued salaries, reimbursable expenses or other standard employee benefits), or (iii) has any agreement (whether oral or written), contract, understanding, proposed transaction (other than (x) the standard employee benefits generally made available to all employees, (y) standard director and officer indemnification agreements approved by the board of directors of the Company, and (z) the issuance of options to purchase the Company’s Ordinary Shares and the exercise of such options pursuant to the Company’s employee equity incentive plan adopted by the Company in accordance with the Memorandum and Articles and in accordance with applicable Laws) with any Group Company or otherwise has any direct or indirect interest in any Contract to which any Group Company is a party or by which it or its properties may be bound or affected.
17. Charter Documents; Books and Records. The charter documents of each Group Company are in the form provided to the Investor. The charter documents of the Group Companies are valid and have been duly approved or issued (as applicable) by competent Governmental Authorities in the jurisdiction where such Group Company is incorporated. Each Group Company has been in compliance with its charter documents, and none of the Group Companies has violated or breached any of its respective charter documents in any material respects. Each Group Company properly maintains its tax records and corporate records including (i) minutes of each meeting of its board of directors, any committees of its board of directors and its shareholders, and (ii) each written resolution in lieu of a meeting by its board of directors, any committees of its board of directors and its shareholders. Each Group Company maintains its books of accounts and records in the usual, regular and ordinary manner, on a basis consistent with prior practice, and which permits its Financial Statements to be prepared in accordance with the Accounting Standards. The register of members and directors (if applicable) of each Group Company is correct, there has been no notice of any proceedings to rectify any such register, and to the Knowledge of any of the Warrantors, there are no circumstances which might lead to any application for its rectification. All documents requiring to be filed by each Group Company with the applicable Governmental Authority in respect of the relevant jurisdiction in which the relevant Group Company is being incorporated have been properly made up and filed.
EXHIBIT D - 9
18. Financial Statements. Each Group Company has delivered its unaudited consolidated balance sheet, profit statement and cash flow statement dated March 31, 2022 (the “Statement Date”) (collectively, the “Financial Statements”) to the Investor. The Financial Statements (a) have been prepared in accordance with the books and records of the Group Companies, (b) fairly present in all material respects the financial condition and position of the Group Companies as of the dates indicated therein and the results of operations and cash flows of the Group Companies for the periods indicated therein, except in the case of unaudited financial statements for the normal year-end audit adjustments that are not expected to be material, and (c) were prepared in accordance with the Accounting Standards applied on a consistent basis throughout the periods involved. All of the accounts receivable owing to the Group Companies, including all accounts receivable set forth on the Financial Statements, constitute valid and enforceable claims, are current and collectible in the ordinary course of business in all material respects, net of any reserves shown on the Financial Statements (which reserves are adequate and were calculated on a basis consistent with the Accounting Standards). There is no material contingent or asserted claim, refusal to pay, or any other right of set-off with respect to any accounts receivable of the Group Companies. All material transactions conducted by the Group Companies have been duly recorded on their books and in their accounting records to the extent required by the Accounting Standards and other applicable local accounting provisions and regulations. As at the Statement Date, the Group Companies have not incurred, assumed or guaranteed any liabilities or debts of any nature (whether due, fixed, contingent or otherwise) that were not reflected or expressly provisioned against in the Financial Statements, as applicable, except for the liabilities or debts that are not required to be disclosed in accordance with the Accounting Standards.
19. Changes. Since the Statement Date, each Group Company has (i) operated its business in the ordinary course consistent with its past practice and in material respects in accordance with all applicable Laws, (ii) used its reasonable best efforts to preserve its business, (iii) collected receivables and paid payables and similar obligations in the ordinary course of business consistent with past practice, and (iv) not engaged in any new line of business or entered into any agreement, transaction or activity or made any commitment except those in the ordinary course of business consistent with past practice. Since the Statement Date, except as provided in the Transaction Documents and except for those occurred in the ordinary course of business consistent with the past practice, there has not been by or with respect to any Group Company:
(i) any change in the assets, liabilities, financial condition or operating results of such Group Company from that reflected in the Financial Statements, except changes in the ordinary course of business;
(ii) any change in the contingent obligations of such Group Company by way of guarantee, endorsement, indemnity, warranty or otherwise;
(iii) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of such Group Company (as presently conducted and as presently proposed to be conducted);
(iv) any waiver of a valuable right or of a debt;
(v) any satisfaction or discharge of any Lien or payment of any obligation by such Group Company, except such satisfaction, discharge or payment made in the ordinary course of business that is not material to the assets, properties, financial condition, operating results or business of such Group Company;
EXHIBIT D - 10
(vi) any change or amendment to a Material Contract or arrangement by which such Group Company or any of its assets or properties is bound or subject, except for changes or amendments which are expressly provided for or disclosed in this Agreement;
(vii) any material change in any compensation arrangement or agreement with any Key Employee or director;
(viii) any sale, assignment or transfer of any proprietary assets or other intangible assets of such Group Company;
(ix) any resignation or termination of any key officer of such Group Company, including any Key Employee;
(x) any mortgage, pledge, transfer of a security interest in, or Lien created by such Group Company, any Warrantor or any Key Employee, with respect to any of such Group Company’s properties or assets;
(xi) any debt, obligation, or liability incurred, assumed or guaranteed by such Group Company in excess of RMB1,000,000 individually or RMB5,000,000 in the aggregate over any twelve-month period;
(xii) any declaration, setting aside or payment or other distribution in respect of any of such Group Company’s share capital, or any direct or indirect redemption, purchase or other acquisition of any of such share capital by such Group Company;
(xiii) any failure to conduct business in the ordinary course, consistent with such Group Company’s reasonably prudent past practices;
(xiv) any transactions or Contracts with, or loans or financing to, any Related Party;
(xv) any other event or condition of any character which could reasonably be expected to have a Material Adverse Effect; or
(xvi) any agreement or commitment to do any of the things described in this Section 19.
20. Data Privacy. In connection with its collection, storage, transfer (including any transfer across national borders) or use of any personal information, each Group Company is and has been in compliance with, in material respects, all applicable Laws in all relevant jurisdictions and the requirements of any Contract or codes of conduct to which the Group Company is a party. Each Group Company has effective and sufficient physical, technical, organizational and administrative security measures and policies in place to protect all personal information collected by it or on its behalf from and against unauthorized access, use or disclosure. Each Group Company is and has been in compliance in all material respects with all Laws relating to data loss, theft and breach of security notification obligations.
EXHIBIT D - 11
21. Circular 37 Registration. The Founder and each Individual Holder who is a “domestic resident” (as defined in Circular 37) has completed, obtained and updated the foreign exchange registration with the competent local branch of the SAFE with respect to his/her direct and indirect record and beneficial ownership of Equity Securities in the Company and each other Group Company in accordance with the requirement of the applicable SAFE rules and regulations.
22. Solvency. None of the Group Companies is insolvent under the Laws of its jurisdiction of incorporation or unable to pay its debts as they fall due. None of the Group Companies has, or had, legal proceedings commenced against for its liquidation, winding up, dissolution or bankruptcy, or for the appointment of a liquidation committee or receivers in respect of its assets.
23. Environment. Each Group Company has obtained, and has complied with the terms and conditions of each Environmental Permit. Each Group Company has complied with all applicable Laws relating to Environmental Matters. Each Environmental Permit is in full force and effect. To the Knowledge of any of the Warrantors, no Environmental Permit will be revoked, suspended, cancelled, varied or not renewed. Each action required for the renewal or extension of each Environmental Permit has been taken. Each Group Company has not been subject to any investigation, enquiry or inspection relating to the Environment or Environmental Matters (other than for the purpose of obtaining the Environmental Permits), and none is pending or threatened.
24. No Side Letter. Apart from the Contracts in connection with each Existing Shareholder’s (or its Affiliate’s) respective investment in any Group Company which has been disclosed to the Investor, no Warrantor has entered into any side agreement or similar arrangement with such Existing Shareholder (or its Affiliate) which relates to the granting of any rights, privileges or preferences to any such Existing Shareholder (or its Affiliate). No Warrantor has any indebtedness, obligation or liability (whether accrued, absolute, contingent or otherwise, and whether due or to become due) to an Existing Shareholder (or its Affiliate), except for the indebtedness, obligation or liability with respect to the rights, preferences and privileges of the Shares held by such Existing Shareholder (or its Affiliate) as set forth in any Contract in connection with its (or its Affiliate’s) respective investment in any Group Company. No Group Company has granted any redemption rights to any Existing Shareholder (or its Affiliate).
25. Disclosure. No representation or warranty of the Warrantors contained in this Agreement and no information or materials in writing provided by any Warrantors to the Investor in connection with the negotiation or execution of this Agreement or any agreement contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The financial forecasts or forward-looking statements in any business plans or other materials that any Warrantors has made available for inspection by the Investor have been prepared in good faith. To the Knowledge of the Warrantors, there is no fact that the Company has not disclosed to the Investor in writing and of which any of its officers, directors or executive employees has knowledge and that has had or would reasonably be expected to have a Material Adverse Effect upon the financial condition, operating results, assets, customer or supplier relations, employee relations or business prospects of any Group Company.
EXHIBIT D - 12
EXHIBIT E
DISCLOSURE SCHEDULE
EXHIBIT E - 1
Exhibit 10.23
Employment Agreement with Haogang Yang
Party A: Global Mofei (Beijing) Technology Co., Ltd.
Party B: Yang Haogang
This contract is made by the following parties on August 1, 2022. It was signed in Chaoyang District, Beijing, on Monday.
Party A: Global Mo Fei (Beijing) Technology Co., Ltd
Address: A8-3b, qikeshu Creative Park, Chaoyang District, Beijing
Legal representative: Yang Haogang
Party B: Yang Haogang
Address:______________________
Emergency Contact:___________________
Emergency contact information:___________________
In accordance with the Labor Law of the People’s Republic of China, the Labor Contract Law of the People’s Republic of China and other relevant laws and regulations, Party A and Party B agree on the principle of equality, voluntariness and negotiation (hereinafter referred to as the Labor Contract) of the “Contract”, and jointly abide by the provisions listed in this Contract.
I. Term of the labor contract
Article 1 The contract term shall be the following:
There is a fixed-term contract starting from August 1, 2022 to July 31, 2025. After the expiration hereto, if the parties agree to continue their performance, the Contract shall be automatically extended for 30 days from the expiration of the Contract. If the parties have not reached an agreement on the new contract after 30 days of expiration, the performance of this contract shall be terminated.
Article 2 There is no probation period under the contract.
II. Work content and personnel adjustment
Article 3: Party B agrees that, according to Party A’s work needs, in Office of General Manager Department, serving as the CEO, Chairman and founder .
Article 4: Party B shall conscientiously perform the duties designated by Party A, complete its own work tasks and meet the work standards of the corresponding posts.
Article 5: Party A shall have the right to reasonably arrange and adjust Party B’s work position and corresponding salary according to its business needs, expertise, working ability and performance (determined according to the assessment results of Party B). Party B shall obey Party A’s arrangement and management and complete the tasks assigned by Party A on time, in quality and quantity.
III. Labor protection and working conditions
Article 6: Party A shall provide Party B with a safe and hygienic working environment in accordance with the national regulations, and ensure Party B’s personal safety and work in the harmless working environment.
Article 7: Party A shall provide Party B with the necessary working conditions and tools, and establish and constantly improve the working procedures and standards.
Article 8: During the employment of Party B, Party A shall be responsible for educating and training Party B on professional ethics, labor safety, business skills, labor discipline and Party A’s rules and regulations. Party A shall provide Party B with training expenses for technical training to Party B. If Party B signs or leaves for personal reasons during the validity period of the contract, Party A shall have the right to investigate the corresponding compensation for the training expenses (including the travel expenses paid during the training).
Article 9: Besides the working hours, Party A shall provide the environment, various equipment and precious video materials for Party B to independently choose the learning and growth needs. Party B shall operate in accordance with the prescribed procedures, correctly use and maintain and love various equipment and video materials, save various energy, and comply with the confidentiality requirements of the Company.
IV. labor remuneration
Article 10: Party B shall be entitled to obtain corresponding labor remuneration after normal labor attendance, and Party B’s probation period salary and subsidy before tax: RMB / month; after the probation period, if the employment conditions of Party A for Party B are met, the monthly salary and subsidy shall determine the labor relationship: $30,000 in RMB per month, the employee welfare and performance bonus will be determined according to Party B’s work performance, labor results and actual contribution assessment, and the specific implementation method shall be in accordance with Party A’s compensation and welfare and performance management system.
Article 11: Party A shall pay Party B’s salary of the previous month in currency from 11th to 13th days of each month.
Article 12: Party A shall withhold and pay the individual income tax and the state amount payable in accordance with the current laws and provisions of the People’s Republic of China.
V. Insurance and welfare benefits
Article 13: Party A shall provide Party B with the following welfare benefits:
1、 | Party B shall enjoy paid holidays such as wedding, funeral and family planning holidays. |
2、 | Party A shall pay the social insurance stipulated by the state for Party B according to law, and Party B shall pay paid by Party B and Party A shall deduct and pay the salary. |
3、 | If Party B gives up paying social insurance in Party A’s location, Party A shall pay the legal social insurance fee monthly to Party B’s salary card or in cash, Party B shall return to the social insurance fee of the insurance, and shall return the social insurance payment voucher to Party A for future reference. If it does not return to the social security of the residence, the future social insurance disputes shall be unrelated to Party A, and all responsibilities shall be responsible by Party B himself. |
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VI. Protection of labor discipline and business secrets
Article 14: Party B shall conscientiously abide by national laws and regulations, various rules and regulations formulated by Party A (including attendance system, employee manual, salary management system, employee performance management system, etc.); strictly implement all work procedures, financial management system, protect Party A’s public property and observe professional ethics; Party B shall confirm the rules and regulations. Party B shall be deemed to agree with various rules and regulations formulated by Party A.
Article 15: If Party B violates the relevant rules and regulations of the Company, violates labor discipline, damages Party A’s reputation to Party A, and causes economic losses to Party A, Party A shall, according to the circumstances, give it the punishment, compensation, disciplinary action or even termination of the Labor Contract according to the relevant provisions of the Reward and Punishment Management System and other systems of the Company. If Party B violates the national laws and is investigated for criminal responsibility according to law, it will terminate the labor contract immediately.
Article 16: If Party B causes property losses due to intentional or gross negligence, Party A, Party A has the right to ask Party B to fully compensate Party A for the economic losses caused after verification.
Article 17: According to the work characteristics of Party A, Party B promises not to disclose Party A’s company business secrets during the contract period and after leaving office, otherwise it shall be liable for breach of contract and pay Party A liquidated damages as required. If economic losses occur to Party A, Party A shall have the right to require Party B to bear all liability for compensation. If a crime is constituted, Party A shall transfer it to the judicial department for investigated criminal responsibility according to law. In addition, Party B undertakes to maintain no labor relationship or sign a non-competition agreement with any other unit when signing this Agreement. Otherwise, if it causes losses to other units, Party B shall be solely liable and has nothing to do with Party A.
Article 18: The scope of trade secrets of Party A referred to Article 17 refers to the scope included in Article 18 of Chapter 4 of the Intellectual Property Protection Agreement attached hereto this Contract. In addition, Party B cannot be employed by other enterprises or other economic organizations at the same time, otherwise, Party A has the right to terminate the contract or investigate its due responsibilities after verification.
VII. Training service period and non-competition restrictions
Article 19: If Party A provides special training expenses for Party B and provides professional and technical training, it will conclude a separate training agreement with Party B to agree on the service period. If Party B violates the service period agreement, Party B shall pay liquidated damages to Party A. The specific service period, liquidated damages standards and payment methods and other relevant provisions shall be separately agreed upon and followed by the Training / Education Agreement signed by both parties.
Article 20: According to the actual situation of Party B contacting with and mastering the business secrets of Party A and its affiliated companies during his tenure, Party A has the right to sign a non-competition agreement with Party B and clearly agree on the rights and obligations of both parties. This Agreement is signed as a supplementary annex to this Contract and has the same legal effect as this Contract.
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VIII. Change, termination, termination and renewal of the labor contract
Article 21: If the laws, administrative regulations and rules based on the formulation of this Contract change, the Contract shall change the relevant contents.
Article 22: If the objective circumstances based on the conclusion of this Contract have been changed significantly, resulting in the failure of this Contract, the relevant contents of this Contract may be changed with the consent of both parties through negotiation.
Article 23: This Contract may be terminated upon the agreement of both parties through negotiation.
Article 24: Party B may terminate the Contract (Party A under any of the following circumstances does not pay compensation or economic compensation).
1、 | If the applicant is proved to not meet the conditions for employment during the trial period; |
2、 | Serious violation of the disciplinary code or the rules and regulations of Party A; |
3、 | Serious dereliction of duty or personal fraud, causing serious damage to Party A’s interests; |
4、 | Being investigated for criminal responsibility according to law; |
5、 | Party A has the right to terminate the labor contract for the three consecutive monthly absenteeism or four cumulative monthly absenteeism; |
6、 | Women of the right age shall inform the company in advance whether she is pregnant before entering the company. If it intentionally conceals it, the company has the right to refuse to pay the corresponding policy compensation. |
7、 | Party A has the right to terminate the labor contract if it fails continuously or continuously twice after monthly, quarterly or annual assessment or fails to take up the post, and Party A fails to transfer the post or refuses to take up the job. |
Article 25: Party A may terminate this Contract under any of the following circumstances, but it shall notify Party B in writing 30 days in advance.
1、 | If Party B is ill or non-work injured, it cannot engage in the original work or work arranged by Party A after the expiration of medical treatment; |
2、 | Party B fails to pass the performance appraisal, is not competent for the work, and is still incompetent after training or job adjustment; |
3、 | If the objective situation based on at the conclusion of the labor contract has undergone major changes, so that the labor contract cannot be performed, and no agreement is reached on changing the contents of the labor contract after negotiation, such as Party A reduces and adjusts the internal organization, and the work project responsible for Party B is cancelled or terminated. |
Article 26: If Party A is on the verge of bankruptcy for rectification or has serious difficulties in its work and operation, it may be terminated after explaining the situation to all the employees.
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Article 27: Party B shall not terminate Party A or terminate this Contract in accordance with any of the following circumstances.
1、 | Sick or non-work injury, within the prescribed medical period. |
2、 | Those who have worked in Party A for at least 15 consecutive years, and are less than five years away from the legal retirement age. |
Article 28: If Party B suffers from occupational disease or injury due to work or medical treatment, completely or partially confirmed by the municipal and district labor appraisal committees shall comply with the relevant provisions of Beijing.
Article 29: If Party B cancels this Contract, it shall notify Party A in writing 30 days in advance, handle the handover procedures within three days before leaving the contract, return the relevant materials and articles in good condition, hand over the work clearly, and settle the accounting reimbursement, punishment, compensation and other related expenses with the financial department. The salary shall be received on the 10th of the next month after the completion of the above handover work. If Party B does not handle the above handover work according to the time and requirements required by Party A after leaving his post, Party A shall suspend the basic salary (including relevant business commission or bonus) until the handover is completed.
Article 30: Party B shall notify Party A 3 working days in advance of any of the following circumstances.
1、 | During the probation period; |
2、 | Party A forces labor by means of violence, threat, imprisonment or illegal restriction of personal freedom; |
3、 | If Party A is unable to pay labor remuneration or provide working conditions in accordance with this Contract. |
Article 31: Within 30 days before the expiration of this Contract, if Party A and Party B terminate the Contract without written notice to the other party, the validity period of this Contract shall be automatically extended for 3 months.
IX. Liability for breach of contract
Article 32: If Party A has any of the following circumstances, and Party B violates and cancels the labor contract, it shall make economic compensation in accordance with the Labor Law and the relevant provisions of Beijing Municipality:
1、 | Failing to give the laborers economic compensation in accordance with relevant laws and regulations after the termination of the labor contract; |
2、 | If Party A cancels the labor contract or violates the invalid labor contract concluded due to Party A, and causes damage to Party B, Party A shall bear the compensation liability in accordance with the relevant labor provisions. |
3、 | other |
Article 33: If Party B terminates the labor contract in violation of the conditions agreed herein or violates the confidential trade secrets agreed herein, and causes economic losses to Party A, it shall be liable for compensation according to the extent of the losses.
Article 34 A labor dispute arising from the performance of this contract shall be settled through negotiation and fails. If one party requests arbitration, it shall apply for arbitration to the Labor Dispute Arbitration Section 60 days from the date of the occurrence of the labor dispute. One party may also directly apply for arbitration to the labor dispute arbitration committee where Party A is located. If it refuses to accept the award, it may bring a lawsuit to the people’s court where Party A is located.
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X. Other agreements
Article 35: Party B shall invest by Party A for training, acceptance, etc., and Party B shall sign a supplementary agreement with Party A.
Article 36: The ownership and right to use any products produced by or produced during Party B shall completely belong to Party A.
Article 37: Party B shall truthfully inform Party A of his identity, address, study, work experience, illegal or criminal acts, participation in working in other units, physical condition (whether serious diseases, infectious diseases, chronic diseases or other diseases affecting normal work).If Party A intentionally informs the false situation or intentionally conceals the truth and discloses the invalid labor contract concluded by fraudulent means, Party A has the right to terminate the labor contract at any time and does not bear the economic compensation and compensation, which thus causes Party A losses, Party B shall compensate according to the actual losses.
Article 38: Matters not covered herein shall be implemented with reference to the Labor Contract Law of the People’s Republic of China and other relevant laws and regulations.
Article 39: This Contract is made in duplicate, with each party holding one copy. Both parties shall effective on the date of signature.
Article 40: The following annex is an integral part of this Contract, and shall have the same agreed force for both parties:
Other supplementary documents signed by the two parties, such as the Employee Code, Intellectual Property Protection Agreement, Confidentiality Agreement, Company Rules and Regulations, and Non-competition Agreement.
Article 41: Party A’s rules and regulations (including but not limited to the employee manual, post manual, training agreement, etc.) are all attached to the contract, and its effectiveness is equivalent to that of the contract. Party A shall have the right to formulate other documents regulating the management system of Party A except the above attachments. Such institutional documents shall automatically become these attachments starting from the date when Party A announces its implementation, which are binding on both parties and the provisions are significantly illegal.
Party A (signature): /s/ Global Mofei (Beijing) Technology Co., Ltd.
Party B (signature): /s/ Yang Haogang
Date of signing the contract: August 1, 2022
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Exhibit 21.1
SUBSIDIAIRES OF GLOBAL
MOFY
METAVERSE LIMITED
Subsidiaries | Place of Incorporation | |
Global Mofy HK Limited | Hong Kong SAR | |
Mofy Metaverse (Beijing) Technology Co., Ltd. | People’s Republic of China | |
Global Mofy (Beijing) Technology Co., Ltd. | People’s Republic of China | |
Shanghai Mo Ying Fei Huan Technology Co., Ltd. | People’s Republic of China | |
Kashi Mofy Interactive Digital Technology Co., Ltd. | People’s Republic of China | |
Xi’an Digital Cloud Technology Co., Ltd. | People’s Republic of China | |
Mofy (Beijing) Film Technology Co., Ltd. | People’s Republic of China | |
Zhejiang Mofy Metaverse Technology Co., Ltd. | People’s Republic of China |
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