As filed with the Securities and Exchange Commission on November
16, 2021
Registration No. 333-259177
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No.2
To
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DATASEA INC.
(Exact name of registrant as specified in its charter)
Nevada |
|
8742 |
|
45-2019013 |
(State or other jurisdiction of
incorporation or organization) |
|
(Primary Standard Industrial
Classification Code Number) |
|
(I.R.S. Employer
Identification No.) |
20th Floor, Tower B, Guorui Plaza
1 Ronghua South Road, Technological Development Zone
Beijing, People’s Republic of China 100176
+86 10-56145240
(Address, including zip code, and telephone number, including area
code, of registrant’s principal executive offices)
Zhixin Liu, Chief Executive Officer
20th Floor, Tower B, Guorui Plaza
1 Ronghua South Road, Technological Development Zone
Beijing, People’s Republic of China 100176
+86 10-56145240
(Name, address including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Elizabeth F. Chen, Esq.
Pryor Cashman LLP
7 Times Square
New York, New York 10036
(212) 326-0199
Approximate date of proposed sale to public:
As soon as practicable after this Registration Statement is
declared effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box: ☒
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
Smaller reporting company |
☒ |
|
|
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. ☐
CALCULATION OF REGISTRATION FEE
Title Of Each Class Of Securities To Be Registered
|
|
Amount to be
Registered (1) |
|
|
Proposed Maximum Offering Price Per Share(3) |
|
|
Proposed Maximum Aggregate Offering Price(3) |
|
|
Amount Of Registration Fee |
|
Common Stock, par value $0.001 per
share |
|
|
1,218,453 |
(2) |
|
$ |
4.48 |
|
|
$ |
5,458,669.44 |
|
|
$ |
506.02 |
* |
(1) |
Pursuant to Rule 416(a) of the Securities Act of
1933, as amended, this registration statement also covers such
additional shares as may hereafter be offered or issued to prevent
dilution resulting from stock splits, stock dividends,
recapitalizations or similar transactions. |
(2) |
Consists of (i) 1,096,608 shares of common stock
issuable upon exercise of warrants that were issued to the Selling
Stockholders named herein and (ii) 121,845 shares of common stock
issuable upon exercise of warrants that were issued to the
placement agent in connection with the private placement
of common stock. |
(3) |
The registration fee has been
computed in accordance with Rule 457(g) under the Securities Act of
1933, as amended, based on $4.48 per share, being the higher of (i)
the exercise price of the warrants registered herewith and (ii) the
average of the high and low prices per share of the registrant’s
common stock on the Nasdaq Capital Market on August 27,
2021. |
* |
$260.55 has been previously
paid. |
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the registration statement shall become effective on
such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a) may determine.
The information in this prospectus is
not complete and may be changed. We may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission (“SEC”) is effective. This
prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
Preliminary
Prospectus |
Subject to Completion, dated
November 16, 2021 |
1,218,453 Shares of Common Stock Issuable upon Exercise of
Warrants

This prospectus relates to the resale of up to 1,218,453 shares of
the common stock of Datasea Inc., a Nevada corporation (the
“Company”), that may be sold from time to time by the selling
stockholders named in this prospectus (the “Selling
Stockholders”).
The shares of common stock offered under this prospectus consist of
1,218,453 shares of common stock issuable upon the exercise of (i)
certain warrants (the “Investor Warrants”), that we issued to
certain Selling Stockholders, each of whom is an accredited
investor, on July 22, 2021, in a private placement (the “Private
Placement”) pursuant to a Securities Purchase Agreement dated as of
July 20, 2021, by and among the Company and the purchasers named
therein and (ii) certain warrants (the “PA Warrants”, and together
with the Investor Warrants, the “Warrants”) that we issued to the
placement agent on July 22, 2021 in connection with the Private
Placement. The issuance of the Investor Warrants was made in
reliance on the exemptions from registration afforded by Section
4(a)(2) of the Securities Act of 1933, as amended (the “Securities
Act”).
We will not receive any proceeds from the sale of any of the shares
of common stock offered hereby by the Selling Stockholders. To the
extent that any of the Warrants are exercised for cash, if at all,
we will receive the exercise price for those Warrants.
The Selling Stockholders or their pledgees, assignees or
successors-in-interest may offer and sell or otherwise dispose of
the shares of common stock described in this prospectus from time
to time through underwriters, broker-dealers or agents, in public
or private transactions at prevailing market prices, at prices
related to prevailing market prices or at privately negotiated
prices. The Selling Stockholders will bear all commissions and
discounts, if any, attributable to the sales of shares. We will
bear all other costs, expenses and fees in connection with the
registration of the shares. See “Plan of Distribution” beginning on
page 26 of this prospectus for more information about how the
Selling Stockholders may sell or dispose of their shares of common
stock.
Our common stock is listed on the Nasdaq Capital Market under the
symbol “DTSS”. On August 27, 2021, the last reported sale price for
our common stock as reported on the Nasdaq Capital Market was $1.96
per share.
INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS. We are a
holding company incorporated in NEVADA. As a holding company with
no material operations of our own, we conduct a substantial
majority of our operations through our operating entities
established in the People’s Republic of China, or the PRC,
primarily our variable interest entity (the “VIE”). Due to PRC
legal restrictions on foreign ownership in any internet-related
businesses we may explore and operate, we do not have any equity
ownership of our VIE, instead we control and receive the economic
benefits of our VIE’s business operations through certain
contractual arrangements. The VIE structure is used to replicate
foreign investment in Chinese-based companies where Chinese law
prohibits direct foreign investment in the operating companies, and
that investors may never directly hold equity interests in the
Chinese operating entities. Our COMMON STOCK offered in this
prospectus are shares of our NEVADA holding company that maintains
service agreements with the associated operating
companies.
Additionally, we are
subject to certain legal and operational risks associated with our
VIE’s operations in China. PRC laws and regulations governing our
current business operations are sometimes vague and uncertain, and
therefore, these risks may result in a material change in our VIE’s
operations, significant depreciation of the value of our common
stock, or a complete hindrance of our ability to offer or continue
to offer our securities to investors. 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. Since these statements and
regulatory actions are new, 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 OF such modified or
new laws and regulations will have on our daily business operation,
the ability to accept foreign investments and list on an U.S. or
other foreign exchange. The Chinese regulatory authorities could
disallow our structure, which could result in a material change in
our operations and the value of our securities could decline or
become worthless. For a description of our corporate structure and
VIE contractual arrangements, see “Corporate Structure” on
page 5. See
also “Risk Factors - Risks Related to our Corporate Structure.” SEE
THE SECTION TITLED “RISK FACTORS” BEGINNING ON PAGE 15 OF
THIS PROSPECTUS TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE
BUYING SHARES OF OUR COMMON STOCK.
NONE OF OUR VIE AND ITS SUBSIDIARIES HAVE ISSUED ANY DIVIDENDS
OR DISTRIBUTIONS TO RESPECTIVE HOLDING COMPANIES, OR TO ANY
INVESTORS AS OF THE DATE OF THIS PROSPECTUS. OUR SUBSIDIARIES IN
THE PRC GENERATE AND RETAIN CASH GENERATED FROM OPERATING
ACTIVITIES AND RE-INVEST IT IN OUR BUSINESS. IN THE FUTURE, CASH
PROCEEDS RAISED FROM OVERSEAS FINANCING ACTIVITIES, INCLUDING THE
CASH PROCEEDS FROM THE EXERCISE OF THE WARRANTS BY THE SELLING
STOCKHOLDERS REFERENCED IN THIS PROSPECTUS, MAY BE TRANSFERRED BY
US THROUGH OUR HONG KONG SUBSIDIARY, SHUHAI INFORMATION SKILL (HK)
LIMITED TO OUR PRC SUBSIDIARY TIANJIN INFORMATION VIA CAPITAL
CONTRIBUTION AND SHAREHOLDER LOANS, AS THE CASE MAY BE. TIANJIN
INFORMATION THEN WILL TRANSFER FUNDS TO OUR VIE AND ITS
SUBSIDIARIES TO MEET THE CAPITAL NEEDS OF OUR BUSINESS OPERATIONS.
DURING EACH OF THE FISCAL YEARS ENDED JUNE 30, 2021 AND 2020, THE
ONLY TRANSFER OF ASSETS AMONG DATASEA INC. (THE US PARENT COMPANY)
AND ITS SUBSIDIARIES INCLUDING THE VIE WAS TRANSFER OF CASH.
DATASEA INC. PROVIDED CASH TO ITS SUBSIDIARIES EITHER BY WAY OF
CAPITAL CONTRIBUTION OR BY WAY OF LOAN, FROM THE PROCEEDS IT
RECEIVED FROM THE FINANCING. IN ADDITION, THERE WERE SOME LOANS
OBTAINED BY CERTAIN CHINESE SUBSIDIARIES, AND THOSE SUBSIDIARIES
THEN LOANED MONEY TO OTHER SUBSIDIARIES TO MEET THEIR WORKING
CAPITAL NEEDS. THE CASH WAS TRANSFERRED WITHIN THE ORGANIZATION
THROUGH THE BANK WIRING. DURING THE FISCAL YEAR ENDED JUNE 30,
2021, DATASEA INC. INVESTED AN AGGREGATE OF APPROXIMATELY $1.36
MILLION IN CASH TO SHUHAI INFORMATION SKILL(HK) LTD, WHICH AMOUNT
WAS THEN INVESTED TO TIANJIN INFORMATION. DURING FISCAL YEAR ENDED
JUNE 30 2021, TIANJIN INFORMATION TRANSFERRED AN AGGREGATE OF
APPROXIMATELY $1.1 MILLION IN CASH TO SHUHAI BEIJING . THE PRC
GOVERNMENT IMPOSES CONTROLS ON THE CONVERTIBILITY OF RMB INTO
FOREIGN CURRENCIES AND, IN CERTAIN CASES, THE REMITTANCE OF
CURRENCY OUT OF CHINA. THE MAJORITY OF OUR AND THE VIE’S AND ITS
SUBSIDIARIES’ INCOME IS RECEIVED IN RMB AND SHORTAGES IN FOREIGN
CURRENCIES MAY RESTRICT OUR ABILITY TO PAY DIVIDENDS OR OTHER
PAYMENTS, OR OTHERWISE SATISFY OUR FOREIGN CURRENCY DENOMINATED
OBLIGATIONS, IF ANY. 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 THE STATE ADMINISTRATION OF THE FOREIGN
EXCHANGE (“SAFE”) IN THE PRC AS LONG AS CERTAIN PROCEDURAL
REQUIREMENTS ARE MET. APPROVAL FROM APPROPRIATE GOVERNMENT
AUTHORITIES IS REQUIRED IF RENMINBI IS CONVERTED INTO FOREIGN
CURRENCY AND REMITTED OUT OF CHINA TO PAY CAPITAL EXPENSES SUCH AS
THE REPAYMENT OF LOANS DENOMINATED IN FOREIGN CURRENCIES. THE PRC
GOVERNMENT MAY, AT ITS DISCRETION, IMPOSE RESTRICTIONS ON ACCESS TO
FOREIGN CURRENCIES FOR CURRENT ACCOUNT TRANSACTIONS AND IF THIS
OCCURS IN THE FUTURE, WE MAY NOT BE ABLE TO PAY DIVIDENDS IN
FOREIGN CURRENCIES TO OUR SHAREHOLDERS. SEE THE SECTION TITLED
“CASH TRANSFER AND DIVIDEND PAYMENT” BEGINNING ON PAGE 8 OF THIS
PROSPECTUS FOR DETAILS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-1
that we have filed with the Securities and Exchange Commission (the
“SEC”) pursuant to which the Selling Stockholders named herein may,
from time to time, offer and sell or otherwise dispose of the
shares of our common stock covered by this prospectus. You should
rely only on the information contained in this prospectus or any
related prospectus supplement. We have not authorized anyone to
provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it.
The information contained in this prospectus is accurate only on
the date of this prospectus. Our business, financial condition,
results of operations and prospects may have changed since such
date. Other than as required under the federal securities laws, we
undertake no obligation to publicly update or revise such
information, whether as a result of new information, future events
or any other reason.
This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any of our shares of common stock
other than the shares of our common stock covered hereby, nor does
this prospectus constitute an offer to sell or the solicitation of
an offer to buy any securities in any jurisdiction to any person to
whom it is unlawful to make such offer or solicitation in such
jurisdiction. Persons who come into possession of this prospectus
in jurisdictions outside the United States are required to inform
themselves about, and to observe, any restrictions as to the
offering and the distribution of this prospectus applicable to
those jurisdictions.
Some of the industry data contained in this prospectus is derived
from data from various third-party sources. We have not
independently verified any of this information and cannot assure
you of its accuracy or completeness. Such data is subject to change
based on various factors, including those discussed under the “Risk
Factors” section beginning on page 15 of this prospectus.
PROSPECTUS SUMMARY
This summary highlights information that we present more fully
in the rest of this prospectus. This summary does not contain all
of the information you should consider before buying common stock
in this offering. You should read the entire prospectus carefully,
including the “Risk Factors” section and the financial statements
and the notes to those statements, before deciding whether to
invest in this offering.
Our Company
Datasea Inc. (the “Company” or “Datasea”) was incorporated in
Nevada on September 26, 2014. As a holding company with no material
operations of our own, we conduct a substantial majority of our
operations through our operating entities established in the
People’s Republic of China, or the PRC, primarily our variable
interest entity (the “VIE”) and its subsidiaries. We do not have
any equity ownership of our VIE, instead we control and receive the
economic benefits of our VIE’s business operations through certain
contractual arrangements. Our common stock that currently listed on
the Nasdaq Capital Markets are shares of our Nevada holding company
that maintains service agreements with the associated VIE and its
subsidiaries. For a description of our corporate structure and
contractual arrangements, see “Corporate Structure” on page 5 and
“VIE Agreements” on page 3.
The Company, through its subsidiaries and VIE, Shuhai Information
Technology Co., Ltd. (“Shuhai Beijing”) that is based in the PRC,
engaged in three converging and innovative industries: smart city,
acoustic intelligence and 5G messaging. Shuhai Beijing leverages
facial recognition technology and other visual intelligence
algorithms, combined with cutting-edge acoustic and non-visual
intelligence algorithms, to provide smart city solutions that are
designed to meet the security needs of residential communities,
schools and commercial enterprises. Most recently, in response to
the growing utilization of 5G technologies and the overall
initiative to utilize Datasea’s technology capabilities to achieve
the expansion of business coverage and revenue resources, China's
mainstream telecom operators jointly launched the 5G Rich
Communication Service industry, and we have also strategically
expanded our business coverage to 5G messaging and smart payment
solutions.
The research and development of technology plays a vital role for
the Company and is what makes us different. Shuhai Beijing not only
has visual intelligent algorithms such as facial recognition
technology, but also develops non-visual intelligent algorithms
like acoustic intelligence. Together with artificial intelligence,
machine learning and data analytics capability, its solutions not
only provide visibility, but also identify the behavioural pattern
and then use alerts to manage the situation actively. We, through
Shuhai Beijing, create new opportunities for areas from intelligent
detection to proactive optimization. We believe the non-visual
intelligent algorithms such as acoustic intelligence are the future
of the smart security industry.
As Shuhai Beijing’s smart city technologies share connectivity of
their underlying logic with 5G messaging and smart payment
solutions, the demand for user value-added services, as well as the
rapid rise of China’s 5G application market, has provided a
comprehensive intelligent system for people and machines to meet
the business, social and transactional needs of countries,
enterprises and individuals, and it has supported the company’s
rapid start and development of its 5G messaging business and has
effectively improved the company’s competitiveness. The Company
creates new sources of revenue and profit and brings benefits for
all shareholders.
Impact of coronavirus outbreak
In December 2019, a novel strain of coronavirus (COVID-19) was
reported in China, upon which the World Health Organization has
declared the outbreak to constitute a “Public Health Emergency of
International Concern.” During the period from January to March
2020, Shuhai Beijing’s marketing and business developments efforts
were materially adversely affected since, among other reasons, its
employees were not able to return to the office to resume their
duties. Shuhai Beijing resumed its operations in April 2020. As a
recipient of the PRC government support programs intended to
mitigate the adverse economic impact of the pandemic, Shuhai
Beijing’s business operations has recovered and was not materially
affected going forward. Its smart security platform has enabled
Shuhai Beijing’s R&D team to continue working in online mode
during the pandemic. In addition, Shuhai Beijing believes its
efforts to move its functions online were sufficiently prompt and
effective to minimize adverse effects to the its financial
reporting and internal control over financing reporting systems.
Shuhai Beijing does not anticipate any impairments of its assets.
However, the Company expects that the impact of the COVID-19
outbreak on the United States and world economies may have a
material adverse effect on the demand for Shuhai Beijing’s
services. We currently believe that our financial resources will be
adequate to see us through the outbreak. However, in the event that
the pandemic continues on for a longer period of time, we may need
to raise capital in the future.
The COVID-19 pandemic has prompted the Company to focus on
developing epidemic related products to pursue new business
opportunities. In connection with the intensifying efforts to
contain the spread of COVID-19, the Chinese government has taken a
number of actions, which included extending the Chinese Spring
Festival in 2020, quarantining individuals infected with or
suspected of having COVID-19, prohibiting residents from free
travel, encouraging employees of enterprises to work remotely from
home and cancelling public activities, among others. According to a
press release of CNN Hong Kong dated August 23, 2021, China
reported no new locally transmitted Covid-19 cases on August 23,
2021 for the first time since July this year, according to its
National Health Commission (NHC), as authorities double down on the
country’s stringent zero-Covid approach. In response to the entire
country’s efforts to combat the spread of COVID-19, Shuhai Beijing
integrated the epidemic prevention and control system and epidemic
prevention and control functions as a sub-module into the regular
Smart Campus System and Smart Public Community System.
Recent Developments
On July 20, 2021, the Company entered into a securities purchase
agreement with certain institutional investors, pursuant to which
the Company agreed to sell to such investors an aggregate of
2,436,904 shares of common stock of the Company at a purchase price
of $3.48 per share. The Company also sold warrants to purchase
1,096,608 shares of common stock to such investors in a concurrent
private placement. The closing of the sales of these securities
under the securities purchase agreement took place on July 22,
2021. The net proceeds from the transactions were approximately
$7,636,796, after deducting certain fees due to the placement agent
and the Company’s estimated transaction expenses, and will be used
for working capital and general corporate purposes, and for the
repayment of debt.
History and Background
We were incorporated under the laws of the State of Nevada on
September 26, 2014 under the name Rose Rock Inc. On May 27, 2015,
we amended our articles of incorporation to change our name to
Datasea Inc. Up until October 2015, our primary business activities
were providing consulting services to various U.S. companies
seeking to do business in China as well as Chinese companies
looking to enter the U.S. markets. Nonetheless, we were considered
a shell company as defined in Rule 12b-2 under the Securities Act,
as we had no or nominal business operations, employees and/or
assets.
On May 26, 2015, pursuant to the terms of a stock purchase
agreement, Ms. Zhixin Liu purchased 20,000,000 shares (without
giving effect to our one-for-three reverse stock split that became
effective on May 1, 2018), or 57.14%, of the issued and outstanding
shares of our common stock from Mr. Xingzhong Sun, who was our sole
officer, director and majority stockholder at the time of the
transaction. As part of the transaction, Zhixin Liu was appointed
as the Chairman of our Board of Directors (the “Board”).
On October 29, 2015, we entered into a share exchange agreement
(the “Exchange Agreement”) with Ms. Zhixin Liu and Mr. Fu Liu, the
members (“Members”) of Datasea Skill (HK) Limited (“Shuhai Skill
(HK)”), a limited liability company incorporated under the laws of
the Hong Kong Special Administrative Region of the PRC, whereby the
Members transferred all of their membership interests of Shuhai
Skill (HK) to us in exchange for the issuance of an aggregate of
6,666,667 shares of our common stock (the transaction, hereinafter
referred to as the “Share Exchange”). Upon consummation of the
Share Exchange, Shuhai Skill (HK) and its consolidated
subsidiaries, Tianjin Information Sea Information Technology Co.,
Ltd., a limited liability company incorporated under the laws of
the PRC (“Tianjin Information”), became our wholly-owned
subsidiary, and Shuhai Beijing, also a limited liability company
incorporated under the laws of the PRC, through its existing
contractual relationship with Tianjin Information, became our VIE.
In addition, Xinzhong Sun resigned from the positions as our
director, President, Secretary and Treasurer. Ms. Liu was appointed
as our Chairman of the Board, Chief Executive Officer, President,
Interim Chief Financial Officer, Treasurer and Secretary and Mr.
Liu was appointed as a director. Mr. Liu is the father of Ms.
Liu.
As a result of the Share Exchange, we, through our consolidated
subsidiaries, are engaged in the business of providing Internet
security products, new media advertising, micro-marketing, data
analysis services in the PRC. All business operations are conducted
through our wholly-owned subsidiary, Tianjin Information, and
through Shuhai Beijing, our VIE. Shuhai Beijing is considered to be
a VIE because we do not have any direct ownership interest in it,
but, as a result of a series of contractual agreements (the “VIE
Contractual Agreements”) among Tianjin Information, Shuhai Beijing
and its stockholders, we are able to exert effective control over
Shuhai Beijing and receive 100% of the net profits or net losses
derived from the business operations of Shuhai Beijing. The VIE
Contractual Agreements are more fully described below.
On April 12, 2018, our Board of Directors and stockholders approved
a one-for-three reverse stock split of our issued and outstanding
shares of common stock, which became effective on May 1, 2018,
decreasing the number of outstanding shares from 57,511,771 to
19,170,827. Subsequent to the split, the number of our outstanding
shares of our common stock increased from to 19,170,827 to
19,170,846 to accommodate certain stockholders’ positions due to
rounding elections payable at the beneficial owner level. Unless
otherwise stated, all shares and per share amounts in this
prospectus have been retroactively adjusted to give effect to this
stock split.
VIE Agreements
Operation and Intellectual Property Service Agreement –
The Operation and Intellectual Property Service Agreement allows
Tianjin Information to manage and operate Shuhai Beijing and
collect 100% of their net profits. Under the terms of the Operation
and Intellectual Property Service Agreement, Shuhai Beijing
entrusts Tianjin Information to manage its operations, manage and
control its assets and financial matters, and provide intellectual
property services, purchasing management services, marketing
management services and inventory management services to Shuhai
Beijing. Shuhai Beijing and its stockholders shall not make any
decisions nor direct the activities of Shuhai Beijing without
Tianjin Information’s consent.
Stockholders’ Voting Rights Entrustment Agreement –
Tianjin Information has entered into a stockholders’ voting rights
entrustment agreement (the “Entrustment Agreement”) under which
Zhixin Liu and Fu Liu (collectively the “Shuhai Beijing
Stockholders”) have vested their voting power in Shuhai Beijing to
Tianjin Information or its designee(s). The Entrustment Agreement
does not have an expiration date, but the parties can agree in
writing to terminate the Entrustment Agreement.
Equity Option Agreement – the Shuhai Beijing
Stockholders and Tianjin Information entered into an equity option
agreement (the “Option Agreement”), pursuant to which the Shuhai
Beijing Stockholders have granted Tianjin Information or its
designee(s) the irrevocable right and option to acquire all or a
portion of Shuhai Beijing Stockholders’ equity interests in Shuhai
Beijing for an option price of RMB0.001 for each capital
contribution of RMB1.00. Pursuant to the terms of the Option
Agreement, Tianjin Information and the Shuhai Beijing Stockholders
have agreed to certain restrictive covenants to safeguard the
rights of Tianjin Information under the Option Agreement. Tianjin
Information agreed to pay RMB1.00 annually to Shuhai Beijing
Stockholders to maintain the option rights. Tianjin Information may
terminate the Option Agreement upon prior written notice. The
Option Agreement is valid for a period of 10 years from the
effective date and renewable at Tianjin Information’s option.
Equity Pledge Agreement – Tianjin Information and the
Shuhai Beijing Stockholders entered into an equity pledge agreement
on October 27, 2015 (the “Equity Pledge Agreement”). The Equity
Pledge Agreement serves to guarantee the performance by Shuhai
Beijing of its obligations under the Operation and Intellectual
Property Service Agreement and the Option Agreement. Pursuant to
the Equity Pledge Agreement, Shuhai Beijing Stockholders have
agreed to pledge all of their equity interests in Shuhai Beijing to
Tianjin Information. Tianjin Information has the right to collect
any and all dividends, bonuses and other forms of investment
returns paid on the pledged equity interests during the pledge
period. Pursuant to the terms of the Equity Pledge Agreement, the
Shuhai Beijing Stockholders have agreed to certain restrictive
covenants to safeguard the rights of Tianjin Information. Upon an
event of default or certain other agreed events under the Operation
and Intellectual Property Service Agreement, the Option Agreement
and the Equity Pledge Agreement, Tianjin Information may exercise
the right to enforce the pledge.
There are a number of uncertainties regarding the status of the
rights of the Nevada holding company with respect to its
contractual arrangements with the VIE, its founders and owners,
including whether the PRC legal system could limit our ability to
enforce these contractual agreements due to uncertainties under
Chinese law and jurisdictional limits. Due to PRC legal
restrictions on foreign ownership in any internet-related
businesses we may explore and operate, we do not have any equity
ownership of our VIE, instead we control and receive the economic
benefits of our VIE’s business operations through certain
contractual arrangements. Our common stock that currently listed on
the Nasdaq Capital Markets are shares of our Nevada holding company
that maintains service agreements with the associated operating
companies. The Chinese regulatory authorities could disallow our
structure, which could result in a material change in our
operations and the value of our securities could decline or become
worthless.
We believe that our corporate structure and contractual
arrangements comply with the current applicable PRC laws and
regulations. We also believe that each of the contracts among our
wholly-owned PRC subsidiary, our consolidated VIE and its
shareholders is valid, binding and enforceable in accordance with
its terms. However, there are substantial uncertainties regarding
the interpretation and application of current and future PRC laws
and regulations. Thus, the PRC governmental authorities may take a
view contrary to the opinion of our PRC legal counsel. It is
uncertain whether any new PRC laws or regulations relating to
variable interest entity structure will be adopted or if adopted,
what they would provide. PRC laws and regulations governing the
validity of these contractual arrangements are uncertain and the
relevant government authorities have broad discretion in
interpreting these laws and regulations.
If these regulations change or are interpreted differently in the
future and our corporate structure and contractual arrangements are
deemed by the relevant regulators that have competent authority, to
be illegal, either in whole or in part, we may lose control of our
consolidated VIE, which conducts our manufacturing operations,
holds significant assets and accounts for significant revenue, and
have to modify such structure to comply with regulatory
requirements. However, there can be no assurance that we can
achieve this without material disruption to our business. Further,
if our corporate structure and contractual arrangements are found
to be in violation of any existing or future PRC laws or
regulations, the relevant regulatory authorities would have broad
discretion in dealing with such violations, including:
|
● |
revoking our business and operating
licenses; |
|
● |
confiscating any of our income that
they deem to be obtained through illegal operations; |
|
● |
shutting down our
services; |
|
● |
discontinuing or restricting our
operations in China; |
|
● |
imposing conditions or requirements
with which we may not be able to comply; |
|
● |
requiring us to change our corporate
structure and contractual arrangements; |
|
● |
restricting or prohibiting our use of
the proceeds from overseas offering to finance our consolidated
VIE’s business and operations; and |
|
● |
taking other regulatory or
enforcement actions that could be harmful to our
business. |
Furthermore, new PRC laws, rules and regulations may be introduced
to impose additional requirements that may be applicable to our
corporate structure and contractual arrangements. Occurrence of any
of these events could materially and adversely affect our business,
financial condition and results of operations and the market price
of our common stock. In addition, if the imposition of any of these
penalties or requirement to restructure our corporate structure
causes us to lose the rights to direct the activities of our
consolidated VIE or our right to receive their economic benefits,
we would no longer be able to consolidate the financial results of
such VIE in our consolidated financial statements, which may cause
the value of our securities to significantly decline or even become
worthless.
In addition, while we will take every precaution available to
effectively enforce the contractual and corporate relationship of
the VIE agreements, these contractual arrangements are less
effective than direct ownership and that we may incur substantial
costs to enforce the terms of the arrangements. For example, the
VIE and its shareholders could breach their contractual
arrangements with us by, among other things, failing to conduct
their operations in an acceptable manner or taking other actions
that are detrimental to our interests. If we had direct ownership
of the VIE, we would be able to exercise our rights as a
shareholder to effect changes in the board of directors of the VIE,
which in turn could implement changes, subject to any applicable
fiduciary obligations, at the management and operational level.
However, under VIE Agreements, we will rely on the performance by
the VIE and its shareholders of their obligations under the
contracts to exercise control over the VIE. As such, the
shareholders of VIE may not act in the best interests of our
company or may not perform their obligations under these contracts.
In addition, failure of the VIE shareholders to perform certain
obligations could compel us to rely on legal remedies available
under PRC laws, including seeking specific performance or
injunctive relief, and claiming damages, which may not be
effective.
Corporate Structure
The chart below depicts the corporate structure of the Company as
of the date of this prospectus.

The following is the tabular form condensed consolidating
schedule depicting the financial position, cash flows and
results of operations for the parent, the consolidated variable
interest entity, and any eliminating adjustments separately - as of
and for the years ending June 30, 2021 and 2020.
Consolidating Statements of Income Information
|
|
Year Ended June 30, 2021 |
|
|
|
PARENT |
|
|
SUBSIDIARIES |
|
|
VIE |
|
|
Eliminations |
|
|
Consolidated |
|
Revenue |
|
$ |
- |
|
|
$ |
58,870 |
|
|
$ |
434,851 |
|
|
$ |
(318,583 |
) |
|
$ |
175,138 |
|
Cost of Revenue |
|
|
- |
|
|
|
243,728 |
|
|
|
153,002 |
|
|
|
(315,595 |
) |
|
|
81,135 |
|
Gross profit (loss) |
|
|
- |
|
|
|
(184,858 |
) |
|
|
281,849 |
|
|
|
(2,988 |
) |
|
|
94,003 |
|
Operating
expenses |
|
|
588,562 |
|
|
|
951,916 |
|
|
|
3,414,811 |
|
|
|
- |
|
|
|
4,955,289 |
|
Loss from operations |
|
|
(588,562 |
) |
|
|
(1,136,774 |
) |
|
|
(3,132,962 |
) |
|
|
(2,988 |
) |
|
|
(4,861,286 |
) |
Other expenses, net |
|
|
(762 |
) |
|
|
(12,117 |
) |
|
|
(10,151 |
) |
|
|
- |
|
|
|
(23,030 |
) |
Provision for
income tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Loss before noncontrolling
interest |
|
|
(589,324 |
) |
|
|
(1,148,891 |
) |
|
|
(3,143,113 |
) |
|
|
(2,988 |
) |
|
|
(4,884,316 |
) |
Less: loss
attributable to noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
(235,839 |
) |
|
|
- |
|
|
|
(235,839 |
) |
Net loss |
|
$ |
(589,324 |
) |
|
$ |
(1,148,891 |
) |
|
$ |
(2,907,274 |
) |
|
$ |
(2,988 |
) |
|
$ |
(4,648,477 |
) |
|
|
Year Ended June 30, 2020 |
|
|
|
PARENT |
|
|
SUBSIDIARIES |
|
|
VIE |
|
|
Eliminations |
|
|
Consolidated |
|
Revenue |
|
$ |
- |
|
|
$ |
352,981 |
|
|
$ |
2,317,127 |
|
|
$ |
(1,255,328 |
) |
|
$ |
1,414,780 |
|
Cost of Revenue |
|
|
- |
|
|
|
897,602 |
|
|
|
255,319 |
|
|
|
(1,006,541 |
) |
|
|
146,380 |
|
Gross profit (loss) |
|
|
- |
|
|
|
(544,621 |
) |
|
|
2,061,808 |
|
|
|
(248,787 |
) |
|
|
1,268,400 |
|
Operating
expenses |
|
|
361,854 |
|
|
|
910,487 |
|
|
|
1,901,112 |
|
|
|
- |
|
|
|
3,173,453 |
|
Income (loss) from operations |
|
|
(361,854 |
) |
|
|
(1,455,108 |
) |
|
|
160,696 |
|
|
|
(248,787 |
) |
|
|
(1,905,053 |
) |
Other income (expenses), net |
|
|
8,190 |
|
|
|
40,142 |
|
|
|
(1,374 |
) |
|
|
- |
|
|
|
46,958 |
|
Income tax
expense |
|
|
5,158 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,158 |
|
Income (loss) before noncontrolling
interest |
|
|
(358,822 |
) |
|
|
(1,414,966 |
) |
|
|
159,322 |
|
|
|
(248,787 |
) |
|
|
(1,863,253 |
) |
Less: loss
attributable to noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net loss |
|
$ |
(358,822 |
) |
|
$ |
(1,414,966 |
) |
|
$ |
159,322 |
|
|
$ |
(248,787 |
) |
|
$ |
(1,863,253 |
) |
Consolidating Balance Sheets Information
|
|
As of June 30, 2021 |
|
|
|
PARENT |
|
|
SUBSIDIARIES |
|
|
VIE |
|
|
Eliminations |
|
|
Consolidated |
|
Cash |
|
$ |
14,042 |
|
|
$ |
8,718 |
|
|
$ |
26,916 |
|
|
$ |
- |
|
|
$ |
49,676 |
|
Accounts receivable |
|
|
- |
|
|
|
501,288 |
|
|
|
1,856 |
|
|
|
(501,288 |
) |
|
|
1,856 |
|
Inventory |
|
|
- |
|
|
|
202,792 |
|
|
|
210,894 |
|
|
|
(219,422 |
) |
|
|
194,264 |
|
Other current
asset |
|
|
70,520 |
|
|
|
6,627,136 |
|
|
|
443,471 |
|
|
|
(6,500,938 |
) |
|
|
640,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current asset |
|
|
84,562 |
|
|
|
7,339,934 |
|
|
|
683,137 |
|
|
|
(7,221,648 |
) |
|
|
885,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
- |
|
|
|
142,215 |
|
|
|
167,193 |
|
|
|
- |
|
|
|
309,408 |
|
Intangible asset, net |
|
|
- |
|
|
|
1,081,163 |
|
|
|
10,984 |
|
|
|
- |
|
|
|
1,092,147 |
|
Right of use asset, net |
|
|
- |
|
|
|
908,149 |
|
|
|
442,441 |
|
|
|
- |
|
|
|
1,350,590 |
|
Other-non-current asset |
|
|
5,860,480 |
|
|
|
88,744 |
|
|
|
168,243 |
|
|
|
(5,860,480 |
) |
|
|
256,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Non-current asset |
|
|
5,860,480 |
|
|
|
2,220,271 |
|
|
|
788,861 |
|
|
|
(5,860,480 |
) |
|
|
3,009,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Asset |
|
$ |
5,945,042 |
|
|
$ |
9,560,205 |
|
|
$ |
1,471,998 |
|
|
$ |
(13,082,128 |
) |
|
$ |
3,895,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
99,500 |
|
|
$ |
62,332 |
|
|
$ |
514,175 |
|
|
$ |
(501,289 |
) |
|
$ |
174,718 |
|
Lease liability |
|
|
- |
|
|
|
473,509 |
|
|
|
256,676 |
|
|
|
- |
|
|
|
730,185 |
|
Loan payable |
|
|
- |
|
|
|
30,959 |
|
|
|
1,455,860 |
|
|
|
- |
|
|
|
1,486,819 |
|
Other current
liabilities |
|
|
39,750 |
|
|
|
207,768 |
|
|
|
7,187,837 |
|
|
|
(6,568,410 |
) |
|
|
866,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
139,250 |
|
|
|
774,568 |
|
|
|
9,414,548 |
|
|
|
(7,069,699 |
) |
|
|
3,258,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
liability-NC |
|
|
- |
|
|
|
479,063 |
|
|
|
79,676 |
|
|
|
- |
|
|
|
558,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current liabilities |
|
|
- |
|
|
|
479,063 |
|
|
|
79,676 |
|
|
|
- |
|
|
|
558,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
139,250 |
|
|
|
1,253,631 |
|
|
|
9,494,224 |
|
|
|
(7,069,699 |
) |
|
|
3,817,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
(937,751 |
) |
|
|
(2,686,249 |
) |
|
|
(8,179,987 |
) |
|
|
(257,870 |
) |
|
|
(12,061,858 |
) |
Other
equity |
|
|
6,743,543 |
|
|
|
10,992,823 |
|
|
|
157,761 |
|
|
|
(5,754,559 |
) |
|
|
12,139,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
5,805,792 |
|
|
|
8,306,574 |
|
|
|
(8,022,226 |
) |
|
|
(6,012,429 |
) |
|
|
77,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liability
and stockholders’ equity |
|
$ |
5,945,042 |
|
|
$ |
9,560,205 |
|
|
$ |
1,471,998 |
|
|
$ |
(13,082,128 |
) |
|
$ |
3,895,117 |
|
|
|
As of June 30, 2020 |
|
|
|
PARENT |
|
|
SUBSIDIARIES |
|
|
VIE |
|
|
Eliminations |
|
|
Consolidated |
|
Cash |
|
$ |
915,735 |
|
|
$ |
600,690 |
|
|
$ |
149,511 |
|
|
$ |
- |
|
|
$ |
1,665,936 |
|
Accounts receivable |
|
|
- |
|
|
|
395,508 |
|
|
|
1,119 |
|
|
|
(395,508 |
) |
|
|
1,119 |
|
Inventory |
|
|
- |
|
|
|
111,894 |
|
|
|
193,540 |
|
|
|
(200,224 |
) |
|
|
105,210 |
|
Other current
asset |
|
|
- |
|
|
|
6,353,427 |
|
|
|
734,905 |
|
|
|
(4,962,074 |
) |
|
|
2,126,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current asset |
|
|
915,735 |
|
|
|
7,461,519 |
|
|
|
1,079,075 |
|
|
|
(5,557,806 |
) |
|
|
3,898,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
- |
|
|
|
68,719 |
|
|
|
222,312 |
|
|
|
- |
|
|
|
291,031 |
|
Intangible asset, net |
|
|
- |
|
|
|
11,250 |
|
|
|
9,444 |
|
|
|
- |
|
|
|
20,694 |
|
Right of use asset, net |
|
|
- |
|
|
|
10,170 |
|
|
|
692,782 |
|
|
|
- |
|
|
|
702,952 |
|
Other-non-current asset |
|
|
4,500,480 |
|
|
|
- |
|
|
|
- |
|
|
|
(4,500,480 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Non-current asset |
|
|
4,500,480 |
|
|
|
90,139 |
|
|
|
924,538 |
|
|
|
(4,500,480 |
) |
|
|
1,014,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Asset |
|
$ |
5,416,215 |
|
|
$ |
7,551,658 |
|
|
$ |
2,003,613 |
|
|
$ |
(10,058,286 |
) |
|
$ |
4,913,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
- |
|
|
$ |
35,214 |
|
|
$ |
407,269 |
|
|
$ |
(395,508 |
) |
|
$ |
46,975 |
|
Lease liability |
|
|
- |
|
|
|
- |
|
|
|
346,629 |
|
|
|
- |
|
|
|
346,629 |
|
Loan payable |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other current
liabilities |
|
|
3,750 |
|
|
|
31,861 |
|
|
|
5,222,347 |
|
|
|
(4,962,071 |
) |
|
|
295,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,750 |
|
|
|
67,075 |
|
|
|
5,976,245 |
|
|
|
(5,357,579 |
) |
|
|
689,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
liability-NC |
|
|
- |
|
|
|
- |
|
|
|
341,273 |
|
|
|
- |
|
|
|
341,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current liabilities |
|
|
- |
|
|
|
- |
|
|
|
341,273 |
|
|
|
- |
|
|
|
341,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
3,750 |
|
|
|
67,075 |
|
|
|
6,317,518 |
|
|
|
(5,357,579 |
) |
|
|
1,030,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
(348,426 |
) |
|
|
(1,537,359 |
) |
|
|
(5,269,725 |
) |
|
|
(257,870 |
) |
|
|
(7,413,381 |
) |
Other
equity |
|
|
5,760,891 |
|
|
|
9,021,942 |
|
|
|
955,820 |
|
|
|
(4,442,837 |
) |
|
|
11,295,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity |
|
|
5,412,465 |
|
|
|
7,484,583 |
|
|
|
(4,313,905 |
) |
|
|
(4,700,707 |
) |
|
|
3,882,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liability
and stockholders’ equity |
|
$ |
5,416,215 |
|
|
$ |
7,551,658 |
|
|
$ |
2,003,613 |
|
|
$ |
(10,058,286 |
) |
|
$ |
4,913,200 |
|
Consolidating Cash Flows Information
|
|
Year Ended June 30, 2021 |
|
|
|
PARENT |
|
|
SUBSIDIARIES |
|
|
VIE |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash (used in)/provided by operating activities |
|
$ |
(511,693 |
) |
|
$ |
(1,082,949 |
) |
|
$ |
(2,389,879 |
) |
|
$ |
36,172 |
|
|
$ |
(3,948,349 |
) |
Net cash
(used in)/provided by investing activities |
|
|
(1,360,000 |
) |
|
|
(105,907 |
) |
|
|
(62,777 |
) |
|
|
1,360,000 |
|
|
|
(168,685 |
) |
Net cash
(used in)/provided by financing activities |
|
|
970,000 |
|
|
|
565,766 |
|
|
|
2,319,182 |
|
|
|
(1,406,101 |
) |
|
|
2,448,847 |
|
Net
increase in cash and cash equivalents |
|
$ |
(901,693 |
) |
|
$ |
(583,074 |
) |
|
$ |
(122,595 |
) |
|
$ |
(8,898 |
) |
|
$ |
(1,616,260 |
) |
|
|
Year Ended June 30, 2020 |
|
|
|
PARENT |
|
|
SUBSIDIARIES |
|
|
VIE |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash (used in)/provided by operating activities |
|
$ |
(355,822 |
) |
|
$ |
(2,789,559 |
) |
|
$ |
(1,427,971 |
) |
|
$ |
- |
|
|
$ |
(4,573,352 |
) |
Net cash
(used in)/provided by investing activities |
|
|
- |
|
|
|
(78,551 |
) |
|
|
(228,262 |
) |
|
|
- |
|
|
|
(306,813 |
) |
Net cash
(used in)/provided by financing activities |
|
|
- |
|
|
|
(533,101 |
) |
|
|
443,235 |
|
|
|
5,024 |
|
|
|
(84,842 |
) |
Net
increase in cash and cash equivalents |
|
$ |
(355,822 |
) |
|
$ |
(3,406,201 |
) |
|
$ |
(1,244,678 |
) |
|
$ |
- |
|
|
$ |
(5,006,701 |
) |
Government Regulation; Licenses
Our operating entities’ operations are subject to and affected by
PRC laws and regulations. The primary governmental regulation
regulating the Internet security equipment industry in the PRC is
the Cybersecurity Law, which governs entities providing “critical
information infrastructure.” This statute provides basic
protections for Internet users, such as not selling individual’s
data to other companies without the user’s permission and not
knowingly distributing malware. This law at present is only in
draft form, but is expected to be adopted in the near future. Our
wholly owned subsidiaries and our VIE and its subsidiaries are
required to have, and each has, a business license issued by the
PRC State Administration for Market Regulation and its local
counterparts. In addition, major PRC regulations applicable to our
products and services and the Internet security industry include
Computer Information System Security Specific Product Testing and
Sales License Management Method (Ministry of Public Security Order
No. 32) (“Order 32”) and Internet Security Protection Technology
Measures Provision (Ministry of Public Security Order No. 82)
(“Order 82”). Order 32 sets forth the license requirement for
Internet security products providers and related approval
procedures of license applications. Order 82 specifies certain
security measures Internet service providers shall take to ensure
Internet security. Providers of ISP connecting service and
Internet-based data processing service are within the scope of
Order 82. Shuhai Beijing has received the required license under
Order 32 and it is currently being renewed.
The Regulations on Mergers and Acquisitions of Domestic Companies
by Foreign Investors, or the M&A Rules, adopted by six PRC
regulatory agencies in 2006 and amended in 2009, 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 CSRC prior to the listing and
trading of such special purpose vehicle’s securities on an overseas
stock exchange. Substantial uncertainty remains regarding the scope
and applicability of the M&A Rules to offshore special purpose
vehicles. Although we believe that CSRC’s approval is not required
for the listing and trading of our common stock on Nasdaq in the
context of this offering, we cannot assure you that relevant PRC
governmental agencies, including the CSRC, would reach the same
conclusion as we do.
Cash Transfer and Dividend Payment
None of our VIE and its subsidiaries have issued any dividends or
distributions to respective holding companies, or to any investors
as of the date of this prospectus. Our subsidiaries in the PRC
generate and retain cash generated from operating activities and
re-invest it in our business. In the future, cash proceeds raised
from overseas financing activities, including the cash proceeds
from the exercise of the warrants by the selling stockholders
referenced in this prospectus, may be transferred by us through our
Hong Kong subsidiary, Shuhai Information Skill (HK) Limited to our
PRC subsidiary Tianjin Information via capital contribution and
shareholder loans, as the case may be. Tianjin Information then
will transfer funds to our VIE and its subsidiaries to meet the
capital needs of our business operations.
During each of the fiscal years ended June 30, 2021 and 2020, the
only transfer of assets among Datasea Inc. (the US parent company)
and its subsidiaries including the VIE was transfer of cash.
Datasea Inc. provided cash to its subsidiaries either by way of
capital contribution or by way of loan, from the proceeds it
received from the financing. In addition, there were some loans
obtained by certain Chinese subsidiaries, and those subsidiaries
then loaned money to other subsidiaries to meet their working
capital needs. The cash was transferred within the organization
through the bank wiring. During the fiscal year ended June 30,
2021, Datasea Inc. invested an aggregate of approximately $1.36
million in cash to Shuhai information Skill(HK) Ltd, which amount
was then invested to Tianjin Information. During fiscal year ended
June 30 2021, Tianjin Information transferred an aggregate of
approximately $1.1 million in cash to Shuhai Beijing .
The PRC government imposes controls on the convertibility of RMB
into foreign currencies and, in certain cases, the remittance of
currency out of China. The majority of our and the VIE’s and its
subsidiaries’ income is received in RMB and shortages in foreign
currencies may restrict our ability to pay dividends or other
payments, or otherwise satisfy our foreign currency denominated
obligations, if any. 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 The State Administration of the Foreign
Exchange (“SAFE”) in the PRC as long as certain procedural
requirements are met. Approval from appropriate government
authorities is required if Renminbi is converted into foreign
currency and remitted out of China to pay capital expenses such as
the repayment of loans denominated in foreign currencies. The PRC
government may, at its discretion, impose restrictions on access to
foreign currencies for current account transactions and if this
occurs in the future, we may not be able to pay dividends in
foreign currencies to our shareholders.
Cash dividends, if any, on our common stock will be paid in U.S.
dollars. If we are considered a PRC tax resident enterprise for tax
purposes, any dividends we pay to our overseas shareholders may be
regarded as China-sourced income and as a result may be subject to
PRC withholding tax. As of the date of this prospectus, we have not
made any dividends nor distributions to any U.S. investors.
Relevant PRC laws and regulations permit the PRC companies to pay
dividends only out of their retained earnings, if any, as
determined in accordance with PRC accounting standards and
regulations. Additionally, the Company’s PRC subsidiary and the VIE
can only distribute dividends upon approval of the shareholders
after they have met the PRC requirements for appropriation to the
statutory reserves. As a result of these and other restrictions
under the PRC laws and regulations, our PRC subsidiary and the VIE
are restricted to transfer a portion of their net assets to the
Company either in the form of dividends, loans or advances. Even
though the Company currently does not require any such dividends,
loans or advances from the PRC subsidiary and the VIE for working
capital and other funding purposes, the Company may in the future
require additional cash resources from its PRC subsidiary and the
VIE due to changes in business conditions, to fund future
acquisitions and developments, or merely declare and pay dividends
to or distributions to the Company’s shareholders.
Competitive Strengths
We believe our VIE’s market position and potential future growth
can be attributed to the following key factors and competitive
strengths:
1. Talents
The R&D team of the Shuhai Beijing mainly comes from Chinese
Academy of Social Sciences and other well-known universities and
technology enterprises; it has a sales team with
experience in serving fortune 500 enterprises. The finance,
risk control, strategy and capital departments of the Company and
Shuhai Beijing are composed of professionals from well-known
enterprises and listed companies at home and abroad. During the
fiscal year of 2021, Shuhai Beijing continued to actively introduce
the cooperation mode of external expert think tanks and research
institutes, including but not limited to Institute of Acoustics of
Chinese Academy of Sciences, China Academy of Information and
Communications, Standards Institute of China, School of Artificial
Intelligence of Beijing University of Posts and Telecommunications
and China Artificial Intelligence Industry Alliance, etc.
2. Differentiated technical advantages
Shuhai Beijing actively develops and uses acoustic intelligent
technology and products to build technical barriers and thresholds
that are different from other competitors. R&D has
always been the core and driving force of Shuhai Beijing.
Based on two innovation research institutes, Shuhai Beijing
has brought together the Chinese Academy of Social Sciences, such
as well-known high school background of the R&D team,
continuously fused visual and non-visual development to depth
perception technology, acoustic system developed intelligent
technology and acoustic intelligence series intelligent Gammatone
filter group and other technical combination, formed a unique voice
front intelligent processing scheme and filter ambient noise
in noisy environment. To perceive visual and non-visual
fusion technology as the main direction, Shuhai Beijing formed the
facial recognition + voiceprint recognition, video and audio
recognition fusion, abnormal voice recognition, perception,
“semantic + voice print” fusion “fusion + intervention control
perception” edge and the algorithm combining with core
technologies, distinguishing it from other competitors and building
technical barriers and the main embodiment of the threshold.
3. Market space
advantage and company strategy
Shuhai Beijing has been
focusing on the long-term establishment of exclusive advantages
through technological development and strategic deployment, helping
it to sustain the development and accumulation of potential
energy. From the combination of visual perception
technology and artificial intelligence big data technology at the
very beginning, Shuhai Beijing’s products can be more active in
identification and analysis, and effectively produce intervention
from passive monitoring to active
prevention. Shuhai Beijing has seen that the integration of multiple
sensing technologies can enhance the effectiveness of intelligent
security solutions and enhance the applicability of products and it
has internally started to deploy acoustic intelligent
technologies. Shuhai Beijing believes that diversified
perception technology is not enough, and it believes that Data
science is of great significance to the accuracy of multiple
perception technology and the processing of complex environment.
Combined with the common and similar underlying technology
logic, Shuhai Beijing has strategically entered 5G message and
smart payment. In the future development, each sector is
not only the source of the Company’s profits, but also mutually
reinforcing effect, which can improve Shuhai Beijing’s
overall product value and
overall ecological viability, helping Shuhai Beijing maintain its
sustainable development and promote the potential energy as an
industry leader in the future.
Shuhai Beijing continues to
explore core business opportunities with broad growth market
space. In terms of smart city, China’s domestic
investment in smart city has reached about 22.9 billion US dollars
in 2019, and the global market size has reached 1.1 trillion US
dollars. The global construction of smart city is accelerating. As
one of the most basic and core applications of smart city,
intelligence has a huge market space.
5G messaging, namely Rich
Communication Services & Suite (RCS), has become an
international standard. According to the Global System
for Mobile Communications Association, as of September 2020, 90
Mobile network operators had launched RCS with 473 million Global
monthly active users. The RCS market is expected to be about
$74 billion by the end of 2021. MobileSquared predicts
that 74.6% of smartphone users will use RCS channels to communicate
by 2023.
4.Quality strength
advantage
Shuhai Beijing has obtained the certification of Computer
Information System Safety Product Quality Supervision and
Inspection Center of the Ministry of Public Security (through
relevant tests and tests), ISO9001 quality management system
certification, ISO27001 information security Management system
certification, ISO14001 environmental management system
certification and ISO18001 occupational health and safety
management system certification. As well as the
“Engineering Enterprise qualification Certificate” issued by China
Safety technology Prevention Industry Association, the “Membership
certificate” granted by China Safety Technology Prevention Industry
Association, the China National Compulsory product Certification
Certificate (CCC certification) issued by China Quality
Certification Center, which has become a powerful guarantee for the
quality of our products.
5. Customer resource and location advantage
The original smart city customers of Shuhai Beijing are located in
13 provinces and cities in China, including Beijing, Liaoning,
Jilin, Heilongjiang, Jiangsu, Shanxi and Guangdong. Shuhai
Beijing successfully expanded its business partners in Shanghai,
Chongqing, Zhejiang, Yunnan and Shaanxi provinces through 5G
messaging services, and signed 14 agreements with a total contract
value of RMB 2.046 million. As of the date of this prospectus,
Datasea series products has covered more than 60% of provincial
administrative divisions in China.
Executive Compensation
The following table provides disclosure concerning all compensation
paid for services to the executive officers of the Company in all
capacities for our fiscal years ended June 30, 2021 and 2020,
respectively, for (i) each person serving as our principal
executive officer (“PEO”), (ii) each person serving as our
principal financial officer (“PFO”) and (iii) our two most highly
compensated executive officers other than our PEO and PFO whose
total compensation exceeded $100,000 (collectively with the PEO,
referred to as the “named executive officers” in this Executive
Compensation section).
Summary Compensation Table
|
|
Fiscal |
|
|
Salary |
|
|
Bonus |
|
|
Stock
Awards |
|
|
Option
Awards |
|
|
Other Compensation |
|
|
Total |
|
Name and
Principal Position |
|
Year |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Zhixin Liu (1) |
|
|
2020 |
|
|
$ |
43,174 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
43,174 |
|
Chairman, CEO |
|
|
2021 |
|
|
$ |
45,810 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
45,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jijin Zhang (2) |
|
|
2020 |
|
|
$ |
4,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,397 |
|
Former
CFO |
|
|
2021 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chunqi Jiao |
|
|
2020 |
|
|
$ |
19,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,924 |
|
CTO |
|
|
2021 |
|
|
$ |
31,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,282 |
|
(1) |
Since January 1, 2017, the actual monthly salary Ms. Liu received
was RMB 20,300 (approximately $3,056). According to the amendment
to the employment agreement, Ms. Liu is entitled to a monthly
salary of RMB 20,000 (approximately $3,011) plus any bonuses,
transport allowances and housing allowances. Ms. Liu waived her
rights of receiving any allowances or bonuses that have not been
paid in fiscal years 2018 and 2017. Starting from July 1, 2019,
Liu’s monthly salary will be adjusted to 25,300 yuan (about
$3,598), with a bonus of 300,000 yuan ($42,662.72) to be paid under
the contract.
|
|
According to the agreement between Zhixin Liu and
Datasea Inc., the Company grants to Ms. Zhixin Liu fifteen
thousand (15,000) shares of the Company’s common stock each month,
starting from July 1, 2021, payable quarterly with the aggregate
number of shares for each quarter being issuable on the first day
of the next quarter at a per share price of the closing price of
the day prior to the issuance and being vested immediately with the
undertaking from the grantee not to divest in the six (6) months
after the issuance. |
(2) |
On
August 1, 2021, Mr. Jijin Zhang tendered his resignation as the
Chief Financial Officer of the Company due to personal reasons. On
the same date, the Board of the Company appointed Ms. Mingzhou Sun
to be the new Chief Financial Officer of the Company. |
Option Grants in Last Fiscal Year
There were no options granted to our executive officer in the
fiscal year ended June 30, 2021.
Employment Agreements
The Company does not have any written employment agreements with
its officers other than the agreement described below.
Employment Contract – Zhixin Liu
We entered into an employment agreement with Ms. Zhixin Liu on
February 11, 2018, pursuant to which she serves as our Chief
Executive Officer until February 10, 2021 and receives a base
monthly salary of RMB 20,000 (approximately $3,011). Ms. Liu is
also eligible to receive bonuses, transport allowances and housing
allowances. The entire package for Ms. Liu is for annual
compensation of RMB 600,000 (approximately $90,340). The employment
agreement and its amendment may be terminated in accordance with
the provisions of PRC Labor Law. The employment agreement also
contains other customary terms under PRC law.
According to the agreement between Zhixin Liu and Datasea Inc., the
Company grant to Ms. Zhixin Liu fifteen thousand (15,000) shares of
the Company’s common stock each month, starting from July 1, 2021,
payable quarterly with the aggregate number of shares for each
quarter being issuable on the first day of the next quarter at a
per share price of the closing price of the day prior to the
issuance and being vested immediately with the undertaking from the
grantees not to divest in the six (6) months after the
issuance.
Employment Contract – Mingzhou Sun
In connection with Ms. Sun’s appointment, on August 1, 2021, the
Company and Ms. Sun entered into an employment agreement (the
“Employment Agreement”), pursuant to which Ms. Sun shall receive a
monthly compensation of RMB20,000 (approximately $3,091). The term
of the Employment Agreement is three years, with the first six
months to be the probationary period. Ms. Sun’s employment can be
terminated upon both parties mutual consent. The Company may
terminate the Employment Agreement if Ms. Sun does not meet the
qualifications for this position during the probationary period.
The Company may also terminate the Employment Agreement by giving
30 days’ written notice upon the occurrence of certain events,
including Ms. Sun’s failure to perform her duties as the Company’s
Chief Financial Officer due to illness. Ms. Sun may terminate her
employment with the Company immediately upon the occurrence of
certain events, including the Company’s failure to pay her salary
in full on time. Ms. Sun’s employment is also subject to customary
benefits such as paid time off, sickness allowance, and other
rights and benefits.
Equity Compensation Plan Information
On June 15, 2020, the Company filed a registration statement on
Form S-8 to register the shares in connection with the Company’s
2018 Plan adopted by the Board of Directors.
On August 22, 2018, our Board
of Directors and majority stockholders adopted a 2018 Equity
Incentive Plan, or the 2018 Plan, for our company to award up to a
maximum of 4,000,000 shares of our common stock, to attract and
retain the best available personnel, provide additional incentives
to employees, directors and consultants and promote the success of
our business. No awards have been granted under the 2018 Plan as of
September 28, 2021, but our Board of Directors or a designated
committee thereof will have the ability in its discretion from time
to time to make awards under the 2018 Plan, including to our
officers and directors.
The following paragraphs
describe the principal terms of the 2018 Plan.
Types of Awards. The
2018 Plan permits the awards of options, stock appreciation rights,
restricted stock, restricted stock units, stock bonus awards and/or
performance compensation awards.
Plan Administration.
Our Board of Directors or a committee appointed by our Board of
Directors will administer the 2018 Plan. Such plan administrator
will determine the participants to receive awards, the type and
number of awards to be granted to each participant, and the terms
and conditions of each grant.
Award Agreement.
Awards granted under the 2018 Plan are evidenced by an award
agreement that sets forth the terms, conditions and limitations for
each award, which may include the term of the award, the provisions
applicable in the event of the grantee’s employment or service
terminates, and our authority to unilaterally or bilaterally amend,
modify, suspend, cancel or rescind the award.
Eligibility. We may
grant awards to our employees, directors and consultants or
prospective employees, directors, officers, consultants or advisors
who have accepted offers of employment or consultancy from our
company or our affiliates.
Exercise of Options. The plan administrator determines the
expiration date of each award. However, the term of any award may
not exceed ten years from the date of a grant. If any such award is
not exercised prior to expiration, the award will be deemed
forfeited.
Transfer Restrictions.
Awards may not be transferred in any manner by the recipient other
than by will or the laws of descent and distribution, except as
otherwise provided by the plan administrator.
Amendment and Termination of the 2018 Plan. Our Board of
Directors has the authority to amend, alter, suspend, discontinue,
or terminate the plan. However, no such action may adversely affect
in any material way any awards previously granted unless agreed by
the recipient.
Director Compensation
The following table shows for the fiscal year ended June 30, 2021,
certain information with respect to the compensation of our
directors.
Fiscal Year 2021 Director Compensation Table
Name |
|
Fees Earned or Paid in Cash ($) |
|
|
Option Awards ($) |
|
|
Total ($) |
|
Zhixin Liu* |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Fu Liu |
|
|
36,757 |
|
|
|
|
|
|
|
36,757 |
|
Michael James Antonoplos |
|
|
10,500 |
|
|
|
10,500 |
|
|
|
21,000 |
|
Stephen (Chun Kwok) Wong |
|
|
2,263 |
|
|
|
|
|
|
|
2,263 |
|
Ling Wong |
|
|
6,036 |
|
|
|
|
|
|
|
6,036 |
|
Vincent Thomas Lowry |
|
|
10,500 |
|
|
|
10,500 |
|
|
|
21,000 |
|
|
* |
Ms.
Liu, our Chief Executive Officer, is also the chair of our Board
but does not receive any additional compensation for her service as
a director. See the section titled “Executive Compensation” for
more information regarding the compensation of Ms. Liu. |
|
* |
Mr.
Liu Fu, our Director and CO-Founder, but does not receive any
compensation for his service as a director. He is also the chairman
of Shuhai Beijing, $36,757 is the total salary received for his
work and position of year 2021. According to the agreement between
Fu Liu and Datasea Inc., the Company grants to Mr. Liu ten
thousand (10,000) shares of the Company’s common stock each month,
starting from July 1, 2021, payable quarterly with the aggregate
number of shares for each quarter being issuable on the first day
of the next quarter at a per share price of the closing price of
the day prior to the issuance and being vested immediately with the
undertaking from the grantee not to divest in the six (6) months
after the issuance. |
Corporate Information
The principal executive office of our VIE is located at 1 Xinghuo
Rd., Changning Building, 11th Floor, Fengtai District,
Beijing, China, and our telephone number at that address is
(86)10-56143568. Our website is http://www.shuhaixinxi.com.
Information contained on our website does not constitute part of,
and is not deemed incorporated by reference into, this
prospectus.
Cautionary Statement Regarding our Variable Interest Entity
Structure
We are a holding company incorporated in the state of Nevada. As a
holding company with no material operations of our own, we conduct
our operations in China through our variable interest entity, or
VIE, Shuhai Beijing”. This is an offering of the shares of common
stock of the holding company. You are not investing in Shuhai
Beijing, our VIE. Neither we nor our subsidiaries own any share in
Shuhai Beijing. Instead, we control and receive the economic
benefits of Shuhai Beijing business operation through a series of
contractual agreements, or the VIE Agreements. We are subject to
certain legal and operational risks associated with being based in
China and having a majority of our operations in through the
contractual arrangements with our VIE. PRC laws and regulations
governing our current business operations are sometimes vague and
uncertain, and therefore, these risks may result in a material
change in our operations, significant depreciation of the value of
our common stock, or a complete hindrance of our ability to offer
or continue to offer our securities to investors and cause the
value of such securities to significantly decline or be worthless.
The VIE Agreements are designed to provide our wholly-foreign owned
entity (“WFOE”), Tianjin Information Sea Information Technology
Co., Ltd. (“Tianjin Information”), with the power, rights and
obligations equivalent in all material respects to those it would
possess as the principal equity holder of Shuhai Beijing, including
absolute control rights and the rights to the assets, property and
revenue of Shuhai Beijing. As a result of our indirect ownership in
the WFOE and the VIE Agreements, we are regarded as the primary
beneficiary of our VIE. The VIE structure is used
to replicate foreign investment in Chinese-based companies where
Chinese law prohibits direct foreign investment in the operating
companies, and that investors may never directly hold equity
interests in the Chinese operating entities.
Because of our corporate structure, we are subject to risks due to
uncertainty of the interpretation and the application of the PRC
laws and regulations, including but not limited to limitation on
foreign ownership of internet technology companies, and regulatory
review of oversea listing of PRC companies through a special
purpose vehicle, and the validity and enforcement of the VIE
Agreements. We are also subject to the risks of uncertainty about
any future actions of the PRC government in this regard. Our VIE
Agreements may not be effective in providing control over Shuhai
Beijing. We may also be subject to sanctions imposed by PRC
regulatory agencies including Chinese Securities Regulatory
Commission if we fail to comply with their rules and regulations.
If the Chinse regulatory authorities disallow this VIE structure in
the future, it will likely result in a material change in our
financial performance and our results of operations and/or the
value of our common stock, which could cause the value of such
securities to significantly decline or become worthless.
Additionally, as more stringent criteria have been imposed by the
SEC and the Public Company Accounting Oversight Board recently, our
securities may be prohibited from trading if our auditor cannot be
fully inspected.
Additionally, we are subject to certain legal and operational risks
associated with our VIE’s operations in China. PRC laws and
regulations governing our current business operations are sometimes
vague and uncertain, and therefore, these risks may result in a
material change in our VIE’s operations, significant depreciation
of the value of our common stock, or a complete hindrance of our
ability to offer or continue to offer our securities to investors.
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. Since these statements and regulatory actions are new,
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 on an U.S. or other foreign exchange.
Cautionary Statement Regarding Doing Business in China
Our VIE and its subsidiaries are subject to certain legal and
operational risks associated with being based in China. PRC laws
and regulations governing our current business operations are
sometimes vague and uncertain, and as a result these risks may
result in material changes in the operations of our VIE and its
subsidiaries, completely hinder of our ability to offer or continue
to offer our securities to investors and cause the value of our
securities to significantly decline or become worthless. 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 Severe and Lawful Crackdown on Illegal Securities
Activities, which was available to the public on July 6, 2021.
These opinions emphasized the need to strengthen the administration
over illegal securities activities and the supervision on overseas
listings by China-based companies. The PRC government also
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. Since these statements and
regulatory actions are new, 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 on an U.S. exchange.
On July 10, 2021, the State Internet Information Office issued the
Measures of Cybersecurity Review (Revised Draft for Comments, not
yet effective), which requires operators with personal information
of more than 1 million users who want to list abroad to file a
cybersecurity review with the Office of Cybersecurity Review. As of
the date of this prospectus, our Company, our VIE and its
subsidiaries have not been involved in any investigations on
cybersecurity review initiated by any PRC regulatory authority, nor
has any of them received any inquiry, notice or sanction. We do not
believe that our existing business will require such regulatory
review. As of the date of this prospectus, our Company, our VIE and
its subsidiaries have not received any inquiry, notice, warning or
sanctions regarding our planned overseas listing from the China
Securities Regulatory Commission or any other PRC governmental
authorities. However, all of the statements and regulatory actions
referenced are newly published, official guidance and related
implementation rules have not been issued. It is highly uncertain
what 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 on an U.S. exchange. PRC regulatory
authorities may in the future promulgate laws, regulations or
implementing rules that require us, our subsidiaries, our VIE or
its subsidiaries to obtain regulatory approval from Chinese
authorities before listing in the U.S.
The Offering
Common Stock
offered by the Selling Stockholders: |
|
1,218,453
shares of common stock issuable upon exercise of the
Warrants. |
|
|
|
Common stock outstanding prior to this
offering: |
|
23,911,042 shares as of August
27, 2021 |
|
|
|
Use of proceeds: |
|
The Selling Stockholders will receive
the proceeds from the sale of the shares of common stock offered
hereby. We will not receive any proceeds from the sale of the
shares of common stock. See “Use of Proceeds” on page 20 of this
prospectus. |
|
|
|
Risk Factors: |
|
The purchase of our securities
involves a high degree of risk. See “Risk Factors” on page 15 of
this prospectus. |
|
|
|
NASDAQ Capital Market Symbol: |
|
“DTSS” |
The number of shares of our common stock outstanding, as set forth
in the table above, is based on 23,911,042 shares outstanding as of
August 27, 2021.
Prospectus Conventions
Unless the context requires otherwise, references to the “Company,”
“we,” “our,” and “us,” refer to Datasea, Inc. and its
subsidiaries.
All references to “RMB” and “Renminbi” are to the legal
currency of China, and all references to “USD,” “$,” and “U.S.
dollars” are to the legal currency of the United States. This
prospectus contains translations of certain RMB amounts into U.S.
dollar amounts at a specified rate solely for the convenience of
the reader.
For the sake of clarity, this prospectus follows the English naming
convention of first name followed by last name, regardless of
whether an individual’s name is Chinese or English. For example,
the name of our President and Chief Executive Officer will be
presented as “Zhixin Liu,” even though, in Chinese, her name would
be presented as “Liu Zhixin.”
We have relied on statistics provided by a variety of
publicly-available sources regarding China’s expectations of
growth, which have not been independently verified by us. We did
not, directly or indirectly, sponsor or participate in the
publication of such materials, and these materials are not
incorporated in this prospectus other than to the extent
specifically cited in this prospectus. We have sought to provide
current information in this prospectus and believe that the
statistics provided in this prospectus remain up-to-date and
reliable.
RISK FACTORS
An investment in our securities involves a high degree of risk.
Before making any investment decision, you should carefully
consider the risk factors set forth below, the information under
the caption “Risk Factors” in any applicable prospectus supplement,
any related free writing prospectus that we may authorize to be
provided to you and the information under the caption “Risk
Factors” in our Annual Report on Form 10-K that is incorporated by
reference in this prospectus, as updated by our subsequent filings
under the Exchange Act.
These risks could materially affect our business, results of
operation or financial condition and affect the value of our
securities. Additional risks and uncertainties that are not yet
identified may also materially harm our business, operating results
and financial condition and could result in a complete loss of your
investment. You could lose all or part of your investment. For more
information, see “Where You Can Find More Information.”
Additionally, we are subject to certain legal and operational risks
associated with our VIE’s operations in China. PRC laws and
regulations governing our current business operations are sometimes
vague and uncertain, and therefore, these risks may result in a
material change in our VIE’s operations, significant depreciation
of the value of our common stock, or a complete hindrance of our
ability to offer or continue to offer our securities to investors.
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. Since these statements and regulatory actions are new,
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 on an U.S. or other foreign exchange. The Chinese regulatory
authorities could disallow our structure, which could result in a
material change in our operations and the value of our securities
could decline or become worthless.
If the PRC government deems that the VIE Agreements do not
comply with PRC regulatory restrictions on foreign investment in
the relevant industries or other laws or regulations of the PRC, or
if these regulations or the interpretation of existing regulations
change in the future, we could be subject to severe penalties or be
forced to relinquish our interests in those operations, which may
therefore materially reduce the value of our ordinary
shares.
We are a holding company incorporated in Nevada. As a holding
company with no material operations of our own, we conduct a
substantial majority of our operations through our operating
entities established in the People’s Republic of China, or the PRC,
primarily our variable interest entity (the “VIE”). Due to PRC
legal restrictions on foreign ownership in any internet-related
businesses we may explore and operate, we do not have any equity
ownership of our VIE, instead we control and receive the economic
benefits of our VIE’s business operations through certain
contractual arrangements. Our common stock that currently listed on
the Nasdaq Capital Markets are shares of our Nevada holding company
that maintains service agreements with the associated operating
companies. The Chinese regulatory authorities could disallow our
structure, which could result in a material change in our
operations and the value of our securities could decline or become
worthless. For a description of our corporate structure and
contractual arrangements, see “Corporate Structure” on page 5 and
“VIE Agreements” on page 3.
We believe that our corporate structure and contractual
arrangements comply with the current applicable PRC laws and
regulations. We also believe that each of the contracts among our
wholly-owned PRC subsidiary, our consolidated VIE and its
shareholders is valid, binding and enforceable in accordance with
its terms. However, there are substantial uncertainties regarding
the interpretation and application of current and future PRC laws
and regulations. Thus, the PRC governmental authorities may take a
view contrary to the opinion of our PRC legal counsel. It is
uncertain whether any new PRC laws or regulations relating to
variable interest entity structure will be adopted or if adopted,
what they would provide. PRC laws and regulations governing the
validity of these contractual arrangements are uncertain and the
relevant government authorities have broad discretion in
interpreting these laws and regulations.
If these regulations change or are interpreted differently in the
future and our corporate structure and contractual arrangements are
deemed by the relevant regulators that have competent authority, to
be illegal, either in whole or in part, we may lose control of our
consolidated VIE, which conducts our manufacturing operations,
holds significant assets and accounts for significant revenue, and
have to modify such structure to comply with regulatory
requirements. However, there can be no assurance that we can
achieve this without material disruption to our business. Further,
if our corporate structure and contractual arrangements are found
to be in violation of any existing or future PRC laws or
regulations, the relevant regulatory authorities would have broad
discretion in dealing with such violations, including:
|
● |
revoking our business and operating
licenses; |
|
● |
confiscating any of our income that they deem to
be obtained through illegal operations; |
|
● |
shutting down our services; |
|
● |
discontinuing or restricting our operations in
China; |
|
● |
imposing conditions or requirements with which we
may not be able to comply; |
|
● |
requiring us to change our corporate structure
and contractual arrangements; |
|
● |
restricting or prohibiting our use of the
proceeds from overseas offering to finance our consolidated VIE’s
business and operations; and |
|
● |
taking other regulatory or enforcement actions
that could be harmful to our business. |
Furthermore, new PRC laws, rules and regulations may be introduced
to impose additional requirements that may be applicable to our
corporate structure and contractual arrangements. Occurrence of any
of these events could materially and adversely affect our business,
financial condition and results of operations and the market price
of our common stock. In addition, if the imposition of any of these
penalties or requirement to restructure our corporate structure
causes us to lose the rights to direct the activities of our
consolidated VIE or our right to receive their economic benefits,
we would no longer be able to consolidate the financial results of
such VIE in our consolidated financial statements, which may cause
the value of our securities to significantly decline or even become
worthless.
In addition, while we will take every precaution available to
effectively enforce the contractual and corporate relationship of
the VIE agreements, these contractual arrangements are less
effective than direct ownership and that we may incur substantial
costs to enforce the terms of the arrangements. For example, the
VIE and its shareholders could breach their contractual
arrangements with us by, among other things, failing to conduct
their operations in an acceptable manner or taking other actions
that are detrimental to our interests. If we had direct ownership
of the VIE, we would be able to exercise our rights as a
shareholder to effect changes in the board of directors of the VIE,
which in turn could implement changes, subject to any applicable
fiduciary obligations, at the management and operational level.
However, under VIE Agreements, we will rely on the performance by
the VIE and its shareholders of their obligations under the
contracts to exercise control over the VIE. As such, the
shareholders of VIE may not act in the best interests of our
company or may not perform their obligations under these contracts.
In addition, failure of the VIE shareholders to perform certain
obligations could compel us to rely on legal remedies available
under PRC laws, including seeking specific performance or
injunctive relief, and claiming damages, which may not be
effective.
Substantial uncertainties and restrictions with respect to the
political and economic policies of the PRC government and PRC laws
and regulations could have a significant impact upon the business
that we may be able to conduct in the PRC and accordingly on the
results of our operations and financial condition.
Our business operations conducted through Shuhai Beijing may be
adversely affected by the current and future political environment
in the PRC. The Chinese government exerts substantial influence and
control over the manner in which we must conduct our business
activities. Our ability to operate in China may be adversely
affected by changes in Chinese laws and regulations. Under the
current government leadership, the government of the PRC has been
pursuing reform policies which have adversely affected China-based
operating companies whose securities are listed in the United
States, with significant policies changes being made from time to
time without notice. There are substantial uncertainties regarding
the interpretation and application of PRC laws and regulations,
including, but not limited to, the laws and regulations governing
our business, or the enforcement and performance of our contractual
arrangements with borrowers in the event of the imposition of
statutory liens, death, bankruptcy or criminal proceedings. Only
after 1979 did the Chinese government begin to promulgate a
comprehensive system of laws that regulate economic affairs in
general, deal with economic matters such as foreign investment,
corporate organization and governance, commerce, taxation and
trade, as well as encourage foreign investment in China. Although
the influence of the law has been increasing, China has not
developed a fully integrated legal system and recently enacted laws
and regulations may not sufficiently cover all aspects of economic
activities in China. Also, because these laws and regulations are
relatively new, and because of the limited volume of published
cases and their lack of force as precedents, interpretation and
enforcement of these laws and regulations involve significant
uncertainties. New laws and regulations that affect existing and
proposed future businesses may also be applied retroactively. In
addition, there have been constant changes and amendments of laws
and regulations over the past 30 years in order to keep up with the
rapidly changing society and economy in China. Because government
agencies and courts provide interpretations of laws and regulations
and decide contractual disputes and issues, their inexperience in
adjudicating new business and new polices or regulations in certain
less developed areas causes uncertainty and may affect our
business. Consequently, we cannot predict the future direction of
Chinese legislative activities with respect to either businesses
with foreign investment or the effectiveness on enforcement of laws
and regulations in China. The uncertainties, including new laws and
regulations and changes of existing laws, as well as judicial
interpretation by inexperienced officials in the agencies and
courts in certain areas, may cause possible problems to foreign
investors. Although the PRC government has been pursuing economic
reform policies for more than two decades, the PRC government
continues to exercise significant control over economic growth in
the PRC through the allocation of resources, controlling payments
of foreign currency, setting monetary policy and imposing policies
that impact particular industries in different ways. We cannot
assure you that the PRC government will continue to pursue policies
favoring a market oriented economy or that existing policies will
not be significantly altered, especially in the event of a change
in leadership, social or political disruption, or other
circumstances affecting political, economic and social life in the
PRC.
Accordingly, given the PRC government’s significant oversight and
discretion over the conduct of our operating subsidiary and VIE’s
business, it may intervene or influence the operations of
our PRC subsidiary or our VIE at any time and to exert control over
an offering of securities conducted overseas and/or foreign
investment in China-based issuers, which may cause us to make
material changes to the operations of our PRC subsidiary or our VIE
and could significantly limit or completely hinder our ability to
offer or continue to offer securities to investors and cause the
value of our securities to significantly decline or be
worthless.
Adverse regulatory developments in China may subject us to
additional regulatory review, and additional disclosure
requirements and regulatory scrutiny to be adopted by the SEC in
response to risks related to recent regulatory developments in
China may impose additional compliance requirements for companies
like us with significant China-based operations, all of which could
increase our compliance costs, subject us to additional disclosure
requirements.
The recent regulatory developments in China, in particular with
respect to restrictions on China-based companies raising capital
offshore, may lead to additional regulatory review in China over
our financing and capital raising activities in the United States.
In addition, we may be subject to industry-wide regulations that
may be adopted by the relevant PRC authorities, which may have the
effect of limiting our service offerings, restricting the scope of
our operations in China, or causing the suspension or termination
of our business operations in China entirely, all of which will
materially and adversely affect our business, financial condition
and results of operations. We may have to adjust, modify, or
completely change our business operations in response to adverse
regulatory changes or policy developments, and we cannot assure you
that any remedial action adopted by us can be completed in a
timely, cost-efficient, or liability-free manner or at all.
On July 30, 2021, in response to the recent regulatory developments
in China and actions adopted by the PRC government, the Chairman of
the SEC issued a statement asking the SEC staff to seek additional
disclosures from offshore issuers associated with China-based
operating companies before their registration statements will be
declared effective. On August 1, 2021, the China Securities
Regulatory Commission stated in a statement that it had taken note
of the new disclosure requirements announced by the SEC regarding
the listings of Chinese companies and the recent regulatory
development in China, and that both countries should strengthen
communications on regulating China-related issuers. We cannot
guarantee that we will not be subject to tightened regulatory
review and we could be exposed to government interference in
China.
Compliance with China’s new Data Security Law, Measures on
Cybersecurity Review (revised draft for public consultation),
Personal Information Protection Law (second draft for
consultation), regulations and guidelines relating to the
multi-level protection scheme and any other future laws and
regulations may entail significant expenses and could materially
affect our business.
China has implemented or will implement rules and is considering a
number of additional proposals relating to data protection. China’s
new Data Security Law promulgated by the Standing Committee of the
National People’s Congress of China in June 2021, or the Data
Security Law, will take effect in September 2021. The Data Security
Law provides that the data processing activities must be conducted
based on “data classification and hierarchical protection system”
for the purpose of data protection and prohibits entities in China
from transferring data stored in China to foreign law enforcement
agencies or judicial authorities without prior approval by the
Chinese government. As the Data Security Law has not yet come into
effect, we may need to make adjustments to our data processing
practices to comply with this law.
Additionally, China’s Cyber Security Law, requires companies to
take certain organizational, technical and administrative measures
and other necessary measures to ensure the security of their
networks and data stored on their networks. Specifically, the Cyber
Security Law provides that China adopt a multi-level protection
scheme (MLPS), under which network operators are required to
perform obligations of security protection to ensure that the
network is free from interference, disruption or unauthorized
access, and prevent network data from being disclosed, stolen or
tampered. Under the MLPS, entities operating information systems
must have a thorough assessment of the risks and the conditions of
their information and network systems to determine the level to
which the entity’s information and network systems belong-from the
lowest Level 1 to the highest Level 5 pursuant to the Measures for
the Graded Protection and the Guidelines for Grading of Classified
Protection of Cyber Security. The grading result will determine the
set of security protection obligations that entities must comply
with. Entities classified as Level 2 or above should report the
grade to the relevant government authority for examination and
approval.
Recently, the Cyberspace Administration of China has taken action
against several Chinese internet companies in connection with their
initial public offerings on U.S. securities exchanges, for alleged
national security risks and improper collection and use of the
personal information of Chinese data subjects. According to the
official announcement, the action was initiated based on the
National Security Law, the Cyber Security Law and the Measures on
Cybersecurity Review, which are aimed at “preventing national data
security risks, maintaining national security and safeguarding
public interests.” On July 10, 2021, the Cyberspace Administration
of China published a revised draft of the Measures on Cybersecurity
Review, expanding the cybersecurity review to data processing
operators in possession of personal information of over 1 million
users if the operators intend to list their securities in a foreign
country.
It is unclear at the present time how widespread the cybersecurity
review requirement and the enforcement action will be and what
effect they will have on the life sciences sector generally and the
Company in particular. China’s regulators may impose penalties for
non-compliance ranging from fines or suspension of operations, and
this could lead to us delisting from the U.S. stock market.
Also, on August 20, 2021, the National People’s Congress passed the
Personal Information Protection Law, which will be implemented on
November 1, 2021. The law creates a comprehensive set of data
privacy and protection requirements that apply to the processing of
personal information and expands data protection compliance
obligations to cover the processing of personal information of
persons by organizations and individuals in China, and the
processing of personal information of persons in China outside of
China if such processing is for purposes of providing products and
services to, or analyzing and evaluating the behavior of, persons
in China. The law also proposes that critical information
infrastructure operators and personal information processing
entities who process personal information meeting a volume
threshold to-be-set by Chinese cyberspace regulators are also
required to store in China personal information generated or
collected in China, and to pass a security assessment administered
by Chinese cyberspace regulators for any export of such personal
information. Lastly, the draft contains proposals for significant
fines for serious violations of up to RMB 50 million or 5% of
annual revenues from the prior year.
Interpretation, application and enforcement of these laws, rules
and regulations evolve from time to time and their scope may
continually change, through new legislation, amendments to existing
legislation and changes in enforcement. Compliance with the Cyber
Security Law and the Data Security Law could significantly increase
the cost to us of providing our service offerings, require
significant changes to our operations or even prevent us from
providing certain service offerings in jurisdictions in which we
currently operate or in which we may operate in the future. Despite
our efforts to comply with applicable laws, regulations and other
obligations relating to privacy, data protection and information
security, it is possible that our practices, offerings or platform
could fail to meet all of the requirements imposed on us by the
Cyber Security Law, the Data Security Law and/or related
implementing regulations. Any failure on our part to comply with
such law or regulations or any other obligations relating to
privacy, data protection or information security, or any compromise
of security that results in unauthorized access, use or release of
personally identifiable information or other data, or the
perception or allegation that any of the foregoing types of failure
or compromise has occurred, could damage our reputation, discourage
new and existing counterparties from contracting with us or result
in investigations, fines, suspension or other penalties by Chinese
government authorities and private claims or litigation, any of
which could materially adversely affect our business, financial
condition and results of operations. Even if our practices are not
subject to legal challenge, the perception of privacy concerns,
whether or not valid, may harm our reputation and brand and
adversely affect our business, financial condition and results of
operations. Moreover, the legal uncertainty created by the Data
Security Law and the recent Chinese government actions could
materially adversely affect our ability, on favorable terms, to
raise capital, including engaging in follow-on offerings of our
securities in the U.S. market or the Stock Exchange of Hong
Kong.
Our auditor is headquartered in the United States, and is
subject to inspection by the PCAOB on a regular basis. To the
extent that our independent registered public accounting firm’s
audit documentation related to their audit reports for our company
become located in China, the PCAOB may not be able inspect such
audit documentation and, as such, you may be deprived of the
benefits of such inspection and our common stock could be delisted
from the stock exchange pursuant to the Holding Foreign Companies
Accountable Act.
Our independent registered public accounting firm issued an audit
opinion on the financial statements included in this prospectus
filed with the SEC and will issue audit reports related to our
company in the future. As auditors of companies that are traded
publicly in the United States and a firm registered with the PCAOB,
our auditor is required by the laws of the United States to undergo
regular inspections by the PCAOB. However, to the extent that our
auditor’s work papers become located in China, such work papers
will not be subject to inspection by the PCAOB because the PCAOB is
currently unable to conduct inspections without the approval of the
Chinese authorities. Inspections of certain other firms that the
PCAOB has conducted outside of China have identified deficiencies
in those firms’ audit procedures and quality control procedures,
which may be addressed as part of the inspection process to improve
future audit quality. We are required by the Holding Foreign
Companies Accountable Act to have an auditor that is subject to the
inspection by the PCAOB. While our present auditor is located in
the United States and the PCAOB is able to conduct inspections on
such auditor, to the extent this status changes in the future and
our auditor’s audit documentation related to their audit reports
for our company becomes outside of the inspection by the PCAOB, our
common stock could be delisted from the stock exchange pursuant to
the Holding Foreign Companies Accountable Act.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements which relate to
future events or our future financial performance. In some cases,
you can identify forward-looking statements by terminology such as
“may,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential” or “continue” or the negative
of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section
entitled “Risk Factors” that may cause our or our industry’s actual
results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity,
performance or achievements expressed or implied by these
forward-looking statements. In addition, you are directed to
factors discussed in the Business section and in the Management’s
Discussion of Financial Condition and Results of Operations section
and those discussed elsewhere in this prospectus. Factors that may
cause actual results, our performance or achievements, or industry
results, to differ materially from those contemplated by such
forward-looking statements include, without limitation:
|
● |
our
ability to establish our business model and generate revenue and
profit; |
|
● |
our
ability to expand our business model; |
|
● |
our
ability to manage or expand operations and to fill customers’
orders on time; |
|
● |
our
ability to maintain adequate control of our expenses as we seek to
grow; |
|
● |
our
ability to establish or protect our intellectual
property; |
|
● |
the
impact of significant government regulation in China; |
|
● |
our
ability to implement marketing and sales strategies and adapt and
modify them as needed; and |
|
● |
our
implementation of required financial, accounting and disclosure
controls and procedures and related corporate governance
policies. |
Although the forward-looking statements included herein, and any
assumptions upon which they are based, are made in good faith and
reflect our current judgment regarding the direction of our
business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections,
assumptions or other future performance suggested herein. Except as
required by applicable law, including by the securities laws of the
United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual
results.
USE OF PROCEEDS
We will not receive any proceeds from the sale of our common stock
offered by this prospectus. The Selling Stockholders will receive
all of the proceeds. We will pay all costs, fees and expenses
incurred in connection with the registration of the shares of our
common stock covered by this prospectus. However, the Company will
receive up to $5,458,669.44 from the full exercise of the Warrants
by the Selling Stockholders, assuming the exercise in full for all
of the shares underlying the Warrants for cash at an exercise price
of $4.48 per share. We expect to use the net proceeds from the
exercise of the warrants, if any, for working capital and general
corporate purposes or for other purposes that our Board of
Directors, in good faith, deems to be in our best interest of the
Company. Our management will have broad discretion over the use of
proceeds from the exercise of the Warrant.
There is no assurance that the holders of the Warrants will elect
to exercise any or all of the Warrants. To the extent that the
Warrants are exercised on a “cashless basis” when there is no
effective registration statement for the resale of the shares
underlying the Warrants, the amount of cash we would receive from
the exercise of the Warrants will decrease. In addition, should a
triggering event occur, as described in the Warrant, we could
receive less than $4.48 per share.
DIVIDEND POLICY
We do not anticipate paying dividends on our common stock at any
time in the foreseeable future. Our Board of Directors currently
plans to retain earnings for the development and expansion of our
business. Any future determination as to the payment of dividends
will be at the discretion of our Board of Directors and will depend
on a number of factors including future earnings, capital
requirements, financial conditions and such other factors as the
Board may deem relevant.
In addition, due to various restrictions under PRC laws on the
distribution of dividends by a Wholly Foreign-owned Enterprise, we
may not be able to pay dividends to our stockholders. The Wholly
Foreign-owned Enterprise Law (as amended in 2016), and the Wholly
Foreign-owned Enterprise Law Implementing Rules (as amended in
2014), and the Company Law of the PRC (as amended in 2013 and in
2018, respectively), contain the principal regulations governing
dividend distributions by wholly foreign owned enterprises. Under
these regulations, wholly foreign owned enterprises may pay
dividends only out of their accumulated profits, if any, determined
in accordance with PRC accounting standards and regulations.
Additionally, such companies are required to set aside at least 10%
of their accumulated profits each year, if any, to fund certain
reserve funds until such time as the accumulated reserve funds
reach and remain above 50% of the registered capital amount. These
reserves are not distributable as cash dividends except in the
event of liquidation and cannot be used for working capital
purposes. Furthermore, if our subsidiaries and affiliates in China
incur debt on their own in the future, the instruments governing
the debt may restrict our ability to pay dividends or make other
payments. If we or our subsidiaries and affiliates are unable to
receive all of the revenues from our operations through the current
contractual arrangements, we may be unable to pay dividends on our
common stock.
DILUTION
If you purchase shares of our common stock in this offering, your
interest will be diluted to the extent of the difference between
the offering price per share of our common stock and the as
adjusted net tangible book value per share of our common stock
after this offering. We calculate net tangible book value per share
by dividing our net tangible assets (total tangible assets less
total liabilities) by the number of shares of our common stock
issued and outstanding as of June 30, 2021.
Our historical net tangible book value at June 30, 2021 was
$(1,014,436) or approximately $(0.05) per share of our common
stock. Pro forma as adjusted net tangible book value is our net
tangible book value after taking into account the effect of the
exercise of the 1,218,453 Warrants at the assumed exercise price of
$4.48 per share and sale of 2,436,904 shares of the common stock in
the registered direct offering concurrently to the issuance of
Warrants pursuant to the July SPA at the offering price of $3.48
per share less estimated offering expenses payable by us. Our pro
forma as adjusted net tangible book value as of June 30, 2021 would
have been approximately $12,081,029, or $0.48 per share. This
amount represents an immediate increase in as adjusted net tangible
book value of approximately $0.53 per share to our existing
stockholders, and an immediate dilution of $4.00 per share to new
investors participating in this offering. Dilution per share to new
investors is determined by subtracting pro forma as adjusted net
tangible book value per share after this offering from the offering
price per share paid by new investors.
The following table illustrates per share dilution:
Assume offering price per share underlying the warrants |
|
$ |
4.48 |
|
Net tangible book value per share as of June 30, 2021 |
|
$ |
(0.05 |
) |
Increase in as adjusted net tangible book value per share
attributable to this offering |
|
$ |
0.53 |
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share as of June
30, 2021, after giving effect to this offering including the
consideration of fully exercise of the warrants issued from this
offering at exercise price of $4.48 per share |
|
$ |
0.48 |
|
Dilution in as adjusted tangible book value per share to new
investors purchasing shares in this offering |
|
$ |
4.00 |
|
To the extent that we issue other shares, investors purchasing
shares in this offering could experience further dilution. In
addition, to the extent that we raise additional capital through
the sale of equity or convertible debt securities, the issuance of
those securities could result in further dilution to our
stockholders.
DESCRIPTION OF
WARRANTS
The material terms and
provisions of the Warrants are summarized below. The summary is
subject to, and qualified in its entirety by, the form of each
warrant is attached as an exhibit to this registration
statement.
On July 20, 2021, the Company entered into a securities purchase
agreement (the “July SPA”) with certain institutional investors,
pursuant to which the Company agreed to sell to such investors an
aggregate of 2,436,904 shares of common stock of the Company at a
purchase price of $3.48 per share. The shares are issued from
a shelf registration statement on Form S-3. The Company also sold
warrants (the “Investor Warrants”) to purchase 1,096,608 shares of
common stock to such investors in a concurrent private placement.
The closing of the sales of these securities under the securities
purchase agreement took place on July 22, 2021 (the transaction,
the “July Offering”). In connection with the July Offering, the
Company engaged FT Global Capital, Inc. (the “Placement Agent”) and
entered into a placement agent agreement (the “Placement Agent
Agreement”) with the Placement Agent on July 20, 2021, pursuant to
which the Company issued to the Placement Agent warrants (the “PA
Warrants”, collectively with the Investor Warrants, the “Warrants”)
to purchase a number of shares of common stock equal to 5.0% of the
aggregate number of shares of common stock sold in the July
Offering.
Subject to certain beneficial ownership limitations, the Investor
Warrants are immediately exercisable at an exercise price equal to
$4.48 per share, subject to adjustments as provided under the terms
of the Investor Warrants, and will terminate on the two and
one-half year anniversary following the initial exercise date of
the Investor Warrants. Similarly, the PA Warrants are immediately
exercisable at an exercise price equal to $4.48 per share and will
terminate on the two and one-half-year anniversary of the closing
of the July Offering.
Within 30 calendar days from the date of the July SPA, the Company
shall file a registration statement for the resale by the investors
of the shares of common stock underlying the Investor Warrants and
use commercially reasonable best efforts to cause such registration
to become effective no later than 181 days from the date of closing
and keep such registration statement effective at all times until
no investors owns any Investor Warrants or shares of common stock
issuable upon exercise thereof.
SELLING
STOCKHOLDERS
The
following table sets forth the name of each Selling Stockholder and
the number of shares of common stock that each Selling Stockholder
may offer from time to time pursuant to this prospectus. The shares
of common stock that may be offered by the Selling Stockholders
hereunder may be acquired by the Selling Stockholders upon the
exercise by the Selling Stockholders of the Warrants that are held
by the Selling Stockholders. The shares of common stock that may be
offered by the Selling Stockholders hereunder consist of (i)
1,096,608 shares of common stock issuable upon the exercise of the
Investor Warrants that were issued to certain of the Selling
Stockholders on July 22, 2021 pursuant to the July SPA and (ii)
121,485 shares of common stock issuable upon the exercise of the PA
Warrants pursuant to the Placement Agent Agreement. Except as
otherwise indicated, we believe that each of the beneficial owners
and Selling Stockholders listed below has sole voting and
investment power with respect to such shares of common stock,
subject to community property laws, where applicable.
Except
as noted in the table below, none of the Selling Stockholders has
had a material relationship with us other than as a stockholder at
any time within the past three years or has ever been one of our or
our affiliates’ officers or directors. Each of the Selling
Stockholders has acquired the Warrants (and the shares of common
stock issuable upon the exercise thereof) in the ordinary course of
business and, at the time of acquisition of the Warrants, none
of the Selling Stockholders was a party to any agreement or
understanding, directly or indirectly, with any person to
distribute the shares of common stock to be resold by such Selling
Stockholders under the registration statement of which this
prospectus forms a part.
Because
a Selling Stockholder may sell all, some or none of the shares of
common stock that it holds that are covered by this prospectus, and
because the offering contemplated by this prospectus is not
underwritten, no estimate can be given as to the number of shares
of our common stock that will be held by a Selling Stockholder upon
termination of the offering. The information set forth in the
following table regarding the beneficial ownership after resale of
shares is based upon the assumption that the Selling Stockholders
will sell all of the shares of common stock covered by this
prospectus.
In
accordance with the rules and regulations of the SEC, in computing
the number of shares of common stock beneficially owned by a person
and the percentage ownership of that person, shares issuable
through the exercise of any option, warrant or right, through
conversion of any security held by that person that are currently
exercisable or that are exercisable within sixty (60) days are
included. These shares are not, however, deemed outstanding for the
purpose of computing the percentage ownership of any other
person.
|
|
Shares Owned Prior to
the Offering |
|
|
Number
of Shares
Offered |
|
|
Shares Owned After
the Offering |
|
Name |
|
Number (1) |
|
|
Percent (2) |
|
|
Shares (3) |
|
|
Number |
|
|
Percent |
|
Intracoastal Capital, LLC
(4) |
|
|
990,543 |
|
|
|
4.14 |
% |
|
|
274,152 |
|
|
|
716,391 |
|
|
|
3.00 |
% |
3i, LP (5) |
|
|
883,378 |
|
|
|
3.69 |
% |
|
|
274,152 |
|
|
|
609,226 |
|
|
|
2.55 |
% |
L1 Capital Global Opportunities Master
Fund (6) |
|
|
883,378 |
|
|
|
3.69 |
% |
|
|
274,152 |
|
|
|
609,226 |
|
|
|
2.55 |
% |
Hudson Bay Master Fund Ltd. (7) |
|
|
883,378 |
|
|
|
3.69 |
% |
|
|
274,152 |
|
|
|
609,226 |
|
|
|
2.55 |
% |
F. Alec Orudjev (8) |
|
|
20,000 |
|
|
|
* |
|
|
|
20,000 |
|
|
|
0 |
|
|
|
N/A |
|
Jian Ke (9) |
|
|
101,845 |
|
|
|
* |
|
|
|
101,845 |
|
|
|
0 |
|
|
|
N/A |
|
(1) |
Assumes
the Warrants held by the Selling Stockholders are exercised in full
solely for the purpose of this section.
|
(2) |
Based
on 23,911,042 shares issued and outstanding as of August 27, 2021.
Shares of our common stock underlying the Warrants are not
counted for the purposes of this calculation.
|
(3) |
Assumes
sale of all shares available for sale under this prospectus and no
further acquisitions of shares by the Selling
Stockholders.
|
(4) |
Includes
274,152 shares of our common stock underlying the Warrants and
716,391 shares of our common stock. The Warrants held by
Intracoastal Capital LLC (“Intracoastal”) are subject to a
beneficial ownership limitation of 4.99%, which does not permit
Intracoastal to exercise that portion of the Warrants that would
result in Intracoastal and its affiliates owning, after exercise, a
number of shares of common stock in excess of the beneficial
ownership limitation. Mitchell P. Kopin (“Mr. Kopin”) and Daniel B.
Asher (“Mr. Asher”), each of whom are managers of Intracoastal,
have shared voting control and investment discretion over the
securities reported herein that are held by Intracoastal. As a
result, each of Mr. Kopin and Mr. Asher may be deemed to have
beneficial ownership (as determined under Section 13(d) of the
Exchange Act of the securities reported herein that are held by
Intracoastal.
|
(5) |
Includes
274,152 shares of our common stock underlying the Warrants and
609,226 shares of our common stock issued by the Company to 3i, LP
in the July Offering. The Warrants held by 3i, LP are subject to a
beneficial ownership limitation of 4.99%, which does not permit 3i,
LP to exercise that portion of the Warrants that would result in
3i, LP and its affiliates owning, after exercise, a number of
shares of common stock in excess of the beneficial ownership
limitation. Maier J. Tarlow is the manager of 3i Management LLC,
which is the general partner of 3i, LP and in such capacity has the
right to vote and dispose of the securities held by 3i, LP. The
business address of Tarlow is 140 Broadway Fl 38, New York, NY
10005.
|
(6) |
Includes
274,152 shares of our common stock underlying the Warrants and
609,226 shares of our common stock issued by the Company to L1
Capital Global Opportunities Master Fund (“L1 Capital”) in the July
Offering. The Warrants held by L1 Capital are subject to a
beneficial ownership limitation of 4.99%, which does not permit L1
Capital to exercise that portion of the Warrants that would result
in L1 Capital and its affiliates owning, after exercise, a number
of shares of common stock in excess of the beneficial ownership
limitation. David Feldman and Joel Arber are the Directors of L1
Capital Global Opportunities Master Fund Ltd. As such, L1 Capital
Global Opportunities Master Fund Ltd, Mr. Feldman and Mr. Arber may
be deemed to beneficially own the shares of the Company held by L1
Capital Global Opportunities Master Fund. To the extent Mr. Feldman
and Mr. Arber are deemed to beneficially own such shares, Mr.
Feldman and Mr. Arber disclaim beneficial ownership of these
securities for all other purposes. Address: 161A Shedden Road, 1
Artillery Court, PO Box 10085, Grand Cayman, Cayman Islands
KY1-1001.
|
(7) |
Includes
274,152 shares of our common stock underlying the Warrants and
609,226 shares of our common stock issued by the Company to Hudson
Bay Master Fund Ltd. (“Hudson Bay”) in the July Offering. The
Warrants held by Hudson Bay are subject to a beneficial ownership
limitation of 9.99%, which does not permit Hudson Bay to exercise
that portion of the Warrants that would result in Hudson Bay and
its affiliates owning, after exercise, a number of shares of common
stock in excess of the beneficial ownership limitation. Hudson Bay
Capital Management LP, the investment manager of Hudson Bay, has
voting and investment power over these securities. Sander Gerber is
the managing member of Hudson Bay Capital GP LLC, which is the
general partner of Hudson Bay Capital Management LP. Each of Hudson
Bay and Sander Gerber disclaims beneficial ownership over these
securities. Address: c/o Hudson Bay Capital Management LP, 777
Third Avenue, 30th Floor, New York, NY 10017.
|
(8) |
Mr.
Orudjev is the General Counsel of FT Global Capital, Inc. (Member
FINRA/SIPC), the Placement Agent in the July Offering. Address:
1688 Meridian Avenue, Suite 700 Miami Beach, FL 33139.
|
(9) |
Mr.
Ke is the President of FT Global Capital, Inc. Address: 1688
Meridian Avenue, Suite 700 Miami Beach, FL 33139.
|
PLAN OF
DISTRIBUTION
The
common stock covered by this prospectus may be offered and sold
from time to time by the Selling Stockholders. The term “Selling
Stockholder” includes pledgees, donees, transferees or other
successors in interest selling shares received after the date of
this prospectus from each of the Selling Stockholder as a pledge,
gift, partnership distribution or other non-sale related transfer.
The number of shares beneficially owned by Selling Stockholders
will decrease as and when they effect any such transfers. The plan
of distribution for the Selling Stockholders’ shares sold hereunder
will otherwise remain unchanged, except that the transferees,
pledgees, donees or other successors will be Selling Stockholders
hereunder. To the extent required, we may amend and supplement this
prospectus from time to time to describe a specific plan of
distribution. The Selling Stockholders will act independently of us
in making decisions with respect to the timing, manner and size of
each sale. Once sold under this registration statement, of which
this prospectus forms a part, the shares of common stock will be
freely tradable in the hands of persons other than our
affiliates.
We
will not receive any of the proceeds from the sale by the Selling
Stockholders of the shares of common stock. We will bear all fees
and expenses incident to our obligation to register the shares of
common stock.
The
Selling Stockholders may make these sales at prices and under terms
then prevailing or at prices related to the then current market
price. The Selling Stockholders may also make sales in negotiated
transactions. The Selling Stockholders may offer their shares from
time to time pursuant to one or more of the following
methods:
|
● |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers; |
|
● |
one
or more block trades in which the broker-dealer will attempt to
sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction; |
|
● |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its account; |
|
● |
an
exchange distribution in accordance with the rules of the
applicable exchange; |
|
● |
public
or privately negotiated transactions; |
|
● |
on
the NASDAQ Capital Market (or through the facilities of any
national securities exchange or U.S. inter- dealer quotation system
of a registered national securities association, on which the
shares are then listed, admitted to unlisted trading privileges or
included for quotation); |
|
● |
through
underwriters, brokers or dealers (who may act as agents or
principals) or directly to one or more purchasers; |
|
● |
a
combination of any such methods of sale; and |
|
● |
any
other method permitted pursuant to applicable law. |
In
connection with distributions of the shares or otherwise, the
Selling Stockholders may:
|
● |
enter
into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the shares
in the course of hedging the positions they assume; |
|
● |
sell
the shares short after the effective date of the registration
statement of which this prospectus forms a part and redeliver the
shares to close out such short positions; |
|
● |
enter
into option or other transactions with broker-dealers or other
financial institutions which require the delivery to them of shares
offered by this prospectus, which they may in turn resell;
and |
|
● |
pledge
shares to a broker-dealer or other financial institution, which,
upon a default, they may in turn resell. |
In
addition to the foregoing methods, the Selling Stockholders may
offer their shares from time to time in transactions involving
principals or brokers not otherwise contemplated above, in a
combination of such methods as described above or any other lawful
methods. The Selling Stockholders may also transfer, donate or
assign their shares to lenders, family members and others and each
of such persons will be deemed to be a Selling Stockholder for
purposes of this prospectus. The Selling Stockholders or their
successors in interest may from time to time pledge or grant a
security interest in some or all of the shares of common stock, and
if any Selling Stockholder defaults in the performance of its
secured obligations, the pledgees or secured parties of such
Selling Stockholder may offer and sell the shares of common stock
from time to time under this prospectus; provided,
however in the event of a pledge or then default on a
secured obligation by a Selling Stockholder, in order for the
shares to be sold under this registration statement, unless
permitted by law, we must distribute a prospectus supplement and/or
amendment to this registration statement amending the list of
Selling Stockholders to include the pledgee, secured party or other
successors in interest of such Selling Stockholder under this
prospectus.
The
Selling Stockholders may also sell their shares pursuant to Rule
144 under the Securities Act, provided the applicable Selling
Stockholder meets the criteria and conforms to the requirements of
such rule.
The
Selling Stockholders may effect such transactions directly or
indirectly through underwriters, broker-dealers or agents acting on
their behalf. Broker-dealers or agents may receive commissions,
discounts or concessions from the Selling Stockholders, in amounts
to be negotiated immediately prior to the sale (which compensation
as to a particular broker-dealer might be in excess of customary
commissions for routine market transactions). If the shares of
common stock are sold through underwriters or broker-dealers, the
applicable Selling Stockholder will be responsible for underwriting
discounts or commissions or agent’s commissions. Neither we, nor
the Selling Stockholders, can presently estimate the amount of that
compensation. If any Selling Stockholder notifies us that a
material arrangement has been entered into with a broker- dealer
for the sale of shares through a block trade, special offering,
exchange, distribution or secondary distribution or a purchase by a
broker or dealer, we will file a prospectus supplement, if required
by Rule 424 under the Securities Act, setting forth: (i) the name
of each of the selling stockholders and the participating
broker-dealers; (ii) the number of shares involved; (iii) the price
at which the shares were sold; (iv) the commissions paid or
discounts or concessions allowed to the broker-dealers, where
applicable; (v) a statement to the effect that the broker-dealers
did not conduct any investigation to verify the information set out
or incorporated by reference in this prospectus; and any other fact
material to the transaction.
The
Selling Stockholders and any other person participating in a
distribution of the shares covered by this prospectus will be
subject to applicable provisions of the Exchange Act, including,
without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the shares by the Selling
Stockholders and any other such person. Furthermore, under
Regulation M, any person engaged in the distribution of the shares
may not simultaneously engage in market-making activities with
respect to the particular shares being distributed for certain
periods prior to the commencement of, or during, that distribution.
All of the above may affect the marketability of the shares and the
ability of any person or entity to engage in market-making
activities with respect to the shares. We have advised the Selling
Stockholders that the anti-manipulation rules of Regulation M under
the Exchange Act may apply.
In
offering the shares covered by this prospectus, the Selling
Stockholders, and any broker-dealers and any other participating
broker-dealers who execute sales for the Selling Stockholders, may
be deemed to be “underwriters” within the meaning of the Securities
Act in connection with these sales. Any profits realized by the
Selling Stockholders and the compensation of such broker-dealers
may be deemed to be underwriting discounts and commissions. We are
not aware that any Selling Stockholder has entered into any
arrangements with any underwriters or broker-dealers regarding the
sale of its shares of our common stock.
LEGAL
MATTERS
The validity
of the common stock registered for resale hereby will be passed
upon for us by Flangas Law Group.
EXPERTS
The consolidated balance sheets of our Company and its subsidiaries
as of June 30, 2021 and June 30, 2020, and the related consolidated
statements of operations and comprehensive loss, changes in
stockholders’ equity and cash flow for the years then ended
appearing in this registration statement have been incorporated by
reference in the registration statement in reliance on the reports
of Benjamin & Ko and Morison Cogen LLP, respectively, given the
authority of such firms as experts in accounting and auditing.
INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by reference” the information we
file with them into this prospectus. This means that we can
disclose important information about us and our financial condition
to you by referring you to another document filed separately with
the SEC instead of having to repeat the information in this
prospectus. The information incorporated by reference is considered
to be part of this prospectus and later information that we file
with the SEC will automatically update and supersede this
information. This prospectus incorporates by reference any future
filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d)
of the Exchange Act, between the date of the initial registration
statement and prior to effectiveness of the registration statement
and the documents listed below that we have previously filed with
the SEC:
|
● |
our
Current Reports on Form 8-K, filed with the SEC on
July 22, 2021, August
4, 2021 and
September 17, 2021, respectively; |
|
● |
our Quarterly Report on
Form 10-Q, filed with the SEC on November 12, 2021; and |
|
● |
our
Annual Report on Form
10-K for the year ended June 30, 2021, filed with the SEC
on September 28, 2021. |
We also incorporate by reference all documents that we file with
the SEC on or after the effective time of this prospectus pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior
to the sale of all the securities registered hereunder or the
termination of the registration statement. Nothing in this
prospectus shall be deemed to incorporate information furnished but
not filed with the SEC.
Any statement contained in this prospectus or in a document
incorporated or deemed to be incorporated by reference in this
prospectus shall be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement
contained herein or in the applicable prospectus supplement or in
any other subsequently filed document that also is or is deemed to
be incorporated by reference modifies or supersedes the statement.
Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this
prospectus.
You may request a copy of the filings incorporated herein by
reference, including exhibits to such documents that are
specifically incorporated by reference, at no cost, by writing or
calling us at the following address or telephone number:
DATASEA INC.
20th Floor, Tower B, Guorui Plaza
1 Ronghua South Road, Technological
Development Zone
Beijing, People’s Republic of China 100176
+86 10-56145240
Statements contained in this prospectus as to the contents of any
contract or other documents are not necessarily complete, and in
each instance you are referred to the copy of the contract or other
document filed as an exhibit to the registration statement or
incorporated herein, each such statement being qualified in all
respects by such reference and the exhibits and schedules
thereto.
WHERE YOU CAN FIND MORE
INFORMATION
We
have filed with the SEC a registration statement on Form S-1 under
the Securities Act with respect to our common stock offered by this
prospectus. This prospectus is a part of the registration statement
and does not contain all of the information set forth in the
registration statement and its exhibits and schedules, portions of
which have been omitted as permitted by the rules and regulations
of the SEC. For further information about us and our common stock,
you should refer to the registration statement and its exhibits and
schedules. Statements in this prospectus about the contents of any
contract, agreement or other document are not necessarily complete
and in each instance that a copy of such contract, agreement or
document has been filed as an exhibit to the registration
statement, we refer you to the copy that we have filed as an
exhibit.
We
will file annual, quarterly and special reports and other
information with the SEC. Our filings with the SEC are available to
the public on the SEC’s website at http://www.sec.gov.
The information we file with the SEC or contained on or accessible
through our corporate web site or any other web site that we may
maintain is not part of this prospectus or the registration
statement of which this prospectus is a part. You may also read and
copy, at SEC prescribed rates, any document we file with the SEC,
including the registration statement (and its exhibits) of which
this prospectus is a part, at the SEC’s Public Reference Room
located at 100 F Street, N.E., Washington D.C. 20549. You can call
the SEC at 1-800-SEC-0330 to obtain information on the operation of
the Public Reference Room.

1,218,453 SHARES OF COMMON STOCK
PROSPECTUS
,
2021
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The estimated expenses payable by us in connection with the
offering described in this registration statement (other than the
underwriting discounts and commissions) will be as follows:
SEC
registration fee |
|
$ |
506.02 |
|
Legal fees and
expenses |
|
$ |
* |
|
Accounting fees and
expenses |
|
$ |
* |
|
Miscellaneous fees and expenses |
|
$ |
* |
|
Total |
|
$ |
* |
|
|
* |
Estimated expenses are presently not known and
cannot be estimated. |
Item 14. Indemnification of Directors and Officers
Nevada Law
Section 78.7502 of the Nevada Revised Statutes provides that a
Nevada corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the
right of the corporation, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses,
including attorneys’ fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he is not liable under
Section 78.138 of the Nevada Revised Statutes for breach of his or
her fiduciary duties to the corporation or he acted in good faith
and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
Section 78.7502 further provides a Nevada corporation may indemnify
any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses, including amounts paid in
settlement and attorneys’ fees actually and reasonably incurred by
him in connection with the defense or settlement of the action or
suit if he is not liable under Section 78.138 of the Nevada Revised
Statutes for breach of his or her fiduciary duties to the
corporation or he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of the corporation.
Indemnification may not be made for any claim, issue or matter as
to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which
the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems
proper.
To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in
defense of any non-derivative proceeding or any derivative
proceeding, or in defense of any claim, issue or matter therein,
the corporation shall indemnify him or her against expenses,
including attorneys’ fees, actually and reasonably incurred in
connection with the defense.
Further, Nevada law permits a Nevada corporation to purchase and
maintain insurance or to make other financial arrangements on
behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him or her and
liability and expenses incurred by him or her in his or her
capacity as a director, officer, employee or agent, or arising out
of his or her status as such, whether or not the corporation has
the authority to indemnify him or her against such liability and
expenses.
Charter Provisions
Pursuant to our Articles of Incorporation, as amended and Amended
and Restate Bylaws, we may indemnify an officer or director who is
made a party to any proceeding, including a lawsuit, because of his
position, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to our best interest, provided,
however, that (i) we will not indemnify such person against
expenses incurred in connection with an action if he is threatened
but does not become a party unless the incurring of such expenses
was authorized by the Board of Directors and (ii) we will not
indemnify against any amount paid in settlement unless our Board of
Directors has consented to such settlement.
An officer or director is not entitled to indemnification against
costs or expenses incurred in connection with any action, commenced
by such person against us or any person who is or was a director,
officer, fiduciary, employee or agent of our company unless and to
the extent that the officer or directors is successful on the
merits in any such proceeding as to which such person is to be
indemnified, we must indemnify him against all expenses incurred,
including attorney’s fees. With respect to a derivative action,
indemnity may be made only for expenses actually and reasonably
incurred in defending the proceeding, and if the officer or
directors is judged liable, only by a court order. The
indemnification is intended to be to the fullest extent permitted
by the laws of the State of Nevada.
Item 15. Recent Sales of Unregistered Securities
Set forth below is
information regarding shares of common stock issued by us in the
past three years that were not registered under the Securities Act
of 1933.
In September 2018 and January 2019, we sold to certain investors an
aggregate of 84,000 shares and 21,500 of common stock for cash
proceeds of $246,946 and $63,235, respectively. All the investors
are non-U.S. persons, as defined in Regulation S. The investors are
all individuals residing in the People’s Republic of China.
As disclosed above, on July 20, 2021, the Company entered into
certain Securities Purchase Agreement (the “July SPA”) with certain
institutional investors, pursuant to which the Company agreed to
sell to such investors an aggregate of 2,436,904 shares of common
stock of the Company at a purchase price of $3.48 per
share. The common stock issued to such investors are
registered shares. The Company also sold warrants (the “Investor
Warrants”) to purchase 1,096,608 shares of common stock to such
investors in a concurrent private placement. The closing of the
sales of these securities under the July SPA took place on July 22,
2021 (the transaction, the “July Offering”). In connection with the
July Offering, the Company engaged FT Global Capital, Inc. (the
“Placement Agent”) and entered into a placement agent agreement
(the “Placement Agent Agreement”) with the Placement Agent on July
20, 2021, pursuant to which the Company issued to the Placement
Agent warrants (the “PA Warrants”, collectively with the Investor
Warrants, the “Warrants”) to purchase a number of shares of common
stock equal to 5.0% of the aggregate number of shares of common
stock sold in the July Offering. The Company has issued
the Warrants in reliance upon the exemption from registration
contained in Section 4(2) under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(1) Financial Statements
Financial Statements and Reports of Independent Registered Public
Accounting Firms are incorporated by reference from the Company’s
Annual Report on Form 10-K filed with the SEC on September 28,
2021.
(2) Financial Statement Schedules
Schedules are omitted because the required information is not
present or is not present in amounts sufficient to require
submission of the schedule or because the information required is
given in the consolidated financial statements or the notes
thereto.
(3) Exhibits
Exhibit No. |
|
Description |
1.1 |
|
Form of Underwriting Agreement,
incorporated herein by reference to Exhibit 1.1 of the S-1/A filed
on October 16, 2018. |
2.1 |
|
Share
Exchange Agreement, dated October 29, 2015, by and among Datasea
Inc., Shuhai Information Skill (HK) Limited, Zhixin Liu and Fu Liu,
incorporated herein by reference to Exhibit 10.1 of the
Post-Effective Amendment No. 1 to Form S-1 filed on February 10,
2016 |
3.1 |
|
Articles of
Incorporation, incorporated herein by reference to Exhibit 3.1 of
the Registration Statement on Form S-1 filed on February 13,
2015. |
3.2 |
|
First
Amendment to Articles of Incorporation, dated May 27, 2015,
incorporated herein by reference to Exhibit 3.1(ii) of the
Post-Effective Amendment No. 1 to Form S-1 filed on February 10,
2016 |
3.3 |
|
Certificate
of Change, dated November 12, 2015, incorporated herein by
reference to Exhibit 3.1 of Form 8-K filed on November 19,
2015. |
3.4 |
|
Amended and
Restated Bylaws, adopted on August 20, 2015, incorporated herein by
reference to Exhibit 3.2(ii) of the Post-Effective Amendment No. 1
to Form S-1 filed on February 10, 2016 |
3.5 |
|
Certificate
of Amendment to Articles of Incorporation of Datasea Inc.,
incorporated herein by reference to Exhibit 3.1 of the Form 8-K
filed on April 20, 2018 |
4.1 |
|
Form of
Underwriter’s Warrant, incorporated herein by reference to Exhibit
4.1 of the S-1/A filed on October 16, 2018. |
4.2 |
|
Form of Warrant, in connection with
the registered direct offering closed on July 22, 2021,
incorporated herein by reference to Exhibit 4.1 of the 8-K filed on
July 22, 2021 |
4.3 |
|
Form of Placement Agent Warrant, in
connection with the registered direct offering closed on July 22,
2021, incorporated herein by reference to Exhibit 4.2 of the 8-K
filed on July 22, 2021. |
5.1 |
|
Legal Opinion of Flangas Law
Group** |
10.1 |
|
Operation
and Intellectual Property Service Agreement, dated October 20,
2015, by and among Tianjin Information Sea Information Technology
Co., Ltd. and Shuhai Information Technology Co. Ltd., Fu Liu and
Zhixin Liu, incorporated herein by reference to Exhibit 10.2 of the
Post-Effective Amendment No. 1 to Form S-1 filed on February 10,
2016 |
10.2 |
|
Shareholder’s Voting
Rights Entrustment Agreement, dated October 27, 2015, by and among
Tianjin Information Sea Information Technology Co., Ltd. and Shuhai
Information Technology Co. Ltd., Fu Liu and Zhixin Liu,
incorporated herein by reference to Exhibit 10.3 of the
Post-Effective Amendment No. 1 to Form S-1 filed on February 10,
2016 |
10.3 |
|
Option
Agreement, dated October 27, 2015, by and between Tianjin
Information Sea Information Technology Co., Ltd. and Fu Liu and
Zhixin Liu, incorporated herein by reference to Exhibit 10.4 of the
Post-Effective Amendment No. 1 to Form S-1 filed on February 10,
2016 |
10.4 |
|
Equity
Pledge Agreement, dated October 27, 2015 by and between Tianjin
Information Sea Information Technology Co., Ltd. and Fu Liu and
Zhixin Liu, incorporated herein by reference to Exhibit 10.5 of the
Post-Effective Amendment No. 1 to Form S-1 filed on February 10,
2016 |
10.5 |
|
Employment
Agreement, dated February 11, 2015 by and between Shuhai
Information Technology Co., Ltd. and Ms. Zhixin Liu, incorporated
herein by reference to Exhibit 10.6 of the Post-Effective Amendment
No. 1 to Form S-1 filed on February 10, 2016 |
10.6 |
|
Translation
of the Amendment to the Employment Agreement by and between Shuhai
Information Technology Co., Ltd. and Ms. Zhixin Liu dated January
1, 2017, incorporated herein by reference to Exhibit 10.6 of the
S-1/A filed on January 31, 2018. |
10.7 |
|
Wireless
Internet Access In Public Places Security Management and Control
Systems Feature Collection Equipment Purchase Contract, dated
January 8, 2016, by and between Shuhai Information Technology Co.,
Ltd. and Daqing City Public Security Bureau, incorporated herein by
reference to Exhibit 10.7 of the Post-Effective Amendment No. 1 to
Form S-1 filed on February 10, 2016. |
10.8 |
|
The 2018
Equity Incentive Plan of Datasea Inc., incorporated herein by
reference to Exhibit 10.14 of the Form 10-K for the year ended June
30, 2018 filed on September 13, 2018. |
10.9 |
|
Form of
Indemnification Escrow Agreement, incorporated herein by reference
to Exhibit 10.9 of the S-1/A filed on October 16,
2018. |
10.10 |
|
Translation
of the Lease Agreement by and between Shuhai Information Technology
Co., Ltd. and Beijing Chang Ning Machinery Electric Science and
Technology Co., Ltd. dated December 29, 2017, incorporated herein
by reference to Exhibit 10.10 of the S-1/A filed on January 31,
2018. |
10.11 |
|
Translation
of the Building Property Management Contract by and between Shuhai
Information Technology Co., Ltd. and Zhuozhou City Changning
Property Service Co., Ltd. dated December 29, 2017, incorporated
herein by reference to Exhibit 10.11 of the S-1/A filed on January
31, 2018. |
10.12 |
|
Translation
of the Lease Agreement by and between Shuhai Information Technology
Co., Ltd. and Beijing Chang Ning Machinery Electric Science and
Technology Co., Ltd. dated December 8, 2016, incorporated herein by
reference to Exhibit 10.12 of the S-1/A filed on January 31,
2018. |
10.13 |
|
Translation
of the Building Property Management Contract by and between Shuhai
Information Technology Co., Ltd. and Beijing Changning Property
Service Co., Ltd. dated December 8, 2016, incorporated herein by
reference to Exhibit 10.13 of the S-1/A filed on January 31,
2018. |
10.14 |
|
Employment
Agreement, dated February 11, 2018, by and between Shuhai
Information Technology Co., Ltd. and Ms. Zhixin Liu., incorporated
herein by reference to Exhibit 10.14 of the S-1/A filed on April 5,
2018. |
10.15 |
|
Translation
of the Banking Service Direct Sales Cooperation Agreement Between
China Minsheng Bank Co. and Shuhai Information Technology Co., Ltd.
dated March 15, 2018, incorporated herein by reference to Exhibit
10.15 of the S-1/A filed on April 5, 2018. |
10.16 |
|
Form
of Director Offer Letter, incorporated herein by reference to
Exhibit 10.18 of the S-1/A filed on October 16,
2018. |
10.17 |
|
Translation
of the Lease Agreement, dated July 30, 2019, by and between Shuhai
Information Technology Co., Ltd. and Beijing Kaipeng Technology
Co., Ltd., incorporated herein by reference to Exhibit 10.18 of the
10-K filed on October 15, 2019. |
10.18 |
|
Common Stock Purchase Agreement,
dated October 22, 2020, by and between Datasea, Inc. and Triton
Funds LP, incorporated herein by reference to Exhibit 10.1 of the
8-K filed on October 23, 2020. |
10.19 |
|
Form of Securities Purchase Agreement
in connection with the registered direct offering closed on July
22, 2021, incorporated herein by reference to Exhibit 10.1 of the
8-K filed on July 22, 2021 |
10.20 |
|
Placement Agency Agreement, dated
July 20, 2021, by and between Datasea, Inc. and FT Global Capital,
Inc., incorporated herein by reference to Exhibit 10.2 of the 8-K
filed on July 22, 2021 |
10.21 |
|
English Translation of the Employment
Agreement, dated August 1, 2021, by and between Datasea, Inc. and
Mingzhou Sun, incorporated herein by reference to Exhibit 10.1 of
the 8-K filed on August 4, 2021 |
10.22 |
|
English Translation of the Lease
Agreement, dated August 11, 2020, by and between Tianjin
Information Sea Information Technology Co., Ltd. and Shenzhen
Lvjing Real Estate Development Co., Ltd., incorporated herein by
reference to Exhibit 10.18 of the 10-K filed on September 28,
2021. |
10.23 |
|
English Translation of the Lease
Agreement, dated August 26, 2020, by and between Tianjin
Information Sea Information Technology Co., Ltd. and Hangzhou
Zhexin Information Technology Co., LTD, incorporated herein by
reference to Exhibit 10.19 of the 10-K filed on September 28,
2021. |
10.24 |
|
English
Translation of the Supplementary Lease Agreement, dated January 14,
2021, by and among Tianjin Information Sea Information Technology
Co., Ltd., Hangzhou Zhexin Information Technology Co., LTD and
Hangzhou Shuhai Zhangxun Information Technology Co., Ltd.,
incorporated herein by reference to Exhibit 10.20 of the 10-K filed
on September 28, 2021. |
14.1 |
|
Code
of Ethics, incorporated herein by reference to Exhibit 14.1 of the
S-1/A filed on October 16, 2018. |
21.1 |
|
List of Subsidiaries, incorporated
herein by reference to Exhibit 21.1 of the Form 10-K filed on
September 28, 2020 |
23.1 |
|
Consent of Benjamin &
Ko* |
23.2 |
|
Consent of Morison Cogen
LLP* |
23.3 |
|
Consent of Flangas Law Group
(included in Exhibit 5.1) |
24.1 |
|
Power of Attorney (included on
signature page)** |
|
* |
To be filed by amendment |
Item 17. Undertakings
The undersigned registrant hereby undertakes:
|
(a) |
The
undersigned registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser. |
|
(b) |
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by
a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue. |
|
(c) |
The
undersigned registrant hereby undertakes that: |
|
(1) |
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement: |
|
(i) |
To
include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; |
|
(ii) |
To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the “Calculation of Registration Fee” table in the
effective registration statement; |
|
(iii) |
To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement. |
|
(2) |
For
purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time
it was declared effective. |
|
(3) |
To
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering. |
|
(4) |
For
the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof. |
|
(5) |
For
the purpose of determining liability of a registrant under the
Securities Act of 1933 to any purchaser in the initial distribution
of the securities, the undersigned registrant undertakes that in a
primary offering of securities of an undersigned registrant
pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer
or sell such securities to such purchaser: |
|
(i) |
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424; |
|
(ii) |
Any
free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by an
undersigned registrant; |
|
(iii) |
The
portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and |
|
(iv) |
Any
other communication that is an offer in the offering made by the
undersigned registrant to the purchaser. |
|
(d) |
For
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant’s annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan’s annual report pursuant to section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof. |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the
City of Beijing, China, on the 16th day of November, 2021.
|
DATASEA
INC. |
|
|
|
By: |
/s/ Zhixin Liu |
|
Name: |
Zhixin Liu |
|
Title: |
President, Chief 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 below.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Zhixin
Liu |
|
Chief
Executive Officer and Chair |
|
November
16, 2021 |
Zhixin
Liu |
|
(principal
executive officer) |
|
|
|
|
|
|
|
/s/ *
|
|
Chief
Financial Officer |
|
November
16, 2021 |
Mingzhou
Sun |
|
(principal
accounting and financial officer) |
|
|
|
|
|
|
|
/s/ * |
|
Director |
|
November
16, 2021 |
Fu
Liu |
|
|
|
|
|
|
|
|
|
/s/ * |
|
Independent
Director |
|
November
16, 2021 |
Michael
James Antonoplos |
|
|
|
|
|
|
|
|
|
/s/ * |
|
Independent
Director |
|
November
16, 2021 |
Chun
Kwok Wong |
|
|
|
|
|
|
|
|
|
/s/ * |
|
Independent
Director |
|
November
16, 2021 |
Ling
Wang |
|
|
|
|
*By: |
/s/
Zhixin Liu |
|
|
Zhixin
Liu |
|
|
Attorney-in-fact |
|
II-7
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