Scienjoy(SJ) - 2020 Q4 - Annual Report

Introduction and Forward-Looking Information This section provides an introduction to the report and outlines forward-looking statements and associated risks PART I This part provides an overview of the company's business, financial data, risk factors, corporate structure, and operational details ITEM 1. Identity of Directors, Senior Management and Advisers Information on the identity of directors, senior management, and advisers is not applicable - Information on the identity of directors, senior management, and advisers is not applicable for this item[19] ITEM 2. Offer Statistics and Expected Timetable Information on offer statistics and expected timetable is not applicable - Information on offer statistics and expected timetable is not applicable for this item[19] ITEM 3. Key Information This section provides selected financial data, capitalization and indebtedness, reasons for the offer and use of proceeds, and a comprehensive overview of risk factors affecting the company's business, corporate structure, and operations in China A. Selected Financial Data The company's selected financial data for 2018, 2019, and 2020 shows consistent revenue growth and increasing net income, with key balance sheet and cash flow figures also provided Summary of Consolidated Statements of Income (Amounts in thousands of RMB and USD) | Indicator | 2018 RMB | 2019 RMB | 2020 RMB | 2020 USD | |:---|:---|:---|:---|:---| | Total revenue | 743,018 | 914,626 | 1,222,183 | 187,308 | | Gross profit | 148,934 | 193,989 | 262,244 | 40,191 | | Income from operations | 109,881 | 155,851 | 194,707 | 29,841 | | Net income | 106,740 | 149,918 | 176,100 | 26,988 | Summary Combined and Consolidated Balance Sheets (Amounts in thousands of RMB and USD) | Indicator | As of December 31, 2019 RMB | As of December 31, 2020 RMB | 2020 USD | |:---|:---|:---|:---|\ | Total current assets | 269,525 | 466,742 | 71,531 | | Total non-current assets | 10,473 | 345,095 | 52,889 | | TOTAL ASSETS | 279,998 | 811,837 | 124,420 | | Total current liabilities | 105,472 | 277,477 | 42,524 | | Total liabilities | 105,472 | 352,322 | 53,995 | | Total shareholder's equity | 174,526 | 459,515 | 70,425 | Summary Combined and Consolidated Cash Flow Data (Amounts in thousands of RMB and USD) | Indicator | 2018 RMB | 2019 RMB | 2020 RMB | 2020 USD | |:---|:---|:---|:---|:---|\ | Net cash provided by operating activities | 107,286 | 228,886 | 155,441 | 23,820 | | Net cash used in investing activities | (553) | (5,457) | (40,934) | (6,274) | | Net cash used in financing activities | (170,886) | (151,372) | (23,332) | (3,576) | | Net (decrease) increase in cash and cash equivalents | (64,153) | 72,057 | 87,417 | 13,397 | | Cash and cash equivalents at end of the year | 65,294 | 137,351 | 224,768 | 34,447 | B. Capitalization and Indebtedness Information regarding capitalization and indebtedness is not applicable - Information on capitalization and indebtedness is not applicable for this item[24] C. Reasons for the Offer and Use of Proceeds Information on reasons for the offer and use of proceeds is not applicable - Information on reasons for the offer and use of proceeds is not applicable for this item[24] D. Risk Factors The company faces significant risks including user retention, reliance on a single monetization model, attracting broadcasters, regulatory compliance in China, and corporate structure challenges with VIEs - The company's revenue growth is highly dependent on retaining existing users, keeping them engaged, and growing its user base, particularly paying users and average revenue per paying user (ARPPU). Failure to do so could materially and adversely affect financial condition[25][27] - The company primarily relies on a single monetization model (virtual gifts) and faces risks if it fails to diversify revenue streams or offer attractive content and retain top broadcasters[28][29][31] - Operating in China's highly regulated internet industry, the company faces uncertainties regarding license maintenance, compliance with evolving laws (e.g., content monitoring, real-name registration), and potential penalties for violations, which could disrupt operations[56][69][76] - The company's corporate structure relies on Variable Interest Entities (VIEs) due to PRC foreign ownership restrictions. Any failure of contractual arrangements or changes in PRC regulations could lead to loss of control over operations and assets, or severe penalties[141][145][146] - The COVID-19 pandemic did not have a material net impact on financial positions and operating results for the fiscal year 2020, but its future impact on 2021 operations, financial condition, and liquidity remains highly uncertain and unpredictable[140][415] ITEM 4. Information on the Company This section details the company's history, business overview, organizational structure, and property, plants, and equipment A. History and Development of the Company Scienjoy Holding Corporation was formed on May 7, 2020, through a business combination, acquiring Scienjoy Inc., and expanded its platform portfolio through the BeeLive Acquisition in August 2020 - Scienjoy Holding Corporation was formed on May 7, 2020, through a business combination with Wealthbridge Acquisition Limited, acquiring 100% of Scienjoy Inc[9][234] - Scienjoy Inc. launched its first live streaming APP, Showself Live Streaming, in 2014, followed by Lehai (2015) and Haixiu (2016)[235] - In August 2020, the company acquired BeeLive businesses, adding BeeLive Chinese (MiFeng) and BeeLive International platforms, expanding into Southeast Asia and the Middle East[242][275] - On February 23, 2021, the company entered into a Common Stock Purchase Agreement with White Lion Capital LLC to sell up to $30,000,000 in Ordinary Shares over a period of up to six months[244][1012] B. Business Overview Scienjoy is a leading mobile live streaming platform in China, operating five platforms, primarily generating revenue from virtual gift sales, with strategic plans for content enhancement, global expansion, and business diversification - Scienjoy is a leading provider of mobile live streaming platforms in China, operating five platforms: Showself, Lehai, Haixiu, BeeLive Chinese (MiFeng), and BeeLive International[257][283] - The company's primary revenue source is virtual gifts purchased by users for broadcasters, with free access to live streaming rooms[261] User Metrics (as of December 31, 2020) | Metric | Value | |:---|:---|\ | Active Show Broadcasters | 192,389 | | Registered Users | 250.0 million | | Paying Users | 904,568 | | Annual ARPPU (2020) | RMB 1,345 | | Paying Ratio (2020) | 2.7% | - Strategic plans include providing more engaging and professional content, expanding mobile live streaming in China and overseas (Southeast Asia, Middle East, South America), diversifying business into advertising, value-added services, and e-commerce, investing in AR/VR and AI technologies, and pursuing M&A[271][272][276][277][278][279][281][282] - The company holds 186 copyrights, 17 domain names, 8 patents for live streaming technology, and 88 trademarks in China as of April 26, 2021[324] C. Organizational Structure Scienjoy operates in China through a Variable Interest Entity (VIE) structure, comprising a WFOE and VIEs, maintained by contractual arrangements to comply with PRC foreign ownership restrictions - The company operates in China through a Variable Interest Entity (VIE) structure, comprising WFOE (Sixiang Wuxian (Beijing) Technology Co., Ltd.) and Scienjoy VIEs (Zhihui Qiyuan (Beijing) Technology Co., Ltd. and its subsidiaries)[394][397] - The VIE structure is maintained through contractual arrangements, including Exclusive Option Agreements, Power of Attorney Agreements, and Share Pledge Agreements, which grant WFOE effective control over the VIEs and their economic benefits[397][398][400][401][404] - The contractual arrangements are designed to comply with PRC restrictions on foreign ownership in internet and other related businesses[397][799] D. Property, Plants and Equipment The company leases approximately 2000 square meters for its principal executive offices in Beijing, China, with additional office space in Beijing and Xinjiang - The company leases approximately 2000 square meters for its principal executive offices in Beijing, China[407] - An additional 1000 square meters of office space is leased in Beijing and Xinjiang Uyghur Autonomous Region[407] ITEM 4A. Unresolved Staff Comments There are no unresolved staff comments applicable to the company - There are no unresolved staff comments[407] ITEM 5. Operating and Financial Review and Prospects This section discusses the company's financial condition and results of operations, including operating results, liquidity, capital resources, and key performance factors A. Operating Results The company experienced significant revenue growth in 2020, driven by increased paying users and engagement, with net income growing by 17.5% - Total revenues increased by 34% from RMB914.6 million in 2019 to RMB1,222.2 million in 2020, driven by increased paying users and user engagement[442] Revenue by Type (Amounts in thousands of RMB and USD) | Revenue Type | 2018 RMB | 2019 RMB | 2020 RMB | 2020 USD | |:---|:---|:---|:---|:---|\ | Live streaming - consumable virtual items revenue | 716,561 | 884,385 | 1,187,431 | 181,982 | | Live streaming - time based virtual item revenue | 26,432 | 26,812 | 29,596 | 4,536 | | Technical services | 25 | 3,429 | 5,156 | 790 | | Total revenue | 743,018 | 914,626 | 1,222,183 | 187,308 | Revenue by Platform (Amounts in thousands of RMB and USD) | Platform | 2018 RMB | 2019 RMB | 2020 RMB | 2020 USD | |:---|:---|:---|:---|:---|\ | Showself | 466,460 | 530,111 | 549,763 | 84,256 | | Lehai | 190,121 | 181,626 | 180,112 | 27,603 | | Haixiu | 86,412 | 199,460 | 321,468 | 49,267 | | Beelive | - | - | 165,684 | 25,392 | | Technical services | 25 | 3,429 | 5,156 | 790 | | TOTAL | 743,018 | 914,626 | 1,222,183 | 187,308 | Paying Users by Platform (in thousands) | Platform | 2018 | 2019 | 2020 | |:---|:---|:---|:---|\ | Showself | 354,213 | 390,315 | 391,258 | | Lehai | 113,737 | 78,890 | 132,477 | | Haixiu | 60,507 | 228,270 | 319,403 | | Beelive | - | - | 61,430 | | TOTAL | 528,457 | 697,475 | 904,568 | - Net income increased by 17.5% from RMB149.9 million in 2019 to RMB176.1 million in 2020[449] B. Liquidity and Capital Resources The company's liquidity is primarily from operating activities and financing, with cash and cash equivalents increasing to RMB224.8 million by December 31, 2020, sufficient for future needs - Cash and cash equivalents increased to RMB224,768 thousand (US$34,447 thousand) as of December 31, 2020, from RMB137,351 thousand as of December 31, 2019[22][518] Summary of Cash Flow Data (Amounts in thousands of RMB and USD) | Cash Flow Activity | 2018 RMB | 2019 RMB | 2020 RMB | 2020 USD | |:---|:---|:---|:---|:---|\ | Net cash provided by operating activities | 107,286 | 228,886 | 155,441 | 23,820 | | Net cash used in investing activities | (553) | (5,457) | (40,934) | (6,274) | | Net cash used in financing activities | (170,886) | (151,372) | (23,332) | (3,576) | - The company expects its current cash, operating activities, and financing to be sufficient for working capital and capital expenditures for at least the next 12 months[516] C. Research and Development, Patents and Licenses, etc. This section refers to the detailed information on the company's technology, patents, and licenses provided in the 'Business Overview' section - Details on research and development, patents, and licenses are provided in the 'Business Overview' section (Item 4.B)[527] D. Trend Information The company is not aware of any new material adverse trends, uncertainties, demands, commitments, or events beyond those already disclosed - No new material adverse trends, uncertainties, demands, commitments, or events are identified beyond those already disclosed in the report[528] E. Off-Balance Sheet Arrangements The company has not entered into any off-balance sheet arrangements, including financial guarantees or derivative contracts - The company has no off-balance sheet arrangements, including financial guarantees, commitments to third parties, or derivative contracts indexed to its shares[529] F. Tabular Disclosure of Contractual Obligations As of December 31, 2020, the company's primary contractual obligation is related to operating leases, totaling RMB18,649 thousand Contractual Obligations as of December 31, 2020 (in RMB Thousands) | Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |:---|:---|:---|:---|:---|:---|\ | Operating Lease Obligations | 18,649 | 4,927 | 8,983 | 4,739 | - | G. Safe Harbor This section directs readers to the 'Forward-Looking Information' for details on forward-looking statements and associated risks - This section directs readers to the 'Forward-Looking Information' for details on forward-looking statements and associated risks[532] ITEM 6. Directors, Senior Management and Employees This section provides information on the company's directors, executive officers, their compensation, board practices, employee breakdown, and share ownership A. Directors and Executive Officers The company's senior management and board of directors include key executives and independent directors, with a six-year Voting Agreement dictating director designations Senior Management and Directors | Name | Age | Position | |:---|:---|:---|\ | Xiaowu He | 44 | Director, Chief Executive Officer, and Chairman of the Board | | Bo Wan | 44 | Director, Chief Operating Officer | | Denny Tang | 50 | Chief Financial Officer | | Yongsheng Liu | 50 | Director, Vice Chairman of the Board | | Jining Li | 62 | Independent Director | | Huifeng Chang | 54 | Independent Director | | Jian Sun | 38 | Independent Director | | Yibing Liu | 47 | Independent Director | - A six-year Voting Agreement grants Lavacano and WBY the right to designate 2-3 directors and 3 independent directors, while Sponsor can designate 1 director and 1 independent director[544] B. Compensation of Directors and Executive Officers For FY2020, aggregate cash compensation to directors and executive officers was RMB2.26 million (US$0.34 million), and an equity incentive plan was approved for future awards - Aggregate cash compensation to directors and executive officers for FY2020 was RMB2.26 million (US$0.34 million)[546] - An equity incentive plan (2021 Plan) was approved on February 8, 2021, authorizing up to 3,000,000 ordinary shares for awards, but no awards have been granted as of the report date[548] C. Board Practices The Board of Directors consists of seven members with staggered terms and three standing committees (Audit, Nominating, Compensation) all composed of independent directors - The Board of Directors has seven members, with a staggered board structure and rotational retirement every two years[552][637] - Three standing committees exist: Audit, Nominating, and Compensation, all comprised of independent directors[556] - Executive officers have employment agreements with operating subsidiaries, including non-compete and confidentiality clauses, while non-executive directors have service agreements[554][555] D. Employees The company's total employee count increased from 197 in 2019 to 249 in 2020, with all employees located in China - Total employees increased from 197 in 2019 to 249 in 2020, all located in China[561] Employee Breakdown by Function | Functions | As of December 31, 2019 Number (%) | As of December 31, 2020 Number (%) | |:---|:---|:---|\ | General Operations | 70 (35.5%) | 89 (35.8%) | | Research and Development | 58 (29.4%) | 70 (28.1%) | | Sales and Marketing | 18 (9.1%) | 18 (7.2%) | | Legal and Internal Audit | 2 (1.1%) | 1 (0.4%) | | General Administration | 35 (17.8%) | 46 (18.5%) | | Product | 14 (7.1%) | 25 (10.0%) | | Total | 197 (100%) | 249 (100%) | E. Share Ownership As of April 26, 2021, Lavacano Holdings Limited is the controlling shareholder with 58.41% of ordinary shares, with directors and officers owning 20.29% as a group Beneficial Ownership of Ordinary Shares (as of April 26, 2021) | Name of Beneficial Owners | Percentage of Outstanding Shares | |:---|:---|\ | Lavacano Holdings Limited | 58.41% | | Cosmic Soar Limited | 14.07% | | WBY Entertainment Holdings Ltd. | 14.60% | | Oriental Holdings Limited | 5.28% | | All directors and officers as a group | 20.29% | - Lavacano Holdings Limited is the controlling shareholder, holding 58.41% of the ordinary shares[567] - The percentages are based on 30,764,592 ordinary shares and 6,023,800 warrants outstanding as of April 26, 2021[565] ITEM 7. Major Shareholders and Related Party Transactions This section details the company's major shareholders and various transactions with related parties, including insider share agreements, private placements, and earn-out shares A. Major Shareholders This section refers to the 'Share Ownership' section (Item 6.E) for details on major shareholders - Information on major shareholders is provided in 'Item 6.E. Share Ownership'[569] B. Related Party Transactions The company has engaged in various related party transactions, including founder shares, private placements, extension loans, and earn-out shares, with oversight by the Code of Conduct and Audit Committee - Founder shares were issued to Initial Shareholders, and Private Units were purchased by the Sponsor, with specific lock-up and transfer restrictions[572][573][574] - Scienjoy provided an unsecured promissory note of $575,000 for a business combination extension, which converted into 50,600 Ordinary Shares and 12,650 warrants for Lavacano and WBY[576] - Additional earn-out shares were issued: 3,000,000 ordinary shares to Lavacano and WBY for achieving 2020 net income targets, and 540,960 ordinary shares to Cosmic Soar Limited for BeeLive's 2020 revenue target[589][598][1015][1016] Purchases from Related Parties (Amounts in thousands of RMB) | Related Party | Type of Expense | 2018 RMB | 2019 RMB | 2020 RMB | |:---|:---|:---|:---|:---|\ | Beijing WanPu Century Technology Co Ltd | Market promotion expenses | 16 | 16 | - | | Sixiang Times (Beijing) Technology Co., Ltd. | Rental and service fees | 8,399 | 986 | 2,106 | Balances with Related Parties (Amounts in thousands of RMB and USD) | Account | As of December 31, 2019 RMB | As of December 31, 2020 RMB | 2020 USD | |:---|:---|:---|:---|\ | Loan receivables - related parties | 500 | - | - | | Amount due from related parties | 7 | 7 | 1 | | Loan payables - related parties | 5,525 | - | - | | Amount due to related parties | 8,482 | - | - | - The company's Code of Conduct and Ethics and Audit Committee are responsible for reviewing and approving related party transactions to avoid conflicts of interest[612] C. Interests of Experts and Counsel Information regarding the interests of experts and counsel is not applicable - Information on the interests of experts and counsel is not applicable for this item[613] ITEM 8. Financial Information This section refers to the company's audited consolidated financial statements and discusses its dividend policy, noting no current plans to pay dividends and restrictions from PRC subsidiaries A. Consolidated Statements and Other Financial Information Audited consolidated financial statements are included in Item 18, and the company has no material legal proceedings or current plans to pay dividends, retaining earnings for expansion - Audited consolidated financial statements are included in Item 18 of this annual report[615] - The company is not a party to any material legal or administrative proceedings[616] - The company has no present plans to pay dividends, intending to retain earnings for business expansion. Dividends from PRC subsidiaries are subject to PRC accounting standards and statutory reserve requirements[617][619] B. Significant Changes No significant changes have occurred since the date of the audited consolidated financial statements, beyond those already disclosed - No significant changes have occurred since the date of the audited consolidated financial statements, beyond those already disclosed[620] ITEM 9. The Offer and Listing The company's ordinary shares are listed on Nasdaq Capital Market under 'SJ' and Public Warrants on OTC under 'SJOYW', with other offer and listing sub-items not applicable - The company's ordinary shares are listed on the Nasdaq Capital Market under the symbol 'SJ'[621] - Public Warrants are traded on OTC under the symbol 'SJOYW'[621] - Sub-items A, B, D, E, and F regarding offer and listing details, plan of distribution, selling shareholders, dilution, and expenses of the issue are not applicable[621] ITEM 10. Additional Information This section provides additional corporate information, including share capital, Memorandum and Articles of Association, material contracts, exchange controls, and taxation in the BVI, PRC, and US A. Share Capital The company is authorized to issue an unlimited number of no par value ordinary shares, with 30,764,592 outstanding as of April 26, 2021, conferring equal voting and dividend rights - The company is authorized to issue an unlimited number of no par value ordinary shares[623] - As of April 26, 2021, 30,764,592 ordinary shares were issued and outstanding[623] - Ordinary shares confer one vote per share, equal dividend rights, and equal rights in surplus asset distribution upon liquidation[624] B. Memorandum and Articles of Association The company's governance is based on its BVI Memorandum and Articles of Association and BVI Act, with key differences from Delaware corporate law in areas like director fiduciary duties and amendment procedures Voting Rights Each ordinary share grants one vote at shareholder meetings, with voting typically by show of hands and requiring a simple majority - Each ordinary share confers one vote at shareholder meetings[628] - Voting is by show of hands unless a poll is demanded, and a simple majority of votes cast is usually required[628][630] - The company's Memorandum and Articles of Association do not provide for cumulative voting for director elections[629] Dividend Rights Each ordinary share has an equal right to any dividend, which directors can authorize if the company's assets exceed liabilities and it remains solvent - Each ordinary share has an equal right to any dividend paid by the company[631] - Directors can authorize dividends if the company's assets exceed liabilities and it remains solvent after the distribution[631] Preemption Rights Neither BVI laws nor the company's articles provide for statutory preemption rights applicable to the issuance of new shares - There are no preemption rights applicable to the issuance of new shares under BVI laws or the company's Memorandum and Articles of Association[632] Liquidation Rights A voluntary liquidator can be appointed by a resolution of shareholders or, under specific BVI Act provisions, by a resolution of directors - A voluntary liquidator can be appointed by a resolution of shareholders or, subject to BVI Act section 199(2), by a resolution of directors[632] Transfer of Shares Shares can be transferred by a written instrument, subject to SEC and securities law compliance, in a standard or director-approved form - Shares can be transferred by a written instrument, subject to SEC and securities law compliance[633] - The transfer instrument must be in a standard form or one approved by directors[633] Share Repurchases and Redemptions The company can repurchase, redeem, or acquire its shares, provided directors confirm the company's solvency immediately following such transactions - The company can repurchase, redeem, or acquire its shares[634] - Directors must confirm the company's solvency immediately following any such transaction[634] Board of Directors The Board has seven directors, with a minimum of two, who can incur indebtedness and set their own emoluments, with a quorum of one-half of total directors - The Board has seven directors, with a minimum of two and no maximum limit[635] - Directors can incur indebtedness and set their own emoluments[635][636] - A quorum for board meetings is one-half of the total directors, or two if there are only two[635] Staggered Board of Directors The Board has a staggered structure with two classes of directors, subject to rotational retirement every two years, preventing simultaneous re-election of all directors - The Board has a staggered structure with two classes of directors[637] - Directors are subject to rotational retirement every two years, preventing all directors from being re-elected simultaneously[637] Meetings of Shareholders Directors can convene shareholder meetings with 7 days' notice, or upon request by shareholders holding 30% or more of voting rights, with a 50% quorum requirement - Directors can convene shareholder meetings with a minimum of 7 days' written notice[638] - Shareholders holding 30% or more of voting rights can request a meeting[638] - A quorum for shareholder meetings requires at least 50% of voting shares present in person or by proxy[640] Differences in Corporate Law The BVI Act and company's articles offer flexibility, resulting in differences from Delaware corporate law in director fiduciary duties, amendment processes, and shareholder consent Director's Fiduciary Duties BVI law requires directors to act honestly, in good faith, and in the company's best interests, exercising reasonable care, diligence, and skill, differing from Delaware's specific duties of care and loyalty - BVI law requires directors to act honestly, in good faith, and in the company's best interests, exercising reasonable care, diligence, and skill, which differs from Delaware's duty of care and loyalty[643] - Delaware law imposes fiduciary duties of care (good faith, prudent person, disclosure) and loyalty (best interests of corporation, no personal gain, no self-dealing)[642] Amendment of Governing Documents The company's Memorandum and Articles of Association can generally be amended by a majority shareholder vote or board resolution, with certain exceptions, offering more flexibility than Delaware law - The company's Memorandum and Articles of Association can be amended by a majority shareholder vote or by a board resolution, with specific limitations[644] - Delaware corporate law generally requires a shareholder vote to amend the certificate of incorporation[644] Written Consent of Directors A written consent of directors requires a majority signature under BVI law and the company's Articles, unlike Delaware law which typically requires unanimity - A written consent of directors requires a majority signature under BVI law and the company's Articles[647] - Delaware corporate law generally requires unanimous written consent for directors' actions[647] Written Consent of Shareholders Shareholder resolutions can be approved by written consent of a majority (over 50%) of voting ordinary shares, differing from Delaware law's minimum necessary votes - Shareholder resolutions can be approved by written consent of a majority (over 50%) of voting ordinary shares[648] - Delaware law allows written consent by holders of at least the minimum votes required at a fully attended meeting[648] Shareholder Proposals Directors must convene a shareholder meeting if requested by shareholders holding at least 30% of voting rights, while Delaware law allows proposals at annual meetings but may restrict special meeting calls - Directors must convene a shareholder meeting if requested by shareholders holding at least 30% of voting rights[649] - Delaware law allows shareholders to make proposals at annual meetings, but special meeting calls may be restricted[649] Dissolution; Winding Up Dissolution can occur by shareholder resolution or, under specific BVI Act provisions, by director resolution, differing from Delaware law's typical 100% shareholder approval - Dissolution can occur by shareholder resolution or, under BVI Act section 199(2), by director resolution[650] - Delaware law generally requires 100% shareholder approval for dissolution unless initiated by the board, which then requires a simple majority[650] Redemption of Shares Shares can be repurchased or redeemed with director confirmation of solvency and shareholder consent (unless terms specify otherwise), while Delaware law permits redemption at various options - Shares can be repurchased or redeemed with director confirmation of solvency and shareholder consent (unless terms specify otherwise)[651] - Delaware law permits redemption at various options, provided shares with full voting power remain outstanding[651] Compulsory Acquisition BVI Act allows 90% of voting shareholders to compel redemption of remaining shares, with dissenters receiving fair value, differing from Delaware law's 'short form' merger provisions - BVI Act allows 90% of voting shareholders to compel redemption of remaining shares, with dissenters receiving fair value[654] - Delaware law's 'short form' merger permits a 90% parent to merge a subsidiary without shareholder vote, granting appraisal rights to minority shareholders[653] Variation of Rights of Shares Share class rights can be varied with consent or resolution from at least 50% of shares in that class, while Delaware law typically requires majority approval of the affected class - Share class rights can be varied with consent or resolution from at least 50% of shares in that class[655] - Delaware law typically requires majority approval of the affected class, unless otherwise specified[655] Election of Directors Directors are elected by shareholder resolution or, if permitted, by director resolution, differing from Delaware law's general plurality vote requirement - Directors are elected by shareholder resolution or, if permitted, by director resolution[656] - Delaware law generally requires a plurality vote for director elections[656] Removal of Directors Directors can be removed with or without cause by a 75% shareholder vote, or with cause by a director resolution, differing from Delaware law's typical majority shareholder approval for classified boards - Directors can be removed with or without cause by a 75% vote shareholder vote, or with cause by a director resolution[657] - Delaware law generally requires majority shareholder approval for removal for cause for classified boards[657] Mergers BVI mergers/consolidations require director-approved written plans and shareholder authorization, while Delaware mergers require board adoption and majority shareholder approval of an agreement - BVI mergers/consolidations require director-approved written plans and shareholder authorization[660] - Delaware mergers require board adoption and majority shareholder approval of an agreement, with the surviving entity assuming all assets and liabilities[659] Inspection of Books and Records BVI shareholders can inspect memorandum, articles, registers, and meeting minutes upon notice, with directors able to limit inspection if contrary to company interests, differing from Delaware law's proper purpose requirement - BVI shareholders can inspect memorandum, articles, registers of members/directors, and shareholder meeting minutes upon written notice[662] - Directors may limit inspection if it's deemed contrary to the company's interests[664] - Delaware law grants shareholders the right to inspect stock ledger, shareholder lists, and other records for proper purposes[662] Conflict of Interest BVI directors must disclose interests in company transactions to the board and can vote on them if BVI Act is complied with, while Delaware law permits contracts with interested directors if disclosed and approved by disinterested parties - BVI directors must disclose interests in company transactions to the board; interested directors can vote on them if BVI Act is complied with[668] - Delaware law permits contracts with interested directors/officers if disclosed and approved by disinterested parties or if fair to the corporation[667] Transactions with Interested Shareholders BVI law requires transactions with significant shareholders to be in the company's best interests and not to defraud minority shareholders, while Delaware law restricts business combinations with 'interested shareholders' for three years - BVI law requires transactions with significant shareholders to be in the company's best interests and not to defraud minority shareholders[670] - Delaware law restricts business combinations with 'interested shareholders' (15%+ ownership) for three years, unless board-approved[669] Independent Directors Neither Delaware corporate law nor the BVI Act requires a majority of directors to be independent - Neither Delaware corporate law nor the BVI Act requires a majority of directors to be independent[672] Cumulative Voting Cumulative voting for director elections is not provided for in the company's Memorandum and Articles of Association, differing from Delaware law which requires explicit statement in the certificate - Cumulative voting for director elections is not provided for in the company's Memorandum and Articles of Association[673] - Delaware law permits cumulative voting only if explicitly stated in the certificate of incorporation[673] - The company's governance is based on its BVI Memorandum and Articles of Association and BVI Act[622][626] - Shareholders have one vote per share, and resolutions typically require a simple majority. Directors can authorize dividends if the company is solvent[628][630][631] - Key differences from Delaware corporate law exist in areas such as director fiduciary duties, amendment procedures, shareholder consent, and director removal, with BVI law generally offering more flexibility[641][642][644][647][648][657] Shareholders' Rights under British Virgin Islands Law Generally The BVI Act provides shareholders with remedies such as restraining orders, derivative actions, and the right to apply for a liquidator if company affairs are oppressive - BVI Act allows shareholders to seek restraining/compliance orders for company conduct violating the Act or articles[674] - Shareholders can bring derivative, personal, and representative actions, and apply for a liquidator if company affairs are oppressive[674] - Dissenting shareholders are entitled to fair value for their shares in cases of mergers, consolidations, or significant asset dispositions[675] Rights of Non-resident or Foreign Shareholders and Disclosure of Substantial Shareholdings No limitations exist on non-resident or foreign shareholders' rights to hold or exercise voting rights, and no ownership threshold for disclosure of substantial shareholdings is specified - No limitations exist on non-resident or foreign shareholders' rights to hold or exercise voting rights[677] - No ownership threshold for disclosure of substantial shareholdings is specified in the articles[677] Anti-Money Laundering — British Virgin Islands The company must maintain anti-money laundering procedures and may require identity verification from subscribers/transferees, with BVI residents reporting suspicious activities to the Financial Investigation Agency - The company must maintain anti-money laundering procedures and may require identity verification from subscribers/transferees[678][679] - Failure to provide verification information may lead to refusal of applications or register amendments[679] - BVI residents suspecting money laundering or terrorist financing must report it to the Financial Investigation Agency[681] C. Material Contracts No material contracts outside the ordinary course of business, other than those disclosed in Item 4 and Item 7, have been entered into - No material contracts outside the ordinary course of business, other than those disclosed in Item 4 and Item 7, have been entered into[682] D. Exchange Controls British Virgin Islands laws do not limit capital import/export or dividend payments to non-resident shareholders - British Virgin Islands laws do not limit capital import/export or dividend payments to non-resident shareholders[683] E. Taxation This section outlines the tax implications for the company and its shareholders in the British Virgin Islands, PRC, and United States, including potential PRC resident enterprise classification and PFIC rules for U.S. Holders People's Republic of China Taxation PRC subsidiaries are subject to a 25% Corporate Income Tax, with some qualifying for preferential rates, and uncertainty exists regarding the company's classification as a PRC 'resident enterprise' - PRC subsidiaries are subject to a 25% Corporate Income Tax (CIT)[948] - Some subsidiaries (SG, HX, LH, CX) qualify as High and New Technology Enterprises (HNTE) for a preferential 15% tax rate[951] - Subsidiaries in Holgus X and Kashgar Times regions are entitled to a 0% preferential tax rate for five consecutive years[952] - Uncertainty exists regarding the company's classification as a PRC 'resident enterprise,' which could lead to worldwide income taxation and withholding taxes on dividends and gains for non-PRC resident shareholders[689][690] - Indirect transfers of PRC taxable properties by non-PRC resident enterprises may be re-characterized and subject to PRC enterprise income tax (10%)[691] British Virgin Islands Taxation British Virgin Islands levies no taxes on individuals or corporations based on profits, income, gains, or appreciation, and no withholding tax on dividends or capital payments - British Virgin Islands levies no taxes on individuals or corporations based on profits, income, gains, or appreciation[693] - No inheritance tax or estate duty is imposed in the BVI[693] - Dividends and capital payments on ordinary shares are not subject to BVI taxation or withholding[694] United States Federal Income Taxation This section details U.S. federal income tax consequences for U.S. Holders of ordinary shares, covering dividends, dispositions, and the complex Passive Foreign Investment Company (PFIC) rules Material Tax Consequences Applicable to U.S. Holders of Our Ordinary Shares This section outlines U.S. federal income tax consequences for U.S. Holders of ordinary shares held as capital assets with U.S. dollar functional currency - This section outlines U.S. federal income tax consequences for U.S. Holders of ordinary shares held as capital assets with U.S. dollar functional currency[696][697] - The information is based on current tax laws and interpretations, which are subject to change[696] Taxation of Dividends and Other Distributions on Our Ordinary Shares Dividends received by U.S. Holders are generally ordinary income, potentially qualifying for lower capital gains rates if certain conditions are met and the company is not a PFIC - Gross distributions are generally includable in gross income as dividend income to the extent of current or accumulated earnings and profits[698] - Non-corporate U.S. Holders may receive qualified dividend income taxed at lower capital gains rates if shares are readily tradable on a U.S. market or an approved tax treaty exists, and the company is not a PFIC[699] - Dividends are considered 'passive category income' for foreign tax credit limitation purposes[701] Taxation of Dispositions of Ordinary Shares U.S. Holders recognize taxable capital gain or loss on the sale or disposition of shares, calculated as the difference between the amount realized and their tax basis - Taxable capital gain or loss is recognized on the sale or disposition of shares, calculated as the difference between amount realized and tax basis[702] - Long-term capital gains for non-corporate U.S. Holders may qualify for reduced tax rates[702] - Gains or losses are generally treated as U.S. source income or loss for foreign tax credit limitation purposes[702] Passive Foreign Investment Company ("PFIC") A non-U.S. corporation is a PFIC if 75% of its gross income is passive or 50% of its assets produce passive income, potentially leading to adverse tax treatment for U.S. Holders - A non-U.S. corporation is a PFIC if 75% of its gross income is passive or 50% of its assets are passive-income producing[703] - If the company is a PFIC, U.S. Holders face special adverse tax rules on 'excess distributions' and gains, which are allocated ratably over the holding period and subject to the highest tax rate plus interest[707] - U.S. Holders can mitigate PFIC adverse effects by making a 'mark-to-market' election (if shares are marketable) or a 'qualified electing fund' election (if the company provides necessary information, which it does not currently intend to do)[709][711] - PFIC status can prevent a step-up in basis for inherited shares under IRC Section 1014(a)[714] Information Reporting and Backup Withholding Dividend payments and sale proceeds may be subject to U.S. information reporting and 24% backup withholding, unless an exemption applies - Dividend payments and sale proceeds may be subject to U.S. information reporting and 24% backup withholding[715] - Backup withholding is not an additional tax and can be avoided by providing a correct taxpayer identification number or claiming exemption[715][716] - Certain U.S. Holders are required to report information on foreign financial assets using Form 8938[717] - The company, as a BVI holding company, gains substantial income from PRC subsidiaries, which may be subject to PRC withholding tax (10%) on dividends if the company is deemed a 'non-resident enterprise'[685] - If classified as a PRC 'resident enterprise', the company's worldwide income could be subject to 25% PRC tax, and non-PRC resident shareholders might face 10-20% PRC withholding tax on dividends and gains[191][686][690] - British Virgin Islands levies no taxes on corporate profits, income, gains, or appreciation, and no withholding tax on dividends or capital payments[693][694] - U.S. Holders face potential Passive Foreign Investment Company (PFIC) rules, which could lead to adverse tax consequences on excess distributions and gains, unless a mark-to-market or qualified electing fund election is made[703][707][709][711] F. Dividends and Paying Agents Information on dividends and paying agents is not applicable - Information on dividends and paying agents is not applicable for this item[717] G. Statement by Experts Information on statements by experts is not applicable - Information on statements by experts is not applicable for this item[717] H. Documents on Display The company files reports with the SEC as a foreign private issuer, including annual reports on Form 20-F, accessible on the SEC's website and the company's investor relations website - The company files reports with the SEC as a foreign private issuer, including annual reports on Form 20-F[719] - Reports are accessible on the SEC's website (www.sec.gov) and the company's investor relations website (ir.scienjoy.com)[720] - Hard copies of the annual report are available to shareholders free of charge upon request[720] I. Subsidiary Information Information on subsidiary information is not applicable - Information on subsidiary information is not applicable for this item[720] ITEM 11. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to various market risks, including interest rate risk, credit risk, and foreign currency exchange rate risk Interest Rate Risk Interest rate risk primarily relates to interest income from interest-bearing bank deposits, with no derivative financial instruments used for management - Interest rate risk primarily relates to interest income from interest-bearing bank deposits[721] - The company has not used derivative financial instruments for interest rate risk management and does not anticipate material risks[721] Credit Risk Financial instruments subject to credit risk include cash and cash equivalents, accounts receivable, and other receivables, with cash deposited in high-quality PRC financial