Table of Contents
IKANG HEALTHCARE GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED MARCH 31, 2016, 2017 AND 2018
(In thousands of US dollars, except share and per share data, or otherwise noted)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES - continued
Risk in relation to the VIE structure - continued
In addition, if the legal structure and contractual arrangements were found to be in violation of any existing PRC laws and regulations, the PRC government could:
· revoke the Groups business and operating licenses;
· require the Group to discontinue or restrict operations;
· restrict the Groups right to collect revenues;
· block the Groups websites;
· require the Group to restructure the operations in such a way as to compel the Group to establish a new enterprise,
· re-apply for the necessary licenses or relocate our businesses, staff and assets;
· impose additional conditions or requirements with which the Group may not be able to comply; or
· take other regulatory or enforcement actions against the Group that could be harmful to the Groups business.
The imposition of any of these penalties may result in a material and adverse effect on the Groups ability to conduct the Groups business. In addition, if the imposition of any of these penalties causes the Group to lose the rights to direct the activities of the VIE entities or the right to receive their economic benefits, the Group would no longer be able to consolidate the VIE entities. The Group does not believe that any penalties imposed or actions taken by the PRC government would result in the liquidation of the Company, Beijing iKang, Zhejiang iKang, Yuanhua WFOE or the VIEs.
The shareholders of the VIEs and the Company are as the following:
(1) Mr. Lee Ligang Zhang and Mr. Boquan He are shareholders of the Company, who held 34.8% and 9.74% voting interest of the Company as of March 31, 2018, respectively. They own the equity interests in iKang Holding and iKang Hangzhou Xixi.
(2) iKang Holdings shareholders are Mr. Lee Ligang Zhang and Mr. Boquan He, each of whom holds 50% of the equity interest in iKang Holding.
(3) iKang Hangzhou Xixis shareholders are iKang Holding and Yalong Daoyi, which hold 80% and 20% of the equity interest in iKang Hangzhou Xixi, respectively. Yalong Daoyi is wholly-owned by iKang Holding. Therefore, iKang Holding owns the 100% equity interest in iKang Hangzhou Xixi.
(4) Beijing Jiandatongs shareholders is Mr. Haiqing Hu, who holds 80% of the equity interest in Beijing Jiandatong.
(5) Yuanhua Informations shareholders are Mr. Haiqing Hu and Ms. Juan Tan, who hold 80% and 20% of the equity interest in Yuanhua Information, respectively.
The two shareholders of iKang Holding are directors and shareholders of the Company. One of them is the Companys CEO, and the managing director of the VIEs. Therefore they have no current interest in seeking to act contrary to the contractual arrangements. The interests of the VIEs shareholders may differ from the interests of the Company as a whole. The Company cannot assure that when conflicts of interest arise, the shareholders will act in the best interests of the Company or that conflicts of interests will be resolved in the Companys favor. Currently, the Company does not have existing arrangements to address potential conflicts of interest the shareholders of the VIEs may encounter in their capacity as the beneficial owners and director of the VIE entities, on the one hand, and as beneficial owners and directors or officer of the Company, on the other hand. The Company believes the shareholders of the VIEs will not act contrary to any of the contractual arrangements and the Exclusive Equity Option Agreement provides the Company with a mechanism to remove the shareholders as the beneficial shareholders of the VIEs should they act to the detriment of the Company. The Company relies on the VIEs shareholders, as directors and officer of the Company, to fulfill their fiduciary duties and abide by laws of the PRC and BVI and act in the best interest of the Company. If the Company cannot resolve any conflicts of interest or disputes between the Company and the VIEs shareholders, the Company would have to rely on legal proceedings, which could result in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings.