Form 10-K SUNBURST ACQUISITIONS V For: Dec 31
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to____
Commission File Number: 333-223749
SUNBURST ACQUISITIONS V, INC.
(Exact name of registrant as specified in its charter)
| Colorado | 84-1461844 | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
Room 2305A, 23/F, World-Wide House, 19 Des Voeux Road, Central, Hong Kong |
NA | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: +852 2231 9629
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
| Common Stock, no par value per share |
| (Title of Class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☐ Yes ☒ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s Knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
☒ Yes ☐ No
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”, “non-accelerated filer”, “smaller reporting company” and “emerging growth” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☒ |
If an emerging growth company, 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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
As of June 29, 2018, the last business day of the registrant's most recently completed second fiscal quarter, there was no public market for the registrant’s common stock. The registrant's common stock began to be quoted on the OTC Markets Group on February 11, 2019 but has not commenced trading as of the date of this report.
As of April 11, 2019, the registrant had 110,000,000 shares of common stock issued and outstanding.
EXPLANATORY NOTE
As used in this Annual Report, the terms “we,” “us,” “our,” and words of like import, and the “Company” refer to Sunburst Acquisitions V, Inc. and all of our subsidiaries unless the context otherwise indicates or the context otherwise requires.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The statements herein, which are not historical facts, reflect our current expectations and projections about the Company’s future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and our interpretation of what we believe to be significant factors affecting our business, including many assumptions about future events. Such forward-looking statements include statements regarding, among other things:
| ● | our ability to deliver, market and generate sales of our import services; | |
| ● | our ability to develop and/or introduce new import services; | |
| ● | our projected revenues, profitability and other financial metrics; | |
| ● | our future financing plans; | |
| ● | our anticipated needs for working capital; | |
| ● | the anticipated trends in our industry; | |
| ● | our ability to expand our sales and marketing capability; | |
| ● | acquisitions of other companies or assets that we might undertake in the future; | |
| ● | competition existing today or that will likely arise in the future; and | |
| ● | other factors discussed elsewhere herein. |
Forward-looking statements, which involve assumptions and describe our plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “will,” “plan,” “could,” “target,” “contemplate,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these or similar words. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements because of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company’s operations. These statements may be found under Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as elsewhere in this Annual Report on Form 10-K generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, matters described in this Annual Report on Form 10-K.
In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Annual Report on Form 10-K will in fact occur.
Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. Potential investors should not make an investment decision based solely on our projections, estimates or expectations.
The forward-looking statements in this Annual Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K. Such statements are presented only as some guide about future possibilities and do not represent assured events, and we anticipate that subsequent events and developments will cause our views to change. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Annual Report on Form 10-K.
This Annual Report on Form 10-K also contains estimates and other statistical data prepared by independent parties and by us relating to market size and growth and other data about our industry. These estimates and data involve a number of assumptions and limitations, and potential investors are cautioned not to give undue weight to these estimates and data. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Annual Report on Form 10-K. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk.
Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results differing materially from those anticipated based on any forward-looking statements, even if new information becomes available in the future. Depending on the market for our stock and other conditional tests, a specific safe harbor under the Private Securities Litigation Reform Act of 1995 may be available to us. Notwithstanding the above, because Section 27A of the Securities Act and Section 21E of the Exchange Act expressly state that the safe harbor for forward-looking statements does not apply to companies that issue penny stock, the safe harbor for forward-looking statements may not be available to us at certain times as we may be considered to be an issuer of penny stock.
i
TABLE OF CONTENTS
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PART I
Overview and Corporate History.
Sunburst Acquisitions V, Inc. (the “Company” or “we”) is a one-stop import service provider for third-party manufacturers with needs for importing various types of raw materials and half-finished goods. In the fiscal year 2018, our primary revenues were generated from importing various types of cowhides and rubberwood square, which in total accounted for 95.9% of our total revenues, through NengCheng (as defined below) which was our indirect wholly owned subsidiary up until March 8, 2019. In the fiscal year 2017, our primary revenues were generated from importing various types of cowhides, such as wet blue cowhide, rawhide, and wet-salted cowhide, and rubberwood square, which in total accounted for approximately 96.3% of our total revenues. However, while NengCheng (as defined below) was our indirect wholly owned subsidiary up until March 8, 2019, and provided import related services by importing various types of cowhides and rubberwood square, we discontinued NengCheng’s operation beginning in November 2018, and classified it as a discontinued operation, and did not include its import custom clearing services business in our operating segment information for both fiscal years ended December 31, 2018 and 2017.
As part of our services, we negotiate and enter into import supply orders with overseas suppliers on behalf of our customers; we assist our customers to settle foreign exchange payments with suppliers; we receive and inspect the imported raw material and goods once overseas suppliers ship them to seaports; we ensure customs clearance on behalf of our customers and coordinate transportation of the raw material and goods from sea ports to our customers.
By utilizing our one-stop import services, our customers are able to access quality raw material and goods in the international market without the burden of confronting administrative cost and bearing expenses for obtaining and maintaining regulatory licenses and permits relegated to importation and customs.
The Company was incorporated under the laws of the State of Colorado on April 30, 1998.
On August 11, 2005, Onping Limited, a company incorporated in the British Virgin Islands, wholly owned by Mr. Terence Ho, purchased an aggregate amount of 2,464,000 shares, or approximately 90% of the issued and outstanding common stock of the Company (“Common Stock”), from five of the Company’s then shareholders, pursuant to a purchase agreement dated June 21, 2005 (the “Onping Purchase Agreement”). Upon the closing of the transactions underlying the Onping Purchase Agreement and pursuant thereto, Mr. Terence Ho became the CEO and a director of the Company.
On October 26, 2016, the Company entered into a Stock Purchase Agreement with Sea Treasure Holdings Limited (“Sea Treasure”), a related party controlled by Mr. Ho, pursuant to which the Company issued an aggregate of 25,000,000 shares of Common Stock (the “Sea Treasure Purchase”), or approximately 91% of the Company’s issued and outstanding Common Stock, to Sea Treasure at an aggregate purchase price of approximately $250,000. Following the closing of the Sea Treasure Purchase, Mr. Ho held approximately 99% of the Company’s issued and outstanding Common Stock.
On December 8, 2016, the Company filed Articles of Amendment with the Secretary of State of the State of Colorado to effect an increase in the number of authorized shares of stock to 720,000,000, of which 700,000,000 are designated Common Stock and 20,000,000 are designated preferred stock.
Share Exchange with Success (Group) Limited
The Company was a blank check company until the Company completed a reverse take-over transaction on November 13, 2017.
On November 13, 2017, a Share Exchange Agreement (the “Share Exchange Agreement”) was entered into by and among the Company, Success Green (Group) Limited, a British Virgin Islands company (“Success Green BVI”), and Mr. Terence Ho, the beneficial owner of 27,464,000 shares of the Company’s Common Stock and also the sole shareholder of all of the issued share capital of Success Green BVI (the “SG Stock”).
Pursuant to the Share Exchange Agreement, upon surrender and cancellation of the stock certificates Success Green BVI held by Mr. Ho, and issuance to the Company of stock certificates evidencing ownership of 100% of the SG Stock, the Company issued 72,265,000 shares (the “Acquisition Stock”) of the Company’s Common Stock to Mr. Ho. The Acquisition Stock collectively represents 72.27% of the issued and outstanding Common Stock of the Company immediately after the closing of the Share Exchange Agreement. Following the closing of the Share Exchange Agreement, Mr. Ho continues to be the majority beneficial owner of the Company’s Common Stock, holding a 99.73% equity interest in the Company. Success Green BVI and its subsidiaries became wholly owned subsidiaries of the Company.
1
Prior to entering into the Share Exchange Agreement, Success Green BVI was the sole shareholder of Success Green (International) Limited, a Hong Kong corporation (“Success Green HK”) incorporated on September 24, 2007. Success Green HK was the sole owner of Shenzhen ZhenLongBao Investment Consulting Co., Ltd. (“ZhenLongBao”), a company incorporated in the People’s Republic of China (the “PRC”) as a wholly owned foreign enterprise on April 21, 2011. ZhenLongBao was the sole owner of ZhaoQing NengCheng Import and Export Co., Ltd. (“NengCheng”), an operating company incorporated on July 3, 2012, under the laws of the PRC.
Upon the closing of the transactions underlying the Share Exchange Agreement, the Company became the 100% equity owner of Success Green BVI and its subsidiaries, Success Green HK, ZhenLongBao, and NengCheng,
For financial reporting purposes, the transactions underlying the Share Exchange Agreement represents a business combination under common control, where the sole shareholder of Success Green BVI is the beneficial shareholder of the Company. Consequently, the assets and liabilities and the operations of Success Green BVI and its subsidiaries have been presented at their carrying values as the date of the transaction, and the stockholders’ equity of the Company has been retrospectively restated to reflect the acquisition as recapitalization of the Company. The consolidated financial statements after closing of the Share Exchange Agreement include the assets and liabilities of the Company and Success Green BVI and the historical operations of Success Green BVI and operations of the combined entities (the Company and Success Green BVI) from the closing date of the Share Exchange Agreement.
Public Offering of 10,000,000 Shares of Common Stock
On July 23, 2018, the Company completed its public offering of 10,000,000 shares of Common Stock, no par value, pursuant to the Company’s post-effective amendment to registration statement on Form S-1, as amended (the “Registration Statement”).
Purchase Agreement with Advance Capital Investment Group Inc.
On December 24, 2018 (the “Closing Date”), Success Green HK entered into a share purchase agreement (the “AC Share Purchase Agreement”) with Advance Capital Investment Group Inc., a Vanuatu corporation (“Advance Capital”), and Mr. Terence Ho, the sole owner of Advance Capital, pursuant to which Success Green HK received a 100% equity interest in Advance Capital from Mr. Ho for a nominal consideration of $1. Immediately following the closing of the transaction underlying the AC Share Purchase Agreement, Advance Capital became a wholly owned subsidiary of the Company. E.P. Trading Co. Limited (“E.P. Trading”) is the wholly owned subsidiary of Advance Capital and became our operating entity pursuant to the AC Share Purchase Agreement. E.P. Trading currently holds a “licence of registration for overseas supplier enterprise of imported solid wastes as raw materials” issued by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) of the People’s Republic of China effective from December 1, 2017 to November 30, 2020.
Advance Capital was incorporated on December 14, 2012 in the Republic of Vanuatu. E.P. Trading was incorporated on March 13, 2017 in Hong Kong as a limited company.
Sale of ZhaoQing NengCheng
In November 2018, the Company suspended the operations of Nengcheng. Subsequently on March 8, 2019, the Company’s subsidiary, ZhaoQing NengCheng Investment Consulting Co., Ltd. sold 100% of its equity interests in ZhaoQing NengCheng Import and Export Co., Ltd. to Zhijian Chen, a non-related third party, for a consideration of RMB10,000 (approximately $1,500).
2
Corporate Structure
The corporate structure of the Company is as follows:
The address of our principal executive office is Room 2305A, 23/F, World-Wide House, 19 Des Voeux Road, Central, Hong Kong.
Our Services
As a one-stop import service provider, we offer a variety of services to our customers, including procuring, importing, settling foreign exchange payments, clearing customs, and setting up delivery logistics for raw materials and half-finished products, such as various kinds of cowhides and scrap plastics, from overseas to the PRC market. Our customers in need of various cowhides such as wet blue cowhide, salt wet cowhide, and rawhide are located throughout China, while customers demanding scrap plastics and other recyclable materials are primarily located in the Guangdong province. In 2019, we pivoted our service offerings to import of solid waste through E.P. Trading as it currently holds a “licence of registration for overseas supplier enterprise of imported solid wastes as raw materials” issued by the General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China effective from December 1, 2017 to November 30, 2020.
We provide our services to PRC manufacturer customers with needs for minimizing their cost in raw materials. The raw materials and half-finished goods that we procure from overseas for our customers typically are of higher quality than those available in the PRC market, while the ultimate costs of sourcing overseas including tariffs, other import taxes, and shipping expenses typically are lower than the cost of sourcing from the PRC market. To source cowhides, we negotiate with such overseas suppliers after our customers designate their preferred overseas suppliers, who are usually in the U.S., Central and South America, and Europe. Additionally, we were able to source scrap plastics from countries that have better recycling and waste sorting regulations and practices which in turn, produce better quality scrap plastics than those available in the PRC domestic market. Since March 2019, we plan to import from overseas for our customers in Foshan, Qingyuan and Sihui in the PRC that has needs for solid waste and nonferrous metal waste.
Our customers do not need to obtain or maintain the requisite import licenses and can rely on our services to import the raw materials and half-finished goods. Therefore, by engaging our services, our customers can access the international market for high quality raw materials and half-finished goods on a cost-effective basis.
Our typical sales cycle begins when a customer contacts our sales team to engage our service in managing and completing the entire process of importing a specific kind of products. After we are engaged, we then negotiate with our overseas supply partners or overseas suppliers preferred by the customer regarding the import supply order of the solid waste, raw materials or half-finished products with a price agreed upon by the overseas supplier and the customer.
3
Competitive Advantage
We believe that the following competitive strengths enhance our position in the PRC market:
| ● | Our one-stop import services are more efficient than those of our competitors. Our management team and employees, including the team at E.P. Trading, have extensive experiences in providing one-stop import services and have created our own business process that maximizes efficiency in serving our customers. With our services, our customers are able to clear customs 2-3 days faster on average compared to those of our competitors. | |
| ● | Our service is more cost-effective than our competitors. We charge lower rates for our services than our competitors, as our over 20 years’ experience in coordinating international supply processes and customs clearance allows us to develop cost-effective and efficient business processes. | |
| ● | We have excellent word-of-mouth reputation among our customers. We have generated a significant amount of business through word-of-mouth referrals from past and current customers. We expect to continue to generate substantial future revenues through word-of-mouth referrals. Additionally, E.P. Trading has been in the solid waste import service business since its inception in 2017 and maintains a great customer service reputation in the industry. |
Growth Plan
While we have established a close and stable working relationship with many of our customers, we have been growing the range of our services to include scrap plastics in 2015. However, due to the PRC government’s restriction on the import of scrap plastics in 2016, we have transitioned away from customers needing scrap plastics, and have endeavored to build our customer base for those needing processed plastics, which we believe will generate steady, rising demand in the near future.
Our long-term objective is to establish our company as the regional leader in providing one-stop import services in the processed plastics industry while continuing to steadily expand our supplier and customer base for imported goods we currently provide services for.
As of the date of this filing, we expect to achieve this objective through the following strategies, although general market conditions and our financial results may require us to delay these strategies or adopt alternative strategies:
| ● | Between the years of 2019 and 2020, we have acquired a one-stop import service operation focused on solid waste and plan to leverage E.P. Trading’s operation to re-establish and reinforce our processed plastics and renewable waste customer base in Guangdong province and expand our customer base in Fujian province, strengthen our sales personnel, and establish more working relationships with potential overseas suppliers. | |
| ● | Between the years of 2021 and 2023, we plan to acquire a number of overseas renewable resources suppliers so that we have more control over the supply chain and the import sources. |
Industry
The most significant products that NengCheng imported in 2018 prior to the discontinuation of its operation, were rubber wood timber, blue wet cowhide, and raw cowhide. Due to the NengCheng being classified as a discontinued operation, we did not include its import custom clearing services business in our operating segment information for all periods presented. The most significant products we have imported in 2017 and 2016 were different types of cowhides and rubber wood timber. According to China Leather Industry Information Center (the “LIIC”), in 2016, the PRC leather industry imported raw cowhides from 35 countries, among which America, Australia and Canada were the top three countries. According to the LIIC, the PRC regions that imported the greatest volume of raw cowhides are the following provinces: Hebei, Shandong, Fujian, Jiangsu, and Guangdong. Because our customers prior to the suspension and sale of NengCheng’s operation, were third-party manufacturers of leather furniture and particularly leather couches, the demand and supply of leather couches in the PRC market impacts our business more significantly than the demand and supply of cowhides in the global market. According to the LIIC, the PRC market of leather couches and other soft couches accounted for 50% of the global market for similar couches in 2016; additionally, the China Intelligence Website predicted that the PRC market will continue to grow. We no longer operate in the cowhide import service industry.
Since our acquisition of E.P. Trading in late 2018, we are in the process of integrating and expanding the solid waste import service operation, specifically, import of nonferrous metal waste. We believe the PRC market has significant unmet demand for nonferrous metal. Additionally, nonferrous metal waste is cheaper than virgin nonferrous metal and creates less environmental impact in the manufacturing process, leading manufacturers to prefer nonferrous metal waste over virgin nonferrous metals waste. We believe the demand for nonferrous metal in the PRC market significantly exceeds the supply; while the collection, sorting and classification of imported nonferrous metal waste is more detailed and precise sorted in the overseas market than in the PRC market and hence imported nonferrous metal waste has higher value and is more in demand. We are in the process of engaging the business of customers that supply non-ferrous metal wastes to manufacturers after processing the non-ferrous metal waste.
4
Competition
Virtually all of our services are provided to customers in the PRC market. Our major competitors are PRC-based import and export agency companies mainly located in seaport cities such as Tianjin, Qingdao, Xiamen, and various cities in Guangdong Province. We primarily compete with other import and export service companies such as Top Capital Holdings Limited and New Standard Enterprises Company Limited. Some of our competitors are import and export comprehensive service companies with online platforms, such as Tus-sound Environmental Resources Co., Ltd. This type of competitors has a much larger operation scale than us and generate more sales revenue, have greater financial capabilities, and enjoy a more established reputation because of their accumulated industrial experiences. Our principle comparative advantages focus on cost of service and efficiency of custom clearance. The demand for our one-stop services significantly depends on the general economy in the PRC and the PRC domestic demand for each of the goods in our offerings.
Suppliers
We enter into short-term supply orders in the ordinary course of business with the suppliers who are outside the PRC on behalf of our customers, pursuant to a short-term form of supply order with a fixed price. Typically the term covers three month or less. Though the fixed price of short-term orders does not entirely protect us and our customers against volatility in raw material prices, it nevertheless suits the business needs of our customers. We enter into supply orders for the raw materials and half-finished goods we import on behalf of our customers. Suppliers are either designated by our customers, or, for many orders of scrap plastic and processed plastics, are chosen by us, depending on whether they supply goods that match the specifications of our customers.
In fiscal year 2018, the primary supply we sourced were blue wet cowhide and raw cowhide. Our major supplier in 2018 was Xiangxiang Trade Co. Ltd, who supplied blue wet cowhide and raw cowhide to us, accounting for 68.6% of our purchases in 2018.
In fiscal year 2017, the primary supply we sourced were cowhides and rubber wood timber. Our major supplier in 2017 was Xiangxiang Trade Co. Ltd (“Xiangxiang”), who supplied blue wet cowhide and raw cowhide to us, accounting for 91% of our purchases in 2017.
Due to the NengCheng being classified as a discontinued operation, we did not include its import custom clearing services business in our operating segment information for both fiscal years ended December 31, 2018 and 2017.
For our scrap plastic and processed plastics, we have working relationship with suppliers in Southeast Asia, and are in the process of searching and negotiating with additional suppliers to expand our supplier base.
Marketing and Customers
We currently generate new businesses primarily through word-of-mouth referrals from past and current customers. We intend to expand our sales and marketing team to accommodate our growing operation in providing nonferrous metal waste and processed plastics related services.
We enter into import service agreements with our customers when they enter into an import service agreement with us. The import service agreement stipulates our service fees, our duties and responsibilities, and other customary terms and conditions.
We primarily enter into purchase orders with our top customers. Each purchase order governs each transaction and order from our customers. Purchase orders are typically short-term based, effective from the time of placing the order until the time when the order is delivered. We do not automatically renew our purchase orders with our top customers, and they each place a new order with us for a new transaction. Our order form includes our service fee, which is a percentage of the total payment of the goods imported. Our order form also indicates that payment in full is due within 15 days of the completion of our services.
Research and Development
We have not incurred any cost or expenses in research and development in the fiscal years ended December 31, 2017 and 2018. In light of our objective to strengthen our position as a one-stop import service provider that has a significantly strong practice in nonferrous metal waste and processed plastics, we intend to increase spending in research and development to identify overseas suppliers of nonferrous metal waste processed plastics that will meet the specific specifications, quality and cost requirements of our customers.
5
Facilities/Properties
For NengCheng’s operation prior to its discontinuation of operation, we had leased an office space from a third-party in Dasha Town, City of Sihui in Guangdong Province, for an annual rent of RMB10,000 (approximately $1,500). We had an unlimited term under this lease and can lease the premise for as long as we wish, and can terminate the lease without penalty. As of the date of this annual report, we no longer lease the office space in Dasha Town. For E.P. Trading’s operation, we lease an office space form a third party at Unit 2719, 27/F., Tuen Mun Central Square, No. 22 Hoi Wing Road, Tuen Mun, N.T., Hong Kong, for annual rent and administrative expenses of HK$240,000 (approximately $30,770). Our lease for E.P. Trading is for 3 years beginning on January 1, 2019.
We believe our facility is sufficient for our current operation.
Employees
As of the date of report, we had 3 employees, 1 of which is full-time, and 2 of which are part-time. They are not part of a labor union. We believe our relations with our employees are good.
Legal Proceedings
Except for the disclosure below, we are not currently a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business, operating results, cash flows or financial condition.
SEC Revokes Registration of Securities of Sunburst Acquisitions V, Inc. for Failure to Make Required Periodic Filings
On April 26, 2017, the SEC instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding 12 months the registration of each class of our securities for failure to make required periodic filings with the SEC. In its Order, the Division of Enforcement (“Division”) alleged that the Company was delinquent in its required periodic filings with the Commission. The SEC informed the Company that pursuant to Section 12(j) of the Exchange Act, a hearing would be scheduled before an Administrative Law Judge. At the hearing, the judge would hear evidence from the Division and the Company to determine whether the allegations of the Division contained in the Order, which the Division alleged constituted failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, were true. The Judge in the proceeding then determined whether the registrations pursuant to Exchange Act Section 12 of each class of our securities should be revoked or suspended for a period not exceeding twelve months. The SEC ordered that the Judge issue an initial decision not later than 120 days from the date of service of the order instituting proceeding.
On October 4, 2017, the SEC revoked the registration of each class of our registered securities pursuant to Section 12(j) of the Exchange Act for failure to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder by failing to make required periodic filings with the SEC.
We filed a registration statement on Form 10 to re-register our Common Stock under Section 12(g) of the Exchange Act on November 13, 2017, as amended on January 18, 2018, and February 28, 2018, and such registration statement became effective automatically on January 12, 2018, 60 days following the initial filing of the Form 10.
Tax
NengCheng, as a PRC entity, is subject to enterprise income tax (“EIT”) according to applicable PRC tax rules and regulations. NengCheng has filed its quarterly tax returns in the past fiscal year. Beginning on March 8, 2019, NengCheng was no longer our subsidiary.
PRC enterprises are required to prepay the EIT on a monthly or quarterly basis and to file provisional EIT returns with the tax authorities within 15 days of the end of each quarter based on actual monthly or quarterly profits. Enterprises that have difficulty in paying monthly or quarterly tax based on actual monthly or quarterly profits may make payments based on the monthly or quarterly average taxable income in the preceding calendar year, or by any other methods approved by the relevant tax authorities.
Final settlement of tax liability must be made within five months of the end of each calendar year, and all EIT returns shall be based on Chinese GAAP.
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Regulations and Governmental Approvals
The following summarizes the principal PRC regulations related to our business operations.
Import Related Regulations
We are required to comply with the Customs Law established by the PRC, which establishes regulations related to import/export of merchandise from or to China. The regulations define the criteria for the supervision of the transport of merchandise to and from China.
To qualify as an entity permitted to import goods into the PRC, the entity is required to include foreign trade in the scope of business of its business permit, and must hold currently valid permits, such as Registration Form for Foreign Trade Manager and Registration of Declaration Entities. Continuing qualification requires an entity to file the requisite annual records with the relevant bureaus of administration of industry and commerce, the ministry of the foreign trade and economic cooperation and the PRC Customs.
Prior to the discontinuation of NengCheng’s operation, NengCheng’s scope of operation is foreign trade, and NengCheng holds the required and currently valid permits such as Registration Form for Foreign Trade Manager, Registration of Declaration Entities, NengCheng is permitted to engage in import business activities. To import various types of cowhides, we complied with the PRC regulations and do not import from countries on the banned list of import of animal and animal products. For import of raw cowhides, we obtained the raw cowhide import permit from the Entry-Exit Inspection and Quarantine, Office of Animal and Botanical Quarantine Inspection, from the province that the ports are located. The import of our scrap plastic and processed plastic was subject to the regulation of Solid Waste Import Management Regulations. Pursuant to the Solid Waste Import Management Regulations, import of recyclable plastic requires environmental protection permits. NengCheng had held all requisite permits during the fiscal year period covered by this Form 10-K.
To import various types of non-ferrous metals, we comply with the PRC regulations such as Measures for the Inspection, Quarantine, Supervision and Administration of Imported Solid Waste That Can Be Used as Raw Materials (the “Imported Solid Waste Measures”) and the “Implementation Rules for Pre-shipment Inspection and Supervision of Imported Solid Wastes as Raw Materials” (the “Pre-shipment Implementation Rules”). The import of non-ferrous metals is subject to Imported Solid Waste Measures and Pre-shipment Implementation Rules, which require a licence of registration for overseas supplier enterprise of imported solid wastes as raw materials as an overseas supplier for imported solid waste that can be used as raw materials, and that all shipments are from exporters that are registered with General Administration of Customs, People’s Republic of China (GACC). E.P. Trading holds all requisite permits as of the date of this Annual Report on Form 10-K and plans to import only from exporters that are registered with the GACC.
Since E.P. Trading’s scope of operation is foreign trade, and E.P. Trading is a Hong Kong company, pursuant to PRC laws and regulations, E.P. Trading holds licence of registration for overseas supplier enterprise of imported solid wastes as raw materials and thus is permitted to engage in import business activities.
To maintain ongoing compliance of our import business activities through E.P. Trading, we are required to file annual records with or subject to annual inspection from PRC regulatory procedures such registering with the Administration of Commerce and Industry, Ministry of Foreign Trade and Economic Cooperation, Foreign Trade and Economics Department, and PRC Customs.
Provisions on Foreign Investment
Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment, which was promulgated and is amended from time to time by the Ministry of Commerce of the PRC (“MOFCOM”), and the National Development and Reform Commission, or “NDRC.” In June 2017, MOFCOM and NDRC promulgated a revision of the Guidance Catalogue of Industries for Foreign Investment, or the “Catalogue,” effective July 2017. On June 28, 2018, MOFCOM and NDRC further promulgated the Special Administrative Measures for Market Access of Foreign Investment (“Negative List”) to amend the Catalogue. The Catalogue (as amended by the Negative List) lists the industries and economic activities in which foreign investment in the PRC is encouraged, restricted, or prohibited. Any industry not listed in the Catalogue is a permitted industry. Pursuant to the Catalogue (as amended by the Negative List), none of our business falls into the Negative List.
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In October 2016, MOFCOM issued the Interim Measures for Record-filing Administration of the Establishment and Change of Foreign-invested Enterprises (“FIE Record-filing Interim Measures”), most recently amended on June 29, 2018. Pursuant to the FIE Record-filing Interim Measures, the establishment and change of foreign-invested enterprises are subject to record-filing procedures, instead of prior approval requirements, provided that such establishment or change does not involve special entry administration measures. If the establishment or change of foreign-invested enterprises matters involve the special entry administration measures, the approval of MOFCOM or its local counterparts is still required.
E.P. Trading is not subject to register pursuant to the foregoing since E.P. Trading is a Hong Kong limited company, instead of a wholly owned foreign enterprise incorporated in the PRC.
Regulations on Foreign Exchange
Foreign Exchange Settlement
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, promulgated by the State Council in 1996 and most recently amended in 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. By contrast, approval from or registration with appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans.
In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment (“SAFE Circular 59”) and most recently amended in 2015, which substantially amends and simplifies the current foreign exchange procedures. Pursuant to SAFE Circular 59, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts, and guarantee accounts, the reinvestment of Renminbi proceeds derived by foreign investors in China, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously.
In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment (“SAFE Circular 13”), pursuant to which, instead of applying for approval regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conduct the registration.
In March 2015, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (“SAFE Circular 19”). Pursuant to SAFE Circular 19, a foreign-invested enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account). In addition, for the time being, foreign-invested enterprises are allowed to settle 100% of their foreign exchange capital on a discretionary basis. A foreign-invested enterprise shall truthfully use its capital for its own operational purposes within the scope of business. Where an ordinary foreign-invested enterprise makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise must first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered.
In June 2016, SAFE promulgated Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts (“SAFE Circular 16”), pursuant to which, in addition to foreign currency capital, enterprises registered in China may also convert their foreign debts, as well as repatriated fund raised through overseas listing, from foreign currency to Renminbi on a discretional basis. SAFE Circular 16 also reiterates that the use of capital so converted shall follow “the principle of authenticity and self-use” within the business scope of the enterprise. According to SAFE Circular 16, the Renminbi funds so converted shall not be used for the purposes of, whether directly or indirectly, (i) paying expenditures beyond the business scope of the enterprises or prohibited by laws and regulations; (ii) making securities investment or other investments (except for banks’ principal-secured products); (iii) granting loans to non-affiliated enterprises, except as expressly permitted in the business license; and (iv) purchasing non-self-used real estate (except for the foreign-invested real estate enterprises).
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In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification (“SAFE Circular 3”), which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records, and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Further, pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.
Regulations Relating to Employment and Social Insurance
The Labor Contract Law of the PRC, or the “Labor Contract Law,” which was promulgated on June 29, 2007, and most recently amended on December 29, 2018, is primarily regulating rights and obligations of employer and employee relationships, including the establishment, performance, and termination of labor contracts. Pursuant to the Labor Contract Law, labor contracts shall be concluded in writing if labor relationships are to be or have been established between employers and the employees. Employers are prohibited from forcing employees to work above certain time limit and employers shall pay employees for overtime work in accordance to national regulations. In addition, wages may not be lower than the local minimum wage. Employers must establish a system for labor safety and sanitation, strictly abide by state standards, and provide relevant education to its employees. Employers are also required to provide employees with safe and sanitary working conditions.
Under the Social Insurance Law of the PRC that was promulgated by the Standing Committee of the National People’s Congress (the “SCNPC”) on October 28, 2010, and came into force as of July 1, 2011, and most recently amended on December 29, 2018, together with other laws and regulations, employers are required to pay basic pension insurance, unemployment insurance, basic medical insurance, employment injury insurance, maternity insurance, and other social insurance for its employees at specified percentages of the salaries of the employees, up to a maximum amount specified by the local government regulations from time to time. When an employer fails to fully pay social insurance premiums, relevant social insurance collection agency shall order it to make up for any shortfall within a prescribed time limit, and may impose a late payment fee at the rate of 0.05% per day of the outstanding amount from the due date. If such employer still fails to make up for the shortfalls within the prescribed time limit, the relevant administrative authorities shall impose a fine of one to three times the outstanding amount upon such employer.
In accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in 1999 and amended in 2002, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. Employer and employee are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the employee in the preceding year in full and on time.
Regulations on Tax
PRC Enterprise Income Tax Law
On March 16, 2007, the SCNPC promulgated the Enterprise Income Tax Law of the PRC which was most recently amended on December 29, 2018, and on December 6, 2007, the State Council enacted the Implementation Rules of the EIT Law (collectively, the “EIT Law”). Under the EIT Law, both resident enterprises and non-resident enterprises are subject to tax in the PRC. Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect controlled from within the PRC. Non-resident enterprises are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside the PRC, but have established institutions or premises in the PRC, or have no such established institutions or premises but have income generated from inside the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. If non-resident enterprises have not formed permanent establishments or premises in the PRC, or if they have formed permanent establishment or premises in the PRC but there is no actual relationship between the relevant income derived in the PRC and the established institutions or premises set up by them, however, enterprise income tax is set at the rate of 20% with respect to their income sourced from inside the PRC.
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PRC Value-added Tax Law
The Provisional Regulations of the PRC on Value-added Tax were promulgated by the State Council on December 13, 1993, and were most recently amended on November 19, 2017. The Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) were promulgated by the MOF on December 25, 1993, and were recently amended on October 28, 2011 (collectively with the VAT Regulations, the “VAT Laws”). According to the VAT Law and Circular of the MOF and the SAT on Adjusting VAT Rates (“MOF and SAT Circular 32”) promulgated on April 4, 2018, all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets, real property and the importation of goods within the territory of the PRC are the taxpayers of VAT. The VAT tax rates generally applicable are simplified as 16%, 10%, 6% regarding type of sales or services, and the VAT tax rate of 3% is applicable to small-scale taxpayers, including our PRC subsidiaries.
We have abided by the relevant PRC tax laws in our operation. E.P. Trading was not subject to value-added taxation in the fiscal year ended December 31, 2018 since there was no operation, no active bank account and no sales made and no relevant VAT generated.
Hong Kong Enterprise Taxation
E.P. Trading, incorporated in Hong Kong, was subject to 16.5% Hong Kong profit tax on its taxable income generated from operations in Hong Kong for the year of assessment of 2017/2018. As from year of assessment of 2018/2019 onwards, Hong Kong profit tax rates are 8.25% on assessable profits up to HK$2,000,000, and 16.5% on any part of assessable profits over HK$2,000,000.
Under Hong Kong tax laws, E.P. Trading is exempted from Hong Kong income tax on its foreign-derived income. In addition, payments of dividends from our Hong Kong subsidiaries to us are not subject to any withholding tax in Hong Kong.
Seasonality
We believe our operation and sales do not experience seasonality.
Off Balance Sheet Arrangements
We do not maintain off balance sheet arrangements.
Risks Related to Our Business and Industry
We have a limited operating history with our current business model, which makes it difficult to predict our future prospects and financial performance.
We have a short operating history with our current business model, since E.P. Trading was established in March 2017 in Hong Kong. Our business has generated limited gross revenues, and may not produce significant gross revenues in the near term, or at all, which may harm our ability to obtain additional financing and may require us to reduce or discontinue our operations. You must consider our business and prospects in light of the risks and difficulties we may encounter as an early-stage operating company in a new and rapidly evolving industry. We may not be able to successfully address these risks and difficulties, which could significantly harm our business, operating results and financial condition.
We have incurred operating losses in the past, expect to incur operating losses in the future and may never achieve or maintain profitability.
We began operations in 2012 and for all of our history we have experienced net losses and negative cash flows from operations. As of December 31, 2018, the Company had accumulated deficits of approximately $17.8 million and working capital deficit of current liabilities exceeding current assets by approximately $4.9 million due to the substantial losses in operation in previous periods. We expect our operating expenses to increase in the future as we expand our operations. If our revenue and gross profit do not grow at a greater rate than our operating expenses, we will not be able to achieve and maintain profitability. We expect to incur significant losses in the future for a number of reasons, including without limitation the other risks and uncertainties described herein. Additionally, we may encounter unforeseen operating or legal expenses, difficulties, complications, delays and other factors that may result in losses in future periods. If our expenses exceed our revenue, we may never achieve or maintain profitability and our business may be harmed.
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For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.
In April 2012, President Obama signed into law the JOBS Act. We are classified as an “emerging growth company” under the JOBS Act. For as long as we are an emerging growth company, which may be up to five full fiscal years, unlike other public companies, we will not be required to, among other things, (i) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, (ii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (iii) provide certain disclosure regarding executive compensation required of larger public companies or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act, although we will lose that status sooner if we have more than $1.07 billion of revenues in a fiscal year, have more than $700 million in market value of our Common Stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.
To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our Common Stock to be less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
We incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”
We recently become a public company on January 12, 2018 upon automatic effectiveness of our registration statement on Form 10, and as such, we now expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, impose various requirements on the corporate governance practices of public companies. As an “emerging growth company” pursuant to the JOBS Act, we may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with increased disclosure requirements.
We may not be able to manage our business expansion and strategic acquisitions effectively.
We plan to continue to expand our presence through organic growth and strategic acquisitions. In particular, to support our growth and to strengthen our market share, we may acquire similar service companies in other regions to expand geographically. This will result in substantial demands on our management and on our operational, technological and other resources. To manage our expected growth, we will be required to expand our existing managerial, operational, technological and financial systems. We also need to expand, train, manage and retain our growing employee base. Significant financial resources may also be needed to support our planned growth. We cannot assure you that our current and planned managerial, operational, technological and financial systems will be adequate to support our future operations, or that we will be able to effectively and efficiently manage the growth of our operations or recruit and retain qualified personnel. There is no assurance that we will be able to obtain financial resources at commercial terms that are acceptable to us on a timely basis, or at all, to support our planned growth. Any failure to effectively and efficiently manage our expansion may materially and adversely affect our ability to capitalize on new business opportunities, which in turn may have a material adverse effect on our financial condition and results of operations.
In addition, as a core part of our growth strategy, we intend to pursue selective strategic acquisitions and maximize synergies through integration of acquired entities. Our strategic acquisitions involve substantial risks and uncertainties, including:
| ● | our ability to identify and acquire targets in a cost-effective manner; | |
| ● | our ability to obtain approval from relevant government authorities for the acquisitions and to comply with applicable rules and regulations for acquisitions; | |
| ● | our ability to obtain financing to support our acquisitions; | |
| ● | our ability to generate sufficient revenue to offset the costs and expenses of acquisitions, including the possibility of failure to achieve the intended revenue and other benefits expected from the acquisitions; | |
| ● | potential ongoing financial obligations in connection with the acquisitions, including any expenses in connection with impairment of goodwill recognized in connection with the acquisitions and potential unforeseen or hidden liabilities of any acquired entity, such as litigation claims or tax liabilities; | |
| ● | the diversion of resources and management attention from our existing businesses; and | |
| ● | potential loss of, or harm to, employee or customer relationships as a result of ownership changes in the acquired entities. |
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If any one or more of these risks or uncertainties materializes or if any of the strategic objectives we contemplate are not achieved, our strategic acquisitions may not be beneficial to us and may have a material adverse effect on our business, financial condition and results of operations.
We may not be able to successfully integrate businesses that we acquire, which may cause us to lose anticipated benefits from such acquisitions and to incur significant additional expenses.
We may not successfully integrate our operations and the operations of E.P. Trading that we have acquired in a timely manner, or at all, and we may not realize the anticipated benefits or synergies of the acquisitions to the extent, or in the timeframe, we anticipated, which may have a material adverse effect on our business, financial condition and results of operations. The main challenges involved in integrating acquired entities include the following:
| ● | consolidating service offerings; | |
| ● | retaining qualified education professionals of any acquired entity; | |
| ● | consolidating and integrating corporate information technology and administrative infrastructure; | |
| ● | ensuring and demonstrating to customers that the acquisitions will not result in any adverse changes to our brand image, reputation, service quality or standards; | |
| ● | preserving strategic, marketing or other important relationships of any acquired entity and resolving potential conflicts that may arise with our key relationships; and | |
| ● | minimizing the diversion of our management’s attention from ongoing business concerns. |
If we fail to successfully execute our growth strategies, our business and prospects may be materially and adversely affected.
Our growth strategies include further promoting our one-stop import service program to customers that require import services throughout the PRC market, expanding our non-ferrous metal waste import offerings and establishing working relationship with additional ports that we currently do not operate in. We may not succeed in executing these growth strategies due to a number of factors, including the following:
| ● | we may fail to further promote our one-stop import services; | |
| ● | we may not be successful in effectively expanding our customer outside our currently operating region, or build additional sources of revenues from adding the import of new raw materials or half-finished goods; | |
| ● | we may not be able to establish a good working relationship with additional ports that would be most convenient and cost-effective for our customers; | |
| ● | we may not be able to identify suitable targets for acquisitions and partnership. |
If we fail to successfully execute our growth strategies, we may not be able to maintain our growth rate and our business and prospects may be materially and adversely affected as a result.
We rely on overseas cargo agents to provide services to us and to our customers, and our ability to conduct business successfully may be affected if we are unable to maintain our relationships with these overseas cargo agents.
We rely on the services of independent cargo agents, who may also be providing services to our competitors, which may include consolidating and deconsolidating various shipments. Although we believe our relationships with our cargo agents are satisfactory, we may not be able to maintain these relationships. If we were unable to maintain these relationships or develop new relationships, our service levels, operating efficiency, future freight volumes and operating profits may be reduced which will adversely impact our results of operations in future periods.
We incur significant credit risks in the operation of our business which could reduce our operating profits.
Various aspects of import services involve significant credit risks. As part of our service, we first pay the cost of customs clearance, such as tariffs and other taxes, on behalf of our customers, before we bill our customers for the cost. We endeavor to maintain tight credit controls and to avoid doing business with customers we believe may not be creditworthy. While we have not yet encountered incurring losses for customers to whom we extended credit and either delayed their payments to us or became unable or unwilling to pay our invoices after we completed shipment of their goods or rendered other services to them, we cannot guarantee that we will not incur such losses in the future.
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We may not be able to adequately protect our intellectual property.
Unauthorized use of any of our intellectual property may adversely affect our business and reputation. We rely on a combination of copyright, trademark and trade secrets laws to protect our intellectual property rights. Nevertheless, third-parties may obtain and use our intellectual property without due authorization. The practice of intellectual property rights enforcement action by Chinese regulatory authorities is in its early stage of development and is subject to significant uncertainty. We may also need to resort to litigation and other legal proceedings to enforce our intellectual property rights. Any such action, litigation or other legal proceedings could result in substantial costs and diversion of our management’s attention and resources and could disrupt our business. In addition, there is no assurance that we will be able to enforce our intellectual property rights effectively or otherwise prevent others from the unauthorized use of our intellectual property. Failure to adequately protect our intellectual property could materially and adversely affect our business, financial condition and results of operations.
We may encounter disputes from time to time relating to our use of intellectual property of third parties.
We cannot be certain that third parties will not claim that our business infringes upon or otherwise violates patents, copyrights or other intellectual property rights that they hold. Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our management’s attention and resources or result in the loss of goodwill associated with our brand. If a lawsuit against us is successful, we may be required to pay substantial damages and/or enter into royalty or license agreements that may not be based upon commercially reasonable terms, or we may be unable to enter into such agreements at all.
We may not be able to achieve the benefits we expect from recent and future acquisitions, and recent and future acquisitions may have an adverse effect on our ability to manage our business.
We have made and intend to continue to make acquisitions or equity investments in additional businesses that complement our existing business. We may not be able to successfully integrate acquired businesses and we may not have control over the businesses or operations of our minority equity investments, the value of which may decline over time. As a result, our business and operating results could be harmed. In addition, if the businesses we acquire or invest in do not subsequently generate the anticipated financial performance or if any goodwill impairment test triggering event occurs, we may need to revalue or write down the value of goodwill and other intangible assets in connection with such acquisitions or investments, which would harm our results of operations. In addition, we may be unable to identify appropriate acquisition or strategic investment targets when it is necessary or desirable to make such acquisition or investment to remain competitive or to expand our business. Even if we identify an appropriate acquisition or investment target, we may not be able to negotiate the terms of the acquisition or investment successfully, finance the proposed transaction or integrate the relevant businesses into our existing business and operations.
If our senior management is unable to work together effectively or efficiently or if we lose their service, our business may be severely disrupted.
Our success heavily depends upon the continued services of our management. In particular, we rely on the expertise and experience of Mr. Terence Ho, our CEO and Chairman. If Mr. Ho or one or more of our senior management members were unable or unwilling to continue in their present positions, we might not be able to replace them easily or at all, and our business, financial condition and results of operations may be materially and adversely affected. If Mr. Ho or any of our senior management members joins a competitor or forms a competing business, we may lose our employees, and other key professionals and staff members. If any dispute arises between our officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all.
We have limited insurance coverage for our operations in China, which could expose us to significant costs and business disruption.
We do not maintain any liability insurance or property insurance policies covering equipment and facilities for injuries, death or losses due to fire, earthquake, flood or any other disaster. Consistent with customary industry practice in China, we do not maintain business interruption insurance, nor do we maintain key-man life insurance. We maintain medical insurance for our management in China. As the insurance industry in China is still in an early stage of development, insurance companies in China currently offer limited business-related insurance products. We do not maintain business interruption insurance. We cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policy on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.
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Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, access to capital and cost of capital.
The capital and credit markets have previously experienced extreme volatility and disruption, including, among other things, extreme volatility in securities prices, severely diminished liquidity and credit availability, ratings downgrades of certain investments and declining valuations of others. Governments have taken unprecedented actions intended to address extreme market conditions that have included severely restricted credit and declines in real estate values. In some cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for certain issuers. While historically these conditions have not impaired our ability to utilize our current credit facilities and finance our operations or obtaining advances from our shareholders, there can be no assurance that there will not be deterioration in financial markets and confidence in major economies such that our ability to access credit markets and finance our operations might be impaired. Without sufficient liquidity, we may be forced to curtail our operations and any planned expansion. Adverse market conditions may limit our ability to replace, in a timely manner, maturing liabilities and access the capital necessary to operate and grow our business. As such, we may be forced to delay raising capital or bear an unattractive cost of capital which could decrease our profitability and significantly reduce our financial flexibility. The tightening of credit in financial markets could adversely affect the ability of our customers to obtain financing for purchases of our products and could result in a decrease in or cancellation of orders for our products. Our results of operations, financial condition, cash flows and capital position could be materially adversely affected by disruptions in the financial markets.
Since our stock is quoted to trade on the OTC market, our stock price may be negatively affected if we become subject to the recent scrutiny, criticism and negative publicity involving U.S. listed Chinese companies.
Recently, U.S. publicly reporting companies that have substantially all of their operations in China, particularly companies like us which have completed share exchanges or reverse merger transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S.-listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions, and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our Company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from growing our company. If such allegations are not proven to be groundless, our company and business operations will be severely negatively affected and your investment in our stock could be rendered worthless.
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
As of December 31, 2018, the Company had accumulated deficits of approximately $17,757,533 and working capital deficit of current liabilities exceeding current assets by approximately $4.9 million due to the substantial losses in operation in previous periods. The future of our company depends upon future profitable operations from E.P. Trading and the continuing financial support from our stockholders or other capital sources. Our management will need to seek additional financing in the future. In addition, the presence of the going concern explanatory paragraph may have an adverse impact on our relationship with third parties with whom we do business, including our customers, vendors, and employees and could make it challenging and difficult for us to raise additional debt or equity financing to the extent needed, all of which could have a material adverse impact on our business, results of operations and financial condition. These conditions raise substantial doubt about our company’s ability to continue as a going concern. Although there are no assurances that our plans will be realized, our management believes that we will be able to continue operations in the future.
Additionally, we cannot assure you that we will be able to generate net profits or positive cash flow from operating activities in the future. Our ability to achieve profitability will depend in large part on our ability to increase our operating margin, either by growing our revenues at a rate faster than our operating expenses increase, or by reducing our operating expenses, especially our sales and market expenses, as a percentage of our net revenues. As a result of the foregoing, we believe that we may continue to incur net losses for a period of time in the future.
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Risks Related to Doing Business in China
Substantially all of our assets are located in the PRC and substantially all of our revenues are derived from our operations in China, and changes in the political and economic policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.
Our business operations 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, including those relating to taxation, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activities and greater economic decentralization. There is no assurance, however, that the government of the PRC will continue to pursue these policies, or that it will not significantly alter these policies from time to time without advance notice.
Our operations are subject to PRC laws and regulations that are sometimes vague and uncertain. Any changes in such PRC laws and regulations, or the interpretations thereof, may have a material and adverse effect on our business.
The PRC’s legal system is a civil law system based on written statutes. Unlike the common law system prevalent in the U.S., decided legal cases have little value as precedent in China. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to, governmental approvals required for conducting business and investments, laws and regulations governing the battery industry, national security-related laws and regulations and export/import laws and regulations, as well as commercial, antitrust, patent, product liability, environmental laws and regulations, consumer protection, and financial and business taxation laws and regulations.
The Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because many laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation 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.
PRC regulations relating to acquisitions of PRC companies by foreign entities may create regulatory uncertainties that could restrict or limit our ability to operate, including our ability to pay dividends. Our failure to obtain the prior approval of the China Securities Regulatory Commission, or the CSRC, for any offering of our Common Stock could have a material adverse effect on our business, operating results, reputation and trading price of our Common Stock.
The PRC State Administration of Foreign Exchange, or “SAFE,” issued a public notice in November 2005, known as Circular 75, concerning the use of offshore holding companies in mergers and acquisitions in China. The public notice provides that if an offshore company controlled by PRC residents intends to acquire a PRC company, such acquisition will be subject to registration with the relevant foreign exchange authorities. The public notice also suggests that registration with the relevant foreign exchange authorities is required for any sale or transfer by the PRC residents with shares in an offshore holding company that owns an onshore company. The PRC residents must each submit a registration form to the local SAFE branch with respect to their ownership interests in the offshore company, and must also file an amendment to such registration if the offshore company experiences material events, such as changes in the share capital, share transfer, mergers and acquisitions, spin-off transactions or use of assets in China to guarantee offshore obligations. If any PRC resident stockholder of an offshore holding company fails to make the required SAFE registration and amended registration, the onshore PRC subsidiaries of that offshore company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer, or liquidation to the offshore entity. In May 2011, the SAFE promulgated new operational rules, known as Notice 19, for the implementation of Circular 75. Failure to comply with the SAFE registration and amendment requirements of Circular 75, as applied by SAFE in accordance with Notice 19 could result in liability under PRC laws for evasion of applicable foreign exchange restrictions. Because it is uncertain how the SAFE notice will be further interpreted and enforced, we are not sure how it will affect our business operations or future plans. For example, our subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with the SAFE notice by our PRC resident beneficial holders. Failure by our PRC resident beneficial holders could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.
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On August 8, 2006, the MOFCOM, joined by the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission and SAFE, released a substantially amended version of the Provisions for Foreign Investors to Merge with or Acquire Domestic Enterprises (the “Revised M&A Regulations”), which became effective on September 8, 2006. These rules significantly revised China’s regulatory framework governing onshore-to-offshore restructurings and foreign acquisitions of domestic enterprises. These rules reflect greater attention PRC government places on cross-border merger, acquisition, and other investment activities, by confirming MOFCOM as a key regulator for issues related to mergers and acquisitions in China and requiring MOFCOM approval of a broad range of merger, acquisition and investment transactions. Further, the rules established reporting requirements for acquisition of control by foreigners of companies in key industries, and reinforce the ability of the Chinese government to monitor and prohibit foreign control transactions in these key industries.
If the CSRC or another PRC regulatory agency subsequently determines that CSRC approval was required for any transaction not receiving prior approval, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on us, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from an offering of securities into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, operations, reputation, and prospects, as well as the trading price of our Common Stock. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt any offering before settlement and delivery of the securities offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur.
Also, if later the CSRC requires that we obtain its approval for any transaction not receiving prior approval, we may be unable to obtain a waiver of the CSRC approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding this CSRC approval requirement could have a material adverse effect on the trading price of our Common Stock.
Furthermore, the Circular on establishing the Security Review System for Merger and Acquisition of Domestic Enterprise by Foreign Investors was promulgated by the General Office of the State Council on February 3, 2011 and the Ministry of Commerce issued the corresponding implementation rules on August 25, 2011, as supplemented further in June 17, 2014. According to these rules, a foreign investor’s acquisitions of Chinese companies in the fields of military, energy and resources, infrastructure, important agricultural products, infrastructure, transport service, key technology and major equipment manufacturing, and other restricted fields requires security review by both the National Development and Reform Commission and the relevant local government entities.
Complying with the requirements of the above rules to complete such transactions could be time-consuming, and any required approval processes may delay or inhibit our ability to complete such transactions, which could also affect our ability to expand our business.
Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.
Under the PRC Enterprise Income Tax Law, or the “EIT Law,” that became effective in January 2008, an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules to the EIT Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances, and properties of an enterprise. In addition, a circular, known as SAT Circular 82, issued in April 2009 by the State Administration of Taxation, or the “SAT,” specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in the PRC: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular 82, the SAT issued a bulletin, known as SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore incorporated resident enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of resident status and administration on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups, or by PRC or foreign individuals.
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If the PRC tax authorities determine that our actual management organ is within the territory of China, we may be deemed to be a PRC resident enterprise for PRC enterprise income tax purposes and a number of unfavorable PRC tax consequences could follow. First, we will be subject to the uniform 25% enterprise income tax on our world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Finally, dividends payable by us to our investors and gains on the sale of our shares may become subject to PRC withholding tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our shares. Although up to the date of this Annual Report, we have not been notified or informed by the PRC tax authorities that it has been deemed to be a resident enterprise for the purpose of the EIT Law, we cannot assure you that it will not be deemed to be a resident enterprise in the future.
The foreign currency exchange rate between U.S. Dollars and Renminbi could adversely affect our financial condition.
To the extent that we need to convert U.S. Dollars into Renminbi for our operational needs, our financial position and the price of our Common Stock may be adversely affected should the Renminbi appreciate against the U.S. Dollar at that time. Conversely, if we decide to convert Renminbi into U.S. Dollars for the operational needs or paying dividends on our Common Stock, the dollar equivalent of our earnings from our subsidiaries in China would be reduced should the dollar appreciate against the Renminbi.
Inflation in the PRC could negatively affect our profitability and growth.
While the PRC economy has experienced rapid growth, such growth has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid economic growth can lead to growth in the money supply and rising inflation. According to the National Bureau of Statistics of China, China’s Average Consumer Price Index was 2.1% in 2018. If prices for our products and services rise at a rate that is insufficient to compensate for the rise in the costs of supplies such as labor costs, in our case, it may have an adverse effect on our profitability.
Furthermore, in order to control inflation in the past, the PRC government has imposed controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending. In January 2010, the Chinese government took steps to tighten the availability of credit including ordering banks to increase the amount of reserves they hold and to reduce or limit their lending. The implementation of such policies may impede economic growth. In October 2004, the People’s Bank of China, the PRC’s central bank, raised interest rates for the first time in nearly a decade and indicated in a statement that the measure was prompted by inflationary concerns in the Chinese economy. In April 2006, the People’s Bank of China raised the interest rate again. Repeated rises in interest rates by the central bank would likely slow economic activity in China which could, in turn, materially increase our costs and also reduce demand for our products and services.
Because our funds are held in banks that do not provide insurance, the failure of any of these banks in which we deposit our funds could affect our ability to continue in business.
Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. A significant portion of our assets are in the form of cash deposited with banks in the PRC, and in the event of a bank failure, we may not have access to our funds on deposit. Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay suppliers, employees and other creditors, we may be unable to continue in business.
We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.
We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes to government officials. We have operations, agreements with third parties, and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants or distributors of our company, because these parties are not always subject to our control.
Although we believe to date we have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption law, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions including personal liability for management, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
Dividends payable by us to our foreign investors and any gain on the sale of our shares may be subject to taxes under PRC tax laws.
If dividends payable to our shareholders are treated as income derived from sources within China, then the dividends that shareholders receive from us, and any gain on the sale or transfer of our shares, may be subject to taxes under PRC tax laws.
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In January 2009, the State Administration of Taxation promulgated the Provisional Measures for the Administration of Withholding of Enterprise Income Tax for Non-resident Enterprises (“Measures”), pursuant to which, the entities which have the direct obligation to make the following payment to a non-resident enterprise shall be the relevant tax withholders for such non-resident enterprise, and such payment includes: incomes from equity investment (including dividends and other return on investment), interests, rents, royalties, and incomes from assignment of property as well as other incomes subject to enterprise income tax received by non-resident enterprises in China. Further, the Measures provides that in case of equity transfer between two non-resident enterprises which occurs outside China, the non-resident enterprise which receives the equity transfer payment shall, by itself or engage an agent to, file tax declaration with the PRC tax authority located at place of the PRC company whose equity has been transferred, and the PRC company whose equity has been transferred shall assist the tax authorities to collect taxes from the relevant non-resident enterprise. However, it is unclear whether the Measures refer to the equity transfer by a non-resident enterprise which is a direct or an indirect shareholder of the said PRC company. Given these Measures, there is a possibility that we may have an obligation to withhold income tax in respect of the dividends paid to non-resident enterprise investors.
Regulatory bodies of the U.S. may be limited in their ability to conduct investigations or inspections of our operations in China.
From time to time, we may receive requests from certain U.S. agencies to investigate or inspect our operations, or to otherwise provide information. While we will be compliant with these requests from these regulators, there is no guarantee that such requests will be honored by those entities who provide services to us or with whom we associate, especially as those entities are located in China. Furthermore, under current PRC laws, an on-site inspection of our facilities by any of these regulators may be limited or disallowed. Such inspections, though permitted by us and our affiliates, are not subject to be upheld in China by those entities that are located in China, and may therefore be impossible to facilitate.
Because our business is located in the PRC, we may have difficulty establishing adequate management, legal and financial controls, which are required in order to comply with U.S. securities laws.
PRC companies have historically not adopted a western style of management and financial reporting concepts and practices, which includes strong corporate governance, internal controls and, computer, financial and other control systems. Most of our middle and top management staff are not educated and trained in the Western system, and we may have difficulty in hiring new employees in the PRC with such training. In addition, we may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards. Therefore, we may, in turn, experience difficulties in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result in significant deficiencies or material weaknesses in our internal controls which could impact the reliability of our financial statements and prevent us from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our business.
Investors may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing original actions in China based upon U.S. laws, including the federal securities laws or other foreign laws against us or our management.
Most of our current operations are conducted in China. Moreover, our sole director and chief executive officer, Mr. Terence Ho is a resident of the PRC. All or substantially all of his assets are located outside the U.S. and in the PRC. As a result, it may not be possible to effect service of process within the U.S. or elsewhere outside China upon these persons. In addition, uncertainties exist as to whether the courts of China would recognize or enforce judgments of U.S. courts obtained against us or such officers and/or directors predicated upon the civil liability provisions of the securities laws of the U.S. or any state thereof, or be competent to hear original actions brought in China against us or such persons predicated upon the securities laws of the U.S. or any state thereof.
Contract drafting, interpretation and enforcement in China involve significant uncertainties.
We have entered into numerous contracts governed by PRC law, many of which are material to our business. As compared with contracts in the U.S., contracts governed by PRC law tend to contain less detail and are not as comprehensive in defining contracting parties’ rights and obligations. As a result, contracts in China are more vulnerable to disputes and legal challenges. In addition, contract interpretation and enforcement in China is not as developed as in the U.S., and the result of any contract dispute is subject to significant uncertainties. Therefore, we cannot assure that we will not be subject to disputes under our material contracts, and if such disputes arise, we cannot assure that we will prevail.
Risks Related to Our Capital Structure
The market price and trading volume of shares of our Common Stock may be volatile.
When and if an active market develops for our securities, the market price of our Common Stock could fluctuate significantly for many reasons, including reasons unrelated to our specific performance, such as reports by industry analysts, investor perceptions, or announcements by our competitors regarding their own performance, as well as general economic and industry conditions. For example, to the extent that other large companies within our industry experience declines in their share price, our share price may decline as well. Fluctuations in operating results or the failure of operating results to meet the expectations of public market analysts and investors may negatively impact the price of our securities. Quarterly operating results may fluctuate in the future due to a variety of factors that could negatively affect revenues or expenses in any particular quarter, including vulnerability of our business to a general economic downturn; changes in the laws that affect our products or operations; competition; compensation related expenses; application of accounting standards; and our ability to obtain and maintain all necessary regulatory and industry certifications and/or approvals to conduct our business. In addition, when the market price of a company’s shares drops significantly, shareholders could institute securities class action lawsuits against the Company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.
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Our officers and/or directors or entities controlled by our employees, officers and/or directors will control a majority of the shares of our Common Stock, decreasing your influence on shareholder decisions.
As of the date of this Annual Report, our officers or directors, or entities controlled by our employees, officers and/or directors will, in the aggregate, beneficially own approximately 90.66% of our outstanding shares of Common Stock following the closing of the transactions underlying the Share Exchange Agreement with Success Green BVI. As a result, our employees, officers and directors will possess substantial ability to impact our management and affairs and the outcome of matters submitted to shareholders for approval. These shareholders, acting individually or as a group, could exert control and substantial influence over matters such as electing directors and approving mergers or other business combination transactions. This concentration of ownership and voting power may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company. These actions may be taken even if they are opposed by our other shareholders.
If we fail to maintain effective internal controls over financial reporting, the price of our Common Stock may be adversely affected.
We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of these controls could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting. The standards that must be met for management to assess the internal control over financial reporting as effective complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. If we cannot assess our internal control over financial reporting as effective, investor confidence and share value may be negatively impacted.
In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our Common Stock.
Compliance with changing regulations of corporate governance and public disclosure will result in additional expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. For example, on January 30, 2009, the SEC adopted rules requiring companies to provide their financial statements in interactive data format using the eXtensible Business Reporting Language, or XBRL. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.
Our Common Stock is quoted to trade on the OTC market and may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.
If a market develops and the price of the Company’s stock is below $5.00 per share, or the Company does not have $2,000,000 in net tangible assets, or is not listed on an exchange or on the NASDAQ National Market System, among other conditions, the Company’s shares may be subject to a rule promulgated by the SEC that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and institutional accredited investors. For transactions covered by the rule, the broker-dealer must make a special suitability determination for the Subscriber and receive the Subscriber’s written consent to the transaction prior to the sale. Furthermore, if the price of the Company’s stock is below $5.00 and does not meet the conditions set forth above, sales of the Company’s stock in the secondary market will be subject to certain additional new rules promulgated by the SEC. These rules generally require, among other things, that brokers engaged in secondary trading of stock provide customers with written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and asked prices, and disclosure of the compensation to the broker-dealers and disclosure of the sales person working for the broker-dealer. These rules and regulations may affect the ability of broker-dealers to sell the Company’s securities, thereby limiting the liquidity of the Company’s securities.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
As a smaller reporting company, we are not required to provide the information pursuant to this Item.
The Company conducts its business through an office in Unit 2719, 27/F., Tuen Mun Central Square, No. 22 Hoi Wing Road, Tuen Mun, N.T., Hong Kong, for an annual rent of HK$240,000 (approximately $30,770). Pursuant to the lease agreement, the term expires on December 31, 2021.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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Part II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Common Stock is quoted on the OTC under the symbol “SGHL” and has not commenced trading as of the date of this report.
Stockholders of Record
As of April 15, 2019, the Company has 150 recorded holders of our Common Stock. This number excludes any estimate by us of the number of beneficial owners of shares held in street name, the accuracy of which cannot be guaranteed.
Transhare Corporation, 15500 Roosevelt Blvd., Suite 302, Clearwater, FL 33760, is the transfer agent for our Common Stock.
Effective on August 11, 1993, the SEC adopted Rule 15g-9, which established the definition of a “penny stock,” for purposes relevant to the Company, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person’s account for transactions in penny stocks; and (ii) that the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience and objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) states that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Options, Warrants, Convertible Securities
Currently, we do not have any warrants, options or convertible securities outstanding other than those already disclosed in the registration statement on Form S-1 in the fiscal year 2018 and current reports on Form 8-K.
Dividends
The Company historically has not paid any dividends. Whether we shall make any future payment of dividends depends upon our debt and equity structure, earnings, financial condition, need for capital in connection with possible future acquisitions and other factors, including economic conditions, regulatory restrictions and tax considerations. The Company cannot guarantee the payment of dividends or that, if paid, that dividends will not be reduced or eliminated in the future.
The only funds available for the payment of dividends on our capital stock will be cash and cash equivalents held by us, dividends paid to us by E.P. Trading, and borrowings.
Securities Authorized for Issuance under Equity Compensation Agreements
None.
Recent Sales of Unregistered Securities
During the fiscal year ended December 31, 2018, we did not have sales of unregistered securities other than those already disclosed in the quarterly reports on Form 10-Q in the fiscal year of 2018 and current reports on Form 8-K.
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Recent Purchases of Equity Securities by us and our Affiliated Purchasers
None.
Where You Can Find Additional Information
We are a reporting company and file annual, quarterly and current reports, proxy statements and other information with the SEC. For further information with respect to the Company, you may read and copy its reports, proxy statements and other information, at the SEC public reference rooms at 100 F. Street, N.E., Washington, D.C. 20549. You can request copies of these documents by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the public reference rooms. The Company’s SEC filings are also available at the SEC’s web site at http://www.sec.gov.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to smaller reporting companies.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Through Nengcheng, our wholly owned subsidiary in the PRC, we were a one-stop import service provider for third-party manufacturers who have needs for the import of various types of raw materials and half-finished goods. We procured, imported, settled foreign exchange payments, cleared customs, and set up delivery logistics for our customers, for raw materials, or half-finished products such as various types of cowhides, and various scrap plastics or other materials from overseas to the PRC market.
In November 2018, the Company discontinued the operations of Nengcheng. Subsequently on March 8, 2019, we transferred 100% of the equity interest in Nengcheng to an unrelated third party for a consideration of RMB10,000. Due to the discontinuing of NengCheng’s operation beginning in November 2018, we classified it as a discontinued operation, and did not include its import custom clearing services business in our operating segment information for both fiscal years ended December 31, 2018 and 2017.
On December 24, 2018 (the “Acquisition Date”), we acquired 100% equity interest in Advance Capital, incorporated on December 14, 2012 in the Republic of Vanuatu (“Vanuatu”) for a consideration of $1 from Terence Ho, a director of the Company. Advance Capital owns 100% equity interest in Advance Capital. E.P. Trading was incorporated on March 13, 2017 in Hong Kong. Advance Capital is an investment holding company and E.P. Trading currently has no business activity prior and after the Acquisition Date and as of December 31, 2018. We, through through E.P. Trading, intend to engage in providing agency service for the import of solid waste. E.P. Trading currently holds a “licence of registration for overseas supplier enterprise of imported solid wastes as raw materials” issued by the General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China effective from December 1, 2017 to November 30, 2020. E.P. Trading intends to provide a one-stop import solution to its customers. E.P. Trading intends to procure, import, settle foreign exchange payments, clear customs, transhipment arrangement, and set up delivery logistics for its customers, for solid wastes as raw materials, such as various scrap plastics, metal, copper, aluminum or other materials from overseas to the PRC market.
Operating Results
Results of Operations –Fiscal Year Ended December 31, 2018 Compared to Fiscal Year Ended December 31, 2017
Revenue
The Company did not generate any revenues in 2018 and 2017.
Operating Expenses
Our operating expenses in 2018 and 2017 were $308,752 and $298,428, respectively, an increase of $10,324 or 3%. The increase was mainly due to increase in general and administrative expenses in 2018 in audit and other legal and professional fees.
Income taxes
The provision for taxes in 2018 principally relates to federal, state, local and foreign jurisdiction income taxes.
No provision for income tax was required to be provided in 2018 and 2017.
Net Income
Net loss in 2018 and 2017, was $311,787 or $0.003 per share basic and diluted, and $301,781 or $0.003 per share basic and diluted respectively, increase approximately of $10,006 or 3%.
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Discontinued Operations
The Company generated net loss from discontinued operations, net of tax of $15,464,362 and $444,337 for the years ended December 31, 2018 and 2017, respectively. The Company recognized bad debt reserves of related party receivables and trade and other receivables as these receivables have aged for more than 6 months.
Liquidity and Capital Resources
Liquidity
Cash and cash equivalents from continuing operations as of December 31, 2017 and 2018 were $101,709 and $37,082, respectively.
Cash used in operating activities from continuing operations increased approximately $164,199 in 2018, as compared in 2017.
Cash provided by operating activities from discontinued operations for 2017 was $53,649 as compared to cash used in operating activities from discontinued operations for 2018 was $(50,986).
Cash used in investing activities from continuing operations was $1 in 2018 as compared to $nil in 2017. The Company acquired a non-operating subsidiary in 2018 to accommodate its upcoming business plans.
Cash provided by financing activities from continuing operations increased $192,312 in 2018 as compared to 2017. Cash provided by financing activities from continuing operations in 2018 consisted primarily of net proceed from issuance of common shares of $197,756, and advancement from related parties of $121,901. In 2018, the Company completed its public offering of 10,000,000 shares of common stock, pursuant to the Company’s post-effective amendment to registration statement on Form S-1.
Cash used in financing activities from discontinued operations were $60,574 and $12,324 for 2018 and 2017 respectively.
Net change in cash flow from discontinued operations was $(111,560) for the year ended December 31, 2018 as compared to $41,325 for the same period in 2017. The Company’s liquidity is not likely to be affected by the absence of cash flows associated with discontinued operations.
Capital Resources
As of December 31, 2018, we recorded a working capital deficiency of approximately $4.9 million and accumulated deficits of approximately $17.8 million., and as of December 31, 2017, we recorded a working capital of approximately $10.6 million and accumulated deficits of approximately $2.0 million.
For continuing operations, we recorded a working capital deficiency of $594,819 and $494,631 as of December 31, 2018 and 2017. Our principal sources of liquidity have been cash generated from financing. Our cash and cash equivalents consist of cash on hand which are unrestricted as to withdrawal or use. Our financing activities mainly consist of net proceed from issue of shares and advancement from related parties. Except as disclosed in the financial statements, we have no financial guarantees or similar commitments to guarantee the payment obligations of third parties and other line of credit granted by our banks.
We believe that our current cash and cash equivalents, our cash flow from operations and proceeds from our financing activities will not be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for the foreseeable future and for at least 12 months subsequent to the filing of this registration statement. We will require additional cash resources due to changing business conditions and other future developments, including any investments or acquisitions we may decide to pursue.
23
As of December 31, 2018, we had no any capital commitment in connection with capital expenditures of property, plant and equipment.
Critical Accounting Policies
We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities on the date of the balance sheet and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that are believed to be reasonable under the circumstances, which together form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demands on management’s judgment.
Allowance for doubtful accounts. Accounts receivable are recorded at the invoiced amount and do not bear interest. We review on a periodic basis for doubtful accounts for the outstanding accounts receivable balances based on historical experience and information available. Additionally, we make specific bad debt provisions based on (i) our specific assessment of the collectability of all significant accounts; and (ii) any specific knowledge we have acquired that might indicate that an account is uncollectible. The facts and circumstances of each account may require us to use substantial judgment in assessing its collectability. For the year ended December 31, 2018, the Company recognized $15,084,248 of allowance for doubtful accounts while $nil was recognized for the year ended December 31, 2017.
Going concern assumption. As of December 31, 2018 and 2017, we had accumulated deficits of approximately $17.8 million and $2 million, respectively. Our directors are of the opinion that the preparation of these financial statements is based on a going concern and its basis has been stated in Note 3 to the financial statements. Should there be any problem in the going concern of us, all the assets and liabilities have to be stated at net realizable values.
Inflation
Inflation in the PRC had not materially impacted our results of operations during the years ended December 31, 2018 and 2017. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of inflation in the PRC.
Off-Balance Sheet Arrangements
We had no any off-balance sheet arrangements as of December 31, 2018 and 2017.
Seasonality
We believe our operation and sales do not experience seasonality.
Subsequent Events
On March 8, 2019, the Company sold 100% interests of ZhaoQing NengCheng Import and Export Co., Ltd. to Zhijian Chen, a non-related third party, for a consideration of RMB10,000 (approximately $1,500).
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements of the Company for the fiscal year ended December 31, 2018 and the notes thereto are set forth on page F-1 through F-17 of this Annual Report. The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the U.S., or US GAAP, and pursuant to Regulation S-K as promulgated by the SEC. The financial statements have been prepared assuming the Company will continue as a going concern.
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ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including our principal executive officer/principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act, as of December 31, 2018. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that our disclosure and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with US GAAP, including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Based on this evaluation, Management concluded the Company maintained effective internal control over financial reporting as of December 31, 2018.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Attestation Report of Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm, regarding internal controls over financial reporting. Our internal control over financial reporting was not subject to such attestation as we are a smaller reporting company.
Changes in internal controls
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set forth below is information regarding our directors and executive officers as of the date of this Annual Report. The Board is comprised of only one class. All of the directors will serve until the next annual meeting of shareholders and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Officers are elected by and serve at the discretion of the Board. To date we have not had an annual meeting. There are no family relationships between any of our directors or executive officers.
| Name | Age | Position(s) | ||
| Terence Ho | 58 | Chairman and Director and Chief Executive Officer | ||
| Lina Liao | 37 | Chief Financial Officer |
The following is a brief biography of each of our executive officers and directors:
Terence Ho, has been the director and chairman of the Board, and our chief executive officer since June 21, 2005. Mr. Ho received his bachelor’s degree in Business Management from Chinese University in Hong Kong, an Executive MBA degree from Sun Yat-sen University and holds an Honorary bachelor’s degree from Winnipeg University in Canada.
Lina Liao, has been our chief financial officer since November 1, 2017. From 2014 to present, Ms. Liao worked as the Associate Director at Sky Wealth Capital Financial Group (Int’l) Limited. Ms. Liao received her bachelor’s degree in law from Guangdong University of Finance & Economics.
Committees of the Board of Directors
Our board of directors has not established any committees, including an audit committee, a compensation committee, a nominating committee or any committee performing a similar function. The functions of those committees are being undertaken by our sole Board member. Because we have only one director and do not have any independent directors, the establishment of committees of the Board of Directors would not provide any benefits to our company and could be considered more form than substance.
Code of Ethics
We have not adopted a code of business conduct and ethics that applies to our directors, officers and all employees.
Family Relationships
There are no family relationships among the directors and executive officers of the Company.
Directors’ Compensation
We have not paid any cash compensation to our sole member of our Board of Directors for his service as our director.
The Company will reimburse its directors for reasonable expenses in connection with attendance at board and committee meetings. Directors will also be eligible to receive stock options offered by our company from time to time. No options have been granted to any director.
Involvement in Certain Legal Proceedings
To the best of our knowledge, our sole director or any executive officers have not, during the past ten years:
| ● | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| ● | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; | |
| ● | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
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| ● | been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
| ● | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| ● | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Corporate Governance
The business and affairs of the Company are managed under our sole board member. In addition to the contact information in this Annual Report, each stockholder will be given specific information on how he/she can direct communications to the officers and directors of the Company at our annual stockholders meetings. All communications from stockholders are relayed to the board of member.
Role in Risk Oversight
Our sole director is primarily responsible for overseeing our risk management processes. The sole director receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The sole director focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our company are consistent with the board’s appetite for risk. While the sole director oversees our company’s risk management, management is responsible for day-to-day risk management processes.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act, requires our directors, officers and persons who own more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other of our equity securities. To our knowledge, based solely on review of the copies of such reports furnished to us, all Section 16(a) filings applicable to officers, directors and greater than 10% shareholders were not timely made during fiscal year 2018.
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ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following tables set forth, for each of the last two completed fiscal years of the Company, the total compensation awarded to, earned by or paid to any person who was a principal executive officer during the preceding fiscal year and every other highest compensated executive officer earning more than $100,000 during the last fiscal year (together, the “Named Executive Officers”).
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation |
Deferred Compensation Earnings | Other | Total | |||||||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||||||
| Terence Ho | 2018 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| CEO of the Registrant | 2017 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| Lina Liao | 2018 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| CFO of the Registrant | 2017 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| Guangxiang He | 2018 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| CEO of NengCheng (1) | 2017 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| Long Peng | 2018 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| CFO of NengCheng (1) | 2017 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| ZhiYong Lin | 2018 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| CEO and CFO of E.P. Trading (1) | 2017 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| (1) | Based on Instruction 2 to Item 402(m)(2) of Regulation S-K and the definition of Executive Officer in Rule 3b-7 under the Exchange Act, we believe it is appropriate to include the compensation of Mr. He, Mr. Peng, and Mr. Lin in this table. |
Agreements with Named Executive Officers
On November 1, 2017, we entered into an employment agreement with our chief executive officer, Mr. Terence Ho. Pursuant to his employment agreement, Mr. Terence Ho shall serve as our CEO from January 1, 2017 to December 31, 2019, with no compensation.
On November 1, 2017, we entered into an employment agreement with our chief financial officer, Ms. Liao. Pursuant to her employment agreement, Ms. Liao shall serve as our CFO from January 1, 2017 to December 31, 2019 with no compensation.
Each of our executive officers is employed for a specified time period, which will be renewed upon both parties’ agreement thirty days before the end of the current employment term. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, including but not limited to the commitments of any serious or persistent breach or non-observance of the terms and conditions of the employment, conviction of a criminal offense, willful disobedience of a lawful and reasonable order, fraud or dishonesty, receipt of bribery, or severe neglect of his or her duties. An executive officer may terminate his or her employment at any time with a one-month prior written notice. Each executive officer has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.
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Compensation of Directors
For the fiscal years ended December 31, 2018 and 2017, we have not paid compensation to any of our directors.
Outstanding Equity Awards
There were no equity awards outstanding as of the end of the fiscal year ending December 31, 2018.
Compensation Policies and Practices as They Relate to the Company’s Risk Management
We believe that our current compensation policies and practices for all employees, including executive officers, do not create risks that are reasonably likely to have a material adverse effect on us.
Equity Compensation Plan
The Company currently does not have any equity compensation plans; however, the Company is currently deliberating on implementing an equity compensation plan.
Directors’ and Officers’ Liability Insurance
The Company currently does not have insurance for directors and officers against liability; however, the Company is in the process of investigating the availability of such insurance.
Change of Control Compensatory Plans
As of December 31, 2018, we had no pension plans or compensatory plans or other arrangements which provide compensation in the event of termination of employment or change in control of us.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT RELATED STOCKHOLDERS MATTERS
The following table sets forth certain information as to the number and percentage of shares of Common Stock beneficially owned as of April 11, 2019, (i) by each person known by the Company to own beneficially more than 5% of the Company’s outstanding shares of Common Stock, (ii) by each of the Company’s directors and executive officers, and (iii) by all directors and executive officers as a group. As of April 11, 2019, there were 110,000,000 shares of Common Stock outstanding and percentages are based on such total of shares outstanding.
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of Common Stock that such person has the right to acquire within 60 days of the date of the respective table. For purposes of computing the percentage of outstanding shares of our Common Stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of the date of the respective table is deemed to be outstanding for such person, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.
Unless otherwise noted, the business address of each beneficial owner listed is the Company’s address, Room 303, Building No. 1 (Yi Jing Building), Xinxu Guanghai East Road, Dasha Town, City of Sihui, Guangdong province. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our Common Stock owned by them, except to the extent that power may be shared with a spouse.
| Name | Number of Shares Owned(1) | Percent of Common Stock Outstanding | ||||||
| Director: | ||||||||
| Terence Ho (2) | 99,729,000 | 90.66 | % | |||||
| Executive Officers other than Directors: | ||||||||
| Lina Liao | 0 | 0 | ||||||
| Directors and executive officers as a group (2 persons) | 99,729,000 | 90.66 | % | |||||
| (1) | Unless otherwise indicated, all shares are beneficially owned by the respective individuals. Shares of Common Stock which are subject to stock options exercisable within 60 days of the date of this report are deemed to be outstanding for the purpose of computing the amount and percentage of outstanding Common Stock owned by such person. |
| (2) | Mr. Terence Ho is the 100% owner of Sea Treasure, which holds 25,000,000 shares of Common Stock, and is the sole owner of Onping Limited, which holds 2,464,000 shares of Common Stock. Mr. Ho is also the 100% owner of Success Green BVI, which holds 72,265,000 shares of Common Stock pursuant to the Success Green Agreement. |
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Other than compensation agreements and other arrangements described in “Management,” and our transactions described below, since our inception there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party:
| ● | in which the amount involved exceeded or will exceed $120,000; and | |
| ● | in which any current director, executive officer, holder of 5% or more of our shares of Common Stock on an as-converted basis or any member of their immediate family had or will have a direct or indirect material interest. |
Related parties payable
The Company has related outstanding parties payable due to Mr. Terence Ho, the Chairman and CEO of the Company as of December 31, 2018 and December 31, 2017, in the amount of $396,850 and $275,977, for certain expenses Mr. Ho paid on behalf of the company from time to time. The amounts due to Mr. Ho are interest free, unsecured, and payable on demand.
The Company has related outstanding parties payable due to Mr. Da Hong He as of December 31, 2018 and 2017 of $172,280 and $182,034, respectively for certain expenses that Mr. He has paid on behalf of the Company. Mr. He was the CEO of the Company’s subsidiary Shenzhen Zhenlongbao Investment Consulting Co., Ltd. until March 8, 2019.
Director Independence
Since quotations for our Common Stock are entered on the pink sheet open market platform, which does not have director independence requirements, we do not have any independent directors.
ITEM 14. PRICINPAL ACCOUNTING FEES AND SERVICES
Audit Fees
For the Company’s fiscal years ended December 31, 2018 and 2017, we were billed approximately $120,500 and $107,290 for professional services rendered for the audit and review of our financial statements.
Audit Related Fees
There were no fees for audit related services for the years ended December 31, 2018 and 2017.
Tax Fees
For the Company’s fiscal years ended December 31, 2018 and 2017, we engaged our principal auditor, WWC, P.C, and were billed approximately $nil and $nil, respectively, for professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees
The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended December 31, 2018 and 2017.
Effective May 6, 2003, the SEC adopted rules that require that before our independent registered public accounting firm is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
| ● | approved by our audit committee; or | |
| ● | entered into pursuant to preapproval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management. |
We do not have an audit committee. Our sole director preapproves all services provided by our independent registered public accounting firm. However, all of the above services and fees were reviewed and approved by the sole board member for the respective services were rendered.
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ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS. The following financial statements are included in this report:
(b) EXHIBITS. The following exhibits are included as part of this report:
| * | Previously filed |
| ** | Filed herewith. |
| *** | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Form 10-K and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act |
| ITEM 16. | FORM 10-K SUMMARY |
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SUNBURST ACQUISITIONS V, INC. | ||
| April 16, 2019 | By: | /s/ Terence Ho |
| Terence Ho | ||
Chairman, Chief Executive Officer (Principal Executive Officer) | ||
| April 16, 2019 | By: | /s/ Lina Liao |
| Lina Liao | ||
Chief Financial Officer (Principal Financial and Principal Accounting Officer) |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| To: | The Board of Directors and Stockholders of |
Sunburst Acquisitions V, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sunburst Acquisitions V, Inc. (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company had incurred substantial losses during the year, and has a working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plan in regards to these matters are described in Note 3. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
WWC, P.C.
Certified Public Accountants
San Mateo, California
April 16, 2019
We have served as the Company’s auditor since December 1, 2016
F-1
Consolidated Balance Sheets
(Stated in U.S. Dollars)
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 101,709 | $ | 37,082 | ||||
| Other receivables and other current assets, net | 51 | - | ||||||
| Current assets of discontinued operations | 6,636,285 | 20,429,161 | ||||||
| Total current assets | 6,738,045 | 20,466,243 | ||||||
| Non-current assets | ||||||||
| Equipment, net | 1,000 | 1,057 | ||||||
| Non-current assets of discontinued operations | - | 69 | ||||||
| TOTAL ASSETS | $ | 6,739,045 | $ | 20,467,369 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accrued liabilities and other current liabilities | $ | 121,052 | $ | 70,015 | ||||
| Related parties payable | 575,527 | 461,698 | ||||||
| Current liabilities of discontinued operations | 10,961,672 | 9,308,910 | ||||||
| Total current liabilities | 11,658,251 | 9,840,623 | ||||||
| TOTAL LIABILITIES | 11,658,251 | 9,840,623 | ||||||
| COMMITMENTS & CONTINGENCIES | - | - | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, no par value; 20,000,000 shares authorized, 0 shares and 0 shares issued and outstanding, respectively | - | - | ||||||
| Common stock, no par value; 700,000,000 shares authorized, 110,000,000 and 100,000,000 shares issued and outstanding, respectively | 12,505,163 | 12,307,407 | ||||||
| Additional paid-in capital | 209,441 | 206,288 | ||||||
| Statutory reserves | - | - | ||||||
| Accumulated deficit | (17,757,533 | ) | (1,981,384 | ) | ||||
| Accumulated other comprehensive loss | 123,723 | 94,435 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY | (4,919,206 | ) | 10,626,746 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 6,739,045 | $ | 20,467,369 | ||||
See accompanying notes to the financial statements
F-2
Consolidated Statements of Operations and Comprehensive Income
(Stated in U.S. Dollars)
| For the Years ended | ||||||||
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Revenues | $ | - | $ | - | ||||
| Cost of sales | - | - | ||||||
| Gross margin | - | - | ||||||
| Operating expenses | ||||||||
| General and administrative expenses | 308,752 | 298,428 | ||||||
| Total operating expenses | 308,752 | 298,428 | ||||||
| Income (loss) from operation | (308,752 | ) | (298,428 | ) | ||||
| Other income (expenses) | ||||||||
| Interest income | 118 | 4 | ||||||
| Interest expense | (3,153 | ) | (3,357 | ) | ||||
| Total other income (expenses) | (3,035 | ) | (3,353 | ) | ||||
| Loss before tax | (311,787 | ) | (301,781 | ) | ||||
| Income tax | - | - | ||||||
| Net loss from continuing operations | (311,787 | ) | (301,781 | ) | ||||
| Net loss from discontinued operations, net of tax | (15,464,362 | ) | (444,337 | ) | ||||
| Net loss | (15,776,149 | ) | $ | (746,118 | ) | |||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation gain (loss) | ||||||||
| Continuing operations | 10,633 | (130,884 | ) | |||||
| Discontinued operations | 18,655 | 703,119 | ||||||
| 29,288 | 572,235 | |||||||
| Comprehensive income (loss) | (15,746,861 | ) | $ | (173,883 | ) | |||
| Loss per share | ||||||||
| Basic | ||||||||
| Continuing operations | (0.003 | ) | (0.003 | ) | ||||
| Discontinued operations | (0.148 | ) | (0.004 | ) | ||||
| $ | (0.151 | ) | $ | (0.007 | ) | |||
| Diluted | ||||||||
| Continuing operations | (0.003 | ) | (0.003 | ) | ||||
| Discontinued operations | (0.148 | ) | (0.004 | ) | ||||
| $ | (0.151 | ) | $ | (0.007 | ) | |||
| Weighted average shares outstanding | ||||||||
| Basic | 104,438,356 | 100,000,000 | ||||||
| Diluted | 104,438,356 | 100,000,000 | ||||||
See accompanying notes to the financial statements
F-3
Consolidated Statements of Cash Flows
(Stated in U.S. Dollars)
| For the Years Ended | ||||||||
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (15,776,149 | ) | (746,118 | ) | |||
| Net loss from discontinued operations, net of tax | (15,464,362 | ) | (444,337 | ) | ||||
| Net loss from continuing operations | (311,787 | ) | (301,781 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | ||||||||
| Imputed interest | 3,153 | 3,357 | ||||||
| Changes in assets and liabilities | ||||||||
| Decrease in restricted cash | - | 136,000 | ||||||
| Increase in other receivables | (51 | ) | - | |||||
| (Increase) decrease in related party receivable | 3,028 | 3,550 | ||||||
| Increase/(decrease) in accruals and other payables | 50,781 | 66,843 | ||||||
| Net cash used in operating activities from continuing operations | (254,876 | ) | (92,031 | ) | ||||
| Net cash (used in) from operating activities from discontinued operations | (50,986 | ) | 53,649 | |||||
| Net cash used in operating activities | (305,862 | ) | (38,382 | ) | ||||
| Cash flows from investing activities | ||||||||
| Acquisition of subsidiaries | (1 | ) | - | |||||
| Net cash used in investing activities from continuing operations | (1 | ) | - | |||||
| Net cash used in investing activities from discontinued operations | - | - | ||||||
| Net cash used in investing activities | (1 | ) | ||||||
| Cash flows from financing activities | ||||||||
| Net proceed from issue of shares | 197,756 | - | ||||||
| Proceeds from related party payable | 121,901 | 127,345 | ||||||
| Net cash provided by financing activities from continuing operations | 319,657 | 127,345 | ||||||
| Net cash used in financing activities from discontinued operations | (60,574 | ) | (12,324 | ) | ||||
| Net cash provided by financing activities | 259,083 | 115,021 | ||||||
| Net increase in cash and cash equivalents | (46,780 | ) | 76,639 | |||||
| Effect of foreign currency translation on cash and cash equivalents | (1,809 | ) | 6,116 | |||||
| Cash and cash equivalents–beginning of period | 37,082 | 67,981 | ||||||
| Cash and cash equivalents–end of period | 102,147 | 150,736 | ||||||
| Less cash and cash equivalents of discontinued operations–end of period | $ | 438 | 113,654 | |||||
| Cash and cash equivalents of continuing operations–end of period | $ | 101,709 | 37,082 | |||||
| Supplementary cash flow information: | ||||||||
| Interest received | $ | 118 | 4 | |||||
| Interest paid | $ | - | - | |||||
| Income taxes paid | $ | - | - | |||||
| Non-Cash Financing Activities: | ||||||||
| Related party receivable offset against capital | - | - | ||||||
| Related party interest payable converted to additional paid-in capital | 3,153 | 3,357 | ||||||
See accompanying notes to the financial statements
F-4
Consolidated Statements of Stockholders’ Equity (Deficit)
(Stated in U.S. Dollars)
Preferred Stock No Par Value Shares | Preferred Stock Amount | Common Stock No Par Value Shares | Common Stock Amount | Additional Paid-in Capital | Statutory Reserves | Accumulated Earning/ (Deficit) | Accumulated Other Comprehensive Income | Totals | ||||||||||||||||||||||||||||
| Balance at January 1, 2017 | - | $ | - | 100,000,000 | $ | 12,187,564 | $ | 19,147 | $ | - | $ | (1,235,266 | ) | $ | (477,800 | ) | $ | 10,493,645 | ||||||||||||||||||
| Capital contributions by owners | - | - | - | 119,843 | 135,626 | - | - | - | 255,469 | |||||||||||||||||||||||||||
| Imputed interest | - | - | - | - | 3,357 | - | - | - | 3,357 | |||||||||||||||||||||||||||
| Shareholder interest payable converted to paid-in capital | - | - | - | - | 48,158 | - | - | - | 48,158 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (746,118 | ) | - | (746,118 | ) | |||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | - | 572,235 | 572,235 | ||||||||||||||||||||||||||||
| Balance at December 31, 2017 | - | $ | - | 100,000,000 | $ | 12,307,407 | $ | 206,288 | $ | - | $ | (1,981,384 | ) | $ | 94,435 | $ | 10,626,746 | |||||||||||||||||||
| Shares issued for cash | - | - | 10,000,000 | 200,000 | - | - | - | - | 200,000 | |||||||||||||||||||||||||||
| Shares issued expenses | - | - | - | (2,244 | ) | - | - | - | - | (2,244 | ) | |||||||||||||||||||||||||
| Imputed interest | - | - | - | - | 3,153 | - | - | - | 3,153 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (15,776,149 | ) | - | (15,776,149 | ) | |||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | - | - | 29,288 | 29,288 | |||||||||||||||||||||||||||
| Balance at December 31, 2018 | - | $ | - | 110,000,000 | $ | 12,505,163 | $ | 209,441 | $ | - | $ | (17,757,533 | ) | $ | 123,723 | $ | (4,919,206 | ) | ||||||||||||||||||
See accompanying notes to the financial statements
F-5
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
| 1. | THE COMPANY AND PRINCIPAL BUSINESS ACTIVITIES |
Organization
Sunburst Acquisitions V, Inc. (the “Company”) was incorporated in Colorado on May 29, 1998. The Company, through its direct and indirect wholly owned subsidiaries, is in the business of providing import custom clearing services in the Guangdong province in the People’s Republic of China (“PRC”). The Company’s primary operations are conducted through its indirectly wholly owned subsidiaries located in Sihui, Guandong, PRC.
Success Green (Group) Limited (“SGG”) was incorporated on October 26, 2016 in the British Virgin Islands (“BVI”). SGG wholly owns Success Green (International) Limited (“SGI”) which was incorporated on September 24, 2007 in the Hong Kong SAR (“HK”). SGI wholly owns Shenzhen Zhenlongbao Investment Consulting Co., Ltd. (“SZZLB”). SZZLB is a wholly foreign owned entity organized in the PRC on April 21, 2011. SZZLB wholly owns Zhaoqing Nengcheng Import and Export Co., Ltd. (“ZQNC”).
On November 13, 2017, a Share Exchange Agreement (the “Success Green Agreement”) was entered into by and among the Company, SGC, and Mr. Ho, being the beneficial owner of 27,464,000 shares of the Company’s common stock and also as the sole shareholder of all of the issued share capital of SGG; Mr. Ho was issued 72,265,000 shares of common stock in exchange for his interest in SGG. The transaction by and amongst the Company and SGG, SGI, SZZLB, and ZQNC have been accounted for as a business combination under common control in accordance to ASC 805-50-30-5; the assets and liabilities of SGG and its subsidiaries have been presented at the their carrying values at the date of the transaction; the Company’s historical stockholders’ equity has been retroactively restated to the first period presented whereby the acquisitions of SGG, SGI, SZZLB, and ZQNC were treated as a recapitalization of the Company.
On December 24, 2018, the Company’s subsidiary SGI acquired 100% equity interest in Advance Capital Investment Group Inc. (“ACIG”) which was incorporated on December 14, 2012 in the Republic of Vanuatu (“Vanuatu”) in a consideration of $1 from a director of the Company. ACIG wholly owns E.P. Trading Co., Limited (“EPT”) which was incorporated on March 13, 2017 in HK. The transaction by and amongst SGI and ACIG and EPT have been accounted for as a business combination under common control in accordance to ASC 805-50-30-5; the assets and liabilities of ACIG and its subsidiaries have been presented at the their carrying values at the date of the transaction; the Company’s historical stockholders’ equity has been retroactively restated to the first period presented whereby the acquisitions of ACIG and EPT were treated as a recapitalization of the Company.
As described in Note 10 and 12, on November 2018, the Company ceased its operations of its principal PRC subsidiary of ZQNC; and subsequently on March 8, 2019, the Company disposed the entire equity interest in ZQNC to an unrelated third party. Financial results from the operation of ZQNC are included in our financial statements and classified within discontinued operations for all periods presented.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| (a) | Method of accounting and basis of presentation |
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America. This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. The Company’s consolidated financial statements are expressed in U.S. dollars.
F-6
| (b) | Principles of consolidation |
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. The consolidated financial statements include 100% of assets, liabilities, and net income or loss of those wholly-owned subsidiaries.
The Company’s subsidiaries are listed as follows:
| Name of Company | Place of incorporation | Attributable equity interest % | Authorized capital | |||
| Success Green (Group) Limited | BVI | 100 | USD 50,000 | |||
| Success Green (International) Limited | HK | 100 | HKD 1 | |||
| Advance Capital Investment Group Inc. | Vanuatu | 100 | USD 100 | |||
| Shenzhen Zhenlongbao Investment Consulting Co., Ltd | PRC | 100 | RMB 10,000,000 | |||
| E.P. Trading Co., Limited | HK | 100 | HKD 100,000 | |||
| Zhaoqing Nengcheng Import and Export Co., Ltd | PRC | 100 | RMB 79,083,300 |
| (c) | Use of estimates |
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from those estimates.
| (d) | Reclassification |
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported net income or losses.
| (e) | Cash and cash equivalents |
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
| (f) | Accounts receivables |
Accounts receivable are carried at the amounts invoiced to customers less allowance for doubtful accounts. The allowance is an estimate based on a review of individual customer accounts on a regular basis. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.
The Company reviews the collectability of accounts receivable based on an assessment of historical experience, current economic conditions, and other collection indicators.
| (g) | Inventory |
Inventory consisting of finished goods purchased for sale are stated at the lower of cost or market value using average method.
| (h) | Equipment |
Equipment is carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:
| Office equipment | 5 years |
The cost of maintenance and repairs is charged to expenses as incurred, whereas significant renewals and betterments are capitalized.
F-7
| (i) | Goodwill |
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business combination. In accordance with FASB ASC Topic 350, “Goodwill and Other Intangible Assets”, goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
| (j) | Statutory reserves |
Statutory reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations. PRC laws prescribe that an enterprise operating at a profit must appropriate and reserve, on an annual basis, an amount equal to 10% of its profit. Such an appropriation is necessary until the reserve reaches a maximum that is equal to 50% of the enterprise’s PRC registered capital. For the years ended December 31, 2018 and 2017, there was no appropriation due to net loss.
| (k) | Foreign currency translation |
The accompanying financial statements are presented in United States dollars (“USD”). The functional currency of the Company, SGG and ACIG is the USD. The functional currency of SGI and EPT is the Hong Kong dollar (“HKD”). The functional currency of SZZLB, and ZQNC is the Renminbi (“RMB”). The financial statements of the Companies subsidiaries have been translated into United States dollars from RMB and HKD at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
| Exchange Rates | 12/31/2018 | 12/31/2017 | ||||||
| Year end RMB : US$ exchange rate | 6.8783 | 6.5097 | ||||||
| Average year RMB : US$ exchange rate | 6.6050 | 6.7590 | ||||||
| Year end HKD : US$ exchange rate | 7.8304 | 7.7926 | ||||||
| Average year HKD : US$ exchange rate | 7.8376 | 7.7925 | ||||||
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US Dollars at the rates used in translation.
| (l) | Revenue recognition |
The Company adopted ASU 2014-09, Topic 606 on January 1, 2018, using the modified retrospective method. ASC 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
F-8
The adoption of Topic 606 has no impact on revenue amounts recorded on the Company’s interim financial statements. Most of the Company’s revenues are generated under contracts with import agents or customers. Revenue is recognized and recorded when the related contractual services are rendered or when control of the goods are transferred to the customer. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposits and recognized in revenue when revenue recognition criteria are met.
Import & custom clearance service
Under the typical terms of these agreements, services are rendered when the imported goods cleared customs at the port and ready to be picked up by the import agent or its customers. The Company’s revenue consists of net service revenue based on invoiced value of goods, net of a value-added tax (VAT).
Trading
Under the typical terms of these agreements, control is transferred to customers when goods ready to be picked up and delivery arrangement can be made by the customers.
| (m) | Retirement benefits |
Retirement benefits in the form of mandatory government sponsored defined contribution plans are charged to the either expenses as incurred.
| (n) | Income taxes |
The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.
| (o) | Earnings (loss) per share |
The Company computes earnings per share (“EPS”) in accordance with ASC Topic 260, “Earnings per share”. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date. Potential common shares that have an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
| (p) | Financial instruments |
The Company’s accounts for financial instruments in accordance to ASC Topic 820, “Fair Value Measurements and Disclosures,” which requires disclosure of the fair value of financial instruments held by the Company and ASC Topic 825, “Financial Instruments,” which defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
F-9
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
| (q) | Comprehensive income |
Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income includes the foreign currency translation adjustment and unrealized gain or loss.
| (r) | Commitments and contingencies |
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
| (s) | Recent accounting pronouncements |
In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”, its new standard on accounting for leases. ASU 2016-02 introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized).
Furthermore, the ASU addresses other concerns related to the current leases model. For example, the ASU eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure. The new model represents a wholesale change to lease accounting. As a result, entities will face significant implementation challenges during the transition period and beyond, such as those related to:
| ● | Applying judgment and estimating. |
| ● | Managing the complexities of data collection, storage, and maintenance. |
| ● | Enhancing information technology systems to ensure their ability to perform the calculations necessary for compliance with reporting requirements. |
| ● | Refining internal controls and other business processes related to leases. |
| ● | Determining whether debt covenants are likely to be affected and, if so, working with lenders to avoid violations. |
| ● | Addressing any income tax implications. |
F-10
The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018 (e.g., calendar periods beginning on January 1, 2019), and interim periods therein. The Company is currently assessing this ASU’s impact on the Company’s consolidated results of operations and financial condition.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. For the Company, this ASU is effective prospectively to impairment tests beginning January 1, 2020, with early adoption permitted. The Company adopted this ASU in the fourth quarter of 2017 in conjunction with its annual goodwill impairment testing. The adoption did not have an impact on the Company’s consolidated results of operations and financial condition.
In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium. Under existing standards, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The new guidance shortens the amortization period to the earliest call date for certain callable debt securities that have explicit, noncontingent call features and are callable at a fixed price and preset date. The amendments do not require an accounting change for securities held at a discount. For the Company, this ASU is effective January 1, 2019 with a modified retrospective transition resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Early adoption is permitted. the Company’s marketable security portfolio includes very limited instances of callable debt securities held at a premium. As a result, the Company does not expect this ASU to have a material impact on the Company’s consolidated results of operations and financial condition.
In July 2017, the FASB issued ASU No. 2017-11, (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The new standard applies to issuers of financial instruments with down-round features. A down-round provision is a term in an equity-linked financial instrument (i.e. a freestanding warrant contract or an equity conversion feature embedded within a host debt or equity contract) that triggers a downward adjustment to the instrument’s strike price (or conversion price) if equity shares are issued at a lower price (or equity-linked financial instruments are issued at a lower strike price) than the instrument’s then-current strike price. The purpose of the feature is typically to protect the instrument’s counterparty from future issuances of equity shares at a more favorable price. The ASU amends (1) the classification of such instruments as liabilities or equity by revising the certain guidance relative to evaluating if they must be accounted for as derivative instruments and (2) the guidance on recognition and measurement of freestanding equity-classified instruments. For the Company, this ASU is effective January 1, 2019, with early adoption permitted. Because the Company has not issued financial instruments with down-round features, the Company does not expect this ASU to have a material impact on its consolidated results of operations and financial condition.
F-11
In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. The ASU amends existing guidance to simplify the application of hedge accounting in certain situations and allow companies to better align their hedge accounting with their risk management activities. Existing standards contain certain requirements for an instrument to qualify for hedge accounting relative to initial and ongoing assessments of hedge effectiveness. While an initial quantitative test to establish the hedge relationship is highly effective would still be required, the new ASU permits subsequent qualitative assessments for certain hedges instead of a quantitative test and expands the timeline for performing the initial quantitative assessment. The ASU also simplifies related accounting by eliminating the requirement to separately measure and report hedge ineffectiveness. Instead, for qualifying cash flow and net investment hedges, the entire change in fair value (including the amount attributable to ineffectiveness) will be recorded within other comprehensive income and reclassified to earnings in the same income statement line that is used to present the earnings effect of the hedged item when the hedged item affects earnings. For fair value hedges, generally, the entire change in fair value of the hedging instrument would also be presented in the same income statement line as the hedged item. The new standard also simplifies the accounting for fair value hedges of interest rate risks and expands an entity’s ability to hedge nonfinancial and financial risk components. In addition, the guidance also eases certain documentation requirements, modifies the accounting for components excluded from the assessment of hedge effectiveness, and requires additional tabular disclosures of derivative and hedge-related information. For the Company, this ASU is effective January 1, 2019, with a modified retrospective transition resulting in a cumulative-effect adjustment recorded to the opening balance of retained earnings as of the adoption date. Early adoption is permitted. The Company is currently assessing this ASU’s impact on the Company’s consolidated results of operations and financial condition.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits entities to reclassify, to retained earnings, the one-time income tax effects stranded in accumulated other comprehensive income (AOCI) arising from the change in the U.S. federal corporate tax rate as a result of the Tax Cuts and Jobs Act of 2017. An entity that elects to make this reclassification must consider all items in AOCI that have tax effects stranded as a result of the tax rate change, and must disclose the reclassification of these tax effects as well as the entity’s policy for releasing income tax effects from AOCI. The ASU may be applied either retrospectively or as of the beginning of the period of adoption. The Company will adopt this ASU effective January 1, 2019 and will result in a reclassification between retained earnings and AOCI. The Company does not expect this ASU to have a material impact on its consolidated results of operations and financial condition.
In October 2018, the FASB issued ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities, which changes how entities evaluate decision-making fees under the variable interest guidance. Entities will consider indirect interests held through related parties under common control on a proportionate basis rather than in their entirety. The ASU is effective as of January 1, 2020. The Company does not have significant involvement with entities subject to consolidation considerations impacted by variable interest entity model factors. As a result, the Company does not expect this ASU to have a material impact on its consolidated results of operations and financial condition.
In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments, which clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the lease standard. This ASU has the same transition requirements and effective date as ASU No. 2016-13 which is January 1, 2020. The Company does not expect this ASU to have a material impact on its consolidated results of operations and financial condition.
Unless otherwise stated, the Company is currently assessing the above the accounting pronouncements and their potential impact from their adoption on the financial statements.
| 3. | GOING CONCERN UNCERTAINTIES |
These financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of December 31, 2018, the Company had accumulated deficits of $17,757,533. Management’s plan to support the Company in operations and to maintain its business strategy is to raise funds through public and private offerings and to rely on officers and directors to perform essential functions with minimal compensation. If we do not raise all of the money we need from public or private offerings, we will have to find alternative sources, such as loans or advances from our officers, directors or others. Such additional financing may not become available on acceptable terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient to meet its needs in the long term. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. If we require additional cash and cannot raise it, we will either have to suspend operations or cease business entirely.
F-12
\
The accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
| 4. | EQUIPMENT |
Equipment consisted of the following as of December 31, 2018 and 2017:
| 2018 | 2017 | |||||||
| At Cost: | ||||||||
| Office equipment | $ | 11,141 | $ | 11,773 | ||||
| less: Accumulated depreciation | ||||||||
| Office equipment | (10,141 | ) | (10,716 | ) | ||||
| $ | 1,000 | $ | 1,057 | |||||
Depreciation expense for the years ended December 31, 2018 and 2017 was $- and $1,854, respectively.
| 5. | OTHER RECEIVABLES AND OTHER PAYABLES |
Other receivables and other current assets consisted of the following as of December 31, 2018 and 2017:
| 2018 | 2017 | |||||||
| Other deposits and prepaids | $ | 51 | $ | - | ||||
| 6. | RELATED PARTIES TRANSACTIONS |
Related parties payable
Related parties payable consisted of the following as of December 31, 2018 and 2017:
| 2018 | 2017 | |||||||||
| Ho, Terence | (1) | 396,850 | 275,977 | |||||||
| He, Da Hong | (2) | 172,280 | 182,034 | |||||||
| He, Guangxiang | (3) | 6,397 | 3,687 | |||||||
| $ | 575,527 | $ | 461,698 | |||||||
| (1) | Mr. Terence Ho is the Chairman and CEO of the Company. From time to time, Mr. Ho paid certain expenses on behalf of the company. The amounts due to Mr. Ho are interest free, unsecured, and payable on demand. |
| (2) | Mr. He, Da Hong is the former CEO of the Company’s subsidiary Shenzhen Zhenlongbao Investment Consulting Co., Ltd. From time to time, Mr. He paid certain expenses on behalf of the company. The amounts due to Mr. He are interest free, unsecured, and payable on demand. |
| (3) | From time to time, Mr. He, Guangxiang paid certain expenses on behalf of the company. The amounts due to Mr. He are interest free, unsecured, and payable on demand. |
| 7. | CAPITAL SHARES AND EQUITY |
On or about October 26, 2016, the Company issued 25,000,000 shares of common stock to Sea Treasure Holding limited, an entity controlled by Mr. Terence Ho, Chairman and Chief Executive Officer of the Company, for $250,000 or $0.01 per share.
On July 23, 2018, the Company completed the public offering of 10,000,000 shares of common stock for $200,000 or $0.02 per share.
F-13
| 8. | INCOME TAXES |
The Company is subject to the following income tax:
| ● | United States parent is subject to income tax rate at 34% for years prior to 2018 and 21% for years thereafter. |
| ● | British Virgin Islands subsidiary is not subject to tax on its income or capital gains |
| ● | Hong Kong subsidiary is subject to the profits tax rate at 16.5% for income generated and operation in the country |
| ● | PRC subsidiary at 25% for income generated and operation in the country |
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate from 34% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax assets. In addition, net operating losses (NOL) arising after December 31, 2017 can be carryforward indefinitely while limiting the NOL deduction for a given year to 80% of taxable income.
All of the Company’s operations are in the PRC and in accordance with the relevant tax laws and regulations.
The following tables provide the reconciliation of the differences between the statutory and effective tax expenses:
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Loss attributed to PRC | $ | (5,222 | ) | $ | (1,992 | ) | ||
| Loss attributed to US and other intermediate holding companies | (306,565 | ) | (299,789 | ) | ||||
| Loss before tax | (311,787 | ) | (301,781 | ) | ||||
| PRC Statutory Tax at 25% Rate | - | - | ||||||
| Effect of difference between PRC tax basis and US GAAP | - | - | ||||||
| Income tax | $ | - | $ | - | ||||
The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows:
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| U.S. federal statutory income tax rate | 21 | % | 34 | % | ||||
| Lower rates in PRC, net | (9 | )% | (9 | )% | ||||
| Effects of tax basis differences | (12 | )% | (25 | )% | ||||
| Effective tax rate | -% | -% | ||||||
The Company did not recognize deferred taxes since it is not likely to realize such deferred taxes.
The Company is subject to examination by the U.S. Internal Revenue Service (IRS) and other taxing authorities in jurisdictions where the firm has significant business operations, such as China. The tax years under examination vary by jurisdiction.
F-14
| 9. | LOSS (EARNINGS) PER SHARE |
Components of basic and diluted loss (earnings) per share were as follows:
| Years ended | ||||||||
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Basic (Loss) Earnings Per Share Numerator | ||||||||
| Net (loss) income | $ | (15,776,149 | ) | $ | (746,118 | ) | ||
| Discontinued operations | (15,464,362 | ) | (444,337 | ) | ||||
| Continuing operations | (311,787 | ) | (301,781 | ) | ||||
| (Loss) Income Attributable to Common Stockholders | $ | (15,776,149 | ) | $ | (746,118 | ) | ||
| Discontinued operations | (15,464,362 | ) | (444,337 | ) | ||||
| Continuing operations | (311,787 | ) | (301,781 | ) | ||||
| Diluted (Loss) Earnings Per Share Numerator | ||||||||
| (Loss) Income Attributable to Common Stockholders | $ | (15,776,149 | ) | $ | (746,118 | ) | ||
| Discontinued operations | (15,464,362 | ) | (444,337 | ) | ||||
| Continuing operations | (311,787 | ) | (301,781 | ) | ||||
| Basic Weighted Average Shares Outstanding | 104,438,356 | 100,000,000 | ||||||
| Diluted Weighted Average Shares Outstanding: | 104,438,356 | 100,000,000 | ||||||
| Loss Per Share | ||||||||
| - Basic | ||||||||
| Continuing operations | $ | (0.003 | ) | $ | (0.003 | ) | ||
| Discontinued operations | (0.148 | ) | (0.004 | ) | ||||
| $ | (0.151 | ) | $ | (0.007 | ) | |||
| - Diluted | ||||||||
| Continuing operations | $ | (0.003 | ) | $ | (0.003 | ) | ||
| Discontinued operations | (0.148 | ) | (0.004 | ) | ||||
| $ | (0.151 | ) | $ | (0.007 | ) | |||
F-15
| 10. | DISCONTINUED OPERATIONS |
On November 2018, the Company ceased the operations of its principal PRC subsidiary of ZQNC. On March 8, 2019, the Company disposed of its the subsidiary of ZQNC. ZQNC is engaged in the business of providing import custom clearing services. With ZQNC being classified as a discontinued operation, the import custom clearing services business is no longer included in the note for operating segment information for all periods presented.
The results of ZQNC for the year are presented below:
| For the Years ended | ||||||||
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Revenues | $ | 1,395,130 | 87,884 | |||||
| Cost of sales | 1,112,962 | 35,869 | ||||||
| Gross margin | 282,168 | 52,015 | ||||||
| Operating expenses | ||||||||
| Selling and marketing expense | 12,076 | 12,503 | ||||||
| General and administrative expenses | 489,722 | 212,350 | ||||||
| Impairment of related party receivables | 8,429,970 | - | ||||||
| Impairment of trade and other receivables | 6,654,278 | - | ||||||
| Total operating expenses | 15,586,046 | 224,853 | ||||||
| Income (loss) from operation | (15,303,878 | ) | (172,838 | ) | ||||
| Other income (expenses) | ||||||||
| Other income | 3,785 | 7,397 | ||||||
| Other expense | (42 | ) | (1,203 | ) | ||||
| Interest income | 352 | - | ||||||
| Interest expense | (164,579 | ) | (276,253 | ) | ||||
| Total other income (expenses) | (160,484 | ) | (270,059 | ) | ||||
| Loss before tax | (15,464,362 | ) | (442,897 | ) | ||||
| Income tax | - | (1,440 | ) | |||||
| Net loss from discontinued operations, net of tax | (15,464,362 | ) | (444,337 | ) | ||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation gain (loss) | 18,655 | 703,119 | ||||||
| Comprehensive loss from discontinued operations | (15,445,707 | ) | $ | 258,782 | ||||
The major classes of assets and liabilities of ZQNC classified as held for sale as at December 31, 2018 are as follows:
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 438 | $ | 113,654 | ||||
| Accounts receivable, net | 405,208 | 63,168 | ||||||
| Inventory, net | - | 272,402 | ||||||
| Other receivables and other current assets, net | 2,458,228 | 6,656,297 | ||||||
| Note receivable | - | 1,334,852 | ||||||
| Related parties receivable, net | 3,772,411 | 11,988,788 | ||||||
| Total current assets | 6,636,285 | 20,429,161 | ||||||
| Non-current assets | ||||||||
| Equipment, net | - | 69 | ||||||
| Assets of discontinued operations | $ | 6,636,285 | $ | 20,429,230 | ||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Short-term bank loans | $ | 3,285,665 | $ | 3,533,140 | ||||
| Accounts payable | 367,645 | 362,284 | ||||||
| Accrued liabilities and other current liabilities | 7,308,362 | 5,413,486 | ||||||
| Total current liabilities | 10,961,672 | 9,308,910 | ||||||
| Liabilities of discontinued operations | 10,961,672 | 9,308,910 | ||||||
| Net (liabilities) assets of discontinued operations | $ | (4,325,387 | ) | $ | 11,120,320 | |||
F-16
| 11. | RISKS |
| A. | Credit risk | |
| Since the Company’s inception, the age of account receivables has been less than one year indicating that the Company is not subject to material risk borne from credit extended to customers. | ||
| B. | Interest risk | |
| The Company is subject to interest rate risk when short term loans become due and require refinancing. | ||
| C. | Economic and political risks | |
| The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by changes in the political, economic, and legal environments in the PRC. | ||
| The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. |
| D. | Inflation Risk | |
| Management monitors changes in prices levels. Historically inflation has not materially impacted the company’s financial statements; however, significant increases in the price of raw materials and labor that cannot be passed on the Company’s customers could adversely impact the Company’s results of operations. |
| E. | Business Risk | |
| The Company acts as an agent on behalf the customers to provide import and custom clearance service to the customers, or end buyers, or end suppliers, etc. Although the Company is not held responsible for the goods purchased and imported or the outstanding payables to the suppliers in accordance to the service agreement, however if any disputes are to be arose from any of the parties, it might disrupt the Company’s operation and result in losses to the Company. | ||
| The Company's Import and Custom Clearance Service as an agent is not defined under its scope on its business permit. If the Company was found in violation of the law, its operation might be disrupted and result in losses to the Company. |
| 12. | SUBSEQUENT EVENTS |
On March 8, 2019, the Company’s wholly-owned-subsidiary, SZZLB entered into an equity transfer agreement with an unrelated third party, in order to dispose the entire equity interest in its wholly-owned-subsidiary, ZQNC, in a consideration of RMB10,000.
The Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. As of December 31, 2018, other than the above, the Company did not have any other material events that required disclosure under the above guidance.
F-17
Exhibit 10.8
肇庆市能成进出口有限公司
ZhaoQing NengCheng Import and Export CO. LTD
股权转让合同
Instrument of Transfer
转让方：深圳臻龙宝投资咨询有限公司（甲方）
Transferor: ShenZhen ZhenLongBao Investment Consulting CO., LTD. (Party A)
住所： 深圳市福田区沙头街道福荣路68号万科金域蓝湾7号楼1702
Address: Room 1702, Building 7, Vanke JinYu LanWan, No. 68, FuRong Road, ShaTou Street, FuTian District, ShenZhen, GuangDong, China
受让方：陈志坚 （乙方）
Transferee: Chen ZhiJian (Party B)
住所：广东省深圳市罗湖区水贝二路47号3栋502
Address: Room 502, Building 3, No.47, ShuiBei 2nd Road, LuoHu District, ShenZhen, GuangDong, China
本合同由甲方与乙方就肇庆市能成进出口有限公司的股权转让事宜，于2019年3月8日在肇庆市能成进出口有限公司办公室订立。甲乙双方本着平等互利的原则，经友好协商，达成如下协议：
This contract is entered into by and between Party A and Party B with respect to Instrument of Transfer for ZhaoQing NengCheng Import & Export CO., LTD and signed on March 8, 2019 in the office of ZhaoQing NengCheng Import & Export CO., LTD. Based on the principle of equality and mutual benefit and through friendly consultation, Party A and Party B have reached as below:
第一条 股权转让价格与付款方式
Article 1 Transfer Price and Payment Method
１、甲方同意将持肇庆市能成进出口有限公司100%的股权共8000万元出资额，以 1 万元转让给乙方，乙方同意按此价格及金额购买上述股权。
1、Party A and B both agrees, Party B in consideration of RMB 10,000 paid to Party A transfer the RMB 80 million Shares of ZhaoQing NengCheng Import & Export CO., LTD. Party B will be hold 100% of ZhaoQing NengCheng Import & Export CO., LTD.
２、乙方同意在本合同订立十五日内以现金形式一次性向甲方支付上述股权转让款。
2、Party B agrees to pay a lump sum to party a in cash within 15 days after the conclusion of this contract Pay the above equity transfer fee.
第二条 保证
Article 2 The Guarantee
１、甲方保证所转让给乙方的股权是甲方在肇庆市能成进出口有 限公司的真实出资，是甲方合法拥有的股权，甲方拥有完全的处分权。甲方 保证对所转让的股权，没有设置任何抵押、质押或担保，并免遭任何 第三人的追索。否则，由此引起的所有责任，由甲方承担。
1、Party A warrants that the equity transferred to Party B is the real investment made by party a in ZhaoQing NengCheng Import and Export CO., LTD. and is legally owned by Party A, and Party A has the full right to dispose of the equity. Party A warrants that it has not set up any mortgage, pledge or guarantee for the transferred equity and is free from any third Party's recourse. Otherwise, all responsibilities arising there from shall be borne by Party A.
２、甲方转让其股权后，其在肇庆市能成进出口有限公司原享有的 权利和应承担的义务，随股权转让而转由乙方享有与承担。
2、After the transfer of Party A's equity, the rights and obligations originally enjoyed by party a in ZhaoQing NengCheng Import and Export CO., LTD. shall be transferred to Party B along with the equity transfer.
３、乙方承认肇庆市能成进出口有限公司章程，保证按章程规定 履行义务和责任。
3、Party B acknowledges the articles of incorporation of ZhaoQing NengCheng Import and Export CO., LTD., and warrants that it shall fulfill its obligations and responsibilities in accordance with the articles of incorporation.
第三条 盈亏分担
Article 3 Profit and Loss Sharing
本公司经市场监督管理机关同意并办理股东变更登记后，乙方即成为肇庆市能成进出口有限公司的股东，按出资比例及章程规定分享公司 利润与分担亏损。
Party b shall become the shareholder of ZhaoQing NengCheng Import and Export CO., LTD. After the company is approved by the market supervision and management authority and the registration of shareholder changes, and shall share the profits and losses of the company according to the proportion of capital contribution and the articles of association.
第四条 费用负担
Article 4 Expenses
本次股权转让有关费用，由（双方）承担。
The relevant expenses of this equity transfer shall be borne by both parties.
2
第五条 合同的变更与解除
Article 5 Modification and Termination of the contract
发生下列情况之一时，可变更或解除合同，但双方必须就此签订 书面变更或解除合同。
The contract may be modified or rescinded under any of the following circumstances, provided that the parties hereto shall enter into a written modification or rescinding of the contract.
１、由于不可抗力或由于一方当事人虽无过失但无法防止的外因， 致使本合同无法履行。
1、This contract cannot be performed due to force majeure or external causes that cannot be prevented despite no fault of either party.
２、一方当事人丧失实际履约能力。
2、One party loses the ability to perform the contract.
３、由于一方或二方违约，严重影响了守约方的经济利益，使合 同履行成为不必要。
3、Due to the breach of contract by one or both parties, the economic interests of the non-breaching party are seriously affected, making the performance of the contract unnecessary.
４、因情况发生变化，经过双方协商同意变更或解除合同。
4、In case of any change, both parties agree to modify or terminate the contract through negotiation.
第六条 争议的解决
Article 6 Dispute Resolution
１、与本合同有效性、履行、违约及解除等有关争议，各方应友 好协商解决。
1、All disputes relating to the validity, performance, breach and termination hereof shall be settled by the parties through friendly consultation.
２、如果协商不成，则任何一方均可申请仲裁或向人民法院起诉。
2、If no agreement can be reached through negotiation, either party may apply for arbitration or file a lawsuit with the people's court.
3
第七条 合同生效的条件和日期
Article 7 Conditions and Date Of Effectiveness
本合同经各方签字后生效。
This contract shall come into force after being signed by all parties.
第八条 本合同正本一式四份，甲、乙双方各执壹份，报市场监督管理机关一份，肇庆市能成进出口有限公司存一份，均具有同等法律效力。
Article 8 This contract is made in quadruplicate, with each party holding one copy and one copy submitted to the market supervision and administration authority, and one copy kept by ZhaoQing NengCheng Import and Export CO., LTD. Both copies shall have the same legal effect.
| ShenZhen ZhenLongBao | Chen Zhijian |
Investment Consulting CO.
| /s/ Guangxiang He | /s/ Chen Zhijian |
Name: Guangxiang He
Title: Director
| 甲方（签名）： | 乙方（签名） ： |
| Party A (signature) : | Party B (signature) : |
March 8, 2019
2019 年3 月8 日
4
Exhibit 10.9
COUGER CAPITAL LIMITED
騰航發展有限公司
UNIT 2719, 27/F., TUEN MUN CENTRAL SQUARE, NO.22 HOI WING ROAD, TUEN MUN, N.T., H.K.
Tel : 852-2869 6388 Fax : 852-2869 7968
Contract
This Contract is made on 1st January 2019.
PARTIES :
COUGER CAPITAL LIMITED BR No.32673659
AND
E.P. TRADING CO., LIMITED BR No.67379307
COUGER CAPITAL LIMITED wishes to provide a business address and administrative services to E.P. TRADING CO., LIMITED for a period of thirty-six (36) months from 1st day of January 2019 to 31st December 2021 at a monthly Services Fee of Hong Kong Dollars Twenty Thousand Only (HKD20,000.00) .
Services Fee include the following items :
| 1. | Provide a Business Address |
| 2. | Administrative Services |
| 3. | Management Fee |
| 4. | Cleaning Fee |
| 5. | Electricity Fee |
| 6. | Telephone & Broadband Fee |
| 7. | Stationery Fee |
| 8. | Sundry Fee |
| 9. | Rates & Government Rent Fee |
| /s/ Sandy Cheun | /s/ Terence Ho | ||
| Authorized Signatory | Director | ||
| COUGER CAPITAL LIMITED | E.P. TRADING CO., LIMITED | ||
| BR No.32673659 | BR No.67379307 | ||
| 1st January 2019 | 1st January 2019 |
Exhibit 21.1
SUBSIDIARIES OF SUNBURST ACQUISITIONS V, INC.
| Name | Jurisdiction | |
| Success Green (Group) Limited (BVI) | British Virgin Islands | |
| Success Green (International) Limited (HK) | Hong Kong | |
| Shenzhen ZhenLongBao Investment Consulting Co., Ltd. | People’s Republic of China | |
| Advance Capital Investment Group Inc., | Republic of Vanuatu | |
| E.P. Trading Co. Limited | Hong Kong |
Exhibit 31.1
CERTIFICATION
I, Terence Ho, certify that:
1. I have reviewed this report on Form 10-K for the year ended December 31, 2018, of Sunburst Acquisitions V, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 16, 2019
| /s/ Terence Ho | |
| Terence Ho | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Lina Liao, certify that:
1. I have reviewed this report on Form 10-K for the year ended December 31, 2018, of Sunburst Acquisitions V, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 16, 2019
| /s/ Lina Liao | |
| Lina Liao | |
Chief
Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, in his capacity as an officer of Sunburst Acquisitions V, Inc. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Annual Report of the Company on Form 10-K for the year ended December 31, 2018, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 16, 2019
| /s/ Terence Ho | |
| Terence Ho | |
| Chief Executive Officer (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to Sunburst Acquisitions V, Inc. and will be retained by Sunburst Acquisitions V, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, in her capacity as an officer of Sunburst Acquisitions V, Inc. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of her knowledge:
(1) The Annual Report of the Company on Form 10-K for the year ended December 31, 2018, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 16, 2019
| /s/ Lina Liao | |
| Lina Liao | |
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to Sunburst Acquisitions V, Inc. and will be retained by Sunburst Acquisitions V, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
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