UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A
Amendment No. 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities
Exchange Act of 1934
| ENTREPRENEUR UNIVERSE BRIGHT GROUP |
| (Exact name of registrant as specified in its charter) |
| Nevada |
|
90-1734867 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
| |
|
|
Suite 907, Saigao City Plaza Building 2,
No. 170, Weiyang Road, Xi’an, China |
|
|
| (Address of principal executive office) |
|
(Zip Code) |
Registrant’s telephone number including area
code: +86-029-86100263
Securities to be registered pursuant to Section
12(b) of the Act:
| None |
|
None |
| (Title of class) |
|
Name of each exchange on which each class is to be registered |
Securities to be registered pursuant to Section
12(g) of the Act:
Common Stock, par value $0.0001 per share
(Title of class)
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” and “smaller reporting company” 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. ☐
TABLE OF CONTENTS
EXPLANATORY NOTE
Entrepreneur Universe Bright Group, a Nevada
corporation (“EUBG” or the “Company”), is not a Chinese operating company but a Nevada holding company. As a holding
company with no material operations of our own, EUBG conducts all of its operations through its subsidiaries in Hong Kong and in the People’s
Republic of China (“PRC” or “China”). Therefore our shareholders will not directly hold any equity interests in
our Chinese operating subsidiaries. Unless otherwise mentioned or unless the context requires otherwise, when used in this Amendment,
the terms “we,” “us,” and “our” refer to EUBG and its consolidated subsidiaries, or any one or more
of them as the context may require, “HK subsidiary” refers to Entrepreneurship World Technology Holding Group Company Limited,
our wholly-owned subsidiary and a Hong Kong limited company, and “PRC subsidiary” refers to Xi’an Yunchuang Space Information
Technology Co., Ltd., f/k/a Entrepreneurship World Consultants Limited, a wholly-foreign owned Chinese subsidiary of HK subsidiary. EUBG
is a holding company for its operating subsidiaries.
Entrepreneur Universe Bright Group is filing
this Amendment No. 10 (the “Amendment) to the General Form for Registration of Securities on Form 10 to register its common stock,
par value $0.0001 per share, pursuant to Section 12(g) of the Securities Exchange Act of 1934. The Company is filing this Amendment (in
response to certain comments raised by the staff of the Securities and Exchange Commission (“SEC”) on August 16, 2022.
The Company initially filed this the Form 10 Registration
Statement on June 30, 2021 (“Original Filing”) and became effective 60 days after the original filing date. The Company is
now subject to the requirements of Regulation 13A under the Exchange Act, which requires it to file annual reports on Form 10-K, quarterly
reports on Form 10-Q, and current reports on Form 8-K, and to comply with all other obligations of the Exchange Act applicable to issuers
filing Registration Statements pursuant to Section 12(g) of the Exchange Act.
We currently do not, and we do not plan to
use variable interest entities (“VIE”) to execute our business plan or to conduct our China-based operations. We do not have
any contractual arrangements between the holding company, the HK subsidiary, and the PRC subsidiary. EUBG is a Nevada holding company
and does not have any substantive operations other than directly or indirectly holding the equity interest in our operating subsidiaries
in Hong Kong and China. Therefore our shareholders will not directly hold any equity interests in our Chinese operating subsidiaries.
Our holding company structure involves unique risks to investors. Chinese regulatory authorities could disallow our corporate structure,
which would likely result in a material change in our operations and/or the value of the Company’s common stock, including that
it could cause the value of such securities to significantly decline or become worthless. See “Risk Factors — Risks
associated with doing business in China” for detailed discussions.
To the extent you make any investment in our Company,
it will be in EUBG, our holding company in Nevada, and not in our operating subsidiaries in Hong Kong or in China. Because substantially
all of our operations are conducted in China through our PRC subsidiary, the Chinese government may exercise significant oversight and
discretion over the conduct of our business and may intervene in or influence our PRC operations at any time, which could result in a
material change in our operations and/or the value of the Company’s common stock. The Chinese government could also significantly
limit or completely hinder our ability to list and/or remain listed on a U.S. or other foreign exchange, and to offer future securities
to investors and cause the value of such securities to significantly decline or be worthless. See “Risk Factors — Risks
associated with doing business in China - The recent state government interference into business activities on U.S. listed Chinese companies
may negatively impact our existing and future operations in China. The Chinese government may intervene in or influence our operations
at any time, which could result in a material change in our operations and significantly and adversely impact the value of the Company’s
common stock, including potentially causing the value of the Company’s common stock to decline or be worthless.”
There are significant legal and operational risks
associated with being in and conducting a substantial portion of our operations in mainland China. PRC laws and regulations governing
our current business operations and corporate structure are sometimes vague and uncertain, and we face the risk that changes in the PRC
laws, regulations and policies, including how those laws, regulations and policies will be interpreted or implemented could have a significant
impact upon the business we may be able to conduct in the PRC which would likely result in a material change in our operations and/or
the value of the Company’s common stock, including that it could cause the value of such securities to significantly decline or
become worthless. Furthermore, these risks may significantly limit or completely hinder our ability to offer or continue to offer our
securities to investors in the future. See “Risk Factors — Risks associated with doing business in China”
for detailed discussions.
Recent statements by the Chinese government
have indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investments in
China based issuers. Any future action by the Chinese government expanding the categories of industries and companies whose foreign securities
offerings are subject to government review could significantly limit or completely hinder our ability to offer or continue to offer securities
to investors and could cause the value of such securities to significantly decline or be worthless. In addition, recently, the PRC government
initiated a series of regulatory actions and made a number of public statements on the regulation of business operations in China with
little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based
companies listed overseas using a VIE structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts
in anti-monopoly enforcement. As confirmed by our PRC legal counsel, King & Wood Mallesons, the business of our PRC subsidiary until
now are not subject to cybersecurity review with the Cyberspace Administration of China, or the “CAC,” under the Measures
for Cybersecurity Review (2021) which became effective on February 15, 2022 and replace the Measures for Cybersecurity Review promulgated
on April 13, 2020, on the basis that (i) we currently do not have over one million users’ personal information and do not anticipate
that we will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise
subject us to the Measures for Cybersecurity Review (2021); (ii) our PRC subsidiary’s business operations do not involve any Critical
Information Infrastructure, and neither we nor the PRC subsidiary has received any notification from applicable PRC governmental authorities
indicating that any of the PRC subsidiary’s products or services is determined as the Critical Information Infrastructure; and
(iii) neither we nor the PRC subsidiary has received any notification from applicable PRC governmental authorities indicating that we
or our PRC subsidiary shall file for a cybersecurity review. We are also not subject to network data security review by the CAC if the
Draft Regulations on the Network Data Security Administration (Draft for Comments) (the “Draft Regulation”) are enacted as
proposed, since we currently do not have over one million users’ personal information and do not collect data that affects or may
affect national security and we do not anticipate that we will be collecting over one million users’ personal information or data
that affects or may affect national security in the foreseeable future, which we understand might otherwise subject us to the Draft Regulation.
In addition, as of the date of this Amendment, neither we nor our PRC subsidiary has been subject to any anti-monopoly investigation,
penalty of litigation initiated by government authorities or third parties. Furthermore, we will continue to monitor for updates of applicable
PRC anti-monopoly laws and regulations. Currently, these statements and regulatory actions have had no impact on our daily business operations,
the ability to accept foreign investments and list our securities on a U.S. or other foreign exchange, and there are no new relevant
laws or regulations in effect in the PRC explicitly requiring us to seek approval from the China Securities Regulatory Commission for
our registration. However, since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative
regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will
be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business
operations, the ability to accept foreign investments and list our securities on a U.S. or other foreign exchange. See “Summary
of Risk Factors – Risk Related to Doing Business in the PRC” and “Risk Factors — Risks associated
with doing business in China - The recent state government interference into business activities on U.S. listed Chinese companies may
negatively impact our existing and future operations in China. The Chinese government may intervene in or influence our operations at
any time, which could result in a material change in our operations and significantly and adversely impact the value of the Company’s
common stock, including potentially causing the value of the Company’s common stock to decline or be worthless; - Uncertainties
exist with respect to the enactment timetable, interpretation and implementation of the laws and regulations with respect to online platform
business operation.”
As of the date of this filing of the Amendment,
our operating subsidiaries have not been involved in any investigations on cybersecurity review initiated by the CAC based on the Measures
for Cybersecurity Review (2021) and the Draft Regulation, and we have not received any inquiry, notice, warning, sanctions in such respect
or any regulatory objections to this registration. Because these statements and regulatory actions are new, however, it is highly uncertain
how soon legislative or administrative regulation making bodies in China will respond to them, or what existing or new laws or regulations
will be modified or promulgated, if any, or the potential impact such modified or new laws and regulations will have on our daily business
operations or our ability to accept foreign investments and list on a U.S. exchange. If we are subject to such a probe or if we are required
to comply with stepped-up supervisory requirements, valuable time from our management and money may be expended in complying and/or responding
to the probe and requirements, thus diverting valuable resources and attention away from our operations. This may, in turn, negatively
impact our operations.
According to our PRC legal counsel, King &
Wood Mallesons, except as disclosed in the “Risk Factor” section - Risks relating to PRC laws and regulations with respect
to foreign exchange”, we and our subsidiaries are currently not required to obtain permission from any of the PRC authorities to
issue the shares of the Company’s common stock to foreign investors. In addition, we and our subsidiaries are not required to obtain
permission or approval from the PRC authorities including CSRC or CAC to issue the Company’s common stock to foreign investors,
nor have we, or our subsidiaries, applied for or received any denial for the Registration. However, recently, the General Office of the
Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely
Cracking Down on Illegal Securities Activities According to Law,” or the Opinions, which was made available to the public on July
6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen
the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory
systems will be taken to deal with the risks and incidents of China-concept overseas listed companies, and cybersecurity and data privacy
protection requirements and similar matters. The Opinions and any related implementing rules to be enacted may subject us to compliance
requirement in the future. Given the current regulatory environment in the PRC, we are still subject to the uncertainty of interpretation
and enforcement of the rules and regulations in the PRC, which can change quickly with little advance notice, and any future actions
of the PRC authorities. We cannot assure you that relevant PRC government agencies would reach the same conclusion as we do or as advised
by our PRC legal counsel. However, (i) if we inadvertently concluded that such permissions or approvals are not required, or (ii) if
the CSRC, the Cyberspace Administration of China or other regulatory PRC agencies later promulgate new rules requiring that we obtain
their approvals to issue the Company’s common stock to foreign investors, and we are unable to obtain a waiver of such approval
requirements, if and when procedures are established to obtain such a waiver, then we may not be able to list on a U.S. exchange. In
addition, any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on
the trading price of our securities. It is uncertain when and whether we will be required to obtain permission from the China Securities
Regulatory Commission to list on U.S. exchanges, and even if such permission is obtained, whether it will be denied or rescinded.
The PRC laws and regulations and government
policy changes rapidly on digital training. For our digital training related services, we worked with Beida Jade Bird Vocational Education
(“Jade Bird”) which was an authorized licensee of China National Personal Talent Training Network (“CNPTTN”),
a PRC regulatory agency for the talent training. Jade Bird was in charge of its training courses, and the Company was authorised by Jade
Bird as its sole training related administrator of the training courses, limited to coordinate the digital training related services
to individual clients who were interested in conducting live-broadcasting business through social medias. The Company provided training
related services, to these individual clients who subscribed courses, in arranging the examination, following up certificate issuance
processes, addressing clients’ concerns, etc. On March 22, 2022, the PRC subsidiary learned that Jade Bird suspended its service after
receiving a notice from CNPTTN and that until further notice CNPTTN has suspended all recruitment services using its CNPTTN’s name.
As a result of CNPTTN’s suspension, the PRC subsidiary has also suspended its digital training related services with Jade Bird
from March 22, 2022 until further notice. In the future, laws and regulations and the CNPTTN may require our PRC Subsidiary to meet additional
requirements or obtain additional approvals, licenses or permits to conduct KOL training related business. If our PRC Subsidiary is unable
to meet the relevant requirements or obtain the relevant approvals, licenses or permits, our PRC Subsidiary may not be able to continue
to conduct the KOL training related business. As of the date of this Amendment, there is no further notice from CNPTTN and the service
is still being suspended. As advised by our PRC legal counsel, other than the above, we and our subsidiaries are currently not required
to obtain permission from any of the PRC authorities to operate its principal business. We cannot assure you that relevant PRC government
agencies would reach the same conclusion as we do or as advised by our PRC legal counsel. If (i) we and our PRC legal counsel inadvertently
concluded that such permissions or approvals are not required, or (ii) the relevant regulatory PRC agencies later promulgate new rules
requiring that we obtain their approvals to operate our business, and we are unable to obtain approval or a waiver of such approval requirements,
any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on our business
operation and the trading price of our securities.
Although we concluded that we and our subsidiaries
are currently not required to obtain permission from any of the PRC central or local government and that we have not received any denial
to list on the U.S. exchange or to conduct our business operations, if (x) we inadvertently conclude that such approvals are not required
when they are, (y) we do not receive or maintain such permissions or approvals if and when required, or (z) changes in applicable laws,
regulations, or interpretations relating to our business or industry which would require us to obtain approvals in the future, our operations,
financial conditions, and results of operations could be adversely affected, directly or indirectly, and the value of the Company’s
common stock could significantly decline or become worthless. See “Risk Factors —Risks related to our business
and industry - Our PRC subsidiary may be required to obtain and maintain additional approvals, licenses or permits applicable to our
business, which could have a material adverse impact on our business, financial conditions and results of operations” and “Risk
Factors — Risks associated with doing business in China - The recent state government interference into business
activities on U.S. listed Chinese companies may negatively impact our existing and future operations in China. The Chinese government
may intervene in or influence our operations at any time, which could result in a material change in our operations and significantly
and adversely impact the value of the Company’s common stock, including potentially causing the value of the Company’s common
stock to decline or be worthless; - Uncertainties exist with respect to the enactment timetable, interpretation and implementation of
the laws and regulations with respect to online platform business operation;”– The PRC legal system is evolving, and the
resulting uncertainties could adversely affect us; – The approval of the China Securities Regulatory Commission or other PRC regulatory
agencies may be required in connection with this registration under PRC law.”
On July 7, 2022, the CAC promulgated the Measures for the Security
Assessment for Cross-border Transfer of Data (the “Security Assessment measures”), which will come into effect on
September 1, 2022. The Security Assessment measures stipulates that data processors which provide data cross-border and have one of the
following circumstances, should apply the security assessment to the national network information department through the provincial branches
of network information department: (A) data processors to provide important data cross-border; (B) operators of critical information
infrastructure and data processors handling personal information of more than 1 million people to provide personal information cross-border;(C)
data processors which provide cross-border a cumulative total of 100,000 people’s personal information or 10,000 people’s
sensitive personal information since January 1 of the previous year; (D) other situations requiring application for the security assessment
regarding providing data cross-border as stipulated by the state Internet information department. As of the date of this Amendment, the
PRC subsidiary has not provided any important data or personal data to any offshore institutions or individuals, so the PRC subsidiary
do not need to apply for a security assessment at this stage. However, if we need to provide data to offshore institutions or individuals
in the future and fall into the situations which should apply for the security assessment, we might not pass the security assessment.
On December 16, 2021, Public Company Accounting
Oversight Board (PCAOB) issued a report on its determinations that PCAOB is unable to inspect or investigate completely PCAOB-registered
public accounting firms headquartered in mainland China and in Hong Kong, a Special Administrative Region of the People’s Republic
of China (PRC), because of positions taken by PRC authorities in those jurisdictions. The PCAOB made these determinations pursuant to
PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the Holding Foreign Companies Accountable
Act (HFCAA). The report further listed in its Appendix A and Appendix B, Registered Public Accounting Firms Subject to the Mainland China
Determination and Registered Public Accounting Firms Subject to the Hong Kong Determination, respectively. The audit report included
in this registration statement for the years ended December 31, 2021 and 2020, was issued by Centurion ZD CPA & Co. (“CZD CPA”),
an audit firm headquartered in Hong Kong, a jurisdiction that the PCAOB has determined that the PCAOB is unable to conduct inspections
or investigate auditors. The Company’s auditors CZD CPA is among those listed by the PCAOB Hong Kong Determination, a determination
announced by the PCAOB on December 16, 2021 that the PCAOB is unable to inspect or investigate completely registered public accounting
firms headquartered in Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more
authorities in Hong Kong. The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality
control procedures of the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections.
The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these
accounting firms’ audit procedures or quality control procedures as compared to auditors outside of China that are subject to the
PCAOB inspections. In addition, under the HFCAA, our securities may be prohibited from trading on the U.S. stock exchanges or in the
over the counter trading market in the U.S. if our auditor is not inspected by the PCAOB for three consecutive years, and this ultimately
could result in the Company’s common stock being delisted. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating
Holding Foreign Companies Accountable Act (“AHFCAA”), which, if enacted, would amend the HFCAA and require the SEC to prohibit
an issuer’s securities from trading on any U.S. stock exchanges or in the over the counter trading market in the U.S. if its auditor
is not subject to PCAOB inspections for two consecutive years instead of three. In the future, if we do not engage an auditor that is
subject to regular inspection by the PCAOB, the Company’s common stock may be delisted. See “Risk Factors – Risks associated
with doing business in China – The audit report included in this Amendment is prepared by an auditor who is not inspected by the
Public Company Accounting Oversight Board and as such, our investors are deprived of the benefits of such inspection. The Company could
be delisted if it is unable to timely meet the PCAOB inspection requirements established by the Holding Foreign Companies Accountable
Act.”
On April 22, 2022,
the SEC provisionally identified EUBG as a company that has retained a registered public accounting firm to issue an audit report where
that registered public accounting firm has a branch or office that (i) is located in a foreign jurisdiction and (ii) the PCAOB
is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction under the HFCAA (a “Commission-Identified
Issuer”). On May 12, 2022, that provisional identification became conclusive and we are now subject to the requirements under the
HFCAA, including the prohibition on the trading of such issuer’s securities on a national securities exchange or through any other
method is within the SEC’s jurisdiction to regulate, including “over-the-counter” trading. This identification of EUBG
as a Commission-Identified Issuer does not mean that we will be immediately prohibited from trading our securities on the OTC Pink Sheets.
However, we may be prohibited from trading our securities, including trading in the “over-the-counter” market, if we continue
to be unavailable for PCAOB inspection or investigation for pursuant to the HFCAA (or two years under the AHFCAA). In addition, after
the first year of identification, we will be subject to new submission and disclosure requirements in our subsequent annual reports.
We are currently evaluating this ongoing situation and effect of our status as a Commission-Identified Issuer. and we intend to engage
an independent public accounting firm that satisfies the PCAOB inspection requirements for the audit of our consolidated financial statements
before or within the three-year (or two-year under AHFCAA) deadline under the HFCAA, and will comply with any additional disclosures
required by the SEC and other requirements required by the PCAOB pursuant to the HFCAA.
EUBG is permitted
to transfer cash as a loan and/or capital contribution to the HK subsidiary for its operations and the HK subsidiary is permitted to
transfer cash as a loan and/or capital contribution to the PRC subsidiary for capital investment and company operations. For instance,
the PRC subsidiary will use the cash for their daily business operations. However, under existing PRC regulations, any loans made to
our PRC subsidiaries shall not exceed a statutory limit, and shall be filed with SAFE or its local bureau. Additionally, any capital
contributions the HK subsidiary make to the PRC subsidiary shall be filed with the local commerce department. The PRC subsidiary is the
main operating company to earn revenue. The HK subsidiary is also permitted under the laws of Hong Kong SAR to provide funding to EUBG
through dividend distribution without restrictions on the amount of the funds. Current PRC laws require that dividends be paid only out
of the profit for the year calculated according to PRC accounting principles, which differ from the generally accepted accounting principles
in other jurisdictions. In addition, PRC laws also require a foreign-invested enterprise to set aside at least 10% of its after-tax profits,
if any, to fund its statutory reserves, until the aggregate amount reaches 50% of its registered capital. In addition, a wholly foreign-owned
enterprise may, at its discretion, allocate a portion of its after-tax profits based on PRC accounting principles to enterprise expansion
funds, staff welfare, and bonus funds. Those reserve funds are not available for distribution as cash dividends. The PRC government’s
control of foreign currency conversion may limit our foreign exchange transactions. Under existing PRC foreign exchange regulations,
payments of current account items can be made in foreign currencies without prior approval from SAFE. However, approval from SAFE, or
registration with SAFE or other appropriate departments is required where RMB shall be converted into foreign currency and be remitted
out of the PRC. Failure to comply with the above regulations may result in liability under PRC laws for evasion of foreign exchange controls.
As of the date of this Amendment, our PRC
subsidiary has distributed $4.6 million (net of withholding tax at $517,120 charged at a rate of 10% of the declared dividend) to its
holding parent, which is our HK subsidiary. However, we cannot ensure that we will be able to comply with the above regulations in all
respects in the future. If we fail to comply with the above regulations, our ability to transfer cash and distribute earnings may be
negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business. Since
EUBG, the Nevada holding company, is not the direct parent company of the PRC subsidiary, EUBG and the PRC subsidiary cannot make transfers
to the other. We intend to keep any future earnings to finance the expansion of our business conducted by our subsidiaries, and we do
not anticipate that any cash dividends will be paid in the foreseeable future from the HK subsidiary to EUBG, the Nevada holding company,
and/or from EUBG to its shareholders. As of the date of this Amendment, other than the above stated $4.6 million cash dividends transferred
from our PRC subsidiary to our HK subsidiary for operational costs, no cash transfer or transfer of other assets (including dividends
and distribution) have occurred among EUBG, our Nevada holding company, and either of its subsidiaries, our HK subsidiary or our PRC
subsidiary. See “Item 1. Business – Cash Transfers within our Organization,” “Summary of Risk Factors –
Risks Related to Doing Business in the PRC” and “Risk Factors — Risks associated with doing business
in China” for a detailed discussion of the Chinese legal restrictions on the payment of dividends, our ability to transfer cash
within the Company and the potential for holders of the Company’s common stock to be subject to Chinese taxes on dividends paid
by us in the event we are deemed a Chinese resident enterprise for Chinese tax purposes. As of June 30, 2022, December 31 2021 and December
31, 2020, total undistributed profits of the Company’s PRC subsidiary were $4,603,619, $3,579,288 and $6,269,752, respectively.
We have recognized deferred tax liabilities of $460,362, $357,929 and $626,975, respectively, in respect of the undistributed profits.
For more details, please refer to our consolidated financial statements and related notes included elsewhere in this Amendment.
The PRC government has significant oversight
and discretion over the conduct of our business and may intervene or influence our operations as the government deems appropriate to
further regulatory, political and societal goals. To the extent that the cash and assets of our business are in our PRC subsidiary and/or
Hong Kong subsidiary, such cash or assets may not be available to fund our operations or for other use outside of the PRC and/or Hong
Kong due to the potential intervention by the PRC government to impose restrictions and limitations over our ability or our subsidiaries’
ability to transfer cash or assets. Any such intervention in or influence on our business operations or action to exert more oversight
and control over the cash or assets of our subsidiaries, once taken by the PRC government, could adversely affect our business, financial
condition and results of operations and the value of our common stock, or significantly limit or completely hinder our ability to offer
or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become
worthless. See “Risk Factors — Risks associated with doing business in China - The recent state government
interference into business activities on U.S. listed Chinese companies may negatively impact our existing and future operations in China.
The Chinese government may intervene in or influence our operations at any time, which could result in a material change in our operations
and significantly and adversely impact the value of the Company’s common stock, including potentially causing the value of the
Company’s common stock to decline or be worthless.”
On September 1, 2021, our PRC subsidiary adopted
a written Monetary and Cash Fund Management System (“Cash Management Policy”) for its operations in China and Hong Kong.
The Cash Management Policy covers cash, bank deposits and other monetary funds owned by the PRC subsidiary and Hong Kong subsidiary and
includes procedures on receiving funds, depositing funds, transferring funds and proper documentation
and recording of cash. We adopted the Cash Management Policy in order to provide a process
and guidance on collecting, accounting for, and safeguarding all cash and cash equivalents of our PRC subsidiary and Hong Kong subsidiary,
including 1) checking the latest regulation requirements between China and Hong Kong; and 2) seeking approval from EUBG’s chief
executive officer in order to transfer funds from our PRC subsidiary to our HK subsidiary. EUBG does not have a cash management
policy.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This following information specifies certain forward-looking
statements of management of our Company. Forward-looking statements are statements that estimate the happening of future events and are
not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as may, shall,
could, expect, estimate, anticipate, predict, probable, possible, should, continue, or similar terms, variations of those terms, or the
negative of those terms. Such statements include, among others, those concerning market and industry segment growth; any projections of
earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations;
any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions
or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, including without limitation, those listed in the “Risk Factors” section, as well as assumptions,
which, if they were to ever materialize or prove incorrect, could cause our results to differ materially from those expressed or implied
by such forward-looking statements. The forward-looking statements specified in the following information have been compiled by our management
on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are
impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
The assumptions used for purposes of the forward-looking
statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes
in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information
and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the
extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly,
no opinion is expressed on the achievability of those forward-looking statements.
The market data and other statistical information
contained in this registration statement are based on our Company estimates of our past experience in the industry, general market data,
and public information which was not commissioned by us for this filing.
Readers are cautioned that the registration
statement are not exhaustive of all factors, estimates and assumptions that may apply to or impact our results. Although we have attempted
to identify important factors that could cause actual results to differ materially from the forward-looking information and statements
contained in this this registration statement, there may be other factors that cause results not to be as anticipated, estimated or intended.
There can be no assurance that such forward-looking information and statements will prove to be accurate as actual results and future
events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue
reliance on forward-looking information and statements. The forward-looking information and statements contained herein are presented
to assist readers in understanding our expected financial and operating performance and our plans and objectives and may not be appropriate
for other purposes. The forward-looking information and statements contained in this registration statement represents the our views
and expectations as of the date of this Amendment unless otherwise indicated. We anticipate that subsequent events and developments may
cause its views and expectations to change. However, while we may elect to update such forward-looking information and statements at
a future time, it has no current intention of and assumes no obligation for doing so, except to the extent required by applicable law.
Additionally, the following discussion regarding
our financial condition and results of operations should be read in conjunction with the financial statements and related notes included
in this Amendment.
ITEM 1. BUSINESS
History of Our Company
Entrepreneur
Universe Bright Group (“EUBG” or the “Company”) was incorporated
in the State of Nevada on April 21, 1999 under the name LE GOURMET CO, INC. Since its inception,
the Company had the following name changes: On March 17, 2003, to Estelle Reyna, Inc.; on
September 11, 2003 to Karma Media, Inc.; on July 8, 2005 to Pitboss Entertainment, Inc.;
on March 3, 2006 to US Energy Holdings, Inc.; on December 20, 2006 to Lonestar Group Holdings
Company; on November 9, 2007 to Guardian Angel Group, Inc.; and on May 18, 2011 to REE International,
Inc.; and on March 23, 2020, the Company filed a Certificate of Amendment to the Nevada Secretary
of State amending Article I of its Articles of Incorporation changing the Company’s
name to Entrepreneur Universe Bright Group, with an effective date of April 3, 2020.
Lonestar Group Holdings Company was a voluntary
filer and filed a Form 15 with the Securities and Exchange Commission (“SEC”) on August 20, 2007.
In July 2018, XTC Inc. (“XTC”), one
of EUBG’s shareholders, petitioned the Eight Judicial District Court in Clark County, Nevada (the “Court”), for appointment
as custodian of the Company. On September 4, 2018, the Court granted XTC custodianship of the Company with the right to appoint officers
and directors, negotiate and compromise debt, execute contracts, issue stock and authorize new classes of stock (the “Custodianship”).
Since the Form 15 filing on August 20, 2007 and
prior to the Custodianship, the Company’s management believes that it was inactive with no business operations. In December 2018,
XTC filed a Certificate of Revival for a revival of its charter, effective December 13, 2018, with the Nevada Secretary of State. XTC
acted together with MXD Inc. (“MXD”) to revive the Company and to get current. MXD is a private company incorporated in the
State of Colorado. As the president of XTC is also the president of MXD, the Company considered that the XTC and MXD are under common
control.
XTC and MXD performed the following actions in
its capacity as custodian:
| |
● |
Funded all expenses of the Company including paying off all outstanding liabilities discovered; |
| ● | Brought
the Company back in compliance with the Nevada Secretary of State, resident agent, transfer agent, OTC Markets Group; |
| ● | Brought
in and paid for accounting professionals as well as securities counsel. |
On December 18, 2018, the Company formed REE International,
Inc. Colorado (“REE-CO”). On December 21, 2018, the Company entered into an Agreement for Divestiture of Assets to Subsidiary
with REE-CO, where all of the Company’s assets, liabilities, and business were transferred to REE-CO. in exchange for 1,000 shares
of REE-CO, and the Company became the parent company of REE-CO. Since then, the Company has no assets, liabilities and business.
On December 28, 2018, the Company entered into
a Sale and Purchase Agreement (the “SPA”) with XTC to transfer 1,000 common shares of REE-CO to XTC at nil cash consideration
(with XTC assuming all of the obligations and liabilities of REE-CO). Pursuant to the SPA, all the assets and liabilities previously reported
in the Company’s financial statements were acquired by XTC and all the continuing obligations assumed were taken up by XTC. Since
the closing of the SPA, REE-CO ceased to be a subsidiary of the Company on the same date., and the Company no longer had any assets, liabilities
and business.
In consideration of the payments made to revive
the Company and get current by the XTC and MXD, the Company issued 1,000,000 shares of Series A Preferred Stock to MXD on December 11,
2018 and issued 50,000 shares of Series B Preferred Stock to XTC on February 27, 2019, respectively.
On March 5, 2019, the total authorized common
stock of the Company was increased to 1,800,000,000.
On April 24, 2019, XTC was discharged as custodian
of the Company. Prior to the Custodianship and immediately before May 15, 2019, the Company has abandoned all of its business operations.
On May 15, 2019,
1,590,605,141 shares of the common stock was issued to MXD as consideration for its services to revive the Company and get current. On
the same date, MXD and XTC agreed to voluntarily retire 1,000,000 Series A Preferred Stock and 50,000 shares of Series B Preferred Stock,
respectively (the “Issuance”).
Immediately after the Issuance, MXD entered into
certain Sale and Purchase Agreements, dated May 15, 2019 (the “Stock Purchase Agreements”), with Tethys Fountain Limited,
New Finance Consultants Limited, Jia Wang, Jianyong Li, Haijun Jiang, Xuebin Wu and Fanfan Chen (collectively, the “Purchasers”),
to transfer all its 1,590,605,141 shares of common stock of the Company to the Purchasers in exchange for an aggregate purchase price
of $135,000. Upon the closing of the Stock Purchase Agreements, the Purchasers collectively owned 93.5% of the issued and outstanding
shares of the Company’s common stock, and Tethys Fountain Limited became the controlling shareholder of the Company.
On May 20, 2019, and as authorized by the Company’s
board of directors, the Company began its current business as a marketing consulting company, as further described in the section entitled
“Item 1. Business – Business Overview” below.
Corporate Structure
EUBG is a holding company for its operating
subsidiaries. The operations of the Company’s PRC subsidiary, Xi’an Yunchuang Space Information Technology Co., Ltd. (formerly
Entrepreneurship World Consultants Limited) in Xi’an, China are the primary operations of EUBG. Our PRC subsidiary is wholly-owned
by the Company’s HK subsidiary, Entrepreneurship World Technology Holding Group Company Limited, a Hong Kong limited company. The
HK Subsidiary was incorporated by the Company on May 15, 2019 with HK$10,000 as its registered capital as a holding company. The PRC
subsidiary was incorporated on October 18, 2019 with HK$1,000,000 as its registered capital. On May 7, 2020, we incorporated Xian Yunchuang
Space Information Technology Co., Ltd, BaiYin Branch (formerly Entrepreneurship World Consultants Limited, BaiYin Branch), with RMB900,000
as its registered capital, as an branch office of the PRC subsidiary in Baiyin City, Gansu Province, China.
While the Company’s major shareholders,
headquarters, and operations are located in China, EUBG currently does not, and EUBG does not plan to use variable interest entities to
execute our business plan or to conduct our China-based operations. EUBG is a Nevada holding company and does not have any substantive
operations other than indirectly holding the equity interest in our operating subsidiaries in Hong Kong and China. Therefore, our shareholders
will not directly hold any equity interests in our Chinese operating subsidiaries. Our holding company structure involves unique risks
to investors. Chinese regulatory authorities could disallow our corporate structure, which would likely result in a material change in
our operations and/or the value of the Company’s common stock, including that it could cause the value of such securities to significantly
decline or become worthless.
We face various legal and operational risks and
uncertainties related to being based in and having substantially all of our operations in China. The PRC government has significant authority
to exert influence on the ability of a China-based company, such as us, to conduct its business, accept foreign investments or list on
an U.S. or other foreign exchanges. For example, we face risks associated with regulatory approvals of offshore offerings, anti-monopoly
regulatory actions, oversight on cybersecurity and data privacy, as well as the lack of PCAOB inspection on our auditors. Such risks could
result in a material change in our operations and/or the value of the Company’s common stock or could significantly limit or completely
hinder the Company’s ability to offer or continue to offer Stocks and/or other securities to investors and cause the value of such
securities to significantly decline or be worthless. See “Risk Factors — Risks Associated with doing business
in China — “The recent state government interference into business activities on U.S. listed Chinese companies may negatively
impact our existing and future operations in China. The Chinese government may intervene in or influence our operations at any time, which
could result in a material change in our operations and significantly and adversely impact the value of the Company’s common stock,
including potentially causing the value of the Company’s common stock to decline or be worthless; — Uncertainties with respect
to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations
in China could adversely affect us and limit the legal protections available to you and us; — The PRC legal system is evolving,
and the resulting uncertainties could adversely affect us; — The PRC legal system is a civil law system based on written statutes.
Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential
value. Therefore, the Company’s susceptibility to such laws is unknown; — The approval of the China Securities Regulatory
Commission or other PRC regulatory agencies may be required in connection with this registration under PRC law.”
The PRC government has significant oversight and
discretion over the conduct of our business and may intervene with or influence our operations as the government deems appropriate to
further regulatory, political and societal goals. See “Risk Factors — Risks associated with doing business in
China — Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden
or unexpected changes in laws and regulations in China could adversely affect us and limit the legal protections available to you and
us.” The PRC government has recently published new policies that significantly affected certain industries such as the education
and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our
industry that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has
recently indicated an intent to exert more oversight and control over overseas securities offerings and other capital markets activities
and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit
or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly
decline or in extreme cases, become worthless. See “Risk Factors — Risks Associated with doing business
in China — The recent state government interference into business activities on U.S. listed Chinese companies may negatively impact
our existing and future operations in China. The Chinese government may intervene in or influence our operations at any time, which could
result in a material change in our operations and significantly and adversely impact the value of the Company’s common stock, including
potentially causing the value of the Company’s common stock to decline or be worthless; — Uncertainties with respect to the
PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations
in China could adversely affect us and limit the legal protections available to you and us.”
According to our PRC legal counsel, King &
Wood Mallesons, we are currently not required to obtain permission from any of the PRC authorities to issue the Company’s common
stock shares to foreign investors. In addition, we, our subsidiaries are not required to obtain permission or approval from the PRC authorities
including CSRC or CAC to issue the Company’s common stock to foreign investors, nor have we, or our subsidiaries, applied for or
received any denial for the Registration. However, recently, the General Office of the Central Committee of the Communist Party of China
and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities
According to Law,” or the Opinions, which was made available to the public on July 6, 2021. The Opinions emphasized the need to
strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by
Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems will be taken to deal with the
risks and incidents of China-concept overseas listed companies, and cybersecurity and data privacy protection requirements and similar
matters. The Opinions and any related implementing rules to be enacted may subject us to compliance requirement in the future. Given
the current regulatory environment in the PRC, we are still subject to the uncertainty of interpretation and enforcement of the rules
and regulations in the PRC, which can change quickly with little advance notice, and any future actions of the PRC authorities.
In addition, we cannot assure you that relevant PRC government agencies would reach the same conclusion as we do or as advised
by our PRC legal counsel. If we are wrong with regards to our interpretation of the PRC laws and regulations, if we inadvertently conclude
that such approval is not required when it is, or if the CSRC, the Cyberspace Administration of China or other regulatory PRC agencies
later promulgate new rules requiring that we obtain their approvals to issue the Company’s common stock to foreign investors, we
may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties
and/or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price of the Company’s
securities. It is uncertain when and whether we will be required to obtain permission from China Securities Regulatory Commission to
list on U.S. exchanges, and even if such permission is obtained, whether it will be denied or rescinded. As a result, our operations
could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business or industry.
See “Risk Factors – Risks associated with doing business in China – Uncertainties with respect to the PRC legal system,
including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely
affect us and limit the legal protections available to you and us; – The PRC legal system is evolving, and the resulting uncertainties
could adversely affect us; – The approval of the China Securities Regulatory Commission or other PRC regulatory agencies may be
required in connection with this registration under PRC law.”
The PRC laws and regulations and government
policy changes rapidly on digital training. For our digital training related services, we worked with Beida Jade Bird Vocational Education
(“Jade Bird”) which was an authorized licensee of China National Personal Talent Training Network (“CNPTTN”),
a PRC regulatory agency for the talent training. Jade Bird was in charge of its training courses, and the Company was authorised by Jade
Bird as its sole training related administrator of the training courses, limited to coordinate the digital training related services
to individual clients who were interested in conducting live-broadcasting business through social medias. The Company provided training
related services, to these individual clients who subscribed courses, in arranging the examination, following up certificate issuance
processes, addressing clients’ concerns, etc. On March 22, 2022, the PRC subsidiary learned that Jade Bird suspended its service after
receiving a notice from CNPTTN and that until further notice CNPTTN has suspended all recruitment services using its CNPTTN’s name.
As a result of CNPTTN’s suspension, the PRC subsidiary has also suspended its digital training related services with Jade Bird
from March 22, 2022 until further notice. In the future, laws and regulations and the CNPTTN may require our PRC Subsidiary to meet additional
requirements or obtain additional approvals, licenses or permits to conduct KOL training related business. If our PRC Subsidiary is unable
to meet the relevant requirements or obtain the relevant approvals, licenses or permits, our PRC Subsidiary may not be able to continue
to conduct the KOL training related business. As of the date of this Amendment, there is no further notice from CNPTTN and the service
is still being suspended. As advised by our PRC legal counsel, other than the above, we and our subsidiaries are currently not required
to obtain permission from any of the PRC authorities to operate its principal business. We cannot assure you that relevant PRC government
agencies would reach the same conclusion as we do or as advised by our PRC legal counsel. If (i) we and our PRC legal counsel inadvertently
concluded that such permissions or approvals are not required, or (ii) the relevant regulatory PRC agencies later promulgate new rules
requiring that we obtain their approvals to operate our business, and we are unable to obtain approval or a waiver of such approval requirements,
any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on our business
operation and the trading price of our securities.
Although we concluded we and our subsidiaries
are currently not required to obtain permission from any of the PRC central or local government and has not received any denial to list
on the U.S. exchange or to conduct our business operation, if (x) we inadvertently conclude that such approvals are not required when
they are, (y) we do not receive or maintain such permissions or approvals if and when required, or (z) changes in applicable laws, regulations,
or interpretations relating to our business or industry which would require us to obtain approvals in the future, our operations, financial
conditions, and results of operations could be adversely affected, directly or indirectly, and the value of the Company’s common
stock could significantly decline or become worthless. See “Risk Factors —Risks related to our business and industry
- Our PRC subsidiary may be required to obtain and maintain additional approvals, licenses or permits applicable to our business, which
could have a material adverse impact on our business, financial conditions and results of operations” and “Risk Factors — Risks
associated with doing business in China - The recent state government interference into business activities on U.S. listed Chinese companies
may negatively impact our existing and future operations in China. The Chinese government may intervene in or influence our operations
at any time, which could result in a material change in our operations and significantly and adversely impact the value of the Company’s
common stock, including potentially causing the value of the Company’s common stock to decline or be worthless; - Uncertainties
exist with respect to the enactment timetable, interpretation and implementation of the laws and regulations with respect to online platform
business operation;”– The PRC legal system is evolving, and the resulting uncertainties could adversely affect us; –
The approval of the China Securities Regulatory Commission or other PRC regulatory agencies may be required in connection with this registration
under PRC law.”
EUBG is permitted
to transfer cash as a loan and/or capital contribution to the HK subsidiary for its operations and the HK subsidiary is permitted to
transfer cash as a loan and/or capital contribution to the PRC subsidiary for capital investment and company operations. For instance,
the PRC subsidiary will use the cash for their daily business operations. However, under existing PRC regulations, any loans made to
our PRC subsidiaries shall not exceed a statutory limit, and shall be filed with SAFE or its local bureau. Additionally, any capital
contributions the HK subsidiary make to the PRC subsidiary shall be filed with the local commerce department. The PRC subsidiary is the
main operating company to earn revenue. The HK subsidiary is also permitted under the laws of Hong Kong SAR to provide funding to EUBG
through dividend distribution without restrictions on the amount of the funds. Current PRC laws require that dividends be paid only out
of the profit for the year calculated according to PRC accounting principles, which differ from the generally accepted accounting principles
in other jurisdictions. In addition, PRC laws also require a foreign-invested enterprise to set aside at least 10% of its after-tax profits,
if any, to fund its statutory reserves, until the aggregate amount reaches 50% of its registered capital. In addition, a wholly foreign-owned
enterprise may, at its discretion, allocate a portion of its after-tax profits based on PRC accounting principles to enterprise expansion
funds, staff welfare, and bonus funds. Those reserve funds are not available for distribution as cash dividends. The PRC government’s
control of foreign currency conversion may limit our foreign exchange transactions. Under existing PRC foreign exchange regulations,
payments of current account items can be made in foreign currencies without prior approval from SAFE. However, approval from SAFE, or
registration with SAFE or other appropriate departments is required where RMB shall be converted into foreign currency and be remitted
out of the PRC. Failure to comply with the above regulations may result in liability under PRC laws for evasion of foreign exchange controls.
As of the date of this Amendment, our PRC
subsidiary has distributed $4.6 million (net of withholding tax at $517,120 charged at a rate of 10% of the declared dividend) to its
holding parent, which is our HK subsidiary. However, we cannot ensure that we will be able to comply with the above regulations in all
respects in the future. If we fail to comply with the above regulations, our ability to transfer cash and distribute earnings may be
negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business. Since
EUBG, the Nevada holding company, is not the direct parent company of the PRC subsidiary, EUBG and the PRC subsidiary cannot make transfers
to the other. We intend to keep any future earnings to finance the expansion of our business conducted by our subsidiaries, and we do
not anticipate that any cash dividends will be paid in the foreseeable future from the HK subsidiary to EUBG, the Nevada holding company,
and/or from EUBG to its shareholders. As of the date of this Amendment, other than the above stated $4.6 million cash dividends transferred
from our PRC subsidiary to our HK subsidiary for operational costs, no cash transfer or transfer of other assets (including dividends
and distribution) have occurred among EUBG, our Nevada holding company, and either of its subsidiaries, our HK subsidiary or our PRC
subsidiary. See “Item 1. Business – Cash Transfers within our Organization,” “Summary of Risk Factors –
Risks Related to Doing Business in the PRC” and “Risk Factors — Risks associated with doing business
in China” for a detailed discussion of the Chinese legal restrictions on the payment of dividends, our ability to transfer cash
within the Company and the potential for holders of the Company’s common stock to be subject to Chinese taxes on dividends paid
by us in the event we are deemed a Chinese resident enterprise for Chinese tax purposes. As of June 30, 2022, December 31 2021 and December
31, 2020, total undistributed profits of the Company’s PRC subsidiary were $4,603,619, $3,579,288 and $6,269,752, respectively.
We have recognized deferred tax liabilities of $460,362, $357,929 and $626,975, respectively, in respect of the undistributed profits.
For more details, please refer to consolidated financial statements and related notes included elsewhere in this Amendment.
The PRC government has significant oversight
and discretion over the conduct of our business and may intervene or influence our operations as the government deems appropriate to
further regulatory, political and societal goals. To the extent that the cash and assets of our business are in our PRC subsidiary and/or
Hong Kong subsidiary, such cash or assets may not be available to fund our operations or for other use outside of the PRC and/or Hong
Kong due to the potential intervention by the PRC government to impose restrictions and limitations over our ability or our subsidiaries’
ability to transfer cash or assets. Any such intervention in or influence on our business operations or action to exert more oversight
and control over the cash or assets of our subsidiaries, once taken by the PRC government, could adversely affect our business, financial
condition and results of operations and the value of our common stock, or significantly limit or completely hinder our ability to offer
or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become
worthless. See “Risk Factors — Risks associated with doing business in China - The recent state government
interference into business activities on U.S. listed Chinese companies may negatively impact our existing and future operations in China.
The Chinese government may intervene in or influence our operations at any time, which could result in a material change in our operations
and significantly and adversely impact the value of the Company’s common stock, including potentially causing the value of the
Company’s common stock to decline or be worthless.”
On September 1, 2021, our PRC subsidiary and
Hong Kong subsidiary adopted a written Monetary and Cash Fund Management System (“Cash Management Policy”) for its operations
in China and Hong Kong. The Cash Management Policy covers cash, bank deposits and other monetary funds owned by the PRC subsidiary and
Hong Kong subsidiary and includes procedures on receiving funds, depositing funds, transferring funds and proper documentation and recording
of cash. We adopted the Cash Management Policy in order to provide a process and guidance on collecting,
accounting for, and safeguarding all cash and cash equivalents of our PRC subsidiary and Hong Kong subsidiary, including 1) checking
the latest regulation requirements between China and Hong Kong; and 2) seeking approval from EUBG’s chief executive officer in
order to transfer funds from our PRC subsidiary to our HK subsidiary. EUBG does not have a cash management policy.
On December 16, 2021, Public Company Accounting
Oversight Board (PCAOB) issued a report on its determinations that PCAOB is unable to inspect or investigate completely PCAOB-registered
public accounting firms headquartered in mainland China and in Hong Kong, a Special Administrative Region of the People’s Republic
of China (PRC), because of positions taken by PRC authorities in those jurisdictions. The PCAOB made these determinations pursuant to
PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the HFCAA. The report further listed
in its Appendix A and Appendix B, Registered Public Accounting Firms Subject to the Mainland China Determination and Registered Public
Accounting Firms Subject to the Hong Kong Determination, respectively. The audit report included in this registration statement for the
years ended December 31, 2021 and 2020, was issued by Centurion ZD CPA & Co. (“CZD CPA”), an audit firm headquartered
in Hong Kong, a jurisdiction that the PCAOB has determined that the PCAOB is unable to conduct inspections or investigate auditors. The
Company’s auditors CZD CPA is among those listed by the PCAOB Hong Kong Determination, a determination announced by the PCAOB on
December 16, 2021 that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in Hong
Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong.
The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of
the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the
PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’
audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. In
addition, under the HFCAA, the Company’s securities may be prohibited from trading on the U.S. stock exchanges or in the over the
counter trading market in the U.S. if the Company’s auditor is not inspected by the PCAOB for three consecutive years, and this
ultimately could result in the Company’s common stock being delisted. Furthermore, on June 22, 2021, the U.S. Senate passed the
Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”), which, if enacted, would amend the HFCAA and require the
SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges or in the over the counter trading market in the
U.S. if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. In the future, if we do not engage
an auditor that is subject to regular inspection by the PCAOB, our Company’s common stock may be delisted. See “Risk Factors
– Risks associated with doing business in China – The audit report included in this Amendment is prepared by an auditor who
is not inspected by the Public Company Accounting Oversight Board and as such, the Company’s investors are deprived of the benefits
of such inspection. The Company could be delisted if it is unable to timely meet the PCAOB inspection requirements established by the
Holding Foreign Companies Accountable Act.”
On April 22, 2022, the SEC provisionally identified
EUBG as a company that has retained a registered public accounting firm to issue an audit report where that registered
public accounting firm has a branch or office that (i) is located in a foreign jurisdiction and (ii) the PCAOB is unable to inspect
or investigate completely because of a position taken by an authority in that jurisdiction under the HFCAA (a “Commission-Identified
Issuer”). On May 12, 2022, that provisional identification became conclusive and we are now subject to the requirements under the
HFCAA, including the prohibition on the trading of such issuer’s securities on a national securities exchange or through any other
method is within the SEC’s jurisdiction to regulate, including “over-the-counter” trading. This identification of EUBG
as a Commission-Identified Issuer does not mean that we will be immediately prohibited from trading our securities on the OTC Pink Sheets.
However, we may be prohibited from trading our securities, including trading in the “over-the-counter” market, if we continue
to be unavailable for PCAOB inspection or investigation for three consecutive years pursuant to the HFCAA (or two years under the AHFCAA).
In addition, after the first year of identification, we will be subject to new submission and disclosure requirements in our subsequent
annual reports. We are currently evaluating this ongoing situation and effect of our status as a Commission-Identified Issuer. and we
intend to engage an independent public accounting firm that satisfies the PCAOB inspection requirements for the audit of our consolidated
financial statements before or within the three-year (or two-year under AHFCAA) deadline under the HFCAA, and will comply with any additional
disclosures required by the SEC and other requirements required by the PCAOB pursuant to the HFCAA.
Our offices are located at Suite 907, Saigao City
Plaza Building 2, No. 170, Weiyang Road, Xi’an, China, and our telephone number is +86-029-86100263. We maintain a website at https://www.eubggroup.com/,
however, our website or any information contained therein on our website do not constitute a part of this registration statement.
Summary of Risk Factors
Investing
in the common stock of EUBG involves significant risks. You should carefully consider all
of the information in this Amendment before making an investment in the Company’s common
stock. Below please find a summary of the principal risks we face, organized under relevant
headings. Importantly, this summary does not address all of the risks that we face. These
risks are discussed more fully in the section titled “Risk Factors” beginning
on page 33 of this Amendment.
Risks Related to Our Business and Industry
| ● | We have a limited operating history and are subject to the risks encountered by development-stage companies.
See “Risk Factors — Risks Related to Our Business and Industry — We have a limited operating history and
are subject to the risks encountered by development-stage companies.” |
| ● | Our historical financial results may not be indicative of our future performance. See “Risk Factors —
Risks Related to Our Business and Industry — Our historical financial results may not be indicative of our future performance. |
| ● | If we cannot manage our growth effectively and efficiently, our results of operations or profitability
could be adversely affected. See “Risk Factors — Risks Related to Our Business and Industry —
If we cannot manage our growth effectively and efficiently, our results of operations or profitability could be adversely affected.” |
| ● | We may not be successful in implementing important new strategic initiatives, which may have an adverse
impact on our business and financial results. See “Risk Factors — Risks Related to Our Business and Industry
— We may not be successful in implementing important new strategic initiatives, which may have an adverse impact on our business
and financial results.” |
| ● | Increasing competition within our industries could have an impact on our business prospects. See “Risk
Factors — Risks Related to Our Business and Industry — Increasing competition within our industries could have
an impact on our business prospects.” |
| ● | Our PRC subsidiary may be required to obtain and maintain additional approvals, licenses or permits applicable
to our business, which could have a material adverse impact on our business, financial conditions and results of operations. See “Risk
Factors — Risks Related to Our Business and Industry — Our PRC subsidiary may be required to obtain and maintain
additional approvals, licenses or permits applicable to our business, which could have a material adverse impact on our business, financial
conditions and results of operations.” |
| ● | If our operating subsidiaries fail to hire, train or retain qualified managerial and other employees,
our business and results of operations could be materially and adversely affected. See “Risk Factors — Risks
Related to Our Business and Industry — If our operating subsidiaries fail to hire, train or retain qualified managerial and other
employees, our business and results of operations could be materially and adversely affected.” |
Risks Related to Doing Business in the PRC
| ● | The
Chinese government may intervene in or influence our operations at any time, or may exert
more control over offering conducted overseas and/or foreign investment in China-based issuers,
which could result in a material change in our operations and significantly and adversely
impact the value of the Company’s common stock we are registering for sale, including
potentially making those common stock worthless; The Chinese government exerts substantial
influence over the manner in which we must conduct our business activities and may intervene
or influence our operations as the government deems appropriate to further regulatory, political
and societal goals. To the extent that the cash and assets in our business are in our PRC
subsidiary and/or Hong Kong subsidiary, the funds or assets may not be available to fund
operations or for other use outside of the PRC and/or Hong Kong due to intervention in or
the imposition of restrictions and limitations on the ability of us or our subsidiaries by
the Chinese government to transfer cash or assets. See “Risk Factors — Risks
Associated with doing business in China — The recent state government interference
into business activities on U.S. listed Chinese companies may negatively impact our existing
and future operations in China. The Chinese government may intervene in or influence our
operations at any time, which could result in a material change in our operations and significantly
and adversely impact the value of the Company’s common stock, including potentially
causing the value of the Company’s common stock to decline or be worthless. |
| ● | The
uncertainties in the Chinese legal system could materially and adversely affect us. See “Risk
Factors — Risks Associated with doing business in China — Uncertainties
with respect to the PRC legal system, including uncertainties regarding the enforcement of
laws, and sudden or unexpected changes in laws and regulations in China could adversely affect
us and limit the legal protections available to you and us.” |
| ● | The PRC legal system is evolving, and the resulting
uncertainties could adversely affect us. See “Risk Factors — Risks Associated with doing business in China —
The PRC legal system is evolving, and the resulting uncertainties could adversely affect us.” |
| ● | A
severe or prolonged downturn in the global or Chinese economy could materially and adversely
affect our business and our financial condition. See “Risk Factors — Risks
Associated with doing business in China — A severe or prolonged downturn in the global
or Chinese economy could materially and adversely affect our business and our financial condition. |
| ● | Changes in the policies of the PRC government
could have a significant impact upon our ability to operate profitably in the PRC. See “Risk Factors — Risks
Associated with doing business in China — Changes in the policies of the PRC government could have a significant impact upon our
ability to operate profitably in the PRC.” |
| ● | Changes in the political or economic climate
in the PRC may impair our ability to operate profitably, if at all. See “Risk Factors — Risks Associated with
doing business in China — Because our business is dependent upon government policies that encourage a market-based economy, change
in the political or economic climate in the PRC may impair our ability to operate profitably, if at all.” |
| ● | Changes in China’s economic, political
or social conditions or government policies may have a material adverse effect on our business and operations. See “Risk Factors — Risks
Associated with doing business in China —Changes in China’s economic, political or social conditions or government policies
may have a material adverse effect on our business and operations.” |
| ● | Prior court decisions under the civil law system
have limited precedential value. See “Risk Factors — Risks Associated with doing business in China — The
PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil
law system may be cited for reference but have limited precedential value. Therefore our susceptibility to such laws is unknown. |
| ● | Chinese law prohibits or restricts companies
belonging to foreign countries from operating some certain businesses. See “Risk Factors — Risks Associated
with doing business in China — Chinese law prohibits or restricts companies belonging to foreign countries from operating some certain
businesses.” |
| ● | We may be liable for improper collection, use
or appropriation of personal information provided by our customers. See “Risk Factors — Risks Associated with
doing business in China — Our PRC subsidiary may be liable for improper collection, use or appropriation of personal information
provided by our customers.” |
| ● | We may be subject to various internet-related
laws to which uncertainties exist with respect to the enactment timetable, interpretation and implementation of the laws and regulations
with respect to online platform business operation. See “Risk Factors — Risks Associated with doing business
in China — Uncertainties exist with respect to the enactment timetable, interpretation and implementation of the laws and regulations
with respect to online platform business operation.” |
| ● | The approval of the China Securities Regulatory
Commission or other PRC regulatory agencies may be required in connection with this registration under PRC law. See “Risk Factors — Risks
Associated with doing business in China — The approval of the China Securities Regulatory Commission or other PRC regulatory agencies
may be required in connection with this registration under PRC law.” |
| ● | PRC laws and regulations governing our current
business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability to operate profitably.
See “Risk Factors — Risks Associated with doing business in China — PRC laws and regulations governing
our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability
to operate profitably.” |
| ● | We may be treated as a resident enterprise for
PRC tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to PRC income tax on our global income. See
“Risk Factors — Risks Associated with doing business in China — Under the PRC Enterprise Income Tax Law,
or the EIT Law, our PRC subsidiary may be classified as a “resident enterprise” of China, which could result in unfavorable
tax consequences to us and our non-PRC shareholders.” |
| ● | Uncertainties under the EIT Law relating to the
withholding tax liabilities may of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not
qualify to enjoy certain treaty benefits. See “Risk Factors — Risks Associated with doing business in China
— There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends
payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.” |
| ● | Restrictions placed on offshore holding companies
and currency exchange may limit our ability to make loans or additional capital contributions to our PRC subsidiary, which could materially
and adversely affect our liquidity and our ability to fund and expand our business. See “Risk Factors — Risks
Associated with doing business in China — PRC regulation of loans to and direct investment in PRC entities by offshore holding companies
and governmental control of currency conversion may delay or prevent us from making loans or additional capital contributions to our PRC
subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” |
| ● | Fluctuations in exchange rates could have a material
and adverse effect on our results of operations and the value of your investment. See “Risk Factors — Risks
Associated with doing business in China — Government control in currency conversion may adversely affect our financial condition,
our ability to remit dividends, and the value of your investment.” |
| ● | If we become directly subject to the scrutiny,
criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and
resolve the matter which could harm our business operations, stock price and reputation. See “Risk Factors — Risks
Associated with doing business in China — If we become directly subject to the scrutiny, criticism and negative publicity involving
U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our
business operations, stock price and reputation.” |
| ● | You may experience difficulties in effecting
service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in the Amendment
based on foreign laws. See “Risk Factors — Risks Associated with doing business in China — You may face
difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management
named in this registration statement based on foreign laws. |
| |
● |
The audit report included in this Registration and its Amendments was prepared by an auditor who is not inspected by the U.S. Public Company Accounting Oversight Board, or the PCAOB, and as such, you are deprived of the benefits of such inspection, and the Company’s common stock may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect the Company’s auditors. See “Risk Factors — Risks Associated with doing business in China — The audit report included in this Amendment is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and as such, the Company’s investors are deprived of the benefits of such inspection. The Company could be delisted if it is unable to timely meet the PCAOB inspection requirements established by the Holding Foreign Companies Accountable Act.”. |
Risks Related to the Market for the Company’s
Common Stock
| |
● |
Our CEO owns a significant percentage of the Company’s common stock and will be able to exert significant control over matters subject to shareholder approval. See “Risk Factors – Risks Related to the Market for the Company’s Common Stock - Our CEO owns a significant percentage of the Company’s common stock and will be able to exert significant control over matters subject to shareholder approval.” |
| |
● |
An active, liquid trading market for the Company’s common stock may not develop or be sustained. If and when an active market develops the price of the Company’s common stock may be volatile. See “Risk Factors – Risks Related to the Market for the Company’s Common Stock - Since the Company’s common stock is traded on the OTC Pink Sheets, an active, liquid trading market for the Company’s common stock may not develop or be sustained. If and when an active market develops the price of the Company’s common stock may be volatile.” |
| |
●
|
We may authorize and issue shares of new classes of stock that could
be superior to or adversely affect you as a holder of the Company’s common stock. See “Risk Factors – Risks Related
to the Market for the Company’s Common Stock - The Company’s Board of Directors may authorize and issue shares of new classes
of stock that could be superior to or adversely affect you as a holder of the Company’s common stock.”
|
| |
|
|
| |
● |
There is a limited public market for the Company’s common stock.
See “Risk Factors – Risks Related to the Market for the Company’s Common Stock - There is a limited public market for
the Company’s common stock.” |
| |
|
|
| |
● |
We may, in the future, issue additional common
shares, which would reduce investors’ percent of ownership and may dilute the Company’s share value. See “Risk Factors
– Risks Related to the Market for the Company’s Common Stock - We may, in the future, issue additional common shares, which
would reduce investors’ percent of ownership and may dilute the Company’s share value.” |
| |
● |
The trading price of the Company’s common stock is likely to be volatile, which could result in substantial losses to investors. See “Risk Factors – Risks Related to the Market for the Company’s Common Stock - The trading price of the Company’s common stock is likely to be volatile, which could result in substantial losses to investors. |
| ● | We are subject to the penny stock rules, which will make
shares of the Company’s common stock more difficult to sell. See “Risk Factors – Risks Related to the Market for the
Company’s Common Stock - We are subject to the penny stock rules, which will make shares of the Company’s common stock more
difficult to sell.” |
| ● | Shares of the Company’s common stock that have not
been registered under federal securities laws are subject to resale restrictions imposed by Rule 144, including those set forth in Rule
144(i) which apply to a former “shell company.” See “Risk Factors – Risks Related to the Market for the Company’s
Common Stock - Shares of the Company’s common stock that have not been registered under federal securities laws are subject to
resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which apply to a former “shell company.” |
| ● | There is no assurance that we will be able to pay dividends
to the Company’s shareholders, which means that you could receive little or no return on your investment.” See “Risk
Factors – Risks Related to the Market for the Company’s Common Stock - There is no assurance that we will be able to pay
dividends to the Company’s shareholders, which means that you could receive little or no return on your investment. |
Cash Transfer within our Organization
EUBG is permitted to transfer cash as a loan and/or
capital contribution to the HK subsidiary for its operations and the HK subsidiary is permitted to transfer cash as a loan and/or capital
contribution to the PRC subsidiary for capital investment and company operations. For instance, the PRC subsidiary will use the cash to
pay for their daily business operations. The PRC subsidiary in China is the main operating company to earn revenue.
Current investments in Chinese companies, which
are governed by the Foreign Investment Law, and the dividends and distributions from our PRC subsidiary are subject to regulations and
restrictions on dividends and payment to parties outside of China are subject to restrictions. The principal regulations governing the
distribution of dividends paid by WFOEs include the Company Law of PRC, and the Foreign Investment Law. According to the Foreign Investment
Law of the People’s Republic of China and its implementing rules, which jointly established the legal framework for the administration
of foreign-invested companies, a foreign investor may, in accordance with other applicable laws, freely transfer into or out of China
its contributions, profits, capital earnings, income from asset disposal, intellectual property rights, royalties acquired, compensation
or indemnity legally obtained, and income from liquidation, made or derived within the territory of China in RMB or any foreign currency,
and any entity or individual shall not illegally restrict such transfer in terms of the currency, amount and frequency. Under these regulations,
our PRC subsidiary in China may pay dividends only out of its accumulated profits, if any, as determined in accordance with PRC accounting
standards and regulations. In addition, our PRC subsidiary in China is required to set aside at least 10% of its after-tax profits based
on PRC accounting standards each year to its general reserves until its cumulative total reserve funds reach 50% of its registered capital.
These reserve funds, however, may not be distributed as cash dividends. A PRC company is not permitted to distribute any profits until
any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable
profits from the current fiscal year. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal
in the PRC, up to the amount of net assets held in each operating subsidiary. In contrast, there is presently no foreign exchange control
or restrictions on capital flows into and out of Hong Kong. Hence, our Hong Kong subsidiary is able to transfer cash without any limitation
to the United States under normal circumstances.
Renminbi, or RMB, is not freely convertible
into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiary to use their potential
future RMB revenues to pay dividends to us. The Chinese government imposes controls on the convertibility of RMB into foreign currencies
and, in certain cases, the remittance of currency out of China. Shortages in availability of foreign currency may then restrict the ability
of our PRC subsidiary to remit sufficient foreign currency to our offshore entities for those offshore entities to pay dividends or make
other payments or otherwise to satisfy our foreign-currency-denominated obligations. RMB is currently convertible under the “current
account,” which includes dividends and trade- and service-related foreign exchange transactions, but not under the “capital
account,” which includes foreign direct investment and foreign debt (which may be denominated in foreign currency or RMB), including
loans we may secure for our PRC subsidiary. Currently, our PRC subsidiary may purchase foreign currency for settlement of current account
transactions, including payment of dividends to us, without the approval of the State Administration of Foreign Exchange of China (SAFE)
by complying with certain procedural requirements. However, the relevant Chinese governmental authorities may limit or eliminate our
ability to purchase foreign currencies in the future for current account transactions. The Chinese government may continue to strengthen
its capital controls, and additional restrictions and substantial vetting processes may be instituted by SAFE for cross-border transactions
falling under both the current account and the capital account. Any existing and future restrictions on currency exchange may limit our
ability to utilize revenue generated in RMB to fund our business activities outside of China or pay dividends in foreign currencies to
holders of our securities. Foreign exchange transactions under the capital account remain subject to limitations and require approvals
from, or registration with, SAFE and other relevant Chinese governmental authorities. This could affect our ability to obtain foreign
currency through debt or equity financing for our subsidiaries. See the risk factors discussed in the “Risk Factors” section
of this Amendment for a detailed discussion of the Chinese legal restrictions on the payment of dividends, our ability to transfer cash
within the Company and the potential for holders of the Company’s common stock to be subject to Chinese taxes on dividends paid
by us in the event we are deemed a Chinese resident enterprise for Chinese tax purposes.
To address persistent capital outflows and the
RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration
of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting
procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments.
The PRC government may continue to strengthen its capital controls and our PRC subsidiary’s dividends and other distributions may
be subject to tightened scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into foreign currencies
and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures
necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if the PRC subsidiary
incurs debt on its own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments.
In addition, the Enterprise Income Tax Law and
its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies
to non-PRC-resident enterprises unless reduced under treaties or arrangements between the PRC central government and the governments of
other countries or regions where the non-PRC resident enterprises are tax resident. Pursuant to the tax agreement between Mainland China
and the Hong Kong Special Administrative Region, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to
a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%. However, if the relevant tax authorities determine that our transactions
or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable
withholding tax in the future. Accordingly, there is no assurance that the reduced 5% withholding rate will apply to dividends received
by our Hong Kong subsidiary from our PRC subsidiary. This withholding tax will reduce the amount of dividends we may receive from our
PRC subsidiary.
Current PRC regulations permit our PRC subsidiary
to pay dividends to HK subsidiary only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards
and regulations. However, we cannot ensure that we will be able to comply with the PRC regulations in all respects in the future. If
we fail to comply with the PRC regulations, our ability to transfer cash and distribute earnings may be negatively affected, which could
materially and adversely affect our liquidity and our ability to fund and expand our business.
In February 2021, our PRC subsidiary distributed
$4.6 million (net of withholding tax at $517,120 charged at a rate of 10% of the declared dividend) to its holding parent, the HK subsidiary.
As long as meeting the above-mentioned requirements, there is no restriction or limitation to transfer dividends from our PRC subsidiary
to its Hong Kong parent company, and there is no restriction or limitation to transfer dividends from our Hong Kong subsidiary to its
US parent holding company. Since EUBG, the Nevada holding company, is not the direct parent company of the PRC subsidiary, EUBG and the
PRC subsidiary cannot make transfer to the other. We intend to keep any future earnings to finance the expansion of our business to our
subsidiaries, and we do not anticipate that any cash dividends will be paid in the foreseeable future from the HK subsidiary to EUBG,
and/or from EUBG to its shareholders. As of the date of this Amendment, other than the above stated $4.6 million cash dividends transferred
from our PRC subsidiary to our HK subsidiary for operation costs, no cash transfer or transfer of other assets (including dividends and
distribution) have occurred among EUBG, our Nevada holding company and its subsidiaries, either the HK subsidiary or the PRC subsidiary.
For more details for the withholding tax paid, see our audited consolidated financial statement for the year ended December 31, 2021.
Business Overview
EUBG is not a Chinese operating company but a
Nevada holding company. As a holding company with no material operations of our own, EUBG conducts all of its operations through its subsidiary
in China. Our current principal business activities are providing consulting services and sourcing and marketing services in China through
our PRC subsidiary with support from our HK subsidiary. Our PRC subsidiary provides services aimed at connecting businesses with e-commerce
platforms.
Our integrated service platform focuses on strategic
marketing and consulting, which include digital marketing consulting and KOL Training Related Services. The establishment of our platform
is to serve the digital marketing strategy needs of the start-up business companies and small-size companies. Our PRC subsidiary offers
our digital marketing on e-commerce solution plan to these companies in order for them to provide products to their customers. Our mission
is to help start-up companies and small-size companies and guide these companies’ founders in utilizing our digital marketing consulting
plan to reach their business goals. Our marketing consultation on e-commerce solution plan aim to bring online traffic and attention from
the markets for our customers to conduct their e-commerce and build their brands. Our customers are mainly private companies which need
digital marketing services for branding or engaging in e-commerce. Our KOL Training Related Services aims to help our customers become
a certified livestream sales talents as the market demand for livestream salespersons continues to grow with the changing retail and E-Commerce
environment and the arrival of 5G era.
As of June 30, 2022, we had twenty-eight (28)
full-time employees. Full-time positions include CEO, CFO, President, V.P., Product Department, Sales Department, Customers Services
Department, Administrative staffs, and Financial department. We anticipate adding approximately five additional employees in 2022 to
our Customer Services Department and Sales and Marketing Department.
Except for the seven (7) trademarks owned by the
PRC subsidiary, we do not own or control any intellectual property rights, such as patents, franchise or concessions, except the trademarks
owned by the PRC Subsidiary
We do not need any government approvals of principal
services.
Our main service is marketing consultancy, which
includes digital marketing consulting and KOL (Key Opinion Leaders) Training Related Services.
| |
A. |
Digital Marketing Consulting: |
Our PRC subsidiary provides a full range of services
(include consultancy, sourcing and marketing services) to assist our clients and customers in selling their products. With our professional
knowledge and practical experience, we use various marketing methods (e.g. KOL) to increase brand awareness in the local market and ultimately
drive sales. Our PRC subsidiary works outward from a client’s brand strategy and existing online assets to define the optimal digital
footprint for the brand.
Currently, our PRC subsidiary provides substantially
all of our marketing consulting services in conjunction with an e-commerce mobile application (“APP”) namely “Chuangyetianxia”.
Chuangyetianxia is developed by our related company (as described below in the Transactions with Related Parties), Xi’an Chuangyetianxia
Network Technology Co., Ltd. (“Xi’an CNT”), a limited liability company established in the Peoples’ Republic of
China (“PRC” or “China”).
Chuangyetianxia is an APP platform (“Platform”)
which offers a range of capabilities that connects sellers with buyers, for example wholesale companies and the end customers. It offers
users an interface to the supplier’s services/product catalogues.
Through our PRC subsidiary’s prior working
relationship with Xi’an CNT and our extensive experience with the Platform, we are able to provide our customers with customized
service and seamless integration of our customers’ APP to the Platform and assisting them in achieving a specific business objective
(e.g. end customer placed an order to buy a product or enroll a course). We are entitled to a fixed rate on revenue generated by our client
that are related to the scope of respective consultancy services upon client acceptance on the services provided.
In addition, our PRC subsidiary also provides
agency-based sourcing and digital marketing services to connect marketplace operators and merchants. Agency-based sourcing services represents
product procurement on behalf of the Platform. We recognize revenues from agency-based sourcing at a fixed rate on the value of goods
that are sourced and delivered to the ultimate customers by the merchants. Digital marketing services are provided to the Platform to
promote designated products or services through social medial influencers engaged by us. We are entitled to a fixed rate on the revenue
generated by the Platform that are related to the designated products or services.
For
the six months ended June 30, 2022 and 2021; and the years ended December 31, 2021 and 2020,
we derived services revenues of $1,504,658 and $2,752,683, $4,152,617 and $8,592,970, respectively,
through the APP platform, represented 73.4%, 96.4%, 73.7% and 93.5% of our total revenue.
In the future, our PRC subsidiary plans to expand
our marketing consulting services to include, but is not limited to: Diagnosing marketing strategy options, assisting in establishing
complete marketing system, positioning branding, branding image design and broadcasting, online and off-line sales channel setup, products
development plans, marketing model setup, choosing e-commerce platform, proposing digital marketing projects, enhancing e-commerce traffic,
and acting as sales agent for our clients, and business marketing training (marketing strategy, sales techniques, customer services, management
knowledges, e-commerce traffic generating, and KOL training etc.)
For
the six months ended June 30, 2022 and 2021; and the years ended December 31, 2021 and 2020,
we generated $1,775,636, $2,801,880, $ $4,376,237 and $8,881,715, respectively, from the
provision of Digital Consultation Services, represented 86.6%, 98.1%, 77.6% and 96.7% of
our total revenue.
| |
B. |
KOL (Key Opinion Leaders) Training Related Services |
The core advantage of Influencer Marketing (Influencer
Marketing) is the precise market positioning and exposure to tens of thousands of target audiences in a short period of time. According
to recent survey data conducted by ChiefMarketer, 75% of marketers adopt the strategy of online influencer marketing, and 43% of them
plan to increase their investment in this area in 2019 (Source: ChiefMarketer, https://www.chiefmarketer.com/majority-marketers-use-influencers-survey/).
Enterprises choose to cooperate with the brand and have a level of follower influence. The influencer then introduces and recommends those
companies products to their followers through creative video content on a social media platform on a professional platform.
An influencer has an excellent ability to generate
content, and enjoys creativity, content creation, and sharing audience. If influencers know their followers well, care about their feelings,
and know what content to post, it is more effective for the followers. If the influencers and the client’s branding match accurately,
the communication and cooperation between the two parties would work smoothly.
The word “influencer” as it is used
in China is broad and applies to people who are bloggers, online content creators, vloggers and live streamers, as well as traditional
celebrities. China has its own terminology to refer to an influencer marketing practitioner: key opinion leader (KOL) or “wang-hong,”
which is the romanization of the Mandarin pronunciation for “online celebrity.”
Chinese users behave differently when it comes
to taking advice. Instead of depending on search engines, Chinese users value advice from sources such as their peers, friends, bloggers
and celebrities also known as KOL (Key Opinion Leaders). Much like influencers in the Western world, KOLs are very crucial in the overall
digital marketing approach in China. An industry of “wang-hong incubators” or “KOL academies” is thriving to meet
the flood of KOL aspirants. Currently, our PRC subsidiary cooperates with third party live-broadcasting training agencies to coordinate,
recruit and enroll KOL students in various training programs in professional anchor quality. Such programs are able to qualify the trainees
to obtain anchor licenses/permits before they broadcast on the internet.
Currently, our PRC subsidiary provides digital
training related services to clients who are interested to conduct live-broadcasting business through social medias. We require the clients
to pay a pre-established fee in exchange for the services. Revenues are recognized when promised services (e.g. preliminary consulting
work, setting up of an e-learning account and delivery of learning materials) are delivered to the clients.
In addition, our PRC subsidiary also cooperates
with third party live-broadcasting training agencies to coordinate, recruit and enroll KOL students in various training programs in professional
anchor quality. Such programs are able to qualify the trainees to obtain anchor licenses/permits before they broadcast on the internet.
In this business, the third party live-broadcasting training agencies take the primarily responsibilities for providing the training programs
to the KOL students. Our services are to these live-broadcasting training agencies, which include but not limit to, recruiting and enrolling
KOL students and coordinating the schedule of training course teachers on behalf of the live-broadcasting training agencies. Our PRC subsidiary
generated consultancy services income directly from the live-broadcasting agencies based on the number of successful enrolled KOL students
recruited by us.
The future plan of our KOL Training Related Services
will include: Individual KOL training – providing training sites, positioning KOLs individually according to their personality and
appearance, languages and body languages training, one-on-one contents operation training, IP packaging, and their channel operation supporting.
We also work with our clients to provide the training classes in training their own potential KOL candidates.
For the six months ended June 30,2022 and
2021; and the years ended December 31, 2021 and 2020, we generated $274,236, $55,064, $1,261,159 and $305,308, respectively, from the
KOL Training Related Services, represented 13.4%, 1.9%, 22.4% and 3.3% of our total revenue.
Recent Development
For our digital training related services,
we worked with Beida Jade Bird Vocational Education (“Jade Bird”) which was an authorized licensee of China National Personal
Talent Training Network (“CNPTTN”), a PRC regulatory agency for the talent training. Jade Bird was in charge of its training
courses, and the Company was authorised by Jade Bird as its sole training related administrator of the training courses, limited to coordinate
the digital training related services to individual clients who were interested in conducting live-broadcasting business through social
medias. The Company provided training related services, to these individual clients who subscribed courses, in arranging the examination,
following up certificate issuance processes, addressing clients’ concerns, etc. On March 22, 2022, the PRC subsidiary learned that
Jade Bird suspended its service after receiving a notice from CNPTTN that until further notice CNPTTN has suspended all recruitment services
using its CNPTTN’s name. As a result of CNPTTN’s suspension, the PRC subsidiary has also suspended its digital training related
services with Jade Bird from March 22, 2022 until further notice. For the six months ended June 30, 2022 and 2021, the digital training
related services with Jade Bird represented 13% and 0% of our total revenue, or $272,962 and $0, respectively. For the three months ended
June 30, 2022 and 2021, the digital training related services with Jade Bird were nil. As of the date of this Amendment, there is no
further notice from CNPTTN and the service is still being suspended.
Our Strategy
We, through our PRC subsidiary, has extensive
experience with the “Chuangyetianxia” Platform that allow us to provide marketing consulting services to our customers leveraging
the Platform to quickly increase customer traffic to our client’s products and services. We consider Xi’an CNT a related party
as it is substantially owned and controlled by the wife and relatives of Mr. Tao Guolin, our chairman, executive officer and majority
shareholder.
We also cooperate with third party live-broadcasting
training agencies to coordinate, recruit and enroll KOL students in various training programs in professional anchor quality.
Our business objective is to generate revenues
based on providing our digital marketing consultation and to maintain and grow ultimate user group for our clients.
Our target market is the start-up and small-size
companies mainly situation in China which needs to upgrade their traditional marketing plan to digital marketing and establishing their
brand names and exploit products market in the digital world and specified target audiences.
We seek to leverage our marketing management’s
experience to expand our consumer base, starting with start-ups and small-size corporate clients. Our customers are from different market
sectors including but not limited to online education, biotechnology, health care products, and agriculture technology products.
Potential competitors
Our China subsidiary is operating in a highly
competitive consulting market, from both existing competitors and new market entrants. Our main competitors include: Soplan (索象),
Han-Consulting (汉哲), Osens (欧赛斯)，Bayii (倍壹), Huayuhua (华与华)，SEMTIME,
and Caina (采纳).
However, to our knowledge, none of these consulting
companies are providing the services that integrates customers’ APPS to other APP platform likes we do. We provide our marketing
consultation services to our customers by introducing and assisting them with integrating their APPs with and into the Chuangyetianxia.
We leverage Chuangyetianxia Platform and active users to save the time and efforts of our customers to build up their own users base.
Our customers are able to attract traffic to their APPs by simply applying and adapting to Chuangyetianxia Platform. In addition, Xi’an
CNT is able to generate more traffic from the existing users of our customers. This model that we created is a win-win solution for our
customers and to Xi’an CNT.
Those competitors are not using the methods to
connect different APPs together to bring cross-traffics to each other’s platforms. Though we believe that we are the pioneer in
using this strategy, these competitors may adopt the same method for their clients.
| 2 | See
page 64 of the above report |
Our Challenges with Having Operations in China
Entrepreneur Universe Bright Group is a Nevada
holding company that conducts substantially all of its operations and business in China through its PRC subsidiary. Such structure involves
unique risks to investors in the Company’s common stock. For a detailed description of the risk, see “Risk Factors”,
including the risks described under the subsections headed “Risks Related to Our Business and Industry”, “Risks associated
with doing business in China” and “Risks Related to the Market for the Company’s Common Stock”. In particular,
as we are a China-based company incorporated in Nevada, we face various legal and operational risks and uncertainties related to being
based in and having substantially all of our operations in China. The PRC government has significant authority to exert influence on
the ability of a China-based company, such as us, to conduct its business, accept foreign investments or list on an U.S. or other foreign
exchanges. For example, we face risks associated with regulatory approvals of offshore offerings, anti-monopoly regulatory actions, oversight
on cybersecurity and data privacy, as well as the lack of PCAOB inspection on our auditors. Such risks could result in a material change
in our operations and/or the value of the Company’s common stock or could significantly limit or completely hinder our ability
to offer or continue to offer the Company’s common stock and/or other securities to investors and cause the value of such securities
to significantly decline or be worthless. The PRC government also has significant oversight and discretion over the conduct of our business
and our operations may be affected by evolving regulatory policies as a result. The PRC government has recently published new policies
that significantly affected certain industries, and we cannot rule out the possibility that it will in the future release regulations
or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore,
the PRC government has recently indicated an intent to exert more oversight and control over overseas securities offerings and other
capital markets activities and foreign investment in China-based companies like us. These risks could result in a material change in
our operations and the value of the Company’s common stock, or could significantly limit or completely hinder our ability to offer
or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless. You
should pay special attention to the subsection headed “Risks associated with doing business in China” below.
Key Factors that Affect Operating Results
We believe the following key factors may affect
our financial condition and results of operations:
Our success depends on our ability to acquire
clients effectively
Our ability to increase our revenue largely depends
on our ability to attract and engage potential clients. Our sales and marketing efforts include those related to client acquisition and
retention, and general marketing. We intend to continue to dedicate significant resources to our sales and marketing efforts and constantly
seek to improve the effectiveness of these efforts to grow our revenues.
Our client acquisition channels primarily include
our sales and marketing campaigns and existing client referrals. In order to acquire clients, we have made significant efforts in building
mutually beneficial long-term relationships with local government and local business associations. In addition, we also market our services
through the influence of our founder and CEO, Mr. Guolin Tao, who is a well-known entrepreneur in China. If any of our current client
acquisition channels becomes less effective, or if we are unable to continue to use any of these channels, we may not be able to attract
new clients in a cost-effective manner or convert potential clients into active clients and may even lose our existing clients to our
competitors. To the extent that our current client acquisition and retention efforts becomes less effective, our service revenue may be
significantly impacted, which would have a significant adverse effect on our revenues, financial condition and results of operations.
Our operations for the six months ended
June 30, 2022 and 2021; and the years ended December 31, 2021 and 2020 depends on certain major customers
For the six months ended June 30, 2022, the
customers for our PRC subsidiary that constitutes a greater-than ten percent (10%) contribution to net revenues is Zhongchuang Boli Technology
Holdings Co., Ltd. (41%).
For the six months ended June 30, 2021, the
customers for our PRC subsidiary that constitutes a greater-than ten percent (10%) contribution to net revenues are Beijing Borui Siyuan
Network Technology Co., Ltd. (39%), Shangxi Dachun Culture Communication Ltd. (26%), and Beijing Energy Time Education Technology Co.,
Ltd. (16%) and Zhejiang Chenkai Technology Co., Ltd. (10%).
For the year ended December 31, 2021, the
customers for our PRC subsidiary that constitutes a greater-than ten percent (10%) contribution to net revenues are Beijing Borui Siyuan
Network Technology Co., Ltd. (26%), Shangxi Dachun Culture Communication Ltd. (18%), and Beijing Energy Time Education Technology Co.,
Ltd. (13%).
For the year ended December 31, 2020, the customers
for our PRC subsidiary that constitutes a greater-than ten percent (10%) contribution to net revenues are Beijing Borui Siyuan Network
Technology Co., Ltd. (54%) and Shangxi Dachun Culture Communication Ltd (17%).
Based on the service agreement with these customers,
we assist our customer in launching their products into the Platform and providing operation support services to them. Our service fee
is determined at a mutually agreed rate by reference to the monthly sales of our customers’ products. Our customers are required
to settle the service fee in accordance with the predetermined settlement period (e.g. weekly or monthly) in the agreement. The duration
of these service agreements are normally 1-3 years. No renewal term is included in the agreement as this will be determined by our management
on a case-by-case basis.
Our PRC subsidiary is currently in the process
of diversifying our customers to attract more customers other than doing online education business. There is a risk to our revenue in
case these major customers decided to terminate the services with us which will significantly harm our business.
A severe or prolonged slowdown in the global
or Chinese economy could materially and adversely affect our business and our financial condition.
The rapid growth of the Chinese economy has slowed
down since 2012 and such slowdown may continue in the future. There is considerable uncertainty over the trade conflicts between the United
States and China and the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial
authorities of some of the world’s leading economies, including the United States and China; the withdrawal of these expansionary
monetary and fiscal policies could lead to a contraction. There continue to be concerns over unrest and terrorist threats in the Middle
East, Europe, and Africa, which have resulted in volatility in oil and other markets. There are also concerns about the relationship among
China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes. The eruption
of armed conflict could adversely affect global or Chinese discretionary spending, either of which could have a material and adverse effect
on our business, results of operation in financial condition. Economic conditions in China are sensitive to global economic conditions,
as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any
severe or prolonged slowdown in the global or Chinese economy would likely materially and adversely affect our business, results of operations
and financial condition. In addition, continued turbulence in the international markets may adversely affect our ability to access capital
markets to meet liquidity needs.
Our services depend on our ability to retain
our cooperation with Xi’an CNT
A significant portion of our PRC subsidiary’s
revenues are generated from our PRC subsidiary’s marketing consulting services that relies on an e-commerce APP known as “Chuangyetianxia”.
The APP is developed by our related company, Xi’an CNT, which offers a range of capabilities that connects sellers with buyers,
for example wholesale companies and the end customers. It offers users an interface to the supplier’s services/product catalogues.
Through our PRC subsidiary’s prior working
relationship with Xi’an CNT and our extensive experience with the Platform, we are able to provide our customers with customized
service and seamless integration of our customers’ APP to the Platform and assisting them in connecting with the Platform and assisting
them in achieving a specific business objective (e.g. end customer placed an order to buy a product or enroll a course). We are entitled
to a fixed rate on revenue generated by our client that are related to the scope of respective consultancy services upon client acceptance
on the services provided.
In addition, we, through our PRC subsidiary, also
provide agency-based sourcing and digital marketing services to connect marketplace operators and merchants. Agency-based sourcing services
represents product procurement on behalf of the Platform. We recognize revenues from agency-based sourcing at a fixed rate on the value
of goods that are sourced and delivered to the ultimate customers by the merchants. Digital marketing services are provided to the Platform
to promote designated products or services through social medial influencers engaged by us. We are entitled to a fixed rate on the revenue
generated by the Platform that are related to the designated products or services.
For the six months ended June 30, 2022 and
2021; and the years ended December 31, 2021 and 2020, we derived services revenues of $$1,504,658 and $2,752,683, $4,152,617 and $8,592,970,
respectively, through the APP platform, represented 73.4%, 96.4%, 73.7% and 93.5% of our total revenue. In case Xi’an CNT suspends
the Platform, or the normal operation of the Platform is disrupted, or our customers are denied access to the Platform, our revenue will
be significantly affected.
The impact from COVID-19 could materially
and adversely affect our business and our financial condition.
In early January of 2020, a novel coronavirus
(“COVID-19”) outbreak took place in Wuhan, China. Subsequently, it has spread rapidly to Asia and other parts of the world.
The COVID-19 outbreak has resulted in widespread economic disruptions in China, as well as stringent government measures by the Chinese
government to contain its transmissions including quarantines, travel restrictions, and temporary closures of non-essential businesses
in China and elsewhere. The outbreak in China mainly occurred in the first quarter of 2020, and it gradually stabilized and business activities
started to resume under the guidance and support of the government since late second quarter of 2020.
As of December 31, 2020, the COVID-19 outbreak
in China appears to be generally under control and business activities have recovered on the whole. In addition, we resumed contacting
potential customers as of June 2020, and the aforementioned negative impact has been further mitigated since the third quarter of 2020,
when the outbreak became more stabilized in China and other regions in the world. However, sporadic cases continue to be found during
the first half year of 2021 in China. For example, a new Delta variant of COVID-19 had been found in certain cities in China in the second
quarter of 2021, which may cause another outbreak, thus increasing risks and possible further disruption to businesses. Therefore, certain
of our consulting services were suspended from April 2021 to August 2021. We have resumed these consulting businesses from August 2021
in order to maintain diversified services for our customers.
As of June 30, 2022, the COVID-19 pandemic
continues to be dynamic, and near-term challenges across the economy remain. Although vaccines are now being distributed and administered
across many parts of the world, new variants of the virus have emerged and may continue to emerge that have shown to be more contagious.
We continue to adhere to applicable governmental and commercial restrictions and to work to mitigate the impact of COVID-19 on our employees,
customers, communities, liquidity and financial position. The extent to which the COVID-19 outbreak may impact the company’s business,
operations and financial results from this point forward will depend on numerous evolving factors that the company cannot accurately
predict. Those factors include the following: the duration and scope of the pandemic; governmental, business and individuals’ actions
in response to the pandemic in the future; and any other further development of the COVID-19 outbreak.
Substantially all of the Company’s revenues
and operations are concentrated in China. Consequently, our results of operations and financial performances have been affected since
2020 and into the first quarter of 2022. Due to the government measures taken to contain COVID-19, the offline activities of the Company’s
PRC subsidiary were restricted from late January to May 2020, resulting in cancellations or postponements of the marketing efforts of
our customers. In addition, due to widespread economic disruptions during the outbreak, demand for the Company’s consulting services
by small and medium-sized enterprises were also adversely affected. Specifically, as a result of government mandated closures of non-essential
business in China, many of the Company’s customers’ business were suspended while others permanently closed their businesses.
From December 22, 2021 to January 24, 2022, Xian city, the PRC, went into lockdown following a coronavirus outbreak that officials attributed
to the delta variant. From April 16, 2022 to April 19, 2022, the city was under temporary controls of social activities after reporting
more than 40 infections in half month. This affected both the Company’s digital marketing consulting services and our KOL Training
Related Services.
Holding Company Structure
Entrepreneur Universe Bright Group is a Nevada
holding corporation and we conduct substantially all of our operations through our Hong Kong and PRC subsidiary. As a result, our ability
to pay dividends and to service any debt we may incur overseas largely depends upon dividends paid by our PRC subsidiary. If our PRC subsidiary
incurs debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
In addition, our PRC subsidiary is permitted
to pay dividends to us only out of their retained earnings, if any, as determined in accordance with the Accounting Standards for Business
Enterprise as promulgated by the Ministry of Finance of the PRC, or the PRC GAAP. The aggregate distributable retained earnings for our
PRC subsidiary as determined under the Accounting Standards for Business Enterprise were RMB 31 million, RMB24 million and RMB42 million
as of June 30, 2022, December 31, 2021 and 2020, respectively. Pursuant to the laws and regulations applicable to China’s foreign
investment enterprises, our subsidiary that is foreign investment enterprise in the PRC has to make appropriation from their after-tax
profit, as determined under PRC GAAP, to reserve funds including (i) general reserve fund, (ii) enterprise expansion fund and (iii) staff
bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in
accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of our subsidiary.
As of the date of this Amendment, our PRC subsidiary has contributed 50% of the registered capital to general reserve fund. Appropriation
to the other two reserve funds are at our subsidiary’s discretion. Our PRC subsidiaries did not make any contributions to the enterprise
expansion fund or the staff and bonus welfare fund during each period presented. The restricted amounts of our PRC subsidiary totaled
RMB457,499 (US$65,911) as of June 30, 2022, December 31, 2021 and December 31, 2020, respectively. See “Governmental Regulation
in relation to Company’s business - Regulations related to Dividend Distribution”.
In February 2021, our PRC subsidiary, distributed
USD4.6 million (net of withhold tax at USD517,120 charged at a rate of 10% of the declared dividend) to its holding parent Hong Kong
subsidiary. As long as meeting the above-mentioned requirements and the foreign exchange requirements, there is no restriction or limitation
to transfer dividends for our China subsidiary to its Hong Kong parent company, and there is no restriction or limitation to transfer
dividends for our Hong Kong subsidiary to its US parent holding company.
Recent Regulatory Developments
Draft Cybersecurity Measures
On December 28, 2021, the Cyberspace Administration
of China published the Measures for Cybersecurity Review (2021), which became effective on February 15, 2022 and replace the current
Measures for Cybersecurity Review promulgated on April 13, 2020. The Measures for Cybersecurity Review (2021) specifies that the procurement
of network products and services by operator of critical information infrastructure and the activities of data process carried out by
Internet platform operator that raise or may raise “national security” concerns are subject to strict cyber security review
by Cybersecurity Review Office established by the CAC. Before a critical information infrastructure operator purchases internet products
and services, it should assess the potential risk of national security that may be caused by the use of such products and services. If
such use of products and services may give raise to national security concerns, it should apply for a cyber security review by the Cybersecurity
Review Office and a report of analysis of the potential effect on national security shall be submitted when the application is made.
In addition, Internet platform operators that possess the personal data of over one million users must apply for a review by the Cybersecurity
Review Office, if they plan to list their companies in foreign countries. The CAC may voluntarily conduct cyber security review if any
network products and services and activities of data process affects or may affect national security. It may take approximately 70 business
days in maximum for the general cybersecurity review upon the delivery of their applications, which may be subject to extensions for
a special review. We will not be subject to cybersecurity review with the CAC under the Measures for Cybersecurity Review (2021), on
the basis that (i) we currently do not have over one million users’ personal information and do not anticipate that we will be
collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise subject
us to the Measures for Cybersecurity Review (2021); (ii) our PRC subsidiary’s business operations do not involve any Critical Information
Infrastructure, and (iii) neither we nor the PRC subsidiary has received any notification from applicable PRC governmental authorities
indicating that any of the PRC subsidiary’s products or services is determined as the Critical Information Infrastructure.
In addition, on November 14, 2021, the Administration
Regulations on Cyber Data Security (Draft for Comments) (《网络数据安全管理条例（征求意见稿）》
) (the “Draft Regulation”) was proposed by the CAC for public comments until December 13, 2021. The Draft Regulation
stipulates that data processors which process the personal information of at least one million users must apply for a cybersecurity review
if they plan to list their companies in foreign countries, and the Draft Regulation further require the data processors that carry out
the following activities to apply for cybersecurity review in accordance with the relevant laws and regulations: (i) the merger, reorganization
or division of internet platform operators that have gathered a large number of data resources related to national security, economic
development and public interests affects or may affect national security; (ii) the listing of the data processor in Hong Kong affects
or may affect the national security; and (iii) other data processing activities that affect or may affect national security. Any failure
to comply with such requirements may subject us to, among others, suspension of services, fines, revoking relevant business permits or
business licenses and penalties. As advised by our PRC legal counsel, since the CAC is still seeking comments on the Draft Regulation
from the public as of the date of the Amendment, the Draft Regulation (especially its operative provisions) and its anticipated adoption
or effective date are subject to further changes with substantial uncertainty.
As the Measures for Cybersecurity Review (2021)
and the Draft Regulation are newly published, the exact scope of “critical information infrastructure operators” and “data
processing operators” under the draft measures and the current regulatory regime remains unclear, and the PRC government authorities
may have wide discretion in the interpretation and enforcement of these laws. Currently, the Measures for Cybersecurity Review (2021)
and the Draft Regulation have not materially affected our business and operations, but in anticipation of the strengthened implementation
of cybersecurity laws and regulations and the continued expansion of our business, our PRC subsidiary faces potential risks if we are
deemed as a critical information infrastructure operator or data processing operator under the PRC cybersecurity laws and regulations.
In such case, we must fulfill certain obligations as required under the PRC cybersecurity laws and regulations, including, among others,
storing personal information and other important data collected and produced within the PRC territory as part of our operations in China
(as we currently do in our operations), and we may be subject to lengthy cybersecurity review and other enhanced regulatory requirements
when purchasing internet products and services or conducting data processing activities. We may face challenges in addressing such enhanced
regulatory requirements and make necessary changes to our internal policies and practices in data privacy and cybersecurity matters. See
“Risk Factors — Risks Related to Our Business and Industry — We may be liable for improper
collection, use or appropriation of personal information provided by our customers” and “Risk Factors — Risks
associated with doing business in China — Uncertainties exist with respect to the enactment timetable, interpretation
and implementation of the laws and regulations with respect to our online platform business operation.”
As of the date of this filing of the Amendment,
our operating subsidiaries have not been involved in any investigations on cybersecurity review initiated by the Cyberspace Administration
of China based on the draft measures, and we have not received any inquiry, notice, warning, sanctions in such respect or any regulatory
objections to this registration. As of the date of this Amendment, recent regulatory actions by China’s government related to data
security or anti-monopoly have not materially impacted our ability to conduct our business, accept foreign investments or list on a U.S.
or other foreign exchanges. Based on existing PRC laws and regulations, as advised by our PRC legal counsel, neither we nor our subsidiaries
are currently subject to any pre-approval requirement from the CAC to operate our business or conduct this registration, subject to PRC
government’s interpretation and implementation of the Measures for Cybersecurity Review (2021) and the Draft Regulation after it
takes effect. However, we cannot assure you that relevant PRC government agencies, including the CAC, would reach the same conclusion
as we do or as advised by our PRC legal counsel.
Licenses, Permits
and Government Regulations
PRC Legal System
The PRC legal system
is a civil law system based on the PRC Constitution and is made up of written laws, regulations and directives. Unlike in the US where
the law built partly upon decisions of common law cases, court cases in the PRC do not constitute binding precedents. The governmental
directives are organized in the following hierarchy.
The National People’s
Congress of the PRC (“NPC”) and the Standing Committee of the NPC are empowered by the PRC Constitution to exercise the legislative
power of the state. The NPC has the power to amend the PRC Constitution and to enact and amend primary laws governing the state organs
and civil and criminal matters. The Standing Committee of the NPC is empowered to interpret, enact and amend laws other than those required
to be enacted by the NPC.
The State Council of
the PRC is the highest organ of state administration and has the power to enact administrative rules and regulations. Ministries and commissions
under the State Council of the PRC are also vested with the power to issue orders, directives and regulations within the jurisdiction
of their respective departments. Administrative rules, regulations, directives and orders promulgated by the State Council and its ministries
and commissions must not be in conflict with the PRC Constitution or the national laws and, in the event that any conflict arises, the
Standing Committee of the NPC has the power to annul such administrative rules, regulations, directives and orders.
At the regional level,
the people’s congresses of provinces and municipalities and their standing committees may enact local rules and regulations and
the people’s government may promulgate administrative rules and directives applicable to their own administrative area. These local
laws and regulations may not be in conflict with the PRC Constitution, any national laws or any administrative rules and regulations promulgated
by the State Council.
Rules, regulations or
directives may be enacted or issued at the provincial or municipal level or by the State Council of the PRC or its ministries and commissions
in the first instance for experimental purposes. After sufficient experience has been gained, the State Council may submit legislative
proposals to be considered by the NPC or the Standing Committee of the NPC for enactment at the national level.
Governmental Regulations in Relation to our
Businesses
This section set forth a summary of the principal
PRC laws and regulations relevant to our business and operations in China.
Regulations Related to Foreign Investment
Guidance Catalogue of Industries for Foreign
Investment
Investment activities in the PRC by foreign investors
are principally governed by the Guidance Catalogue of Industries for Foreign Investment, or the Guidance Catalog, which was
promulgated and is amended from time to time by Ministry of Commerce, or MOFCOM, and the National Development and Reform Commission, or
NDRC. The Guidance Catalog lays out the basic framework for foreign investment in China, classifying businesses into three categories
with regard to foreign investment: “encourage,” “restricted” and “prohibited.” Industries not listed
in the catalog are generally deemed as falling into a fourth category “permitted” unless specifically restricted by other
PRC laws.
In addition, in June 2018 the MOFCOM and the
NDRC promulgated the Special Management Measures (Negative List) for the Access of Foreign Investment, or the Negative List,
which became effective on July 28, 2018 and was further updated on June 30, 2019, June 23, 2020 and December 27, 2021.
Foreign Investment Law
On March 15, 2019, the
National People’s Congress approved the Foreign Investment Law of the PRC, or the Foreign Investment Law, which
came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign
Equity Joint Venture Enterprise Law of the PRC, the Sino-foreign Cooperative Joint Venture Enterprise Law of the PRC and
the Wholly Foreign-invested Enterprise Law of the PRC, together with their implementation rules and ancillary regulations.
The organization form, organization and activities of foreign-invested enterprises shall be governed, among others, by the PRC
Company Law and the PRC Partnership Enterprise Law. Foreign-invested enterprises established before the implementation
of the Foreign Investment Law may retain the original business organization and so on within five years after the implementation of this
Law.
The Foreign Investment
Law is formulated to further expand opening-up, vigorously promote foreign investment and protect the legitimate rights and interests
of foreign investors. According to the Foreign Investment Law, foreign investments are entitled to pre-entry national treatment and are
subject to negative list management system. The pre-entry national treatment means that the treatment given to foreign investors and their
investments at the stage of investment access shall not be less favorable than that of domestic investors and their investments. The negative
list management system means that the state implements special administrative measures for access of foreign investment in specific fields.
Foreign investors’
investment, earnings and other legitimate rights and interests within the territory of China shall be protected in accordance with the
law, and all national policies on supporting the development of enterprises shall equally apply to foreign-invested enterprises. Among
others, the state guarantees that foreign-invested enterprises participate in the formulation of standards in an equal manner and that
foreign-invested enterprises participate in government procurement activities through fair competition in accordance with the law. Further,
the state shall not expropriate any foreign investment except under special circumstances. In special circumstances, the state may levy
or expropriate the investment of foreign investors in accordance with the law for the needs of the public interest. The expropriation
and requisition shall be conducted in accordance with legal procedures and timely and reasonable compensation shall be given. In carrying
out business activities, foreign-invested enterprises shall comply with relevant provisions on labor protection.
The Implementation Regulations of Foreign
Investment Law of the PRC, adopted by the State Council on December 26, 2019 and came into effect on January 1, 2020, provides implementing
measures and detailed rules to ensure the effective implementation of the Foreign Investment Law.
Regulations Related to Mobile Internet Applications
Information Services
Mobile Internet applications and application stores
are specifically regulated by the Administrative Provisions on Mobile Internet Applications Information Services, or the App
Provisions, which were promulgated by the Cyberspace Administration of China, or the CAC, on June 28, 2016, and became effective on August
1, 2016. Pursuant to the App Provisions, application information service providers shall obtain the relevant qualifications prescribed
by laws and regulations, strictly implement their information security management responsibilities and carry out certain duties, including
establishing and completing user information security protection mechanism and information content inspection and management mechanisms,
protect users’ right to know and to choose in the process of usage, and to record and preserve users’ daily usage information
for at least 60 days. Furthermore, internet application store service providers and internet application information service providers
shall sign service agreements to determinate both sides’ rights and obligations.
In addition, on December 16, 2016, the MIIT promulgated
the Interim Measures on the Administration of Pre-Installation and Distribution of Applications for Mobile Smart Terminals,
or the App Interim Measures, which took effect on July 1, 2017. The App Interim Measures requires, among others, that internet information
service providers must ensure that a mobile application, as well as its ancillary resource files, configuration files and user data can
be uninstalled by a user on a convenient basis, unless it is a basic function software, which refers to a software that supports the normal
functioning of hardware and operating system of a mobile smart device.
Neither the App Provisions nor the App Interim
Measures, however, has further clarified the scope of “information services,” neither do they specify what “relevant
qualification(s)” that an app owner/operator must obtain. In practice, operational activities of a company conducted through an
app is currently subject to the supervisions of local departments of the Information Communications Administration, and often, the local
departments differentiate the operational activities conducted through websites and through apps.
As of date of this Amendment, we have not
received any inquiry or notice from the PRC government concerning our compliance of such regulations. However, there can be no assurance
that the PRC government will ultimately take a view that is consistent with ours.
Regulations Related to Online Transmission
of Audio-Visual Programs
On April 13, 2005, the State Council promulgated
the Certain Decisions on the Entry of the Non-state-owned Capital into the Cultural Industry. On July 6, 2005, five PRC governmental
authorities, including the Ministry of Culture, or the MOC, the State Administration of Radio, Film and Television, or the SARFT (the
predecessor of the National Radio and Television Administration, or NRTA), the General Administration of Press and Publication, or the
GAPP, the China Securities Regulatory Commission, or the CSRC and the MOFCOM, jointly adopted the Several Opinions on Canvassing
Foreign Investment into the Cultural Sector. Under these provisions, non-state owned capital and foreign investors are prohibited
from engaging in the business of distributing audio-visual programs through information networks.
To further regulate the provision of audio-visual
program services to the public via the internet, including through mobile networks, within the territory of the PRC, the SARFT and the
MIIT jointly promulgated the Administrative Provisions on Internet Audio-Visual Program Service, or the Audio-Visual Program
Provisions, on December 20, 2007, which took effect on January 31, 2008 and subsequently amended on August 28, 2015. Pursuant to the Audio-Visual
Program Provisions, Internet audio-visual program services refer to activities of making, redacting and integrating audio-visual programs,
providing them to the general public via the Internet, and providing platforms for uploading and spreading audio-visual programs. Providers
of internet audio-visual program services are required to obtain the Audio-Visual License issued by SARFT, or complete certain registration
procedures with SARFT. In general, providers of internet audio-visual program services must be either state-owned or state-controlled
entities, and the business to be carried out by such providers must satisfy the overall planning and guidance catalog for internet audio-visual
program service determined by SARFT. Our subsidiaries is neither state-owned nor state-controlled, therefore it is unlikely that it will
be able to obtain the Audio-Visual License if required to do so. Whoever engages in Internet audio-visual program service without the
license or registration, the competent authorities shall give it/him an admonition and order it/him to correct, and may impose a fine
of not more than RMB30,000 (approximately US$4,348); if the circumstances are serious, a punishment shall be imposed in accordance with
the provision of Article 47 of the Radio and Television Administration Regulation.
On May 21, 2008, SARFT issued a Notice
on Relevant Issues Concerning Application and Approval of License for the Online Transmission of Audio-Visual Programs, as amended
on August 28, 2015, which further set out detailed provisions concerning the application and approval process regarding the Audio-Visual
License. Further, on March 31, 2009, SARFT promulgated the Notice on Strengthening the Administration of the Content of Internet
Audio-Visual Programs, which reiterates the pre-approval requirements for the audio-visual programs transmitted via the internet,
including through mobile networks, where applicable, and prohibits certain types of internet audio-visual programs containing violence,
pornography, gambling, terrorism, superstition or other similarly prohibited elements.
On March 17, 2010, the SARFT issued the Internet
Audio-visual Program Services Categories (Provisional), or the Provisional Categories, as amended on March 10, 2017. According to
the Provisional Categories, there are four categories of internet audio-visual program services which are further divided into seventeen
sub-categories. The third sub-category to the second category covers the making and editing of certain specialized audio-visual programs
concerning, among other things, finance and educational content, and broadcasting such content to the general public online. However,
there are still significant uncertainties relating to the interpretation and implementation of the Audio-Visual Program Provisions, in
particular, the scope of “internet audio-visual programs”.
In addition, the Notice concerning Strengthening
the Administration of the Streaming Service of Online Audio-Visual Programs promulgated by the State Administration of Press
and Publication Radio, Film and Television, or the SAPPRFT (the predecessor of NRTA) on September 2, 2016 emphasizes that, unless a specific
license is granted, audio-visual programs service provider is forbidden from engaging in live streaming on major political, military,
economic, social, cultural and sports events. On November 4, 2016, the State Internet Information Office promulgated the Administrative
Provisions on Internet Live-Streaming Services, or Internet Live-Streaming Services Provisions, which came into effect on December
1, 2016. According to the Internet Live-Streaming Services Provisions, an internet live-streaming service provider shall (a) establish
a live-streaming content review platform; (b) conduct authentication registration of internet live-streaming issuers based on their identity
certificates, business licenses and organization code certificates; and (c) enter into a service agreement with internet live-streaming
services user to specify both parties’ rights and obligations.
On March 16, 2018, the SAPPRFT issued the Notice
on Further Regulating the Transmission Order of Internet Audio-Visual Programs, which requires that, among others, audio-visual platforms
shall: (i) not produce or transmit programs intended to parody or denigrate classic works, (ii) not re-edit, re-dub, re-caption or otherwise.
As of date of this Amendment, we have not received
any inquiry or notice from the PRC government concerning our compliance of such regulations. However, there can be no assurance that the
PRC government will ultimately take a view that is consistent with ours.
Regulation on Information Protection on Networks
On December 28, 2012, SCNPC issued Decision of
the Standing Committee of the National People’s Congress on Strengthening Information Protection on Networks, pursuant to which
network service providers and other enterprises and institutions shall, when gathering and using electronic personal information of citizens
in business activities, publish their collection and use rules and adhere to the principles of legality, rationality and necessarily,
explicitly state the purposes, manners and scopes of collecting and using information, and obtain the consent of those from whom information
is collected, and shall not collect and use information in violation of laws and regulations and the agreement between both sides; and
the network service providers and other enterprises and institutions and their personnel must strictly keep such information confidential
and may not divulge, alter, damage, sell, or illegally provide others with such information.
On July 16, 2013, the Ministry of Industry and
Information Technology, or the MIIT, issued the Provisions on the Protection of Personal Information of Telecommunication and Internet
User, which was effective as of September 1, 2013. The requirements under this order are stricter and wider compared to the above decision
issued by the National People’s Congress. According to the provisions, if a network service provider wishes to collect or use personal
information, it may do so only if such collection is necessary for the services it provides. Furthermore, it must disclose to its users
the purpose, method and scope of any such collection or usage, and must obtain consent from the users whose information is being collected
or used. Network service providers are also required to establish and publish their protocols relating to personal information collection
or usage, keep any collected information strictly confidential and take technological and other measures to maintain the security of such
information. Network service providers are required to cease any collection or usage of the relevant personal information, and provide
services for the users to de-register the relevant user account, when a user stops using the relevant Internet service. Network service
providers are further prohibited from divulging, distorting or destroying any such personal information, or selling or providing such
personal information unlawfully to other parties. In addition, if a network service provider appoints an agent to undertake any marketing
or technical services that involve the collection or usage of personal information, the network service provider is required to supervise
and manage the protection of the information. The provisions state, in broad terms, that violators may face warnings, fines, public exposure
and, criminal liability whereas the case constitutes a crime.
On June 1, 2017, the Cybersecurity Law of the
PRC promulgated in November, 2016 by SCNPC became effective. This law also absorbed and restated the principles and requirements mentioned
in the aforesaid decision and order, and further provides that, where an individual finds any network operator collects or uses his or
her personal information in violation of the provisions of any law, regulation or the agreement of both parties, the individual shall
be entitled to request the network operator to delete his or her personal information; if the individual finds that his or her personal
information collected or stored by the network operator has any error, he or she shall be entitled to request the network operator to
make corrections, and the network operator shall take measures to do so. Pursuant to this law, the violators may be subject to: (i) warning;
(ii) confiscation of illegal gains and fines equal to one to ten times of the illegal gains; or if without illegal gains, fines up to
RMB1,000,000; or (iii) an order to shut down the website, suspend the business operation for rectification, or revoke the business license.
In addition, responsible persons may be subject to fines between RMB10,000 and RMB100,000.
On August 31, 2018, the Standing Committee of
the National People’s Congress promulgated the E-commerce Law, which came into effect on January 1, 2019. The E-commerce Law imposes
a series of requirements on e-commerce operators including e-commerce platform operators, merchants operating on the platform and the
individuals and entities carrying out business online. The governance measures that we adopt in response to the enhanced regulatory requirements
may fail to meet these requirements and may lead to penalties or our loss of merchants to those platforms, or to complaints or claims
made against us by customers on our platforms.
In April 2020, the Cyberspace Administration
of China, the National Development and Reform Commission, MIIT, the Ministry of Public Security, the Ministry of State Security, the
Ministry of Finance, MOC, the People’s Bank of China, SAMR, the National Radio and Television Administration, the National Administration
of State Secrets Protection, the National Cryptography Administration promulgated Cybersecurity Review Measures, which came into effect
on June 1, 2020 and was further updated on December 28, 2021. The Cybersecurity Review Measures provides that the operators of critical
information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national
security.
On June 10, 2021, the Standing Committee
of the National People’s Congress of China, or the SCNPC, promulgated the PRC Data Security Law (《中华人民共和国数据安全法》),
which has been taken effect on September 1, 2021. The PRC Data Security Law imposes data security and privacy obligations on entities
and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance
of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate
rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used.
The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security
and imposes export restrictions on certain data and information. As uncertainties remain regarding the interpretation and implementation
of these laws and regulations, we cannot assure you that we will comply with such regulations in all respects and we may be ordered to
rectify or terminate any actions that are deemed illegal by regulatory authorities. We may also become subject to fines and/or other sanctions
which may have material adverse effect on our business, operations and financial condition.
On August 20, 2021, the Standing Committee of
the National People’s Congress of China promulgated the PRC Personal Information Protection Law (《中华人民共和国个人信息保护法》),
or the PIPL, which will take effect in November 2021. In addition to other rules and principles of personal information processing, the
PIPL specifically provides rules for processing sensitive personal information. Sensitive personal information refers to personal information
that, once leaked or illegally used, could easily lead to the infringement of human dignity or harm to the personal or property safety
of an individual, including biometric recognition, religious belief, specific identity, medical and health, financial account, personal
whereabouts and other information of an individual, as well as any personal information of a minor under the age of 14. Only where there
is a specific purpose and sufficient necessity, and under circumstances where strict protection measures are taken, may personal information
processors process sensitive personal information. A personal information processor shall inform the individual of the necessity of processing
such sensitive personal information and the impact thereof on the individual’s rights and interests.
On December 28, 2021, the CAC published the
Measures for Cybersecurity Review (2021), which became effective on February 15, 2022 and replace the Measures for Cybersecurity Review
promulgated on April 13, 2020. The Measures for Cyber Security Review (2021) specifies that the procurement of network products and services
by operator of critical information infrastructure and the activities of data process carried out by Internet platform operator that
raise or may raise “national security” concerns are subject to strict cyber security review by Cybersecurity Review Office
established by the CAC. Before critical information infrastructure operator purchases internet products and services, it should assess
the potential risk of national security that may be caused by the use of such products and services. If such use of products and services
may give raise to national security concerns, it should apply for a cybersecurity review by the Cybersecurity Review Office and a report
of analysis of the potential effect on national security shall be submitted when the application is made. In addition, Internet platform
operators that possess the personal data of over one million users must apply for a review by the Cybersecurity Review Office, if they
plan to list their companies in foreign countries. The CAC may voluntarily conduct cyber security review if any network products and
services and activities of data process affects or may affect national security. It may take approximately 70 business days in maximum
for the general cybersecurity review upon the delivery of their applications, which may be subject to extensions for a special review.
If
we are deemed to be a critical information infrastructure operator or a company that is engaged in data processing and holds personal
information of more than one million users, we could be subject to PRC cybersecurity review with the CAC under the Measures for Cybersecurity
Review (2021) which became effective on February 15, 2022. As confirmed by our PRC legal counsel, we are not subject to cybersecurity
review on the basis that (i) we currently do not have over one million users’ personal information and do not anticipate that we
will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise
subject us to the Measures for Cybersecurity Review (2021); (ii) our PRC subsidiary’s business operations do not involve any Critical
Information Infrastructure, and neither we nor the PRC subsidiary has received any notification from applicable PRC governmental authorities
indicating that any of the PRC subsidiary’s products or services is determined as the Critical Information Infrastructure; and
(iii) neither we nor the PRC subsidiary has received any notification from applicable PRC governmental authorities indicating that we
or our PRC subsidiary shall file for a cybersecurity review. As of the date of this Amendment, our PRC subsidiary has not been informed
by any PRC governmental authority of any requirement that it is subject to a cybersecurity review. As there remains significant uncertainty
in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we cannot assure you that we would not be subject
to such cybersecurity review requirement, and if so, that we would be able to pass such review in relation to this registration. In addition,
we could become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay
in the completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result
in fines or other penalties, including suspension of business, website closure, removal of our app from the relevant app stores, and
revocation of prerequisite licenses, as well as reputational damage or legal proceedings or actions against us, which may have material
adverse effect on our business, financial condition or results of operations.
Regulations Related to Internet Culture Activities
On February 17, 2011, the MOC promulgated the Interim
Administrative Provisions on Internet Culture, or the Internet Culture Provisions, which became effective on April1, 2011 and was
amended on December 15, 2017. The Internet Culture Provisions require ICP services providers engaging in commercial “internet culture
activities” to obtain an Internet Culture Business Operating License from the MOC. “Internet cultural activity” is defined
in the Internet Culture Provisions as an act of provision of internet cultural products and related services, which includes (i) the production,
duplication, importation, and broadcasting of the internet cultural products; (ii) the online dissemination whereby cultural products
are posted on the internet or transmitted via the internet to end-users, such as computers, fixed-line telephones, mobile phones, television
sets and games machines, for online users’ browsing, use or downloading; and (iii) the exhibition and comparison of the internet
cultural products. In addition, “internet cultural products” is defined in the Internet Culture Provisions as cultural products
produced, broadcast and disseminated via the internet, which mainly include internet cultural products specially produced for the internet,
such as online music entertainment, online games, online shows and plays (programs), online performances, online works of art and online
cartoons, and internet cultural products produced from cultural products such as music entertainment, games, shows and plays (programs),
performances, works of art, and cartoons through certain techniques and duplicating those to internet for dissemination.
As of date of this Amendment, we have not received
any inquiry or notice from the PRC government concerning our compliance of such regulations. However, there can be no assurance that the
PRC government will ultimately take a view that is consistent with ours.
Regulations Related to Consumer Rights Protection
The Consumer Rights and Interests Protection
Law of the PRC, or the Consumer Protection Law, promulgated by the SCNPC on October 31, 1993 and most recently amended on October
25, 2013 (effective as of March 15, 2014), and the Online Trading Measures issued by the SAIC on January 26, 2014 (effective
as of March 15, 2014), set out the obligations of business operators and the rights and interests of the customers. For example, business
operators must guarantee the quality, function, usage, term of validity, personal or property safety requirement of the goods and services
and provide customers with authentic information about the goods and services. Consumer whose legitimate rights and interests are harmed
in the purchase of goods or receipt of services rendered through an online trading platform may seek compensation from the seller or the
service provider.
On March 15, 2021, the SAMR promulgated the Measures
for the Supervision and Administration of Online Trading, or New Online Trading Measures, which will come into effect on May 1, 2021
and replace the above original Online Trading Measure. The New Online Trading Measures also apply to all online commerce business conducted
through information networks in general, with particular emphasis on transactions through online social networking and online live streaming.
Under the New Online Trading Measures, online trading operators shall perform relevant compliance obligations, such as registration with
the SAMR, protection of customers’ personal information and fair competition.
Additionally, the Civil Code, which became effective
on January 1, 2021 and replaced the Tort Liability Law of the PRC, provides that both internet users and internet service
providers may be liable for the wrongful acts of users who infringe the lawful rights of other parties. If an internet user utilizes internet
services to commit a tortious act, the party whose rights are infringed may request the internet service provider to take measures, such
as removing or blocking the content, or disabling the links thereto, to prevent or stop the infringement. If the internet service provider
does not take necessary measures after receiving such notice, it shall be jointly liable for any further damages suffered by the rights
holder. Furthermore, if an internet service provider fails to take necessary measures when it knows that an internet user utilizes its
internet services to infringe the lawful rights and interests of other parties, it shall be jointly liable with the internet user for
damages resulting from the infringement.
As of date of this Amendment, we have not received
any inquiry or notice from the PRC government concerning our compliance of such regulations. However, there can be no assurance that the
PRC government will ultimately take a view that is consistent with ours.
Regulations Related to Intellectual Property
Rights
Copyright
The Copyright Law of the PRC,
or the Copyright Law, which took effect on June 1, 1991 and was amended in 2001, 2010 and 2020. The latest version has come into effect
on June 1, 2021. Under the currently effective Copyright Law and its implementing regulations adopted in 2002 and amended in 2011 and
2013, Chinese citizens, legal persons, or other organizations will, whether published or not, enjoy copyright provides that Chinese citizens,
legal persons, or other organizations shall, whether published or not, own copyright in their copyrightable works, which include, among
others, works of literature, art, natural science, social science, engineering technology and computer software. Copyright owners enjoy
certain legal rights, including right of publication, right of authorship and right of reproduction. The Copyright Law extends copyright
protection to Internet activities, products disseminated over the Internet and software products. In addition, the Copyright Law provides
for a voluntary registration system administered by the China Copyright Protection Center, or the CPCC. According to the Copyright Law,
an infringer of the copyrights shall be subject to various civil liabilities, which include ceasing infringement activities, apologizing
to the copyright owners and compensating the loss of copyright owner. Infringers of copyright may also subject to fines and/or administrative
or criminal liabilities in severe situations.
Pursuant to the Computer Software Copyright
Protection Regulations promulgated by the State Council in 1991 and amended in 2001, 2011 and 2013 respectively, Chinese citizens,
legal persons and other organizations shall enjoy copyright on software they develop, regardless of whether the software is released publicly.
Software copyright commences from the date on which the development of the software is completed. The protection period for software copyright
of a legal person or other organizations shall be 50 years, concluding on December 31 of the 50th year after the software’s initial
release. The software copyright owner may go through the registration formalities with a software registration authority recognized by
the State Council’s copyright administrative department. The software copyright owner may authorize others to exercise that copyright,
and is entitled to receive remuneration.
Trademark
Trademarks are protected by the Trademark
Law of the PRC, which was adopted in 1982 and subsequently amended in 1993, 2001, 2013 and 2019 as well as by the Implementation Regulations
of the PRC Trademark Law adopted by the State Council in 1983 and as most recently amended on April 29, 2014. The Trademark Office under
the SAIC handles trademark registrations. The Trademark Office grants a 10-year term to registered trademarks and the term may be renewed
for another 10-year period upon request by the trademark owner. A trademark registrant may license its registered trademarks to another
party by entering into trademark license agreements, which must be filed with the Trademark Office for its record. As with patents, the
Trademark Law has adopted a first-to-file principle with respect to trademark registration. If a trademark applied for is identical or
similar to another trademark which has already been registered or subject to a preliminary examination and approval for use on the same
or similar kinds of products or services, such trademark application may be rejected. Any person applying for the registration of a trademark
may not injure existing trademark rights first obtained by others, nor may any person register in advance a trademark that has already
been used by another party and has already gained a “sufficient degree of reputation” through such party’s use.
Domain name
The domain names are protected under the Administrative
Measures on the Internet Domain Names, or the Domain Name Measures, which was promulgated by the MIIT and became effective in November
2017. The MIIT is the major regulatory body responsible for the administration of the PRC internet domain names, under supervision of
which China Internet Network Information Center, or the CNNIC, is responsible for the daily administration of CN domain names and PRC
domain names. Pursuant to the Domain Name Measures, the registration of domain names adopts the “first to file” principle
and the registrant shall complete the registration via the domain name registration service institutions. In the event of a domain name
dispute, the disputed parties may lodge a complaint to the designated domain name dispute resolution institution to trigger the domain
name dispute resolution procedure in accordance with the CNNIC Measures on Resolution of the Domain Name Disputes, file a suit to the
People’s Court, or initiate an arbitration procedure.
Regulations Related to Foreign Exchange
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 State Administration
of Foreign Exchange or 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, or SAFE Circular 59,
which was most recently amended in 2015 and 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, or 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 Administration of Foreign Exchange Settlement of Capital of Foreign-invested
Enterprises, or 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 the Circular
on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or 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).
In January 2017, SAFE promulgated the Circular
on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or 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.
On October 23, 2019, SAFE issued the Circular
of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or SAFE
Circular 28, which allows non-investment foreign-invested enterprises to make domestic equity investment with their capital funds in accordance
with the law under the premise that such investment does not violate the existing special administrative measures (negative list) for
foreign investment and the project invested in China is authentic and compliant. Pursuant to SAFE Circular 28, upon receiving the payment
of consideration from a foreign investor for the equity transfer under foreign direct investment, the domestic transferor, with relevant
registration certificates, can process the formalities for account opening, fund receipt, and foreign exchange settlement and use directly
at the bank. The foreign investor’s deposit remitted from overseas or transferred from domestic accounts can be directly used for
its lawful domestic capital contribution as well as domestic and overseas payment after the transaction is concluded.
On April 10, 2020, SAFE issued the Circular
on Optimizing Administration of Foreign Exchange to Support the Development of Foreign-related Business, or SAFE Circular 8, pursuant
to which, eligible enterprises are allowed to use the income under capital account, from such sources as capital funds, foreign debt and
overseas listing, for domestic payment without having to provide supporting authentication materials to the banks for every transaction
in advance, but the use of funds shall be true and compliant as well as conform to the existing administration regulations regarding use
of income under capital account. The concerned bank shall conduct spot checking in accordance with the relevant requirements.
Regulations Related to Dividend Distribution
The principal regulations governing the distribution
of dividends paid by WFOEs include the Company Law of PRC, which applies to both PRC domestic companies and foreign-invested
companies, and the Foreign Investment Law and its implementing rules, which apply to foreign-invested companies. Under these regulations,
WFOEs in China may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards
and regulations. In addition, a WFOE in China is required to set aside at least 10% of its after-tax profits based on PRC accounting standards
each year to its general reserves until its cumulative total reserve funds reaches 50% of its registered capital. These reserve funds,
however, may not be distributed as cash dividends.
Regulations Related to Foreign Exchange Registration
of Offshore Investment by PRC Residents
In July 2014, SAFE issued the Circular
of the State Administration of Foreign Exchange on Issues concerning Foreign Exchange Administration over the Overseas Investment and
Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or SAFE Circular 37 which was most recently
amended on June 15, 2018 and has replaced the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’
Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles (known as Circular 75). SAFE Circular 37 regulates foreign
exchange matters in relation to the use of special purpose vehicles, or “SPVs,” by PRC residents or entities to seek offshore
investment and financing or conduct round trip investment in China. Under SAFE Circular 37, an SPV refers to an offshore entity established
or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment,
using legitimate domestic or offshore assets or interests, while “round trip investment” refers to the direct investment in
China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights
and management rights. Circular 37 requires that, before making contribution into an SPV, PRC residents or entities are required to complete
foreign exchange registration with SAFE or its local branch.
In February 2015, SAFE promulgated the SAFE Circular
13. SAFE Circular 13 has amended SAFE Circular 37 by requiring PRC residents or entities to register with qualified banks instead of SAFE
or its local branch in connection with their establishment of an SPV.
In addition, pursuant to SAFE Circular 37, an
amendment to registration or subsequent filing with qualified banks by such PRC resident is also required if there is a material change
with respect to the capital of the offshore company, such as any change of basic information (including change of such PRC residents,
change of name and operation term of the SPV), increases or decreases in investment amount, transfers or exchanges of shares, or mergers
or divisions. Failure to comply with the registration requirements as set forth in SAFE Circular 37 and SAFE Circular 13, misrepresent
on or failure to disclose controllers of foreign-invested enterprises that are established by round-trip investment may result in bans
on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its
offshore parent or affiliates, and may also subject relevant PRC residents to penalties under the Foreign Exchange Administration Regulations
of the PRC.
Regulations Related to Foreign Debt
As an offshore holding company, we may make additional
capital contributions to PRC subsidiary subject to approval from the local department of commerce and the SAFE, with no limitation on
the amount of capital contributions. We may also make loans to our PRC subsidiary subject to the approval from SAFE or its local office
and the limitation on the amount of loans.
By means of making loans, WFOE is subject to the
relevant PRC laws and regulation relating to foreign debts. On January 8, 2003, the State Development Planning Commission, SAFE, and Ministry
of Finance, or MOF, jointly promulgated the Circular on the Interim Provisions on the Management of Foreign Debts, or the
Foreign Debts Provisions, which became effective on March 1, 2003, and was partially abolished on May 10, 2015. Pursuant to Foreign Debts
Provisions, the total amount of foreign loans received by a foreign-invested company shall not exceed the difference between the total
investment in projects as approved by the MOFCOM or its local counterpart and the amount of registered capital of such foreign-invested
company. In addition, on January 12, 2017, the People’s Bank of China, or PBOC, issued the Circular on Full-Coverage Macro-Prudent
Management of Cross-Border Financing, or the PBOC Circular 9, which sets out the statutory upper limit on the foreign debts for PRC
non-financial entities, including both foreign-invested companies and domestic-invested companies, and the macro-prudential adjustment
parameter is 1. Pursuant to the PBOC Circular 9, the foreign debt upper limit for both foreign-invested companies and domestic-invested
companies is calculated as twice the net asset of such companies. As to net assets, the companies shall take the net assets value stated
in their latest audited financial statement. On March 11, 2020, the PBOC and SAFE promulgated the Circular of the People’s
Bank of China and the State Administration of Foreign Exchange on Adjusting the Macro-prudential Regulation Parameter for Full-covered
Cross-border Financing, which provides that based on the current macro economy and international balance of payments, the macro-prudential
regulation parameter as set forth in the PBOC Circular 9 is updated from 1 to 1.25.
The PBOC Circular 9 does not supersede the Foreign
Debts Provisions. It provides a one-year transitional period from January 11, 2017, for foreign-invested companies, during which foreign-invested
companies, such as our PRC subsidiary, could adopt their calculation method of foreign debt upper limit based on either the Foreign Debts
Provisions or the PBOC Circular 9. The transitional period ended on January 11, 2018. Upon its expiry, pursuant to the PBOC Circular 9,
PBOC and SAFE shall reevaluate the calculation method for foreign-invested companies and determine what the applicable calculation method
would be. As of the date of this Amendment, neither the PBOC nor SAFE has promulgated and made public any further rules, regulations,
notices, or circulars in this regard.
Regulations Related to Tax
Enterprise Income
Tax
On March 16, 2007, the SCNPC promulgated the EIT
Law, which was recently amended on December 29, 2018. On December 6, 2007, the State Council enacted the Regulations
for the Implementation of the Enterprise Income Tax Law, which was amended on April 23, 2019. Under the EIT Law and relevant implementation
regulations, both resident enterprises and non-resident enterprises are subject to the enterprise income tax so long as their income is
generated within the territory of 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 10%
with respect to their income sourced from inside the PRC.
The EIT Law and its implementation rules permit
certain “high and new technology enterprises strongly supported by the state” that independently own core intellectual property
and meet statutory criteria, to enjoy a reduced 15% enterprise income tax rate.
According to the Administrative Rules
for the Certification of High Tech Enterprises, effective on January 1, 2008 and amended on January 29, 2016 (effective as of January
1, 2016), for each entity accredited as High Tech Enterprise, such status is valid for three years if it meets the qualifications for
High Tech Enterprise on a continuing basis during such period.
Value-Added Tax
(“VAT”)
The Provisional Regulations of the PRC
on Value-added Tax was promulgated by the State Council on December 13, 1993, and 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 Law). On April 4, 2018, MOF and SAT jointly promulgated the Circular on Adjustment of Value-Added Tax Rates, or MOF and SAT Circular
32. On March 20, 2019, MOF, SAT and General Administration of Customs, or GAC, jointly issued a Circular on Relevant Polices for
Deepening Value-added Tax Reform, or MOF, SAT and GAC Circular 39, which became effective from April 1, 2019. According to the abovementioned
laws and circulars, 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 13%, 9%, 6% and 0%, and the VAT tax rate applicable to the small-scale
taxpayers is 3%.
Withholding Tax
The Enterprise
Income Tax Law of the PRC provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends
declared to non-PRC resident investors which do not have an establishment or place of business in the PRC, or which have such establishment
or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such
dividends are derived from sources within the PRC.
Pursuant to an Arrangement
Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion with Respect to Taxes on Incomes, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong
Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under
such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise
receives from a PRC resident enterprise may be reduced to 5%. Based on the Circular on Certain Issues with Respect to the Enforcement
of Dividend Provisions in Tax Treaties, or the SAT Circular 81, issued on February 20, 2009, by the SAT, however, if the relevant
PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement
that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to the Circular on
Several Questions regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018, by the SAT and
took effect on April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatments
in connection with dividends, interests or royalties in the tax treaties, several factors, including without limitation, whether the applicant
is obligated to pay more than 50% of his or her income in 12 months to residents in third country or region, whether the business operated
by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not
levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will
be analyzed according to the actual circumstances of the specific cases. This circular further provides that applicants who intend to
prove his or her status of the “beneficial owner” shall submit the relevant documents to the relevant tax bureau according
to the Announcement on Issuing the Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment
under Tax Agreements.
Tax on Indirect
Transfer
On February 3, 2015, the SAT issued the Circular
on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or SAT Circular 7. Pursuant to
SAT Circular 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident
enterprises, may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable
commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from
such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose”
of the transaction arrangement, features to be taken into consideration include, inter alia, whether the main value of the equity interest
of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; whether the assets of the relevant offshore
enterprise mainly consist of direct or indirect investment in China or if its income is mainly derived from China; and whether the offshore
enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their
actual function and risk exposure. According to SAT Circular 7, where the transferee fails to withhold any or sufficient tax, the transferor
shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject
the transferor to default interest. SAT Circular 7 does not apply to transactions of sale of shares by investors through a public stock
exchange where such shares were acquired on a public stock exchange. On October 17, 2017, the SAT issued the Circular on Issues
of Tax Withholding regarding Non-PRC Resident Enterprise Income Tax, or SAT Circular 37, which further elaborates the relevant implemental
rules regarding the calculation, reporting and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless,
there remain uncertainties as to the interpretation and application of SAT Circular 7. SAT Circular 7 may be determined by the tax authorities
to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiaries where non-resident enterprises,
being the transferors, were involved.
Regulations Related to Employment and Social
Welfare
Employment
The Labor Law of the PRC, which was
promulgated on July 5, 1994, effective since January 1, 1995, and most recently amended on December 29, 2018, the Labor Contract
Law of the PRC, which was promulgated on June 29, 2007, and amended on December 28, 2012, and the Implementation Regulations
of the Labor Contract Law of the PRC, which was promulgated on September 18, 2008, are the principal regulations that govern employment
and labor matters in the PRC. Under the above regulations, 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. Employees are also required to work in safe and sanitary conditions.
Social Insurance
and Housing Fund
Under the Social Insurance Law of the
PRC that was promulgated by the SCNPC on October 28, 2010, and came into force as of July 1, 2011, and was most recently amended
on December 29, 2018 (also the effective date), 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 most recently amended in March 2019 (which
became effective as of March 24 2019), 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.
Our PRC subsidiary failed to deposit adequate
contributions to the housing funds for all of its employees, but has not received any notice of warning or been subject to penalties or
other disciplinary action from the relevant governmental authorities for non-compliance on labor-related laws and regulations. As a remediation,
our PRC subsidiary started to deposit the adequate contributions to the housing funds from July 2021 onwards. Before July 2021, our PRC
subsidiary failed to deposit adequate contributions of housing provident fund for all employees in accordance with Article 15 of the regulations
on the administration of housing provident fund. As of the date of this Amendment, our PRC subsidiary did not receive any warning and
punishment notice from the authority. If any employee reports the non-compliance to the authority later, it will be handled in accordance
with Article 38 of the regulations on the administration of housing provident fund, which is that the housing provident fund management
center shall order our Chinese subsidiary to deposit or make up the payment within a time limit; and if our Chinese subsidiary fails to
pay or make up the payment within the time limit, the reporting employee may apply to the people’s court for enforcement.
Regulations Related to Mergers and Acquisitions
and Overseas Listings
On August 8, 2006, six PRC governmental and regulatory
agencies, including MOFCOM and the China Securities Regulatory Commission, or the CSRC, promulgated the Rules on Acquisition of
Domestic Enterprises by Foreign Investors, or the M&A Rules, governing the mergers and acquisitions of domestic enterprises by
foreign investors that became effective on September 8, 2006, and was amended on June 22, 2009. The M&A Rules, among other things,
requires that offshore SPVs that are controlled by PRC companies or individuals and that have been formed for overseas listing purposes
through acquisitions of PRC domestic interest held by such PRC companies or individuals, to obtain the approval of the CSRC prior to publicly
listing their securities on an overseas stock exchange.
Regulations Related
to Consultancy Business
There are no separate
mandatory legal provisions on the consultancy business model in the PRC. Companies and individual businesses may engage is this business
as long as they have registered with the commerce departments in accordance with the laws, and include “consultancy” in the
business scope on their business license.
Intellectual Property
As of June 30, 2022, our PRC subsidiary owns
the following trademarks registered or acquired in the PRC:
| No. |
|
Name of trademarks in English |
|
Name of trademarks in Original Language |
|
Place of registration |
| 1 |
|
FU |
|
FU |
|
PRC |
| 2 |
|
Chui Da Xian |
|
炊大仙 |
|
PRC |
| 3 |
|
Wu Shui |
|
兀水 |
|
PRC |
| 4 |
|
Mei Fei Se Wu |
|
眉飞色舞 |
|
PRC |
| 5 |
|
Zhi Yao Ai Shang Ni |
|
只要爱上你 |
|
PRC |
| 6 |
|
Jin dao bo |
|
金稻伯 |
|
PRC |
| 7 |
|
Qin Ben Jing Ji |
|
亲本靓丽 |
|
PRC |
Other than our above-mentioned
trademarks that we own in China, we do not currently hold any other intellectual property rights. While we use reasonable efforts to protect
our trade and business secrets, we cannot assure you that our employees, consultants, contractors or advisors will not, unintentionally
or willfully, disclose our trade secrets to competitors or other third parties.
We have 7 trademarks registered in China, which
bring value to our business because we are engaged in promoting them to brand names for certain products. As a start-up marketing consulting
company, we have a strategy goal that we own certain brand names and trademarks which we can promote them in different industries and
products. For example, for the trademark “Fu” – we intend to use it on certain medical and health sanitary industry,
such as masks; for the trademark “Chui Da Xian” – we intend to use it on kitchen wares products; for the trademark “Wu
Shui ” – we intend to use it on water cups and tea cups products; for the trademark “MeiFei Se Wu” – we
intend to use it on female sanitary products; for the trademark “Zhi Yao Ai Shang Ni” – we intend to use it on jewelry
products; for the trademark “Jin Dao Bo” – we intend to use it on Agriculture products, such as rice; for the trademark
“Qin Ben Jing Ji” – we intend to use it on Cosmetics products. We plan to enhance licensing these trademarks to our
customers who intend to sell their products in these related industry, then we may not only provide our marketing consulting services
to our customers, but also create the profit sharing when we successfully promote our customer’s products with our licensed brands.
Property
We lease 289.12 square
meter office space in China at Suite 907, Saigao City Plaza Building 2, No. 170, Weiyang Road Xi’an, China. Our rent
for the office space in Xi’an, China, is $61,236 per year, with a lease term of 3 years which terminates in July 2024. We believe
that our current offices are suitable and adequate to operate our business at this time. We do not own any real property.
We believe that our facilities,
which are of varying ages and are of different construction types, have been satisfactorily maintained. They are in good conditions and
are suitable for our operations and generally provide sufficient capacity to meet our production and operational requirements.
Employees
As of June 30, 2022,
we employed approximately 28 employees as follows, 4 in management, 8 in sales and customer services, 6 in finance department, and 10
in administration.
We maintain a satisfactory
working relationship with our employees, and we have not experienced any significant labor disputes or any difficulty in recruiting employees
for our operations. None of our employees are represented by a labor union.
Our employees are all
in China and participate in the state pension plan organized by the Chinese municipal and provincial government. Our PRC subsidiary is
required by Chinese law to cover employees in China with various types of social insurance. We believe that we are in material compliance
with the relevant PRC laws.
Legal Proceedings
From time to time, we
may become party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. The Company
is not currently a party, as plaintiff or defendant, to any legal proceedings that we believe to be material or which, individually or
in the aggregate, would be expected to have a material effect on our business, financial condition or results of operation if determined
adversely to us.
Smaller Reporting
Company
The Company is a “smaller
reporting company” as defined in Rule 12b-2 under the Exchange Act. There are certain exemptions available to us as a smaller reporting
company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley
Act; (2) scaled executive compensation disclosures; and (3) the requirement to provide only two years of audited financial statements,
instead of three years. As long as we maintain our status as a “smaller reporting company”, these exemptions will continue
to be available to us.
Emerging Growth Company
As a public company with
less than $1,070,000,000 in revenue during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart
our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of certain reduced reporting
requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies, and
can avail itself to various exemptions such as an exemption from Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14(a) and
(b) of the Securities Exchange Act of 1934.
In particular, as an
emerging growth company, the Company:
| ● |
is not required to obtain an attestation and report from its auditors on our management’s assessment of the Company’s internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; |
| ● |
is not required to provide a detailed narrative disclosure discussing its compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”); |
| ● |
is not required to obtain a non-binding advisory vote from its stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes); |
| ● |
is exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure; |
| ● |
may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”); and |
| ● |
is eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. |
The Company intends to
take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of
new or revised financial accounting standards under §107 of the JOBS Act. The Company’s election to use the phase-in periods
may make it difficult to compare its financial statements to those of non-emerging growth companies and other emerging growth companies
that have opted out of the phase-in periods under §107 of the JOBS Act.
Certain of these reduced
reporting requirements and exemptions were already available to the Company due to the fact that it also qualifies as a “smaller
reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation
and report regarding management’s assessment of internal control over financial reporting; are not required to provide a compensation
discussion and analysis; are not required to provide a pay-for-performance graph or Chief Executive Officer pay ratio disclosure; and
may present only two years of audited financial statements and related MD&A disclosure.
Under
the JOBS Act, the Company may take advantage of the above-described reduced reporting requirements and exemptions for up to five years
after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended
(the “Securities Act”), or such earlier time that we no longer meet the definition of an emerging growth company. In this
regard, the JOBS Act provides that the Company would cease to be an “emerging growth company” if it has more than $1,070,000,000
in annual revenues, have more than $700 million in market value of its Common stock held by non-affiliates, or issue more than $1.0 billion
in principal amount of non-convertible debt over a three-year period. The Company would cease to be an emerging growth company on the
last day of the fiscal year following the date of the fifth anniversary of its first sale of common equity securities under an effective
registration statement under the Securities Act or a fiscal year in which
we have $1 billion in gross revenues. Further, under current SEC rules the Company will continue to qualify as a “smaller reporting
company” for so long as it has a public float (i.e., the market value of common equity held by non-affiliates) of less than $250
million as of the last business day of its most recently completed second fiscal quarter.
ITEM 1A. RISK FACTORS.
An investment in the Company’s common
stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other
information included in this report, before making an investment decision. If any of the following risks actually occur, our business,
financial condition or results of operations could suffer. In that case, the trading price of the Company’s common stock could
decline, and you may lose all or part of your investment. You should read the section entitled “Special Note Regarding Forward
Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance
of such statements in the context of this report.
Risks Related to Our Business and Industry.
We have a limited operating history and
are subject to the risks encountered by development-stage companies.
We, through our operating PRC subsidiary in China,
have been in business since October 2019 as a consulting company, which mainly focuses on includes digital marketing consulting and KOL
Training Related Services. We have only been profitable since the year ended December 31, 2019. As a development-stage company, our business
strategies and model are constantly being tested by the market and operating results, and we work to adjust our allocation of resources
accordingly. As such, our business may be subject to significant fluctuations in operating results in terms of amounts of revenues and
the percentages of the total revenue with respect to the business segments.
We are, and expect for the foreseeable future
to be, subject to all the risks and uncertainties, inherent in a development-stage business. As a result, we must establish many functions
necessary to operate a business, including expanding our managerial and administrative structure, assessing and implementing our marketing
program, implementing financial systems and controls and personnel recruitment. There are risks in light of the costs, uncertainties,
delays and difficulties frequently encountered by companies with a limited operating history. These risks and challenges are, among other
things:
| ● |
we operate in industries that are or may in the future be subject to increasing regulation by various governmental agencies in China; |
| |
|
| ● |
we may require additional capital to develop and expand our operations which may not be available to us when we require it; |
| |
|
| ● |
our marketing and growth strategy may not be successful; |
| |
|
| ● |
our business may be subject to significant fluctuations in operating results; and |
| |
|
| ● |
we may not be able to attract, retain and motivate qualified professionals. |
Our future growth will depend substantially on
our ability to address these and the other risks described in this registration statement. If we do not successfully address these risks,
our business would be significantly harmed.
Our historical financial results may not
be indicative of our future performance.
Our business has achieved rapid growth in
2019 and 2020 since we launched our new business model of providing digital marketing consultation in 2019. Our revenue was $2,049,872
and $2,856,944 for the six months ended June 30, 2022 and 2021, respectively; $5,637,396 and $9,187,023 for the years ended December
31, 2021 and 2020, respectively. Our net income was $657,023 and $1,088,677 for the six months ended June 30, 2022 and 2021, respectively;
$1,086,400 and $4,968,070 for the years ended December 31, 2021 and 2020, respectively. However, our historical growth rate and the limited
history of operation make it difficult to evaluate our future prospects. We may not be able to sustain our historically growth or may
not be able to grow our business at all.
If we cannot manage our growth effectively
and efficiently, our results of operations or profitability could be adversely affected.
We have been in business since October 2019
as a consulting company. Our revenue for the year ended December 31, 2019 was only $918,931, and the revenue significantly increased
to $9,187,023 at the year end of 2020. It was because of our continuing expansion of our services and operations. For example, to complement
and expand our existing consulting services, our operating subsidiaries started to provide KOL Training Related Services in 2020 by cooperating
with other training agencies. Such plan has been adopted by the executive in 2020 and will continue to place, substantial demands on
our managerial, operational, technological and other resources. Our revenue for the six months ended June 30, 2022 was $2,049,872 compared
to $2,856,944 for the six months ended June 30, 2021. The decrease was mainly due to our consultancy services income, generated from
clients who engaged in online courses business, dropped by $1,950,347 as compared with last period. This was because the end customers
became more patient and cautious in choosing online courses. We continued to seek for different business opportunities to stabilize our
income streams. During the six months ended June 30, 2022, we generated $272,962 from our new digital training related services and $576,582
from our consultancy services to a customer who engaged in live streaming business. However, these new income streams only compensated
a part of the revenue reduction in current period. As of the date of this Amendment, the digital training related services with Jade
Bird remain suspended. Therefore, we expected the new revenue will not be available to compensation the revenue reduction until further
notice. Our revenue for the year ended December 31, 2021 was $5,637,396 compared to $9,187,023 for the year ended December 31,2020. The
revenue decreased because the outbreak of new Delta virus in China increased the inherent risk of the business. Therefore, we suspended
certain consulting services from April, 2021 to August, 2021 and realigned the resources to focus on our KOL Training Related Services.
We have resumed these consulting businesses from August 2021 in order to maintain diversified services for our customers. Our planned
expansion will also place significant demands on us to maintain the quality of our consulting services to ensure that our brand does
not suffer as a result of any deviations, whether actual or perceived, in the quality of our services. In order to manage and support
our growth, we must continue to improve our existing operational and administrative systems and our quality control, and recruit, train
and retain additional qualified professionals as well as other administrative and sales and marketing personnel. We may not be able to
effectively and efficiently manage the growth of our operations, recruit and retain qualified personnel and integrate new expansion into
our operations. As a result, our quality of service may deteriorate and our results of operations or profitability could be adversely
affected.
We may not be successful in implementing
important new strategic initiatives, which may have an adverse impact on our business and financial results.
There is no assurance that we will be able to
implement important strategic initiatives in accordance with our expectations, which may result in an adverse impact on our business and
financial results. For example, our KOL training program in Influencer Marketing may not be able to train trainees to become KOLs or we
may have to suspend our KOL Training Related Services as a result of suspension of programs by our partners.
Our management may lack required experience, knowledge,
insight, or human and capital resources to carry out the effective implementation to expand into new spaces outside of our current focuses.
As such, we may not be able to realize our expected growth, and our business and financial results will be adversely impacted.
Increasing competition within our industries
could have an impact on our business prospects.
The digital marketing consulting business and
KOL training academy business are industries where new competitors can easily enter into since there are no significant barriers to entry.
Our operating subsidiaries also face many competitors in the marketing consulting industry where a number of competitors have been in
business longer than us. Competing companies may have significantly greater financial and other resources than we have and may offer services
that are more attractive to prospective clients; increased competition would have a negative impact on both our revenues and our profit
margins.
Our PRC subsidiary
may be required to obtain and maintain additional approvals, licenses or permits applicable to our business, which could have a material
adverse impact on our business, financial conditions and results of operations.
Our business is subject
to governmental supervision and regulation by the relevant PRC governmental authorities, including the Ministry of Commerce, or MOFCOM,
and other governmental authorities in charge of the relevant categories of services offered by us.
The laws and regulations
and government policy changes rapidly on digital training. For our digital training related services, we worked with Beida Jade Bird
Vocational Education (“Jade Bird”) which was an authorized licensee of China National Personal Talent Training Network (“CNPTTN”),
a PRC regulatory agency for the talent training. Jade Bird was in charge of its training courses, and the Company was authorised by Jade
Bird as its sole training related administrator of the training courses, limited to coordinate the digital training related services
to individual clients who were interested in conducting live-broadcasting business through social medias. The Company provided training
related services, to these individual clients who subscribed courses, in arranging the examination, following up certificate issuance
processes, addressing clients’ concerns, etc. On March 22, 2022, the PRC subsidiary learned that Jade Bird suspended its service after
receiving a notice from CNPTTN that until further notice CNPTTN has suspended all recruitment services using its CNPTTN’s name.
As a result of CNPTTN’s suspension, the PRC subsidiary has also suspended its digital training related services with Jade Bird
from March 22, 2022 until further notice. In the future, laws and regulations and the CNPTTN may require our PRC Subsidiary to meet additional
requirements or obtain additional approvals, licenses or permits to conduct KOL training related business. If our PRC Subsidiary is unable
to meet the relevant requirements or obtain the relevant approvals, licenses or permits, our PRC Subsidiary may not be able to continue
to conduct the KOL training related business. As of the date of this Amendment, there is no further notice from CNPTTN and the service
is still being suspended.
If our operating subsidiaries fail to hire,
train or retain qualified managerial and other employees, our business and results of operations could be materially and adversely affected.
We place substantial reliance on the digital marketing
consulting service industry experience and knowledge of our senior management team as well as their relationships with other industry
participants. The loss of the services of one or more members of our senior management could hinder our ability to effectively manage
our business and implement our growth strategies. Finding suitable replacements for our current senior management could be difficult,
and competition for such personnel of similar experience is intense. If we fail to retain our senior management, our business and results
of operations could be materially and adversely affected.
Our personnel are critical to maintaining the
quality and consistency of our services, brand and reputation. It is important for us to attract qualified managerial and other employees
who have experience in consulting services and are committed to our service approach. There may be a limited supply of such qualified
individuals. We must hire and train qualified managerial and other employees on a timely basis to keep pace with our rapid growth while
maintaining consistent quality of services across our operations. We must also provide continuous training to our managerial and other
employees so that they are equipped with up-to-date knowledge of various aspects of our operations and can meet our demand for high-quality
services. If we fail to do so, the quality of our services may decrease, which in turn, may cause a negative perception of our brand and
adversely affect our business.
Risks associated with doing business in
China
The recent state government interference
into business activities on U.S. listed Chinese companies may negatively impact our existing and future operations in China. The Chinese
government may intervene in or influence our operations at any time, which could result in a material change in our operations and significantly
and adversely impact the value of the Company’s common stock, including potentially causing the value of the Company’s common
stock decline or be worthless.
The Chinese government has significant oversight
and discretion over the conduct of our business and may intervene or influence our operations as the government deems appropriate to
further regulatory, political and societal goals. To the extent that the cash and assets in our business are in our PRC subsidiary and/or
Hong Kong subsidiary, the funds or assets may not be available to fund operations or for other use outside of the PRC and/or Hong Kong
due to intervention in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the Chinese government
to transfer cash or assets. Any such intervention in or influence on our business operations or action to exert more oversight and control
over the cash or assets of our subsidiaries, once taken by the Chinese government, could adversely affect our business, financial condition
and results of operations and the value of our stock, or significantly limit or completely hinder our ability to offer or continue to
offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.
The Chinese government has recently published
new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the
possibility that it will in the future release regulations or policies regarding the marketing consulting industry that could require
us to seek permission from Chinese authorities to continue to operate our business, which may adversely affect our business, financial
condition and results of operations. Furthermore, recent statements made by the Chinese government have indicated an intent to increase
the government’s oversight and control over offerings of companies with significant operations in China that are to be conducted
in foreign markets, as well as foreign investment in China-based issuers like us. Any such action, if taken by the Chinese government,
could significantly limit or completely hinder our ability to offer or continue to offer common stocks to our investors and could cause
the value of the Company’s common stock to significantly decline or become worthless.
Recently, the Chinese government
announced that it would step up supervision of Chinese companies listed offshore. Under the new measures, China will improve regulation
of cross-border data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance,
market manipulation and insider trading, China will also check sources of funding for securities investment and control leverage ratios.
The Cyberspace Administration of China (“CAC”) has also opened a cybersecurity probe into several U.S.-listed tech giants
focusing on anti-monopoly, financial technology regulation and more recently, with the passage of the Data Security Law, how companies
collect, store, process and transfer data.
Though the Company is a Nevada corporation, we
through our PRC subsidiary, are headquartered and have operations in China. We currently do not, and we do not plan to use variable interest
entities to execute our business plan or to conduct our China-based operations. However, because our operations are in China and our major
shareholders are located in China, there is always a risk that the Chinese government may in the future seek to intervene or influence
operations of any company with any level of operations in China, including its ability to offer securities to investors, list its securities
on a U.S. or other foreign exchange, conduct its business or accept foreign investment. In light of China’s recent announcements,
there are risks and uncertainties which we cannot foresee for the time being, and rules and regulations in China can change quickly with
little or no advance notice. The Chinese government may intervene or influence our PRC subsidiary’s current and future operations
in China at any time, or may exert more control over offerings conducted overseas and/or foreign investment in issuers likes ourselves.
If any or all of the foregoing were to occur,
this could lead to a material change in the Company’s operations and/or the value of its common stock and/or significantly limit
or completely hinder its ability to offer or continue to offer securities to investors and cause the value of such securities to significantly
decline or be worthless.
The CSRC has released for public consultation
the draft rules for China-based companies seeking to conduct initial public offerings in foreign markets. While such rules have not yet
gone into effect, the Chinese government may exert more oversight and control over offerings that are conducted overseas and foreign investment
in China-based issuers, which could significantly limit or completely hinder our ability to offer or continue to offer the Company’s
common stock to investors and could cause the value of the Company’s common stock to significantly decline or become worthless.
On December 24, 2021, the CSRC released the Administrative
Provisions of the State Council Regarding the Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Comments)
(the “Draft Administrative Provisions”) and the Measures for the Overseas Issuance of Securities and Listing Record-Filings
by Domestic Enterprises (Draft for Comments) (the “Draft Filing Measures,” collectively with the Draft Administrative Provisions,
the “Draft Rules Regarding Overseas Listing”), both of which have a comment period that expired on January 23, 2022. The Draft
Rules Regarding Overseas Listing lay out the filing regulation arrangement for both direct and indirect overseas listing, and clarify
the determination criteria for indirect overseas listing in overseas markets.
The Draft Rules Regarding Overseas Listing stipulate
that the Chinese-based companies, or the issuer, shall fulfill the filing procedures within three working days after the issuer makes
an application for an initial public offering and listing in an overseas market. The required filing materials for an initial public offering
and listing should include at least the following: record-filing report and related undertakings; regulatory opinions, record-filing,
approval and other documents issued by competent regulatory authorities of relevant industries (if applicable); security assessment opinion
issued by relevant regulatory authorities (if applicable); PRC legal opinion; and prospectus.
In addition, an overseas offering and listing
is prohibited under any of the following circumstances: (1) if the intended securities offering and listing is specifically prohibited
by national laws and regulations and relevant provisions; (2) if the intended securities offering and listing may constitute a threat
to or endangers national security as reviewed and determined by competent authorities under the State Council in accordance with law;
(3) if there are material ownership disputes over the equity, major assets, and core technology, etc. of the issuer; (4) if, in the past
three years, the domestic enterprise or its controlling shareholders or actual controllers have committed corruption, bribery, embezzlement,
misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy, or are currently under
judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; (5) if, in the
past three years, directors, supervisors, or senior executives have been subject to administrative punishments for severe violations,
or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations;
(6) other circumstances as prescribed by the State Council. The Administration Provisions defines the legal liabilities of breaches such
as failure in fulfilling filing obligations or fraudulent filing conducts, imposing a fine between RMB 1 million and RMB 10 million, and
in cases of severe violations, a parallel order to suspend relevant business or halt operation for rectification, revoke relevant business
permits or operational license.
The Draft Rules Regarding Overseas Listing, if
enacted, may subject us to additional compliance requirements in the future, and we cannot assure you that we will be able to get the
clearance of filing procedures under the Draft Rules Regarding Overseas Listing on a timely basis, or at all. Any failure of us to fully
comply with new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer the Company’s
common stock, cause significant disruption to our business operations, and severely damage our reputation, which would materially and
adversely affect our financial condition and results of operations and cause the Company’s common stock to significantly decline
in value or become worthless.
Uncertainties with respect to the PRC legal
system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China could
adversely affect us and limit the legal protections available to you and us.
Our PRC subsidiary is incorporated under and governed
by the laws of the PRC. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference, but have
limited precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic
matters in general, such as foreign investment, corporate organization and governance, commerce, taxation and trade. As a significant
part of our business is conducted in China, our operations are principally governed by PRC laws and regulations. However, since the PRC
legal system continues to evolve rapidly, the interpretations of many laws, regulations and rules are not always uniform and enforcement
of these laws, regulations and rules involves uncertainties, which may limit legal protections available to us. Uncertainties due to evolving
laws and regulations could also impede the ability of a China-based company, such as our company, to obtain or maintain permits or licenses
required to conduct business in China. In the absence of required permits or licenses, governmental authorities could impose material
sanctions or penalties on us. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently
applied by other PRC government authorities (including local government authorities), thus making strict compliance with all regulatory
requirements impractical, or in some circumstances impossible. For example, our PRC subsidiary may have to resort to administrative and
court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since PRC administrative and court
authorities have discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the
outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore,
the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or
at all and may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after
the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual
property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.
Furthermore, if China adopts more stringent standards
with respect to environmental protection or corporate social responsibilities, we may incur increased compliance costs or become subject
to additional restrictions in our operations. Intellectual property rights and confidentiality protections in China may also not be as
effective as in the United States or other countries. In addition, we cannot predict the effects of future developments in the PRC legal
system on our business operations, including the promulgation of new laws, or changes to existing laws or the interpretation or enforcement
thereof. These uncertainties could limit the legal protections available to us and our investors, including you. Moreover, any litigation
in China may be protracted and result in substantial costs and diversion of our resources and management attention.
The PRC government has significant oversight and
discretion over the conduct of our business and may intervene or influence our operations as the government deems appropriate to further
regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain
industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations
or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore,
the PRC government has recently indicated an intent to exert more oversight and control over securities offerings and other capital markets
activities that are conducted overseas and foreign investment in China-based companies like us. Any such intervention in or influence
on our business operations or action to exert more oversight and control over securities offerings and other capital markets activities,
once taken by the PRC government, could adversely affect our business, financial condition and results of operations and the value of
our Stocks, or significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the
value of such securities to significantly decline or in extreme cases, become worthless.
The PRC legal system is evolving, and the resulting uncertainties
could adversely affect us.
We conduct our business primarily through our
subsidiaries in China. Our operations in China are governed by PRC laws and regulations. The PRC legal system is a civil law system based
on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.
As the legislation in China and the PRC legal
system has continued to evolve rapidly over the past decades and the PRC government has made significant progress in promulgating laws
and regulations related to economic affairs and matters, for example, such laws and regulations have significantly enhanced the protections
afforded to various forms of foreign investments in China. However, many of these laws and regulations are relatively new and there is
a limited volume of published decisions and enactments. In particular, there exist substantial uncertainties surrounding the evolvement,
interpretation and enforcement of regulatory requirements of cybersecurity, data security, privacy protection as well as anti-monopoly,
and we may need to take certain corresponding measures to maintain our regulatory compliance, such as adjusting the relevant business
or transactions and introducing compliance experts and talents, which may incur additional related costs and adverse impact on our business.
As a result, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations
and rules involves uncertainties, which may limit legal protections available to us. Therefore, there are uncertainties involved in their
implementation and interpretation, and it may be difficult to evaluate the outcome of administrative and court proceedings and the level
of legal protection available to you and us. Such uncertainties, including uncertainty over the scope and effect of our contractual, property
(including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China
could materially and adversely affect our business and impede our ability to continue our operations.
A severe or prolonged downturn in the global
or Chinese economy could materially and adversely affect our business and our financial condition.
Although the Chinese economy has grown steadily
in the past decade, there is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted
by the People’s Bank of China and financial authorities of some of the world’s leading economies, including the United States
and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility
in oil and other markets. There have also been concerns on the relationship among China and other Asian countries, which may result in
or intensify potential conflicts in relation to territorial disputes. Economic conditions in China are sensitive to global economic conditions,
as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any
severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations
and financial condition.
We face risks related
to health epidemics such as the COVID-19 coronavirus outbreak originated in Wuhan city at the end of 2019, and other outbreaks, which
has significantly disrupted our operations and may continue to adversely affect our business, financial condition and results of operations.
Our business has
been significantly disrupted and may continue to be materially and adversely affected by health epidemics such as the COVID-19 coronavirus
outbreak originated in Wuhan city at the end of 2019 and other outbreaks affecting the PRC. Our business operations depend on China’s
overall economy and demand for our services, which could be disrupted by health epidemics. As of April 2020, the outbreak in China has
been generally stabilized, however large-scale offline activities are not yet permitted by the government in some cities as of the date
of this registration statement. However, revenues from our consulting services are expected to increase due to our extra efforts in promoting
our marketing consulting business, as well as providing more live video streaming programs during the lock-down. A new Delta COVID-19
had been found in certain cities in PRC in the second quarter of 2021, such coronavirus may cause another outbreak which increased the
inherent risk and disruption to businesses. Therefore, we suspended certain consulting services from April, 2021 to August 31, 2021 and
realigned the resources to focus on our KOL Training Related Services. We expect the aforementioned negative impact on our business to
gradually mitigate in the coming seasons when the outbreak becomes more stabilized in China and other regions in the world. However,
there remains much uncertainty as to what extent the impact could have on our long-term business outlook as a prolonged outbreak could
significantly affect the Chinese economy and decrease the demand for our services, which could lead to more disruptions to our operations
and adversely affect our financial condition and results of operations.
Changes in the policies of the PRC government
could have a significant impact upon our ability to operate profitably in the PRC.
Currently, substantially all of our businesses
are conducted in the PRC. Accordingly, economic, political and legal developments in the PRC will continue to significantly affect our
business, financial condition, results of operations and prospects. Policies of the PRC government can have significant effects on economic
conditions in the PRC and the ability of businesses to operate profitably. Our ability to operate profitably in the PRC may be adversely
affected by changes in policies by the PRC government, including changes in laws, regulations or their interpretation that may affect
our ability to operate as currently contemplated.
Because our business is dependent upon government
policies that encourage a market-based economy, change in the political or economic climate in the PRC may impair our ability to operate
profitably, if at all.
Although the PRC government has been pursuing
a number of economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic
growth in the PRC. Because of the nature of our business, our PRC subsidiary is dependent upon the PRC government pursuing policies that
encourage private ownership of businesses. We cannot assure you that the PRC government will continue to pursue policies favoring a market-oriented
economy or that existing policies will not be significantly altered, especially in the event of a change in leadership, social or political
disruption, or other circumstances affecting political, economic and social life in the PRC.
Changes in China’s economic, political
or social conditions or government policies may have a material adverse effect on our business and operations.
Substantially all of our assets and operations
are located in China. Accordingly, our business, financial condition, results of operations and prospects have been and will be influenced
to a significant degree by political, economic and social conditions in China generally. The Chinese economy differs from the economies
of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control
of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization
of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate
governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition,
the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese
government also exercises significant control over China’s economic growth through allocating resources, controlling payment of
foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant
growth over past three decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes
in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material
adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead
to a reduction in demand for our products and adversely affect our competitive position. The Chinese government has implemented various
measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy,
but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government
control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain
measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity
in China, which may adversely affect our business and operating results.
The PRC legal system is a civil law system
based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but
have limited precedential value. Therefore our susceptibility to such laws is unknown.
In 1979, the PRC government began to promulgate
a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the
past three decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China
has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects
of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies. In particular,
because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the nonbinding
nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how
to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent
and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not
published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these
policies and rules until after the occurrence of the violation.
Any administrative and court proceedings in China
may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court
authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to
evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems.
These uncertainties may impede our ability to enforce the contracts we have entered and could materially and adversely affect our business,
financial condition and results of operations.
Chinese law prohibits or restricts companies
belonging to foreign countries from operating some certain businesses.
According to Chinese law, some businesses are
not allowed to be operated by the companies whose ownership is not a Chinese company. We are a US company registered in Nevada. Each company
in our organization chart is a subsidiary. The legality and effectiveness of this control method are accorded with Chinese laws and regulations.
On December 27, 2020, China’s National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) issued the
2020 edition of the Catalogue of Encouraged Industries for Foreign Investment (“FI encouraged catalogue”). According to the
FI encouraged catalogue, Article 8, Section 425, foreign investment on the business of consulting services is encouraged, effective on
January 27, 2021. However, we are uncertain that the laws will remain to allow foreign owned Chinese companies to engage in consultancy
services business.
We may be subject to liability for placing
advertisements with content that is deemed inappropriate or misleading under PRC laws.
According to Chinese law, if any advertisement
issued by our PRC subsidiary infringes the rights and interests of a third party, our PRC subsidiary shall bear the liability for compensation,
which may cause us financial loss.
Our PRC subsidiary may be liable for improper
collection, use or appropriation of personal information provided by our customers.
Though our business involves only digital marketing
consulting, not an internet platform, but we may still have the opportunity in collecting and retaining large volumes of internal and
customer data, including personal information as our various information technology systems enter, process, summarize and report such
data. We also maintain information about various aspects of our operations as well as regarding our employees. The integrity and protection
of our customer, employee and company data is critical to our business. Our customers and employees expect that we will adequately protect
their personal information. Our PRC subsidiary is required by applicable laws to keep strictly confidential the personal information that
we collect, and to take adequate security measures to safeguard such information.
According to the applicable PRC laws and regulations
in relation to cybersecurity and data security, data processing includes, in a broad sense, among others, the collection or access, processing,
transmission and related data activities. Based on applicable PRC laws and regulations, there is no exact or clear definition of “data
processing”.
The PRC Criminal Law, as amended by its Amendment
7 (effective on February 28, 2009), and Amendment 9 (effective on November 1, 2015), Amendment 10 (effective on November 4, 2017) and
Amendment 11 (effective on March 1, 2021), prohibits institutions, companies and their employees from selling or otherwise illegally
disclosing a citizen’s personal information obtained during the course of performing duties or providing services or obtaining
such information through theft or other illegal ways. The Civil Code of the PRC (issued by the PRC National People’s Congress on
May 28, 2020 and effective from January 1, 2021) provides main legal basis for privacy and personal information infringement claims under
the Chinese civil laws. PRC regulators, including the Cyberspace Administration of China, MIIT, and the Ministry of Public Security have
been increasingly focused on regulation in the areas of data security and data protection. The PRC regulatory requirements regarding
cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China,
the Ministry of Public Security and the SAMR, have enforced data privacy and protection laws and regulations with varying and evolving
standards and interpretations. The PRC governmental authorities have promulgated, among others, the Cyber Security Law of the PRC (《中华人民共和国网络安全法》),
Personal Information Protection Law of the People’s Republic of China（《中华人民共和国个人信息保护法》）,
Data Security Law of the People’s Republic of China（《中华人民共和国数据安全法》）
and Measures for Cybersecurity Review (2021)(《网络安全审查办法(2021)》)
to ensure cyber security, data and personal information protection. Recently, the CAC had further proposed the Measures for the Security
Assessment for Cross-border Transfer of Data（《数据出境安全评估办法》）and
the Administration Regulations on Cyber Data Security (Draft for Comments) (《网络数据安全管理条例（征求意见稿）》)
(the “Draft Regulation”) for public comments, which provided guidance on the cross-border data transmission and potential
cybersecurity review scope.
We
attach great importance to data security, cyber security and personal information protection, and the evolvement of applicable PRC laws
and regulations therewith, and we are in compliance with laws and regulations with respect to data security, cyber security and personal
information protection in all material aspects. As of the date of this Amendment, our PRC subsidiary, the main operating entity of ours,
has implemented comprehensive internal policies and measures on protection of cyber security, data privacy and personal information to
make sure its compliance with relevant PRC laws and regulations. The main internal policies and measures are as follows: (i) for
customer data processing, our PRC subsidiary deploys the access control
mechanism on the server side, adopts the principle of minimum authorization for the staff who may contact end users’ personal data;
(ii) our PRC subsidiary’s operating systems and database systems
have password complexity requirements; (iii) our PRC subsidiary has established
Information Security Committee and appoints the CEO, Mr. Tao Guolin to be the head of the committee; (iv) our
PRC subsidiary has formulated a cybersecurity contingency plan and will conduct training and safety drills every year in preparation
for any emergency cybersecurity incidents; (v) our PRC subsidiary has
established data privacy policies to ensure that its collection of data is conducted in accordance with applicable laws and regulations
and that the collection is for legitimate purposes as set out in its agreements.
We are in compliance with PRC laws and regulations
with respect to data security in all material aspects, on the basis that: as of the date of this Amendment, (i) we have implemented comprehensive
internal policies and measures on protection of cyber security, data privacy and personal information as listed above; (ii) there had
been no material incident of data or personal information leakage, infringement of data protection and privacy laws and regulations or
investigation or other legal proceeding, pending or threatened against us initiated by competent government authorities or third parties,
that will materially and adversely affect our business; (iii) we have not received any investigation, notice, warning, penalty or sanction
from applicable government authorities (including the CAC) with regard to our business operations concerning any issues related to cybersecurity
and data security; (iv) we have not been involved in any suits, judicial review, enquiry, or other legal proceedings initiated by applicable
governmental authorities in relation to any violation of applicable regulations or policies that have been issued by the CAC.
While we take various measures to comply with
all applicable data privacy and protection laws and regulations, there is no guarantee that our current security measures and those of
our third-party service providers may always be adequate for the protection of our customer, employee or company data; and like all companies,
we have experienced data incidents from time to time. In addition, given the size of our customer base and the types and volume of personal
data on our system, we may be a particularly attractive target for computer hackers, foreign governments or cyber terrorists. Unauthorized
access to our proprietary internal and customer data may be obtained through break-ins, sabotage, breach of our secure network by an unauthorized
party, computer viruses, computer denial-of-service attacks, employee theft or misuse, breach of the security of the networks of our third-party
service providers, or other misconduct. Because the techniques used by computer programmers who may attempt to penetrate and sabotage
our proprietary internal and customer data change frequently and may not be recognized until launched against a target, we may be unable
to anticipate these techniques. Unauthorized access to our proprietary internal and customer data may also be obtained through inadequate
use of security controls. Any of such incidents may harm our reputation and adversely affect our business and results of operations. In
addition, we may be subject to negative publicity about our security and privacy policies, systems, or measurements from time to time.
Any failure to prevent or mitigate security breaches,
cyber-attacks or other unauthorized access to our systems or disclosure of our customers’ data, including their personal information,
could result in loss or misuse of such data, interruptions to our service system, diminished customer experience, loss of customer confidence
and trust, impairment of our technology infrastructure, and harm our reputation and business, resulting in significant legal and financial
exposure and potential lawsuits and could cause the value of such securities to significantly decline or be worthless. In addition, any
violation of the provisions and requirements under relevant laws and regulations with respect to cyber security, data security and personal
information protection may subject us to rectifications, warnings, fines, confiscation of illegal gains, suspension of the related business,
revocation of licenses, cancellation of qualifications being entered into the relevant credit record or even criminal liabilities.
In April 2020, the Chinese government promulgated
the Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the Cybersecurity Review Measures, operators
of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may
affect national security. On December 28, 2021, the CAC published the Measures for Cybersecurity Review (2021), which became effective
on February 15, 2022 and replace the Measures for Cybersecurity Review promulgated on April 13, 2020. The Measures for Cyber Security
Review (2021) specifies that the procurement of network products and services by operator of critical information infrastructure and
the activities of data process carried out by Internet platform operator that raise or may raise “national security” concerns
are subject to strict cyber security review by Cybersecurity Review Office established by the CAC. Before critical information infrastructure
operator purchases internet products and services, it should assess the potential risk of national security that may be caused by the
use of such products and services. If such use of products and services may give raise to national security concerns, it should apply
for a cybersecurity review by the Cybersecurity Review Office and a report of analysis of the potential effect on national security shall
be submitted when the application is made. In addition, Internet platform operators that possess the personal data of over one million
users must apply for a review by the Cybersecurity Review Office, if they plan to list their companies in foreign countries. The CAC
may voluntarily conduct cyber security review if any network products and services and activities of data process affects or may affect
national security. It may take approximately 70 business days in maximum for the general cybersecurity review upon the delivery of their
applications, which may be subject to extensions for a special review.
On July 7, 2022, the CAC promulgated the Measures
for the Security Assessment for Cross-border Transfer of Data (the “Security Assessment measures”), which will come
into effect on September 1, 2022. The Security Assessment measures stipulates that data processors which provide data cross-border and
have one of the following circumstances, should apply the security assessment to the national network information department through
the provincial branches of network information department: (A) data processors to provide important data cross-border; (B) operators
of critical information infrastructure and data processors handling personal information of more than 1 million people to provide personal
information cross-border;(C) data processors which provide cross-border a cumulative total of 100,000 people’s personal information
or 10,000 people’s sensitive personal information since January 1 of the previous year; (D) other situations requiring application
for the security assessment regarding providing data cross-border as stipulated by the state Internet information department. As of the
date of this Amendment, the PRC subsidiary has not provided any important data or personal data to any offshore institutions or individuals,
so the PRC subsidiary do not need to apply for a security assessment at this stage. However, if we need to provide data to offshore institutions
or individuals in the future and fall into the situations which should apply for the security assessment, we might not pass the security
assessment.
As confirmed by our PRC legal counsel, we
believe that, at this stage, we are not subject to cybersecurity review with the CAC under the Measures for Cybersecurity Review (2021)
which became effective on February 15, 2022, on the basis that (i) our PRC subsidiary currently does not have over one million users’
personal information and does not anticipate that it will be collecting over one million users’ personal information in the foreseeable
future, which we understand might otherwise subject us to the Measures for Cybersecurity Review (2021); (ii) our PRC subsidiary’s
business operations do not involve any Critical Information Infrastructure, and neither we nor the PRC subsidiary has received any notification
from applicable PRC governmental authorities indicating that any of the PRC subsidiary’s products or services is determined as
the Critical Information Infrastructure; and (iii) neither we nor the PRC subsidiary has received any notification from applicable PRC
governmental authorities indicating that we or our PRC subsidiary shall file for a cybersecurity review.
We are also not subject to the network data security review by the
CAC if the Draft Regulation is enacted as proposed, since we currently do not have over one million users’ personal information
and do not collect data that affects or may affect national security and we do not anticipate that we will be collecting over one million
users’ personal information or data that affects or may affect national security in the foreseeable future, which we understand
might otherwise subject us to the Draft Regulation.
However, as there remains significant uncertainty in the interpretation
and enforcement of relevant PRC cybersecurity laws and regulations, we cannot assure you that the PRC regulators will reach the same conclusion
as we and our PRC legal counsel. If in the future, the PRC regulators require us or our PRC subsidiary to apply for a cybersecurity review,
we cannot assure you that we are able to pass such review. In addition, we could become subject to enhanced cybersecurity review or investigations
launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance
with the related laws and regulations may result in fines or other penalties, including suspension our business, website closure, removal
of our app from the relevant app stores, and revocation of prerequisite licenses, as well as reputational damage or legal proceedings
or actions against us, which may have material adverse effect on our business, financial condition or results of operations and cause
the value of such securities to significantly decline or be worthless.
As for the draft measures(including the Revised
Draft and the Draft Regulation) issued by CAC recently, as advised by the PRC legal counsel, since the relevant government authorities
are still seeking comments on the Draft Regulation from the public as of the date of this submission, the Draft Regulation (especially
its operative provision) and its anticipated adoption or effective date are subject to further changes with substantial uncertainty.
We will continue to pay close attention to the legislative and regulatory developments in data security and comply with the latest regulatory
requirements.
Uncertainties exist with respect to the
enactment timetable, interpretation and implementation of the laws and regulations with respect to online platform business operation.
Our business is digital marketing consultation,
not an online platform. But since our PRC subsidiary assists our customers to applying customers’ apps to other app platform, we
may be subject to various internet-related laws and regulations. These internet-related laws and regulations are relatively new and evolving,
and their enactment timetable, interpretation and implementation involve significant uncertainties.
For example, On February 7, 2021, the State Administration
for Market Regulation, or the SAMR, promulgated Guidelines to Anti-Monopoly in the Field of Platform Economy, or the Anti-Monopoly Guidelines
for Platform Economy. The Anti-Monopoly Guidelines for Platform Economy provides operational standards and guidelines for identifying
certain internet platforms’ abuse of market dominant position which are prohibited to restrict unfair competition and safeguard
users’ interests, including without limitation, prohibiting personalized pricing using big data and analytics, selling products
below cost without reasonable causes, actions or arrangements seen as exclusivity arrangements, using technology means to block competitors’
interface, using bundle services to sell services or products. In addition, internet platforms’ compulsory collection of user data
may be viewed as abuse of dominant market position that may have the effect to eliminate or restrict competition. As of the date of this
Amendment, neither we nor our PRC subsidiary have been subject to any anti-monopoly investigation, penalty of litigation initiated by
government authorities or third parties. Furthermore, we will continue to attach attention to the updates of applicable PRC laws and regulations
in relation to antimonopoly.
On August 31, 2018, the Standing Committee of
the National People’s Congress promulgated the E-commerce Law, which came into effect on January 1, 2019. The E-commerce Law imposes
a series of requirements on e-commerce operators including e-commerce platform operators, merchants operating on the platform and the
individuals and entities carrying out business online. The governance measures our PRC subsidiary adopted in response to the enhanced
regulatory requirements may fail to meet these requirements and may lead to penalties or our loss of merchants to those platforms, or
to complaints or claims made against us by customers on our platforms.
In addition, we may be subject to complex and
evolving laws and regulations regarding privacy and data protection. For more details, please see “Risk Factors —
Risks Related to Our Business and Industry — Our PRC subsidiary may be liable for improper collection, use or appropriation of personal
information provided by our customers.”
Currently, these statements and regulatory actions
have had no impact on our daily business operation, the ability to accept foreign investments and list our securities on an U.S. or other
foreign exchange, and there are no new relevant laws or regulations in effect in the PRC explicitly require us to seek approval from the
China Securities Regulatory Commission for our registration. However, since these statements and regulatory actions are new, it is highly
uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or
detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws
and regulations will have on our daily business operation, the ability to accept foreign investments and list our securities on an U.S.
or other foreign exchange.
As there are uncertainties regarding the enactment
timetable, interpretation and implementation of the existing and future internet-related laws and regulations, we cannot assure you that
our business operations will comply with such regulations in all respects and we may be ordered to terminate certain of our business operations
that are deemed illegal by the regulatory authorities and become subject to fines and/or other sanctions which could materially and adversely
affect our business, financial condition, and results of operations.
The approval of the China Securities Regulatory
Commission or other PRC regulatory agencies may be required in connection with this registration under PRC law.
The Regulations on Mergers of Domestic Enterprises
by Foreign Investors, or the M&A Rules, purport to require offshore special purpose vehicles that are controlled by PRC companies
or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions
of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange.
The interpretation and application of the regulations remain unclear. If CSRC approval is required, it is uncertain how long it will take
for us to obtain such approval, and any failure to obtain or a delay in obtaining CSRC approval for this registration may subject us to
sanctions imposed by the CSRC and other PRC regulatory agencies.
As advised by our PRC legal counsel, based on
its understanding of the PRC Laws and our corporate structure up to the date of this Registration, it is of the opinion that we are not
required to apply for the CSRC approval prescribed under the M&A Rules in connection with the Registration. However, there remains
uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas registration which is identical
or similar to the Registration, and the opinions summarized above will be subject to any new PRC laws, rules and regulations or detailed
implementations and interpretations in any form relating to an overseas listing of SPVs like the Company. We cannot assure you that relevant
PRC government agencies, including the CSRC, would reach the same conclusion as our PRC legal counsel. If it is determined that CSRC approval
is required, or if we inadvertently conclude that such approval is not required when it is, we may face sanctions by the CSRC or other
PRC regulatory agencies for failure to obtain or delay in obtaining CSRC approval for the sale of securities. These sanctions may include
fines and penalties on our operations in China, limitations on our operating privileges in China, delays in or restrictions on the repatriation
of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries
in China, or other actions that could have a material and adverse effect on our business financial condition, results of operations, reputation
and prospects, as well as the trading price of our securities. In addition, if the CSRC or other regulatory agencies later promulgate
new rules or explanations requiring that we obtain their approvals for sale of our securities, we may be unable to obtain a waiver of
such approval requirements.
Furthermore, on July 6, 2021, the General Office
of the Communist Party of China Central Committee and the General Office of the State Council jointly promulgated the Opinions on Strictly
Cracking Down on Illegal Securities Activities in Accordance with the Law, pursuant to which PRC regulators are required to accelerate
rulemaking related to overseas issuance and listing of securities, and improvement to the laws and regulations related to data security,
cross-border data flow, and management of confidential information. Numerous regulations, guidelines and other measures have been or are
expected to be adopted under the umbrella of or in addition to the Cybersecurity Law and Data Security Law, including (i) the draft Measures
for the Security Assessment for Cross-border Transfer of Personal Information published by the Cyberspace Administration of China, or
CAC, in 2019, which may, upon enactment, require security review before transferring personal information out of China, and (ii) Measures
for Cybersecurity Review (2021) which provides that, among others, an application for cyber security review shall be made by an issuer
who is a critical information infrastructure operator or a data processing operator as defined therein before such issuer’s listing
in a foreign country if the issuer possesses personal information of more than one million users, and that the relevant governmental authorities
in the PRC may initiate cybersecurity review if such governmental authorities determine an operator’s cyber products or services,
data processing or potential listing in a foreign country affect or may affect national security. As there are still uncertainties regarding
the interpretation and implementation of such regulatory guidance, we cannot assure you that we will be able to comply with new regulatory
requirements relating to our future overseas capital raising activities and our PRC subsidiary may become subject to more stringent requirements
with respect to matters including data privacy, and cross-border investigation and enforcement of legal claims.
Notwithstanding the foregoing, as of the date
of this registration statement, except as disclosed in the “Risk Factor” section - Risks relating to PRC laws and regulations
with respect to foreign exchange”, there are no PRC laws and regulations in force explicitly requiring that our PRC subsidiary obtaining
any permission from PRC authorities to issue securities to foreign investors, and we have not received any inquiry, notice, warning, sanction
or any regulatory objection to this registration from the CSRC, the CAC or any other PRC authorities that have jurisdiction over our operations.
Our PRC legal counsel has advised us that, based on the above and its understanding of the current PRC laws and regulations, as of the
date of this registration statement, we are not required to submit an application to the CSRC, the CAC for the approval of this registration.
However, our PRC legal counsel has further advised us there remains significant uncertainty as to the enactment, interpretation and implementation
of regulatory requirements related to overseas securities registration and other capital markets activities. If it is determined in the
future that CSRC, the CAC or other approval were required for this registration, our PRC subsidiary may face sanctions by the CSRC, the
CAC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability
to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from this registration
into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations
and prospects, as well as the trading price of the Stocks. The CSRC, the CAC or other PRC regulatory agencies also may take actions requiring
us, or making it advisable for us, to halt this registration before settlement and delivery of the Stocks. Consequently, if you engage
in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and
delivery may not occur. In addition, if the CSRC, the CAC or other regulatory agencies later promulgate new rules requiring that our PRC
subsidiary obtaining their approvals for this registration, we may be unable to obtain a waiver of such approval requirements, if and
when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such an approval requirement
could have a material adverse effect on our business and operating results.
As of the date of this
Amendment, we have not received any inquiry, notice, warning, sanctions or regulatory objection to this offering from the CSRC or any
other PRC governmental authorities.
Our PRC subsidiary may be subject to additional
contributions of social insurance and housing fund and late payments and fines imposed by relevant governmental authorities. Non-compliance
with labor-related laws and regulations of the PRC may have an adverse impact on our financial condition and results of operation.
In accordance with the PRC Social Insurance Law
and the Regulations on the Administration of Housing Fund and other relevant laws and regulations, China establishes a social insurance
system and other employee benefits including basic pension insurance, basic medical insurance, work-related injury insurance, unemployment
insurance, maternity insurance, housing fund, and a handicapped employment security fund, or collectively the Employee Benefits. An employer
shall pay the Employee Benefits for its employees in accordance with the rates provided under relevant regulations and shall withhold
the social insurance and other Employee Benefits that should be assumed by the employees. For example, an employer that has not made social
insurance contributions at a rate and based on an amount prescribed by the law, or at all, may be ordered to rectify the non-compliance
and pay the required contributions within a stipulated deadline and be subject to a late fee of up to 0.05% or 0.2% per day, as the case
may be. If the employer still fails to rectify the failure to make social insurance contributions within the stipulated deadline, it may
be subject to a fine ranging from one to three times of the amount overdue.
As the interpretation and implementation of labor-related
laws and regulations are still evolving, we cannot assure you that our employment practice does not and will not violate labor-related
laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated
relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial
condition and results of operations could be materially and adversely affected.
Our PRC subsidiary failed to deposit adequate
contributions to the housing fund for all of its employees and may be reported by its employees to the People’s court for enforcement.
Our PRC subsidiary failed to deposit adequate
contributions to the housing funds for all of its employees, but has not received any notice of warning or been subject to penalties
or other disciplinary action from the relevant governmental authorities for non-compliance on labor-related laws and regulations. As
a remediation, our PRC subsidiary started to deposit the adequate contributions to the housing funds from July 2021 onwards. Before July
2021, our PRC subsidiary failed to deposit adequate contributions of housing provident fund for all employees in accordance with Article
15 of the regulations on the administration of housing provident fund. As of the date of this Amendment, our PRC subsidiary did not receive
any warning and punishment notice from the authority. As advised by the PRC legal counsel, according to Article 38 of the Regulations
on the Administration of Housing Provident Funds, if an employer fails to make the housing provident fund contributions on time or at
a rate and based on an amount prescribed by the law, or at all, may be ordered by the housing provident fund management center to rectify
the non-compliance and pay the required contributions within a stipulated deadline. If the employer still fails to rectify the failure
to make housing provident fund contributions within the stipulated deadline, the housing provident fund management center may apply to
the people’s court for enforcement. The maximum amount that the housing provident fund management center may apply for enforcement
could be the total accumulated amount of the company’s unpaid housing fund.
PRC laws and regulations governing our current
business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability to operate profitably.
There are substantial uncertainties regarding
the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business
and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations are sometimes
vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. The
effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed,
and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different
from our understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may
also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on
our business.
Because our business is conducted in
RMB and the price of the Company’s common stock is quoted in United States dollars, changes in currency conversion rates may affect
the value of the Company.
Our business is conducted in the PRC, our books
and records are maintained in RMB, which is the lawful currency of the PRC, and the financial statements that we file with the SEC and
provide to our shareholders are presented in United States dollar. Changes in the exchange rate between the RMB and United States dollar
affect the value of our assets and the results of our operations in United States dollar. The value of the RMB against the United States
dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions
and perceived changes in the economy of the PRC and the United States. Any significant revaluation of the RMB may materially and adversely
affect our cash flows, revenue and financial condition.
Under the PRC Enterprise Income Tax Law,
or the EIT Law, our PRC subsidiary may be classified as a “resident enterprise” of China, which could result in unfavorable
tax consequences to us and our non-PRC shareholders.
The EIT Law and its implementing rules provide
that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident
enterprises” under PRC tax laws. The implementing rules promulgated under the EIT Law define the term “de facto management
bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an
enterprise. In April 2009, the State Administration of Taxation, or SAT, issued the Circular on Issues Concerning the Identification of
Chinese-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance With the Actual Standards of Organizational Management,
known as SAT Circular 82, which has been revised by the Decision of the State Administration of Taxation on Issuing the Lists of Invalid
and Abolished Tax Departmental Rules and Taxation Normative Documents on December 29, 2017 and by the Decision of the State Council on
Cancellation and Delegation of a Batch of Administrative Examination and Approval Items on November 8, 2013. Circular 82 has provided
certain specific criteria for determining whether the “de facto management bodies” of a PRC-controlled enterprise that is
incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or
PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s
general position on how the “de facto management body” text should be applied in determining the tax resident status of all
offshore enterprises. According to SAT Circular 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax
resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its
worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments
that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the
territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel
decisions (such as appointment, dismissal, salary and wages) are made or need to be made by organizations or persons located within the
territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’
meetings of the enterprise are located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior
management staff having the right to vote habitually reside within the territory of China.
If our PRC subsidiary is deemed as a PRC “resident
enterprise” by PRC tax authorities, we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate
of 25%, although dividends distributed to us from our existing PRC subsidiary and any other PRC subsidiaries which our PRC subsidiary
may establish from time to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient”
status. This could have a material and adverse effect on our overall effective tax rate, our income tax expenses and our net income. Furthermore,
dividends, if any, paid to our shareholders may be decreased as a result of the decrease in distributable profits. In addition, if we
were considered a PRC “resident enterprise”, any dividends our PRC subsidiary pays to our non-PRC investors, and the gains
realized from the transfer of the Company’s common stock may be considered income derived from sources within the PRC and be subject
to PRC 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). It is unclear whether holders of the Company’s common stock would be able to claim the
benefits of any tax treaties between their country of tax residence and the PRC in the event that our PRC subsidiary is treated as a PRC
resident enterprise. This could have a material and adverse effect on the value of the price of the Company’s common stock.
There are significant uncertainties under
the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore
subsidiaries may not qualify to enjoy certain treaty benefits.
Under the EIT Law and its implementation rules,
the profits of a foreign invested enterprise generated through operations, which are distributed to its immediate holding company outside
the PRC, will be subject to a withholding tax rate of 10%. Pursuant to the Arrangement between the Mainland China and the Hong
Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement,
a withholding tax rate of 10% may be lowered to 5% if the PRC enterprise is at least 25% held by a Hong Kong enterprise for at least 12
consecutive months prior to distribution of the dividends and is determined by the relevant PRC tax authority to have satisfied other
conditions and requirements under the Double Tax Avoidance Arrangement and other applicable PRC laws.
However, based on the Circular on Certain
Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or the SAT Circular 81, which became effective on February
20, 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate
due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According
to Circular on Several Issues regarding the “Beneficial Owner” in Tax Treaties, which became effective as of April
1, 2018, when determining an applicant’s status as the “beneficial owner” regarding tax treatments in connection with
dividends, interests, or royalties in the tax treaties, several factors will be taken into account. Such factors include whether the business
operated by the applicant constitutes actual business activities, and whether the counterparty country or region to the tax treaties does
not levy any tax, grant tax exemption on relevant incomes, or levy tax at an extremely low rate. This circular further requires any applicant
who intends to be proved of being the “beneficial owner” to file relevant documents with the relevant tax authorities. Our
PRC subsidiary is wholly owned by our Hong Kong subsidiary. However, we cannot assure you that our determination regarding our qualification
to enjoy the preferential tax treatment will not be challenged by the relevant PRC tax authority or we will be able to complete the necessary
filings with the relevant PRC tax authority and enjoy the preferential withholding tax rate of 5% under the Double Tax Avoidance Arrangement
with respect to dividends to be paid by our PRC subsidiary to our HK subsidiary, in which case, we would be subject to the higher withdrawing
tax rate of 10% on dividends received.
PRC regulation of loans to and direct investment
in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans
or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to
fund and expand our business.
We are an offshore holding company conducting
our operations in China through our PRC subsidiary. We may make loans to our PRC subsidiary, or we may make additional capital contributions
to our PRC subsidiary. Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiary, are subject to PRC
regulations. For example, loans to our PRC subsidiary cannot exceed statutory limits and are subject to foreign exchange loan registrations.
Our capital contributions to our PRC subsidiary must be registered with the MOFCOM or its local counterpart.
In light of the various requirements imposed by
of PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will
be able to complete the necessary government registrations or obtain the necessary government approvals or filings on a timely basis,
if at all, with respect to future loans by us to our PRC subsidiary or with respect to future capital contributions by us to our PRC subsidiary.
If we fail to complete such registrations or obtain such approvals on a timely basis or at all, our ability to capitalize or otherwise
fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund
and expand our business.
Government control in currency conversion
may adversely affect our financial condition, our ability to remit dividends, and the value of your investment.
The PRC government imposes controls on the convertibility
of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of
our revenues in Renminbi. Under our current corporate structure, our holding companies may rely on dividend payments from our PRC subsidiaries
to fund any cash and financing requirements we may have.
Under existing PRC foreign exchange regulations,
Renminbi cannot be freely converted into any foreign currency, and conversion and remittance of foreign currencies are subject to PRC
foreign exchange regulations. It cannot be guaranteed that under a certain exchange rate, we will have sufficient foreign exchange to
meet our foreign exchange requirements. Under the current PRC foreign exchange control system, foreign exchange transactions under the
current account conducted by us, including the payment of dividends, do not require advance approval from SAFE, but we are required to
present documentary evidence of such transactions and conduct such transactions at designated foreign exchange banks within China that
have the licenses to carry out foreign exchange business. Foreign exchange transactions under the capital account conducted by us, however,
must be approved in advance by SAFE.
Under existing foreign exchange regulations, we
will be able to pay dividends in foreign currencies without prior approval from SAFE by complying with certain procedural requirements.
However, we cannot assure you that these foreign exchange policies regarding payment of dividends in foreign currencies will continue
in the future.
In fact, in light of the flood of capital outflows
of China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive foreign exchange policies and stepped
up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial vetting process
are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated
by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be
subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future
to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign
currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including
holders of the Company’s common stock. Our capital expenditure plans and our business, operating results and financial condition
may be materially and adversely affected.
If we become directly subject to the scrutiny,
criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and
resolve the matter which could harm our business operations, stock price and reputation.
U.S. public companies that have substantially
all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators
and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on 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 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 us, 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 business. If such allegations are not proven to be groundless, we and
our business operations will be severely affected.
The disclosures in the Company’s reports
and other filings with the SEC and the Company’s other public pronouncements are not subject to the scrutiny of any regulatory bodies
in the PRC.
The Company is regulated by the SEC and our reports
and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the
Securities Act and the Exchange Act. The Company’s SEC reports and other disclosures and public pronouncements are not subject to
the review or scrutiny of any PRC regulatory authority. For example, the disclosure in the Company’s SEC reports and other filings
are not subject to the review by the China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the
capital markets in China. Accordingly, reader should review the Company’s SEC reports, filings and our other public pronouncements
with the understanding that no local regulator has done any review of the Company, its SEC reports, other filings or any of our other
public pronouncements.
Risks relating to PRC laws and regulations
with respect to foreign exchange
The Regulation on Foreign Exchange Administration
of the People’s Republic of China (the “Regulation on Foreign Exchange Administration”) was promulgated by the State
Council of the PRC and came into effect on August 5, 2008. According to Regulation on Foreign Exchange Administration, a PRC individual
that makes direct investment or trades negotiable securities or derivative products overseas shall handle the registration formalities
at the foreign exchange administrative department of the State Council. If the relevant provisions require such individual to obtain a
pre-approval from or complete a filing with the competent department, he or she shall do so before handling the registration formalities.
Where any evasion of foreign exchange control is committed, such as transferring foreign exchange within the territory of the PRC to the
overseas in violation of PRC laws and regulations or transferring capital within the territory of the PRC to the overseas by fraudulent
means, competent foreign exchange administrative authority shall order the return of the foreign exchange within a prescribed time limit,
and impose a fine of no more than 30% of the amount of foreign exchange evading government control; or if the circumstances are serious,
impose a fine of no more than 100% but no less than 30% of the amount of foreign exchange evading government control; and if the activity
constitutes a crime, the violator shall be subject to criminal liabilities according to relevant laws and regulations. In addition, where
any individual, in violation of the foreign exchange provisions, changes the designated use of foreign exchange, the foreign exchange
administrative authority shall order such individual to correct such illegal act, confiscate the illegal proceeds and impose a fine of
no more than 30% of the amount of violation; or if the circumstances are serious, it may impose a fine of no more than 100% but no less
than 30% of the amount of violation.
In July 2014, SAFE promulgated the Circular on
Issues Concerning Foreign Exchange Administration Over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents
Via Special Purpose Vehicles, or Circular 37, which replaced Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’
Corporate Financing and Roundtrip Investment through Offshore Special Purpose Vehicles, or Circular 75. Circular 37 requires PRC residents
to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, referred
to in Circular 37 as a “special purpose vehicle” for the purpose of holding domestic or offshore assets or interests. Circular
37 further requires amendment to a PRC resident’s registration in the event of any significant changes with respect to the special
purpose vehicle, such as an increase or decrease in the capital contributed by PRC individuals, share transfer or exchange, merger, division
or other material event. Under these regulations, PRC residents’ failure to comply with specified registration procedures may result
in restrictions being imposed on the foreign exchange activities of the relevant PRC entity, including the payment of dividends and other
distributions to its offshore parent, as well as restrictions on capital inflows from the offshore entity to the PRC entity, including
restrictions on its ability to contribute additional capital to its PRC subsidiaries. Further, failure to comply with the SAFE registration
requirements could result in penalties under PRC law for evasion of foreign exchange regulations.
Guolin Tao and Ying Sun, each, a “Beneficial
Owner,” and together, the “Beneficial Owners”, who are our major beneficial owners and are PRC individuals and PRC residents,
have not completed the relevant foreign exchange registrations as required by PRC laws and regulations. We have also requested our shareholders
who are PRC individuals or PRC residents to make the necessary applications, filings, and amendments as required under PRC laws and regulations.
However, there is uncertainty concerning under what circumstances residents of other countries and regions can be classified as a PRC
resident. The PRC government authorities may interpret our beneficial owners’ status differently or their status may change in the
future. Moreover, we may not be fully informed of the identities of our beneficial owners and we cannot assure you that all of our PRC
individual or PRC resident beneficial owners will comply with PRC laws and regulations with respect to foreign exchange.
Although the current PRC laws and regulations
mainly provide for corresponding penalties for PRC individual who is actually in violation of the PRC laws and regulations, we cannot
exclude the possibility that any failure of our beneficial owners who are PRC individuals or PRC residents to make any required registrations
may subject us to fines and legal sanctions, and prevent us from being able to make distributions or pay dividends, as a result of which
our business operations and our ability to distribute profits to you could be materially adversely affected.
Increases in labor costs in the PRC may
adversely affect our business and our profitability.
China’s economy has experienced increases
in labor costs in recent years, which is expected to continue to grow. The average wage level for our employees will also need to be increased
in order to keep them. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are
able to pass on these increased labor costs to our customers by increasing prices for our products or services, our profitability and
results of operations may be materially and adversely affected.
In addition, our PRC subsidiary has been subject
to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee
benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing
insurance to designated government agencies for the benefits of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract
Law, that became effective in January 2008 and its implementing rules that became effective in September 2008 and its amendments that
became effective in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying
remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that our PRC
subsidiary decides to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and
its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely
affect our business and results of operations.
As the interpretation and implementation of labor-related
laws and regulations are still evolving, we cannot assure that our employment practice does not and will not violate labor-related laws
and regulations in China, which may subject us to labor disputes or government investigations. If our PRC subsidiary is deemed to have
violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business,
financial condition and results of operations could be materially and adversely affected.
We may be involved from time to time in
legal proceedings and commercial or contractual disputes, which could have a material adverse effect on our business, results of operations
and financial condition.
From time to time, we may be involved in legal
proceedings and commercial disputes. Such proceedings or disputes are typically claims that arise in the ordinary course of business,
including, without limitation, commercial or contractual disputes, and other disputes with customers and suppliers, intellectual property
matters, tax matters and employment matters. There can be no assurance that such proceedings and claims, should they arise, will not have
a material adverse effect on our business, results of operations and financial condition.
The directors and executive officers of
the subsidiaries, as well as our employees who execute other strategic initiatives may have potential conflicts of interests with the
Company.
If any of the directors and executive officers
of the Company’s subsidiaries, as well as our employees who execute other strategic initiatives, have a conflict of interests with
the Company, they may bring an opportunity elsewhere. Thereby, we would lose out on the business.
Under PRC law, legal documents for corporate
transactions, including agreements and contracts are executed using the chop or seal of the signing entity or with the signature of a
legal representative whose designation is registered and filed with relevant PRC industry and commerce authorities.
To ensure the use of our seals and seals, our
PRC subsidiary has established internal control procedures and rules for the use of these seals and seals. If a seal and seal are to be
used, the responsible person will submit an application through our office automation system, and the application will be verified and
approved by an authorized employee in accordance with our internal control procedures and rules. In addition, in order to maintain the
physical security of the seals, we usually store them in a secure location that only authorized employees can access. Although we monitor
these authorized employees, these procedures may not be sufficient to prevent all abuse or negligence. Our employees are at risk of abuse
of authority. For example, any employee who acquires, abuses or misappropriates our seals and seals or other controlling intangible assets
for any reason, we may suffer from disruption of normal business operations, and we may have to take a company or legal action, this can
cost a lot of time and money.
Future inflation in China may inhibit our
ability to conduct business in China.
In recent years, the Chinese economy has experienced
periods of rapid expansion and highly fluctuating rates of inflation. During the past ten years, the rate of inflation in China has been
significant. These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed
to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government
to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm
the market for our products and our company.
Claims against the Company or its management
may be hard to initiate and to enforce. Even if successful, claims against the Company or its management may be nearly impossible to collect
upon.
While the Company’s service of process provider,
National Registered Agent, Inc., is located at 701 Carson Street, Suite 200, Carson City, NV 89701, USA, there is no guarantee that service
of process can be successfully completed against the Company’s operating subsidiaries or its management, as they are based in China.
Even with successful service of process to National Registered Agent, you may be unable to enforce a court judgment against the Company’s
operating subsidiaries or its management, as they have no property in the United States, to which such judgment could be attached.
You may face difficulties in effecting service
of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in this registration statement
based on foreign laws.
We, through our PRC subsidiary, conduct our business
in China, and our assets are located in China. In addition, all of our senior executive officers are PRC nationals and they have lived
in China for a significant portion of time. As a result, it may be difficult or impossible for you to bring an action against us or against
our management named in this registration statement in the United States in the event that you believe that your rights have been infringed
under the U.S. federal securities laws or otherwise as it may be difficult for our shareholders to effect service of process upon us or
those persons inside China. Furthermore, China does not have treaties providing for the reciprocal recognition and enforcement of judgments
of courts with many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions
in relation to any matter not subject to a binding arbitration provision may be difficult or impossible. Even if you are successful
in bringing an action of this kind, the laws of China may render you unable to enforce a judgment against our assets or the assets of
our directors and officers.
Furthermore, as a matter of law or practicality,
it is generally difficult to pursue shareholder claims including securities law class actions and fraud claims in China, which are contrarily
common in the United States. For example, you may experience significant legal and practical obstacles to obtaining necessary information
for shareholder investigations or litigations outside China or with respect to foreign entities. Although the local authorities in China
may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement
cross-border supervision and administration, so far no such cooperation has been established with the United States securities regulatory
authorities. In addition, Article 177 of the PRC Securities Law which became effective in March 2020 promulgated that no overseas securities
regulator is allowed to conduct investigation or evidence collection activities directly in the PRC. Therefore, without approval from
the competent PRC securities regulators and relevant authorities, no organization or individual may provide documents and materials relating
to the securities activities to overseas entities. While detailed interpretation of or implementation rules under Article 177 has yet
to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities
within China may further increase the difficulties you face in protecting your interests.
Restrictions on currency exchange under
PRC laws may limit our ability to convert cash derived from our operating activities into foreign currencies and may materially and adversely
affect the value of the Company’s common stock.
The PRC government imposes controls on the convertibility
of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We, through our PRC subsidiary, receive
our revenue in Renminbi. Under our current corporate structure, our income is primarily derived from dividend payments from Entrepreneurship
World Consultants, the EWC WFOE. Shortages in the availability of foreign currency may restrict the ability of EWC WFOE to remit sufficient
foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations, if any.
Under existing PRC foreign exchange regulations, conversion of Renminbi is permitted, without prior approval from the SAFE, for current
account transactions, including profit distributions, interest payments and expenditures from trade-related transactions, as long as certain
procedural requirements are complied with. However, any existing and future restrictions on currency exchange in China may limit our ability
to convert cash derived from our operating activities into foreign currencies to fund expenditures denominated in foreign currencies.
If the foreign exchange restrictions in China prevent us from obtaining U.S. dollars or other foreign currencies as required, our PRC
subsidiary may not be able to pay dividends in U.S. dollars or other foreign currencies to our Shareholders.
The audit report included in this Amendment
is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and as such, the Company’s investors
are deprived of the benefits of such inspection. The Company could be delisted if it is unable to timely meet the PCAOB inspection
requirements established by the Holding Foreign Companies Accountable Act.
As a public company with securities quoted
on the OTC Pink Sheets, the Company will be required to have our financial statements audited by an independent registered public accounting
firm registered with the PCAOB. A requirement of being registered with the PCAOB is that if requested by the SEC or PCAOB, such accounting
firm is required to make its audits and related audit work papers be subject to regular inspections to assess its compliance with the
applicable professional standards. Since the Company’s auditor is located in Hong Kong and China, a jurisdiction where the PCAOB
has been unable to conduct inspections without the approval of the Chinese authorities due to various state secrecy laws and the revised
Securities Law, the PCAOB currently does not have free access to inspect the work of the Company’s auditor. This lack of access
to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the Company’s
auditor based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB
to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit
procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections.
On December 18, 2020, the Holding Foreign Companies
Accountable Act, or HFCAA, was enacted. In essence, the act requires the SEC to prohibit securities of any foreign companies from being
listed on U.S. securities exchanges or traded “over-the-counter” if a company retains a foreign accounting firm that cannot
be inspected by the PCAOB for three consecutive years, beginning in 2021. The Company’s independent registered public accounting
firm is located in and organized under the laws of Hong Kong and China, a jurisdiction where the PCAOB is currently unable to conduct
inspections without the approval of the Chinese authorities, and therefore the Company’s auditors are not currently inspected by
the PCAOB.
On
March 24, 2021, the SEC adopted interim final amendments, which will become effective 30 days after publication in the Federal Register,
relating to the implementation of certain disclosure and documentation requirements of the HFCAA. The interim final amendments will apply
to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting
firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because
of a position taken by an authority in that jurisdiction. Before any registrant will be required to comply with the interim final amendments,
the SEC must implement a process for identifying such registrants. As of the date of this Amendment, the SEC is seeking public comment
on this identification process. Consistent with the HFCAA, the amendments will require any identified registrant to submit documentation
to the SEC establishing that the registrant is not owned or controlled by a government entity in that jurisdiction, and will also require,
among other things, disclosure in the registrant’s annual report regarding the audit arrangements of, and government influence
on, such registrant.
On
June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act which, if enacted, would decrease the
number of non-inspection years from three years to two, thus reducing the time period before the Company’s securities may be delisted
or prohibited from trading.
On
November 5, 2021, the SEC approved PCAOB Rule 6100, Board Determination Under the Holding Foreign Companies Accountability Act, effective
immediately. The rule establishes “a framework for the PCAOB’s determinations under the HFCAA that the PCAOB is unable to
inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by
an authority in that jurisdiction.”
On
December 2, 2021, SEC has announced the adoption of amendments to finalize rules implementing the submission and disclosure requirements
in the HFCAA. The rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued by a registered
public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate (Commission-Identified
Issuers). The final amendments require Commission-Identified Issuers to submit documentation to the SEC establishing that, if true, it
is not owned or controlled by a governmental entity in the public accounting firm’s foreign jurisdiction. The amendments also require
that a Commission-Identified Issuer that is a “foreign issuer,” as defined in Exchange Act Rule 3b-4, provide certain additional
disclosures in its annual report for itself and any of its consolidated foreign operating entities. Further, the adopting release provides
notice regarding the procedures the SEC has established to identify issuers and to impose trading prohibitions on the securities of certain
Commission-Identified Issuers, as required by the HFCAA. The SEC will identify Commission-Identified Issuers for fiscal years beginning
after December 18, 2020. A Commission-Identified Issuer will be required to comply with the submission and disclosure requirements in
the annual report for each year in which it was identified. If a registrant is identified as a Commission-Identified Issuer based on
its annual report for the fiscal year ended December 31, 2021, the registrant will be required to comply with the submission or disclosure
requirements in its annual report filing covering the fiscal year ended December 31, 2022.
On
December 16, 2021, PCAOB issued a report on its determinations that PCAOB is unable to inspect or investigate completely PCAOB-registered
public accounting firms headquartered in mainland China and in Hong Kong, a Special Administrative Region of the People’s Republic
of China (PRC), because of positions taken by PRC authorities in those jurisdictions. The PCAOB made these determinations pursuant to
PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the HFCAA. The report further listed
in its Appendix A and Appendix B, Registered Public Accounting Firms Subject to the Mainland China Determination and Registered Public
Accounting Firms Subject to the Hong Kong Determination, respectively. The audit report included in this registration statement for the
years ended December 31, 2021 and 2020, was issued by CZD CPA, an audit firm headquartered in Hong Kong, a jurisdiction that the PCAOB
has determined that the PCAOB is unable to conduct inspections or investigate auditors. The Company’s auditors CZD CPA is among
those listed by the PCAOB Hong Kong Determination, a determination announced by the PCAOB on December 16, 2021 that the PCAOB is unable
to inspect or investigate completely registered public accounting firms headquartered in Hong Kong, a Special Administrative Region and
dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. The lack of access to the PCAOB inspection
in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result,
the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors
in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures
as compared to auditors outside of China that are subject to the PCAOB inspections. In addition, under the HFCAA, the Company’s
securities may be prohibited from trading on the U.S. stock exchanges or in the over the counter trading market in the U.S. if the Company’s
auditor is not inspected by the PCAOB for three consecutive years, and this ultimately could result in the Company’s common stock
being delisted. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”),
which, if enacted, would amend the HFCAA and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock
exchanges or in the over the counter trading market in the U.S. if its auditor is not subject to PCAOB inspections for two consecutive
years instead of three.
On April 22, 2022, the SEC provisionally identified
the Company as a “covered issuer” that has retained a registered public accounting firm to issue an audit report where
that registered public accounting firm has a branch or office that (i) is located in a foreign jurisdiction and (ii) the PCAOB
is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction under the HFCAA. On May
12, 2022, that provisional identification became conclusive and the Company is now subject to the requirements under the HFCAA, including
the prohibition on the trading of such issuer’s securities on a national securities exchange or through any other method is within
the SEC’s jurisdiction to regulate, including “over-the-counter” trading. While this identification of the Company
as a Commission-Identified Issuer will not immediately prohibit the trading of the Company’s securities on the OTC Pink Sheets,
the Company may be prohibited from trading on a national securities exchange, including trading in the “over-the-counter”
market, if the Company continues to be unavailable for PCAOB inspection or investigation for three consecutive years under the HFCAA
(or two years under the AHFCAA). In addition, after the first year of identification, the Company will be subject to new submission and
disclosure requirements in its subsequent annual reports.
If the SEC makes the same determination in
the subsequent two years due to the PCAOB’s continued inability to inspect or investigate completely the Company’s independent
auditor, the SEC could prohibit trading of the shares of common stock of the company on any U.S. securities exchange, including the over-the-counter
market as early as 2024; and as a result our shares may be delisted from the OTC Pink Sheets. In addition, if the AHFCAA becomes law,
such a prohibition could take effect as early as 2023. If the Company does not engage an auditor that is subject to regular inspection
by the PCAOB, its common stock may be delisted.
In addition, the SEC may propose additional rules
or guidance that could impact the Company if its auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President’s
Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese
Companies to the then President of the United States. This report recommended that the SEC implement five recommendations to address
companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts
of these recommendations were implemented with the enactment of the HFCAA. However, some of the recommendations were more stringent than
the HFCAA. For example, if a company was not subject to PCAOB inspection, the report recommended that the transition period before a
company would be delisted would end on January 1, 2022.
The
enactment of the HFCAA and the implications of any additional rulemaking efforts to increase U.S. regulatory access to audit information
in China could cause investor uncertainty for affected SEC registrants, including us, and the market price of the Company’s common
stock could be materially adversely affected. Additionally, whether the PCAOB will be able to conduct inspections of the Company’s
auditors in the next three years, or at all, is subject to substantial uncertainty and depends on a number of factors out of our control.
If the Company is unable to meet the PCAOB inspection requirement in time, our stock will not be permitted for trading “over-the
counter” either. Such a delisting would substantially impair your ability to sell or purchase our stock when you wish to do so,
and the risk and uncertainty associated with delisting would have a negative impact on the price of the Company’s stock. Also,
such a delisting would significantly affect the Company’s ability to raise capital on terms acceptable to us, or at all, which
would have a material adverse impact on our business, financial condition and prospects.
Risks
Related to the Market for the Company’s Common Stock
Our
CEO owns a significant percentage of the Company’s common stock and will be able to exert significant control over matters subject
to shareholder approval.
Our
CEO and majority shareholder, Mr. Guolin Tao, has beneficial ownership of 1,030,916,276 shares of common stock of the Company. These
shares represent ownership of approximately 60.60% of the Company’s common stock as of July 12, 2022. Mr. Guolin Tao may be able
to determine all matters requiring shareholder approval. For example, Mr. Guolin Tao may be able to control elections of directors, amendments
of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or
discourage unsolicited transaction proposals or offers for the Company’s common stock that you may believe are in your best interest
as one of our shareholders.
Since
the Company’s common stock is traded on the OTC Pink Sheets, an active, liquid trading market for the Company’s common stock
may not develop or be sustained. If and when an active market develops the price of the Company’s common stock may be volatile.
Presently,
the Company’s common stock is traded on the Over-The-Counter (“OTC”) Pink Sheets. Presently there is limited trading
in the Company’s stock and in the absence of an active trading market investors may have difficulty buying and selling or obtaining
market quotations, market visibility for shares of the Company’s common stock may be limited, and a lack of visibility for shares
of the Company’s common stock may have a depressive effect on the market price for shares of its common stock.
The
lack of an active market impairs your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable.
The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to
raise capital to continue to fund operations by selling shares.
Trading
in stocks quoted on the OTC Pink Sheets is often thin and characterized by wide fluctuations in trading prices, due to many factors that
may have little to do with our operations or business prospects. The securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may
also materially and adversely affect the market price of shares of the Company’s common stock. Moreover, the OTC Pink Sheets is
not a stock exchange, and trading of securities is often more sporadic than the trading of securities listed on a quotation system like
Nasdaq or a national stock exchange like the NYSE. Accordingly, stockholders may have difficulty reselling any shares of common stock.
The
Company’s Board of Directors may authorize and issue shares of new classes of stock that could be superior to or adversely affect
you as a holder of the Company’s common stock
The
Company’s board of directors has the power to authorize and issue shares of classes of stock, including preferred stock that have
voting powers, designations, preferences, limitations and special rights, including preferred distribution rights, conversion rights,
redemption rights and liquidation rights without further shareholder approval which could adversely affect the rights of the holders
of the Company’s common stock. In addition, the Company’s board could authorize the issuance of a series of preferred stock
that has greater voting power than the Company’s common stock or that is convertible into the Company’s common stock, which
could decrease the relative voting power of the Company’s common stock or result in dilution to the Company’s existing common
stockholders.
Any
of these actions could significantly adversely affect the investment made by holders of the Company’s common stock. Holders of
common stock could potentially not receive dividends that they might otherwise have received. In addition, holders of the Company’s
common stock could receive less proceeds in connection with any future sale of the Company, whether in liquidation or on any other basis.
There
is a limited public market for the Company’s common stock.
There
is currently a limited public market for the common stock. Holders of the Company’s common stock may, therefore, have difficulty
selling their common stock, should they decide to do so. In addition, there can be no assurances that such markets will continue or that
any shares of common stock will be able to be sold without incurring a loss. Any such market price of the common stock may not necessarily
bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value,
and may not be indicative of the market price for the common stock in the future. Further, the market price for the common stock may
be volatile depending on a number of factors, including business performance, industry dynamics, news announcements or changes in general.
We
may, in the future, issue additional common shares, which would reduce investors’ percent of ownership and may dilute the
Company’s share value.
The
Company’s Articles of Incorporation authorizes the issuance of 1,800,000,000 shares of common stock. As of July 12, 2022, we have
1,701,181,423 shares of common stock issued and outstanding. The future issuance of common stock will result in substantial dilution
in the percentage of the Company’s common stock held by the Company’s then existing shareholders. We may value any common
stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate
actions may have the effect of diluting the value of the shares held by the Company’s investors and might have an adverse effect
on any trading market for the Company’s common stock.
There
is a limited market for the Company’s common stock, which may make it difficult for holders of the Company’s common stock
to sell their stock.
The
Company’s common stock currently trades on the OTC Pink Sheets under the symbol “EUBG” and currently there is minimal
trading in the Company’s common stock. There can be no assurance as to the liquidity of any markets that may develop for the Company’s
common stock, the ability of holders of the Company’s common stock to sell the Company’s common stock, or the prices at which
holders may be able to sell the Company’s common stock. Further, many brokerage firms will not process transactions involving low
price stocks, especially those that come within the definition of a “penny stock.” If we cease to be quoted, holders of the
Company’s common stock may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of the
Company’s common stock, and the market value of the Company’s common stock would likely decline.
The
trading price of the Company’s common stock is likely to be volatile, which could result in substantial losses to investors.
The
trading price of the Company’s common stock is likely to be volatile and could fluctuate widely due to factors beyond our control.
This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other
companies with business operations located outside of the United States. In addition to market and industry factors, the price and trading
volume for the Company’s common stock may be highly volatile for factors specific to our own operations, including the following:
| ● | variations
in our revenues, earnings and cash flow; |
| ● | announcements
of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; |
| ● | announcements
of new offerings, solutions and expansions by us or our competitors; |
| ● | changes
in financial estimates by securities analysts; |
| ● | detrimental
adverse publicity about us, our brand, our services or our industry; |
| ● | additions
or departures of key personnel; |
| ● | sales
of additional equity securities; and |
| ● | potential
litigation or regulatory investigations. |
Any
of these factors may result in large and sudden changes in the volume and price at which the Company’s common stock will trade.
In
the past, shareholders of public companies have often brought securities class action suits against those companies following periods
of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount
of our management’s attention and other resources from our business and operations and require us to incur significant expenses
to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our
reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be
required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
Lack
of market and state blue sky laws may make shares of the Company’s common stock more difficult to sell.
Investors
may have difficulty in reselling their shares due to the lack of market or state Blue Sky laws. The holders of the Company’s shares
of common stock and persons who desire to purchase them in any trading market that might develop in the future should be aware that there
may be significant state law restrictions upon the ability of investors to resell the Company’s shares. Accordingly, even if we
are successful in having the shares available for trading on the OTC, investors should consider any secondary market for the Company’s
securities to be a limited one. We intend to seek coverage and publication of information regarding our Company in an accepted publication
which permits a “manual exemption.” This manual exemption permits a security to be distributed in a particular state without
being registered if the company issuing the security has a listing for that security in a securities manual recognized by the state.
However, it is not enough for the security to be listed in a recognized manual. The listing entry must contain (1) the names of issuers,
officers, and directors, (2) an issuer’s balance sheet, and (3) a profit and loss statement for either the fiscal year preceding
the balance sheet or for the most recent fiscal year of operations. We may not be able to secure a listing containing all of this information.
Furthermore, the manual exemption is a non-issuer exemption restricted to secondary trading transactions, making it unavailable for issuers
selling newly issued securities. Most of the accepted manuals are those published in Standard and Poor’s, Moody’s Investor
Service, Fitch’s Investment Service, and Best’s Insurance Reports, and many states expressly recognize these manuals. A smaller
number of states declare that they “recognize securities manuals” but do not specify the recognized manuals. The following
states do not have any provisions and therefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky,
Louisiana, Montana, South Dakota, Tennessee, Vermont, and Wisconsin.
Accordingly,
the Company’s shares of Common Stock should be considered totally illiquid, which inhibits investors’ ability to resell their
shares.
We
are subject to the penny stock rules, which will make shares of the Company’s common stock more difficult to sell.
We
will be subject to penny stock regulations and restrictions and you may have difficulty selling shares of the Company’s common
stock. The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has
a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. We anticipate
that the Company’s common stock will become a “penny stock”, and we will become subject to Rule 15g-9 under the Exchange
Act, or the “Penny Stock Rule”. This rule imposes additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers. For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result,
this rule may affect the ability of broker-dealers to sell the Company’s securities and may affect the ability of purchasers to
sell any of the Company’s securities in the secondary market.
For
any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure
schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable
to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market
in penny stock.
We
do not anticipate that the Company’s common stock will qualify for exemption from the Penny Stock Rule. In any event, even if the
Company’s common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the Commission the authority to restrict any person from participating in a distribution of penny stock, if the Commission
finds that such a restriction would be in the public interest.
Shares
of the Company’s common stock that have not been registered under federal securities laws are subject to resale restrictions imposed
by Rule 144, including those set forth in Rule 144(i) which apply to a former “shell company.”
We
were deemed a “shell company” under applicable SEC rules and regulations because we had no or nominal operations and either
no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents
and nominal other assets. Pursuant to Rule 144 promulgated under the Securities Act, sales of the securities of a former shell company,
such as us, under that rule are not permitted unless at the time of a proposed sale, we have filed Form 10 information with the SEC,
we are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and have filed all reports and other materials
required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports.
Additionally, our previous status as a shell company could also limit our use of our securities to pay for any acquisitions we may seek
to pursue in the future. The lack of liquidity of the Company’s securities as a result of the inability to sell under Rule 144
for a longer period of time than a non-former shell company could cause the market price of the Company’s securities to decline.
There can be no assurance that we will ever meet these conditions and any purchases of the Company’s shares are subject to these
restrictions on resale.
We
currently do not have an audit or compensation committee
Because
we do not have an audit or compensation committee, stockholders will have to rely on the Company’s entire Board of Directors, none
of which are independent, to perform these functions. Since we do not have an audit or compensation committee comprised of independent
directors, these functions are performed by the Company’s Board of Directors as a whole. Thus, there is a potential conflict in
that Board members who are also part of management will participate in discussions concerning management compensation and audit issues
that may affect management decisions.
We
are subject to compliance with Security laws exposure
We
are subject to compliance with securities laws, which exposes us to potential liabilities, including potential rescission rights. We
may offer to sell the Company’s shares of the Company’s common stock to investors pursuant to certain exemptions from the
registration requirements of the Securities Act, as well as those of various state securities laws. The basis for relying on such exemptions
is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting prospective investors
and making the offering. We may not seek any legal opinion to the effect that any such offering would be exempt from registration under
any federal or state law. Instead, we may elect to relay upon the operative facts as the basis for such exemption, including information
provided by investor themselves.
If
any such offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it
so desired. It is possible that if an investor should seek rescission, such investor would succeed. A similar situation prevails under
state law in those states where the securities may be offered without registration in reliance on the partial preemption from the registration
or qualification provisions of such state statutes under the National Securities Markets Improvement Act of 1996. If investors were successful
in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally,
if we did not in fact qualify for the exemptions upon which we have relied, we may become subject to significant fines and penalties
imposed by the Commission and state securities agencies.
There
is no assurance that we will be able to pay dividends to the Company’s shareholders, which means that you could receive little
or no return on your investment.
Because
we do not intend to pay any cash dividends on shares of the Company’s common stock, the Company’s stockholders will not be
able to receive a return on their shares unless they sell them. We intend to retain any future earnings to finance the development and
expansion of our business. We do not anticipate paying any cash dividends on shares of the Company’s common stock in the foreseeable
future. Unless we pay dividends, the Company’s stockholders will not be able to receive a return on their shares unless they sell
them. There is no assurance that stockholders will be able to sell shares of the Company’s common stock when desired.
Compliance
with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of
completing an acquisition.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls and may require us to have
such system audited by an independent registered public accounting firm. If we fail to maintain the adequacy of our internal controls,
we could be subject to regulatory scrutiny, civil or criminal penalties and/or shareholder litigation. Any inability to provide reliable
financial reports could harm our business. Furthermore, any failure to implement required new or improved controls, or difficulties encountered
in the implementation of adequate controls over our financial processes and reporting in the future, could harm our operating results
or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our
reported financial information, which could have a negative effect on the trading price of the Company’s securities.
We
are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth
companies will make the Company’s securities less attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will
remain an “emerging growth company” for up to five years. However, if the Company’s non-convertible debt issued within
a three-year period exceeds $1.0 billion or revenues exceed $1.07 billion, or the market value of the Company’s common stock that
are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease
to be an emerging growth company as of the following fiscal year. As an emerging growth company, we are not being required to comply
with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, we have reduced disclosure obligations regarding
executive compensation in the Company’s periodic reports and proxy statements, and we are exempt from the requirements of holding
a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Additionally, as an emerging growth company, we have elected to delay the adoption of new or revised accounting standards that have different
effective dates for public and private companies until those standards apply to private companies. As such, our financial statements
may not be comparable to companies that comply with public company effective dates. We cannot predict if investors will find the Company’s
shares less attractive because we may rely on these provisions. If some investors find the Company’s shares less attractive as
a result, there may be a less active trading market for the Company’s shares and the Company’s share price may be more volatile.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do
not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such
extended transition period which means that when a standard is issued or revised and it has different application dates for public or
private companies, we, as an emerging growth company, will not adopt the new or revised standard until the time private companies are
required to adopt the new or revised standard. This may make comparison of our financial statements with another public company which
is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accountant standards used.
ITEM
2. FINANCIAL INFORMATION
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The
following management’s discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements
and Notes thereto contained in this Amendment. Some of the statements contained in the following discussion of our financial condition
and results of operations refer to future expectations or include other “forward-looking” information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those
contemplated, including, but not limited to, those discussed in Part I, Item 1A of this report under the heading “Risk Factors,”
which are incorporated herein by reference. See “Special Note regarding Forward-Looking Statements” included in this Amendment
for a discussion of factors to be considered when evaluating forward-looking information detailed below. These factors could cause our
actual results to differ materially from the forward-looking statements.
Impact
of COVID-19
In
early January of 2020, a novel coronavirus (“COVID-19”) outbreak took place in Wuhan, China. Subsequently, it has spread
rapidly to Asia and other parts of the world. The COVID-19 outbreak has resulted in widespread economic disruptions in China, as well
as stringent government measures by the Chinese government to contain its transmissions including quarantines, travel restrictions, and
temporary closures of non-essential businesses in China and elsewhere. The outbreak in China mainly occurred in the first quarter of
2020, and it gradually stabilized and business activities started to resume under the guidance and support of the government since late
second quarter of 2020.
As
of December 31, 2020, the COVID-19 outbreak in China appears to be generally under control and business activities have recovered on
the whole. In addition, we resumed contacting potential customers as of June 2020, and the aforementioned negative impact has been further
mitigated since the third quarter of 2020, when the outbreak became more stabilized in China and other regions in the world. However,
sporadic cases continue to be found during the first half year of 2021 in China. For example, a new Delta variant of COVID-19 had been
found in certain cities in China in the second quarter of 2021, which may cause another outbreak, thus increasing risks and possible
further disruption to businesses. Therefore, certain of our consulting services were suspended from April 2021 to August 2021. We have
resumed these consulting businesses from August 2021 in order to maintain diversified services for our customers.
As of June 30, 2022, the COVID-19 pandemic
continues to be dynamic, and near-term challenges across the economy remain. Although vaccines are now being distributed and administered
across many parts of the world, new variants of the virus have emerged and may continue to emerge that have shown to be more contagious.
We continue to adhere to applicable governmental and commercial restrictions and to work to mitigate the impact of COVID-19 on our employees,
customers, communities, liquidity and financial position. The extent to which the COVID-19 outbreak may impact the company’s business,
operations and financial results from this point forward will depend on numerous evolving factors that the company cannot accurately
predict. Those factors include the following: the duration and scope of the pandemic; governmental, business and individuals’ actions
in response to the pandemic in the future; and any other further development of the COVID-19 outbreak.
Substantially all of our revenues and operations
are concentrated in China. Consequently, our results of operations and financial performances have been affected since 2020 and into
the first half of 2022. Due to the government measures taken to contain COVID-19, the offline activities of our PRC subsidiary were restricted
from late January to May 2020, resulting in cancellations or postponements of the marketing efforts of our customers. In addition, due
to widespread economic disruptions during the outbreak, demand for our consulting services by small and medium-sized enterprises were
also adversely affected. Specifically, as a result of government mandated closures of non-essential business in China, many of our customers’
business were suspended while others permanently closed their businesses. From December 22, 2021 to January 24, 2022, Xi’an city,
the PRC, went into lockdown following a coronavirus outbreak that officials attributed to the delta variant. From April 16, 2022 to April
19, 2022, the city was under temporary controls of social activities after reporting more than 40 infections in half month. This affected
mainly our digital marketing consulting services in 2020, 2021 and early of 2022.
We achieved an operating
revenue of $2,049,872 and $2,856,944 for the six months ended June 30, 2022 and 2021, respectively, representing a decrease of approximately
28.2% from the prior period. COVID-19 has and may continue to adversely affect our financial and business performance.
Overview
Prior
to the Transaction on May 15, 2019, we were inactive from 2007 to 2019, and did not have any active business activities. In May of 2019,
the new major shareholders rejuvenated marketing consultancy services and e-commerce business in China to the Company and its subsidiaries.
EUBG is a holding company for its operating subsidiaries. Our PRC subsidiary’s operations in China are the primary operations of
the Company. While substantially all of our operations are located in China, we currently do not, and we do not plan to use variable
interest entities to execute our business plan or to conduct our China-based operations. However, because our operations are in China
and our major shareholders are located in China, there is always a risk that the Chinese government may in the future seek to affect
operations of any company with any level of operations in China, including its ability to offer securities to investors, list its securities
on a U.S. or other foreign exchange, conduct its business or accept foreign investment. If any or all of the foregoing were to occur,
it could, in turn, result in a material change in the Company’s operations and/or the value of its common stock and/or significantly
limit or completely hinder its ability to offer or continue to offer securities to investors and cause the value of such securities to
significantly decline or be worthless.
Recent
Development
For our digital training related services,
we worked with Beida Jade Bird Vocational Education (“Jade Bird”) which was an authorized licensee of China National Personal
Talent Training Network (“CNPTTN”), a PRC regulatory agency for the talent training. Jade Bird was in charge of its training
courses, and the Company was authorised by Jade Bird as its sole training related administrator of the training courses, limited to coordinate
the digital training related services to individual clients who were interested in conducting live-broadcasting business through social
medias. The Company provided training related services, to these individual clients who subscribed courses, in arranging the examination,
following up certificate issuance processes, addressing clients’ concerns, etc. On March 22, 2022, the PRC subsidiary learned that
Jade Bird suspended its service after receiving a notice from CNPTTN that until further notice CNPTTN has suspended all recruitment services
using CNPTTN’s name from January 30, 2022. As a result of CNPTTN’s suspension, the PRC subsidiary has also suspended its
digital training related services with Jade Bird until further notice. For the six months ended June 30, 2022 and 2021, the digital training
related services with Jade Bird represented 13% and 0% of our total revenue, or $272,962 and $0, respectively. For the three months ended
June 30, 2022 and 2021, the digital training related services with Jade Bird were nil. As of the date of this Amendment, there is no
further notice from CNPTTN and the service is still being suspended.
Results of operations
Results of Operations
for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021
The following table
represents our unaudited condensed consolidated statement of operations for the three months ended June 30, 2022 and 2021.
| | |
Three months ended
June 30, | |
| | |
2022 | | |
2021 | |
| Revenue | |
$ | 840,868 | | |
$ | 873,084 | |
| Cost of revenue | |
| (113,332 | ) | |
| (199,451 | ) |
| Gross profit | |
| 727,536 | | |
| 673,633 | |
| Selling expenses | |
| (8,319 | ) | |
| (85,760 | ) |
| General and administrative expenses | |
| (331,385 | ) | |
| (351,935 | ) |
| Total other income, net | |
| 58,099 | | |
| 32,392 | |
| Income before income tax | |
| 445,931 | | |
| 268,330 | |
| Income tax expense | |
| (180,081 | ) | |
| (146,289 | ) |
| Net income | |
$ | 265,850 | | |
$ | 122,041 | |
Revenue and cost
of revenue
During the three
months ended June 30, 2022, we generated revenue of $840,868 compared to $873,084 for the three months ended June 30, 2021, representing
a decrease of $32,216 or 3.7% as compared with the prior period. For the three months ended June 30, 2022, our revenue from consultancy
services and sourcing and marketing services were $680,606 and $160,262, respectively; while revenue for the three months ended June
30, 2021 was wholly generated from our consultancy services. Cost of revenue was $113,332 for the three months ended June 30, 2022 compared
to $199,451 for the three months ended June 30, 2021. The decrease of cost of revenue for the three months ended June 30, 2022 was mainly
due to our senior management no longer directly involved in performing the services but focused on management work. Therefore, less direct
senior management costs were incurred in the consultancy services and souring and marketing service.
Selling expenses
During the three
months ended June 30, 2022, we incurred $8,319 selling expenses compared to $85,760 for the three months ended June 30, 2021, representing
a decrease of $77,441 or 90.3% as compared with the prior period. The decrease of selling expenses was mainly due to the tightening of
entertainment policies during the period and the staff costs incurred in selling activities were dropped by $42,974 or 90.5% for the
three months ended June 30, 2022.
General and administrative
expenses
During the three
months ended June 30, 2022, we incurred $331,385 general and administrative expenses compared to $351,935 for the three months ended
June 30, 2021, representing a decrease of $20,550 or 5.8% as compared with the prior period. The slight decrease for the three months
ended June 30, 2022 was mainly due to less audit fees and professional fees charged by the professional parties. Our general and administrative
expenses consisted mainly of audit fees, professional fees, payroll expenses and consultancy fees.
Total other income,
net
During the three
months ended June 30, 2022, we generated net other income of $58,099 compared to $32,392 for the three months ended June 30, 2021, representing
an increase of $25,707 or 79.4% as compared with the prior period. Our other income mainly consisted of bank interest income, exchange
rate differences and certain sundry incomes.
Income tax expense
During the three
months ended June 30, 2022, we incurred income tax expense of $180,081 compared to $146,289 for the three months ended June 30, 2021,
representing an increase of $33,792 or 23.1% as compared with the prior period. The income tax expenses were charged in China.
For the three months
ended June 30, 2022, our income tax expenses comprised of current tax and deferred tax expenses of $131,409 and $48,672, respectively,
compared to $122,745 and $23,544 for the three months ended June 30, 2021.
Net income
As a result of the
above, we generated a net income of $265,850 and $122,041 for the three months ended June 30, 2022 and 2021, respectively.
Results of Operations for the six months
ended June 30, 2022 as compared to the six months ended June 30, 2021
The following table
represents our unaudited condensed consolidated statement of operations for the six months ended June 30, 2022 and 2021.
| | |
Six months ended
June 30, | |
| | |
2022 | | |
2021 | |
| Revenue | |
$ | 2,049,872 | | |
$ | 2,856,944 | |
| Cost of revenue | |
| (425,811 | ) | |
| (418,772 | ) |
| Gross profit | |
| 1,624,061 | | |
| 2,438,172 | |
| Selling expenses | |
| (24,914 | ) | |
| (170,014 | ) |
| General and administrative expenses | |
| (642,673 | ) | |
| (579,301 | ) |
| Total other income, net | |
| 159,921 | | |
| 70,094 | |
| Income before income tax | |
| 1,116,395 | | |
| 1,758,951 | |
| Income tax expense | |
| (459,372 | ) | |
| (670,274 | ) |
| Net income | |
$ | 657,023 | | |
$ | 1,088,677 | |
Revenue and cost
of revenue
During the six months
ended June 30, 2022, we generated revenue of $2,049,872 compared to $2,856,944 for the six months ended June 30, 2021, representing a
decrease of $807,072 or 28.2% as compared with the prior period. The decrease was mainly due to our consultancy services income, generated
from clients who engaged in online courses business, dropped by $1,950,347 as compared with last period. This was because the end customers
became more patience and cautious in choosing online courses. We continued to seek for different business opportunities to stabilize
our income streams. During the six months ended June 30, 2022, we generated $272,962 from our new digital training related services and
$576,582 from our consultancy services to a customer who engaged in live streaming business. However, these new income streams only compensated
a part of the revenue reduction in current period. As of the date of this filing, the digital training related services with Jade Bird
remain suspended. Therefore, we expected the new revenue will not be available to compensate the revenue reduction until further notice.
Cost of revenue was $425,811 for the six months ended June 30, 2022 compared to $418,772 for the six months ended June 30, 2021. For
the six months ended June 30, 2022, the cost of revenue mainly represented the staff costs for our consulting services and the agency
fees for our digital training related services.
Selling expenses
During the six months
ended June 30, 2022, we incurred $24,914 selling expenses compared to $170,014 for the six months ended June 30, 2021, representing a
decrease of $145,100 or 85.3% as compared with the prior period. The decrease of selling expenses was mainly due to the tightening of
entertainment policies during the period and the staff costs incurred in selling activities were dropped by $70,200 or 80.0% for the
six months ended June 30, 2022.
General and administrative
expenses
During the six months
ended June 30, 2022, we incurred $642,673 general and administrative expenses compared to $579,301 for the six months ended June 30,
2021, representing an increase of $63,372 or 10.9% as compared with the prior period. The increase for the six months ended June 30,
2022 was mainly due certain senior management no longer directly involved in performing the services but focused on management work.
Therefore, more senior management costs were incurred during the period. Our general and administrative expenses consisted mainly of
audit fees, professional fees, payroll expenses and consultancy fees.
Total other income,
net
During the six months
ended June 30, 2022, we generated net other income of $159,921 compared to $70,094 for the six months ended June 30, 2021, representing
an increase of $89,827 or 128.2% as compared with the prior period. Our other income mainly consisted of bank interest income, exchange
rate differences and certain sundry incomes.
Income tax expense
During the six months
ended June 30, 2022, we incurred income tax expense of $459,372 compared to $670,274 for the six months ended June 30, 2021, representing
a decrease of $210,902 or 31.5% as compared with the prior period. The income tax expenses were charged in China.
For the six months
ended June 30, 2022, our income tax expenses comprised of current tax and deferred tax expenses of $335,479 and $123,893, respectively,
compared to $521,510 and $148,764 for the six months ended June 30, 2021. The decrease of the current tax and deferred tax was mainly
aligned with the reduction of revenue and gross profit during the period.
Net income
As a result of the
above, we generated a net income of $657,023 and $1,088,677 for the six months ended June 30, 2022 and 2021, respectively.
Liquidity and
Capital Resources
Working Capital
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Cash and cash equivalents | |
$ | 7,637,260 | | |
$ | 7,649,129 | |
| Total current assets | |
| 7,943,568 | | |
| 7,772,994 | |
| Total assets | |
| 8,290,445 | | |
$ | 8,201,140 | |
| Total liabilities | |
| 1,108,724 | | |
| 1,439,526 | |
| Retained earnings (accumulated deficit) | |
| 299,620 | | |
| (357,403 | ) |
| Total equity | |
| 7,181,721 | | |
| 6,761,614 | |
Cash flow
The following table
sets forth a summary of our cash flows for the periods indicated:
| | |
Six months ended
June 30, | |
| | |
2022 | | |
2021 | |
| Net cash generated from operating activities | |
$ | 252,137 | | |
$ | 7,404 | |
| Net cash (used in) generated from investing activities | |
| (8,381 | ) | |
| 2,624,728 | |
| Net cash used in financing activities | |
| - | | |
| (59,310 | ) |
| Effect of exchange rate changes on cash and cash equivalents | |
| (255,625 | ) | |
| 38,660 | |
| Cash and cash equivalents, beginning of period | |
| 7,649,129 | | |
| 3,846,470 | |
| Cash and cash equivalents, end of period | |
$ | 7,637,260 | | |
$ | 6,457,952 | |
Cash generated
from operating activities
Net cash generated
from operating activities for the six months ended June 30, 2022 was $252,137, as compared to net cash generated from operating activities
of $7,404 for the six months ended June 30, 2021, representing an increase of $244,733 or 33 times as compared with the prior period.
The increase of operating cash flows was mainly resulted from a combination of below operating activities changes:
Net income was $657,023
for the six months ended June 30, 2022, as compared to $1,088,677 for the six months ended June 30, 2021. The decrease of net income
of $431,654 or 39.6% was mainly due to the reduction of certain performance-based arrangement consultancy services during the period
which directly reduced our operating cash inflow.
Cash inflow of deferred
tax was $123,894 for the six months ended June 30, 2022, as compared to cash outflow of $367,854 for the six months ended June 30, 2021.
The cash inflow of $123,894 for the six months ended June 30, 2022 was mainly resulted from the recognition of withholding tax arising
from the undistributed profits of our PRC subsidiary, while the cash outflow of $367,854 for the six months ended June 30, 2021 was mainly
due to our PRC subsidiary distributed dividends to our Hong Kong subsidiary during the period.
Cash outflow of trade
receivables was $213,535 for the six months ended June 30, 2022, as compared to cash inflow of $118,772 for the six months ended June
30, 2021. The cash outflow of $213,535 for the six months ended June 30, 2022 was due to certain consultancy services income were not
settled by the customers before the end of period.
Cash outflow of trade payables was $113,645
for the six months ended June 30, 2022 because all the account payables were settled before June 30, 2022. Due to the suspension of the
digital training related services with Jade Bird, the service fees charged by our service vendors sharply decreased during the period.
Cash outflow of other payables and accrued
liabilities was $170,904 for the six months ended June 30, 2022, as compared to cash outflow of $303,307 for the six months ended June
30, 2021. The cash outflow for the six months ended June 30, 2022 and 2021 were due to the settlement of the accrued audit fee, consultancy
fee and professional fee during the periods. Larger cash outflow was resulted in the six months ended June 30, 2021 because the Company
filed a registration document during the period and settled the service fees with the professional parties.
Cash inflow of tax
payables was $125,057 for the six months ended June 30, 2022, as compared to cash outflow of $460,122 for the six months ended June 30,
2021. The cash inflow of $125,057 for the six months ended June 30, 2022 was mainly due to the business reduction during the period and
we provided current income tax of $335,479 netting off with $224,055 income tax paid during the period. The cash outflow of $460,122
for the six months ended June 30, 2021 was mainly due to the current income tax provision of $521,510, netting off with $981,886 income
tax paid during the prior period.
Cash outflow of contract liabilities was $212,060
for the six months ended June 30, 2022 because the digital training related services will Jade Bird was suspended since March 2022 and
all the outstanding contract liabilities were refunded to the customers before June 30, 2022.
As we are continually
to explore new business opportunities and new customers, we expect to generate more cash inflows in the coming years. We continue to
monitor our level of operating expenses in order to maintain a positive cash flow position.
Cash (used in)
generated from investing activities
Net cash used in
investing activities for the six months ended June 30, 2022 was $8,381 as compared net cash of $2,624,728 generated from investing activities
for the six months ended June 30, 2021. The net cash used in investing activities for the six months ended June 30, 2022 were mainly
due to the purchase of property, plant and equipment during the period; while the net cash generated from investing activities was mainly
due to the redemption of debt products of $5,717,211 offset by the acquisition of debt products of $2,781,346.
Cash used in financing
activities
The net cash used
in financing activities for the six months ended June 30, 2021 was mainly due to the repayment of borrowings of $128,842 offsetting by
the advance from a director of $69,532 during the period. No cash was incurred in financing activities during the six months ended June
30, 2022.
Future Capital
Requirements
We believe that our
ability to generate cash from operations are adequate to fund working capital, capital spending and other cash needs for at least the
next 12 months. Our ability to generate adequate cash from operations in the future, however, will depend on, among other things, our
ability to successfully implement our business strategies while continuing to tightly control our expenses, and to manage the impact
of changes to the PRC regulatory environment. We can give no assurance that we will be able to successfully implement those strategies
and cost control initiatives, or successfully adjust to any changes to PRC laws and regulations impacting our business. In addition,
changes in our operating plans, lower than anticipated sales, increased expenses, interest rate increases, acquisitions or other events
may cause us to seek additional debt or equity financing in future periods. We can give no assurance that financing will be available
on acceptable terms or at all. Additional equity financing could be dilutive to holders of the Company’s common stock; debt financing,
if available, could impose additional cash payment obligations and additional covenants and operating restrictions.
Comparison
of Results of Operations of the Years ended December 31, 2021 and 2020
The
following table sets forth key components of our results of operations for the years ended December 31, 2021 and 2020:
| | |
2021 | | |
2020 | |
| Revenue | |
$ | 5,637,396 | | |
$ | 9,187,023 | |
| Cost of revenue | |
| (1,827,082 | ) | |
| (661,462 | ) |
| Gross profit | |
| 3,810,314 | | |
| 8,525,561 | |
| Selling expenses | |
| (253,958 | ) | |
| (188,900 | ) |
| General and administrative expenses | |
| (1,668,432 | ) | |
| (935,302 | ) |
| Total other income, net | |
| 187,392 | | |
| 71,556 | |
| Income before income tax | |
| 2,075,316 | | |
| 7,472,915 | |
| Income tax expense | |
| (988,916 | ) | |
| (2,504,845 | ) |
| Net income | |
$ | 1,086,400 | | |
$ | 4,968,070 | |
Revenue
and cost of revenue
During
the year ended December 31, 2021, we generated revenue of $5,637,396 compared to $9,187,023 for the year ended December 31, 2020, representing
a decrease of $3,549,627 or 38.6% as compared with the prior year. The decrease in revenue was due to the realignment of our resources
to focus on our KOL Training Related Services business, which resulted in the suspension of certain consulting services from April 2021
to August 2021. We resumed these consulting services from August 2021 to maintain diversified services to our customers. Cost of revenue
was $1,827,082 for the year ended December 31, 2021 compared to $661,462 for year ended December 31, 2020. The cost of revenue for the
year ended December 31, 2021 increased because we started the digital training related services during the year and incurred
agency fees of $579,959 and direct operation costs of $391,125 for the services. For the year ended December 31, 2020, the cost of revenue
mainly represented the staff costs for our consulting services.
Selling
expenses
During
the year ended December 31, 2021, we incurred $253,958 selling expenses compared to $188,900 for the year ended December 31, 2020, representing
an increase of $65,058 or 34.4% as compared with the prior year. The increase of selling expenses was mainly due to more staff costs
incurred in marketing our KOL Training Related Services for the year ended December 31, 2021.
General
and administrative expenses
During
the year ended December 31, 2021, we incurred $1,668,432 general and administrative expenses compared to $935,302 for the year ended
December 31, 2020, representing an increase of $733,130 or 78.4% as compared with the prior year. Our general and administrative expenses
consisted mainly of audit fees, professional fees, payroll expenses and consultancy fees.
For
the year ended December 31, 2021, we incurred audit fees, professional fees and consultancy fees of $346,664, $270,400 and $226,807,
respectively, to assist us in complying with the relevant reporting requirements. For the year ended December 31, 2020, we incurred audit
fees, professional fees and consultancy fees of $204,942, $100,808 and $77,176, respectively because we engaged our new company lawyer
and consultants during the year.
In
addition, we incurred social insurance of $124,386 for the year ended December 31, 2021. There was only $4,911 incurred for the year
ended December 31, 2020 because the PRC government waived employer obligations on social security contributions for a specified period
of time to ease the burden of enterprises arising from COVID-19 in 2020 and our PRC subsidiary failed to deposit adequate contributions
to the housing funds for the year ended December 31, 2020.
Total
other income, net
During
the year ended December 31, 2021, we generated net other income of $187,392 compared to $71,556 for the year ended December 31, 2020,
representing an increase of $115,836 or 161.9% as compared with the prior year. Our other income mainly consisted of bank interest income,
exchange rate differences and certain sundry incomes.
Income
tax expense
During
the year ended December 31, 2021, we incurred income tax expense of $988,916 compared to $2,504,845 for the year ended December 31, 2020,
representing a decrease of $1,515,929 or 60.5% as compared with the prior year. The income tax expense consisted of income taxes charged
in China and Hong Kong.
For the year ended December 31, 2021, our
income tax expenses comprised of current tax and deferred tax expenses of $767,877 and $221,039, respectively, compared to $1,952,840
and $552,005 for the year ended December 31, 2020. The decrease of the current tax and deferred tax was mainly resulted from a lower
profit caused by the realignment of our resources to focus on our KOL Training Related Services business.
Net
income
As
a result of the above, we generated a net income of $1,086,400 and $4,968,070 for the year ended December 31, 2021 and 2020, respectively.
Liquidity
and Capital Resources
Working
Capital
| | |
December 31, | |
| | |
2021 | | |
2020 | |
| Cash and cash equivalents | |
$ | 7,649,129 | | |
$ | 3,846,470 | |
| Total current assets | |
| 7,772,994 | | |
| 7,343,796 | |
| Total assets | |
| 8,201,140 | | |
| 7,725,020 | |
| Total liabilities | |
| 1,439,526 | | |
| 2,153,999 | |
| Accumulated deficit | |
| (357,403 | ) | |
| (1,443,803 | ) |
| Total equity | |
| 6,761,614 | | |
| 5,571,021 | |
Cash
flow
The
following table sets forth a summary of our cash flows for the periods indicated:
| |
|
Years
ended December 31, |
|
| |
|
2021 |
|
|
2020 |
|
| Net cash
generated from operating activities |
|
$ |
451,663 |
|
|
$ |
6,484,220 |
|
| Net cash generated from (used in) investing activities |
|
|
3,289,189 |
|
|
|
(3,414,622 |
) |
| Net cash (used in) generated
from financing activities |
|
|
(7,566 |
) |
|
|
170,198 |
|
| Effect of exchange rate
changes on cash and cash equivalents |
|
|
69,373 |
|
|
|
206,796 |
|
| Cash and cash equivalents, beginning of year |
|
|
3,846,470 |
|
|
|
399,878 |
|
| Cash and cash equivalents,
end of year |
|
$ |
7,649,129 |
|
|
$ |
3,846,470 |
|
Cash
generated from operating activities
Net cash generated from operating activities
for the year ended December 31, 2021 was $451,663, as compared to net cash generated from operating activities of $6,484,220 for the
year ended December 31, 2020, representing a decrease of $6,032,557 or 93.0% as compared with the prior year. The decrease of operating
cash flows was mainly resulted from a combination of below operating activities changes:
Net
income was $1,086,400 for the year ended December 31, 2021, as compared to $4,968,070 for the year ended December 31, 2020. The decrease
of net income of $3,881,670 or 78.1% was mainly due to the suspension of certain consulting services from April, 2021 to August, 2021
which directly reduced our operating cash inflow; while we had incurred more general and administrative expenses due to our business
growth which increased our operating cash outflow.
Cash
outflow of deferred tax was $293,366 for the year ended December 31, 2021, as compared to cash inflow of $552,005 for the year ended
December 31, 2020. The cash outflow of $293,366 for the year ended December 31, 2021 was due to our PRC subsidiary distributed dividends
to our Hong Kong subsidiary during the period, while the cash inflow of $552,005 for the year ended December 31, 2020 was mainly resulted
from the recognition of withholding tax arising from the undistributed profits of our PRC subsidiary.
Cash
inflow of trade payables was $115,561 for the year ended December 31, 2021, as compared to cash outflow of $57,954 for the year ended
December 31, 2020. The cash inflow of $115,561 for the year ended December 31, 2021 was due to the late settlement of the account payables
with some service vendors during the year.
Cash outflow of other payables and accrued
liabilities was $220,493 for the year ended December 31, 2021, as compared to cash inflow of $395,583 for the year ended December 31,
2020. The cash outflow of $220,493 for the year ended December 31, 2021 was due to the settlement of the accrued audit fee, consultancy
fee and professional fee during the period; while the cash inflow of $395,583 for the year ended December 31, 2020 was mainly resulted
from our business growth and we accrued more value-added tax payables during the period.
Cash
outflow of tax payables was $563,979 for the year ended December 31, 2021, as compared to cash inflow of $415,984 for the year ended
December 31, 2020. The cash outflow of $563,979 for the year ended December 31, 2021 was due to the suspension of certain consulting
services from April, 2021 to August, 2021 and we provided current tax of $767,877 during the year. Such amount was net off with $1,326,242
income tax paid during the period. The cash inflow of $415,984 for the year ended December 31, 2020 was mainly resulted from our business
growth and we provided current income tax of $1,952,840 during the year. Such amount was net off with $1,536,857 income tax paid during
the year.
Cash
inflow of amount due from a related company was $235,930 for the year ended December 31, 2020 because all the outstanding amount had
been settled by the related company during the year. We did not conduct any business with related parties during the year ended December
31, 2021, so no amount due from a related party was recorded in the year.
As
we had realigned our resources to focus on our KOL Training Related Services, we expect to generate more cash inflows in the coming years.
We continue to monitor our level of operating expenses in order to maintain a positive cash flow position. Therefore, we do not consider
the decrease of net cash generated from operating activities for the year ended December 31, 2021 as an identified trend to our operating
cash flow.
Cash generated from (used in) investing
activities
Net
cash generated from investing activities for the year ended December 31, 2021 was $3,289,189 as compared $3,414,622 used in investing
activities for the year ended December 31, 2020. The net cash generated from investing activities for the year ended December 31, 2021
were mainly due to the acquisition of debt products of $2,789,855 and the redemption of debt products of $5,889,695; while the net cash
used in investing activities for the year ended December 31, 2020 were mainly due to the acquisition of debt products of $2,897,689 and
there was no redemption during the year.
Cash (used in) generated from financing activities
Net cash used in financing activities for
the year ended December 31, 2021 was $7,566, as compared to $170,198 generated from financing activities for the year ended December
31, 2020. The net cash used in financing activities for the year ended December 31, 2021 was mainly due to the repayment of borrowings
of $128,656 offsetting against advance from a director of $121,090; while the net cash generated from financing activities for the year
ended December 31, 2020 was mainly due to the proceed from borrowing of $128,927 and advance from a director of $41,271.
Future
Capital Requirements
We
believe that our ability to generate cash from operations are adequate to fund working capital, capital spending and other cash needs
for at least the next 12 months. Our ability to generate adequate cash from operations in the future, however, will depend on, among
other things, our ability to successfully implement our business strategies while continuing to tightly control our expenses, and to
manage the impact of changes to the PRC regulatory environment. We can give no assurance that we will be able to successfully implement
those strategies and cost control initiatives, or successfully adjust to any changes to PRC laws and regulations impacting our business.
In addition, changes in our operating plans, lower than anticipated sales, increased expenses, interest rate increases, acquisitions
or other events may cause us to seek additional debt or equity financing in future periods. We can give no assurance that financing will
be available on acceptable terms or at all. Additional equity financing could be dilutive to holders of the Company’s common stock;
debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions.
Contractual
Obligations
We had the following contractual obligations and
commercial commitments as of June 30, 2022:
| Contractual Obligations | |
Total | | |
Less than
1 year | | |
1-3
years | | |
3-5
years | | |
More than
5 years | |
| Lease | |
| 118,044 | | |
| 59,022 | | |
| 59,022 | | |
| - | | |
| - | |
| TOTAL | |
$ | 118,044 | | |
$ | 59,022 | | |
$ | 59,022 | | |
$ | - | | |
$ | - | |
Critical
Accounting Policies and Estimates
We
regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete
summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on
historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable
under the facts and circumstances. Actual results could differ from those estimates made by management. The discussion of our critical
accounting policies contained in Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies,”
is incorporated herein by reference.
Recent
Accounting Pronouncements
For
further information on recently issued accounting pronouncements, see Note 2—Summary of Significant Accounting Policies in the
accompanying notes to consolidated financial statements included herein at “Item 13, Financial Statements and Supplementary Data”
of this registration statement.
Off-Balance
Sheet Arrangements
As of June 30, 2022, December 31, 2021 and
2020, we did not have any off-balance sheet arrangements as defined in Item 303(a) (4) (ii) of Regulation S-K promulgated under the Securities
Act of 1934.
ITEM
3. PROPERTIES.
We , through our PRC subsidiary, lease 289.12
square meter office space in China at Suite 907, Saigao City Plaza Building 2, No. 170 Weiyang Road, Xi’an, China. Our rent for
the office space in Xi’an, China, is $59,022 per year, with a lease term of 3 years, which terminates in July 2024.
ITEM
4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table
sets forth as of August 22, 2022, the number of shares of the Company’s common stock owned on record or beneficially by each person
known to be the beneficial owner of 5% or more of the issued and outstanding shares of the Company’s voting stock, and by each
of the Company’s directors and executive officers and by all its directors and executive officers as a group. Unless
otherwise indicated, the business address of each of our directors and executive offices is Suite 907, Saigao City Plaza Building
2, No. 170 Weiyang Road, Xi’an, China.
| Name of Beneficial Owner | |
Amount and
Nature of
Beneficial
Ownership(1) | | |
Percentage
of Beneficial
Ownership(2) | |
| Directors and Officers: | |
| | |
| |
| Guolin Tao(3) | |
| 1,030,916,276 | | |
| 60.60 | % |
| Jianyong Li | |
| 21,347,916 | | |
| 1.25 | % |
| Lijun Yuan | |
| 30,000,000 | | |
| 1.76 | % |
| All executive officers and directors as a group (3 person) | |
| 1,082,264,192 | | |
| 63.61 | % |
| 5% Holders: | |
| | | |
| | |
Tethys Fountain Limited(3) Vistra Corporate Services Center Wickhams Cay II, Road Town Tortola, VG 1110, British Virgin Island | |
| 1,030,916,276 | | |
| 60.60 | % |
New Finance Consultants Limited(4) 957 Road Town Tortola, British Virgin Island | |
| 140,899,285 | | |
| 8.28 | % |
| (1) |
Under Rule 13d-3, a beneficial
owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship,
or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment
power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned
by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares
are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of
an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person,
the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person)
by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does
not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock
actually outstanding. |
| (2) |
Based upon 1,701,181,423
shares of common stock issued and outstanding. |
| (3) |
Guolin Tao is the indirect
beneficial owner of 1,030,916,276 shares of common stock of the Company through Tethys
Fountain Limited, of which Guolin Tao is the indirect beneficial owner of 100% of its share
capital. |
| (4) |
Sun Ying is the indirect
beneficial owner of 140,899,285 shares of common stock of the Company through New Finance
Consultants Limited, of which Sun Ying is the indirect beneficial owner of 100% of its share
capital. |
ITEM
5. DIRECTORS AND EXECUTIVE OFFICERS.
The
following information sets forth the names, ages, and positions of the Company’s current directors and executive officers.
| Name |
|
Age |
|
Position(s) |
| Guolin Tao |
|
45 |
|
Chairman of
the Board of Directors, Chief Executive Officer, and Chief Financial Officer (principal executive officer and principal financial
officer) |
| Jianyong Li |
|
38 |
|
Director |
| Lijun Yuan |
|
56 |
|
Director |
Set
forth below is a brief description of the background and business experience of each of the Company’s current executive officers
and directors.
GUOLIN
TAO – Chairman of the Board, Chief Executive Officer, and Chief Financial Officer
Mr.
Tao has more than 20 years of professional experience in business consultation, operations, management and in the marketing industry.
From 2015 to now, he has been the chairmen of two non-profit organizations: Qiming Public Welfare Foundation (1/2015 to 9/2020) and Gansu
Guolin Welfare Foundation (9/2020 to present). Mr. Tao serves as CEO, CFO of Entrepreneur Universe Bright Group (EUBG) and also serves
as the CFOs of the subsidiaries of EUBG in Hong Kong and China. He focuses his arears in digital marketing, brands marketing and consumer
economics. He is the authors of “The Power of Consuming”, “No Names”, and “Winning in the System”,
which are the popular marketing books in China. Mr. Tao graduated from Beijing Institute of Technology with a BS degree, and was graduated
from Beijing University of Posts and Telecommunications with MBA degree.
JIANYONG
LI – Director
Mr.
Li is known as a startup team operation specialist and problem-solver for emergencies event coordinator & management specialist in
China. He has served several times as the chairperson of conference and organize hundreds of Charity Fundraising Event. Mr. Li graduated
from Beijing Institute of Technology with Bachelor’s degree in Business Administration. He is currently the CEO of Entrepreneurship
World Technology Holding Group Company Limited, the subsidiary of the Company in Hong Kong. He was the deputy secretary-general of Qiming
Public Welfare Foundation responsible for carrying out public service activities in education, career for people with disabilities, and
social welfare during the tenure. He has rich experiences as a marketing manager and led thousands of marketing teams which attained
annual sales of more than billions of dollars in China. Mr. Li has been named as a team operations leader in the Asia-Pacific region
in the marketing industry. He was awarded by China Annual Economic Summit as 2020 Top Ten Economic (Industry) Innovative Entrepreneurs.
LIJUN
YUAN – Director
Mr.
Yuan is currently the CEO of Xian Yunchuang Space Information Technology Co., Ltd., the subsidiary of the Company in China. He worked
for Jucheng Group which ranked first in the training industry in China, as Group Chief Operator. He worked as president for Shengshi
Impact Education and Training Group, Shanghai Huiju International Education Group, Shengshang (Beijing) Holding Group Limited, and Beijing
Shengshang Education&Tech Co. Ltd. in the past 10 years. He was awarded a Master’s degree of Business Administration from Xi’an
Jiaotong University. Mr. Yuan was honored as 2016 Top Ten Innovators Award in Shaanxi Province, and 2020 Most Influential People of Chinese
National Brand.
Term
of Office
The
Company’s Directors are appointed for a one-year term to hold office until the next annual general meeting of the Company’s
shareholders or until removed from office in accordance with the Company’s bylaws. The Company’s officers are appointed by
the Company’s board of directors and hold office until removed by the board, subject to their respective employment agreements.
Significant
Employees
Mr. Guolin Tao is considered a significant
employee. Mr. Guolin Tao has more than 20 years of professional experience in business consultation, operations, management and in the
marketing industry. Mr. Guolin Tao serves as the CEO, CFO of the Company and also serves as the CFOs of the subsidiaries of EUBG in Hong
Kong and China. A copy of our employment contract with Mr. Guolin Tao is included as Exhibit 10.1 to this Amendment.
Family
Relationships
There
are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors
or executive officers.
Involvement
in Certain Legal Proceedings
During
the past 10 years, none of the Company’s current directors, nominees for directors or current executive officers has been involved
in any legal proceeding identified in Item 401(f) of Regulation S-K.
Audit
Committee
We
have not adopted an audit committee charter. The Company’s board of directors will serve the function of the audit committee. The
board of directors in the future intends to establish an audit committee.
Compensation
Committee and Governance and Nomination Committee
We
have not adopted a compensation committee and governance committee charters. The board of directors currently serves these
functions. The board of directors will consider establishing a compensation committee and governance committee in the future.
Code
of Conduct and Ethics
We
have not adopted a Code of Conduct for the Company’s executive officers, directors and the Company’s employees.
ITEM
6. EXECUTIVE COMPENSATION.
The
following summary compensation table sets forth all compensation awarded to, earned by, or paid to the Company’s named executive
officers paid by us during the years ended December 31, 2021 and 2020.
| | |
| | |
Annual Compensation | | |
Long Term
Compensation Awards | | |
| |
| | |
| | |
| | |
| | |
Other | | |
Restricted | | |
Securities | | |
| |
| | |
| | |
| | |
| | |
Annual | | |
Stock | | |
Underlying | | |
Total | |
| | |
| | |
Salary | | |
Bonus | | |
Compensation | | |
Award(s) | | |
Options | | |
Compensation | |
| Name and Principal Position | |
Year | | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Guolin
Tao, Chairman, CEO, and CFO(1) | |
| 2021 | | |
| 197,924 | | |
| 31,482 | | |
| 175,534 | | |
| - | | |
| - | | |
| 404,940 | |
| | |
| 2020 | | |
| 191,245 | | |
| 26,154 | | |
| 121,462 | | |
| - | | |
| - | | |
| 338,861 | |
| (1) |
Paid by the subsidiaries
Entrepreneurship World Technology Holding Group Company Limited and Xian Yunchuang Space Information Technology Co., Limited (formerly
known as “Entrepreneurship World Consultants Limited”) in Hong Kong and China. |
Employment
Agreement
The
Company entered into an employment agreement with Mr. Guolin Tao in his capacity of the CEO and director of the Company, effective as
of October 19, 2019, pursuant to the employment agreement signed between Xian Yunchuang Space Information Technology Co., Ltd. (formerly
known as “Entrepreneurship World Consultants Limited”) and Mr. Guolin Tao.
Options/SAR
Grants
During
the last fiscal year, we have not granted any stock options or Stock Appreciation Rights (“SARS”) to any executive officers
or other individuals.
Aggregated
Option/SAR exercised and Fiscal year-end Option/SAR value table
Neither
the Company’s executive officers nor the other individuals listed in the tables above, exercised options or SARs during the last
fiscal year.
Stock
Option Plan
We
have not adopted a stock option plan.
Long-term
incentive plans
We
have not adopted long term incentive plan.
Defined
benefit or actuarial plan disclosure
As
required by Chinese law, our PRC subsidiary contributes 10% of an individual employee’s monthly salary to pension insurance.
Compensation
of Directors
We
do not have any non-executive directors and currently no compensation arrangements are in place for the compensation of directors.
Employment
contracts and termination of employment and change-in-control arrangements
None
of the Company’s officers or employees is under an employment contract or has contractual rights triggered by a change in control
of the company.
Compensation
Committee Interlocks and Insider Participation
We
have not established a Compensation Committee and the Company’s board of directors will serve this function. No interlocking
relationship exists between the Company’s board of directors and the board of directors or compensation committee of any other
entity.
ITEM
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions
with Related Parties
SEC
regulations define the related person transactions that require disclosure to include any transaction, arrangement or relationship in
which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two
completed fiscal years in which we were or are to be a participant and in which a related person had or will have a direct or indirect
material interest. A related person is: (i) an executive officer, director or director nominee, (ii) a beneficial owner of more than
5% of the Company’s common stock, (iii) an immediate family member of an executive officer, director or director nominee or beneficial
owner of more than 5% of the Company’s common stock, or (iv) any entity that is owned or controlled by any of the foregoing persons
or in which any of the foregoing persons has a substantial ownership interest or control.
The
following is the list of the related parties with which we had transactions in the past two years:
| (a)
|
Xi’an
CNT – a company incorporated in the PRC, Xian. As of June 30, 2022, the shareholders
of Xi’an CNT are 90% owned by certain family members of Mr. Guolin Tao, among them
- 45% is owned by the sister of Mr. Guolin Tao, Ms. Zhiyan Tao and 45% is owned by the brother-in-law
of Mr. Guolin Tao, Mr. Pan Chang. |
| |
|
| (b) |
Baiyin Wujinxia Cultural
Communication Co., Ltd. (“Baiyin Wujinxia”) – a company incorporated in the PRC. The CEO of the Company, Mr Tao
held 60% equity interest from October 31, 2019 to January 25, 2021 and such equity interest was fully transferred to Ms. Hanye Chang,
the spouse of Mr. Guolin Tao, on January 26, 2021. |
| |
|
| (c) |
Ms. Hanye Chang, the spouse
of Mr. Guolin Tao. |
| (d) |
Mr. Yong Chang, the father
in law of Mr. Guolin Tao. |
| |
|
| (e) |
Mr. Jianyong Li, a director
of the Company. |
| |
|
| (f)
|
New
Finance Consultants Limited, a shareholder of the Company, holding 8.3% equity interest as
of June 30, 2022, December 31, 2021 and December 31, 2020. |
| (g) |
Xian Yuanchuang Tribe Technology
Co., Ltd. (“Yuanchuang Tribe”)– a company incorporated in the PRC, Ms. Hanyu Chang, spouse of Mr. Guolin Tao, indirectly
held 29.99% equity interest from November 29, 2019 to February 10, 2021. |
| |
|
| (h) |
Xian Yuanchuang Federation
Information Technology Co., Ltd. (“Yuanchuang Federation”)- a company incorporated in the PRC, Yuanchuang Tribe held
100% equity interest December 30, 2019 to September 10, 2021. |
Described
below are certain transactions or series of transactions between us and certain related persons.
Related
party transaction
| 1. |
Pursuant
to an agreement signed on November 9, 2019, our PRC subsidiary agreed to provide sourcing services to Xi’an CNT, which include
but not limit to product procurement, coordination with suppliers and monitoring product quality. Our service fee represents the
difference between the product price charged by our suppliers and the price that we charged Xi’an CNT and supplier as its service
fee. This agreement expired on May 8, 2020.
As
a result of above agreements, services fees of $49,259 were recorded as revenue earned from Xi’an CNT for the years ended December
31, 2020. The revenue was not recurred in 2021 as the agreements were either terminated or ceased. |
2.
|
On
March 8, 2020, our PRC subsidiary purchased a 2016 Europe-manufactured motor vehicle with Model No. of Mercedes-Benz V250 WD4WG2E1
from Ms. Hanye Chang for $86,931. The purchase prices were determined based on the market price of similar vehicles with similar
conditions at the time of purchase.
On
March 12, 2020, our PRC subsidiary purchased a 2018 China-manufactured motor vehicle with Model No. of Buick SGM6522UAA2 from Mr.
Yong Chang for $45,639. The purchase prices were determined based on the market price of similar vehicles with similar conditions
at the time of purchase.
On
March 3, 2020, our PRC subsidiary purchased a 2014 China-manufactured motor vehicle with Model No. of Mercedes-Benz BJ7182EVXL from
Mr. Jianyong Li for $28,997. The purchase prices were determined based on the market price of similar vehicles with similar conditions
at the time of purchase.
The
Company uses these motor vehicles for daily operational needs. |
| 3.
|
On November 1, 2019, the PRC subsidiary
entered into a loan agreement with Baiyin Wujinxia in the amount of $305,804 (RMB2,000,000) for a period from November 1, 2019
to June 30, 2021. The loan is unsecured and bears fixed interest at 4.75% per annum. The total loan amount (including principle
and interest) was fully repaid to the Company on June 18, 2021, and the loan agreement was terminated on the same date.
We had recorded interest income of $0
and $5,776 for the six months ended June 30, 2022 and 2021, respectively; $5,794 and $3,888 for the year ended December 31, 2021
and 2020, respectively.
|
| 4. |
On
June 1, 2021, the PRC subsidiary entered into service agreements with Yuanchuang Tribe and
Yuanchuang Federation to develop a web application supporting the KOL Training Related Services.
We recorded IT expenses of $60,718 and $86,718,
respectively, for the services provided by Yuanchuang Tribe and Yuanchuang Federation for the year ended December 31, 2021. |
Procedures
for Approval of Related Party Transactions
The
Company’s Board of Directors is charged with reviewing and approving all potential related party transactions. We have not adopted
other procedures or policy for review, or standards for approval, of such transactions, but instead review them on a case-by-case basis.
Any Related Party Transaction that is not approved by the non-interested directors prior to its
effectiveness or consummation and that is not subsequently ratified by non-interested directors shall be voidable at the option of the
non-interested directors and all persons subject to this principal shall take all necessary action to unwind any Related Party Transaction
voided by the non-interested directors on terms that are fair to the Company and its shareholders.
ITEM
8. LEGAL PROCEEDINGS.
We
may from time to time be involved in various claims and legal proceedings of a nature we believe are normal and incidental to our business.
These matters may include product liability, intellectual property, employment, personal injury cause by our employees, and other general
claims. We are not presently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse
effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion
of management resources and other factors.
ITEM
9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market
Information
The
Company’s common stock is currently quoted on the OTC market “Pink Sheets Current Information” under the symbol EUBG.
Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily
represent actual transactions.
Holders
As of August 22, 2022, the Company had 160
holders of record of the Company’s common stock. The number of record holders was determined from the records of the Company’s
transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers,
dealers or registered clearing agencies.
Common
and Preferred Stock
The Company’s authorized capital stock
consists of 1,800,000,000 shares of common stock, par value $0.0001 per share, and 1,100,000 shares of preferred stock, par value $0.0001
per share. As of August 22, 2022, there were 1,701,181,423 shares of the Company’s common stock issued and outstanding and 0 shares
of the Company’s preferred stock issued and outstanding.
Options
and Warrants
None.
Debt
Securities
None.
Dividends
The
Company has not declared any cash dividends since inception and does not anticipate paying any cash dividends in the foreseeable future.
The payment of cash dividends is within the discretion of the Board of Directors and will depend on the Company’s earnings, capital
requirements, financial condition, and other relevant factors. There are no restrictions that currently limit the Company’s ability
to pay cash, or other, dividends on its common stock other than those generally imposed by applicable state law.
Equity
Compensation Plans
We
have no equity compensation plans.
ITEM
10. RECENT SALES OF UNREGISTERED SECURITIES.
The
following information represents securities sold by the Company since the January 1, 2018, which were not registered under the Securities
Act. Included are sales of reacquired securities, as well as new issues, securities issued in exchange for property, services, or other
securities, and new securities resulting from the modification of outstanding securities.
The
Company issued 1,000,000 shares of Series A Preferred Stock to MXD on December 11, 2018, and issued 50,000 shares of Series B Preferred
Stock to XTC on February 27, 2019, respectively.
On
May 15, 2019, 1,590,605,141 shares of the Company’s common stock was issued to MXD for payment for its services to assist in the
Company’s filings and services for revival. On the same date, MXD and XTC agreed to voluntarily retire 1,000,000 Series A Preferred
Stock and 50,000 shares of Series B Preferred Stock, respectively.
The
sales and issuances of the securities described above were made pursuant to the exemptions from registration contained in Section 4(a)(2)
of the Securities Act.
ITEM
11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.
General
The
Company’s authorized capital stock consists of 1,800,000,000 shares of common stock, par value $0.0001 per share, and 1,100,000
shares of preferred stock, par value $0.0001 per share. As of January 14, 2022, there were 1,701,181,423 shares of the Company’s
common stock issued and outstanding and no shares of the Company’s preferred stock issued and outstanding.
Common
Stock
The
Company’s common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the
election of directors. Except as otherwise required by law or provided in any resolution adopted by the Company’s board of directors
with respect to any series of preferred stock, the holders of the Company’s common stock will possess all voting power. Generally,
all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality)
of the votes entitled to be cast by all shares of the Company’s common stock that are present in person or represented by proxy,
subject to any voting rights granted to holders of any preferred stock. Holders of the Company’s common stock representing fifty
percent (50%) of the Company’s capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary
to constitute a quorum at any meeting of the Company’s stockholders. A vote by the holders of a majority of the Company’s
outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to the
Company’s Articles of Incorporation. The Company’s Articles of Incorporation do not provide for cumulative voting in the
election of directors.
Subject
to any preferential rights of any outstanding series of preferred stock created by the Company’s board of directors from time to
time, the holders of shares of the Company’s common stock will be entitled to such cash dividends as may be declared from time
to time by the Company’s board of directors from funds available therefore.
Subject
to any preferential rights of any outstanding series of preferred stock created from time to time by the Company’s board of directors,
upon liquidation, dissolution or winding up, the holders of shares of the Company’s common stock will be entitled to receive pro
rata all assets available for distribution to such holders.
In
the event of any merger or consolidation with or into another company in connection with which shares of the Company’s common stock
are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of the Company’s
common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash).
Holders of the Company’s common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable
to the Company’s common stock.
Preferred
Stock
The
Company’s board of directors has expressly granted authority, without shareholder action, to authorize preferred shares of stock
and to divide the authorized shares of the Company’s preferred stock into one or more series, each of which must be so designated
as to distinguish the shares of each series of preferred stock from the shares of all other series and classes. The Company’s board
of directors is authorized, within any limitations prescribed by law and the Company’s articles of incorporation, to fix and determine
the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock including,
but not limited to, the following:
| (1) |
Designate in whole or in
part, the powers, preferences, limitations, and relative rights, of any class of shares before the issuance of any shares of that
class; |
| (2) |
Create one or more series
within a class of shares, fix the number of shares of each such series, and designate, in whole or in part, the powers, preferences,
limitations, and relative rights of any class of shares before the issuance of any shares of that series; |
| (3) |
Alter or revoke the powers,
preferences limitations, and relative rights granted to or imposed upon any wholly unissued class of shares or any wholly unissued
series of any class of shares; |
| (4) |
Increase or decrease the
number of shares constituting any series, the number of shares of which was originally fixed by the board of directors, either before
or after the issuance of shares of the series: provided that, the number may not be decreased below the number of shares of the series
then outstanding or increased above the total number of authorized shares of the applicable class of shares available for designation
as a part of the series; |
| (5) |
Determine the dividend
rate on the shares of any class of shares or series of shares, whether dividends will be cumulative, and if so, from which date(s),
and the relative rights of priority, if any, payment of dividends on shares of that class of shares or series of shares; |
| (6) |
Determine whether that
class of shares or series of shares will have voting rights, in addition to the voting rights provided by law, and, if, so, the terms
of such voting; |
| (7) |
Determine whether or not
these shares of that class of shares or series of shares will have conversion privileges and, if, so, the terms and conditions of
such conversion, including provision for adjustment of the conversion rate in such events as the board of directors determines; |
| (8) |
Determine whether or not
these shares of that class of shares or series of shares will be redeemable and, if, so, the terms and conditions of such redemption,
including the date or date upon or after which they were redeemable, and the amount per share payable in case of redemption, which
amount may vary under different conditions and at different redemption dates; |
| (9) |
Determine whether or not
these shares of that class of shares or series of shares will have a sinking fund for that redemption or purchase of shares of that
class of shares or series of shares and, if, so, the terms and amount of such sinking fund; |
| (10) |
Determine the rights of
the shares of that class of shares of series of shares in the event of voluntary liquidation, dissolution or winding up of the Corporation
and the relative rights of priority, if any, of a payment of shares of that class of shares or series of shares; and |
| (11) |
Determine any other relative
rights, preference and limitation of that class of shares or series of shares. |
Provisions
in The Company’s Articles of Incorporation and By-Laws That Would Delay, Defer or Prevent a Change in Control
The
Company’s articles of incorporation authorize the Company’s board of directors to issue a class of preferred stock commonly
known as a “blank check” preferred stock. Specifically, the preferred stock may be issued from time to time by the board
of directors as shares of one (1) or more classes or series. The Company’s board of directors, subject to the provisions of the
Company’s Articles of Incorporation and limitations imposed by law, is authorized to adopt resolutions; to issue the shares; to
fix the number of shares; to change the number of shares constituting any series; and to provide for or change the following: the voting
powers; designations; preferences; and relative, participating, optional or other special rights, qualifications, limitations or restrictions,
including the following: dividend rights, including whether dividends are cumulative; dividend rates; terms of redemption, including
sinking fund provisions; redemption prices; conversion rights and liquidation preferences of the shares constituting any class or series
of the preferred stock.
In
each such case, we will not need any further action or vote by the Company’s shareholders. One of the effects of undesignated preferred
stock may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of
a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of
preferred stock pursuant to the board of director’s authority described above may adversely affect the rights of holders of common
stock. For example, preferred stock issued by us may rank prior to the common stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares of common stock. Accordingly, the issuance of shares
of preferred stock may discourage bids for the common stock at a premium or may otherwise adversely affect the market price of the common
stock.
Share
Purchase Warrants
We
have no outstanding warrants to purchase the Company’s securities.
Options
We
have no outstanding options to purchase the Company’s securities.
Convertible
Securities
We
have not issued and do not have outstanding any securities convertible into shares of the Company’s common stock or any rights
convertible or exchangeable into shares of the Company’s common stock.
Certain
Anti-Takeover Provisions
Nevada
Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada
corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply.
The Company’s articles of incorporation and bylaws do not state that these provisions do not apply. The statute creates a number
of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct
and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in
the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State
of Nevada; and does business in the State of Nevada directly or through an affiliated corporation. Because of these conditions, the statute
currently does not apply to the Company’s company.
Debt
Securities
None.
Other
Securities to be Registered
None.
Transfer
Agent
The
Company’s transfer agent is Pacific Stock Transfer Company located at 6725 Via Austi Pkwy, Suite 300, Las Vegas, Nevada 89119 with
a phone number at (800) 785-7782.
ITEM
12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The
Company’s articles of incorporation and by-laws provide that each person who was or is made a party or is threatened to be made
a party to or is otherwise involved (including, without limitation, as a witness) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was a director or an officer of EUBG or, in the case of a
director, is or was serving at our request as a director, officer, or trustee of another corporation, or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee,
shall be indemnified and held harmless by us to the fullest extent authorized by the Nevada General Corporation Law against all expense,
liability and loss reasonably incurred or suffered by such.
Section
145 of the Nevada General Corporation Law permits a corporation to indemnify any director or officer of the corporation against expenses
(including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with
any action, suit or proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if
such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of
the corporation, and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was
unlawful. In a derivative action, (i.e., one brought by or on behalf of the corporation), indemnification may be provided only for expenses
actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit if
such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of
the corporation, except that no indemnification shall be provided if such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and
reasonably entitled to indemnity for such expenses despite such adjudication of liability.
Pursuant
to Section 102(b)(7) of the Nevada General Corporation Law, Article Seven of the Company’s articles of incorporation eliminates
the liability of a director to us for monetary damages for such a breach of fiduciary duty as a director, except for liabilities arising:
| |
● |
from any breach of the director’s duty of loyalty
to us; |
| |
● |
from acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; |
| |
● |
under Section 174 of the Nevada General Corporation
Law; and |
| |
● |
from any transaction from which the director derived
an improper personal benefit. |
ITEM
13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
TABLE
OF CONTENTS
AUDITED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2021 AND 2020
CONDENSED
UNAUDITED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders and the Board of Directors of Entrepreneur Universe Bright Group
Opinion
on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Entrepreneur Universe Bright Group and subsidiaries (the “Company”) as of December 31, 2021 and 2020, and
the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity and cash flows for
each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows
for each of the two years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit committee and that: (l) relate to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined
that there are no critical audit matters.
| /s/
Centurion ZD CPA & Co. |
|
| Centurion
ZD CPA & Co. |
|
| |
|
| We
have served as the Company’s auditor since 2020. |
|
| |
|
| Hong
Kong, China |
|
| |
|
| April
15, 2022 |
|
| |
|
| PCAOB ID:2769 |
|
ENTREPRENEUR
UNIVERSE BRIGHT GROUP
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31, 2021 AND 2020
(In
U.S. dollars except for number of shares)
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| ASSETS | |
| | | |
| | |
| CURRENT ASSETS | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 7,649,129 | | |
$ | 3,846,470 | |
| Debt products | |
| - | | |
| 3,058,041 | |
| Accounts receivable | |
| 67,940 | | |
| 202,183 | |
| Other receivables and prepayments | |
| 55,925 | | |
| 50,306 | |
| Loan to a related company | |
| - | | |
| 186,796 | |
| Total current assets | |
| 7,772,994 | | |
| 7,343,796 | |
| | |
| | | |
| | |
| NON-CURRENT ASSETS | |
| | | |
| | |
| Plant and equipment, net | |
| 281,448 | | |
| 355,609 | |
| Operating lease right-of-use assets,
net | |
| 146,698 | | |
| 25,615 | |
| Total non-current assets | |
| 428,146 | | |
| 381,224 | |
| | |
| | | |
| | |
| TOTAL ASSETS | |
$ | 8,201,140 | | |
$ | 7,725,020 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | | |
| | |
| Accounts payable | |
$ | 115,833 | | |
$ | - | |
| Other payables and accrued liabilities | |
| 402,158 | | |
| 618,508 | |
| Contract liabilities | |
| 216,142 | | |
| - | |
| Receipt in advance | |
| 5,161 | | |
| 50,369 | |
| Operating lease liabilities, current | |
| 59,370 | | |
| 29,933 | |
| Tax payables | |
| 39,545 | | |
| 595,338 | |
| Amount due to a shareholder | |
| - | | |
| 53,000 | |
| Amount due to a director | |
| 171,443 | | |
| 51,309 | |
| Borrowings | |
| - | | |
| 128,996 | |
| Total current liabilities | |
| 1,009,652 | | |
| 1,527,453 | |
| | |
| | | |
| | |
| NON-CURRENT LIABILITY | |
| | | |
| | |
| Deferred tax liabilities | |
| 342,546 | | |
| 626,546 | |
| Operating lease liabilities, non-current | |
| 87,328 | | |
| - | |
| Total non-current liabilities | |
| 429,874 | | |
| 626,546 | |
| | |
| | | |
| | |
| TOTAL LIABILITIES | |
| 1,439,526 | | |
| 2,153,999 | |
| | |
| | | |
| | |
| COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| | |
| | | |
| | |
| STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| Preferred stock, par value $0.0001 per share, 1,100,000 shares authorized, Nil
(December 31, 2020: Nil) shares issued and outstanding as of December 31, 2021 | |
| - | | |
| - | |
| Common stock, par value $0.0001 per share; 1,800,000,000 shares authorized, 1,701,181,423
(December 31, 2020: 1,701,181,423) shares issued and outstanding as of December 31, 2021 | |
| 170,118 | | |
| 170,118 | |
| Additional paid-in capital | |
| 6,453,048 | | |
| 6,453,048 | |
| Statutory reserves | |
| 65,911 | | |
| 65,911 | |
| Accumulated deficit | |
| (357,403 | ) | |
| (1,443,803 | ) |
| Accumulated other comprehensive income | |
| 429,940 | | |
| 325,747 | |
| Total stockholders’ equity | |
| 6,761,614 | | |
| 5,571,021 | |
| TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY | |
$ | 8,201,140 | | |
$ | 7,725,020 | |
The
accompanying notes are an integral part of these consolidated financial statements.
ENTREPRENEUR
UNIVERSE BRIGHT GROUP
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND 2020
(In
U.S. dollars except for number of shares)
| | |
2021 | | |
2020 | |
| Revenue | |
$ | 5,637,396 | | |
$ | 9,187,023 | |
| Cost of revenue | |
| (1,827,082 | ) | |
| (661,462 | ) |
| Gross profit | |
| 3,810,314 | | |
| 8,525,561 | |
| Selling expenses | |
| (253,958 | ) | |
| (188,900 | ) |
| General and administrative expenses | |
| (1,668,432 | ) | |
| (935,302 | ) |
| Profit from operations | |
| 1,887,924 | | |
| 7,401,359 | |
| Other income (expenses): | |
| | | |
| | |
| Interest income | |
| 76,952 | | |
| 36,721 | |
| Exchange loss | |
| (476 | ) | |
| (813 | ) |
| Sundry income | |
| 110,916 | | |
| 35,648 | |
| Total other income, net | |
| 187,392 | | |
| 71,556 | |
| Income before income tax | |
| 2,075,316 | | |
| 7,472,915 | |
| Income tax expense | |
| (988,916 | ) | |
| (2,504,845 | ) |
| Net income | |
$ | 1,086,400 | | |
$ | 4,968,070 | |
| Other comprehensive income | |
| | | |
| | |
| Foreign currency translation adjustment | |
| 104,193 | | |
| 329,795 | |
| Total comprehensive income | |
$ | 1,190,593 | | |
$ | 5,297,865 | |
| | |
| | | |
| | |
| Net income per share - Basic and diluted | |
$ | 0.00 | * | |
$ | 0.00 | * |
| Weighted average number of common shares outstanding | |
| | | |
| | |
| - Basic and Diluted | |
| 1,701,181,423 | | |
| 1,701,181,423 | |
|
* |
Less than $0.01 per
share |
The
accompanying notes are an integral part of these consolidated financial statements.
ENTREPRENEUR
UNIVERSE BRIGHT GROUP
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND 2020
(In
U.S. dollars except for number of shares)
| | |
Common Stock | | |
Additional | | |
Preferred stock | | |
| | |
| | |
Accumulated
Other
Comprehensive | | |
Total | |
| | |
Number of | | |
| | |
Paid-In | | |
Number of | | |
| | |
Statutory | | |
Accumulated | | |
Income | | |
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Reserve | | |
Deficit | | |
(Loss) | | |
Equity | |
| Balance as of January 1,
2020 | |
| 1,701,181,423 | | |
$ | 170,118 | | |
$ | 6,453,048 | | |
| - | | |
$ | - | | |
$ | 34,720 | | |
$ | (6,380,682 | ) | |
$ | (4,048 | ) | |
$ | 273,156 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,968,070 | | |
| - | | |
| 4,968,070 | |
| Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 329,795 | | |
| 329,795 | |
| Statutory reserve | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 31,191 | | |
| (31,191 | ) | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of December 31, 2020 | |
| 1,701,181,423 | | |
$ | 170,118 | | |
$ | 6,453,048 | | |
| - | | |
$ | - | | |
$ | 65,911 | | |
$ | (1,443,803 | ) | |
$ | 325,747 | | |
$ | 5,571,021 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,086,400 | | |
| - | | |
| 1,086,400 | |
| Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 104,193 | | |
| 104,193 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of December 31, 2021 | |
| 1,701,181,423 | | |
$ | 170,118 | | |
$ | 6,453,048 | | |
| - | | |
$ | - | | |
$ | 65,911 | | |
$ | (357,403 | ) | |
| 429,940 | | |
| 6,761,614 | |
The
accompanying notes are an integral part of these consolidated financial statements.
ENTREPRENEUR
UNIVERSE BRIGHT GROUP
CONSOLIDATED
STATEMENT OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND 2020
(In
U.S. dollars)
| | |
2021 | | |
2020 | |
| Cash flows from operating activities | |
| | | |
| | |
| Net income | |
$ | 1,086,400 | | |
$ | 4,968,070 | |
| Adjustments to reconcile net income to cash used in operating
activities: | |
| | | |
| | |
| Depreciation | |
| 83,212 | | |
| 32,059 | |
| Amortization of operating lease right-of-use assets | |
| 39,367 | | |
| 31,350 | |
| Deferred tax | |
| (293,366 | ) | |
| 552,005 | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Other receivables and prepayments | |
| (5,186 | ) | |
| (27,577 | ) |
| Accounts receivable | |
| 137,165 | | |
| (28,585 | ) |
| Amount due from a related company | |
| - | | |
| 235,930 | |
| Amount due to a shareholder | |
| (53,000 | ) | |
| 53,000 | |
| Accounts payable | |
| 115,561 | | |
| (57,954 | ) |
| Other payables and accrued liabilities | |
| (220,493 | ) | |
| 395,583 | |
| Tax payables | |
| (563,979 | ) | |
| 415,984 | |
| Contract liabilities | |
| 215,636 | | |
| (87,490 | ) |
| Receipt in advance | |
| (45,909 | ) | |
| 29,104 | |
| Operating lease liabilities | |
| (43,745 | ) | |
| (27,259 | ) |
| Net cash generated from operating activities | |
| 451,663 | | |
| 6,484,220 | |
| | |
| | | |
| | |
| Cash flows from investing activities | |
| | | |
| | |
| Purchase of property, plant and equipment | |
| - | | |
| (369,021 | ) |
| Acquisition of debt products | |
| (2,789,855 | ) | |
| (2,897,689 | ) |
| Redemption of debt products | |
| 5,889,695 | | |
| - | |
| Loan to a related company | |
| (123,994 | ) | |
| (147,912 | ) |
| Repayment from a related company | |
| 313,343 | | |
| - | |
| Net cash generated from (used in) investing
activities | |
| 3,289,189 | | |
| (3,414,622 | ) |
| | |
| | | |
| | |
| Cash flows from financing activities | |
| | | |
| | |
| Proceed from borrowings | |
| - | | |
| 128,927 | |
| Repayment of borrowings | |
| (128,656 | ) | |
| - | |
| Advance from a director | |
| 121,090 | | |
| 41,271 | |
| Net cash (used in) generated from financing
activities | |
| (7,566 | ) | |
| 170,198 | |
| | |
| | | |
| | |
| Effect of exchange
rates on cash | |
| 69,373 | | |
| 206,796 | |
| | |
| | | |
| | |
| Net increase in cash and cash equivalents | |
| 3,802,659 | | |
| 3,446,592 | |
| Cash and cash equivalents
at beginning of year | |
| 3,846,470 | | |
| 399,878 | |
| Cash and cash equivalents
at end of year | |
$ | 7,649,129 | | |
$ | 3,846,470 | |
| | |
| | | |
| | |
| Supplemental cash flow information | |
| | | |
| | |
| Cash paid during the year for: | |
| | | |
| | |
| Income taxes | |
$ | 1,326,242 | | |
$ | 1,536,857 | |
| Withholding tax paid | |
$ | 518,702 | | |
$ | - | |
Non-cash financing activities
Operating lease
assets obtained in exchange for operating lease obligations | |
$ | 171,419 | | |
$ | 55,622 | |
The
accompanying notes are an integral part of these consolidated financial statements.
ENTREPRENEUR
UNIVERSE BRIGHT GROUP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND 2020
(In
U.S. dollars except for number of shares)
NOTE
1 – ORGANIZATION AND BUSINESS
Entrepreneur
Universe Bright Group (“EUBG” or the “Company”), formerly known as Ketcher Industries LLC and REE International,
Inc., was incorporated in the State of Nevada on April 21, 1999 under the name LE GOURMET CO, INC. Since its inception, the Company had
the following name changes: On March 17, 2003, to Estelle Reyna, Inc.; on September 11, 2003 to Karma Media, Inc.; on July 8, 2005 to
Pitboss Entertainment, Inc.; on March 3, 2006 to US Energy Holdings, Inc.; on December 20, 2006 to Lonestar Group Holdings Company; on
November 9, 2007 to Guardian Angel Group, Inc.; on May 18, 2011 to REE International, Inc.; and on March 23, 2020, the Company filed
a Certificate of Amendment to the Nevada Secretary of State amending Article I of its Articles of Incorporation changing the Company’s
name to Entrepreneur Universe Bright Group, with an effective date of April 3, 2020.
Lonestar
Group Holdings Company was a voluntary filer and filed a Form 15 with the Securities and Exchange Commission (“SEC”) on August
20, 2007.
In
July 2018, XTC Inc. (“XTC”), a shareholder of the Company, petitioned the Eight Judicial District Court in Clark County,
Nevada (the “Court”), for appointment as custodian of the Company. On September 4, 2018, the Court granted XTC custodianship
of the Company with the right to appoint officers and directors, negotiate and compromise debt, execute contracts, issue stock and authorize
new classes of stock (“Custodianship”).
Since
the Form 15 filing on August 20, 2007 and prior to the Custodianship, the management believes that the Company was inactive with no business
operations. In December 2018, XTC filed a Certificate of Revival for a revival of its charter, effective December 13, 2018, with the
Nevada Secretary of State. XTC acted together with MXD Inc. (“MXD”) to revive the Company and to get current. MXD is a private
company incorporated in the State of Colorado. As the president of XTC is also the president of MXD, the Company considered that the
XTC and MXD are under common control.
XTC
and MXD performed the following actions in its capacity as custodian:
| |
● |
Funded all expenses of
the Company including paying off all outstanding liabilities discovered; |
| |
● |
Brought the Company back
in compliance with the Nevada Secretary of State, resident agent, transfer agent, OTC Markets Group; |
| |
● |
Brought in and paid for
accounting professionals as well as securities counsel. |
On
December 18, 2018, the Company formed REE International, Inc. Colorado (“REE-CO”). On December 21, 2018, the Company entered
into an Agreement for Divestiture of Assets to Subsidiary with REE-CO, where the Company transferred all assets, liabilities, and business
to REE-CO. in exchange for 1,000 shares of REE-CO, and became the parent company of REE-CO. Since then, the Company has no assets, liabilities
and business.
On
December 28, 2018, the Company entered into a Sale and Purchase Agreement (the “SPA”) with XTC to transfer 1,000 common shares
of REE-CO to XTC at nil cash consideration (with XTC assuming all of the obligations and liabilities of REE-CO). Pursuant to the SPA,
all the assets and liabilities previously reported in the Company’s financial statements were acquired by XTC and all the continuing
obligations assumed were taken up by XTC. The gain on disposal of $328,423 was recognized in additional paid-up capital for the year
ended December 31, 2018. Since the closing of the SPA, REE-CO ceased to be a subsidiary of the Company on the same date, and the Company
no longer had any assets, liabilities and business.
In
consideration of the payments made to revive the Company and get current by the XTC and MXD, the Company issued 1,000,000 shares of Series
A Preferred Stock to MXD on December 11, 2018 and issued 50,000 shares of Series B Preferred Stock to XTC on February 27, 2019, respectively.
On
March 5, 2019 the total authorized common stock was increased to 1,800,000,000.
On
April 24, 2019, XTC was discharged as custodian of the Company. Prior to the Custodianship and immediately before May 15, 2019, the Company
has abandoned all of its business operations.
On
May 15, 2019, 1,590,605,141 shares of common stock of the Company was issued to MXD (the “Issuance”) as consideration for
its services to revive the Company and get current, at an aggregate fair value of $135,000, which was recognized as share-based payments
for the year ended December 31, 2019. On the same date, MXD and XTC agreed to voluntarily retire 1,000,000 shares of Series A Preferred
Stock and 50,000 shares of Series B Preferred Stock, respectively.
Immediately
after the Issuance, MXD entered into certain Sale and Purchase Agreements, dated May 15, 2019 (the “Stock Purchase Agreements”),
with Tethys Fountain Limited, New Finance Consultants Limited, Jia Wang, Jianyong Li, Haijun Jiang, Xuebin Wu and Fanfan Chen (collectively,
the “Purchasers”), to transfer all its 1,590,605,141 shares of common stock of the Company to the Purchasers in exchange
for an aggregate purchase price of $135,000. Upon the closing of the Stock Purchase Agreements, the Purchasers collectively owned 93.5%
of the issued and outstanding shares of the Company’s common stock, and Tethys Fountain Limited became the controlling shareholder
of the Company.
The
Company currently trades on the Pink Sheet under the symbol “EUBG”. The Company’s fiscal year end is December 31st.
The
Company, through its wholly owned subsidiaries, mainly engages in provision of digital marketing consultation services in Hong Kong and
China.
| Company
name |
|
Place/date
of incorporation |
|
Principal
activities |
| 1. Entrepreneurship World Technology Holding Group
Company Limited |
|
Hong Kong/May 15, 2019 |
|
Provision of consulting and promotional services |
| |
|
|
|
|
| 2. Xian Yunchuang Space Information Technology Co.,
Ltd. |
|
The People’s Republic of China (“PRC”)/October
18, 2019 |
|
Provision of digital marketing consultation services |
| |
|
|
|
|
| 3. Xian Yunchuang Space Information Technology Co.,
Ltd, BaiYin Branch |
|
PRC/May 7, 2020 |
|
Provision of digital marketing consultation services |
COVID-19
In
early January of 2020, a novel coronavirus (“COVID-19”) outbreak took place in Wuhan, China. Subsequently, it has spread
rapidly to Asia and other parts of the world. The COVID-19 outbreak has resulted in widespread economic disruptions in China, as well
as stringent government measures by the Chinese government to contain its transmissions including quarantines, travel restrictions, and
temporary closures of non-essential businesses in China and elsewhere. The outbreak in China mainly occurred in the first quarter of
2020, and it gradually stabilized and business activities started to resume under the guidance and support of the government since late
second quarter of 2020.
As
of December 31, 2020, the COVID-19 outbreak in China appears to be generally under control and business activities have recovered on
the whole. In addition, the Company resumed contacting potential customers as of June 2020, and the aforementioned negative impact has
been further mitigated since the third quarter of 2020, when the outbreak became more stabilized in China and other regions in the world.
However, sporadic cases continue to be found during the first half year of 2021 in China. For example, a new Delta variant of COVID-19
had been found in certain cities in China in the second quarter of 2021, which may cause another outbreak, thus increasing risks and
possible further disruption to businesses. Therefore, certain of the Company’s consulting services were suspended from April 2021
to August 2021. We have resumed these consulting businesses from August 2021 in order to maintain diversified services for the Company’s
customers.
As
of December 31, 2021, the COVID-19 pandemic continues to be dynamic, and near-term challenges across the economy remain. Although vaccines
are now being distributed and administered across many parts of the world, new variants of the virus have emerged and may continue to
emerge that have shown to be more contagious. We continue to adhere to applicable governmental and commercial restrictions and to work
to mitigate the impact of COVID-19 on our employees, customers, communities, liquidity and financial position. The extent to which the
COVID-19 outbreak may impact the company’s business, operations and financial results from this point forward will depend on numerous
evolving factors that the company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic;
governmental, business and individuals’ actions in response to the pandemic in the future; and any other further development of
the COVID-19 outbreak.
Substantially
all of the Company’s revenues and operations are concentrated in China. Consequently, our results of operations and financial performances
have been affected since 2020 and into the first quarter of 2022. Due to the government measures taken to contain COVID-19, the offline
activities of the Company’s PRC subsidiary were restricted from late January to May 2020, resulting in cancellations or postponements
of the marketing efforts of our customers. In addition, due to widespread economic disruptions during the outbreak, demand for the Company’s
consulting services by small and medium-sized enterprises were also adversely affected. Specifically, as a result of government mandated
closures of non-essential business in China, many of the Company’s customers’ business were suspended while others permanently
closed their businesses. From December 22, 2021 to January 24, 2022, Xian city, the PRC, went into lockdown following a coronavirus outbreak
that officials attributed to the delta variant. This affected both the Company’s digital marketing consulting services and our
KOL Training Related Services.
The
Company achieved an operating revenue of $5,637,396 and $9,187,023 for the years ended December 31, 2021 and 2020, respectively, representing
a decrease of approximately 38.6% from the prior year. COVID-19 has and may continue to adversely affect the Company’s financial
and business performance.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting
principles (“U.S. GAAP”).
After the close of the year to which these
financial statements relate, the Company experienced (and continues to experience) adverse impacts of novel coronavirus (COVID-19) and
the related public health orders. In December 2021, there was a COVID-19 outbreak in Xian city, the PRC. Finally, the Company expects
that the impact of the COVID-19 outbreak on the United States and world economies will continue to have a material adverse impact on
the demand for the Company’s business. Because of the significant uncertainties surrounding the COVID-19 pandemic, the extent of
the business interruption and the related financial impact cannot be reasonably estimated at this time.
Use
of Estimates
The
preparation of these financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing
basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that
the Company believes are the most critical to fully understanding and evaluating its consolidated financial statements.
The COVID-19 pandemic
has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns
or shutdowns, depress demand for the Company’s business, and adversely impact its results of operations. During the year ended
December 31, 2021, the Company faced increasing uncertainties around its estimates of revenue collectability and accounts receivable
credit losses. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration
and degree of impact associated with the COVID-19 pandemic. Its estimates may change as new events occur and additional information
emerges, and such changes are recognized or disclosed in its consolidated financial statements.
Recently
Adopted Accounting Standards
In
December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income
taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent
application among reporting entities. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all
periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained
earnings as of the beginning of the fiscal year of adoption. The Company applied the new standard beginning January 1, 2021. The
adoption of ASU 2019-12 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.
In
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the number
of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. As a result,
a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features
require bifurcation and recognition as derivatives. For contracts in an entity’s own equity, the type of contracts primarily affected
by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure
to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by removing
the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required
to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early
adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of
such fiscal year. The Company adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06 did not have any impact on the
Company’s consolidated financial statement presentation or disclosures. The adoption of ASU 2020-06 did not have any impact on
the Company’s consolidated financial statement presentation or disclosures.
Recently
Issued Accounting Standards
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which requires
entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current
conditions, and reasonable and supportable forecasts. ASU 2016-13 replaces the existing incurred loss model and is applicable to the
measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 is to be adopted on a modified retrospective
basis. As a smaller reporting company, ASU 2016-13 will be effective for the Company for interim and annual reporting periods beginning
after December 15, 2022. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated
financial statement presentations and disclosures.
In May 2021, the FASB issued ASU 2021-04, Earnings
Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic
718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain
Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance
as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written
call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new
instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified
or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model
that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination,
debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for
all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should
apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early
adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an
interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption
of ASU 2021-04 is not expected to have any impact on the Company’s consolidated financial statement presentation or disclosures.
In
November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.
This update requires certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution
accounting model by analogy. This update is effective for annual periods beginning after December 15, 2021, and early application is
permitted. This guidance should be applied either prospectively to all transactions that are reflected in financial statements at the
date of initial application and new transactions that are entered into after the date of initial application or retrospectively to those
transactions. The Company does not expect the impact of this guidance to have a material impact on the Company’s consolidated financial
statements.
Other accounting standards that have been issued
or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a
material impact on the Company’s consolidated financial statements upon adoption.
Basis
of Consolidation and Noncontrolling Interests
The
consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company
balances and transactions within the Company have been eliminated upon consolidation.
A
subsidiary is an entity in which (i) the Company directly or indirectly controls more than 50% of the voting power; or (ii) the
Company has the power to appoint or remove the majority of the members of the board of directors or to cast a majority of votes at the
meeting of the board of directors or to govern the financial and operating policies of the investee pursuant to a statute or under an
agreement among the shareholders or equity holders.
Leases
The
Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on
the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the
rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing rate
based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use
(“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and
lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized
based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the
lease term. The Company elected the package of practical expedients permitted under the transition guidance to combine the lease and
non-lease components as a single lease component for operating leases associated with the Company’s office space lease, and to
keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated
statements of income on a straight-line basis over the lease term.
ROU
assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject
to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU
assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent
from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used,
which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets
and liabilities.
The
Company recognized no impairment of ROU assets as of December 31, 2021 and December 31, 2020.
The
operating lease is included in operating lease right-of-use assets, operating lease liabilities-current and operating lease liabilities-non-current
on the Company’s consolidated balance sheets.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers cash, money market funds, investments in interest bearing demand deposit
accounts, time deposits and all highly liquid investments placed with banks or other financial institutions with an original maturity
of three months or less to be cash equivalents.
As
of December 31, 2021, cash held in accounts managed by online payment platforms such as Alipay and WeChat Pay amounted to $161,188 (as
at December 31, 2020: Nil), which have been classified as cash and cash equivalents in the consolidated balance sheets.
Accounts
receivable
Accounts
receivable are recorded at the invoiced amount, net of allowances for doubtful accounts and sales returns. The allowance for doubtful
accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable.
The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions.
Outstanding
accounts receivable balances are reviewed individually for collectability. Account balances are charged off against the allowance after
all means of collection have been exhausted and the potential for recovery is considered remote.
Debt
products
All
debt products are carried at fair value at the end of each reporting period. Changes in the carrying amount of debt products relating
to interest income calculated using the effective interest method are recognized in consolidated statement of profit or loss. Other changes
in the carrying amount of these products, net of any related tax effects, are excluded form earnings and are included in other comprehensive
income or loss and reported as a separate component of stockholders’ equity or deficit until realized. Realized gains and losses
and declines in value judged to be other than temporary, if any, on debt products are included in other income (expense), net.
The
Company regularly reviews all of its investments for other-than-temporary declines in estimated fair value. Its review includes the consideration
of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss
position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities and whether it
is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis. When
the Company determines that the decline in estimated fair value of an investment is below the amortized cost basis and the decline is
other-than-temporary, it reduces the carrying value of the security and record a loss for the amount of such decline. The Company has
not recorded any declines in value judged to be other than temporary on its investments in debt securities.
Plant
and equipment
Plant
and equipment are recorded at cost less accumulated depreciation and accumulated impairment. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets.
| |
|
Estimated
useful lives
(years) |
|
| Motor
vehicle |
|
4 - 5 |
|
The
gain or loss on the disposal of plant and equipment is the difference between the net sales proceeds and the lower of the carrying value
or fair value less cost to sell the relevant assets and is recognized in general and administrative expenses in the consolidated statements
of comprehensive income.
Impairment
of Long-lived Assets
In
accordance with ASC 360-10-35, we review the carrying values of long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. The Company assesses the recover-ability of the assets based on
the non-discounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated discounted future
cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than
the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated
fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. No impairment has
been recorded by the Company for the years ended December 31, 2021 and 2020.
Revenue
Recognition
The
Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration
which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under
ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine
the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues
when (or as) we satisfy the performance obligation.
The
Company evaluates if it is a principal or an agent in a transaction to determine whether revenue should be recorded on a gross or net
basis. The Company is acting as the principal if it obtains control over the goods and services before they are transferred to customers.
When the Company is primarily obligated in a transaction, is generally subject to inventory risk, has latitude in establishing prices,
or has several but not all of these indicators, the Company acts as the principal and revenue is recorded on a gross basis. When the
Company is not primarily obligated in a transaction, does not generally bear the inventory risk and does not have the ability to establish
the price, the Company acts as the agent and revenue is recorded on a net basis
The
Company derives its revenue primarily from net transaction services, including consultancy services, sourcing and marketing services,
and digital training related services.
Consultancy
services
The
Company generates the majority of its revenues by providing consulting services to its clients. Most of its consulting service contracts
are based on one of the following types of arrangements:
Performance-based
arrangements represent forms of variable consideration determined by pre-established fixed rates. In these arrangements, the Company’s
fees are based on the attainment of contractually defined objectives with our client, such as assisting the client in achieving a specific
business objective (e.g. end customer placed an order to buy a product or enroll a course). The Company is entitled a fixed rate on revenue
generated by the client that are related to the scope of respective consultancy services upon client acceptance on the services provided.
Fixed-fee
arrangements require the client to pay a pre-established fee in exchange for a pre-determined set of professional services. Generally,
the client agrees to pay a fixed fee prior to contract inception. The Company recognizes revenues for its professional services rendered
under these fixed-fee billing arrangements monthly over the specified contract term.
Sourcing
and marketing services
The
Company provides agency-based sourcing and digital marketing services to connect marketplace operators and merchants. Most of its sourcing
and marketing services are based on one of the following types of arrangements:
Agency-based
sourcing services represents product procurement on behalf of marketplace operators. The Company recognized revenues from agency-based
sourcing at a fixed rate on the value of goods that are sourced and delivered to the ultimate customers by the merchants. The Company
reports revenues from these transactions on a net basis because the performance obligation is to facilitate a transaction between marketplace
operators and merchants, for which the Company did not obtain the control over the products before passing on to the end customers. The
Company is not primarily responsible for fulfilling the promise and not exposed to inventory risk.
Digital
marketing services are provided to the marketplace to promote designated products or services through social medial influencers engaged
by the Company. The Company is entitled to a fixed rate on the revenue generated by the marketplace that are related to the designated
products or services.
The
post-sale services, goods return and other kinds of product issue are responsibilities of the merchants. Upon successful delivery to
ultimate customers by the merchants, there is no unfulfilled obligation that could affect the marketplace operators’ and merchants’
acceptance of the services provided. The acceptance provisions have lapsed, or the Company has objective evidence that all criteria for
acceptance have been satisfied.
Digital
training related services
Fixed-fee digital training related services
are provided to clients who are interested to conduct live-broadcasting business through social medias. The Company require the clients
to pay a pre-established fee in exchange for the services. Revenues are recognized when promised services (e.g. preliminary consulting
work, setting up an e-learning account and delivery of learning materials) are delivered to the clients.
The Company derived services revenues of $4,152,617
and $8,592,970 for the years ended December 31, 2021 and 2020, respectively, from provision of certain consultancy services and sourcing
and marketing services through the program application (“App”) platform managed by a related company, Xi’an Chuangyetianxia
Network Technology Co., Ltd. (“Xian CNT”). The Company CEO, Mr. Tao, has significant influence over Xian CNT.
During
the years ended December 31, 2021 and 2020, revenues generated from Xian CNT are disclosed in note 5 of the consolidated financial statements.
Practical
expedients and exemption
The
Company has not occurred any costs to obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts
with an original expected length of one year or less.
Other
service income is earned when services have been rendered.
Revenue
by major service line
| | |
2021 | | |
2020 | |
| Consultancy services | |
| 4,237,261 | | |
| 8,984,967 | |
| Sourcing and marketing services | |
| 223,620 | | |
| 202,056 | |
| Digital training related services | |
| 1,176,515 | | |
| - | |
| | |
$ | 5,637,396 | | |
$ | 9,187,023 | |
Revenue
by recognition over time vs point in time
| | |
2021 | | |
2020 | |
| Revenue recognized at a point in time | |
| 5,637,396 | | |
| 9,100,334 | |
| Revenue recognized over time | |
| - | | |
| 86,689 | |
| | |
$ | 5,637,396 | | |
$ | 9,187,023 | |
Revenue
recorded on a gross vs net basis
| | |
2021 | | |
2020 | |
| Revenue recorded on a gross basis | |
| 5,413,776 | | |
| 8,984,967 | |
| Revenue recorded on a net basis | |
| 223,620 | | |
| 202,056 | |
| | |
$ | 5,637,396 | | |
$ | 9,187,023 | |
Contract
liabilities
The
Company’s contract liabilities consist of deferred revenue associated with consultancy fees and provision of fixed-fee training
related services. The table below presents the activity of the deferred consultancy services revenue during the years ended December
31, 2021 and 2020, respectively:
| | |
2021 | | |
2020 | |
| Balance at beginning of year | |
$ | - | | |
$ | 87,136 | |
| Service fees collected | |
| 1,377,349 | | |
| - | |
| Service revenue earned | |
| (1,176,515 | ) | |
| (86,689 | ) |
| Exchange realignment | |
| 15,308 | | |
| (447 | ) |
| Balance at end of year | |
$ | 216,142 | | |
$ | - | |
Cost
of revenue
Cost
of revenues consists primarily of employee compensation, service fees, agency fees, and the related IT expenses, which are directly attributable
to the revenues
Employee
benefits
Full
time employees of the Company in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension
benefits, medical care, employee housing fund and other welfare benefits are provided to the employees. Chinese labor regulations require
that the PRC subsidiary of the Company make contributions to the government for these benefits based on certain percentages of the employees’
salaries, up to a maximum amount specified by the local government. The Company has no legal obligation for the benefits beyond the contributions
made. Total amounts of such employee benefit expenses, which were expensed as incurred, were approximately $124,386 (including prior
years housing funds of $11,014) and $4,911 for the years ended December 31, 2021 and 2020, respectively.
Foreign
Currency and Foreign Currency Translation
The
reporting currency of the Company is the United States dollar (“US dollar”). The financial records of the Company’s
PRC operating subsidiaries are maintained in their local currency, the Renminbi (“RMB”), which is the functional currency.
The financial records of the Company’s Hong Kong operating subsidiary are maintained in its local currency, the Hong Kong Dollar
(“HKD”), which is the functional currency. Assets and liabilities of the subsidiaries are translated into the reporting currency
at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates, and income and expense
items are translated using the average rate for the year. The translation adjustments are recorded in accumulated other comprehensive
loss under shareholders’ equity.
Monetary
assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currencies
at the prevailing rates of exchange at the balance sheet date. Nonmonetary assets and liabilities are remeasured into the applicable
functional currencies at historical exchange rates. Transactions in currencies other than the applicable functional currencies during
the year are converted into the functional currencies at the applicable rates of exchange prevailing at the transaction dates. Transaction
gains and losses are recognized in the consolidated statements of operations.
RMB
is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s
Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rates adopted
for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand.
Translation of amounts from RMB into US dollars has been made at the following exchange rates for the respective periods:
| Year
ended December 31, 2020 |
|
|
|
| Balance
sheet, except for equity accounts |
|
RMB 6.5401
to US$1.00 |
|
| Income
statement and cash flows |
|
RMB 6.9021 to US$1.00 |
|
| |
|
|
|
| Year
ended December 31, 2021 |
|
|
|
| Balance
sheet, except for equity accounts |
|
RMB 6.3559 to US$1.00 |
|
| Income
statement and cash flows |
|
RMB 6.4519 to US$1.00 |
|
During
the years presented, HKD is pegged to the U.S. dollar within a narrow range.
Income
Taxes
Income
taxes are accounted for using an asset and liability approach which requires the recognition of income taxes payable or refundable for
the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s
financial statements or tax returns. Deferred income taxes are determined based on the differences between the accounting basis and the
tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. Deferred tax assets are reduced
by a valuation allowance, if based on available evidence, it is considered that it is more likely than not that some portion of or all
of the deferred tax assets will not be realized. In making such determination, the Company considers factors including future reversals
of existing taxable temporary differences, future profitability, and tax planning strategies. If events were to occur in the future that
would allow the Company to realize more of its deferred tax assets than the presently recorded net amount, an adjustment would be made
to the deferred tax assets that would increase income for the period when those events occurred. If events were to occur in the future
that would require the Company to realize less of its deferred tax assets than the presently recorded net amount, an adjustment would
be made to the valuation allowance against deferred tax assets that would decrease income for the period when those events occurred.
Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities.
The
Company conducts business in the PRC and Hong Kong and is subject to tax in these jurisdictions. As a result of its business activities,
the Company will file tax returns that are subject to examination by the respective tax authorities.
Uncertain
Tax Positions
Management
reviews regularly the adequacy of the provisions for taxes as they relate to the Company’s income and transactions. In order to
assess uncertain tax positions, the Company applies a more likely than not threshold and a two-step approach for tax position measurement
and financial statement recognition. For the two-step approach, the first step is to evaluate the tax position for recognition by determining
if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution
of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more
than 50% likely to be realized upon settlement. As of December 31, 2021 and 2020, the Company had not recorded any liability for uncertain
tax positions. In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component
of income tax expense.
Net
income per Share of Common Stock
The
Company has adopted ASC Topic 260, “Earnings per Share,” (“EPS”) which requires presentation of basic EPS on
the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation. In the accompanying financial statements, basic earnings (loss) per share is computed by dividing
net income by the weighted average number of shares of common stock outstanding during the year.
| | |
2021 | | |
2020 | |
| Net income | |
$ | 1,086,400 | | |
$ | 4,968,070 | |
| | |
| | | |
| | |
| Weighted average number of common stock outstanding | |
| | | |
| | |
| - basic and diluted | |
| 1,701,181,423 | | |
| 1,701,181,423 | |
| | |
| | | |
| | |
| Net income per share | |
| | | |
| | |
| - basic and diluted | |
$ | 0.00 | * | |
$ | 0.00 | * |
| * |
Less than $0.01 per share |
The
calculation of basic net income per share of common stock is based on the net income for the years ended December 31, 2021 and 2020 and
the weighted average number of ordinary shares outstanding.
For
the years ended December 31, 2021 and 2020, the Company has no potentially dilutive securities, such as options or warrants, currently
issued and outstanding.
Segments
The
Company uses the “management approach” in determining reportable operating segments. The management approach considers the
internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing
performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision
maker, reviews operating results solely by monthly revenue of marketing consultation services and operating results of the Company and,
as such, the Company has determined that the Company has one operating segment (provision of consulting, sourcing and marketing services,
and digital training related services in China) as defined by ASC Topic 280 “Segment Reporting”.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents.
As
of December 31, 2021 and 2020, $7,649,129 and $3,846,470 of the Company’s cash and cash equivalents, respectively were held at
financial institutions and online payment platforms located in the PRC and Hong Kong that management believes to be of high credit quality.
The Company has not experienced any losses on cash and cash equivalents to date. The Company does not require collateral or other securities
to support financial instruments that are subject to credit risk.
The
Company operates principally in the PRC and Hong Kong and grants credit to its customers in these geographic regions. Although the PRC
is economically stable, it is always possible that unanticipated events in foreign countries could disrupt the Company’s operations.
Fair
Value of Financial Instruments
ASC
Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification
based on observable and unobservable inputs when measuring fair value. Certain current assets and current liabilities are financial instruments.
Management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination
of such instruments and their expected realization and, if applicable, their current interest rates are equivalent to interest rates
currently available. The three levels of valuation hierarchy are defined as follows:
| |
● |
Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| |
● |
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 assets
or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| |
● |
Level 3 inputs to the valuation
methodology are unobservable and significant to the fair value measurement. |
Valuation
of debt products depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future
interest rates, and other relevant terms of the debt. Other factors that may be considered include the borrower’s ability to adequately
service its debt, the fair market value of the borrower in relation to the face amount of its outstanding debt and the quality of collateral
securing the Company’s debt investments. The fair value of these debt products classified as Level 2 are established by reference
to the prices quoted by respective fund administrators.
The
carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, other receivables, loan
to a related company, accounts payable and other payables, amounts due to a director and a shareholder and borrowings approximate their
fair values because of the short maturity of these instruments or the rate of interest of these instruments approximate the market rate
of interest.
Comprehensive
Income
Comprehensive
income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding
transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive income includes cumulative
foreign currency translation adjustment.
NOTE
3 – DEBT PRODUCTS
| | |
2021 | | |
2020 | |
| Debt products issued by bank, at fair value | |
$ | - | | |
$ | 3,058,041 | |
Debt
products include financial products issued and managed by banks in the PRC. The fair value of these debt products classified as Level
2 are established by reference to the prices quoted by the bank.
As
at December 31, 2020, the debt products have no maturity date, and bear variable interest rate, currently at 2.35% per annum. No fair
value change has been recognized for the year ended December 31, 2020. The debt products have been subsequently redeemed on February
2, 2021.
During
the year ended December 31, 2021, the Company further acquired debt products of $2,789,855, which had no maturity date, and bear variable
interest rate with a range from 2.45% to 3.02% per annum. All these newly acquired debt products had been redeemed on July 15, 2021 with
a gain of $2,059.
NOTE
4 – PLANT AND EQUIPMENT
Plant
and equipment as of December 31, 2021 and December 31, 2020 are summarized below:
| | |
2021 | | |
2020 | |
| Motor vehicle | |
$ | 400,732 | | |
$ | 389,443 | |
| Less: Accumulated depreciation | |
| (119,284 | ) | |
| (33,834 | ) |
| Plant and equipment, net | |
$ | 281,448 | | |
$ | 355,609 | |
Depreciation
expenses, classified as operating expenses, were $83,212 and $32,059 for the years ended December 31, 2021 and 2020, respectively.
NOTE
5 – RELATED PARTY TRANSACTIONS
The
following is the list of the related parties with which the Company had transactions for the years ended December 31, 2021 and 2020:
| |
(a) |
Xian CNT – a company
incorporated in the PRC, Xian. As of December 31, 2021, the shareholders of Xian CNT are 90% owned by certain family members of Mr.
Guolin Tao, among them - 45% is owned by the sister of Mr. Tao, Ms. Tao Zhiyan and 45% is owned by the brother-in-law of Mr. Guolin
Tao, Mr. Pan Chang. |
| |
(b) |
Baiyin Wujinxia Cultural
Communication Co., Ltd. (“Baiyin Wujinxia”) – a company incorporated in the PRC, the Company CEO, Mr Tao held 60%
equity interest from October 31, 2019 to January 25, 2021 and on January 26, 2021 fully transferred to Ms. Hanye Chang, spouse of
Mr. Guolin Tao. |
| |
(c) |
Ms. Hanye Chang, spouse
of Mr. Guolin Tao. |
| |
(d) |
Mr. Yong Chang, father
in law of Mr. Guolin Tao |
| |
(e) |
Mr. Jianyong Li, a director
of the Company. |
| |
(f) |
New Finance Consultants
Limited, a shareholder of the Company, holding 8.3% equity interest as of December 31, 2021 and 2020. |
| |
|
|
| |
(g) |
Xian Yuanchuang Tribe Technology
Co., Ltd. (“Yuanchuang Tribe”)– a company incorporated in the PRC, Ms. Hanyu Chang, spouse of Mr. Guolin Tao, indirectly
held 29.99% equity interest from November 29, 2019 to February 10, 2021. |
| |
|
|
| |
(h) |
Xian Yuanchuang Federation
Information Technology Co., Ltd. (“Yuanchuang Federation”)- a company incorporated in the PRC, Yuanchuang Tribe held
100% equity interest December 30, 2019 to September 10, 2021. |
Related
party transaction
| | |
2021 | | |
2020 | |
| Sourcing and marketing services income generated from | |
| | |
| |
| - Xian CNT | |
$ | - | | |
$ | 49,259 | |
| | |
| | | |
| | |
| Purchase of motor vehicles from | |
| | | |
| | |
| - Ms. Hanye Chang | |
| - | | |
| 86,931 | |
| - Mr. Yong Chang | |
| - | | |
| 45,639 | |
| - Mr. Jianyong Li | |
| - | | |
| 28,977 | |
| | |
| | | |
| | |
| Interest income | |
| | | |
| | |
| - Baiyin Wujinxia | |
| 5,794 | | |
| 3,888 | |
| | |
| | | |
| | |
| IT expenses | |
| | | |
| | |
| - Yuanchuang Tribe | |
| 60,718 | | |
| - | |
| - Yuanchuang Federation | |
| 86,718 | | |
| - | |
Sourcing
and marketing income were received by the Company at fees agreed by both parties in accordance with the relevant agreements.
Interest income was charged at an interest
rate agreed by both parties in accordance with a loan agreement.
IT
expenses were charged at fees agreed by both parties in accordance with the relevant services agreements.
Related
party balances
| | |
2021 | | |
2020 | |
| Loan to a related company | |
| | |
| |
| - Baiyin Wujinxia | |
$ | - | | |
$ | 186,796 | |
| | |
| | | |
| | |
| Amount due to a director | |
| | | |
| | |
| - Mr. Guolin Tao | |
$ | 171,443 | | |
$ | 51,309 | |
| | |
| | | |
| | |
| Amount due to a shareholder | |
| | | |
| | |
| - New Finance Consultants Limited | |
$ | - | | |
$ | 53,000 | |
| | |
| | | |
| | |
| Accounts payable | |
| | | |
| | |
| - Yuanchuang Tribe | |
$ | 16,135 | | |
$ | - | |
| - Yuanchuang Federation | |
| 21,390 | | |
| - | |
On
November 1, 2019, the Company entered into a loan agreement with Baiyin Wujinxia to loan a total amount of $305,804 (RMB2,000,000) for
a period from November 1, 2019 to September 30, 2021. The loan is unsecured and bears fixed interest at 4.75% per annum. The outstanding
amount (including loan interest) as at December 31, 2020 was fully repaid on June 18, 2021 and the loan agreement was early terminated
on the same date.
The
amounts due to director/shareholder as of December 31, 2021 and 2020 are unsecured, non-interest bearing and repayable on demand.
On June 1, 2021, the Company entered into
IT consultation agreements with Yuanchuang Tribe and Yuanchuang Federation, respectively. The outstanding amounts as at December 31,
2021 are subsequently settled in January 2022.
NOTE
6 – ACCOUNTS RECEIVABLE, NET
Accounts
receivable as of December 31, 2021 and 2020:
| | |
2021 | | |
2020 | |
| Account receivables | |
$ | 67,940 | | |
$ | 202,183 | |
| Less: Allowance for doubtful accounts | |
| - | | |
| - | |
| | |
$ | 67,940 | | |
$ | 202,183 | |
NOTE
7 – OTHER RECEIVABLES AND PREPAYMENTS
Other
receivables and prepayments consisted of the following as of December 31, 2021 and December 31, 2020:
| | |
2021 | | |
2020 | |
| Deposits and other receivables | |
$ | 18,430 | | |
$ | 19,027 | |
| Prepayments | |
| 37,495 | | |
| 31,279 | |
| | |
$ | 55,925 | | |
$ | 50,306 | |
NOTE
8 – LOAN RECEIVABLES
On
February 8, 2021, the Company has provided a $500,000 loan to an independent customer of the Company’s consultancy business. The
loan was interest-bearing at 10% per annum, repayable on February 7, 2022 and secured by the corporate guarantee of the customer. On
August 5, 2021, the customer fully repaid the loan principal and interest.
Loan
interest income was $23,660 for the year ended December 31, 2021.
NOTE
9 – ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued
liabilities and other payables consisted of the following as of December 31, 2021 and 2020:
| | |
2021 | | |
2020 | |
| Other payables | |
| 83,494 | | |
| 110,599 | |
| Salary payable | |
| 105,294 | | |
| 229,010 | |
| Accrued audit fees | |
| 130,000 | | |
| 221,000 | |
| Other accrued expenses | |
| 83,370 | | |
| 57,899 | |
| | |
$ | 402,158 | | |
$ | 618,508 | |
NOTE
10 – BORROWINGS
On
April 20, 2020, the Company borrowed a loan of $128,927 (HK$1,000,000) from an unrelated individual. The loan was interest-free, unsecured,
and repayable on April 2021. The Company repaid the borrowing on February 2, 2021.
NOTE
11 – COMMON STOCK
The
Company was incorporated on April 21, 1999 with an authorized share capital of 25,000,000 common stock with a par value of $0.001 per
share.
On
March 5, 2019, the total number of authorized shares were increased to 1,800,000,000 common stock with a par value of $0.0001 per share.
NOTE
12 – STATUTORY RESERVES
As
stipulated by the relevant laws and regulations in the PRC, company established in the PRC (the “PRC subsidiary”) is required
to maintain a statutory reserve made out of profit for the year based on the PRC subsidiary’ statutory financial statements which
are prepared in accordance with the accounting principles generally accepted in the PRC. The amount and allocation basis are decided
by the director of the PRC subsidiary annually and is not to be less than 10% of the profit for the year of the PRC subsidiary. The aggregate
amount allocated to the reserves will be limited to 50% of registered capital for certain subsidiaries. Statutory reserve can be used
for expanding the capital base of the PRC subsidiary by means of capitalization issue.
In
addition, as a result of the relevant PRC laws and regulations which impose restriction on distribution or transfer of assets out of
the PRC statutory reserve, $65,911 representing the PRC statutory reserve of the subsidiary as of December 31, 2021 and 2020, are also
considered under restriction for distribution.
NOTE
13 – INCOME TAXES
| (a) |
The local (United States)
and foreign components of income (loss) before income taxes were comprised of the following: |
| | |
2021 | | |
2020 | |
| Tax jurisdictions from: | |
| | |
| |
| - Local | |
| (791,930 | ) | |
| (365,055 | ) |
| - Foreign, representing: | |
| | | |
| | |
| HK | |
| (53,508 | ) | |
| 45,181 | |
| PRC | |
| 2,920,754 | | |
| 7,792,789 | |
| Income before income taxes | |
$ | 2,075,316 | | |
$ | 7,472,915 | |
Income
is subject to tax in the various countries in which the Company operates.
The
Company is incorporated in the State of Nevada and is subject to the U.S. federal tax and state tax. The Tax Cuts and Jobs Act of (“TCJ
Act”) was signed into law in December 2017, and among its many provisions, it imposed a mandatory one-time transition tax on undistributed
international earnings and reduced the U.S. corporate income tax rate to 21%, effective January 1, 2019. No provision for income taxes
in the United States has been made as the Company had no taxable income for the years ended December 31, 2021 and 2020.
The
Company mainly conducts its operating business through its subsidiaries in China, including Hong Kong.
The
subsidiary incorporated in Hong Kong is subject to Hong Kong taxation on income derived from their activities conducted in Hong Kong.
Hong Kong Profits Tax has been calculated at 16.5% of the estimated assessable profit for the years ended December 31, 2021 and 2020.
The provision for Hong Kong Profits Tax is calculated at 8.25% on assessable profits up to $257,313 (HK$2,000,000) for the years ended
December 31, 2021 and 2020 and subject to a waiver of 100% of the profits tax under a cap of $1,287 (HK$10,000) for the years ended December
31, 2021 and 2020, respectively.
The
subsidiary incorporated in mainland China is governed by the Income Tax Law of the PRC concerning foreign invested enterprises and foreign
enterprises and various local income tax laws (the Income Tax Laws), and are subject to 25% tax rate throughout the periods presented.
Under
the PRC EIT law, withholding income tax, normally at a rate of 10%, is imposed on dividend paid by PRC entities out of its profits earned
since January 1, 2008 to its overseas investors (including Hong Kong investors). Deferred taxation on the undistributed profits
of the PRC subsidiaries has been provided in the consolidated financial statements to the extent that in the opinion of the directors
such profits will be distributed in the foreseeable future. Total undistributed profits of the Company’s PRC subsidiary at December
31, 2021 and 2020 were $3,579,288 and $6,269,752, respectively. At December 31, 2021 and 2020, the Company recognized deferred tax liabilities
of $357,929 and $626,975, respectively, in respect of the undistributed profits.
Income
tax expense consists of the following:
| | |
2021 | | |
2020 | |
| Current tax: | |
| | |
| |
| Hong Kong | |
| (840 | ) | |
| 2,433 | |
| China | |
| 768,717 | | |
| 1,950,407 | |
| | |
| | | |
| | |
| Deferred tax | |
| | | |
| | |
| China | |
| 221,039 | | |
| 552,005 | |
| Total | |
$ | 988,916 | | |
$ | 2,504,845 | |
The
provision for income taxes consisted of the following:
| | |
2021 | | |
2020 | |
| Income before income tax | |
| 2,075,316 | | |
| 7,472,915 | |
| Statutory income tax rate | |
| 21 | % | |
| 21 | % |
| Income tax credit computed at statutory income rate | |
| 435,816 | | |
| 1,569,312 | |
| Reconciling items: | |
| | | |
| | |
| Non-deductible expenses (income), net | |
| 186,907 | | |
| 78,866 | |
| Effect of tax reliefs granted to Hong Kong subsidiary | |
| - | | |
| (1,289 | ) |
| Under-provision in prior period | |
| 11,198 | | |
| - | |
| Rate differential in different tax jurisdictions | |
| 119,238 | | |
| 305,951 | |
| Deferred tax provided on dividends withholding
tax of PRC subsidiaries | |
| 235,757 | | |
| 552,005 | |
| Income tax expense | |
$ | 988,916 | | |
$ | 2,504,845 | |
The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December
31, 2021 and 2020 are presented below:
| | |
2021 | | |
2020 | |
| Deferred tax assets: | |
| | |
| |
| Accelerated depreciation | |
$ | 1,778 | | |
$ | 429 | |
| Deductible temporarily difference arising from other payable | |
| 13,605 | | |
| - | |
| Less: Net off with deferred tax liabilities
for financial reporting purposes | |
| (15,383 | ) | |
| (429 | ) |
| Net total deferred
tax assets | |
| - | | |
| - | |
| | |
| | | |
| | |
| Deferred tax liabilities: | |
| | | |
| | |
| Undistributed profits of a PRC subsidiary | |
| 357,929 | | |
| 626,975 | |
| Less: Net off with deferred tax assets
for financial reporting purposes | |
| (15,383 | ) | |
| (429 | ) |
| Net total deferred
tax liabilities | |
$ | 342,546 | | |
$ | 626,546 | |
NOTE
14 – LEASE
On
May 13, 2020, the Company entered into a lease agreement for office space in Xian, the PRC with a non-cancellable lease term, commencing
on May 13, 2020 and expiring on July 15, 2021. The monthly rental payment is approximately $4,092 (RMB28,244) per month.
On
June 10, 2021, the Company entered into a lease agreement for office space in Xian, the PRC with a non-cancellable lease term, commencing
on July 16, 2021 and expiring on July 15, 2024. The monthly rental payment is approximately $5,107 (RMB32,951) per month.
Operating
lease expense for the years ended December 31, 2021 and 2020 were as follows:
| | |
2021 | | |
2020 | |
| Operating lease cost – straight
line | |
$ | 39,367 | | |
$ | 31,350 | |
| Total lease expense | |
$ | 39,367 | | |
$ | 31,350 | |
The
following is a schedule, by years, of maturities of lease liabilities as of December 31, 2021:
| | |
Operating
leases | |
| 12 months ending December 31, | |
| | |
| 2022 | |
$ | 62,212 | |
| 2023 | |
| 62,212 | |
| 2024 | |
| 31,106 | |
| 2025 | |
| - | |
| Thereafter | |
| - | |
| Total undiscounted cash flows | |
| 155,530 | |
| Less: imputed interest | |
| (8,832 | ) |
| Present value of lease liabilities | |
$ | 146,698 | |
Lease
term and discount rate
| |
|
December 31,
2021 |
|
| Weighted-average
remaining lease term - year |
|
|
2.5 |
|
| Weighted-average
discount rate (%) |
|
|
4.90 |
% |
NOTE
15 – CONTINGENIES AND COMMITMENTS
Contingencies
Certain
conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which
will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess
such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related
to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s
legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount
of relief sought or expected to be sought. There was no contingency of this type as of December 31, 2021 and 2020.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates
that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the
nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
There was no contingency of this type as of December 31, 2021 and 2020.
Loss
contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee
would be disclosed.
NOTE
16 – CERTAIN RISKS AND CONCENTRATIONS
The
Company had the following customers that individually comprised 10% or more of net revenue for the years ended December 31, 2021 and
2020:
| |
|
2021 |
|
|
2020 |
|
| Customer
A |
|
$ |
1,438,514 |
|
|
|
26 |
% |
|
$ |
4,995,641 |
|
|
|
54 |
% |
| Customer
B (Note) |
|
|
1,008,417 |
|
|
|
18 |
% |
|
|
1,586,867 |
|
|
|
17 |
% |
| Customer
C |
|
|
730,829 |
|
|
|
13 |
% |
|
|
* |
|
|
|
* |
|
| |
* |
Comprised less than 10%
of net revenue for the respective period. |
The
Company had the following customers that individually comprised 10% or more of net accounts receivable as of December 31, 2021 and 2020:
| |
|
2021 |
|
|
2020 |
|
| Customer
A |
|
$ |
* |
|
|
|
* |
% |
|
$ |
57,608 |
|
|
|
28 |
% |
| Customer
B (Note) |
|
|
* |
|
|
|
* |
% |
|
|
39,291 |
|
|
|
19 |
% |
| Customer
C |
|
|
* |
|
|
|
* |
% |
|
|
* |
|
|
|
* |
% |
| Customer
D |
|
|
20,272 |
|
|
|
30 |
% |
|
|
* |
|
|
|
* |
% |
| Customer
E |
|
|
18,408 |
|
|
|
27 |
% |
|
|
31,379 |
|
|
|
16 |
% |
| Customer
F |
|
|
15,864 |
|
|
|
23 |
% |
|
|
* |
|
|
|
* |
% |
|
* |
Comprised less than 10%
of net account receivable for the respective period. |
Note
: Customer B is an ultimate shareholder of Service Vendor C and Service Vendor E disclosed below.
The
Company had the following service vendors that individually comprised 10% or more of cost of revenue for the years ended December 31,
2021 and 2020:
| |
|
2021 |
|
|
2020 |
|
| Service
vendor |
|
$ |
579,959 |
|
|
|
32 |
% |
|
$ |
* |
|
|
|
* |
|
| Service
vendor B |
|
|
186,934 |
|
|
|
10 |
% |
|
|
* |
|
|
|
* |
|
| * |
Comprised less than 10%
of cost of revenue for the respective period. |
The
Company had the following service vendors that individually comprised 10% or more of accounts payable as of December 31, 2021 and December
31, 2020:
| |
|
2021 |
|
|
2020 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Service
vendor B |
|
$ |
49,560 |
|
|
|
43 |
% |
|
$ |
* |
|
|
|
* |
|
| Service
vendor C (Note) |
|
|
21,390 |
|
|
|
18 |
% |
|
|
* |
|
|
|
* |
|
| Service
vendor D |
|
|
19,308 |
|
|
|
17 |
% |
|
|
* |
|
|
|
* |
|
| Service
vendor E (Note) |
|
|
16,135 |
|
|
|
14 |
% |
|
|
* |
|
|
|
* |
|
|
* |
Comprised less than 10%
of accounts payable for the respective period. |
Note:
Customer B disclosed above is an ultimate shareholder of Service Vendor C and Service Vendor E.
At
December 31, 2021 and 2020, the Company’s cash and cash equivalents included bank deposits in accounts maintained in China and
Hong Kong and liquid funds in online payment platforms. The Company has not experienced any losses in such accounts and believes it is
not exposed to any significant risks on its cash in bank accounts.
For
the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary,
maintains reserves for potential credit losses.
NOTE
17 – SUBSEQUENT EVENTS
On March 22, 2022, the PRC subsidiary learned
that Beijing Jade Bird Culture and Art Research Institute (“Jade Bird”), the KOL agency that the PRC subsidiary works with
to coordinate digital training related service, suspended its service after receiving a notice from China National Personal Talent Training
Network (“CNPTTN”), a PRC regulatory agency for the talent training, that until further notice CNPTTN has suspended all recruitment
services using its CNPTTN’s name. As a result of the suspension, the PRC subsidiary has also suspended its digital training related
services with Jade Bird from March 22, 2022 until further notice. Jade Bird is an authorized licensee of CNPTTN. The management of the
Company consider that it is not practicable to provide a reasonable estimate of that effect until a detailed review have been completed.
For the years ended December 31, 2021 and 2020, the digital training related services with Jade Bird represented 20.9% and 0% of our
total revenue, or $1,176,515 and $0, respectively.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
ENTREPRENEUR UNIVERSE BRIGHT GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2022 AND DECEMBER 31, 2021
(In U.S. dollars except for number of shares)
| | |
June 30,
2022 | | |
December 31,
2021 | |
| | |
(unaudited) | | |
| |
| ASSETS | |
| | |
| |
| CURRENT ASSETS | |
| | |
| |
| Cash and cash equivalents | |
$ |
7,637,260 | | |
$ |
7,649,129 | |
| Accounts receivable | |
| 270,939 | | |
| 67,940 | |
| Other receivables and prepayments | |
| 35,369 | | |
| 55,925 | |
| Total current assets | |
| 7,943,568 | | |
| 7,772,994 | |
| | |
| | | |
| | |
| NON-CURRENT ASSETS | |
| | | |
| | |
| Plant and equipment, net | |
| 234,194 | | |
| 281,448 | |
| Operating lease right-of-use assets,
net | |
| 112,683 | | |
| 146,698 | |
| Total non-current assets | |
| 346,877 | | |
| 428,146 | |
| | |
| | | |
| | |
| TOTAL ASSETS | |
$ | 8,290,445 | | |
$ | 8,201,140 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | | |
| | |
| Accounts payable | |
$ | - | | |
$ | 115,833 | |
| Other payables and accrued liabilities | |
| 222,279 | | |
| 402,158 | |
| Contract liabilities | |
| - | | |
| 216,142 | |
| Receipt in advance | |
| - | | |
| 5,161 | |
| Operating lease liabilities, current | |
| 54,964 | | |
| 59,370 | |
| Tax payables | |
| 158,269 | | |
| 39,545 | |
| Amount due to a director | |
| 170,713 | | |
| 171,443 | |
| Total current liabilities | |
| 606,225 | | |
| 1,009,652 | |
| | |
| | | |
| | |
| NON-CURRENT LIABILITY | |
| | | |
| | |
| Deferred tax liabilities | |
| 444,780 | | |
| 342,546 | |
| Operating lease liabilities, non-current | |
| 57,719 | | |
| 87,328 | |
| Total non-current liabilities | |
| 502,499 | | |
| 429,874 | |
| | |
| | | |
| | |
| TOTAL LIABILITIES | |
| 1,108,724 | | |
| 1,439,526 | |
| | |
| | | |
| | |
| COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| | |
| | | |
| | |
| STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| Preferred stock, par value $0.0001 per share, 1,100,000 shares authorized, Nil
(December 31, 2021: Nil) shares issued and outstanding as of June 30, 2022 | |
| - | | |
| - | |
| Common stock, par value $0.0001 per share; 1,800,000,000 shares authorized, 1,701,181,423
(December 31, 2021: 1,701,181,423) shares issued and outstanding as of June 30, 2022 | |
| 170,118 | | |
| 170,118 | |
| Additional paid-in capital | |
| 6,453,048 | | |
| 6,453,048 | |
| Statutory reserves | |
| 65,911 | | |
| 65,911 | |
| Retained earnings (accumulated deficit) | |
| 299,620 | | |
| (357,403 | ) |
| Accumulated other comprehensive income | |
| 193,024 | | |
| 429,940 | |
| Total stockholders’ equity | |
| 7,181,721 | | |
| 6,761,614 | |
| TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY | |
$ | 8,290,445 | | |
$ | 8,201,140 | |
The accompanying notes are an integral part
of these condensed consolidated financial statements.
ENTREPRENEUR UNIVERSE BRIGHT GROUP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE
30, 2022 AND 2021 (UNAUDITED)
(In U.S. dollars except for number of shares)
| | |
For the three months ended
June 30, | | |
For the six months ended
June
30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Revenue | |
| 840,868 | | |
| 873,084 | | |
$ | 2,049,872 | | |
$ | 2,856,944 | |
| Cost of revenue | |
| (113,332 | ) | |
| (199,451 | ) | |
| (425,811 | ) | |
| (418,772 | ) |
| Gross profit | |
| 727,536 | | |
| 673,633 | | |
| 1,624,061 | | |
| 2,438,172 | |
| Selling expenses | |
| (8,319 | ) | |
| (85,760 | ) | |
| (24,914 | ) | |
| (170,014 | ) |
| General and administrative expenses | |
| (331,385 | ) | |
| (351,935 | ) | |
| (642,673 | ) | |
| (579,301 | ) |
| Profit from operations | |
| 387,832 | | |
| 235,938 | | |
| 956,474 | | |
| 1,688,857 | |
| Other income (expenses): | |
| | | |
| | | |
| | | |
| | |
| Interest income | |
| 12,637 | | |
| 34,039 | | |
| 22,967 | | |
| 50,279 | |
| Exchange gain (loss) | |
| 27,862 | | |
| (7,432 | ) | |
| 27,922 | | |
| (12,045 | ) |
| Sundry income | |
| 17,600 | | |
| 5,785 | | |
| 109,032 | | |
| 31,860 | |
| Total other income, net | |
| 58,099 | | |
| 32,392 | | |
| 159,921 | | |
| 70,094 | |
| Income before income tax | |
| 445,931 | | |
| 268,330 | | |
| 1,116,395 | | |
| 1,758,951 | |
| Income tax expense | |
| (180,081 | ) | |
| (146,289 | ) | |
| (459,372 | ) | |
| (670,274 | ) |
| Net income | |
$ | 265,850 | | |
| 122,041 | | |
$ | 657,023 | | |
$ | 1,088,677 | |
| Other comprehensive income (loss) | |
| | | |
| | | |
| | | |
| | |
| Foreign currency translation adjustment | |
| (231,781 | ) | |
| 41,517 | | |
| (236,916 | ) | |
| 65,982 | |
| Total comprehensive income | |
$ | 34,069 | | |
| 163,558 | | |
$ | 420,107 | | |
$ | 1,154,659 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net income per share - Basic and diluted | |
$ | 0.00 | * | |
| 0.00 | * | |
$ | 0.00 | * | |
$ | 0.00 | * |
| Weighted average number of common shares outstanding | |
| | | |
| | | |
| | | |
| | |
| - Basic and Diluted | |
| 1,701,181,423 | | |
| 1,701,181,423 | | |
| 1,701,181,423 | | |
| 1,701,181,423 | |
| * | Less
than $0.01 per share |
The accompanying notes are an integral part
of these condensed consolidated financial statements.
ENTREPRENEUR UNIVERSE BRIGHT GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE
30, 2022 AND 2021 (UNAUDITED)
(In U.S. dollars except for number of shares)
Three and six months ended June 30, 2021
| | |
Common
Stock | | |
Additional | | |
Preferred
stock | | |
| | |
| | |
Accumulated
Other | | |
Total | |
| | |
Number
of
Shares | | |
Amount | | |
Paid-In
Capital | | |
Number of
Shares | | |
Amount | | |
Statutory
Reserves | | |
Accumulated
Deficit | | |
Comprehensive
Income | | |
Stockholders’
Equity | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance as of January 1, 2021 | |
| 1,701,181,423 | | |
$ | 170,118 | | |
$ | 6,453,048 | | |
| - | | |
$ | - | | |
$ | 65,911 | | |
$ | (1,443,803 | ) | |
$ | 325,747 | | |
$ | 5,571,021 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 966,636 | | |
| - | | |
| 966,636 | |
| Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 24,465 | | |
| 24,465 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance
as of March 31, 2021 | |
| 1,701,181,423 | | |
$ | 170,118 | | |
$ | 6,453,048 | | |
| - | | |
$ | - | | |
$ | 65,911 | | |
$ | (477,167 | ) | |
$ | 350,212 | | |
$ | 6,562,122 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 122,041 | | |
| - | | |
| 122,041 | |
| Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 41,517 | | |
| 41,517 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance
as of June 30, 2021 | |
| 1,701,181,423 | | |
$ | 170,118 | | |
$ | 6,453,048 | | |
| - | | |
$ | - | | |
$ | 65,911 | | |
$ | (355,126 | ) | |
$ | 391,729 | | |
$ | 6,725,680 | |
Three and six months ended June 30, 2022
| | |
| | |
| | |
| | |
| | |
(Accumulated | | |
Accumulated | | |
| |
| | |
Common
Stock | | |
Additional | | |
Preferred
stock | | |
| | |
Deficit) | | |
Other | | |
Total | |
| | |
Number
of
Shares | | |
Amount | | |
Paid-In
Capital | | |
Number of
Shares | | |
Amount | | |
Statutory
Reserves | | |
Retained
earnings | | |
Comprehensive
Income | | |
Stockholders’
Equity | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance as of January
1, 2022 | |
| 1,701,181,423 | | |
$ | 170,118 | | |
$ | 6,453,048 | | |
| - | | |
$ | - | | |
$ | 65,911 | | |
$ | (357,403 | ) | |
$ | 429,940 | | |
$ | 6,761,614 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 391,173 | | |
| - | | |
| 391,173 | |
| Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,135 | ) | |
| (5,135 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance
as of March 31, 2022 | |
| 1,701,181,423 | | |
$ | 170,118 | | |
$ | 6,453,048 | | |
| - | | |
$ | - | | |
$ | 65,911 | | |
$ | 33,770 | | |
$ | 424,805 | | |
$ | 7,147,652 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 265,850 | | |
| - | | |
| 265,850 | |
| Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (231,781 | ) | |
| (231,781 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance
as of June 30, 2022 | |
| 1,701,181,423 | | |
$ | 170,118 | | |
$ | 6,453,048 | | |
| - | | |
$ | - | | |
$ | 65,911 | | |
$ | 299,620 | | |
$ | 193,024 | | |
$ | 7,181,721 | |
The accompanying notes are an integral part
of these condensed consolidated financial statements.
ENTREPRENEUR UNIVERSE BRIGHT GROUP
CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND
2021 (UNAUDITED)
(In U.S. dollars)
| | |
Six months ended
June 30, | |
| | |
2022 | | |
2021 | |
| Cash flows from operating activities | |
| | | |
| | |
| Net income | |
$ | 657,023 | | |
$ | 1,088,677 | |
| Adjustments to reconcile net income to cash used in operating activities: | |
| | | |
| | |
| Depreciation | |
| 42,322 | | |
| 41,479 | |
| Amortization of operating lease right-of-use assets | |
| 27,395 | | |
| 25,886 | |
| Deferred tax | |
| 123,894 | | |
| (367,854 | ) |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Other receivables and prepayments | |
| 19,049 | | |
| (82,283 | ) |
| Accounts receivable | |
| (213,535 | ) | |
| 118,772 | |
| Accounts payable | |
| (113,645 | ) | |
| - | |
| Other payables and accrued liabilities | |
| (170,904 | ) | |
| (303,307 | ) |
| Tax payables | |
| 125,057 | | |
| (460,122 | ) |
| Contract liabilities | |
| (212,060 | ) | |
| - | |
| Receipt in advance | |
| (5,064 | ) | |
| (8,289 | ) |
| Operating lease liabilities | |
| (27,395 | ) | |
| (45,555 | ) |
| Net cash generated from operating activities | |
| 252,137 | | |
| 7,404 | |
| | |
| | | |
| | |
| Cash flows from investing activities | |
| | | |
| | |
| Purchase of property, plant and equipment | |
| (8,381 | ) | |
| - | |
| Acquisition of debt products | |
| - | | |
| (2,781,346 | ) |
| Redemption of debt products | |
| - | | |
| 5,717,211 | |
| Loan receivables to a unrelated third party | |
| - | | |
| (499,908 | ) |
| Loan to a related company | |
| - | | |
| (123,615 | ) |
| Repayment from a related company | |
| - | | |
| 312,386 | |
| Net cash (used in) generated from investing activities | |
| (8,381 | ) | |
| 2,624,728 | |
| | |
| | | |
| | |
| Cash flows from financing activities | |
| | | |
| | |
| Repayment of borrowings | |
| - | | |
| (128,842 | ) |
| Advance from a director | |
| - | | |
| 69,532 | |
| Net cash used in financing activities | |
| - | | |
| (59,310 | ) |
| | |
| | | |
| | |
| Effect of exchange rates on cash | |
| (255,625 | ) | |
| 38,660 | |
| | |
| | | |
| | |
| Net (decrease) increase in cash and cash equivalents | |
| (11,869 | ) | |
| 2,611,482 | |
| Cash and cash equivalents at beginning of period | |
| 7,649,129 | | |
| 3,846,470 | |
| Cash and cash equivalents at end of period | |
$ | 7,637,260 | | |
$ | 6,457,952 | |
| | |
| | | |
| | |
| Supplemental cash flow information | |
| | | |
| | |
| Cash paid during the period for: | |
| | | |
| | |
| Income taxes | |
$ | 224,055 | | |
$ | 981,886 | |
| Withholding tax paid | |
$ | - | | |
$ | 517,120 | |
The accompanying notes are an integral part
of these condensed consolidated financial statements.
ENTREPRENEUR UNIVERSE BRIGHT GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE
30, 2022 AND 2021
(In U.S. dollars except for number of shares)
NOTE 1 – ORGANIZATION AND BUSINESS
Entrepreneur Universe Bright Group (“EUBG”
or the “Company”), formerly known as Ketcher Industries LLC and REE International, Inc., was incorporated in the State of
Nevada on April 21, 1999 under the name LE GOURMET CO, INC. Since its inception, the Company had the following name changes: On March
17, 2003, to Estelle Reyna, Inc.; on September 11, 2003 to Karma Media, Inc.; on July 8, 2005 to Pitboss Entertainment, Inc.; on March
3, 2006 to US Energy Holdings, Inc.; on December 20, 2006 to Lonestar Group Holdings Company; on November 9, 2007 to Guardian Angel Group,
Inc.; on May 18, 2011 to REE International, Inc.; and on March 23, 2020, the Company filed a Certificate of Amendment to the Nevada Secretary
of State amending Article I of its Articles of Incorporation changing the Company’s name to Entrepreneur Universe Bright Group,
with an effective date of April 3, 2020.
Lonestar Group Holdings Company was a voluntary
filer and filed a Form 15 with the Securities and Exchange Commission (“SEC”) on August 20, 2007.
In July 2018, XTC Inc. (“XTC”),
a shareholder of the Company, petitioned the Eight Judicial District Court in Clark County, Nevada (the “Court”), for appointment
as custodian of the Company. On September 4, 2018, the Court granted XTC custodianship of the Company with the right to appoint officers
and directors, negotiate and compromise debt, execute contracts, issue stock and authorize new classes of stock (“Custodianship”).
Since the Form 15 filing on August 20, 2007
and prior to the Custodianship, the management believes that the Company was inactive with no business operations. In December 2018,
XTC filed a Certificate of Revival for a revival of its charter, effective December 13, 2018, with the Nevada Secretary of State. XTC
acted together with MXD Inc. (“MXD”) to revive the Company and to get current. MXD is a private company incorporated in the
State of Colorado. As the president of XTC is also the president of MXD, the Company considered that the XTC and MXD are under common
control.
XTC and MXD performed the following actions
in its capacity as custodian:
| |
● |
Funded all expenses
of the Company including paying off all outstanding liabilities discovered; |
| |
● |
Brought the Company
back in compliance with the Nevada Secretary of State, resident agent, transfer agent, OTC Markets Group; |
| |
● |
Brought in and paid
for accounting professionals as well as securities counsel. |
On December 18, 2018, the Company formed REE
International, Inc. Colorado (“REE-CO”). On December 21, 2018, the Company entered into an Agreement for Divestiture of Assets
to Subsidiary with REE-CO, where the Company transferred all assets, liabilities, and business to REE-CO. in exchange for 1,000 shares
of REE-CO, and became the parent company of REE-CO. Since then, the Company has no assets, liabilities and business.
On December 28, 2018, the Company entered
into a Sale and Purchase Agreement (the “SPA”) with XTC to transfer 1,000 common shares of REE-CO to XTC at nil cash consideration
(with XTC assuming all of the obligations and liabilities of REE-CO). Pursuant to the SPA, all the assets and liabilities previously
reported in the Company’s financial statements were acquired by XTC and all the continuing obligations assumed were taken up by
XTC. The gain on disposal of $328,423 was recognized in additional paid-up capital for the year ended December 31, 2018. Since the closing
of the SPA, REE-CO ceased to be a subsidiary of the Company on the same date, and the Company no longer had any assets, liabilities and
business.
In consideration of the payments made to revive
the Company and get current by the XTC and MXD, the Company issued 1,000,000 shares of Series A Preferred Stock to MXD on December 11,
2018 and issued 50,000 shares of Series B Preferred Stock to XTC on February 27, 2019, respectively.
On March 5, 2019 the total authorized common
stock was increased to 1,800,000,000.
On April 24, 2019, XTC was discharged as custodian
of the Company. Prior to the Custodianship and immediately before May 15, 2019, the Company has abandoned all of its business operations.
On May 15, 2019, 1,590,605,141 shares of common
stock of the Company was issued to MXD (the “Issuance”) as consideration for its services to revive the Company and get current,
at an aggregate fair value of $135,000, which was recognized as share-based payments for the year ended December 31, 2019. On the same
date, MXD and XTC agreed to voluntarily retire 1,000,000 shares of Series A Preferred Stock and 50,000 shares of Series B Preferred Stock,
respectively.
Immediately after the Issuance, MXD entered
into certain Sale and Purchase Agreements, dated May 15, 2019 (the “Stock Purchase Agreements”), with Tethys Fountain Limited,
New Finance Consultants Limited, Jia Wang, Jianyong Li, Haijun Jiang, Xuebin Wu and Fanfan Chen (collectively, the “Purchasers”),
to transfer all its 1,590,605,141 shares of common stock of the Company to the Purchasers in exchange for an aggregate purchase price
of $135,000. Upon the closing of the Stock Purchase Agreements, the Purchasers collectively owned 93.5% of the issued and outstanding
shares of the Company’s common stock, and Tethys Fountain Limited became the controlling shareholder of the Company.
The Company currently trades on the Pink Sheet
under the symbol “EUBG”. The Company’s fiscal year end is December 31st.
The Company, through its wholly owned subsidiaries,
mainly engages in provision of digital marketing consultation services in Hong Kong and China.
| Company
name |
|
Place/date
of incorporation |
|
Principal
activities |
| 1. |
Entrepreneurship World Technology Holding Group Company
Limited |
|
Hong Kong/May 15, 2019 |
|
Provision of consulting and promotional services |
| |
|
|
|
|
| 2. |
Xian Yunchuang Space Information Technology Co., Ltd. |
|
The People’s Republic of China (“PRC”)/October
18, 2019 |
|
Provision of digital marketing consultation services |
| |
|
|
|
|
| 3. |
Xian Yunchuang Space Information Technology Co., Ltd, BaiYin
Branch |
|
PRC/May 7, 2020 |
|
Provision of digital marketing consultation services |
COVID-19
In early January of 2020, a novel coronavirus
(“COVID-19”) outbreak took place in Wuhan, China. Subsequently, it has spread rapidly to Asia and other parts of the world.
The COVID-19 outbreak has resulted in widespread economic disruptions in China, as well as stringent government measures by the Chinese
government to contain its transmissions including quarantines, travel restrictions, and temporary closures of non-essential businesses
in China and elsewhere. The outbreak in China mainly occurred in the first quarter of 2020, and it gradually stabilized and business
activities started to resume under the guidance and support of the government since late second quarter of 2020.
As of December 31, 2020, the COVID-19 outbreak
in China appears to be generally under control and business activities have recovered on the whole. In addition, the Company resumed
contacting potential customers as of June 2020, and the aforementioned negative impact has been further mitigated since the third quarter
of 2020, when the outbreak became more stabilized in China and other regions in the world. However, sporadic cases continue to be found
during the first half year of 2021 in China. For example, a new Delta variant of COVID-19 had been found in certain cities in China in
the second quarter of 2021, which may cause another outbreak, thus increasing risks and possible further disruption to businesses. Therefore,
certain of the Company’s consulting services were suspended from April 2021 to August 2021. We have resumed these consulting businesses
from August 2021 in order to maintain diversified services for the Company’s customers.
As of December 31, 2021 and June 30, 2022,
the COVID-19 pandemic continues to be dynamic, and near-term challenges across the economy remain. Although vaccines are now being distributed
and administered across many parts of the world, new variants of the virus have emerged and may continue to emerge that have shown to
be more contagious. We continue to adhere to applicable governmental and commercial restrictions and to work to mitigate the impact of
COVID-19 on our employees, customers, communities, liquidity and financial position. The extent to which the COVID-19 outbreak may impact
the company’s business, operations and financial results from this point forward will depend on numerous evolving factors that
the company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic; governmental, business
and individuals’ actions in response to the pandemic in the future; and any other further development of the COVID-19 outbreak.
Substantially all of the Company’s revenues
and operations are concentrated in China. Consequently, our results of operations and financial performances have been affected since
2020 and into the first half of 2022. Due to the government measures taken to contain COVID-19, the offline activities of the Company’s
PRC subsidiary were restricted from late January to May 2020, resulting in cancellations or postponements of the marketing efforts of
our customers. In addition, due to widespread economic disruptions during the outbreak, demand for the Company’s consulting services
by small and medium-sized enterprises were also adversely affected. Specifically, as a result of government mandated closures of non-essential
business in China, many of the Company’s customers’ business were suspended while others permanently closed their businesses.
From December 22, 2021 to January 24, 2022, Xian city, the PRC, went into lockdown following a coronavirus outbreak that officials attributed
to the delta variant. From April 16, 2022 to April 19, 2022, the city was under temporary controls of social activities after reporting
more than 40 infections in half month. This affected both the Company’s digital marketing consulting services and our KOL Training
Related Services.
The Company achieved an operating revenue
of $2,049,872 and $2,856,944 for the six months ended June 30, 2022 and 2021, respectively, representing a decrease of approximately
28.2% from the prior period. For the three months ended June 30, 2022 and 2021, the Company operating revenue were $840,868 and $873,084,
respectively, representing a decrease of 3.7%. COVID-19 has and may continue to adversely affect the Company’s financial and business
performance.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S.
GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial
reporting. The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries.
All significant inter-company transactions and balances have been eliminated in consolidation.
The interim condensed consolidated financial
information as of June 30, 2022 and for the three and six month periods ended June 30, 2022 and 2021 have been prepared without audit,
pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures, which are normally included in consolidated
financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The
interim condensed consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto,
included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, previously filed with the SEC
on April 15, 2022.
In the opinion of management, all adjustments
(which include all significant normal and recurring adjustments) necessary to present a fair statement of the Company’s interim
condensed consolidated financial position as of June 30, 2022, its interim condensed consolidated results of operations and cash flows
for the three and six month periods ended June 30, 2022 and 2021, as applicable, have been made. The interim results of operations are
not necessarily indicative of the operating results for the full fiscal year or any future periods.
During the six months ended June 30, 2022,
the Company experienced (and continues to experience) adverse impacts of novel coronavirus (COVID-19) and the related public health orders.
The Company expects that the impact of the COVID-19 outbreak on the United States and world economies will continue to have a material
adverse impact on the demand for the Company’s business. Because of the significant uncertainties surrounding the COVID-19 pandemic,
the extent of the business interruption and the related financial impact cannot be reasonably estimated at this time.
Use of Estimates
The preparation of these financial statements
in conformity with U.S. GAAP requires management of the Company to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, the Company evaluates its estimates
based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting
policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most
critical to fully understanding and evaluating its condensed consolidated financial statements.
The COVID-19 pandemic has created
and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns,
depress demand for the Company’s business, and adversely impact its results of operations. During the six months ended June
30, 2022, the Company faced increasing uncertainties around its estimates of revenue collectability and accounts receivable credit losses.
The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact
associated with the COVID-19 pandemic. Its estimates may change as new events occur and additional information emerges, and
such changes are recognized or disclosed in its condensed consolidated financial statements.
Recently Adopted Accounting Standards
In May 2021, the FASB issued ASU 2021-04,
Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation
(Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting
for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04
provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified
written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument
for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the
modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition
model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt
origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). The Company applied
the new standard beginning January 1, 2022. The adoption of ASU 2021-04 did not have any impact on the Company’s condensed consolidated
financial statement presentation or disclosures.
In November 2021, the FASB issued ASU 2021-10,
Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires certain annual
disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.
The Company applied the new standard beginning January 1, 2022. The adoption of this guidance did not have a material impact on the Company’s
condensed consolidated financial statements.
Recently Issued Accounting Standards
In June 2016, the
FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which requires entities to
measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions,
and reasonable and supportable forecasts. ASU 2016-13 replaces the existing incurred loss model and is applicable to the measurement
of credit losses on financial assets measured at amortized cost. ASU 2016-13 is to be adopted on a modified retrospective basis. As a
smaller reporting company, ASU 2016-13 will be effective for the Company for interim and annual reporting periods beginning after December
15, 2022. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its condensed consolidated financial
statement presentations and disclosures. In March 2022, the FASB issued ASU 2022-02, Topic 326. The ASU eliminates the accounting guidance
for trouble debt restructurings by creditors in Subtopic 310-40, and enhances the disclosure requirements for modifications of loans
to borrowers experiencing financial difficulty. Additionally, the ASU requires disclosure of gross writeoffs of receivables by year of
origination for receivables within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost.
This ASU is effective for periods beginning after December 15, 2022. The Company is currently evaluating the impact that the adoption
of ASU 2016-13 and ASU 2022-02 will have on its condensed consolidated financial statement presentations and disclosures.
Other accounting standards that have been
issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to
have a material impact on the Company’s condensed consolidated financial statements upon adoption.
Basis of Consolidation and Noncontrolling Interests
The condensed consolidated financial statements
include the financial statements of the Company and its subsidiaries. All significant inter-company balances and transactions within
the Company have been eliminated upon consolidation.
A subsidiary is an entity in which (i) the
Company directly or indirectly controls more than 50% of the voting power; or (ii) the Company has the power to appoint or remove
the majority of the members of the board of directors or to cast a majority of votes at the meeting of the board of directors or to govern
the financial and operating policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders.
Leases
The Company determines if an arrangement is
a lease or contains a lease at inception. Operating lease liabilities are recognized based on the present value of the remaining lease
payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily
determinable for the operating lease, the Company generally uses an incremental borrowing rate based on information available at the
commencement date to determine the present value of future lease payments. Operating lease right-of-use (“ROU assets”) assets
represent the Company’s right to control the use of an identified asset for the lease term and lease liabilities represent the
Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of
the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term. The Company
elected the package of practical expedients permitted under the transition guidance to combine the lease and non-lease components as
a single lease component for operating leases associated with the Company’s office space lease, and to keep leases with an initial
term of 12 months or less off the balance sheet and recognize the associated lease payments in the condensed consolidated statements
of income on a straight-line basis over the lease term.
ROU assets are reviewed for impairment when
indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360,
Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually
or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities.
An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable
cash flows are largely independent of the cash flows of other groups of assets and liabilities.
The Company recognized no impairment of ROU
assets as of June 30, 2022 and December 31, 2021.
The operating lease is included in operating
lease right-of-use assets, operating lease liabilities-current and operating lease liabilities-non-current on the Company’s condensed
consolidated balance sheets.
Cash and Cash Equivalents
For purposes of the statement of cash flows,
the Company considers cash, money market funds, investments in interest bearing demand deposit accounts, time deposits and all highly
liquid investments placed with banks or other financial institutions with an original maturity of three months or less to be cash equivalents.
As of June 30, 2022, cash held in accounts
managed by online payment platforms such as Alipay and WeChat Pay amounted to $627 (as at December 31, 2021: $161,188), which have been
classified as cash and cash equivalents in the condensed consolidated balance sheets.
Accounts receivable
Accounts receivable are recorded at the invoiced
amount, net of allowances for doubtful accounts and sales returns. The allowance for doubtful accounts is the Company’s best estimate
of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based
on historical write-off experience, customer specific facts and economic conditions.
Outstanding accounts receivable balances are
reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
Plant and equipment
Plant and equipment are recorded at cost less
accumulated depreciation and accumulated impairment. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets.
| | |
Estimated
useful lives
(years) | |
| Motor vehicle | |
| 4
– 5 | |
| Office equipment | |
| 3 | |
The gain or loss on the disposal of plant
and equipment is the difference between the net sales proceeds and the lower of the carrying value or fair value less cost to sell the
relevant assets and is recognized in general and administrative expenses in the condensed consolidated statements of comprehensive income.
Impairment of Long-lived Assets
In accordance with ASC 360-10-35, we review
the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value
of an asset may not be recoverable. The Company assesses the recover-ability of the assets based on the non-discounted future cash flows
the assets are expected to generate and recognize an impairment loss when estimated discounted future cash flows expected to result from
the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset.
If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted
cash flows approach or, when available and appropriate, to comparable market values. No impairment has been recorded by the Company for
the three and six months ended June 30, 2022 and 2021.
Revenue Recognition
The Company recognizes revenues when its customer
obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for
those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s)
with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance
obligation.
The Company evaluates if it is a principal
or an agent in a transaction to determine whether revenue should be recorded on a gross or net basis. The Company is acting as the principal
if it obtains control over the goods and services before they are transferred to customers. When the Company is primarily obligated in
a transaction, is generally subject to inventory risk, has latitude in establishing prices, or has several but not all of these indicators,
the Company acts as the principal and revenue is recorded on a gross basis. When the Company is not primarily obligated in a transaction,
does not generally bear the inventory risk and does not have the ability to establish the price, the Company acts as the agent and revenue
is recorded on a net basis
The Company derives its revenue primarily
from net transaction services, including consultancy services, sourcing and marketing services, and digital training related services.
Consultancy services
The Company generates the majority of its
revenues by providing consulting services to its clients. Most of its consulting service contracts are based on one of the following
types of arrangements:
Performance-based arrangements represent
forms of variable consideration determined by pre-established fixed rates. In these arrangements, the Company’s fees are based
on the attainment of contractually defined objectives with our client, such as assisting the client in achieving a specific business
objective (e.g. end customer placed an order to buy a product or enrolment of a course, or improve the performance quality and profitability
of our client’s livestream performers). The Company is entitled a fixed rate on revenue generated by the client that are related
to the scope of respective consultancy services upon client acceptance on the services provided.
Fixed-fee arrangements require the
client to pay a pre-established fee in exchange for a pre-determined set of professional services. Generally, the client agrees to pay
a fixed fee prior to contract inception. The Company recognizes revenues for its professional services rendered under these fixed-fee
billing arrangements monthly over the specified contract term.
Sourcing and marketing services
The Company provides agency-based sourcing
and digital marketing services to connect marketplace operators and merchants. Most of its sourcing and marketing services are based
on one of the following types of arrangements:
Agency-based sourcing services represents
product procurement on behalf of marketplace operators. The Company recognized revenues from agency-based sourcing at a fixed rate on
the value of goods that are sourced and delivered to the ultimate customers by the merchants. The Company reports revenues from these
transactions on a net basis because the performance obligation is to facilitate a transaction between marketplace operators and merchants,
for which the Company did not obtain the control over the products before passing on to the end customers. The Company is not primarily
responsible for fulfilling the promise and not exposed to inventory risk.
Digital marketing services are provided
to the marketplace to promote designated products or services through social medial influencers engaged by the Company. The Company is
entitled to a fixed rate on the revenue generated by the marketplace that are related to the designated products or services.
The post-sale services, goods return and other
kinds of product issue are responsibilities of the merchants. Upon successful delivery to ultimate customers by the merchants, there
is no unfulfilled obligation that could affect the marketplace operators’ and merchants’ acceptance of the services provided.
The acceptance provisions have lapsed, or the Company has objective evidence that all criteria for acceptance have been satisfied.
Digital training related services
Fixed-fee digital training related services
are provided to clients who are interested to conduct live-broadcasting business through social medias. The Company require the clients
to pay a pre-established fee in exchange for the services. Revenues are recognized when promised services (e.g. preliminary consulting
work, setting up an e-learning account and delivery of learning materials) are delivered to the clients.
The Company derived services revenues of $685,213
and $844,281 for the three months ended June 30, 2022 and 2021, respectively; and $1,504,658 and $2,752,683 for the six months ended
June 30, 2022 and 2021, respectively, from provision of certain consultancy services and sourcing and marketing services through the
program application (“App”) platform managed by a related company, Xi’an Chuangyetianxia Network Technology Co., Ltd.
(“Xian CNT”). The Company CEO, Mr. Tao, has significant influence over Xian CNT.
Practical expedients and exemption
The Company has not occurred any costs to
obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length
of one year or less.
Other service income is earned when services
have been rendered.
Revenue by major service line
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Consultancy services | |
| 680,606 | | |
| 873,084 | | |
| 1,506,962 | | |
| 2,807,747 | |
| Sourcing and marketing services | |
| 160,262 | | |
| - | | |
| 269,948 | | |
| 49,197 | |
| Digital training related services | |
| - | | |
| - | | |
| 272,962 | | |
| - | |
| | |
$ | 840,868 | | |
$ | 873,084 | | |
$ | 2,049,872 | | |
$ | 2,856,944 | |
Revenue by recognition over time vs point
in time
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Revenue recognized at a point in time | |
| 840,868 | | |
| 873,084 | | |
| 2,049,872 | | |
| 2,856,944 | |
| Revenue recognized over time | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
$ | 840,868 | | |
$ | 873,084 | | |
$ | 2,049,872 | | |
$ | 2,856,944 | |
Revenue recorded on a gross vs net basis
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Revenue recorded on a gross basis | |
| 680,606 | | |
| 873,084 | | |
| 1,779,924 | | |
| 2,807,747 | |
| Revenue recorded on a net basis | |
| 160,262 | | |
| - | | |
| 269,948 | | |
| 49,197 | |
| | |
$ | 840,868 | | |
$ | 873,084 | | |
$ | 2,049,872 | | |
$ | 2,856,944 | |
Contract liabilities
The Company’s contract liabilities consist
of deferred revenue associated with consultancy fees and provision of fixed-fee training related services. The table below presents the
activity of the deferred consultancy services revenue during the three months ended June 30, 2022 and December 31, 2021, respectively:
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Balance at beginning of period | |
$ | 216,142 | | |
$ | - | |
| Service fees collected | |
| 228,698 | | |
| 1,377,349 | |
| Refunded | |
| (155,793 | ) | |
| - | |
| Service revenue earned | |
| (272,962 | ) | |
| (1,176,515 | ) |
| Exchange realignment | |
| (16,085 | ) | |
| 15,308 | |
| Balance at end of period | |
$ | - | | |
$ | 216,142 | |
Cost of revenue
Cost of revenues consists primarily of employee
compensation, service fees, agency fees, and the related IT expenses, which are directly attributable to the revenues
Employee benefits
Full time employees of the Company in the
PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee
housing fund and other welfare benefits are provided to the employees. Chinese labor regulations require that the PRC subsidiary of the
Company make contributions to the government for these benefits based on certain percentages of the employees’ salaries, up to
a maximum amount specified by the local government. The Company has no legal obligation for the benefits beyond the contributions made.
Total amounts of such employee benefit expenses, which were expensed as incurred, were approximately $26,814 and $23,220 for the three
months ended June 30, 2022 and 2021, respectively; and $49,959 and $47,684 for the six months ended June 30, 2022 and 2021, respectively.
Foreign Currency and Foreign Currency
Translation
The reporting currency of the Company is the
United States dollar (“US dollar”). The financial records of the Company’s PRC operating subsidiaries are maintained
in their local currency, the Renminbi (“RMB”), which is the functional currency. The financial records of the Company’s
Hong Kong operating subsidiary are maintained in its local currency, the Hong Kong Dollar (“HKD”), which is the functional
currency. Assets and liabilities of the subsidiaries are translated into the reporting currency at the exchange rates at the balance
sheet date, equity accounts are translated at historical exchange rates, and income and expense items are translated using the average
rate for the period. The translation adjustments are recorded in accumulated other comprehensive loss under shareholders’ equity.
Monetary assets and liabilities denominated
in currencies other than the applicable functional currencies are translated into the functional currencies at the prevailing rates of
exchange at the balance sheet date. Nonmonetary assets and liabilities are remeasured into the applicable functional currencies at historical
exchange rates. Transactions in currencies other than the applicable functional currencies during the period are converted into the functional
currencies at the applicable rates of exchange prevailing at the transaction dates. Transaction gains and losses are recognized in the
condensed consolidated statements of operations.
RMB is not a fully convertible currency. All
foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”)
or other institutions authorized to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are
the rates of exchange quoted by the PBOC, which are determined largely by supply and demand. Translation of amounts from RMB into US
dollars has been made at the following exchange rates for the respective periods:
| Six months ended June 30, 2022 |
|
|
| Balance sheet, except for equity
accounts |
|
RMB 6.6995 to US$1.00 |
| Income statement and cash flows |
|
RMB 6.4783 to US$1.00 |
| |
|
|
| Six months ended June 30, 2021 |
|
|
| Balance sheet, except for equity accounts |
|
RMB 6.4572 to US$1.00 |
| Income statement and cash flows |
|
RMB 6.4717 to US$1.00 |
During the periods presented, HKD is pegged
to the U.S. dollar within a narrow range.
Income Taxes
Income taxes are accounted for using an asset
and liability approach which requires the recognition of income taxes payable or refundable for the current period and deferred tax liabilities
and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.
Deferred income taxes are determined based on the differences between the accounting basis and the tax basis of assets and liabilities
and are measured using the currently enacted tax rates and laws. Deferred tax assets are reduced by a valuation allowance, if based on
available evidence, it is considered that it is more likely than not that some portion of or all of the deferred tax assets will not
be realized. In making such determination, the Company considers factors including future reversals of existing taxable temporary differences,
future profitability, and tax planning strategies. If events were to occur in the future that would allow the Company to realize more
of its deferred tax assets than the presently recorded net amount, an adjustment would be made to the deferred tax assets that would
increase income for the period when those events occurred. If events were to occur in the future that would require the Company to realize
less of its deferred tax assets than the presently recorded net amount, an adjustment would be made to the valuation allowance against
deferred tax assets that would decrease income for the period when those events occurred. Significant management judgment is required
in determining income tax expense and deferred tax assets and liabilities.
The Company conducts business in the PRC and
Hong Kong and is subject to tax in these jurisdictions. As a result of its business activities, the Company will file tax returns that
are subject to examination by the respective tax authorities.
Uncertain Tax Positions
Management reviews regularly the adequacy
of the provisions for taxes as they relate to the Company’s income and transactions. In order to assess uncertain tax positions,
the Company applies a more likely than not threshold and a two-step approach for tax position measurement and financial statement recognition.
For the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon
settlement. As of June 30, 2022 and December 31, 2021, the Company had not recorded any liability for uncertain tax positions. In subsequent
periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.
Net income per Share of Common Stock
The Company has adopted ASC Topic 260, “Earnings
per Share,” (“EPS”) which requires presentation of basic EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying
financial statements, basic earnings (loss) per share is computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period.
| | |
Three
months ended
June 30, | | |
Six
months ended
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Net income | |
$ | 265,850 | | |
$ | 122,041 | | |
$ | 657,023 | | |
$ | 1,088,677 | |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average number of common stock outstanding | |
| | | |
| | | |
| | | |
| | |
| - basic and diluted | |
| 1,701,181,423 | | |
| 1,701,181,423 | | |
| 1,701,181,423 | | |
| 1,701,181,423 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net income per share | |
| | | |
| | | |
| | | |
| | |
| - basic and diluted | |
$ | 0.00 | * | |
$ | 0.00 | * | |
$ | 0.00 | * | |
$ | 0.00 | * |
| * |
Less than $0.01 per
share |
The calculation of basic net income per share
of common stock is based on the net income for the three and six months ended June 30, 2022 and 2021 and the weighted average number
of ordinary shares outstanding.
For the three and six months ended June 30,
2022 and 2021, the Company has no potentially dilutive securities, such as options or warrants, currently issued and outstanding.
Segments
The Company uses the “management approach”
in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s
chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s
reportable segments. Management, including the chief operating decision maker, reviews operating results solely by monthly revenue of
marketing consultation services and operating results of the Company and, as such, the Company has determined that the Company has one
operating segment (provision of consulting, sourcing and marketing services, and digital training related services in China) as defined
by ASC Topic 280 “Segment Reporting”.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents.
As of June 30, 2022 and December 31, 2021,
$7,637,260 and $7,649,129 of the Company’s cash and cash equivalents, respectively were held at financial institutions and online
payment platforms located in the PRC and Hong Kong that management believes to be of high credit quality. The Company has not experienced
any losses on cash and cash equivalents to date. The Company does not require collateral or other securities to support financial instruments
that are subject to credit risk.
The Company operates principally in the PRC
and Hong Kong and grants credit to its customers in these geographic regions. Although the PRC is economically stable, it is always possible
that unanticipated events in foreign countries could disrupt the Company’s operations.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement and
Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable
inputs when measuring fair value. Certain current assets and current liabilities are financial instruments. Management believes their
carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments
and their expected realization and, if applicable, their current interest rates are equivalent to interest rates currently available.
The three levels of valuation hierarchy are defined as follows:
| ● | Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets
or liabilities in active markets. |
| ● | 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 assets or liability, either directly
or indirectly, for substantially the full term of the financial instruments. |
| ● | Level
3 inputs to the valuation methodology are unobservable and significant to the fair value
measurement. |
Valuation of debt products depends upon a
number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, and other relevant
terms of the debt. Other factors that may be considered include the borrower’s ability to adequately service its debt, the fair
market value of the borrower in relation to the face amount of its outstanding debt and the quality of collateral securing the Company’s
debt investments. The fair value of these debt products classified as Level 2 are established by reference to the prices quoted by respective
fund administrators.
The carrying amounts of financial assets and
liabilities, such as cash and cash equivalents, accounts receivable, other receivables, loan to a related company, accounts payable and
other payables, amounts due to a director and a shareholder and borrowings approximate their fair values because of the short maturity
of these instruments or the rate of interest of these instruments approximate the market rate of interest.
Comprehensive Income
Comprehensive income is defined as the change
in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments
from owners and distributions to owners. Accumulated other comprehensive income includes cumulative foreign currency translation adjustment.
NOTE 3 – PLANT AND EQUIPMENT
Plant and equipment as of June 30, 2022 and
December 31, 2021 are summarized below:
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Motor vehicle | |
$ | 380,179 | | |
$ | 400,732 | |
| Office equipment | |
| 8,105 | | |
| - | |
| | |
| 388,284 | | |
| 400,732 | |
| Less: Accumulated depreciation | |
| (154,090 | ) | |
| (119,284 | ) |
| Plant and equipment, net | |
$ | 234,194 | | |
$ | 281,448 | |
Depreciation expenses,
classified as operating expenses, were $20,952 and $20,780 for the three months ended June 30, 2022 and 2021, respectively; and $42,322
and $41,479 for the six months ended June 30, 2022 and 2021, respectively.
NOTE 4 – RELATED PARTY TRANSACTIONS
The following is the list of the related parties
with which the Company had transactions for the three and six months ended June 30, 2022 and 2021:
| (a) | Baiyin
Wujinxia Cultural Communication Co., Ltd. (“Baiyin Wujinxia”) – a company
incorporated in the PRC, the Company CEO, Mr Tao held 60% equity interest from October 31,
2019 to January 25, 2021 and on January 26, 2021 fully transferred to Ms. Hanye Chang, spouse
of Mr. Guolin Tao. |
| (b) | Xian
Yuanchuang Tribe Technology Co., Ltd. (“Yuanchuang Tribe”)– a company incorporated
in the PRC, Ms. Hanyu Chang, spouse of Mr. Guolin Tao, indirectly held 29.99% equity interest
from November 29, 2019 to February 10, 2021. |
| (c) | Xian
Yuanchuang Federation Information Technology Co., Ltd. (“Yuanchuang Federation”)-
a company incorporated in the PRC, Yuanchuang Tribe held 100% equity interest December 30,
2019 to September 10, 2021. |
Related party transaction
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
| | |
| | |
| | |
| |
| Interest income | |
| | | |
| | | |
| | | |
| | |
| Baiyin Wujinxia | |
| - | | |
| 3,327 | | |
| - | | |
| 5,776 | |
Interest income was charged at an interest
rate agreed by both parties in accordance with a loan agreement.
Related party balances
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Amount due to a director | |
| | |
| |
| - Mr. Guolin Tao | |
$ | 170,713 | | |
$ | 171,443 | |
| | |
| | | |
| | |
| Accounts payable | |
| | | |
| | |
| - Yuanchuang Tribe | |
$ | - | | |
$ | 16,135 | |
| - Yuanchuang Federation | |
| - | | |
| 21,390 | |
The amount due to director as of June 30,
2022 and December 31, 2021 is unsecured, non-interest bearing and repayable on demand.
On June 1, 2021, the Company entered into
IT consultation agreements with Yuanchuang Tribe and Yuanchuang Federation, respectively. The outstanding amounts as at December 31,
2021 are subsequently settled in January 2022.
NOTE 5 – ACCOUNTS RECEIVABLE, NET
Accounts receivable as of June 30, 2022 and
December 31, 2021:
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Account receivables | |
$ | 270,939 | | |
$ | 67,940 | |
| Less: Allowance for doubtful accounts | |
| - | | |
| - | |
| | |
$ | 270,939 | | |
$ | 67,940 | |
NOTE 6 – OTHER RECEIVABLES AND PREPAYMENTS
Other receivables and prepayments consisted
of the following as of June 30, 2022 and December 31, 2021:
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Deposits and other receivables | |
$ | 21,272 | | |
$ | 18,430 | |
| Prepayments | |
| 14,097 | | |
| 37,495 | |
| | |
$ | 35,369 | | |
$ | 55,925 | |
NOTE 7 – LOAN RECEIVABLES
On February 8, 2021, the Company has provided
a $500,000 loan to an independent customer of the Company’s consultancy business. The loan was interest-bearing at 10% per annum,
repayable on February 7, 2022 and secured by the corporate guarantee of the customer. On August 5, 2021, the customer fully repaid the
loan principal and interest.
Loan interest income were $12,459 and $19,585
for the three and six months ended June 30, 2021, respectively.
NOTE 8 –OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities and
consisted of the following as of June 30, 2022 and December 31, 2021:
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Other payables | |
$ | 95,719 | | |
$ | 83,494 | |
| Salary payable | |
| 81,306 | | |
| 105,294 | |
| Accrued audit fees | |
| - | | |
| 130,000 | |
| Other accrued expenses | |
| 45,254 | | |
| 83,370 | |
| | |
$ | 222,279 | | |
$ | 402,158 | |
NOTE 9 – COMMON STOCK
The Company was incorporated on April 21,
1999 with an authorized share capital of 25,000,000 common stock with a par value of $0.001 per share.
On March 5, 2019, the total number of authorized
shares were increased to 1,800,000,000 common stock with a par value of $0.0001 per share.
NOTE 10 – STATUTORY RESERVES
As stipulated by the relevant laws and regulations
in the PRC, company established in the PRC (the “PRC subsidiary”) is required to maintain a statutory reserve made out of
profit for the year based on the PRC subsidiary’ statutory financial statements which are prepared in accordance with the accounting
principles generally accepted in the PRC. The amount and allocation basis are decided by the director of the PRC subsidiary annually
and is not to be less than 10% of the profit for the year of the PRC subsidiary. The aggregate amount allocated to the reserves will
be limited to 50% of registered capital for certain subsidiaries. Statutory reserve can be used for expanding the capital base of the
PRC subsidiary by means of capitalization issue.
In addition, as a result of the relevant PRC
laws and regulations which impose restriction on distribution or transfer of assets out of the PRC statutory reserve, $65,911 representing
the PRC statutory reserve of the subsidiary as of June 30, 2022 and December 31, 2021, are also considered under restriction for distribution.
NOTE 11 – INCOME TAXES
| (a) |
The local (United States)
and foreign components of income (loss) before income taxes were comprised of the following: |
| | |
Three
months ended
June 30, | | |
Six
months ended
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
| | |
| | |
| | |
| |
| Tax jurisdictions from: | |
| | |
| | |
| | |
| |
| - Local | |
| (138,753 | ) | |
| (137,110 | ) | |
$ | (253,156 | ) | |
$ | (188,588 | ) |
| - Foreign, representing: | |
| | | |
| | | |
| | | |
| | |
| HK | |
| 8,651 | | |
| (17,859 | ) | |
| (19,913 | ) | |
| (23,567 | ) |
| PRC | |
| 576,033 | | |
| 423,299 | | |
| 1,389,464 | | |
| 1,971,106 | |
| | |
| | | |
| | | |
| | | |
| | |
| Income before income taxes | |
| 445,931 | | |
| 268,330 | | |
$ | 1,116,395 | | |
$ | 1,758,951 | |
Income is subject to tax in the various countries
in which the Company operates.
The Company is incorporated in the State of
Nevada and is subject to the U.S. federal tax and state tax. The Tax Cuts and Jobs Act of (“TCJ Act”) was signed into law
in December 2017, and among its many provisions, it imposed a mandatory one-time transition tax on undistributed international earnings
and reduced the U.S. corporate income tax rate to 21%, effective January 1, 2019. No provision for income taxes in the United States
has been made as the Company had no taxable income for the three and six months ended June 30, 2022 and 2021.
The Company mainly conducts its operating
business through its subsidiaries in China, including Hong Kong.
The subsidiary incorporated in Hong Kong is
subject to Hong Kong taxation on income derived from their activities conducted in Hong Kong. Hong Kong Profits Tax has been calculated
at 16.5% of the estimated assessable profit for the three and six months ended June 30, 2022 and 2021. The provision for Hong Kong Profits
Tax is calculated at 8.25% on assessable profits up to $298,530 (HK$2,000,000) for the three and six months ended June 30, 2022 and 2021
and subject to a waiver of 100% of the profits tax under a cap of $1,493 (HK$10,000) for the three and six months ended June 30, 2022
and 2021, respectively.
The subsidiary incorporated in mainland China
is governed by the Income Tax Law of the PRC concerning foreign invested enterprises and foreign enterprises and various local income
tax laws (the Income Tax Laws), and are subject to 25% tax rate throughout the periods presented.
Under the PRC EIT law, withholding income
tax, normally at a rate of 10%, is imposed on dividend paid by PRC entities out of its profits earned since January 1, 2008 to its
overseas investors (including Hong Kong investors). Deferred taxation on the undistributed profits of the PRC subsidiaries has been provided
in the condensed consolidated financial statements to the extent that in the opinion of the directors such profits will be distributed
in the foreseeable future. Total undistributed profits of the Company’s PRC subsidiary at June 30, 2022 and December 31, 2021 were
$4,603,619 and $3,579,288, respectively. At June 30, 2022 and December 31, 2021, the Company recognized deferred tax liabilities of $460,362
and $357,929, respectively, in respect of the undistributed profits.
Income tax expense consists of the following:
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
| | |
| | |
| | |
| |
| Current tax: | |
| | |
| | |
| | |
| |
| China | |
$ | 131,409 | | |
$ | 122,745 | | |
$ | 335,479 | | |
$ | 521,510 | |
| | |
| | | |
| | | |
| | | |
| | |
| Deferred tax | |
| | | |
| | | |
| | | |
| | |
| China | |
| 48,672 | | |
| 23,544 | | |
| 123,893 | | |
| 148,764 | |
| Total | |
$ | 180,081 | | |
$ | 146,289 | | |
$ | 459,372 | | |
$ | 670,274 | |
The provision for income taxes consisted of
the following:
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Income before income tax | |
| 445,931 | | |
| 268,330 | | |
$ | 1,116,395 | | |
$ | 1,758,951 | |
| Statutory income tax rate | |
| 21 | % | |
| 21 | % | |
| 21 | % | |
| 21 | % |
| Income tax credit computed at statutory income rate | |
| 93,645 | | |
| 56,349 | | |
| 234,443 | | |
| 369,380 | |
| Reconciling items: | |
| | | |
| | | |
| | | |
| | |
| Non-deductible expenses | |
| 28,736 | | |
| 52,401 | | |
| 58,186 | | |
| 70,281 | |
| Effect of tax reliefs granted to Hong Kong subsidiary | |
| - | | |
| - | | |
| - | | |
| - | |
| Rate differential in different tax jurisdictions | |
| 22,653 | | |
| 19,209 | | |
| 56,475 | | |
| 81,849 | |
| Deferred tax provided on dividends withholding tax of PRC
subsidiaries | |
| 48,672 | | |
| 18,330 | | |
| 123,893 | | |
| 148,764 | |
| Over-provision in prior year | |
| (13,625 | ) | |
| - | | |
| (13,625 | ) | |
| - | |
| Income tax expense | |
| 180,081 | | |
| 146,289 | | |
$ | 459,372 | | |
$ | 670,274 | |
The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and liabilities as of June 30, 2022 and December 31, 2021 are presented
below:
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Deferred tax assets: | |
| | |
| |
| Accelerated depreciation | |
$ | 2,675 | | |
$ | 1,778 | |
| Deductible temporarily difference arising from other payable | |
| 12,907 | | |
| 13,605 | |
| Less: Net off with deferred tax liabilities
for financial reporting purposes | |
| (15,582 | ) | |
| (15,383 | ) |
| Net total deferred
tax assets | |
$ | - | | |
$ | - | |
| | |
| | | |
| | |
| Deferred tax liabilities: | |
| | | |
| | |
| Undistributed profits of a PRC subsidiary | |
$ | 460,362 | | |
$ | 357,929 | |
| Less: Net off with deferred tax assets
for financial reporting purposes | |
| (15,582 | ) | |
| (15,383 | ) |
| Net total deferred
tax liabilities | |
$ | 444,780 | | |
$ | 342,546 | |
NOTE 12 – LEASE
On June 10, 2021, the Company entered into
a lease agreement for office space in Xian, the PRC with a non-cancellable lease term, commencing on July 16, 2021 and expiring on July
15, 2024. The monthly rental payment is approximately $5,087 (RMB32,951) per month.
Operating lease expense for the three and
six months ended June 30, 2022 and 2021 were as follows:
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
| | |
| | |
| | |
| |
| Operating lease cost – straight line | |
| 14,946 | | |
| 13,118 | | |
| 30,519 | | |
| 26,185 | |
| Total lease expense | |
$ | 14,946 | | |
| $13,
118 | | |
$ | 30,519 | | |
$ | 26,185 | |
The following is a schedule, by years, of
maturities of lease liabilities as of June 30, 2022:
| | |
Operating
leases | |
| | |
| |
| Remainder of 2022 | |
$ | 29,511 | |
| 2023 | |
| 59,022 | |
| 2024 | |
| 29,511 | |
| 2025 | |
| - | |
| Thereafter | |
| - | |
| Total undiscounted cash flows | |
| 118,044 | |
| Less: imputed interest | |
| (5,361 | ) |
| Present value of lease liabilities | |
$ | 112,683 | |
Lease term and discount rate
| | |
June 30,
2022 | |
| Weighted-average remaining lease term - year | |
| 2.0 | |
| Weighted-average discount rate (%) | |
| 4.90 | % |
Supplemental cash flow information related
to lease where the Company was the lessee for the six months ended June 30, 2022 and 2021 was as follows:
| | |
Six months ended
June 30, | |
| | |
2022 | | |
2021 | |
| Operating cash outflows from
operating lease | |
$ | 30,519 | | |
$ | 45,825 | |
NOTE 13 – CONTINGENIES AND COMMITMENTS
Contingencies
Certain conditions may exist as of the date
the condensed consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved
when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are
pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought. There was no contingency of this type as of June 30, 2022 and December 31, 2021.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability
would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency
is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together
with an estimate of the range of possible loss if determinable and material would be disclosed. There was no contingency of this type
as of June 30, 2022 and December 31, 2021.
Loss contingencies considered to be remote
by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
NOTE 14 – CERTAIN RISKS AND CONCENTRATIONS
The Company had the following customers that
individually comprised 10% or more of net revenue for the three and six months ended June 30, 2022 and 2021:
| | |
Three
months ended June 30, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| | |
| | |
| |
| Customer A (note) | |
$ | 477,371 | | |
| 57 | % | |
$ |
* | | |
| * | % |
| Customer B | |
| * | | |
| * | % | |
| 320,654 | | |
| 37 | % |
| Customer C | |
| * | | |
| * | % | |
| 294,519 | | |
| 34 | % |
| Customer D | |
| * | | |
| * | % | |
| 228,235 | | |
| 26 | % |
| * | Comprised less than 10% of net revenue for the respective
period. |
| | |
Six
months ended June 30, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| | |
| | |
| |
| Customer A (note) | |
$ | 846,530 | | |
| 41 | % | |
| $* | | |
| * | % |
| Customer B | |
| * | | |
| * | % | |
| 1,111,600 | | |
| 39 | % |
| Customer C | |
| * | | |
| * | % | |
| 735,196 | | |
| 26 | % |
| Customer D | |
| * | | |
| * | % | |
| 454,555 | | |
| 16 | % |
* Comprised less than 10% of net revenue for
the respective period.
The Company had the following customers that
individually comprised 10% or more of net accounts receivable as of June 30, 2022 and December 31, 2021:
| | |
June
30,
2022 | | |
December
31,
2021 | |
| Customer A (note i) | |
$ | 189,195 | | |
| 70 | % | |
$ | 15,864 | | |
| 23 | % |
| Customer E | |
| * | | |
| * | % | |
| 18,408 | | |
| 27 | % |
| Customer F | |
| * | | |
| * | % | |
| 20,272 | | |
| 30 | % |
The Company had the following service vendor
that individually comprised 10% or more of cost of revenue for the six months ended June 30, 2022 and 2021:
| | |
Six
months ended June 30, | |
| | |
2022 | | |
2021 | |
| Service vendor A (note) | |
$ | 138,434 | | |
| 32.5 | % | |
$ | * | | |
| * | % |
The Company had the following service vendors
that individually comprised 10% or more of accounts payable as of June 30, 2022 and December 31, 2021:
| | |
June
30,
2022 | | |
December
31,
2021 | |
| | |
| | |
| | |
| | |
| |
| Service vendor B | |
$ | * | | |
| * | % | |
$ | 49,560 | | |
| 43 | % |
| Service vendor C | |
| * | | |
| * | % | |
| 21,390 | | |
| 18 | % |
| Service vendor D | |
| * | | |
| * | % | |
| 19,308 | | |
| 17 | % |
| Service vendor E | |
| * | | |
| * | % | |
| 16,135 | | |
| 14 | % |
| * |
Comprised less than
10% of accounts payable for the respective period. |
Note: Customer A and Service vendor A disclosed
above is the same Company.
At June 30, 2022 and December 31, 2021, the
Company’s cash and cash equivalents included bank deposits in accounts maintained in China and Hong Kong and liquid funds in online
payment platforms. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks
on its cash in bank accounts.
For the credit risk related to trade accounts
receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit
losses.
NOTE 18 – SUBSEQUENT EVENTS
None
ITEM
14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
In
its two most recent fiscal years, the Company has had no disagreements with its independent accountants.
ITEM
15. FINANCIAL STATEMENTS AND EXHIBITS.
(a)
Financial Statements
The
consolidated financial statement required to be filed as part of this registration statement begin on page F-1.
(b)
Exhibits Schedule
The
following exhibits are filed with this Amendment:
| Exhibit
No. |
|
Description |
| 3.1 |
|
Amended and Restated Articles of Incorporation* |
| 3.2 |
|
Certificate of Amendment to Amended and Restated Articles of Incorporation amending number of shares of Common Stock and Preferred Stock authorized for issue* |
| 3.3 |
|
Certificate of Withdrawal of Certificate of Designation* |
| 3.4 |
|
Certificate of Amendment to Amended and Restated Articles of Incorporation for Name Change* |
| 3.5 |
|
Bylaws* |
| 4.1 |
|
Specimen Common Stock Certificate* |
| 10.1 |
|
Employment Agreement with Guolin Tao, dated October 19, 2019* |
| 10.2 |
|
Form of Customer Cooperation Agreement* |
| 10.3 |
|
Service Agreement, dated October 19, 2019, and Agreement on Dissolution of Contract, dated December 1, 2019, with Xi’an Chuangyetianxia Network Technology Co., Ltd.* |
| 10.4 |
|
Drop Shipping Cooperation Agreement dated November 19, 2019* |
| 10.5 |
|
Cooperation Agreement with Xi’an Chuangyetianxia Network Technology Co., Ltd., dated November 1, 2019* |
| 10.6 |
|
Cooperation Agreement with Xi’an Chuangyetianxia Network Technology Co., Ltd., dated November 1, 2019* |
| 10.7 |
|
Data Sharing Cooperation Agreement, dated October 28, 2019, and Termination Agreement, dated May 8, 2020, with Xi’an Chuangyetianxia Network Technology Co., Ltd.* |
| 10.8 |
|
Loan Agreement, dated December 1, 2019, with Baiyin Wujin Gorge Culture Communication Co., Ltd.* |
| 21.1 |
|
Subsidiaries* |
| 23.1
|
|
Consent of King & Wood Mallesons |
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, hereunto duly authorized.
| |
Entrepreneur Universe Bright Group |
| |
|
| Date: August 25, 2022 |
By: |
/s/ Guolin Tao |
| |
Name: |
Guolin Tao |
| |
Title: |
Chief Executive Officer and
Chief Financial Officer
(principal executive officer and
principal financial officer) |
81
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