UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 20162018

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from               to                 

Commission file number: 001-37513

JM GLOBALTMSR HOLDING COMPANY LIMITED

(Exact name of registrant as specified in its charter)

 

DelawareNevada 47-3709051

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

1615 South Congress AvenueA101 Hanzheng Street City Industry Park,

Suite 103

Delray Beach, FloridaNo.21 Jiefang Avenue, Qiaokou District
Wuhan, Hubei, China

 33445430000
(Address of principal executive offices) (Zip Code)

 

Issuer’s telephone number:(561) 900-3672+86 022-5982-4800

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class: Name of Each Exchange on Which Registered:
Common Stock, par value $0.0001 per share The NASDAQ Stock Market LLC
Warrants to purchase one-half of one share of Common Stock The NASDAQ Stock Market LLC
Units, each consisting of one share of Common Stock and one WarrantThe NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☒
   Emerging growth company
Non-accelerated filer ☐Smaller reporting company ☒ 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒☐ No ☐☒

As of June 30, 2016,29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock outstanding other than shares held by persons who may be deemed affiliatesnon-affiliates of the registrant, computed by reference to the closing sales price for the common stock of $9.75,$4.00, as reported on the Nasdaq Capital Market, was $19,500,000.approximately $45 million.

As of March 27, 2017,29, 2019, there were 6,562,50020,276,698 shares of common stock, par value $0.0001 per share, of the registrant issued and outstanding.

 

 

  

TABLE OF CONTENTS

 

  PAGE
PART I 
Item 1.Business51
Item 1A.Risk Factors618
Item 1B.Unresolved Staff Comments3541
Item 2.Properties3541
Item 3.Legal Proceedings3541
Item 4.Mine Safety Disclosures3541
  
PART II 
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities3642
Item 6.Selected Financial Data3743
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations3843
Item 7A.Quantitative and Qualitative Disclosures About Market Risk4257
Item 8.Financial Statements and Supplementary Data3957
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure4457
Item 9A.Controls and Procedures4458
Item 9B.Other Information4458
  
PART III 
Item 10.Directors, Executive Officers and Corporate Governance4559
Item 11.Executive Compensation5063
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters5065
Item 13.Certain Relationships and Related Transactions, and Director Independence5166
Item 14.Principal Accounting Fees and Services5266
  
PART IV 
Item 15.Exhibits and Financial Statement Schedules53
Item 16.Form10-K Summary5468

 

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Unless otherwise statedAs used in this Annual Report, on Form 10-K (this “Report”)the terms “we,” “us,” “our,” and words of like import, and the “Company” refer to TMSR Holding Company Limited and its subsidiaries unless the context indicates otherwise. “PRC” or “China” refers to the People’s Republic of China, excluding, for the purpose of this report, Taiwan, Hong Kong and Macau. “RMB” or “Renminbi” refers to the legal currency of China and “$”, references to:“US$” or “U.S. Dollars” refers to the legal currency of the United States.

●“we,” “us,” “company” or “our company” refer to JM Global Holding Company;
●our “sponsor” refer to Zhong Hui Holding Limited, a Republic of Seychelles registered company. The sole director, officer and shareholder of our sponsor is the Chairman of our Board of Directors;
●“initial holders” or “initial stockholders” are to our officers, directors and to our sponsor;
●“founder shares” are to 1,312,500 shares of our common stock held by our initial stockholders;
●our “management” or our “management team” refer to our officers and certain of our directors;
●our “public shares” are to shares of our common stock sold as part of the units in our initial public offering (whether they were purchased in such offering or thereafter in the open market);
●“public stockholders” refer to the holders of our public shares, which may include our initial holders and members of our management team if and to the extent they purchase public shares, provided that any such holder’s status as a “public stockholder” shall only exist with respect to such public shares;
●“private placement” refer to the private placement of 250,000 units purchased by our sponsor, which occurred simultaneously with the completion of our initial public offering, at a purchase price of $10.00 per unit for a total purchase price of $2.5 million;
●“placement units” are to the 250,000 units purchased separately by our sponsor in the private placement, each placement unit consisting of one placement share and one warrant to purchase one half of one placement share;
●“placement shares” are to an aggregate of 250,000 shares of our common stock included within the placement units purchased separately by our sponsor in the private placement; and
●“placement warrants” are to warrants to purchase an aggregate of 125,000 shares of our common stock included within the placement units purchased separately by our sponsor in the private placement.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report including, without limitation,contains statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statementsthat may be deemed to be “forward-looking statements” within the meaning of Section 27Athe federal securities laws. These statements relate to anticipated future events, future results of the Securities Actoperations and/or future financial performance. In some cases, you can identify forward-looking statements by their use of 1933 and Section 21Eterminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “ought to,” “plan,” “possible,” “potentially,” “predicts,” “project,” “should,” “will,” “would,” negatives of the Securities Exchange Act of 1934.such terms or other similar terms. These forward-looking statements caninvolve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be identifiedmaterially different from any future results, performance or achievements expressed or implied by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or,statements. The forward-looking statements in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statementsthis Annual Report include, but are not limited to, anywithout limitation, statements relating to our ability to consummate any acquisition or other business combination and any other statements that are not statements of current or historical facts. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:

 

●our goals and strategies;
●our future business development, results of operations and financial condition;
●our estimates regarding expenses, future revenues, capital requirements and our need for additional financing;
●our estimates regarding the market opportunity for our services;
●the impact of government laws and regulations;
●our ability to complete our initial business combination;  recruit and retain qualified personnel;
  
●our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination;failure to comply with regulatory guidelines;
  
●our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business oruncertainty in approving our initial business combination, as a result of which they would then receive expense reimbursements;industry demand;
  
●our potential ability to obtain additional financing to complete our initial business combination;  general economic conditions and market conditions in the financial services industry;
  
●future sales of large blocks or our pool of prospective target businesses;  securities, which may adversely impact our share price; and
  
●failure to maintain the listing on, or the delisting of our securities from, Nasdaq or an inability to have our securities listed on Nasdaq or another national securities exchange following our initial business combination;
 
●depth of the ability oftrading market in our officers and directors to generate a number of potential investment opportunities;  
●our public securities’ potential liquidity and trading;  
●the lack of a market for our securities;  
●the use of proceeds not held in the trust account or available to us from interest income on the trust account balance; or
●our financial performance.  securities.

 

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. Forward-looking statements contained in this Reportreflect our current views with respect to future events and are based on our current expectationsassumptions and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performancesubject to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties, include, but are not limited to,including those factors described under the headingin Item 1A “Risk Factors.” Should one or more of these risks or uncertainties materialize, or

You should not unduly rely on any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. WeAlthough we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update or revisepublicly any forward-looking statements whether as a resultfor any reason after the date of new information, future eventsthis Annual Report, to conform these statements to actual results or otherwise, except as may be required under applicable securities laws. These risks and others described under “Risk Factors” may not be exhaustive.to changes in our expectations.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.ii

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PART I

 

Item 1. Business

 

IntroductionGeneral

 

We are a blank check company formed in April 2015 for the purposeUpon consummation of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities, which we refer to throughout this Report as our initial business combination. We have generated no revenues to date and we do not expect that we will generate operating revenues at the earliest until we consummate our initial business combination.

For our initial business combination we are focused on industries that complement our management team’s background, focusing on the consumer products sector in the United States (which may include a business based in the United States which has distribution opportunities outside the United States). Consumer products include goods and services that are bought for personal and household use and intended for direct use or consumption. We are focused on established products that have a long history of consumer demand, are used frequently and must be replaced as opposed to durable items that people keep for a long time, such as cars and furniture. These type of products and segments are also easier to manage and operationally forecast, with which our management team and directors have much experience.

We believe our management team has the skills and experience to identify, evaluate and consummate a business combination and is positioned to assist businesses we acquire. Our management team’s network and investing and operating experience do not guarantee a successful initial business combination. The members of our management team are not required to devote any significant amount of time to our business and are concurrently involved with other businesses. There is no guarantee that our current officers and directors will continue in their respective roles, or in any other role, after our initial business combination, and their expertise may only be of benefit to us until our initial business combination is completed. Past performance by our management team is not a guarantee of success with respect to any business combination we may consummate.

We anticipate structuring our initial business combination to acquire 100% of the equity interest or assets of the target business or businesses. However, we may structure our initial business combination to acquire less than 100% of the equity interest or assets of the target business, but only if we (or any entity that is a successor to us in a business combination) acquire a majority of the outstanding voting securities or assets of the target. We believe that, if we own a majority of the target’s outstanding voting securities, we will not be required to register as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act, since the securities of a majority owned subsidiary that is not itself deemed an investment company are not deemed to be “investment securities” as defined in the Investment Company Act, and since we expect that 60% or more of the value of our total assets (excluding government securities and cash) will be represented by the securities of our target business which we expect will be an operating business. Even if we own a majority interest in the target, our stockholders prior to the business combination may collectively own a minority intereston February 6, 2018, TMSR Holding Company Limited, (formerly known as JM Global Holding Company), through its subsidiary, China Sunlong Environmental Technology, Inc. (“China Sunlong”), initially primarily engaged in the postproduction and sales of solid waste recycling and comprehensive utilization equipment. After a series of acquisitions and dispositions in 2018, the Company now expand its business combination company, depending on valuations ascribed to the targetinto three segments: (1) solid waste recycling systems business; (2) coal and us in the business combination transaction.

Nasdaq rules require that our initial business combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the trust account (less any taxes payable on interest) at the time of our signing a definitive agreement in connection with our initial business combination. The fair market value of the target or targets will be determined by our board of directors based upon one or more standards generally accepted by the financial community, such as discounted cash flow valuation or value of comparable businesses. If our board is not independently able to determine the fair market value of the target business or businesses, we will obtain an opinion with respect to the satisfaction of such criteria from an independent investment banking firm that is a member of the Financial Industry Regulating Authority, or FINRA,coke wholesale business; and reasonably acceptable to Cantor Fitzgerald & Co., or Cantor Fitzgerald, the underwriter of our initial public offering. However, if our securities are not listed on Nasdaq or another securities exchange, we will no longer be required to consummate a business combination with a target whose fair market value equals at least 80% of the balance in the trust account (less any taxes payable on interest).(3) coating materials business.

  

Business StrategyDisposition of TJComex

 

We seekOn April 2, 2018, the Company disposed of its subsidiary, TJComex International Group Corporation (“TJComex BVI”), a British Virgin Islands corporation, in consideration of (i) its minimum contribution to capitalizethe Company’s results of operation and (ii) the unsatisfactory synergy between the TJComex BVI business and the rest of the Company’s business. The Company’s decision to dispose TJComex BVI is to (i) improve the Company’s overall financial condition and results of operations, (ii) reduce the complexity of the Company’s business, (iii) focus the Company’s resources on the significant consumer products knowledge, experiencesolid waste recycling business as well as developing environmental control business opportunities; and contacts(iv) make it possible for the Company to pursue acquisition opportunities for more compatible business.

Acquisition of Qi (Jacky) Zhang,Wuhan HOST

On May 1, 2018, the ChairmanCompany completed the acquisition of our Board100% equity interest in Wuhan HOST Coating Materials Co., Ltd. (“Wuhan HOST”), a PRC corporation engaging in the research and development, production and sale of Directors, Tim Richerson, our Chief Executive Officer, Chief Financial OfficerZinc-rich coating materials. Wuhan HOST is the largest manufacturer of inorganic Zinc-rich resin and one-component epoxy Zinc-rich resin in China with customers including leading enterprises in various industries such as electricity, metallurgy, machinery, chemicals, bridge and shipping.

Acquisition of Jiangsu Ronghai

On November 30, 2018, the Company completed the acquisition of 100% equity interest in Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”), a director,PRC company incorporated in Jiangsu China, engaging in coal wholesales and sales of coke, steels, construction materials, mechanical equipment and steel scrap.

Disposition of Hubei Shengrong

On December 27, 2018, the Company, disposed one of its operating subsidiaries, Hubei Shengrong Environmental Protection and Energy Saving Technology Co., Ltd. (“Hubei Shengrong”) pursuant to that certain Equity Purchase Agreement (the “EPA”) by and among the Company, the Company’s subsidiary Shengrong Environmental Protection Technology (Wuhan) Co. Ltd. (“Shengrong WFOE”), Hubei Shengrong and Hopeway International Enterprises Limited (the “Hoepway”). Pursuant to the EPA, Shengrong WFOE sold 100% equity interests in Hubei Shengrong to Hopeway to irrevocably forfeit and cancel all the shares owned by Hopeway.

After the acquisitions of Wuhan HOST and Jiangsu Ronghai and the financial expertisedispositions of Peter Nathanial, our PresidentTJComex and a director, to identify, evaluate, acquireHubei Shengrong, the Company now has three operating subsidiaries conducting three separate lines of business: research, development and operate a target business. If we elect to pursuesale of an investment outsidearray of solid waste recycling systems for the consumer products industry, our management’s expertise related to that industry may not be directly applicable to its evaluation or operation,mining and industrial sectors (the “solid waste recycling systems business”); coal wholesales and sales of coke, steels, construction materials, mechanical equipment and steel scrap (the “coal and coke wholesale business”); and the information contained in this Report regarding that industry might not be relevant to an understandingresearch and development, production and sale of Zinc-rich coating materials (the “coating materials business”). The solid waste recycling systems business was carried out by Shengrong WFOE, the Company’s indirect subsidiary. The coating materials business that we elect to acquire.was carried out by the Company’s indirect subsidiary, Wuhan HOST. The Company’s recently launched coal and coke wholesale business is carried out by Jiangsu Ronghai, the Company’s VIE entity.

 

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1

 

 

Corporate Structure

The following is an organizational chart setting forth our corporate structure as of the date of this Annual Report.

 

Industry Overview

Solid Waste Recycling Equipment Industry

According to The 2018 Annual Report On The Prevention And Control Of Environmental Pollution By Large And Medium-Sized Municipal Solid Waste published by the Ministry of Ecology And Environment of The People’s Republic of China in December 2018 , in 2017, approximately 1.31 billion tons of industrial solid waste and 40.101 million tons of Industrial hazardous waste were generated by large and medium-sized cities in the PRC; Meanwhile , according to the status from the Ministry of Industry and Information Technology of the PRC published on May 30, 2018, China's accumulative storage of industrial solid waste exceeds 60 billion tons, covering an area of over 2 million hectares. In the PRC, industrial solid waste is generally handled by one of the following methods:

●storage in special facilities or sites;

●disposal in landfills, incineration or related means; and

●recycling or comprehensive utilization, such as the process utilized by Shengrong, consisting of extracting or converting valuable raw materials from industrial solid waste;


Storage is the most popular method in China which is widely used in all over the country. Approximately 95% of industrial solid waste in the PRC is stored in special facilities and sites, including warehouses for mining slags or tails.

However, the cost of storage, disposal and incineration of industrial solid wastes is high. It is estimated by the Ministry of Environmental Protection of China that during the next several years, the expense for environmental protection will increase by approximately RMB 200 billion annually, with total expenses for environmental protection from 2013 to 2023 expected to be RMB 1.7 trillion, twice the total expenses for environmental protection from 2002 to 2012. In additional, storage and disposal of industrial waste creates numerous challenges because significant land mass is required and disposal causes pollution to the environment.

Shengrong WFOE is addressing this significant unmet need by provide end users in these markets with a clean alternative to traditional waste disposal by significantly reducing of solid waste discharge into the environment and enables such users to extract value from valuable metals and other industrial waste materials.

Solid waste recycling equipment manufacturers typically situated in the upstream supply chain. In China, a broad of range of solid waste processing and recycling equipment hit the market in recent years including solid waste pretreatment equipment, hazardous waste recycling equipment and solid waste incinerators.

Although solid waste recycling equipment industry has an excellent growth potential, it is still a small-scale industry with few full-fledged players. Solid waste recycling and utilization, unlike many western countries, is a relatively new concept in China. As a result, most solid waste recycling equipment manufacturers are currently in their development stage with rudimentary production capabilities. We seekbelieve few of them has the capacity to acquire established consumer product branded businessesproduce a full set of solid waste recycling equipment covering all the industrial needs. These manufacturers are small and medium enterprises plagued by lack of technical support and creativity. Some equipment, such as landfill leachate treatment equipment, large-scale incineration plant, and online environmental monitoring system must be imported almost exclusively from other countries. Because of their lack of research and development capabilities, most solid waste recycling equipment manufacturers have to engage in joint venture with foreign companies. For example, more than 80% of Chinese incineration plant manufacturers have no choice but to partner with foreign companies in order to manufacture their products. Given that these solid waste recycling equipment manufacturers are low-end manufacturers, they frequently operate at lower profit margin than those in the western countries.

As more mandatory energy conservation and emission reduction target-setting policies on the horizon, we believe there will be an increasing demand for high-quality and technologically-advanced solid waste recycling equipment in China, and competition in the solid waste recycling equipment industry will continue to intensify. Solid waste recycling equipment sales will compete not only on price, but also on quality, technology, service and brand.


Chinese Coating Trading Market

According to the preliminary statistics of the bureau of statistics, in 2017, the annual output of 1,380 industrial enterprises above designated size in the coating industry reached 20.364,000 tons, up 12.38% year on year, exceeding the expected output. The main business income of 2,057 industrial enterprises above designated size reached 417.289 billion yuan, up 5.0% year on year. The total output of coatings industry, the main business revenue growth since 2016, continued to grow, in the case of a part of the upstream raw material prices continue to rise still maintained a good growth relative to the chemical industry, in "much starker choices-and graver consequences-in" period, the decisive phase of the well-off society, all kinds of engineering, manufacturing is still a huge demand for coating, will be a period of time in the future continue to maintain high growth.

The main products of Wuhan Host are fundamentally soundanticorrosive coatings and water-based anticorrosive coatings. Heavy anticorrosive coating has excellent acid resistance, corrosion resistance, moisture and heat resistance, at the same time, high solid content, low volatile organic, environmentally friendly; the water-based coating has the advantages of good salt spray resistance, good fullness and glossiness, excellent decorative properties, safety, health and environmental protection. Accord with the development direction of Chinese coating.

Chinese Coal Trading Market

Global coal is still the main energy source. According to the International Energy Agency's Global Coal Market Report (2018-2103) on February 25, 2019, global demand for coal will remain stable in the next five years. China will remain the world's biggest consumer of coal. In particular, the clean and efficient development of China's coal industry, as well as the strengthening of nitrogen oxides, sulfur dioxide and soot emission control, has made coal once again a very attractive energy source. In addition, due to its affordable price, abundant reserves and convenient transportation, coal remains the main energy source in many other countries besides China. Therefore, the coal market in China remains strong.

Our Business

Our Products and Services

1.Shengrong WFOE

Shengrong WFOE sells the following five types of products as well as technology support services for the customers:

Secondary Tailings Comprehensive Utilization System

The secondary tailings comprehensive utilization system is designed for the second stage of recycling of mining tailings, including secondary ilmenite tailings and low grade silicon ore, following the first stage of removing heavy metals containing silicon, calcium, aluminum, magnesium tailings elements. Each individual system is customized to meet the needs of the end user, based on the physical and chemical characteristics of the secondary tailings, the processing power involved, the positioning of the final product and other factors. The system recycles the secondary tailings into new construction and wall materials.

Non-metallic Mineral Impurity Purification System

The non-metallic mineral impurity purification system is an integrated system with efficient permanent magnet sorting equipment used for non-metallic mineral impurity removal or significant reduction of non-metallic mineral content of heavy metals. This system improves the quality of products and expands the scope of the application of products. The system can be used to recycle a variety of non-metallic mineral, including silicon ore, micro silica, high-phosphorus soil and other minerals. Each individual system is customized to meet the needs of the end user, based on the processing power involved, the mineral resource properties and other factors.

Refractory Low-Grade Ore Comprehensive Recovery System

The refractory low-grade ore comprehensive recovery system is integrated with efficient permanent magnet sorting equipment. This system uses low-grade refractory processes to physically separate the metal ore components, thereby achieving comprehensive utilization of mineral resources and reduce the amount of ore. This process generates significant savings in the cost of production of mineral recovery and can be used for a variety of low-grade hematite, limonite, native rutile ore and other refractory comprehensive sorting recycling metal ores. Each individual system is customized to meet the needs of the end user, based on the processing power involved, the mineral resource properties and other factors.


Permanent Tailings Sorting and Recycling System

The permanent tailings sorting and recycling system is designed for the first stage of recycling of mining tailings. The system recovers valuable metals from various mining tailings, including but potentiallynot limited to manganese tailings, copper tailings, red mud and other aluminum dross tailings. Each individual system is customized to meet the needs of the end user, based on the physical and chemical characteristics of the secondary tailings, the processing power involved, the positioning of the final product and other factors.

Industrial solid waste recycling sorting system

The industrial solid waste recycling sorting system involves integrated sorting for industrial solid waste, including but not limited to petrochemicals, iron, steel and nonferrous metals, generating valuable recycled resources and reducing solid waste emissions. Each individual system is customized to meet the needs of the end user, based on the solid waste treatment capacity and other factors.

On-Site training service

For each type of system Shengrong WFOE sells, Shengrong WFOE also provided on-site training service to its customers due to the complex nature of its products. Failure to operate these systems properly could significantly hinder their effectiveness. As a result, this on-site training service serves as a necessary support to Shengrong WFOE’s customers and help them lower the maintenance cost.

2.Wuhan Host

Wuhan Host produces and sells its own anti-corrosion and anti-corrosion coatings, which are applicable to the surface anti-corrosion, waterproof and decoration of concrete and steel components. They are widely used in needthe fields of financial, operational, strategicships, Bridges, water conservancy and hydropower projects, wind power generation, mining machinery manufacturing, petroleum, petrochemical and metallurgy, port construction, light industry, locomotive and vehicle, etc. Below is its main products and its respect usage:

ProductsUsage
Water-borne epoxy anti-rust paintCorrosion protection on steel surface
Epoxy zinc rich primerUsed as basic anticorrosive primer for steel structure and equipment surface in mining, derrick, shipbuilding, port and wharf, steel structure, bridge, iron tower, petroleum pipeline, chemical industry, metallurgy and other industries. It can also be used as a primer for maintenance and as an anticorrosive primer on galvanized sheet surfaces
Solvent-free epoxy bituminous anticorrosive paintUsed for bottom, water ballast tank, wharf steel column, offshore oil drilling platform, hydraulic steel gate, mine steel support, buried pipes, municipal construction of water diversion water pipe, gas cabinets, industrial loop water system, industrial wastewater treatment, metal anti-corrosion, heat pipe protection layer of waterproof anti-corrosion and other corrosion environment, including steel and wood products, cement products and components for long-term anti-corrosion waterproof
Permeable epoxy polysiloxane anticorrosive and waterproof material

Used for waterproofing of concrete walls, basements, toilets and baths of new and old buildings for industry and civil use;

Concrete protection, repair of seepage and anti-seepage of urban roads and Bridges, anti-collision walls, sidewalks in parks, workshops, floors, underground garages, swimming pools, sports fields, tunnels, airports, DAMS and seaports

Cold spraying zincExcellent cathodic protection and shielding for steel.It is easy to apply, and can be sprayed, brushed or rolled. It is the best material to replace traditional hot dip zinc, hot dip galvanizing and hot spray zinc (aluminum).It is applicable to ship, steel bridge, steel roof frame, steel grid frame, power facilities, pipelines, storage tanks and other heavy anti-corrosion fields


3.Jiangsu Ronghai

Jiangsu Ronghai was established in 2009. For the last ten years, Jiangsu Ronghai maintained its marketing position by cultivating an experienced management team equipped with industrial know-how and well-rounded coal sales team. As a veteran in the Chinese coal trading industry, Jiangsu Ronghai has a sales team with lengthy experience in coal trading, deep understanding of the market, coal products tailored to its customers’ demand. Currently, Jiangsu Ronghai mainly focuses on the sales, storage, transportation, and processing of steam coal. Because of its proximity to Rugao Port, a port known for its busy coal trade, Jiangsu Ronghai is able to keep its transportation cost low and allocate its capital to develop a strong coal processing capacity with processing equipment and professional personnel. The principal product of Jiangsu Ronghai is steam coal. In the second half of 2019, Jiangsu Ronghai expects to expand its business into iron ore trading and refined processing, as well as refined coal and coking coal business.

Jiangsu Ronghai has a reliable channel of procuring steam coal, large warehouse space for storage, and loyal customers. One of its major customers is Nantong Linan Industrial Trading Co., ltd., a local manufacturing heavyweight. Since its inception, Jiangsu Ronghai has accumulated a growing reputation in the coal industry. In 2016, Jiangsu Ronghai was awarded "Nantong City most reputable company in the coal industry" by Nantong Coal Industry Association.

Our Customers

1.Shengrong WFOE’s Customers

Currently Shengrong WFOE sells all of its products domestically in China. Depending on the nature of the product and the utilization of the product Shengrong WFOE sells its products to end users or managerial redirectiondistributors. Shengrong’s end users are primarily in the mining, metal and clean technology industries.

Shengrong WFOE has a diverse end user base to maximize value. We dosell our products to end users. Since September 2018, Shengrong WFOE has entered into multiple equipment purchase contracts with serval customers pursuant to which Shengrong WFOE will provide different types of products and technology support service to our customers.

Shengrong WFOE believes that the loss of any of our customers, or a material change in our relationship with any such customer, would materially impact our business and results of operations. To mitigate such risk and continue to develop our business, Shengrong WFOE has been actively seeking new customers and has been able to generate equipment sales revenue through such efforts. In addition, Shengrong WFOE has been continuously expanding its technology service business segment. Since early 2018, Shengrong WFOE has been providing technology development and consulting services to a wide range of customers, including private companies such as Fushan Fuyou Investment Co., Ltd., Shanghai Jinbo Chemistry and Industry Machinery Center and Quanzhou Fengpeng Environmental Protection Technology Co., Ltd.. Shengrong WFOE is actively looking to expand its business for more distributors and customers and technology supproting services tangential to the sale of Shengrong WFOE’s products.


2.Wuhan HOST’s customers

Wuhan HOST produces and sells anti-corrosion waterproof coating materials, applicable to the concrete and the surface of the steel constructions. Its products are widely used in ships, bridges, water reservoir, wind power generation station, mining machinery, ports, construction vehicles, and many other fields. Wuhan Host’s major customers are Shannxi Jiuzhou Xinyuan Shiye Co., Ltd., Zhongye Energy-Saving Environmental Protection Co., Ltd., and Beijing Ligao Lide Engineering Technology Co., Ltd.,

3.Jiangsu Ronghai’s customers

As of December 31, 2018, 50% of the coal Jiangsu Ronghai procured and processed were sold directly to Nantong Linan Industry and Commerce Co., Ltd. for its production of acetate fiber plant.

Our Suppliers

1.Shengrong WFOE’s supplier

Shengrong WFOE have three main suppliers, i.e. Hubei Shengrong, Wuhan Yinggema Technology Development Co., Ltd. and Wuhan Taiyinghe Technology Development Co., Ltd .

2.Wuhan Host’s suppliers

Wuhan Host’s main suppliers are Xiamen Zhonghe Shangmao Co., Ltd., EverZinc(Hunan) Co., Ltd., Hubei Sanmu Chemical Co., Ltd. and Wuhan Changqing Chemical Co., Ltd..

3.Jiangsu Ronghai’s suppliers

Jiangsu Ronghai’s top five suppliers are Nantong Linan Industry & Commerce Co., Ltd., Xinpu Chemistry (Taixing) Co., Ltd., Rugao Gangwu Group Co., Ltd., Zhengzhou Jiarui Supply Chain Co., Ltd., and Inner Mongolia Tian De Shun Coal Co., Ltd..

Production

Shengrong WFOE

Shengrong WFOE currently is not intendinvolved in any production.

Wuhan Host

Coating production process can be divided into six phases: feeding, dispersion, grinding, paint, filtering, and packaging.

Feeding - according to acquire start-up companies, companiesthe different types of coating, the corresponding film-forming materials, solvents, fillers, additives will be added into dispersion kettle in accordance with speculativecertain proportion and sequence.

Dispersion - in order to make the particles such as pigment and filler evenly and fully mixed into the paint slurry, the dispersion kettle is used to stir and disperse the paint slurry.


Grinding – to transfer the mixed paint slurry through the pipe to the grinding machine for grinding and keep grinding the mixed paint slurry to required fineness.

Paint adjustment – to add the evenly stirred paint into the paint adjustment tank and adjust the paint to the required viscosity and color.

Filter - to put the color adjusted paint through filtering machine to become coatings

Packaging -- the filtered coatings are directly loaded into metal drums in different specifications through the packaging machine and transported to the warehouse for airtight storage.

Jiangsu Ronghai

Jiangsu Ronghai uses two tiers membrane filtering system to screen the coal of different specifications, and mix different types of raw coals to produce final coal products. Through our high tech machinery, we manipulate the level of sulfur content, water content, ash content, and other different properties of coal in order to meet our customers’ requirements.

Research and Development and Our Technology

Hubei Shengrong, is a pioneer in China for manufacturing zero-emission manganese tailings recycling equipment. This achievement was made possible through Hubei Shengrong’s own technology known as high efficiency permanent magnet machine and comprehensive utilization technology for selecting weak magnetic micro-particle mineral industrial waste residue.When Shengrong WFOE sold Hubei Shengrong to Hopeway in December 2018 pursuant to the EPA, Hubei Shengrong assigned all the intellectual property rights including the “Shengrong” trademark, patent, know-how etc. incident to the Shengrong WFOE’s business plans or companiesto Shengrong WFOE.

The “Shengrong” brand has been gaining traction in the PRC mining and industrial recycling industry since it began selling its products on a large scale in 2016 by introducing innovative solutions to the mining and industrial sector in the PRC. Shengrong WFOE’s research and development team currently consists of seven members as of March 31, 2019, including two members of our senior management team that are excessively leveraged.recognized as industry experts in China. Shengrong WFOE’s engineering team works closely with Shengrong WFOE’s customers and distributors in order to understand the requirements of the end users of Shengrong WFOE’s products, and develop products that are tailored to the needs of such end users. Shengrong WFOE offers proprietary “green” technology to enable end users to save operating cost in the removal of solid mining and industrial wastes. In addition, products sold by Shengrong WFOE also allows end users to collect certain usable resources like metal residues during the recycling process.

 

Our acquisitionin-house technology was listed on the “catalogue for advanced applicable technical on comprehensive utilization of mineral resource” issued by Ministry of Land and value creation strategy is to identify, acquire, and after our initial business combination, to build, a diversified consumer products branded company.Resource of the People’s Republic of China in October 2014. We are focusedalso a pioneer in Titanium dioxide pigment black tailings acid hydrolysis separating and recycling system using waste catalyst magnetic separating system in Chinese titanium dioxide pigment production industry, which has the capacity to occupy more than 95% of catalytic cracking unit Chinese market share. According to the Scientific Technology Novelty Retrieval Report (“STNRR”) provided by Hubei Academy of Science and Technical Information in April 2016, Our in-house technology for the recovery of the ilmenite concentrate from Titanium Dioxide acid hydrolysis slag using the axial sorting method for inner surface of permanent magnetic cylinder was confirmed to be novel in the world. STNRR is widely considered as a technical documents provided by a Chinese science and technology academy to appraise the novelty of a technology in the world. We also maintained a leading position in the development of microsilica ultrapure extracting technology, primary rutile separation and purification technology. Management believes that our unique technology is superior to other recycling systems available in the PRC and global markets because the high efficiency permanent magnetic separating and comprehensive utilization system is a pure physical process. Pure physical process can prevent the creation of secondary pollution and save energy. The management also believes we have more experience in market application and technology implementation than its peers.


Wuhan Host focus on consumer companies that distributeresearch and development, heavy-duty coating not only trained 8 core team, bought drying apparatus, abrasion tester, chromatograph, such as a broad rangenumber of experimental apparatus, has also established a set of more scientific research and development system, pay attention to independent research and development in at the same time, through the cooperation development and the introduction of digestion, strengthen the advantage of a company in the industry, weakening the dependence of the company to research and development personnel, to ensure the continuity of research and development of products of the company.

Intellectual Property

Shengrong WFOE relies on a combination of patents, trademarks, domain names and confidentiality agreements to protect our intellectual property. Our R&D processes are based on technology developed primarily in-house by engineering personnel.

With respect to proprietary know-how that is not patentable and processes for variouswhich patents are difficult to enforce, we rely on, among other things, trade secret protection and confidentiality agreements to safeguard our interests. All of our research and development personnel have entered into confidentiality and proprietary information agreements with us. These agreements address intellectual property protection issues and require our associates to assign to us all of the inventions, designs and technologies they develop during the course of employment with us. We are not aware of any material infringement of our intellectual property rights.

Patents

As of March, 2019, Shengrong WFOE has one utility model patents registered with the State Intellectual Property Office of the PRC, and two patents registered with the United States Patent and Trademark Office.

The following table provides the name, patent number, type of patents, issuance date, validity term, and expiration date of each of Shengrong WFOE’s registered patents.

Certificate No.Patent contentTypePatent No.

Application Date

(mm-dd-yy)

Issuance Date

(mm-dd-yy)

Term
7017018Mobile magnetic separation systemutility modelZL2017 2 1183838.409/14/201702/23/201810 years
US008746457B2Method and Device for Axial Separation by The Inner Surface of a Permanent Megnetic arched grooveN/AUS8,746,
457 B2		03/30/201006/10/2014June 10, 2014 to Oct 30, 2030, subject to any patent term adjustments or terminal disclaimers
US008746458B2Axial Sporting Method and Device with Permanent-Magnet Drum Eccentric Inner SurfaceN/AUS8,746,
458 B2		03/30/201006/10/2014June 10, 2014 to Oct 30, 2030, subject to any patent term adjustments or terminal disclaimers


Shengrong WFOE is also in the process of applying an invent patent for a mobile magnetic separation system with the National Intellectual Property Administration of the PRC, which is expected to complete the patent registration by the end of this year.

As of March, 2019, Wuhan Host has seven invention patents registered with the State Intellectual Property Office of the PRC.

The following table provides the name, patent number, type of patents, issuance date, validity term, and expiration date of each of Wuhan HOST’s registered patents.

Certificate No.Patent contentTypePatent No.

Application Date

(dd-mm-yy)

Issuance Date

(dd-mm-yy)

Term
2931521The invention relates to a waterborne UV silicone polyurethane anticorrosive coating and a preparation method thereofinventionZL2016 1 0235536.015/04/201602/23/201820 years
2927001The invention relates to a epoxy polysiloxane coating and its preparation methodinventionZL2016 1 0312732.312/05/201622/05/201820 years
2803467The invention relates to a solvent-free self-leveling paint modified by renewable vegetable oil and its preparation methodinventionZL2016 1 0235413.715/04/201618/05/201820 years
2788781The invention relates to an aqueous coating containing waste mineral residue and its preparation methodinventionZL2016 1 0235415.615/04/201602/02/201820 years
2825260The invention relates to a preparation method of acrylic polysiloxane aqueous emulsioninventionZL2016 1 0235178.315/04/201623/01/201820 years
2955098The invention relates to a bisphenol-type fluorinated glycidyl ether, its preparation method and the applicationinventionZL2016 1 0235619.X15/04/201623/02/201820 years
3213537The invention relates to a water - based polysiloxane resin and its preparation methodinventionZL2016 1 0315742.212/05/201608/06/201820 years


Trademarks

As of March , 2019, Shengrong WFOE has been granted four trademarks, which are currently registered in China.

Certificate No.TrademarkApproved goods
6576227category 7: washer, slag screen (machine), ore sand processor, flotation machine, magnetic separator, ore washer, ore contamination precipitation, mine select machine, waste treatment equipment, and waste treatment machine (machine).
6617166category 6: undressed or half-processed cast iron, ferrotitanium, manganese powder, ferrosilicon, packaging and tinsel for packaging, metal in powder form, zinc powder, sheet metal and plate metals, pig iron or half forging iron, and undressed or half-processed common metal.
5566978category 19: furnace ballast (building materials);Luminous panel; stone binder; stone, concrete or marble works of art; non-metallic monuments; The slate.
5566977category 19: gypsum; gypsum board; furnace ballast (building materials);refractory materials; luminous panel; stone binder; stone, concrete or marble works of art; non-metallic commemorative plaque; the slate.

As of March, 2019, Wuhan Institute of Modern Industrial Technology licensed Wuhan Host the following trademark, which is currently registered in China.

Certificate No.TrademarkApproved goods
6163589category 2: the paint; vehicle chassis coating; paint thinner; coating (paint);fire retardant paint; primer; waterproof powder (coating);metal anti-rust preparation; preservatives.

Competition

Competition for Shengrong WFOE ’s business

To date, the Shengrong WFOE sales have been exclusively to customers and end use marketsusers located in multiple channels (a few examplesthe PRC, and as a result, our competitors are selling these products through retail stores, purchasing online or via a direct selling experience) but also might be limited in geography.PRC domestic companies. We believe that there a number of competitive factors within our management team has prior and current experience and access to sales channels and consumer markets outsideindustry, including the United States as well that could be helpful in a consumer product business combination.

We have identified the following criteria that we use in evaluating business transaction opportunities. We expect that no individual criterion will entirely determine a decision to pursue a particular opportunity. Further, any particular business transaction opportunity which we ultimately determine to pursue may not meet one or more of these criteria:following:

 

●Size Of BusinessPricing.We seek Flexibility to acquire one or more businesses or entities with an enterprise valuecontrol pricing of approximately $50,000,000products and the future ability to $200,000,000, determined in the sole discretionuse economies of our officers and directors accordingscale to reasonably accepted valuation standards and methodologies. We believe that this market segment provides the greatest number of opportunities for investment and is the market consistent with our sponsor’s previous investment history and where we believe we have the strongest network to identify opportunities.secure competitive pricing advantages;

●Established CompaniesTechnology. Self-owned patents making us have ability to provide end users with Proven Track Records.We seek to acquire established companies with consistent historical financial performance. We are typically focused on companies withsystems that efficiently dispose of solid wastes, using a historylimited amount of strongenergy consumption and operating costs; and financial results and strong fundamentals. We do not intend to acquire start-up companies or companies with recurring negative free cash flow.

●Strong Management Team. We seekBarriers to acquire one or more businesses or entities that have strong, experienced management teams or those that provide a platform for usentry. Technical knowledge, industry reputation, local market knowledgeand established relationships with suppliers and distributors and end users to assemble an effectivesupport the development and experienced management team. We are focused on management teams with a proven track recordsale of driving revenue growth, enhancing profitability and creating value for their stockholders and expect that the operating and financial abilities of our executive team and board will complement their own capabilities.
●Strong Competitive Position. We are focused on targets that have a leading, growing or niche market position in their respective category. We expect to analyze the strengths and weaknesses of target businesses relative to their competitors. We seek to acquire a business that demonstrates advantages when compared to their competitors, which may help to protect their market position and profitability.
●Companies with Revenue and Earnings Growth or Potential for Revenue and Earnings Growth. We seek to acquire one or more businesses or entities that have achieved or have the potential for significant revenue and earnings growth through a combination of organic growth, new product markets and geographies, expense reduction and increased operating leverage.
●Benefit from Being a Public Company.We intend to acquire a company that will benefit from being publicly traded and can effectively utilize the broader access to capital and public profile that are associated with being a publicly traded company.commercially viable systems.

 

Significant Activities Since InceptionCompetition among Fluid Catalytic Cracking (‘FCC”) system providers in China can be characterized as niche market. Our primary competitor for these systems is Qingdao Huicheng Environmental Protection Technology Co., Ltd. We believe that our systems are superior for various reasons, including the fact that our proprietary processing does not result in the high cost re-disposal of waste water and waste acid involved in the use of chemical methods used by our competitor.

 

On July 29, 2015, we consummatedCompetition among providers of low grade hematite separation systems in China can be characterized as niche market. Our primary competitors for these systems are Ganzhou Jinhuan Magnetic Separation Equipment Co., Ltd., which is a supplier, producer, manufacturer of high gradient magnetic separators (HGMS) and wet high intensity magnetic separators (WHIMS). It designs, develops, manufactures and markets magnetic separation equipment for beneficiating weakly magnetic minerals, and for purifying non-metallic minerals.), Shenyang Longji Electromagnetic Science and Technology Co., Ltd., which is a supplier of steam condensed water iron removing filter, condensed water iron removing filter, high temperature condensed water iron removing filter), Yueyang Dalishen Electromagnetic Mechanical and Electrical Co., Ltd. and Guangzhou Nonferrous Metals Research Institute. Shengrong WFOE believes it competes favorably with them because it has a series of self-owned unique patents in China which have already been utilized in the production of the environmental protection equipment. Some of Shengrong WFOE’s patents were also registered in the U   .S. We believe that our initial public offeringtechnology are superior because our proprietary processing method does not result in the high cost electromagnetic high gradient magnetic separation process with hematite involved in the use of 5,000,000 units, each unit consistingchemical methods used by our competitor.


Based on collective extensive experience in the industry, Shengrong WOFE management believes that it is one of one sharethe leading enterprise in China in the design and sale of common stock, par value $0.0001 per share, and one warrant to purchase one-half of one share of common stock for an exercise price of $5.75 per half share ($11.50 per whole share), pursuant to a registration statement on Form S-1 (File No. 333-204995). The units were sold in our initial public offering at an offering price of $10.00 per unit, generating gross proceeds of $50,000,000 (before underwriting discounts and commissions and offering expenses). Simultaneously with the consummation of our initial public offering, we completed a private placement of 250,000 units at a price of $10.00 per unit, issued to Zhong Hui Holding Limited, our sponsor, generating gross proceeds of $2,500,000.  A total of $50,000,000 from the net proceeds from our initial public offering and the private placement were placed in a trust account establishedsolid waste recycling systems for the benefit of our public stockholders. 

The units began trading on July 24, 2015 onmining and industrial sectors in the NASDAQ Stock Market under the symbol “WYIGU”. Commencing on September 11, 2015, the securities comprising the units began separate trading. The units, common stock and warrants are trading on the NASDAQ Stock Market under the symbols “WYIGU,” “WYIG” and “WYIGW.”

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Effecting our Initial Business Combination

General

We intend to effectuate our initial business combination using cash from the proceeds of our initial public and the private placement, our capital stock, debt or a combination of these as the consideration toPRC. However, there can be paid in our initial business combination.

If we pay for our initial business combination using stock or debt securities, or we do not use all of the funds released from the trust account for payment of the purchase price in connection with our business combination or for redemptions or purchases of our common stock, we may apply the balance of the cash released to us from the trust account for general corporate purposes, including for maintenance or expansion of operations of acquired businesses, the payment of principal or interest due on indebtedness incurred in consummating our initial business combination, to fund the purchase of other companies or for working capital.

Nasdaq rules requireno assurance that our initial business combination be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the trust account (less any taxes payable on interest) at the time of our signing a definitive agreement in connection with our initial business combination. However, if our securities are not listed on Nasdaq or another securities exchange, we will no longer be subject to that requirement. There is no current basis for investors to evaluate the possible merits or risks of the target business with which we may ultimately complete our initial business combination. Although our management will assess the risks inherent in a particular target business with which we may combine, we cannot assure you that this assessment will result in our identifying all risks that a target business may encounter. Furthermore, some of those risks may be outside of our control, meaning that we can do nothing to control or reduce the chances that those risks will adversely impact a target business.

We may seek to raise additional funds through a private offering of debt or equity securities to finance our initial business combination, and we may effectuate an initial business combination using the proceeds of such offering rather than using the amounts held in the trust account. Subject to compliance with applicable securities laws, we would consummate such financing only simultaneously with the consummation of our business combination. In the case of an initial business combination funded with assets other than the trust account assets, our tender offer documents or proxy materials disclosing the business combination would disclose the terms of the financing and, only if required by law or Nasdaq, we would seek stockholder approval of such financing. There are no prohibitions on our ability to raise funds privately or through loans in connection with our initial business combination.

Sources of Acquisition Candidates

Target business candidates are, and have been, brought to our attention from various unaffiliated sources, including investment bankers, attorneys, accountants, venture capital funds, private equity funds, leveraged buyout funds, management buyout funds, brokers and other members of the financial community and corporate executives. These target candidates present solicited or unsolicited proposals. We expect such sources to continue to become aware that we are seeking a business combination candidate by a variety of means, including publicly available information relating to our initial public offering, public relations and marketing efforts or direct contact by management.

Our officers and directors, as well as their affiliates, may also bring to our attention target business candidates of which they become aware through their contacts. We have engaged, and may in the future engage, on a non-exclusive basis, the services of professional firms or other individuals that specialize in business acquisitions and we have paid, and may in the future pay, a finder’s fee, consulting fee or other compensation to such third parties based on the terms of the transaction and the terms and conditions of the arrangements with such third parties. Payment of finder’s fees is customarily tied to completion of a transaction, in which case any such feecompetitive advantage will be paid out of the funds held in the trust account. However, our agreement with FirsTrust China Ltd., or FT, dated October 30, 2015, provided that we pay FT a monthly fee of $20,000, payable quarterly in advance. Such fee was paid out of the funds held outside of the trust account. On June 10, 2016, we entered into a termination agreement, pursuant to which the parties mutually agreed to terminate the agreement in exchange for a $60,000 termination fee. In addition, we have entered into,retained and may in the future enter into, other consulting arrangements pursuant to which we are obligated to make a retainer payment and pay additional fees upon the consummation of our initial business combination. In no event will our initial stockholders or any of our existing officers or directors, or any entity with which they are affiliated, be paid any finder’s fee, consulting fee or other compensation prior to, or for any services they render in order to effectuate, the consummation of our initial business combination (regardless of the type of transaction that it is), other than (i) repayment of any loans that our sponsor, management team, their affiliates or other third parties may make to finance transaction costs in connection with an intended initial business combination (provided that if we do not consummate an initial business combination, we may use working capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment other than interest earned thereon); and (ii) reimbursement of any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Although some of our officers and directors may enter into employment or consulting agreements with the acquired business following our initial business combination, the presence or absence of any such arrangements will not be used as a criterion in our selection process of an acquisition candidate.

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We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, initial holders, officers, directors or their affiliates. Additionally, we are not prohibited from partnering, submitting joint bids, or entering into any similar transaction with such persons in the pursuit of an initial business combination. If we seek to complete an initial business combination with such a company or we partner with such persons in our pursuit of an initial business combination, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm that is a member of FINRA and reasonably acceptable to Cantor Fitzgerald, that such an initial business combination is fair to our stockholders from a financial point of view. Generally, such opinion is rendered to a company’s board of directors and investment banking firms may take the view that stockholders may not rely on the opinion. Such view will not impact our decision on which investment banking firm to hire.

Unless we consummate our initial business combination with an affiliated entity, we are not required to obtain a financial fairness opinion from an independent investment banking firm that is a member of FINRA. If we do not obtain such an opinion, our stockholders will be relying on the judgment of our board of directors, who will determine fair market value and fairness based on standards generally accepted by the financial community. The application of such standards would involve a comparison, from a valuation standpoint, of our business combination target to comparable public companies, as applicable, and a comparison of our contemplated transaction with such business combination target to other then-recently announced comparable private and public company transactions, as applicable. The application of such standards and the basis of our board of directors’ determination will be discussed and disclosed in our tender offer or proxy solicitation materials, as applicable, related to our initial business combination.

Selection of a target business and structuring of our initial business combination

Subject to the Nasdaq requirement that our initial business combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the trust account (less any taxes payable on interest) at the time of our signing a definitive agreement in connection with our initial business combination, our management will have virtually unrestricted flexibility in identifying and selecting one or more prospective target businesses, although we will not be permitted to effectuate our initial business combination with another blank check company or a similar company with nominal operations. However, if our securities are not listed on Nasdaq or another securities exchange, we will no longer be subject to the Nasdaq requirement. In any case, we intend to consummate our initial business combination only if we (or any entity that is a successor to us in a business combination) will acquire a majority of the outstanding voting securities or assets of the target with the objective of making sure that we are not required to register as an investment company under the Investment Company Act. We believe that, if we own a majority of the target’s outstanding voting securities, we will not be required to register as an investment company under the Investment Company Act since the securities of a majority owned subsidiary that is not itself deemed an investment company are not deemed to be “investment securities” as defined in the Investment Company Act, and since we expect that 60% or more of the value of our total assets (excluding government securities and cash) will be represented by the securities of our target business which we expect will be an operating business. We seek to acquire established companies that have demonstrated sound historical financial performance. Although we are not restricted from doing so, we do not intend to acquire start-up companies. To the extent we effect a business combination with a company or business that may be financially unstable or in its early stages of development or growth, we may be affected by numerous risks inherent in such company or business. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.

In evaluating a prospective target business, we conduct an extensive due diligence review which encompasses, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspection of facilities, as well as a review of financial and other information which will be made available to us.

The time required to select and evaluate a target business and to structure and complete our initial business combination, and the costs associated with this process, are not currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification and evaluation of a prospective target business with which a business combination is not ultimately completed will result in our incurring losses and will reduce the funds we can use to complete another business combination.

Lack of business diversification

For an indefinite period of time after consummation of our initial business combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business. By consummating a business combination with only a single entity, our lack of diversification may:

●subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial business combination, and
●cause us to depend on the marketing and sale of a single product or limited number of products or services.

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Limited ability to evaluate the target’s management team

Although we intend to closely scrutinize the management of a prospective target business when evaluating a target business, our assessment of the target business’ management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. The future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. While it is possible that one or more ofcompetitors will not develop systems that are equal or superior to ours or are better priced than our directors will remain associated in some capacity with us following a business combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to a business combination. Moreover, we cannot assure you that members of our management team will have experience or knowledge relating to the operations of the particular target business.

We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial business combination.

Following a business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management.systems.

 

Stockholders may not haveCompetition for Wuhan Host’s business

According to the ability to approve a business combination

We may not seek stockholder approval before we effect our initial business combination as not all business combinations require stockholder approval under applicable state law. However, we will seek stockholder approval if it is required by law or Nasdaq, or we may decide to seek stockholder approval for business or other reasons. Presentedpreliminary statistics of the Bureau of Statistics, in 2017, the annual output of 1,380 industrial enterprises above designated size in the table below iscoating industry reached 20.364,000 tons, a table12.38% year on year increase, exceeding the expected output. The main business income of 2,057 industrial enterprises above designated size reached 417.289 billion yuan, up 5.0% year on year. The total output of coatings industry, the types of initialmain business combinations we may consider and whether stockholder approval is currently required under Delaware law for each such transaction.

Type of TransactionWhether
Stockholder
Approval is
Required
Purchase of assetsNo
Purchase of stock of target not involving a merger with the companyNo
Merger of target into a subsidiary of the companyNo
Merger of the company with a targetYes

Permitted purchases of our securities

If we seek stockholder approval of our business combination and we do not conduct redemptions in connection with our business combination pursuantrevenue growth since 2016, continued to the tender offer rules, our initial stockholders, directors, officers or their affiliates may purchase shares in privately negotiated transactions either prior to or following the consummation of our initial business combination. We anticipate that our initial stockholders, directors, officers or their affiliates would approach a limited number of large holders of our securities that have voted against the business combination or sought redemption of their shares, or that have indicated an intention to do so, and engage in direct negotiations for the purchase of such holders’ positions. All holders approached in this manner would be institutional or sophisticated holders. There is no limit on the number of shares they may acquire. Our initial holders, directors, officers, advisors or their affiliates will not make any such purchases when they are in possession of any material nonpublic information not disclosed to the seller or during a restricted period under Regulation M under the Exchange Act of 1934, as amended, or the Exchange Act, or in transactions which would violate Section 9(a)(2) or Rule 10(b)-5 under the Exchange Act. We cannot currently determine whether our insiders will make such purchases pursuant to a Rule 10b5-1 plan, as it will be dependent upon several factors, including but not limited to, the timing and size of such purchases. Depending on such circumstances, our insiders may either enter make such purchases pursuant to a Rule 10b5-1 plan or determine that such a plan is not necessary. Although they do not currently anticipate paying any premium purchase price for such public shares, there is no limit on the price they may pay. We will notify stockholders of such purchases, if any, by press release, filing a Form 8-K or by means of a supplement to our proxy statement.

The purpose of such purchases would be to (i) increase the likelihood of obtaining stockholder approval of the business combination or (ii) to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of the business combination, where it appears that such requirement would otherwise not be met. This may result in the consummation of a business combination that may not otherwise have been possible.

As a consequence of any such purchases by our initial stockholders, directors, officers or their affiliates, the public “float” of our common stock may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to obtain the continued listing of our securities on Nasdaq or another national securities exchange in connection with our initial business combination

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Our initial stockholders, officers, directors and/or their affiliates anticipate that they will identify the public stockholders with whom they may pursue privately negotiated purchases through either direct contact by the public stockholders or by our receipt of redemption requests or votes against the business combination submitted by such public stockholders following our mailing of proxy materials in connection with our initial business combination. The sellers of any shares so purchased by our initial stockholders, officers, advisors, directors and/or their affiliates would, as part of the sale arrangement, revoke their election to redeem such shares and withdraw their vote against the business combination. Our sponsor, officers, directors, advisors or their affiliates will only purchase shares if such purchases comply with Regulation M and the other federal securities laws. Any open market purchases by our sponsor, officers, directors and/or their affiliates who are affiliated purchasers under Rule 10b-18 under the Exchange Act will only be made to the extent such purchases are able to be made in compliance with Rule 10b-18, which is a safe harbor from liability for manipulation under Section 9(a)(2) and Rule 10b-5 of the Exchange Act. Rule 10b-18 has certain technical requirements that must be complied with in order for the safe harbor to be available to the purchaser. Our sponsor, officers, directors and/or their affiliates will not make purchases of our shares of common stock if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. The terms of such purchases would operate to facilitate our ability to consummate a proposed business combination by potentially reducing the number of shares redeemed for cash.

Redemption rights for public stockholders upon consummation of our initial business combination

We will provide our stockholders (including our sponsor and its associated parties, with respect to up to 2,000,000 of the 3,000,000 shares included in the units purchased by such parties in our initial public offering) with the opportunity to redeem their shares upon the consummation of our initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any amounts representing interest earned on the trust account, less any interest released to us for working capital purposes or the payment of taxes, divided by the number of then outstanding public shares, subject to the limitations described herein. The amount in the trust account is initially anticipated to be $10.00 per public share. The initial holders have each agreed, with respect to their founder shares, placement shares and 1,000,000 of the 3,000,000 shares included in the units purchased by our sponsor and its associated parties in our initial public offering, to waive their respective redemption rights in connection with the consummation of our initial business combination.

Manner of Conducting Redemptions

We will provide our stockholders with the opportunity to redeem all or a portion of their public shares upon the completion of our initial business combination either in connection with a stockholder meeting called to approve the business combination or by means of a tender offer. The decision as to whether we will seek stockholder approval of a proposed business combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek stockholder approval under the law or stock exchange listing requirement. We intend to conduct redemptions without a stockholder vote pursuant to the tender offer rules of the SEC unless stockholder approval is required by law or by a Nasdaq listing requirement or we choose to seek stockholder approval for business or other legal reasons.

If a stockholder vote is not required and we do not decide to hold a stockholder vote for business or other legal reasons, we will, pursuant to our amended and restated certificate of incorporation:

●conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and any limitations (including but not limited to cash requirements) agreed to in connection with the negotiation of terms of the proposed business combination, and
●file tender offer documents with the SEC prior to consummating our initial business combination that will contain substantially the same financial and other information about the initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies.

If we conduct redemptions pursuant to the tender offer rules, our offer to redeem must remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to consummate our initial business combination until the expiration of the tender offer period. In connection with the consummation of our business combination, we may redeem pursuant to a tender offer up to that number of shares of common stock (including up to 2,000,000 of the 3,000,000 shares included in the units purchased by our sponsor and its associated parties in our initial public offering) that would permit us to maintain net tangible assets of $5,000,001. However, the redemption threshold may be further limited by the terms and conditions of our proposed initial business combination. For example, the proposed business combination may require: (i) cash consideration to be paid to the target or members of its management team, (ii) cash to be transferred to the target for working capital or other general corporate purposes or (iii) the allocation of cash to satisfy other conditions in accordance with the terms of the proposed business combination. If the aggregate cash consideration we would be required to pay for all shares of common stock that are validly tendered plus the amount of any cash payments required pursuant to the terms of the proposed business combination exceeds the aggregate amount of cash available to us, taking into consideration the requirement that we maintain net tangible assets of at least $5,000,001 or such greater amount depending on the terms of our potential business combination, we will not consummate the business combination, we will not purchase any shares of common stock pursuant to the tender offer and any shares of common stock tendered pursuant to the tender offer will be returned to the holders thereof following the expiration of the tender offer.

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When we conduct a tender offer to redeem our public shares upon consummation of our initial business combination, in order to comply with the tender offer rules, the offer will be made to all of our stockholders, not just our public stockholders. In connection with any such tender offer, holders of founder shares have agreed to waive their redemption rights with respect to their founder shares and placement shares.

If, however, stockholder approval of the transaction is required by law or Nasdaq, or we decide to obtain stockholder approval for business or other reasons, we will:

●conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules, and
●file proxy materials with the SEC.

If we seek stockholder approval of our initial business combination, we will distribute proxy materials and, in connection therewith, provide our public stockholders (including our sponsor and its associated parties, with respect to up to 2,000,000 of the 3,000,000 shares included in the units purchased by such parties in our initial public offering) with the redemption rights described above upon consummation of the initial business combination.

If we seek stockholder approval, we will consummate our initial business combination only if a majority of the outstanding shares of common stock voted are voted in favor of the business combination. Our sponsor and the other initial holders have agreed to vote their founder shares and placement shares and any public shares held by them in favor of our initial business combination. Our sponsor and initial stockholders currently own 69.5% of our outstanding shares of common stock. Additionally, each public stockholder may elect to redeem its public shares, irrespective of whether it votes for or against the proposed transaction, for cash equal to its pro rata share of the aggregate amount then on deposit in the trust account, including interest but less interest released to us for working capital purposes, to pay taxes or dissolution costs and subject to certain volume limitations, as described below. In addition, holders of founder shares have agreed to waive their redemption rights with respect to their founder shares and placement shares.

Limitation on redemption upon consummation of a business combination if we seek stockholder approval

Notwithstanding the foregoing, if we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, our amended and restated certificate of incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to 20.0% or more of the shares sold in our initial public offering. This restriction will not apply to our sponsor or to parties associated with our sponsor that purchased units in our initial public offering. We believe this restriction will discourage stockholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public stockholder holding an aggregate of 20.0% or more of the shares sold in our initial public offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us or our management at a premium to the then-current market price or on other undesirable terms. By limiting our stockholders’ ability to redeem no more than 20.0% (less one share) of the shares sold in our initial public offering, we believe we will limit the ability of a small number of stockholders to unreasonably attempt to block our ability to consummate our initial business combination, particularly in connection with a business combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash.

Tendering stock certificates in connection with redemption rights

If we hold a stockholder meeting to approve a potential business combination, we may require our public stockholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either tender their certificates to our transfer agent up to two business days prior to the vote on the proposal to approve the business combination, or to deliver their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option. The proxy materials that we will furnish to holders of our public shares in connection with our initial business combination will indicate whether we are requiring public stockholders to satisfy such delivery requirements. Accordingly, a public stockholder would have until two days prior to the vote on the business combination to tender its shares if it wishes to seek to exercise its redemption rights. Given the relatively short exercise period, it is advisable for stockholders to use electronic delivery of their public shares.

There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker $45.00 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated.

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The foregoing is different from the procedures historically used by many blank check companies. In order to perfect redemption rights in connection with their business combinations, many blank check companies would distribute proxy materials for the stockholders’ vote on an initial business combination, and a holder could simply vote against a proposed business combination and check a box on the proxy card indicating such holder was seeking to exercise his redemption rights. After the business combination was approved, the company would contact such stockholder to arrange for him to deliver his certificate to verify ownership. As a result, the stockholder then had an “option window” after the consummation of the business combination during which he could monitor the price of the company’s stock in the market. If the price rose above the redemption price, he could sell his shares in the open market before actually delivering his shares to the company for cancellation. As a result, the redemption rights, to which stockholders were aware they needed to commit before the stockholder meeting, would become “option” rights surviving past the consummation of the business combination until the redeeming holder delivered its certificate. The requirement for physical or electronic delivery prior to the meeting ensures that a redeeming holder’s election to redeem is irrevocable once the business combination is approved.

Any request to redeem such shares, once made, may be withdrawn at any time up to the date set forth in the tender offer materials or the date of the stockholder meeting set forth in our proxy materials, as applicable. Furthermore, if a holder of a public share delivers its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our public shares electing to redeem their shares will be distributed promptly after the completion of a business combination.

If the initial business combination is not approved or completed for any reason, then our public stockholders who elected to exercise their redemption rights (including our sponsor and its associated parties, with respect to up to 2,000,000 of the 3,000,000 shares included in the units purchased by such parties in our initial public offering) would not be entitled to redeem their shares for the applicable pro rata share of the trust account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares.

If our initial proposed business combination is not consummated, we may continue to try to consummate a business combination with a different target until July 29, 2017.

Redemption of public shares and liquidation if no initial business combination

Holders of founder shares, and our officers and directors, have agreed that we will have until July 29, 2017 to complete our initial business combination. If we are unable to consummate our initial business combination by July 29, 2017, we will distribute the aggregate amount then on deposit in the trust account, pro rata to our public stockholders, by way of redemption and cease all operations except for the purposes of winding up of our affairs, as further described herein. If we have not consummated a business combination by July 29, 2017, at the discretion of our board pursuant to the expiration of a tender offer conducted in connection with a failed business combination, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem all public shares then outstanding at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any amounts representing interest earned on the trust account, less any interest released to us for working capital purposes, the payment of taxes or dissolution expenses (although, we expect all or substantially all of the interest released to be used for working capital purposes), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

The initial holders, including our sponsor, have agreed to waive their redemption rights (i) with respect to their founder shares and placement shares in connection with the consummation of a business combination and (ii) with respect to their founder shares and placement shares if we fail to consummate a business combination by July 29, 2017 or if we liquidate prior to July 29, 2017. However, our sponsor and parties associated with it will be entitled to redemption rights on the same terms as other public stockholders with respect to up to 2,000,000 of 3,000,000 public shares which they purchased in our initial public offering; they have waived their redemption rights with respect to the remaining 1,000,000 public shares which they purchased in our initial public offering in connection with the consummation of a business combination.

There will be no redemption rights or liquidating distributions from us with respect to our founder shares or placement shares if we do not consummate a business combination by July 29, 2017.

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We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from the approximately $ 50.1 million (which includes approximately $100,000 in accrual interest) of proceeds from our initial public offering and the private placement held out of trust as of December 31, 2016, interest income on the balance of the trust account (net of any taxes payable), which will be released to us to fund our working capital requirements, and any potential loans from our sponsor, management team, their affiliates or other third parties for working capital purposes and to pay expenses to identify an initial business combination, although we cannot assure you that there will be sufficient funds for such purposes or that such loans would be made. If such funds are insufficient, our sponsor has agreed to pay the balance of the amount necessary to complete such liquidation (currently anticipated to be no more than approximately $30,000) and has agreed not to seek repayment for such amounts.

The proceeds deposited in the trust account could become subject to the claims of our creditors which would have higher priority than the claims of our public stockholders. We cannot assure you that the actual per-share redemption amount received by stockholders will not be less than the $10.00 per public share initially on deposit in the trust account. Under Section 281(b) of the Delaware General Corporation Law, or DGCL, our plan of dissolution must provide for all claims against us to be paid in full or make provision for payments to be made in full, as applicable, if there are sufficient assets. These claims must be paid or provided for before we make any distribution of our remaining assets to our stockholders. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims.

Although we will seek to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the trust account including but not limited to fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative. If we do not obtain a waiver from a third party, we will obtain the written consent of our sponsor before our entering into an agreement with such third party. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver and where our sponsor executes a written consent. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. In order to protect the amounts held in the trust account, pursuant to a written agreement, Mr. Zhang, the Chairman of our Board of Directors, has agreed that he will be liable to us if and to the extent any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a definitive transaction agreement, reduce the amounts in the trust account to below $10.00 per share, except as to any claims by a third party who executed a waiver of rights to seek access to the trust account and except as to any claims under our indemnity of the underwriter of our initial public offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, Mr. Zhang will not be responsible to the extent of any liability for such third party claims. We cannot assure you, however, that Mr. Zhang will be able to satisfy those obligations.

If the proceeds in the trust account are reduced below $10.00 per public share and Mr. Zhang asserts that he is unable to satisfy any applicable obligations or that he has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against Mr. Zhang to enforce his indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against Mr. Zhang to enforce his indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in a particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be less than $10.00 per public share.

We have access to approximately $50.1 million from the proceeds from our initial public offering and the private placement held out of trust as of December 31, 2016, any amounts representing interest earned on the trust account, less any interest released to us for working capital purposes, the payment of taxes or dissolution expenses, with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation). If we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, stockholders who received funds from our trust account could be liable for claims made by creditors.

Under the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public stockholders (including our sponsor and its associated parties, with respect to up to the 3,000,000 shares included in the units purchased by such parties in our initial public offering) upon the redemption of our public shares if we do not consummate our initial business combination by July 29, 2017 may be considered a liquidation distribution under Delaware law. If the corporation elects to comply with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution.

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Furthermore, if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in the event we do not consummate our initial business combination by July 29, 2017 is not considered a liquidation distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, asgrow, in the case of a liquidation distribution. Ifpart of the upstream raw material prices continue to rise still maintained a good growth relative to the chemical industry, in "much starker choices-and graver consequences-in" period, the decisive phase of the well-off society, all kinds of engineering, manufacturing is still a huge demand for coating, will be a period of time in the future continue to maintain high growth.

After 2016, the pressure of environmental protection has increased but not decreased. The severe pressure of environmental protection has led to the upgrading of products, industries and production lines, and the overall cost has increased rapidly within a short time. Although the environmental protection pressure high strength in recent one or two years to paint coating enterprise caused a certain economic loss, but overall, these losses are worth it, is also must, under high pressure, forcing coating, coating enterprise seek survival, prompting investment environment friendly coatings products and coating technology and equipment research and development, is advantageous to the industry to develop in the direction of high-end in green.

According to the ecological civilization construction and green development road map formulated at the 19th CPC national congress, the requirements of green development will certainly promote coating enterprises to accelerate the pace of product transformation to green and environment-friendly direction. The transformation process will bring new development space and opportunities to enterprises, and China's coating industry will usher in a new development period.

Wuhan HOST always focus on the coating industry, new materials technology accumulation, product innovation, industrial chain synergy and brand core competitive advantages, such as with the client's leading enterprises, brand enterprises established long-term stable cooperative relations, no matter from the enterprise scale and comprehensive strength, the company is still in the domestic industry leader.

Wuhan HOST adheres to market-oriented, based on the main industry, vigorously innovate, improve the level of research and development, and share new technology with customers to bring market appreciation. It has not only trained the company's own scientific research team, but also established a set of scientific research and development system. While focusing on independent research and development, it has enhanced the company's advantages in the industry through cooperative development and introduction and digestion.

Competition for Jiangsu Ronghai

The local competition is fierce. Our principal competitor is Nantong Huagang Materials Trading Co., Ltd.. However, as we have strengths in processing, transportation and reputation, we have been maintaining a favorable position against our competitor and earn loyalty from our largest customer.


Environmental Matters

The Environmental Protection Law, promulgated by the National People’s Congress on December 26, 1989, is the primary law for environmental protection in China. The law establishes basic principles for coordinated advancement of economic growth, social progress and environmental protection, and defines the rights and duties of governments at all levels. Local environmental protection bureaus may set stricter local standards than the national standards and enterprises are required to comply with the stricter of the two sets of standards. Due to the nature of our business, we may produce certain amounts of waste water and solid waste materials during the course of our production. We believe that we are in compliance in all material respects with applicable PRC laws and regulations. All of our products in all material respects meet the relevant environmental requirements under PRC laws and during the three years ended December 31, 2018, 2017 and 2016, we were not consummatedsubject to any fines or legal action involving non-compliance with any relevant environmental regulation, nor are we aware of any threatened or pending action, including by any environmental regulatory authority.

Wuhan Host received Letter of Acceptance Opinions on Environmental Protection for The Completion of The 4000t/a New Industrial Coating Material Production Project of Wuhan Host Coating Material Co., LTD., issued by the Administrative Examination and Approval Bureau of E Zhou Gedian Economic and Technological Development Zone on June 27, 2017.As of December 31, 2018, Wuhan Host was not subject to any fines or legal action involving non-compliance with any relevant environmental regulation, nor are we aware of any threatened or pending action, including by any environmental regulatory authority.

As of December 31, 2018, Jiangsu Ronghai was not subject to any fines or legal action involving non-compliance with any relevant environmental regulation, nor are we aware of any threatened or pending action, including by any environmental regulatory authority.

Governmental Regulations

Business license

Any company that conducts business in the PRC must have a business combination by July 29, 2017, at the discretionlicense that covers a particular type of work. Our business license covers our present business of manufacturing, sale and lease of environment protection equipment, development of environment protection technologies and related technology and consulting services. Prior to expanding our business beyond that of our board,business license, we will: (i) ceaseare required to apply and receive approval from the PRC government.

Employment laws

We are subject to laws and regulations governing our relationship with our employees, including: wage and hour requirements, working and safety conditions, citizenship requirements, work permits and travel restrictions. These include local labor laws and regulations, which may require substantial resources for compliance. China’s National Labor Law, which became effective on January 1, 1995, and amended on August 27, 2009, and China’s National Labor Contract Law, which became effective on January 1, 2008, and amended on December 28, 2012, permit workers in both state and private enterprises in China to bargain collectively. The National Labor Law and the National Labor Contract Law provide for collective contracts to be developed through collaboration between the labor union (or worker representatives in the absence of a union) and management that specify such matters as working conditions, wage scales, and hours of work. The laws also permit workers and employers in all operations excepttypes of enterprises to sign individual contracts, which are to be drawn up in accordance with the collective contract.

Intellectual property protection in China

Patent. The PRC has domestic laws for the protection of copyrights, patents, trademarks and trade secrets. The PRC is also signatory to some of the world’s major intellectual property conventions, including:

●Convention establishing the World Intellectual Property Organization (WIPO Convention) (June 4, 1980);

●Paris Convention for the Protection of Industrial Property (March 19, 1985);

●Patent Cooperation Treaty (January 1, 1994); and

●The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (November 11, 2001).

Patents in the PRC are governed by the China Patent Law and its Implementing Regulations, each of which went into effect in 1985. Amended versions of the China Patent Law and its Implementing Regulations came into effect in 1993, 2001 and 2009, respectively.


The PRC is signatory to the Paris Convention for the Protection of Industrial Property, in accordance with which any person who has duly filed an application for a patent in one signatory country shall enjoy, for the purposes of filing in the other countries, a right of priority during the period fixed in the convention (12 months for inventions and utility models, and 6 months for industrial designs).

The Patent Law covers three kinds of patents — patents for inventions, utility models and designs. The Chinese patent system adopts the principle of first to file, which means that a patent may be granted only to the person who first files an application. Consistent with international practice, the PRC allows the patenting of inventions or utility models that possess the characteristics of novelty, inventiveness and practical applicability only. For a design to be patentable it cannot be identical with, or similar to, any design which, before the date of filing, has been publicly disclosed in publications in the country or abroad or has been publicly used in the country, and should not be in conflict with any prior right of another.

Copyright. Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years.

Trademark. Registered trademarks are protected under the Trademark Law of the PRC and related rules and regulations. Trademarks are registered with the Trademark Office of the SAIC. Where registration is sought for a trademark that is identical or similar to another trademark which has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of such trademark may be rejected. Trademark registrations are effective for a renewable ten-year period, unless otherwise revoked. The duration of a trademark is 10 years from the date of registration.

Domain names. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration.

Regulations on Tax

PRC Corporate Income Tax

The PRC corporate income tax, or CIT, is calculated based on the taxable income determined under the applicable CIT Law and its implementation rules, which became effective on January 1, 2008 and amended on February 24, 2017. The CIT Law imposes a uniform corporate income tax rate of 25% on all resident enterprises in China, including foreign-invested enterprises.

Uncertainties exist with respect to how the CIT Law applies to the tax residence status of The Company and our offshore subsidiaries. Under the CIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for corporate income tax purposes. Although the implementation rules of the CIT Law define “de facto management body” as a managing body that exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise, the only official guidance for this definition currently available is set forth in Circular 82 issued by the State Administration of Taxation, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although the Company does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of Circular 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in Circular 82 to evaluate the tax residence status of The Company and our subsidiaries organized outside the PRC.

According to 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 corporate income tax on its worldwide income only if all of the following criteria are met:

●the primary location of the day-to-day operational management is in the PRC;


●decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC;

●the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders meeting minutes are located or maintained in the PRC; and

●50% or more of voting board members or senior executives habitually reside in the PRC.

We do not believe that we meet any of the conditions outlined in the immediately preceding paragraph.

We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” As all of our management members are based in China, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that we or any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then we or such subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or other disposition of our ordinary shares may 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), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our ordinary shares.

Value-Added Tax and Business Tax

In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. In May and December 2013 and April 2014, the Ministry of Finance and the State Administration of Taxation promulgated Circular 37, Circular 106 and Circular 43 to further expand the scope of services which are to be subject to Value-Added Tax, or VAT, instead of business tax. Pursuant to these tax rules, from August 1, 2013, VAT will be imposed to replace the business tax in certain service industries, including technology services and advertising services, on a nationwide basis. The VAT rate shall be 17% for sale or importation of goods by a taxpayer. But, unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the revenue from services provided.

Regulations Relating to Foreign Exchange and Dividend Distribution

Foreign Exchange Regulation

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB 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 or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency loans to our PRC subsidiaries.


In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment. Pursuant to this circular, 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 RMB proceeds by foreign investors in the PRC, 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 addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

We typically do not need to use our offshore foreign currency to fund our PRC operations. In the event we need to do so, we will apply to obtain the relevant approvals of SAFE and other PRC government authorities as necessary.

SAFE Circular 37

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE 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, for the purpose of winding up, (ii)overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as promptly as reasonably possible but not more than ten business days thereafter, redeem all public shares then outstanding at a per-share price, payable in cash, equal“special purpose vehicle.” SAFE Circular 37 further requires amendment to the aggregate amount then on depositregistration in the trust account, includingevent of any amounts representing interest earned on the trust account, less any interest released to us for working capital purposes, the payment of taxes or dissolution expenses (although, we expect all or substantially all of such interest released to be used for working capital purposes), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subjectsignificant changes with respect to the approvalspecial purpose vehicle, such as increase or decrease of our remaining stockholderscapital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditorsfrom carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of other applicable law. Accordingly, it isforeign exchange controls.

We have notified substantial beneficial owners of ordinary shares who we know are PRC residents of their filing obligation. However, we may not be aware of the identities of all our intention to redeem our public shares as soon as reasonably possible following July 29, 2017 and, therefore,beneficial owners who are PRC residents. In addition, we do not intend to comply with those procedures. As such,have control over our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more)beneficial owners and any liability of our stockholders may extend well beyond the third anniversary of such date.

Because we will not elect to comply with Section 280, Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the subsequent 10 years. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers, etc.) or prospective target businesses. As described above, pursuant to the obligation contained in our underwriting agreement, we will seek to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account. As a result of this obligation and Mr. Zhang’s indemnification of the trust account against certain claims as previously described in this section, we believe that the claims that could be made against us will be significantly limited and that the likelihood that any claim that would result in any liability extending to the trust account is remote.

If we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you we will be able to return $10.00 per share to our public stockholders. Additionally, if we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore, our board may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claimsall of our PRC resident beneficial owners will notcomply with SAFE Circular 37. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Failure to register or amend the registration may also limit our ability to contribute additional capital to our PRC subsidiaries or receive dividends or other distributions from our PRC subsidiaries or other proceeds from disposal of our PRC subsidiaries, or we may be brought against us for these reasons.penalized by SAFE.

 

Our public stockholders (including our sponsorShare Option Rules

Under the Administration Measures on Individual Foreign Exchange Control issued by the PBOC on December 25, 2006, all foreign exchange matters involved in employee share ownership plans and share option plans in which PRC citizens participate require approval from SAFE or its associated parties,authorized branch. Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, under the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of Overseas Publicly-Listed Companies, or the Share Option Rules, issued by SAFE on February 15, 2012, PRC residents who are granted shares or share options by companies listed on overseas stock exchanges under share incentive plans are required to (i) register with SAFE or its local branches, (ii) retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the 3,000,000share incentive plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in connection with their exercise of share options, purchase and sale of shares included in the units purchased by such parties inor interests and funds transfers. We will make efforts to comply with these requirements upon completion of our initial public offering) willoffering.


Regulation of Dividend Distribution

The principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended, the Wholly Foreign-owned Enterprise Law and its implementation regulations and the Chinese-foreign Equity Joint Venture Law and its implementation regulations. Under these laws, rules and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of such reserves reaches 50% of their registered capital. 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 entitled to receive fundsdistributed together with distributable profits from the trust account onlycurrent fiscal year.

Legal Proceedings

From time to time, Sunlong may be involved in various claims and legal proceedings arising in the eventordinary course of business. Neither Wuhan Host nor Jiangsu Ronghai is currently a party to any such claims or proceedings which, if decided adversely to the redemption of our public shares if we do not consummate a business combination by July 29, 2017 or if they redeem their respective shares for cash upon the consummation of the initial business combination. Also, our management may cease to pursue a business combination prior to July 29, 2017 (our board of directors may determine to liquidate the trust account prior to such expiration if it determines, in its business judgment, that it is improbable within the remaining time to identify an attractive business combination or satisfy regulatory and other business and legal requirements to consummate a business combination). In no other circumstances will a stockholder have any right or interest of any kind toCompany, would either, individually or in the trust account. In the event we seek stockholder approval in connection withaggregate, have a material adverse effect on our initial business, combination, a stockholder’s voting in connection with the business combination alone will not result in a stockholder’s redeeming its shares for an applicable pro rata sharefinancial condition, results of the trust account. Such stockholder must have also exercised its redemption rights described above.

14

Amended and Restated Certificate of Incorporation

Our amended and restated certificate of incorporation contains requirements and restrictions relating to our initial public offering that apply to us until the consummation of our initial business combination. These provisions, which cannot be amended without the approval of holders owning 90% of the issued and outstanding shares of our common stock, are as follows:

● if we are unable to consummate our initial business combination by July 29, 2017, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any amounts representing interest earned on the trust account, less any interest released to us for working capital purposes, the payment of taxes or dissolution expenses (although, we expect all or substantially all of such interest released to be used for working capital purposes), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law;
●prior to our initial business combination, we may not issue additional shares of capital stock that would entitle the holders thereof to (i) receive funds from the trust account or (ii) vote on any initial business combination;
●although we do not currently intend to enter into a business combination with a target business that is affiliated with holders of founder shares, our directors or officers, we are not prohibited from doing so. If we propose to do so, we, or a committee of independent directors, must obtain an opinion from an independent investment banking firm that is a member of FINRA and reasonably acceptable to Cantor Fitzgerald that such a business combination is fair to our stockholders from a financial point of view;
●if a stockholder vote on our initial business combination is not required by law or Nasdaq and we do not decide to hold a stockholder vote for business or other reasons, we must offer to redeem our public shares pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, and will file tender offer documents with the SEC prior to consummating our initial business combination which contain substantially the same financial and other information about our initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act; and
●we may not effectuate our initial business combination with another blank check company or a similar company with nominal operations.

In addition, our amended and restated certificate of incorporation provides that under no circumstances will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. This notwithstanding, if the effect of any proposed amendment, if adopted, would be either to (i) reduce the amount in the in the trust account available to redeeming stockholders to less than $10.00 per public share, or (ii) delay the date on which a public stockholder could otherwise redeem shares for such per share amount in the trust account, we will provide a right for dissenting public shareholders to redeem public shares if such an amendment is approved.

Competition

In identifying, evaluating and selecting a target business for a business combination, we have encountered, and may continue to encounter, intense competition from other entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged buyout funds and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash to our public stockholders (including our sponsor and its associated parties, with respect to up to 2,000,000 of the 3,000,000 shares included in the units purchased by such parties in our initial public offering) who exercise their redemption rights may reduce the resources available to us for an initial business combination. In addition, the number of our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial business combination.flows.

  

Employees

 

As of March 31, 2019, Shengrong WFOE, Wuhan Host and Jiangsu Ronghai had 35, 42, 11, respectively, full-time employees.

We currently have two executive officers. These individualsnot experienced any significant labor disputes and consider our relationship with our employees to be good. Our employees are not obligated to devotecovered by any specific number of hours to our affairs but they devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time they devote in any time period varies based on whether a target business has been selected for our initial business combination and the stage of the business combination process we are in. We do not intend to have any full time employees prior to the consummation of our initial business combination.collective bargaining agreement.

 

15

Periodic Reporting and Financial Information

Our units, common stock and warrants are registered under the Exchange Act and weWe have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. Inestablished an employee welfare plan in accordance with the requirementsrelevant PRC laws and regulations. Our total expenses for this plan were approximately $19,566 and $13,339 in 2018 and 2017, respectively.

As we continue to expand our business, we believe it is critical to hire and retain top talent, especially in the areas of marketing and technology engineering. We believe we have the Exchange Act, this Report contains financial statements auditedability to attract and reported on by our independent registered public accountants.

We will provide stockholders with audited financial statements of the prospective target business as part of the tender offer materials or proxy solicitation materials sent to stockholders to assist themretain high quality engineering talent in assessing the target business. In all likelihood, these financial statements will need to be prepared in accordance with GAAP. We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have financial statements prepared in accordance with GAAP or that the potential target business will be able to prepare its financial statements in accordance with GAAP. To the extent that this requirement cannot be met, we may not be able to acquire the proposed target business. While this may limit the pool of potential acquisition candidates, we do not believe that this limitation will be material.

We are required to evaluate and reportChina based on our internal control procedurescompetitive salaries, annual performance-based bonus system, and equity incentive program for the fiscal year ended December 31, 2016 as required by the Sarbanes-Oxley Act. As long as we maintain our status as an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the timesenior employees and costs necessary to complete any such acquisition.

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.

executives. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.

We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemeda training program for entry-level engineers that allows them to work closely with an experienced mentor to gain valuable hands-on experience and provide other professional development opportunities, including seminars where experienced engineers give lectures on specific engineering topics and new methods that can be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. References hereinapplied to “emerging growth company” shall have the meaning associated with it in the JOBS Act.various projects.


Item 1A. Risk Factors

An investment in our shares of common stock involves a high degree of risk. You should carefully consider the following risk factors, and alltogether with the other information contained in this Report, including the financial statements. Ifprospectus, before you decide to buy any shares. Any of the following events occur,risks could cause our business, results of operations and financial condition to suffer materially, causing the market price of our shares of common stock to decline, in which event you may lose part or all of your investment in our shares of common stock. Additional risks and uncertainties not currently known to us or that we currently do not deem material may also become important factors that may materially and adversely affect our business.

Risks Related to Our Business and Operations

Our revenues are highly dependent on a small number of customers, and we will likely continue to be dependent on a small number of customers.

Two of Company’s customers, Wuhan Zhirong and Panzhihua Jingsheng, accounted for 34.3% and 22.0%, respectively, of our total revenues for the year ended December 31, 2018. Since these two customers are Hubei Shengrong’s, we will be substantially dependent on revenues generated by our other smaller customers through our sales efforts starting from the beginning of 2019. Therefore, we are, and will likely continue to be, dependent on a small number of customers, and the loss of any such customer would materially and adversely affect our business, operating results and financial condition. Furthermore, as a result of our reliance on a limited number of customers, we could face pricing and other competitive pressures which may have a material adverse effect on our business, operating results and financial condition.

A significant part of Jiangsu Ronghai’s revenues is also derived from a small number of customers. Jiangsu Ronghai expects a small number of customers will continue to generate a substantial portion of our revenues for the foreseeable future. From 2009 to December 2018, Nantong Linan Industrial Trading Co. Ltd. accounts for 50% of the company's total sales. The loss of Nantong Linan, or the change of the contractual terms of the contract entered between Jiangsu Ronghai and Nantong Linan or any significant dispute with Nantong Linan could materially adversely affect its financial condition and its results of operations.

If one or more of Jiangsu Ronghai’s customers does not perform under one or more contracts with it and Jiangsu Ronghai is not able to find a replacement contract, or if a customer exercises certain rights to terminate the contract, Jiangsu Ronghai could suffer a loss of revenues that could materially adversely affect its business, financial condition and results of operations.

If the Company is unable to collect its accounts receivable on a timely basis, the Company’s results of operations and cash flows could be adversely affected.

The Company’s business depends on its ability to successfully obtain timely payment from its customers, especially its two major customers, namely Wuhan Zhirong and Panzhihua Jingsheng, of the amounts they owe. Even though we have disposed Hubei Shengrong, so did the accounts receivable balance of Hubei Shengrong. In the past, our major customers had records of failing to make full payment on time. The Company maintains allowances against its receivables that it believes are adequate to reserve for potentially uncollectible amounts. However, actual losses on customer balances could differ from those that the Company currently anticipates and, as a result, it may need to adjust its allowances. In addition, there is no guarantee that the Company will accurately assess the creditworthiness of its customers. Macroeconomic conditions could also result in financial difficulties for its customers, and as a result could cause them to delay payments, request modifications to their payment arrangements that could increase the Company’s receivables balance, or not pay their obligations to the Company. Timely collection of customers’ balances also depends on the company’s ability to complete its contractual commitments and bill and collect its invoiced revenues. If the Company is unable to meet its contractual commitments, it might experience delays in collection of and/or be unable to collect its customer balances, and if this occurs, its results of operations and cash flows may be adversely affected.

18

Future bad debt losses may exceed the allowance for doubtful accounts.

The Company has established an allowance for possible losses expected in connection with its account receivables. In establishing the allowance for such losses, the Company considered historical experiences, the microeconomic environment, trends in the construction, decorative and paint materials industry, expected collectability of amounts receivable that were past due, and the expected collectability of overdue receivable.

The determination of the amount of allowance for account receivable is subjective; although the method for determining the amount of the allowance uses criteria such as the microeconomic environment and historical experiences. Given the Company customers’ past repayment performances, specifically Wuhan KYX and Wuhan Zhirong, these criteria may not be adequate predictors of whether the payments of The Company’s account receivable will be fully returned per credit terms. Accordingly, the Company cannot offer assurances that these estimates ultimately will prove correct or that the allowance will be sufficient to protect against losses that ultimately may occur. If the allowance proves to be inadequate, the Company will need to make additional provisions to the allowance, which is accounted for as charges to income, which would adversely impact results of operations and financial condition. Any increase in the allowance could have an adverse effect, which could be material, on its financial condition and results of operations.

Our operating subsidiaries, Shengrong WFOE, Wuhan Host and Jiangsu Ronghai all have limited operating histories, which make it difficult to evaluate their businesses and prospects.

Shengrong WFOE commenced operations in March 2016 and has a limited operating history. Prior to the year end of 2018, the Company had limited operations and was focused primarily on research and development. Shengrong WFOE did not generate any sales revenue for the year ended December 31, 2018, but entered into several sales agreements with new customers.

We may not be able to achieve similar results or grow at the same rate as Hubei Shengrong has in the past. It is also difficult to our prospects, as we may not have sufficient experience in addressing the risks to which companies operating in new and rapidly evolving markets such as the industrial and mining recycling industry may be exposed. We will continue to encounter risks and difficulties that companies at a similar stage of development frequently experience, including the potential failure to:

●obtain sufficient working capital and increase its registered capital to support expansion of our industrial and mining recycling business;

●comply with any changes in the laws and regulations of the PRC or local province that may affect our operations;

●expand our customer base;

●maintain adequate control of default risks and expenses allowing us to realize anticipated revenue growth;

●implement our growth strategies and plans and adapt and modify them as needed;

●integrate any future business combinations; and

●anticipate and adapt to changing conditions in the Chinese industrial and mining recycling industry resulting from changes in government regulations, mergers and Business Combinations involving our competitors, and other significant competitive and market dynamics.

If we are unable to address any or all of the foregoing risks, our business may be materially and adversely affected.


Similarly, Jiangsu Ronghai started operation in May 2009 and also have a limited operations history. While Jiangsu Ronghai generated $18.31 million in revenue in 2017 and $17.47 million in revenue in 2018, respectively. But the growth rate in history cannot be indicative of future performance. Accordingly, you should consider our future prospects in light of the risks and uncertainties experienced by early stage companies in evolving industries such as the coal products and alternative energy industries in China. Jiangsu Ronghai’s limited history for selling steam coal may not serve as an adequate basis to judge our future prospects and results of operations. Our operations are subject to all of the risks, challenges, complications and delays frequently encountered in connection with the operation of any new business, as well as those risks that are specific to the coal trading industry. Investors should evaluate us in light of the problems and uncertainties frequently encountered by companies attempting to develop markets for new products and technologies. Despite our best efforts, we may never overcome these obstacles.

Changes policies and regulations, as well as local environmental requirements on exploiting and using coal or its products, are likely to have an impact on the coal market, which will affect the company's earnings.

Shengrong WFOE is dependent on Hubei Shengrong as one of its major supplier. If we can’t find other supplier to replace Hubei Shengrong, we could encounter supply shortages and/or incur higher costs.

In December 2018, Hubei Shengrong was disposed by the Company. According to the planning requirements of local government in 2018, manufacture enterprises were requested to move away from the city center. Therefore, Hubei Shengrong has to close the existing plant, relocate and build a new plant, which is expected to take 7-8 years; and in the meantime, Hubei Shengrong may not be able to have normal production.

Currently, Shengrong WFOE sells recycling machinery products manufactured by Hubei Shengrong. We currently don’t know when Hubei Shengrong starts to move and stop production. We may not find new suppliers to provide qualified recycling machinery products to meet our clients demand in time.

Although we believe that alternative supply sources are available, there can be no assurance that we will continue to be able to identify or negotiate with such sources on terms that are commercially reasonable. If Hubei Shengrong is unable to fulfill their obligations under their contracts or we are unable to identify alternative sources, we could encounter supply shortages and incur higher costs, each of which could have a material adverse effect on our results of operations.

Competition in the industrial and mining recycling industry is likely to grow and could cause us to lose market share and revenues in the future.

We believes that the industrial and mining recycling industry is an emerging market in China. we may face growing competition in the industrial and mining recycling industry, and We believe that the industrial and mining recycling industry is expected to become more competitive as this industry matures and begins to consolidate. We will compete with several companies in the purification and recycling of industrial waste residue by the permanent magnet device and technology. Some of these competitors will likely have substantially greater financial, marketing and other resources than us. As a result, we could lose market share and its revenues could decline, thereby adversely affecting our earnings and potential for growth. While we believe that it will be able to successfully compete in this area as a result of its proprietary technology, there is no assurance that it will be able to hire and retain the necessary employees and compete successfully.

As the government starts to impose stricter policies on Environmental Protection, the mining recycling market gets bigger. The competition could become increasingly fierce in the near future. Furthermore, the Company’s technology has been industrialized which is relatively mature, which is a not pure brand new technology.

Our solid waste recycling systems business requires highly qualified personnel, and if we are unable to hire or retain qualified personnel, then it may not be able to grow effectively.

Our business’ success depends upon its ability to attract and retain highly qualified personnel. Expansion of our solid waste recycling systems business may require additional managers and employees with relevant industry experience, and its success will be highly dependent on its ability to attract and retain skilled management personnel and other employees. We may not be able to attract or retain highly qualified personnel. In addition, competition for skilled personnel is significant in China. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees. We may incur additional expenses to recruit and retain qualified replacements and its businesses may be disrupted and its financial condition and results of operations may be materially and adversely affected. In addition, key managers may join a competitor or form a competing company. An operating company may not be able to successfully enforce any contractual rights with its management team, in particular in China, where all of these individuals reside.

Discontinuation of preferential tax treatment our PRC subsidiaries currently enjoys may result in additional compliance obligations and costs so as to materially and adversely impact the company’s net income.

From 2013 through 2016, local tax authorities granted Hubei Shengrong the preferential income tax rate of 15% because Hubei Shengrong was entitled to the preferential rate as a “high-tech enterprise.” The discontinuation of such preferential tax treatment may materially and adversely affect our results of operations. In December 2016, local tax authorities renewed Hubei’s preferential tax treatment through 2019. Wuhan Host also entitles to the preferential tax treatment through 2019. During the effective period of high-tech enterprise certificate held by Hubei Shengrong and Wuhan Host, there won’t be any risk that the treatment could be revoked, unless they choose to liquate or dissolve or related laws and regulated be modified or invalid by government authorities. Shengrong WFOE and its subsidiary, Jiangsu Rong Hai, none of which acquired or will be able to be recognized as high-tech company in recent years and the enterprise income tax rate applied to these companies are 25%. But, since the patents, which are unique and advanced in China, owned by Hubei Shengrong is in the process of the transfer to Shengrong WFOE, Shengrong WFOE has faith in being recognized as a high-tech enterprise and should be able to renew the certificate in future.


If Shengrong WFOE and Wuhan Host fail to retain certain of their key personnel and attract and retain additional qualified personnel, neither Shengrong WFOE nor Wuhan Host might be able to remain competitive, continue to expand its technology or pursue growth.

Shengrong WFOE’s future success depends upon the continued service of certain of its executive officers and other key research and development personnel, such as Ms. Jianzhen Li and Mr. Xiaonian Zhang who possess longstanding industry relationships and technical knowledge of Shengrong WFOE’s products and operations. Although we believe that our relationship with these individuals is positive, there can be no assurance that the services of these individuals will continue to be available to us in the future. There can be no assurance that these persons will agree to continue to be employed by us after the expiration dates of their current contracts.

Similarly, Wuhan Host’s success depends in large part on its ability to attract and retain highly qualified management, administrative, manufacturing, sales, and research and development personnel. Due to the specialized nature of its business, it may be difficult to locate and hire qualified personnel. The loss of services of one of its executive officers or other key personnel, or failure to attract and retain other executive officers or key personnel could have a material adverse effect on our business, operating results and financial condition. Although Wuhan Host has been successful in planning for and retaining highly capable and qualified successor management in the past, there can be no assurance that it will be able to do so in the future.

The Company may not be able to achieve the full amount of synergies that are anticipated, or achieve the synergies on the schedule anticipated, from the acquisitions of both Wuhan Host and Jiangsu Rong Hai.

Although The Company currently expect to achieve synergies from the Wuhan HOST acquisition of approximately $7.0 million during fiscal 2018, the inclusion of these expected synergy targets should not be viewed as a representation that The Company will in fact achieve these synergies by the end of fiscal 2018, or at all. To the extent the Company fails to achieve these synergies, the Company’s results of operations may be impacted, and any such impact may be material.

The Company has identified various synergies including corporate and division overhead savings, brand enhancement, vendor funds, marketing and advertising cost reduction and operational efficiencies. Actual synergies, the expenses and cash required to realize the synergies and the sources of the synergies could differ materially from these estimates, and the Company cannot assure you that it will achieve the full amount of synergies on the schedule anticipated, or at all, or that these synergy programs will not have other adverse effects on our business. In light of these significant uncertainties, you should not place undue reliance on the Company’s estimated synergies.

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Failure to manage Wuhan HOST and Jiangsu Ronghai effectively since its acquisition could materially impact our business.

The Company has recently experienced a period of rapid growth in its operations. In particular, it has significantly increased the size of its customer base due to the acquisition of both Wuhan HOST and Jiangsu Ronghai. The Company anticipates that it will continue to significantly expand its operations and headcount in the near term. However, recent growth has placed, and future growth will place, a significant strain on the Company’s management, administrative, operational and financial infrastructure. The Company’s success will depend in part on its ability to manage both entities effectively. To manage the recent and expected growth of its operations and personnel, The Company will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. Failure to effectively manage Wuhan HOST and Jiangsu Rong Hai could result in difficulty or delays in deploying the Company’s services to customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties. Any of these difficulties could adversely impact the Company’s business performance and results of operations.

Wuhan Host expects to incur substantial expenditures in the foreseeable future and may require additional capital to support its business growth. This capital might not be available on terms favorable to us or at all.

In the expansion of Wuhan Host's business, the company may need external financing. If the debt capital ratio and equity capital ratio cannot be reasonably arranged, the comprehensive capital cost of the company will rise sharply, resulting in the shrinking of the company's value, and the company may be seriously insolvent.

Wuhan Host particularly expects to incur substantial expenditures in the foreseeable future in connection with the following:

●expansion of sales and marketing efforts;

●expansion of manufacturing capacity;

●funding research, development and clinical activities related to our existing products and product platform;

●funding research, development and clinical activities related to new products;

●pursuing and maintaining appropriate regulatory clearances and approvals for our existing products and any new products that we may develop; and

●preparing, filing and prosecuting patent applications, and maintaining and enforcing our intellectual property rights and position.

In addition, Wuhan Host general and administrative expense may continue to increase due to the additional operational and reporting costs associated with our expanded operations and being a public company.

Wuhan Host anticipates that its principal sources of funds in the future will be revenue generated from the sale of its products. Wuhan Host will need to generate significant additional revenue to achieve and maintain profitability, and even if it achieves profitability, it cannot be sure that it will remain profitable for any substantial period of time. Its failure to become and remain profitable could impair our ability to raise capital, expand our business, maintain our research and development efforts or continue to fund our operations.

It is also possible that Wuhan Host may allocate significant amounts of capital toward products, technologies or geographies for which market demand is lower than anticipated and, as a result, Wuhan Host may subsequently abandon such efforts. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, or if we expend capital on projects that are not successful, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and we may even be required to scale back our operations.


Residential and non-residential construction activity is cyclical and influenced by many factors, and any reduction in the activity in one or both of these markets could have a material adverse effect on the business of Wuhan Host.

The results of operations of Wuhan Host can vary materially in response to market conditions and changes in the demand for its products. Historically, demand for Wuhan’s products has been closely tied to residential construction, non-residential construction, and infrastructure activity in PRC, particularly Hubei province. Wuhan Host’s success and future growth prospects depend, to a significant extent, on conditions in these markets and the degree to which these markets are strong in the future.

The Chinese construction industry and related markets are cyclical and have in the past been, and may in the future be, materially and adversely affected by general economic and global financial market conditions. These factors impact not only Wuhan Host’s business, but those of its customers and suppliers as well. This influence is true with respect to macroeconomic factors within PRC.

The markets in the construction industry in which Wuhan Host operates are also subject to other more specific factors. Residential construction activity levels are influenced by and sensitive to a number of factors, including mortgage availability, the cost of financing a home (in particular, mortgage terms and interest rates), unemployment levels, household formation rates, gross domestic product, residential vacancy and foreclosure rates, demand for second homes, existing housing prices, rental prices, housing inventory levels, building mix between single- and multi-family homes, consumer confidence, seasonal weather factors, the available labor pool and government regulation, policy and incentives. Non-residential construction activity is primarily driven by levels of business investment, availability of credit and interest rates, as well as many of the factors that impact residential construction activity levels.

Wuhan Host cannot control the foregoing factors and, although construction activity and related spending levels have increased in recent years, there is still uncertainty regarding whether the growth in construction market will be sustained, and there can be no assurances that there will not be any future downturns. There can be no assurances regarding whether more recent growth in these markets can be sustained or if demand will gradually decrease. If construction activity in these markets, and more generally, does not continue to recover, or if there are future downturns, whether locally, regionally or nationally, our business, financial condition and results of operations could be materially and adversely affected.

Its dependence on key customers with whom Wuhan Host does not have long-term contracts and consolidation within its customers’ industries could have a material adverse effect on Wuhan Host’s operation.

Wuhan Host’s business is dependent on certain key customers. In 2018 and 2017, Jiuzhou Xinyuan, its largest customer accounted for 13.3% and 0.23% of Wuhan Host’s net sales, respectively. As is customary in the coating industry, Wuhan Host did not enter into long-term contracts with many of its customers. As a result, its customers could stop purchasing its products, reduce their purchase levels or request reduced pricing structures at any time. Wuhan Host may therefore need to adapt our manufacturing, pricing and marketing strategies in response to a customer who may seek concessions in return for its continued or increased business. A loss of one or more customers or a meaningful reduction in their purchases from Wuhan Host or could have a material adverse effect on its business, financial condition and results of operations.

Changes in market interest rates could adversely impact Wuhan Host

Wuhan Host may need additional loans or borrowings to fund its operations. The change of interest rate may make the company face the risk of not being able to pay the principal and interest on time due to the rise of interest rate, which may lead to bankruptcy and liquidation of the company due to insolvency. Wuhan Host’s earnings are impacted by changing interest rates. Changes in interest rates affect the demand for new loans, the credit profile of existing loans, the rates received on loans and securities, and rates paid on deposits and borrowings. These impacts may negatively impact Wuhan Host’s ability to attract deposits, make loans, and achieve satisfactory interest rate spreads, which could adversely affect our financial condition or results of operations.


Interest rates may be affected by many factors beyond our control, including general and economic conditions and the monetary and fiscal policies of various governmental and regulatory authorities. Market volatility in interest rates can be difficult to predict, as unexpected interest rate changes may result in a sudden impact while anticipated changes in interest rates generally impact the mortgage rate market prior to the actual rate change. Exposure to interest rate risk is managed by monitoring the repricing frequency of our rate-sensitive assets and rate-sensitive liabilities over any given period. Although we believe the current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates could potentially have an adverse effect on our business, financial condition and results of operations.

Wuhan Host business depends upon the maintenance of its proprietary technologies and information.

Wuhan Host depends on its proprietary technologies and information, many of which are no longer subject to patent protection. Wuhan Host relies principally upon trade secret and patent laws to protect its proprietary technologies. It regularly enters into confidentiality agreements with its key employees, customers, potential customers and other third parties and limit access to and distribution of its trade secrets and other proprietary information. However, these measures may not be adequate to prevent misappropriation of its technologies or to assure that its competitors will not independently develop technologies that are substantially equivalent or superior to our technologies. In addition, the laws of PRC in which we operate may not protect Wuhan Host’s proprietary rights to the same extent as the laws of the United States. Wuhan Host is also subject to the risk of adverse claims and litigation alleging infringement of intellectual property rights.

Its efforts to develop new products and services or enhance existing products and services involve substantial research, development and marketing expenses, and the resulting new or enhanced products or services may not generate sufficient revenues to justify such expenses.

Wuhan Host’s future success will depend in part on its ability to anticipate and respond to changing technologies and customer requirements by enhancing its existing products and services. It will need to develop and introduce, on a timely and cost-effective basis, new products, features and services that address the needs of its customer base. As a result of these efforts, Wuhan Host may be required to expend substantial research, development and marketing resources, and the time and expense required to develop a new product or service or enhance an existing product or service are difficult to predict. It cannot assure that it will succeed in developing, introducing and marketing new products or services or product or service enhancements. In addition, it cannot be certain that any new or enhanced product or service will generate sufficient revenues to justify the expenses and resources devoted to this product development and enhancement effort.

Jiangsu Ronghai’s business and results of operations are dependent on the PRC coal markets, which may be cyclical.

As the revenue is substantially derived from the sale of steam coal, Jiangsu Ronghai’s business and operating results are substantially dependent on the domestic supply of steam coal. The PRC coal market is cyclical and exhibits fluctuation in supply and demand from year to year and is subject to numerous factors beyond our control, including, but not limited to, economic conditions in the PRC, global economic conditions, and fluctuations in industries with high demand for coal, such as the utilities and steel industries. Fluctuations in supply and demand for coal affects coal prices which, in turn, may have an adverse effect on our operating and financial performance. The demand for coal is primarily affected by overall economic development and the demand for coal from the electricity generation, steel and construction industries. The supply of coal, on the other hand, is primarily affected by the geographic location of the coal supplies, the volume of coal produced by domestic and international coal suppliers, and the quality and price of competing sources of coal. Alternative fuels such as natural gas and oil, alternative energy sources such as hydroelectric power and nuclear power, and international shipping costs also impact the market demand for coal. Excess demand for coal may increase coal prices, which would have an adverse effect on the cost of goods sold which would, in turn, cause a short-term decline in our profitability if we are unable to increase the price of our steam coal to our customers. Local government may regulate residential winter heating price and thus causing our residential heating customers not be able to bear high steam coal price. As a result, Jiangsu Ronghai may not be able to increase its steam coal price in response to increased coal price or, Jiangsu Ronghai may have to decrease our steam coal price when it renews contracts with such customers. As a result, Jiangsu Ronghai may not able to keep its gross margin.


Our results of operations are subject, to a significant extent, to economic, political and legal developments in the PRC.

Jiangsu Ronghai expects that a majority of coal sales will be made to customers based in the PRC. Accordingly, the economic, political and social conditions, as well as government policies, of the PRC may affect our business. The PRC economy differs from the economies of most developed countries in many respects, including: (i) structure; (ii) level of government involvement; (iii) level of development; (iv) growth rate; (v) control of foreign exchange and (vi) allocation of resources. The PRC economy has been transitioning from a planned economy to a more market-oriented economy. For the past two decades, the PRC government has implemented economic reform measures emphasising the utilisation of market forces in the development of the PRC economy. Changes in the PRC’s political, economic and social conditions, laws, regulations and policies could materially and adversely affect our business and results of operations. In addition, the PRC government indirectly influences coal prices through its regulation of power tariffs and its control over allocation of the transportation capacity of the national rail system. Any significant downturn in coal prices in the PRC could materially and adversely affect our business and results of operations. Additionally, the PRC government could adopt new policies that could shift demand away from coal to other energy sources. Any significant decline in demand for, or over-supply of, coal could materially and adversely affect our revenues from coal export sales.

Competition could put downward pressure on coal prices and, as a result, materially and adversely affect our revenues and profitability.

Jiangsu Ronghai competes with numerous other domestic and foreign coal producers for domestic sales. Overcapacity and increased production within the domestic coal industry, and decelerating steel demand in Asia have at times, and could in the future, materially reduce coal prices and therefore materially reduce our revenues and profitability. Potential changes to international trade agreements, trade policies, trade concessions or other political and economic arrangements may benefit coal producers operating in countries other than China. We may not be able to compete on the basis of price or other factors with companies that in the future benefit from favorable foreign trade policies or other arrangements. In addition, our ability to ship our coal to international customers depends on port capacity, which is limited. Increased competition within the coal industry for international sales could result in us not being able to obtain throughput capacity at port facilities, or the rates for such throughput capacity increasing to a point where it is not economically feasible to export our coal.

The domestic coal industry has experienced consolidation in recent years, including consolidation among some of our major competitors. In addition, substantial overcapacity exists in the coal industry and several other large coal companies have also filed, and others may file, bankruptcy proceedings which could enable them to lower their productions costs and thereby reduce the price for coal. Consolidation in the coal industry or current or future bankruptcy proceedings of our coal competitors could adversely affect our competitive position.

In addition to competing with other coal producers, Jiangsu Ronghai competes generally with producers of other fuels, such as natural gas. Natural gas pricing has declined significantly in recent years. The decline in the price of natural gas has caused demand for coal to decrease and adversely affected the price of our coal. Sustained periods of low natural gas prices have also contributed to utilities phasing out or closing existing coal-fired power plants and continued low prices could reduce or eliminate construction of any new coal-fired power plants. This trend has, and could continue to have, a material adverse effect on demand and prices for our coal. Moreover, the construction of new pipelines and other natural gas distribution channels may increase competition within regional markets and thereby decrease the demand for and price of our coal.


Risks Related to Our Corporate Structure

The failure to comply with PRC regulations relating to mergers and acquisition of domestic enterprises by offshore special purpose vehicles may subject the company to severe fines or penalties and create other regulatory uncertainties regarding the company’s corporate structure.

On August 8, 2006, the Ministry of Commerce (“MOFCOM”), joined by the China Securities Regulatory Commission (“CSRC”), the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation (“SAT”), the State Administration for Industry and Commerce (the “SAIC”), and the State Administration of Foreign Exchange (“SAFE”), jointly promulgated regulations entitled the Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”), which took effect as of September 8, 2006, and as amended on June 22, 2009. This regulation, among other things, has certain provisions that require offshore companies formed for the purpose of acquiring PRC domestic companies and controlled directly or indirectly by PRC individuals and companies which are the related parties with the PRC domestic companies, to obtain the approval of MOFCOM prior to engaging in such acquisitions and to obtain the approval of the CSRC prior to publicly listing special purpose vehicles’ securities on an overseas stock market. On September 21, 2006, the CSRC published on its official website a notice specifying the documents and materials that are required to be submitted for obtaining CSRC approval.

The application of the M&A Rules with respect to the company’s corporate structure remains unclear, with no current consensus existing among leading PRC law firms regarding the scope and applicability of the M&A Rules. We believe that the MOFCOM and CSRC approvals under the M&A Rules are not required in the context of the Acquisition because WFOE was incorporated as wholly owned foreign investment enterprise with the approval of local department of commerce. However, we cannot be certain that the relevant PRC government agencies, including the CSRC and MOFCOM, would reach the same conclusion, and we cannot be certain that MOFCOM or the CSRC will not deem that the Acquisition circumvents the M&A Rules, and other rules and notices, or that prior MOFCOM or CSRC approval is required for overseas financing.

If the CSRC, MOFCOM, or another PRC regulatory agency subsequently determines that CSRC, MOFCOM or other approval was required for the Acquisition or the restructuring of Hubei Shengrong, or if prior CSRC approval for overseas financings is required and not obtained, the company may face severe regulatory actions or other sanctions from MOFCOM, the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines or other penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from overseas financings into the PRC, restrict or prohibit payment or remittance of dividends to us or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our securities could decline,shares of common stock. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to delay or cancel overseas financings, to restructure the company’s corporate structure, or to seek regulatory approvals that may be difficult or costly to obtain.

The M&A Rules, along with certain foreign exchange regulations discussed below, will be interpreted or implemented by the relevant government authorities in connection with our future offshore financings or acquisitions, and you could lose allwe cannot predict how they will affect our acquisition strategy.

PRC regulations relating to investments in offshore companies by PRC residents may subject The Company’s PRC-resident beneficial owners or partits PRC subsidiaries to liability or penalties, limit our ability to inject capital into its PRC subsidiaries or limit its PRC subsidiaries’ ability to increase their registered capital or distribute profits.

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of your investment. The risk factors described below are not necessarily exhaustiveSAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and you are encouragedfinancing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to perform your own investigationin SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to usthe special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC resident holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and our business.

We are an early stage company with no operating historyfrom carrying out subsequent cross-border foreign exchange activities, and no revenue and, accordingly, you have no basis on which to evaluate ourthe special purpose vehicle may be restricted in its ability to achievecontribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.


SAFE promulgated the Notice of SAFE on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment, or SAFE Circular 13, on February 13, 2015, which was effective on June 1, 2015. SAFE Circular 13 cancels two administrative approval items: foreign exchange registration under domestic direct investment and foreign exchange registration under overseas direct investment, instead. Banks shall directly examine and handle foreign exchange registration under domestic direct investment and foreign exchange registration under overseas direct investment, and SAFE and its branch shall indirectly regulate the foreign exchange registration of direct investment through banks.

Ms. Jiazhen Li and Mr. Xiaonian Zhang have completed registration under SAFE Circular 37 when they are the majority beneficiary owners of the Company. But, after the reorganization of Hubei Shengrong, they becoming the indirect shareholders of the The Company via a co-owned BVICo, such shareholding structure change of the The Company has not completed the modification registered with local SAFE according to Circular 37. However, The Company may not be aware of the identities of all of its beneficial owners who are PRC residents. The Company does not have control over its beneficial owners and cannot assure you that all of its PRC-resident beneficial owners will comply with SAFE Circular 37, SAFE Circular 13 and subsequent implementation rules. The failure of its beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37, SAFE Circular 13 and subsequent implementation rules, or the failure of future beneficial owners of The Company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37, SAFE Circular 13 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Furthermore, since SAFE Circular 37 and SAFE Circular 13 was recently promulgated and it is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, The Company cannot predict how these regulations will affect its business operations or future strategy. Failure to register or comply with relevant requirements may also limit its ability to contribute additional capital to its PRC subsidiaries and limit its PRC subsidiaries’ ability to distribute dividends to The Company. These risks may have a material adverse effect on its business, financial condition and results of operations.

If either Wuhan Host or Jiangsu Rong Hai fails to maintain the requisite registered capital, licenses and approvals required under PRC law, our business, objective.financial condition and results of operations may be materially and adversely affected.

We

Foreign investment is highly regulated by the PRC government and local authorities. Both Wuhan HOST and Jiangsu Ronghai are an early stage company with no operating historyrequired to obtain and no revenue. Wemaintain certain licenses or approvals from different regulatory authorities in order to operate its current business. These licenses and approvals will not commence operations until we consummate our initialbe essential to the operation of their businesses. If either Wuhan HOST or Jiangsu Ronghai fails to obtain or maintain any of the required licenses or approvals for its business, combination. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our business objective of acquiring one or more operating businesses in the consumer products industry in the United States. If we fail to complete a business combination, we will never generate any operating revenues.

If the net proceeds of our initial public offering not being held in the trust account and loans from Sponsor are insufficient, it could limit the amount available to complete our initial business combination and we may be unablesubject to continuevarious penalties, such as a going concern.

Offines and the net proceedsdiscontinuation or restriction of our initial public offering and advances, approximately $150,000 (as of December 31, 2016) was available to us outside the trust account to fund our working capital requirements. For the year ended December 31, 2016, we used cash of approximately $387,000 in operating activities. As of December 31, 2016, we had current liabilities of approximately $243,000, primarily representing amounts owed to lawyers, accountants and consultants who have advised us on matters related to a potential business combination. Fundsits operations. Any such disruption in the trust account are not available for paying these costs absent an initial business combination. There can be no assurances that we will complete aoperations of Wuhan HOST or Jiangsu Ronghai could materially and adversely affect our business, combination.financial condition and results of operations.

 

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Risks Related to Doing Business in China

A slowdown of the Chinese economy or adverse changes in economic and political policies of the PRC government could negatively impact China’s overall economic growth, which could materially adversely affect our business.

After the Business Combination, we are now a holding company and all of the combined company’s operations will be entirely conducted in the PRC. Although the PRC economy has grown in recent years, the pace of growth has slowed, and even that rate of growth may not continue. The annual rate of growth in the PRC declined from 6.9% in 2017 to 6.6% in 2018. According to a recent State Information of China forecast, China’s economic growth rate in 2019 will slow to 6.2%, its lowest since 1990. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in the PRC may materially reduce the demand for the combined company’s products and may have a materially adverse effect on its business.

China’s economy differs from the economies of most other countries in many respects, including the amount of government involvement in the economy, the general level of economic development, growth rates and government control of foreign exchange and the allocation of resources. While the PRC economy has grown significantly over the past few decades, this growth has remained uneven across different periods, regions and economic sectors.

The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Any actions and policies adopted by the PRC government could negatively impact the Chinese economy or the economy of the region the combined company serves, which could materially adversely affect the combined company’s business.

Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business the combined company may be able to conduct in the PRC and accordingly on the results of its operations and financial condition.

The combined company’s business operations may be adversely affected by the current and future political environment in the PRC. The Chinese government exerts substantial influence and control over the manner in which the combined company must conduct its business activities. The combined company’s ability to operate in China may be adversely affected by changes in Chinese laws and regulations. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activities and greater economic decentralization. However, the government of the PRC may not continue to pursue these policies, or may significantly alter these policies from time to time without notice.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing the combined company’s business, or the enforcement and performance of the combined company’s arrangements with borrowers in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. Only after 1979 did the Chinese government begin to promulgate a comprehensive system of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encourage foreign investment in China. Although the influence of the law has been increasing, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. Also, because these laws and regulations are relatively new, and because of the limited volume of published cases and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, there have been constant changes and amendments of laws and regulations over the past 30 years in order to keep up with the rapidly changing society and economy in China. Because government agencies and courts provide interpretations of laws and regulations and decide contractual disputes and issues, their inexperience in adjudicating new business and new polices or regulations in certain less developed areas causes uncertainty and may affect the combined company’s business. Consequently, neither we nor Hubei Shengrong and TJComex can predict the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness on enforcement of laws and regulations in China. The uncertainties, including new laws and regulations and changes of existing laws, as well as judicial interpretation by inexperienced officials in the agencies and courts in certain areas, may cause possible problems to foreign investors.

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Both Wuhan HOST and Jiangsu Ronghai’s businesses are subject to extensive regulation and supervision by state, provincial and local government authorities, which may interfere with the way the combined company conducts its business and may negatively impact its financial results.

Both Wuhan HOST and Jiangsu Ronghai are subject to extensive and complex state, provincial and local laws, rules and regulations with regard to their loan operations, capital structure, maximum interest rates, allowance for loan losses, among other things, as set out in “Business — Government Regulations.” These laws, rules and regulations are issued by different central government ministries and departments, provincial and local governments and are enforced by different local authorities in Hubei Province, the city of Wuhan and the city of Suzhou. As a result of the complexity, uncertainties and constant changes in these laws, rules and regulation, including changes in interpretation and implementation of such, both Wuhan HOST and Jiangsu Ronghai’s business activities and growth may be adversely affected if they do not respond to the changes in a timely manner or are found to be in violation of the applicable laws, regulations and policies as a result of a different position from theirs taken by the competent authority in the interpretation of such applicable laws, regulations and policies. If Wuhan HOST and Jiangsu Ronghai are found to be not in compliance with these laws and regulations, they may be subject to sanctions by regulatory authorities, monetary penalties and/or reputation damage, which could have a material adverse effect on the combined company’s business operations and profitability.

Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.

We are required under PRC laws and regulations to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. We have not made adequate employee benefit payments. We may be required to make up the contributions for these plans as well as to pay late fees and fines, the amount payable of which shall be determined in accordance with 110% of the amount paid by us in the preceding month. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions against us or our management, in China, based upon United States laws, including the U.S. federal securities laws, or other foreign laws.

We are a company incorporated in Nevada. After the Business Combination, substantially all of our operations will be conducted in China, and substantially all of our assets will be located in China. All of our current and proposed directors and officers reside in China, and substantially all of the assets of those persons are located outside of the United States. As a result, Allbright Law, our counsel as to PRC law, has advised us that it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce judgments against us which are obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

Allbright Law has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States providing for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors or officers if they decide that the judgment violates the basic principles of PRC laws, national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.

Allbright Law has also advised us that in the event shareholders originate an action against a company without domicile in China for disputes related to contracts or other property interests, the PRC courts may accept a cause of action if (a) the disputed contract is concluded or performed in the PRC or the disputed subject matter is located in the PRC, (b) the company (as defendant) has properties that can be seized within the PRC, (c) the company has a representative organization within the PRC, or (d) the parties chose to submit to the jurisdiction of the PRC courts in the contract on the condition that such submission does not violate the requirements of jurisdiction under the PRC Civil Procedures Law. The action may be initiated by the shareholder by filing a complaint with the PRC courts. The PRC courts would determine whether to accept the complaint in accordance with the PRC Civil Procedures Law. The shareholder may participate in the action by itself or entrust any other person or PRC legal counsel to participate on behalf of such shareholder. Foreign citizens and companies will have the same rights as PRC citizens and companies in such an action unless such foreign country restricts the rights of PRC citizens and companies.

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Our ability to pay dividends may be restricted due to foreign exchange control and other regulations of China.

As an offshore holding company, we will rely principally on dividends from our subsidiary in China, WFOE, for our cash requirements. Under the applicable PRC laws and regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise in China is required to seek additional capital,set aside a portion of its after-tax profit to fund specific reserve funds prior to payment of dividends. In particular, at least 10% of its after-tax profits based on PRC accounting standards each year is required to be set aside towards its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends.

Furthermore, WFOE’s ability to pay dividends may be restricted due to foreign exchange control policies and the availability of its cash balance. Substantially all of the Operating Companies’ operations are conducted in China and all of the revenue we would needrecognize, through WFOE will be denominated in RMB. RMB is subject to borrow funds fromexchange control regulation in China, and, as a result, WFOE may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict our sponsor, our management teamability to convert RMB into U.S. dollars.

The lack of dividends or other third partiespayments from WFOE may limit our ability to operatemake investments or Business Combinations that could be beneficial to our business, pay dividends or otherwise fund, and conduct our business. Our funds may not be readily available to us to satisfy obligations which have been incurred outside the PRC, which could adversely affect our business and prospects or our ability to meet our cash obligations. Accordingly, if we do not receive dividends from WFOE, our liquidity and financial condition will be materially and adversely affected.

Dividends payable to our foreign investors and gains on the sale of our shares of common stock by our foreign investors may become subject to tax by the PRC.

Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council of the PRC, a 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC. Similarly, any gain realized on the transfer of shares by such investors is also subject to PRC tax at a current rate of 10%, subject to any reduction or exemption set forth in relevant tax treaties, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on our shares, and any gain realized from the transfer of our shares, would be treated as income derived from sources within the PRC and would as a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer shares by such investors may be forcedsubject to liquidate. To date,PRC tax at a current rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties. It is unclear whether we or any of our subsidiaries established outside of China are considered a PRC resident enterprise, holders of shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to our non-PRC investors, or gains from the transfer of our shares by such investors are subject to PRC tax, the value of your investment in our shares may decline significantly.

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Our global income may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have not received any advances froma material adverse effect on our sponsorresults of operations.

Under the PRC Enterprise Income Tax Law, or directors to finance transaction coststhe New EIT Law, and its amendment and implementation rules, which became effective in connectionJanuary 2008, an enterprise established outside of the PRC with a “de facto management body” located within the PRC is considered a PRC resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business combination. Neitheroperations, personnel and human resources, finance and treasury, and Business Combination and disposition of properties and other assets of an enterprise.” On April 22, 2009, the State Administration of Taxation (the “SAT”), issued a circular, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although the SAT Circular 82 only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the determining criteria set forth in the SAT Circular 82 may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the resident status of all offshore enterprises for the purpose of PRC tax, regardless of whether they are controlled by PRC enterprises or individuals. Although we do not believe that our sponsor, memberslegal entities organized outside of the PRC constitute PRC resident enterprises, it is possible that the PRC tax authorities could reach a different conclusion. In such case, we may be considered a PRC resident enterprise and may therefore be subject to the 25% enterprise income tax on our global income, which could significantly increase our tax burden and materially and adversely affect our cash flow and profitability. In addition to the uncertainty regarding how the new PRC resident enterprise classification for tax purposes may apply, it is also possible that the rules may change in the future, possibly with retroactive effect.

We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

On February 3, 2015, the State Administration of Taxation issued an Announcement on Several Issues Concerning Enterprise Income Tax on Income Arising from Indirect Transfers of Property by Non-PRC Resident Enterprises, or Announcement 7, with the same effective date. Under Announcement 7, an “indirect transfer” refers to a transaction where a non-resident enterprise transfers its equity interest and other similar interest in an offshore holding company, which directly or indirectly holds Chinese taxable assets (the assets of an “establishment or place” situated in China; real property situated in China and equity interest in Chinese resident enterprises) and any indirect transfer without reasonable commercial purposes are subject to the PRC taxation. In addition, Announcement 7 specifies the conditions under which an indirect transfer is deemed to lack a reasonable commercial purpose which include: (1) 75% or more of the value of the offshore holding company’s equity is derived from Chinese taxable assets, (2) anytime in the year prior to the occurrence of the indirect transfer of Chinese taxable assets, 90% or more of the total assets (excluding cash) of the offshore holding company are direct or indirect investment in China, or 90% or more of the revenue of the offshore holding company was sourced from China; (3) the functions performed and risks assumed by the offshore holding company(ies), although incorporated in an offshore jurisdiction to conform to the corporate law requirements there, are insufficient to substantiate their corporate existence and (4) the foreign income tax payable in respect of the indirect transfer is lower than the Chinese tax which would otherwise be payable in respect of the direct transfer if such transfer were treated as a direct transfer. As a result, gains derived from such indirect transfer will be subject to PRC enterprise income tax, currently at a rate of 10%.

Announcement 7 grants a safe harbor under certain qualifying circumstances, including transfers in the public securities market and certain intragroup restricting transactions, however, there is uncertainty as to the implementation of Announcement 7. For example, Announcement 7 requires the buyer to withhold the applicable taxes without specifying how to obtain the information necessary to calculate taxes and when the applicable tax shall be submitted. Announcement 7 may be determined by the tax authorities to be applicable to our offshore restructuring transactions or sale of the shares of our management team noroffshore subsidiaries where non-resident enterprises, being the transferors, were involved. Though Announcement 7 does not impose a mandatory obligation of filing the report of taxable events, the transferring party shall be subject to PRC withholding tax if the certain tax filing conditions are met. Non-filing may result in an administrative penalty varying from 50% to 300% of unpaid taxes. As a result, we and our non-resident enterprises in such transactions may become at risk of being subject to taxation under Announcement 7, and may be required to expend valuable resources to comply with Announcement 7 or to establish that we and our non-resident enterprises should not be taxed under Announcement 7, for any restructuring or disposal of shares of our offshore subsidiaries, which may have a material adverse effect on our financial condition and results of operations.

Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

The PRC tax authorities have enhanced their affiliatesscrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular 59 and Circular 698, which became effective in January 2008, and a Circular 7 in replacement of some of the existing rules in Circular 698, which became effective in February 2015.


Under Circular 698, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise” indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.

In February 2015, the SAT issued Circular 7 to replace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced a new tax regime that is significantly different from that under Circular 698. Circular 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.

We face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed, under Circular 59 or Circular 698 and Circular 7, and may be required to expend valuable resources to comply with Circular 59, Circular 698 and Circular 7 or to establish that we and our non-resident enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

The PRC tax authorities have the discretion under SAT Circular 59, Circular 698 and Circular 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. Although we currently have no plans to pursue any obligationacquisitions in China or elsewhere in the world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make adjustments to advance fundsthe taxable income of the transactions under SAT Circular 59 or Circular 698 and Circular 7, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.

Restrictions on currency exchange may limit our ability to utilize our revenue effectively.

Substantially all of our revenue is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of SAFE by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a significant amount of our future revenue will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE or banks and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for all of our PRC subsidiaries.

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Fluctuations in the foreign currency exchange rate between U.S. Dollars and Renminbi could adversely affect our financial condition.

The value of the RMB against the U.S. dollar and other currencies may fluctuate. Exchange rates are affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC government changed its policy of pegging the value of the RMB to the U.S. dollar. Under this policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of foreign currencies. Following the removal of the U.S. dollar peg, the RMB appreciated more than 20% against the U.S. dollar over three years. From July 2008 until June 2010, however, the RMB traded stably within a narrow range against the U.S. dollar. On June 20, 2010, the PBOC announced that the PRC government would reform the RMB exchange rate regime and increase the flexibility of the exchange rate. Since June 2010, the RMB has appreciated more than 10% against the U.S. dollar. In April 2012, the PRC government announced it would allow greater RMB exchange rate fluctuation. On August 11, 12 and 13, 2015, the PRC government successively set the central parity rate for the RMB more than 3% lower in the aggregate than that of August 10, 2015 and announced that it will begin taking into account previous day’s trading in setting the central parity rate. In 2015, the yuan experienced a 4.88% drop in value, and on January 4, 2016 the PRC government set the U.S. dollar-Chinese yuan currency pair to a reference rate of 6.5%, the lowest rate in 4.5 years, on January 6, 2017, the reference rate was 0.9% up-regulated by the PRC government. However, it is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. As significant international pressure remains on the PRC government to adopt a more flexible currency policy, greater fluctuation of the RMB against the U.S. dollar could result.

Our revenues and costs are mostly denominated in the RMB, and a significant portion of our financial assets are also denominated in the RMB. Any significant fluctuations in the exchange rate between the RMB and the U.S. dollar may materially adversely affect our cash flows, revenues, earnings and financial position, and the amount of and any dividends we may pay on our shares in U.S. dollars. Fluctuations in the exchange rate between the RMB and the U.S. dollar could also result in foreign currency translation losses for financial reporting purposes.

If any dividend is declared in the future and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

If you are a U.S. holder of our shares of common stock, you will be taxed on the U.S. dollar value of your dividends, if any, at the time you receive them, even if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, if a dividend is declared and paid in a foreign currency such circumstances. Accordingly, weas the RMB, the amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

Future inflation in China may inhibit economic activity and adversely affect the combined company’s operations.

The Chinese economy has experienced periods of rapid expansion in recent years which can lead to high rates of inflation or deflation. This has caused the PRC government to, from time to time, enact various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the PRC government to once again impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China. Any action on the part of the PRC government that seeks to control credit and/or prices may adversely affect the combined company’s business operations.

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PRC laws and regulations have established more complex procedures for certain acquisitions of Chinese companies by foreign investors, which could make it more difficult for the combined company to pursue growth through acquisitions in China.

Further to the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rules, the Anti-monopoly Law of the PRC, the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by MOFCOM or the MOFCOM Security Review Rules, was issued in August 2011, which established additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time-consuming and complex, including requirements in some instances that MOFCOM be notified in advance of any change of control transaction in which a foreign investor takes control of a PRC enterprise, or that the approval from MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. PRC laws and regulations also require certain merger and acquisition transactions to be subject to merger control review and or security review.

The MOFCOM Security Review Rules, effective from September 1, 2011, which implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, further provide that, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review by MOFCOM, the principle of substance over form should be applied and foreign investors are prohibited from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through agreements control or offshore transactions.

Further, if the business of any target company that the combined company seek to acquire falls into the scope of security review, the combined company may not be able to obtain additional financing. Anysuccessfully acquire such loanscompany either by equity or asset acquisition, capital contribution or through any contractual agreements. The combined company may grow its business in part by acquiring other companies operating in its industry. Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and advances would be repaid onlyany required approval processes, including approval from funds held outside the trust accountMOFCOM, may delay or from funds releasedinhibit its ability to us upon completion of our initial business combination. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity,complete such transactions, which could include, but not necessarily be limitedaffect its ability to suspendingmaintain or expand its market share.

In addition, SAFE promulgated the pursuitCircular on the Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Circular 19, on June 1, 2015. Under Circular 19, registered capital of a potential transaction. Weforeign-invested company settled in RMB converted from foreign currencies may only be used within the business scope approved by the applicable governmental authority and the equity investments in the PRC made by the foreign-invested company shall be subject to the relevant laws and regulations about the foreign-invested company’s reinvestment in the PRC. In addition, foreign-invested companies cannot provide any assurance that new financing will be availableuse such capital to usmake the investments on commercially acceptable terms, if at all. These conditions raise substantial doubt aboutsecurities, and cannot use such capital to issue the entrusted RMB loans (except approved in its business scope), repay the RMB loans between the enterprises and the ones which have been transferred to the third party. Circular 19 may significantly limit our ability to continueeffectively use the proceeds from future financing activities as the Chinese subsidiaries may not convert the funds received from us in foreign currencies into RMB, which may adversely affect their liquidity and our ability to fund and expand our business in the PRC.

SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts (“Circular 16”), on June 9, 2016, which became effective simultaneously. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency to RMB on self-discretionary basis. Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on self-discretionary basis which applies to all enterprises registered in the PRC. Circular 16 reiterates the principle that RMB converted from foreign currency-denominated capital of a going concern. The financial statements included herein do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should we be unable to continue as a going concern. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. Consequently, our public shareholders may only receive approximately $10.00 per share on our redemption of our public shares.

Our public stockholderscompany may not be afforded an opportunitydirectly or indirectly used for purpose beyond its business scope or prohibited by PRC Laws or regulations, while such converted RMB shall not be provide as loans to vote on our proposed business combination, unless such voteits non-affiliated entities. As Circular 16 is required by law or the rules of Nasdaq, which means we may consummate our initial business combination even if a majority of our public stockholders (excluding our sponsornewly issued and its associated parties,SAFE has not provided detailed guidelines with respect to its interpretation or implementation, it is uncertain how these rules will be interpreted and implemented.

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Failure to comply with the 3,000,000United States Foreign Corrupt Practices Act and Chinese anti-corruption laws could subject us to penalties and other adverse consequences.

As our shares includedare listed on Nasdaq, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Non-U.S. companies, including some that may compete with us, may not be subject to these prohibitions. In addition, in 2012, the central government of the PRC commenced a far-reaching campaign against corruption. That ongoing campaign involves aggressive enforcement of existing Chinese anti-corruption laws. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in the units purchased byPRC. Our employees or other agents may engage in such partiesconduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

SEC administrative proceedings against the China affiliates of multi-national accounting firms, and/or any related adverse regulatory development in the PRC, may result in our initial public offering) doesfinancial statements being determined to not support such a combination.

We may not hold a stockholder vote to approve our initial business combination unlessbe in compliance with the business combination would require stockholder approval under applicable state lawrequirements of the Exchange Act of 1934, as amended, or the rulesExchange Act.

In December 2012, the SEC brought administrative proceedings against five major accounting firms in China alleging that they had refused to produce audit work papers and other documents related to certain other China-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending four of these firms from practicing before the SEC for a period of six months. The decision is neither final nor legally effective unless and until reviewed and approved by the SEC. On February 12, 2014, four of these PRC-based accounting firms appealed to the SEC against this decision. In February 2015, each of the four PRC-based accounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The settlement requires the firms to follow detailed procedures to seek to provide the SEC with access to Chinese firms’ audit documents via the Chinese Securities Regulatory Commission. If the firms do not follow these procedures, the SEC could restart the administrative proceedings.

In the event that the SEC restarts the administrative proceedings or initiates new proceedings against other firms, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our shares may be adversely affected.

If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to our delisting from Nasdaq or ifderegistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our shares in the United States.

Our management team is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws, which could lead to various regulatory issues.

Our current management team are not familiar with United States securities laws. Given the complexity of United States securities laws, our management team may have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues, which may adversely affect our operations.

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If we decidebecome directly subject to hold a stockholder vote forthe recent 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 or other reasons. For example, Nasdaq rules currently allow us to engageoperations and our reputation and could result in a tender offer in lieuloss of a stockholder meeting but would still require us to obtain stockholder approval if we were seeking to issue more than 20.0% of our outstanding shares to a target business as consideration in any business combination. Therefore, if we structure a business combination that requires us to issue more than 20.0% of our outstanding shares, we would seek stockholder approval of such business combination. However, except as required by law, the decision as to whether we will seek stockholder approval of a proposed business combination will be made by us, solelyyour investment in our discretion,shares, especially if such matter cannot be addressed and will be based on a varietyresolved favorably.

U.S. public companies that have substantially all of factors,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 timingSEC. Much of the transactionscrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company and our business. 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 the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our company and business operations will be severely hampered and your investment in our stock could be rendered worthless.

The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.

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. Our SEC filings and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by CSRC, a PRC regulator that is tasked with oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any review of our company, our SEC reports, other filings or any of our other public pronouncements.

Risks Related to Our Securities

The market price for our common stock may be volatile.

The market price for our common stock may be volatile and subject to wide fluctuations due to factors such as:

●the perception of U.S. investors and regulators of U.S. listed Chinese companies;
●actual or anticipated fluctuations in our quarterly operating results;
●changes in financial estimates by securities research analysts;
●negative publicity, studies or reports;
●conditions in Chinese credit markets;
●changes in the economic performance or market valuations of other microcredit companies;
●announcements by us or our competitors of acquisitions, strategic partnerships, joint ventures or capital commitments;
●addition or departure of key personnel;
●fluctuations of exchange rates between RMB and the U.S. dollar; and
●general economic or political conditions in China.

In addition, 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 our common stock.


Volatility in our common stock price may subject us to securities litigation.

The market for our common stock may have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

There is no guarantee that our warrants will ever be in the money, and they may expire worthless and the terms of the transaction would otherwise require us to seek stockholder approval. Accordingly, weour warrants may consummate our initial business combination even if holders of a majority of the outstanding shares of our common stock (excluding our sponsor and its associated parties, with respect to the 3,000,000 shares included in the units purchased by such parties in our initial public offering) does not approve of the business combination we consummate. 

If we seek stockholder approval of our initial business combination, our sponsor and the other initial holders have agreed to vote in favor of such initial business combination, regardless of how our public stockholders vote.be amended.

 

Unlike some other blank check companies in which the founders agree to vote their founder shares in accordance with the majority of the votes cast by the public stockholders in connection with an initial business combination,The exercise price for our sponsor and the other initial holders have agreed to vote those shares and any placement shares and public shares they hold, in favor of our initial business combination. Our sponsor and other initial stockholders, in the aggregate, own 69.5% of our issued and outstanding common stock. Accordingly, if we seek stockholder approval of our initial business combination, the necessary stockholder approval will be received, which would not be the case if holders of founder shares agreed to vote their founder shares, placement shares and public shares in accordance with the majority of the votes cast by our public stockholders.

Your ability to affect the investment decision regarding a potential business combination may be limited to the exercise of your right to redeem your shares from us for cash.

At the time of your investment in us, you will not be provided with an opportunity to evaluate the specific merits or risks of any target businesses. Since our board of directors may consummate a business combination without seeking stockholder approval (unless stockholder approvalwarrants is required by law or Nasdaq rules, or we decide to obtain stockholder approval for business, legal, or other reason), and our sponsor and other initial stockholders own 69.5% of the issued and outstanding shares of our common stock, public stockholders may not have the right to vote on the business combination. Accordingly, your ability to affect the investment decision regarding a potential business combination may be limited to exercising your redemption rights with respect to a proposed business combination.

The ability of our public stockholders to redeem their shares for cash may make us unattractive to potential business combination targets, which may make it difficult for us to enter into a business combination with a target.

Our amended and restated certificate of incorporation requires us to provide all of our stockholders (including our sponsor and its associated parties, with respect to up to 2,000,000 of the 3,000,000 shares included in the units purchased by such parties in our initial public offering) with an opportunity to redeem all of their shares in connection with the consummation of any initial business combination, although each initial holder and each holder of placement units has agreed to waive his, her or its respective redemption rights with respect to founder shares and placement shares held by him, her or it in connection with the consummation of our initial business combination. We may enter into a transaction agreement with a prospective target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. Consequently, if accepting all properly submitted redemption requests would cause our net tangible assets to be less than the amount necessary to satisfy such a closing condition, or less than the $5,000,001 minimum of tangible net assets which we are required to maintain, we would not proceed with such redemption and the related business combination. Prospective targets would be aware of these risks and, thus, may be reluctant to enter into a business combination transaction with us. Alternatively, we may need to arrange third party financing to help fund our business combination in case a larger percentage of stockholders exercise their redemption rights than we expect. Raising additional funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels. This may limit our ability to effectuate the most attractive business combination available to us.

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Because each warrant is exercisable for only$2.88 per one-half of one share of common stock, the units may be worth less than units of other blank check companies.

Each warrant is exercisable for one-half of one share of common stock.($5.75 per whole share), subject to adjustment. Warrants may be exercised only for a whole number of shares.the Company’s common stock. No fractional shares will be issued upon exercise of the warrants. ThisThere is different from other companies similar to ours whose units include one share of common stock and one warrant to purchase one whole share. We established the components of the units in this way in order to reduce the dilutive effect of the warrants upon completion of a business combination sinceno guarantee that the warrants will ever be exercisable in the aggregatemoney prior to their expiration, and they may expire worthless.

A market for halfthe Company’s securities may not continue, which would adversely affect the liquidity and price of our securities.

The price of the numberCompany’s securities may fluctuate significantly due to the market’s reaction and general market and economic conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. In addition, the price of shares comparedthe Company’s securities can vary due to unitsgeneral economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if the Company’s securities are not listed on, or become delisted from, the Nasdaq Capital Market for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that each containis not a warrant to purchase one whole share, thus making us, we believe, anational securities exchange, the liquidity and price of our securities may be more attractive merger partner for target businesses. Nevertheless, this unit structure may cause our units to be worth lesslimited than if each unit includedwe were quoted or listed on the Nasdaq Capital Market or another national securities exchange. You may be unable to sell your securities unless a warrant to purchase one whole share.

market can be established or sustained.

The abilitymarket price of our stockholders to exercise redemption rightsthe Company’s securities may not allow us to consummate the most desirable business combination or optimize our capital structure.be volatile.

 

In connection withFactors affecting the consummationtrading price of the Company’s securities may include:

●actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

●changes in the market’s expectations about our operating results;

●success of competitors;

●our operating results failing to meet the expectation of securities analysts or investors in a particular period;

●changes in financial estimates and recommendations by securities analysts concerning the Company or the lending market in general;

●operating and stock price performance of other companies that investors deem comparable to the Company;

●our ability to market new and enhanced services on a timely basis;

●changes in laws and regulations affecting our business;

●commencement of, or involvement in, litigation involving the Company;

●the Company’s ability to access the capital markets as needed;


●changes in the Company’s capital structure, such as future issuances of securities or the incurrence of additional debt;

●the volume of common stock available for public sale;

●any major change in our board or management;

●sales of substantial amounts of shares of common stock by our directors, executive officers or significant shareholders or the perception that such sales could occur; and

●general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

Broad market and industry factors may materially harm the market price of the Company’s securities irrespective of our operating performance. The stock market in general, and the Nasdaq Capital Market in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress our stock price regardless of our business, combination, we may redeem up to that numberprospects, financial conditions or results of shares of common stock (including up to 2,000,000 of the 3,000,000 shares includedoperations. A decline in the units purchased bymarket price of our sponsor and its associated parties in our initial public offering) that would permit us to maintain net tangible assets of $5,000,001. However, we may be required to maintain significantly larger amounts of cash depending upon the terms of the business combination. Accordingly, we may need to arrange third party financing to help fund our business combination in case a larger percentage of stockholders exercises its redemption rights than we expect. Raising additional funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels. This may limitsecurities also could adversely affect our ability to effectuateissue additional securities and our ability to obtain additional financing in the most attractive business combination available to us.future.

 

The requirement that we maintain a minimum net worth or retain a certain amount of cash could increase the probability that we will be unable to complete a proposed business combination and that you would have to wait for liquidation in order to redeem your stock.

If, pursuant to the terms of our proposed business combination, we are required to maintain a minimum net worth or retain a certain amount of cash in trust in order to consummate the business combination, the ability of our public stockholders to cause us to redeem their shares in connection with such proposed transaction will increase the risk that we will not meet that condition and, accordingly, that we will not be able to complete the proposed transaction. If we do not complete a proposed business combination, you would not receive your pro rata portion of the trust account until we liquidate or you are able to sell your stock in the open market. If you were to attempt to sell your stock in the open market at that time, the price you receive could represent a discount to the pro rata amount in our trust account. In either situation, you may suffer a material loss on your investment or lose the benefit of funds expected in connection with our redemption until we liquidate.

The requirement that we complete a business combination by July 29, 2017 may give potential target businesses leverage over us in negotiating a business combination and may decrease our ability to conduct due diligence on potential business combination targets as we approach our dissolution deadline, which could undermine our ability to consummate a business combination on terms that would produce value for our stockholders.

Any potential target business with which we enter into negotiations concerning a business combination will be aware that we must consummate a business combination by July 29, 2017. Consequently, such target businesses may obtain leverage over us in negotiating a business combination, knowing that if we do not complete a business combination with it, we may be unable to identify another target business and complete a business combination with any target business. This risk will increase as we get closer to July 29, 2017. Depending upon when we identify a potential target business, we may have only a limited amount of time to conduct due diligence and may enter into a business combination on terms that we might have rejected upon a more comprehensive investigation.

We may not be able to consummate a business combination by July 29, 2017, in which case we would cease all operations except for the purpose of winding up and we would redeem our public shares and liquidate.

We must complete our initial business combination by July 29, 2017. We may not be able to find a suitable target business and consummate a business combination within that time period. If we have not consummated a business combination by July 29, 2017, or earlier, at the discretion of our board pursuant to the expiration of a tender offer conducted in connection with a failed business combination, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem all public shares then outstanding at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any amounts representing interest earned on the trust account, less any interest released to us for working capital purposes, the payment of taxes or dissolution expenses (although we expect all or substantially all of such interest to be used for working capital purposes), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

If we are unable to complete our initial business combination within the prescribed time frame, our warrants will expire worthless.

Our outstanding warrants may not be exercised until after the completion of our initial business combination and are not entitled to participate in the redemption of the shares of our common stock conducted in connection with the consummation of our business combination. Accordingly, our warrants will expire worthless if we are unable to consummate a business combination by July 29, 2017, or earlier if our board resolves to liquidate and dissolve in connection with a failed business combination.

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If we seek stockholder approval of our business combination, our initial stockholders, directors, officers and their affiliates may elect to purchase shares of common stock from public stockholders, in which case they may influence a vote in favor of a proposed business combination that you do not support.

If we seek stockholder approval of our business combination and we do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, our initial stockholders, directors, officers or their affiliates may purchase shares in privately negotiated transactions either prior to or following the consummation of our initial business combination. Our directors, officers or their affiliates will not make any such purchases when they are in possession of any material non-public information not disclosed to the seller or during a restricted period under Regulation M under the Exchange Act or in a transaction which would violate Section 9(a)(2) or Rule 10(b)-5 under the Exchange Act. Such a purchase would include a contractual acknowledgement that such stockholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our initial stockholders, directors, officers or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares.

You will not have any rights to, or interest in, funds from the trust account, except under limited circumstances. To liquidate your investment, therefore, you may be forced to sell your shares or warrants, potentially at a loss.

Our public stockholders will be entitled to receive funds from the trust account only upon the earlier to occur of: (i) the consummation of our initial business combination; (ii) the redemption of our public shares if we are unable to consummate a business combination by July 29, 2017, subject to applicable law; or (iii) otherwise upon our liquidation or in the event our board of directors resolves to liquidate the trust account and ceases to pursue the consummation of a business combination prior to July 29, 2017 (our board of directors may determine to liquidate the trust account prior to such expiration if it determines, in its business judgment, that it is improbable within the remaining time that we will be able to identify an attractive business combination or satisfy regulatory and other business and legal requirements to consummate a business combination). In addition, if our plan to redeem our public shares if we are unable to consummate an initial business combination by July 29, 2017 is not consummated for any reason, Delaware law may require that we submit a plan of dissolution to our then-existing stockholders for approval prior to the distribution of the proceeds held in our trust account. In that case, public stockholders may be forced to wait beyond July 29, 2017 before they receive funds from our trust account. In no other circumstances will a public stockholder have any right or interest of any kind in the trust account. Accordingly, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss.

You will not be entitled to protections normally afforded to investors of many other blank check companies.

Since we intend to use the net proceeds from our initial public offering to complete an initial business combination with a target business that has not been identified, we may be deemed to be a “blank check” company under the United States securities laws. However, because we have net tangible assets in excess of $5.0 million, we are exempt from rules promulgated by the SEC to protect investors in blank check companies, such as Rule 419 under the Securities Act. Accordingly, investors will not be afforded the benefits or protections of those rules. Among other things, this means that our securities are tradable and that we will have a longer period of time to complete a business combination than would companies subject to Rule 419. Moreover, offerings subject to Rule 419 would prohibit the release of any interest earned on funds held in the trust account to us, except in connection with our consummation of an initial business combination.

If we seek stockholder approval of our business combination and we do not conduct redemptions pursuant to the tender offer rules, a stockholder, or a “group” of stockholders (other than our sponsor or parties associated with our sponsor), who are deemed to hold an aggregate of 20.0% or more of our common stock may not redeem any shares they hold that equal or exceed such 20.0% amount.

If we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, our amended and restated certificate of incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), other than our sponsor or parties associated with our sponsor, will be restricted from seeking redemption rights with respect to an aggregate of 20.0% or more of the shares sold in our initial public offering. We refer to such shares aggregating 20.0% or more of the shares sold in our initial public offering as “Excess Shares”. This restriction will not apply to our sponsor or to parties associated with our sponsor that purchased units in our initial public offering.

Your inability to redeem any Excess Shares will reduce your influence over our ability to consummate a business combination and you could suffer a material loss on your investment in us if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if we consummate our business combination. As a result, you would continue to hold that number of shares exceeding 20.0% (less one share) and, in order to dispose of such shares, would be required to sell them in open market transactions, potentially at a loss.

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Because of our limited resources and the significant competition for business combination opportunities, it may be difficult for us to complete a business combination. If we are unable to complete our initial business combination, you may receive only $10.00 per share from our redemption of your shares, and our warrants will expire worthless.

We encounter intense competition from other entities having a business objective similar to ours, including private investors (which may be individuals or investment partnerships), other blank check companies and other entities, domestic and international, competing for the types of businesses we intend to acquire. Many of these individuals and entities are well-established and have extensive experience in identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries. Many of these competitors possess greater technical, human and other resources, or more local industry knowledge than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe there are numerous target businesses we could potentially acquire with the net proceeds of our initial public offering, our ability to compete with respect to the acquisition of certain target businesses that are sizable will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Any of these obligations may place us at a competitive disadvantage in successfully negotiating a business combination. If we are unable to complete our initial business combination, our public stockholders may receive only $10.00 per share from our redemption of our shares, and our warrants will expire worthless.

If the net proceeds from our initial public offering and the private placement held out of trust and the interest income earned on the trust account are insufficient to allow us to operate at least until July 29, 2017, we may be unable to complete our initial business combination.

Although we believe that the net proceeds from our initial public offering and the private placement held out of trust and the interest income earned on the trust account will be sufficient to allow us to operate until at least July 29, 2017, we cannot assure you of this. In particular, we currently use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target business, and if we continue to use funds for such purposes or as a down payment on an acquisition or to fund a “no-shop” provision (a provision in letters of intent designed to keep target businesses from “shopping” around for transactions with other companies on terms more favorable to such target businesses) with respect to a particular proposed business combination, we could expend funds available to us more rapidly than we currently expect. It is possible that the amounts demanded for a no-shop provision or down payments will be in excess of funds then available to us, which would impair our ability to close a contemplated transaction. Furthermore, if we entered into a letter of intent where we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whether as a result of our breach or otherwise), we might not have sufficient funds to continue searching for, or conduct due diligence with respect to, a target business.

The current low interest rate environment could limit the amount available to fund our search for a target business or businesses and complete our initial business combination since we will depend, in part, on interest earned on the trust account to fund our search, to pay our franchise and income taxes and to complete our initial business combination.

We will depend on interest being earned on the proceeds held in the trust account to provide us with working capital we may need to identify one or more target businesses and to complete our initial business combination, as well as to pay any franchise and income taxes that we may owe. Because of the current low interest rate environment, we may be unable to generate enough interest to fund our needs, thereby reducing funds available to us to identify target businesses and to structure, negotiate or close our initial business combination. If our funds are insufficient, and we are unable to generate funds from other sources, we may be forced to liquidate.

Subsequent to consummation of our initial business combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price, which could cause you to lose some or all of your investment.

Even if we conduct extensive due diligence on a target business with which we combine, we cannot assure you that this examination will uncover all material risks that may be presented by a particular target business, or that factors outside of the target business and outside of our control will not later arise. Even if our due diligence successfully identifies the principal risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. As a result, from time to time following our initial business combination, we may be forced to write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Although these charges may be non-cash items and would not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining post-combination debt financing.

If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.00 per share.

Placing funds in the trust account may not protect those funds from third party claims against us. Although we intend to seek to have all vendors, service providers, prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim in or to any monies held in the trust account for the benefit of our public stockholders, such parties may not execute such agreements or, even if they execute such agreements, they may not be prevented from bringing claims against the trust account, including, but not limited to, claims for fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver. If any third party refuses to execute an agreement waiving claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement without a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any available alternative. If we do not obtain a waiver from a third party, we will obtain the written consent of our sponsor before entering into an agreement with such third party.

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Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills management believes to be significantly superior to those of other consultants who would execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver and where our sponsor executes a written consent. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Upon redemption of our public shares, if we are unable to complete a business combination within the required time frame, or upon the exercise of a redemption right in connection with a business combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the 10 years following redemption. Accordingly, the per-share redemption amount received by public stockholders could be less than the $10.00 per share initially held in the trust account due to claims of such creditors. Pursuant to a written agreement, Qi (Jacky) Zhang, the Chairman of our Board of Directors, has agreed that he will be liable to us if and to the extent any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we discussed entering into a transaction agreement, reduce the amounts in the trust account to below $10.00 per share except as to any claims by a third party who executed a waiver of rights to seek access to the trust account and except as to any claims under our indemnity of the underwriter of our initial public offering against certain liabilities, including liabilities under the Securities Act. Moreover, if an executed waiver is deemed to be unenforceable against a third party, Mr. Zhang will not be responsible to the extent of any liability for such third party claims. We have not independently verified whether Mr. Zhang has sufficient funds to satisfy his indemnity obligations, we have not asked Mr. Zhang to reserve for such indemnification obligations and we cannot assure you that he would be able to satisfy those obligations.

Our directors may decide not to enforce the indemnification obligations of Qi (Jacky) Zhang, the Chairman of our Board of Directors, resulting in a reduction in the amount of funds in the trust account available for distribution to our public stockholders.

If proceeds in the trust account are reduced below $10.00 per public share and Qi (Jacky) Zhang, the Chairman of our Board of Directors, asserts that he is unable to satisfy his obligations or that he has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against Mr. Zhang to enforce his indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against Mr. Zhang to enforce his indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the trust account available for distribution to our public stockholders may be reduced below $10.00 per share.

If, after we distribute the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and the members of our board of directors may be viewed as having breached their fiduciary duties to our creditors, thereby exposing the members of our board of directors and us to claims of punitive damages.

If, after we distribute the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. In addition, by making distributions to public stockholders before making provision for creditors, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims for punitive damages.

If, before distributing the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our stockholders and the per-share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.

If, before distributing the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, the per-share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.

If we are deemed to be an investment company under the Investment Company Act, we may be subject to burdensome regulatory requirements and our activities may be restricted, which may make it difficult for us to complete a business combination.

If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including:

●restrictions on the nature of our investments;
●restrictions on the issuance of securities; and

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●restrictions on the incurrence of debt;

each of which may make it difficult for us to complete a business combination.

In addition, we may have to:

●register as an investment company;
●adopt a specific form of corporate structure; and
●file reports, maintain records, and adhere to voting, proxy, disclosure and other requirements.

We do not believe that our anticipated principal activities will subject us to Investment Company Act regulation. The proceeds held in the trust account may be invested by the trustee only in United States government treasury bills with a maturity of 180 days or less or in money market funds investing solely in United States treasury and meeting certain conditions under Rule 2a-7 under the Investment Company Act. Because the investment of the proceeds will be restricted to these instruments, we believe we will meet the requirements for the exemption provided in Rule 3a-1 promulgated under the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may make it more difficult to complete our initial business combination. If we are unable to complete our initial business combination, our public stockholders may only receive $10.00 per share on our redemption, and our warrants will expire worthless.

Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.

We are subject to laws and regulations enacted by national, regional and local governments, including in particular, reporting and other requirements under the Exchange Act. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could result in fines, injunctive relief or similar remedies which could be costly to us or limit our ability to complete an initial business combination or operate the post-combination company successfully.

Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares.

Under the DGCL stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in the event we do not consummate our initial business combination by July 29, 2017 may be considered a liquidation distribution under Delaware law. If a corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, it is our intention to redeem our public shares as soon as reasonably possible following July 29, 2017 if we do not consummate an initial business combination and, therefore, we do not intend to comply with those procedures.

Because we will not be complying with Section 280, Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the 10 years following our dissolution. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers or investment bankers) or prospective target businesses. If our plan of distribution complies with Section 281(b) of the DGCL, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would likely be barred after the third anniversary of the dissolution. We cannot assure you that we will properly assess all claims that may be potentially brought against us. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend beyond the third anniversary of such date. Furthermore, if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares if we do not consummate our initial business combination by July 29, 2017 is not considered a liquidation distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidation distribution.

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We have not registered the shares of common stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants and causing such warrants to expire worthless.worthless.

We have not registered the shares of common stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time. However, under the terms of the warrant agreement, we have agreed to use our best efforts to file a registration statement under the Securities Act covering such shares and maintain a current prospectus relating to the common stock issuable upon exercise of the warrants, and to use our best efforts to take such action as is necessary to register or qualify for sale, in those states in which the warrants were initially offered by us, the shares issuable upon exercise of the warrants, to the extent an exemption is not available. We cannot assure you that we will be able to do so. If the shares issuable upon exercise of the warrants are not registered under the Securities Act, we will be required to permit holders to exercise their warrants on a cashless basis under the circumstances specified in the warrant agreement. However, except as specified in the warrant agreement, in no event will we be required to issue cash, securities or other compensation in exchange for the warrants if we are unable to register or qualify the shares underlying the warrants under the Securities Act or applicable state securities laws. If the issuance of the shares upon exercise of the warrants is not so registered or qualified, the warrant holder will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of common stock included in the units. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying shares of common stock for sale under all applicable state securities laws.

 

The grantWarrants will become exercisable for the Company’s shares of registration rightscommon stocks, which would increase the number of shares eligible for future resale in the public market and result in dilution to our initial stockholders and purchasers of placement units may make it more difficult to complete our initial business combination, and the future exercise of such rights may reduce the market price of our common stock.shareholders.

 

PursuantEach warrant entitles the holder thereof to an agreement entered into concurrently with the issuance and salepurchase one-half of the securities in our in initial public offering, our initial holders, purchasers of placement units and their permitted transferees can demand that we register the founder shares, placement units, the placement shares and placement warrants included in the placement units, and theone shares of common stock issuableat a price of $2.88 per half share ($5.75 per whole share), subject to adjustment. Warrants may be exercised only for a whole number of the Company’s share of common stock. No fractional shares will be issued upon exercise of warrants. To the placement warrants. These registration rightsextent such warrants are exercised, additional shares of common stocks will be exercisable at any time commencing uponissued, which will result in dilution to the date that such shares are released from transfer restrictions. We will bear the costthen existing holders of registering these securities. If such persons exercise their registration rights in full, there will be an additional 1,312,500 shares of common stock and up to 125,000 shares of common stock issuable on exercise of the placement warrantsCompany and increase the number of shares eligible for tradingresale in the public market. The registration and availabilitySales of substantial numbers of such a significant number of securities for tradingshares in the public market may reducecould adversely affect the market price of our shares of common stock. In addition, the existence of the registration rights may make our initial business combination more costly or difficult to conclude because the stockholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our common stock that is expected when the securities owned by our initial stockholders are registered.

Because we are not limited to any particular industry or any specific target businesses with which to pursue a business combination, you will be unable to ascertain the merits or risks of any particular target business’ operations.

 

We seek to consummate a business combination with an operating company in the consumer products industry in the United States, but may also pursue acquisition opportunities in other business sectors or geographic regions, except that we are not, under our amended and restated certificate of incorporation, permitted to effectuate a business combination with another blank check company or similar company with nominal operations. Because we have not yet entered into a definitive agreement with any specific target business with respect to a business combination, you have no basis to evaluate the possible merits or risks of any particular target business’s operations, results of operations, cash flows, liquidity, financial condition or prospects. If we consummate our initial business combination, we may be affected by numerous risks inherent in the business operations of the entity with which we combine. Because we may seek to acquire businesses that potentially need financial, operational, strategic or managerial redirection, we may be affected by the risks inherent in the business and operations of a financially or operationally unstable entity. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors or that we will have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business. We also cannot assure you that an investment in our units will ultimately prove to be more favorable to investors than a direct investment, if such opportunity were available, in an acquisition target.

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We may seek investment opportunities in sectors outside of our industry focus (which may or may not be outside of our management’s area of expertise).

 

Although we currently intend to consummate a business combination in the consumer products industry in the United States, we will consider a business combination outside this industry if a business combination candidate is presented to us and we determine that such candidate offers an attractive investment opportunity for our company. If we elect to pursue an investment outside of the consumer products industry, our management’s expertise in that industry would not be directly applicable to its evaluation or operation, and the information contained herein regarding the consumer products industry might not be relevant to an understanding of the business that we elect to acquire.

Although we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may enter into a business combination with a target that does not meet such criteria and guidelines and, as a result, the target business with which we enter into our initial business combination may not have attributes entirely consistent with our general criteria and guidelines.

Although we have identified general criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which we enter into a business combination will not have all of these positive attributes. If we consummate a business combination with a target that does not meet some or all of these criteria or guidelines, such combination may not be as successful as a combination with a business that does meet all of our general criteria and guidelines. In addition, if we announce a prospective business combination with a target that does not meet our general criteria and guidelines, a greater number of stockholders may exercise their redemption rights, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum net worth or a certain amount of cash. In addition, if stockholder approval of the transaction is required by law or Nasdaq, or we decide to obtain stockholder approval for business or other reasons, it may be more difficult for us to obtain stockholder approval of our initial business combination if the target business does not meet our general criteria and guidelines. If we are unable to complete our initial business combination, our public stockholders may only receive $10.00 per share on our redemption, and our warrants will expire worthless.

We are not required to obtain an opinion from an independent investment banking firm that is a member of FINRA and, consequently, you may have no assurance from an independent source that the price we are paying for the target in our initial business combination is fair to our stockholders from a financial point of view.

Unless we consummate our initial business combination with an affiliated entity, we are not required to obtain an opinion from an independent investment banking firm that is a member of FINRA that the price we are paying is fair to our stockholders from a financial point of view. If we do not obtain an opinion, our stockholders will be relying on the judgment of our board of directors, who will determine fair market value based on standards generally accepted by the financial community. Such standards used will be disclosed in our tender offer documents or proxy solicitation materials, as applicable, related to our initial business combination.

We may issue additional common or preferred shares to complete our initial business combination or under an employee incentive plan after consummation of our initial business combination, which would dilute the interest of our stockholders and likely present other risks.

Our amended and restated certificate of incorporation authorizes the issuance of up to 15,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. There are 5,812,500 shares of common stock and 1,000,000 shares of preferred stock that are authorized, available for issuance and not reserved for issuance upon exercise of outstanding warrants. We may issue a substantial number of additional shares of common or preferred stock to complete our initial business combination or under an employee incentive plan after consummation of our initial business combination. The issuance of additional shares of common or preferred stock:

●may significantly dilute the equity interest of our existing investors;
●may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded our common stock;
●could cause a change in control if a substantial number of shares of common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; and
●may adversely affect prevailing market prices for our units, common stock and/or warrants.

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Resources could be wasted in researching acquisitions that are not consummated, which could materially adversely affect subsequent attempts to locate another target business and consummate our initial business combination. If we are unable to complete our initial business combination, our public stockholders may only receive $10.00 per share from our redemption of our shares and our warrants will expire worthless.

We anticipate that the investigation of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If we decide not to complete a specific initial business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to consummate our initial business combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related costs incurred, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business due to a reduction in the funds available for expenses for relating to such efforts. If we are unable to complete our initial business combination, our public stockholders may only receive $10.00 per share from our redemption of their shares and our warrants will expire worthless.

We are dependent upon our officers and directors; the loss of any one or more of them could adversely affect our ability to complete a business combination.

Our operations depend upon the background, experience and contacts of our officers and directors. We believe that our success depends on the continued service of our officers and directors, at least until we have consummated a business combination. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or officers. In addition, our executive officers and directors are not required to, and do not, commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and the search for a business combination and their other business commitments. We do not intend to have any full-time employees prior to the consummation of our business combination. Each of our officers and directors is engaged in other business endeavors and is not obligated to contribute any specific number of hours per week to our affairs. If our officers’ and directors’ other business commitments require them to devote substantial amounts of time in excess of their current commitment levels, it could limit their ability to devote time to our affairs which make it more difficult for us to identify an acquisition target and consummate our business combination.

Our success following our initial business combination likely will depend upon the efforts of management of the target business. The loss of any of the key personnel of the target’s management team could make it more difficult to operate the target profitably.

Although some of our key personnel may remain with the target business in senior management or advisory positions following a business combination, we can offer no assurance that any will do so. Moreover, as a result of the existing commitments of our key personnel, it is likely that we will retain some or all of the management of the target business to conduct its operations. The departure of any key members of the target’s management team could thus make it more difficult to operate the post-combination business profitably. Moreover, to the extent that we will rely upon the target’s management team to operate the post-combination business, we will be subject to risks regarding their managerial competence. While we intend to closely scrutinize the skills, abilities and qualifications of any individuals we retain after a business combination, our ability to do so may be limited due to a lack of time, resources or information. Accordingly, we cannot assure you that our assessment of these individuals will prove to be correct and that they will have the skills, abilities and qualifications we expect.

Our key personnel may negotiate employment or consulting agreements with a target business in connection with our initial business combination. These agreements may provide for them to receive compensation following our initial business combination and, as a result, may cause them to have conflicts of interest in determining whether a particular business combination would be advantageous to us.

Our key personnel may decide to remain with the company after the consummation of our initial business combination only if they are able to negotiate employment or consulting agreements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the consummation of our initial business combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business and cause them to have conflicts of interest in determining whether a particular business combination would be advantageous to us. However, we believe the ability of such individuals to remain with us after the consummation of our initial business combination will not be the determining factor in our decision as to whether or not we will proceed with any potential business combination. There is no certainty, however, that any of our key personnel will remain with us after the consummation of our initial business combination. We cannot assure you that any of our key personnel will remain in senior management or advisory positions with us. The determination as to whether any of our key personnel will remain with us will be made at the time of our initial business combination.

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Our officers and directors are now and may in the future become affiliated with entities engaged in business activities similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented.

We are in the business of identifying and combining with one or more businesses or entities, with a focus on consumer products businesses. Our officers and directors are now and may in the future become affiliated with entities that are in the consumer products industries or entities engaged in the business of acquiring other entities or businesses. In each case, our officers and directors’ existing directorships or other responsibilities may give rise to contractual or fiduciary obligations that take priority over any obligation owed to us. Our amended and restated certificate of incorporation provides that the doctrine of corporate opportunity, or any other analogous doctrine, will not apply to us or any of our officers or directors or in circumstances that would conflict with any fiduciary duties or contractual obligations to other entities they may have. Accordingly, business opportunities that may be attractive to the entities described above will not be presented to us unless such entities have declined to accept such opportunities. As a result, our officers and directors may have conflicts of interest in determining to which entity a particular business opportunity should be presented. We cannot assure you that these conflicts will be resolved in our favor or that a potential target business would not be presented to another entity prior to its presentation to us.

We may engage in a business combination with one or more target businesses that have relationships with entities that may be affiliated with our executive officers, directors or existing stockholders, which may raise potential conflicts of interest.

We may decide to acquire one or more businesses or entities affiliated with holders of founder shares, or our officers and directors. Our officers and directors also serve as officers and board members of other entities. Such entities may compete with us for business combination opportunities. Although we will not be specifically focusing on, or targeting, any transaction with any affiliated entities, we would pursue such a transaction if we determined that the targeted affiliated entity met our criteria for a business combination and the transaction was approved by a majority of our disinterested directors. Despite our agreement to obtain an opinion from an independent investment banking firm that is a member of FINRA and that is reasonably acceptable to Cantor Fitzgerald regarding the fairness to our stockholders from a financial point of view of a business combination with one or more businesses or entities affiliated with our officers, directors or holders of founder shares, potential conflicts of interest still may exist and, as a result, the terms of the business combination may not be as advantageous to our public stockholders as they would be absent any conflicts of interest. Additionally, were we successful in consummating such a transaction, conflicts could invariably arise from the interest of the holder of founder shares or its affiliate in maximizing its returns, which may be at odds with the strategy of the post-business combination company or not in the best interests of the public stockholders of the post-business combination company. Any or all of such conflicts could materially reduce the value of your investment, whether before or after our initial business combination.

We may have a limited ability to assess the management of a prospective target business and, as a result, may effect our initial business combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company.

When evaluating the desirability of effecting a business combination with a prospective target business, our ability to assess the target business’ management may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we expected. Should the target’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-combination business may be negatively impacted.

The officers and directors of an acquisition candidate may resign upon consummation of a business combination. The loss of an acquisition target’s key personnel could negatively impact the operations and profitability of our post-combination business.

The role of an acquisition candidate’s key personnel upon the consummation of our initial business combination cannot be ascertained at this time. Although we contemplate that certain members of an acquisition candidate’s management team will remain associated with us following our initial business combination, it is possible that members of the management of an acquisition candidate will not wish to remain in place. The loss of an acquisition target’s key personnel could negatively impact the operations and profitability of our post-combination business.

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Since holders of founder shares and placement units will lose some of their investment in us if we do not consummate a business combination, and since certain of our officers and directors have significant financial interests in us, a conflict of interest may arise in determining whether a particular acquisition target is appropriate for our initial business combination.

Holders of founder shares currently own 1,312,500 shares of our common stock which will be worthless if we do not consummate our initial business combination. Our sponsor, an affiliate of our Chairman of the Board, purchased 250,000 placement units at a price of $10.00 per unit ($2,500,000 in the aggregate) in a private placement that occurred simultaneously with the completion of our initial public offering. These placement units and their component securities are subject to a lockup provisions. There will be no redemption rights or liquidating distributions from the trust account with respect to the founder shares, placement shares or placement warrants which will expire worthless if we do not consummate a business combination by July 29, 2017. If we do not consummate a business combination, our sponsor will realize a loss on the placement shares it purchased. As a result, the personal and financial interests of certain of our officers and directors, directly or as members of our sponsor, in consummating an initial business combination, along with their flexibility in identifying and selecting a prospective acquisition candidate, may influence their motivation in identifying and selecting a target business combination and completing an initial business combination that is not in the best interests of our stockholders. Consequently, the discretion of our officers and directors in identifying and selecting a suitable target business combination may result in a conflict of interest when determining whether the terms, conditions and timing of a particular initial business combination are appropriate and in the best interest of our public stockholders.

We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a business combination, which may adversely affect our financial condition and the value of our stockholders’ investment in us.

Although we have no commitments as of the date of this Report to issue any notes or other debt securities, or otherwise to incur debt, we may choose to incur substantial debt in order to complete our initial business combination. The incurrence of debt could have a variety of negative effects, including:

●default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to meet our debt service obligations;
●acceleration of our obligations to repay the indebtedness, even if we make all principal and interest payments when due, if we breach covenants that require the maintenance of financial ratios or reserves without a waiver or renegotiation of that covenant;
●our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand and the lender demands payment;
●our inability to obtain necessary additional financing if any debt we incur contains covenants restricting our ability to obtain additional financing while the debt is outstanding;
●prohibitions of, or limitations on, our ability to pay dividends on our common stock;
●use of a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, as well as for expenses, capital expenditures, acquisitions and other general corporate purposes;
●limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
●increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
●limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of growth strategies and other purposes and other disadvantages compared to our competitors who have less debt.

We do not have a policy with respect to how much debt we may incur. To the extent that the amount of our debt increases, the impact of the effects listed above may also increase.

We may be able to complete a business combination with only one business, which would result in our success being dependent solely on a single business which may have a limited number of products or services. This lack of diversification may harm our operations and profitability.

We are not limited as to the number of businesses we may acquire in our initial business combination. However, we may not be able to effectuate a business combination with more than one target business because of various factors, including the limited amount of the net proceeds of our initial public offering. By consummating an initial business combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory risks particular to the industry area in which the acquired business operates. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may:

●solely depend upon the performance of a single business, property or asset, or
●depend upon the development or market acceptance of a single or limited number of products, processes or services.

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We may attempt to consummate business combinations with multiple prospective targets simultaneously, which may hinder our ability to consummate an initial business combination and give rise to increased costs and risks that could negatively impact our operations and profitability.

If we determine to acquire several businesses simultaneously that are owned by different sellers, we will need each seller to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay our ability, to complete the initial business combination. In addition, we would face complex accounting issues in connection with such business combination, including the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. With multiple business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, we may be unable to operate the combined business successfully, and you could lose some or all of your investment in us.

Our ability to consummate an attractive business combination may be impacted by the market for initial public offerings.

Our efforts to identify a prospective target business will not be limited to any particular industry or geographic region, although it is very likely that our target will want to be a public reporting company. If the market for initial public offerings is limited, we believe there will be a greater number of attractive target businesses open to being acquired by us as a means to achieve publicly held status. Alternatively, if the market for initial public offerings is robust, we believe that there will be fewer attractive target businesses amenable to being acquired by us to become a public reporting company. Accordingly, during periods with strong public offering markets, it may be more difficult for us to complete an initial business combination.

We may attempt to consummate our initial business combination with a private company about which little information is available, which may result in a business combination with a company that is not as profitable as we expected, or not at all.

In pursuing our acquisition strategy, we may seek to effectuate our initial business combination with a privately held company. By definition, very little public information exists about private companies, and we could be required to make our decision on whether to pursue a potential initial business combination on the basis of the information developed during our due diligence examination, which may be limited. As a result, we could acquire a company that is not as profitable as we expected, or not at all. Furthermore, the relative lack of information about a private company may hinder our ability to properly assess the value of such a company which could result in our overpaying for that company.

If we effect our initial business combination with a business located outside of the United States, we would be subject to a variety of additional risks that could result in us being unable to operate the business successfully.

We may effect an initial business combination with a business located outside of the United States. If we do, we would be subject to any special considerations or risks associated with businesses operating in the target’s home jurisdiction, including any of the following:

●rules and regulations or currency conversion or corporate withholding taxes on individuals;
●tariffs and trade barriers;
●regulations related to customs and import/export matters;
●longer payment cycles;
●tax issues, such as tax law changes and variations in tax laws as compared to the United States;
●currency fluctuations and exchange controls;
●challenges in collecting accounts receivable;
●cultural and language differences;
●employment regulations;
●crime, strikes, riots, civil disturbances, terrorist attacks and wars; and
●deterioration of political relations with the United States.

We may not be able to adequately address these additional risks. If we are unable to do so, we may be unable to operate the acquired business successfully.

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If we effect our initial business combination with a business located outside of the United States, the laws applicable to such business will likely govern all of our material agreements and we may not be able to enforce our legal rights.

If we effect our initial business combination with a business located outside of the United States, the laws of the country in which such business operates will govern almost all of the material agreements relating to its operations. The target business may not be able to enforce any of its material agreements or enforce remedies for breaches of those agreements in that jurisdiction. The system of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital. Additionally, if we acquire a business located outside of the United States, it is likely that substantially all of our assets would be located outside of the United States and some of our officers and directors might reside outside of the United States. As a result, it may not be possible for investors in the United States to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under federal securities laws.

We may not be able to maintain control of a target business after our initial business combination. We cannot provide assurance that, upon loss of control of a target business, new management will possess the skills, qualifications or abilities necessary to profitably operate such business.

We anticipate structuring our initial business combination to acquire 100% of the equity interest or assets of the target business or businesses. However, we may structure our initial business combination to acquire less than 100% of the equity interest or assets of the target business, but only if we (or any entity that is a successor to us in a business combination) acquire a majority of the outstanding voting securities or assets of the target. Even if we own a majority interest in the target, our stockholders prior to the business combination may collectively own a minority interest in the post business combination company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares of common stock in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% interest in the target. However, as a result of the issuance of a substantial number of new shares of common stock, our stockholders immediately prior to such transaction could own less than a majority of our outstanding shares of common stock subsequent to such transaction. In addition, other minority stockholders may subsequently combine their holdings resulting in a single person or group obtaining a larger share of the company’s stock than we initially acquired. Accordingly, this may make it more likely that we will not be able to maintain our control of the target business.

The exercise price for the public warrants is higher than in many similar blank check company offerings in the past, and, accordingly, the warrants are more likely to expire worthless.

The exercise price of the warrants is higher than is typical in many similar blank check companies. Historically, the exercise price of a warrant was generally a fraction of the purchase price of the units in the initial public offering. The exercise price for our public warrants is $5.75 per one half share, or $11.50 per full share. As a result, the warrants are less likely to ever be in the money and more likely to expire worthless.

In order to effectuate a business combination, blank check companies have, in the recent past, amended various provisions of their charters and modified governing instruments. We cannot assure you that we will not seek to amend our amended and restated certificate of incorporation or governing instruments in a manner that will make it easier for us to consummate a business combination that our stockholders may not support.

In order to effectuate a business combination, blank check companies have, in the recent past, amended various provisions of their charters and modified governing instruments. For example, blank check companies have amended the definition of initial business combination, increased redemption thresholds and extended the term during which the company must consummate its initial public offering. We cannot assure you that we will not seek to amend our charter or governing instruments in order to effectuate our initial business combination. However, if the effect of the proposed amendments would be either to (i) reduce the amount in the trust account available to redeeming stockholders to less than $10.00 per share, or (ii) delay the date on which a stockholder could otherwise redeem shares for the per share amount in the trust account, and if such amendments are approved by holders owning at least 90% of the issued and outstanding shares of our common stock, dissenting public stockholders will have the right to redeem their public shares.

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Provisions of our amended and restated certificate of incorporation that relate to our pre-business combination activity (and corresponding provisions of the agreement governing the release of funds from our trust account) may be amended with the approval of holders owning 90% of the issued and outstanding shares of our common stock. Our sponsor and other initial stockholders, in the aggregate, own 69.5% of our outstanding common stock. Accordingly, these parties may exert a substantial and decisive influence on actions requiring a stockholder vote, potentially in a manner that you do not support, including amendments to our amended and restated certificate of incorporation. It may be easier for us, therefore, to amend our amended and restated certificate of incorporation to facilitate the consummation of an initial business combination that our stockholders may not support.

Many blank check companies have a provision in their charter which prohibits the amendment of certain of its provisions, including those which relate to a company’s pre-business combination activity, without approval by a certain percentage of the company’s stockholders. Our amended and restated certificate of incorporation provides that provisions related to pre-business combination activity may be amended if approved by holders owning 90% of the issued and outstanding shares of our common stock, and corresponding provisions of the trust agreement governing the release of funds from our trust account may be amended if approved by holders owning 90% of the issued and outstanding shares of our common stock (in each case including all shares held by the initial holders, holders of placement units, our officers and our directors); provided, however, that if the effect of any proposed amendment, if adopted, would be either to (i) reduce the amount in the trust account available to redeeming stockholders to less than $10.00 per share, or (ii) delay the date on which a public stockholder could otherwise redeem shares for such per share amount in the trust account, we will provide a right for dissenting public stockholders to redeem public shares if such an amendment is approved. Our sponsor and other initial stockholders, in the aggregate, own shares equal to 69.5% of our issued and outstanding shares of common stock. Accordingly, these parties may exert a substantial and decisive influence on actions requiring a stockholder vote, potentially in a manner that you do not support, including amendments to our amended and restated certificate of incorporation.

We may be unable to obtain additional financing to complete our initial business combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular business combination. If we are unable to complete our initial business combination, our public stockholders may only receive $10.00 per share on our redemption.

Because of the size of our initial business combination, the obligation to repurchase for cash a significant number of shares from stockholders who elect redemption in connection with our initial business combination, or the terms of negotiated transactions to purchase shares in connection with our initial business combination, we may be required to seek additional financing or to abandon the proposed business combination. We may be unable to obtain any necessary financing on acceptable terms, if at all. The current economic environment has made it especially difficult for companies to obtain acquisition financing. To the extent that additional financing proves to be unavailable when needed to consummate our initial business combination, we would be compelled to either restructure or abandon the transaction and seek an alternative target business candidate. If we are unable to complete our initial business combination, our public stockholders may only receive $10.00 per share on our redemption. In addition, even if we do not need additional financing to consummate our initial business combination, we may require such financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors or stockholders is required to provide any financing to us after a business combination.

Our sponsor and other initial stockholders control a substantial interest in us and thus may exert a substantial influence on actions requiring a stockholder vote, potentially in a manner that you do not support.

Our sponsor and other initial stockholders, in the aggregate, own shares equal to 69.5% of our issued and outstanding shares of common stock. Accordingly, these parties may exert a substantial and decisive influence on actions requiring a stockholder vote, potentially in a manner that you do not support, including amendments to our amended and restated certificate of incorporation. Our sponsor and other initial stockholders are not restricted from purchasing common stock in the aftermarket or in privately negotiated transactions, which would increase their control. Our sponsor and other initial stockholders do not have any current intention to purchase additional securities. Factors that would be considered in making such additional purchases would include consideration of the current trading price of our common stock. In addition, our board of directors, whose members were elected by our initial holders, is divided into three classes with only one class of directors being elected in each year and each class serving a three-year term. As a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election and our initial stockholders, because of their ownership position, will have considerable influence regarding the outcome. Accordingly, you should anticipate that our sponsor and other initial stockholders will continue to exert control at least until the consummation of our initial business combination.

30

We may amend the terms of the warrants in a manner that may be adverse to holders with the approval by the holders of at least 90% of the then outstanding warrants.

Our warrants are issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 90% of the then outstanding warrants to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the warrants in a manner adverse to a holder if holders of at least 90% of the then outstanding warrants approve of such amendment. Although our ability to amend the terms of the warrants with the consent of at least 90% of the then outstanding warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares of our common stock purchasable upon exercise of a warrant. Our sponsor owns warrants equal to 61.9% of our issued and outstanding warrants. Accordingly, our sponsor may exert a substantial and decisive influence on actions relating to a vote to amend the terms of the warrants, as set forth above.

We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.

 

We have the ability to redeem outstanding warrants (excluding any placement warrants held by our sponsor or its permitted transferees) at any time after they become exercisable and prior to their expiration, at $0.01 per warrant, provided that the last reported sales price (or the closing bid price of our common stock in the event the shares of our common stock are not traded on any specific trading day) of the common stock equals or exceeds $24.00$12.00 per share for any 20 trading days within a 30 trading-day period ending on the third business day prior to the date we send proper notice of such redemption, provided that on the date we give notice of redemption and during the entire period thereafter until the time we redeem the warrants, we have an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you: (i) to exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants.

Our management’s ability to require holders of our warrants to exercise such warrants on a cashless basis will cause holders to receive fewer shares of common stock upon their exercise of the warrants than they would have received had they been able to exercise their warrants for cash.

If we call our public warrants for redemption, our management will have the option to require any holder that wishes to exercise its warrant (including any warrants held by our sponsor, officers, directors or their permitted transferees) to do so on a “cashless basis.” If our management chooses to require holders to exercise their warrants on a cashless basis, the number of shares of common stock received by a holder upon exercise will be fewer than it would have been had such holder exercised his warrant for cash. This will have the effect of reducing the potential “upside” of the holder’s investment in our company.

 

Our warrants may have an adverse effect on the market price of our common stock and make it more difficult to effectuate a business combination.

We issued warrants to purchase 2,500,000 shares of common stock as part of the units offered in our initial public offering. In addition, we sold 250,000 placement units to our sponsor, with each unit consisting of one placement share and a placement warrant to purchase one half of a share of common stock. In addition, our sponsor, members of our management team or their affiliates or other third parties may loan us amounts for working capital purposes or to finance transaction costs in connection with an intended initial business combination (although they are under no obligation to advance funds or invest in us), any portion or all of which may be converted, at their option, into additional warrants of the post-business combination entity at $0.50 per warrant, up to a maximum of 1,000,000 warrants for $500,000 in possible loans.

To the extent we issue shares of common stock to effect a business combination, the potential for the issuance of a substantial number of additional shares of common stock upon exercise of these warrants could make us a less attractive acquisition vehicle to a target business. Such warrants, when exercised, will increase the number of issued and outstanding shares of our common stock and reduce the value of the shares of common stock issued to complete the business combination. Therefore, our warrants may make it more difficult to effectuate a business combination or increase the cost of acquiring the target business.

The placement warrants and any warrants to be issued to our sponsor, members of our management team, their affiliates or other third parties upon conversion of up to $500,000 in possible working capital loans are or would be identical to the warrants sold as part of the units in our initial public offering except that, so long as they are held by our sponsor, or its permitted transferees, (a) they will not be redeemable by us, (b) they (including the common stock issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the consummation of our initial business combination and (c) they may be exercised by the holders on a cashless basis.

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A market for our securities may not develop, which would adversely affect the liquidity and price of our securities.

The price of our securities may vary significantly due to one or more potential business combinations, general market and economic conditions and forecasts, our general business condition and the release of our financial reports. An active trading market for our securities may never develop or, if developed, may not be sustained. You may be unable to sell your securities unless a market for such securities can be established or sustained.

Nasdaq may delist our securities from trading which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

Our securities are listed on Nasdaq. However, we cannot assure you that our securities will continue to be listed on Nasdaq in the future or prior to a business combination. In order to continue listing our securities on Nasdaq prior to a business combination, we must maintain certain financial, distribution and stock price levels. Generally, we must maintain a minimum amount in stockholders’ equity (generally $2,500,000), a minimum number of public stockholders (generally 300 public holders), and a minimum number of shares held by non-affiliates (500,000 shares). Additionally, in connection with our business combination, it is likely that Nasdaq may require us to file a new initial listing application and meet its initial listing requirements which are more rigorous than Nasdaq’s continued listing requirements. We cannot assure you that we will be able to meet those initial listing requirements at that time. If Nasdaq delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on the Over-The-Counter Bulletin Board or the “pink sheets.” If this were to occur, there could be material adverse consequences, including:

●a limited availability of market quotations for our securities;
●reduced liquidity for our securities;
●a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
●a limited amount of, or no, news and analyst coverage; and
●a decreased ability to issue additional securities or obtain additional financing in the future.

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our securities are listed on Nasdaq, our securities are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state, other than the State of Idaho, having used these powers to prohibit or restrict the sale of securities issued by blank check companies, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on Nasdaq, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.

Purchases of common stock in the open market or in privately negotiated transactions by our initial holders, directors, officers or their affiliates may make it difficult for us to continue to list our common stock on Nasdaq or another national securities exchange.

If our initial holders, directors, officers or their affiliates purchase shares of our common stock in the open market, in privately negotiated transactions, it would reduce the public “float” of our common stock and the number of beneficial holders of our common stock, which may make it difficult to maintain the listing or trading of our common stock on a national securities exchange if we determine to apply for such listing in connection with the business combination. If the number of our public holders falls below 300 or if the total number of shares held by non-affiliates is less than 500,000, we will be non-compliant with Nasdaq’s continued listing rules and our common stock could be de-listed. If our common stock were de-listed, we could face the material consequences set forth in the immediately preceding risk factor.

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Because we must furnish our stockholders with target business financial statements, we may lose the ability to complete an otherwise advantageous initial business combination with some prospective target businesses.

If we hold a stockholder vote to approve our initial business combination, the federal proxy rules require that a proxy statement with respect to a vote on a business combination meeting certain financial significance tests include historical and/or pro forma financial statement disclosure in periodic reports. If we make a tender offer for our public shares, we will include the same financial statement disclosure in our tender offer documents that is required under the tender offer rules. These financial statements must be prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the historical financial statements must be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such statements in time for us to disclose such statements in accordance with federal proxy rules and consummate our initial business combination within the prescribed time frame.

The requirements of being a public company may strain our resources and divert management’s attention.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of NASDAQ and other applicable securities rules and regulations. Compliance with these rules and regulations increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will increase our costs and expenses.

We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.

We are an “emerging growth company” within the meaning of the Securities Act,under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our common stock less attractive to investors.

For as modified bylong as we remain an “emerging growth company” as defined in the JOBS Act, and we maywill elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging“emerging growth companiescompanies”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholdershareholder approval of any golden parachute payments not previously approved. As a result,Because of these lessened regulatory requirements, our stockholders may not have accesswould be left without information or rights available to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market valuestockholders of our common stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions.more mature companies. If some investors find our securitiescommon stock less attractive as a result, of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securitiescommon stock and the trading prices of our securitiesstock price may be more volatile.

 


Further, Section 102(b)(1) ofOur status as an “emerging growth company” under 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, can adopt the new or revised standard at the time private companies 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. 

33

Compliance obligations under the Sarbanes-Oxley Act may make it more difficult to raise capital when we need to do it.

Because of the exemptions from various reporting requirements provided to us as an “emerging growth company”, we may be less attractive to investors and it may be difficult for us to effectuateraise additional capital as and when we need it. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

We will incur increased costs and demands upon management as a result of complying with the laws and regulations that affect public companies, which could materially adversely affect our results of operations, financial condition, business combination, require substantial financial and management resources, and increase the time and costs of completing an acquisition.prospects.

Section 404 of the Sarbanes-Oxley Act requiresAs a public company and particularly after we cease to be an “emerging growth company,” we will incur significant legal, accounting and other expenses that we evaluatedid not incur as a private company, including costs associated with public company reporting and report on our system of internal controls beginning with our Annual Report on Form 10-K for the year ending December 31, 2017. As long as we maintain our status as an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. The fact that we are a blank check company makescorporate governance requirements. These requirements include compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared toSection 404(b) and other public companies because a target company with which we seek to complete our business combination may not be in compliance with the provisions of the Sarbanes-Oxley Act, regarding adequacyas well as Section 14 rules implemented by the SEC and NASDAQ. In addition, our management team will also have to adapt to the requirements of its internal controls. The development of the internal control of any such entity to achievebeing a public company. We expect that compliance with the Sarbanes-Oxley Actthese rules and regulations will substantially increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

The increased costs associated with operating as a public company will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the timeprices of our products or services. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our results of operations, financial condition, business and costs necessary to complete any such acquisition.prospects.

   

Provisions inThe elimination of monetary liability against our amendeddirectors, officers and restatedemployees under our certificate of incorporation and Delawarethe existence of indemnification of our directors, officers and employees under Nevada law may inhibit a takeover ofresult in substantial expenditures by us which could limit the price investors might be willing to pay in the future forand may discourage lawsuits against our common stockdirectors, officers and could entrench management.employees.

Our amended and restated certificate of incorporation contains provisions thatwhich eliminate the liability of our directors for monetary damages to us and our stockholders to the maximum extent permitted under the corporate laws of Nevada. We may discourage unsolicited takeover proposals that stockholdersalso provide contractual indemnification obligations under agreements with our directors, officers and employees. These indemnification obligations could result in our incurring substantial expenditures to cover the cost of settlement or damage awards against directors, officers and employees, which we may considerbe unable to be in their best interests.recoup. These provisions includeand resultant costs may also discourage us from bringing a staggered boardlawsuit against directors, officers and employees for breach of directors and the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make more difficult the removal of managementtheir fiduciary duties, and may similarly discourage transactions thatthe filing of derivative litigation by our shareholders against our directors, officers and employees even though such actions, if successful, might otherwise could involve payment of a premium over prevailing market prices forbenefit the Company and our securities.shareholders.

  

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40

 

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

We do not own any real estate or other physical properties materially important to our operation. OurShengrong WFOE current executive office is located at 1615 South CongressNo. 21 Jiefang Avenue, Suite 103, Delray Beach, Florida 33445.Qiaokou District, Wuhan, Hubei, China. The costrent for this space is included in the $5,000 per-month fee an independent third party charges usapproximately $5,200 per month . The carrying value for general and administrative services, although in the future, our affiliates or affiliates of our officers, directors or sponsor, may take over the provision of these servicesthis space is approximately $1.3 million.

Hubei HOST’ office is located at Xingye Road, Gedian Development District, E Zhou City, Hubei, China, which solely owned by Hubei HOST.

Jiangsu Ronghai’s office is located at 4th Floor, West Hongqiao Building, No.180 West Qingnian Road, Nantong City, Jiangsu, China. The rent for amounts not exceeding $5,000 a month. this space is approximately RMB225,600 per year.

We consider our current office space adequate for our current operations.

 

Item 3. Legal Proceedings

 

To the knowledge of our management, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

(a) Market Information

 

Our units, common stock and warrants are each traded on the NASDAQ Capital Market under the symbols “WYIGU,” “WYIG”“TMSR” and “WYIGW,“TMSRW, respectively. Our units commenced public trading on July 24, 2015, and our common stock and warrants commenced public trading on September 11, 2015. On February 6, 2018, our units ceased trading as a result of the Business Combination. On May 5, 2018, our warrants began to trade on OTC market.

 

The table below sets forth, for the calendar quarter indicated, the high and low bid prices of our units, common stock and warrants as reported on the Nasdaq for the period of July 24, 2015January 1, 2017 through December 31, 20162018

 

  Units  Common Stock  Warrants 
  Low  High  Low  High  Low  High 
Year Ended December 31, 2015                  
July 24, 2015 through September 30, 2015 $9.50  $10.41  $9.50  $10.41  $0.30  $0.50 
October 1, 2015 through December 31, 2015 $9.50  $9.90  $9.50  $9.90  $0.12  $0.40 
Year Ended December 31, 2016                        
January 1, 2016 through March 31, 2016 $9.52  $9.85  $9.42  $9.60  $-  $- 
April 1, 2016 through June 30, 2016 $9.79  $9.90  $9.55  $9.78  $-  $- 
July 1, 2016 through September 30, 2016 $9.87  $10.00  $9.75  $10.00  $-  $- 
October 1, 2016 through December 31, 2016 $9.95  $10.15  $9.85  $10.00  $-  $- 

  Units  Common Stock  Warrants 
  Low  High  Low  High  Low  High 
Year Ended December 31, 2017                  
January 1, 2017 through March 31, 2017 $10.15  $10.61  $9.96  $10.05  $0.27  $0.45 
April 1, 2017 through June 30, 2017 $10.34  $10.46  $9.93  $10.00  $0.25  $0.39 
July 1, 2017 through September 30, 2017 $10.19  $10.34  $9.65  $10.20  $0.27  $0.36 
October 1, 2017 through December 31, 2017 $10.15  $10.34  $9.87  $10.00  $0.21  $0.42 
Year Ended December 31, 2018                        
January 1, 2018 through March 31, 2018 $-  $-  $4.5  $4.95  $0.10  $0.10 
April 1, 2018 through June 30, 2018 $-  $-  $3.60  $4.10  $    0.10  $0.40 
July 1, 2018 through September 30, 2018 $-  $-  $3.73  $5.25  $     0.18  $0.61 
October 1, 2018 through December 31, 2018 $-      $2.00 $3.10  $     0.03  $ 0.20 

  

On March 27, 2017,28, 2019, our common stock had a closing price of $9.96, our units had a closing price of $10.57$1.93 and our warrants had no trading activity.

 

(b)Holders

 

On March 27, 2017,28, 2019, there were 6 holders of record of our units, 2276 holders of record of our common stock and 1 holder2 holders of record of our warrants.

 

(c) Dividends

 

We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends prior to the completion of our initial business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of our initial business combination. The payment of any cash dividends subsequent to our initial business combination will be within the discretion of our board of directors at such time.foreseeable future. In addition, our board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. Further, if we incur any indebtedness in connection with our business combination, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.

 

(d) Securities Authorized for Issuance Under Equity Compensation Plans.

 

None.


(e) Recent Sales of Unregistered Securities

 

None.The Current Report on Form 8-K filed on April 17, 2018, December 03, 2018 are hereby incorporated herein by reference.

 

(f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

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Item 6. Selected Financial Data

 

The following table sets forth selected historical information derived from our audited financial statements included elsewhereDisclosure in response to this Report as of December 31, 2016 and 2015, andItem is not required for year ended December 31, 2016 and the period from April 2015 (inception) through December 31, 2015. You should read the following selected financial data in conjunction with “Management’sa smaller reporting company. 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the related notes appearing elsewhere in this Report.

  December 31 
  2016  2015 
Balance Sheet Data:      
Cash $150,306  $623,044 
Cash and Investments held in Trust Account $50,109,326  $50,023,363 
Total Assets $50,275,212  $50,834,774 
Common stock subject to possible redemption (at redemption value) $40,000,000  $40,000,000 
Total stockholders’ equity $10,032,143  $10,623,279 

  For the Year Ended December 31,
2016		  For the period from April 10, 2015 (date of inception) to December 31,
2015		 
Cash Flow Data:      
Net cash used in operating activities $(386,775) $(156,377)
Net cash used in investing activities $(85,963) $(50,023,363)
Net cash provided by financing activities $-  $50,082,784 
         
Statement of Operations Data:        
Operating expenses:        
General and administrative expenses $627,579  $257,568 
Loss from operations $(627,579) $(257,568)
Other Income:        
Interest income $85,963  $23,363 
Net loss attributable to common stockholders $(541,616) $(234,205)
Basic and diluted net loss per share attributable to common stockholders $(0.21) $(0.11)
Weighted average number of common shares outstanding        
Basic and diluated  2,562,500   2,091,409 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOperations

  

Special Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this Form 10-K including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Form 10-K, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC.

The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with our financial statements, and the notes to those financial statements that are included elsewhere in this Report. All monetary figures are presented in U.S. dollars, unless otherwise indicated.

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rate; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.prospects.

 

Overview

 

We areTMSR Holding Company Limited (the “Company” or “TMSR”), formerly known as JM Global Holding Company (“JM Global”), was a blank check company incorporated in Delaware on April 10, 2015. The Company was formed for the purpose of effectingacquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business combination withtransaction, one or more operating businesses or assets (“Business Combination”). On June 20, 2018, TMSR consummated the reincorporation. As a result, the Company changed its state of incorporation from Delaware to Nevada, and implemented a 2-for-1 forward stock split of the Company’s common stock (the “Forward Split). The reincorporation and Forward Split were approved by shareholders holding the majority of the outstanding shares of common stock of TMSR on June 1, 2018 at the Annual Meeting of Shareholders.

China Sunlong Environmental Technology Inc. (“China Sunlong”) is a holding company incorporated on August 31, 2015, under the laws of the Cayman Islands. China Sunlong has no substantive operations other than holding all of the outstanding share capital of Shengrong Environmental Protection Holding Company Limited (“Shengrong BVI”). Shengrong BVI, a business company incorporated in the British Virgin Islands with limited liability on June 30, 2015, is a holding company for Hong Kong Shengrong Environmental Technology Limited, a Hong Kong registered company (“Shengrong HK”) incorporated on September 25, 2015, which in turn owns 100% of the issued and outstanding equity interests in Shengrong Environmental Protection Technology (Wuhan) Co., Ltd., a Wholly Foreign-Owned Enterprise registered in Hubei, China (“Shengrong WFOE”), which in turn, since March 2016, has owned 100% of the issued and outstanding equity interests in Hubei Shengrong Environmental Protection Energy-Saving Science and Technology Co. Ltd., a registered company in Hubei, China (“Hubei Shengrong”). We refer to Shengrong BVI and its consolidated subsidiaries collectively as “China Sunlong” or the “Company”.

Hubei Shengrong was formed in 2009. Since inception, the company has been focused on the research, development, production and sale of an array of solid waste recycling systems for the mining and industrial sectors in the PRC. Hubei Shengrong’s waste recycling systems provide end users in these markets with a cleaner alternative to traditional waste disposal by significantly reducing solid waste disposed into the environment, and enables end users to extract value from valuable metals and other industrial waste materials in waste disposals.


On February 6, 2018, China Sunlong Environmental Technology Inc. (“China Sunlong”) consummated the business combination (the “Business Combination”) with JM Global pursuant to a Share Exchange Agreement (the “Share Exchange Agreement”) dated as August 28, 2017 by and among (i) JM Global; (ii) Zhong Hui Holding Limited; (iii) China Sunlong; (iv) each of the shareholders of China Sunlong named on Annex I of the Share Exchange Agreement (the “Sellers”); and (v) Chuanliu Ni, a Chinese citizen who was the Chief Executive Officer and director of China Sunlong, in the capacity as the representative for the Sellers. Pursuant to the Share Exchange Agreement, JM Global acquired from the Sellers all of the issued and outstanding equity interests of China Sunlong in exchange for 8,995,428 newly-issued shares of common stock of JM Global to the Sellers. The 899,544 shares of these newly-issued shares would be held in escrow for 18 months from the closing date of the Business Combination as a security for China Sunlong and the Sellers' indemnification obligations under the Share Exchange Agreement. This transaction was accounted for as a “reverse merger” and recapitalization at the date of the consummation of the transaction since the shareholders of China Sunlong owned the majority of the outstanding shares of JM Global immediately following the completion of the transaction and JM Global’s operations became the operations of China Sunlong following the transaction. Accordingly, China Sunlong was deemed to be the accounting acquirer in the transaction and the transaction was treated as a recapitalization of China Sunlong.

On October 10, 2017, Hubei Shengrong established a fully owned subsidiary, Fujian Shengrong Environmental Protection Energy-Saving Science and Technology Ltd. (“Fujian Shengrong”), with registered capital of approximately USD 1,518,120 (RMB 10,000,000), to be fully funded by October 10, 2019. Prior to the Company executing the ownership transfer and capital contribution agreement (“Agreement”) on May 30, 2018, Fujian Shengrong had no operations prior to May 30, 2018. Fujian Shengrong was a shell company. On May 30, 2018, Hubei Shengrong signed an Agreement with two unrelated entities for which Hubei Shengrong transferred 80% ownership interest in Fujian Shengrong to these two entities. We consummatedIn return, these two entities were required to contribute cash of approximately USD 5.0 million (RMB 32.0 million) into Fujian Shengrong to acquire the 80% ownership interest and Hubei Shengrong was required to provide approximately USD 1.3 million (RMB 8.0 million) worth of technology services for the Company as a contribution, or 20% of investment, for a total of USD 6.3 million (RMB 40.0 million). As a result, the total investment was changed to 20%, the Company accounted for the investment in Fujian Shengrong using the cost method. Due to that Hubei Shengrong did not provide any cash contribution or technology services to Fujian Shengrong, the investment balance under the cost method investment on December 31, 2018 was $0.

On April 2, 2018, the Company disposed of its subsidiary, TJComex International Group Corporation (“TJComex BVI”), a British Virgin Islands corporation, in consideration of (i) its minimum contribution to the Company’s results of operation, and (ii) the unsatisfactory synergy between the TJComex BVI business and the rest of the Company’s business. The Company’s made the decision to dispose TJComex BVI to (i) improve the Company’s overall financial condition and results of operations, (ii) reduce the complexity of the Company’s business, (iii) focus the Company’s resources on the solid waste recycling business as well as developing environmental control business opportunities; and (iv) make it possible for the Company to pursue acquisition opportunities for more compatible business. TJComex BVI was transferred to Chuanliu Ni, a Chinese citizen who is the director of China Sunlong. As of April 2, 2018, the net assets of TJComex BVI were valued at $16,598, which was recorded as a loss from the disposal of a subsidiary in the December 31, 2018 consolidated financial statements. As TJComex BVI’s operating revenue was less than 1% of the Company’s revenue and the disposal did not constitute a strategic shift that would have a major effect on the Company’s operations and financial results, the results of operations for TJComex BVI were not reported as discontinued operations under the guidance of Accounting Standards Codification 205.

On April 11, 2018, the Company, Shengrong WFOE and Hubei Shengrong, both of which are the Company’s indirectly owned subsidiaries (collectively “Purchasers”), entered into a Share Purchase Agreement (the “Purchase Agreement”) with Long Liao, Chunyong Zheng, Wuhan Modern Industrial Technology Research Institute, and Hubei Zhonggong Materials Group Co., Ltd. (collectively “Sellers” ) and Wuhan HOST Coating Materials Co., Ltd. (“Wuhan HOST”), a company incorporated in China engaged in the research and development, production and sale of coating materials. Pursuant to the Purchase Agreement, the Purchasers acquired all of the outstanding equity interests of Wuhan Host (the “Acquisition”). In exchange for the transfer of 100% equity interest of Wuhan Host, Purchasers paid a total consideration of $11.2 million (“Total Consideration”), of which $ 5.2 million or RMB equivalent was paid in cash (“Cash Consideration”) and $6.0 million was paid in shares of common stock (“Common Stock”), par value $0.0001, of TMSR (“Share Consideration”). The Parties agreed the Share Consideration was 1,293,104 shares of common stock based on the closing price of US$4.64 on March 27, 2018. The Share Consideration would be issued in three equal installments, and subject to lock-ups of 12, 24 and 36 months, respectively. The acquisition was closed on May 1, 2018, since when the Company’s business activities added research, development, production and sale of coating materials.


On August 16, 2018, the Company, Shengrong WFOE and Hubei Shengrong, both of which are the Company’s indirectly owned subsidiaries (collectively “Purchasers”), and Long Liao, Chunyong Zheng, Wuhan Modern Industrial Technology Research Institute, and Hubei Zhonggong Materials Group Co., Ltd. and Wuhan HOST Coating Materials Co., Ltd. (“Wuhan HOST”) (collectively “Sellers” ), entered into a supplement agreement (“Supplement Agreement”), which modified the terms of consideration set forth in the Share Purchase Agreement entered between Purchasers and Sellers on April 11, 2018. Pursuant to the Supplement Agreement, in exchange for the transfer of 100% equity interest of Wuhan Host, Purchasers shall pay a total consideration of $11.2 million (“Total Consideration”), of which $ 6.5 million or RMB equivalent shall be paid in cash (“Cash Consideration”) and $4.7 million shall be paid in shares of common stock (“Common Stock”), par value $0.0001, of TMSR (“Share Consideration”). In the Supplement Agreement, both Purchasers and Sellers also agreed to delete the section 3.3 of the Share Purchase Agreement, a section that stipulates the Share Consideration shall be issued in three equal installments.

On November 30, 2018, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with Jirong Huang and Qihuang Wang (collectively “Sellers”) and Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”), a company incorporated in China engaging in the sale of fuel materials and harbor cargo handling services. Pursuant to the SPA, TMSR shall issue an aggregate of 4,630,000 shares of TMSR’s common stock to the Rong Hai Shareholders, in exchange for Rong Hai Shareholders’ agreement to enter into, and their agreement to cause Rong Hai to enter into, certain VIE Agreements (the “Rong Hai VIE Agreements”) with Shengrong WFOE, through which WFOE shall have the right to control, manage and operate Rong Hai in return for a service fee approximately equal to 100% of Rong Hai’s net income (“Acquisition”). On November 30, 2018, Shengrong WFOE, the Company’s indirectly owned subsidiary, entered into a series of VIE Agreements with Rong Hai and the Rong Hai Shareholders. The VIE Agreements are designed to provide WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Rong Hai, including absolute rights to control the management, operations, assets, property and revenue of Rong Hai. Rong Hai has the necessary license to carry out coal trading business in China. The Acquisition closed on November 30, 2018. Starting on November 30, 2018, the Company’s business activities added coal wholesales and sales of coke, steels, construction materials, mechanical equipment and steel scrap, of which business activities are carried out in Nantong, Jiang Su Province, PRC.

On December 27, 2018, the Company, entered into an Equity Purchase Agreement (the “EPA”) with Hopeway International Enterprises Limited., a private limited company duly organized under the laws of British Virgin Islands (the “Hopeway” or “Purchaser”). Pursuant to the EPA, Shengrong WOFE shall sell 100% equity interests in Hubei Shengrong to the Purchaser in exchange for the Purchaser’s agreement (“Consideration”) to irrevocably forfeit and cancel 8,523,320 shares of common stock of the Company (the “Shares”), constituting all the shares owned by the Purchaser. The transaction contemplated by the EPA is hereby referred as Disposition. The Company’s decision to dispose of Hubei Shengrong is due to the Wuhan Municipal Government’s policy change that Hubei Shengrong is forced to close the existing facility, relocate and build a new facility, which is expected to take approximately 7-8 years. As a result, Hubei Shengrong will not be able to keep the production running and will generate no income in the foreseeable future. Management believed it is very difficult, if possible at all, to continue manufacturing of solid waste recycling systems. As such, the Company has been actively seeking to dispose Hubei Shengrong while retaining the research and development and sale of solid waste recycling systems business. Upon closing of the Disposition, the Purchaser will become the sole shareholder of Hubei Shengrong and as a result, assume all assets and obligations of Hubei Shengrong except the research and development team and intellectual property rights in connection with the solid waste recycling systems business shall be assigned to Shengrong WFOE as part of the Disposition. As Shengrong WFOE has significant continuing involvement in the sale of solid waste recycling systems business and the processed industrial waste materials trading business, the results of operations for Hubei Shengrong were not reported as discontinued operations under the guidance of Accounting Standards Codification 205.

Key Factors that Affect Operating Results

Management has observed the trends and uncertainties of government efforts to control the industrial solid wastes discharge, which we believe may have a direct impact on our initial public offeringoperations in the near future.

Although the PRC economy has grown in recent years, the pace of growth has slowed, and even that rate of growth may not continue. According to the National Bureau of Statistics in China (“NBS”), the annual rate of growth in the PRC declined from 7.7% in 2013 to 7.4% in 2014, 6.9% in 2015, 6.7% in 2016, and 6.9% in 2017 and dropped to 6.6% in 2018. The expected growth rate in 2019 will be 6.2%. A further slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in the PRC may materially reduce the demand for the combined company’s selling of coating and fuel materials and may have a materially adverse effect on its business.


Our operating subsidiaries are incorporated, and our operations and assets are primarily located, in China. Accordingly, our results of operations, financial condition and prospects are affected by China’s economic and regulation conditions in the following factors: (a) an economic downturn in China or any regional market in China; (b) economic policies and initiatives undertaken by the Chinese government; (c) changes in the Chinese or regional business or regulatory environment affecting our customers; and (e) Changes in the Chinese government policy on industrial solid waste. Unfavorable changes could affect demand for services that we provide and could materially and adversely affect the results of operations. Although the Company has generally benefited from China’s economic growth and the policies to encourage the improvement of reducing of solid waste discharge, the Company is also affected by the complexity, uncertainties and changes in the Chinese economic conditions and regulations governing the mining industry.

Our recycling systems and equipment operations are largely affected by the testing result of installed solid waste recycling systems and equipment. If an installed solid waste recycling system or equipment cannot meet the acceptance standards stated on the sales contract, which usually include the outlook of the systems and equipment, the recycled rate of low magnetic catalysts and the physical and chemical index of low magnetic catalysts, then we need to adjust the systems and equipment until their performance meets the acceptance standards. Only after the testing results meet the standards, the products can be considered delivered and title passed to customers, and we can recognize sales.

Our fuel materials, mainly coal, operations are largely affected by the following aspects. First, the PRC's macroeconomic growth is not as fast as expected; the slowdown of economic growth will affect the demand of the market, and the reduction of coal consumption by enterprises will affect the sales of coal and directly affect our earnings. Second, the coal market price fluctuation will also affect our sales revenue; because Jiangsu Rong Hai has long-term and stable customers, the price fluctuations will affect the cost of purchasing coal and thus affect our revenue. Third, the risk of price fluctuation in the shipping industry. The fluctuation of shipping price will also directly affect the fluctuation of coal market price, thus affecting our income. Fourth, we have long-term and stable customers and continues to rely on a small number of customers from 2009 to 2018. Losing our major customers will have a significant impact on our results of operations. In addition, the payment situation of these customers will be affected by abnormal market changes, which will have a negative impact on our business recovery accounts and cash flow.

Results of Operations

Years Ended December 31, 2018 vs. December 31, 2017

           Percentage 
  2018  2017  Change  Change 
Revenues – Equipment and systems $15,298,353  $18,635,434  $(3,337,081)  (17.9)%
Revenues – Coating and fuel materials  5,722,165   -   5,722,165   100.0%
Revenues – Trading and others  2,170,836   20,116,331   (17,945,495)  (89.2)%
Total revenues  23,191,354   38,751,765   (15,560,411)  (40.2)%
Cost of Revenues – Equipment and systems  12,748,378   5,999,356   6,749,022   112.5%
Cost of Revenues – Coating and fuel materials  4,604,000   -   4,604,000   100.0%
Cost of Revenues – Trading and others  1,319,353   13,234,664   (11,915,311)  (90.0)%
Total cost of revenues  18,671,731   19,234,020   (562,289)  (2.9)%
Gross profit  4,519,623   19,517,745   (14,998,122)  (76.8)%
Operating expenses  (2,392,564)  (12,071,430)  (9,678,866)  (80.2)%
Income from operations  2,127,059   7,446,315   (5,319,256)  (71.4)%
Other expense, net  (161,247)  (1,278,896)  (1,117,649)  (87.4)%
Provision for income taxes  (515,820)  (1,953,942)  (1,438,122)  (73.6)%
Net income $1,449,992  $4,213,477  $(2,763,485)  (65.6)%


Revenues

The Company’s revenue consists of solid waste recycling systems and equipment revenue, coating and fuel materials revenue, and trading and others revenue. Total revenues decreased by approximately $15.6 million, or approximately 40.2%, to approximately $23.2 million for the year ended December 31, 2018, compared to approximately $38.8 million for the year ended December 31, 2017. The overall decrease in total revenue was attributable to the decreased sales of solid waste recycling systems and equipment and trading industrial waste materials and offset by the increased sales of coating materials after the acquisition of Wuhan HOST and increased sales of fuel materials after the acquisition of Rong Hai.

Equipment and Systems Revenue

Revenue of solid waste recycling systems and equipment decreased by approximately $3.3 million, or approximately 17.9%, to approximately $15.3 million for the year ended December 31, 2018, compared to approximately $18.6 million for the year ended December 31, 2017. The decrease in revenues was primarily attributable to the decrease of solid waste recycling equipment orders. From July 29, 2015.to September this year, due to floods in many places in China, almost 90% of Hubei Shengrong’s customers requested to delay acceptance of our equipment and payment, resulting in the sales revenue of Hubei Shengrong in the third quarter of this year decreased by 90% compared with the same period of last year. In addition, according to the planning mandates of Wuhan Municipal Government 2018, manufacturers should move away from city’s downtown area. Therefore, due to the policy change, Hubei Shengrong is forced to close the existing facility, relocate and build a new facility, which is expected to take approximately 7-8 years. As a result, Hubei Shengrong did not generate any new equipment and systems revenue in the fourth quarter of 2018. We are currently in the process of evaluatingsearching for the suitable vendor to manufacture our products in 2019. Once the suitable vendors are located, we expect our revenues will be on a rise again. Our revenues from solid waste recycling systems and identifying targetsequipment on numbers of units sold and built and its average selling price are summarized as follows:

  For the Year ended December 31, 2018  For the Year ended December 31, 2017  Change  Change (%) 
             
Solid waste recycling equipment sold  7   32   (25)  (78.1%)
Average selling price $518,585  $582,357  $(63,772)  (11.0%)
Solid waste recycling system infrastructure sold  3   -   3   100.0%
Average selling price $3,889,419  $-  $3,889,419   100.0%

During the year ended December 31, 2018, we sold 7 units of solid waste recycling equipment with an average selling price of $518,585 per unit as compared to 32 units sold with an average selling price of $582,357 during the year ended December 31, 2017. The decrease in units sold of 25 units or 78.1% during the year ended December 31, 2018 as compared to the same period in 2017 were mainly due to our allocations of our resource to the solid waste recycling system infrastructure and the delayed acceptance of some solid waste recycling equipment. We did not have any solid waste recycling infrastructure systems accepted by customers for the year ended December 31, 2017. The decrease in unit sold is also attributable to the planning mandates of Wuhan Municipal Government 2018 which manufacturers should move away from city’s downtown area where we were unable to manufacture during the fourth quarter of 2018 and were not able timely to find a business combination. We are evaluating acquisition opportunities and, at any given time, may besuitable manufactures to make products available for sales during the fourth quarter of 2018. The decrease in various stagesaverage unit price of $63,772 or 11.0% during the year ended December 31, 2018 as compared to the same period in 2017 was due diligence or preliminary discussions with respect to a number of potential acquisitions. From time to time, we may enter into non-binding letters of intent, but we are currently not subject to any definitive agreement with respect to any business combination. However, we cannot assure youthe fact that our petroleum catalyst separation equipment that we will identify any suitable target candidates or, if identified,sold in the year ended December 31, 2018, had a lower selling price than other solid waste recycling equipment that we sold in the year ended December 31, 2017, such as Copper tailings separation equipment and Titanium dioxide separation equipment, which lowered the average selling price. The decrease was partly offset by the appreciation of Chinse Reminbi (“RMB”) against U.S. Dollar of 2.0%.


During the year ended December 31, 2018, we completed the sales of 3 units of solid waste recycling infrastructure systems with an average selling price of $3,889,419 per unit. We did not recognize any solid waste recycling infrastructure systems revenue for the year ended December 31, 2017 because we allocated our resources to the manufacture solid waste recycling system infrastructure for the year ended December 31, 2018 as compared to the same period in 2017 where we allocated our resources to manufacture solid waste recycling equipment.

Coating and Fuel Revenue

During the year ended December 31, 2018, we sold 1,873,252 kilograms of coating materials after Wuhan Host being acquired with an average selling price of approximately $2.46 per kilogram and sold 11,775 tons of coal after Rong Hai being acquired with an average selling price of approximately $93.95 per ton.

Trading and Others Revenue

Revenues of trading of industrial waste materials and other general merchandises decreased by approximately $17.9 million or 89.2%, to approximately $2.2 million for the year ended December 31, 2018, compared to approximately $20.1 million for the year ended December 31, 2017. The decrease in revenues was attributable to the decreased amount of industrial waste materials traded during the year ended December 31, 2018 as compared to the same period in 2017. Our revenues from trading of industrial waste materials and others revenues are summarized as follows:

  For the Year ended December 31, 2018  For the Year ended December 31, 2017  Change  Change (%) 
             
Acid Hydrolysis Titanium Dioxide $288,568  $9,528,520  $(9,239,952)  (97.0)%
Petroleum FCC Catalyst  288,568   7,015,135   (6,726,567)  (95.9)%
Ilmenite Tailings  534,384   1,759,369   (1,224,985)  (69.6)%
Copper Smelting Tailings  712,512   1,563,884   (851,372)  (54.4)%
Others revenues  346,804   249,423   97,381   39.0%
Total $2,170,836  $20,116,331  $(17,945,495)  (89.2)%

Our total sold quantity of each kind of industrial waste materials and their average selling price are summarized as follows:

  For the Year ended December 31, 2018  For the Year ended December 31, 2017  Change  Change (%) 
             
Acid Hydrolysis Titanium Dioxide (quantity in tons)  225   7,780   (7,555)  (97.1)%
Average selling price $1,283  $1,225  $58   4.7%
Petroleum FCC Catalyst (quantity in tons)  225   5,780   (5,555)  (96.1)%
Average selling price $1,283  $1,214  $69   5.7%
Ilmenite Tailings (quantity in tons)  625   2,100   (1,475)  (70.2)%
Average selling price $855  $838  $17   2.0%
Copper Smelting Tailings (quantity in tons)  625   1,400   (775)  (55.4)%
Average selling price $1,140  $1,117  $23   2.1%

Starting from July 2016, we commenced our industrial waste materials trading business, pursuant to which we directly order the processed industrial waste materials from our suppliers of industrial waste materials, then under our specifications per contract, drop ship the processed industrial waste materials directly to our customers. We inspect the materials at our industrial waste materials customers’ site, during which inspection we temporarily assume legal title to the materials, and after which inspection legal title is transferred to the customers. In these situations, we generally collect the sales proceed directly from our customers and pay for the inventory purchases to our suppliers separately.


We started our trading of industrial waste materials business mainly due to the opportunity that existed in the marketplace, as the end users of our solid waste recycling equipment, also referred to as our equipment end users, while in the process of using our solid waste recycling equipment to clean and extract waste from mines and job sites, may also extract and separate certain valuable metals from other industrial waste materials. We recognize that there is a market for these metals and waste materials and as a result, we connect our equipment end users who sell the byproduct of materials they produce to our industrial waste materials suppliers who have the capability of processing such solid waste materials into powder and directly ship such products to our industrial waste materials customers. This type of trading business is related to our solid waste recycling systems and equipment business because the end users of our solid waste recycling equipment only use our equipment to extract the valuable metals and chemicals for their needs. These end users do not need the residual materials generated as a byproduct of extraction and considered to be industrial waste materials. As a result, we believe our industrial waste material trading business is sustainable as long as our solid waste recycling system and equipment business is sustainable. We strongly believe our solid waste recycling system and equipment business is sustainable because of upcoming favorable energy conservation and emission reduction target-setting policies mandated by the PRC government. Notwithstanding the foregoing, this is a new line of our business that is still in the development stage.

Approximately two to three weeks prior to shipment, our suppliers of industrial waste materials will physically process the industrial waste materials at the locations of the equipment end users. These end users are located in different provinces of China, such as Hubei, Sichuan, Jiangsu and Zhejiang. After our industrial waste material suppliers have processed the industrial waste materials per our specifications, they will drop ship the materials by truck, which takes approximately 1 to 5 days, directly to our industrial waste materials customers in the city of Wuhan, Hubei province, for our inspection before being inspected and accepted by our customers.

During the year ended December 31, 2018, the decrease of revenues from trading industrial waste materials was due to the fact that we only generated revenues from trading an aggregate of 1,700 tons of Acid Hydrolysis Titanium Dioxide, Petroleum FCC Catalyst, Ilmenite Tailings and Copper Smelting Tailings as compared to an aggregate of 17,060 tons during the same period in 2017. Our trading of industrial waste materials are dependent on the progress of our recycling equipment end users and when they are able to sell those industrial waste materials to our suppliers to process the waste. During the year ended December 31, 2018, we had less resources to trade the aforementioned industrial waste materials as compared to the same period in 2017 as the enterprises who has the resources of the industrial waste materials were closed for production during the year ended December 31, 2018 due to inspection from the environment group of the Chinese government until the enterprises were able to pass the environmental inspection, which reduced the resource for our trading of industrial waste materials.

We do not believe that we have any competitors to compete with us in the trading of industrial waste materials as their equipment are not as sophisticated as our equipment to extract value from valuable metals and other industrial waste materials. As a result, we do not believe that other potential competitors will have the source of obtaining the industrial waste materials to compete in this business.

Our customers who order the industrial waste materials from us are able to manufacture from these processed industrial waste materials and turned them into variety of materials used for decoration, such as plastic wood, interior wall decorative panels and stone plastic imitation wood flooring. The decoration materials made from these processed industrial waste materials are much cheaper than using other environmental friendly raw materials, and generally have better qualities. We evaluate prices of similar raw materials for construction and then set a price with these two customers. We believe our customers might be able to completeobtain government support and grant for using these industrial waste materials products.

In addition, environment risk does not appears to be applied to us since we are assisting the end users of our solid waste recycling equipment to reduce their solid waste discharge and we did not create any environment effect or risk.

Our other revenues increased by approximately $0.1 million, or 39.0%, to approximately $0.3 million for the year ended December 31, 2018 as compared to approximately $0.2 million for the year ended December 31, 2017. The increase was mainly due to the fact that we included one month harbor cargo handling revenue after the acquisition of such candidates on favorable terms or at all. While we currently intend to consummate our initial business combination with a target business in the consumer products industry in the United States, we are not limited to a particular industry or geographic region. We intend to effectuate our initial business combination using cash from the proceeds of our initial public offeringRong Hai and the private placementrevenue is more than TJComex’s other revenue made during the year ended December 31, 2017.


Cost of the placement units, our capital stock, debt or a combination of these as the consideration to be paid in our initial business combination.Revenues

 

The issuanceCompany’s cost of additional sharesrevenues consists of our stock in a business combination:

●may significantly dilute the equity interest of investors in our initial public  offering;
●may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded our common stock;
●could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
●may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and
●may adversely affect prevailing market pricescost of solid waste recycling systems and equipment revenue, cost of coating and fuel materials revenue, and cost of trading and others revenue. Total cost of revenues decreased by approximately $0.5 million, or approximately 2.9% to approximately $18.7 million for our common stock and/or warrants.

Similarly, if we issue debt securities, it could result in:

●default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations;
●acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;

●our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand and the lender demands payment;
●limitations on our ability to obtain additional financing if the debt security contains covenants restricting our ability to incur debt;
●our inability to pay dividends on our common stock due to covenants limiting or prohibiting dividends;
●using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce, or possibly eliminate, the funds available for use as dividends on our common stock, expenses, capital expenditures, acquisitions and other general corporate purposes;
●limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; and

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As indicated in the accompanying financial statements, atyear ended December 31, 2016, we had2018, compared to approximately $150,000$19.2 million for the same period in cash. We expect to incur significant costs2017. Our total cost of revenues decreased which was in line with the pursuitdecrease of our acquisition plans. We cannot assure you that our plans to complete our initial business combination will be successful.solid waste systems revenues because solid waste recycling infrastructure systems generally have a higher cost and selling price than solid waste recycling equipment.

 

ResultsCost of OperationsEquipment and Systems Revenue

 

WeCost of solid waste recycling systems and equipment revenue increased by approximately $7.0 million, or approximately 112.5% to approximately $12.7 million for the year ended December 31, 2018, compared to approximately $6.0 million for the same period in 2017. The increase in cost of solid waste recycling systems and equipment revenue was primarily associated with the increase of sales volume of solid waste recycling systems as they have neither engageda much higher cost than solid waste recycling equipment because manufacturing those systems requires more materials in any operations nor generated anyquantities and with more expensive materials, as well as the increase of unit purchase cost of steel and longer labor hours with the increase of overhead manufacturing cost.

Cost of Coating and Fuel Materials Revenue

During the year ended December 31, 2018, we sold 1,873,252 kilograms of coating materials after Wuhan Host being acquired with an average unit cost of approximately $1.88 and sold 11,775 tons of coal after Rong Hai being acquired with an average unit cost of approximately $91.31.

Cost of Trading and Others Revenue

Cost of trading of industrial waste materials and others revenue decreased by approximately $11.9 million or 90.0%, to approximately $1.3 million for the year ended December 31, 2018, compared to $13.2 million for the same period in 2017. The decrease was in line with the decrease in revenues of trading of industrial waste materials and other general merchandises. Our cost of revenues from trading of industrial waste materials and others revenues are summarized as follows:

  For the Year ended December 31, 2018  For the Year ended December 31, 2017  Change  Change (%) 
Industrial waste materials trading            
Acid Hydrolysis Titanium Dioxide $192,378  $6,269,503  $(6,077,125)  (96.9)%
Petroleum FCC Catalyst  192,378   4,593,913   (4,401,535)  (95.8)%
Ilmenite Tailings  356,256   1,172,911   (816,655)  (69.6)%
Copper Smelting Tailings  534,385   1,172,913   (638,528)  (54.4)%
Others cost of revenues  43,956   25,424   18,532   72.9%
Total $1,319,353  $13,234,664  $(11,915,311)  (90.0)%


Our total sold quantity of each kind of industrial waste materials and their average purchasing price are summarized as follows:

  For the Year ended December 31, 2018  For the Year ended December 31, 2017  Change  Change (%) 
             
Acid Hydrolysis Titanium Dioxide (quantity in tons)  225   7,780   (7,555)  (97.1)%
Average unit cost $855  $806  $49   6.1%
Petroleum FCC Catalyst (quantity in tons)  225   5,780   (5,555)  (96.1)%
Average unit cost $855  $795  $60   7.5%
Ilmenite Tailings (quantity in tons)  625   2,100   (1,475)  (70.2)%
Average unit cost $570  $559  $11   2.0%
Copper Smelting Tailings (quantity in tons)  625   1,400   (775)  (55.4)%
Average unit cost $855  $838  $17   2.0%

Gross Profit

The Company’s gross profit decreased by approximately $15.0 million, or 76.8%, to date.approximately $4.5 million during the year ended December 31, 2018, from approximately $19.5 million for the year ended December 31, 2017. For the year ended December 31, 2016, we had2018 and 2017, the Company’s gross margin was approximately 19.5% and 50.4%, respectively. The decrease in gross margin was primarily due to the increase of sales volume of solid waste recycling systems as they have a net loss of $541,616. Formuch higher cost than solid waste recycling equipment, which in turn, decreased our gross margin percentage from 67.8% for the period from April 10, 2015 (inception) throughyear ended December 31, 2015, we had2017 to 16.7% for the year ended December 31, 2018. The decrease in gross margin was also due to a net lossnewly added business of $234,205producing and incurred costsselling coating materials after our acquisition of $1,862,816 related toWuhan HOST in May 2018 and another newly added business of coal wholesales after our initial public offering which have been charged to stockholders’ equity.acquisition of Rong Hai in December 2018. The gross margin of coating and fuel materials was approximately 19.5% for the year ended December 31, 2018. The decrease in gross margin was offset by the newly added business of harbor cargo handling services after our acquisition of Rong Hai in December 2018 and the gross margin of the services was about 87.3%.

Operating Expenses (Income)

 

The Company’s entire activityoperating expenses (income) include selling, general and administrative (“SG&A”) expenses, (recovery of) provision for doubtful accounts and impairment loss of goodwill.

SG&A expenses increased by approximately $1.2 million, by approximately 66.4%, from April 10, 2015 (inception) through July 29, 2015, was in preparation for our initial public offering, which was consummated on July 29, 2015. Since that date, we have engaged in a search for a target for a business combination. Our operating costs since then include our search for an initial business combination and are largely associated with our governance and public reporting, consulting fees, and state franchise taxes of approximately $628,000$1.8 million for the year 2016 and $244,000ended December 31, 2017 to approximately $3.0 million for the year 2015. Investment incomeended December 31, 2018. The increase in selling, general and administrative expenses was primarily due to the increase of approximately $86,000professional fees of $0.7 million, such as audit, legal, consulting, public relation, and $23,000other professional fees in relation to the business combination between JM Global and China Sunlong in February 2018, acquisition of Wuhan HOST audit, accounting and legal advisory services, and being a public company thereafter for the year 2016 and 2015, respectively, represents the realized and unrealized appreciation on our investment in U.S. treasury bills since our initial public offering. We may need to raise additional capital through loans or additional investments from our sponsor, stockholders, officers, directors, or third parties. In order to fund transaction costs in connection with an intended initial business combination, our sponsor, members of our management team or their affiliates or other third parties may loan us additional amounts, provided any such loans will not have any claim on the proceeds held in the trust account unless such proceeds are released to us upon completion of an initial business combination. If we do not consummate an initial business combination, we may use a portion of any working capital held outside the trust account to repay such loaned amounts; however, no proceeds from the trust account may be used for such repayment, other than interest income earned thereon. If such funds are insufficient to repay the loan amounts, the unpaid amounts would be forgiven. Any part or all of such loans may be converted into additional warrants at $0.50 per warrant (a maximum of 1,000,000 warrants if up to $500,000 is loaned and that amount is converted into warrants) of the post-business combination entity at the option of such parties. The warrants would be identicalended December 31, 2018 as compared to the placement warrants issuedsame period in 2017. The increase also attributable to the increase of $0.6 million SG&A expenses incurred in Wuhan HOST, our sponsor. Nonenew acquired subsidiary in May 2018, offset by the decrease of our sponsors, stockholders, officers or directors, or third parties, are under any obligation to advance us funds, or to investapproximately $0.1 million SG&A expenses in us. Accordingly,TJComex BVI which we may not be able to obtain additional financing. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of our business plan, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern. disposed in April 2018.

 

We are an emerging growth company as defined inrecovered doubtful accounts of approximately $0.6 million during the JOBS Act. As an emerging growth company,year ended December 31, 2018. At the beginning of 2017, we have elected, pursuantwere trying to Section 107(b)expand our trading of industrial waste materials business and gaining market shares by granting a 30 days credit term of the JOBS Act,revenue to take advantageour customers. We did not collect our accounts receivable per credit term as expected. As a result, we had to assess the potential losses and provide provision of allowances on the accounts receivable for the year ended December 31, 2017. However, for the year ended December 31, 2018, we were able to collect some of the extended transition period provided in Securities Act Section 7(a)(2)(B)accounts receivable that were previously reserved, so we recovered doubtful accounts charges of approximately $1.0 million. The recovery was offset by the allowance of doubtful accounts we made for complying with new or revised accounting standards. We will therefore delayWuhan Host for other receivables of approximately $0.4 million which we determined the adoptioncollectability of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. We may take advantage of this extended transition period untilsuch receivables are remote after exhausting collection effort has been made during the earlier of the date we (i) are no longer an “emerging growth company” or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Securities Act Section 7(a)(2)(B). As such, our financial statements may not be comparable to companies that comply with public company effective dates.year ended December 31, 2018.

 

UponApproximately $3.8 million of goodwill arisen from the issuanceacquisition of a new or revised accounting standardTJComex BVI on March 31, 2017. On December 31, 2017, we tested the goodwill for impairment. We concluded that applies to our financial statements and has a different effective date for public and private companies,an impairment existed, so we will disclosewrote off the date on which adoption is required for non-emerging growth companies andfull value of goodwill at the date on whichyear end. During the year ended December 31, 2018, we will adopt the recently-issued accounting standard.did not have such expense.

 


Liquidity and Capital ResourcesIncome from Operations

 

As a result of the foregoing, income from operations for the year ended December 31, 2016, we had cash2018 was approximately $2.1 million, a decrease of $150,306. Untilapproximately $5.3 million, or approximately 71.4%, from approximately $7.4 million for the consummationyear ended December 31, 2017. As a percentage of our initial public offering on July 29, 2015,total revenues, income from operations decreased to approximately 9.2% during the Company’s only sourceyear ended December 31, 2018 from approximately 19.2% during the same period in 2017. The decrease was mostly driven by the increase of liquidity was an initial purchaserevenues from the lower profit margin products, solid waste recycling systems and the decrease of our shares of common stock and a series of advances made by an affiliate ofrevenues from the Company. These advances are non-interest bearing and unsecured.higher profit margin products, solid waste recycling equipment as discussed above.

 

On July 29, 2015, we consummated our initial public offering of 5,000,000 units at a price of $10.00 per unit. Simultaneously with the consummation of our initial public offering, we consummated the private sale of 250,000 placement units to our sponsor. Each private placement unitOther Income (Expense)

The Company’s other income (expense) consists of one share of common stockinterest income, interest expense and one warrant to purchase one-half of one share of common stock at a price of $5.75 per half share, at a price of $10.00 per unit ($2,500,000 inother income (expense), net. The Company’s other expense was approximately $0.2 million during the aggregate). We received net proceeds from the our initial public offering and the private placementyear ended December 31, 2018, an decrease of approximately $50,650,000, net of the underwriting commissions and fees of $1,250,000 and offering costs and$1.1 million, or approximately 87.4%, as compared to other expenses of approximately $600,000. $50,000,000$1.3 million during the same period in 2017. The decrease of other expense was mainly attributable to the decrease of TJComex merger related other expenses of approximately $1.1 million incurred during the year ended December 31, 2017.

Provision for Income Taxes

The Company’s provision for income tax was approximately $0.5 million during the year ended December 31, 2018, compared to approximately $1.9 million for the same period in 2017. The decrease in provision for income taxes is in line with the decrease in income before income taxes. Under the Income Tax Laws of the proceedsPRC, companies are generally subject to income tax at a rate of our initial public offering25%. However, the Company’s 100% subsidiary, Hubei Shengrong, obtained the “high-tech enterprise” tax status in 2014 and Wuhan Host obtained the same status in 2016, which reduced their statutory income tax rate to 15%. Hubei Shengrong renewed its “high-tech enterprise” status in December 2016, which continued to reduce its statutory income rate to 15% from 2017 to 2019. Wuhan Host’s “high-tech enterprise” status can reduce its statutory income rate to 15% from 2016 to 2019. We have incurred approximately $1.0 million of non-deductible expenses for income tax purpose during the year ended December 31, 2017 and the private placement have been deposited inacquisition of Wuhan Host lowered the trust account and are not available to usincome tax rate, as a result the effective tax rate decreased from 31.7% for operations (except amounts designated to pay taxes and working capital from the interest accrued). Atyear ended December 31, 2016, we had approximately $150,000 of cash available outside of2017 to 26.2% for the trust account to fund our activities to search for an initial business combination.year ended December 31, 2018.

Net Income

 

As a result of the foregoing, net income decreased by approximately $2.8 million, or 65.6%, to approximately $1.4 million for the year ended December 31, 2016, $50,109,326 was held2018, from approximately $4.2 million for the same period in the Trust Account and we had cash outside of trust of $ 150,036 and $19,922 in accounts payable, $82,647 of accrued franchise taxes and $140,500 in due to affiliates. As of December 31, 2015, $50,023,363 was held in the trust account and we had cash outside of trust of $623,044 and $211,495 in accounts payable, accrued expenses and due to affiliates. Through December 31, 2016, the Company had not withdrawn any funds from interest earned on the trust proceeds. Furthermore, no amounts are payable to the underwriters of our initial public offering in the event of a business combination.2017.

 

39

Off-Balance Sheet ArrangementsCritical Accounting Policies and Estimates

 

AsThe preparation of December 31, 2016, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Contractual Obligations

We do not have any long term debt, capital lease obligations, operating lease obligations or purchase obligations.

Critical Accounting Policies

Basis of presentation

The accompanying financial statements have been prepared in accordanceconformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of America (“GAAP”)commitments and pursuantcontingencies, if any. We have identified certain accounting policies that are significant to the preparation of our consolidated financial statements. These accounting policies are important for an understanding of our financial condition and disclosure rulesresults of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and regulationsresults of operations and require management's difficult, subjective, or complex judgment, often as a result of the Securitiesneed to make estimates about the effect of matters that are inherently uncertain and Exchange Commission (“SEC”).may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our consolidated financial statements.

 

Development stage companyAccounts receivable, net

Accounts receivable include trade accounts due from customers. An allowance for doubtful accounts may be established and recorded based on management’s assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.


Inventories

Inventories are comprised of raw materials and work in progress and are stated at the lower of cost or net realizable value using the first-in-first-out method in Shengrong WFOE and weighted average method in Wuhan HOST and Rong Hai. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against the inventory when the carrying value exceeds net realizable value.

Prepayments

Prepayments are funds deposited or advanced to outside vendors for future inventory purchases. As a standard practice in China, many of the Company’s vendors require a certain amount to be deposited with them as a guarantee that the Company will complete its purchases on a timely basis. This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which require any outstanding prepayments to be returned to the Company when the contract ends.

Fair value measurement

The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by us. The Company complies withconsiders the reportingcarrying amount of cash, notes receivable, accounts receivable, other receivables, prepayments, accounts payable, other payables and accrued liabilities, customer deposits, short term loans and taxes payable to approximate their fair values because of their short term nature.

The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:

●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.

Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of Financial Accounting Standards Board (“FASB”) issuedthe short period of time between the origination of such instruments and their expected realization and their current market rates of interest.

Revenue recognition

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018.  This did not result in an adjustment to retained earnings upon adoption of this new guidance as the Company’s revenue, other than warranty revenues, was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. However, the impact of the Company’s warranty revenue was not material as of the date of adoption, and as a result, did not result in an adjustment.

The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer.  The Company’s revenue streams are primarily recognized at a point in time except for the warranty revenues where the warranty periods are recognized over the warranty period, usually is a period of twelve months.


The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition except its warranty revenues.

An entity will also be required to determine if it controls the goods or services prior to the transfer to the customer in order to determine if it should account for the arrangement as a principal or agent. Principal arrangements, where the entity controls the goods or services provided, will result in the recognition of the gross amount of consideration expected in the exchange. Agent arrangements, where the entity simply arranges but does not control the goods or services being transferred to the customer, will result in the recognition of the net amount the entity is entitled to retain in the exchange.

Revenue from equipment and systems, revenue from coating and fuel materials, and revenue from trading and others are recognized at the date of goods delivered and title passed to customers, when a formal arrangement exists, the price is fixed or determinable, the Company has no other significant obligations and collectability is reasonably assured. Such revenues are recognized at a point in time after all performance obligations are satisfied under the new five-step model. In addition, training service revenues are recognized when the services are rendered and the Company has no other obligations, and collectability is reasonably assured. These revenues are recognized at a point in time. 

Prior to January 1, 2018, the Company allowed its customers to retain 5% to 10% of the contract price as retainage during the warranty period of 12 months to guarantee product quality. Retainage is considered as a payment term included as a part of the contract price, and was recognized as revenue upon the shipment of products. Due to nature of the retainage, the Company’s policy is to record revenue the full value of the contract without VAT, including any retainage, since the Company has experienced insignificant warranty claims historically. Due to the infrequent and insignificant amount of warranty claims, the ability to collect retainage was reasonably assured and was recognized at the time of shipment. On January 1, 2018, upon the adoption of ASU 2014-09 (ASC 606), revenues from product warranty are recognized over the warranty period over 12 months. For the year ended December 31, 2018, less than 5% of our warranty revenues were recognized in our consolidated revenues and included in the Company’s equipment and systems revenues in the accompanying statements of income and comprehensive income.

Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits.

Gross versus Net Revenue Reporting

Starting from July 2016, in the normal course of the Company’s trading of industrial waste materials business, the Company directly purchases the processed industrial waste materials from the Company’s suppliers under the Company’s specifications and drop ships the materials directly to the Company’s customers. The Company would inspect the materials at its customers’ site, during which inspection it temporarily assumes legal title to the materials, and after which inspection legal title is transferred to its customers. In these situations, the Company generally collects the sales proceed directly from the Company’s customers and pay for the inventory purchases to the Company’s suppliers separately. The determination of whether revenues should be reported on a gross or net basis is based on the Company’s assessment of whether it is the principal or an agent in the transaction. In determining whether the Company is the principal or an agent, the Company follows the new accounting guidance for principal-agent considerations. Since the Company is the primary obligor and is responsible for (i) fulfilling the processed industrial waste materials delivery, (ii) controlling the inventory by temporarily assume legal title to the materials after inspecting the products from our vendors before passing the materials to our customers, and (iii) bearing the back-end risk of inventory loss with respect to any product return from the Company’s customers, the Company has concluded that it is the principal in these arrangements, and therefore report revenues and cost of revenues on a gross basis.


Recently Issue Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update No. 2014-10,2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016- 02 requires a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term. ASU 2016-02 requires classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. This ASU will be effective for the Company on January 1, 2019. The Company occupies an office under operating lease agreement with a term longer than 12 months for which eliminated certain financial reporting requirementsprior to adoption of companies previously identified as “Development Stage Entities”the guidance are not reflected in its consolidated balance sheet at December 31, 2018 and 2017. We will adopt ASU 2016-02 on January 1, 2019 and recognize additional operating labilities of approximately $190,000, with corresponding right of use (“ROU”) assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases with a term longer than 12 months.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 915).220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU simplify accounting guidanceUpdate affect any entity that is required to apply the provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by removing all incremental financial reporting requirements for development stage entities.GAAP. The amendments also reduce date maintenancein this Update are effective for all entities for fiscal years beginning after December 15, 2018, and forinterim periods within those entities subject to audit, audit costs by eliminating the requirements for development stage entities to present inception-to-date information in the statements of income, cash flows, and stockholders’ equity.fiscal years. Early application of eachadoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for any annualpublic business entities for reporting periods or interim period for which the entity’s financial statements have not yet been issued (public business entities) orand (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance (other entities). Uponissuance. The amendments in this Update should be applied either in the period of adoption entities will no longer present or disclose any information required by Topic 915. For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014,retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and interim periods therein.Jobs Act is recognized. We do not believe the adoption of this ASU would have a material effect on our consolidated financial statements.

 

Net loss per common shareWe do not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.

The Company complies with accountingLiquidity and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period. At December 31, 2016, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted loss per common share is the same as basic loss per common share for the periods presented.Capital Resources

 

The preparationCompany has funded working capital and other capital requirements primarily by equity contributions, loans from shareholders, cash flow from operations, short term bank loans, loans from third parties and cash received from JM Global Holding Company through the reverse capitalization. Cash is required to repay debts and pay salaries, office expenses, income taxes and other operating expenses. As of interimDecember 31, 2018, our net working capital deficit was approximately $3.7 million, over 50% of the Company’s current liabilities was from other payables – related parties due to major shareholders. Removing these liabilities, the Company had net working capital of $2.4 million and is expected to continuing generate cash flow from operations in the twelve months period.

We believe that current levels of cash and cash flows from operations will be sufficient to meet its anticipated cash needs for at least the next twelve months from the date the consolidated financial statements and related disclosures in conformity with generally accepted accounting principlesto be issued. However, it may need additional cash resources in the United States (“GAAP”) requires managementfuture if it experiences changed business conditions or other developments, and may also need additional cash resources in the future if it wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements exceed the Company’s amounts of cash and cash equivalents on hand, the Company may seek to issue debt or equity securities or obtain additional credit facility.


The following summarizes the key components of the Company’s cash flows for the year ended December 31, 2018 and 2017.

  For the Years ended December 31, 
  2018  2017 
       
Net cash used in operating activities $(2,038,239) $(426,442)
Net cash provided by investing activities  2,444,720   21,566 
Net cash (used in) provided by financing activities  (52,174)  347,454 
Effect of exchange rate change on cash  (89,453)  17,953 
Net change in cash $264,854  $(39,469)

As of December 31, 2018 and 2017, the Company had cash in the amount of $726,737 and $461,883, respectively. As of December 31, 2018, approximately $719,000 and approximately $8,000 were held by the Company’s subsidiaries in the PRC and Hong Kong, respectively. As of December 31, 2017, approximately $459,000 and approximately $3,000 were held by the Company’s subsidiaries in the PRC and Hong Kong, respectively.

Operating activities

Net cash used in operating activities was approximately $2.0 million for the year ended December 31, 2018, as compared to approximately $0.4 million net cash used in operating activities for the year ended December 31, 2017.  Net cash used in operating activities for the year ended December 31, 2018 was mainly due to the recovery of doubtful accounts of approximately $0.6 million as we collected more aged accounts receivables, the increase of notes receivable of approximately $0.3 million as our customers used more notes receivable for payment which we needs to wait approximately 3 to 6 months to deposit the notes, the increase of accounts receivable of approximately $1.6 million as we generated more sales on credits, and the increase of approximately $14.0 million of prepayments as we are required to make estimatessuch prepayments for our systems and assumptionsequipment operations because the orders that affectwe placed had unique specifications with such a high volume and we must make such prepayments in order for us to secure our purchases to meet our production timely. Net cash used in operating activities was offset by approximately $1.5 million of net income from our operations, approximately $0.4 million of depreciation expense of plant and equipment, approximately $0.3 million amortization expense of intangible assets, deferred tax provision of approximately $0.1 million, the reported amountsdecrease of assetsapproximately $4.6 million of accounts receivable – related party as we have collected more cash on receivables, the decrease of approximately $0.4 million of other receivables – related party as we have collected more cash advances to related parties for operation purpose, the decrease of approximately $3.3 million of inventories as we have shipped some solid waste recycling equipment and system to our customers during the year ended December 31, 2018, the increase of approximately $0.1million accounts payable, the increase of approximately $0.8 million other payables and accrued liabilities, disclosurethe increase of contingent assetsapproximately $0.4 million of customer deposits, and liabilitiesthe increase of approximately $2.8 million of taxes payable as we have incurred more taxes payable from our operations.

Investing activities

Net cash provided by investing activities was approximately $2.4 million for the year ended December 31, 2018, as compared to approximately $22,000 net cash provided by investing activities for the year ended December 31, 2017. Net cash provided by investing activities for the year ended December 31, 2018 was mainly due to cash amounted to approximately $8.0 million received from JM Global Holding Company through reverse capitalization and approximately $0.8 million received from acquisition of Rong Hai offset mainly by the acquisition payment on Wuhan HOST of approximately $6.2 million, net of approximately $0.3 million cash held at Wuhan HOST and approximately $50,000 cash deconsolidated from disposal of Hubei Shengrong.

Financing activities

Net cash used in financing activities was approximately $50,000 for the dateyear ended December 31, 2018, as compared to approximately $0.3 million net cash provided by financing activities for the year ended December 31, 2017. Net cash used in financing activities for the year ended December 31, 2018 was mainly due to approximately $2.3 million repayment on short-term bank loan and approximately $0.2 million repayment on other payables – related parties and was offset by the issuance of common stock of approximately $133,000 to a group of unrelated third party investors in the PRC, approximately $2.3 million loan from short-term bank loan and approximately $20,000 loan from a third party and approximately $0.1 million loan from our related party.


Risks

Credit Risk

Credit risk is one of the interim financial statements, andmost significant risks for the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. We have identified the following as our critical accounting policies:Company’s business.

 

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrationsignificant concentrations of credit risk consist primarily of cash and accounts receivable. Cash held at major financial institutions located in athe PRC are not insured by the government. While we believe that these financial institution which, at times may exceed the Federal depository insurance coverageinstitutions are of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.high credit quality, it also continually monitors their credit worthiness.

 

Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. The Company manages credit risk through in-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. To minimize credit risk, the Company normally require prepayment from the customers prior to begin production or delivery products. The Company identifies credit risk collectively based on industry, geography and customer type. This information is monitored regularly by management.

In measuring the credit risk of our sales to our customers, the Company mainly reflects the “probability of default” by the customer on its contractual obligations and considers the current financial position of the customer and the exposures to the customer and its likely future development.

Fair valueLiquidity Risk

The Company is also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial instrumentsposition analysis and monitoring procedures. When necessary, the Company will turn to other financial institutions and the owners to obtain short-term funding to meet the liquidity shortage.

Inflation Risk

The fair valueCompany is also exposed to inflation risk Inflationary factors, such as increases in raw material and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of sales revenue if the selling prices of our products do not increase with such increased costs.

Foreign Currency Risk

A majority of the Company’s operating activities and a significant portion of the Company’s assets and liabilities are denominated in RMB, which qualify asis not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial instruments under FASB ASC Topic 820, “Fair Value Measurementsinstitutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheets, primarily due to their short-term nature.

Usesigned contracts. The value of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

40

Income taxes

The Company complies with the accounting and reporting requirements of FASB ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

FASB ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits as of December 31, 2016. No amounts were accrued for the payment of interest and penalties at December 31, 2016. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The CompanyRMB is subject to income tax examinations by major taxing authorities since inception.

The Company may be subjectchanges in central government policies and to potential examination by U.S. federal, U.S. states or foreign jurisdiction authoritiesinternational economic and political developments affecting supply and demand in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, U.S. state and foreign tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

Cash and cash equivalents

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of December 31, 2016.

Cash and securities held in Trust Account

At December 31, 2016, the assets held in the trust account were held in cash and U.S. Treasury Bills.

Deferred offering costs

Deferred offering costs consist of legal, underwriter and accounting fees incurred through the balance sheet date that are directly related to our initial public offering and that were charged to stockholders’ equity upon the completion of our initial public offering on July 29, 2015. Offering costs amounting to $1,862,816 were charged to stockholders’ equity upon completion of our initial public offering.

Accrued expenses and due to affiliate

Accrued expenses represents amounts the Company owes to its vendors, for which service has been provided but the Company has not paid for and state franchise tax. At December 31, 2016, there were approximately $4,000 of accrued travel expenses and $39,000 accrued state franchise tax in the Company’s accrued expenses. Due to affiliate represents entity costs and offering costs paid by an affiliate on behalf of the Company. These advances are non-interest bearing, unsecured and payable on demand.

Redeemable Common Stock

As discussed in Note 4, 4,000,000 of the 5,000,000 shares of common stock sold as part of the units in our initial public offering contain a redemption feature which allows for the redemption of common stock under the Company’s liquidation or tender offer/stockholder approval provisions. In accordance with ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. Although the Company did not specify a maximum redemption threshold, its charter provides that in no event will it redeem its public shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001.

Accordingly, at December 31, 2016, 4,000,000 of the 5,000,000 public shares were classified outside of permanent equity at its redemption value.

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Going concern

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The amendments in ASU 2014-15 are effective for annual reporting periods ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company has adopted the methodologies prescribed by ASU 2014-15, and does not anticipate that the adoption of ASU 2014-15 will have a material effect on its financial position or results of operations.

Recently issued accounting standards

The Company complies with the reporting requirements of FASB ASU No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as “Development Stage Entities” (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce date maintenance and, for those entities subject to audit, audit costs by eliminating the requirements for development stage entities to present inception-to-date information in the statements of income, cash flows, and stockholders’ equity. Upon adoption, entities will no longer present or disclose any information required by Topic 915. For private entities and emerging growth companies under the JOBS Act, the amendments are effective for annual reporting periods beginning after December 15, 2015. The Company has elected early adoption and the methodologies prescribed by ASU 2014-10 in the accompanying financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 provides guidance on management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The amendments in ASU 2014-15 are effective for annual reporting periods ending after December 15, 2016 and for annual and interim periods thereafter. Early adoption is permitted. The Company has adopted the methodologies prescribed by ASU 2014-15, and does not anticipate that the adoption of ASU 2014-15 will have a material effect on its financial position or results of operations.

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.China Foreign Exchange Trading System market. 

  

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

The net proceeds of our initial public offering and the sale of the private placement warrants heldDisclosure in the trust account are invested in U.S. government treasury bills withresponse to this Item is not required for a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.smaller reporting company. 

42

 

Item 8. Financial Statements and Supplementary Data

 

Reference is made to Pages F-1 through F-18F-34 comprising a portion of this Annual Report on Form 10-K.

Index to Financial Statements

Page
Report of Independent Registered Public Accounting FirmF-2
Financial Statements:
Balance Sheets as of December 31, 2016 and December 31, 2015F-3
Statement of Operations for the year ended December 31, 2016 and for the period from April 10, 2015 (inception) to December 31, 2015F-4
Statement of Stockholders’ Equity for the period from April 10, 2015 (inception) to December 31, 2016F-5
Statement of Cash Flows for the period from April 10, 2015 (inception) to December 31, 2016F-6
Notes to Financial StatementsF-7

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.


Item 9A. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (the “Certifying Officer”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report.

 

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

 

Management’s Report on Internal Controls Over Financial Reporting

 

As required by the SEC rules and regulations for the implementation of Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

 

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company,

 

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and

 

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

 

A “material weakness” is defined under the SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls. As a result of its review, management concluded that we had material weaknesses in our internal control over financial reporting process consisting of the following:

●Inadequate U.S. GAAP expertise. The current accounting staff is inexperienced in applying U.S. GAAP standard as they are primarily engaged in ensuring compliance with PRC accounting and reporting requirement for our consolidated operating entities, and thus require substantial training. The current staff’s accounting skills and understanding as to how to fulfill the requirements of U.S. GAAP-based reporting, including subsidiary financial statements consolidation, are inadequate.

●No formal plan to provide applicable training for our financial and accounting staff to enhance our understanding of U.S. GAAP and internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at December 31, 2016.2018. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments and those criteria, management determined that we maintained effectiveour internal control over financial reporting was not effective at December 31, 2016.2018 due to the material weaknesses identified by our management as described above.

Management Plan to Remediate Material Weaknesses

●We plan to engage outside consultant to supplement efforts to improve our internal control over financial reporting;

●We plan to acquire applicable training for our financial and accounting staff to enhance our understanding of U.S. GAAP and internal control over financial reporting

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

DirectorsThe following table sets forth the name, age and Executive Officersposition of each of our executive officers and directors as of December 31, 2018:

 

As of the date of this Report, our directors and officers are as follows:

Name Age TitlePosition
Qi (Jacky) Zhang42Chairman of the Board of Directors
Tim RichersonJiazhen Li 56 Chief Executive Officer Chief Financial Officer and Director
Peter NathanialXiaonian Zhang 4967 President and Director
Kurt Jetta, PhDXiaoyan Shen 5538Chief Financial Officer and Secretary
Chuanliu Ni57Co-Chairman of the Board
Zheyi Wang33Co-Chairman of the Board
Hongxiang Yu (1)(2)(3)40 Director
Dongliang QuYilei Shao (1)(2)(3) 3642 Director
Arthur B. DrogueMingze Yin(1)(2)(3) 7131 Director
Xiaoguang LiuMin Zhu(1)(2)(3) 5239 Director

 

(1)Member of our Audit Committee
(2)Member of our Compensation Committee
(3)Member of our Nominating and Corporate Governance Committee

Qi (Jacky) ZhangBusiness Experience and Directorships

The following describes the backgrounds of current executive officers and directors. Our board of directors has been Chairmandetermined that (a) other than Messrs. Zheyi Wang and Chuanliu Ni, all of our Boarddirectors are independent directors as defined under the NASDAQ Stock Market’s listing standards governing members of Directors since inception.boards of directors, and (b) the members of our Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are independent under applicable SEC rules

 Ms. Jiazhen Li

Ms. Li became the Company’s CEO on October 4, 2018. From February 6, 2018 to October 7, 2018, Mr. Li was the Co-Chairwoman of the Board. Ms. Li has over seven years of work experience in environmental protection equipment and industrial waste recycling and utilizing area. She co-founded Hubei Shengrong Environmental Protection and Energy Saving Technology Co. Ltd. in 2009. Ms. Li won the third prize of Tech-Innovation Award issued by the Wuhan City Government in 2010, and under her leadership, her team won the second place in the China (Shenzhen) Innovation Tournament 2011. Ms. Li is also the co-inventor of multiple important patents owned by the Company. Ms. Li served as the Director of Sales for Wuhan Textile Industry Co. Ltd during the period from 1983 to 1995. She founded Wuhan Mingjia Trading Co. Ltd in 1995. Wuhan Mingjia is engaged in the business of fashion design, manufacture, marketing and distribution. Wuhan Mingjia owns two fashion brands, “MG” and “Mingjia Guixiu”, in China. Ms. Li actively serves as the Vice President of Hubei Wuhan Qiaokou District Commercial and Industrial Association. Ms. Li graduated from Beijing College of Economics and Management with a bachelor degree in Marketing and obtained her MBA degree from Welsh College of Wuhan University.

Mr. Xiaonian Zhang

Mr. Zhang became the President and a director of our Company on February 8, 2018. Xiaonian Zhang was appointed to be President and a director of Sunlong in 2017. From 2009 to present, Mr. Zhang has been a senior management memberthe general manager and head of Nanjing Joymaintechnology department in Hubei Shengrong Environmental Protection Energy-Saving Science and Technology Development Co., Ltd. (“Nanjing Joymain”), a health care consumer product company that develops, manufactures, markets and distributes high-tech health care consumer products through its direct sales channels in China, since June 2009, including holding positions as Global Chief Executive Officer since November 2012 and Executive President and Vice Chairman since December 2012. From June 2009 to October 2012, he wasOver the President of Nanjing Joymain China District.last decade, Mr. Zhang is also the Global Chief Executive Officerhad been working on R&D and Vice Chairmansuccessfully managed a team with a research focus on high efficiency permanent magnetic separation of JM Ocean Avenue International Corporation Limited (“JM Ocean Avenue”), a global direct sales company that offers consumer products in the nutritional supplement, personal care,industrial solid wastes and lifestyle categories in over 30 countries. From 2003 to 2009,comprehensive utilization of tailings. Mr. Zhang was an entrepreneur and involved in a number of health care and consumer products’ development companies with distribution through direct sales channels in China. . Previously, from 1995 to 2003,also held 2 U.S. invention patents on the high efficiency permanent magnetic comprehensive separating technology. Mr. Zhang held various positionsgraduated from Huazhong University of Science and was promoted asTechnology in July 1989 with a branch manager by the endBachelor degree of his tenure at Hangzhou City Commercial Bank. Mr. Zhang holds an MBA degree from the Business School of Nanjing Normal University. We believe Mr. Zhang is well qualified to serve as Chairman due to his more than 16 years of experience in business management and health care and consumer product development and marketing.Automatic Control.


Dr. Chuanliu Ni

 

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Tim RichersonDr. Ni became the Co-Chairman of our Company on February 06, 2018. Dr. Ni was appointed as Sunlong’s Co-Chair of the Board in 2017. He has been our Chief Executive Officer, Chief Financial Officeran extensive managerial experience and has a proven track record of success as a team leader. From 2007 to present, Dr. Ni has served as TJComex’s CEO and Chairman. From 1994-1999, Dr. Ni served as the U.S. Business Representative for Tianjin Economic and Technological Development Area (TEDA)/Tianjin City based in Washington D.C. Dr. Ni holds a Bachelor Science degree in Electrical Engineering of Nanjing University of Science and Technology, a Master Science degree in Management Information Systems of Hebei Polytechnic University, a Master Arts degree in Economics and a director since inception. He is currently the Chief Executive Officer and directorPh.D. in Economics of HopRocket, a members-only online travel company. He previously was the President of Global Operations and a director at JM Ocean Avenue, serving in such capacities from August 2014 through June 2015. Mr. Richerson started his career at Beecham Products in 1984 and then spent over a decade at Playtex Products, Inc. In 1998, Mr. Richerson was Senior Vice President & General Manager of Rexall Sundown (then a Nasdaq-listed company), a manufacturer and distributor of health-related consumer products in the Vitamin, Diet and Sports Nutrition categories with multiple brands and sales channels, and then company President from 2000 to 2002. During that time, Rexall was sold to Royal Numico in 2000 for $1.8 billion. During his tenure heWest Virginia University. Dr. Ni was also a member of 11thChina People’s Political Consultative Conference (CPPCC) Tianjin Commission.

Mr. Zheyi Wang

Mr. Wang was appointed as Co-Chairman of the Numico North American Management Committee, which included representatives from General Nutrition Centers (GNC) and Unicity, also Royal Numico-owned companies. During that time he wasBoard on October 4, 2018. Mr. Zheyi Wang has served as the principal accounting manager at China branch of AstraZeneca, an Anglo-Swedish multinational pharmaceutical company listed on the Associate Member Advisory Board withOver-the-Counter Market since January, 2018. From April 2016 to January 2018, Mr. Wang served as regional manager in Wuhan for the National Association of Chain Drug Stores. In 2003, he cofounded the Alan James Group, (a branded consumer products company), which was purchased by Interleukin Genetics (NASDAQ:ILI),Daiichi Sankyo Company Limited, a genetics-based personalized healthglobal pharmaceutical company and second largest pharmaceutical company in 2006,Japan. From June 2013 to March 2016, Mr. Wang was a sales representative for AstraZeneca. Mr. Wang received his bachelor degree in French in 2010 from Wuhan University and servedanother bachelor degree in financial management from Université Lille 2 Droit et Santé in 2011 in France. Mr. Wang also holds a master degree in accounting management, a degree he earned from SKEMA Business School in 2013.

Mr. Hongxiang Yu

Mr. Hongxiang Yu was appointed as Interleukin’s Chief Executive officer until 2007.a director of our Board on August 31, 2018. Mr. RichersonHongxiang Yu has been a partner in GT Development which develops, owns and operates commercial real estate,director for American Lorain Corporation, a company listed on New York Stock Exchange (AMEX: ALN) since November 2004.2016. Mr. Richerson also served as a consultant to Burnham Financial Group from February 2013 through August 2014. He is a graduate of the University of Missouri and is a prior member of Young Presidents Organization (YPO). We believe Mr. Richerson is well qualified to serve as director due to his more than 30 years of business experience in the areas of consumer products and marketing.

Peter NathanialYu has been our President and a director since inception. Since January 2010, he has been a member of Impala Partners LLC, a boutique financial advisory, restructuring and investment firm. Prior to this, from January 2007 to December 2009, Mr. Nathanial served as the Group Chief Risk Officer at The Royal Bank of Scotland, based in Edinburgh. From 1991 to 2006 he held management positions at Citigroup in New York and internationally, including Zurich from 1993 to 1995, Moscow from 1995 to 1998, Warsaw from 1998 to 2000, and New York from 2000 to 2006. Mr. Nathanial serves on Advisory Boards and Boards of Directors and non-for profit organizations around the world including; Digital MR (UK) — memberhead of the advisory board since January 2010; LITUS (Belgium) — memberinternal auditing department of the international advisory board, since March 2015; International Friends of Elepap — director since October 2014, and member of the International Advisory Council to the President of Cyprus, since May 2014. He is a former Member of the President’s Council of the International CrisisHongrun Construction Group from January 2007 to July 2009, and from July 2012 to November 2012 served as an Expert Special Advisor to the International Monetary Fund. Mr. Nathanial was educated in Australia and holds a BA from Macquarie University. We believe Mr. Nathanial is well qualified to serve as director due to his extensive experience in the banking, private equity and risk management.

Kurt Jetta, Ph.D., one of our directors since July 2015, is currently the Chief Executive Officer and Lead Product Developer for TABS Group, Inc.Co., a technology-enabled retail and consumer analytics firm, which he founded in 1998. In the 17 years since inception TABS Group, Inc. has gone from a one-man operation to 25 employees and 50+ retainer clients. Prior to TABS Group, from 1996 to 1998, Dr. Jetta was the CEO of Binky-Griptight, a supplier of baby accessory products in the US market. Dr. Jetta is also a Board Member for the Delray Beach Boys & Girls Club. Dr. Jetta has a B.S. in Statistics from North Carolina State University, an M.B.A. in Marketing from The Fuqua School of Business at Duke University and a doctorate in Economics from Fordham University. We believe Dr. Jetta is well qualified to serve as one of our directors due to his extensive operational experience in running TABS Group, as well as his deep educational background in marketing and economics.

Dongliang Qu, one of our directors since July 2015, is currently a partner at Jiangsu Zhongmeng Law Firm, a position he has held since August 2009; he is also the Executive Director of Nanjing Zhongmeng Intellectual Property Agency, an affiliate of Jiangsu Zhongmeng Law Firm that provides trademark, copyright, patent related, corporate and legal services. From October 2005 to July 2009, Mr. Qu was the Director of Intellectual Property at Jiangsu Ninghai Trademark Agency. Mr. Qu specializes in intellectual property and corporate laws. Mr. Qu’s legal practice encompasses intellectual property applications, complex trademark disputes, unfair competition, and intellectual property infringement matters. He has successfully represented a number of corporations in China in defending their intellectual property rights and trademark. Mr. Qu holds a bachelor degree from Nanjing University with a major in law and a bachelor degree from Southeast University with a major in electrical engineering and automation. We believe Mr. Qu is well qualified to serve as one of our directors due to his extensive experience as a practicing attorney.

46

Arthur B. Drogue, our director since July 2016, has served as a Director of the Spar Group (Nasdaq: SGRP)Ltd., a company that provides retail services tolisted on the consumer goods industry, since January 2013Shenzhen Stock Exchange, and as general manager for Hongrun’s foundation engineering subsidiary, since August 2006. In September 2015, Mr. Yu established, and has been the Chairman of, Shanghai Highlights Asset Management Co., Ltd., a Director of Ruiz Foods, a privately held Mexican frozen foods company since November 2011.engaged in assets management and private equity investment in China. Since April 2016, Mr. DrogueYu has also served as the Vice Chairman of Apollo Food Group dba Yasso,Tianjin Dragon Film Limited, a private frozen Greek yogurt company since December 2013engaged in investment in film industry including the both upstream and as the Chairmandownstream chain of Cheating Gourmet, a private frozen seafood and frozen meat company, since January 2016.film production business in China. Mr. Drogue has served as Co-Founder and PartnerYu received his Bachelor degree in International Trade in 2004 from University of The Resource Team, a consulting practice focused on the consumer goods industry, since November 2011. Mr. Drogue served as the Interim Chief Operating Officer of Unreal Candy Company, a start-up confections company, from October 2012 to July 2013. Mr. Drogue served as an Operating Partner of the Raptor Consumer Fund, a private fund that invests in early stage companiesPortsmouth in the consumer goods industry,UK and his Master degree in International Human Resources Management in 2006 from January 2011 to January 2015. Mr. DrogueUniversity of Portsmouth.

Ms. Yilei Shao

Ms. Yilei Shao was appointed as a Senior Vice President at Unilever NV (NYSE: UL) from 2000 until 2010. His previous professional experience includes senior management positions at Best Foods (Vice Presidentdirector of Sales, U.S., from 1999 to 2000), Sunbeam (Vice President of Sales, North America, from 1998 to 1999), Nabisco (Vice President and then Senior Vice President, Sales, from 1991 to 1998), Northeastern Organization Inc. (from 1989 to 1991), and General Mills (NYSE: GIS) (various positions, including Director of Operations and Strategic Planning, from 1969 to 1989). Mr. Drogue graduated with a B.A. from Stetson University. We believe that Mr. Drogue is well qualifiedour Board on August 31, 2018. Ms. Yilei Shao was nominated to serve as a memberdirector for American Lorain Corporation, a company listed on New York Stock Exchange (AMEX: ALN) in 2018. Ms. Shao has served as founder and chief executive officer of Shanghai Jianshi Management Consulting Limited, focusing on cross-border advisory services for Chinese companies and strategic consulting, since 2011. Ms. Shao served as Vice President in the Board dueCredit Derivatives Department of Goldman Sachs in New York from 2005 to his extensive experience serving2010. Ms. Shao received a bachelor degree in computer science from Shanghai Jiao Tong University and a Ph.D. in Computer Science from Princeton University.

Mr. Mingze Yin

Mr. Yin was appointed as a director and senior officer of public and private companies.

Xiaoguang Liu, our directorBoard on March 22, 2019. Mr. Mingze Yin has been the Risk Control Manager of Shanghai Guangdian Asset Management co. LTD. since August 2016, hasNovember 2018. From November 2017 to October 2018, he served as a professor in the Tianjin UniversityGeneral Manager of Science and Technology since October 2009. From April 2006 until August 2009, Dr. Liu served as a post-doctoral associate in theComprehensive Financial Services Department of Biology of Texas A&M University and from March 2002 until January 2006the Investment Banking Division at Lianchu Securities LTD. From November 2016 to October 2017, he served as a post-doctoral associate in the Department of MedicineSenior Manager of the UniversityInvestment Banking Headquarter of Illinois at Chicago. Dr. LiuZhongshan Securities LTD. From July 2013 to October 2016, he served as a Senior Auditor of the BDO China SHU LUN PAN Certified Public Accountants LLP. From July 2011 to June 2013, he served as an Auditor of Zhongxi Certified Public Accountants LLP. During the term of office mentioned above, Mr. Yin received his bachelorBachelor degree in Management in 2011 from Jiangxi Agricultural University, his master degree from Zhejiang Agricultural University and his doctorate from the UniversityHuaihai Institute of Arizona. We believe Dr. Liu is well qualified to serve as a member of the Board because his clinical and technical background adds to, and rounds out the experience of, the Board.Technology.

Mr. Min Zhu

 

Mr. Zhu was appointed as a director of our board on March 22, 2019. Mr. Zhu has been the General Manager of Tianjin Longying Pictures co. LTD since October 2016. From September 2008 to September 2016, he served as a District Manager of Maersk Logistics Investment LTD. From October 2004 to September 2008, he served as a Shipping Manager of Shanghai Leya International Freight Agency Co. LTD. During the term of office mentioned above, Mr. Zhu received his Bachelor degree in System Engineering in 2002 from Shanghai Institute of Technology.


NumberMs. Xiaoyan Shen

Ms. Shen became the Company’s Chief Financial Officer on February 6, 2018. Xiaoyan Shen was appointed as Sunlong’s Chief Financial Officer in 2017. Ms. Shen has over 15 years of corporate financial leadership and Termscommodity exchange experience. Ms. Shen held a Master of OfficePublic Accounting from Macquarie University, and a Bachelor Economic degree in Economics from Tongji University. Ms. Shen is also a Certified Public Accountant in Australia.

No Classification of Officers and Directors

 

OurIn accordance with our existing charter, our board of directors is divided into threetwo classes with only one class of directors being elected in each year and each class serving a three-year term. The term of office of the(except for those directors appointed prior to our first class of directors, consisting of Messrs. Drogue and Liu, will expire at our 2019 annual meeting of stockholders. The termstockholders) serving a two-year term.

As discussed above, in connection with the Business Combination, our board of officedirectors has been reconstituted and comprised of seven members. Our board of directors believes it is in the best interests of the second classCompany for the board of directors consisting of Messrs. Jetta and Qu, will expire at our 2017to have no separate classification, such that each director serves a one-year term until the next annual meeting of stockholders. The term of office ofstockholders or until such director’s successor is elected or qualified. If Proposal 4 is approved at the third classspecial meeting, all seven directors that our board of directors consisting of Messrs. Zhang, Richerson and Nathanial,has nominated to serve on the board will expire at our 2018serve until the first annual meeting of stockholders.stockholders following the Business Combination.

Director Independence

 

NASDAQ listing standards require that a majority of our board of directors be independent as long as we are not a controlled company. We anticipate that a majority of our board of directors will be independent as of the closing of the Business Combination. An “independent director” is defined under the NASDAQ rules generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. We anticipate that our board of directors will determine that Ms. Yilei Shao, Mr. Hongxiang Yu, Mr. Min Zhu and Mr. Mingze Yin are “independent directors” as defined in the NASDAQ listing standards and applicable SEC rules. Our independent directors will have regularly scheduled meetings at which only independent directors are present.

47

Leadership Structure and Risk Oversight

 

The board of directors does not have a lead independent director. Currently Ms. Jiazhen Li serves as our Chief Executive Officer, and Dr. Ni and Mr. Wang serve as Co-Chairs of the Board.

 

Committees of the Board of Directors

 

The standing committees of our board of directors currently consists of an Audit Committee and a Compensation Committee, and after the Business Combination will also consist of a Nominating and Corporate Governance Committee. Each of the committees will report to the board of directors as they deem appropriate and as the board may request.

 

SubjectAudit Committee

Our Audit Committee currently consists of Ms. Yilei Shao, Mr. Hongxiang Yu, Mr. Min Zhu and Mr. Mingze Yin with Mr. Hongxiang Yu serving as the chairman of the Audit Committee. We believe that each of these individuals qualify as independent directors according to phase-inthe rules and a limited exception, the rules of Nasdaq and Section 10Aregulations of the Exchange Act require that theSEC with respect to audit committee membership. We also believe that Mr. Hongixang Yu qualifies as our “audit committee financial expert,” as such term is defined in Item 401(h) of a listed company be comprised solely of independent directors. We have established an audit committee of theRegulation S-K. Our board of directors has adopted a written charter for the Audit Committee, which consists of Messrs. Jetta, Qu and Drogue. Messrs. Jetta, Qu and Drogue meet the independent director standard under Nasdaq’s listing standards and under Rule 10A-3(b)(1) of the Exchange Act. Dr. Jetta servesis attached as Chairman of our audit committee.an exhibit to this Report.

 

The audit committee’s duties, which are specified in our Audit Committee Charter, include, but are not limited to:

 

●reviewing and discussing with management and the independent auditor our annual audited financial statements, and recommending to the board whether the audited financial statements should be included in our Form 10-K;
  
●discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements;
  
●discussing with management major risk assessment and risk management policies;

 
●monitoring the independence of the independent auditor;
  
●verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;
  
●reviewing and approving all related-party transactions;
  
●inquiring and discussing with management our compliance with applicable laws and regulations;
  
●pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed;
  
●appointing or replacing the independent auditor;
  
●determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;
  
●establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and
●approving reimbursement of expenses incurred by our management team in identifying potential target businesses.

Financial Expert on Audit Committee

 

The audit committee will at all times be composed exclusively of independent directors who are “financially literate” as defined under Nasdaq’s listing standards. The Nasdaq listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.

In addition, we must certify to the NASDAQ Capital Market that the committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. We have determined that Dr. Jetta satisfies Nasdaq’s definition of financial sophistication and also qualifies as an “audit committee financial expert,” as defined under rules and regulations of the SEC.

48

Compensation Committee

We have established a compensation committeeOur Compensation Committee currently consists of Ms. Yilei Shao, Mr. Hongxiang Yu, Mr. Min Zhu and Mr. Mingze Yin, with Ms. Yilei Shao serving as the chairman of the boardCompensation Committee. We anticipate that each of directors. Thethe members of our Compensation Committee are Messrs. Jetta and Qu. Mr. Qu serves as chairmanwill be independent under the applicable NASDAQ listing standards. Our board of the compensation committee. We havedirectors has adopted a written charter for the Compensation Committee, which is attached as an exhibit to this Report.

The compensation committee charter,committee’s duties, which details the principal functions of the compensation committee, including:are specified in our Compensation Committee Charter, include, but not limited to:

 

●reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer’s based on such evaluation;
  
●reviewing and approving the compensation of all of our other executive officers;
  
●reviewing our executive compensation policies and plans;
  
●implementing and administering our incentive compensation equity-based remuneration plans;
  
●assisting management in complying with our proxy statement and annual report disclosure requirements;
  
●approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers and employees;
  
●producing a report on executive compensation to be included in our annual proxy statement; and
  
●reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.

The charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by Nasdaq and the SEC.

Director Nominations

 

We do not have a standing nominating committee, though we intendCorporate Governance and Nominating Committee

Our Corporate Governance and Nominating Committee will be responsible for, among other matters: (1) identifying individuals qualified to form a corporate governance and nominating committee as and when required to do so by law or NASDAQ rules. In accordance with Rule 5605(e)(2)become members of the NASDAQ rules, a majority of the independent directors may recommend a director nominee for selection by the board of directors. Theour board of directors, believes thatconsistent with criteria approved by our board of directors; (2) overseeing the independent directors can satisfactorily carry out the responsibilityorganization of properly selecting or approving director nominees without the formation of a standing nominating committee. The directors who shall participate in the consideration and recommendation of director nominees are Dr. Jetta, Mr. Qu, Mr. Drogue and Mr. Liu. In accordance with Rule 5605(e)(1)(A) of the NASDAQ rules, Dr. Jetta, Mr. Qu, Mr. Drogue and Mr. Liu are independent. As there is no standing nominating committee, we do not have a nominating committee charter in place.

Theour board of directors will also consider director candidates recommended for nomination byto discharge the board’s duties and responsibilities properly and efficiently; (3) identifying best practices and recommending corporate governance principles; and (4) developing and recommending to our stockholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting of stockholders (or, if applicable, a special meeting of stockholders). Our stockholders that wish to nominate a director for election to the Board should follow the procedures set forth in our bylaws.

We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the board of directors considers educational background, diversitya set of professional experience, knowledgecorporate governance guidelines and principles applicable to us.


Our Corporate Governance and Nominating Committee currently consists of Ms. Yilei Shao, Mr. Hongxiang Yu, Mr. Min Zhu and Mr. Mingze Yin, with Mr. Min Zhu serving as the chairman of the Corporate Governance and Nominating Committee. We anticipate that each of the members of our business, integrity, professional reputation, independence, wisdom,Corporate Governance and Nominating Committee will be independent under the ability to representapplicable NASDAQ listing standards. Our board of directors has adopted a written charter for the best interests ofCorporate Governance and Nominating Committee, which is available on our stockholderscorporate website at www.tmsr-ltd.com.

 

Compensation Committee Interlocks and Insider Participation

 

None of our executive officers currently serves, and in the past year has not served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of such Forms, we believe that during the year ended December 31, 20162017 there were no delinquent filers.

 

Code of Ethics

 

We have adopted a codeCode of ethicsEthics that applies to our officers and directors. We have filed copiesall of our codeemployees, including our chief executive officer, chief financial officer and principal accounting officer. Our Code of ethics,Ethics is attached as an exhibit to this Report. If we amend or grant a waiver of one or more of the provisions of our audit committee charter andCode of Ethics, we intend to satisfy the requirements under Item 5.05 of Form 8-K regarding the disclosure of amendments to or waivers from provisions of our compensation committee charter as exhibitsCode of Ethics that apply to our registration statement in connection withprincipal executive officer, principal financial officer and principal accounting officer by posting the required information on our initial public offering. You may review these documents by accessing our public filingswebsite at the SEC’s web site at www.sec.gov. In addition, a copy of the code of ethics will be provided without charge upon request to us.above address.

49

 

Item 11. Executive Compensation

 

The following table provides disclosure concerning all compensation paid for services to TMSR in all capacities for our fiscal years ended 2018 and 2017 provided by (i) each person serving as our principal executive officer (“PEO”), (ii) each person serving as our principal financial officer (“PFO”) and (iii) our two most highly compensated executive officers other than our PEO and PFO whose total compensation exceeded $100,000 (collectively with the PEO, referred to as the “named executive officers” in this Executive Compensation Discussion and Analysissection).

Summary Compensation Table

Name and Principal Position Fiscal
Year		  Salary 
($)		  Bonus 
($)		  Stock
Awards 
($)		  Option
Awards
($)		  Other
Compensation
($)		 Total
($)		 
                     
Xiaoyan Shen (1) 2018   36,538   -      -      -      -   36,538 
(CFO) 2017   36,538   -   -   -      -  36,538 
                           
Jiazhen Li (2) 2018   9,135       -    -    -   9,135  
(CEO) 2017   9,135   -   -   -   -  9,135 
                           
Chuanliu Ni (3) 2018   95,875   -   -     -   -   95,875 
(Former CEO) 2017   127,833   -   -   -   -  127,833 

(1)Ms. Xioyan Shen was appointed as the CFO of TMSR on February 6, 2018. Ms. Shen was entitled to an annual base salary of $36,538 pursuant to the employment agreement she had with the Company.
(2)Ms. Jiazhen Li was appointed as the CEO of the Company on October 4, 2018. Ms. Li is entitled to an annual base salary of $9,135 pursuant to the employment agreement he had with the Company.
(3)Dr. Chuanliu Ni was appointed as the CEO of the Company on February 6, 2018. Dr. Ni was entitled to an annual base salary of $127,833 pursuant to the employment agreement he had with the Company. Dr. Ni resigned on October 4, 2018.


Grants of Plan Based Awards in the Fiscal Year Ended December 31, 2018

 

NoneWe currently have a 2018 long-term equity incentive plan pursuant to which 10,000,000 shares were authorized. During the fiscal year ended December 31, 2018, no shares of common stock were granted to our officers and directors under the plan.

Outstanding Equity Awards at Fiscal Year-End

None.

Employment Contracts, Termination of Employment, Change-in-Control Arrangements

We have entered into employment agreements with each of our executive officers, or directors has received any cash (or non-cash) compensation for services rendered to us. Our sponsors, executive officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our independent directors will review on a quarterly basis all payments that were made to our sponsors, officers, directors or our or their affiliates.

Afterrespectively, including Ms. Zheyi Wang, the completion of our initial business combination, directors or members of our management team who remain with us may be paid consulting, management or other fees fromCo-Chairman (each an “Employment Agreement,” collectively, the combined company. All of“Employment Agreements”). Under these fees will be fully disclosed to stockholders, to the extent then known, in the tender offer materials or proxy solicitation materials furnished to our stockholders in connection with a proposed business combination. It is unlikely the amount of such compensation will be known at the time, because the directors of the post-combination business will be responsible for determining executive and director compensation. Any compensation to be paid to our officers will be determined by our compensation.

We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or allagreements, each of our executive officers and directorsis employed for a specified time period. We may negotiateterminate employment for cause, at any time, without advance notice or consulting arrangementsremuneration, for certain acts of the executive officer, such as conviction or plea of guilty to remaina crime, or misconduct or a failure to perform agreed duties. The executive officer may resign at any time with us after the initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with any potential business combination. We are not party to any agreements with our executive officers and directors that provide for benefits upon termination of employment.three-month advance written notice.

 

The officers also agreed to enter into additional confidential information and invention assignment agreements and are subject to certain non-compete and non-solicitation restrictions for a period one year following termination. 

Director Compensation

The following table represents compensation earned by our non-executive directors in 2018.

Name Fees earned
in cash 
($)		  Stock 
awards
($)		  Option
awards
($)		  All other
compensation
($)		  Total
($)		 
Zheyi Wang (1) $10,000   -      -       -  $10,000 
Xiaonian Zhang (2) $14,615    -   -   -  $14,615 
Yilei Shao (3) $10,000   -   -    -    10,000  
Hongxiang Yu (4) $10,000   -   -   -  $10,000 
Chenchen Zhang (5) $-   -    -    -   $ - 
Wenting Zou (6) $-   --   -   --  $- 

(1)Mr. Zheyi Wnag was appointed as a director of the Company on October 4, 2018 and shall receive annual compensation at $10,000.
(2)Mr. Xiannian Zhang was appointed as a director of the Company on February 6, 2018 and shall receive annual compensation at $14,615.
(3)Ms. Yilei Shao was appointed as a director of the Company on August 31, 2018 and shall receive annual compensation at $10,000.
(4)Mr. Hongxiang Yu was appointed as a director of the Company on August 31, 2018 and shall receive annual compensation at $10,000.
(5)Mr. Chenchen Zhang was appointed as a director of the Company on February 6, 2018 and shall receive $0 per year. Mr. Chenchen Zhang resigned from his positon on March 22, 2019.
(6)Ms. Wenting Zou was appointed as a director of the Company on February 6, 2018 and shall receive annual compensation at $0. Ms. Wenting Zou resigned from her position on March 22, 2019.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth information regarding the beneficial ownership of our common stock as of March 25, 201627, 2018 based on information obtained from the persons named below, with respect to the beneficial ownership of shares of our common stock, by:

 

●each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
●each of our executive officers and directors that beneficially owns shares of our common stock; and
●all our executive officers and directors as a group.

 

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.

 

Name and Address of Beneficial Owner(1) Number of Shares Beneficially Owned  Approximate Percentage of Outstanding Common Stock 
       
Zhong Hui Holding Limited (our sponsor)(2)  4,496,500   68.5%
Qi (Jacky) Zhang(2)  4,496,500   68.5%
Tim Richerson  30,000   * 
Peter Nathanial  30,000   * 
Dr. Kurt Jetta  3,000   * 
Dongliang Qu  3,000   * 
Arthur B. Drogue  0   * 
Xiaoguang Liu  0   * 
All directors and executive officers as a group (7 individuals)  4,562,500   69.5%

The percentage ownership information shown in the table below is based on that there were 20,276,698 shares of common stock outstanding as of March 29, 2019.

  Number of Shares  % 
Name and Address of Beneficial Owners(1)        
5% stockholders:        
         
Qi (Jacky) Zhang(2)(3)  3,778,000   18.6 
Yiin Jin  3,527,528   17.4 
Shenghua Huang  1,263,762   6.2 
Chuanliu Ni  -   - 
Zheyi Wang  -   - 
Xiaonian Zhang  -   - 
Yilei Shao  -   - 
Hongxiang Yu  -   - 
Chenchen Zhang(4)  -   - 
Weiting Zou(4)  -   - 
Min Zhu(4)  -   - 
Mingze Yin(4)  -   - 
Xiaoyan Shen  -   - 
All directors and officers as a group (8 persons)  -   - 

    

*Less than 1 percent.

(1)Unless otherwise noted, the business address of each of the following entities or individuals is 1615 South CongressA101 Hanzheng Street City Industry Park, No.21 Jiefang Avenue, Suite 103, Delray Beach, Florida 33445.Qiaokou District, Wuhan, Hubei, China 430000.

(2)Mr. Zhang owns 100% of Zhong Hui Holding Limited and maybe deemed as the beneficial owner of these shares.

(3)On February 6, 2018, Qi (Jacky) Zhang resigned from our board of directors upon closing of the Business Combination.
  
(2)(4)These shares represent (i) the founder shares heldOn March 22, 2018, Chenchen Zhang and Weiting Zou resigned from our board of directors and replaced by our sponsorMr. Min Zhu and (ii) 3,000,000 shares included in 3,000,000 units purchased by our sponsor in our initial public offering. Mr. Zhang owns 100% of our sponsor, Zhong Hui Holding Limited.Mingze Yin.

 

The table above does not include the shares of common stock underlying the private placement warrants held by our sponsor because these securities are not exercisable within 60 days of this Report.

50

Changes in Control

 

N/A


Item 13. Certain Relationships and Related Transactions, and Director Independence

 

Certain Relationships and Related Transactions

 

In April 2015, our sponsor, Zhong Hui Holding Limited, which isDisposition of Hubei Shengrong

On December 27, 2018, the Company, entered into an affiliateEquity Purchase Agreement (the “EPA”) with Hopeway International Enterprises Limited., a private limited company duly organized under the laws of our ChairmanBritish Virgin Islands (the “Hoepway”). Pursuant to the EPA, Shengrong WFOE shall sell 100% equity interests in Hubei Shengrong to the Purchaser in exchange for the Purchaser’s agreement (“Consideration”) to irrevocably forfeit and cancel 8,523,320 shares of common stock of the Board, purchased an aggregate of 1,504,688 founderCompany (the “Shares”), constituting all the shares for an aggregate purchase price of $25,000, or approximately $0.017 per share. In June 2015, our sponsor transferred 164,063 founder shares to each of Tim Richerson, our Chief Executive Officer, and Peter Nathanial, our President, as well as 3,000 founder shares to each of Messrs. Jetta and Qu, our independent directors. On September 8, 2015, our sponsor forfeited 192,188 founder shares because the underwriter’s overallotment option was not exercised. In January 2016, Messrs. Nathanial and Richerson transferred an aggregate of 268,126 founder shares to our sponsor.

Our sponsor purchased 250,000 placement units, at a price of $10.00 per unit ($2,500,000 in the aggregate) in a private placement that occurred simultaneously with the completion of our initial public offering. The placement warrants are identical to the warrants sold in our initial public offering, except that if held by our sponsor or its permitted assigns, they (a) may be exercised for cash or on a cashless basis, (b) are not subject to being called for redemption and (c) they (including the common stock issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or soldowned by the holders until 30 days afterPurchaser. The transaction contemplated by the consummation of our initial business combination. There will be no redemption rights or liquidating distributions with respect to our founder shares, placement shares or warrants, which will expire worthless if we do not complete an initial business combination. Including founder shares, placement units and 3,000,000 units purchased by our sponsor in our initial public offering, holders of founder shares and purchasers of placement units own 69.5% of the outstanding common stock.EPA is hereby referred as Disposition.

 

The placement units were sold inCompany is the owner of all the issued and outstanding capital stock of China Sunlong Environmental Technology Inc. (“Sunlong”), a private placement pursuant to Section 4(2) or Regulation Dcompany duly organized and existing under the laws of the Securities ActBritish Virgin Islands (“BVI”), which is the sole shareholder of Shengrong Environmental Protection Holding Company Limited (“Shengrong BVI”), a company duly organized and were exempt from registration requirementsexisting under the federal securities laws. As such, the holderslaws of the placement warrants includedBVI. Shengrong BVI in turn owns all the placement units will be able to exercise such placement warrants even if, atissued and outstanding capital stock of Hong Kong Shengrong Environmental Technology Limited (“Shengrong HK”), which owns 100% equity interests in Shengrong WFOE.

Upon closing of this disposition, the time of exercise, an effective registration statement and a current prospectus relating to the common stock issuable upon exercise of such warrants is not available. Our placement units and the underlying securitiesPurchaser will become freely tradable only after they are registered.

Our sponsor purchased 3,000,000 units in our initial public offering. Our sponsor has agreed that it will not seek redemptionthe sole shareholder of 1,000,000 shares included in such units. The remaining 2,000,000 shares included in such units could be redeemed onHubei Shengrong and as a result, assume all assets and obligations of Hubei Shengrong except the same terms as the public shares.

Other than (i) repayment of loans made to us prior to the consummation of our initial public offering by our sponsor to cover offering-relatingresearch and organization expenses, (ii) repayment of any loans that our sponsor, managementdevelopment team their affiliates or other third parties may have made to finance transaction costsand intellectual property rights in connection with an intended initialthe solid waste recycling systems business combination (provided that if we do not consummate an initial business combination, we may use working capital held outsideshall be assigned to Shengrong WFOE as part of the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment other than interest earned thereon); and (iii) reimbursementdisposition.

The disposition was approved by the board of any out-of-pocket expenses incurreddirectors of the Company. Benchmark Company, LLC rendered a fairness opinion in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations, no compensation or feesthe Disposition, indicating that the Consideration to be received by the Company in the transaction is fair to the Company’s shareholders from a financial point of any kind, including finder’s fees, consulting fees or other similar compensation, will be paid to our initial stockholders, officers, directors or any of their respective affiliates, prior to or with respect to our initial business combination (regardless of the type of transaction that it is). The audit committee will approve such payments.view.

 

As of the date of the consummation of our initial public, our sponsor had loaned us $140,500, and one of our executive officers had loaned us $50,250, which were used for a portion of the expenses of our initial public offering. These loans were non-interest bearing, unsecured and repaid upon the completion of such offering. As of the date of this report, we repaid the $50,250 owed to the executive officer and the $140,500 is still outstanding.

Purchase from Hebei Shengrong

 

Qi (Jacky) Zhang,During the Chairman of our Board of Directors has agreed that, if the trust account is liquidated without the consummation of a business combination, he will indemnify usyear ended December 31, 2018, Hubei Shengrong sold products to the extent any claims by a third party for services rendered or products sold to us, or any claims by a prospective target business with which we have discussed entering into a transaction agreement, reduceWuhan Modern Industrial Technology Research Institute in the amount of funds in the trust account to below $10.00 per public share, except for any claims by any third party who executed a waiver of any and all rights to seek access to the trust account, regardless of whether such waiver is enforceable, and except for claims arising from our obligation to indemnify the underwriter of our initial public offering pursuant to the underwriting agreement for such offering. We have not independently verified whether Mr. Zhang has sufficient funds to satisfy his indemnity obligations, we have not asked Mr. Zhang to reserve for such obligations and he may not be able to satisfy those obligations. We believe the likelihood of Mr. Zhang having to indemnify the trust account is limited because we will endeavor to have all third parties that provide products or services to us and prospective target businesses execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account.$1,083,019.

 

51

In orderDuring the year ended December 31, 2018, Hubei Shengrong sold products to fund working capital requirements and finance transaction costsWuhan HOST in connection with an intended initial business combination, our sponsor, management team, their affiliates and other third parties may (but are not obligated to) loan us additional funds to fund our working capital requirements and transaction costs. The loans will be interest free. If we consummate an initial business combination, we would repay such loaned amounts. If we do not consummate an initial business combination, we may use a portion of any working capital held outside the trust account to repay such loaned amounts; however, no proceeds from the trust account may be used for such repayment, other than interest income earned thereon. If such funds are insufficient to repay the loan amounts, the unpaid amounts would be forgiven. Any part or all of such loans may be converted into additional warrants at $0.50 per warrant (a maximum of 1,000,000 warrants if up to $500,000 is loaned and that amount is converted into warrants) of the post-business combination entity at the option of our sponsor. The warrants would be identical to the placement warrants issued to our sponsor.

After our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our stockholders, to the extent then known, in the tender offer or proxy solicitation materials, as applicable, furnished to our stockholders. It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a stockholder meeting held to consider our initial business combination, as applicable, as it will be up to the directors of the post-combination business to determine executive and director compensation.

All ongoing and future transactions between us and any member of our management team or his or her respective affiliates will be on terms believed by us at that time, based upon other similar arrangements known to us, to be no less favorable to us than are available from unaffiliated third parties. It is our intention to obtain estimates from unaffiliated third parties for similar goods or services to ascertain whether such transactions with affiliates are on terms that are no less favorable to us than are otherwise available from such unaffiliated third parties. If a transaction with an affiliated third party were found to be on terms less favorable to us than with an unaffiliated third party, we would not engage in such transaction.

Upon the completion of our initial public offering, we entered into a registration rights agreement with respect to the founder shares, placement shares, placement warrants and warrants which may be issued upon any conversion of working capital loans from our sponsor. These holders will be entitled to make up to three demands, excluding short form registration demands. In addition, these holders will have “piggy-back” registration rights allowing them to include their securities in other registration statements filed by us. We will bear the costs and expenses of filing any such registration statements.$741,013. 

 

Director Independence

 

NASDAQ listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Dr. Jetta,Ms. Yilei Shao, Mr. Qu,Hongxiang Yu, Mr. DrogueChenchen Zhang and Mr. LiuWenting Zou are “independent directors” as defined in the NASDAQ listing standards and applicable SEC rules. Our independent directors have regularly scheduled meetings at which only independent directors are present.

 

Item 14. Principal Accountant Fees and Services.

 

The following is a summary of fees paid or to be paid to WithumSmith+Brown, PC,WWC, P.C., or Withum,WWC and Friedman LLP, for services rendered.

 

Audit Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by WithumFriedman in connection with regulatory filings. The aggregate fees billed Withumby Friedman, LLP for professional services rendered for the audit of our annual financial statements, review of the financial information included in our Forms 10-Q for the respective periods and other required filings with the SEC for the yearyears ended December 31, 20162018 and 20152017 totaled $50,000$240,000 and $61,000,$345,000, respectively. The aggregate fees billed or to be billed by WWC for professional services rendered for the audit of our annual financial statements, review of the financial information included in our Forms 10-Q for the respective periods and other required filings with the SEC for the years ended December 31, 2018 totaled $190,000. The above amounts include interim procedures and audit fees, as well as attendance at audit committee meetings.

 


Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. During the year ended December 31, 2016 and 2015,2018, we did not pay WithumWWC or Friedman, LLP for consultations concerning financial accounting and reporting standards.

 

Tax Fees. We did not pay WithumWWC or Friedman, LLP for tax planning and tax advice for the year ended December 31, 20162018 and 2015.2017.

 

All Other Fees. We did not pay WithumWWC or Friedman, LLP for other services for the year ended December 31, 20162018 and 2015.2017.

Pre-Approval Policy

 

Our audit committee was formed upon the consummation of our initial public offering. As a result, the audit committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit).

52


PART IV

 

Item 15. Exhibits, Financial Statement Schedules

 

(a)The following documents are filed as part of this Report:
  
(1)Financial Statements
  
(2)Financial Statements Schedule

 

All financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto in is Item 15 of Part IV below.

 

(3)Exhibits

 

We hereby file as part of this Report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website atwww.sec.gov.

 

53

EXHIBIT INDEX

 

Exhibit No. Description
1.12.1 Underwriting Agreement dated July 23, 2015,and Plan of Merger, date June 20, 2018  by and between the CompanyTMSR Delaware and Cantor Fitzgerald & Co.TMSR Nevada (1)
3.1 CertificateArticles of Incorporation. (2)(1)
3.2 Amended and Restated CertificateAmendment to Articles of Incorporation.Incorporation  (1)
3.3 Bylaws. (2)
4.1Specimen Unit Certificate. (2)
4.2Specimen Common Stock Certificate. (2)
4.3Specimen Warrant Certificate. (2)
4.4Warrant Agreement, dated July 23, 2015, between Continental Stock Transfer & Trust Company and the Company. (1)
4.5Unit Purchase Option, dated July 29, 2015, between the Registrant and Cantor Fitzgerald & Co. (1)
10.1 Investment Management Trust AccountShare Purchase Agreement dated July 23, 2015, between Continental Stock Transfer & Trust Company and the Company. (1)April 11, 2018 (3)
10.2 Registration RightsShare Purchase Agreement dated July 23, 2015, between the Company and certain security holders. (1)November 30, 2018(4)
10.3 Placement Unit SubscriptionConsulting Services Agreement dated May 4, 2015, among the Company and Zhong Hui Holding Limited. (2)November 30, 2018(4)
10.4 LetterEquity Pledge Agreement dated July 23, 2015, by and among the Company and certain security holders, officers and directors of the Company. (1)November 30, 2018(4)
10.5 Form of Indemnity Agreement. (2)Call Option Agreement dated November 30, 2018(4)
10.6 LetterVoting Rights Proxy Agreement dated July 23, 2015, by and among the Company and Cantor Fitzgerald & Co. (1)November 30, 2018(4)
10.7 ConsultingOperating Agreement dated as of OctoberNovember 30, 2015, by and between the Company and FirsTrust China Ltd.(3)2018(4)
10.8Equity Purchase Agreement dated December 27, 2018(5)
14.1 Code of Business and Ethics. (2)
31.131 Certification of theChief Executive Officer andChief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).*
32.132 Certification of theChief Executive Officer andChief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350**
99.1Form of Audit Committee Charter (2)
99.2Form of Compensation Committee Charter (2)
101.INS XBRL Instance Document*
101.SCH XBRL Taxonomy Extension Schema*
101.CAL XBRL Taxonomy Calculation Linkbase*
101.LAB XBRL Taxonomy Label Linkbase*
101.PRE XBRL Definition Linkbase Document*
101.DEF XBRL Definition Linkbase Document*

 

* Filed herewith

 

** Furnished herewith

 

(1)Incorporated by reference to the Company’s Form 8-K, filed with the Commission on July 29, 2015.June 26, 2018.
(2)Incorporated by reference to the Company’s Form S-1, filed with the Commission on June 16, 2015.
(3)Incorporated by reference to the Company’s Form 10-K,8-K, filed with the Commission on MarchApril 17, 2018.
(4)Incorporated by reference to the Company’s Form 8-K, filed with the Commission on December 03, 2018
(5)Incorporated by reference to the Company’s Form 8-K, filed with the Commission on December 28, 2016.2018

 

68

Item 16.Form 10-K Summary

Not applicable.

54

 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Index to Financial Statements

 

 Page
ReportReports of Independent Registered Public Accounting FirmFirmsF-2
Financial Statements: 
Consolidated Balance Sheets as of December 31, 20162018 and December 31, 20152017F-3F-4
StatementConsolidated Statements of OperationsIncome and Comprehensive Income (Loss) for the yearyears ended December 31, 20162018 and for the period from April 10, 2015 (inception) to December 31, 20152017F-4F-5
StatementConsolidated Statements of Stockholders’Changes in Shareholders’ Equity for the period from April 10, 2015 (inception) toyears ended December 31, 20162018 and 2017F-5F-6
StatementConsolidated Statements of Cash Flows for the period from April 10, 2015 (inception) toyears ended December 31, 20162018 and 2017F-6F-7
Notes to Consolidated Financial StatementsF-7F-8

F-1

 


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

JM Global
To:The Board of Directors and Stockholders of
TMSR Holding Company Limited

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of JM GlobalTMSR Holding Company Limited (the “Company”),Company) as of December 31, 2016 and 2015,2018, and the related consolidated statements of operations, changes inincome, comprehensive income, stockholders’ equity, and cash flows for the year ended December 31, 20162018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the period from April 10, 2015 (inception) toyear ended December 31, 2015. 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Ourmisstatement, 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, included considerationwe are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, 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.  An audit includes

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ WWC, P.C.

WWC, P.C.

Certified Public Accountants

We have served as the Company’s auditor since October 26, 2018

San Mateo, California

April 1, 2019


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

China Sunlong Environmental Technology Inc.

We have audited the accompanying consolidated balance sheets of China Sunlong Environmental Technology Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of JM Global Holding CompanyChina Sunlong Environmental Technology Inc. and Subsidiaries as of December 31, 20162017 and 2015,2016, and the results of itstheir operations and itstheir cash flows for each of the yearyears in the two-year period ended December 31, 2016 and for the period from April 10, 2015 (inception) to December 31, 2015,2017, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanyingBasis for Opinion

These financial statements have been prepared assuming thatare the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company will continue as a going concern. As discussed in Note 1accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements if theare free of material misstatement, whether due to error or fraud. The Company doesis not complete a business combination by July 29, 2017, then the Company will cease all operations exceptrequired 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 winding down and liquidating. This mandatory liquidation and subsequent dissolution raises substantial doubt aboutexpressing an opinion on the effectiveness of the Company’s abilityinternal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to continue as a going concern. Theassess the risks of material misstatement of the financial statements, do not include any adjustmentswhether due to error or fraud, and performing procedures that might result fromrespond to those risks. Such procedures included examining, on a test basis, evidence regarding the outcomeamounts 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 this uncertaintythe financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ WithumSmith+Brown, PCFriedman LLP

We have served as the Company’s auditor since 2013.

 

New York, New York

March 27, 201721, 2018

 

  

F-2

TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

  December 31,  December 31, 
  2018  2017 
ASSETS      
CURRENT ASSETS      
Cash and cash equivalents $726,737  $461,883 
Notes receivable  251,513   - 
Accounts receivable, net  4,191,246   14,512,638 
Other receivables, net  265,833   52,872 
Other receivable - related party  40,707   - 
Inventories  1,965,433   9,243,488 
Prepayments  2,218,148   19,863,548 
Total current assets  9,659,617   44,134,429 
         
PLANT AND EQUIPMENT, NET  5,761,332   2,188,135 
         
OTHER ASSETS        
Goodwill  14,339,050   - 
Intangible assets, net  2,790,095   1,203,040 
Other assets  97,020   61,474 
Deferred tax assets  205,863   980,840 
Total other assets  17,432,028   2,245,354 
         
Total assets $32,852,977  $48,567,918 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
         
CURRENT LIABILITIES        
Short term loans - bank $508,832  $2,305,316 
Third party loan  144,841   145,170 
Accounts payable  1,448,623   221,685 
Other payables and accrued liabilities  2,755,126   237,840 
Other payables - related parties  6,092,286   1,154,734 
Customer deposits  2,338,336   1,624,137 
Taxes payable  55,749   15,561,403 
Total current liabilities  13,343,793   21,250,285 
         
OTHER LIABILITIES        
Third party loan - noncurrent  145,381   - 
Deferred rent liabilities  -   67,642 
Total other liabilities  145,381   67,642 
         
Total liabilities  13,489,174   21,317,927 
         
COMMITMENTS AND CONTINGENCIES        
         
SHAREHOLDERS’ EQUITY        
Preferred stock, $0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding as of December 31, 2018 and 2017, respectively  -   - 
Common stock, $0.0001 par value, 200,000,000 shares authorized, 19,895,935 and 17,990,856 shares issued and outstanding as of December 31, 2018 and 2017, respectively*  1,990   1,799 
Additional paid-in capital  4,814,846   10,591,492 
Statutory reserves  -   2,137,815 
Retained earnings  15,267,660   13,817,668 
Accumulated other comprehensive (loss) income  (720,693)  701,217 
Total shareholders’ equity  19,363,803   27,249,991 
         
Total liabilities and shareholders’ equity $32,852,977  $48,567,918 

* Giving retroactive effect to the 2 for 1 split effected on June 20, 2018

The accompanying notes are an integral part of these consolidated financial statements.

F-4

 

 

JM GLOBALTMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

Balance Sheets

  December 31,
2016		  December 31,
2015		 
       
ASSETS      
CURRENT ASSETS:      
Cash $150,306  $623,044 
Prepaid assets  15,580   188,367 
Total current assets  165,886   811,411 
         
Trust account  50,109,326   50,023,363 
         
Total assets $50,275,212  $50,834,774 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
CURRENT LIABILITIES:        
Accounts payable $19,922  $27,707 
Accrued expenses  82,647   43,288 
Due to affiliates  140,500   140,500 
Total current liabilities  243,069   211,495 
         
Common stock subject to possible redemption: 4,000,000 shares (at a redemption value of approximately $10 per share) at December 31, 2016 and 2015, respectively  40,000,000   40,000,000 
Commitments and contingencies        
         
STOCKHOLDERS’ EQUITY:        
Preferred stock, $0.0001 par value, 1,000,000 shares authorized; none issued and outstanding        
Common stock, $0.0001 par value,  15,000,000 shares authorized; 2,562,500 shares issued and outstanding (excluding 4,000,000 shares subject to redemption) at December 31, 2016 and 2015, respectively  256   256 
Additional paid-in capital  10,807,708   10,857,228 
Accumulated deficit  (775,821)  (234,205)
Total stockholders’ equity  10,032,143   10,623,279 
Total liabilities and stockholders’ equity $50,275,212  $50,834,774 

See accompanying notes to financial statements

 

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

F-3

 

  For the Years Ended
December 31,		 
  2018  2017 
REVENUES      
Equipment and systems $15,298,353  $18,635,434 
Coating and fuel materials  5,722,165   - 
Trading and others  2,170,836   20,116,331 
TOTAL REVENUES  23,191,354   38,751,765 
         
COST OF REVENUES        
Equipment and systems  12,748,378   5,999,356 
Coating and fuel materials  4,604,000   - 
Trading and others  1,319,353   13,234,664 
TOTAL COST OF REVENUES  18,671,731   19,234,020 
         
GROSS PROFIT  4,519,623   19,517,745 
         
OPERATING EXPENSES (INCOME)        
Selling, general and administrative  3,003,028   1,804,895 
(Recovery of) provision for doubtful accounts  (610,464)  6,428,261 
Impairment loss of goodwill  -   3,838,274 
TOTAL OPERATING EXPENSES  2,392,564   12,071,430 
         
INCOME FROM OPERATIONS  2,127,059   7,446,315 
         
OTHER INCOME (EXPENSE)        
Interest income  2,410   707 
Interest expense  (181,677)  (173,268)
Other income (expense), net  18,020   (1,106,335)
Total other expense, net  (161,247)  (1,278,896)
         
INCOME BEFORE INCOME TAXES  1,965,812   6,167,419 
         
PROVISION FOR INCOME TAXES  515,820   1,953,942 
         
NET INCOME  1,449,992   4,213,477 
         
OTHER COMPREHENSIVE INCOME        
Foreign currency translation adjustment  (2,322,191)  1,515,092 
         
COMPREHENSIVE INCOME $(872,199) $5,728,569 
         
WEIGHTED AVERAGE NUMBER OF COMMON SHARES        
Basic and diluted*  23,349,524   17,745,085 
         
EARNINGS PER SHARE        
Basic and diluted* $0.06  $0.24 

 

JM GLOBAL HOLDING COMPANY

Statement of Operations

  For the Year Ended December 31,
2016		  For the period from April 10, 2015 (date of inception) to December 31,
2015		 
       
Revenue $-  $- 
         
Operating expenses  627,579   257,568 
         
Loss from operations  (627,579)  (257,568)
         
Interest income  85,963   23,363 
Net loss attributable to common stock (excluding shares subject to possible redemption) $(541,616) $(234,205)
         
Basic and diluted net loss per share $(0.21) $(0.11)
         
Weighted average number of common stock outstanding        
Basic and diluted  (excluding shares subject to possible redemption)  2,562,500   2,091,409 

See accompanying notes* Giving retroactive effect to financial statementsthe 2 for 1 split effected on June 20, 2018

 

F-4

JM GLOBAL HOLDING COMPANY

Statement of Stockholders’ Equity

For the period from April 10, 2015 (inception) to December 31, 2016

  Common Stock  Additional     Total 
  Number of     Paid-in  Accumulated  Stockholders’ 
  Shares  Amount  Capital  Deficit  Equity 
                
Sale of common stock to initial stockholder
on April 22, 2015 at $0.01662 per share		  1,504,688  $150  $24,850  $-  $25,000 
                     
Sale of common stock on July 29, 2015
 at $10.00 per share		  5,250,000   525   52,499,475   -   52,500,000 
                     
Underwriters’ discount and offering expenses  -   -   (1,862,816)  -   (1,862,816)
                     
Proceeds from sale of underwriter options  -   -   100   -   100 
                     
Common stock subject to possible redemption  (4,000,000)  (400)  (39,999,600)  -   (40,000,000)
                     
Forfeiture of 192,188 shares of common stocks  as a result of no over-allotment option exercised  (192,188)  (19)  19   -   - 
                     
Common stock issuable to Firstrust at $9.76 per share  -   -   195,200   -   195,200 
                     
Net loss  -   -   -   (234,205)  (234,205)
                     
Balance, December 31, 2015  2,562,500   256   10,857,228   (234,205)  10,623,279 
                     
Cancellation of Common stock issuable to Firstrust      -   (65,066)  -   (65,066)
                     
Stock-based compensation recorded for options issued to a director by the sponsor          15,546   -   15,546 
                     
Net loss  -   -   -   (541,616)  (541,616)
                     
Balance, December 31, 2016  2,562,500  $256  $10,807,708  $(775,821) $10,032,143 

SeeThe accompanying notes toare an integral part of these consolidated financial statementsstatements.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

F-5

 

      Additional  Retained earnings Accumulated
other		    
  Preferred stock  Common stock  paid-in  Statutory     comprehensive    
  Shares  Par Value  Shares*  Par Value  capital  reserves  Unrestricted income (loss)  Total 
BALANCE, December 31, 2016         -  $      -   16,982,920  $1,698  $5,091,593  $1,171,146  $10,570,860  $(813,875) $16,021,422 
Acquisition of TJComex International Group Corp.  -   -   1,007,936   101   5,499,899   -   -   -   5,500,000 
Net income  -   -   -   -   -   -   4,213,477   -   4,213,477 
Statutory reserve  -   -   -   -   -   966,669   (966,669)  -   - 
Foreign currency translation  -   -   -   -   -   -   -   1,515,092   1,515,092 
BALANCE, December 31, 2017  -   -   17,990,856   1,799   10,591,492   2,137,815   13,817,668   701,217   27,249,991 
Reverse capitalization  -   -   4,758,774   476   7,453,773               7,454,249 
Issuance of common stock for cash  -   -   26,693   3   133,332               133,335 
Acquisition of Wuhan HOST Coating Materials Co. Ltd.  -   -   1,012,932   101   4,699,899               4,700,000 
Acquisition of Jiangsu Rong Hai Electric Power Fuel Co. Ltd.  -   -   4,630,000   463   9,259,537               9,260,000 
Disposition of Hubei Shengrong Environmental Protections and Energy Saving Technology Co. Ltd.  -   -   (8,523,320)  (852)  (27,323,187)  (2,137,815)      900,281   (28,561,573)
Net income  -   -                   1,449,992       1,449,992 
Foreign currency translation  -   -                       (2,322,191)  (2,322,191)
BALANCE, December 31, 2018  -  $-   19,895,935  $1,990  $4,814,846  $-  $15,267,660  $(720,693) $19,363,803 

 

* Giving retroactive effect to the 2 for 1 split effected on June 20, 2018

The accompanying notes are an integral part of these consolidated financial statements.


JM GLOBALTMSR HOLDING COMPANY

Statements of Cash Flows LIMITED AND SUBSIDIARIES

 

  Year Ended December 31,
2016		  For the period from April 10, 2015 (inception) to December 31,
2015		 
       
Cash flows from operating activities:      
Net loss $(541,616) $(234,205)
Adjustments to reconcile net loss to net cash used in operating activities:        
Common stock issuable for consulting fees  97,600   32,533 
Stock-based compensation for director fees  15,546   - 
Changes in operating assets and liabilities        
Increase in prepaid expenses  10,121   (25,700)
Increase in accounts payable  (7,785)  27,707 
Increase in accrued expenses  39,359   43,288 
Net cash used in operating activities  (386,775)  (156,377)
         
Cash flows from investing activities:        
Proceeds deposited in Trust Account  -   (50,000,000)
Interest income reinvested in Trust Account  (85,963)  (23,363)
Net cash used in investing activities  (85,963)  (50,023,363)
         
Cash flows from financing activities:        
Proceeds from issuance of common stock to initial stockholder  -   25,000 
Proceeds from sale of units in Private Placement  -   2,500,000 
Proceeds from sale of units in Public Offering, net of offering expenses paid  -   48,137,184 
Proceeds from sale of underwriter options  -   100 
Proceeds from due to affiliates, net  -   140,500 
Net cash provided by financing activities  -   50,802,784 
         
Net change  in cash  (472,738)  623,044 
Cash, beginning of period  623,044   - 
         
Cash, end of period $150,306  $623,044 
         
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION        
Non-cash investing and financing activities        
Cancellation of common stock issued for future services included in   unamortized prepaid expenses $65,066  $- 
Common stock issuable for consulting services  -  $195,200 

CONSOLIDATED STATEMENTS OF CASH FLOWS

  For the Years Ended
December 31,		 
  2018  2017 
       
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $1,449,992  $4,213,477 
Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation of plant and equipment  377,064   184,275 
Amortization of intangible assets  294,643   258,700 
(Recovery of) provision for doubtful accounts  (608,864)  6,428,261 
Impairment loss of goodwill  -   3,838,274 
Deferred tax provision (benefit)  92,534   (944,607)
Loss on deconsolidation of subsidiaries  14,874   - 
Change in operating assets and liabilities        
Notes receivable  (258,305)  - 
Accounts receivables  (1,588,078)  (19,624,916)
Accounts receivable - related party  4,618,601   - 
Other receivables  (103,539)  (47,734)
Other receivable - related party  358,699   - 
Inventories  3,250,208   (8,782,770)
Prepayments  (14,044,148)  7,226,595 
Deferred revenue  39,022   621,412 
Accounts payable  80,155   (31,887)
Other payables and accrued liabilities  778,420   153,638 
Customer deposits  430,981   1,015,762 
Taxes payable  2,779,502   5,065,078 
Net cash used in operating activities  (2,038,239)  (426,442)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Cash (disposed from deconsolidation) received from acquisition of TJComex International Group Corp.  (9,690)  23,452 
Cash received from JM Global Holding Company through reverse capitalization  7,989,402   - 
Cash payment for acquisition of Wuhan HOST Coating Materials Co. Ltd., net  (6,235,363)  - 
Cash received from acquisition of Rong Hai Electric Power Fuel Co. Ltd.  753,752   - 
Cash deconsolidated from disposal of Hubei Shengrong Environmental Protections and Energy Saving Technology Co. Ltd.  (49,866)  - 
Purchase of equipment  (3,515)  (1,886)
Net cash provided by investing activities  2,444,720   21,566 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from issuance of common stock  133,335   - 
Proceeds from short-term loans - bank  2,265,790   3,700,261 
Repayments of short-term loans - bank  (2,265,790)  (3,700,261)
Proceeds from third party loan  19,740   145,547 
(Repayments of) proceeds from other payable - related parties  (205,249)  201,907 
Net cash (used by) provided by financing activities  (52,174)  347,454 
         
EFFECT OF EXCHANGE RATE ON CASH  (89,453)  17,953 
         
INCREASE (DECREASE) IN CASH  264,854   (39,469)
         
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR  461,883   501,352 
         
CASH AND CASH EQUIVALENTS, END OF YEAR $726,737  $461,883 
         
SUPPLEMENTAL CASH FLOW INFORMATION:        
Cash paid for income tax $210,733  $22,202 
Cash paid for interest $167,207  $163,565 
         
NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES        
Issuance of common stock for the acquisition of TJComex International Group Corp. $-  $5,500,000 
Reverse capitalization with JM Global Holding Company $7,454,249  $- 
Issuance of common stock for the acquisition of Wuhan HOST Coating Materials Co. Ltd. $4,700,000  $- 
Issuance of common stock for the acquisition of Jiangsu Rong Hai Electric Power Fuel Co. Ltd. $9,260,000  $- 

Cancellation of common stock for the disposition of Hubei Shengrong Environmental Protections and Energy Saving Technology Co. Ltd.

 $28,561,573  $- 

 

SeeThe accompanying notes toare an integral part of these consolidated financial statementsstatements.

  

F-6

JM GLOBALTMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016

 

1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONSNote 1 – Nature of business and organization

 

Organization and General

TMSR Holding Company Limited (the “Company” or “TMSR”), formerly known as JM Global Holding Company (the “Company,” “we” or “us”(“JM Global”) is, was a blank check company incorporated in Delaware on April 10, 2015. The Company was formed for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business transaction, one or more operating businesses or assets (“Business Combination”). On June 20, 2018, TMSR completed a reincorporation and as a result, the Company changed its state of incorporation from Delaware to Nevada. The Articles of Incorporation and Bylaws of TMSR Nevada became the governing instruments of the Company, has neither engagedresulting in any operations nor generated any operating revenue to date. Thea 2-for-1 forward stock split of the Company’s sponsor is Zhong Hui Holding Limited, a Seychelles limited companycommon stock (the “Sponsor”)“Forward Split). The Company has selected December 31 as its fiscal year end.

Financing

The registration statement for the Company’s initial public offering (the “Public Offering”) (as described in Note 3) was declared effective by the United States SecuritiesReincorporation and Exchange Commission (“SEC”) on July 23, 2015. The Sponsor purchased, simultaneously with the closing of the Public Offering on July 29, 2015, 250,000 units at $10.00 per unit in a private placement for an aggregate price of $2,500,000. Each unit purchased is substantially identical to the units sold in the Public Offering, except that the Sponsor has agreed that it will not seek redemption of the stock contained within such units. In addition, the Sponsor purchased an aggregate of 3,000,000 units in the Public Offering. The Sponsor has agreed that it will not seek redemption of 1,000,000 shares of the 3,000,000 shares purchased in the Public Offering. In the event that the Company is unable to complete its initial Business Combination within 24 months from the closing of the Public Offering, the non-redeemable 1,000,000 Sponsor shares will be entitled to the liquidation rights described in the “Business Combination” section.

Upon the closing of the Public Offering and the private placement, $50,000,000 was placed in a trust account (the “Trust Account”), with Continental Stock Transfer & Trust Company acting as trustee.

Going Concern

None of our Sponsor, stockholders, officers or directors, or third parties, are under any obligation to advance us funds, or to invest in us. Accordingly, we may not be able to obtain additional financing. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of our business plan, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all.

Additionally, the Company has until July 29, 2017 to complete its initial business combination. If the Company has not completed its initial business combination by that time, the Company will distribute the aggregate amount then on deposit in the Trust Account, pro rata, to our public shareholders by way of redemption and cease all operations except for purposes of the winding up of our affairs.

These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. 

F-7

JM GLOBAL HOLDING COMPANY

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS (continued)

Trust Account

An amount equal to 100% of the gross proceeds of the Public Offering received on July 29, 2015 is held in a Trust Account invested in U.S. government securities meeting the conditions of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity of 180 days or less or any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of paragraphs (c)(2), (c)(3) and (c)(4) of Rule 2a-7 of the 1940 Act, as determined by the Company until the earlier of (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account.

Other than the withdrawal of interest to pay taxes or for working capital, if any, none of the funds held in trust may be released until the earlier of: (i) the completion of the Business Combination; or (ii) the redemption of 100% of the outstanding public shares included in the units sold in the Public Offering if the Company is unable to complete the Business Combination within 24 months from the closing of the Public Offering.

Business Combination

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering and the private placement, although substantially all of the net proceeds of the Public Offering and the private placement are intended to be generally applied toward consummating a Business Combination. There is no assurance that the Company will be able to successfully effect a Business Combination.

The Company, after signing a definitive agreement for the acquisition of one or more target businesses or assets, may decide to not submit the transaction for stockholder approval, unless otherwise required by law. The Company will proceed with a Business Combination if it isForward Split were approved by shareholders holding the board of directors. In the event that the Company is required to seek stockholder approval in connection with its initial Business Combination, the Company will proceed with a Business Combination only if a majority of the aggregate outstanding shares that are voted in favor of the Business Combination. In connection with such a vote, the Company will provide its stockholders with the opportunity to redeem their shares of common stock upon the consummation of its initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including any amounts representing interest earned on the Trust Account, less any interest released to the Company for working capital purposes or the payment of taxes, divided by the number of then outstanding shares of common stock of TMSR Delaware on June 1, 2018 at the Annual Meeting of Shareholders.

On February 6, 2018, China Sunlong Environmental Technology Inc. (“China Sunlong”) consummated the business combination (the “Business Combination”) with JM Global pursuant to a Share Exchange Agreement (the “Share Exchange Agreement”) dated as of August 28, 2017 by and among (i) JM Global; (ii) Zhong Hui Holding Limited; (iii) China Sunlong; (iv) each of the shareholders of China Sunlong named on Annex I of the Share Exchange Agreement (the “Sellers”); and (v) Chuanliu Ni, a Chinese citizen who is the Chief Executive Officer and director of China Sunlong, in the capacity as the representative for the Sellers. Pursuant to the Share Exchange Agreement, JM Global acquired from the Sellers all of the issued and outstanding equity interests of China Sunlong in exchange for 17,990,856 newly-issued shares of common stock of JM Global to the Sellers. 1,799,088 of these newly-issued shares are held in escrow for 18 months from the closing date of the Business Combination as a security for China Sunlong and the Sellers’ indemnification obligations under the Share Exchange Agreement. This transaction is accounted for as a “reverse merger” and recapitalization at the date of the consummation of the transaction since the shareholders of China Sunlong owns the majority of the outstanding shares of JM Global immediately following the completion of the transaction and JM Global’s operations was the operations of China Sunlong following the transaction. Accordingly, China Sunlong was deemed to be the accounting acquirer in the transaction and the transaction was treated as a recapitalization of China Sunlong. The financial statements of China Sunlong prior to February 6, 2018 are prepared on the basis as if the reorganization became effective as of the beginning of the first period presented in the accompanying consolidated financial statements of JM Global.

China Sunlong is a holding company incorporated on August 31, 2015, under the laws of the Cayman Islands. China Sunlong has no substantive operations other than holding all of the outstanding share capital of Shengrong Environmental Protection Holding Company Limited (“Shengrong BVI”). Shengrong BVI is a holding company incorporated on June 30, 2015, under the laws of the British Virgin Islands. Shengrong BVI has no substantive operations other than holding all of the outstanding share capital of Hong Kong Shengrong Environmental Technology Limited (“Shengrong HK”). Shengrong HK is also a holding company holding all of the outstanding equity of Shengrong Environmental Protection Technology (Wuhan) Co., Ltd. (“Shengrong WFOE”).

The Company focuses on the industrial solid waste recycling and comprehensive utilization. The Company’s main products are high efficiency permanent magnetic separators and comprehensive utilization systems for industrial solid wastes. The Company’s headquarter is located in Hubei Province, in the People’s Republic of China (the “PRC” or “China”). All of the Company’s business activities are carried out by the wholly owned operating Chinese company, Hubei Shengrong Environmental Protection Energy-Saving Science and Technology Ltd. (“Hubei Shengrong”) prior to May 1, 2018.

On April 11, 2018, the Company, Shengrong WFOE and Hubei Shengrong, both of which are the Company’s indirectly owned subsidiaries (collectively “Purchasers”), entered into a Share Purchase Agreement (the “Purchase Agreement”) with Long Liao, Chunyong Zheng, Wuhan Modern Industrial Technology Research Institute, and Hubei Zhonggong Materials Group Co., Ltd. (collectively “Sellers” ) and Wuhan HOST Coating Materials Co., Ltd. (“Wuhan HOST”), a company incorporated in China engaging in the research, development, production and sale of coating materials. Pursuant to the Purchase Agreement, the Purchasers acquired all of the outstanding equity interests of Wuhan Host (the “Acquisition”). In exchange for the transfer of 100% equity interest of Wuhan Host, Purchasers shall pay a total consideration of $11.2 million (“Total Consideration”), of which $5.2 million or RMB equivalent shall be paid in cash (“Cash Consideration”) and $6.0 million shall be paid in shares of common stock (“Common Stock”), par value $0.0001, of TMSR (“Share Consideration”). The Parties agree the Share Consideration shall be an aggregate of 1,293,104 shares of common stock of which is based on the closing price of US$4.64 on March 27, 2018. The Share Consideration shall be issued in three equal installments, which shall be subject to lock-up of 12, 24 and 36 months, respectively. The Purchase Agreement contains representations, warranties and covenants customary for acquisitions of this type. The Acquisition closed on May 1, 2018. Starting on May 1, 2018, the Company’s business activities added the research, development, production and sale of coating materials.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On August 16, 2018, The Purchasers and the Sellers entered into a supplement agreement (“Supplement Agreement”), which modified the terms of consideration set forth in the Purchase Agreement entered between Purchasers and Sellers on April 11, 2018. Pursuant to the Supplement Agreement, in exchange for the transfer of 100% equity interest of Wuhan Host, Purchasers shall pay a total consideration of $11.2 million (“Total Consideration”), of which $6.5 million or RMB equivalent shall be paid in cash (“Cash Consideration”) and $4.7 million shall be paid in shares of common stock (“Common Stock”), par value $0.0001, of TMSR (“Share Consideration”). In the Supplement Agreement, both Purchasers and Sellers also agreed to delete the section 3.3 of the Share Purchase Agreement, a section that stipulates the Share Consideration shall be issued in three equal installments.

On March 31, 2017, China Sunlong completed its acquisition of 100% of the equity in TJComex International Group Corporation (“TJComex BVI”). At the closing of such acquisition, the selling shareholders of TJComex BVI received 5,935 shares (“Payment Shares”) of China Sunlong Common Stock valued at $926.71 per share for 100% of their equity in TJComex BVI. TJComex BVI owns 100% of the issued and outstanding capital stock of TJComex Hong Kong Company Limited (“TJComex HK”), a Hong Kong limited liability company, which owns 100% equity interest of Tianjin Corro Technological Consulting Co., Ltd. (“TJComex WFOE”), a wholly foreign owned enterprise incorporated under the laws of the PRC. Pursuant to certain contractual arrangements, TJComex WFOE controls Tianjin Commodity Exchange Co., Ltd. (“TJComex Tianjin”), a limited liability company incorporated under the law of the PRC. TJComex Tianjin is engaged in general merchandise trading business and related consulting services, and its headquarter is located in the city of Tianjin, PRC.

On April 2, 2018, the Company disposed of its subsidiary, TJComex BVI in consideration of (i) its minimum contribution to the Company’s results of operation and (ii) the unsatisfactory synergy between the TJComex BVI business and the rest of the Company’s business. The Company’s decision to dispose of TJComex BVI is to (i) improve the Company’s overall financial condition and results of operations, (ii) reduce the complexity of the Company’s business, (iii) focus the Company’s resources on the solid waste recycling business as well as developing environmental control business opportunities; and (iv) make it possible for the Company to pursue acquisition opportunities for more compatible businesses. TJComex BVI was disposed to Chuanliu Ni, a Chinese citizen who is the director of China Sunlong.

As of April 2, 2018, the net assets of TJComex BVI were sold$16,598 and is being recorded as a loss from disposal of subsidiary in the consolidated financial statements for the period ending December 31, 2018. As TJComex operating revenue was less than 1% of the Company’s revenue and the disposal did not constitute a strategic shift that will have a major effect on the Company’s operations and financial results, the results of operations for TJComex were not reported as discontinued operations under the guidance of Accounting Standards Codification 205.

On October 10, 2017, Hubei Shengrong established a wholly owned subsidiary, Fujian Shengrong Environmental Protection Energy-Saving Science and Technology Ltd. (“Fujian Shengrong”), with registered capital of RMB 10,000,000 (approximately USD 1,518,120). Fujian Shengrong has no operations prior to May 30, 2018. On May 30, 2018, Hubei Shengrong and two unrelated entities entered into certain Capital Transfer and Contribution Agreement pursuant to which these two entities shall contribute cash of approximately USD 5.0 million (RMB 32.0 million) into Fujian Shengrong and Hubei Shengrong shall contribute approximately USD 1.3 million (RMB 8.0 million) which is the consideration for certain technology consulting services to be provided by Hubei Shengrong to the two entities. Upon completion of the contribution, the total registered capital of Fujian Shengrong increased to RMB 40.0 million (approximately USD 6.3 million) and Hubai Shengrong owns 20% and the two entities collectively own 80% of the equity interest of Fujian Shengrong. In August, 2018, Hubei Shengrong transferred 20% equity interest of Fujian Shengrong to Shengrong WFOE. The Company will account for the investment in Fujian Shengrong using the cost method. Since Shengrong WFOE did not provide any cash contribution to Fujian Shengrong or technology services, the investment balance under the cost method investment on December 31, 2018 is $0.

On November 30, 2018, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with Jirong Huang and Qihuang Wang (collectively “Sellers”) and Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”), a company incorporated in China engaging in the sale of fuel materials and harbor cargo handling services. Pursuant to the Purchase Agreement, TMSR shall issue an aggregate of 4,630,000 shares of TMSR’s common stock to the Rong Hai Shareholders, in exchange for Rong Hai Shareholders’ agreement to enter into, and their agreement to cause Rong Hai to enter into, certain VIE Agreements (the “Rong Hai VIE Agreements”) with Shengrong WFOE, through which Shengrong WFOE shall have the right to control, manage and operate Rong Hai in return for a service fee approximately equal to 100% of Rong Hai’s net income (“Acquisition”). On November 30, 2018, Shengrong WFOE, the Company’s indirectly owned subsidiary, entered into a series of VIE Agreements with Rong Hai and the Rong Hai Shareholders. The VIE Agreements are designed to provide Shengrong WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Rong Hai, including absolute rights to control the management, operations, assets, property and revenue of Rong Hai. Rong Hai has the necessary license to carry out coal trading business in China. The Acquisition closed on November 30, 2018. Starting on November 30, 2018, the Company’s business activities added coal wholesales and sales of coke, steels, construction materials, mechanical equipment and steel scrap, of which business activities are carried out in Nantong, Jiang Su Province, PRC.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 27, 2018, the Company, entered into an Equity Purchase Agreement (the “EPA”) with Hopeway International Enterprises Limited., a private limited company duly organized under the laws of British Virgin Islands (the “Hopeway” or “Purchaser”). Pursuant to the EPA, Shengrong WOFE shall sell 100% equity interests in Hubei Shengrong to the Purchaser in exchange for the Purchaser’s agreement (“Consideration”) to irrevocably forfeit and cancel 8,523,320 shares of common stock of the Company (the “Shares”), constituting all the shares owned by the Purchaser. The transaction contemplated by the EPA is hereby referred as Disposition. The Company’s decision to dispose of Hubei Shengrong is due to the planning mandates of Wuhan Municipal Government 2018 which manufactures should move away from city’s downtown area. Therefore, due to the policy change, Hubei Shengrong is forced to close the existing facility, relocate and build a new facility, which is expected to take approximately 7-8 years. As a result, Hubei Shengrong will not be able to keep the production running and will generate no income in the foreseeable future. Management believed it is very difficult, if possible at all, to continue manufacturing of solid waste recycling systems. As such, the Company has been actively seeking to dispose Hubei Shengrong while retaining the research and development and sale of solid waste recycling systems business. Upon closing of the Disposition, the Purchaser will become the sole shareholder of Hubei Shengrong and as a result, assume all assets and obligations of Hubei Shengrong except the research and development team and intellectual property rights in connection with the solid waste recycling systems business shall be assigned to Shengrong WFOE as part of the UnitsDisposition. As Shengrong WFOE has significant continuing involvement in the Public Offering, whichsale of solid waste recycling systems business and the processed industrial waste materials trading business, this restructuring did not constitute a strategic shift that will have a major effect on the Company’s operations and financial results. Therefore, the results of operations for Hubei Shengrong were not reported as discontinued operations under the guidance of Accounting Standards Codification 205.

The accompanying consolidated financial statements reflect the activities of TMSR and each of the following entities:

NameBackgroundOwnership
China Sunlong●A Cayman Islands company100% owned by the Company
Shengrong BVI

●

●

A British Virgin Island company

Incorporated on June 30, 2015

100% owned by China Sunlong
Shengrong HK

●

●

A Hong Kong company

Incorporated on September 25, 2015 

100% owned by Shengrong BVI
Shengrong WFOE●A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”)100% owned by Shengrong HK
●Incorporated on March 1, 2016
●Registered capital of USD 12,946 (HKD100,000), fully funded
●Purchase and sales of high efficiency permanent magnetic separator and comprehensive utilization system
●Trading of processed industrial waste materials
Hubei Shengrong2●A PRC limited liability company100% owned by Shengrong WFOE
●Incorporated on January 14, 2009
●Registered capital of USD 4,417,800 (RMB 30,000,000), fully funded
●Production and sales of high efficiency permanent magnetic separator and comprehensive utilization system.
●Trading of processed industrial waste materials
Wuhan HOST●A PRC limited liability company100% owned by Shengrong WFOE
●Incorporated on October 27, 2010
●Registered capital of USD 750,075 (RMB 5,000,000), fully funded
●Research, development, production and sale of coating materials.
Shanghai Host Coating●A PRC limited liability company80% owned by Wuhan HOST
 Materials Co., Ltd.●Incorporated on December 11, 2014
(“Shanghai HOST”)●Registered capital of USD 3,184,371 (RMB 20,000,000), to be fully funded by November 2024
●No operations and no capital contribution has been made as of December 31, 201890% owned by Wuhan HOST
Wuhan HOST Coating●A PRC limited liability company
Materials Xiaogan●Incorporated on December 25, 2018
Co., Ltd. (“Xiaogan HOST”)●Registered capital of USD 11,595,379 (RMB 80,000,000),to be fully funded by December 2028
●No operations and no capital contribution has been made as of December 31, 2018
Jiangsu Rong Hai●A PRC limited liability companyVIE of Shengrong WFOE
Electric Power Fuel●Incorporated on May 20, 2009
Co., Ltd. (“Rong Hai”)●Registered capital of USD 3,171,655 (RMB 20,180,000), fully funded
●Coal wholesales and sales of coke, steels, construction materials, mechanical equipment and steel scrap
TJComex BVI1●A British Virgin Island company100% owned by China Sunlong
●Incorporated on March 8, 2016 
TJComex HK1●A Hong Kong company100% owned by TJComex BVI
●Incorporated on March 19, 2014 
TJComex WFOE1●A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”)100% owned by TJComex HK
●Incorporated on March 10, 2004
●Registered capital of USD 200,000
TJComex Tianjin1●A PRC limited liability company100% owned by TJComex WFOE
●Incorporated on November 19, 2007
●Registered capital of USD 7,809,165 (RMB 55,000,000)
●General merchandise trading business and related consulting services

1Disposed on April 2, 2018
2Disposed on December 27, 2018


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contractual Arrangements

Rong Hai is controlled through contractual agreements in lieu of direct equity ownership by the Company refers to asor any of its public shares, subjectsubsidiaries. Such contractual arrangements consist of a series of five agreements, consulting services agreement, equity pledge agreement, call option agreement, voting rights proxy agreement, and operating agreement (collectively the “Contractual Arrangements”, which were signed on November 30, 2018).

Material terms of each of the Rong Hai VIE Agreements are described below:

Consulting Services Agreement

Pursuant to the limitations described withinconsulting services agreement between Rong Hai and Shengrong WFOE dated November 30, 2018, Shengrong WFOE has the registration statement and any limitations (includingexclusive right to provide consulting services to Rong Hai relating to Rong Hai’s business, including but not limited to cash requirements) agreedbusiness consulting services, human resources development, and business development. Shengrong WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Shengrong WFOE has the right to determine the service fees based on Rong Hai’s actual operation on a quarterly basis.

This consulting services agreement shall take effect on the date of execution of this consulting services agreement and this consulting services agreement shall be in connectionfull force and effective until Rong Hai’s valid operation term expires. Shengrong WFOE may, at its discretion, decide to renew or terminate this consulting services agreement. 

Equity Pledge Agreement.

Under the equity pledge agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018, the shareholders pledged all of their equity interests in Rong Hai to Shengrong WFOE to guarantee Rong Hai’s performance of relevant obligations and indebtedness under the consulting services agreement. In addition, the shareholders of Rong Hai have completed the registration of the equity pledge under the agreement with the negotiation of terms of a proposed Business Combination. These shares of common stock, excludingcompetent local authority. If Rong Hai breaches its obligation under the 1,000,000 non-redeemable shares of the 3,000,000 shares purchased in the Public Offering by the Sponsor, are recorded at a redemption value and classifiedconsulting services agreement, Shengrong WFOE, as temporary equity upon the completion of the Public Offering, in accordance with ASC Topic 480 “Distinguishing Liabilities from Equity”. However, in no eventpledgee, will the Company redeem its public shares in an amount that would cause its net tangible assetsbe entitled to be less than $5,000,001.

F-8

JM GLOBAL HOLDING COMPANY

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS (continued)

The Company has until 24 months from the closing of the Public Offering (the “Combination Period”) to consummate its initial Business Combination. If the Company is unable to complete its initial Business Combination within 24 months from the closing of the Public Offering the Company will (i) cease all operations except for the purposes of winding up of its affairs; (ii) distribute the aggregate amount then on deposit in the Trust Account, including a portion of the interest earned thereon which was not previously used for working capital, but net of any taxes,pro rata to its public stockholders by way of redemption of its public shares (which redemption would completely extinguish such holders’certain rights, as stockholders, including the right to receive further liquidation distributions, if any);sell the pledged equity interests.

This equity pledge agreement shall take effect on the date of execution of this equity pledge agreement and (iii) as promptly as possible following such redemption, dissolvethis equity pledge agreement shall be in full force and liquidateeffective until Rong Hai and Shengrong WFOE’s satisfaction of all contractual obligations and settlement of all secured indebtedness. Upon Shengrong WFOE’s request, Rong Hai shall extend its operation period to sustain the balanceeffectiveness of this equity pledge agreement.

Call Option Agreement

Under the call option agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018, each of the shareholders of Rong Hai irrevocably granted to WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Rong Hai. Also, Shengrong WFOE or its designee has the right to acquire any and all of its net assets toof Rong Hai. Without Shengrong WFOE’s prior written consent, Rong Hai’s shareholders cannot transfer their equity interests in Rong Hai, and Rong Hai cannot transfer its remaining stockholders, as part of its plan of dissolution and liquidation; inassets. The acquisition price for the event of such distribution, it is possible that the per-share value of the residualshares or assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per Unit in the Public Offering.

Section 102(b)(1)minimum amount of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) permits emerging growth companies to delay complying with new or revised financial accounting standards that do not yet apply to private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registeredconsideration permitted under the Exchange Act). 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 election to opt out is irrevocable. The Company 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, the Company, as an emerging growth company, can adopt the new or revised standardPRC law at the time private companies adoptof the newexercise of the option.

This call option agreement shall take effect on the date of execution of this call option agreement. Rong Hai and Shengrong WFOE shall not terminate this call option agreement under any circumstances for any reason unless it is early terminated by Shengrong WFOE or revised standard.by the requirements under the applicable laws. This may make comparisoncall option agreement shall be terminated provided that all equity interest or assets under this option is transferred to Shengrong WFOE or its designee.

Voting Rights Proxy Agreement

Under the voting rights proxy agreement among Shengrong WFOE and the shareholders of Rong Hai dated November 30, 2018, each shareholder of Rong Hai irrevocably appointed Shengrong WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Rong Hai, including but limited to the power to vote on its behalf on all matters of Rong Hai requiring shareholder approval in accordance with the articles of association of Rong Hai.

The voting rights proxy agreement shall take effect on the date of execution of this voting rights proxy agreement and remain in effect indefinitely for the maximum period of time permitted by law in consideration of Shengrong WFOE.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating Agreement

Pursuant to the operating agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018, Rong Hai and the shareholders of Rong Hai agreed not to enter into any transaction that could materially affect Rong Hai’s assets, obligations, rights or operations without prior written consent from Shengrong WFOE, including but not limited to the amendment of the articles of association of Rong Hai. Rong Hai and its shareholders agree to accept and follow our corporate policies provided by Shengrong WFOE in connection with Rong Hai’s daily operations, financial management and the employment and dismissal of Rong Hai’s employees. Rong Hai agreed that it should seek guarantee from Shengrong WFOE first if any guarantee is needed for Rong Hai’s performance of any contract or loan in the course of its financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted outbusiness operation.

This operating agreement shall take effect on the date of usingexecution of this operating agreement and this operating agreement shall be in full force and effective until Rong Hai’s valid operation term expires. Either party of Shengrong WFOE and Rong Hai shall complete approval or registration procedures for the extended transition period difficult or impossible becauseextension of its business term three months prior to the expiration of its business term, for the purpose of the potential differences in accounting standards used.maintenance of the effectiveness of this operating agreement. 

 

F-9

JM GLOBAL HOLDING COMPANY

NOTES TO FINANCIAL STATEMENTS

December 31, 2016All the Rong Hai VIE Agreements became effective immediately upon their execution.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESNote 2 – Summary of significant accounting policies

 

Basis of presentation

 

The accompanying consolidated financial statements are presented in U.S. dollarshave been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) andfor information pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (“SEC’SEC”).

 

Net loss per common sharePrinciples of consolidation

 

The Company complies with accounting and disclosure requirementsconsolidated financial statements of FASB ASC Topic 260, “Earnings Per Share.” Net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period. At December 31, 2016, the Company did not have any dilutive securitiesinclude the accounts of TMSR and other contracts that could, potentially, be exercised or converted into common stockits wholly owned subsidiaries and then share in the earnings of the Company. As a result, diluted loss per common share is the same as basic loss per common share for the periods presented.VIE. All intercompany transactions and balances are eliminated upon consolidation.

 

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times may exceed the Federal Depository Insurance Corporation coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

Fair value of financial instruments

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheets, primarily due to their short-term nature.

F-10

JM GLOBAL HOLDING COMPANY

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of estimates and assumptions

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosuredisclosures of contingent assets and liabilities atas of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.periods presented. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of intangible assets, revenues, deferred revenues and plant and equipment, impairment of long-lived assets, collectability of receivables, inventory valuation allowance, and realization of deferred tax assets. Actual results could differ from thosethese estimates.

 

Foreign currency translation and transaction

The reporting currency of the Company is the U.S. dollar. The Company in China conducts its businesses in the local currency, Renminbi (RMB), as its functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. The statement of income accounts are translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Translation adjustments included in accumulated other comprehensive income (loss) amounted to $(720,696) and $701,217 as of December 31, 2018 and 2017, respectively. The balance sheet amounts, with the exception of shareholders’ equity at December 31, 2018 and 2017 were translated at 6.88 RMB and 6.51 RMB to $1.00, respectively. The shareholders’ equity accounts were stated at their historical rate. The average translation rates applied to statement of income accounts for the years ended December 31, 2018 and 2017 were 6.62 RMB and 6.76 RMB, respectively. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company because it has not engaged in any significant transactions that are subject to the restrictions.

Accounts receivable, net

Accounts receivable include trade accounts due from customers. An allowance for doubtful accounts may be established and recorded based on management’s assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of December 31, 2018 and 2017, $732,846 and $6,674,834 were recorded for allowance for doubtful accounts, respectively.

Inventories

Inventories are comprised of raw materials and work in progress and are stated at the lower of cost or net realizable value using the first-in-first-out method in Shengrong WFOE and weighted average method in Wuhan HOST and Rong Hai. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against the inventory when the carrying value exceeds net realizable value. As of December 31, 2018 and 2017, no obsolescence and cost in excess of net realizable value were recorded for allowance.

Prepayments

Prepayments are funds deposited or advanced to outside vendors for future inventory or services purchases. As a standard practice in China, many of the Company’s vendors require a certain amount to be deposited with them as a guarantee that the Company will complete its purchases on a timely basis. This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which require any outstanding prepayments to be returned to the Company when the contract ends.

Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method after consideration of the estimated useful lives of the assets and estimated residual value. The estimated useful lives and residual value are as follows:

Useful LifeEstimated
Residual
Value
Building5 – 20 years5%
Office equipment and furnishing5 years5%
Production equipment3-10 years5%
Automobile5 years5%
Leasehold improvementsShorter of the remaining lease terms or estimated useful lives0%

The cost and related accumulated depreciation and amortization of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible assets

Intangible assets represent land use rights, patents, and software system, and they are stated at cost, less accumulated amortization. Research and development costs associated with internally developed patents are expensed when incurred. Amortization expense is recognized on the straight-line basis over the estimated useful lives of the assets. All land in the PRC is owned by the government; however, the government grants “land use rights.” The Company has obtained the rights to use various parcels of land and the right to use SAP B1 Cloud system. The patents have finite useful lives and are amortized using a straight-line method that reflects the estimated pattern in which the economic benefits of the intangible asset are to be consumed. The Company amortizes the cost of the land use rights, patents, and software system over their useful life using the straight-line method. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives.  The estimated useful lives are as follows:

Useful Life
Land use rights50 years
Patents10 - 20 years
Software5 years

Goodwill

Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is not amortized and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. Goodwill is carried at cost less accumulated impairment losses. If impairment exists, goodwill is immediately written off to its fair value and the loss is recognized in the consolidated statements of income. Impairment losses on goodwill are not reversed. As of December 31, 2018, no impairment of goodwill was recognized

Impairment for long-lived assets

Long-lived assets, including plant, equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted 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. As of December 31, 2018 and 2017, no impairment of long-lived assets was recognized.

Fair value measurement

The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, notes receivable, accounts receivable, other receivables, prepayments, accounts payable, other payables and accrued liabilities, customer deposits, short term loans and taxes payable to approximate their fair values because of their short term nature.

The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:

●

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.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.

Customer deposits

In Shengrong WFOE, customer deposits represent amounts advanced by customers on product orders. Generally, the Company requires 3% to 10% advanced deposits from the customers upon the signing of the sales contracts. At various stages of the sales contract execution, the Company generally collects certain amounts of advanced deposits from the customers based on the approximate amount of cash flows needed at each stage. Customer deposits are reduced when the related sale is recognized in accordance with the Company’s revenue recognition policy.

In Wuhan HOST, customer deposits represent amounts advanced by customers on product orders. Generally, the Company requires 95% to 100% advanced deposits from the customers upon signing of the sales contracts. A few customers with good credit history are not required to make any deposit. Customer deposits are reduced when the related sale is recognized in accordance with the Company’s revenue recognition policy.

Revenue recognition

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018.  This did not result in an adjustment to retained earnings upon adoption of this new guidance as the Company’s revenue, other than retainage revenues, was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. However, the impact of the Company’s retainage revenue was not material as of the date of adoption, and as a result, did not result in an adjustment.

The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer.  The Company’s revenue streams are primarily recognized at a point in time except for the retainage revenues where the retainage periods are recognized over the retainage period, usually is a period of twelve months.

The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition except its retainage revenues.

An entity will also be required to determine if it controls the goods or services prior to the transfer to the customer in order to determine if it should account for the arrangement as a principal or agent. Principal arrangements, where the entity controls the goods or services provided, will result in the recognition of the gross amount of consideration expected in the exchange. Agent arrangements, where the entity simply arranges but does not control the goods or services being transferred to the customer, will result in the recognition of the net amount the entity is entitled to retain in the exchange.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue from equipment and systems, revenue from coating and fuel materials, and revenue from trading and others are recognized at the date of goods delivered and title passed to customers, when a formal arrangement exists, the price is fixed or determinable, the Company has no other significant obligations and collectability is reasonably assured. Such revenues are recognized at a point in time after all performance obligations are satisfied under the new five-step model. In addition, training service revenues are recognized when the services are rendered and the Company has no other obligations, and collectability is reasonably assured. These revenues are recognized at a point in time.

Prior to January 1, 2018, the Company allowed its customers to retain 5% to 10% of the contract price as warranty retainage during the retainage period of 12 months to guarantee product quality. Retainage is considered as a payment term included as a part of the contract price, and was recognized as revenue upon the shipment of products. Due to nature of the retainage, the Company’s policy is to record revenue the full value of the contract without VAT, including any retainage, since the Company has experienced insignificant warranty retainage claims historically. Due to the infrequent and insignificant amount of warranty retainage claims, the ability to collect retainage was reasonably assured and was recognized at the time of shipment. On January 1, 2018, upon the adoption of ASU 2014-09 (ASC 606), revenues from product warranty retainage are recognized over the retainage period over 12 months. For the year ended December 31, 2018, less than 5% of our retainage revenues were recognized in our consolidated revenues and included in the Company’s equipment and systems revenues in the accompanying statements of income and comprehensive income.

Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits.

The Company’s disaggregate revenue streams are summarized as follows:

  For the Years ended
December 31,		 
  2018  2017 
Revenues – Equipment and systems $15,298,353  $18,635,434 
Revenues – Coating and fuel materials  5,722,165   - 
Revenues – Trading and others  2,170,836   20,116,331 
Total revenues $23,191,354  $38,751,765 

Gross versus Net Revenue Reporting

Starting from July 2016, in the normal course of the Company’s trading of industrial waste materials business, the Company directly purchases the processed industrial waste materials from the Company’s suppliers under the Company’s specifications and drop ships the materials directly to the Company’s customers. The Company would inspect the materials at its customers’ site, during which inspection it temporarily assumes legal title to the materials, and after which inspection legal title is transferred to its customers. In these situations, the Company generally collects the sales proceed directly from the Company’s customers and pay for the inventory purchases to the Company’s suppliers separately. The determination of whether revenues should be reported on a gross or net basis is based on the Company’s assessment of whether it is the principal or an agent in the transaction. In determining whether the Company is the principal or an agent, the Company follows the new accounting guidance for principal-agent considerations. Since the Company is the primary obligor and is responsible for (i) fulfilling the processed industrial waste materials delivery, (ii) controlling the inventory by temporarily assume legal title to the materials after inspecting the products from our vendors before passing the materials to our customers, and (iii) bearing the back-end risk of inventory loss with respect to any product return from the Company’s customers, the Company has concluded that it is the principal in these arrangements, and therefore report revenues and cost of revenues on a gross basis.

Research and Development (“R&D”) Expenses

Research and development expenses include salaries and other compensation-related expenses paid to the Company’s research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the selling, general and administrative expenses and totaled $261,022 and $18,071 for the years ended December 31, 2018 and 2017, respectively.

Income taxes

 

The Company compliesaccounts for income taxes in accordance with U.S. GAAP for income taxes. The charge for taxation is based on the accounting and reporting requirements of FASB ASC Topic 740, “Income Taxes,”results for the fiscal year as adjusted for items, which requires anare non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred taxes is accounted for using the asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed formethod in respect of temporary differences arising from differences between the financial statement and tax basescarrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will resultbe available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in future taxablethe income statement, except when it is related to items credited or deductible amounts,charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. The Company incurred no such penalties and interest for the years ended December 31, 2018 and 2017. As of December 31, 2018, the Company’s PRC tax returns filed for 2015, 2016 and 2017 remain subject to examination by any applicable tax authorities.

Earnings per share

Basic earnings per share are computed by dividing income available to common shareholders of the Company by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares. 10,500,000 of outstanding warrants which is equivalent to convertible of 5,250,000 common shares and 824,000 of outstanding options were excluded from the diluted earnings per share calculation due to its antidilutive effect for the year ended December 31, 2018.

Recently issued accounting pronouncements

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016- 02 requires a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term. ASU 2016-02 requires classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. This ASU will be effective for the Company on January 1, 2019. The Company occupies an office under operating lease agreement with a term longer than 12 months for which prior to adoption of the guidance are not reflected in its consolidated balance sheet at December 31, 2018 and 2017. We will adopt ASU 2016-02 on January 1, 2019 and recognize additional operating labilities of approximately $190,000, with corresponding right of use (“ROU”) assets of the same amount based on enactedthe present value of the remaining minimum rental payments under current leasing standards for existing operating leases with a term longer than 12 months.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax lawseffects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and rates applicableinterim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to the periodseach period (or periods) in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferredeffect of the change in the U.S. federal corporate income tax assets torate in the amount expected to be realized. At December 31, 2016Tax Cuts and 2015, the Company has a deferred tax assets of approximately $328,000 and $84,000 related to the net operating loss carryforwards of approximately $890,000 and $260,000, respectively (which begin to expire in 2035) and start-up costs. Management has determined that a full valuation allowance of their deferred tax assetsJobs Act is appropriate at this time.

FASB ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.recognized. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits as of December 31, 2016 and 2015. No amounts were accrued for the payment of interest and penalties at December 31, 2016 and 2015. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.

The Company may be subject to potential examination by U.S. federal, U.S. states or foreign jurisdiction authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, U.S. state and foreign tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

Cash and cash equivalents

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of December 31, 2016 and 2015.

Cash and securities held in Trust Account

At December 31, 2016 and 2015, substantially all of the assets held in the Trust Account were held in U.S. Treasury Bills.

F-11

JM GLOBAL HOLDING COMPANY

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Deferred offering costs

Deferred offering costs consisted of legal, underwriter and accounting fees incurred that were directly related to the Public Offering and that were charged to stockholders’ equity upon the completion of the Public Offering on July 29, 2015. Deferred offering costs amounting to $1,862,816 were charged to stockholders’ equity upon completion of the Offering.

Accrued expenses and due to affiliate

Accrued expenses represents amount the Company owes to its vendors, for which service has been provided but the Company has not paid for and state franchise tax. At December 31, 2016 there was approximately $83,000 accrued for state franchise tax in the Company’s accrued expenses. At December 31, 2015, there were approximately $4,000 of accrued travel expenses and $39,000 accrued state franchise tax in the Company’s accrued expenses. Due to affiliate represents entity costs and offering costs paid by an affiliate on behalf of the Company. These advances are non-interest bearing, unsecured and payable on demand. 

Redeemable common stock

As discussed in Note 4, 4,000,000 of the 5,000,000 shares of common stock sold as part of the units in the Public Offering contain a redemption feature which allows for the redemption of common stock under the Company’s liquidation or tender offer/stockholder approval provisions. In accordance with ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. Although the Company did not specify a maximum redemption threshold, its charter provides that in no event will it redeem its Public Shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001.

Accordingly, at December 31, 2016 and 2015, 4,000,000 of the 5,000,000 Public Shares were classified outside of permanent equity at its redemption value.

Recently issued accounting standards

The Company complies with ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management is required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The amendments in ASU 2014-15 are effective for annual reporting periods ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company has adopted the methodologies prescribed by ASU 2014-15, andbelieve the adoption of this ASU 2014-15 will notwould have a material effect on itsthe Company’s consolidated financial position or results of operations.statements.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

ManagementThe Company does not believe that anyother recently issued but not yet effective accounting pronouncements,standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.

Note 3 – Business combination and restructuring

TJ Comex BVI

On March 31, 2017, China Sunlong completed its acquisition of 100% equity interest in TJComex BVI through a share exchange to expand its business on trading certain solid wastes through TJComex BVI’s commodity exchange channels. At the closing of the share exchange on June 30, 2017, the Selling Shareholders received 5,935 shares (“Payment Shares”) of China Sunlong Common Stock valued at $926.71 per share for 100% of their equity interests in TJComex BVI, equating to 100% of all outstanding interests in TJComex BVI. Whereas, TJComex BVI owns 100% of the issued and outstanding capital stock of TJComex Hong Kong Company Limited (“TJComex HK”), a Hong Kong limited liability company, Tianjin Corro Technological Consulting Co., Ltd. (“TJComex WFOE”), a wholly foreign owned enterprise incorporated under the laws of the PRC and Tianjin Commodity Exchange Co., Ltd. (the “TJComex Tianjin”), a limited liability company incorporated under the law of the PRC. The $926.71 per share price of China Sunlong Common Stock was based on a valuation of approximately $92.7 million of China Sunlong’s enterprise value determined by an independent third-party appraiser using discounted cash flows projection model. The projected cash flows are based upon, but not limited to, assumptions such as 1) projected selling units and growth in the industry, 2) projected unit selling price, 3) projected unit cost of manufactured, 4) selling and general and administrative expenses to be in line with the growth in the industry, and 5) projected bank borrowings rate or interest rate index.

The Company’s acquisition of TJComex BVI was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of TJComex BVI based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Except for cash, the Company estimated the fair values of the assets acquired and liabilities assumed at the acquisition date in accordance with the business combination standard issued by FASB with the following valuation methodologies with level 3 inputs: Other current assets, plant and equipment and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.

The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition of TJComex BVI based on a valuation performed by an independent valuation firm engaged by the Company:

Total consideration at fair value$5,500,000

  Fair Value 
Cash $23,451 
Other current assets  794,938 
Plant and equipment  1,866,894 
Other noncurrent assets  609,126 
Goodwill  3,819,354 
Total asset  7,113,763 
Total liabilities  (1,613,763)
Net asset acquired $5,500,000 


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Approximately $3.8 million of goodwill arising from the acquisition consists largely of synergies expected from combining the operations of the Company and TJComex BVI. None of the goodwill is expected to be deductible for income tax purposes. As of December 31, 2017, we performed an impairment testing on the goodwill and recorded an impairment loss of approximately $3.8 million on goodwill.

For the year ended December 31, 2017, the impact of the acquisition of TJComex BVI to the consolidated statements of income and comprehensive income was not material.

On April 2, 2018, the Company disposed of its subsidiary, TJComex BVI, in consideration of (i) its minimum contribution to the Company’s results of operation and (ii) the unsatisfactory synergy between the TJComex BVI business and the rest of the Company’s business. The Company’s decision to dispose TJComex BVI is to (i) improve the Company’s overall financial statements.condition and results of operations, (ii) reduce the complexity of the Company’s business, (iii) focus the Company’s resources on the solid waste recycling business as well as developing environmental control business opportunities; and (iv) make it possible for the Company to pursue acquisition opportunities for more compatible business. TJComex BVI was disposed to Chuanliu Ni, a Chinese citizen who is the Chief Executive Officer and director of China Sunlong, for no consideration.

As of April 2, 2018, the net assets of TJComex BVI were $16,598 and will be recorded as a loss from disposal of subsidiary in the consolidated financial statements for the year ended December 31, 2018. As TJComex operating revenue was less than 1% of the Company’s revenue and the disposal did not constitute a strategic shift that will have a major effect on the Company’s operations and financial results, the results of operations for TJComex were not reported as discontinued operations under the guidance of Accounting Standards Codification 205.

Wuhan HOST

On April 11, 2018, the Company, Shengrong WFOE and Hubei Shengrong, both of which are the Company’s indirectly owned subsidiaries (collectively “Purchasers”), entered into a Share Purchase Agreement (the “Purchase Agreement”) with Long Liao, Chunyong Zheng, Wuhan Modern Industrial Technology Research Institute, and Hubei Zhonggong Materials Group Co., Ltd. (collectively “Sellers” ) and Wuhan HOST Coating Materials Co., Ltd. (“Wuhan HOST”), a company incorporated in China engaging in the research, development, production and sale of coating materials. Pursuant to the Purchase Agreement, the Purchasers acquired all of the outstanding equity interests of Wuhan Host (the “Acquisition”). In exchange for the transfer of 100% equity interest of Wuhan Host, Purchasers shall pay a total consideration of $11.2 million (“Total Consideration”), of which $ 5.2 million or RMB equivalent shall be paid in cash (“Cash Consideration”) and $6.0 million shall be paid in shares of common stock (“Common Stock”), par value $0.0001, of TMSR (“Share Consideration”). The Parties agree the Share Consideration shall be an aggregate of 1,293,104 shares of common stock of which is based on the closing price of US$4.64 on March 27, 2018. The Share Consideration shall be issued in three equal installments, which shall be subject to lock-up of 12, 24 and 36 months, respectively. The Purchase Agreement contains representations, warranties and covenants customary for acquisitions of this type. The Acquisition closed on May 1, 2018.

On August 16, 2018, The Purchasers and the Sellers entered into a supplement agreement (“Supplement Agreement”), which modified the terms of consideration set forth in the Purchase Agreement entered between Purchasers and Sellers on April 11, 2018. Pursuant to the Supplement Agreement, in exchange for the transfer of 100% equity interest of Wuhan Host, Purchasers shall pay a total consideration of $11.2 million (“Total Consideration”), of which $6.5 million or RMB equivalent shall be paid in cash (“Cash Consideration”) and $4.7 million shall be paid in shares of common stock (“Common Stock”), par value $0.0001, of TMSR (“Share Consideration”). In the Supplement Agreement, both Purchasers and Sellers also agreed to delete the section 3.3 of the Share Purchase Agreement, a section that stipulates the Share Consideration shall be issued in three equal installments.

The Company’s acquisition of Wuhan HOST was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of Wuhan HOST based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed, plant and equipment, and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition of Wuhan HOST based on a valuation performed by an independent valuation firm engaged by the Company:

Total consideration at fair value$11,200,000

  Fair Value 
Cash $276,626 
Other current assets  6,763,767 
Plant and equipment  6,499,268 
Other noncurrent assets  2,139,987 
Goodwill  7,544,008 
Total asset  23,223,656 
Total liabilities  (12,023,656)
Net asset acquired $11,200,000 

Approximately $7.5 million of goodwill arising from the acquisition consists largely of synergies expected from combining the operations of the Company and Wuhan HOST. None of the goodwill is expected to be deductible for income tax purposes.

For the years ended December 31, 2018 and 2017, the impact of the acquisition of Wuhan HOST to the consolidated statements of income and comprehensive income was not material.

Rong Hai

On November 30, 2018, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with Jirong Huang and Qihuang Wang (collectively “Sellers”) and Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”), a company incorporated in China engaging in the sale of fuel materials and harbor cargo handling services. Pursuant to the SPA, TMSR shall issue an aggregate of 4,630,000 shares of TMSR’s common stock to the Rong Hai Shareholders, in exchange for Rong Hai Shareholders’ agreement to enter into, and their agreement to cause Rong Hai to enter into, certain VIE Agreements (the “Rong Hai VIE Agreements”) with Shengrong WFOE, through which Shengrong WFOE shall have the right to control, manage and operate Rong Hai in return for a service fee approximately equal to 100% of Rong Hai’s net income (“Acquisition”). On November 30, 2018, Shengrong WFOE, the Company’s indirectly owned subsidiary, entered into a series of VIE Agreements with Rong Hai and the Rong Hai Shareholders. The VIE Agreements are designed to provide WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Rong Hai, including absolute rights to control the management, operations, assets, property and revenue of Rong Hai. Rong Hai has the necessary license to carry out coal trading business in China. The Acquisition closed on November 30, 2018.

The Company’s acquisition of Rong Hai was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of Rong Hai based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed, plant and equipment, and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition of Rong Hai based on a valuation performed by an independent valuation firm engaged by the Company:

Total consideration at fair value$9,260,000

  Fair Value 
Cash $717,056 
Other current assets  5,980,230 
Plant and equipment  28,875 
Other noncurrent assets  116,655 
Goodwill  7,307,470 
Total asset  14,150,286 
Total liabilities  (4,890,286)
Net asset acquired $9,260,000 

Approximately $7.3 million of goodwill arising from the acquisition consists largely of synergies expected from combining the operations of the Company and Rong Hai. None of the goodwill is expected to be deductible for income tax purposes.

For the years ended December 31, 2018 and 2017, the impact of the acquisition of Rong Hai to the consolidated statements of income and comprehensive income was not material.

Hubei Shengrong

On December 27, 2018, the Company, entered into an Equity Purchase Agreement (the “EPA”) with Hopeway International Enterprises Limited., a private limited company duly organized under the laws of British Virgin Islands (the “Hopeway” or “Purchaser”). Pursuant to the EPA, Shengrong WOFE shall sell 100% equity interests in Hubei Shengrong to the Purchaser in exchange for the Purchaser’s agreement (“Consideration”) to irrevocably forfeit and cancel 8,523,320 shares of common stock of the Company (the “Shares”), constituting all the shares owned by the Purchaser. The transaction contemplated by the EPA is hereby referred as Disposition. The Company’s decision to dispose of Hubei Shengrong is due to the planning mandates of Wuhan Municipal Government 2018 which manufactures should move away from city’s downtown area. Therefore, due to the policy change, Hubei Shengrong is forced to close the existing facility, relocate and build a new facility, which is expected to take approximately 7-8 years. As a result, Hubei Shengrong will not be able to keep the production running and will generate no income in the foreseeable future. Management believed it is very difficult, if possible at all, to continue manufacturing of solid waste recycling systems. As such, the Company has been actively seeking to dispose Hubei Shengrong while retaining the research and development and sale of solid waste recycling systems business.Upon closing of the Disposition, the Purchaser will become the sole shareholder of Hubei Shengrong and as a result, assume all assets and obligations of Hubei Shengrong except the research and development team and intellectual property rights in connection with the solid waste recycling systems business shall be assigned to Shengrong WFOE as part of the Disposition.As Shengrong WFOE has significant continuing involvement in the sale of solid waste recycling systems business and the processed industrial waste materials trading business, the results of operations for Hubei Shengrong were not reported as discontinued operations under the guidance of Accounting Standards Codification 205.

Hopeway is jointly owned by Ms. Jiazhen Li, the Company’s chief executive officer, and Mr. Xiaonian Zhang, the Company’s president and director. As Hopeway is a related party under common control with the Company under Ms. Li and Mr. Zhang, no gain or loss are recognized in this disposition and the net consideration of the transaction are recognized as addition to capital as opposed to a gain. Total fair value of the consideration of the cancelled 8,523,320 shares of common stock was determined by using the average closing stock price of the Company held by Hopeway during the period from February 6, 2018 to December 27, 2018 at $3.56 per share.

Subsequent to the disposal of Hubei Shengrong, management expects to conduct business with Hubei Shengrong.  Hubei Shengrong will supply products and services to the Company.  Any transactions in the next operating period between the Company and Hubei Shengrong will be reported as related party transactions, and such transactions should not be considered arm’s lengths transactions.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 27, 2018, the net assets of Hubei Shengrong and reconciliation of reduction of capital are as follows:

  December 27,
2018		 
CURRENT ASSETS   
Cash and cash equivalents $47,994 
Accounts receivable, net  9,410,436 
Accounts receivable - related party, net  761,794 
Other receivables  48,718 
Other receivable - related party  2,158 
Inventories  5,332,990 
Prepayments  31,793,810 
Total current assets  47,397,900 
     
PLANT AND EQUIPMENT, NET  203,992 
     
OTHER ASSETS    
Other assets  7,269 
Deferred tax assets  780,550 
Total other assets  787,819 
     
Total assets $48,389,711 
     
CURRENT LIABILITIES    
Short term loans - bank $2,180,708 
Accounts payable  95,854 
Other payables and accrued liabilities  156,498 
Other payables - related parties  507,183 
Customer deposits  347,853 
Taxes payable  16,602,841 
Total current liabilities  19,890,937 
     
OTHER LIABILITIES    
Deferred rent liabilities  30,763 
Total other liabilities  30,763 
     
Total liabilities $19,921,700 
     
Total net assets $28,468,011 
Total consideration  (30,362,135)
Currency translation adjustment  900,281 
Total addition to paid-in-capital $993,843 

Note 4 – Variable interest entity

On November 30, 2018, Shengrong WFOE entered into Contractual Arrangements with Rong Hai and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Rong Hai as VIE.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Shengrong WFOE is deemed to have a controlling financial interest and be the primary beneficiary of Rong Hai because it has both of the following characteristics:

(1) The power to direct activities at Hong Hai that most significantly impact such entity’s economic performance, and

(2) The obligation to absorb losses of, and the right to receive benefits from Hong Hai that could potentially be significant to such entity.

Accordingly, the accounts of Hong Hai are consolidated in the accompanying financial statements pursuant to ASC 810-10, Consolidation. In addition, their financial positions and results of operations are included in the Company’s consolidated financial statements beginning on November 30, 2018.

The carrying amount of the VIE’s assets and liabilities are as follows:

  December 31, 
  2018 
    
Current assets $6,321,261 
Property, plants and equipment  27,693 
Other noncurrent assets  118,020 
Goodwill  7,392,991 
Total assets  13,859,965 
     
Current liabilities  (4,188,340)
Total liabilities  (4,188,340)
Net assets $9,671,625 

  December 31, 
  2018 
    
Short-term loan $508,832 
Accounts payable  821,289 
Other payables and accrued liabilities  559,984 
Other payables – related party  2,285,701 
Tax payables  12,534 
Total current liabilities  4,188,340 
Total liabilities $4,188,340 

The summarized operating results of the VIE’s are as follows:

  

For the year ended

December 31,

 
  2018 
    
Operating revenues $1,452,426 
Gross profit  333,255 
Income from operations  321,991 
Net income $315,087 


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 – Accounts receivable and accounts receivable – related party

Accounts receivable consist of the following:

  December 31,
2018		  December 31,
2017		 
       
Accounts receivable $4,924,092  $21,187,472 
Accounts receivable – related party  -   - 
Less: Allowance for doubtful accounts  (732,846)  (6,674,834)
Total accounts receivable, net $4,191,246  $14,512,638 

Movement of allowance for doubtful accounts is as follows:

  December 31,
2018		  December 31,
2017		 
       
Beginning balance $6,674,834  $- 
Beginning balance from Wuhan HOST  218,152   - 
Beginning balance from Rong Hai  469,000     
Depositing ending balance of Hubei Shengrong  (5,203,666)    
Addition  411,261   6,428,261 
Recovery  (1,020,125)  - 
Exchange rate effect  (816,610)  246,573 
Ending balance $732,846  $6,674,834 

Note 6 – Inventories

Inventories consist of the following:

  December 31,
2018		  December 31,
2017		 
       
Raw materials $1,965,175  $- 
Work in progress  258   9,203,623 
Finished goods  -   39,865 
Total inventories $1,965,433  $9,243,488 

Note 7 – Plant and equipment, net

Plant and equipment consist of the following:

  December 31,
2018		  December 31,
2017		 
       
Building $5,626,071  $1,545,861 
Production equipment  954,845   195,735 
Office equipment and furniture  59,102   157,286 
Automobile  209,057   39,298 
Leasehold improvement  -   1,805,521 
Subtotal  6,849,075   3,743,701 
Less: accumulated depreciation and amortization  (1,087,743)  (1,555,566)
Total $5,761,332  $2,188,135 

Depreciation and amortization expense for the years ended December 31, 2018 and 2017 amounted to $377,064 and $184,275, respectively.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Intangible assets, net

Intangible assets consist of the following:

  December 31,
2018		  December 31,
2017		 
       
Land use rights $1,481,130  $- 
Patents  3,616,981   3,240,137 
Software  10,224   - 
Less: accumulated amortization  (2,318,240)  (2,037,097)
Net intangible assets $2,790,095  $1,203,040 

Amortization expense for the years ended December 31, 2018 and 2017 amounted to $294,643 and $258,700, respectively.

The Company has one patent that expires in 2019.  In the event that the Company is unable to renew the patent, its’ future results of operations may be materially adversely affected.

The estimated amortization is as follows:

Twelve months ending December 31, Estimated
amortization
expense		 
    
2019 $218,855 
2020  173,829 
2021  173,394 
2022  173,394 
2023  172,393 
Thereafter  1,878,230 
Total $2,790,095 

Note 9 – Goodwill

The changes in the carrying amount of goodwill by business units are as follows: 

  Wuhan
HOST		  Rong Hai  Total 
Balance as of December 31, 2017 $-  $-  $- 
Goodwill acquired through acquisition  7,544,008   7,307,470   14,851,478 
Foreign currency translation adjustment  (597,949)  85,521   (512,428)
Balance as of December 31, 2018 $6,946,059  $7,392,991  $14,339,050 

 

F-12

F-25

 

 

JM GLOBALTMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016

 

3. PUBLIC OFFERINGNote 10 – Related party balances and transactions

Related party balances

a.Other receivable – related party:

Name of related party Relationship December 31,
2018		  December 31,
2017		 
           
Xiaonian Zhang Shareholder of the Company $40,707  $         - 

The Company advanced funds to the related party for daily operating purposes, and those funds or expenses receipts will be returned to the Company by the end of 2019.

b.Other payables – related parties:

Name of related party Relationship December 31,
2018		  December 31,
2017		 
         
Jiazhen Li CEO, Former Co-Chairman $11,232  $304,833 
Chuanliu Ni Co-Chairman  325,907   848,493 
Xiaoyan Shen CFO  -   1,408 
Zhong Hui Holding Limited Shareholder of the Company  140,500   - 
Chunyong Zheng Spouse of shareholder of the Company  2,543,651   - 
Long Liao Shareholder of the Company  72,690   - 
Wuhan Modern Under common control of shareholder of the Company  712,605   - 
Qihai Wang Shareholder of the Company  1,941,957   - 
Jirong Huang Spouse of shareholder of the Company  77,197   - 
Yongzheng Wang Son of shareholder of the Company  23,808   - 
Nantong Ronghai Logistics Co., Ltd. Under common control of shareholder of the Company  242,739   - 
Total   $6,092,286  $1,154,734 

The above payables represent interest free loans and advances. These loans and advances are unsecured and due on demand.

c.

Related parties transactions:

During the year ended December 31, 2018, Hubei Shengrong sold products to Wuhan Modern Industrial Technology Research Institute in the amount of $1,083,019.

During the year ended December 31, 2018, Hubei Shengrong sold products to Wuhan HOST in the amount of $741,013.

Note 11 – Debt

Short term loan

Short term loan due to bank is as follows:

Short term loans Maturities Weighted
average
interest rate		  Collateral/Guarantee December 31,
2018		  December 31,
2017		 
              
Loan from Wuhan Rural Commercial Bank July 25, 2018  7.35% Guaranteed by Hubei Changyang Hongrong Environmental Protection Science and Technology Co. Ltd., a related party and pledged with its patent as a collateral         -  $2,305,316 
Loan from Bank of Jiangsu September 25, 2019  6.31% Guaranteed by Qihai Wang’s personal property $508,832        - 


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Third party loan

In April 2017, the Company obtained an unsecured loan from an unrelated third party in the amount of $144,887 (RMB 1,000,000) due on April 27, 2018 with an annual interest rate of 10%. The due date for this loan has been extended to October 27, 2018. On March 11, 2019, the Board granted an aggregate of 72,785 shares of restricted common stock, with a fair value of $144,842, determined using the closing price of $1.99 on March 11, 2019, to repay the debt the Company owed to this unrelated third party (See Note 17 – subsequent events).

In January 2018, the Company obtained an unsecured loan from an unrelated third party in the amount of $145,381 (RMB 1,000,000) due on August 21, 2020 with no interest.

Interest expense for the years ended December 31, 2018 and 2017 amounted to $181,677 and $173,268, respectively.

Note 12 – Taxes

Income tax

United States

TMSR was organized in the state of Delaware in April 2015 and re-incorporated in the state of Nevada in June 2018. TMSR’s U.S. net operating loss for the year ended December 31, 2018 amounted to approximately $50,000. As of December 31, 2018, TMSR’s net operating loss carry forward for United States income taxes was approximately $10,000. The net operating loss carry forwards are available to reduce future years’ taxable income through year 2038. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and continued losses in the United States. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management reviews this valuation allowance periodically and makes changes accordingly.

On December 22, 2017, the “Tax Cuts and Jobs Act” (“The 2017 Tax Act”) was enacted in the United States. Under the provisions of the Act, the U.S. corporate tax rate decreased from 34% to 21%. The 2017 Tax Act imposed a global intangible low-taxed income tax (“GILTI”), which is a new tax on certain off-shore earnings at an effective rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) with a partial offset for foreign tax credits. The Company determined that there are no impact of GILTI for the year ended December 31, 2018, which the Company believes that it will be imposed a minimum tax rate of 10.5% and to the extent foreign tax credits are available to reduce its US corporate tax, which may result in no additional US federal income tax being due.

Cayman Islands

China Sunlong is incorporated in the Cayman Islands and are not subject to tax on income or capital gains under current Cayman Islands law. In addition, upon payments of dividends by China Sunlong to its shareholders, no Cayman Islands withholding tax will be imposed.

British Virgin Islands

Shengrong BVI and TJComex BVI are incorporated in the British Virgin Islands and are not subject to tax on income or capital gains under current British Virgin Islands law. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.

Hong Kong

Shengrong HK and TJComex HK are incorporated in Hong Kong and are subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax law, Shengrong HK and TJComex HK are exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PRC

Shengrong WFOE, Hubei Shengrong, Wuhan HOST and Rong Hai are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), Chinese enterprises are subject to income tax at a rate of 25% after appropriate tax adjustments.

Significant components of the provision for income taxes are as follows: 

  For the year ended
December 31,
2018		  For the year ended
December 31,
2017		 
       
Current $608,355  $2,898,549 
Deferred  (92,535)  (944,607)
Total provision for income taxes $515,820  $1,953,942 

Under the Income Tax Laws of the PRC, companies are subject to income tax at a rate of 25%. However, Hubei Shengrong, disposed in December 2018, obtained the “high-tech enterprise” tax status in 2014, which reduced its statutory income tax rate to 15% from 2014 to 2016. Hubei Shengrong renewed its “high-tech enterprise” status in December 2016, which continued to reduce its statutory income rate to 15% from 2017 to 2019. Wuhan Host also obtained the “high-tech enterprise” tax status in 2016, which reduced its statutory income tax rate to 15% from 2016 to 2019. Tax savings resulted from the reduced statutory income tax rate amounted to $276,519 and $1,894,478 for the years ended December 31, 2018 and 2017, respectively.  Tax savings resulted from the reduced statutory income tax rate that increased the Company’s earnings per share by $0.01 and $0.11 for the years ended December 31, 2018 and 2017, respectively.

The following table reconciles China statutory rates to the Company’s effective tax rate:

  December 31,
2018		  December 31,
2017		 
       
PRC statutory rates  25.0%  25.0%
Preferential tax rate reduction  (8.8%)  (10.0%)
Effect of valuation allowance on change in net operating loss carried forward  0.0%  3.9%
Effect of permanent difference(1)  10.0%  12.8%
Effective tax rate  26.2%  31.7%

(1)Permanent difference consisted of mainly income tax non-deductible items, goodwill impairment and income tax penalty and interest.

Deferred tax assets

Bad debt allowances must be approved by the Chinese tax authority prior to being deducted as an expense item on the tax return.

Significant components of deferred tax assets were as follows:

  December 31,
2018		  December 31,
2017		 
       
Net operating losses carried forward – U.S. $10,396  $- 
Net operating losses carried forward – PRC  -   418,549*
Bad debt allowance  205,863   980,840 
Valuation allowance  (10,396)  (418,549)
Deferred tax assets, net $205,863  $980,840 

* Represents TJ Comex net operating losses carried forward was disposed on April 2, 2018.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Value added tax

Enterprises or individuals who sell commodities, engage in repair and maintenance or import and export goods in the PRC are subject to a value added tax in accordance with PRC laws. The value added tax (“VAT”) standard rates are 6% to 17% of the gross sales price and changed to 6% to 16% of gross sales starting in May 2018. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on sales of the finished products and services.

Taxes payable consisted of the following:

  December 31,
2018		  December 31,
2017		 
       
VAT taxes payable $24,436  $7,838,111 
Income taxes payable  13,114   6,798,803 
Other taxes payable  18,199   924,489 
Total $55,749  $15,561,403 

Note 13 – Concentration of risk

Credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. As of December 31, 2018 and 2017, no cash were deposited with various financial institutions located in the U.S. As of December 31, 2018 and 2017, $680,709 and $457,126 and were deposited with various financial institutions located in the PRC, respectively. As of December 31, 2018 and 2017, $7,823 and $3,186 were deposited with one financial institution located in Hong Kong, respectively. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.

Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.

Customer and vendor concentration risk

For the year ended December 31, 2018, two customers accounted for 34.3% and 22.0% of the Company’s revenues. For the year ended December 31, 2017, four customers accounted for 25.0%, 24.7%, 14.1% and 14.1% of the Company’s revenues.

As of December 31, 2018, two customers accounted for 41.1% and 13.4% of the Company’s accounts receivable. As of December 31, 2017, two customers, who are related to each other under common management and ownership, accounted for 45.6% and 43.9% of the Company’s accounts receivable.

For the year ended December 31, 2018, one supplier accounted for 57.7% of the Company’s total purchases. For the year ended December 31, 2017, three suppliers accounted for 50.7%, 27.3% and 21.1% of the Company’s total purchases, respectively.

As of December 31, 2018, three suppliers accounted for 44.2%, 15.5% and 13.9% of the Company’s total prepayments; and four suppliers accounted for 27.4%, 26.5%, 12.5% and 11.9% of the Company’s total accounts payable. As of December 31, 2017, three suppliers accounted for 41.2%, 35.9% and 22.8% of the Company’s prepayments; and two suppliers accounted for 40.0% and 29.1% of the Company’s total accounts payable.


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 – Equity

Restricted net assets

The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by Shengrong WFOE only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the accompanying consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Shengrong WFOE.

Shengrong WFOE, Wuhan HOST, Rong Hai are required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, Shengrong WFOE may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion. Wuhan HOST and Rong Hai may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by State Administration of Foreign Exchange.

As of December 31, 2018, Shengrong WFOE, Wuhan HOST, and Rong Hai, collectively attributed $0 of retained earnings for their statutory reserves as they have accumulated losses. As of December 31, 2017, Shengrong WFOE, Hubei Shengrong, TJ Comex WFOE and TJComex Tianjin collectively attributed $2,137,815 of retained earnings for their statutory reserves. These reserves were disposed upon the disposition of Hubei Shengrong in December 2018.

As a result of the foregoing restrictions, Shengrong WFOE are restricted in their ability to transfer their net assets to the Company. Foreign exchange and other regulation in the PRC may further restrict Shengrong WFOE from transferring funds to China Sunlong in the form of dividends, loans and advances. As of December 31, 2018 and 2017, amounts restricted are the net assets of Shengrong WFOE, which amounted to $2,347,967 and $27,800,814, respectively.

Stock split

On June 1, 2018, the Company’s shareholder approved a 2 for 1 stock split of the Company’s common stock at the Annual Meeting of Shareholders. The stock split was effected on June 20, 2018, pursuant to the completion of the reincorporation from Delaware to Nevada. All shares and per share amounts used herein and in the accompanying consolidated financial statements have been retroactively restated to reflect the stock split.

Common stock

On June 23, 2018, the Company issued an aggregate of 26,693 shares of the Company’s common stock, par value $0.0001 per share, to certain non-U.S. purchasers at a purchase price of $5.00 per share for an aggregate proceeds of $133,335 pursuant to certain securities purchase agreement dated April 20, 2018 and June 22, 2018.  The issuances were pursuant to the exemption from registration under Regulation S promulgated under the Securities Act of 1933, as amended.

Warrants and options

 

On July 29, 2015, the Company sold 5,000,00010,000,000 units at a purchase price of $10.00$5.00 per unit (“Public Units”) in the Public Offering.its initial public offering. Each Public Unit consists of one share of the Company’s common stock, $0.0001 par value, and one common stock purchase warrant. The Company did not register the shares of common stock issuable upon exercise of the warrants at the time of the Public Offering. However, the Company has agreed to use its best efforts to file and have an effective registration statement covering the shares of common stock issuable upon exercise of the warrants, to maintain a current prospectus relating to those shares of common stock until the earlier of the date the warrants expire or are redeemed and, the date on which all of the warrants have been exercised and to qualify the resale of such shares under state blue sky laws, to the extent an exemption is not available. Each warrant will entitle the holder to purchase one-half of one share of common stock at an exercise price of $5.75$2.88 per half share ($11.505.75 per whole share). Warrants may be exercised only for a whole number of shares of common stock. No fractional shares will be issued upon exercise of the warrants. The warrants will become exercisable on the later of (a) 30 days after the consummation of its initial Business Combination or (b) 12 months from the closing of the Public Offering.with China Sunlong on February 6, 2018. The warrants will expire at 5:00 p.m., New York time, five years after the consummation of its initial Business Combination or earlier upon redemption or liquidation. On the exercise of any warrant, the warrant exercise price will be paid directly to us and not placed in the Trust Account.February 5, 2023. The warrants will be redeemable by the Company at a price of $0.01 per warrant upon 30 days prior written notice after the warrants become exercisable, only in the event that the last sale price of the common stock equals or exceeds $24.00$12.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date on which notice of redemption is given.

 


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company paid an upfront underwriting discount of $1,250,000 (approximately 2.5%sponsor of the gross proceeds of the Public Offering) to the underwriters atCompany purchased, simultaneously with the closing of the Public Offering. The amount was chargedOffering on July 29, 2015, 500,000 units at $5.00 per unit in a private placement for an aggregate price of $2,500,000. Each unit purchased is substantially identical to the additional paidunits sold in capital account.the Public Offering.

 

The Company sold to the underwriter (and/or its designees), for $100, as additional compensation, an option to purchase up to a total of 400,000800,000 units exercisable at $10.00$5.00 per unit (or an aggregate exercise price of $4,000,000) upon the closing of the Public Offering. Since the option is not exercisable until the earliest on the closing the initial Business Combination, the option will effectively represent the right to purchase up to 400,000800,000 shares of common stock and 400,000800,000 warrants to purchase 200,000400,000 shares at $11.50$5.75 per full share for an aggregate maximum amount of $6,300,000. The units issuable upon exercise of this option are identical to those issued in the Public Offering. (See Note 5).

F-13

JM GLOBAL HOLDING COMPANY

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

4. RELATED PARTY TRANSACTIONS

Founder shares

In April 2015, the Sponsor purchased 1,504,688 shares of the Company’s common stock (the “Founder Shares”) for $25,000, or $0.01662 per share, which included an aggregate of 192,188 Founder Shares that were subject to forfeiture by the Sponsor to the extent that the overallotment option was not exercised by the underwriter. In June 2015, our Sponsor transferred 164,063 Founder Shares to each of Tim Richerson, our Chief Executive Officer, and Peter Nathanial, our President, as well as 3,000 Founder Shares to each of Messrs. Jetta and Qu, our independent directors. These 334,126 Founder Shares were not subject to forfeiture in the event the underwriter’s overallotment option was not exercised in full. The Founder Shares are identical to the shares of common stock included in the Units sold in the Public Offering, except that (1) the founder shares are subject to certain transfer restrictions, as described in more detail below, and (2) our initial stockholders have agreed: (i) to waive their redemption rights with respect to their founder shares in connection with the consummation of a Business Combination and (ii) to waive their redemption rights with respect to their founder shares if we fail to complete our Business Combination within 24 months from the closing of the Public Offering. However, our initial stockholders will be entitled to redemption rights with respect to any public shares they hold by way of public market purchase if we fail to consummate a Business Combination within such time period. If we submit our initial Business Combination to our public stockholders for a vote, our initial stockholders have agreed to vote their shares and any public shares held in favor of our initial Business Combination. The initial stockholders own founder shares equal to 20.0% of the Company’s issued and outstanding shares (not including the placement shares).

On September 8, 2015, the Sponsor forfeited 192,188 Founder Shares since the overallotment was not exercised, so that the initial stockholders owned 20.0% of the Company’s issued and outstanding shares of common stock (not including the placement shares).

Our initial stockholders have agreed not to transfer, assign or sell any of their Founder Shares until one year after our initial Business Combination (the “lock up”). Notwithstanding the foregoing, if the last sale price of our common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after our initial Business Combination, or if we consummate a transaction after our initial Business Combination which results in our stockholders having the right to exchange their shares for cash or property, the Founder Shares will be released from the lock-up.

The Sponsor purchased an aggregate of 3,000,000 units in the Public Offering. The Sponsor has agreed that it will not seek redemption of 1,000,000 shares included in such units.

F-14

JM GLOBAL HOLDING COMPANY

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

4. RELATED PARTY TRANSACTIONS (continued)

Private placement

In July 2015, the Sponsor purchased 250,000 placement units, each consisting of one share of common stock and one warrant to purchase one-half of one share of common stock at a price of $5.75 per half share, at a price of $10.00 per unit ($2,500,000 in the aggregate,) in a private placement that occurred simultaneously with the completion of the Public Offering. In addition, possible working capital loans by our Sponsor, management team, their affiliates and other third parties may be converted into warrants of the post-business combination entity at a price of $0.50 per warrant (a maximum of 1,000,000 warrants if up to $500,000 is loaned and that amount is converted into warrants). The placement warrants, and the loan warrants, if any, are (or will be) identical to the warrants sold in the Public Offering, except that, if held by our Sponsor or its permitted assigns, they (a) may be exercised for cash or on a cashless basis; (b) are not subject to being called for redemption and (c) they (including the common stock issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the consummation of our initial Business Combination. The Sponsors have agreed that the warrants purchased will not be sold or transferred until 30 days following consummation of a Business Combination, subject to certain limited exceptions. If the Company does not complete a Business Combination, then the proceeds will be part of the liquidating distribution to the public stockholders and the warrants issued to the initial stockholders will expire worthless.

The private placement warrants and the common shares issuable upon exercise of the private placement warrants will not be transferable, assignable or salable until 30 days after the consummation of our initial Business Combination and the placement warrants will be non-redeemable so long as they are held by our Sponsor or its affiliates or designees. If the private placement warrants are held by someone other than the Sponsor, or its respective permitted transferees, the private placement warrants will be redeemable by us and exercisable by such holders on the same basis as the warrants included in the Units sold in the Public Offering.

Due to Affiliates

For the period from April 10, 2015 (inception) through December 31, 2016, the Company’s Sponsor advanced to us a total, net of repayments, of $140,500 which has been used for the payment of costs associated with the Public Offering. These advances are non-interest bearing,unsecured and due on demand. Total amounts due to the sponsor were $140,500 at December 31, 2016 and 2015, respectively.

For the period from April 10, 2015 (inception) through December 31, 2016, an officer of the Company advanced us approximately $53,000 for expenses related to the Public Offering. These advances were repaid as of December 31, 2016.

In order to finance transaction costs in connection with an intended initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we consummate an initial Business Combination, we would repay such loaned amounts. In the event that the initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment, other than the interest income earned thereon. Up to $1,000,000 of such loans may be convertible into warrants of the post Business Combination entity at a price of $0.50 per warrant at the option of the lender. The warrants would be identical to the placement warrants. The terms of such loans by our Sponsors, officers and directors, if any, have not been determined and no written agreements exist with respect to such loans.

F-15

JM GLOBAL HOLDING COMPANY

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

5. COMMITMENTS AND CONTINGENCIES

The underwriter was entitled to an underwriting discount of two and a half percent (2.5%), which was paid in cash.

The Company sold to the underwriter (and/or its designees), for $100, as additional compensation, an option to purchase up to a total of 400,000 units exercisable at $10.00 per unit (or an aggregate exercise price of $4,000,000) upon the closing of the Public Offering. Since the option is not exercisable until the earliest on the closing of our initial Business Combination, the option will effectively represent the right to purchase up to 400,000 shares of common stock and 400,000 warrants to purchase 200,000 shares at $11.50 per full share for an aggregate maximum amount of $6,300,000. The units issuable upon exercise of this option are identical to those offered in the Public Offering. This option may be exercised during the five-year period from the date of the Public Offering commencing on the later of the consummation of an initial Business Combination and the one-year anniversary of the date of the Public Offering. The Company accounts for the fair value of the unit purchase option, net of the receipt of the $100 cash payment, as an expense of the Public Offering resulting in a charge directly to stockholders’ equity. The Company estimates the fair value of this unit purchase option is approximately $2.02 per unit (for a total fair value of approximately $669,114) using a Black-Scholes option-pricing model. The fair value of the unit purchase option granted to the underwriter is estimated as of the date of grant using the following assumptions: (1) expected volatility of 11.15%, (2) risk-free interest rate of 1.36% and (3) expected life of 5 years. Because the Company’s units do not have a trading history, the volatility assumption is based on information currently available to management. The volatility assumption was calculated using the average volatility of exchange-traded funds tracking various indices, which are representative of the sectors on which the company intends to focus for the initial business transaction, including: Fidelity Select Consumer Staples Portfolio, Rydex Consumer Products Fund, Icon Consumer Staples, Putnam Global Consumer Fund, and Vanguard Consumer Staples ETF. The Company believes that the volatility estimate is a reasonable benchmark to use in estimating the expected volatility of the units. Although an expected life of five years was used in the calculation, if the Company does not consummate a Business Combination within the prescribed time period and it liquidates, the option will become worthless. The unit purchase option may be exercised for cash or on a “cashless” basis, at the holder’s option, such that the holder may use the appreciated value of the unit purchase option (the difference between the exercise prices of the unit purchase option and the underlying warrants and the market price of the Units and underlying shares of common stock) to exercise the unit purchase option without the payment of cash.

6. TRUST ACCOUNT

A total of $50,000,000, which includes $47,500,000 of the net proceeds from the Public Offering and $2,500,000 from the sale of the Private Warrants, has been placed in the Trust Account. As of December 31, 2016 and 2015, the balance in the Trust Account was $50,109,326 and $50,023,363, respectively.

As of December 31, 2016, the Company’s Trust Account consisted of $49,940,597 in U.S. Treasury Bills, $5,400 in accrued interest and $163,329 in cash. As of December 31, 2015, the Company’s Trust Account consisted of $49,994,122 in U.S. Treasury Bills, $21,485 in accrued interest and $7,756 in cash. The Company classifies its U. S. Treasury and equivalent securities as held-to-maturity in accordance with FASB ASC 320 “Investments - Debt and Equity Securities”. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying December 31, 2016 and 2015 balance sheets and adjusted for the amortization or accretion of premiums or discounts.

F-16

JM GLOBAL HOLDING COMPANY

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

6. TRUST ACCOUNT (continued)

The carrying amount, excluding interest income, gross unrealized holding gains and fair value of held-to-maturity securities at December 31, 2016 and 2015 are as follows: 

  Held-To-Maturity Carrying
Amount		  Gross
Unrealized
Holding
Gains		  Fair Value 
December 31, 2016 U.S. Treasury Securities $49,940,597  $5,400  $49,945,997 
               
December 31, 2015 U.S. Treasury Securities $49,994,122  $21,485  $50,015,607 

7. FAIR VALUE MEASUREMENTS

The Company complies with ASC 820, “Fair Value Measurement”, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. 

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2016 and 2015, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability:

  Description Total Value  Quoted Prices
in Active
Markets
(Level 1)		  Significant
Other
Observable
Inputs
(Level 2)		  Significant
Other
Unobservable
Inputs
(Level 3)		 
Assets:              
December 31, 2016 Cash and securities held in Trust Account $50,109,326  $50,109,326  $-  $     - 
                   
December 31, 2015��Cash and securities held in Trust Account $50,023,363  $50,023,363  $-  $- 

F-17

JM GLOBAL HOLDING COMPANY

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

8. STOCKHOLDERS’ EQUITY

Common stock

On October 30, 2015, the Company entered into a twelve-month consulting agreement (the “Agreement”) with FirsTrust China Ltd. (the “Consultant”), pursuant to which the Consultant agreed to provide advisory services relating to potential business combination transactions and the Company agreed to pay the Consultant a monthly fee of $20,000, payable quarterly in advance. In addition, the Company agreed to issue to the Consultant 20,000 restricted shares of the Company’s common stock upon the closing of the Company’s initial Business Combination. The Company estimated the fair value of the shares issuable to the Consultant to be $195,200 and has expensed on a pro-rata basis over the term of the contract. The Consultant is entitled to piggy-back registration rights relating to such shares similar to the piggy-back registration rights granted to the Company’s initial stockholders. During the year ended December 31, 2016, the Company recorded $150,134 in its consulting expenses.

On June 10, 2016, the Company and the Consultant entered into a termination agreement, pursuant to which the Company and Consultant mutually agreed to terminate the Agreement in exchange for a $60,000 termination fee. Further, the Consultant agreed that the Company shall have no further obligations to the Consultant, including but not limited to the Company’s obligation to issue shares to the Consultant upon the closing of the Company’s initial business combination. Accordingly, the Company wrote off the unamortized $65,066 prepaid consulting expenses.

The Company is authorized to issue 15,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the Company’s common stock are entitled to one vote for each share of common stock. At December 31, 2016, there were 6,562,500 shares of common stock issued and outstanding (including 4,000,000 shares of common stock subject to redemption).

Preferred stock

The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. At December 31, 2016, there were no shares of preferred stock issued and outstanding. The rights privileges, restrictions and conditions of the preferred shares have not been determined.

Options

 

In July 2016, the board of directors of the Company appointed two new directors. In August 2016, the Sponsor hassponsor of the Company granted an option to each of the two new directors to acquire 6,00012,000 shares of common stock at a price of $9.79$4.90 per share vested immediately and exercisable commencing six months after closing of the initial Business Combination and expiring five years from the closing of the initial Business Combination.

The aforementioned warrants and options are deemed to be effective on February 6, 2018, the date of the consummation of its initial business combination with China Sunlong, as the Company was deemed to be the accounting acquiree in the transaction and the transaction was treated as a recapitalization of China Sunlong.

The summary of warrant activity is as follows:

        Weighted  Average 
        Average  Remaining 
  Warrants
Outstanding		  Exercisable
Shares		  Exercise
Price		  Contractual
Life		 
December 31, 2017  -   -  $-   - 
Granted/Acquired  10,500,000   5,250,000  $5.75   4.16 
Forfeited  -   -  $-   - 
Exercised  -   -  $-   - 
December 31, 2018  10,500,000   5,250,000  $5.75   4.16 

The summary of option activity is as follows:

     Weighted  Average 
     Average  Remaining 
  Options
Outstanding		  Exercise
Price		  Contractual
Life		 
December 31, 2017  -  $-   - 
Granted/Acquired  824,000  $5.00   4.16 
Forfeited  -  $-   - 
Exercised  -  $-   - 
December 31, 2018  824,000  $5.00   4.16 


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 – Commitments and contingencies

Contingencies

The Company estimatesmay be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity.

On February 27, 2013, Wuhan HOST entered into a contract to purchase land use rights for a parcel of land in E Zhou City, Hubei, China, for $1,212,478.  The Company has paid to the local government $781,349, a balance of $431,129 has not been paid; however, the government has already issued to the Company all the necessary certificates transferring title of the land use rights for the parcel of land to the Company, and has not taken action to collect any remaining unpaid balance.  If the government determines that it wishes to collect an unpaid balance, the total cost to the Company would be $431,129.

Lease commitments

The Company has entered into non-cancellable operating lease agreements for one office space and one dormitory space for its employees. The office lease is expiring in December 2021 with a monthly rental rate of approximately $4,900. The dormitory lease expired in July 2017, and was extended to December 2019, with a monthly rental rate of approximately $390. The office lease payments for the lease expiring in December 2021 will be paid over three years beginning 2018.

The Company’s commitments for minimum lease payment under these operating leases as of December 31, 2018 are as follow:

Years ending December 31, Minimum
lease
payment		 
2019 $106,148 
2020  101,516 
Total minimum payments required $207,664 

Rent expense for the years ended December 31, 2018 and 2017 were $152,734 and $182,999, respectively.

Note 16 – Segment reporting

The Company follows ASC 280, Segment Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance. The Company’s chief operating decision maker evaluates performance and determines resource allocations based on a number of factors, the primary measure being income from operations of the four operating entities: Shengrong China, Wuhan Host, Rong Hai, and TJComex Tianjin. TJComex Tianjin was disposed in April 2018.

The Company’s operations currently encompass three business segments. The Company also has a separate business segments prior to April 2018. Such reportable segments are consistent with the way the Company manages its business, with each segment operating under separate management and producing discrete financial information. The accounting principles applied at the operating division level in determining income from operations is generally the same as those applied at the consolidated financial statement level. 

The operation and products of the three existing segments and one disposed segment are as follow:

1.Hubei Shengrong and Shengrong WFOE: sale of solid waste recycling and comprehensive utilization equipment and trading of processed industrial waste materials; and

2.Wuhan HOST: research, development, production and sale of coating materials; and

3.Rong Hai: Coal wholesales and sale of coke, steels, construction materials, mechanical equipment and steel scrap.
4.TJComex Tianjin: General merchandise trading business and related consulting services (disposed in April 2018).


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following represents results of segment operations for the years ended December 31, 2018 and 2017:

  For Year ended December 31,
2018		  For Year ended December 31,
2017		 
Revenues:      
Hubei Shengrong and Shengrong WFOE $17,122,385  $38,502,342 
Wuhan HOST  4,615,893   - 
Rong Hai  1,452,426   - 
TJComex Tianjin  650   249,423 
Consolidated revenues $23,191,354  $38,751,765 
         
Gross profit:        
Hubei Shengrong and Shengrong WFOE $3,098,609  $19,293,744 
Wuhan HOST  1,087,109   - 
Rong Hai  333,255   - 
TJComex Tianjin  650   224,001 
Consolidated gross profit $4,519,623  $19,517,745 
         
Income (loss) from operations:        
Hubei Shengrong and Shengrong WFOE $1,946,185  $11,813,321 
Wuhan HOST  121,606   - 
Rong Hai  321,991   - 
TJComex Tianjin  (112,615)  (4,367,006)
TMSR, China Sunlong, Shengrong BVI and Shengrong HK  (150,108)  - 
Consolidated income from operations $2,127,059  $7,446,315 
         
Net income (loss):        
Hubei Shengrong and Shengrong WFOE $1,261,186  $9,656,063 
Wuhan HOST  121,902   - 
Rong Hai  315,087   - 
TJComex Tianjin  (112,726)  (5,442,586)
TMSR, China Sunlong, Shengrong BVI and Shengrong HK  (135,457)  - 
Consolidated net income $1,449,992  $4,213,477 
         
Depreciation and amortization:        
Hubei Shengrong and Shengrong WFOE $346,992  $341,573 
Wuhan HOST  290,693   - 
Rong Hai  1,578   - 
TJComex Tianjin  32,444   101,402 
Consolidated depreciation and amortization $671,707  $442,975 
         
Interest expense:        
Hubei Shengrong and Shengrong WFOE $164,685  $173,268 
Rong Hai  2,521   - 
TMSR, China Sunlong, Shengrong BVI and Shengrong HK  14,471   - 
Consolidated interest expense $181,677  $173,268 
         
Capital expenditures:        
Hubei Shengrong and Shengrong WFOE $692  $1,763 
Wuhan HOST  2,823   - 
TJComex Tianjin  -   123 
Consolidated capital expenditures $3,515  $1,886 


TMSR HOLDING COMPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following represents assets by division as of:

Total assets as of December 31,
2018		  December 31,
2017		 
Hubei Shengrong and Shengrong WFOE $2,301,663  $46,425,568 
Wuhan HOST  16,612,376   - 
Rong Hai  13,859,965   - 
TJComex Tianjin  -   2,142,350 
TMSR, China Sunlong, Shengrong BVI and Shengrong HK  78,973   - 
Total Assets $32,852,977  $48,567,918 

Note 17 – Subsequent events

On February 12, 2019, the Company’s warrant holders converted 294,971 of the Company’s warrants into 52,077 shares of the Company’s common stock using cashless exercises method.

On February 20, 2019, the Company’s warrant holders converted 415,355 of the Company’s warrants into 54,826 shares of the Company’s common stock using cashless exercises method.

On March 11, 2019, the Board granted an aggregate of 131,330 shares of restricted common stock, with a fair value of $261,347, determined using the purchase options at $15,546 using a Black-Scholes option-pricing model and recorded $15,546 as compensation expenses accordingly forclosing price of $1.99 on March 11, 2019, to repay the year ended December 31, 2016.debt the Company owed to two unrelated third parties.

 

On March 15, 2019, the Board granted an aggregate of 142,530 shares of restricted common stock, with a fair value of $290,761, determined using the closing price of $2.04 on March 15, 2019, to repay the debt the Company owed to one unrelated third party.

F-18

 


SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

March 28, 2017

April 1, 2019

JM GlobalTMSR Holding Company Limited
  
 By:/s/ Tim RichersonJiazhen Li
  

Name: Tim RichersonJiazhen Li

Title: Chief Executive Officer and
(Principal Executive Officer)

By:/s/ Xiaoyan Shen

Name: Xiaoyan Shen

Title: Chief Financial Officer

and Secretary
(Principal ExecutiveFinancial Officer and
Principal FinancialAccounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name Position Date
     
/s/ Tim RichersonChuanliu Ni Chief Executive Officer and Chief Financial OfficerCo-Chairman of the Board of Directors March 28, 2017

April 1, 2019

Tim RichersonChuanliu Ni (Principal Executive Officer and Principal Financial and  
  
/s/ Jiazhen LiChief Executive Officer

April 1, 2019

Jiazhen LiAccounting(Principal Executive Officer)  
     
/s/ Qi (Jacky) ZhangZheyi Wang ChairmanCo-Chairman of the Board of Directors March 28, 2017

April 1, 2019

Qi (Jacky)Zheyi Wang
/s/ Xiaonian ZhangPresident and Director

April 1, 2019

Xiaonian Zhang    
     
/s/ Peter NathanialXiaoyan Shen PresidentChief Financial Officer and Secretary

April 1, 2019

Xiaoyan Shen(Principal Financial Officer and Principal Accounting Officer)
/s/ Hongxiang YuDirector March 28, 2017

April 1, 2019

Peter NathanialHongxiang Yu    
     
/s/ Kurt JettaYilei Shao Director March 28, 2017

April 1, 2019

Kurt JettaYilei Shao    
     
/s/ Dongliang QuMin Zhu Director March 28, 2017

April 1, 2019

Dongliang QuMin Zhu    
     
/s/ Arthur B. DrogueMingze Yin Director March 28, 2017

April 1, 2019

Arthur B. Drogue
/s/ Xiaoguang LiuDirectorMarch 28, 2017
Xiaoguang LiuMingze Yin    

 

 

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