| SUBSEQUENT EVENTS | 21. SUBSEQUENT EVENTS The management evaluated all events subsequent
to the balance sheet date through the date the unaudited condensed consolidated financial statements were available to be issued.
There are no significant matters to make material adjustments or disclosure in the unaudited condensed consolidated financial statements.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations. The following discussion and analysis
of the results of 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. Our discussion includes forward-looking statements based
upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual
results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result
of a number of factors. See “Forward-Looking Statements.” Overview Yangtze River Port
& Logistics Limited (formerly known as Yangtze River Development Limited) is a Nevada corporation that operates through its
wholly-owned subsidiary Energetic Mind Limited (“Energetic Mind”), a British Virgin Islands company. Energetic Mind
holds 100% of the capital stock in Ricofeliz Capital (HK) Ltd (“Ricofeliz Capital), a Hong Kong company which in turns holds
100% of the equity interests in Wuhan Yangtze River Newport Logistics Co., Ltd (Wuhan Newport”), a wholly foreign-owned
enterprise formed under the laws of the People’s Republic of China that primarily engages in the business of real estate
and infrastructural development with a port logistics center located in Wuhan, Hubei Province of the PRC. On January 30, 2018,
we incorporated Yangtze River Blockchain Logistics Limited (previously known as Avenal River Limited) in the British Virgin Islands.
Yangtze River Blockchain Logistics Limited owns 100% of the equity interest of Ricofeliz Investment (China) Limited, a Hong Kong
company, which owns 100% of the equity interest of Wuhan Yangtze River Newport Trading Limited, a PRC company. Situated in the middle
reaches of the Yangtze River, Wuhan Newport is a large infrastructure development project implemented under China’s latest
“One Belt One Road” initiative and is believed to be strategically positioned in the anticipated “Pilot Free
Trade Zone” of the Wuhan port, an important trading locale for China, the Middle East and Europe. The Logistics Center,
which is being built by Wuhan Newport, will comprise six operating zones: a port operation area, warehouse and distribution area,
cold chain logistics area, rail cargo loading area, exhibition area and business related area. The Logistics Center is also expected
to provide a number of shipping berths for cargo ships of various sizes. Wuhan Newport is expected to provide domestic and foreign
businesses a direct access to the anticipated Free Trade Zone in Wuhan. The project will include commercial buildings, professional
logistic supply chain centers, direct access to the Yangtze River, Wuhan-Xinjiang-Europe Railway and ground transportation, storage
and processing centers, IT supporting services, among others. The Logistics Center
is located within the Wuhan Newport Yangluo Port, on the upper stream of the Yangtze River, and close to the northern base of
Wu Iron and Steel, China’s first mega-sized iron and steel production complex. The Logistics Center is expected to include
a port terminal that will be located approximately 26.5km from the Wuhan Guan and 5.5km from the Yangluo Yangtze River Bridge.
The operation area of the port is expected to consist of a riverbank of 1,039 meters with eight 5,000-to-10,000-ton berths, two
of which are multi-purpose berths and the other six are general cargo berths. It is designed to be able to handle up to 5,000,000
tons of cargo annually, including up to 100,000 TEU for annual container throughput (including 20,000 TEU in freezers areas),
1,000,000 tons of iron and steel and 3,000,000 tons of general cargo. The Logistics Center
will be complemented with container storage areas, multi-functional areas, general storage areas, multi-functional warehouse and
infrastructural development, including new roads, gas stations, parking areas, gas and water pipes, electricity lines and all
other facilities and equipment to operate the Logistics Center. We will begin construction of the Logistics Center once we raise
funds for it. Wuhan Newport has
signed a twenty-year lease agreement effective April 27, 2015, the maximum number of years permitted by the applicable PRC laws,
with rights to renew at its sole discretion, to lease approximately 1,200,000 square meters of land for building logistics warehouses
in support of the Logistics Center. The warehouses are expected to comprise of port terminal zones, warehouse logistics zones,
cold chain supply zones and railroad loading and unloading zones. The warehouses will connect the port terminal along the Yangtze
River and the railway leading to Europe, satisfying the requirement of China’s latest “One Belt, One Road” initiative.
It will also be able to support large logistics companies in Wuhan and other nearby provinces which will rent the warehouses,
terminals and offices within the Logistics Center. In the meantime, we
have been developing a commercial building project called the Wuhan Centre China Grand Steel Market (Phase 1) Commercial Building
(“Phase 1 Project”) located in the south of Hans Road, Wuhan Yangluo Economic Development Zone which covers an approximate
construction area of 222,496.6 square meters. We have been financing the Phase 1 Project with bank loans and shareholder advances.
The Phase 1 Project comprises 7 buildings, of which 92,755.8 square meters have been completed. We have sold approximately 22,780
square meters of commercial building space. Factors Affecting our Operating Results Growth of China’s Economy Government Regulations.
● Land
Use Right
● Land
Development
● Project Financing
Interest Rate
and Inflation Challenges. Acquisitions
of Land Use Rights and Associated Costs Critical Accounting Estimates As discussed in Part
II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2018, we consider our estimates on revenue recognition, impairment of long-lived
assets, and real estate property refunds and compensation payables to be the most critical in understanding the judgments that
are involved in preparing our consolidated financial statements. There have been no significant changes to these estimates in
the three months ended March 31, 2019. Results of Operations Comparison of Three Months and Six Months Ended June
30, 2019 and 2018 The
following table sets forth the results of our operations for the three and six months indicated in U.S. dollars.
(Unaudited) (Unaudited)
2019 2018 2019 2018
Revenue $ - $ - $ - $ -
Costs of revenue - - - -
Gross profit - - - -
Operating expenses
Selling expenses - - - -
General and administrative expenses 1,277,733 2,145,925 1,746,257 3,295,013
Total operating expenses 1,277,733 2,145,925 1,746,257 3,295,013
Loss from operations (1,277,733 ) (2,145,925 ) (1,746,257 ) (3,295,013 )
Other income (expenses)
Other income 732 - 732 1,543
Other expenses - (9,080 ) - (9,080 )
Interest income 5,208 71 5,310 93
Interest expenses (2,128,280 ) (2,217,659 ) (4,425,044 ) (4,400,466 )
Total other expenses (2,122,340 ) (2,226,668 ) (4,419,002 ) (4,407,910 )
Loss before income taxes (3,400,073 ) (4,372,593 ) (6,165,259 ) (7,702,923 )
Income taxes benefits 267,635 293,058 536,810 573,401
Net loss $ (3,132,438 ) $ (4,079,535 ) $ (5,628,449 ) $ (7,129,522 )
Other comprehensive income
Foreign currency translation adjustments 9,337,284 (15,499,554 ) 480,163 (4,866,681 )
Comprehensive loss $ 6,204,846 $ (19,579,089 ) $ (5,148,286 ) $ (11,996,203 )
Loss per share - basic and diluted $ (0.02 ) $ (0.02 ) $ (0.03 ) $ (0.04 )
Weighted average shares outstanding - basic and diluted 177,456,944 172,369,666 174,981,151 172,357,126 Revenue. We did not generate
any revenue from the sales of real estate property for the three and six months ended June 30, 2019 and 2018. In addition, since
our Logistics Center is still in its development stage and therefore is not yet in operation, we have not started providing any
logistics service within our port terminal and have not generated any revenue from providing such services. Cost of revenue. During the three and
six months ended June 30, 2019 and 2018, our cost of goods sold was $nil. Gross profit. Our gross margin was
$nil for the three and six months ended June 30, 2019 and 2018. Selling expenses. Selling expenses was
$nil for the three and six months ended June 30, 2019 and 2018. General and administrative expenses Our general and administrative
expenses consist of salaries, office expenses, utilities, business travel, amortization expenses (including legal expenses, accounting
expenses and other professional service expenses) and stock compensation. For the three months ended June 30, 2019, general and
administrative expenses were $1,277,733, compared to $2,145,925 for the three months ended June 30, 2018, a decrease of $868,192
or 40.5%. General and administrative expenses were $1,746,257 for the six months ended June 30, 2019, compared to $3,295,013 for
the six months ended June 30, 2018, a decrease of $1,548,756 or 47.0%. The decrease was primarily due to a decrease in share-based
compensation expenses for professional services. Loss from operations. As a result of the
factors described above, for the three months ended June 30, 2019, operating loss was $1,277,733, compared to operating loss of
$2,145,925 for the three months ended June 30, 2018, a decrease of operating loss of $868,192, or approximately 40.5%. Operating
loss was $1,746,257 for the six months ended June 30, 2019, compared to operating loss of $3,295,013 for the six months ended
June 30, 2018, a decrease of operating loss of $1,548,756, or approximately 47.0%. Other expenses. For the three months
ended June 30, 2019, other expenses totaling $2,122,340, compared to other expense totaling $2,226,668 for the three months ended
June 30, 2018. The other expenses mainly comprise interest expenses. Interest expenses were $2,128,280 for the three months ended
June 30, 2019, compared to $2,217,659 for the three months ended June 30, 2018, a decrease of $89,379 or 4.0%. We had other expenses
totaling $4,419,002 for the six months ended June 30, 2019, compared to other expense totaling $4,407,910 for the six months ended
June 30, 2018. Interest expenses were $4,425,044 for the six months ended June 30, 2019, compared to $4,400,466 for the six months
ended June 30, 2018, an increase of $24,578 or 0.6%. Income tax. For the three months
ended June 30, 2019, income tax benefit was $267,635, compared to $293,058 for the three months ended June 30, 2018. We received
an income tax benefit of $536,810 for the six months ended June 30, 2019, compared to $575,401 for the six months ended June 30,
2018. Net loss. As a result of the
factors described above, for the three months ended June 30, 2019, net loss from operations was $3,132,438, compared to net loss
of $4,079,535 for the three months ended June 30, 2018, a decrease in loss of $947,097 or 23.2%. Our net loss from operations
for the six months ended June 30, 2019 was $5,628,449, compared to net loss of $7,129,522 for the six months ended June 30, 2018,
a decrease in loss of $1,501,073 or 21.1%. Foreign currency translation. Our financial statements
are expressed in U.S. dollars but the functional currency of our operating subsidiary is RMB. Results of operations and cash flows
are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate
at the end of the period and equity is translated at historical exchange rates. Translation adjustments resulting from the process
of translating the financial statements denominated in RMB into U.S. dollars are included in determining comprehensive income.
Our foreign currency translation gain for the three and six months ended June 30, 2019 was $9,337,284 and $480,163 respectively,
compared to a foreign currency loss of $15,499,554 and $4,866,681 for the three and six months ended June 30, 2018. The changes
reflect the significant depreciation of RMB to U.S. dollars for the three and six months ended June 30, 2019. Net loss available to common stockholders. For the three months
ended June 30, 2019, net loss available to our common stockholders was $0.02 per share (basic and diluted), compared to net loss
of the $0.02 per share (basic and diluted), for the three months ended June 30, 2018. Net loss available to our common stockholders
was $0.03 per share (basic and diluted), for the six months ended June 30, 2019, compared to net loss of the $0.04 per share (basic
and diluted), for the six months ended June 30, 2018. Liquidity and Capital Resources The following table
sets forth a summary of our cash flows for the six months indicated:
Six
Months Ended June
30,
2019 2018
Net Cash Used in Operating Activities $ 1,771,150 $ 3,393,980
Net Cash Used in Investing Activities $ - $ -
Net Cash Provided by Financing Activities $ 7,300,426 $ 3,465,326 We had a balance of
cash and cash equivalents of $5,650,177 as of June 30, 2019. We have historically funded our working capital needs through advance
payments from customers, bank borrowings, and capital from stockholders. Our working capital requirements are influenced by the
state and level of our operations, and the timing of capital needed for projects. Operating Activities The decrease in net
cash used in operating activities was primarily contributed by the following factors:
● Changes
in other payables and accrued liabilities provided $4,231,308 cash inflow for the six
months ended June 30, 2019, compared to other payables and accrued liabilities contributing
$3,083,715 cash inflow for the six months ended June 30, 2018, which led to a decrease
of $1,147,593 in net cash outflow.
● We
have net loss of $5,628,449 for the six months ended June 30, 2019, compared to net loss
of $7,129,522 for the six months ended June 30, 2018, which led to a decrease of $1,501,073
in net cash outflow. Investing Activities. Financing Activities Contractual Obligations Jasper Lake Holdings
Limited (“Jasper”), a related party, holds an 8% convertible promissory note in the principal amount of $75,000,000
with a maturity date of December 19, 2019. Upon maturity, Jasper may convert all or any portion of the then aggregate outstanding
principal amount, together with any accrued and unpaid interest, into shares of Company’s common stock at $10.00 per share. Off-Balance Sheet Arrangements On January 29, 2016,
we received an undertaking commitment letter provided by our majority shareholder who was willing to provide sufficient funding
on an as-needed basis. We believe that the financial commitment provided by our majority shareholder could provide our Company
with sufficient capital resources to meet our capital needs for a reasonable period of time. Critical Accounting Policies We prepare our consolidated
financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation
of these financial statements require the use of estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases
its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates as a result of different assumptions or conditions. The methods, estimates,
and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our
financial statements. The SEC has defined “critical accounting policies” as those accounting policies that are most
important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments,
often as a result of the need to make estimates of matters that are inherently uncertain. Based upon this definition, our most
critical estimates relate to the fair value of warrant liabilities, impairment of long-lived assets, commitments and contingencies,
and revenue recognition. We also have other key accounting estimates and policies, but we believe that these other policies either
do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that
they would have a material impact on our reported results of operations for a given period. For additional information see Note
2, “Summary of Significant Accounting Policies” in the notes to our consolidated financial statements appearing elsewhere
in this report. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently
available, and actual results may differ significantly from these estimates.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk. We are exposed to
market risk in the normal course of our business, primarily due to our international operations. The primary exposure relates
to the exchange rate fluctuations between our U.S. dollar functional reporting currency and other currencies. This exposure includes
trade receivables denominated in currencies other than our functional currency. To date, fluctuations in exchange rates have not
had a material impact on our results of operations. To date we have not
utilized derivative financial instruments or derivative commodity instruments. We do not expect to employ these or other strategies
to hedge market risk in the foreseeable future. We invest our cash in money market funds, which are subject to minimal credit
and market risk. We believe that the market risks associated with these financial instruments are immaterial, although there can
be no guarantee that these market risks will be immaterial to us. Foreign Currency The Company’s
earnings are affected by fluctuations in the value of the U.S. dollar against foreign currencies, primarily as a result of translating
the financial statements denominated in RMB into U.S. dollars. As of December 31, 2018, the RMB exchange rate vs. the U.S. dollar
was 6.8785, representing about 5.73% depreciation compared to the exchange rate of 6.5059 vs. the U.S. dollar as of December 31,
2017. In the long term, the RMB may appreciate or depreciate more significantly in value against the U.S. dollar or other foreign
currencies. Interest Rates The Company is exposed
to interest rate fluctuations on borrowings under its revolving line of credit. At December 31, 2018, the Company had approximately
$41.8 million of outstanding borrowings under the revolving line of credit. The interest expense related to borrowings under the
line during 2018 was approximately $2.6 million. A hypothetical increase in interest rates of 100 basis points in the Company’s
interest rate on borrowings outstanding as of December 31, 2018 would not have a material effect on the Company’s financial
position, results of operations or cash flows. Inflation Rate According to the National
Bureau of Statistics of China, change in the consumer price index in China was 2.1%, 1.8% and 2.0% in 2018, 2017 and 2016, respectively.
Inflation could result in increases in the price of raw materials and labor costs. We do not believe that inflation or deflation
has affected our business materially.
Item 4. Controls and
Procedures. Evaluation of Disclosure Controls and
Procedures Our management, with
the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end
of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on
Form 10-Q were not effective in providing reasonable assurance that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures. We have concluded
that there are material weaknesses in our internal control over financial reporting for the first quarter ended June 30, 2019. Management identified
the following material weaknesses in its assessment of the effectiveness of internal control over financial reporting as of June
30, 2019:
● Lack
of sufficient full-time accounting staff in our accounting department that have experience
and knowledge in identifying and resolving complex accounting issues under U.S. Generally
Accepted Accounting Principles (“GAAP”);
● Lack
of sufficient accounting personnel which would provide segregation of duties within our
internal control procedures to support the accurate reporting of our financial results. To remediate the weakness
in our internal control, during the year of 2018, the Board has provided training to our finance personnel for the application
of SEC regulations, and the preparation of financial statements and their related disclosures. We also intend to
take the following actions to address the material weaknesses described above:
● Our
Audit Committee of the Board will provide further necessary oversight on and training
for accounting and finance personnel, so that they are well versed in SEC regulations. We
expect to provide it to our staff throughout the year of 2019;
● Our
Audit Committee as well as the Board will perform a thorough review of the processes
and procedures used in the Company’s SEC reporting compliance. The review
of the processes and procedures shall be carried out during the year of 2019. Any actions we have
taken or may take to remediate these material weaknesses are subject to continued management review supported by testing, as well
as oversight by the Audit Committee of our Board. We cannot assure you that these material weaknesses will not occur in the future
and that we will be able to remediate such weaknesses in a timely manner, which could impair our ability to accurately and timely
report our financial position, results of operations or cash flows. Our management, including
our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been detected. Changes in Internal Controls over Financial
Reporting There were no changes
in our internal control over financial reporting that occurred during the quarter ended June 30, 2019, that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION
Item
1. Legal Proceedings. We are aware that
a class action complaint has been filed on January 2, 2019 with the United States District Court, Eastern District of New York
on January 2, 2019 on behalf of Michael Behrendsen against the Company, Xiangyao Liu, Xin Zheng and Tsz-Kit Chan (Civil Action
Number 1:19-cv-00024-DLI-LB) (the “Complaint”). The two-count Complaint alleges violations of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. The Court recently
entered an Order approving of lead counsel and lead plaintiff. On June 3, 2019, counsel for the lead plaintiff filed an Amended
Complaint, asserting the same two causes of action, albeit with greater verbosity. The Amended Complaint
alleges the defendants made materially false and/or misleading statements and/or failed to disclose that: (1) the Company’s
purported lease of the Wuhan Yangtze River Newport Logistics Center, the Company’s main asset, was a fabrication; (2) the
Company’s only operating subsidiary, Wuhan Newport, was declared insolvent in China due to a number of default judgments
against it; and (3) as a result, the defendants’ statements about its business, operations, and prospects, were materially
false and misleading and/or lacked a reasonable basis at all relevant times. The class action seeks to recover damages against
the defendants’ actions. On July 17, 2019,
the Company filed a Motion to Dismiss the Amended Complaint for failure to state a claim. That motion is still in the midst
of the briefing phase, and thus remains pending. Finally, as of the date of this report, no class has yet to be certified. In
addition, on October 24, 2018, Stenergy, LLC filed a lawsuit against the Company in the New York State Supreme Court, New York
County. The two-count complaint alleges that the Company breached a contract with Stenergy, LLC and seeks damages arising from
the breach, and further seeks recovery under a quantum meruit theory to obtain the reasonable value of its services performed.
The Company answered the complaint with affirmative defenses on December 4, 2018. The parties are currently engaged in the discovery
phase of the matter. On January 23, 2019,
we filed a defamation lawsuit in the New York Supreme Court, New York County, against Hindenburg Research, Nathan Anderson, ClaritySpring
Securities, LLC and ClaritySpring Inc. (collectively, “Defendants”) in response to their coordinated and orchestrated
market manipulation scheme to disseminate false, misleading and defamatory content to the marketplace regarding the Company for
the purpose of inflicting substantial reputational harm on us for Defendants’ own financial gain. The impetus for the action
was a false, misleading and defamatory unsigned article published on December 6, 2018 through one of the Defendants’ aliases,
“Hindenburg Research,” which erroneously accused us of making fraudulent misrepresentations in our public filings
with the U.S. Securities and Exchange Commission or intentionally omitting material information in those filings, laundering money
through sham transactions for the benefit of our Chief Executive Officer, and being ensnared in a catastrophic liquidity crisis
rendering the Company worthless. An amended complaint, substantially similar to the initial complaint, was filed on January 25,
2019. Service was effectuated on the Defendants on January 29, 2019, who moved to dismiss the case. The Defendants’
motion is currently pending before the Court. Oral arguments are scheduled for August 14, 2019. Discovery is stayed pending resolution
of the motion. Item 1A.
Risk Factors. An investment in
our common stock involves a high degree of risk. You should carefully consider the risks described below, before making an investment
decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer.
In that case, the trading price of our shares of common stock could decline, and you may lose all or part of your investment.
You should read the section entitled “Forward-Looking Statements” above for a discussion of what types of statements
are forward-looking statements, as well as the significance of such statements in the context of this Form 10-Q. Risks Relating to Our Business MAJORITY OF OUR BUSINESS, ASSETS AND
OPERATIONS ARE LOCATED IN THE PEOPLE’S REPUBLIC OF CHINA. The majority of our
business, assets and operations are located in the People’s Republic of China. The economy of the PRC differs from the economies
of most developed countries in many respects. The economy of the PRC has been transitioning from a planned economy to a market-oriented
economy. Although in recent years the PRC’s government has implemented measures emphasizing the utilization of market forces
for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance
in business enterprises, a substantial portion of productive assets in the PRC is still owned by the PRC’s government. In
addition, the PRC’s government continues to play a significant role in regulating industry by imposing industrial policies.
The PRC’s government exercises significant control over the PRC’s economic growth through the allocation of resources,
controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment
to particular industries or companies. Some of these measures benefit the overall economy of the PRC, but may have a negative
effect on us. ACTIONS OF
GOVERNMENT OR CHANGE OF POLICIES MAY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS. We
are at risk from significant and rapid change in the legal systems, regulatory controls, and practices in areas in which we operate.
These affect a wide range of areas including the real estate development approval system, employment practices, transportation,
cargo storage, logistics, financing and sale of the buildings; our property rights; data protection; environment, health and safety
issues; macro-economic policies, central government directions and instructions, China’s Five Year Plan, “One Belt
One Road” initiative; and accounting, taxation and stock exchange regulation. Accordingly, changes to, or violation of,
these systems, controls or practices could increase costs and have material and adverse impacts on the reputation, performance
and financial condition of our development and operation. IF WE NEED ADDITIONAL CAPITAL TO FUND
OUR FUTURE OPERATIONS, WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT CAPITAL AND MAY BE FORCED TO LIMIT THE SCOPE OF OUR OPERATIONS. If adequate additional
financing is not available on reasonable terms, we may not be able to undertake ongoing real estate construction or continue to
develop and expand the services of our Logistics Center, which may as a result impact our cash flow and we would have to modify
our business plans accordingly. We will not be able to fully implement our business plan unless the $1 billion funding (as described
in the prospectus summary) is in place by 2021 and we do not have any definitive agreement nor letter of intent for such
financing except for this offering. There is no assurance that additional financing will be available to us. In connection with
our growth strategies, we may experience increased capital needs and accordingly, we may not have sufficient capital to fund our
future operations without additional capital investments. Our capital needs will depend on numerous factors, including (i) our
profitability; (ii) the development of competitive projects undertaken by our competition; and (iii) the level of our investment
in construction and development. We cannot assure you that we will be able to obtain capital in the future to meet our needs. If we cannot obtain
additional funding, we may be required to: (i) limit our operations and expansion; (ii) limit our marketing efforts; and (iii)
decrease or eliminate capital expenditures. Such reductions could have a materially adverse effect on our business and our ability
to compete. Even if we do find
a source of additional capital, we may not be able to negotiate terms and conditions for receiving such additional capital that
are favorable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or
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