10-Q 1 f10q0618_sunburstacq5.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2018, or

 

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

 

For the transition period from           to        

 

Commission File Number: 333-223749

 

SUNBURST ACQUISITIONS V, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Colorado   84-1461844
(State of Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)
     
Room 2305A, 23/F, World-Wide House,
19 Des Voeux Road, Central, Hong Kong
  NA
(Address of Principal Executive Offices)   (ZIP Code)

 

(852)-2231-9629

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 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 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 whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “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 ☒  

 

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 accounting standard provided pursuant to Section 13(a) of the Exchanger Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐  No ☒

 

The number of shares of the Registrant’s common stock, $0.0001 par value per share, issued and outstanding as of August 13, 2018, was 110,000,000.

 

 

 

 

 

 

TABLE OF CONTENTS

Index to Form 10-Q

 

    Page
     
Part I
     
FINANCIAL INFORMATION
     
Item 1. Financial Statements 1
     
  Condensed Statements of Financial Condition 2
     
  Condensed Statements of Income 3
     
  Condensed Statements of Comprehensive Income 3
     
  Condensed Statements of Cash Flows 4
     
  Notes to Condensed Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
   
Item 4. Controls and Procedures 25
     
Part II
     
OTHER INFORMATION
     
Item 1. Legal Proceedings 26
   
Item 1A. Risk Factors 26
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
   
Item 3. Defaults Upon Senior Securities 26
     
Item 4. Mine Safety Disclosures 26
     
Item 5. Other Information 26
     
Item 6. Exhibits 26
     
SIGNATURE 27

 

Throughout this Quarterly Report on Form 10-Q, the “Company”, “we,” “us,” and “our,” refer to Sunburst Acquisitions V, Inc., a Colorado corporation (“Sunburst”), and all of our subsidiaries unless the context indicates otherwise.

 

i

 

  

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). The statements herein which are not historical reflect our current expectations and projections about the Company’s future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and our interpretation of what we believe to be significant factors affecting our business, including many assumptions about future events. Such forward-looking statements include statements regarding, among other things:

 

  We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

 

  We are a company with limited operating history which makes it difficult to evaluate our current business and future prospects.

 

  We will require additional financing to implement our business plan may not be available on favorable terms or at all, and we may have to accept financing terms that would adversely affect our shareholders.

 

  Raising additional capital may cause dilution to our shareholders.

 

  No public market currently exists for our common stock, and a public market may never develop, or, if any market does develop, it may not be sustained.

 

  Once a public market for our common stock is developed, the market price of our common stock may be highly volatile, and you could lose all or part of your investment.

 

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “will,” “plan,” “could,” “target,” “contemplate,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these or similar words. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company’s operations. These statements may be found under Part I, Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as elsewhere in this Quarterly Report on Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, matters described in this Quarterly Report on Form 10-Q.

 

In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur.

 

Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

 

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Such statements are presented only as a guide about future possibilities and do not represent assured events, and we anticipate that subsequent events and developments will cause our views to change. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report on Form 10-Q.

 

This Quarterly Report on Form 10-Q also contains estimates and other statistical data prepared by independent parties and by us relating to market size and growth and other data about our industry. These estimates and data involve a number of assumptions and limitations, and potential investors are cautioned not to give undue weight to these estimates and data. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Quarterly Report on Form 10-Q. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk.

 

Potential investors should not make an investment decision based solely on our projections, estimates or expectations.

 

ii

 

 

PART I.

 

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To:

The Board of Directors and Stockholders of

Sunburst Acquisitions V, Inc.

 

We have reviewed the accompanying interim condensed consolidated balance sheets of Sunburst Acquisitions V, Inc. (the “Company”) as of June 30, 2018, and the related condensed statements of operations and comprehensive loss and statements of cash flows for the three and six-month periods ended June 30, 2018 and 2017. These interim consolidated financial statements are the responsibility of the Company’s management.

 

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company had incurred substantial losses in previous years and has a working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plan in regards to these matters are described in Note 3. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

San Mateo, California WWC, P.C.
August 14, 2018 Certified Public Accountants

 

1

 

 

Sunburst Acquisitions V, Inc.

Condensed Consolidated Balance Sheets

At June 30, 2018 and December 31, 2017

(Stated in U.S. Dollars)

 

   June 30,   December 31, 
   2018   2017 
   (Unaudited)   (Audited) 
ASSETS        
Current assets        
Cash and cash equivalents  $246,699   $150,736 
Accounts receivable, net   907,009    63,168 
Inventory, net   -    272,402 
Other receivables and other current assets   13,682,740    6,656,297 
Note receivable   -    1,334,852 
Related parties receivable, net   5,985,500    11,985,101 
Total current assets   20,821,948    20,462,556 
Non-current assets          
Equipment, net   1,062    1,126 
TOTAL ASSETS   20,823,010    20,463,682 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Short-term bank loans   3,412,609    3,533,140 
Accounts payable   667,131    362,284 
Accrued liabilities and other current liabilities   10,503,312    5,483,501 
Related parties payable   599,323    458,011 
Total current liabilities   15,182,375    9,836,936 
TOTAL LIABILITIES   15,182,375    9,836,936 
           
COMMITMENTS & CONTINGENCIES   -    - 
           
STOCKHOLDERS’ EQUITY          
Preferred stock, no par value; 20,000,000 shares authorized, 0 shares and 0 shares issued and outstanding, respectively   -    - 
Common stock, no par value; 700,000,000 shares authorized, 100,000,000 shares issued and outstanding, respectively   12,307,407    12,307,407 
Additional paid-in capital   207,833    206,288 
Statutory reserves   -    - 
Accumulated deficit   (6,783,855)   (1,981,384)
Accumulated other comprehensive loss   (90,750)   94,435 
TOTAL STOCKHOLDERS’ EQUITY   5,640,635    10,626,746 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $20,823,010   $20,463,682 

  

See accompanying notes to the financial statements

 

2

 

 

Sunburst Acquisitions V, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income

For the six months ended June 30, 2018 and 2017

(Stated in U.S. Dollars)

(Unaudited)

 

   Three Months Ended
June 30,
   Six Months ended
June 30,
 
   2018   2017   2018   2017 
Revenues  $1,018,175   $130,443   $1,367,997   $99,782 
Cost of sales   785,105    -      1,106,944    -   
Gross margin   233,070    130,443    261,053    99,782 
                     
Operating expenses                    
Selling and marketing expenses   2,335    1,209    11,570    1,780 
General and administrative expenses   4,671,038    38,286    4,947,238    119,679 
Total operating expenses   4,673,373    39,495    4,958,808    121,459 
                     
Income (loss) from operation   (4,440,303)   90,948    (4,697,755)   (21,677)
                     
Other income (expenses)                    
Other income   3,774    -      3,774    -   
Other expense   (42)   (1,182)   (42)   (1,182)
Interest income   267    87    267    168 
Interest expense   (56,991)   (66,548)   (108,715)   (133,571)
Total other income (expenses)   (52,992)   (67,643)   (104,716)   (134,585)
                     
Income (loss) before tax   (4,493,295)   23,305    (4,802,471)   (156,262)
Income tax   -      1,416    -      1,416 
Net income (loss)  $(4,493,295)  $21,889    (4,802,471)  $(157,678)
                     
Other comprehensive income (loss):                    
Foreign currency translation gain (loss)   (588,469)   414,748    (185,185)   374,041 
Comprehensive income (loss)  $(5,081,764)  $436,637    (4,987,656)  $216,363 
                     
Loss per share                    
Basic  $(0.045)  $0.000   $(0.048)  $(0.002)
Diluted  $(0.045)  $0.000   $(0.048)  $(0.002)
                     
Weighted average shares outstanding                    
Basic   100,000,000    100,000,000    100,000,000    100,000,000 
Diluted   100,000,000    100,000,000    100,000,000    100,000,000 

  

See accompanying notes to the financial statements

 

3

 

 

Sunburst Acquisitions V, Inc.

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2018 and 2017

(Stated in U.S. Dollars)

(Unaudited)

 

   Six Months Ended June 30, 
   2018   2017 
Cash flows from operating activities          
Net loss  $(4,802,471)   $(157,678)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities          
Impairment of related party receivables   

4,468,200

    - 
Depreciation expense   45    912 
Imputed interest   1,545    - 
Changes in assets and liabilities          
Decrease in restricted cash   -    76,665 
(Increase)/decrease in accounts receivable   (844,738)   943,112 
Decrease in notes receivables   1,311,856    - 
Decrease in inventory   267,710    - 
Increase in other receivables   (6,771,689)   (2,179,410)
Decrease in related party receivable   1,327,143    10,447,676 
Increase/(decrease) in accounts payables   310,947    (4,560,844)
Increase/(decrease) in accruals and other payables   5,110,352    (5,167,886)
(Increase)/decrease in tax payable   (366,530)   4,070 
Net cash provided by (used in) operating activities   12,370    (593,383)
           
Cash flows from financing activities          
Capital injection   -    133,083 
Repayment of bank borrowings   (60,387)   (58,188)
Proceeds from bank borrowings   -    72,735 
Proceeds from related party payable   146,156    442,069 
Net cash provided by financing activities   85,769    589,699 
           
Net increase in cash and cash equivalents   98,139    (3,684)
Effect of foreign currency translation on cash and cash equivalents   (2,176)   1,600 
Cash and cash equivalents–beginning of period   150,736    67,981 
Cash and cash equivalents–end of period  $246,699    65,897 
           
Supplementary cash flow information:          
Interest received  $267    $168 
Interest paid  $108,715    $133,571 
Income taxes paid  $-    $1,416 
           
Non-Cash Financing Activities:          
Related party receivable offset against capital   $-    $5,818,505 
Related party interest payable converted to additional paid-in capital   $1,545    $- 

 

See accompanying notes to the financial statements

 

4

 

 

Sunburst Acquisitions V, Inc.

Notes to Financial Statements

 

1.THE COMPANY AND PRINCIPAL BUSINESS ACTIVITIES

 

Organization

 

Sunburst Acquisitions V, Inc. (the “Company”) was incorporated in Colorado on May 29, 1998. The Company, through its direct and indirect wholly owned subsidiaries, is in the business of providing import custom clearing services in the Guangdong province in the People’s Republic of China (“PRC”). The Company’s primary operations are conducted through its indirectly wholly owned subsidiaries located in Sihui, Guandong, PRC.

 

Success Green (Group) Limited (“SGG”) was incorporated on October 26, 2016 in the British Virgin Islands (“BVI”). SGG wholly owns Success Green (International) Limited (“SGI”) which was incorporated on September 24, 2007 in the Hong Kong SAR. SGI wholly owns Shenzhen Zhenlongbao Investment Consulting Co., Ltd. (“SZZLB”). SZZLB is a wholly foreign owned entity organized in the PRC on April 21, 2011. SZZLB wholly owns Zhaoqing Nengcheng Import and Export Co., Ltd. (“ZQNC”).

 

On November 13, 2017, a Share Exchange Agreement (the “Success Green Agreement”) was entered into by and among the Company, SGC, and Mr. Ho, being the beneficial owner of 27,464,000 shares of the Company’s common stock and also as the sole shareholder of all of the issued share capital of SGG; Mr. Ho was issued 72,265,000 shares of common stock in exchange for his interest in SGG. The transaction by and amongst the Company and SGG, SGI, SZZLB, and ZQNC have been accounted for as a business combination under common control in accordance to ASC 805-50-30-5; the assets and liabilities of SGG and its subsidiaries have been presented at the their carrying values at the date of the transaction; the Company’s historical stockholders’ equity has been retroactively restated to the first period presented whereby the acquisitions of SGG, SGI, SZZLB, and ZQNC were treated as a recapitalization of the Company.

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)Method of accounting and basis of presentation

 

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America. This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. The Company’s consolidated financial statements are expressed in U.S. dollars.

 

(b)Principles of consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. The consolidated financial statements include 100% of assets, liabilities, and net income or loss of those wholly-owned subsidiaries.

 

The Company’s subsidiaries are listed as follows:

 

  Name of Company  Place of incorporation  Attributable equity interest %  Authorized capital
  Success Green (Group) Limited  BVI  100  USD 50,000
  Success Green (International) Limited  HK  100  HKD 1
  Shenzhen Zhenlongbao Investment Consulting Co., Ltd  PRC  100  RMB 10,000,000
  Zhaoqing Nengcheng Import and Export Co., Ltd  PRC  100  RMB 79,083,300

 

5

 

 

(c)Use of estimates

 

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from those estimates.

 

(d)Reclassification

 

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported net income or losses.

 

(e)Cash and cash equivalents

 

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

 

(f)Accounts receivables

 

Accounts receivable are carried at the amounts invoiced to customers less allowance for doubtful accounts. The allowance is an estimate based on a review of individual customer accounts on a regular basis. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.

 

The Company reviews the collectability of accounts receivable based on an assessment of historical experience, current economic conditions, and other collection indicators.

 

(g)Inventory

 

Inventory consisting of finished goods purchased for sale are stated at the lower of cost or market value using average method.

 

(h)Equipment

 

Equipment is carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:

 

  Office equipment 5 years

 

The cost of maintenance and repairs is charged to expenses as incurred, whereas significant renewals and betterments are capitalized.

 

(i)Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business combination. In accordance with FASB ASC Topic 350, “Goodwill and Other Intangible Assets”, goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.

 

(j)Statutory reserves

 

Statutory reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations. PRC laws prescribe that an enterprise operating at a profit must appropriate and reserve, on an annual basis, an amount equal to 10% of its profit. Such an appropriation is necessary until the reserve reaches a maximum that is equal to 50% of the enterprise’s PRC registered capital. For the six months ended June 30, 2018 and 2017, there was no appropriation due to net loss.

 

6

 

 

(k)Foreign currency translation

 

The accompanying financial statements are presented in United States dollars (“USD”). The functional currency of the Company and SGG is the USD. The functional currency of SGI is the Hong Kong dollar (“HKD”). The functional currency of SZZLB, and ZQNC is the Renminbi (“RMB”). The financial statements of the Companies subsidiaries have been translated into United States dollars from RMB and HKD at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

 

  Exchange Rates  6/30/2018   12/31/2017   6/30/2017 
  Period end RMB : US$ exchange rate   6.6225    6.5097    6.7768 
  Average year RMB : US$ exchange rate   6.6239    6.7590    6.8743 
                  
  Period end HKD : US$ exchange rate   7.8456    7.7926    7.8056 
  Average year HKD : US$ exchange rate   7.8379    7.7925    7.7731 

 

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US Dollars at the rates used in translation.

 

(l)Revenue recognition

 

The Company adopted ASU 2014-09, Topic 606 on January 1, 2018, using the modified retrospective method. ASC 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.

 

The adoption of Topic 606 has no impact on revenue amounts recorded on the Company’s interim financial statements. Most of the Company’s revenues are generated under contracts with import agents or customers. Revenue is recognized and recorded when the related contractual services are rendered or when control of the goods are transferred to the customer. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposits and recognized in revenue when revenue recognition criteria are met.

 

Import & custom clearance service

 

Under the typical terms of these agreements, services are rendered when the imported goods cleared customs at the port and ready to be picked up by the import agent or its customers. The Company’s revenue consists of net service revenue based on invoiced value of goods, net of a value-added tax (VAT).

 

Trading

 

Under the typical terms of these agreements, control is transferred to customers when goods ready to be picked up and delivery arrangement can be made by the customers.

 

(m)Retirement benefits

 

Retirement benefits in the form of mandatory government sponsored defined contribution plans are charged to the either expenses as incurred.

 

(n)Income taxes

 

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.

 

(o)Earnings (loss) per share

 

The Company computes earnings per share (“EPS”) in accordance with ASC Topic 260, “Earnings per share”. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date. Potential common shares that have an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

 

7

 

 

(p)Financial instruments

 

The Company’s accounts for financial instruments in accordance to ASC Topic 820, “Fair Value Measurements and Disclosures,” which requires disclosure of the fair value of financial instruments held by the Company and ASC Topic 825, “Financial Instruments,” which defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

(q)Comprehensive income

 

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income includes the foreign currency translation adjustment and unrealized gain or loss.

 

(r)Commitments and contingencies

 

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

 

(s)Unaudited interim Financial Information

 

These unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2018.

 

The consolidated balance sheets and certain comparative information as of December 31, 2017 are derived from the audited consolidated financial statements and related notes for the year ended December 31, 2017 (“2017 Annual Financial Statements”), included in the Company’s 2017 Annual Report on Form 10-K filed with the SEC. These unaudited interim condensed consolidated financial statements should be read in conjunction with the 2017 Annual Financial Statements.

 

(t)Recent accounting pronouncements

 

In January 2016, the FASB issued ASU 2016-01 “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. The adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”, its new standard on accounting for leases. ASU 2016-02 introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized).

 

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Furthermore, the ASU addresses other concerns related to the current leases model. For example, the ASU eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure. The new model represents a wholesale change to lease accounting. As a result, entities will face significant implementation challenges during the transition period and beyond, such as those related to:

 

Applying judgment and estimating.
Managing the complexities of data collection, storage, and maintenance.
Enhancing information technology systems to ensure their ability to perform the calculations necessary for compliance with reporting requirements.
Refining internal controls and other business processes related to leases.
Determining whether debt covenants are likely to be affected and, if so, working with lenders to avoid violations.
Addressing any income tax implications.

 

The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018 (e.g., calendar periods beginning on January 1, 2019), and interim periods therein. The Company is currently assessing this ASU’s impact on the Company’s consolidated results of operations and financial condition.

 

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The ASU requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs. The standard also narrows the definition of outputs. The definition of a business affects areas of accounting such as acquisitions, disposals and goodwill. Under the new guidance, fewer acquired sets are expected to be considered businesses. For the Company, this ASU is effective January 1, 2018 on a prospective basis with early adoption permitted, the adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. For the Company, this ASU is effective prospectively to impairment tests beginning January 1, 2020, with early adoption permitted. The Company adopted this ASU in the fourth quarter of 2017 in conjunction with its annual goodwill impairment testing. The adoption did not have an impact on the Company’s consolidated results of operations and financial condition.

  

In February 2017, the FASB issued ASU No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This ASU addresses scope-related questions that arose after the FASB issued its revenue guidance in ASU No. 2014-09, Revenue from Contracts with Customers. The new standard clarifies the accounting for derecognition of nonfinancial assets and defines what is considered an in substance nonfinancial asset. Nonfinancial assets largely relate to items such as real estate, ships and intellectual property that do not constitute a business. The new ASU impacts entities derecognizing (e.g. selling) nonfinancial assets (or in substance nonfinancial assets), including partial interests therein, when the purchaser is not a customer. Under the new guidance, the seller would apply certain recognition and measurement principles of ASU No. 2014-09, Revenue from Contracts with Customers, even though the purchaser is not a customer. For the Company, this new standard is effective coincident with the Company’s January 1, 2018 adoption of ASU No. 2014-09. The adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU changes how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the net periodic benefit cost in the income statement. Under the new standard, only the service cost component of net periodic benefit cost would be included in operating expenses and only the service cost component would be eligible for capitalization into assets such as inventory. All other net periodic benefit costs components (such as interest, expected return on plan assets, prior service cost amortization and actuarial gain/loss amortization) would be reported outside of operating income. For the Company, this ASU is effective January 1, 2018 on a retrospective basis; however, guidance limiting the capitalization to only the service cost component is applied on prospective basis. The adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

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In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium. Under existing standards, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The new guidance shortens the amortization period to the earliest call date for certain callable debt securities that have explicit, noncontingent call features and are callable at a fixed price and preset date. The amendments do not require an accounting change for securities held at a discount. For the Company, this ASU is effective January 1, 2019 with a modified retrospective transition resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Early adoption is permitted. The Company does not expect this ASU to have a material impact on the Company’s consolidated results of operations and financial condition.

 

In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The general model for accounting for modifications of share-based payment awards is to record the incremental value arising from the changes as additional compensation cost. Under the new standard, fewer changes to the terms of an award would require accounting under this modification model. For the Company, this ASU is effective January 1, 2018, with early adoption permitted. The adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

In May 2017, the FASB issued ASU No. 2017-10, Determining the Customer of the Operation Services, that clarifies how an operating entity determines the customer of the operation services for transactions within the scope of a service concession arrangement. Service concession arrangements are typically agreements between a grantor and an operating entity whereby the operating entity will operate the grantor’s infrastructure (i.e. airports, roadways, bridges, and prisons) for a specified period of time. The operating entity also may be required to maintain the infrastructure and provide capital-intensive maintenance to enhance or extend its life. In such arrangements, typically the operation services (i.e. operation and maintenance of a roadway) would be used by third parties (i.e. drivers). The ASU clarifies that the grantor, not the third party, is the customer of the operation services in such arrangements. For the Company, this new standard is effective coincident with the Company’s January 1, 2018 adoption of ASU No. 2014-09. The adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

In July 2017, the FASB issued ASU No. 2017-11, (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The new standard applies to issuers of financial instruments with down-round features. A down-round provision is a term in an equity-linked financial instrument (i.e. a freestanding warrant contract or an equity conversion feature embedded within a host debt or equity contract) that triggers a downward adjustment to the instrument’s strike price (or conversion price) if equity shares are issued at a lower price (or equity-linked financial instruments are issued at a lower strike price) than the instrument’s then-current strike price. The purpose of the feature is typically to protect the instrument’s counterparty from future issuances of equity shares at a more favorable price. The ASU amends (1) the classification of such instruments as liabilities or equity by revising the certain guidance relative to evaluating if they must be accounted for as derivative instruments and (2) the guidance on recognition and measurement of freestanding equity-classified instruments. For the Company, this ASU is effective January 1, 2019, with early adoption permitted. Because the Company has not issued financial instruments with down-round features, the Company does not expect this ASU to have a material impact on its consolidated results of operations and financial condition.

 

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. The ASU amends existing guidance to simplify the application of hedge accounting in certain situations and allow companies to better align their hedge accounting with their risk management activities. Existing standards contain certain requirements for an instrument to qualify for hedge accounting relative to initial and ongoing assessments of hedge effectiveness. While an initial quantitative test to establish the hedge relationship is highly effective would still be required, the new ASU permits subsequent qualitative assessments for certain hedges instead of a quantitative test and expands the timeline for performing the initial quantitative assessment. The ASU also simplifies related accounting by eliminating the requirement to separately measure and report hedge ineffectiveness. Instead, for qualifying cash flow and net investment hedges, the entire change in fair value (including the amount attributable to ineffectiveness) will be recorded within other comprehensive income and reclassified to earnings in the same income statement line that is used to present the earnings effect of the hedged item when the hedged item affects earnings. For fair value hedges, generally, the entire change in fair value of the hedging instrument would also be presented in the same income statement line as the hedged item. The new standard also simplifies the accounting for fair value hedges of interest rate risks and expands an entity’s ability to hedge nonfinancial and financial risk components. In addition, the guidance also eases certain documentation requirements, modifies the accounting for components excluded from the assessment of hedge effectiveness, and requires additional tabular disclosures of derivative and hedge-related information. For the Company, this ASU is effective January 1, 2019, with a modified retrospective transition resulting in a cumulative-effect adjustment recorded to the opening balance of retained earnings as of the adoption date. Early adoption is permitted. The Company is currently assessing this ASU’s impact on the Company’s consolidated results of operations and financial condition.

 

Unless otherwise stated, the Company is currently assessing the above the accounting pronouncements and their potential impact from their adoption on the financial statements.

 

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3.GOING CONCERN UNCERTAINTIES

 

These financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

 

As of June 30, 2018, the Company had accumulated deficits of $6,783,855. Management’s plan to support the Company in operations and to maintain its business strategy is to raise funds through public and private offerings and to rely on officers and directors to perform essential functions with minimal compensation. If we do not raise all of the money we need from public or private offerings, we will have to find alternative sources, such as loans or advances from our officers, directors or others. Such additional financing may not become available on acceptable terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient to meet its needs in the long term. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. If we require additional cash and cannot raise it, we will either have to suspend operations or cease business entirely.

 

The accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

4.ACCOUNTS RECEIVABLE

 

Accounts receivable consisted of the following as of June 30, 2018 and December 31, 2017:

 

     2018   2017 
  Accounts receivable  $907,009   $63,168 
  Less: Allowance for doubtful accounts   -    - 
     $907,009   $63,168 

 

The Company does not provide a general allowance for its receivables since the Company has historically been able to successfully collect outstanding receivables.

 

5.INVENTORY

 

Inventory consisted of the following as of June 30, 2018 and December 31, 2017:

 

     2018   2017 
  Finished goods for sale  $-   $272,402 
  Less: Allowance for write downs   -    - 
     $-   $272,402 

 

The Company does not provide allowance for its inventory as all the inventories were sold subsequently.

 

6.NOTES RECEIVABLE

 

The Company has issued a note receivable with outstanding balance of Nil and $1,334,852 as of June 30, 2018 and December 31, 2017 respectively. The note is non-interest bearing for first two years with a maturity date of December 31, 2018. The note bears an interest rate of 12% annually after the maturity date if remains outstanding. The note was subsequently repaid in full in April 2018.

 

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7.EQUIPMENT

 

Equipment consisted of the following as of June 30, 2018 and December 31, 2017:

 

     2018   2017 
  At Cost:          
  Office equipment  $22,193   $22,577 
  less: Accumulated depreciation          
  Office equipment   (21,131)   (21,451)
     $1,062   $1,126 

 

Depreciation expense for the three months ended June 30, 2018 and 2017 was $21 and $457, respectively and for the six months ended June 30, 2018 and 2017 was $45 and $912, respectively.

 

8.SHORT TERM BANK LOANS

 

Bank loans consisted of the following amount as of June 30, 2018 and December 31, 2017:

 

     2018   2017 

 

Loan due to China Guangfa Bank, 6.525% interest rate per annum, due on December 14, 2018  $3,412,609   $3,533,140 

 

Interest expense for the three months ended June 30, 2018 and 2017 for these loans amounted to $56,211 and $67,391, respectively and for the six months ended June 30, 2018 and 2017 amounted to $107,170 and $133,571, respectively. The loan is guaranteed by personal guarantee from the Company’s owner and related parties.

 

9.OTHER RECEIVABLES AND OTHER PAYABLES

 

The Company, in its capacity as an import agent, collects payments from its customers that are remitted to their suppliers. Due to foreign exchange control in China, the Company is only allowed to remit limited amount of such funds to the suppliers each year.

 

As of June 30, 2018 and December 31, 2017, the collectible balances from customers or its designee amounted to $10,495,926 and $5,897,450, respectively; while the amounts payable to the suppliers on behalf of these customers or its designees amounted to $10,386,288 and $5,814,883, respectively.

 

The remaining other receivables and other current assets consisted of the following as of June 30, 2018 and December 31, 2017:

 

     2018   2017 
  Value added tax deductible  $1,205,717   $820,616 
  Other business-related (tax payable) prepaid tax   (24,897)   7,694 
  Other receivables and deposits   2,005,994    - 
     $3,186,814   $828,310 

 

As of June 30, 2018 and December 31, 2017, the Company has outstanding receivables amounted to $1,980,647 and $nil, respectively. The Company has advanced working capital to two unrelated third-party business entities as a courtesy to maintain a business-friendly relationship. The advances are unsecured, non-interest bearing and without maturity. The Company received full repayment from one of the parties and received partial repayment from the other party for these advances in July 2018. The remaining receivable balance is $215,475.

 

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10.RELATED PARTIES TRANSACTIONS

 

Related parties’ receivable

 

Related parties’ receivable consisted of the following as of June 30, 2018 and December 31, 2017:

 

         2018   2017 
                 
  Foshan City Jisheng Technology Co. Ltd. (“Jisheng”)   (1)  $-   $4,885,517 
  He, Guangxiang   (2)   5,985,500    7,099,584 
          $10,453,700   $11,985,101 

  

(1)Jisheng is owned by the shareholder of Nengcheng until September 17, 2016. During 2015 and 2016, Nengcheng conducted sales transactions with Jisheng. The amounts outstanding represent account receivable and other receivable due from Jisheng. These amounts are interest free, unsecured, and payable on demand. The outstanding amounts were written off during the six months ended June 30, 2018 as management does not expect the balance to be repaid by the related party.

 

(2)

He, Guangxiang is a shareholder of Nengcheng until March 14, 2017. Mr. He received advances from the Company for the purpose of corporate development. These amounts are interest free, unsecured, and payable on demand. Management determined that such receivables are currently due from Mr. He, and that the Company has not offered an extended repayment timeline to him; management expects repayment of the balance in full no later than September 30, 2018. Mr. He has repaid the balance in full in July 2018.

 

Related parties payable

 

Related parties payable consisted of the following as of June 30, 2018 and December 31, 2017:

 

        2018   2017 
  Ho, Terence  (1)   420,388    257,976 
  He, Da Hong  (2)   178,935    182,035 
        $599,323   $458,011 

 

(1)Mr. Terence Ho is the Chairman and CEO of the Company. From time to time, Mr. Ho paid certain expenses on behalf of the company. The amounts due to Mr. Ho are interest free, unsecured, and payable on demand.

 

(2)

Mr. He, Da Hong is the former CEO of the Company’s subsidiary Shenzhen Zhenlongbao Investment Consulting Co., Ltd. From time to time, Mr. He paid certain expenses on behalf of the company. The amounts due to Mr. He are interest free, unsecured, and payable on demand.

 

11.CAPITAL SHARES AND EQUITY

 

On or about October 26, 2016, the Company issued 25,000,000 shares of common stock to Sea Treasure Holding limited, an entity controlled by Mr. Terence Ho, Chairman and Chief Executive Officer of the Company, for $250,000 or $0.01 per share.

 

12.INCOME TAXES

 

The Company is subject to the following income tax:

 

United States parent is subject to income tax rate at 34% for years prior to 2018 and 21% for years thereafter.
British Virgin Islands subsidiary is not subject to tax on its income or capital gains
Hong Kong subsidiary is subject to the profits tax rate at 16.5% for income generated and operation in the country
PRC subsidiary at 25% for income generated and operation in the country

 

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate from 34% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax assets. In addition, net operating losses (NOL) arising after December 31, 2017 can be carryforward indefinitely while limiting the NOL deduction for a given year to 80% of taxable income.

 

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All of the Company’s operations are in the PRC and in accordance with the relevant tax laws and regulations.

 

The following tables provide the reconciliation of the differences between the statutory and effective tax expenses:

 

  For the three months ended June 30,  2018   2017 
  Profit (loss) attributed to PRC  $

(4,434,910

)  $52,767 
  Loss attributed to US and other intermediate holding companies   (58,385)   (29,462)
  (Loss) profit before tax   (4,493,295)   23,305 
             
  PRC Statutory Tax at 25% Rate   -    - 
  Effect of difference between PRC tax basis and US GAAP   -    1,416 
  Income tax  $-   $1,416 

 

  For the six months ended June 30,  2018   2017 
  Loss attributed to PRC  $(4,687,326)  $(74,353)
  Loss attributed to US and other intermediate holding companies   (115,145)   (81,909)
  Loss before tax   (4,802,471)   (156,262)
             
  PRC Statutory Tax at 25% Rate   -    - 
  Effect of difference between PRC tax basis and US GAAP   -    1,416 
  Income tax  $-   $1,416 

 

The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows:

 

  For the three months ended June 30,  2018   2017 
  U.S. federal statutory income tax rate   21%   34%
  Lower rates in PRC, net   (9)%   (9)%
  Effects of tax basis differences   (12)%   (25)%
  Effective tax rate   -%   -%

 

  For the six months ended June 30,  2018   2017 
  U.S. federal statutory income tax rate   21%   34%
  Lower rates in PRC, net   (9)%   (9)%
  Effects of tax basis differences   (12)%   (25)%
  Effective tax rate   -%   -%

 

The Company did not recognize deferred taxes since it is not likely to realize such deferred taxes.

 

The Company is subject to examination by the U.S. Internal Revenue Service (IRS) and other taxing authorities in jurisdictions where the firm has significant business operations, such as China. The tax years under examination vary by jurisdiction.

 

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13.LOSS (EARNINGS) PER SHARE

 

Components of basic and diluted loss (earnings) per share were as follows:

 

  For the three months ended June 30,  2018   2017 
           
  Basic (Loss) Earnings Per Share Numerator        
  Net (loss) income  $(4,493,295)  $21,889 
  (Loss) Income Attributable to Common Stockholders  $(4,493,295)  $21,889 
  Diluted (Loss) Earnings Per Share Numerator          
  (Loss) Income Attributable to Common Stockholders  $(4,493,295)  $21,889 
             
  Basic Weighted Average Shares Outstanding   100,000,000    100,000,000 
  Diluted Weighted Average Shares Outstanding:   100,000,000    100,000,000 
             
  Loss Per Share          
   - Basic  $(0.045)  $0.000 
   - Diluted  $(0.045)  $0.000 

 

  For the six months ended June 30,  2018   2017 
           
  Basic Loss Per Share Numerator        
  Net loss  $(4,802,471)  $(157,678)
  Loss Attributable to Common Stockholders  $(4,802,471)  $(157,678)
  Diluted Loss Per Share Numerator          
  Loss Attributable to Common Stockholders  $(4,802,471)  $(157,678)
             
  Basic Weighted Average Shares Outstanding   100,000,000    100,000,000 
  Diluted Weighted Average Shares Outstanding:   100,000,000    100,000,000 
             
  Loss Per Share          
   - Basic  $(0.048)  $(0.002)
   - Diluted  $(0.048)  $(0.002)

 

14.RISKS

 

  A. Credit risk
     
    Since the Company’s inception, the age of account receivables has been less than one year indicating that the Company is not subject to material risk borne from credit extended to customers.
     
  B. Interest risk
     
    The Company is subject to interest rate risk when short term loans become due and require refinancing.
     
  C. Economic and political risks
     
    The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by changes in the political, economic, and legal environments in the PRC.
     
    The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
     

 

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  D. Concentration risks
     
    The Company has the following concentrations as of June 30, 2018 and December 31, 2017:

 

  Accounts receivable  2018   2017 
  Customer A  $406,116    45%  $43,748    69%
  Customer B  $263,543    29%  $-    -%
  Customer C  $173,178    19%  $-    -%

 

 

  Accounts payable  2018   2017 
  Supplier A  $404,498    61%  $362,284    100%
  Supplier B  $262,633    39%  $-    -%

 

  E. Inflation Risk
     
    Management monitors changes in prices levels. Historically inflation has not materially impacted the company’s financial statements; however, significant increases in the price of raw materials and labor that cannot be passed on the Company’s customers could adversely impact the Company’s results of operations.

 

  F. Business Risk
     
   

The Company acts as an agent on behalf of the customers to provide import and custom clearance service to the customers, or end buyers, or end suppliers, etc. Although the Company is not held responsible for the goods purchased and imported or the outstanding payables to the suppliers in accordance to the service agreement, if any disputes arise from any of the parties, it might disrupt the Company’s operation and result in losses to the Company.

     
    The Company’s Import and Custom Clearance Service as an agent is not defined under its scope on its business permit. If the Company was found in violation of the law, its operation might be disrupted and result in losses to the Company.

 

15.BUSINESS SEGMENT

 

The revenues and cost of goods sold from operation consist of the followings:

 

  For the three months ended June 30,  2018   2017 
     Revenues   Cost of sales   Revenues   Cost of sales 
  Import & Custom Clearance Service  $229,921    -   $130,443   $     - 
  Trading   788,254    785,105    -    - 
  Total  $1,018,175   $785,105   $130,443   $- 

 

  For the six months ended June 30,  2018   2017 
     Revenues   Cost of sales   Revenues   Cost of sales 
  Import & Custom Clearance Service  $256,625    -   $99,782   $    - 
  Trading   1,111,372    1,106,944    -    - 
  Total  $1,367,997   $1,106,944   $99,782   $- 

 

16.SUBSEQUENT EVENTS

 

On July 23, 2018, the Company completed its public offering of 10,000,000 shares of common stock, no par value (“Common Stock”), pursuant to the Company’s post-effective amendment to registration statement on Form S-1, as amended (File No. 333-223749) (the “Registration Statement”). The Registration Statement was declared effective by the U.S. Securities and Exchange Commission on July 2, 2018.

 

The Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date.

 

The Company has evaluated subsequent events through the date the financial statements were issued and up to the time of filing with the SEC and has determined that were no material subsequent events that came to management’s attention that required disclosure. 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  

 

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the unaudited condensed consolidated financial statements of the Company for the six months ended June 30, 2018 and 2017, and should be read in conjunction with such financial statements and related notes included in this report. Except for the historical information contained herein, the following discussion, as well as other information in this report, contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections.  Actual results and the timing of the events may differ materially from those contained in these forward looking statements due to a number of factors, including those discussed in the “Forward-Looking Statements” set forth elsewhere in this Quarterly Report on Form 10-Q.

 

Overview

 

Sunburst Acquisitions V, Inc., a Colorado corporation (the “Company”) was incorporated under the laws of the State of Colorado on April 30, 1998. The Company was a blank check company until the Company completed a transaction on November 13, 2017. On November 13, 2017, a Share Exchange Agreement (the “Success Green Agreement”) was entered into by and among the Company, Success Green (Group) Limited, a British Virgin Islands business company (“Success Green BVI”) and Mr. Terence Ho, being the beneficial owner of 27,464,000 shares of the Company’s common stock and also the sole shareholder of all of the issued share capital of Success Green BVI (the “SG Stock”). The Company is not a shell company.

 

Pursuant to the Share Exchange Agreement, Mr. Ho surrendered his shares, and Success Green BVI cancelled their certificates evidencing the SG Stock, as registered to Mr. Ho. In addition, Success Green BVI cancelled the registration of the Company in the register of members maintained by Success Green BVI, as the new holder of the SG Stock and the issuance of the certificates evidencing the aforementioned registration of the SG Stock in the name of the Company. As a result, the Company issued 72,265,000 shares (the “Acquisition Stock”) of the Company’s common stock to Mr. Ho. The Acquisition Stock collectively represents 72.27% of the issued and outstanding common stock of the Company immediately after the Closing, in exchange for the SG Stock, representing 100% of the issued share capital of Success Green BVI in a combination of entities under common control. Following the combination, Mr. Ho continues to be the majority beneficial owner of the Company’s common stock, holding 99.73% equity interest in the Company, and Success Green BVI and its subsidiary became wholly owned subsidiaries of the Company. As such, the Company is the 100% owner of ZhaoQing NengCheng Import and Export Co., Ltd. (“Nengcheng”), an operating company incorporated on July 3, 2012 under the laws of the PRC, through Success Green BVI.

 

Through Nengcheng, our wholly owned subsidiary in the PRC, we are a one-stop import service provider for third-party manufacturers who have needs for the import of various types of raw materials and half-finished goods. For a service fee, we procure, import, settle foreign exchange payments, clear customs, and set up delivery logistics for our customers, for raw materials, or half-finished products such as various types of cowhides, and various processed and recycled plastics or other materials from overseas to the PRC market.   By utilizing our one-stop import services, our customers are able to access quality raw material and goods in the international market, without increasing administrative cost and expenses for obtaining and maintaining import and customs related licenses and permits.

 

Please refer our Form 10-K for fiscal year of 2017, which was filed on April 17, 2018 for more information about our operations.

 

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Results of Operations

 

Below we have included a discussion of our operating results and material changes in our operating results during the three and six months ended June 30, 2018 compared to the same period of 2017. We mainly provide import custom clearing services in the Guangdong province in the People’s Republic of China (“PRC”). Our primary operations are conducted by a subsidiary located in the PRC.

 

For additional information on the potential risks associated with these initiatives and our operations, please refer to the Risk Factors sections in our annual report on Form 10-K for the period ended December 31, 2017. 

 

For the three months ended June 30, 2018 and 2017

 

Revenue

 

Our aggregate revenues for the three months ended June 30, 2018 were $1,018,175 ($229,921 for import and custom clearing services and $788,254 for trading activities) representing an increase of $887,732, or 681% as compared to the three months ended June 30, 2017. The growth was mainly driven by the gross income from continuous growth of trading activities engaged in the third and fourth quarters of 2017 that materialized in the three months ended June 30, 2018 . We commenced our trading activities in the third and fourth quarters of 2017.

 

The Company generated revenues of $229,921 from import and custom services for the three months ended June 30, 2018, an increase of 76% over $130,443 for the three months ended June 30, 2017. This revenues growth was principally driven by the continuous growth of import goods’ volume and change of import and clearing services rates with the customers.

 

Operating Expenses

 

Our operating expenses for the three months ended June 30, 2018 and 2017 were approximately $4,673,373 and $39,495, respectively, an increase of $4,633,878 or 11,733%. The increase was mainly due to increase in general and administrative expenses.

 

Operating expenses for providing our services to our clients are comprised of selling and marketing expenses, general and administrative expenses.

 

Selling and Marketing

 

Sales and marketing expenses for the three months ended June 30, 2018 and 2017 were approximately $2,335 and $1,209, respectively, an increase of 93%. The increase was primarily attributable to the increase in transportation fees related to the Company’s trading activities.

 

General and Administrative Expenses

 

General and administrative expenses for the three months ended June 30, 2018 and 2017 were $4,671,038 and $38,286, respectively, an increase of 12,100%. This was primarily due to the increase in net exchange loss on foreign currency transactions (other than RMB) and insurance expenses.  Further, the Company recognized an impairment of related party receivables of $4,468,200 during the three months ended June 30, 2018.

 

Income taxes

 

The provision for taxes for the three months ended June 30, 2018 principally relates to federal, state, local and foreign jurisdiction income taxes.

 

No provision for income tax was required to be provided for the three months ended June 30, 2018 and 2017. 

 

Net Income

 

Net loss for the three months ended June 30, 2018 was $4,493,295 or $0.045 per share basic and diluted and net profit for the three months ended June 30, 2017 amounted to $21,889 or $0.000 per share basic and diluted, a decrease of $4,515,184 or 20,628%.

 

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For the six months ended June 30, 2018 and 2017

 

Revenue

 

The Company generated revenues of $256,625 from import and custom services for the six months ended June 30, 2018, an increase of 157% over $99,782 for the six months ended June 30, 2017. This revenues growth was principally driven by the continuous growth of import goods’ volume and the change of import and clearing services rates with the customers.

 

Our aggregate revenues for the six months ended June 30, 2018 were $1,367,997 ($256,625 for import and custom clearing services and $1,111,372 for trading) representing an increase of $1,268,215, or 1,271% as compare with the six months ended June 30, 2017. The growth was mainly driven by the gross income from continuous growth of trading activities engaged in second half of 2017.

 

Operating Expenses

 

Our operating expenses for the six months ended June 30, 2018 and 2017 were approximately $4,958,808 and $121,459, respectively, an increase of $4,837,349 or 3,983%. The increase was mainly due to increase in general and administrative expenses.

 

Operating expenses for providing our services to our clients are comprised of selling and marketing expenses, general and administrative expenses.

 

Selling and Marketing

 

Sales and marketing expenses for the six months ended June 30, 2018 and 2017 were approximately $11,570 and $1,780, respectively, an increase of 550%. The increase was primarily attributable to the increase in transportation fees relating to the Company’s trading activities.

 

General and Administrative Expenses

 

General and administrative expenses for the six months ended June 30, 2018 and 2017 were $4,947,238 and $119,679, respectively, an increase of 4,034%. This was primarily due to the increase in net exchange loss on foreign currency transactions (other than RMB) and insurance expenses. Further, the expiration of the value added tax deductible of $107,000 and receivables adjustments approximately of $121,000 and impairment of related party receivables of $4,468,200 were recognized during the six months ended June 31, 2018, while there were no such expenses incurred during the six months ended June 30, 2017.

 

Income taxes

 

The provision for taxes for the six months ended June 30, 2018 principally relates to federal, state, local and foreign jurisdiction income taxes.

 

No provision for income tax was required to be provided for the six months ended June 30, 2018 while the effect of difference between PRC tax basis and US GAAP of $1,416 was provided for the six months ended June 30, 2017. 

 

Net Income

 

Net loss for the six months ended June 30, 2018 and 2017, was $4,802,471 or $0.048 per share basic and diluted, and $157,678 or $0.002 per share basic and diluted respectively, increase approximately of $4,644,793 or 2,946%.

 

Liquidity and Capital Resources

 

Our current assets primarily consist of cash and cash equivalents, accounts and other receivable, related parties’ receivables, and prepaid expenses. Our accounts receivables are primarily from our long term customers, the management evaluates the collectability of each customer periodically.

 

Our current liabilities primarily consist of accounts and other payable, related parties’ payables, and accrued expenses.

 

As of June 30, 2018, we had cash and cash equivalents of approximately $246,699, as compared to December 31, 2017 in which we had cash and cash equivalents of approximately of $150,736. This represents an increase of $95,963, primarily due to our total cash activities, including our increase of accounts and other payable, extended collection of accounts and other receivable and accrued expenses.

 

We have financed our operations primarily through cash flow from operating activities, shareholder contributions and advancement from related parties.

 

We require cash for working capital, payment of accounts and other payables and accrued expenses, salaries, and related benefits, and other operating expenses and income taxes.

 

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As of June 30, 2018, we had a working capital surplus of $5,639,573, as compared December 31, 2017 in which we had a working capital surplus of $10,625,620. This represents a decrease of $4,986,047. The decrease in working capital surplus is principally attributable to the increase of accounts payables and other payable, and accrued expenses higher than increase of cash and cash equivalents, accounts and other receivable.

 

   June 30,   June 30, 
   2018   2017 
         
Net cash provided by (used in) operating activities   12,370    (593,383)
Net cash provided by financing activities   85,769    589,699 
Net Increase (Decrease) of Cash and Cash Equivalents   98,139    (3,684)
Effect of foreign currency translation on cash and cash equivalents   (2,176)   1,600 
Cash and cash equivalents–beginning of year   150,736    67,981 
Cash and cash equivalents–end of year  $246,699   $65,897 

  

Cash Flow from Operating Activities

 

Net cash provided by operating activities for the six months ended June 30, 2018 was $12,370, compared to net cash used in operating activities approximately of $593,383 for the six months ended June 30, 2017, a decrease in net cash consumed by operating activities of $605,763. We had net loss approximately of $4,802,471 for the six months ended June 30, 2018, an increase of $4,644,793 from the net loss approximately of $157,678 for the six months ended June 30, 2017.

 

The cash flow from operating activities for the six months ended June 30, 2017 were primarily attributable to decrease in accounts payables and accruals and other payables with an offset by decrease in related party receivables. While the cash flow for the same period in 2018 were primarily attributable to decrease in notes receivables and increase in accruals and other payables with an offset by increase in other receivables. The Company recognized an impairment of related parties receivables in the amount of $4,468,200.

 

Cash Flow from Investing Activities

 

We had no cash flow from investing activities during the six months ended June 30, 2018 and 2017.

 

Cash Flow in Financing Activities

  

Cash provided by financing activities decreased $503,930 for the six months ended June 30, 2018 as compared to 2017 due to decrease in net funding from capital injection and advancement from related parties in 2018. Cash provided by financing activities in 2018 consisted primarily of bank borrowings repayment as well as advancement from related parties.

 

We believe that our working capital will be sufficient to enable us to meet our cash requirements for the next 12 months. However, we may incur additional expenses as we seek to expand our operations by establishing additional representative offices in our major market, the PRC, increasing our marketing efforts and hiring more personnel to support our growing operations. We believe we have adequate working capital to fund future growth activities.

 

Critical Accounting Policies

 

Use of estimates

 

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from those estimates.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

 

Accounts receivable

 

Accounts receivable are carried at the amounts invoiced to customers less allowance for doubtful accounts. The allowance is an estimate based on a review of individual customer accounts on a regular basis. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.

 

The Company reviews the collectability of accounts receivable based on an assessment of historical experience, current economic conditions, and other collection indicators.

 

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Inventory

 

Inventory consisting of finished goods purchased for sale are stated at the lower of cost or market value using average method.

 

Equipment

 

Equipment is carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:

 

Equipment   Length of Time
Office equipment   5 years

 

The cost of maintenance and repairs is charged to expenses as incurred, whereas significant renewals and betterments are capitalized.

 

Revenue recognition

 

The Company adopted ASU 2014-09, Topic 606 on January 1, 2018, using the modified retrospective method. ASC 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.

 

The adoption of Topic 606 has no impact on revenue amounts recorded on the Company’s interim financial statements. Most of the Company’s revenues are generated under contracts with import agents or customers. Revenue is recognized and recorded when the related contractual services are rendered or when control of the goods are transferred to the customer. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposits and recognized in revenue when revenue recognition criteria are met.

 

Import & custom clearance service

 

Under the typical terms of these agreements, services are rendered when the imported goods cleared customs at the port and ready to be picked up by the import agent or its customers. The Company’s revenue consists of net service revenue based on invoiced value of goods, net of a value-added tax (VAT).

 

Trading

 

Under the typical terms of these agreements, control is transferred to customers when goods ready to be picked up and delivery arrangement can be made by the customers.

 

Please refer to footnote 2 of the consolidated financial statements for additional critical accounting policies of the Company.

 

Off-Balance Sheet Arrangements

 

We did not have, during the periods presented, and we are currently not party to, any off-balance sheet arrangements.

 

Seasonality 

 

We believe our operation and sales do not experience seasonality. 

 

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Recent accounting pronouncements

 

In January 2016, the FASB issued ASU 2016-01 “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. The adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”, its new standard on accounting for leases. ASU 2016-02 introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized).

 

Furthermore, the ASU addresses other concerns related to the current leases model. For example, the ASU eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure. The new model represents a wholesale change to lease accounting. As a result, entities will face significant implementation challenges during the transition period and beyond, such as those related to:

 

  Applying judgment and estimating.

 

  Managing the complexities of data collection, storage, and maintenance.

 

  Enhancing information technology systems to ensure their ability to perform the calculations necessary for compliance with reporting requirements.

 

  Refining internal controls and other business processes related to leases.

 

  Determining whether debt covenants are likely to be affected and, if so, working with lenders to avoid violations.

 

  Addressing any income tax implications.

 

The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018 (e.g., calendar periods beginning on January 1, 2019), and interim periods therein. The Company is currently assessing this ASU’s impact on the Company’s consolidated results of operations and financial condition.

 

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The ASU requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs. The standard also narrows the definition of outputs. The definition of a business affects areas of accounting such as acquisitions, disposals and goodwill. Under the new guidance, fewer acquired sets are expected to be considered businesses. For the Company, this ASU is effective January 1, 2018 on a prospective basis with early adoption permitted, the adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

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In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. For the Company, this ASU is effective prospectively to impairment tests beginning January 1, 2020, with early adoption permitted. The Company adopted this ASU in the fourth quarter of 2017 in conjunction with its annual goodwill impairment testing. The adoption did not have an impact on the Company’s consolidated results of operations and financial condition.

 

In February 2017, the FASB issued ASU No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This ASU addresses scope-related questions that arose after the FASB issued its revenue guidance in ASU No. 2014-09, Revenue from Contracts with Customers. The new standard clarifies the accounting for derecognition of nonfinancial assets and defines what is considered an in substance nonfinancial asset. Nonfinancial assets largely relate to items such as real estate, ships and intellectual property that do not constitute a business. The new ASU impacts entities derecognizing (e.g. selling) nonfinancial assets (or in substance nonfinancial assets), including partial interests therein, when the purchaser is not a customer. Under the new guidance, the seller would apply certain recognition and measurement principles of ASU No. 2014-09, Revenue from Contracts with Customers, even though the purchaser is not a customer. For the Company, this new standard is effective coincident with the Company’s January 1, 2018 adoption of ASU No. 2014-09. The adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU changes how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the net periodic benefit cost in the income statement. Under the new standard, only the service cost component of net periodic benefit cost would be included in operating expenses and only the service cost component would be eligible for capitalization into assets such as inventory. All other net periodic benefit costs components (such as interest, expected return on plan assets, prior service cost amortization and actuarial gain/loss amortization) would be reported outside of operating income. For the Company, this ASU is effective January 1, 2018 on a retrospective basis; however, guidance limiting the capitalization to only the service cost component is applied on prospective basis. The adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium. Under existing standards, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The new guidance shortens the amortization period to the earliest call date for certain callable debt securities that have explicit, noncontingent call features and are callable at a fixed price and preset date. The amendments do not require an accounting change for securities held at a discount. For the Company, this ASU is effective January 1, 2019 with a modified retrospective transition resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Early adoption is permitted. The Company does not expect this ASU to have a material impact on the Company’s consolidated results of operations and financial condition.

 

In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The general model for accounting for modifications of share-based payment awards is to record the incremental value arising from the changes as additional compensation cost. Under the new standard, fewer changes to the terms of an award would require accounting under this modification model. For the Company, this ASU is effective January 1, 2018, with early adoption permitted. The adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

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In May 2017, the FASB issued ASU No. 2017-10, Determining the Customer of the Operation Services, that clarifies how an operating entity determines the customer of the operation services for transactions within the scope of a service concession arrangement. Service concession arrangements are typically agreements between a grantor and an operating entity whereby the operating entity will operate the grantor’s infrastructure (i.e. airports, roadways, bridges, and prisons) for a specified period of time. The operating entity also may be required to maintain the infrastructure and provide capital-intensive maintenance to enhance or extend its life. In such arrangements, typically the operation services (i.e. operation and maintenance of a roadway) would be used by third parties (i.e. drivers). The ASU clarifies that the grantor, not the third party, is the customer of the operation services in such arrangements. For the Company, this new standard is effective coincident with the Company’s January 1, 2018 adoption of ASU No. 2014-09. The adoption this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

In July 2017, the FASB issued ASU No. 2017-11, (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The new standard applies to issuers of financial instruments with down-round features. A down-round provision is a term in an equity-linked financial instrument (i.e. a freestanding warrant contract or an equity conversion feature embedded within a host debt or equity contract) that triggers a downward adjustment to the instrument’s strike price (or conversion price) if equity shares are issued at a lower price (or equity-linked financial instruments are issued at a lower strike price) than the instrument’s then-current strike price. The purpose of the feature is typically to protect the instrument’s counterparty from future issuances of equity shares at a more favorable price. The ASU amends (1) the classification of such instruments as liabilities or equity by revising the certain guidance relative to evaluating if they must be accounted for as derivative instruments and (2) the guidance on recognition and measurement of freestanding equity-classified instruments. For the Company, this ASU is effective January 1, 2019, with early adoption permitted. Because the Company has not issued financial instruments with down-round features, the Company does not expect this ASU to have a material impact on its consolidated results of operations and financial condition.

 

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. The ASU amends existing guidance to simplify the application of hedge accounting in certain situations and allow companies to better align their hedge accounting with their risk management activities. Existing standards contain certain requirements for an instrument to qualify for hedge accounting relative to initial and ongoing assessments of hedge effectiveness. While an initial quantitative test to establish the hedge relationship is highly effective would still be required, the new ASU permits subsequent qualitative assessments for certain hedges instead of a quantitative test and expands the timeline for performing the initial quantitative assessment. The ASU also simplifies related accounting by eliminating the requirement to separately measure and report hedge ineffectiveness. Instead, for qualifying cash flow and net investment hedges, the entire change in fair value (including the amount attributable to ineffectiveness) will be recorded within other comprehensive income and reclassified to earnings in the same income statement line that is used to present the earnings effect of the hedged item when the hedged item affects earnings. For fair value hedges, generally, the entire change in fair value of the hedging instrument would also be presented in the same income statement line as the hedged item. The new standard also simplifies the accounting for fair value hedges of interest rate risks and expands an entity’s ability to hedge nonfinancial and financial risk components. In addition, the guidance also eases certain documentation requirements, modifies the accounting for components excluded from the assessment of hedge effectiveness, and requires additional tabular disclosures of derivative and hedge-related information. For the Company, this ASU is effective January 1, 2019, with a modified retrospective transition resulting in a cumulative-effect adjustment recorded to the opening balance of retained earnings as of the adoption date. Early adoption is permitted. The Company is currently assessing this ASU’s impact on the Company’s consolidated results of operations and financial condition.

 

Unless otherwise stated, the Company is currently assessing the above the accounting pronouncements and their potential impact from their adoption on the financial statements.

 

Subsequent Event

 

The Company’s management has performed subsequent events procedures through the filing date of this Form10-Q, which is the date the consolidated financial statements were available to be issued. There were no subsequent events requiring adjustment to or disclosure in the consolidated financial statements.  

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES 

 

Evaluation of Disclosure Control and Procedures

 

The Company maintains disclosure controls and procedures as required under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s chief executive officer and chief financial officer, of the effectiveness of its disclosure controls and procedures. Based on this evaluation, its chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2018 due to the lack of qualified internal accounting personnel with sufficient knowledge of US GAAP and reporting requirements of a U.S. publicly-listed company.

 

During the three-months period ended June 30, 2018, the Company has made advances to two unrelated third parties without any proper agreements. Such advances above were non-interest bearing, without maturity, and unsecured which may not deem beneficial or in the best interests of the Company and its shareholders. The failure to timely prevent advances or loan transactions made to third parties without proper agreements or considerations and proper controls and procedures may result in significant deficiencies or material weaknesses in our internal controls which could impact the reliability of our financial statements and prevent us from complying with SEC rules and regulations. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our business. The Company will strengthen internal control, develop a proper procedure for loan and retain staff with sufficient knowledge of the US GAAP and SEC reporting standard. 

 

We plan to develop a proper procedure for loans and retain staff with sufficient knowledge of US GAAP and SEC reporting requirements to remediate the material weakness. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

 

Changes in internal control over financial reporting

 

Except for the events disclosed above, there was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

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PART II

 

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

ITEM 1A. RISK FACTORS

 

Not applicable to a smaller reporting company.

 

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

We did not issue or offer for sale any unregistered equity securities during three months period ended June 30, 2018.

 

However, on July 23, 2018, we completed our public offering of 10,000,000 shares of common stock pursuant to our post-effective amendment to registration statement on Form S-1 (File No. 333-223749), which was declared effective by the U.S. Securities and Exchange Commission on July 2, 2018.

 

We received aggregate net proceeds from the offering of approximately $122,972, after deducting offering-related expenses from the offering amount of $200,000 sold in this offering.

 

As of June 30, 2018, we have not used any of the proceeds from the offering. We plan to use approximately $62,792 of the net proceeds of the offering to for general working capital, and approximately $60,000 for staff training and new hire related expenses. There is not a material change in our planned use of the balance of the net proceeds from the offering as described in our final prospectus filed with the SEC on July 3, 2018.

  

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURE.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

  

None.

 

ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

Exhibit No.   Description
     
3.1   Articles of Incorporation dated April 30, 1998 (incorporated by reference to our Form S-1 Registration Statement, Exhibit 3.1, filed with the SEC on March 16, 2018)
3.2   Bylaws (incorporated by reference to our Form S-1 Registration Statement, Exhibit 3.2, filed with the SEC on March 16, 2018)
3.3   Articles of Amendment to the Articles of Incorporation dated December 8, 2016 (incorporated by reference to our Form S-1 Registration Statement, Exhibit 3.3, filed with the SEC on March 16, 2018)
4.1   Specimen stock certificate (incorporated by reference to our Form S-1 Registration Statement, Exhibit 4.1, filed with the SEC on March 16, 2018)
10.1   Lease Agreement with Sihui City, Dasha Town, Economic Industrial Development. Co., Ltd., dated April 15, 2015 (incorporated by reference to our Form S-1 Registration Statement, Exhibit 10.1, filed with the SEC on March 16, 2018)
10.2   Form of Employment Agreement with executives (incorporated by reference to our Form S-1 Registration Statement, Exhibit 10.2, filed with the SEC on March 16, 2018)
10.3   Form of Supply Order (incorporated by reference to our Form S-1 Registration Statement, Exhibit 10.3, filed with the SEC on March 16, 2018)
10.4   Form of Customer Order (incorporated by reference to our Form S-1 Registration Statement, Exhibit 10.4, filed with the SEC on March 16, 2018)
10.5   Form of Import Service Agreement incorporated by reference to our Form S-1 Registration Statement, Exhibit 10.5, filed with the SEC on March 16, 2018)
10.6   Share Exchange Agreement with Success Green (Group) Limited, Terence Ho, dated November 13. 2017 (incorporated by reference to our Form S-1 Registration Statement, Exhibit 10.6, filed with the SEC on March 16, 2018)
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 *
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 *
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
101.INS   XBRL Instance Document *
101.SCH   XBRL Taxonomy Extension Schema Document **
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document **
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document **
101.LAB   XBRL Taxonomy Extension Label Linkbase Document **
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document **

 

* Filed herewith.
   
** Furnished herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  SUNBURST ACQUISITIONS V, INC.
     
August 14, 2018 By: /s/ Terence Ho
    Terence Ho
   

Chairman, Chief Executive Officer

(Principal Executive Officer)

 

  By: /s/ Lina Liao
    Lina Liao
   

Chief Financial Officer

(Principal Financial and

Principal Accounting Officer)

 

 

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