Item
1.01.
|
Entry
into a Material Definitive Agreement.
|
Background
of the Disposition
TMSR Holding Company Limited (the “
Company
”,
“
we
” or “
us
”) had three operating subsidiaries conducting three separate lines of business:
research, development, production and sale of an array of solid waste recycling systems for the mining and industrial sectors
(the “
solid waste recycling systems business
”); coal wholesales and sales of coke, steels, construction materials,
mechanical equipment and steel scrap (the “
coal and coke wholesale business
”); and the research and development,
production and sale of Zinc-rich coating materials (the “
coating materials business
”). The solid waste recycling
systems business was carried out by Hubei Shengrong Environmental Protection and Energy Saving Technology Co., Ltd. (“
Hubei
Shengrong
”), the Company’s indirect subsidiary. The coating materials business was carried out by the Company’s
indirect subsidiary, Wuhan HOST Coating Materials Co., Ltd (“
Wuhan Host
”). The Company’s recently launched
coal and coke wholesale business is carried out by the Company’s VIE entity, Jiangsu Rong Hai Electric Power Fuel Co., Ltd.
(“
Rong Hai
”).
Historically,
our core business has been solid waste recycling systems business. However, since the first quarter of 2018, Hubei Shengrong experienced
significant drop in sales. From July to September this year, due to floods in many places in China, almost 90% of Hubei Shengrong’s
customers requested to delay acceptance of our equipment and payment, resulting in the sales revenue of Hubei Shengrong in the
first three quarters of this year decreased by 90% compared with the same period of last year. In addition, according to the planning
mandates of Wuhan Municipal Government 2018, manufacturers should move away from city’s downtown area. Therefore, due to
the policy change, Hubei Shengrong is forced to close the existing facility, relocate and build a new facility, which is expected
to take approximately 7-8 years. As a result, Hubei Shengrong will not be able to keep the production running and will generate
no income in the foreseeable future.
Management
believed it is very difficult, if possible at all, to continue manufacturing of solid waste recycling systems. As such, the Company
has been actively seeking to dispose Hubei Shengrong while retaining the research and development and sale of solid waste recycling
systems business. Management also plans to grow the other two lines of business.
Disposition
On
December 27, 2018, the Company, entered into an Equity Purchase Agreement (the “
EPA
”) with Hopeway International
Enterprises Limited., a private limited company duly organized under the laws of British Virgin Islands (the “
Hoepway
”
or “
Purchaser
”). Pursuant to the EPA, Shengrong WOFE shall sell 100% equity interests in Hubei Shengrong to
the Purchaser in exchange for the Purchaser’s agreement (“
Consideration
”) to irrevocably forfeit and
cancel 8,523,320 shares of common stock of the Company (the “
Shares
”), constituting all the shares owned by
the Purchaser. The transaction contemplated by the EPA is hereby referred as Disposition.
The
Company is the owner of all the issued and outstanding capital stock of China Sunlong Environmental Technology Inc. (“
Sunlong
”),
a company duly organized and existing under the laws of the British Virgin Islands (“
BVI
”), which is the sole
shareholder of Shengrong Environmental Protection Holding Company Limited (“
Shengrong BVI
”), a company duly
organized and existing under the laws of the BVI. Shengrong BVI in turn owns all the issued and outstanding capital stock of Hong
Kong Shengrong Environmental Technology Limited (“
Shengrong HK
”), which owns 100% equity interests in Shengrong
WOFE.
Upon
closing of the Disposition, the Purchaser will become the sole shareholder of Hubei Shengrong and as a result, assume all assets
and obligations of Hubei Shengrong except the research and development team and intellectual property rights in connection with
the solid waste recycling systems business shall be assigned to Shengrong WFOE as part of the Disposition.
The
Disposition was approved by the board of directors of the Company. Benchmark Company, LLC rendered a fairness opinion in connection
with the Disposition, indicating that the Consideration to be received by the Company in the transaction is fair to the Company’s
shareholders from a financial point of view.
The
EPA is filed as Exhibits 10.1 to this Current Report on Form 8-K and such document is incorporated herein by reference. The foregoing
is only a brief description of the material terms of the agreement, and does not purport to be a complete description of the rights
and obligations of the parties thereunder and are qualified in its entirety by reference to such exhibit.
Below
is the Company’s structure chart prior to the completion of the Disposition.
Below
is the Company’s structure chart after the completion of the Disposition.