ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.
Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains forward-looking statements. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Overview
We were incorporated on April 4, 2014 under the laws of the state of Nevada. We were formed to become a provider of a cloud-based, volunteer tracking software solution aimed for organizations, non-profits and corporations. Since inception, our operations have been limited to forming the Company and raising capital resources. We have only generated nominal revenues to date. On July 31, 2017, the then major stockholders of the Company owning a total of 86.78% of the issued and outstanding shares of common stock of the Company sold all of their shares to a group of buyers, resulting in a change of control of the Company. As a result of such change of control, the Company ceased operations and was reorganized as a vehicle to investigate and acquire a target company or business seeking the perceived advantages of being a publicly held corporation.
On November 27, 2017, we entered into an exchange agreement with Donggao International Group Shares Limited, a Seychelles International Business Company (“Donggao”), and holders of all outstanding capital stock of Donggao (the “Exchange Agreement”). On September 24, 2018 we completed the transaction contemplated by the Exchange Agreement with Donggao, whereby we issued to the former shareholders of Donggao an aggregate of 300,000,000 shares of our common stock in exchange for all of the issued and outstanding capital stock of Donggao. Donggao thereby became our wholly owned subsidiary and the former shareholders of Donggao became our controlling stockholders.
As a result of this transaction, we ceased to be a shell company and through our subsidiaries and affiliated entities, we are currently engaged in the business of researching, developing and selling decoration-free wall materials and precast walls, manufactured from recycled solid wastes in China by its original equipment manufacturers (OEMs). In addition, in connection with the above transaction, on September 24, 2018, we changed our fiscal year end from August 31 to June 30.
Through our PRC subsidiary, Guangdong Donggao, we are a startup, green, high-tech company that operates in China’s resource recycling industry. Our current business mainly consists of research, development, and sale of decoration-free wall materials and precast walls, manufactured from recycled solid wastes by our original equipment manufacturers (OEMs). Currently through our OEMs, we are developing the following new wall materials:
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core-filled wall mortised concrete blocks
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core-filled wall mortised concrete blocks
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decorative mortised concrete blocks
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decorative mortised concrete blocks
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antique-style narrow bricks
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squeeze-type building mortars
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We incurred a net loss of $43,730 for the three months ended September 30, 2018. As of September 30, 2018, we had an accumulated deficit of $362,142. Losses have principally occurred as a result of the lack of a source of recurring revenues and the substantial resources required for research and development and marketing of the Company’s products which included the general and administrative expenses associated with its organization. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
Results of Operations
Comparison of Three Months Ended September 30, 2018 and 2017
Revenues
We had revenue of $0 and $0 for the three months ended September 30, 2018 and 2017, respectively.
Cost of Revenues
As we did not earn any revenues, we did not incur any cost of revenues during both periods.
Selling and marketing expenses
We have incurred $2,558 of selling and marketing expenses for the three-month period ended September 30, 2018 compared to $nil for the three-month period ended September 30, 2017. The selling and marketing expenses solely consisted of salary expenses.
General and administrative expenses
The general and administrative expenses were $41,543 for the three months ended September 30, 2018 compared to $38,038 for the three months ended September 30, 2017. The general and administrative expenses primarily consisted of professional fees and salary expenses.
Net Loss
Our net loss for the three-month period ended September 30, 2018 was $43,730 compared to a net loss of $38,038 during the three-month period ended September 30, 2017.
Liquidity and Capital Resources
Working capital
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September 30,
2018
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June 30,
2018
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Total current assets
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$
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31,623
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$
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68,130
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Total current liabilities
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117,379
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111,028
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Working capital surplus/(deficiency)
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$
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(85,756
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)
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$
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(42,898
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)
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Total stockholders’ deficiency for the three-month period ended September 30, 2018 and the year ended June 30, 2018 was $59,294 and $12,712, respectively. To date, we have financed our operations primarily from contributions by owners and borrowings from related parties.
We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business.
Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next three months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) developmental expenses associated with a start-up business and (ii) marketing expenses. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.
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Three Months Ended
September 30,
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2018
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2017
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Net cash provided by (used in) operating activities
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$
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(60,500
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)
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$
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(16,670
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)
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Net cash provided by (used in) investing activities
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-
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-
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Net cash provided by financing activities
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56,968
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16,049
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Net increase (decrease) in cash and cash equivalents
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(3,532
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)
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(621
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)
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Effect of foreign currency translation on cash and cash equivalents
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(1,627
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)
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-
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Cash and cash equivalents at the beginning of period
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28,915
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621
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Cash and cash equivalents at the end of period
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$
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23,756
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$
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-
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Operating Activities
For the three months ended September 30, 2018, net cash used in operating activities was $60,500 consisting of a net loss of $43,730, depreciation and amortization expenses of $2,499, a decrease in advance to suppliers of $7,867, a decrease in accounts payable of $3,637 and a decrease in accrued expenses of $7,765. Net cash used in operating activities for the three-month period ended September 30, 2017 was $16,670 consisting of a net loss of $38,038, a gain in change of control of $18,368, an increase in prepaid expenses of $5,000 and an increase in accounts payable of $8,000.
Investing Activities
Net cash used in or provided by investing activities for the three-month period ended September 30, 2018 and the three-month period ended September 30, 2017 was both $nil.
Financing Activities
Net cash provided by financing activities for the three-month period ended September 30, 2018 was $56,968 which consisted of an increase in related party receivables of $17,753 and an increase in related party payables of $39,215. Net cash provided by financing activities was $16,049 from an increase in related party payables of $16,049 for the three-month period ended September 30, 2017.
Off-Balance Sheet Transactions
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Contractual Obligations
As a smaller reporting company, we are not required to provide this information.
Critical Accounting Policies
Our condensed financial information has been prepared in accordance with U.S. GAAP, which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application. There have been no material changes to the critical accounting policies previously disclosed in our audited financial statements for the year ended December 31, 2017 included in the Annual Report on Form 10-K filed on March 9, 2018.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2018. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.
Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and chief financial officer. Based upon, and as of the date of this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of September 30, 2018 due to the following material weaknesses that our management identified in our internal control over financial reporting as of September 30, 2018:
a)
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Lack of audit committee. The Company does not have a functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.
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b)
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Lack of proper segregation of duties due to limited personnel.
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c)
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Lack of a formal review process related to financial reporting that includes multiple levels of review.
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The Company’s management is committed to improving the Company’s internal controls and will: (1) continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities; (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel; and (3) may consider appointing outside directors and audit committee members in the future.
The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, have discussed the material weakness noted above with the Company’s independent registered public accounting firm. Due to the nature of this material weakness, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.
Changes in Internal Control over Financial Reporting
Except for the matters described above, there were no changes in our internal controls over financial reporting during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.