CPSN Capstone Systems Inc (GM)

The information contained in Item 2.01 below relating to the various agreements described therein is incorporated herein by reference.

THE SHARE EXCHANGE AGREEMENT AND RELATED TRANSACTIONS

Share Exchange Agreement

On January 15, 2018, CPSN, Yunguhui, and the Yunguhui Stockholders entered into the SEA, which closed on January 14, 2019. The SEA was amended on November 26, 2018 to account for the additional 1,757,664 shares of Yunguhui capital stock that Yunguhui issued to 25 additional individuals in November 2018. Pursuant to the terms of the SEA, we issued an aggregate of 200,000,000 new shares of our common stock, par value $0.001 per share (the “Common Stock”), for all of the outstanding capital stock of Yunguhui. As a result, Yunguhui became a wholly owned subsidiary of CPSN.

Pursuant to the SEA, we acquired the business of Yunguhui, which is engaged in management consulting service. As a result, we have ceased to be a shell company.

At the closing of the Share Exchange, 201,757,664 shares of Yunguhui capital stock, issued and outstanding immediately prior to the closing of the Share Exchange, were exchanged for 200,000,000 newly issued shares of our Common Stock.

The SEA contained customary representations and warranties and pre and post-closing covenants of each party and customary closing conditions.

The Share Exchange is intended to be treated as a tax-free reorganization under the Internal Revenue Code of 1986, as amended.

The issuance of our Common Stock to Yunguhui Stockholders in connection with the Share Exchange was not registered under the Securities Act, in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, Regulation D promulgated by the SEC under that section and/or Regulation S promulgated by the SEC, which exempts transactions by an issuer not involving any public offering. These securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirement, and some of these securities are subject to further contractual restrictions on transfer as described below.

The form of the SEA and amendment thereto is filed as an exhibit 2.1 and exhibit 2.2, respectively to this Report.

Pro Forma Ownership

Immediately after giving effect to the Share Exchange, there were 205,085,000 issued and outstanding shares of our Common Stock, as follows:

No other securities convertible into or exercisable or exchangeable for our Common Stock are outstanding. Our Common Stock is quoted on the OTC Pink under the symbol “CPSN”.

Accounting Treatment; Change of Control

The Share Exchange was accounted for under the business combination under common control of accounting. Consequently, the assets and liabilities and the historical operations that will be reflected in the financial statements prior to the Share Exchange will be those of Yunguhui and CPSN combined and will be recorded at the historical cost basis and the consolidated financial statements after completion of the Share Exchange will include the combined assets and liabilities of Yunguhui and CPSN from the closing date of the Share Exchange.

As a result of the issuance of the shares of our Common Stock pursuant to the Share Exchange, a change in control of the Company occurred as of the date of consummation of the Share Exchange. Except as described in this Current Report, no arrangements or understandings exist among present or former controlling stockholders with respect to the election of members of our Board of Directors and, to our knowledge, no other arrangements exist that might result in a change of control of the Company.

We continue to be a “smaller reporting company,” as defined under the Exchange Act, following the Share Exchange.

Following the Share Exchange, the Company will no longer be designated as a shell company.

Form 10 Information

Prior to the Share Exchange, the Company had nominal operations. We were deemed a “shell company,” as defined in Rule 12b-2 of the Exchange Act, and in light of the lack of operations prior to the completion of the Share Exchange.

Immediately following the Share Exchange, the business of Yunguhui became our business. Yunguhui is engaged in the business of management consulting service.

With the resulting change in our business, we are providing the information as is required pursuant to Item 2.01(f) of Form 8-K as if we were filing a general form for registration of securities on Form 10 under the Exchange Act for our Common Stock, which is the only class of our securities subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act upon consummation of the Share Exchange.

DESCRIPTION OF BUSINESS

Capstone Systems Inc. was incorporated in the State of Nevada on April 1, 2015. From inception to October 19, 2017, we were a development-stage company formed to sell kitchen sinks and kitchen cabinets in the USA. On October 19, 2017, the Company and its former sole director and executive officer, Jure Perko, entered into a stock purchase agreement (the “SPA”) with a group of individual purchasers, pursuant to which, the control block of voting stock of the Company, represented by 4,000,000 shares of common stock (the “Shares”), approximately 78.7% of all outstanding common stock of the Company, was transferred to the purchasers. In connection with the SPA, Jure Perko entered into an assignment agreement with the Company whereby all assets of the Company were transferred to him, all liabilities were assumed by him and the net difference was treated as a reduction in additional paid in capital. Subsequently, the Company ceased all operations, and became a shell company without any significant assets or operations.

On January 15, 2018, we entered into a SEA with Yunguhui Stockholders, which closed on January 14, 2019. Immediately following the closing of the SEA, the businesses of Yunguhui became our businesses. Consequently, the Company is no longer designated as a shell company. Yunguhui is engaged in management consulting services through its operating subsidiary, Anhui Yunguhui Internet Technology Limited.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2013 (the “JOBS Act”) and, as such, may elect to comply with certain reduced public company reporting requirements for future filings.

A summary of the business of Yunguhui and its subsidiaries is described below.

Overview

Yunguhui is a development company and commenced its operations in 2017. The company offers management consulting services to its registered member enterprises and generates revenue through membership fees and other service fees. We provide consulting services to small and medium-sized enterprises in mainland China to help them achieve their growth potential. As the date of this Report, nine companies are registered members with Yunguhui. We own and operate two service centers, through which we provide in-person customer service to our clients. We also entered into cooperation agreements with independent operators who own and operate cooperation service centers (“CSC”). (See – Business Description – Our Cooperation Service Centers) These independent operators pay us annual fees in exchange for the rights to use our brand name and trademark, as well as access to our other corporate resources, such as the Yunguhui App (once available) and consulting service personnel. As of the date of this Report, we have contracted with nine cooperation service centers. Due to our short history of operation, we are not yet profitable. Yunguhui conducts substantially all of its operations through contractual arrangements with Anhui Yunguhui Technology Development Limited (“Yunguhui Anhui”), an affiliated variable interest entity (“VIE”) and the VIE’s wholly owned subsidiaries Beijing Yunguhui Information Technology Co. Ltd. (“Yunguhui Beijing”), and Nanjing Yunguhui Information Technology Co. Ltd. (“Yunguhui Nanjing,” together with Yunghuhui Anhui, Yunguhui Beijing and Yunguhui Nanjin, “Yunguhui Anhui and its Subsidiaries”).

General

Yunguhui, a company incorporated in the Republic of Seychelles on November 2, 2017, acts as a holding company of its directly wholly owned subsidiary, Yunguhui Holdings Development Limited, also a Republic of Seychelles company, incorporated on November 3, 2017 (“YHDL”). YHDL acts as a holdings company of its directly wholly owned subsidiary, Yun Gu Hui International (Hong Kong) Development Limited, which was incorporated in Hong Kong on December 6, 2017 (“Yunguhui HK”). Yunguhui HK has a wholly owned subsidiary, Shenzhen Yunguhui Technology Development Limited, a PRC company incorporated on February 22, 2018 (“Yunguhui Shenzhen”), as a wholly foreign-owned enterprise (“WFOE”).

On August 20, 2018, Yunguhui Shenzhen entered into a Management and Consultancy Service Agreement which entitles Yunguhui Shenzhen to substantially all of the economic benefits of Yunguhui Anhui and its Subsidiaries, all of which are PRC companies, in consideration of services provided by Yunguhui Shenzhen to Yunguhui Anhui and its Subsidiaries. In addition, Yunguhui Shenzhen entered into certain agreements with the shareholders of Yunguhui Anhui, Yusheng Jiang and Ding Yong (collectively, the “Yunguhui Anhui Shareholders”), as well as Yunguhui Anhui and its Subsidiaries, including (i) an Exclusive Right and Option to Purchase Agreement allowing Yunguhui Shenzhen to acquire the shares of Yunguhui Anhui as permitted by PRC laws, (ii) a Shareholders' Voting Rights Proxy Agreement that provides Yunguhui Shenzhen with the voting rights of the Yunguhui Anhui Shareholders and those of Yunguhui Anhui, and (iii) an Equity Pledge Agreement that pledges the shares in Yunguhui Anhui and its Subsidiaries to Yunguhui Shenzhen. This VIE structure provides Yunguhui Shenzhen, a wholly-owned subsidiary of Yunguhui, with control over the operations and benefits of Yunguhui Anhui and its Subsidiaries without having a direct equity ownership in Yunguhui Anhui and its subsidiaries.

Beginning in December 2017, each of Yunghuhui Beijing and Yunguhui Nanjing started operating a local service center. In addition to the two directly owned and operated service centers, we have currently contracted nine CSCs through contractual arrangements entered with independent operators.

Organization and Consolidated Subsidiaries

Yunguhui’s organizational structure was crafted to abide by the laws of the PRC and maintain tax benefits as well as internal organizational efficiencies. CPSN’s post–share exchange organization structure is summarized below:

Risk Factors

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

Industry Overview and Trend

Yunguhui provides management consulting services to small and medium-sized enterprises in mainland China. Below is a brief overview of the management consulting services industry in China.

The PRC domestic management consulting industry emerged in the early 1980s, when professional consulting organizations such as McKinsey & Company, Accenture, BCG, and Roland Berger entered into the PRC market. With the growth of China's economy, the size and scale of China's management consulting industry are increasing, and the number of companies engaged in consulting and training services is increasing.

At present, there are no dedicated government administrative departments to guide or regulate the development of the industry. The ever-evolving economic conditions require continuous improvement of the services and products provided by the industry; however, there has been a general lack of investment in research and development throughout the management consulting industry, which results in low customer satisfactions.

Compared to the U.S., China’s management consulting industry is still at the newborn stage. According to Founder Securities’ research, for the year 2016, the industry accounts for 0.18% of GDP in China, which is 1.20% in the U.S. With the rapid development and transformation of the Chinese domestic market economy, competitive pressures will require more enterprises seek “brain power” from management consulting companies to help them compete more effectively. It was estimated that China’s consulting market grew by 7% to a total value of USD 4 billion in 2015, according to the market research report by Source Global Research. The “Market Research Report 2016” by IBIS World shows that total revenue of the industry was about USD 23 billion and the Average Annual Growth Rate (“AAGR”) of total revenue was 10.6% in 2011-2016. Despite differences in definition and data set (such as the difference in classification of management consultant, for instance), both reports have reflected the rapid growth trend of the management consulting industry in China.

Our Management Consulting Services

We provide management consulting services to our member enterprises, each of whom registers with us to become a member enterprise by entering into an annual member service agreement. Our services include management advisory, corporate governance advisory, public relations advisory, and other capital market related consulting services. The annual membership fee is currently RMB10,000 (approximately US$1,444). As of the date of this Report, we had nine registered members.

The following services are included in our annual membership services:

In addition to the above services, we also provide ad-hoc services to our members which are not included in the annual membership services (“Ad-Hoc Services”). The fees for these services are negotiated on a case-by-case basis, taking into consideration the specific services that our team provides, the nature of the business and listing requirements, and our business relationship with each member. Our Ad-Hoc services are:

Our Cooperation Service Centers

Our CSCs are owned and operated independently by third party operators and function just as our directly owned service centers. They promote our brand and platform by organizing events and forums with local enterprises, provide in person customer services to our existing and prospective clients and help with recruiting new clients. To be a CSC, the third party must meet certain financial requirements and their office spaces must conform to our standards in terms of size and the display of our Yunguhui brand name. Additionally, each CSC operator must possess: (1) an established relationship with local government entities, such as the Economic and Information Committees, the Industry and Commerce Committees, the Small and Medium Bureaus; and/or (2) an established relationship with local businesses such as Chambers of Commerce, Entrepreneur Clubs; and/or (3) an established relationships with local educational entities, such as education and training institutions, universities, colleges; and (4) a long-term commitment to being a productive partner, who supports and promotes the Yunguhui brand name and its business values, views and plans.

Since our inception in 2017, we have participated in many events and conferences organized by local government entities and business associations to promote our brand and recruit third parties for potential CSCs. Although we are a relatively new company, our founders (Mr. Yushen Jiang and Mr. Yong Di), have established relationships and connections with a number of businesses that we believe are interested in opportunities within the management consulting business industry, through which we hope to attract and recruit potential CSCs. Until our brand is more well-known, we anticipate that this is how we will continue to locate and establish more CSCs.

Our contractual relationship with CSCs are established by the terms of the Cooperation Contract of National Service Center of Yunguhui Group (the “CSC Agreement”), pursuant to which, we charge the CSCs annual fees in exchange for the rights to use our brand name and platform, as well as access to our other corporate resources such as the Yunguhui App (once available) and management consulting personnel. When a CSC successfully recruits a new client, it earns a percentage of the fees generated from the services provided to the client. The duration of the CSC Agreement is three years and the annual fees is currently set at RMB1,000,000 (approximately US$144,352).

As of the date of this Report, we have entered into nine CSC Agreements with independent operators, in major cities including Hangzhou, Hefei, Wuhan, and Shenzhen, among others; we also directly own and operate two service centers, which are located in Nanjing and Beijing. Three of the CSCs are currently operating and the others are expected to start operating in early 2019.

Our Growth Strategy and Plan of Operation

We are a start-up company in the process of developing our consulting business targeting small and medium-sized enterprises in China. We believe it is important to provide superb customer service to our current and prospective member enterprises in order to grow and expand our consulting business. Accordingly, we plan to achieve profitability through the followings:

Our Target Clients

The target customers for our consulting services are small to mid-sized enterprises seeking growth and expansion in mainland China. Many of them are start-up companies who have needs for financing and increased brand recognition. Up to the date of this Report, we have nine registered member enterprises. Due to the small number of clients we currently have, each of them accounts for more than 10% of our consulting revenue. However, we hope to grow our Company such that fewer clients will account for more than 10% of our consulting revenue.

Competition

We operate in a competitive industry. Although we are not aware of any other company in China that currently offers our same mix of services in the same manner as us, we compete with a large number of companies that provide financial and management consulting services, such as Greenpro Capital Corp., Forward Capital, Asia Times Holdings Limited, and Shenjing360. There are also bigger and more established consulting service providers in the corporate finance industry, such as JP Investment Group, QMIS Financial Group, Mckinsey & company, Bain & Company, Hejun Consulting and ALLPKU. These competitors have significantly more financial resources than we currently possess and greater brand recognition than us. In addition, new or existing competitors that use business models that are more effective than ours may require us to change our business plan so that we can be competitive.

We believe our competitive advantages include our quality of service and anticipated online presence, through the Yunguhui App, which will help us reach more customers than our competitor’s conventional methods, as there are few other companies currently providing this method of connectivity for the services we provide.

Marketing

We market our services through our website, the Yunguhui App (once available), referrals from our existing clients, and other social media platforms such as WeChat and Weibo. Our service centers organize forums and events, which also serve as promotions for our services and recruitment for new clients.

R&D

We have an in-house development team with six employees, who are responsible for the development and support of our proprietary Yunguhui App. We expect to invest resources to retain qualified employees and update our Yunguhui App to meet the needs of our business operations.

Employees

As of the date of this Report, we had 45 full-time employees throughout our operations; 27 of such employees were in our Yunguhui Anhui office and 18 of such employees were at our directly owned service centers located in Nanjing and Beijing. None of our employees are covered by a collective bargaining agreement. We have not experienced any work stoppages and we consider our relations with our employees to be good.

Intellectual Property

Protecting our intellectual property is a priority for our business. We rely on a combination of copyright, trademark and trade secret laws, as well as confidentiality agreements, to establish and protect our proprietary rights.

We own the rights to a trademark for Yunguhui in China. The trademark was originally registered in 2018 by Anhui Zhenghao Limited (Zhenghao), a PRC company, and the rights to the trademark was transferred to us on August 31, 2018, through an executed letter of authorization between Zhenghao and Yunguhui Anhui. We have also submitted an application to the PRC Trademark Office of State Administration for Industry and Commerce to officially transfer the registration of the Yunguhui trademark to Yunguhui Anhui. The registered PRC trademark will expire in 2028 and can be renewed before the expiration date.

Currently, we are in the process of filing for copyright registration of the Yunguhui App in PRC.

As of the date of this Report, we obtained four registered domain names in PRC: www.yunguhui.com.cn., 云股汇.com, 云股汇.net, and 云股汇.cn.

Government Regulations

PRC Laws and Regulations relating to Wholly Foreign-owned Enterprises

The establishment, operation and management of corporate entities in China are governed by the PRC Company Law, which was promulgated by the Standing Committee of the National People’s Congress on December 29, 1993 and became effective on July 1, 1994. It was last amended on December 28, 2013 and the amendments became effective on March 1, 2014. Under the PRC Company Law, companies are generally classified into two categories, namely, limited liability companies and joint stock limited companies. The PRC Company Law also applies to limited liability companies and joint stock limited companies invested by foreign investors. Where there are otherwise different provisions in any law on foreign investment, such provisions shall prevail.

The Law of the PRC on Wholly Foreign-invested Enterprises was promulgated and became effective on April 12, 1986, and was last amended and became effective on October 1, 2016. The Implementing Regulations of the PRC Law on Foreign-invested Enterprises were promulgated by the State Council on October 28, 1990. They were last amended on February 19, 2014 and the amendments became effective on March 1, 2014. The Provisional Measures on Administration of Filing for Establishment and Change of Foreign Investment Enterprises were promulgated by MOFCOM and became effective on October 8, 2016, and were last amended on July 20, 2017 with immediate effect. The above- mentioned laws form the legal framework for the PRC Government to regulate WFOEs. These laws and regulations govern the establishment, modification, including changes to registered capital, shareholders, corporate form, merger and split, dissolution and termination of WFOEs.

Yunguhui Shenzhen has been a WFOE since settled and should comply with the above-mentioned laws.

PRC Laws and Regulations relating to Management Consulting Industry

Law of the People's Republic of China on Promotion of Small and Medium-sized Enterprises (“the SME Promotion Law”) was promulgated by the standing committee of the National People's Congress on June 29, 2002 and amended on September 1, 2017, which became effective on January 1, 2018. According to the SME Promotion Law, the government encourages all kinds of services organization to provide services including training and counselling on entrepreneurship, Intellectual property protection, management consulting, information consulting, credit service, marketing, development of projects, investment and financing, accounting and taxation, equity transaction, technology support, talent introduction, foreign cooperation, exhibition and legal consulting.

Opinions of the state council on further promoting the development of small and medium-sized enterprises

Pursuant to the Opinions of the state council on further promoting the development of small and medium-sized enterprises (“the Opinions”) which was promulgated by the State Council on September 19, 2009, the government supports the fostering of management consulting organizations serving small and medium-sized enterprises (“SMEs”) to guide SMEs using external sources to improve their business management.

Properties

Nanjing Yunguhui’s office, our Nanjing service center, is located at Unit JA, 42 Floor, Main Tower Building of the Nanjing IFC located in No. 1, Hanzhong Road, Nanjing City China. We lease a total area of approximately 625.47 square meters (approximately 431 square foot) of office space pursuant to one lease agreement, which covers 24 months, from December 18, 2018 to December 17, 2020. The monthly rent is RMB 104,635.92 (approximately US$15,808).

Beijing Yunguhui’s office, our Beijing service center, is located at Room 1801-08, F/18 of No. 4 Business Office Building in the Land Parcel 1008-627, Plot 3, Cuigezhuang Town Dawangjing Village Environmental Rehabilitation Land Reserve Project, Chaoyang District, Beijing City (No. 11 Building, Zone 4, Wangjing Dongyuan). The leased floor area is 298 square meters (approximately 3207 square foot), the term of the lease is five years, from August 24, 2017 to August 23, 2022. The monthly rent is RMB 86,109 (approximately US$12,430) for the first year and is subject to an increase of 6%, 5%, and 5% for the third, fourth, and fifth year, respectively.

Anhui Yunguhui’s office is located at Anqing, High-tech Zone, Huangguan Road 8 (Anqing Phoenix Science and Technology Industrial Park). We lease a total area of approximately 4,033 square meters (approximately 43,410 square foot) pursuant to one lease agreement, which covers a term of five years, from July 1, 2017 to June 30, 2022, with the monthly rent of RMB 9,146 (approximately US$1,382) for the first three years. The monthly rent for the fourth and fifth year will be renegotiated.

WHERE YOU CAN FIND MORE INFORMATION

The registrant is subject to the requirements of the Exchange Act, and files reports, proxy statements and other information with the SEC. You may read and copy these reports, proxy statements and other information at the public reference room maintained by the SEC at its Public Reference Room, located at 100 F Street, N.E. Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at (800) SEC-0330. In addition, we are required to file electronic versions of those materials with the SEC through the SEC’s EDGAR system. The SEC also maintains a web site at http://www.sec.gov, which contains reports, proxy statements and other information regarding registrants that file electronically with the SEC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking states are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or out predictions.

Overview

Capstone Systems Inc. was incorporated in the State of Nevada on April 1, 2015 and established a fiscal year end of May 31. From inception to October 19, 2017, we were a development-stage company formed to sell kitchen sinks and kitchen cabinets in the USA. On October 19, 2017, the Company and its sole director and executive officer, Jure Perko, entered into a stock purchase agreement (the “SPA”) with a group of individual purchasers, pursuant to which, the control block of voting stock of the Company, represented by 4,000,000 shares of common stock (the “Shares”), approximately 78.7% of all outstanding common stock of the Company, was transferred to the purchasers. The consideration paid for the Shares was $0.0902 per share, for a total of $360,775 in cash. The source of the cash consideration for the Shares was personal funds of the Purchasers. In connection with the SPA, Jure Perko entered into an assignment agreement with the Company whereby all assets of the Company were transferred to him, all liabilities were assumed by him and the net difference was treated as a reduction in additional paid in capital. Subsequently, the Company ceased all operations, and became a shell company without any significant assets or operations. Since becoming a shell company, the Company's activities concentrated on maintaining its corporate existence and looking for other opportunities for the Company.

We have had limited operations and have been issued a "going concern" opinion by our auditor, based upon our reliance on the sale of our common stock as the sole source of funds for our future operations.

On January 15, 2018, CPSN, Yunguhui, and the Yunguhui Stockholders entered into the SEA, which closed on January 14, 2019. Pursuant to the terms of the SEA, we issued an aggregate of 200,000,000 new shares of our Common Stock,” for all of the outstanding capital stock of Yunguhui. As a result, Yunguhui became a wholly owned subsidiary of CPSN. Pursuant to the SEA, we acquired the business of Yunguhui, which is engaged in management consulting service. As a result of the Share Exchange, we ceased to be a “shell company” and will continue the existing business operations of Yunguhui Group Limited (“Yunguhui”) as a publicly traded company under the name “Capstone Systems Inc.”

At the closing of the Share Exchange, 201,757,664 shares of Yunguhui capital stock, which represents 100% of Yunhuhui’s issued and outstanding stock immediately prior to the closing of the Share Exchange, were exchanged for 200,000,000 newly issued shares of our Common Stock.

The Share Exchange is intended to be treated as a tax-free reorganization under the Internal Revenue Code of 1986, as amended.

Limited Operating History; Need for Additional Capital

There is no historical financial information about us upon which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the launching of our online applications and market or wider economic downturns. We do not believe we have sufficient funds to operate our business for the next twelve months.

We have no assurance that future financing will be available to us on acceptable terms, or at all. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing could result in additional dilution to existing shareholders.

If we are unable to raise additional capital to maintain our operations in the future, we may be unable to carry out our full business plan or we may be forced to cease operations.

Economic and Political Risks

Our operations are conducted primarily in the PRC. Accordingly, our business, financial conditions and results may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

Our 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 with, among others, the political, economic and legal environment and foreign currency exchange. Our 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 conversions, remittances abroad, and rates and methods of taxation, among other things.

Risks Related to Doing Business in China

Any economic, political and legal developments in the PRC will significantly affect our business, financial condition, results of operations and prospects.

We conduct all of our operations and all of our revenue is generated in the PRC. Our ability to operate profitably in the PRC may be adversely affected by changes in policies by the PRC government, including changes in laws, regulations or their interpretation, particularly those dealing with the Internet, including censorship and other restriction on material which can be transmitted over the Internet, security, intellectual property, money laundering, taxation and other laws that affect our ability to operate our business through the Yunguhui App.

Our business is dependent upon government policies that encourage a market-based economy .

Any change in the political or economic climate in the PRC may impair our ability to operate profitably, if at all. The PRC government continues to exercise significant control over economic growth in the PRC and we are dependent upon the PRC government pursuing policies that encourage private ownership of businesses. Restrictions on private ownership of businesses would affect the e-commerce and lodging services in general.

PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability to operate profitable.

The laws and regulations regarding the interpretation and application of PRC laws that govern our business and the enforcement and performance of our arrangements with customers in certain circumstances are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively, which may have adverse effect on our business.

Because our business is conducted in RMB and the price of our Common Stock is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments.

Our business is conducted in RMB and the price of our Common Stock is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments. Fluctuation in the exchange rate between the RMB and dollar resulting from economic conditions and others affect the value of our assets and the results of our operations in United States dollars. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition.

The Enterprise Income Tax Law (“EIT Law”) and its implementing rules are vague and cast uncertainties to our business.

The EIT Law and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws. However, there are no detailed rules or precedents governing the procedures and specific criteria for determining “de facto management body.” If we are deemed as a PRC “resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiary and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient” status. In addition, any dividends we pay to our non-PRC investors, and the gains realized from the transfer of our Common Stocks may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty). This could have a material and adverse effect on our overall effective tax rate, our income tax expenses, our net income and our dividends paid to our shareholders.

Finally, there are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits. Under the PRC EIT Law and its implementation rules, the profits of a foreign invested enterprise generated through operations, which are distributed to its immediate holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and the PRC, such rate may be reduced to 5% if a Hong Kong resident enterprise owns more than 25% of the equity interest in the PRC company. Our PRC subsidiary is wholly-owned by our Hong Kong subsidiary. In current practice, a Hong Kong enterprise must obtain a tax resident certificate from the relevant Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority. Additionally, even after we obtain the Hong Kong tax resident certificate, we are required by applicable tax laws and regulations to file required forms and materials with relevant PRC tax authorities to prove that we can enjoy 5% lower PRC withholding tax rate. There is no assurance that the PRC tax authorities will approve the 5% withholding tax rate on dividends received from our Hong Kong business entity.

The PRC government may determine that the VIE Agreements are not in compliance with applicable PRC laws, rules and regulations.

Yunguhui manages and operates the business of Yunguhui Anhui and its Subsidiaries through its WFOE, Yunguhui Shenzhen, pursuant to the rights it holds under the VIE Agreements. Almost all economic benefits and risks arising from the operations of Yunguhui Anhui and its Subsidiaries are transferred to Yunguhui under these agreements.

There are risks involved with the operation of the business of Yunguhui Anhui and its Subsidiaries in reliance on the VIE Agreements, including the risk that the VIE Agreements may be determined by PRC regulators or courts to be unenforceable. If the VIE Agreements were for any reason determined to be in breach of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such breach, including:

Any of these actions could adversely affect Yunguhui’s ability to manage, operate and gain the financial benefits of Yunguhui Anhui and its Subsidiaries, which represents its sole operations, which would have a material adverse impact on its business, financial condition and results of operations.

Our ability to manage and operate VIE and its subsidiaries under the VIE Agreements may not be as effective as direct ownership.

Our plans for future growth are based substantially on growing the operations of Yunguhui Anhui and its Subsidiaries. However, the VIE Agreements may not be as effective in providing us with control over Yunguhui Anhui and its Subsidiaries as direct ownership. Under the current VIE arrangements, as a legal matter, if Yunguhui Anhui and its Subsidiaries fail to perform their obligations, we may have to (i) incur substantial costs and resources to enforce such arrangements, and (ii) rely on legal remedies under PRC law, which it cannot be sure would be effective. Therefore, if we are unable to effectively control Yunguhui Anhui and its Subsidiaries, it may have an adverse effect on its ability to achieve its business objectives and grow its revenues.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies used in the preparation of our consolidated financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see our consolidated financial statements included elsewhere in this Report.

Method of accounting

Management has prepared the accompanying financial statements and these notes in accordance with generally accepted accounting principles in the United States of America; the Company maintains its general ledger and journals with the accrual method accounting.

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 disclosures 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.

Revenue recognition

The Company recognizes revenue when all of the following criteria have been met: it has negotiated the terms of the transaction with the customer which includes setting a fixed sales price, it has transferred possession of the product to the customer, the customer does not have the right to return the product, the customer is able to further sell or transfer the product onto others for economic benefit without any other obligation to be fulfilled by the Company, and the Company is reasonably assured that funds have been or will be collected from the customer. The Company’s amount of revenue recognized to the books reflects the value of goods invoiced, net of any value-added tax (VAT) or excise tax.

Results of Operations

Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.

The following discussion and analysis of our financial condition and results of operation for the three months ended September 30, 2018 and 2017 and the period ended June 30, 2018 should be read in conjunction with the financial statements and the notes to those statements that are included in this report on Form 8-K.

For the three months ended September 30, 2018 and 2017

Revenue

Revenue totaled $222,895 for the three months ended September 30, 2018 compared to $3,327 for the three months ended September 30, 2017.

Cost of sales

We incurred $813 and $7 in cost of sales for the three months ended September 30, 2018 and 2017 respectively.

Gross profit

As a combined result of revenues and cost of sales, the gross profits were $222,082 and $3,320 for the respective periods.

Selling expense

During the three months ended September 30, 2018, we incurred $12,094 selling expense compared to $nil during the three months ended September 30, 2017.

General and administrative expenses

Our general and administrative expenses were $1,005,993 and $16,321 for the three months ended September 30, 2018 and 2017 respectively.

Net income

Our net loss for the three months ended September 30, 2018 was $795,872 compared to $13,000 for the three months ended September 30, 2017.

Total stockholders’ deficit as of September 30, 2018 and June 30, 2018 was $780,373 and $9,198, respectively. To date, we have financed our operations primarily from sales and through the cash proceeds from the issuance of stock.

We do not believe that we have sufficient funds to operate our business for the next twelve months. We may require additional cash resources in the future but we have no assurance that future financing will be available to us on acceptable terms, or at all. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing could result in additional dilution to existing shareholders. If we are unable to raise additional capital to maintain our operations in the future, we may be unable to carry out our full business plan or we may be forced to cease operations.

The following table provides detailed information about our net cash flows for the three months ended September 30, 2018 and 2017 respectively.

Operating Activities

For the three months ended September 30, 2018, net cash provided by operating activities was $171,767 consisting of a net loss of $795,872, amortization and depreciation expenses of $2,477, an increase in accounts receivable of $145,634, a decrease in other receivables of $152,252, a decrease in related party receivables of $1,199, an increase in advance to supplier of $65,069, an increase in prepaid expenses of $12,540, an increase in accounts payable of $1,387, an increase in taxes payable of $7,575, a decrease in other payables of $26,371, an increase in related party payable of $1,067,744 and a decrease in customer deposits of $15,381. Net cash used in operating activities for the three months ended September 2017 was $32,491 consisting of a net loss of $13,000, an increase in accounts receivable of $3,427, an increase in other receivables of $54,141 and an increase in other payables of $38,077.

Investing Activities

Net cash used in investing activities was $nil for the three-month period ended September 30, 2018 compared to $408 for the three-month period ended September 30, 2017.

Financing Activities

Net cash provided by financing activities for the three months ended September 30, 2018 was $14,638 which consisted of contributions of capital by owners. Net cash provided by financing activities for the three months ended September 30, 2017 was $304,612.

For the period from the date of inception to June 30, 2018

The following financial data was extracted from the audited consolidated financial statements of Yunguhui Group Limited and its subsidiaries for the period from the date of inception, November 2, 2017, to June 30, 2018. As Yunguhui Group Limited and its subsidiaries were in business for less than a year, no comparisons of financial data are available.

Revenue

We earned $4,850 from the date of inception to June 30, 2018 by providing consultation services to our clients.

Cost of Sales

Our cost of sales was $4,073 from the date of inception to June 30, 2018.

Gross Profit

Our gross profit was $777 from the date of inception to June 30, 2018.

General and Administrative Expense

We incurred $1,730,548 general and administrative expenses from the date of inception to June 30, 2018. The expenses primarily consisted of service fees, salary and social insurance expenses and rent.

Net income

As a cumulated effect of the incomes and expenses, our net loss was $1,729,289 from the date of inception to June 30, 2018.

As of June 30, 2018, we had cash and cash equivalents of $47,037. To date, we have financed our operations primarily through contributions by owners and issuance of shares.

We do not believe that we have sufficient funds to operate our business for the next twelve months. We may require additional cash resources in the future but we have no assurance that future financing will be available to us on acceptable terms, or at all. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing could result in additional dilution to existing shareholders. If we are unable to raise additional capital to maintain our operations in the future, we may be unable to carry out our full business plan or we may be forced to cease operations.

The following table provides detailed information about our net cash flows for the period from the date of inception to June 30, 2018.

Operating Activities

From the date of inception to June 30, 2018, the net cash used in operating activities was $1,473,435 consisting of net loss of $1,729,289, stock issuance for services provided by shareholders of $100,000, depreciation and amortization expenses of $4,632, an increase in other receivables of $192,556, an increase in related party receivables of $4,986, an increase in advance to suppliers of $15,608, an increase in accounts payable of $6,657, an increase in tax payable of $20, an increase in other payables of $32,095, an increase in accrued liabilities of $20,000, and an increase in customer deposits of $305,600.

Investing Activities

The net cash used in investing activities was $42,476 for the period from the date of inception to June 30, 2018 which consisted of purchases of fixed assets and intangibles of $39,968 and $2,508 respectively.

Financing Activities

The net cash provided by financing activities for the period from the date of inception to June 30, 2018 was $1,572,524 which consisted of contribution of capital by owners of $769,271, issuance of note receivable of $75,539 and issuance of shares of $878,792.

Contractual Obligations and Commercial Commitments

For the period ended June 30, 2018, the Company entered the following lease agreements:

The minimum future lease payments for the offices at June 30, 2018 are as follows:

The outstanding lease commitments for the leases listed above as of June 30, 2018 was $1,230,039. The lease expense for the year ended June 30, 2018 was $309,876.

Capital Expenditures

Capital expenditures for the period from the date of inception to June 30, 2018, were $42,476. Such purchases were for setting up business.

Inflation

Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in our industry and continually maintain effective cost control in operations.

Off Balance Sheet Arrangements

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 or capital expenditures or capital resources that is material to an investor in our securities.

Seasonality

Our operating results and operating cash flows historically have not been subject to significant seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.

Recent Accounting Pronouncements

In January 2017, the FASB issued guidance which simplifies the accounting for goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, determined in Step 1. The Company is currently evaluating the impact on the financial statements of this guidance.

In January 2017, the FASB amended the existing accounting standards for business combinations. The amendments clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company is currently evaluating the impact on the financial statements of this guidance.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In accordance with SEC rules, shares of our Common Stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the applicable table below are deemed beneficially owned by the holders of such options and warrants and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person. Subject to community property laws, where applicable, the persons or entities named in the tables below have sole voting and investment power with respect to all shares of our Common Stock indicated as beneficially owned by them.

Pre-Share Exchange

The following table sets forth certain information regarding the beneficial ownership of our Common Stock immediately prior to the Share Exchange, by (i) each stockholder known by us to be the beneficial owner of more than 5% of our Common Stock (our only classes of voting securities), (ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. Unless otherwise indicated, the persons named in the table below had sole voting and investment power with respect to the number of shares indicated as beneficially owned by them. Immediately prior to the Share Exchange, we had 5,085,000 shares of Common Stock issued and outstanding.

Post-Share Exchange

The following table sets forth information with respect to the beneficial ownership of our Common Stock as of January 14, 2019, by (i) each stockholder known by us to be the beneficial owner of more than 5% of our Common Stock (our only class of voting securities), (ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with respect to the shares of our Common Stock beneficially owned by such person, except to the extent such power may be shared with a spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted. Other than the Share Exchange, to our knowledge, there is no arrangement, including any pledge by any person of securities of the Company or any of its parents, the operation of which may at a subsequent date result in a change in control of the Company. As of January 14,2019, we had 205,085,000 shares of Common Stock issued and outstanding.

DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS

Directors and Executive Officers

Below is a list of our directors and executive officers, as of the date of this Report and a brief account of the business experience of each of them. The business address for our director and President is F42, International Financial Center, No.1 Hanzhong Road, Nanjing City, Jiangsu Province, PRC. Each of our directors is appointed to hold office until the next annual meeting of our stockholders or until his respective successor is elected and qualified, or until he resigns or is removed in accordance with the provisions of the Nevada Revised Statues. Our officers are appointed by our Board of Directors and hold office until removed by the Board or until their resignation.

Xu, Jiyuan, Director, President, Secretary and Treasurer , Mr. Xu has extensive work experience in sales and operations. Mr. XU worked at Zhejiang Ningbo Haojing Decoration Company, as a general manager to handle the daily operations and supervision of the entire company and perform strategic planning of the business development from 2000 to 2014. He worked for Shanghai Corporate Resources Technology Holding Limited, as an independent consultant, who was responsible for the consulting service of the pre-sales business development and after sales project review in engineering field from 2014 to 2016. He joined Shanghai Yuanyi Information Technology Company Limited as a president in 2016, responsible for the company’s daily operation and business development in investment consulting service and general consulting service. Mr. Xu graduated from Changjiang Entrepreneurial University with a Bachelor Degree in Human Resources in 2013.

During the past ten years, Mr. Xu has not been the subject to any of the following events:

Corporate Governance & Board Independence

As of the date of this Report, our Board of Directors has one director and has not established Audit, Compensation, and Nominating or Governance Committees as standing committees. The Board does not have an executive committee or any committees performing a similar function. We are not currently listed on a national securities exchange or in an inter-dealer quotation system that has requirements that a majority of the board of directors be independent and do not currently have any independent board members.

During fiscal 2018, all functions of a nominating committee, audit committee and compensation committee were performed by our whole board of directors. Our board of directors intends to appoint such persons and form such committees as are required to meet the corporate governance requirements imposed by the national securities exchanges as necessary. Therefore, we intend that a majority of our directors will eventually be independent directors and at least one director will qualify as an “audit committee financial expert.”

We do not have a policy regarding the consideration of any director candidates which may be recommended by our shareholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. Further, when identifying nominees to serve as director, while we do not have a policy regarding the consideration of diversity in selecting directors, our Board seeks to create a Board of Directors that is strong in its collective knowledge and has a diversity of skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, industry knowledge and corporate governance. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our shareholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any shareholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our shareholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees. In considering a director nominee, it is likely that our Board will consider the professional and/or educational background of any nominee with a view towards how this person might bring a different viewpoint or experience to our Board.

Board Leadership Structure and the Board’s Role in Risk Oversight

Our Board currently has one member, who serves as our Chairman. Our Board is actively involved in our risk oversight function and collectively undertakes our risk oversight function. This review of our risk tolerances includes, but is not limited to, financial, legal and operational risks and other risks concerning our reputation and ethical standards.

We are a small company which has yet to achieve operating revenues. We believe that our present management structure is appropriate for a company of our size and state of development.

Code of Business Conduct, Code of Ethics and Code of Ethics for Financial Professionals

The Company has not adopted a Code of Ethics which applies to our directors, officers, employees and representatives due to our lack of operations and having a limited number of employees. We intend to adopt a code of ethics during this fiscal year.

Potential Conflicts of Interest

Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our director who also serves as the sole officer of the Company. Thus, there is an inherent conflict of interest.

Stockholder Communications with the Board of Directors

We have not implemented a formal policy or procedure by which our stockholders can communicate directly with our Board of Directors. Nevertheless, every effort will be made to ensure that the views of stockholders are heard by the Board of Directors, and that appropriate responses are provided to stockholders in a timely manner. During the upcoming year, our Board will continue to monitor whether it would be appropriate to adopt such a process.

EXECUTIVE COMPENSATION

No current or prior officer or director has received any remuneration or compensation from the Company in the past two years, nor has any member of the Company’s management been granted any option or stock appreciation right. Accordingly, no tables relating to such items have been included within this Item. None of our employees is subject to a written employment agreement nor has any officer received a cash salary since our founding. We do not have any agreements for compensating our directors for their services in their capacity as directors, although such directors may in the future to receive stock options to purchase shares of our common stock as awarded by our board of directors.

Nor are there compensatory plans or arrangements, including payments to any officer in relation to resignation, retirement, or other termination of employment, or any change in control of the Company, or a change in the officer’s responsibilities following a change in control of the Company.

Employment Agreements

None of the Company’s executive officers have employment agreements directly with the Company, although they may enter into such agreements in the future.

Director Compensation

We have not compensated our directors, in their capacities as such, since our respective formations.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As of the date of this Report, other than the relationships and transactions discussed below, we are not a party to, nor are we proposed to be a party, to any transaction since the beginning of the fiscal year ending May 31, 2017 involving an amount that exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years and in which a related person, as such term is defined by Item 404 of Regulation S-K, had or will have a direct or indirect material interest. 

On October 19, 2017, pursuant to the SPA previously disclosed in this Report, our former sole officer and director Jure Perko transferred 4,000,000 shares of the Company’s common stock to the purchasers for a total cash consideration of $360,775. The consideration paid for the Shares was $0.0902 per share. The source of the cash consideration for the Shares was personal funds of the purchasers. In connection with the SPA, Jure Perko entered into an assignment agreement with the Company whereby all assets of the Company were transferred to him, all liabilities were assumed by him and the net difference was treated as a reduction in additional paid in capital.

Related party receivables represented advances for operational use and in the normal course of business. The amounts are unsecured, interest-free and due on demand.

Related party payables consisted of the following:

Related party payables represented advances provided for operational use and in the normal course of business.

For the period ended September 30, 2018, Huibang International entered into various loan agreements with numerous individuals where the proceeds were deposited to the bank account of Nanjing Yunguhui as a result of Huibang International not having established a bank account. The amounts are unsecured, interest-free and due on demand.

On August 20, 2018, Yunguhui Shenzhen entered into a Management and Consultancy Service Agreement which entitles Yunguhui Shenzhen to substantially all of the economic benefits of Yunguhui Anhui and its Subsidiaries, in consideration of services provided by Yunguhui Shenzhen to Yunguhui Anhui and its Subsidiaries. In addition, Yunguhui Shenzhen entered into certain agreements with each of Jiang Yusheng (a beneficial owner of 15.6% 0f the the Company’s Shares) and Ding Yong, (collectively, the “Yunguhui Anhui shareholders”), as well as Yunguhui Anhui and its Subsidiaries, including (i) an Exclusive Right and Option to Purchase Agreement allowing Yunguhui Shenzhen to acquire the shares of Yunguhui Anhui as permitted by PRC laws, (ii) a Shareholders' Voting Rights Proxy Agreement that provides Yunguhui Shenzhen with the voting rights of the Yunguhui Anhui shareholders and those of Yunguhui Anhui, and (iii) an Equity Pledge Agreement that pledges the shares in Yunguhui Anhui and its Subsidiaries to Yunguhui Shenzhen. This VIE structure provides Yunguhui Shenzhen, a wholly-owned subsidiary of Yunguhui, with control over the operations and benefits of Yunguhui Anhui and its Subsidiaries without having a direct equity ownership in Yunguhui Anhui and its Subsidiaries.

Promoters and Certain Control Persons

Other than set forth herein, none of our management or other control persons were “promoters” (within the meaning of Rule 405 under the Securities Act), and none of such persons took the initiative in the formation of our business or in connection with the formation of our business and received 10% of our debt or equity securities or 10% of the proceeds from the sale of such securities in exchange for the contribution of property or services, during the last five years.

Our former officer and director, Mr. Jure Perko, may be considered a “promoter” within the meaning of Rule 405 under the Securities Act, of the Company in consideration of his participation and managing of the business of the Company, in addition to being the Company’s former controlling shareholder by virtue of his ownership of 4,000,000 shares of Common Stock which carried significant voting rights.

DESCRIPTION OF SECURITIES

Common Stock

Our authorized capital stock consists of 2,000,000,000 shares of common stock, with a par value of $0.001 per share. As of the date of this report, there were 205,085,000 shares of common stock issued and outstanding.

The following is a summary of the material rights and restrictions associated with our common stock.

The holders of our common stock currently have (i) equal ratable rights to dividends from funds legally available therefore, when, as and if declared by the Board of Directors of the Company; (ii) are entitled to share ratably in all of the assets of the Company available for distribution to holders of common stock upon liquidation, dissolution or winding up of the affairs of the Company (iii) do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights applicable thereto; and (iv) are entitled to one non-cumulative vote per share on all matters on which stock holders may vote. Please refer to the Company's Articles of Incorporation, Bylaws and the applicable statutes of the State of Nevada for a more complete description of the rights and liabilities of holders of the Company's securities.

MARKET PRICE OF AND DIVIDENDS ON THE COMPANY’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Our shares are quoted on the over-the-counter market under the symbol “CPSN”, however to date there has been no active trading. In order for our common stock to continue to be eligible for trading on the Over-the-Counter Bulletin Board we must remain current in our quarterly and annual filings with the SEC. If we are not able to pay the expenses associated with our reporting obligations, we will not be able to continue the quotation on the OTC Bulletin Board. There is no “public market” for shares of the common stock of the Company. In any event, no assurance can be given that any market for the Company’s common stock will develop or be maintained.

Stockholders of Record

As of the date of this Report, there are 65 registered stockholders, holding 205,085,000 shares of our issued and outstanding common stock.

Penny Stock Regulations

The ability of an individual shareholder to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer’s securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. Presently, the Company has no plans to register its securities in any particular state. Further, most likely the Company’s shares will be subject to the provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the “penny stock” rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.

The SEC generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be a penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the SEC; authorized for quotation on The NASDAQ Stock Market; issued by a registered investment company; excluded from the definition on the basis of price (at least $5.00 per share) or the issuer’s net tangible assets; or exempted from the definition by the SEC. If the Company’s shares are deemed to be a penny stock, trading in the shares will be subject to additional sales practice requirements on broker- dealers who sell penny stocks to persons other than established customers and accredited investors, generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse.

For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker- dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade and/or maintain a market in the Company’s Common stock and may affect the ability of shareholders to sell their shares.

Dividends

There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:

We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.

Securities authorized for issuance under equity compensation plans .

None.

Purchase of Equity Securities By the Issuer and Affiliated Purchasers.

None.

Transfer Agent and Registrar

Transfer Online, Inc. has been appointed as our transfer agent and registrar for our common stock. Its mailing address is 512 SE Salmon Street, Portland, OR 97214-3444 and their phone number is 503-227-6874.

RECENT SALES OF UNREGISTERED SECURITIES

Information regarding any equity securities we have sold during the past three years that were not registered under the Securities Act of 1933, as amended, is set forth below. Each such transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act, Rule 506 of Regulation D promulgated by the SEC or Regulation S promulgated by the SEC, unless otherwise noted. Unless stated otherwise: (i) the securities were offered and sold only to accredited investors; (ii) there was no general solicitation or general advertising related to the offerings; (iii) each of the persons who received these unregistered securities had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities, and that they were knowledgeable about our operations and financial condition; (iv) no underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with the transactions; (v) the investor was a non-US person, if received shares pursuant to Regulation S; and, (vi) each certificate issued for these unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

On January 14, 2019, pursuant to the terms of the Share Exchange, we issued 200,000,000 shares of our Common Stock to the Yunguhui Stockholders. This transaction was exempt from registration pursuant to Section 4(a)(2) of the Securities Act as not involving any public offering and/or Regulation S under the Securities Act. None of the shares were sold through an underwriter and accordingly, there were no discounts or commissions involved.

As of September 30, 2018, the Company issued 200,000,000 common shares to its shareholders for services provided to the company during the establishment period for a value equating to $100,000.

The Company issued shares to 28 subscribers for cash in the amount of US$ 878,832 and registered capital from the owners of the Anhui Yunguhui and Beijing Yunguhui in the amount of RMB 6,000,000 (about US$ 769,232).

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 our business.

We are not currently aware of any pending legal proceedings to which we are a party or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by any governmental authority.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Nevada Private Corporation Law and our Articles of Incorporation allow us to indemnify our officers and directors from certain liabilities and our By-Laws state that we shall indemnify every present or former director or officer of ours or one of our subsidiaries (each an “Indemnitee”).

Capstone's Bylaws allow for the indemnification of the officer and/or director in regards each such person carrying out the duties of her or her office. The Board of Directors will make determination regarding the indemnification of the director, officer or employee as is proper under the circumstances if he has met the applicable standard of conduct set forth under the Nevada Revised Statutes.

Other than discussed above, none of our By-Laws, or Articles of Incorporation includes any specific indemnification provisions for our officers or directors against liability under the Securities Act. Additionally, insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

As previously reported in a Current Report on Form 8-K that we filed with the Securities and Exchange Commission (“SEC”) on August 23, 2018 (the “Auditor 8-K”), on November 28, 2017, our Board of Directors dismissed Jeffrey T. Gross, Ltd. as the registrant’s independent registered public accounting firm. On our financial statements for the quarterly period ended August 31, 2017, Jeffrey T. Gross, Ltd. did not report an adverse opinion or disclaimer of opinion, nor qualified or modified the financial statements as to uncertainty, audit scope or accounting principles.

There were no disagreements with Jeffrey T. Gross, Ltd. whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Jeffrey T. Gross, Ltd.’s satisfaction, would have caused it to make reference to the subject matter of the disagreement in connection with its report on the registrant's financial statements.

On November 28, 2017, we engaged WWC, P.C. as our independent accountant. During the most recent fiscal year and the interim periods preceding the engagement, we did not consult with WWC, P.C. regarding any of the matters set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.

We provided Jeffrey T. Gross, Ltd. with a copy of the foregoing disclosures and requested that Jeffrey T. Gross, Ltd. furnish us with a letter addressed to the SEC stating whether or not Jeffrey T. Gross, Ltd. agrees with the above disclosures and, if not, stating the respects in which it does not agree. A copy of the letter, dated August 21, 2018, furnished pursuant to that request was filed as Exhibit 16.1 to the Auditor 8-K.

On January 14, 2019, pursuant to the terms of the Share Exchange, we issued 200,000,000 shares of our Common Stock to the Yunguhui Stockholders. This transaction was exempt from registration pursuant to Section 4(a)(2) of the Securities Act as not involving any public offering and/or Regulation S under the Securities Act. None of the shares were sold through an underwriter and accordingly, there were no discounts or commissions involved.

The information contained in Items 1.01, 2.01, 2.02 and Item 3.02 above relating to the Share Exchange is incorporated herein by reference.

On January 14, 2019, the Board of Directors of the Company passed a resolution to amend its bylaws to change the fiscal year end from May 31 to June 30, effective immediately. The Company expects to make the fiscal year change on a prospective basis and will not adjust operating results for prior periods. The change to the Company’s fiscal year will not impact the Company’s calendar year results for the year ended May 31, 2018. However, the change will impact the prior year comparability of each of the fiscal quarters and annual period in 2019 in future filings. The Company believes this change will provide numerous benefits, including aligning its reporting periods to be more consistent with Yunguhui.

The new fiscal year commenced July 1, 2018.

The reporting periods and applicable reports for fiscal year 2019 are expected to be as follows:

Financial Impact

The Company expects the change in fiscal year end to have no financial impact on the 2018 quarterly and annual financial results.

Prior to the closing of the Share Purchase, the Company was a “shell company” as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act. As described above in Item 2.01, which is incorporated herein by reference into this Item 5.06, the Company ceased being a shell company upon the completion of the Share Exchange which occurred on January 14, 2019.

(a) Financial statements of businesses acquired.

In accordance with Item 9.01(a), Yunguhui’s reviewed financial statements (unaudited) for the three months ended September 30, 2018, audited financial statements as of, and the period from November 2, 2017 (the date of inception) to June 30, 2018, and their accompanying notes, are included in this Report beginning on Page F-2.

(b) Pro forma financial information.

In accordance with Item 9.01(c), the following unaudited pro forma financial information with respect to the Share Exchange reported in Item 2.01 of this Current Report on Form 8-K are included in this Report beginning on page F-31.

(c) Exhibits

In reviewing the agreements included or incorporated by reference as exhibits to this Current Report on Form 8-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Current Report on Form 8-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

* Filed herewith

** Previously filed