ITEM 1. BUSINESS
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Our Corporate History and Background
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, as a result of two private transactions, Bess Audrey Lipschutz and Shlomit Chaya Frommer transferred an aggregate of 5,000,000 shares of common stock, representing a total of 86.78% of the then issued and outstanding shares of common stock of the Company, to a group of buyers for $340,506.25, resulting in a change of control of the Company. The source of the cash consideration for the shares was personal funds of the buyers. In connection with the transaction, Bess Audrey Lipschutz and Shlomit Chaya Frommer released the Company from all current liabilities and notes payable to a related party, including the $149,137 and $121,550, respectively.
On July 31, 2017, the existing directors and officers resigned, with the resignations of Bess Audrey Lipschutz and Shlomit Chaya Frommer as directors becoming effective ten (10) days following the mailing of the information statement complying with Rule 14f-1 of the Exchange Act (the “Information Statement”) to the shareholders of the Company. Accordingly, Bess Audrey Lipschutz has consented to step down as an officer immediately and as a Member of the Board of Directors of the Company, effective ten (10) days following the mailing of the Information Statement to the shareholders of the Company, Shlomit Chaya Frommer has consented to step down as an officer immediately and as a Member of the Board of Directors of the Company, effective ten (10) days following the mailing of the Information Statement to the shareholders of the Company, and Ajay Movalia, serving as a director, ceased to be a director of the Company. At the same time, Mr. Limei Jiang assumed the role as Chairman of the Board of Directors and President, Chief Executive Officer, Chief Financial Officer, and Treasurer of the Company.
In addition, as a result of the 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.
During the fiscal years ended August 31, 2017 and 2018, our operations were limited to forming the Company and raising capital resources. The Company’s limited business activity resulted in a business combination transaction with Donggao International and its shareholders. Additional information regarding the business combination transaction with Sutor Steel Technology Co., Ltd. can be found in the heading “Recent Developments” below.
Recent Developments
On November 27, 2017, we entered into the Exchange Agreement with Donggao International and holders of all outstanding capital stock of Donggao International, pursuant to which on September 24, 2018, we acquired 100% of the outstanding capital stock of Donggao International, and in exchange, we issued to the former shareholders of Donggao International an aggregate of 300,000,000 shares of the Company’s common stock (the “Reverse Merger”). As a result of the Reverse Merger, Donggao International became our wholly-owned subsidiary and the former shareholders of Donggao International became the holders of approximately 98.12% of our issued and outstanding capital stock on a fully-diluted basis. For accounting purposes, the transaction with Donggao International was treated as a reverse acquisition, with Donggao International as the acquirer and the Company as the acquired party. Unless the context suggests otherwise, when we refer in this report to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of Donggao International and its consolidated subsidiaries.
As a result of our acquisition of Donggao International, we now own all of the issued and outstanding shares of Donggao International, a holding company, which in turn owns all of the equity capital of Donggao Group and its several subsidiaries, which are engaged in the business of resource recycling.
Donggao International, a Seychelles holding company, was formed on March 13, 2017 by Mr. Yue Zhong, Zhongjian Overseas Investment Limited and Hongshan Holdings Investment Limited. The share capital of Donggao International was increased from $20,000 to $30,000 on June 9, 2017. The sole director of Donggao International is Ms. Lijuan Jiang.
Donggao Group was established in Seychelles on March 13, 2017. Its sole director is Ms. Lijuan Jiang.
Donggao Hong Kong was established in Hong Kong on March 23, 2017. Its sole director is Ms. Lijuan Jiang.
Shenzhen Donggao was established on May 17, 2017 in Shenzhen, China. Its legal representative is Ms. Shaobi Zhong.
Guangzhou Donggao, our operating subsidiary, was established on January 10, 2018 in Guangzhou, China. Its legal representative is Ms. Lijuan Jiang.
In connection with the Reverse Merger, we changed our fiscal year end from August 31 to June 30.
Our Corporate Structure
All of our business operations are conducted through our several operating subsidiaries. The chart below presents our corporate structure as of the date of this report:
Our principal executive offices are located at No. 436, North Dongjiao Road, Room 516, Liwan District, Guangzhou, Guangdong Province, China, 510145. The telephone number at our principal executive office is (86) 020-66685362.
Our Business Plan
As rapid urbanization, infrastructure construction and real estate development led to the significant increase of the amount of construction waste and other industrial solid waste in recent years, the inadequate solid waste treatment capacity and pollution issues have become major environmental issues for the Chinese government and industry players. In many places across the country, cities and towns are surrounded by industrial waste and residential garbage and such problems are continuously deteriorating. According to the China Resources Recycling Industry Development Report for 2017, which was released by China’s Ministry of Commerce, total resource recycling volume of waste steel, waste nonferrous metals, waste plastics, waste tires, waste paper, scrapped electric appliance and electronic products, scrapped cars, waste textiles, waste windows and waste batteries reached 256 million tons as at the end of 2016, up 3.7% year on year, and the aggregate value of recycled resources in the above ten categories amounted to RMB 590.28 billion. In order to address these waste issues, according to green money journal’s report, the Chinese government will invest RMB 2-4 trillion in the resource recycling industry during the “Thirteenth Five-Year Plan (2016-2020).”
The development of resource recycling industry requires collecting a large amount of renewable resources and more importantly, processing and transforming construction waste and industrial residue into value-added recycled products, which will gradually reduce excessive exploitation of precious natural resources on earth and the damages to our environment. As the resource recycling demand becomes increasingly strong, industry landscape is also changing gradually. Industry players are upgrading recycling technologies, adopting innovative business models and applying new technologies to products for end-users. Therefore, innovative application of recycled resources and new resource recycling management modes became two major directions in future resource recycling industry.
The use of recycled resources comprises four segments, involving recycling, treatment, processing and reselling of recycled resources. The technological standards for treatment and recycling still have room for improvement. The low added value in recycled resources is also one of the factors that impede development of the resource recycling industry. Innovative resource recycling model has provided a new mindset for driving the development of resource recycling industry. For instance, the industry can enhance added value of recycled resources and their use efficiency by strengthening related technologies, which in turn creates sound social and environmental benefits. The higher added value of recycled resources and enhancement in their use efficiency can help build a real product lifecycle, reduce excessive exploitation of resources and boost the reuse of recycled products. This will put an end to the current situation where solid wastes and hazardous wastes remain wastes after treatment and incineration.
As domestic construction industry continues to develop and China raises its standards for building materials, Chinese building industry will see continuously growing demand for new wall materials. The rising demand, coupled with favorable national and local policies, will significantly promote the use of new all materials, thereby creating great growth opportunities for players in the industry.
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). Although resource recycling industry has an excellent growth potential, it is still a small scale industry with few full-fledged players. Waste recycling and utilization, unlike many western countries, is a relatively new concept in China. As a result, most resource recycling companies are currently in their development stage with rudimentary production capabilities. We believe that we are the first Chinese company that is developing core decoration-free wall materials products based on our patented technologies and will become a leading brand in the country’s new wall materials market.
Based on our analysis of China’s wall materials market, the brick-concrete structure is subject to serious quality problems such as water leakage, cracking, and falling-off of a decoration layer. As disclosed below, in respect of these problems, we have partnered with various research institutions and universities to carry out comprehensive researches and experiments. Following a series of researches, experiments and tests in respect of sample studies, component analysis, chemical experiments, semi-finished product tests, finished product load bearing, shock resistance, and construction, through our OEMs, we are developing and manufacturing the decoration-free, precast tenon structure wall materials that are manufactured with construction wastes and industrial residue. With our proprietary technologies, we believe our new wall materials outperform red bricks, aerated concrete, shale cavity brick, ceramist wall panel and other materials in terms of wall quality, construction quality, laying speed, costs, construction difficulty, construction safety, door and window nodes, construction consumption, and integrated construction costs. Specifically, our decoration-free wall technologies have the following advantages:
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The decoration-free wall technology allows removal of processes such as tile fixing and painting. The new wall materials have high strength, and are waterproof and anti-aging.
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Tenon structure laying technology makes tenon structures interlocked on each other and enables modularized laying. It speeds up construction and lowers construction costs.
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With the microcirculation ventilation technology, walls are connected and atmospheric heat pressure creates natural ventilation, which promotes the air convection between indoor and outdoor spaces, and thereby boosts people’s health. (Tropical areas)
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With the self-insulation energy-saving wall technology, lightweight aggregate concretes are poured into the wall connection passages, so that walls become self-insulation. This will help buildings save energy and reduce the safety risk exposed to external wall heat preservation facilities. (Cold areas)
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With the resource recycling technology, the waste residue that is eco-friendly and nonradioactive is recycled, which is in line with the national policies.
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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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On June 27, 2018, we entered into a licensing and manufacturing agreement with our OEM, Foshan Chenshi Environment Protection Materials Co., Ltd. (“Foshan Chenshi”), pursuant to which we authorized and licensed Foshan to manufacture and supply us antique-style narrow bricks based on our patented technologies. The total contract price is RMB 2.9 million (approximately $423,000). On the same date, we entered into the first supply agreement with Foshan Chenshi ordering 20,000 square meters of antique-style narrow bricks for RMB 260,000 (approximately$38,000).
As one of the first batch of Chinese companies that transform recycled resources into building materials, we will continue to focus on material decomposing and filtering technologies for resource recycling, and develop downstream technologies in a targeted manner, thereby maximizing the efficiency of the resource recycling process..
Sales and Marketing
To promote our sales, we adopted both direct and indirect sales models. Under the direct sales model, we directly enter into purchase agreements with project developers. We will then arrange OEMs to manufacture the wall materials based on the orders that we receive from project developers. Under the indirect sales model, we enter into partnership with architecture designing institutions, which not only directly use our building materials in their project designs, but also assist us in building up business relations with project developers.
Our squeeze-type building mortars are sold to both businesses and household consumers. The squeeze-type building mortars are primarily used in laying and are squeezed during the course of construction. When used, it is squeezed through devices similar to the regular AB glue guns and injected into mortices of multi-hole blocks. The product can be used in both large-scale construction projects and small personal home decoration projects. We not only sell our squeeze-type building mortars by signing contracts directly with project developers, but also carry out large-scale and rapid online marketing activities on internet retail platforms such as www.jdwl.com. Such online marketing activities have direct contact with end consumers, which enables us to directly communicate with our consumers and market our products across different regions. In the end, it also helps expand the customer base, boost sales and shorten the receivable collection period.
Our Customers
Our current and future customers mainly include governments, construction and real estate companies and households. Our current major customers include Fujian Changting County Longhu Construction Engineering Co., Ltd., Zhongshan City Hechenglian Construction Engineering Co., Ltd., Zhongshan City Changhua Construction Consulting Co., Ltd. and Guangdong Zhiye Project Construction Co., Ltd. On May 23, 2018, we entered into a product sales agreement with Fujian Changting County Longhu Construction Engineering Co., Ltd., pursuant to which we are selling the buyer core-filled wall mortised concrete blocks and core-filled wall mortised concrete blocks during the period from June 1, 2018 through June 30, 2019 for RMB 16,940,000 (approximately $2.5 million). On June 5, 2018, we entered into a product sales agreement with Zhongshan City Hechenglian Construction Engineering Co., Ltd., pursuant to which we are selling the buyer decorative mortised concrete blocks and decorative mortised concrete blocks during the period from September 1, 2018 through August 31, 2019 for RMB 30,376,000 (approximately $4.4 million). We do not expect that sales to any of them will constitute 10% or more of our revenues during the next fiscal year or the loss of any of them would have a material adverse effect on our business operations.
Research and Development
We mainly operate our businesses through our subsidiary, Guangzhou Donggao, which has entered into strategic partnerships with Guangdong Association of Circular Economy and Resources Comprehensive Utilization, Guangdong Provincial Academy of Building Research, and Research Institution of Guangzhou University. We are also a long-term partner of Institute of Advanced Engineering Technology under Wuhan University of Technology, Zhongshan Lingwan New Materials Technology Co., Ltd., Fujian Changting Longhu Construction Engineering Co., Ld., and Zhongshan Heshenglian Construction Co., Ltd.
On February 8, 2018, Guangzhou Donggao entered into a strategic cooperation agreement with Institute of Advanced Engineering Technology under Wuhan University of Technology (“Wuhan University of Technology”), under which, Wuhan University of Technology will assist us in researching and developing new eco-friendly masonry mortars. In addition, Wuhan University of Technology will be responsible for the experimental verification of new eco-friendly mortar that has been researched and developed and to assist us in developing, building and promoting artificial intelligence equipment. Wuhan University of Technology will also take advantage of its own resources and channels to promote the application of our new wall materials, eco-friendly masonry mortar and artificial intelligence equipment in the construction industry.
On May 20, 2018, Guangzhou Donggao entered into a strategic cooperation agreement with Guangzhou University, under which the parties agreed to use architectural waste residues to jointly research and develop core-filled wall mortised concrete blocks and improve the heat retaining property of architectural walls in order to promote the recycling economy, energy conservation and emission reduction. Any inventions and technologies developed in the course of cooperation will be co-owned by both parties unless otherwise agreed by both parties.
Our Intellectual Property
We have a policy of seeking patents, when appropriate, on inventions relating to products and methods that are discovered or developed as part of our ongoing research, development and manufacturing activities. We currently own 40 China patents, among which 21 patents were transferred to us from our largest shareholder, Mr. Yue Zhong. On March 20, 2018, Mr. Zhong entered into a patent transfer agreement with Guangzhou Donggao, pursuant to which Mr. Zhong transferred to Guangzhou Donggao 21 patents owned by him for 72.856% ownership of Donggao International.
Our existing patents will expire at dates ranging from July 10, 2019 to August 20, 2033.
We currently have the ownership or use rights to the following patents:
10 Patents for Invention
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Application/Patent Number
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Patent Title
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Expiration Date
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Application/Patent Number
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Patent Title
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Expiration Date
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ZL 201210324551.4
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A hollow composite wall in framework structure
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Expiring on 9/4/2032
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ZL 201310365054.3
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A forming mold for hollow wall brick
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Expiring on 8/20/2033
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ZL 201310365054.3
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A forming mold for hollow wall brick
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Expiring on 1/20/2036
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ZL 201310365354.1
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A main body brick used in hollow wall
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Expiring on 8/20/2033
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ZL 201210280124.0
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A hollow load-bearing wall
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Expiring on 8/8/2032
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ZL 200910041178.X
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A heat insulation and heat preservation wall
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Expiring on 7/10/2029
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ZL 201210270238.7
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A building block
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Expiring on 7/30/2033
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ZL 200810028833.4
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A forming mold for building blocks with decoration layers
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Expiring on 6/12/2028
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ZL 201310364563.4
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A method of building hollow walls
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Expiring on 8/20/2033
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ZL 200810028834.8
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A light aggregate material and energy conservation block and its methods of manufacturing
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Expiring on 6/12/2028
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13 Design Patents
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ZL 201230349203.3
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Wall blocks (1)
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Expiring on 7/30/2022
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ZL 201130091674.4
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Decoration-free wall component (1)
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Expiring on 4/26/2021
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ZL 201230348977.4
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Wall blocks (2)
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Expiring on 7/30/2022
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ZL 201130091488.0
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Decoration-free wall component (2)
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Expiring on 4/26/2021
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ZL 201230351741.6
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Wall blocks (3)
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Expiring on 7/30/2022
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ZL 200930681863.X
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Energy conservation brick
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Expiring on 12/28/2019
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ZL 201230351135.4
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Wall blocks (4)
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Expiring on 7/30/2022
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ZL 201330397259.0
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Acoustic tile
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Expiring on 8/20/2023
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ZL 201230349557.8
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Wall blocks (5)
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Expiring on 7/30/2022
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ZL 201330397262.2
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Hollow wall corner brick
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Expiring on 8/20/2023
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ZL 201230351743.5
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Wall blocks (6)
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Expiring on 7/30/2022
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ZL 201330397305.7
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Hollow wall brick
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Expiring on 8/20/2023
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ZL 201230349812.9
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Wall blocks (7)
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Expiring on 7/30/2022
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17 Utility Patents
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ZL 201220371348.8
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A building block
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Expiring on 7/30/2022
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ZL 201220371971.3
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A high hollow interior wall tile
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Expiring on 7/30/2022
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ZL 201320509996.X
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A main body brick used in building hollow wall
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Expiring on 8/20/2023
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ZL 201220391908.6
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A new hollow load-bearing wall
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Expiring on 8/8/2022
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ZL 200920060708.0
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A building ventilation system
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Expiring on 7/13/2019
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ZL 201220390210.2
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A hollow load-bearing wall
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Expiring on 8/8/2022
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ZL 200920060593.5
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A heat insulation and heat preservation wall
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Expiring on 7/10/2019
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ZL 201220370187.0
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A hollow load-bearing brick
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Expiring on 7/30/2022
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ZL 201020123209.4
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A building ventilation and heat transfer system
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Expiring on 1/27/2020
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ZL 201220448618.0
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A hollow composite wall in framework structure
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Expiring on 9/4/2022
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ZL 200920296126.5
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An energy conservation brick
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Expiring on 12/28/2019
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ZL 201220371581.6
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A capping wall brick
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Expiring on 7/30/2022
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ZL 201120126398.5
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A forming mold for decoration-free wall component
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Expiring on 4/26/2021
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ZL 201320510614.5
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A forming mold for hollow wall bricks
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Expiring on 8/20/2023
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ZL 201120126422.5
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A hollow decoration-free wall component
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Expiring on 4/26/2021
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ZL 201320510134.9
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An acoustic wall brick
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Expiring on 8/20/2023
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ZL 201220371578.4
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A wall brick and wall made up of such wall bricks
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Expiring on 7/30/2022
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In addition, we have two patent applications pending and we will continue to seek patent protection to the extent we believe such protection is appropriate and cost-effective. We regard our patents important to our success and our competitive position.
All of our employees have entered into standard employment agreements requiring them to keep confidential all information relating to our customers, methods, business and trade secrets during their terms of employment with us and thereafter and to assign to us their inventions, technologies and designs they develop during their term of employment with us.
Our Competition
Our short-term goal is to become the pioneer in developing environmental friendly wall materials in Guangdong Province and the nearby vicinity. We currently do not have any strong competitors in this geographic area as we believe that we have differentiated ourselves from our potential competitors. We believe these companies lack in-depth insight into the resource recycling industry, and as a result, they only manufacture low-value-added and low-performance bricks, such as standard bricks, aerated bricks and hollow blocks using older equipment and production techniques. . In contrast, our products are aimed at the high-end wall material markets so we attempt to manufacture them with superior quality and a broader range of specifications based on our patented technologies.
While we strive to keep our products and services innovative and efficient, there can be no assurance that our initial competitive advantage will be retained and that one or more competitors will not develop systems that are equal or superior to ours or are better priced than ours. In the future, we may face competition from competitors of varying sizes and geographic reach, who operate their businesses similar to our planned business. Our sales could be reduced significantly if our competitors develop and market products that are more effective, more convenient, or are less expensive than our products.
Regulation
Because all of our operating entities are located in the PRC, we are regulated by the national and local laws of the PRC. This section summarizes the major PRC regulations relating to our business.
Environmental Matters
The Environmental Protection Law, promulgated by the National People’s Congress on December 26, 1989, is the primary law for environmental protection in China. The law establishes basic principles for coordinated advancement of economic growth, social progress and environmental protection, and defines the rights and duties of governments at all levels. Local environmental protection bureaus may set stricter local standards than the national standards and enterprises are required to comply with the stricter of the two sets of standards.
Business license
Any company that conducts business in the PRC must have a business license that covers a particular type of work. Other than regular business licenses that we have already obtained, there is no special license or permit required for us to engage in the current businesses under PRC laws and regulations.
Foreign Currency Exchange
Under the Foreign Currency Administration Rules promulgated in 1996 and revised in 1997, and various regulations issued by SAFE and other relevant PRC government authorities, RMB is convertible into other currencies without prior approval from SAFE only to the extent of current account items, such as trade related receipts and payments, interest and dividends and after complying with certain procedural requirements. The conversion of RMB into other currencies and remittance of the converted foreign currency outside PRC for the purpose of capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior approval from SAFE or its local office. Payments for transactions that take place within China must be made in RMB. Unless otherwise approved, PRC companies must repatriate foreign currency payments received from abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by SAFE or its local office. Unless otherwise approved, domestic enterprises must convert all of their foreign currency proceeds into RMB.
On October 21, 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, which became effective as of November 1, 2005. According to the notice, a special purpose company, or SPV, refers to an offshore company established or indirectly controlled by PRC residents for the special purpose of carrying out financing of their assets or equity interest in PRC domestic enterprises. Prior to establishing or assuming control of an SPV, each PRC resident, whether a natural or legal person, must complete the overseas investment foreign exchange registration procedures with the relevant local SAFE branch. The notice applies retroactively. As a result, PRC residents who have established or acquired control of these SPVs that previously made onshore investments in China were required to complete the relevant overseas investment foreign exchange registration procedures by March 31, 2006. These PRC residents must also amend the registration with the relevant SAFE branch in the following circumstances: (i) the PRC residents have completed the injection of equity investment or assets of a domestic company into the SPV; (ii) the overseas funding of the SPV has been completed; (iii) there is a material change in the capital of the SPV. Under the rules, failure to comply with the foreign exchange registration procedures may result in restrictions being imposed on the foreign exchange activities of the violator, including restrictions on the payment of dividends and other distributions to its offshore parent company, and may also subject the violators to penalties under the PRC foreign exchange administration regulations.
On August 29, 2008, SAFE promulgated Circular 142 which regulates the conversion by a foreign-funded enterprise of foreign currency into RMB by restricting how the converted RMB may be used. In addition, SAFE promulgated Circular 45 on November 9, 2011 in order to clarify the application of Circular 142. Under Circular 142 and Circular 45, the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations of Circular 142 and Circular 45 could result in severe penalties, such as heavy fines as set out in the relevant foreign exchange control regulations. On July 4, 2014, SAFE promulgated SAFE Circular 36, which launched a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises in certain designated areas from August 4, 2014. However, SAFE Circular 36 continues to prohibit foreign-invested enterprises from directly or indirectly using the Renminbi converted from their foreign exchange capitals for purposes beyond its business scope. On March 30, 2015, SAFE promulgated Circular 19, to expand the reform nationwide. Circular 19 will come into force and replace both Circular 142 and Circular 36 on June 1, 2015. Circular 36 allows enterprises established within the pilot areas to use their foreign exchange capitals to make equity investment and removes certain other restrictions provided under Circular 142 for these enterprises. Circular 19 will remove those restrictions for all foreign-invested enterprises established in the PRC. However, both Circular 36 and Circular 19 continue to prohibit foreign-invested enterprises from, among other things, using the Renminbi fund converted from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises.
Dividend Distributions
Under applicable PRC regulations, FIEs in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a FIE in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.
After-tax profits/losses with respect to the payment of dividends out of accumulated profits and the annual appropriation of after-tax profits as calculated pursuant to PRC accounting standards and regulations do not result in significant differences as compared to after-tax earnings as presented in our financial statements. However, there are certain differences between PRC accounting standards and regulations and U.S. generally accepted accounting principles, arising from different treatment of items such as amortization of intangible assets and change in fair value of contingent consideration rising from business combinations.
In addition, under the EIT Law, the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates, which was issued on January 29, 2008, the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, which became effective on December 8, 2006, and the Notice of the State Administration of Taxation Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties, which became effective on October 27, 2009, dividends from our PRC operating subsidiaries paid to us through our Hong Kong subsidiary may be subject to a withholding tax at a rate of 10%, or at a rate of 5% if our Hong Kong subsidiary is considered a “beneficial owner” that is generally engaged in substantial business activities and entitled to treaty benefits under the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion.
Laws and Regulations Related to Employment and Labor Protection
On June 29, 2007, the National People’s Congress promulgated the Employment Contract Law of PRC (“Employment Contract Law”), which became effective as of January 1, 2008 and amended on December 28, 2012. The Employment Contract Law requires employers to provide written contracts to their employees, restricts the use of temporary workers and aims to give employees long-term job security.
Pursuant to the Employment Contract Law, employment contracts lawfully concluded prior to the implementation of the Employment Contract Law and continuing as of the date of its implementation shall continue to be performed. Where an employment relationship was established prior to the implementation of the Employment Contract Law but no written employment contract was concluded, a contract must be concluded within one month after its implementation.
On September 18, 2008, the State Council promulgated the Implementing Regulations for the PRC Employment Contract Law which came into effect immediately. These regulations interpret and supplement the provisions of the Employment Contract Law.
Our standard employment contract complies with the requirements of the Employment Contract Law and its implementing regulations. We have entered into written employment contracts with all of our employees.
Employees
Currently we have a total of six employees, four of whom are full-time employees. The following table sets forth the number of our full-time employees by function.
Function
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Number of Employees
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Sales and Marketing Operations
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2
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General and Administrative
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2
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Research and Development
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2
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Total
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6
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None of our employees belong to a union or are a party to any collective bargaining or similar agreement. We consider our relationships with our employees to be good.