The following management's discussion and analysis should be read in conjunction
with our financial statements and the notes thereto and the other financial
information appearing elsewhere in this report. In addition to historical
information, the following discussion contains certain forward-looking
information. See "Special Note Regarding Forward Looking Statements" above for
certain information concerning those forward-looking statements. Our financial
statements are prepared in U.S. dollars and in accordance with U.S. GAAP.
35
Overview
We were incorporated on March 19, 2013 under the name "Sunrise Tours, Inc."
under the laws of the state of Nevada. We originally intended to develop and
offer special services, including 3D virtual tours for companies that would like
to promote their venues on the Internet and through electronic media. On January
20, 2016, we filed a Certificate of Amendment with the Secretary of State of
Nevada and changed our corporate name to "Luboa Group, Inc." Concurrent with the
name change, we changed our business focus to developing specialized
agricultural products and a carbon emission trading platform in Asia. However,
since inception, we have not engaged in active business operations and have not
generated significant amount of revenue.
On April 1, 2019, we entered into a share exchange agreement with Bangtong
International, a Republic of Seychelles company and holders of all outstanding
capital stock of Bangtong International, pursuant to which on June 21, 2019, we
acquired 100% of the outstanding capital stock of Bangtong International, and in
exchange, we issued to the former shareholders of Bangtong International an
aggregate of 100,000,000 shares of the Company's common stock. As a result,
Bangtong International became our wholly-owned subsidiary and the former
shareholders of Bangtong International became the holders of approximately 89.6%
of our issued and outstanding capital stock on a fully-diluted basis. On the
same date, Mr. Feng Jiang resigned from his positions as the President, CEO,
CFO, Treasurer, Secretary and Chairman of the Board of Directors of the Company.
Mr. Xianyi Hao was appointed as our new President, CEO, CFO, Treasurer,
Secretary and Chairman of the Board of Directors.
As a result of this transaction, we ceased to be a shell company and through our
subsidiaries and affiliated entities, we are currently engaged in the business
of e-commerce. As a startup company, we have yet to officially launch our
e-commerce platform, Ingtona (????), which is still under development and is
expected to offer our full array of product offerings when it is ready.
Accordingly, we have not yet commenced planned operations to any significant
measure. Our operations to date have been devoted primarily to start-up,
development and operational activities, which include:
? Formation of our subsidiaries;
? Development of our business plan;
? Research on marketing channels/strategies for our planned business; and
? The development of our e-commerce platform.
In addition, on June 21, 2019, we changed our fiscal year end from August 31 to
December 31, effective immediately. As a result, this Form 10-K for the year
ended December 31, 2019 is our first annual report after we completed the
reverse acquisition of Bangtong International on June 21, 2019 and changed the
company's fiscal year-end.
The accompanying financial statements are presented on the basis that the
Company is a going concern. The going concern assumption contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business.
The Company incurred net loss of $1,607,997 and net cash used in operating
activities of $1,012,785 during the fiscal year ended December 31, 2019. The
loss was mainly attributable to the expenses incurred for the consultancy
services in connection with the reverse acquisition transaction amounting to
approximately $430,845 (RMB 3,000,000). As of December 31, 2019, the Company had
net current liability of $951,899 and deficit on equity of $771,217. As of
December 31, 2019, the Company had net current asset of $621,805 and total
equity of $674,014.
The ability to continue as a going concern is dependent upon the Company's
profit generating operations in the future and/or obtaining the necessary
financing to meet its obligations and repay its liabilities arising from normal
business operations when they become due. Therefore, there is substantial doubt
about the ability of the Company to continue as a going concern within one year
after the date that the financial statements are issued. In light of
management's efforts, there are no assurances that the Company will be
successful in this or any of its endeavors or become financially viable and
continue as a going concern. The Company expects to finance operations primarily
through capital contributions from the shareholders. These consolidated
financial statements included in this quarterly report do not include any
adjustments to the recoverability and classification of recorded asset amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
36
Recent Developments
The ongoing coronavirus pandemic that first surfaced in China and is spreading
globally has had a material adverse effect on our business. All of our operating
subsidiaries are located in China. Substantially all of our employees and all of
our customers are located in China. During the first quarter of 2020, although
our offline franchise stores did not close, there were not many customers
visiting the stores resulting in reduced sales; as to our e-commerce platform,
the outbreak has delayed its commencement of operations. Our employees have been
working from home to mitigate the impacts of the epidemic on our operations.
Since late March, our operations have gradually returned to normal.
The outbreak has been evolving rapidly. We will continue to monitor and mitigate
developments affecting our workforce, our customers, and the public at large.
See "Risk Factors-Risks Relating to our Business-The outbreak of the coronavirus
(COVID-19) has had a material adverse effect on our business, results of
operations and financial condition."
Results of Operations
Comparison of Years Ended December 31, 2019 and 2018
The following table sets forth key components of our results of operations
during the years ended December 31, 2019 and 2018.
Years Ended December 31,
2019 2018 Change (2019 v. 2018)
Revenue $ 11,567 $ - $ 11,567 100 %
Cost of revenue (2,374 ) - (2,374 ) 100 %
Gross profit $ 9,193 $ - $ 9,193 100 %
Other income 1,730 2,743 (1,013 ) (37 )%
Selling and marketing
expenses (218 ) - (218 ) 100 %
General and administrative
expense (1,618,702 ) (1,044,387 ) (574,315 ) (35 )%
Net loss $ (1,607,997 ) $ (1,041,644 ) $ (566,353 ) (35 )%
Revenue
We are developing our e-commerce platform which will serve consumers through our
retail website that enables third-party sellers to sell their products on the
online marketplace. Our platform was launched in the second half of 2019 and we
expect to start generating revenues from our e-commerce business during the 2020
fiscal year. The Company also started the offline adult products franchise
business in fall 2019 and we generated revenue of $11,567 during the year ended
December 31, 2019. We did not generate any revenues as we did not sell any
products during the year December 31, 2018.
Cost of revenue
Cost of revenue was $2,374 for the year ended December 31, 2019 which was mainly
comprised of the cost of products sold by the vending machines in franchised
offline adult products stores. During the year ended December 31, 2018, as we
did not earn any revenue, we did not incur any cost of revenue.
Other income
Other income was $1,730 for the year ended December 31, 2019 compared to $2,743
for the year ended December 31, 2018. Other income was mainly comprised of
interest income received from bank deposits. The decrease of $1,013 or 37% was
due to the decrease in bank deposits during the year of 2019.
Gross profit and gross margin
Gross profit for the year ended December 31, 2019 was $9,193. As a result of no
revenue and cost of revenue being realized, gross profit was $nil for the year
ended December 31, 2018.
37
Selling and marketing expense
Selling and marketing expense was $218 for the year ended December 31, 2019. As
we did not earn any revenue, we did not incur any selling and marketing expense
for the year ended December 31, 2018
General and administrative expense
Our general and administrative expense consists primarily of salary expense,
travelling expenses, as well as consultancy fees. Our general and administrative
expenses increased by $574,315 or 35% from $1,044,387 to $1,618,702 for the
years ended December 31, 2019 from 2018, respectively. Such increase incurred
mainly because we engaged consultants to provide consulting services in
connection with the reverse acquisition.
Net loss
As a result of the cumulative effect of the factors described above, our net
loss increased by $566,353 from $1,041,644 to $1,607,997 for the years ended
December 31, 2019 and 2018, respectively.
Liquidity and Capital Resources
Working capital: 2019 2018
Total current assets $ 403,332 $ 1,592,696
Total current liabilities (1,355,231 ) 970,891
Working capital (deficiency) $ (951,899 ) $ 620,805
Cash flows: 2019 2018
Net cash (used in) operating activities $ (1,012,785 ) $ (787,466 )
Cash (used in) provided by investing activities (131,235 ) (54,917 )
Cash provided by financing activities
352,575 1,778,046
Effect of exchange rate changes on cash and cash
equivalents (7,382 ) 34,123
Net (decrease) increase in cash and cash
equivalents (798,827 ) 969,785
Cash and cash equivalents at the beginning of
year 970,752 967
Cash and cash equivalents at the end of year $ 171,925 $ 1,004,875
Operating Activities
Net cash used in operating activities was $1,012,785 for the year ended December
31, 2019, as compared to net cash used in operating activities of $787,466 for
the year ended December 31, 2018. The increase in net cash used in operating
activities was mainly attributable to more expenses incurred for operations
during the year of 2019.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2019 was
$131,235, as compared to net cash provided by investing activities of $54,917
for the year ended December 31, 2018. The increase in net cash used in investing
activities was mainly attributable to the acquisition of motor vehicles during
the year of 2019.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2019 was
$352,575, as compared to net cash provided by investing activities of $1,778,046
for the year ended December 31, 2018. The decrease in net cash used in financing
activities was because there was a capital inject of $1,778,046 (RMB12,300,000)
during the year of 2018. In October 2019, the Company borrowed 352,575
(RMB2,455,000) from a related party, Shenyang Guanchen Trading Co., Ltd. The
loan is due in October 2021. The loan is unsecured and non-interest bearing.
Off-Balance Sheet Transactions
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources that is material to investors.
38
Contractual Obligations
As a smaller reporting company, the Company is not required to provide this
information.
Critical Accounting Policies
We have identified critical accounting policies that, as a result of judgments,
uncertainties, uniqueness and complexities of the underlying accounting
standards and operation involved could result in material changes to our
financial position or results of operations under different conditions or using
different assumptions.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, related disclosures of contingent liabilities at the
balance sheet date, and revenue and expenses in the financial statements and
accompanying notes. Significant accounting estimates reflected in the Company's
financial statements include the economic lives and impairment of leasehold
improvements and equipment, allowance for doubtful accounts and etc. Actual
results could differ from those estimates and such differences could affect the
results of operations reported in future periods.
Recognition of Revenue
The Company offers an online marketplace through its e-commerce platform that
enables third-party sellers to sell their products to consumers. The e-commerce
platform has yet been launched and the Company has not yet generated any
revenues. The Company also started the vending machine business and generating
revenue in the forth quarter of 2019.
The Company adopted ASC topic 606, Revenue from Contracts with Customers ("ASC
606"), from January 1, 2018. Revenues for the year ended December 31, 2018 were
presented under ASC 606, and revenues for the years ended December 31, 2017 was
not adjusted and continue to be presented under ASC topic 605, Revenue
Recognition ("ASC 605"). The Company's revenue recognition policies effective on
the adoption date of ASC 606 are presented as below.
Consistent with the criteria of ASC 606, the Company recognizes revenues when
the Company satisfies a performance obligation by transferring a promised good
or service (that is, an asset) to a customer. An asset is transferred when the
customer obtains control of that asset.
In accordance with ASC 606, the Company evaluates whether it is appropriate to
record the gross amount of product sales and related costs or the net amount
earned as commissions. When the Company is a principal, that the Company obtains
control of the specified goods or services before they are transferred to the
customers, the revenues should be recognized in the gross amount of
consideration to which it expects to be entitled in exchange for the specified
goods or services transferred. When the Company is an agent and its obligation
is to facilitate third parties in fulfilling their performance obligation for
specified goods or services, revenues should be recognized in the net amount for
the amount of commission which the Company earns in exchange for arranging for
the specified goods or services to be provided by other parties. Revenue is
recorded net of value-added taxes.
The Company recognizes revenue net of discounts and return allowances when the
products are delivered and title passes to customers. Significant judgement is
required to estimate return allowances. For online direct sales business with
return conditions, the Company reasonably estimate the possibility of return
based on the historical experience, changes in judgments on these assumptions
and estimates could materially impact the amount of net revenues recognized.
Concentrations of Credit Risk
Financial instruments that potentially expose the Company to significant
concentration of credit risk consist primarily of cash and cash equivalents. As
of December 31, 2019, substantially all of the Company's cash and cash
equivalents were deposited with financial institutions with high-credit ratings
and quality.
39
Recent accounting pronouncements
Recent accounting pronouncements adopted
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers
(Topic 606)." ASU 2014-09 requires revenue recognition to depict the transfer of
goods or services to customers in an amount that reflects the consideration that
a company expects to be entitled to in exchange for the goods or services. To
achieve this principle, a company must apply five steps including identifying
the contract with a customer, identifying the performance obligations in the
contract, determining the transaction price, allocating the transaction price to
the performance obligations, and recognizing revenue when (or as) the company
satisfies the performance obligations. Additional quantitative and qualitative
disclosure to enhance the understanding about the nature, amount, timing, and
uncertainty of revenue and cash flows is also required. ASU 2014-09 is effective
for fiscal years, and interim periods within those years, beginning after
December 15, 2017. In April 2016, the FASB issued ASU 2016-10, "Identifying
Performance Obligations and Licensing." ASU 2016-10 clarifies the following two
aspects of ASU 2014-09: identifying performance obligations and licensing
implementation guidance. The effective date of ASU 2016-10 is the same as the
effective date of ASU 2014-09. The Company adopted this ASU on January 1, 2018
and determined it had no impact on its consolidated financial statements as of
December 31, 2019 and 2018.
In January 2016, the FASB issued a new pronouncement ASU 2016-01 Financial
Instruments-Overall: Recognition and Measurement of Financial Assets and
Financial Liabilities. The ASU requires equity investments (except those
accounted for under the equity method of accounting or those that result in
consolidation of the investee) to be measured at fair value with changes in fair
value recognized in net income. The ASU also requires an entity to present
separately in other comprehensive income the portion of the total change in the
fair value of a liability resulting from a change in the instrument-specific
credit risk when the entity has elected to measure the liability at fair value
in accordance with the fair value option for financial instruments.
ASU 2016-01 was further amended in February 2018 by ASU 2018-03, "Technical
Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities". This
update was issued to clarify certain narrow aspects of guidance concerning the
recognition of financial assets and liabilities established in ASU 2016-01. This
includes an amendment to clarify that an entity measuring an equity security
using the measurement alternative may change its measurement approach to a fair
valuation method in accordance with Topic 820, Fair Value Measurement, through
an irrevocable election that would apply to that security and all identical or
similar investments of the same issued.
ASU 2016-01 and ASU 2018-03 are effective for public companies for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal
years. Adoption of the amendment must be applied by means of a cumulative-effect
adjustment to the balance sheet as of the beginning of the fiscal year of
adoption, except for amendments related to equity instruments that do not have
readily determinable fair values which should be applied prospectively. The
Company adopted this ASU on January 1, 2018 and determined it had no impact on
its consolidated financial statements as of December 31, 2019 and 2018.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance
supersedes existing guidance on accounting for leases with the main difference
being that operating leases are to be recorded in the statement of financial
position as right-of-use assets and lease liabilities, initially measured at the
present value of the lease payments. For operating leases with a term of 12
months or less, a lessee is permitted to make an accounting policy election not
to recognize lease assets and liabilities. For public business entities, the
guidance is effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. Early application of the
guidance is permitted. In transition, entities are required to recognize and
measure leases at the beginning of the earliest period presented using a
modified retrospective approach. Effective January 1, 2019, the Company adopted
this standard resulted in the recognition of right-of-use assets of $72,188 and
operating lease liabilities of $72,188 million.
In November 2016, the FASB issued ASU 2016-18: Statement of Cash Flows (Topic
230): Restricted Cash. The amendments in this Update require that a statement of
cash flows explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. Therefore, amounts generally described as restricted cash and
restricted cash equivalents should be included with cash and cash equivalents
when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The amendments in this Update do not provide a
definition of restricted cash or restricted cash equivalents. The amendments in
this ASU on update are effective for public business entities for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted, including adoption in an interim period. The
amendments in this Update should be applied using a retrospective transition
method each period presented. The Company adopted this ASU on January 1, 2018
and determined it had no impact on its consolidated financial statements as of
December 31, 2019 and 2018.
40
In January 2017, the FASB issued ASU 2017-01: Business Combinations (Topic 805):
Clarifying the Determination of Business. The Update requires that when
substantially all of the fair value of the gross assets acquired (or dispose of)
is concentrated in a single identifiable asset or a group of similar
identifiable assets, the set is not a business. This screen reduces the number
of transactions that need to be further evaluated. If the screen is not met, the
amendments in this ASU on update (1) required that to be considered a business,
a set must include, at a minimum, an input and a substantive process that
together significantly contribute to the ability to create output and (2) remove
the evaluation of whether a market participant could replace missing elements.
Public business entities should apply the amendments in this Update to annual
periods beginning after December 15, 2017, including interim period within those
periods. Early adoption of the amendments in this Update is allowed. The
amendments in this Update should be applied prospectively on or after the
effective date. No disclosure are required at transition. The Company adopted
this pronouncement on its consolidated financial statements as of and for the
year ended December 31, 2019 and 2018.
Recently issued accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses
(Topic 326), Measurement of Credit Losses on Financial Statements. This ASU
requires a financial asset (or group of financial assets) measured at amortized
cost basis to be presented at the net amount expected to be collected. The
allowance for credit losses is a valuation account that is deducted from the
amortized cost basis of the financial asset(s) to present the net carrying value
at the amount expected to be collected on the financial asset. This Accounting
Standards Update affects entities holding financial assets and net investment in
leases that are not accounted for at fair value through net income. The
amendments affect loans, debt securities, trade receivables, net investments in
leases, off balance sheet credit exposures, reinsurance receivables, and any
other financial assets not excluded from the scope that have the contractual
rights to receive cash. For public business entities, the amendments in this
Update are effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. All entities may adopt the
amendments in this Update through a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance
is effective (that is, a modified-retrospective approach). The Company is in the
process of evaluating the impact of the adoption of this pronouncement on its
consolidated financial statements.
The Company reviews new accounting standards as issued. Management has not
identified any other new standards that it believes will have a significant
impact on the Company's financial statements.
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