Company Quick10K Filing
Quick10K
Yakun
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
8-K 2019-09-25 Regulation FD, Exhibits
8-K 2019-01-03 Officers
8-K 2018-12-24 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-09-26 Amend Bylaw, Exhibits
8-K 2018-07-11 Enter Agreement, Regulation FD, Exhibits
SEII Sharing Economy International 32
ALRT ALR Technologies 10
MNTR Mentor Capital 5
ORNC Oranco 0
HHEG Huahui Education Group 0
RVA Reva Medical 0
LNBI Lazuriton Nano Biotechnology 0
RNVA Rennova Health 0
HIT Hospitality Investors Trust 0
NHEL Natural Health Farm Holdings 0
YIHG 2019-06-30
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 f10q0619ex31-1_qhygroup.htm
EX-32.1 f10q0619ex32-1_qhygroup.htm

Yakun Earnings 2019-06-30

YIHG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 f10q0619_qhygroup.htm QUARTERLY REPORT

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For Quarter Ended:  June 30, 2019

 

Commission File Number 000-55933

 

QHY GROUP

(Exact name of registrant as specified in its charter)

 

Nevada   33-1176182 
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)

 

1501 Broadway, Suite 1515

New York, NY

 (Address of principal executive offices) (Zip Code)

 

(212) 324-1876

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if change since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes þ No ☐.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer ☐ 
Non-accelerated filer  ☐  Smaller reporting company þ 
(Do not check if a smaller reporting company)   Emerging Growth Company ☐ 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No

 

Securities registered pursuant to Section 12(b) of the Act: None

  

As of August 1, 2019, the registrant had outstanding 87,269,789 shares of common stock.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page  
PART I FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Unaudited Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 1
     
  Unaudited Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2019 and 2018 2
     
  Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 4
     
  Notes to Unaudited Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  12
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
     
Item 4. Controls and Procedures  16
     
PART II OTHER INFORMATION
     
Item 1. Legal Proceedings 17
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
     
Item 3. Defaults Upon Senior Securities 17
     
Item 4. Mine Safety Disclosures 17
     
Item 5. Other Information 17
     
Item 6. Exhibits 17
     
Signatures 18

 

i

 

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements as defined under the U.S. federal securities laws. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” and similar expressions identify forward looking statements, which generally are not historical in nature. Forward looking statements are subject to risks and uncertainties that could cause actual results to materially differ from the Company’s historical experience and its current expectations or projections indicated in any forward-looking statements. These risks include, but are not limited to, risks associated with beginning a new business, operating risks, risks associated with raising capital, dependence upon management and risks associated with recruiting personnel, our ability to develop our water treatment solutions and gain market acceptance thereof, compliance with environmental and other governmental regulations, competition with existing and future providers of water treatment solutions, as well as the other risks described in Item 1.A in our Report on Form 10-K filed in April, 2019 and discussed in our future filings with the SEC. You should not place undue reliance on forward looking statements, which speak only as of the date they are made. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. Given these uncertainties, you should not place undue reliance on forward-looking statements.

 

ii

 

 

QHY Group

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. dollars)

 

   June 30,
2019
   December 31,
2018
 
   (Unaudited)     
ASSETS        
Cash  $226   $116 
Inventories   292,500    292,500 
Due from a related party   2,196,500    2,196,500 
Prepaid expenses and other current assets   152,912    458,537 
Total assets   2,642,138    2,947,653 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current liabilities          
Accounts payable   212,115    90,575 
Advance from a customer – related party   292,500    292,500 
Due to related parties   624,095    182,500 
Other current liabilities   18,338    10,188 
Total current liabilities   1,147,048    575,763 
           
Long-term loan from a shareholder and interest payable   -    298,716 
Total liabilities   1,147,048    874,479 
           
Stockholders’ deficit          
Preferred stock, 5,000,000 shares authorized, 0 shares outstanding   -    - 
Common stock, $0.001 par value; 1,000,000,000 shares authorized, 87,269,789 shares issued and outstanding at June 30, 2019 and December 31, 2018   87,270    87,270 
Additional paid in capital   7,243,001    7,243,001 
Accumulated deficit   (5,835,181)   (5,257,097)
Total stockholders’ equity   1,495,090    2,073,174)
           
Total liabilities and stockholders’ equity  $2,642,138   $2,947,653 

  

See notes to the unaudited consolidated financial statements

 

1

 

 

QHY Group

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Expressed in U.S. dollars)

 

   Three Months ended   Six Months ended 
   June 30,   June 30, 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Revenue  $-   $-   $-   $- 
Cost of Revenue   -    -    -    - 
Gross profit   -    -    -    - 
                     
Expenses                    
Listing fees   3,545    3,350    4,900    3,596 
Professional fees   15,559    35,510    18,584    35,510 
Professional fees – related party   28,500    28,500    57,000    38,000 
License and royalty-related party   12,500    12,500    25,000    25,000 
General and administrative   296,250    28,933    457,987    35,450 
Total operating expenses   356,354    108,793    563,471    137,556 
                     
Other expenses                    
Cost of issuing warrants for credit loan   -    4,540,000    -    4,540,000 
Interest expenses   7,583    3,324    14,613    3,324 
Total other expenses   7,583    4,543,324    14,613    4,543,324 
                     
Net loss   (363,937)   (4,652,117)   (578,084)   (4,680,880)
                     
Net loss attributable to non-controlling interest   -    281    -    281 
Net loss attributable to controlling interest   (363,937)   (4,651,836)   (578,084)   (4,680,599)
                     
Other comprehensive income   -    -    -    - 
Total comprehensive income  $(363,937)   (4,651,836)  $(578,084)   (4,680,599)
                     
Earnings per share – basic and diluted  $(0.004)   (0.351)  $(0.007)   (0.353)
Weighted average number of shares outstanding – basic and diluted   87,269,789    13,259,600    87,269,789    13,259,600 

 

See notes to the unaudited consolidated financial statements

 

2

 

 

QHY Group

UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIT)

 

   Common Stock   Additional
Paid-in
   Retained   Total
Stockholders’
 
   Shares   Amount   Capital   earnings   Deficit 
                     
Balance as of December 31, 2018   87,269,789   $87,270    7,243,001   $(5,257,097)  $2,073,174 
                          
Net loss   -    -    -    (214,147)   (214,147)
Balance as of March 31, 2019   87,269,789    87,270    7,243,001    (5,471,244)   1,859,027 
                          
Net loss   -    -    -    (363,937)   (363,937)
Balance as of June 30, 2019   87,269,789    87,270    7,243,001    (5,835,181)   (1,495,090)

 

See notes to the unaudited consolidated financial statements

 

3

 

 

QHY Group

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. dollars)

 

   Six Months ended
June 30,
 
   2019   2018 
   (Unaudited)   (Unaudited) 
Cash flows from operating activities        
Net loss  $(578,084)  $(4,680,880)
Interest expenses   14,613    3,324 
Cost of issuing warrants for credit loan   -    4,540,000 
Consulting fee paid by common shares   313,776    - 
Adjustments to reconcile net loss to net cash used in operating activities:          
Changes in operating assets and liabilities:          
Accounts payable   121,539    (54,861)
License fee payable – related party   25,000    - 
Professional fee payable – related party   57,000    - 
Net cash used in operating activities   (46,156)   (192,417)
           
Net cash provided by investing activities   -    - 
           
Cash flows from financing activities          
Cash proceeds from shareholder loan   46,266    192,417 
Net cash provided by financing activities   46,266    192,417 
           
Net decrease in cash and cash equivalents   (110)   - 
Cash and cash equivalents at beginning of period   116    - 
Cash and cash equivalents at end of period  $226   $- 
           
Supplemental disclosure of cash flow information          
Income taxes paid  $-   $- 
Interest paid  $-   $- 

  

See notes to the unaudited consolidated financial statements

 

4

 

 

QHY Group

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

 

1. Organization and principal activities

 

QHY Group (the “Company”, or “we”), formerly named Yakun International Investment and Holding Group (“Yakun International”), was incorporated under the laws of the State of Nevada on October 16, 2007. Prior to the acquisition of Vast Glory Holdings Limited (“Vast Glory”) on September 13, 2011, the Company was a development stage company that had not generated any revenue from operations and maintained no essential assets since inception.

 

On September 13, 2011, the Company consummated a Share Exchange Agreement with the shareholders of Vast Glory, pursuant to which it acquired 100% of the outstanding capital stock of Vast Glory in exchange for 8,250,000 shares of the Company’s common stock, which constituted approximately 68% of its issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the acquisition pursuant to the Exchange Agreement (the “Acquisition”). The Acquisition was accounted for as a reorganization of entities under common control. 

 

On July 23, 2014, the Company entered into a Share Transfer Agreement with a third party and sold all shares of Vast Glory for consideration of $1. In consequence of the agreements, Yakun International disposed of all of its operations, assets and liabilities, and became a dormant company.

 

In November 2017, Yakun International entered into a Share Exchange Agreement (the “PBG SEA”) with PBG Water Solutions International Inc. (the “PBG Water Solutions”) and its shareholders, pursuant to which Yakun International acquired 100% of the outstanding shares of PBG Water Solutions in exchange for 46,839,439 shares of common stock of the Company and 19,000 shares of Series A Convertible Preferred Stock (each Series A Convertible Preferred Stock is convertible into 1,000 shares of common stock) of the Company, which constituted approximately 83% of the Company’s issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the acquisition. PBG Water Solutions was incorporated under the law of the State of Delaware on August 4, 2016, and in October 2017, it merged into a company with the same name incorporated under the law of the State of Nevada. On January 15, 2018, all parties to the SEA agreed to amend the original agreement and consummate the transaction forthwith. Shareholders of PBG Water solutions took control of Yakun International on the same date, and completed Yakun International’s registry of new officers and directors as of the issuance of these financial statements. PBG Water Solutions has not generated revenue as of today.  

 

The transaction was accounted for as a “reverse acquisition” since, immediately following completion of the transaction, the shareholders of PBG Water Solutions effectively controlled the post-combination Company. For accounting purposes, PBG Water Solutions was deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of PBG Water Solutions (i.e., a capital transaction involving the issuance of shares by the Company for the shares of PBG Water Solutions). Accordingly, the consolidated assets, liabilities and results of operations of PBG Water Solutions and Yakun International became the historical financial statements of Yakun International and its subsidiaries, and the Company’s assets, liabilities and results of operations were consolidated with PBG Water Solutions beginning on the acquisition date. No step-up in basis or intangible assets or goodwill were recorded in this transaction.

 

On December 21, 2017, Yakun International incorporated QHY Water Solutions International Corp (“QHY Water Solutions”) under the law of State of Nevada as its wholly owned subsidiary. On March 8, 2018, QHY Water Solutions incorporated QHY Environmental Science & Technologies Oceania Limited (“QHY Oceania”) under the law of New Zealand. QHY Oceania was 51% owned by QHY Water Solutions, and 49% owned by a New Zealand company. On April 17, 2018, QHY Water Solutions incorporated QHY New Zealand LLC (“QHY NZ”) under the law of the State of Nevada as a Limited Liability Company. QHY NZ was 51% owned by QHY Water Solutions, and 49% owned by a third party. QHY Water Solutions, QHY Oceania and QHY NZ have not generated any revenue since their inception.

 

5

 

 

On July 31, 2018, the Company filed an amendment to articles of incorporation changing its corporate name to QHY Group. The amendment became effective August 31, 2018.

 

In October 2018, QHY Water solutions transferred all of the outstanding shares of QHY Oceania and QHY NZ it owned to a non-affiliate for $100. Since both QHY Oceania and QHY NZ had no business or assets as of the disposal date, the transaction was accounted as an asset disposal, and an investment income of $100 was recorded.

 

In December 2018, the Company issued 1,515,000 shares of common stock to certain consultants for services rendered or to be rendered (See Note 9).

 

In December 2018, the Company entered into a series of securities purchase agreements with certain non-affiliate investors for the sale of 6,655,750 shares of the Company’s common stock for aggregate consideration of $2,196,500. Of the shares sold, 5,972,582 were issued to six investors for $1,851,500 and the remaining 683,168 shares were sold to a single investor for $345,000.

 

2. Going concern

 

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Successful completion of the Company’s engagement in water solutions business and its transition to attaining profitable operations, is dependent upon obtaining additional financing. The Company plans to improve its future liquidity by obtaining additional financing through the issuance of financial instruments such as equity and warrants or through credit loans. Additional financing may not be available on acceptable terms or at all. If the Company issues additional equity securities to raise funds, the ownership percentage of existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of common stock.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 

 

3. Summary of significant accounting policies

 

(a) Basis of presentation and principles of consolidation

 

The unaudited consolidated interim financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

The unaudited consolidated interim financial information as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in complete consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited consolidated interim financial information should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 10-K filed on April 1, 2019.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of June 30, 2019, its consolidated results of operations for the three and six months ended June 30, 2019 and 2018, and its consolidated cash flows for the six months ended June 30, 2019 and 2018, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

6

 

 

The consolidated interim financial statements include the financial statements of all the subsidiaries of the Company. All accounts and balances between the Company and its subsidiaries have been eliminated upon consolidation.

 

(b) Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ from those estimates.

  

(c)  Loss per share

 

Basic loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the weighted average number of common shares and potential common shares outstanding during the period for options and restricted shares under treasury stock method and for convertible debts under if-convertible method, if dilutive. Potential common shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.

 

   Three Months Ended   Three Months Ended 
Dilutive shares not included June 30,  June 30,   June 30, 
in loss per share computation  2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Warrants   50,000,000    50,000,000    50,000,000    50,000,000 

 

(k)  Recently issued accounting standards not yet adopted

 

The company does not expect the adoption of any recent accounting standards to have a material impact on its financial statements except for:

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13) (“ASU 2018-13”). ASU 2018-13 modifies certain disclosure requirements on fair value measurements, including (i) clarifying narrative disclosure regarding measurement uncertainty from the use of unobservable inputs, if those inputs reasonably could have been different as of the reporting date, (ii) adding certain quantitative disclosures, including (a) changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and (iii) removing certain fair value measurement disclosure requirements, including (a) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (b) the policy for timing of transfers between levels of the fair value hierarchy and (c) the valuation processes for Level 3 fair value measurements. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until their effective date. Management does not plan to early adopt this guidance and is currently evaluating the impact of adopting ASU No. 2018-13 on its consolidated financial statements.

 

4. Inventories

 

Inventories of $292,500 as of June 30, 2019 and December 31, 2018 represented an integrated wastewater treatment module PBG Water Solutions purchased from Beijing QHY Environment S & T Co., Ltd. (“Beijing QHY”), a related party of the Company. As of June 30, 2019, the Company had not transferred title to the equipment to its customer. (See Note 8)

 

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5. Due from a related party

 

Renminbi (the “RMB”) equivalent to $2,196,500 as proceeds from issuing 6,655,750 shares of the Company’s common stock (see Note 9) was collected by Beijing QHY on behalf of the Company. The monies are considered held by Beijing QHY for the benefit of the Company.

 

6. Prepaid expenses and other current assets

 

The balance mainly consisted of $152,913 prepaid to several consultants to the Company in form of the Company’s common stock (see Note 9) pursuant to agreements with remaining services terms of less than 12-months as of June 30, 2019.

 

7. Advance from a customer

 

$292,500 advance from a customer represented the amount QHY Water Solutions received from QHY Oceania for a portion of the full price for a wastewater treatment module QHY Oceania purchased from QHY Water Solutions.

 

8. Related party transactions and balances

 

a) Related party transactions

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Loan from a shareholder  $28,092   $24,489   $46,266   $39,480 
Interest expense to a shareholder   7,583    3,324    14,613    3,324 
Fair value of warrants issued to a shareholder   -    4,540,000    -    4,540,000 
Fee for professional services provided by related parties   28,500    84,260    57,000    93,760 
License fee expense to a related party  $12,500   $12,500   $25,000   $25,000 

 

b) Related party payables

 

   June 30,
2019
   December 31,
2018
 
   (Unaudited)     
Loan from a shareholder  $329,986   $283,720 
Interest payable to a shareholder   29,608    14,996 
Payable to a related party for license fee   112,500    87,500 
Professional fee payable to related parties   152,000    95,000 
Due from a related party   2,196,500    2,196,500 
Advance from a related party  $292,500   $292,500 

 

On May 1, 2018, PBG Water Solutions and Yakun International (subsequently renamed “QHY Group”), entered into a Credit Loan Agreement with a 20.8% shareholder of QHY Group (the “Lender”). The Lender had provided operating capital to PBG Water Solutions since its inception, and to the Company since the consummation of PBG SEA. Pursuant to the Credit Loan Agreement, the Lender will provide a loan of $500,000 to the Company for 2 years with 10% annual interest which shall be applied from the date of the Credit Loan Agreement. In compensation for the loan credit, the Company issued to the Lender a 3-year cashless warrant, which entitles the Lender to purchase 50 million (50,000,000) shares of the Company’s common stock at an exercise price of $0.01. The warrant cannot be exercised before June 1, 2019, and shall be void and non-exercisable if the Company (i) raises more than $20 million in equity or (ii) has revenue in excess of $100 million in any fiscal year. As of June 30, 2019 and December 31, 2018, the Lender has provided $329,986 and $283,720 to the Company, respectively. During the three months ended June 30, 2019 and 2018 the Lender provided $28,092 and $24,489 to the Company, respective. During the six months ended June 30, 2019 and 2018 the Lender provided $46,266 and $39,480 to the Company, respective. During the three months ended June 30, 2019 and 2018, the Company recorded $7,583 and $3,324 interest expenses incurred from the loan. During the six months ended June 30, 2019 and 2018, the Company recorded $14,613 and $3,324 interest expenses incurred from the loan.

 

8

 

 

In February 2018, PBG Water Solutions entered into a financial advisory agreement with Rebus Capital Group (the “Rebus”), an entity affiliated with a shareholder of the Company, pursuant to which PBG Water Solutions will pay Rebus $30,000 per quarter. The agreement has a term of five years from March 2018 but is cancellable by either party on sixty days’ notice. The service fee for the first 3 months was waived by Rebus. Professional service expense related to this agreement was $28,500 and $38,000 for the three and six months ended June 30, 2018, respectively. Professional service expense related to this agreement was $28,500 and $57,000 for the three and six months ended June 30, 2019, respectively.

 

In April 2017, PBG Water Solutions entered into a License and Supply Agreement with an individual shareholder who owned 50% of PBG Water Solutions’ common stock and the shareholder’s majority owned company Beijing QHY Environment S & T Co., Ltd. (Beijing QHY). Pursuant to the License and Supply Agreement and its Amendment entered into in June 2017, the individual shareholder and Beijing QHY (the “Licensor”) granted PBG the exclusive use of 21 patents in any area outside the People’s Republic of China (the “PRC”) for 20 years. A one-time fee of $1 million shall be paid before December 31, 2021, and royalties of 1% of the net revenue received by PBG from the sale, license or other distribution of the licensed products shall be paid annually. In addition, the Licensor shall supply PBG Water Solutions licensed products at prices agreed upon from time to time by the Licensor and PBG Water Solutions. During the year ended December 31, 2018, QHY Water Solutions purchased an integrated wastewater treatment equipment from Beijing QHY for $292,500. The Company, QHY Water Solutions and PBG Water Solutions didn’t generate any net revenue from the licensed equipment or products yet during the year ended December 31, 2018. The Company recorded a $12,500 and $25,000 license fee expense for the three and six months ended June 30, 2019, respectively, and made no payment of license fees as of June 30, 2019. The Company recorded a $12,500 and $25,000 license fee expense for the three and six months ended June 30, 2018, respectively. The shareholder/licensor owned 41.6% of the Company’s common stock after giving effect to the PBG SEA and owns 47.15% of the Company’s common stock as of June 30, 2019. 

 

QHY Oceania which was 51% owned by QHY Water Solutions from its inception until QHY Water Solutions sold all of the outstanding shares it owned to a non-affiliate party in October 2018. During the year ended December 31, 2018, QHY Oceania issued a purchase order to QHY Water Solutions for an integrated wastewater treatment module and paid $292,500 in advance, a portion of the purchase price. The equipment had not been transferred to QHY Oceania as of June 30, 2019.

 

In December 2018, the Company issued 6,655,750 shares of the Company’s common stock for aggregate consideration of $2,196,500. Beijing QHY collected the subscription on behalf of the Company in RMB. The monies are considered held by Beijing QHY for the benefit of the Company as of June 30, 2019.

  

9. Stockholder’s equity

 

Common stock

 

In April 2018, the Company increased its authorized common stock from 70 million to 1 billion shares. The Company issued 46,839,439 shares of common stock and 19,000 shares of Series A Convertible Preferred Stock to the shareholders of PBG Water Solutions pursuant to PBG SEA. The 19,000 shares of Series A Convertible Preferred Stock were converted into 19,000,000 shares of common stock upon increase in the number of shares of authorized common stock.

 

9

 

 

In October 2018, the Company hired certain consultants to provide services related but not limited to: general advisory services relating to the Company operating as a publicly traded enterprise, strategic planning and execution, corporate governance and financial reporting. Pursuant to each agreement, the service term is 12 months and the Company shall pay the Consultants an aggregate of 1,500,000 shares of the Company’s common stock which was delivered at inception of the Agreements. The shares were issued in December 2018. In November 2018, the Company hired a consultant for investor relations and strategic planning, pursuant to an agreement whereby the Company shall issue to the consultant 20,000 shares of the Company’s common stock each month. As of June 30, 2019, the Company has issued 15,000 shares of common stock to the consultant. Cost for the consulting service was measured based on the fair value of the Company’s common stock at the date of the consulting agreement since the common stock was vested and non-forfeitable upon the entry into the agreement. The fair value of the common stock was estimated to be $0.4075, and resulted in $617,550 for the fair value of the 1,515,000 common shares issued. $152,813 and $160,963 consulting expense was incurred during the three and six months ended June 30, 2019, respectively.

 

In December 2018, the Company issued 6,655,750 shares of the Company’s common stock for aggregate consideration of $2,196,500.

 

Warrants

 

On May 1, 2018, the Company issued warrants to a shareholder pursuant to the Credit Loan Agreement (See Note 8). The warrants issued by the Company are classified as equity. The fair value of the warrants was recorded as additional-paid-in-capital, and no further adjustments are made.

 

The fair value of the stock warrants granted was estimated at $4,540,000 on the date granted using the Black-Scholes pricing model, with the following assumptions used for the valuation: exercise price of $ 0.01 per share, average risk-free interest rate of 2.66%, expected dividend yield of zero, expected lives of 3 years and an average expected volatility of 35%.

 

A summary of the status of the Company’s warrants as of June 30, 2019 is presented below:

 

   Number of 
   warrants 
   (Unaudited) 
Warrants as at December 31, 2018   - 
Warrants granted   50,000,000 
Exercised, forfeited or expired   - 
Outstanding at June 30, 2019   50,000,000 
Exercisable at June 30, 2019   - 

 

The following table summarizes information about the Company’s warrants as of June 30, 2019:

 

    Warrants 
outstanding
   Warrants 
exercisable
 
Exercise
price
   Number
outstanding
   Weighted
average
remaining
contractual 
life (in years)
   Weighted average 
exercise price
   Number 
exercisable
   Weighted
average
exercise 
price
 
(Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
$0.01    50,000,000    2.92   $0.01    50,000,000   $0.01 

 

Equity Incentive Plan

 

In July 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) which provides for the grant of stock options, stock appreciation rights, restricted stock, stock units, bonus stock, dividend equivalents, other stock related awards and performance awards. The maximum aggregate number of shares that may be subject to awards under the 2018 Plan is 10,000,000.

 

10

 

 

Following is a reconciliation of the shares available to be issued under the 2018 Plan as of June 30, 2019:

 

   Shares 
Available 
for Grant
 
   (Unaudited) 
Balance as of December 31, 2018   8,485,000 
Stock awards granted   - 
Stock awards forfeited   - 
      
Balance as of June 30, 2019   8,485,000 

 

10. Income taxes

 

The Company did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because it has experienced operating losses. When it is more likely than not that a tax asset cannot be realized through future income, the Company must take a full valuation allowance for this future tax benefit. The Company provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carryforwards, because management has determined that it is more likely than not that the Company will not earn income sufficient to realize the deferred tax assets during the carryforward period.

 

The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the six months ended June 30, 2019, or during the prior three years applicable under FASB ASC 740. The Company did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet. All tax returns have been appropriately filed by the Company. 

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2018   2019   2018   2019 
                 
Loss before income taxes  $(4,652,117)  $(363,937)  $(4,680,880)  $(578,084)
Income tax expenses   -    -    -    - 
Effective income tax rate   0%   0%   0%   0%

 

The effective income tax rates for the three and six months ended June 30, 2018 and 2019 were 0% and 0%, respectively. The effective income tax rate for the three and six months ended June 30, 2018 and 2019 differs from the U.S. Federal statutory corporate income tax rate of 21% is primarily due to the increase in valuation allowance

 

The Company did not pay any income taxes during the six months ended June 30, 2019 and 2018.

  

11. Subsequent events

 

In accordance with FASB standards, the Company evaluated subsequent events through the date it filed this report with the Securities and Exchange Commission (“SEC”) and no subsequent events occurred that required disclosure in the accompanying consolidated financial statements.

 

11

 

   

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the notes to those statements included elsewhere in this Form 10-Q and with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in our Item 1A of our 2018 Form 10-K that could cause actual results to differ materially from those anticipated in these forward-looking statements.

 

Management’s Discussion and Analysis or Plan of Operations

 

PBG Water Solutions International Inc. (“PBG”) was organized in August 2016 to explore the market in the United States for wastewater treatment solutions and subsequently expanded its focus to markets outside the United States. In November 2017, we, now known as QHY Group (f/k/a “Yakun International Investment & Holding Group”) entered into a Share Exchange Agreement (the “PBG SEA”) with PBG and its shareholders, pursuant to which we acquired 100% of the outstanding shares of PBG in exchange for 46,839,439 shares of our common stock and 19,000 shares of our Series A Convertible Preferred Stock (each Series A Convertible Preferred Stock has been converted into 1,000 shares of our common stock), which constituted approximately 83% of QHY Group’s issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the PBG SEA. Except where the context otherwise requires the “Company,” “we,” “us,” and “our” refer to the business of (i) PBG for periods ending on or prior to the consummation in January 2018 of the PBG SEA and (ii) the combined businesses of us and PBG from and after the consummation of the PBG SEA.

 

On April 3, 2017, we entered into a License Agreement with Beijing QHY Environment S&T Co. Ltd., a corporation organized under the laws of the People’s Republic of China, pursuant to which we were granted the exclusive right to 21 patents and related technologies related to wastewater treatment solutions. The License was amended in June 2017.

 

To date, we have not been adequately capitalized and have relied upon loans from our principal shareholders to pay expenses. Our ability to continue as a going concern is dependent on obtaining adequate capital to fund operating losses until we become cash flow positive. If we are unable to obtain adequate capital, we could be forced to cease operations.

 

Upon receiving an order for one or more of our systems, we intend to seek to raise the necessary capital to recruit the personnel to expand our sales efforts and enter the market in the United States, and to begin performing under such contracts as we may be granted. Until such time, we will likely rely upon our principal shareholders to introduce our products to potential customers and distributors. Our revenues will be determined by the prices negotiated with those parties that choose to employ our water treatment systems and further, will be determined by the scope of the products and services agreed to be provided. Our expenses will be determined principally by the costs incurred in performing under any contract, and the amount devoted to expenses related to being a public company, such as accounting and legal expenses.

 

During the next 12 months, we anticipate incurring costs for sales and marketing efforts, costs related to initial performance under any contract entered into and costs incurred to file Exchange Act reports. We believe we will be able to meet these costs through amounts, as necessary, to be loaned by or invested in us by our principal stockholders or other investors. We have no specific plans, understandings or agreements with respect to the raising of such funds, except for a credit loan agreement we entered with a 20.8% shareholder for $500,000 on May 1, 2018, and we may seek to raise the required capital by the issuance of equity or debt securities or by other means. Since we have no such arrangements or plans currently in effect, our inability to raise funds may have a severe negative impact on our ability to become a viable company. 

 

12

 

 

Results of Operations

 

Three Months Ended June 30, 2019 as compared to Three Months Ended June 30, 2018

 

PBG was organized in August 2016. During the remainder of 2016, and since the end of 2016 our activities were limited to the exploration of the markets for wastewater treatment within and outside the United States. We sold no products and performed no services during such period, other than in connection with the assembly and installation of a pilot wastewater treatment unit to be installed in a facility in New Zealand and consequently, generated no revenues. The expenses incurred primarily related to those costs and expenses incurred by us in exploring the market, and meeting with prospective customers to determine their interest in using the products available pursuant to the License Agreement, and professional fees incurred in connection with our organization, initial activities, and fees and costs related to being a public company since the PBG Share Exchange. 

  

Total operating expenses were $356,354 and $108,793 for the three months ended June 30, 2019 and 2018, respectively. The increase in operating expenses for the three months ended June 30, 2019 is attributable principally to: 1) the accrued payroll expenses of $142,500 for the 7 employees we hired in April 2019 for various positions, including directors and officers; and 2) the $152,813 consulting expense related to the consultant we have engaged since October 2018.

 

During the three months ended June 30, 2018, we incurred $3,324 interest expense and $4,540,000 for issuing warrants to a 20.8% shareholder for a 2-year $500,000 credit loan. This shareholder provided loans without any interest since the inception of PBG for its operations and to Yakun International since the PBG Share Exchange. There were no warrants issued in the three months ended June 30, 2019, and consequently, no related expense, and interest expense accrued for the period was $7.583.

 

Net loss for the three months ended June, 2019 was $363,937, as compared to a net loss of $4,652,117 for the three months ended June 30, 2018.

 

Six Months Ended June 30, 2019 as compared to Six Months Ended June 30, 2018

 

Total operating expenses were $563,471 and $137,556 for the six months ended June 30, 2019 and 2018, respectively. The increase in operating expenses for the six months ended June 30, 2019 is attributable principally to: 1) the accrued payroll expenses of $142,500 for the 7 employees we hired in April 2019 for various positions, including directors and officers; and 2) the $313,775 consulting expense related to the consulted we have engaged since October 2018.

 

During the six months ended June 30, 2018, we incurred $3,324 interest expense and $4,540,000 for issuing warrants to a 20.8% shareholder for a 2-year $500,000 credit loan. This shareholder provided loans without any interest since the inception of PBG for its operations and to Yakun International since the PBG Share Exchange. There was no comparable expense in 2019 as we did not issue any warrants in the six months ended June 30, 2019 and interest expense accrued for the period was $14,613.

 

Net loss for the six months ended June, 2019 was $578,084, as compared to a net loss of $4,680,880 for the six months ended June 30, 2018.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. As of June 30, 2019 and December 31, 2018, we had an insignificant amount of cash. We have not generated revenues to fund our operating expenses since formation and have had to rely upon the efforts of two of our stockholders on our behalf and contributions from our stockholders and the proceeds from the sale of our securities. In all likelihood, we will remain dependent upon our management and stockholders and the proceeds from the sale of our securities to fund our cash needs until we generate meaningful revenues.

 

13

 

 

We anticipate incurring a minimum of $500,000 in expenses over the next twelve months. Further, should our marketing efforts prove successful we will require additional working capital to perform any contracts we are awarded. The absence of capital will likely be a limiting factor on our ability to grow until such time as we raise a significant amount of equity or long-term debt. Even after we raise capital, our ability to grow may still be impeded by a lack of adequate working capital to simultaneously perform under multiple contracts.

 

In May 2018, we entered into a Credit Loan Agreement with Dragon & Tiger Holding Limited (“D&T”), one of our shareholders, which is controlled by one of our directors. Pursuant to the agreement, D&T has agreed to lend us up to $500,000. All amounts borrowed are to bear interest at the rate of 10% per annum. Accrued interest through the end of 2018 and 2019 is to be paid no later than 90 days after the end of each year. All amounts borrowed are to be repaid in full on or before May 1, 2020. In addition to interest, D&T was issued warrants to purchase 50,000,000 shares of our common stock at a price of $0.01 per share. The warrants cannot be exercised before June 1, 2019, and have an expiration date of May 31, 2023 or such earlier date as the Company (i) raises more than $20 million in equity or (ii) has revenue in excess of $100 million in any fiscal year. As of June 30, 2019 and December 31, 2018, D&T has advanced to us an aggregate of $329,986 and $283,720, respectively.

 

The following table summarizes the Company’s cash flows for the six months ended June 30, 2019 and 2018:

 

   Six Months Ended
June 30,
 
   2019   2018 
   (Unaudited)   (Unaudited) 
Net cash used in operating activities  $(46,156)  $(192,417)
Net cash provided by investing activities   -    - 
Net cash provided by financing activities   46,266    192,417 
Net increase in cash and cash equivalents  $110   $- 

 

Going Concern Consideration

 

The Company’s unaudited financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Successful completion of the Company’s engagement in water solutions business and its transition to attaining profitable operations, is dependent upon obtaining additional financing. The Company plans to improve its future liquidity by obtaining additional financing through the issuance of financial instruments such as equity and warrants or through credit loans. Additional financing may not be available on acceptable terms or at all. If the Company issues additional equity securities to raise funds, the ownership percentage of existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of common stock.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

14

 

 

Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements.

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ from those estimates.

 

Income Taxes

 

Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes using the assets and liability method. Under this method, deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at each year-end. Deferred tax assets and liabilities are measured using enacted tax rates applicable for the differences that are expected to affect taxable income.

 

The Company adopts a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation process, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. As of June 30, 2019 and 2018, the Company did not have any uncertain tax positions.

 

Functional currency and foreign currency translation and transactions

 

The Company’s functional and reporting currency is the U.S. dollar (“US$”). Transactions denominated in currencies other than the functional currency are translated into prevailing functional currency at the exchange rates prevailing at the late date of the months the transactions occurred. The Company had no monetary assets and liabilities denominated in foreign currencies at the balance sheet dates. 

 

Related parties

 

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence, such as a family member or relative, stockholder, or a related corporation.

 

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements.

 

15

 

 

Recent Accounting Pronouncements

 

The Company reviews new accounting standards as issued. The Company does not expect the adoption of any recent accounting standards to have a material impact on its financial statements except for:

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13) (“ASU 2018-13”). ASU 2018-13 modifies certain disclosure requirements on fair value measurements, including (i) clarifying narrative disclosure regarding measurement uncertainty from the use of unobservable inputs, if those inputs reasonably could have been different as of the reporting date, (ii) adding certain quantitative disclosures, including (a) changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and (iii) removing certain fair value measurement disclosure requirements, including (a) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (b) the policy for timing of transfers between levels of the fair value hierarchy and (c) the valuation processes for Level 3 fair value measurements. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until their effective date. Management does not plan to early adopt this guidance and is currently evaluating the impact of adopting ASU No. 2018-13 on its consolidated financial statements.

 

The Company does not expect the adoption of any recently issued accounting pronouncements to have a significant impact on its financial position, results of operations, or cash flows. 

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

 

ITEM 4.  CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures – Our management, with the participation of our Chief Executive Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Report.

 

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our CEO to allow timely decisions regarding required disclosure.

 

Mao Xu, in his capacity as our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. Based on this evaluation, our chief executive officer/chief financial officer (our principal executive officer, principal financial officer and principal accounting officer) concluded that, as of the end of such period, our disclosure controls and procedures were not effective due to  a lack of accounting personnel with the requisite knowledge of Generally Accepted Accounting Principles in the US (“GAAP”) and the financial reporting requirements of the Securities and Exchange Commission; insufficient written policies and procedures to ensure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements; and a lack of segregation of duties, in that we only had one person performing all accounting-related duties.

 

Inherent Limitations – Our management, including our Chief Executive Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.

 

Changes in Internal Control over Financial Reporting – There were no changes in our internal control over financial reporting during our three month period ended June 30, 2019, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

16

 

 

PART II. OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

None

  

ITEM 1A.  RISK FACTORS

 

Reference is made to the risks and uncertainties disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”), which is incorporated by reference into this report. Prospective investors are encouraged to consider the risks described in our 2018 Form 10-K, our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Report and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Except as previously disclosed in our reports filed pursuant to the Exchange Act,, we have not issued any unregistered equity securities since January 1, 2019.

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

 

None

  

ITEM 4.  MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5.  OTHER INFORMATION

 

Not applicable

 

ITEM 6.  EXHIBITS

 

Exhibit No.   Description
2.1   Exchange Agreement (incorporated herein by reference to Exhibit 2.2 to Form 10 Registration Statement)
3.1   Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1/A Amendment No. 1 filed February 29, 2008).
3.2   Certificate of Amendment to Articles of Incorporation changing the name of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Report on Form 10-K filed March 30, 2012).
3.3   Certificate of Amendment to Articles of Incorporation increasing the number of authorized shares of capital stock ((incorporated by reference to Exhibit 3.3 to the Registrant’s Report on Form 10-Q filed August 9, 2018).
3.4   Certificate of Designation authorizing the issuance of Series A Preferred Stock (incorporated by reference to Exhibit 3.4 to the Registrant’s Report on Form 10-Q filed August 9, 2018).
3.5   Certificate of Amendment to Articles of Incorporation changing the name of the Company to QHY Group (incorporated herein by reference to Exhibit 3.5 to the Company’s Report on Form 10-Q filed August 9, 2018).
3.6   Amended and Restated By Laws Registrant (incorporated by reference to Exhibit 3.3 to the Registrant’s Report on Form 10-K filed March 30, 2012).
31.1   Certification of principal executive officer and principal financial officer pursuant to Rule 13a-14 or Rule 15d-14 of Exchange Act.
32.1   Certification of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(18 U.S.C. Section 1350).
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

17

 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on August 13, 2019.

 

QHY Group  
     
By: /s/ Mao Xu  
  Mao Xu  
  President, Chief Executive Officer  
  (principal executive and financial officer)  

 

 

18