Code Chain New Continent Ltd - FORM 10-K

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EX-32.4 - CERTIFICATION - Code Chain New Continent Ltd	f10k2020ex32-4_codechain.htm
EX-32.3 - CERTIFICATION - Code Chain New Continent Ltd	f10k2020ex32-3_codechain.htm
EX-32.2 - CERTIFICATION - Code Chain New Continent Ltd	f10k2020ex32-2_codechain.htm
EX-32.1 - CERTIFICATION - Code Chain New Continent Ltd	f10k2020ex32-1_codechain.htm
EX-31.4 - CERTIFICATION - Code Chain New Continent Ltd	f10k2020ex31-4_codechain.htm
EX-31.3 - CERTIFICATION - Code Chain New Continent Ltd	f10k2020ex31-3_codechain.htm
EX-31.2 - CERTIFICATION - Code Chain New Continent Ltd	f10k2020ex31-2_codechain.htm
EX-31.1 - CERTIFICATION - Code Chain New Continent Ltd	f10k2020ex31-1_codechain.htm
EX-21.1 - LIST OF SUBSIDIARIES - Code Chain New Continent Ltd	f10k2020ex21-1_codechain.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-37513

CODE CHAIN NEW CONTINENT LIMITED

(Exact name of registrant as specified in its charter)

Nevada

47-3709051

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

No 119 South Zhaojuesi Road

2nd Floor, Room 1
Chenghua District, Chengdu, Sichuan, China

610047

(Address of principal executive offices)

(Zip Code)

Issuer’s telephone number: +86 028-8411-2941

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:		Name of Each Exchange on Which Registered:
Common Stock, par value $0.0001 per share		The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

Warrants, each to purchase one-half of one share of Common Stock

Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	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 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

As of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock outstanding held by non-affiliates of the registrant, computed by reference to the closing sales price for the common stock of $1.88, as reported on the Nasdaq Capital Market, was approximately $33 million.

As of March 25, 2021, there were 36,342,692 shares of common stock, par value $0.0001 per share, of the registrant issued and outstanding.

TABLE OF CONTENTS

		PAGE
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	39
Item 2.	Properties	39
Item 3.	Legal Proceedings	39
Item 4.	Mine Safety Disclosures	39

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	40
Item 6.	Selected Financial Data	43
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 8.	Financial Statements and Supplementary Data	53
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	53
Item 9A.	Controls and Procedures	53
Item 9B.	Other Information	54

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	55
Item 11.	Executive Compensation	60
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	62
Item 13.	Certain Relationships and Related Transactions, and Director Independence	63
Item 14.	Principal Accounting Fees and Services	63

PART IV
Item 15.	Exhibits and Financial Statement Schedules	64

As used in this Annual Report, the terms “we,” “us,” “our,” and words of like import, and the “Company” refer to Code Chain New Continent Limited and its subsidiaries unless the context indicates otherwise. “PRC” or “China” refers to the People’s Republic of China, excluding, for the purpose of this report, Taiwan, Hong Kong and Macau. “RMB” or “Renminbi” refers to the legal currency of China and “$”, “US$” or “U.S. Dollars” refers to the legal currency of the United States.

CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS

This Annual Report contains statements that may be deemed to be “forward-looking statements” within the meaning of the federal securities laws. These statements relate to anticipated future events, future results of operations and or future financial performance. In some cases, you can identify forward-looking statements by their use of terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “ought to,” “plan,” “possible,” “potentially,” “predicts,” “project,” “should,” “will,” “would,” negatives of such terms or other similar terms. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The forward-looking statements in this Annual Report include, without limitation, statements relating to:

	●	our goals and strategies;

	●	our future business development, results of operations and financial condition;

	●	our estimates regarding expenses, future revenues, capital requirements and our need for additional financing;

	●	our estimates regarding the market opportunity for our services;

	●	the impact of government laws and regulations;

	●	our ability to recruit and retain qualified personnel;

	●	our failure to comply with regulatory guidelines;

	●	uncertainty in industry demand;

	●	general economic conditions and market conditions in the financial services industry;

	●	future sales of large blocks or our securities, which may adversely impact our share price; and

	●	depth of the trading market in our securities.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties, including those described in Item 1A “Risk Factors.”

You should not unduly rely on any forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Annual Report, to conform these statements to actual results or to changes in our expectations.

PART I

Item 1. Business

General

Code Chain New Continent Limited (formerly known as JM Global Holding Company and TMSR Holding Company Limited), focuses its business on two segments: (1) coal wholesales and sales of coke, steels, construction materials, mechanical equipment and steel scrap, through Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”), an entity contractually controlled by the Company; and (2) mobile game development, Internet of Things (IoT), and electronic tokens, through Sichuan Wuge Network Games Co., Ltd. (“Wuge”), an entity contractually controlled by the Company.

Rong Hai was established in 2009. For the last ten years, Rong Hai maintained its marketing position by cultivating an experienced management team equipped with industrial know-how and well-rounded coal sales team. As a veteran in the Chinese coal trading industry, Rong Hai has a sales team with lengthy experience in coal trading, deep understanding of the market, coal products tailored to its customers’ demand. Currently, Rong Hai mainly focuses on the sales, storage, transportation, and processing of steam coal. Because of its proximity to Rugao Port, a port known for its busy coal trade, Rong Hai is able to keep its transportation cost low and allocate its capital to develop a strong coal processing capacity with processing equipment and professional personnel. The principal product of Rong Hai is steam coal.

Rong Hai has a reliable channel of procuring steam coal, large warehouse space for storage, and loyal customers. One of its major customers is Nantong Linan Industrial Trading Co., ltd., a local manufacturing heavyweight. Since its inception, Rong Hai has accumulated a growing reputation in the coal industry. In 2016, Rong Hai was awarded “Nantong City most reputable company in the coal industry” by Nantong Coal Industry Association.

Wuge was established in 2019 and is still in this early developing stage. Wuge Manor, the game Wuge is developing, is the world’s first game that combines Internet of Things (IoT) and e-commerce that is based on Code Chain platform. It is based on real cities and uses the IoT Grid as the access point to access e-commerce by Code Chain. Through the game, players can have access to hundreds of vendors and business owners in over 100 cities in China, participate in activities those businesses set up and collect points, which can be redeemed as equipment in the game or coupons usable when making purchase at that business. Code Chain access to e-commerce includes Online to Offline (O2O) “scanning QR Code” and social media that seamlessly link offline and online and connect real and virtual directly, so that each IoT Grid becomes an e-commerce access to realize the decentralization of e-commerce access and complete the basic layout for blockchain e-commerce.

In addition, Wuge generates electronic tokens that combine the five-W elements (when, where, who, why, what), geographic location via the Beidou satellite system and identity information using Code Chain technology. The electronic tokens are unique, tradable, and inheritable digital assets and cannot be tampered. The electronic tokens are based on and stored in the Code Chain system and can be used to purchase virtual property based on real estate.

Our principal executive offices are located at No 119 South Zhaojuesi Road, 2^nd Floor, Room 1, Chenghua District, Chengdu, Sichuan, China 610047, and our telephone number is: +86 028-84112941. Our website is www.ccnctech.com.

Corporate History and Structure

Overview

Code Chain New Continent Limited, formerly known as TMSR Holding Company Limited and JM Global Holding Company, was a blank check company incorporated in Delaware on April 10, 2015. The Company was formed for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business transaction, one or more operating businesses or assets. On June 20, 2018, the Company consummated the reincorporation. As a result, the Company changed its state of incorporation from Delaware to Nevada and implemented a 2-for-1 forward stock split of the Company’s common stock.

Effective as of May 18, 2020, the Company changed its corporate name from “TMSR Holding Company Limited” to “Code Chain New Continent Limited” pursuant to a Certificate of Amendment to the Company’s Articles of Incorporation. In connection with the name change, effective as of the opening of trading on May 18, 2020, the Company’s common stock is trading on the Nasdaq Capital Market under the ticker symbol “CCNC” and the Company’s warrants to purchase one-half of one shares of Common Stock at a price of $2.88 per half share ($5.75 per whole share) is quoting on the OTC Pink Market under the ticker symbol “CCNCW”.

Business Combination with China Sunlong

On February 6, 2018, China Sunlong Environmental Technology Inc. (“China Sunlong”) consummated the business combination with JM Global. This transaction is accounted for as a “reverse merger” and recapitalization at the date of the consummation of the transaction since the shareholders of China Sunlong owns the majority of the outstanding shares of JM Global immediately following the completion of the transaction and JM Global’s operations was the operations of China Sunlong following the transaction. Accordingly, China Sunlong was deemed to be the accounting acquirer in the transaction and the transaction was treated as a recapitalization of China Sunlong.

After the business combination and prior to May 1, 2018, all of the Company’s business activities were carried out by the wholly owned operating Chinese company, Hubei Shengrong Environmental Protection Energy-Saving Science and Technology Ltd. (“Hubei Shengrong”).

Disposition of TJComex

On April 2, 2018, the Company disposed of its subsidiary, TJComex International Group Corporation (“TJComex BVI”), a British Virgin Islands corporation, in consideration of (i) its minimum contribution to the Company’s results of operation and (ii) the unsatisfactory synergy between the TJComex BVI business and the rest of the Company’s business. The Company’s decision to dispose TJComex BVI is to (i) improve the Company’s overall financial condition and results of operations, (ii) reduce the complexity of the Company’s business, (iii) focus the Company’s resources on the solid waste recycling business as well as developing environmental control business opportunities; and (iv) make it possible for the Company to pursue acquisition opportunities for more compatible business.

Acquisition of Wuhan Host

On May 1, 2018, the Company completed the acquisition of 100% equity interest in Wuhan Host Coating Materials Co., Ltd. (“Wuhan Host”), a PRC corporation engaging in the research and development, production and sale of Zinc-rich coating materials. Wuhan Host was the largest manufacturer of inorganic Zinc-rich resin and one-component epoxy Zinc-rich resin in China with customers including leading enterprises in various industries such as electricity, metallurgy, machinery, chemicals, bridge and shipping.

Acquisition of Rong Hai

On November 30, 2018, the Company’s indirectly subsidiary, Shengrong Environmental Protection Technology (Wuhan) Co. Ltd. (“Shengrong WFOE”), a PRC company, entered into VIE agreements with Jiangsu Rong Hai Electric Power Fuel Co., Ltd. The VIE agreements were assigned in whole to the Company’s indirectly subsidiary, Tongrong Technology (Jiangsu) Co., Ltd. (“Tongrong WFOE”), a PRC company, in April 2020, through which Tongrong WFOE has the right to control, manage and operate Rong Hai in return for a service fee equal to 100% of Rong Hai’s net income. Rong Hai is a PRC company incorporated in Jiangsu China, engaging in coal wholesales and sales of coke, steels, construction materials, mechanical equipment and steel scrap.

Disposition of Hubei Shengrong

On December 27, 2018, the Company, disposed one of its operating subsidiaries, Hubei Shengrong, a PRC company, pursuant to that certain Equity Purchase Agreement by and among the Company, the Company’s subsidiary Shengrong WFOE, Hubei Shengrong and Hopeway International Enterprises Limited (the “Hoepway”). Pursuant to the Equity Purchase Agreement, Shengrong WFOE sold 100% equity interests in Hubei Shengrong to Hopeway to irrevocably forfeit and cancel all the shares owned by Hopeway.

Acquisition of Wuge

On January 3, 2020, the Company’s indirectly subsidiary, Tongrong WFOE, entered into VIE agreements with Sichuan Wuge Network Games Co., Ltd. (“Wuge”), a PRC company. The VIE agreements were assigned in whole to the Company’s indirectly subsidiary, Makesi Iot Technology (Shanghai) Co., Ltd. (“Makesi WFOE”), a PRC company, in January 2021, through which Makesi WFOE has the right to control, manage and operate Wuge in return for a service fee equal to 100% of Wuge’s net income.

Disposition of China Sunlong

On June 30, 2020, the Company disposed China Sunlong and its subsidiaries, including Shengrong Environmental Protection Holding Company Limited (“Shengrong BVI”), a British Virgin Islands company, Hong Kong Shengrong Environmental Company Limited (“Sunrong HK”), a Hong Kong company, Shengrong WFOE, and Wuhan Host pursuant to a share purchase agreement with Jiazhen Li, a former Chief Executive Officer of the Company, and Long Liao and Chunyong Zheng, former shareholders of Wuhan Host. Pursuant to the share purchase agreement, the Company sold 100% equity interests in China Sunlong to Jiazhen Li in exchange for forfeition and cancellation of all 1,012,932 shares of common stock of the Company held by Long Liao and Chunyong Zheng. The Company sold its equity interest in China Sunlong due to the economic disruption in China’s Hubei Province as a result of the COVID-19 pandemic, where Shengrong Environmental Protection Technology (Wuhan) Limited and Wuhan Host Coating Materials, Limited, indirect subsidiaries of China Sunlong, are located.

Coronavirus (COVID-19) Update

Recently, there is an ongoing outbreak of a novel strain of coronavirus (COVID-19) first identified in China and has since spread rapidly globally. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities globally for the past few months. In March 2020, the World Health Organization declared the COVID-19 as a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of our business operations and our workforce are concentrated in China, we believe there is a risk that our business, results of operations, and financial condition will be adversely affected, especially for our export related business. Potential impact to our results of operations will also depend on future developments and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or mitigate its impact, almost all of which are beyond our control.

The impacts of COVID-19 on our business, financial condition, and results of operations include, but are not limited to, the following:

●

We temporally closed our offices and production facilities to adhere to the policy beginning in February 2020, as required by relevant PRC regulatory authorities. Our offices are slowly reopening pursuant to local guidelines.

●

Our customers could potentially be negatively impacted by the outbreak, which may reduce the demand of our products. As a result, our revenue and income may be negatively impacted in 2020.

●

The situation may worsen if the COVID-19 outbreak continues. We will continue to closely monitor our collections throughout 2020.

Because of the uncertainty surrounding the COVID-19 outbreak, the business disruption and the related financial impact related to the outbreak of and response to the coronavirus cannot be reasonably estimated at this time. For a detailed description of the risks associated with the novel coronavirus, see “Risk Factors—Risks Related to Our Business—Our business could be materially harmed by the ongoing coronavirus (COVID-19) pandemic.”

Corporate Structure

The following is an organizational chart setting forth our corporate structure as of the date of this Annual Report.

Contractual Arrangements between Rong Hai And Tongrong WFOE

Consulting Services Agreement. Pursuant to the consulting services agreement between Rong Hai and Shengrong WFOE dated November 30, 2018 and the assignment agreement between Shenrong WFOE and Tongrong WFOE dated April 30, 2020, Tonrong WFOE has the exclusive right to provide consulting services to Rong Hai relating to Rong Hai’s business, including but not limited to business consulting services, human resources development, and business development. Tonrong WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Tonrong WFOE has the right to determine the service fees based on Rong Hai’s actual operation on a quarterly basis.

Equity Pledge Agreement. Under the equity pledge agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018 and the assignment agreement between Shenrong WFOE and Tongrong WFOE dated April 30, 2020, the shareholders pledged all of their equity interests in Rong Hai to Tonrong WFOE to guarantee Rong Hai’s performance of relevant obligations and indebtedness under the consulting services agreement. In addition, the shareholders of Rong Hai have completed the registration of the equity pledge under the agreement with the competent local authority. If Rong Hai breaches its obligation under the consulting services agreement, Tonrong WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests.

Call Option Agreement. Under the call option agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018 and the assignment agreement between Shenrong WFOE and Tongrong WFOE dated April 30, 2020, each of the shareholders of Rong Hai irrevocably granted to WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Rong Hai. Also, Tonrong WFOE or its designee has the right to acquire any and all of its assets of Rong Hai. Without Tonrong WFOE’s prior written consent, Rong Hai’s shareholders cannot transfer their equity interests in Rong Hai, and Rong Hai cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option.

Voting Rights Proxy Agreement. Under the voting rights proxy agreement among Shengrong WFOE and the shareholders of Rong Hai dated November 30, 2018 and the assignment agreement between Shenrong WFOE and Tongrong WFOE dated April 30, 2020, each shareholder of Rong Hai irrevocably appointed Tonrong WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Rong Hai, including but limited to the power to vote on its behalf on all matters of Rong Hai requiring shareholder approval in accordance with the articles of association of Rong Hai.

Operating Agreement. Pursuant to the operating agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018 and the assignment agreement between Shenrong WFOE and Tongrong WFOE dated April 30, 2020, Rong Hai and the shareholders of Rong Hai agreed not to enter into any transaction that could materially affect Rong Hai’s assets, obligations, rights or operations without prior written consent from Tonrong WFOE, including but not limited to the amendment of the articles of association of Rong Hai. Rong Hai and its shareholders agree to accept and follow our corporate policies provided by Tonrong WFOE in connection with Rong Hai’s daily operations, financial management and the employment and dismissal of Rong Hai’s employees. Rong Hai agreed that it should seek guarantee from Tonrong WFOE first if any guarantee is needed for Rong Hai’s performance of any contract or loan in the course of its business operation.

Contractual Arrangements between Wuge And Makesi WFOE

Technical Consultation and Services Agreement. Pursuant to the technical consultation and services agreement between Wuge and Tongrong WFOE dated January 3, 2020 and the assignment agreement between Tonrong WFOE and Makesi WFOE dated January 11, 2021, Makesi WFOE has the exclusive right to provide consultation services to Wuge relating to Wuge’s business, including but not limited to business consultation services, human resources development, and business development. Makesi WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Makesi WFOE has the right to determine the service fees based on Wuge’s actual operation on a quarterly basis. This agreement will be effective as long as Wuge exists. Tongrong WFOE may terminate this agreement at any time by giving a 30 days’ prior written notice to Wuge.

Equity Pledge Agreement. Under the equity pledge agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020 and the assignment agreement between Tonrong WFOE and Makesi WFOE dated January 11, 2021, Wuge Shareholders pledged all of their equity interests in Wuge to Makesi WFOE to guarantee Wuge’s performance of relevant obligations and indebtedness under the technical consultation and services agreement. In addition, Wuge Shareholders will complete the registration of the equity pledge under the agreement with the competent local authority. If Wuge breaches its obligation under the technical consultation and services agreement, Makesi WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. This pledge will remain effective until all the guaranteed obligations are performed or the Wuge Shareholders cease to be shareholders of Wuge.

Equity Option Agreement. Under the equity option agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020 and the assignment agreement between Tonrong WFOE and Makesi WFOE dated January 11, 2021, each of Wuge Shareholders irrevocably granted to Makesi WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Wuge. Also, Makesi WFOE or its designee has the right to acquire any and all of its assets of Wuge. Without Tongrong WFOE’s prior written consent, Wuge’s shareholders cannot transfer their equity interests in Wuge and Wuge cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option. This pledge will remain effective until all options have been exercised.

Voting Rights Proxy and Financial Support Agreement. Under the voting rights proxy and financial support agreement among Makesi WFOE, Wuge and Wuge Shareholders dated January 3, 2020 and the assignment agreement between Tonrong WFOE and Makesi WFOE dated January 11, 2021, each Wuge Shareholder irrevocably appointed Makesi WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Wuge, including but not limited to the power to vote on its behalf on all matters of Wuge requiring shareholder approval in accordance with the articles of association of Wuge. The proxy agreement is for a term of 20 years and can be extended by Makesi WFOE unilaterally by prior written notice to the other parties.

Industry Overview

Chinese Coal Trading Market

Global coal is still the main energy source. According to the International Energy Agency’s Global Coal Market Report (2018-2103) on February 25, 2019, global demand for coal will remain stable in the next five years. China will remain the world’s biggest consumer of coal. In particular, the clean and efficient development of China's coal industry, as well as the strengthening of nitrogen oxides, sulfur dioxide and soot emission control, has made coal once again a very attractive energy source. In addition, due to its affordable price, abundant reserves and convenient transportation, coal remains the main energy source in many other countries besides China. Therefore, the coal market in China remains strong.

Our Products and Services

Rong Hai

Wuge

In addition, Wuge produced electronic tokens that combine the five-W elements (when, where, who, why, what), geographic location via the Beidou satellite system and identity information using Code Chain technology. The electronic tokens are unique, tradable, and inheritable digital assets and cannot be tampered. The electronic tokens are based on and stored in the Code Chain system and can be used to purchase virtual property based on real estate.

Our Customers

Rong Hai’s customers

For the fiscal year ended December 31, 2019, 34% of the coal Rong Hai procured and processed were sold directly to Nantong Linan Industry and Commerce Co., Ltd. for its production of acetate fiber plant.

For the fiscal year ended December 31, 2020, 99.1% of the coal Rong hai procured and processed were sold directly to Nantong Linan Industry and Commerce Co., Ltd. for its production of acetate fiber plant.

Wuge

Wuge is still in this early developing stage and has not cultivated a stable group of customers. The main source of revenue is service fees under contracts with customers.

Our Suppliers

Rong Hai’s suppliers

Rong Hai’s top five suppliers for the fiscal year ended December 31, 2019 are Shanghai Liye Supply Chain Management Co., Ltd., Jiangsu Shengquan Mining Co., Ltd., Zhejiang Zhenheng Energy Co., Ltd., Zhejiang Shiyue Energy Co., Ltd., and Xuzhou Shenzhan Trading Co., Ltd.

Rong Hai’s top five suppliers for the fiscal year ended December 31, 2020 are Jiangsu Xinhuagang Energy Development Co. Ltd., Zhejiang Zhenheng Energy Co. Ltd., Jiangsu Zhonglin Ganglian Supply Chain Management Co. Ltd., Hunan Xiangzhong Mining Group Co. Ltd., and Linsen Logistics Group Co. Ltd.

Wuge

Wuge relies on one supplier during the fiscal year ended December 31, 2019, Xi’an QIkeli Information Technology Co., Ltd.

Wuge relies on one supplier during the fiscal year ended December 31, 2020, Ali Cloud Computing Co. Ltd.

Production

Rong Hai

Rong Hai uses two tiers membrane filtering system to screen the coal of different specifications, and mix different types of raw coals to produce final coal products. Through our high tech machinery, we manipulate the level of sulfur content, water content, ash content, and other different properties of coal in order to meet our customers’ requirements.

Wuge

Wuge Manor, the game Wuge is developing, is the world’s first game that combines Internet of Things (IoT) and e-commerce that is based on Code Chain platform. It is based on real cities and uses the IoT Grid as the access point to access e-commerce by Code Chain. Through the game, players can have access to hundreds of vendors and business owners in over 100 cities in China, participate in activities those businesses set up and collect points, which can be redeemed as equipment in the game or coupons usable when making purchase at that business. Code Chain access to e-commerce includes Online to Offline (O2O) “scanning QR Code” and social media that seamlessly link offline and online and connect real and virtual directly, so that each IoT Grid becomes an e-commerce access to realize the decentralization of e-commerce access and complete the basic layout for blockchain e-commerce.

Research and Development and Our Technology

Wuge has a strong technology development team, consisted of 26 experienced members, that focused on research, improvement and maintenance the existing and developing games and Code Chain technology.

Copyrights

As of March 25, 2021, Wuge has been granted one copyright, which is currently registered in China.

Certificate
No.

Name

Type

Registration
No.

Application Date

(dd-mm-yy)

Issuance Date

(dd-mm-yy)

4610189

Wuhe Mansion Game Software V1.0

invention

2019SR1189432

05/10/2019

22/11/2019

Competition

Competition for Rong Hai

The local competition is fierce. Our principal competitor is Nantong Huagang Materials Trading Co., Ltd. However, as we have strengths in processing, transportation and reputation, we have been maintaining a favorable position against our competitor and earn loyalty from our largest customer.

Competition for Wuge

Code Chain technology and electronic token are at a developing stage in China. There is currently no established competitor in the market in China.

Recent Development

Proposed Reorganization

General

On March 23, 2020, the Board of Directors and majority stockholders (the “Consenting Stockholders”) holding an aggregate of 15,491,952 shares of Common Stock issued and outstanding as of March 22, 2020 took action by written consent to approve the conversion of the Company from a Nevada corporation to a Cayman Islands exempted company (the “Conversion”).

On April 1, 2020, the Board and the Consenting Stockholders took action by written consent to approve an amendment to the Company’s Articles of Incorporation to change its corporate name to “Code Chain New Continent Limited” (the “Name Change”) and to change the ticker symbol of the Common Stock and warrants (the “Warrants”) to purchase one-half of one shares of Common Stock at a price of $2.88 per half share ($5.75 per whole share) to “CCNC” and “CCNCW”, respectively (the “Symbol Change”).

Following the completion of the Conversion, we are expected to qualify as a “foreign private issuer” under the rules and regulations of the SEC and we expect that the reduced reporting obligations associated with being a foreign private issuer will reduce operational, administrative, legal and accounting costs in the long term. We will remain subject to the mandates of the Sarbanes-Oxley Act, and, as long as our ordinary shares are listed on the Nasdaq, the governance and disclosure rules of that stock exchange. However, as a foreign private issuer, we will be exempt from certain rules under the Exchange Act that would otherwise apply if we were a company incorporated in the United States or did not meet the other conditions to qualify as a foreign private issuer. For example:

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we will not be required to provide the same level of disclosure on certain issues, such as executive compensation;

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we will not be required to conduct advisory votes on executive compensation;

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we will be exempt from filing quarterly reports under the Exchange Act with the SEC;

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we will not be subject to the requirement to comply with Regulation FD, which imposes certain restrictions on the selected disclosure of material information;

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we will not be required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and

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we will not be required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.

We expect to take advantage of these exemptions if the Conversion is effected. Accordingly, after the completion of the Conversion, if you hold our securities, you may receive less information about the Company and our business than you currently receive with respect to the Company and be afforded less protection under the U.S. federal securities laws than you are entitled to currently. However, consistent with our policy of seeking input from, and engaging in discussions with, our stockholders, on executive compensation matters, we intend to provide disclosure relating to its executive compensation philosophy, policies and practices and conduct an advisory vote on executive compensation once every three years after the Conversion is effected. However, we expect to review this practice after the next such advisory vote and may at that time or in the future determine to conduct such advisory votes more frequently or to not conduct them at all.

Additionally, as a foreign private issuer, we will be permitted to follow corporate governance practices in accordance with Cayman Islands laws in lieu of certain Nasdaq corporate governance standards, such as the following Nasdaq corporate governance standards requiring that:

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the majority of the board of directors be comprised of independent directors;

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executive compensation be determined by independent directors or a committee of independent directors;

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director nominees be selected, or recommended for selection by the board of directors, by independent directors or a committee of independent directors;

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an audit committee be comprised of at least three members, each of whom is an independent director and one of whom has finance and accounting experience; and

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all related party transactions be reviewed by the audit committee or another independent body of the board of directors.

Harney Westwood & Riegels, our Cayman Islands counsel, has advised us that there are no comparable Cayman Islands laws related to the above corporate governance standards. Notwithstanding the foregoing, we do not intend to initially rely on any Nasdaq exemptions or accommodations for foreign private issuers following the Conversion.

We believe the Conversion and the related reorganization will enhance stockholder value. However, we cannot predict what impact, if any, the Conversion and reorganization will have in the long term in light of the fact that the achievement of our objectives depends on many things, including, among other things, future laws and regulations, as well as the development of our business.

The Conversion, the Name Change and Symbol Change are not effective as of the date of this report. For a discussion of the risk factors associated with the reorganization, please see the section entitled “Item 1A. Risk Factors—Risks Related to the Conversion.”

Effect of the reorganization

By virtue of the Conversion, all of the rights, privileges and powers of the Company, all property owned by the Company, all debts due to the Company and all other causes of action belonging to the Company immediately prior to the Conversion will remain vested in the Company following the Conversion. In addition, by virtue of the Conversion, all debts, liabilities and duties of the Company immediately prior to the Conversion will remain attached to the Company following the Conversion. The Company will remain as the same entity following the Conversion, and the Conversion will not effect any change in our business, management or operations or the location of our principal executive offices.

Upon effectiveness of the Conversion, all of our issued and outstanding shares of capital stock under Nevada laws will be automatically converted into issued and outstanding shares of share capital of under Cayman Islands laws, without any action on the part of our stockholders.

The Conversion will have no effect on the trading of our shares of capital stock. Upon the effectiveness of the Symbol Change, our ordinary shares are expected to continue listing on Nasdaq Capital market under the new symbol “CCNC”.

Upon effectiveness of the Conversion, our directors and officers will remain as directors and officers. We believe that the Conversion will not affect any of our material contracts with any third parties, and that our rights and obligations under such material contractual arrangements will continue as rights and obligations of the Company incorporated in Cayman Islands.

Procedure for Effecting the Conversion

To accomplish the Conversion, the Board has adopted a plan of conversion. The Plan of Conversion provides that we will convert into an exempted company limited by shares in Cayman Islands and will thereafter be subject to all of the provisions of the Companies Law.

Our common stock is currently listed on the Nasdaq Capital Market and our warrants are quoted on the OTC Pink. Pursuant to Rule 10b-17 of the Securities Exchange Act of 1934, the Conversion, the Name Change and the Symbol Change will require FINRA’s approval in order for it to be recognized for trading purposes. Furthermore, the Conversion, the Name Change and the Symbol Change will result in a change in the CUSIP numbers of our Common Stock (or ordinary share after the conversion) and Warrants. We will provide definitive information on our FINRA approval and new CUSIP numbers in a Current Report on Form 8-K to be filed with the Securities and Exchange Commission prior to the effective date of such Conversion, the Name Change and the Symbol Change. In addition, we are required to notify Nasdaq of the Conversion, the Name Change and the Symbol Change. Specifically, we are required to notify Nasdaq of the Symbol Change no later than two business days prior to the change, the Conversion as soon as practical after the change, and the Name Change no later than 10 calendar days after the change.

The Board will cause the Conversion to be effected as soon as practicable thereafter by filing with the Secretary of State of the State of Nevada articles of conversion (the “Articles of Conversion”) and applying to the Registrar of Companies in the Cayman Islands to be registered by way of continuation as an exempted company limited by shares under the Companies Law. In addition, the Company will adopt the Proposed Articles after the Conversion.

Notwithstanding the foregoing, the Conversion may be delayed by the Board or the Plan of Conversion may be terminated and abandoned by action of the Board at any time prior to the effective time of the Conversion, whether before or after approval by our stockholders, if the Board determines for any reason that such delay or termination would be in the best interests of the Company and our stockholders.

The Conversion will become effective upon the filing (and acceptance thereof by the Secretary of State of the State of Nevada and the Registrar of Companies of Cayman Islands, as applicable) of the Articles of Conversion and the date of registration specified in the certificate issued by the Registrar of Companies in the Cayman Islands confirming registration by way of continuation. The Name Change and Symbol Change will become effective upon will become effective upon the filing (and acceptance thereof by the Secretary of State of the State of Nevada and the Registrar of Companies of Cayman Islands, as applicable) of the Certificate of Amendment and approval by FINRA.

August 2020 Private Placement

See Part II, Item 5(e) “Recent Sales of Unregistered Securities - August 2020 Private Placement”.

February 2021 Offering

See Part II, Item 5(e) “Recent Sales of Unregistered Securities - February 2021 Offering”.

Environmental Matters

As of December 31, 2020, Rong Hai and Wuge were not subject to any fines or legal action involving non-compliance with any relevant environmental regulation, nor are we aware of any threatened or pending action, including by any environmental regulatory authority.

Governmental Regulations

Business license

Any company that conducts business in the PRC must have a business license that covers a particular type of work. Our business license covers our present business of manufacturing, sale and lease of environment protection equipment, development of environment protection technologies and related technology and consulting services. Prior to expanding our business beyond that of our business license, we are required to apply and receive approval from the PRC government.

Employment laws

We are subject to laws and regulations governing our relationship with our employees, including: wage and hour requirements, working and safety conditions, citizenship requirements, work permits and travel restrictions. These include local labor laws and regulations, which may require substantial resources for compliance. China’s National Labor Law, which became effective on January 1, 1995, and amended on August 27, 2009, and China’s National Labor Contract Law, which became effective on January 1, 2008, and amended on December 28, 2012, permit workers in both state and private enterprises in China to bargain collectively. The National Labor Law and the National Labor Contract Law provide for collective contracts to be developed through collaboration between the labor union (or worker representatives in the absence of a union) and management that specify such matters as working conditions, wage scales, and hours of work. The laws also permit workers and employers in all types of enterprises to sign individual contracts, which are to be drawn up in accordance with the collective contract.

Intellectual property protection in China

Patent. The PRC has domestic laws for the protection of copyrights, patents, trademarks and trade secrets. The PRC is also signatory to some of the world’s major intellectual property conventions, including:

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Convention establishing the World Intellectual Property Organization (WIPO Convention) (June 4, 1980);

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Paris Convention for the Protection of Industrial Property (March 19, 1985);

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Patent Cooperation Treaty (January 1, 1994); and

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The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (November 11, 2001).

Patents in the PRC are governed by the China Patent Law and its Implementing Regulations, each of which went into effect in 1985. Amended versions of the China Patent Law and its Implementing Regulations came into effect in 1993, 2001 and 2009, respectively.

The PRC is signatory to the Paris Convention for the Protection of Industrial Property, in accordance with which any person who has duly filed an application for a patent in one signatory country shall enjoy, for the purposes of filing in the other countries, a right of priority during the period fixed in the convention (12 months for inventions and utility models, and 6 months for industrial designs).

The Patent Law covers three kinds of patents — patents for inventions, utility models and designs. The Chinese patent system adopts the principle of first to file, which means that a patent may be granted only to the person who first files an application. Consistent with international practice, the PRC allows the patenting of inventions or utility models that possess the characteristics of novelty, inventiveness and practical applicability only. For a design to be patentable it cannot be identical with, or similar to, any design which, before the date of filing, has been publicly disclosed in publications in the country or abroad or has been publicly used in the country, and should not be in conflict with any prior right of another.

Copyright. Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years.

Trademark. Registered trademarks are protected under the Trademark Law of the PRC and related rules and regulations. Trademarks are registered with the Trademark Office of the SAIC. Where registration is sought for a trademark that is identical or similar to another trademark which has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of such trademark may be rejected. Trademark registrations are effective for a renewable ten-year period, unless otherwise revoked. The duration of a trademark is 10 years from the date of registration.

Domain names. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration.

Regulations on Tax

PRC Corporate Income Tax

The PRC corporate income tax, or CIT, is calculated based on the taxable income determined under the applicable CIT Law and its implementation rules, which became effective on January 1, 2008 and amended on February 24, 2017. The CIT Law imposes a uniform corporate income tax rate of 25% on all resident enterprises in China, including foreign-invested enterprises.

Uncertainties exist with respect to how the CIT Law applies to the tax residence status of The Company and our offshore subsidiaries. Under the CIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for corporate income tax purposes. Although the implementation rules of the CIT Law define “de facto management body” as a managing body that exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise, the only official guidance for this definition currently available is set forth in Circular 82 issued by the State Administration of Taxation, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although the Company does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of Circular 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in Circular 82 to evaluate the tax residence status of The Company and our subsidiaries organized outside the PRC.

According to Circular 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC corporate income tax on its worldwide income only if all of the following criteria are met:

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the primary location of the day-to-day operational management is in the PRC;

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decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC;

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the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders meeting minutes are located or maintained in the PRC; and

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50% or more of voting board members or senior executives habitually reside in the PRC.

We do not believe that we meet any of the conditions outlined in the immediately preceding paragraph.

We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” As all of our management members are based in China, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that we or any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then we or such subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or other disposition of our ordinary shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our ordinary shares.

Value-Added Tax and Business Tax

In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. In May and December 2013 and April 2014, the Ministry of Finance and the State Administration of Taxation promulgated Circular 37, Circular 106 and Circular 43 to further expand the scope of services which are to be subject to Value-Added Tax, or VAT, instead of business tax. Pursuant to these tax rules, from August 1, 2013, VAT will be imposed to replace the business tax in certain service industries, including technology services and advertising services, on a nationwide basis. The VAT rate shall be 17% for sale or importation of goods by a taxpayer. But, unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the revenue from services provided.

Regulations Relating to Foreign Exchange and Dividend Distribution

Foreign Exchange Regulation

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency loans to our PRC subsidiaries.

In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

We typically do not need to use our offshore foreign currency to fund our PRC operations. In the event we need to do so, we will apply to obtain the relevant approvals of SAFE and other PRC government authorities as necessary.

SAFE Circular 37

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

We have notified substantial beneficial owners of ordinary shares who we know are PRC residents of their filing obligation. However, we may not be aware of the identities of all our beneficial owners who are PRC residents. In addition, we do not have control over our beneficial owners and cannot assure you that all of our PRC resident beneficial owners will comply with SAFE Circular 37. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Failure to register or amend the registration may also limit our ability to contribute additional capital to our PRC subsidiaries or receive dividends or other distributions from our PRC subsidiaries or other proceeds from disposal of our PRC subsidiaries, or we may be penalized by SAFE.

Share Option Rules

Under the Administration Measures on Individual Foreign Exchange Control issued by the PBOC on December 25, 2006, all foreign exchange matters involved in employee share ownership plans and share option plans in which PRC citizens participate require approval from SAFE or its authorized branch. Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, under the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of Overseas Publicly-Listed Companies, or the Share Option Rules, issued by SAFE on February 15, 2012, PRC residents who are granted shares or share options by companies listed on overseas stock exchanges under share incentive plans are required to (i) register with SAFE or its local branches, (ii) retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the share incentive plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in connection with their exercise of share options, purchase and sale of shares or interests and funds transfers. We will make efforts to comply with these requirements upon completion of our initial public offering.

Regulation of Dividend Distribution

The principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended, the Wholly Foreign-owned Enterprise Law and its implementation regulations and the Chinese-foreign Equity Joint Venture Law and its implementation regulations. Under these laws, rules and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of such reserves reaches 50% of their registered capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.

Legal Proceedings

From time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of business. None of our operating subsidiaries or variable interest entities is currently a party to any such claims or proceedings which, if decided adversely to the Company, would either, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations or cash flows.

Employees

As of March 24, 2021, Wuge, Rong Hai had 36 and 18, respectively, full-time employees.

We have not experienced any significant labor disputes and consider our relationship with our employees to be good. Our employees are not covered by any collective bargaining agreement.

As we continue to expand our business, we believe it is critical to hire and retain top talent, especially in the areas of marketing and technology engineering. We believe we have the ability to attract and retain high quality engineering talent in China based on our competitive salaries, annual performance-based bonus system, and equity incentive program for senior employees and executives. In addition, we have a training program for entry-level engineers that allows them to work closely with an experienced mentor to gain valuable hands-on experience and provide other professional development opportunities, including seminars where experienced engineers give lectures on specific engineering topics and new methods that can be applied to various projects.

Item 1A. Risk Factors

An investment in our shares of common stock involves a high degree of risk. You should carefully consider the following risk factors, together with the other information contained in this annual report, before you decide to buy any shares. Any of the following risks could cause our business, results of operations and financial condition to suffer materially, causing the market price of our shares of common stock to decline, in which event you may lose part or all of your investment in our shares of common stock. Additional risks and uncertainties not currently known to us or that we currently do not deem material may also become important factors that may materially and adversely affect our business.

Risks Related to Our Business and Operations

Our business, results of operations and financial condition have been and may be further adversely affected by global public health epidemics, including the strain of coronavirus known as COVID-19.

In December 2019, a novel strain of coronavirus causing respiratory illness (“COVID-19”) surfaced in Wuhan, China, spreading at a fast rate in January and February of 2020, and confirmed cases were also reported in other parts of the world. In reaction to this outbreak, an increasing number of countries imposed travel suspensions to and from China following the World Health Organization’s “public health emergency of international concern” announcement on January 30, 2020. Since this outbreak, business activities in China and many other countries including U.S. have been disrupted by a series of emergency quarantine measures taken by the government.

As a result, our operations in China and U.S. have been materially affected. Our office in Hubei Province, China were closed since the lockdown was enforced on January 23, 2020. The economic disruption caused by COVID-19 were catastrophic for our waste management business in Wuhan, which had no revenue and negative operating income since the fourth quarter of 2019 and no revenue or operating income for the first and second quarter of 2020. We lost employees, suppliers and customers and were not been able to recover. As a result, we sold our businesses located in Wuhan. See “Our Company – Corporate History – Disposition of China Sunlong”. Our offices in Jiangsu Province and Sichuan Province in China were temporarily closed from early February until early March 2020. We have seen a slowdown in revenue growth in first three quarters of 2020.

The extent to which COVID-19 negatively impacts our business is highly uncertain and cannot be accurately predicted. We believe that the coronavirus outbreak and the measures taken to control it may have a significant negative impact on not only our business, but economic activities globally. The magnitude of this negative effect on the continuity of our business operation in China and in the U.S. remains uncertain. These uncertainties impede our ability to conduct our daily operations and could materially and adversely affect our business, financial condition and results of operations, and as a result could adversely affect our stock price and create more volatility.

Our operating companies, Rong Hai and Wuge, both contractually controlled by the Company, have limited operating histories, which make it difficult to evaluate their businesses and prospects.

Rong Hai began operating in May 2009 and has a limited operating history. Rong Hai generated $18.31 million in revenue in 2017, $17.47 million in revenue in 2018, $19.58 million in 2019 and $11.3 million in 2020. But the past revenue might not be indicative of future performance. Similarly, Wuge commenced operation in October 2019 and is in the development stage. Wuge has generated about $591,455 in revenue in 2020. We cannot guarantee whether Wuge will continue to generate revenue. You should consider our future prospects in light of the risks and uncertainties experienced by early stage companies in evolving industries, such as the coal products and alternative energy industries and the Internet of Things industry in China. Rong Hai’s and Wuge’s limited history may not serve as an adequate basis to judge our future prospects and results of operations. Our operations are subject to all of the risks, challenges, complications and delays frequently encountered in connection with the operation of any new business, as well as those risks that are specific to the coal trading industry. Investors should evaluate us in light of the problems and uncertainties frequently encountered by companies attempting to develop markets for new products and technologies. Despite our best efforts, we may never overcome these obstacles.

We will continue to encounter risks and difficulties that companies at a similar stage of development frequently experience, including the potential failure to:

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obtain sufficient working capital and increase its registered capital to support expansion of our industrial and mining recycling business;

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comply with any changes in the laws and regulations of the PRC or local province that may affect our operations;

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expand our customer base;

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maintain adequate control of default risks and expenses allowing us to realize anticipated revenue growth;

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implement our growth strategies and plans and adapt and modify them as needed;

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integrate any future business combinations; and

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anticipate and adapt to changing conditions in the Chinese industrial and mining recycling industry resulting from changes in government regulations, mergers and Business Combinations involving our competitors, and other significant competitive and market dynamics.

If we are unable to address any or all of the foregoing risks, our business may be materially and adversely affected.

Our revenues are highly dependent on a small number of customers, and we will likely continue to be dependent on a small number of customers.

Three of Company’s customers accounted for 99.1% of our total revenues for the year ended December 31, 2020. We are, and will likely continue to be, dependent on a small number of customers, and the loss of any such customer would materially and adversely affect our business, operating results and financial condition. Furthermore, as a result of our reliance on a limited number of customers, we could face pricing and other competitive pressures which may have a material adverse effect on our business, operating results and financial condition.

A significant part of Rong Hai’s revenues is also derived from a small number of customers. Rong Hai expects a small number of customers will continue to generate a substantial portion of our revenues for the foreseeable future. As of December 31, 2020, Nantong Linan Industrial Trading Co. Ltd. accounts for 99.1% of the company’s total sales. The loss of Nantong Linan, or the change of the contractual terms of the contract entered between Rong Hai and Nantong Linan or any significant dispute with Nantong Linan could materially adversely affect its financial condition and its results of operations.

If one or more of Rong Hai’s customers does not perform under one or more contracts with it and Rong Hai is not able to find a replacement contract, or if a customer exercises certain rights to terminate the contract, Rong Hai could suffer a loss of revenues that could materially adversely affect its business, financial condition and results of operations.

The coal wholesale industry and IoT industry are competitive in China and could cause us to lose market share and revenues in the future.

The coal wholesale industry and IoT industry are very competitive in China, and we expect these industries to become more competitive as it begins to consolidate. Some of our competitors will likely have substantially greater financial, marketing and other resources than us. As a result, we could lose market share and our revenues could decline, thereby adversely affecting our earnings and potential for growth. While we believe that we will be able to successfully compete in this area as a result of our proprietary technology, there is no assurance that we will be able to hire and retain the necessary employees and compete successfully.

Wuge may be unable to gain any significant market acceptance for our products and services or be unable to establish a significant market presence.

Wuge’s growth strategy for is substantially dependent upon our ability to market our intended products and services successfully to prospective clients in China. This requires that we heavily rely upon our development and marketing partners. Failure to select the right development and marketing partners will significantly delay or prohibit our ability to develop our intended products and services, market the products and gain market acceptance. Our intended products and services may not achieve significant market acceptance. If acceptance is achieved, it may not be sustained for any significant period of time. Failure of our intended products and services to achieve or sustain market acceptance could have a material adverse effect on our business, financial conditions and the results of our operations.

If potential users within the target markets do not widely adopt Code Chain technology and IoT services or Wuge fails to achieve and sustain sufficient market acceptance, we will not generate sufficient revenue, if at all, and our growth prospects, financial condition and results of operations could be harmed.

Wuge may never gain significant acceptance in the marketplace and, therefore, may never generate substantial revenue or allow us to achieve or maintain profitability. Widespread adoption of Code Chain technology and IoT services in China depends on many factors, including acceptance by users that such systems and methods or other options. Our ability to achieve commercial market acceptance for Wuge or any other future products also depends on the strength of our sales, marketing and distribution organizations.

Cyber security risks could adversely affect Wuge’s busines and disrupt its operations.

The threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent breaches, Wuge’s products devices and those of third parties that we use in our operations are vulnerable to cyber security risks, including cyber attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, employee theft or misuse, and similar disruptions from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations, which could lead to interruptions, delays, loss of critical data, and loss of consumer confidence.

In addition, we may be the target of email scams that attempt to acquire sensitive information or company assets. Despite our efforts to create security barriers to such threats, we may not be able to entirely mitigate these risks. Any cyber attack that attempts to obtain our data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could adversely affect our business, operating results, and financial condition, be expensive to remedy, and damage our reputation.

An assertion by a third party that we are infringing its intellectual property could subject us to costly and time-consuming litigation or expensive licenses and our business could be harmed.

The technology industries involving IoT devices, software and services are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Much of this litigation involves patent holding companies or other adverse patent owners who have no relevant product revenues of their own, and against whom our own patent portfolio may provide little or no deterrence.

We cannot assure you that we, our subsidiaries or our variable interest entities will prevail in any future intellectual property infringement or other litigation given the complex technical issues and inherent uncertainties in such litigation. Defending such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause development delays, or require us or our subsidiaries to enter into royalty or licensing agreements. In addition, we, our subsidiaries or our variable interest entities could be obligated to indemnify our customers against third parties’ claims of intellectual property infringement based on our products or solutions. If our products or solutions violate any third-party intellectual property rights, we could be required to withdraw them from the market, re-develop them or seek to obtain licenses from third parties, which might not be available on reasonable terms or at all. Any efforts to re-develop our products or solutions, obtain licenses from third parties on favourable terms or license a substitute technology might not be successful and, in any case, might substantially increase our costs and harm our business, financial condition and operating results. Withdrawal of any of our products or solutions from the market could harm our business, financial condition and operating results.

Failure to manage Rong Hai and Wuge effectively since its acquisition could materially impact our business.

The recent acquisition of Rong Hai and Wuge have placed, and future growth will place, a significant strain on the Company’s management, administrative, operational and financial infrastructure. The Company’s success will depend in part on its ability to manage Rong Hai and Wuge effectively. To manage the recent and expected growth of its operations and personnel, the Company will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. Failure to effectively manage Rong Hai and Wuge could result in difficulty or delays in deploying the Company’s services to customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties. Any of these difficulties could adversely impact the Company’s business performance and results of operations.

Rong Hai’s business and results of operations are dependent on the PRC coal markets, which may be cyclical.

As its revenue is substantially derived from the sale of steam coal, Rong Hai’s business and operating results are substantially dependent on the domestic supply of steam coal. The PRC coal market is cyclical and exhibits fluctuation in supply and demand from year to year and is subject to numerous factors beyond our control, including, but not limited to, economic conditions in the PRC, global economic conditions, and fluctuations in industries with high demand for coal, such as the utilities and steel industries. Fluctuations in supply and demand for coal affects coal prices which, in turn, may have an adverse effect on our operating and financial performance. The demand for coal is primarily affected by overall economic development and the demand for coal from the electricity generation, steel and construction industries. The supply of coal, on the other hand, is primarily affected by the geographic location of the coal supplies, the volume of coal produced by domestic and international coal suppliers, and the quality and price of competing sources of coal. Alternative fuels such as natural gas and oil, alternative energy sources such as hydroelectric power and nuclear power, and international shipping costs also impact the market demand for coal. Excess demand for coal may increase coal prices, which would have an adverse effect on the cost of goods sold which would, in turn, cause a short-term decline in our profitability if we are unable to increase the price of our steam coal to our customers. Local government may regulate residential winter heating prices so they are not increased above a certain threshold, thus our residential heating customers may not be able to pay higher steam coal prices. As a result, Rong Hai may not be able to increase its steam coal price in response to any increase in coal price or Rong Hai may have to decrease its steam coal price when it renews contracts with its customers. As a result, Rong Hai may not able to keep its gross margin.

Our results of operations are subject, to a significant extent, to economic, political and legal developments in the PRC.

All of the sales of Rong Hai and Wuge were made to customers based in the PRC. We expect that a majority of their sales will continue to be made to customers based in the PRC. Accordingly, the economic, political and social conditions, as well as government policies, of the PRC may affect our business. The PRC economy differs from the economies of most developed countries in many respects, including: (i) structure; (ii) level of government involvement; (iii) level of development; (iv) growth rate; (v) control of foreign exchange and (vi) allocation of resources. The PRC economy has been transitioning from a planned economy to a more market-oriented economy. For the past two decades, the PRC government has implemented economic reform measures emphasizing the utilization of market forces in the development of the PRC economy. Changes in the PRC’s political, economic and social conditions, laws, regulations and policies could materially and adversely affect our business and results of operations. In addition, the PRC government indirectly influences coal prices through its regulation of power tariffs and its control over the allocation of the transportation capacity of the national rail system. Any significant downturn in coal prices in the PRC could materially and adversely affect our business and results of operations. Additionally, the PRC government could adopt new policies that could shift demand away from coal to other energy sources. Any significant decline in demand for, or over-supply of, coal could materially and adversely affect our revenues from coal export sales.

Competition could put downward pressure on coal prices and, as a result, materially and adversely affect our revenues and profitability.

Rong Hai competes with numerous other domestic and foreign coal producers for domestic sales. Overcapacity and increased production within the domestic coal industry, and decelerating steel demand in Asia have at times, and could in the future, materially reduce coal prices and therefore could materially reduce our revenues and profitability. Potential changes to international trade agreements, trade policies, trade concessions or other political and economic arrangements may benefit coal producers operating in countries other than China. We may not be able to compete on the basis of price or other factors with companies that in the future benefit from favorable foreign trade policies or other arrangements. In addition, our ability to ship our coal to international customers depends on port capacity, which is limited. Increased competition within the coal industry for international sales could result in us not being able to obtain throughput capacity at port facilities, or could result in the rates for such throughput capacity increasing to a point where it is not economically feasible to export our coal.

The domestic coal industry has experienced consolidation in recent years, including consolidation among some of our major competitors. In addition, substantial overcapacity exists in the coal industry and several other large coal companies have also filed, and others may file, bankruptcy proceedings which could enable them to lower their productions costs and thereby reduce the price for their coal, which in turn could adversely affect our revenues if we are not able to similarly reduce our prices. Consolidation in the coal industry or current or future bankruptcy proceedings of our coal competitors could adversely affect our competitive position.

In addition to competing with other coal producers, Rong Hai competes generally with producers of other fuels, such as natural gas. Natural gas pricing has declined significantly in recent years. The decline in the price of natural gas has caused demand for coal to decrease and adversely affected the price of our coal. Sustained periods of low natural gas prices have also contributed to utilities phasing out or closing existing coal-fired power plants and continued low prices could reduce or eliminate construction of any new coal-fired power plants. This trend has, and could continue to have, a material adverse effect on demand and prices for our coal. Moreover, the construction of new pipelines and other natural gas distribution channels may increase competition within regional markets and thereby decrease the demand for and price of our coal.

As a “smaller reporting company” under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our common stock less attractive to investors.

For as long as we remain an “smaller reporting company” as defined in Rule 405 of the Securities Act of 1933, as amended (the “Securities Act”) and Item 10 of the Regulation S-K, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “smaller reporting companies”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and the ability to include only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations disclosure. Because of these lessened regulatory requirements, our stockholders would be left without information or rights available to stockholders of more mature companies. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Risks Related to Our Corporate Structure

The failure to comply with PRC regulations relating to mergers and acquisition of domestic enterprises by offshore special purpose vehicles may subject the Company to severe fines or penalties and create other regulatory uncertainties regarding the Company’s corporate structure.

On August 8, 2006, the Ministry of Commerce (“MOFCOM”), joined by the China Securities Regulatory Commission (“CSRC”), the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation (“SAT”), the State Administration for Industry and Commerce (the “SAIC”), and the State Administration of Foreign Exchange (“SAFE”), jointly promulgated regulations entitled the Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”), which took effect as of September 8, 2006, and as amended on June 22, 2009. This regulation, among other things, has certain provisions that require offshore companies formed for the purpose of acquiring PRC domestic companies and controlled directly or indirectly by PRC individuals and companies which are the related parties with the PRC domestic companies, to obtain the approval of MOFCOM prior to engaging in such acquisitions and to obtain the approval of the CSRC prior to publicly listing special purpose vehicles’ securities on an overseas stock market. On September 21, 2006, the CSRC published on its official website a notice specifying the documents and materials that are required to be submitted for obtaining CSRC approval.

The application of the M&A Rules with respect to the Company’s corporate structure remains unclear, with no current consensus existing among leading PRC law firms regarding the scope and applicability of the M&A Rules. We believe that the MOFCOM and CSRC approvals under the M&A Rules are not required in the context of the contractual arrangements with Rong Hai and Wuge, our operating entities in China, because both Tongrong WFOE and Makesi WFOE were incorporated as wholly owned foreign investment enterprise with the approval of local department of commerce. However, we cannot be certain that the relevant PRC government agencies, including the CSRC and MOFCOM, would reach the same conclusion, and we cannot be certain that MOFCOM or the CSRC will not deem that the contractual arrangements circumvent the M&A Rules, and other rules and notices, or that prior MOFCOM or CSRC approval is required for overseas financing.

If the CSRC, MOFCOM, or another PRC regulatory agency subsequently determines that CSRC, MOFCOM or other approval was required for the contractual arrangement with Rong Hai and Wuge, our operating entities in China, or if prior CSRC approval for overseas financings is required and not obtained, the Company may face severe regulatory actions or other sanctions from MOFCOM, the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines or other penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from overseas financings into the PRC, restrict or prohibit payment or remittance of dividends to us or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our shares of common stock. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to delay or cancel overseas financings, to restructure the Company’s corporate structure, or to seek regulatory approvals that may be difficult or costly to obtain.

The M&A Rules, along with certain foreign exchange regulations discussed below, will be interpreted or implemented by the relevant government authorities in connection with our future offshore financings or acquisitions, and we cannot predict how they will affect our future acquisition strategy.

PRC regulations relating to investments in offshore companies by PRC residents may subject The Company’s PRC-resident beneficial owners or its PRC subsidiaries to liability or penalties, limit our ability to inject capital into its PRC subsidiaries or limit its PRC subsidiaries’ ability to increase their registered capital or distribute profits.

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC resident holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

SAFE promulgated the Notice of SAFE on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment, or SAFE Circular 13, on February 13, 2015, which was effective on June 1, 2015. SAFE Circular 13 cancels two administrative approval items: foreign exchange registration under domestic direct investment and foreign exchange registration under overseas direct investment, instead. Banks shall directly examine and handle foreign exchange registration under domestic direct investment and foreign exchange registration under overseas direct investment, and SAFE and its branch shall indirectly regulate the foreign exchange registration of direct investment through banks.

The Company may not be aware of the identities of all of its beneficial owners who are PRC residents. The Company does not have control over its beneficial owners and cannot assure you that all of its PRC-resident beneficial owners will comply with SAFE Circular 37, SAFE Circular 13 and subsequent rules implemented by SAFE. The failure of the Company’s beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37, SAFE Circular 13 and subsequent implementation rules, or the failure of future beneficial owners of the Company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37, SAFE Circular 13 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Furthermore, since SAFE Circular 37 and SAFE Circular 13 was recently promulgated and it is unclear how such regulations, and any future regulations concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, the Company cannot predict how these regulations will affect its business operations or future strategy. Failure to register or comply with relevant requirements may also limit the Company’s ability to contribute additional capital to its PRC subsidiaries and limit its PRC subsidiaries’ ability to distribute dividends to the Company. These risks may have a material adverse effect on the Company’s business, financial condition and results of operations.

If Rong Hai or Wuge fails to maintain the requisite licenses and approvals required under PRC law, our business, financial condition and results of operations may be materially and adversely affected.

Foreign investment is highly regulated by the PRC government and local authorities. Rong Hai and Wuge are required to obtain and maintain certain licenses or approvals from different regulatory authorities in order to operate their respective current businesses. These licenses and approvals are essential to the operation of their businesses, for example, the value-added telecommunication business carried out by Wuge. If Rong Hai and Wuge fail to obtain or maintain any of the required licenses or approvals for its business, we may be subject to various penalties, such as fines and the discontinuation or restriction of its operations. Any such disruption in the business operations of Rong Hai and Wuge could materially and adversely affect our business, financial condition and results of operations.

If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with applicable PRC laws and regulations, or if these laws and regulations or their interpretations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

PRC laws and regulations impose certain restrictions and prohibitions on foreign ownership of companies that engage in Internet and other related businesses. The Special Administrative Measures for Entrance of Foreign Investment (Negative List) (2020 Version) provides that foreign investors are generally not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider other than an e-commerce service provider, among others, and the Provisions on the Administration of Foreign-Invested Telecommunications Enterprises (2016 Revision) requires that the major foreign investor in a value-added telecommunication service provider in China must have experience in providing value-added telecommunications services overseas and maintain a good track record.

To ensure compliance with the PRC laws and regulations, our wholly owned subsidiary, or WFOE, conduct our business in China mainly through our Wuge based on a series of contractual arrangements by and among our WFOE, our VIE and the respective shareholders of our VIE, which enable us to (i) exercise effective control over our VIEs, (ii) receive substantially all of the economic benefits of our VIEs, and (iii) have an exclusive option to purchase all or part of the equity interests and assets in our VIEs when and to the extent permitted by PRC law. As a result of these contractual arrangements, we have control over and are the primary beneficiary of our VIE and hence consolidate their financial results into our consolidated financial statements under IFRS. See “Corporate History and Structure” for further details.

If the contractual arrangements among our WFOEs, our VIEs and their respective shareholders are determined to be illegal or invalid, or if we or our VIEs fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations or failures, including:

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revoking the business license and/or operating license of such entities;

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placing restrictions on our operations or our right to collect revenues;

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imposing fines, confiscating the income from our WFOEs or VIEs, or imposing other requirements with which we or our VIEs may not be able to comply;

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requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements and deregistering equity pledges made by the shareholders of our VIEs, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control over our VIEs;

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restricting or prohibiting our use of the proceeds of any offering to finance our business and operations in China; or

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taking other regulatory or enforcement actions that could be harmful to our business.

The imposition of any of these penalties could cause us to lose our right to direct the activities of our VIEs or our right to receive substantially all of the economic benefits and residual returns from our VIEs and result in a material adverse effect on our ability to conduct our business. In addition, it is unclear what impact these actions would have on us and on our ability to consolidate the financial results of our VIEs in our consolidated financial statements, if the PRC government authorities were to find our legal structure and contractual arrangements to be in violation of PRC laws and regulations. If we are not able to restructure our ownership structure and operations in a manner satisfactory to relevant PRC regulatory authorities, our results of operations and financial condition could be materially and adversely affected.

Substantial uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, business operations and financial results.

On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which came into effect on January 1, 2020 and replaced the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Foreign Owned Enterprise Law as the legal basis for foreign investment in the PRC. The Foreign Investment Law defines the “foreign investment” as investment activities in China conducted directly or indirectly by foreign investors in the following manners: (i) the foreign investor, by itself or together with other investors, establishes a foreign invested enterprise in China; (ii) the foreign investor acquires shares, equities, asset tranches, or similar rights and interests of enterprises in China; (iii) the foreign investor, by itself or together with other investors, invests in and establishes new projects in China; or (iv) the foreign investor invests through other approaches as stipulated by laws, administrative regulations or as otherwise regulated by the State Council. However, since the Foreign Investment Law is relatively new, uncertainties still exist in relation to its interpretation and implementation. While the Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, it is possible that foreign investment via contractual arrangements may be interpreted as a type of indirect foreign investment activity that falls within the definition of “foreign investment” or future laws, administrative regulations or provisions promulgated by the State Council.

In any of these cases, our contractual arrangements may be deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure and business operations.

Risks Related to Doing Business in China

A slowdown of the Chinese economy or adverse changes in economic and political policies of the PRC government could negatively impact China’s overall economic growth, which could materially adversely affect our business.

We are a holding company and all of the combined company’s operations are entirely conducted in the PRC. Although the PRC economy has grown in recent years, the pace of growth has slowed, and even that rate of growth may not continue. The annual rate of growth in the PRC declined from 6.6% in 2018 to 6.1% in 2019. According to a recent State Information of China forecast, China’s economic growth rate in 2020 will slow to 6.0%, its lowest since 1990. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in the PRC may materially reduce the demand for the combined company’s products and may have a materially adverse effect on its business.

China’s economy differs from the economies of most other countries in many respects, including the amount of government involvement in the economy, the general level of economic development, growth rates and government control of foreign exchange and the allocation of resources. While the PRC economy has grown significantly over the past few decades, this growth has remained uneven across different periods, regions and economic sectors.

The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Any actions and policies adopted by the PRC government could negatively impact the Chinese economy or the economy of the region the combined company serves, which could materially adversely affect the combined company’s business.

Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business the combined company may be able to conduct in the PRC and accordingly on the results of its operations and financial condition.

The combined company’s business operations may be adversely affected by the current and future political environment in the PRC. The Chinese government exerts substantial influence and control over the manner in which the combined company must conduct its business activities. The combined company’s ability to operate in China may be adversely affected by changes in Chinese laws and regulations. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activities and greater economic decentralization. However, the government of the PRC may not continue to pursue these policies, or may significantly alter these policies from time to time without notice.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing the Company’s business, or the enforcement and performance of the Company’s arrangements with borrowers in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. Only after 1979 did the Chinese government begin to promulgate a comprehensive system of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encourage foreign investment in China. Although the influence of the law has been increasing, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. Also, because these laws and regulations are relatively new, and because of the limited volume of published cases and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, there have been constant changes and amendments of laws and regulations over the past 30 years in order to keep up with the rapidly changing society and economy in China. Because government agencies and courts provide interpretations of laws and regulations and decide contractual disputes and issues, their inexperience in adjudicating new business and new polices or regulations in certain less developed areas causes uncertainty and may affect the Company’s business. Consequently, we cannot predict the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness on enforcement of laws and regulations in China. The uncertainties, including new laws and regulations and changes of existing laws, as well as judicial interpretation by inexperienced officials in the agencies and courts in certain areas, may cause possible problems to foreign investors, including investors in shares of our common stock.

Rong Hai’s and Wuge’s business is subject to extensive regulation and supervision by state, provincial and local government authorities, which may interfere with the way the Company conducts its business and may negatively impact its financial results.

Rong Hai and Wuge is subject to extensive and complex state, provincial and local laws, rules and regulations with regard to its loan operations, capital structure, maximum interest rates, allowance for loan losses, among other things, as set out in “Business — Government Regulations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on April 17, 2020, and Amendment No. 1 to Annual Report Form 10-K, filed with the SEC on May 14, 2020. These laws, rules and regulations are issued by different central government ministries and departments, provincial and local governments and are enforced by different local authorities in China’s Hubei Province, the city of Wuhan, the city of Suzhou, and the city of Chengdu. As a result of the complexity, uncertainties and constant changes in these laws, rules and regulation, including changes in interpretation and implementation of such, Rong Hai’s and Wuge’s business activities and growth may be adversely affected if it does not respond to such changes in a timely manner or is found to be in violation of the applicable laws, regulations and policies as a result of a position taken by the relevant competent authority in the interpretation of such applicable laws, regulations and policies that is different from Rong Hai’s and Wuge’s position. If Rong Hai or Wuge is found to be not in compliance with such laws and regulations, it may be subject to sanctions by regulatory authorities, monetary penalties and/or reputation damage, which could have a material adverse effect on the Company’s business operations and profitability.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions against us or our management, in China, based upon United States laws, including the U.S. federal securities laws, or other foreign laws.

We are a company incorporated in Nevada. After the Business Combination, substantially all of our operations will be conducted in China, and substantially all of our assets will be located in China. All of our current and proposed directors and officers reside in China, and substantially all of the assets of those persons are located outside of the United States. As a result, Allbright Law, our counsel as to PRC law, has advised us that it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce judgments against us which are obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

Allbright Law has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States providing for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors or officers if they decide that the judgment violates the basic principles of PRC laws, national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.

Allbright Law has also advised us that in the event shareholders originate an action against a company without domicile in China for disputes related to contracts or other property interests, the PRC courts may accept a cause of action if (a) the disputed contract is concluded or performed in the PRC or the disputed subject matter is located in the PRC, (b) the company (as defendant) has properties that can be seized within the PRC, (c) the company has a representative organization within the PRC, or (d) the parties chose to submit to the jurisdiction of the PRC courts in the contract on the condition that such submission does not violate the requirements of jurisdiction under the PRC Civil Procedures Law. The action may be initiated by the shareholder by filing a complaint with the PRC courts. The PRC courts would determine whether to accept the complaint in accordance with the PRC Civil Procedures Law. The shareholder may participate in the action by itself or entrust any other person or PRC legal counsel to participate on behalf of such shareholder. Foreign citizens and companies will have the same rights as PRC citizens and companies in such an action unless such foreign country restricts the rights of PRC citizens and companies.

Our ability to pay dividends may be restricted due to foreign exchange control and other regulations of China.

As an offshore holding company, we will rely principally on dividends from our subsidiary in China, WFOE, for our cash requirements. Under the applicable PRC laws and regulations, foreign-invested enterprises 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 foreign-invested enterprise in China is required to set aside a portion of its after-tax profit to fund specific reserve funds prior to payment of dividends. In particular, at least 10% of its after-tax profits based on PRC accounting standards each year is required to be set aside towards its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends.

Furthermore, WFOE’s ability to pay dividends may be restricted due to foreign exchange control policies and the availability of its cash balance. Substantially all of the Operating Companies’ operations are conducted in China and all of the revenue we recognize, through WFOE will be denominated in RMB. RMB is subject to exchange control regulation in China, and, as a result, WFOE may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict our ability to convert RMB into U.S. dollars.

The lack of dividends or other payments from WFOE may limit our ability to make investments or Business Combinations that could be beneficial to our business, pay dividends or otherwise fund, and conduct our business. Our funds may not be readily available to us to satisfy obligations which have been incurred outside the PRC, which could adversely affect our business and prospects or our ability to meet our cash obligations. Accordingly, if we do not receive dividends from WFOE, our liquidity and financial condition will be materially and adversely affected.

Dividends payable to our foreign investors and gains on the sale of our shares of common stock by our foreign investors may become subject to tax by the PRC.

Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council of the PRC, a 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC. Similarly, any gain realized on the transfer of shares by such investors is also subject to PRC tax at a current rate of 10%, subject to any reduction or exemption set forth in relevant tax treaties, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on our shares, and any gain realized from the transfer of our shares, would be treated as income derived from sources within the PRC and would as a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer shares by such investors may be subject to PRC tax at a current rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties. It is unclear whether we or any of our subsidiaries established outside of China are considered a PRC resident enterprise, holders of shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to our non-PRC investors, or gains from the transfer of our shares by such investors are subject to PRC tax, the value of your investment in our shares may decline significantly.

Our global income may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect on our results of operations.

Under the PRC Enterprise Income Tax Law, or the New EIT Law, and its amendment and implementation rules, which became effective in January 2008, an enterprise established outside of the PRC with a “de facto management body” located within the PRC is considered a PRC resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel and human resources, finance and treasury, and Business Combination and disposition of properties and other assets of an enterprise.” On April 22, 2009, the State Administration of Taxation (the “SAT”), issued a circular, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although the SAT Circular 82 only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the determining criteria set forth in the SAT Circular 82 may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the resident status of all offshore enterprises for the purpose of PRC tax, regardless of whether they are controlled by PRC enterprises or individuals. Although we do not believe that our legal entities organized outside of the PRC constitute PRC resident enterprises, it is possible that the PRC tax authorities could reach a different conclusion. In such case, we may be considered a PRC resident enterprise and may therefore be subject to the 25% enterprise income tax on our global income, which could significantly increase our tax burden and materially and adversely affect our cash flow and profitability. In addition to the uncertainty regarding how the new PRC resident enterprise classification for tax purposes may apply, it is also possible that the rules may change in the future, possibly with retroactive effect.

We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

On February 3, 2015, the State Administration of Taxation issued an Announcement on Several Issues Concerning Enterprise Income Tax on Income Arising from Indirect Transfers of Property by Non-PRC Resident Enterprises, or Announcement 7, with the same effective date. Under Announcement 7, an “indirect transfer” refers to a transaction where a non-resident enterprise transfers its equity interest and other similar interest in an offshore holding company, which directly or indirectly holds Chinese taxable assets (the assets of an “establishment or place” situated in China; real property situated in China and equity interest in Chinese resident enterprises) and any indirect transfer without reasonable commercial purposes are subject to the PRC taxation. In addition, Announcement 7 specifies the conditions under which an indirect transfer is deemed to lack a reasonable commercial purpose which include: (1) 75% or more of the value of the offshore holding company’s equity is derived from Chinese taxable assets, (2) anytime in the year prior to the occurrence of the indirect transfer of Chinese taxable assets, 90% or more of the total assets (excluding cash) of the offshore holding company are direct or indirect investment in China, or 90% or more of the revenue of the offshore holding company was sourced from China; (3) the functions performed and risks assumed by the offshore holding company(ies), although incorporated in an offshore jurisdiction to conform to the corporate law requirements there, are insufficient to substantiate their corporate existence and (4) the foreign income tax payable in respect of the indirect transfer is lower than the Chinese tax which would otherwise be payable in respect of the direct transfer if such transfer were treated as a direct transfer. As a result, gains derived from such indirect transfer will be subject to PRC enterprise income tax, currently at a rate of 10%.

Announcement 7 grants a safe harbor under certain qualifying circumstances, including transfers in the public securities market and certain intragroup restricting transactions, however, there is uncertainty as to the implementation of Announcement 7. For example, Announcement 7 requires the buyer to withhold the applicable taxes without specifying how to obtain the information necessary to calculate taxes and when the applicable tax shall be submitted. Announcement 7 may be determined by the tax authorities to be applicable to our offshore restructuring transactions or sale of the shares of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved. Though Announcement 7 does not impose a mandatory obligation of filing the report of taxable events, the transferring party shall be subject to PRC withholding tax if the certain tax filing conditions are met. Non-filing may result in an administrative penalty varying from 50% to 300% of unpaid taxes. As a result, we and our non-resident enterprises in such transactions may become at risk of being subject to taxation under Announcement 7, and may be required to expend valuable resources to comply with Announcement 7 or to establish that we and our non-resident enterprises should not be taxed under Announcement 7, for any restructuring or disposal of shares of our offshore subsidiaries, which may have a material adverse effect on our financial condition and results of operations.

Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular 59 and Circular 698, which became effective in January 2008, and a Circular 7 in replacement of some of the existing rules in Circular 698, which became effective in February 2015.

Under Circular 698, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise” indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.

In February 2015, the SAT issued Circular 7 to replace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced a new tax regime that is significantly different from that under Circular 698. Circular 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.

We face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed, under Circular 59 or Circular 698 and Circular 7, and may be required to expend valuable resources to comply with Circular 59, Circular 698 and Circular 7 or to establish that we and our non-resident enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

The PRC tax authorities have the discretion under SAT Circular 59, Circular 698 and Circular 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. We may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make adjustments to the taxable income of the transactions under SAT Circular 59 or Circular 698 and Circular 7, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.

Restrictions on currency exchange may limit our ability to utilize our revenue effectively.

Substantially all of our revenue is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of SAFE by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a significant amount of our future revenue will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE or banks and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for all of our PRC subsidiaries.

Fluctuations in the foreign currency exchange rate between U.S. Dollars and Renminbi could adversely affect our financial condition.

The value of the RMB against the U.S. dollar and other currencies may fluctuate. Exchange rates are affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC government changed its policy of pegging the value of the RMB to the U.S. dollar. Under this policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of foreign currencies. Following the removal of the U.S. dollar peg, the RMB appreciated more than 20% against the U.S. dollar over three years. From July 2008 until June 2010, however, the RMB traded stably within a narrow range against the U.S. dollar. On June 20, 2010, the PBOC announced that the PRC government would reform the RMB exchange rate regime and increase the flexibility of the exchange rate. In April 2012, the PRC government announced it would allow greater RMB exchange rate fluctuation. On August 11, 12 and 13, 2015, the PRC government successively set the central parity rate for the RMB more than 3% lower in the aggregate than that of August 10, 2015 and announced that it will begin taking into account previous day’s trading in setting the central parity rate. In 2015, the yuan experienced a 4.88% drop in value, and on January 4, 2016 the PRC government set the U.S. dollar-Chinese yuan currency pair to a reference rate of 6.5%, the lowest rate in 4.5 years, on January 6, 2017, the reference rate was 0.9% up-regulated by the PRC government. However, it is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. As significant international pressure remains on the PRC government to adopt a more flexible currency policy, greater fluctuation of the RMB against the U.S. dollar could result.

Our revenues and costs are mostly denominated in the RMB, and a significant portion of our financial assets are also denominated in the RMB. Any significant fluctuations in the exchange rate between the RMB and the U.S. dollar may materially adversely affect our cash flows, revenues, earnings and financial position, and the amount of and any dividends we may pay on our shares in U.S. dollars. Fluctuations in the exchange rate between the RMB and the U.S. dollar could also result in foreign currency translation losses for financial reporting purposes.

If any dividend is declared in the future and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

If you are a U.S. holder of our shares of common stock, you will be taxed on the U.S. dollar value of your dividends, if any, at the time you receive them, even if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, if a dividend is declared and paid in a foreign currency such as the RMB, the amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

Future inflation in China may inhibit economic activity and adversely affect the combined company’s operations.

The Chinese economy has experienced periods of rapid expansion in recent years which can lead to high rates of inflation or deflation. This has caused the PRC government to, from time to time, enact various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the PRC government to once again impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China. Any action on the part of the PRC government that seeks to control credit and/or prices may adversely affect the combined company’s business operations.

PRC laws and regulations have established more complex procedures for certain acquisitions of Chinese companies by foreign investors, which could make it more difficult for the combined company to pursue growth through acquisitions in China.

Further to the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rules, the Anti-monopoly Law of the PRC, the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by MOFCOM or the MOFCOM Security Review Rules, was issued in August 2011, which established additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time-consuming and complex, including requirements in some instances that MOFCOM be notified in advance of any change of control transaction in which a foreign investor takes control of a PRC enterprise, or that the approval from MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. PRC laws and regulations also require certain merger and acquisition transactions to be subject to merger control review and or security review.

The MOFCOM Security Review Rules, effective from September 1, 2011, which implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, further provide that, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review by MOFCOM, the principle of substance over form should be applied and foreign investors are prohibited from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through agreements control or offshore transactions. In addition, Measures for Security Review of Foreign Investment stipulated by NDRC and MOFCOM on December 19, 2020, effective on January 18, 2021, which also provides that security review shall be conducted for the foreign investments that affect or may affect national security

Further, if the business of any target company that the combined company seek to acquire falls into the scope of security review, the combined company may not be able to successfully acquire such company either by equity or asset acquisition, capital contribution or through any contractual agreements. The combined company may grow its business in part by acquiring other companies operating in its industry. Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and any required approval processes, including approval from MOFCOM, may delay or inhibit its ability to complete such transactions, which could affect its ability to maintain or expand its market share.

In addition, SAFE promulgated the Circular on the Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Circular 19, on June 1, 2015. Under Circular 19, registered capital of a foreign-invested company settled in RMB converted from foreign currencies may only be used within the business scope approved by the applicable governmental authority and the equity investments in the PRC made by the foreign-invested company shall be subject to the relevant laws and regulations about the foreign-invested company’s reinvestment in the PRC. In addition, foreign-invested companies cannot use such capital to make the investments on securities, and cannot use such capital to issue the entrusted RMB loans (except approved in its business scope), repay the RMB loans between the enterprises and the ones which have been transferred to the third party. Circular 19 may significantly limit our ability to effectively use the proceeds from future financing activities as the Chinese subsidiaries may not convert the funds received from us in foreign currencies into RMB, which may adversely affect their liquidity and our ability to fund and expand our business in the PRC.

SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts (“Circular 16”), on June 9, 2016, which became effective simultaneously. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency to RMB on self-discretionary basis. Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on self-discretionary basis which applies to all enterprises registered in the PRC. Circular 16 reiterates the principle that RMB converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purpose beyond its business scope or prohibited by PRC Laws or regulations, while such converted RMB shall not be provide as loans to its non-affiliated entities. As Circular 16 is newly issued and SAFE has not provided detailed guidelines with respect to its interpretation or implementation, it is uncertain how these rules will be interpreted and implemented.

Failure to comply with the United States Foreign Corrupt Practices Act and Chinese anti-corruption laws could subject us to penalties and other adverse consequences.

As our shares are listed on Nasdaq, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Non-U.S. companies, including some that may compete with us, may not be subject to these prohibitions. In addition, in 2012, the central government of the PRC commenced a far-reaching campaign against corruption. That ongoing campaign involves aggressive enforcement of existing Chinese anti-corruption laws. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in the PRC. Our employees or other agents may engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

SEC administrative proceedings against the China affiliates of multi-national accounting firms, and/or any related adverse regulatory development in the PRC, may result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act of 1934, as amended, or the Exchange Act.

In December 2012, the SEC brought administrative proceedings against five major accounting firms in China alleging that they had refused to produce audit work papers and other documents related to certain other China-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending four of these firms from practicing before the SEC for a period of six months. The decision is neither final nor legally effective unless and until reviewed and approved by the SEC. On February 12, 2014, four of these PRC-based accounting firms appealed to the SEC against this decision. In February 2015, each of the four PRC-based accounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The settlement requires the firms to follow detailed procedures to seek to provide the SEC with access to Chinese firms’ audit documents via the Chinese Securities Regulatory Commission. If the firms do not follow these procedures, the SEC could restart the administrative proceedings.

In the event that the SEC restarts the administrative proceedings or initiates new proceedings against other firms, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our shares may be adversely affected.

If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to our delisting from Nasdaq or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our shares in the United States.

If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations and our reputation and could result in a loss of your investment in our shares, especially if such matter cannot be addressed and resolved favorably.

U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company and our business. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our company and business operations will be severely hampered and your investment in our stock could be rendered worthless.

The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.

Our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC filings and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by CSRC, a PRC regulator that is tasked with oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no PRC regulator has conducted any review of our Company, our SEC reports, other filings with non-PRC regulatory authorities or any of our other public pronouncements outside the U.S.

Risks Related to Our Securities

Volatility in our common stock price may subject us to securities litigation.

The market for our common stock may have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

A market for the Company’s securities may not continue, which would adversely affect the liquidity and price of our common stock.

The price of the Company’s securities may fluctuate significantly due to the market’s reaction and general market and economic conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. In addition, the price of the Company’s securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if the Company’s securities are not listed on, or become delisted from, the Nasdaq Capital Market for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on the Nasdaq Capital Market or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.

Although our common stock trades on the Nasdaq Capital Market, there has traditionally only been a small market for our shares of common stock. For example, in the month of September 2020, our average volume per trading day was under 5,000 shares. While there have been, and there may continue to be days of exceptionally high volume, our shares may always remain “thinly-traded”, meaning that the number of persons interested in purchasing our shares at or near bid prices at any given time may be relatively small or non-existent. This situation may be attributable to a number of factors, including that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. Broad or active public trading market for our shares may be sustained.

We could issue “blank check” preferred stock without stockholder approval with the effect of diluting then current stockholder interests and impairing their voting rights; and provisions in our charter documents could discourage a takeover that stockholders may consider favorable.

Our articles of incorporation, as amended, authorizes the issuance of up to 20,000,000 shares of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by our board of directors. As of the date of this report, no shares of preferred stock have been designated. Our board of directors is empowered, without stockholder approval, to issue a series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our Company.

Our executive officers and directors own a significant percentage of our common stock and could be able to exert control over matters subject to stockholder approval.

As of March 25, 2021, our directors and executive officers, together with their affiliates, beneficially own approximately 29.59% of our outstanding shares of common stock. As a result, our executive officers and directors have influence to determine the outcome of matters submitted to our stockholders for approval, including the ability to defeat the election of our directors, amend or prevent amendment of our articles of incorporation or by-laws or effect or prevent a change in corporate control, merger, consolidation, takeover or other business combination. In addition, any sale of a significant amount of our common stock held by our directors and executive officers, or the possibility of such sales, could adversely affect the market price of our common stock. Management’s stock ownership may also discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing any gains from our common stock.

Additional stock offerings in the future may dilute then-existing shareholders’ percentage ownership of the Company.

Given our plans and expectations that we will need additional capital in the future, we anticipate that we will need to issue additional shares of common stock or securities convertible or exercisable for shares of common stock, including convertible preferred stock, convertible notes, stock options or warrants. The issuance of additional securities in the future will dilute the percentage ownership of then current stockholders and could negatively impact the price of our common stock.

The market price of the Company’s securities may be volatile.

The trading price of our common stock has been volatile and could continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control. During the 12 months prior to March 24, 2021, our common stock has traded at a low of $0.70 and a high of $11.62. From the beginning of 2021 through March 24, 2021, our common stock has traded at a low of $1.79 and a high of $11.62 irrespective of our operating performance and with no discernable announcements or developments by the company or third parties. We may incur rapid and substantial decreases in our stock price in the foreseeable future that are unrelated to our operating performance or prospects. In addition, the recent outbreak of COVID-19 has caused broad stock market and industry fluctuations. The stock market in general and the market for companies such as us in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience losses on their investment in our common stock. A decline in the market price of our common stock also could adversely affect our ability to issue additional shares of common stock or other of our securities and our ability to obtain additional financing in the future.

Factors affecting the trading price of the Company’s securities may include:

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actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

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changes in the market’s expectations about our operating results;

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success of competitors;

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our operating results failing to meet the expectation of securities analysts or investors in a particular period;

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changes in financial estimates and recommendations by securities analysts concerning the Company or the lending market in general;

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operating and stock price performance of other companies that investors deem comparable to the Company;

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our ability to market new and enhanced services on a timely basis;

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changes in laws and regulations affecting our business;

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commencement of, or involvement in, litigation involving the Company;

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the Company’s ability to access the capital markets as needed;

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changes in the Company’s capital structure, such as future issuances of securities or the incurrence of additional debt;

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the volume of common stock available for public sale;

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any major change in our board or management;

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sales of substantial amounts of shares of common stock by our directors, executive officers or significant shareholders or the perception that such sales could occur; and

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general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

A possible “short squeeze” due to a sudden increase in demand of our common stock that largely exceeds supply may lead to additional price volatility.

Historically there has not been a large short position in our common stock. However, in the future investors may purchase shares of our common stock to hedge existing exposure or to speculate on the price of our common stock. Speculation on the price of our common stock may involve long and short exposures. To the extent an aggregate short exposure in our common stock becomes significant, investors with short exposure may have to pay a premium to purchase shares for delivery to share lenders at times if and when the price of our common stock increases significantly, particularly over a short period of time. Those purchases may in turn, dramatically increase the price of our common stock. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our common stock that are not directly correlated to our business prospects, financial performance or other traditional measures of value for the Company or its common stock.

Risks Relating to the Conversion

Your rights as a stockholder of the Company will change as a result of the Conversion and you may not be afforded as many rights as a shareholder of the Company as an exempted company in Cayman Islands under applicable laws and the memorandum and articles of association (the “Proposed Articles”) to be adopted after the Conversion under Cayman Islands law as you were as a stockholder of the Company under applicable laws and the Articles of Incorporation and Bylaws under Nevada law.

Because of differences between Nevada law and Cayman Islands law, we will be unable to adopt identical governing documents after the Conversion, but we have attempted to preserve in the Proposed Articles after the Conversion the same allocation of material rights and powers between the stockholder and our Board that exists under the current Bylaws and Certificate of Incorporation before the Conversion. Nevertheless, the Proposed Articles differ from the Company’s Bylaws and Articles of Incorporation, both in form and substance, and your rights as a shareholder will change. For example:

●

Under the NRS, a corporation may not engage in a business in combination with an interested stockholder for a period of two years after the time of the transaction in which the person became an interested stockholder. However, there is no equivalent provision under the Companies Law or the Proposed Articles prohibiting business combinations with interested stockholders.

●

Under the NRS, any stockholder may, upon written demand under oath stating the purpose thereof, inspect the corporation’s books and records for a proper purpose during the usual hours for business. However, shareholders of a Cayman Islands exempted company do not have any general rights under Cayman Islands law to inspect corporate records of such company, and the Proposed Articles provide that the directors have the discretion as to whether, to what extent, when, where and under what conditions or regulations the accounts and books of the Company may be open to the inspection of shareholders who are not directors.

●

Under the NRS, a stockholder may bring a derivative suit provided the requirements to do so under the NRS have been met. However, as a general rule, a derivative action may not be brought by a minority shareholder of a Cayman Islands exempted company, and a minority shareholder may be entitled to bring a derivative action on behalf of the Company after the Conversion only in certain limited circumstances.

The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.

After the Conversion, our corporate affairs will be governed by the Proposed Articles, by the Companies Law, and by the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors to the Company under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English common law, the decisions of whose courts are of persuasive authority but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of its directors, although clearly established under Cayman Islands law, are not specifically prescribed in statute or a particular document in the same way that they are in certain statutes or judicial precedents in some jurisdictions of the United States. In particular, the Cayman Islands has a different body of securities laws relative to the United States. Therefore, our shareholders may have more difficulty protecting their interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States. In addition, shareholders of Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States. There is uncertainty as to whether the courts of the Cayman Islands would entertain original actions brought in the Cayman Islands against the Company predicated upon the civil liabilities provisions of U.S. securities laws.

As a result of different shareholder voting requirements in the Cayman Islands relative to Nevada, we will have less flexibility with respect to our ability to amend our constitutional documents and enter into certain business combinations than we now have.

Under Nevada law and our current Bylaws and Certificate of Incorporation, our Bylaws and Articles of Incorporation may be amended by the vote of a majority of shares of stock entitled to vote on the matter to approve the amendment, unless the Articles of Incorporation requires the vote of a greater number of shares. Cayman Islands law requires a special resolution of at least two-thirds of the shareholder votes cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting for any amendment to the Proposed Articles. As a result of this Cayman Islands law requirement, situations may arise where the flexibility we now have under Nevada law would have provided benefits to our stockholders that will not be available in the Cayman Islands.

In addition, under Cayman Islands law and the Proposed Articles, certain corporate transactions, such as a merger, require the approval of a special resolution of at least two-thirds of the shareholder votes cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting or, if the share capital of the Company is divided into different classes of shares, the rights attached to any class of shares may be varied with the sanction of a special resolution at a general meeting of the holders of the shares of that class. By contrast, a merger under Nevada law would only require a simple majority of the outstanding stock of the company entitled to vote thereon. The increased shareholder approval requirements may limit our flexibility to enter into or complete certain business combinations that may be beneficial to shareholders.

The expected benefits of the Conversion may not be realized.

We cannot be assured that all of the goals of the Conversion will be achievable, and some or all of the anticipated benefits of the Conversion may not occur, particularly as the achievement of the benefits are in many important respects subject to factors that we do not control. These factors would include such things as the reactions of third parties with whom we enter into contracts and do business and the reactions of investors and analysts. In addition, the anticipated reduction of SEC reporting requirements and related expenses may not be achieved in the event of changes to the SEC rules applicable to foreign private issuers or if we fail to qualify as a foreign private issuer. While we expect the Conversion will enable us to reduce our operational, administrative, legal and accounting costs over the long term, these benefits may not be achieved.

Following the completion of the Conversion, as a foreign private issuer, we will not be required to provide its shareholders with the same information as the Company would if the Company remained a U.S. public issuer and, as a result, you may not receive as much information about the Company as you did about the Company and you may not be afforded the same level of protection as a shareholder under applicable laws and the Proposed Articles as you were as a stockholder under applicable laws and the Company Articles of Incorporation and Bylaws.

Following the completion of the Conversion, we are expected to qualify as a “foreign private issuer” under the rules and regulations of the SEC. We will remain subject to the mandates of the Sarbanes-Oxley Act, and, as long as our ordinary shares are listed on the Nasdaq, the governance and disclosure rules of that stock exchange. However, as a foreign private issuer, we will be exempt from certain rules under the Exchange Act that would otherwise apply if we were a company incorporated in the United States or did not meet the other conditions to qualify as a foreign private issuer. For example:

●

we may include in its SEC filings financial statements prepared in accordance with U.S. GAAP or with IFRS as issued by the IASB without reconciliation to U.S. GAAP;

●

we will not be required to provide as many Exchange Act reports, or as frequently or as promptly, as U.S. companies with securities registered under the Exchange Act. For example, we will not be required to file current reports on Form 8-K within four business days from the occurrence of specific material events. Instead, we will need to promptly furnish reports on Form 6-K any information that we (a) make or are required to make public under the laws of the Cayman Islands, (b) file or are required to file under the rules of any stock exchange or (c) otherwise distribute or are required to distribute to its shareholders. Unlike Form 8-K, there is no precise deadline by which Form 6-K must be furnished. In addition, we will not be required to file its annual report on Form 10-K, which may be due as soon as 60 days after its fiscal year end. As a foreign private issuer, we will be required to file an annual report on Form 20-F within four months after its fiscal year end;

●

we will not be required to provide the same level of disclosure on certain issues, such as executive compensation;

●

we will not be required to conduct advisory votes on executive compensation;

●

we will be exempt from filing quarterly reports under the Exchange Act with the SEC;

●

we will not be subject to the requirement to comply with Regulation FD, which imposes certain restrictions on the selected disclosure of material information;

●

We expect to take advantage of these exemptions if the Conversion is effected. Accordingly, after the completion of the Conversion, if you hold our securities, you may receive less information about the Company and our business than you currently receive and be afforded less protection under the U.S. federal securities laws than you are entitled to currently. However, consistent with our policy of seeking input from, and engaging in discussions with, our stockholders, on executive compensation matters, we intend to provide disclosure relating to its executive compensation philosophy, policies and practices and conduct an advisory vote on executive compensation once every three years after the Conversion is effected. However, we expect to review this practice after the next such advisory vote and may at that time or in the future determine to conduct such advisory votes more frequently or to not conduct them at all.

If we fail to qualify as a foreign private issuer upon completion of the Conversion, or loses its status as a foreign private issuer at some future time, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers and would incur significant operational, administrative, legal and accounting costs that it would not incur as a foreign private issuer.

Following completion of the Conversion, we are expected to qualify as a “foreign private issuer” under the rules and regulations of the SEC. As a foreign private issuer, we will be exempt from certain rules under the Exchange Act that would otherwise apply if we were a company incorporated in the United States or did not meet the other conditions to qualify as a foreign private issuer. Please see the section entitled “Risk Factors—Risks Relating to the Conversion—As a foreign private issuer, we will not be required to provide its shareholders with the same information as the Company would if the Company remained a U.S. public issuer and, as a result, you may not receive as much information about we as you did about the Company and you may not be afforded the same level of protection as a shareholder under applicable laws and the Proposed Articles as you were as a stockholder under applicable laws and the Company Articles of Incorporation and Bylaws.” While we are expected to qualify as a foreign private issuer following the completion of the Conversion, if we fail to qualify as a foreign private issuer upon completion of the Conversion, or loses its status as a foreign private issuer at some future time, we will be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers and would incur significant operational, administrative, legal and accounting costs that it would not incur as a foreign private issuer.

If we prepare our financial statements in accordance with IFRS following the Conversion, there may be a significant effect on our reported financial results.

The SEC permits foreign private issuers to file financial statements in accordance with IFRS as issued by IASB. At any time in the future, as a foreign private issuer, we may decide to prepare our financial statements in accordance with IFRS as issued by the IASB. The application by us of different accounting standards, a change in the rules of IFRS as issued by the IASB, or in the SEC’s acceptance of such rules, could have a significant effect on our reported financial results. Additionally, U.S. GAAP is subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Public Company Accounting Oversight Board, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. IFRS are subject to interpretation by the IASB. A change in these principles or interpretations could have a significant effect on our reported financial results.

Changes in domestic and foreign laws, including tax law changes, could adversely affect the Company, its subsidiaries and its shareholders, and our effective tax rate may increase whether we effect the Conversion or not.

Changes in tax laws, regulations or treaties or the interpretation or enforcement thereof, in both or either of the U.S. or Cayman Islands, could adversely affect the tax consequences of the Conversion to an exempted company in Cayman Islands and the shareholders and/or our effective tax rates (whether associated with the Conversion or otherwise). While the Conversion is not anticipated to have any material impact on our effective tax rate, there is uncertainty regarding the tax policies of the jurisdictions where we operate, and our effective tax rate may increase and any such increase may be material.

The enforcement of civil liabilities against the Company may be more difficult.

After the Conversion, all of our executive officers and directors will continue to reside outside of the United States. As a result, it may be more difficult to serve legal process within the United States upon any of these persons and it may also be difficult to enforce, both in and outside of the United States, judgments you may obtain in the U.S. courts against these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Because we will be a Cayman Islands corporation, investors could also experience more difficulty enforcing judgments obtained against the Company in U.S. courts than would currently be the case for U.S. judgments obtained against the Company. In addition, it may be more difficult (or impossible) to bring some types of claims against the Company in Cayman Islands courts than it would be to bring similar claims against a U.S. company in a U.S. court.

The market for our shares after the Conversion may differ from the market for our shares before the Conversion.

Although it is anticipated that our ordinary shares after the Conversion will continue to be listing on Nasdaq Capital Market under the symbol “CCNC,” as a company incorporated under the laws of the Cayman Islands, the shares may appeal to different institutional investors, or impact the level of investment by current investors who may prefer or be required by internal guidelines to invest in companies that are incorporated in the United States. Accordingly, the reorganization may impact our institutional investor base, or the level of their respective investments in our securities, and may result in a change in the market prices, trading volume and volatility of the shares before and after the Conversion.

We expect to incur transaction costs and adverse financial consequences in the year of completion of the Conversion.

We expect a total of approximately $30,000 in transaction costs in connection with the Conversion, which have been and will continue to be expensed as incurred. The substantial majority of these costs will be incurred regardless of whether the Conversion is completed and prior to your vote on the proposal. We expect to incur costs and expenses, including professional fees, to comply with the Cayman Islands corporate and other laws. In addition, we expect to incur attorneys’ fees, accountants’ fees, filing fees, mailing expenses, proxy solicitation fees and financial printing expenses in connection with the Conversion, even if the Conversion is not approved or completed.

The Conversion also may negatively affect us by diverting attention of our management and employees from our operating business during the period of implementation and by increasing other administrative costs and expenses.

Our Board of Directors may choose to defer or abandon the Conversion.

Completion of the Conversion may be deferred or abandoned, at any time, by action of our Board of Directors. While we currently expect the Conversion to take place promptly after certain regulatory requirements and approvals are met and obtained, our Board of Directors may defer or abandon the Conversion because of, among other reasons, changes in existing or proposed laws, our determination that the Conversion would involve tax or other risks that outweigh their benefits, our determination that the level of expected benefits associated with the Conversion would otherwise be reduced, a dispute with the taxation authorities over the Conversion (or certain aspects thereof), an unexpected increase in the cost to complete the Conversion or any other determination by our Board of Directors that the Conversion would not be in the best interests of the Company or its stockholders or that the Conversion would have material adverse consequences to the Company or its stockholders.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Rong Hai’s office is located at 4^th Floor, West Hongqiao Building, No.180 West Qingnian Road, Nantong City, Jiangsu, China. The rent for this space is approximately RMB225,600 per year.

Wuge’s office is located at 119 Zhaojuesi South Road, Room 2-1, Chengshu City, Sichuan, China. The rent for this office is approximately RMB 400,000 per year.

We consider our current office space adequate for our current operations.

Item 3. Legal Proceedings

To the knowledge of our management, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

(a) Market Information

Our common stock and warrants are traded on the Nasdaq Capital Market and OTC Market under the symbols “CCNC” and “CCNCW, respectively.

The table below sets forth, for the calendar quarter indicated, the high and low bid prices of our units, common stock and warrants as reported on the Nasdaq for the period of January 1, 2019 through December 31, 2020

	Common Stock				Warrants
	Low		High		Low		High
Year Ended December 31, 2019
January 1, 2019 through March 31, 2019	$	1.21	$	5.52	$	0.12	$	0.38
April 1, 2019 through June 30, 2019	$	1.37	$	1.97	$	0.12	$	0.17
July 1, 2019 through September 30, 2019	$	0.79	$	1.62	$	0.03	$	0.13
October 1, 2019 through December 31, 2019	$	0.70	$	1.25	$	0.03	$	0.13
Year Ended December 31, 2020
January 1, 2020 through March 31, 2020	$	0.75	$	2.45	$	0.01	$	0.10
April 1, 2020 through June 30, 2020	$	1.19	$	2.46	$	0.02	$	0.05
July 1, 2020 through September 30, 2020	$	0.85	$	1.90	$	0.01	$	0.04
October 1, 2020 through December 31, 2020	$	0.70	$	3.88	$	0.01	$	0.20

On March 25, 2021, our common stock had a closing price of $4.25 and our warrants had been thinly traded.

(b) Holders

On March 25, 2021 there approximately 350 holders of record of our common stock and 2 holders of record of our warrants.

(c) Dividends

We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends in the foreseeable future. In addition, our board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future.

(d) Securities Authorized for Issuance Under Equity Compensation Plans.

We established our 2019 Equity Incentive Plan (the “Plan”). The Plan was approved by our board of directors on December 12, 2019 and was approved by our stockholders at our annual meeting in 2019. The purpose of the Plan is to grant stock and options to purchase our common stock to our employees, directors and key consultants. The maximum number of shares of common stock that may be issued pursuant to awards granted under the Plan, is 3,000,000 shares. As of December 30, 2020, the company did not issue any shares or awards under the Plan.

The following summary briefly describes the principal features of the Plan and is qualified in its entirety by reference to the full text of the Plan.

Administration. Our Compensation Committee of the Board of Directors will administer the Plan. The Committee will have the authority to determine the terms and conditions of any agreements evidencing any Awards granted under the Plan and to adopt, alter and repeal rules, guidelines and practices relating to the Plan. Our Compensation Committee will have full discretion to administer and interpret the Plan and to adopt such rules, regulations and procedures as it deems necessary or advisable.

Eligibility. Current or prospective employees, directors, officers, advisors or consultants of the Company or its affiliates are eligible to participate in the Plan. Our Compensation Committee has the sole and complete authority to determine who will be granted an award under the Plan, however, it may delegate such authority to one or more officers of the Company under the circumstances set forth in the Plan.

Number of Shares Authorized. The Plan provides for an aggregate of Three Million (3,000,000) common stock to be available for awards. If an award is forfeited or if any option terminates, expires or lapses without being exercised, the common stock subject to such award will again be made available for future grant. Shares of common stock that are used to pay the exercise price of an option or that are withheld to satisfy the Participant’s tax withholding obligation will not be available for re-grant under the Plan.

Each common share subject to an option or a stock appreciation right will reduce the number of common stock available for issuance by one share, and each common share underlying an award of restricted stock, restricted stock units, stock bonus awards and performance compensation awards will reduce the number of common stock available for issuance by one share.

If there is any change in our corporate capitalization, the Compensation Committee in its sole discretion may make substitutions or adjustments to the number of shares reserved for issuance under our Plan, the number of shares covered by awards then outstanding under our Plan, the limitations on awards under our Plan, the exercise price of outstanding options and such other equitable substitution or adjustments as it may determine appropriate.

The Plan has a term of ten years and no further awards may be granted under the Plan after that date.

Awards Available for Grant. Our Compensation Committee may grant awards of con-qualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing.

Options. Our Compensation Committee will be authorized to grant options to purchase common stock that are either “qualified,” meaning they are intended to satisfy the requirements of Internal Revenue Code of 1986 (the “Code”) Section 422 for incentive stock options, or “non-qualified,” meaning they are not intended to satisfy the requirements of Section 422 of the Code. Options granted under the Plan will be subject to the terms and conditions established by our Compensation Committee. Under the terms of the Plan, the exercise price of the options will be set forth in the applicable Award agreement. Options granted under the Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by our Compensation Committee and specified in the applicable award agreement. The maximum term of an option granted under the Plan will be ten years from the date of grant (or five years in the case of a qualified option granted to a 10% stockholder).

Stock Appreciation Rights. Our Compensation Committee will be authorized to award stock appreciation rights (or SARs) under the Plan. SARs will be subject to the terms and conditions established by our Compensation Committee. An SAR is a contractual right that allows a participant to receive, either in the form of cash, shares or any combination of cash and shares, the appreciation, if any, in the value of a share over a certain period of time. An Option granted under the Plan may include SARs and SARs may also be awarded to a participant independent of the grant of an option. SARs granted in connection with an option shall be subject to terms similar to the option corresponding to such SARs. SARs shall be subject to terms established by our Compensation Committee and reflected in the award agreement.

Restricted Stock. Our Compensation Committee will be authorized to award restricted stock under the Plan. Our Compensation Committee will determine the terms of such restricted stock awards. Restricted stock is common stock that generally is non-transferable and subject to other restrictions determined by our Compensation Committee for a specified period. Unless our Compensation Committee determines otherwise or specifies otherwise in an award agreement, if the participant terminates employment or services during the restricted period, then any unvested restricted stock is forfeited.

Restricted Stock Unit Awards. Our Compensation Committee will be authorized to award restricted stock unit awards. Our Compensation Committee will determine the terms of such restricted stock units. Unless our Compensation Committee determines otherwise or specifies otherwise in an award agreement, if the participant terminates employment or services during the period of time over which all or a portion of the units are to be earned, then any unvested units will be forfeited.

Stock Bonus Awards. Our Compensation Committee will be authorized to grant awards of unrestricted common stock or other awards denominated in common stock, either alone or in tandem with other awards, under such terms and conditions as our Compensation Committee may determine.

Performance Compensation Awards. Our Compensation Committee will be authorized to grant any award under the Plan in the form of a performance compensation award by conditioning the vesting of the award on the attainment of specific levels of performance of the Company and/or one or more affiliates, divisions or operational units, or any combination thereof, as determined by the Compensation Committee.

Transferability. Each award may be exercised during the participant’s lifetime only by the participant or, if permissible under applicable law, by the participant’s guardian or legal representative and may not be otherwise transferred or encumbered by a participant other than by will or by the laws of descent and distribution. Our Compensation Committee, however, may permit awards (other than incentive stock options) to be transferred to family members, a trust for the benefit of such family members, a partnership or limited liability company whose partners or stockholders are the participant and his or her family members or anyone else approved by it.

Amendment. The Plan has a term of ten years. Our Board may amend, suspend or terminate the Plan at any time; however, stockholder approval to amend the Plan may be necessary if the law or the rules of the national exchange so requires. No amendment, suspension or termination will impair the rights of any participant or recipient of any Award without the consent of the participant or recipient.

Change in Control. Except to the extent otherwise provided in an award agreement or as determined by the Compensation Committee in its sole discretion, in the event of a change in control, all outstanding options and equity awards (other than performance compensation awards) issued under the Plan will become fully vested and performance compensation awards will vest, as determined by our Compensation Committee, based on the level of attainment of the specified performance goals.

(e) Recent Sales of Unregistered Securities

April 2019 Private Placement

On April 4, 2019, the Company entered into certain securities purchase agreement with certain “non-U.S. Persons” as defined in Regulation S of the Securities Act pursuant to which the Company issued 1,492,000 shares of its common stock, at a per share purchase price of $2.00. The net proceeds to the Company from this offering were approximately $2.9 million. The shares issued in the securities purchase agreement are exempt from the registration requirements of the Securities Act, pursuant to Regulation S promulgated thereunder.

December 2019 Private Placement

On December 23, 2019, the Company entered into certain securities purchase agreement with certain “non-U.S. Persons” as defined in Regulation S of the Securities Act, pursuant to which the Company issued 3,692,859 shares of its common stock, at a per share purchase price of $1.00 on January 21, 2020. The shares issued in the securities purchase agreement are exempt from the registration requirements of the Securities Act, pursuant to Regulation S promulgated thereunder.

Acquisition of Sichuan Wuge Network Games Co., Ltd.

On January 24, 2020, the Company issued an aggregate of 4,000,000 shares of its common stock, par value $0.0001 per share, to all the shareholders of Sichuan Wuge Network Games Co., Ltd. (“Wuge”), pursuant to a share purchase agreement with Wuge, in exchange for the Wuge’s shareholders’ approval to cause Wuge to enter into, certain contractual agreements with Tongrong Technology (Jiangsu) Co., Ltd. (“Tongrong WFOE”), the Company’s indirectly owned subsidiary. The contractual agreements were assigned by Tonrong WFOE to Makesi Iot Technology (Shanghai) Co., Ltd. (“Makesi WFOE”), the Company’s indirectly owned subsidiary, and Makesi WFOE has the right to control, manage and operate Wuge in return for a service fee equal to 100% of Wuge’s net income. The shares issued in the securities purchase agreement are exempt from the registration requirements of the Securities Act, pursuant to Regulation S promulgated thereunder.

August 2020 Private Placement

On August 11, 2020, pursuant to certain securities purchase agreements, dated May 1, 2020, the Company issued 1,674,428 shares of its common stock, at a per share purchase price of $1.50, to eleven investors. The gross proceeds to the Company from this private placement were approximately $2.51 million. None of the investors is a “U.S. person” as defined under Regulation S. The shares of common stock issued in the private placement are exempt from the registration requirements of the Securities Act, pursuant to Regulation S promulgated thereunder.

February 2021 Offering

Registered Direct Offering and Private Placement

On February 18, 2021, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain purchasers, pursuant to which, on February 22, 2021, we sold (i) 4,166,666 shares of common stock, (ii) registered warrants (the “Registered Warrants”) to purchase an aggregate of up to 1,639,362 shares of common stock and (iii) unregistered warrants (the “Unregistered Warrants”) to purchase up to 2,527,304 shares (the “Warrant Shares”) of common stock in a registered direct offering (the “Registered Direct Offering”) and a concurrent private placement (the “Private Placement,” and together with the Registered Direct Offering, the “Offering”). The terms of the Offering were previously reported in a Form 8-K filed with the SEC on February 18, 2021 and the closing of the Offering was reported in a Form 8-K filed with the Commission on February 22, 2021.

The gross proceeds of the Offering of $24,999,996, before deducting placement agent fees and other expenses, are being used for working capital and general business purposes.

The Registered Warrants have a term of five years and are exercisable immediately at an exercise price of $6.72 per share, subject to adjustments thereunder, including a reduction in the exercise price, in the event of a subsequent offering at a price less than the then current exercise price, to the same price as the price in such offering (a “Price Protection Adjustment”).

The Unregistered Warrants have a term of five and one-half years and are first exercisable on the date that is the earlier of (i) six months after the date of issuance or (ii) the date on which the Company obtains stockholder approval approving the sale of the securities sold under the Securities Purchase Agreement, to purchase an aggregate of up to 2,527,304 shares of common stock. The Unregistered Warrants have an exercise price of $6.72 per share, subject to adjustments thereunder, including (x) a Price Protection Adjustment and (y) in the event the exercise price is more than $6.10, a reduction of the exercise price to $6.10, upon obtaining such stockholder approval.

The Offering was conducted pursuant to a placement agency agreement, dated February 18, 2021 (the “Placement Agency Agreement”), between the Company and Univest Securities, LLC (the “Placement Agent”), on a “reasonable best efforts” basis. The Company paid the Placement Agent a cash fee of $2,310,000, including $2,000,000 in commission which was equal to eight percent (8.0%) of the aggregate gross proceeds raised in this Offering, $250,000 in non-accountable expense which was equal to one percent (1%) of the aggregate gross proceeds raised in the Offering, and $60,000 in accountable expenses. Additionally, the Company issued to the Placement Agent warrants to purchase up to 208,333 shares of common stock, with a term of five years first exercisable six months after the date of issuance and at an exercise price of $6.00 per share.

Stockholder Approval

Pursuant to the Securities Purchase Agreement, we are required to hold a meeting of our stockholders not later than April 29, 2021 to seek such approval as may be required from our stockholders (the “Stockholder Approval”), in accordance with applicable law, the applicable rules and regulations of the Nasdaq Stock Market, our certificate of incorporation and bylaws and the Nevada Revised Statutes with respect to the issuance of the securities in the Offering, including the Warrants sold in the Private Placement, so that the issuance by us of shares of common stock in excess of the 6,954,059 shares (19.99% of the shares of common stock outstanding as of February 17, 2021, the date prior to entering into the Securities Purchase Agreement) in the aggregate (the “Issuable Maximum”), will be in compliance with Nasdaq Listing Rules 5635(a) and 5635(d) as described herein, and investors in the Offering will be able to exercise the Warrants prior to six months after the closing of the Offering.

In the event that despite our reasonable best efforts we are unable to obtain the Stockholder Approval by that date, we are required to hold an additional special meeting of stockholders and obtain Stockholder Approval by July 31, 2021. In the event that despite our reasonable best efforts we are unable to obtain Stockholder Approval by that date, we are required to hold additional meetings of our stockholders each fiscal quarter until Stockholder Approval has been obtained. Until we have obtained Stockholder Approval, we may not consummate any subsequent financings at less than an effective price of $6.72 per share of our common stock.

(f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 6. Selected Financial Data

Disclosure in response to this Item is not required for a smaller reporting company.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with our financial statements, and the notes to those financial statements that are included elsewhere in this Report. All monetary figures are presented in U.S. dollars, unless otherwise indicated.

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rate; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Overview

Code Chain New Continent Limited (formerly known as TMSR Holding Company Limited and JM Global Holding Company, the “Company” or “CCNC”), through its subsidiaries and controlled entities, focuses its business in two segments: (1) coal wholesales and sales of coke, steels, construction materials, mechanical equipment and steel scrap; and (2) the research, development and application of Internet of Things (IoT) and electronic tokens. The Company’s coal and coke wholesale business is carried out by Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”), an entity contractually controlled by the Company. The Company’s IoT business is carried out Wuge Network Games Co., Ltd. (“Wuge”), an entity contractually controlled by the Company.

On June 30, 2020, the Company entered into a share purchase agreement with Jiazhen Li, former CEO of the Company (the “Buyer”), Long Liao and Chunyong Zheng, who are former shareholders of Wuhan HOST, to sell all the equity interest the Company held in China Sunlong. Shengrong WFOE and Wuhan HOST are indirect subsidiaries of China Sunlong. As a result, as of June 30, 2020, operations of Shengrong WFOE and Wuhan HOST have been designated as discontinued operations.

Key Factors that Affect Operating Results

Our operating subsidiaries are incorporated, and our operations and assets are primarily located, in China. Accordingly, our results of operations, financial condition and prospects are affected by China’s economic and regulation conditions in the following factors: (a) an economic downturn in China or any regional market in China; (b) economic policies and initiatives undertaken by the Chinese government; (c) changes in the Chinese or regional business or regulatory environment affecting our customers; and (e) Changes in the Chinese government policy on industrial solid waste. Unfavorable changes could affect demand for services that we provide and could materially and adversely affect the results of operations. Although the Company has generally benefited from China’s economic growth and the policies to encourage the improvement of reducing of solid waste discharge, the Company is also affected by the complexity, uncertainties and changes in the Chinese economic conditions and regulations governing the mining industry.

Our fuel materials, mainly coal, operations are largely affected by the following aspects. First, the PRC's macroeconomic growth is not as fast as expected; the slowdown of economic growth will affect the demand of the market, and the reduction of coal consumption by enterprises will affect the sales of coal and directly affect our earnings. Second, the coal market price fluctuation will also affect our sales revenue; because Jiangsu Rong Hai has long-term and stable customers, the price fluctuations will affect the cost of purchasing coal and thus affect our revenue. Third, the risk of price fluctuation in the shipping industry. The fluctuation of shipping price will also directly affect the fluctuation of coal market price, thus affecting our income. Fourth, we have long-term and stable customers and continues to rely on a small number of customers from 2009 to 2019. Losing our major customers will have a significant impact on our results of operations. In addition, the payment situation of these customers will be affected by abnormal market changes, which will have a negative impact on our business recovery accounts and cash flow.

As a result of the novel coronavirus (COVID-19) outbreak, we have seen a slowdown in revenue growth in first quarter 2020 as our businesses have been negatively impacted by the COVID-19. These impacts of COVID-19 on our business, financial condition, and results of operations include, but are not limited to, the following:

●

Our customers could potentially be negatively impacted by the outbreak, which may reduce the demand of our products. As a result, our revenue and income may be negatively impacted in 2020.

●

The situation may worsen if the COVID-19 outbreak continues. We will continue to closely monitor our collections throughout 2020.

Because of the significant uncertainties surrounding the COVID-19 outbreak, the extent of the continued business disruption and the related financial impact cannot be reasonably estimated at this time.

Results of Operations

Year Ended December 31, 2020 as Compared to the Year Ended December 31, 2019

										Percentage
	2020			2019			Change			Change
Revenues – Equipment and systems	$	-		$	-		$	-			-
Revenues – Fuel materials		11,261,428			18,955,988			(7,694,560	)		(40.6	)%
Revenues – Trading and others		591,455			628,489			(37,034	)		(5.9	)%
Total revenues		11,852,883			19,584,477			(7,731,594	)		(39.5	)%
Cost of Revenues – Equipment and systems		-			-			-			-
Cost of Revenues – Fuel materials		10,748,354			18,699,429			(7,951,075	)		(42.5	)%
Cost of Revenues – Trading and others		-			322,813			(322,813	)		(100.0	)%
Total cost of revenues		10,748,354			19,022,242			(8,273,888	)		(43.5	)%
Gross profit		1,104,529			562,235			542,294			96.5	%
Operating expenses		2,057,786			851,638			1,206,148			141.6	%
Loss from operations		(953,257	)		(289,403	)		(663,854	)		229.4	%
Other income (expense), net		(3,895,433	)		3,920			(3,899,353	)		(99473.3	)%
Loss from continuing operations		(4,788,175	)		(414,283	)		(477,074	)		1055.8	%
Discontinued operations:
Income (loss) from discontinued operations, net of taxes		505,061			(16,412,060	)		16,917,121			103.1	%
Gain on disposal, net of taxes		6,793,570			-			6,793,570			100.0	%
(Loss) net income		2,510,456			(16,826,343	)		23,233,617			114.9	%

Revenues

The Company’s revenue consists of fuel materials revenue and others revenue. Total revenues decreased by approximately $7.7 million, or approximately 39.5%, to approximately $11.9 million for the year ended December 31, 2020, compared to approximately $19.6 million for the year ended December 31, 2019.

Fuel Revenue

Our fuel revenues decreased by approximately $7.7 million, or 40.6%, to approximately $11.3 million for the year ended December 31, 2020 as compared to approximately $19.0 million for the year ended December 31, 2019. The decrease was mainly due to the reduced sales of Ronghai influenced by COVID-19.

Others Revenue

Our other revenues decreased by approximately $37,000, or 5.9%, to approximately $590,000 for the year ended December 31, 2020 as compared to approximately $630,000 for the year ended December 31, 2019. The decrease was mainly due to decreased harbor cargo handling revenue of Rong Hai.

Cost of Revenues

The Company’s cost of revenues consists of cost of fuel materials, and cost of others. Total cost of revenues decreased by approximately $8.3 million, or approximately 43.5% to approximately $10.7 million for the year ended December 31, 2020, compared to approximately $19.0 million for the same period in 2019. Our total cost of revenues decrease was attributable to the Company’s general decrease in revenue for fuel materials.

Gross Profit

The Company’s gross profit increased by approximately $540,000 or 96.5%, to approximately $560,000 during the year ended December 31, 2020, from approximately $1.1 million for the year ended December 31, 2019. This increase was mainly due to the increase in the revenue of Wuge.

Operating Expenses

The Company’s operating expenses include selling, general and administrative (“SG&A”) expenses, and recovery of doubtful accounts.

SG & A expenses increased by approximately $0.6 million, by approximately 47.6%, from approximately $1.2 million for the year ended December 31, 2019 to approximately $1.7 million for the year ended December 31, 2020. The slight increase was due to slight increases in general and administrative expenses from the Company’s investment in professional staff as part of the general expense of maintaining as public company.

Loss from Operations

As a result of the foregoing, loss from operations for the year ended December 31, 2020 was approximately $1.0 million, a increase of approximately $0.7 million, or approximately 229.4%, from approximately $0.3 million for the year ended December 31, 2019. The increase of loss was a result of increase in selling, general and administrative expenses.

Net Income

The Company’s net income increased by approximately $19.3 million, or 114.9%, to approximately $2.5 million net income for the year ended December 31, 2020, from approximately $16.8 million net loss for the same period in 2019. The increase was mainly due to the disposal of some subsidiaries.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our consolidated financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our consolidated financial statements.

Cash and cash equivalents

The Company considers certain short-term, highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. Cash and cash equivalents primarily represent bank deposits and fixed deposits with maturities of less than three months.

Investments

The Company purchases certain liquid short term investments such as money market funds and or other short term debt securities marketed by financial institutions. These investments are not insured against loss of principal. These investments are accounted for as financial instruments that are marked to fair market value at the end of each reporting period. As result of their short maturities, and limited risk profile, at times, their amortized carrying cost may be the best approximation their fair value and used for such investments

Accounts receivable, net

Accounts receivable include trade accounts due from customers. An allowance for doubtful accounts may be established and recorded based on management’s assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.

Inventories

Inventories are comprised of raw materials and work in progress and are stated at the lower of cost or net realizable value using the first-in-first-out method in Shengrong WFOE and weighted average method in Wuhan HOST and Rong Hai. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against the inventory when the carrying value exceeds net realizable value.

Prepayments

Prepayments are funds deposited or advanced to outside vendors for future inventory purchases. As a standard practice in China, many of the Company’s vendors require a certain amount to be deposited with them as a guarantee that the Company will complete its purchases on a timely basis. This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which require any outstanding prepayments to be returned to the Company when the contract ends.

Fair value measurement

The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by us. The Company considers the carrying amount of cash, notes receivable, accounts receivable, other receivables, prepayments, accounts payable, other payables and accrued liabilities, customer deposits, short term loans and taxes payable to approximate their fair values because of their short term nature.

The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:

●

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

●

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

●

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.

Revenue recognition

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon adoption of this new guidance as the Company’s revenue, other than warranty revenues, was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. However, the impact of the Company’s warranty revenue was not material as of the date of adoption, and as a result, did not result in an adjustment.

The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are primarily recognized at a point in time except for the warranty revenues where the warranty periods are recognized over the warranty period, usually is a period of twelve months.

The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition except its warranty revenues.

An entity will also be required to determine if it controls the goods or services prior to the transfer to the customer in order to determine if it should account for the arrangement as a principal or agent. Principal arrangements, where the entity controls the goods or services provided, will result in the recognition of the gross amount of consideration expected in the exchange. Agent arrangements, where the entity simply arranges but does not control the goods or services being transferred to the customer, will result in the recognition of the net amount the entity is entitled to retain in the exchange.

Revenue from equipment and systems, revenue from coating and fuel materials, and revenue from trading and others are recognized at the date of goods delivered and title passed to customers, when a formal arrangement exists, the price is fixed or determinable, the Company has no other significant obligations and collectability is reasonably assured. Such revenues are recognized at a point in time after all performance obligations are satisfied under the new five-step model. In addition, training service revenues are recognized when the services are rendered and the Company has no other obligations, and collectability is reasonably assured. These revenues are recognized at a point in time.

Prior to January 1, 2018, the Company allowed its customers to retain 5% to 10% of the contract price as retainage during the warranty period of 12 months to guarantee product quality. Retainage is considered as a payment term included as a part of the contract price, and was recognized as revenue upon the shipment of products. Due to nature of the retainage, the Company’s policy is to record revenue the full value of the contract without VAT, including any retainage, since the Company has experienced insignificant warranty claims historically. Due to the infrequent and insignificant amount of warranty claims, the ability to collect retainage was reasonably assured and was recognized at the time of shipment. On January 1, 2018, upon the adoption of ASU 2014-09 (ASC 606), revenues from product warranty are recognized over the warranty period over 12 months.

Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits.

Gross versus Net Revenue Reporting

Starting from July 2016, in the normal course of the Company’s trading of industrial waste materials business, the Company directly purchases the processed industrial waste materials from the Company’s suppliers under the Company’s specifications and drop ships the materials directly to the Company’s customers. The Company would inspect the materials at its customers’ site, during which inspection it temporarily assumes legal title to the materials, and after which inspection legal title is transferred to its customers. In these situations, the Company generally collects the sales proceed directly from the Company’s customers and pay for the inventory purchases to the Company’s suppliers separately. The determination of whether revenues should be reported on a gross or net basis is based on the Company’s assessment of whether it is the principal or an agent in the transaction. In determining whether the Company is the principal or an agent, the Company follows the new accounting guidance for principal-agent considerations. Since the Company is the primary obligor and is responsible for (i) fulfilling the processed industrial waste materials delivery, (ii) controlling the inventory by temporarily assume legal title to the materials after inspecting the products from our vendors before passing the materials to our customers, and (iii) bearing the back-end risk of inventory loss with respect to any product return from the Company’s customers, the Company has concluded that it is the principal in these arrangements, and therefore report revenues and cost of revenues on a gross basis.

Recently Issue Accounting Pronouncements

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. We do not believe the adoption of this ASU would have a material effect on our consolidated financial statements.

We do not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.

Liquidity and Capital Resources

The Company has funded working capital and other capital requirements primarily by equity contributions, loans from shareholders, cash flow from operations, short term bank loans, loans from third parties and cash received from JM Global Holding Company through the reverse capitalization. Cash is required to repay debts and pay salaries, office expenses, income taxes and other operating expenses. As of December 31, 2020, our net working capital deficit was approximately $8.8 million, over 15% of the Company’s current liabilities was from other payables – related parties due to major shareholders. Removing these liabilities, the Company had net working capital of $9.3 million and is expected to continuing generate cash flow from operations in the twelve months period.

We believe that current levels of cash and cash flows from operations will be sufficient to meet its anticipated cash needs for at least the next twelve months from the date the consolidated financial statements to be issued. However, it may need additional cash resources in the future if it experiences changed business conditions or other developments, and may also need additional cash resources in the future if it wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements exceed the Company’s amounts of cash and cash equivalents on hand, the Company may seek to issue debt or equity securities or obtain additional credit facility.

The following summarizes the key components of the Company’s cash flows for the year ended December 31, 2020 and 2019.

	For the year ended December 31,
	2020			2019

Net cash (used in) provided by operating activities	$	(2,101	)	$	759,457
Net cash used in investing activities		(4,530,808	)		-
Net cash provided by by financing activities		3,059,195			2,476,605
Effect of exchange rate change on cash		(11,136	)		64,945
Net change in cash	$	(1,484,850	)	$	3,301,007

As of December 31, 2020 and 2019, the Company had cash in the amount of $998,717 and $4,027,744, respectively. As of December 31, 2020, approximately $998,717 and approximately $0 were held by the Company’s subsidiaries in the PRC and Hong Kong, respectively. As of December 31, 2019, approximately $4,03,000 and approximately $354 were held by the Company’s subsidiaries in the PRC and Hong Kong, respectively.

Operating activities

Net cash used in operating activities was approximately $2,101 for the year ended December 31, 2020, as compared to approximately $0.8 million net cash provided by operating activities for the year ended December 31, 2019. Net cash used in operating activities was mainly due to increase of $3.9 million in Goodwill impairments, decrease of $1.2 million in accounts receivables, increase of $0.7 million in other receivables, increase of $0.4 million in prepayments, increase of $0.6 million in accounts payable, and the add back of non-cash items including $7.9 million in disposal of the company.

Investing activities

Net cash used in investing activities was approximately $4.5 million for the year ended December 31, 2020, as compared to approximately $0 net cash used in investing activities for the year ended September 30, 2019. Net cash used in investing activities for the year ended December 31, 2020 was due to approximately $1.1 million spending on purchase of intangible assets and 3.1 million buy financial products.

Financing activities

Net cash provided by financing activities was approximately $3.1 million for the year ended December 31, 2020, as compared to approximately $2.5 million net cash used in financing activities for the year ended December 31, 2019. Net cash provided by financing activities for the year ended December 31, 2020 was due to approximately $0.4 million proceeds from short-term loans – bank and $2.6 million proceeds from issuance of common stock.

Risks

Credit Risk

Credit risk is one of the most significant risks for the Company’s business.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. Cash held at major financial institutions located in the PRC are not insured by the government. While we believe that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.

Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. The Company manages credit risk through in-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. To minimize credit risk, the Company normally require prepayment from the customers prior to begin production or delivery products. The Company identifies credit risk collectively based on industry, geography and customer type. This information is monitored regularly by management.

In measuring the credit risk of our sales to our customers, the Company mainly reflects the “probability of default” by the customer on its contractual obligations and considers the current financial position of the customer and the exposures to the customer and its likely future development.

Liquidity Risk

The Company is also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, the Company will turn to other financial institutions and the owners to obtain short-term funding to meet the liquidity shortage.

Inflation Risk

The Company is also exposed to inflation risk Inflationary factors, such as increases in raw material and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of sales revenue if the selling prices of our products do not increase with such increased costs.

Foreign Currency Risk

A majority of the Company’s operating activities and a significant portion of the Company’s assets and liabilities are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Disclosure in response to this Item is not required for a smaller reporting company.

Item 8. Financial Statements and Supplementary Data

Reference is made to Pages F-1 through F-34 comprising a portion of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Co-Chief Executive Officers, President and Chief Financial Officer (the “Certifying Officer”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report.

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Controls Over Financial Reporting

As required by the SEC rules and regulations for the implementation of Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company,

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

A “material weakness” is defined under the SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls. As a result of its review, management concluded that we had material weaknesses in our internal control over financial reporting process consisting of the following:

●

Inadequate U.S. GAAP expertise. The current accounting staff is inexperienced in applying U.S. GAAP standard as they are primarily engaged in ensuring compliance with PRC accounting and reporting requirement for our consolidated operating entities, and thus require substantial training. The current staff’s accounting skills and understanding as to how to fulfill the requirements of U.S. GAAP-based reporting, including subsidiary financial statements consolidation, are inadequate.

●

No formal plan to provide applicable training for our financial and accounting staff to enhance our understanding of U.S. GAAP and internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at December 31, 2020. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments and those criteria, management determined that our internal control over financial reporting was not effective at December 31, 2020 due to the material weaknesses identified by our management as described above.

Management Plan to Remediate Material Weaknesses

●

We plan to engage outside consultant to supplement efforts to improve our internal control over financial reporting;

●

We plan to acquire applicable training for our financial and accounting staff to enhance our understanding of U.S. GAAP and internal control over financial reporting

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The following table sets forth the name, age and position of each of our executive officers and directors as of the date of this report:

Name	Age	Position
Yimin Jin	48	Co-Chief Executive Officer and Co-Chairman of the Board
Wei Xu	58	President and Co-Chairman of the Board
Weidong (David) Feng	38	Co-Chief Executive Officer
Jianan Liang	45	Chief Operating Officer
Yi Li	43	Chief Financial Officer and Secretary
Bibo Lin	37	Vice President
Qihai Wang	51	Director
Mingyue Cai (1)(2)(3)	42	Director
Jin Wang (1)(2)(3)	33	Director
Yajing Li(1)(2)(3)	40	Director
Fei Gan(1)(2)(3)	40	Director

(1)	Member of our Audit Committee
(2)	Member of our Compensation Committee
(3)	Member of our Nominating and Corporate Governance Committee

Business Experience and Directorships

The following describes the backgrounds of the director nominees. Our board of directors has determined that (a) other than Messrs. Yimin Jin, Wei Xu and Qihai Wang, all of our directors are independent directors as defined under the Nasdaq Stock Market’s listing standards governing members of boards of directors, and (b) the members of our Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are independent under applicable SEC rules

Mr. Yimin Jin

Mr. Jin was appointed as the Co-Chief Executive Officer and the Co-Chairman of the Board on April 15, 2019. Yimin Jin has extensive experience in investment and financing industry. From 1995 to 2001, Mr. Jin served as the General Manager of Shanghai Pudong Development Bank, and from 2001 to October 2015, Mr. Jin served as the Managing Director of Shanghai Xiefeng Science and Technology Investment Co., Ltd. Mr. Jin has served as general manager of Shanghai Guangdian Assets Management Co., Ltd. since November 2015. Mr. Jin received his college diploma from Shanghai Shanda College in 1993 and received his Bachelor of Finance degree from Shanghai Television University in 1998. Mr. Jin obtained his MSBA degree from Madonna University in 2001. We believe Mr. Jin is well qualified to serve on our board of directors because of his extensive investment experience.

Mr. Wei Xu

Mr. Wei Xu was appointed as a director of the Company on January 3, 2020 and the President of the Company on October 29, 2020. Mr. Xu is the inventor of QR code patent and the creator of Code Chain interface. He founded and has served as the chairman of the board of director at Lingkong Group, a Chinese company that engages in systems applications and products in data processing, since August 2006. In July 2019, Mr. Xu founded Sichuan Wuge Network Games Co., Ltd., a game developing company that combines IoT and e-commerce that is based on ChainCode interface. From July 1994 to July 2006, Mr. Xu was the COO of NEC IT Management Co., Ltd., the Chinese subsidiary of NEC Japan, a company that provides information technology solutions including but not limited to SAP, SCM and Matrixlink. Mr. Xu received his bachelor’s degree in business administration in China from Fudan University in 1992.

Mr. Weidong (David) Feng

Mr. Weidong (David) Feng was appointed as the Co-Chief Executive Officer on February 1, 2021. Mr. Feng has been engaged in blockchain research since August 2016. For many years, Mr. Feng has been researching and exploring how to apply Blockchain technology to the security of computer network technology. He has made continuous efforts to explore the security, technical details and application of blockchain cryptocurrency. He also provides e-currency consulting services on alternative currency planning, Bitcoin processing, compliance, monetization strategy and risk management and virtual currency platform. Mr. Feng advises a number of companies and has been involved in over 100 projects of the decentralized cryptocurrency wallet, digital asset and cryptocurrency insurance technology, asset digitalization and tokenization service, decentralized finance technology, blockchain-based security technology, etc. From November 2014 to August 2016, Mr. Feng worked as the technical director at Yikedao (Beijing) Technology Co., Ltd., designing and deploying a home delivery application with online and offline services for convenience stores. Mr. Feng founded Henan Jinyi Internet Technology Co. Ltd. in October 2008 and worked as the general manager of the company until October 2014, during which period, his company participated in the construction and operation of Pingdingshan Municipal CPPCC, Pingdingshan Women's Federation, Pingdingshan Volunteers Association, Pingdingshan Public Security Entry-Exit and other large official websites. In 2006, he worked in Henan Pingdingshan Branch of China Network Communications Corporation, mainly responsible for the construction services of new countryside informatization. Mr. Feng graduated from Nankai University as a postgraduate student in Internet Finance. As a senior computer network security engineer, and the strategic expert and architect in Blockchain, Mr. Feng has applied for a number of patents on Blockchain core technology, artificial intelligence and big data.

Mr. Jianan Liang

Mr. Jianan Liang was appointed as the Chief Operating Officer of the Company on March 17, 2021. Mr. Liang is the general manager of sales in China of Akamai Information Technology Co., Ltd. Since October 2012, Mr. Liang has been in charge of the business development of Akamai in China in connection with cloud-based acceleration services and security services for global network applications and content distribution for Chinese e-commerce, high-tech and financial services companies’ business development overseas. Mr. Liang has also been the Vice President (Business) of China Soft Power Technology Group Holdings Co., Ltd. since December 2015, where he was in charge of establishing and maintaining partnerships with international operators to provide international submarine cable transmission and cloud infrastructure services, and to help customers expand their businesses based on the Internet. Additionally, Mr. Liang has served as Senior Vice President of Beijing Supply and Marketing Big Data Group since July 2017, where he was responsible for providing the cloud computing technologies required for business's digital transformation. From October 2010 to October 2012, he served as the head of HP China solution sales, responsible for the sales performance of software products and services of China HP Imaging and Printing Group in China, and formulating sales strategies for Customers provide one-stop services (hardware, software and services). From January 2009 to October 2010, he was the sales and marketing director of Hong Kong Ludao Telecom Co., Ltd., responsible for selecting agent products and formulating sales strategies. From October 2003 to January 2009, he was the general sales manager of Captaris China, responsible for achieving sales performance goals in China, expanding market share, and establishing a pipeline relationship with the company's global partners in the Chinese market for the first time. From October 2001 to October 2003, Mr. Liang served as a product technical expert for Microsoft China Co., Ltd., where he was responsible for providing product technical pre-sales support to industry customers, including carrying out in-depth solution development and customization. Mr. Jianan Liang holds a bachelor's degree in computer science from Harbin Institute of Technology, China. Mr. Liang has also graduated from the China-Europe International Business School (CEIBS) senior executive business management program. Mr. Liang has served as senior sales managers in various renowned companies that are listed in the United States, Canada, China and Hong Kong. With nearly 20 years of experience in sales, technology and team management, Mr. Liang accumulated numerous partners and customer relationships in several government agencies, large state-owned enterprises, local industry leaders and multinational companies, including the world's leading e-commerce companies, international financial insurance companies, high-tech product manufacturers, instant social APPs and other Internet integrated service providers. He has provided comprehensive products and technical solutions, including but not limited to cloud services, network security, content distribution (CDN), big data analysis, Internet of Things, etc.

Ms. Yi Li

Ms. Yi Li was appointed as the Chief Financial Officer and Secretary of the Company on April 25, 2019. From 2005 to 2007, Ms. Li served as Financial Accounting of Shanghai Supersharp International Co., Ltd. From 2007 to 2009, Ms. Li served as Finance Officer of the HongKong OneByOne Trading & Accessories Co., Ltd. Ms. Li worked as the Financial Manager at Shanghai Yitex Garment Co., Ltd. from 2010 to 2015. Ms. Li served as the Chief Financial Officer of Shanghai Difeng Group since 2015 till now. Ms. Li received her Bachelor degree of International Business and MBA from Auckland Institute of Studies.

Mr. Bibo Lin

Mr. Lin was appointed as the Vice President of the Company on February 25, 2021. Mr. Lin is the founder and President of Wuge Network Games Co., Ltd., a PRC company contractually controlled by the Company that develops games and combines IoT and e-commerce based on ChainCode interface. Mr. Lin has extensive experience in information technology and Blockchain technology. From September 2018 to May 2019, Mr. Lin was the CEO of Chengdu Yuan Malian Technology Co., Ltd., a PRC company that engaged in technical support of Internet of Things. From December 2017 to July 2018, Mr. Lin was the CEO of Sichuan Hongming Technology Development Co., Ltd., a PRC company that engaged in the development and maintenance of Internet application software. From February 2015 to January 2018, Mr. Lin was the CEO of Chengdu Huasu Internet Technology Service Co., Ltd., a PRC company that engaged in Internet consulting and Internet project development planning. From February 2014 to January 2015, Mr. Lin was the Vice President at Sichuan Tiangou Technology Co., Ltd., a PRC company that operated e-commerce. Prior to that, Mr. Lin worked for Alibaba Sichuan as a sales manager for 7 years.

Mr. Qihai Wang

Mr. Wang was appointed as a director of our Board on April 24, 2019. Mr. Wang is currently the general manager of Jiangsu Ronghai electric power fuel co., LTD., and vice President of Nantong Enterprise Culture Research Association. He has been in the coal industry for more than thirty years. Proficient in bulk trade, transportation, processing and other business. In 1987, He was in charge of coal procurement in Tianjia-an Power Plant. In 2000, he was the general responsible for coal trade in Gansu province of Nanjing Jutai Trading Co., LTD., and in 2004, he was the general responsible for coal purchase in western China of Nantong Linan Industry and Trade co., LTD. Founded Jiangsu Ronghai Electric Power Fuel Co., ltd. in 2009 and has been the general manager since then. Mr. Qihai Wang graduated from Huainan Teachers’ College in July 1993 with a degree in Statistics.

Mr. Mingyue Cai

Mr. Cai was appointed as a director of the Company on February 25, 2020. Mr. Cai has been the Vice President at Yitu Safety Technology (Shenzhen) Co., Ltd., a PRC company engages in artificial intelligence development and application. From November 2009 to August 2017, he was an administrative director at Rugao Port Group Co., Ltd., a PRC company that focuses on port logistics, industrial park construction and timber, coal and ore trade. From June 2004 to October 2009, Mr. Cai worked as a manager at Shanghai Rishan Environmental Protection Technology Co., Ltd., a PRC company that distribute and retail environmentally friendly cleaning products. Mr. Cai has a bachelor’s degree in administrative management.

Mr. Fei Gan

Mr. Fei Gan was appointed as a director of the Company on February 11, 2021. Mr. Gan is the co-founder of Silverstone Investment, a top financial quantitative trading company. Mr. Gan has been engaged in the financial technology and big data industry for more than ten years and has held senior management positions in many companies. He has served as the vice president of Silverstone Investment since 2008, the CEO of Shenzhen Columbus Data Technology Co., Ltd. since 2017 and the CEO of Hefei Bitu Technology Co., Ltd. since 2020.

Ms. Yajing Li

Ms. Yajing Li was appointed as a director of the Company on November 16, 2020. Ms. Li has been the director of real estate investment at Guohua Life Insurance Co., Ltd., an insurance company based in China since 2010, in charge of the asset management department. Prior to that, Ms. Li worked as a director in charge of accounting at Shanghai Linli Planning and Architectural Design Co., Ltd. from 2008 to 2009, a director in charge of accounting at Newsky (Canada) International Consulting Co., Ltd. from 2007 to 2008, and a financial manager at Shanghai Lige Power Engineering Co., Ltd. from 2006 to 2007. Ms. Li received her Bachelor’s degree in finance and economics from School of South-Central University for Nationalities in China and her Master’s degree in Management from Shanghai University of Finance and Economics.

Mr. Jin Wang

Mr. Jin Wang was appointed as a director of the Company on February 11, 2021. Mr. Wang is an IT expert, a pioneer in blockchain finance, and an independent investor in the Internet finance and blockchain industries. Mr. Wang is the founder of Singapore Vientiane Digital Platform, Chairman of Singapore Zianquan Technology, Chairman of Shenzhen Dingfeng Software, and Chairman of BIMG Technical Committee. Mr. Wang has more than five years of experience in financial innovation and digital asset management. Mr. Wang is the founder of Alchemy digital asset quantitative trading platform and the Initiator of WeDeep Smart Health Platform Project.

No Classification of Directors

In accordance with our existing charter, our board of directors is divided into two classes with only one class of directors being elected in each year and each class (except for those directors appointed prior to our first annual meeting of stockholders) serving a two-year term.

As discussed above, in connection with the Business Combination, our board of directors has been reconstituted and comprised of seven members. Our board of directors believes it is in the best interests of the Company for the board of directors to have no separate classification, such that each director serves a one-year term until the next annual meeting of stockholders or until such director’s successor is elected or qualified. If Proposal 4 is approved at the special meeting, all seven directors that our board of directors has nominated to serve on the board will serve until the first annual meeting of stockholders following the Business Combination.

Director Independence

Nasdaq listing standards require that a majority of our board of directors be independent as long as we are not a controlled company. We anticipate that a majority of our board of directors will be independent as of the closing of the Business Combination. An “independent director” is defined under the Nasdaq rules generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. We anticipate that our board of directors will determine that Mr. Mingyue Cai, Mr. Jin Wang, Mr. Fei Gan and Ms. Yajing Li are “independent directors” as defined in the Nasdaq listing standards and applicable SEC rules. Our independent directors will have regularly scheduled meetings at which only independent directors are present.

Leadership Structure and Risk Oversight

The board of directors does not have a lead independent director. Currently Mr. Yimin Jin serves as our Co-Chief Executive Officer and Co-Chairman of the Board, Mr. Wei Xu serve as President and Co-Chairman of the Board.

Committees of the Board of Directors

The standing committees of our board of directors currently consists of an Audit Committee and a Compensation Committee, and after the Business Combination will also consist of a Nominating and Corporate Governance Committee. Each of the committees will report to the board of directors as they deem appropriate and as the board may request.

Audit Committee

Our Audit Committee currently consists of Ms. Yajing Li, Mr. Jin Wang, Mr. Fei Gan and Mr. Mingyue Cai with Ms. Yajing Li serving as the chairman of the Audit Committee. We believe that each of these individuals qualify as independent directors according to the rules and regulations of the SEC with respect to audit committee membership. We also believe that Ms. Yajing Li qualifies as our “audit committee financial expert,” as such term is defined in Item 401(h) of Regulation S-K. Our board of directors has adopted a written charter for the Audit Committee, which is attached as an exhibit to this Report.

The audit committee’s duties, which are specified in our Audit Committee Charter, include, but are not limited to:

	●	reviewing and discussing with management and the independent auditor our annual audited financial statements, and recommending to the board whether the audited financial statements should be included in our Form 10-K;

	●	discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements;

	●	discussing with management major risk assessment and risk management policies;

	●	monitoring the independence of the independent auditor;

	●	verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;

	●	reviewing and approving all related-party transactions;

	●	inquiring and discussing with management our compliance with applicable laws and regulations;

	●	pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed;

	●	appointing or replacing the independent auditor;

	●	determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;

	●	establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and

Compensation Committee

Our Compensation Committee currently consists of Mr. Mingyue Cai, Mr. Jin Wang, Mr. Fei Gan and Ms. Yajing Li, with Mr. Mingyue Cai serving as the chairman of the Compensation Committee. We anticipate that each of the members of our Compensation Committee will be independent under the applicable Nasdaq listing standards. Our board of directors has adopted a written charter for the Compensation Committee, which is attached as an exhibit to this Report.

The compensation committee’s duties, which are specified in our Compensation Committee Charter, include, but not limited to:

	●	reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer’s based on such evaluation;

	●	reviewing and approving the compensation of all of our other executive officers;

	●	reviewing our executive compensation policies and plans;

	●	implementing and administering our incentive compensation equity-based remuneration plans;

	●	assisting management in complying with our proxy statement and annual report disclosure requirements;

	●	approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers and employees;

	●	producing a report on executive compensation to be included in our annual proxy statement; and

	●	reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.

Corporate Governance and Nominating Committee

Our Corporate Governance and Nominating Committee will be responsible for, among other matters: (1) identifying individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors; (2) overseeing the organization of our board of directors to discharge the board’s duties and responsibilities properly and efficiently; (3) identifying best practices and recommending corporate governance principles; and (4) developing and recommending to our board of directors a set of corporate governance guidelines and principles applicable to us.

Our Corporate Governance and Nominating Committee currently consists of Mingyue Cai, Mr. Jin Wang, Mr. Fei Gan and Ms. Yajing Li, with Mr. Fei Gan serving as the chairman of the Corporate Governance and Nominating Committee. We anticipate that each of the members of our Corporate Governance and Nominating Committee will be independent under the applicable Nasdaq listing standards. Our board of directors has adopted a written charter for the Corporate Governance and Nominating Committee, which is available on our corporate website at www.ccnctech.com.

Compensation Committee Interlocks and Insider Participation

None of our executive officers currently serves, and in the past year has not served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of such Forms, we believe that during the year ended December 31, 2020 there were no delinquent filers.

Code of Ethics

We have adopted a Code of Ethics that applies to all of our employees, including our chief executive officer, chief financial officer and principal accounting officer. Our Code of Ethics is attached as an exhibit to this Report. If we amend or grant a waiver of one or more of the provisions of our Code of Ethics, we intend to satisfy the requirements under Item 5.05 of Form 8-K regarding the disclosure of amendments to or waivers from provisions of our Code of Ethics that apply to our principal executive officer, principal financial officer and principal accounting officer by posting the required information on our website at the above address.

Item 11. Executive Compensation

The following table provides disclosure concerning all compensation paid for services to CCNC in all capacities for our fiscal years ended December 31, 2020 and 2019 provided by (i) each person serving as our principal executive officer (“PEO”), (ii) each person serving as our principal financial officer (“PFO”) and (iii) our two most highly compensated executive officers other than our PEO and PFO whose total compensation exceeded $100,000 (collectively with the PEO, referred to as the “named executive officers” in this Executive Compensation section).

Summary Compensation Table

Name and Principal Position	Fiscal Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Other Compensation ($)		Total ($)

Yimin Jin ⁽¹⁾	2020		100,000		-		-		-		-		100,000
(Co-CEO)	2019		100,000		-		-		-		-		100,000

Wei Xu ⁽²⁾	2020		10,000		-		-		-		-		10,000
(President)	2019		10,000		-		-		-		-		10,000

Yuguo Zhang ⁽³⁾	2020		83,333		-		-		-		-		83,333
(Former President)	2019		66,667		-		-		-		-		66,667

Yi Li ⁽⁴⁾	2020		30,000		-		-		-		-		30,000
(CFO)	2019		30,000		-		-		-		-		30,000

(1)

Ms. Yimin Jin was appointed as the Co-CEO of the Company on April 15, 2019. Mr. Jin is also a director of the Company. The amounts reflect the compensation Mr. Jin received for his services as the Co-CEO and a director of the Company.

(2)

Mr. Wei Xu was appointed as the President of the Company on October 29, 2020. Mr. Xu is also a director of the Company. The amounts reflect the compensation Mr. Xu received for his services as the President and a director of the Company.

(3)

Mr. Yuguo Zhang was appointed as the President and a director of the Company on April 25, 2019. Mr. Zhang resigned as a director on February 25, 2020 and resigned as the President on October 29, 2020. The amounts reflect the compensation Mr. Zhang received for his services as the President and a director of the Company.

(4)

Ms. Yi Li was appointed as the CFO of the Company on April 25, 2019. The amounts reflect the compensation Ms. Li received for her services as the CFO of the Company.

Grants of Plan Based Awards in the Fiscal Year Ended December 31, 2020

During the fiscal year ended December 31, 2020, no shares of common stock were granted to our officers and directors under the plan.

Outstanding Equity Awards at Fiscal Year-End

None.

Employment Contracts, Termination of Employment, Change-in-Control Arrangements

We have entered into employment agreements with each of our executive officers, respectively, (each an “Employment Agreement,” collectively, the “Employment Agreements”). Under these agreements, each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a crime, or misconduct or a failure to perform agreed duties. The executive officer may resign at any time with a three-month advance written notice.

The officers also agreed to enter into additional confidential information and invention assignment agreements and are subject to certain non-compete and non-solicitation restrictions for a period one year following termination.

Director Compensation

The following table represents compensation earned by our non-executive directors in 2020.

Name	Fees earned in cash ($)		Stock awards ($)		Option awards ($)		All other compensation ($)		Total ($)
Yuguo Zhang ⁽¹⁾	$	83,333		-		-		-	$	83,333
Qihai Wang ⁽²⁾	$	10,000		-		-		-	$	10,000
Xueyuan Han ⁽³⁾	$	10,000		-		-		-	$	10,000
Manli Long ⁽⁴⁾	$	10,000		-		-		-	$	10,000
Mingze Yin ⁽⁵⁾	$	10,000		-		-		-	$	10,000
Min Zhu ⁽⁶⁾	$	10,000		-		-		-	$	10,000
Wei Xu ⁽⁷⁾	$	10,000		-		-		-	$	10,000
Yajing Li ⁽⁸⁾	$	2,000		-		-		-	$	2,000
Mingyue Cai ⁽⁹⁾	$	8,333		-		-		-	$	8,333

(1)	Mr. Yuguo Zhang was appointed as a director of the Company on April 25, 2019. Mr. Zhang resigned from his position on February 25, 2020.
(2)	Mr. Qihai Wang was appointed as a director of the Company on April 24, 2019.
(3)	Ms. Xueyuan Han was appointed as a director of the Company on April 08, 2019. Mr. Han resigned from his position on February 25, 2020.
(4)	Ms. Manli Long was appointed as a director of the Company on April 08, 2019. Ms. Long resigned from her position on February 11, 2021
(5)	Mr. Mingze Yin was appointed as a director of the Company on March 22, 2019. Mr. Yin resigned from his position on November 16, 2020.
(6)	Ms. Min Zhu was appointed as a director of the Company on March 22, 2019. Mr. Zhu resigned from her position on February 11, 2021.
(7)	Mr. Wei Xu was appointed as a director of the Company on January 3, 2020. Mr. Wei Xu is also the President of the Company. The amounts reflect the compensation Mr. Xu received for his services as the President and a director of the Company.
(8)	Ms. Yajing Li was appointed as a director of the Company on November 16, 2020.
(9)	Mr. Mingyue Cai was appointed as a director of the Company on February 25, 2020.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information regarding the beneficial ownership of our common stock as of March 25, 2021 based on information obtained from the persons named below, with respect to the beneficial ownership of shares of our common stock, by:

	●	each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;

	●	each of our executive officers and directors that beneficially owns shares of our common stock; and

	●	all our executive officers and directors as a group.

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.

The percentage ownership information shown in the table below is based on that there were 36,342,692 shares of common stock outstanding as of March 25, 2021.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percent of Class(1)
Directors and Named Executive Officers
Yimin Jin, Co-Chief Executive Officer and Co-Chairman of the Board		4,334,705		11.93	%
Wei Xu, Co-Chairman of the Board		3,940,184		10.84	%
Weidong (David) Feng, Co-Chief Executive Officer		-		-
Yi Li, Chief Financial Officer		-		-
Bibo Lin, Vice President		1,200,000		3.30	%
Qihai Wang, Director		1,036,000		2.85	%
Mingyue Cai, Director		-		-
Fei Gan, Director		-		-
Yajing Li, Director		242,743		0.67	%
Jin Wang, Director		-		-
All officers and directors as a group (11 persons):		10,753,632		29.59	%

5% Beneficial Owner
None		-		-

(1)

Unless otherwise noted, the business address of each of the following entities or individuals is Room 1, 2nd Floor, No 119 South Zhaojuesi Road, Chenghua District, Chengdu, Sichuan, China 610047.

Changes in Control

N/A

Item 13. Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

Except for the employment agreements previously entered into between us and certain of our named executive officers, since January 1, 2018, none of our directors or named executive officers, nor any person who owned of record or was known to own beneficially more than 5% of the outstanding Shares of our common stock, nor any associate or affiliate of such persons or companies, has any material interest, direct or indirect, in any transaction, or in any proposed transaction, which has materially affected or will affect us.

Director Independence

Nasdaq listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Mr. Jin Wang, Ms. Yajing Li, Mr. Mingyue Cai and Mr. Fei Gan are “independent directors” as defined in the Nasdaq listing standards and applicable SEC rules. Our independent directors have regularly scheduled meetings at which only independent directors are present.

Item 14. Principal Accountant Fees and Services.

WWC, P.C., (“WWC”) was appointed by the Company to serve as its independent registered public accounting firm for fiscal years ended December 31, 2020 and 2019.

Audit Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by WWC in connection with regulatory filings. The aggregate fees billed or to be billed by WWC for professional services rendered for the audit of our annual financial statements, review of the financial information included in our Forms 10-Q for the respective periods and other required filings with the SEC For the year ended December 31, 2020 and 2019 totaled $225,000 and $250,000, respectively. The above amounts include interim procedures and audit fees, as well as attendance at audit committee meetings.

Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. During the year ended December 31, 2020, we did not pay WWC for consultations concerning financial accounting and reporting standards.

Tax Fees. We paid WWC $5,000 for preparation of our 2019 US Income Tax Returns in 2020.

All Other Fees. We did not pay WWC for other services for the year ended December 31, 2020 and 2019.

Pre-Approval Policy

Our audit committee was formed upon the consummation of our initial public offering. As a result, the audit committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit).

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)	The following documents are filed as part of this Report:

(1)	Financial Statements

(2)	Financial Statements Schedule

All financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto in is Item 15 of Part IV below.

(3)

Exhibits

We hereby file as part of this Report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website at www.sec.gov.

EXHIBIT INDEX

Exhibit Number		Description of Document
3.1		Articles of Incorporation, filed as exhibit 3.1 to the registration statement on Form S-1 filed on May 10, 2019 and incorporated herein by reference
3.2		Certificate of Amendment to Articles of Incorporation, filed as exhibit 3.2 to the registration statement on Form S-1 filed on May 10, 2019 and incorporated herein by reference
3.3		Certificate of Amendment of Articles of Incorporation, filed as exhibit 3.1 to the current report on Form 8-K filed on May 18, 2020 and incorporated herein by reference
3.4		Amended and Restated Bylaws, filed as exhibit 3.2 to the current report on Form 8-K filed on May 18, 2020 and incorporated herein by reference
4.1		Form of Registered Warrant, filed as exhibit 4.1 to the current report on Form 8-K filed on February 18, 2021 and incorporated herein by reference
4.2		Form of Investor Warrant, filed as exhibit 4.2 to the current report on Form 8-K filed on February 18, 2021 and incorporated herein by reference
4.3		Form of Placement Agent Warrant, filed as exhibit 4.3 to the current report on Form 8-K filed on February 18, 2021 and incorporated herein by reference
4.4		Form of Lock-up Agreement, filed as exhibit 4.4 to the current report on Form 8-K filed on February 18, 2021 and incorporated herein by reference
10.1		Employment Agreement between the Company and Yimin Jin dated April 15, 2019, filed as exhibit 10.1 to the current report on Form 8-K filed on April 15, 2019 and incorporated herein by reference
10.2		Employment Agreement between the Company and Yi Li dated April 25, 2019, filed as exhibit 10.1 to the current report on Form 8-K filed on April 26, 2019 and incorporated herein by reference
10.3		Employment Contract between the Company and Bibo Lin, dated February 25, 2020, filed as exhibit 10.2 to the current report on Form 8-K filed on February 26, 2020 and incorporated herein by reference
10.4		Employment Contract between the Company and Weidong (David) Feng dated February 1, 2021, filed as exhibit 10.1 to the current report on Form 8-K filed on February 1, 2021 and incorporated herein by reference
10.5		Employment Contract between the Company and Jianan Liang dated March 17, 2021, filed as exhibit 10.1 to the current report on Form 8-K filed on March 17, 2021 and incorporated herein by reference
10.6		Director Offer Letter between the Company and Mr. Qihai Wang, dated April 25, 2019, filed as exhibit 10.5 to the current report on Form 8-K filed on April 26, 2019 and incorporated herein by reference

10.7		Director Offer Letter between the Company and Wei Xu, dated January 3, 2020, filed as exhibit 10.6 to the current report on Form 8-K filed on January 3, 2020 and incorporated herein by reference
10.8		Director Offer Letter between the Company and Mingyue Cai, dated February 25, 2020, filed as exhibit 10.1 to the current report on Form 8-K filed on February 26, 2020 and incorporated herein by reference
10.9		Director Offer Letter between the Company and Yajing Li, dated November 16, 2020, filed as exhibit 10.1 to the current report on Form 8-K filed on November 17, 2020 and incorporated herein by reference
10.10		Director Offer Letter between Code Chain New Continent Limited and Fei Gan, dated February 11, 2021, filed as exhibit 10.1 to the current report on Form 8-K filed on February 11, 2021 and incorporated herein by reference
10.11		Director Offer Letter between Code Chain New Continent Limited and Jin Wang, dated February 11, 2021, filed as exhibit 10.2 to the current report on Form 8-K filed on February 11, 2021 and incorporated herein by reference
10.12		Share Purchase Agreement dated January 3, 2020, filed as exhibit 10.1 to the current report on Form 8-K filed on January 3, 2020 and incorporated herein by reference
10.13		Technical Consultation and Services Agreement dated January 3, 2020, filed as exhibit 10.2 to the current report on Form 8-K filed on January 3, 2020 and incorporated herein by reference
10.14		Equity Pledge Agreement dated January 3, 2020, filed as exhibit 10.3 to the current report on Form 8-K filed on January 3, 2020 and incorporated herein by reference
10.15		Equity Option Agreement dated January 3, 2020, filed as exhibit 10.4 to the current report on Form 8-K filed on January 3, 2020 and incorporated herein by reference
10.16		Voting Rights Proxy and Financial Support Agreement dated January 3, 2020, filed as exhibit 10.5 to the current report on Form 8-K filed on January 3, 2020 and incorporated herein by reference
10.17		Agreement to Assign Technical Consultation and Service Agreement dated January 11, 2021, filed as exhibit 10.2 to the current report on Form 8-K filed on January 11, 2021 and incorporated herein by reference
10.18		Agreement to Assign Equity Option Agreement dated January 11, 2021, filed as exhibit 10.3 to the current report on Form 8-K filed on January 11, 2021 and incorporated herein by reference
10.19		Agreement to Assign Equity Pledge Agreement dated January 11, 2021, filed as exhibit 10.4 to the current report on Form 8-K filed on January 11, 2021 and incorporated herein by reference
10.20		Agreement to Assign Voting Rights Proxy and Financial Supporting Agreement dated January 11, 2021, filed as exhibit 10.5 to the current report on Form 8-K filed on January 11, 2021 and incorporated herein by reference
10.21		Share Purchase Agreement dated November 30, 2018, filed as exhibit 10.1 to the current report on Form 8-K filed on December 03, 2018 and incorporated herein by reference
10.22		Consulting Services Agreement dated November 30, 2018, filed as exhibit 10.2 to the current report on Form 8-K filed on December 03, 2018 and incorporated herein by reference
10.23		Equity Pledge Agreement dated November 30, 2018, filed as exhibit 10.3 to the current report on Form 8-K filed on December 03, 2018 and incorporated herein by reference
10.24		Call Option Agreement dated November 30, 2018, filed as exhibit 10.4 to the current report on Form 8-K filed on December 03, 2018 and incorporated herein by reference
10.25		Voting Rights Proxy Agreement dated November 30, 2018, filed as exhibit 10.5 to the current report on Form 8-K filed on December 03, 2018 and incorporated herein by reference
10.26		Operating Agreement dated November 30, 2018, filed as exhibit 10.6 to the current report on Form 8-K filed on December 03, 2018 and incorporated herein by reference
10.27		Agreement to Assign Call Option Agreement dated April 30, 2020, filed as exhibit 10.2 to the current report on Form 8-K filed on May 1, 2020 and incorporated herein by reference
10.28		Agreement to Assign Consulting Services Agreement dated April 30, 2020, filed as exhibit 10.3 to the current report on Form 8-K filed on May 1, 2020 and incorporated herein by reference
10.29		Agreement to Assign Equity Pledge Agreement dated April 30, 2020, filed as exhibit 10.4 to the current report on Form 8-K filed on May 1, 2020 and incorporated herein by reference
10.30		Agreement to Assign Voting Rights Proxy Agreement dated April 30, 2020, filed as exhibit 10.5 to the current report on Form 8-K filed on May 1, 2020 and incorporated herein by reference

10.31		Agreement to Assign Operating Agreement dated April 30, 2020, filed as exhibit 10.6 to the current report on Form 8-K filed on May 1, 2020 and incorporated herein by reference
10.32		Share Purchase Agreement by and Among Code Chain Code Chain New Continent Limited, Jiazhen Li, Long Liao and Chunyong Zheng, dated June 30, 2020, filed as exhibit 10.1 to the current report on Form 8-K filed on July 6, 2020 and incorporated herein by reference
10.33		Placement Agency Agreement, dated as of February 18, 2021, by and between the Company and Univest Securities, LLC, filed as exhibit 10.1 to the current report on Form 8-K filed on February 18, 2021 and incorporated herein by reference
10.34		Securities Purchase Agreement, dated as of February 18, 2021, by and between the Company and certain Investors, filed as exhibit 10.2 to the current report on Form 8-K filed on February 18, 2021 and incorporated herein by reference
10.35		Asset Purchase Agreement dated February 23, 2021, filed as exhibit 10.1 to the current report on Form 8-K filed on March 1, 2021 and incorporated herein by reference
14.1		Code of Business and Ethics, filed as exhibit 14.1 to the registration statement on Form S-1 filed on June 16, 2015 and incorporated herein by reference
21.1*		List of Subsidiaries
31.1		Certification of the Co-Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).*
31.2		Certification of the President required by Rule 13a-14(a) or Rule 15d-14(a).*
31.3		Certification of the Co-Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).*
31.4		Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).*
32.1		Certification of the Co-Chief Executive Officer required by 18 U.S.C. 1350.*
32.2		Certification of the President required by 18 U.S.C. 1350.*
32.3		Certification of the Co-Chief Executive Officer required by 18 U.S.C. 1350.*
32.4		Certification of the Chief Financial Officer required by 18 U.S.C. 1350.*
99.1		Form of Audit Committee Charter, filed as exhibit 99.1 to the registration statement on Form S-1 filed on June 16, 2015 and incorporated herein by reference
99.2		Form of Compensation Committee Charter, filed as exhibit 99.2 to the registration statement on Form S-1 filed on June 16, 2015 and incorporated herein by reference
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema*
101.CAL		XBRL Taxonomy Calculation Linkbase*
101.LAB		XBRL Taxonomy Label Linkbase*
101.PRE		XBRL Definition Linkbase Document*
101.DEF		XBRL Definition Linkbase Document*

Filed herewith

Furnished herewith

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

	Page
Reports of Independent Registered Public Accounting Firms	F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 2020 and 2019	F-3
Consolidated Statements of income (Loss) and Comprehensive Income (Loss) For the year ended December 31, 2020 and 2019	F-4
Consolidated Statements of Changes in Shareholders’ Equity For the year ended December 31, 2020 and 2019	F-5
Consolidated Statements of Cash Flows For the year ended December 31, 2020 and 2019	F-6
Notes to Consolidated Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To:

The Board of Directors and Stockholders of
Code Chain New Continent Limited

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Code Chain New Continent Limited and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income (loss) and comprehensive loss, changes in shareholders’ equity, and cash flows for the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters encountered during the audit were related to accounts or disclosures that are material to the financial statements and involve judgment. The Company had a material account balance for goodwill, and the carrying value of that asset are subject to estimation, which involves judgment. The valuation of goodwill may involve multiple variables that may include, but are not limited to, the cash generating unit’s forecast of future cash flows, probability analysis, and the Company’s weighted average cost of capital. The audit engagement team gathered data and evidence, performed independent analysis, and exercised professional judgment in order to support the audit opinion, and to mitigate the risk of material misstatement to an acceptable level. Our opinion on the consolidated financial statements, taken as a whole, is not affected by the reporting of critical audit matters.

/s/ WWC, P.C.

WWC, P.C.
Certified Public Accountants

We have served as the Company’s auditor since October 26, 2018.

San Mateo, California
March 26, 2021

F-2

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,		December 31,
	2020		2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	998,717	$	2,483,938
Short term investment		3,295,070		-
Notes receivable		-		43,003
Accounts receivable, net		1,071,590		2,197,264
Other receivables, net		555,433		52,616
Other receivable - related party		230,134		-
Inventories		1,047,274		1,197,065
Prepayments		4,780,975		4,069,214
Discontinued operations - current assets		-		1,543,806
Total current assets		11,979,193		11,586,906

PLANT AND EQUIPMENT, NET		82,833		19,057

RIGHT-OF-USE ASSETS		69,038		90,250

OTHER ASSETS
Goodwill		11,650,157		7,289,454
Intangible assets, net		1,226,521		-
Deferred tax assets		127,377		37,532
Discontinued operations – non-current assets		-		3,424,390
Total other assets		13,004,055		10,751,376

Total assets	$	25,135,119	$	22,447,589

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Short term loans - bank	$	475,103	$	-
Accounts payable		1,126,091		344,108
Other payables and accrued liabilities		21,883		4,121,862
Other payables - related parties		491,136		1,336,902
Customer deposits		900,522		146,771
Lease liabilities - current		101,292		61,009
Taxes payable		72,639		202
Discontinued operations - current liabilities		-		10,174,066
Total current liabilities		3,188,666		16,184,920

OTHER LIABILITIES
Lease liabilities – non-current		-		61,580
Discontinued operations – non-current liabilities		33,698		239,097
Total other liabilities		33,698		300,677

Total liabilities		3,222,364		16,485,597

COMMITMENTS AND CONTINGENCIES		-		-

SHAREHOLDERS’ EQUITY
Preferred stock, $0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding as of December 31, 2020 and 2019, respectively		-		-
Common stock, $0.0001 par value, 200,000,000 shares authorized, 29,176,026 and 20,821,661 shares issued and outstanding as of December 31, 2020 and 2019, respectively		2,918		2,082
Additional paid-in capital		20,022,427		8,350,861
Statutory reserves		-		-
Retained earnings (accumulated deficit)		951,773		(1,558,683	)
Accumulated other comprehensive income (loss)		935,637		(832,268	)
Total shareholders’ equity		21,912,755		5,961,992

Total liabilities and shareholders’ equity	$	25,135,119	$	32,852,977

The accompanying notes are an integral part of these consolidated financial statements.

F-3

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

	For the year ended December 31,
	2020			2019
REVENUES
Equipment and systems	$	-		$	-
Fuel materials		11,261,428			18,955,988
Trading and others		591,455			628,489
TOTAL REVENUES		11,852,883			19,584,477

COST OF REVENUES
Equipment and systems		-			-
Fuel materials		10,748,354			18,699,429
Trading and others		-			322,813
TOTAL COST OF REVENUES		10,748,354			19,022,242

GROSS PROFIT		1,104,529			562,235

OPERATING EXPENSES (INCOME)
Selling, general and administrative		1,727,741			1,170,617
Provision (recovery of) for doubtful accounts		330,045			(318,979	)
TOTAL OPERATING EXPENSES		2,057,786			851,638

LOSS FROM OPERATIONS		(953,257	)		(289,403	)

OTHER INCOME (EXPENSE)
Interest income		8,123			2,022
Interest expense		(18,235	)		(23,251	)
Investment income		14,292			1,023
Other income (expense), net		(2,795	)		24,126
Impairment of goodwill		(3,896,818	)		-
Total other (expense) income, net		(3,895,433	)		3,920

LOSS BEFORE INCOME TAXES FROM CONTINUING OPERATIONS		(4,848,690	)		(285,484	)

(TAX BENEFIT) PROVISION FOR INCOME TAXES		(60,515	)		128,799

LOSS FROM CONTINUING OPERATIONS		(4,788,175	)		(414,283	)

Discontinued operations:

Income (loss) from discontinued operations, net of taxes		505,061			(16,412,060	)
Gain on disposal, net of taxes		6,793,570			-

Net income (loss)		2,510,456			(16,826,343	)

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment		1,767,904			(111,574	)

COMPREHENSIVE INCOME (LOSS)	$	4,278,360		$	(16,937,917	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Basic and diluted		28,452,328			22,447,589

Loss per share from continuing operations
Basic and diluted		(0.17	)		(0.02	)

Earnings / (Loss) per share from discontinued operations		0.26			(0.77	)
Basic and diluted

Earnings / (Loss) per share available to common shareholders
Basic and diluted	$	0.09		$	(0.79	)

The accompanying notes are an integral part of these consolidated financial statements.

F-4

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

	For the year ended December 31, 2019
	Preferred Stock				Common Stock						Additional			Accumulated Deficit					Accumulated Other Comprehensive
	Shares		Amount		Shares			Amount			Paid-in Capital			Statutory Reserves		Unrestricted			Income (Loss)			Total
BALANCE, January 1, 2019		-	$	-		19,895,935		$	1,990		$	4,814,846			-	$	15,267,660		$	(720,693	)	$	19,363,803
Net income		-							-			-			-		(16,826,343	)		-			(16,826,343	)
Conversion of warrants into common stock				-		106,903			11			(11	)		-		-			-			-
Issuance of common stock for debt settlement		-		-		131,330			13			261,334			-		-			-			261,347
Issuance of common stock for debt settlement		-		-		142,530			14			290,747			-		-			-			290,761
Issuance of common stock for cash						1,492,000			149			2,983,850			-		-						2,983,999
The cancellation of the common stock						(947,037	)		(95	)		95
Foreign currency translation		-		-		-			-			-			-		-			(111,574	)		(111,574	)
BALANCE, December 31, 2019		-	$	-		20,821,661		$	2,082			8,350,861		$	-	$	(1,558,683	)	$	(832,267	)	$	5,961,993

	For the year ended December 31, 2020
	Preferred Stock				Common Stock						Additional Paid-in			Retained Earnings					Accumulated Other Comprehensive
	Shares		Amount		Shares			Amount			Capital			Statutory Reserves		Unrestricted			Income (Loss)			Total
BALANCE, January 1, 2020		-		-		20,821,661			2,082			8,350,861			-		(1,558,683	)		(832,267	)		5,961,993
Net income		-		-		-			-			-			-		2,510,456			-			2,510,456
Issuance of shares for acquisition		-		-		4,000,000			400			7,199,600			-		-			-			7,200,000
Issuance of common stock for cash		-		-		5,367,297			537			6,203,979			-		-			-			6,204,516
The cancellation of the common stock						(1,012,932	)		(101	)		(1,732,013	)										(1,732,114	)
Foreign currency translation		-		-		-			-			-			-		-			1,767,904			1,767,904
BALANCE, December 31, 2020		-	$	-		29,176,026		$	2,918		$	20,022,427		$	-	$	951,773		$	935,637		$	21,912,755

The accompanying notes are an integral part of these consolidated financial statements.

F-5

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2020			2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	2,510,456		$	(16,826,343	)
Adjustments to reconcile net income to net cash used in operating activities:
Write down of assets in discontinued operations		-			13,380,258
Gain on disposal of discontinued operations		(7,904,367	)		-
Goodwill impairments of discontinued operations		-			3,424,390
Goodwill impairments		3,896,818			-
Depreciation of plant and equipment		19,869			93,055
Amortization of intangible assets		141			20,895
Deferred tax provision (benefit)		(82,511	)		79,745
Change in operating assets and liabilities
Decrease (increase) in notes receivable		43,481			(43,499	)
Decrease in accounts receivables		1,208,262			852,562
(Increase) decrease in other receivables		(473,468	)		174,874
Increase in other receivable - related party		(204,127	)		-
Decrease in inventories		219,956			152,549
Increase in prepayments		(402,639	)		(2,486,469	)
Increase (decrease) in accounts payable		633,215			(471,047	)
Increase in other payables and accrued liabilities		31,269			2,239,608
Increase in customer deposits		395,197			148,463
Increase in lease liabilities		37,859			32,711
Increase (decrease) in taxes payable		68,488			(12,295	)
Net cash (used in) provided by operating activities		(2,101	)		759,457

CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in cash from acquisition of Wuge		288,788			-
Net decrease in cash from disposal of discontinued operations		(470,576	)		-
Purchase of intangible assets		(1,160,053	)		-
Purchase of financial products		(3,116,123	)		-
Purchase of equipment		(72,844	)		-
Net cash used in investing activities		(4,530,808	)		-

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		2,609,894			2,984,094
Proceeds from short term bank loans		449,301			-
Repayments of short-term loans - bank		-			(507,489	)
Net cash provided by financing activities		3,059,195			2,476,605

EFFECT OF EXCHANGE RATE ON CASH		(11,136	)		64,945

(DECREASE) INCREASE IN CASH		(1,484,850	)		3,301,007

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		2,483,567			726,737

Cash and cash equivalents, end of year - continuing operations		998,717			2,438,938
Cash and cash equivalents, end of year - discontinued operations		-			1,588,806
CASH AND CASH EQUIVALENTS, END OF YEAR	$	998,717		$	4,027,744

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income tax	$	22,211		$	40,771
Cash paid for interest	$	18,235		$	23,251

NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for warrants conversion		-			11
Issuance of common stock for debts settlement		-			552,108
The cancellation of the common stock		1,732,114			-
Initial recognition of right-of-use assets and lease liabilities		134,990			316,923

The accompanying notes are an integral part of these consolidated financial statements.

F-6

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Nature of business and organization

Code Chain New Continent Limited (the “Company” or “CCNC”), formerly known as TMSR Holding Company Limited and JM Global Holding Company, was a blank check company incorporated in Delaware on April 10, 2015. The Company was formed for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business transaction, one or more operating businesses or assets. On June 20, 2018, CCNC completed a reincorporation and as a result, the Company changed its state of incorporation from Delaware to Nevada (the “Reincorporation”). The Articles of Incorporation and Bylaws of CCNC Nevada became the governing instruments of the Company, resulting in a 2-for-1 forward stock split of the Company’s common stock (the “Forward Split). The Reincorporation and Forward Split were approved by shareholders holding the majority of the outstanding shares of common stock of CCNC Delaware on June 1, 2018 at the Annual Meeting of Shareholders.

On February 6, 2018, China Sunlong Environmental Technology Inc. (“China Sunlong”) consummated the business combination with the Company pursuant to a Share Exchange Agreement (the “Share Exchange Agreement”) dated as of August 28, 2017 by and among (i) the Company; (ii) Zhong Hui Holding Limited; (iii) China Sunlong; (iv) each of the shareholders of China Sunlong named on Annex I of the Share Exchange Agreement (the “Sellers”); and (v) Chuanliu Ni, a Chinese citizen who is the Chief Executive Officer and director of China Sunlong, in the capacity as the representative for the Sellers. Pursuant to the Share Exchange Agreement, the Company acquired from the Sellers all of the issued and outstanding equity interests of China Sunlong in exchange for 17,990,856 newly-issued shares of common stock of the Company to the Sellers. 1,799,088 of these newly-issued shares are held in escrow for 18 months from the closing date of the Business Combination as a security for China Sunlong and the Sellers’ indemnification obligations under the Share Exchange Agreement. This transaction is accounted for as a “reverse merger” and recapitalization at the date of the consummation of the transaction since the shareholders of China Sunlong owns the majority of the outstanding shares of the Company immediately following the completion of the transaction and the Company’s operations was the operations of China Sunlong following the transaction. Accordingly, China Sunlong was deemed to be the accounting acquirer in the transaction and the transaction was treated as a recapitalization of China Sunlong. The financial statements of China Sunlong prior to February 6, 2018 are prepared on the basis as if the reorganization became effective as of the beginning of the first period presented in the accompanying consolidated financial statements of the Company.

China Sunlong is a holding company incorporated on August 31, 2015, under the laws of the Cayman Islands. China Sunlong has no substantive operations other than holding all of the outstanding share capital of Shengrong Environmental Protection Holding Company Limited (“Shengrong BVI”). Shengrong BVI is a holding company incorporated on June 30, 2015, under the laws of the British Virgin Islands. Shengrong BVI has no substantive operations other than holding all of the outstanding share capital of Hong Kong Shengrong Environmental Technology Limited (“Shengrong HK”). Shengrong HK is also a holding company holding all of the outstanding equity of Shengrong Environmental Protection Technology (Wuhan) Co., Ltd. (“Shengrong WFOE”).

The Company focuses on the industrial solid waste recycling and comprehensive utilization. The Company’s main products are high efficiency permanent magnetic separators and comprehensive utilization systems for industrial solid wastes. The Company’s headquarter is located in Hubei Province, in the People’s Republic of China (the “PRC” or “China”). All of the Company’s business activities are carried out by the wholly owned operating Chinese company, Hubei Shengrong Environmental Protection Energy-Saving Science and Technology Ltd. (“Hubei Shengrong”) prior to May 1, 2018.

On April 11, 2018, the Company, Shengrong WFOE and Hubei Shengrong, both of which are the Company’s indirectly owned subsidiaries (collectively “Purchasers”), entered into a Share Purchase Agreement with Long Liao, Chunyong Zheng, Wuhan Modern Industrial Technology Research Institute, and Hubei Zhonggong Materials Group Co., Ltd. (collectively “Sellers” ) and Wuhan HOST Coating Materials Co., Ltd. (“Wuhan HOST”), a company incorporated in China engaging in the research, development, production and sale of coating materials. Pursuant to the Share Purchase Agreement, as supplemented on August 16, 2018, the Purchasers acquired all of the outstanding equity interests of Wuhan Host. In exchange for the transfer of 100% equity interest of Wuhan Host, Purchasers shall pay a total consideration of $11.2 million, of which $4.7 million or RMB equivalent shall be paid in cash and $6.0 million shall be paid in shares of common stock, of CCNC (“Share Consideration”). The Parties agree the Share Consideration shall be an aggregate of 1,012,932 shares of common stock of which is based on the closing price of US$4.64 on March 27, 2018.

F-7

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On March 31, 2017, China Sunlong completed its acquisition of 100% of the equity in TJComex International Group Corporation (“TJComex BVI”). At the closing of such acquisition, the selling shareholders of TJComex BVI received 5,935 shares of China Sunlong Common Stock valued at $926.71 per share for 100% of their equity in TJComex BVI. TJComex BVI owns 100% of the issued and outstanding capital stock of TJComex Hong Kong Company Limited (“TJComex HK”), a Hong Kong limited liability company, which owns 100% equity interest of Tianjin Corro Technological Consulting Co., Ltd. (“TJComex WFOE”), a wholly foreign owned enterprise incorporated under the laws of the PRC. Pursuant to certain contractual arrangements, TJComex WFOE controls Tianjin Commodity Exchange Co., Ltd. (“TJComex Tianjin”), a limited liability company incorporated under the law of the PRC. TJComex Tianjin is engaged in general merchandise trading business and related consulting services, and its headquarter is located in the city of Tianjin, PRC.

On April 2, 2018, the Company disposed of its subsidiary, TJComex BVI in consideration of (i) its minimum contribution to the Company’s results of operation and (ii) the unsatisfactory synergy between the TJComex BVI business and the rest of the Company’s business. The Company’s decision to dispose of TJComex BVI is to (i) improve the Company’s overall financial condition and results of operations, (ii) reduce the complexity of the Company’s business, (iii) focus the Company’s resources on the solid waste recycling business as well as developing environmental control business opportunities; and (iv) make it possible for the Company to pursue acquisition opportunities for more compatible businesses. TJComex BVI was disposed to Chuanliu Ni, a Chinese citizen who is the director of China Sunlong.

As of April 2, 2018, the net assets of TJComex BVI were $16,598 and is being recorded as a loss from disposal of subsidiary in the consolidated financial statements for the period ending December 31, 2018. As TJComex BVI operating revenue was less than 1% of the Company’s revenue and the disposal did not constitute a strategic shift that will have a major effect on the Company’s operations and financial results, the results of operations for TJComex BVI were not reported as discontinued operations under the guidance of Accounting Standards Codification 205.

On October 10, 2017, Hubei Shengrong established a wholly owned subsidiary, Fujian Shengrong Environmental Protection Energy-Saving Science and Technology Ltd. (“Fujian Shengrong”), with registered capital of RMB 10,000,000 (approximately USD 1,518,120). Fujian Shengrong has no operations prior to May 30, 2018. On May 30, 2018, Hubei Shengrong and two unrelated entities entered into certain Capital Transfer and Contribution Agreement pursuant to which these two entities shall contribute cash of approximately USD 5.0 million (RMB 32.0 million) into Fujian Shengrong and Hubei Shengrong shall contribute approximately USD 1.3 million (RMB 8.0 million) which is the consideration for certain technology consulting services to be provided by Hubei Shengrong to the two entities. Upon completion of the contribution, the total registered capital of Fujian Shengrong increased to RMB 40.0 million (approximately USD 6.3 million) and Hubai Shengrong owns 20% and the two entities collectively own 80% of the equity interest of Fujian Shengrong. In August 2018, Hubei Shengrong transferred 20% equity interest of Fujian Shengrong to Shengrong WFOE. The Company will account for the investment in Fujian Shengrong using the cost method. Since Shengrong WFOE did not provide any cash contribution to Fujian Shengrong or technology services, the investment balance under the cost method investment on Decemeber 31, 2020 is $0.

On November 30, 2018, the Company entered into a Share Purchase Agreement with Jirong Huang and Qihuang Wang (collectively “Sellers”) and Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”), a company incorporated in China engaging in the sale of fuel materials and harbor cargo handling services. Pursuant to the Share Purchase Agreement, CCNC shall issue an aggregate of 4,630,000 shares of CCNC’s common stock to the Rong Hai Shareholders, in exchange for Rong Hai Shareholders’ agreement to enter into, and their agreement to cause Rong Hai to enter into, certain VIE Agreements (the “Rong Hai VIE Agreements”) with Shengrong WFOE, through which Shengrong WFOE shall have the right to control, manage and operate Rong Hai in return for a service fee approximately equal to 100% of Rong Hai’s net income (“Acquisition”). On November 30, 2018, Shengrong WFOE, the Company’s indirectly owned subsidiary, entered into a series of VIE Agreements with Rong Hai and the Rong Hai Shareholders. The VIE Agreements are designed to provide Shengrong WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Rong Hai, including absolute rights to control the management, operations, assets, property and revenue of Rong Hai. Rong Hai has the necessary license to carry out coal trading business in China. The Acquisition closed on November 30, 2018. Starting on November 30, 2018, the Company’s business activities added coal wholesales and sales of coke, steels, construction materials, mechanical equipment and steel scrap, of which business activities are carried out in Nantong, Jiang Su Province, PRC.

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CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 27, 2018, the Company, entered into an Equity Purchase Agreement with Hopeway International Enterprises Limited., a private limited company duly organized under the laws of British Virgin Islands (the “Hopeway”). Pursuant to the Equity Purchase Agreement, Shengrong WOFE shall sell 100% equity interests in Hubei Shengrong to Hopeway in exchange for Hopeway’s agreement to irrevocably forfeit and cancel 8,523,320 shares of common stock of the Company, constituting all the shares owned by Hopeway. The transaction contemplated by the Equity Purchase Agreement is hereby referred as Disposition. The Company’s decision to dispose of Hubei Shengrong is due to the planning mandates of Wuhan Municipal Government 2018 which manufactures should move away from city’s downtown area. Therefore, due to the policy change, Hubei Shengrong is forced to close the existing facility, relocate and build a new facility, which is expected to take approximately 7-8 years. As a result, Hubei Shengrong will not be able to keep the production running and will generate no income in the foreseeable future. Management believed it is very difficult, if possible at all, to continue manufacturing of solid waste recycling systems. As such, the Company has been actively seeking to dispose Hubei Shengrong while retaining the research and development and sale of solid waste recycling systems business. Upon closing of the Disposition, Hopeway will become the sole shareholder of Hubei Shengrong and as a result, assume all assets and obligations of Hubei Shengrong except the research and development team and intellectual property rights in connection with the solid waste recycling systems business shall be assigned to Shengrong WFOE as part of the Disposition. As Shengrong WFOE has significant continuing involvement in the sale of solid waste recycling systems business and the processed industrial waste materials trading business, this restructuring did not constitute a strategic shift that will have a major effect on the Company’s operations and financial results. Therefore, the results of operations for Hubei Shengrong were not reported as discontinued operations under the guidance of Accounting Standards Codification 205.

In April 2019, TMSR Holdings Limited (“TMSR HK”), our indirect wholly owned subsidiary, was incorporated under the laws of Hong Kong.

In August 2019, Tongrong Technology (Jiangsu) Co., Ltd. (“Tongrong WFOE”), our indirect wholly owned subsidiary, was incorporated under the laws of PRC.

In August 2019, Citi Profit Investment Holding Limited (“Citi Profit”), an exempted company formed under the laws of the British Virgin Islands, became our wholly owned subsidiary.

TMSR HK, Tongrong WFOE and Citi Profit are all holding companies that do not have any substantive business operations.

On January 3, 2020, the Company entered into a share purchase agreement with Sichuan Wuge Network Games Co., Ltd. (“Wuge”) and all the shareholders of Wuge, including Wei Xu, Bibo Lin, Jiangsu Lingkong Network Joint Stock Co., Ltd., which is controlled by Wei Xu, and Anhui Shuziren Network Technology Co., Ltd., which is also controlled by Wei Xu. Pursuant to the share purchase agreement, on January 24, 2020, the Company issued an aggregate of 4,000,000 shares of TMSR’s common stock to the shareholders of Wuge, in exchange for Wuge’s shareholders’ agreement to enter into, and their agreement to cause Wuge to enter into, certain VIE agreements (the “Wuge VIE Agreements”) with Tongrong WFOE, through which Tongrong WFOE has the right to control, manage and operate Wuge in return for a service fee equal to 100% of Wuge’s net income.

On April 30, 2020, Tongrong WFOE entered into a series of assignment agreements with Shengrong WFOE, Rong Hai and shareholders of Rong Hai, pursuant to which Shengrong WFOE assign all its rights and obligations under the Rong Hai VIE Agreements to Tongrong WFOE. The Rong Hai VIE Agreements and the Assignment Agreements grant Tongrong WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Rong Hai, including absolute rights to control the management, operations, assets, property and revenue of Rong Hai. The assignment does not have any impact on Company’s consolidated financial statements.

Effective May 18, 2020, the Company changed its corporate name from “TMSR Holding Company Limited” to “Code Chain New Continent Limited” pursuant to a Certificate of Amendment to the Company’s Articles of Incorporation filed with the Secretary of State of the State of Nevada. In connection with the name change, effective May 18, 2020, the ticker symbol of the Company’s common stock and warrants changed from “TMSR” and “TMSRW” to “CCNC” and “CCNCW”, respectively.

On June 30, 2020, the Company entered into a share purchase agreement with Jiazhen Li, former CEO of the Company (the “Buyer”), Long Liao and Chunyong Zheng, who are former shareholders of Wuhan HOST Coating Materials Co., Ltd., an indirect subsidiary of the Company, (collectively the “Payees”). Pursuant to the Agreement, the Company agreed to sell, and the Buyer agreed to purchase all the issued and outstanding ordinary shares of China Sunlong (the “Sunlong Shares”). The Payees have a prior relationship with the Buyer and have agreed to be responsible for the payment of the purchase price on behalf of Buyer. The purchase price for the Sunlong Shares shall be $1,732,114, payable in consideration of cancellation of 1,012,932 shares of the Company owned by the Payees (the “CCNC Shares”). The CCNC Shares are valued at $1.71 per share, based on the closing price of the Company’s common stock on June 30, 2020. The CCNC Shares were cancelled on August 31, 2020.

In December 2020, Makesi Iot Technology (Shanghai) Co., Ltd. (“Makesi WFOE”), our indirect wholly owned subsidiary, was incorporated under the laws of PRC.

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CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements reflect the activities of CCNC and each of the following entities:

Name	Background		Ownership
China Sunlong³	●	A Cayman Islands company	100% owned by the Company
Shengrong BVI³	● ●	A British Virgin Island company Incorporated on June 30, 2015	100% owned by China Sunlong
Citi Profit BVI		A British Virgin Island company Incorporated on April 2019	100% owned by the Company
Shengrong HK³	● ●	A Hong Kong company Incorporated on September 25, 2015	100% owned by Shengrong BVI
TMSR HK	● ●	A Hong Kong company Incorporated on April 2019	100% owned by Citi Profit BVI
Shengrong WFOE³	●	A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”)	100% owned by Shengrong HK
	● ● ● ●	Incorporated on March 1, 2016 Registered capital of USD 12,946 (HKD100,000), fully funded Purchase and sales of high efficiency permanent magnetic separator and comprehensive utilization system Trading of processed industrial waste materials
Tongrong WFOE	●	A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”) Incorporated on August 2019	100% owned by TMSR HK
Makesi WFOE	●	A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”) Incorporated on December 2020	100% owned by TMSR HK
Hubei Shengrong²	● ●	A PRC limited liability company Incorporated on January 14, 2009	100% owned by Shengrong WFOE
	●	Registered capital of USD 4,417,800 (RMB 30,000,000), fully funded
	● ●	Production and sales of high efficiency permanent magnetic separator and comprehensive utilization system. Trading of processed industrial waste materials
Wuhan HOST³	● ● ●	A PRC limited liability company Incorporated on October 27, 2010 Registered capital of USD 750,075 (RMB 5,000,000), fully funded	100% owned by Shengrong WFOE
	●	Research, development, production and sale of coating materials.
Shanghai Host Coating Materials Co., Ltd. (“Shanghai HOST”)³	● ● ●	A PRC limited liability company Incorporated on December 11, 2014 Registered capital of USD 3,184,371 (RMB 20,000,000), to be fully funded by November 2024

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CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	●	No operations and no capital contribution has been made as of December 31, 2018	80% owned by Wuhan HOST
Wuhan HOST Coating Materials Xiaogan Co., Ltd. (“Xiaogan HOST”)³	● ● ● ●	A PRC limited liability company Incorporated on December 25, 2018 Registered capital of USD 11,595,379 (RMB 80,000,000), to be fully funded by December 2028 No operations and no capital contribution has been made as of December 31, 2018	90% owned by Wuhan HOST
Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”)	● ● ● ●	A PRC limited liability company Incorporated on May 20, 2009 Registered capital of USD 3,171,655 (RMB 20,180,000), fully funded Coal wholesales and sales of coke, steels, construction materials, mechanical equipment and steel scrap	VIE of Tongrong WFOE
Wuge	● ●	A PRC limited liability company Incorporated on July 4, 2019	VIE of Makesi WFOE
TJComex BVI¹	● ●	A British Virgin Island company Incorporated on March 8, 2016	100% owned by China Sunlong
TJComex HK¹	● ●	A Hong Kong company Incorporated on March 19, 2014	100% owned by TJComex BVI
TJComex WFOE¹	●	A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”)	100% owned by TJComex HK
	●	Incorporated on March 10, 2004
	●	Registered capital of USD 200,000
TJComex Tianjin¹	● ●	A PRC limited liability company Incorporated on November 19, 2007	100% owned by TJComex WFOE
	●	Registered capital of USD 7,809,165 (RMB 55,000,000)
	●	General merchandise trading business and related consulting services

Disposed on April 2, 2018

Disposed on December 27, 2018

Disposed on June 30, 2020

F-11

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contractual Arrangements

Rong Hai and Wuge are controlled through contractual agreements in lieu of direct equity ownership by the Company or any of its subsidiaries. Such contractual arrangements consist of a series of five agreements, consulting services agreement, equity pledge agreement, call option agreement, voting rights proxy agreement, and operating agreement (collectively the “Contractual Arrangements”).

Material terms of each of the Rong Hai VIE Agreements are described below:

Consulting Services Agreement

Pursuant to the consulting services agreement between Rong Hai and Shengrong WFOE dated November 30, 2018 and the agreement to assign consulting services agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, Tongrong WFOE has the exclusive right to provide consulting services to Rong Hai relating to Rong Hai’s business, including but not limited to business consulting services, human resources development, and business development. Tongrong WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Tongrong WFOE has the right to determine the service fees based on Rong Hai’s actual operation on a quarterly basis.

This consulting services agreement took effect upon execution and shall remain in full force and effective until Rong Hai’s valid operation term expires. Tongrong WFOE may, at its discretion, decide to renew or terminate this consulting services agreement.

Equity Pledge Agreement.

Under the equity pledge agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018, and the agreement to assign equity pledge agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, the shareholders pledged all of their equity interests in Rong Hai to Tongrong WFOE to guarantee Rong Hai’s performance of relevant obligations and indebtedness under the consulting services agreement. In addition, the shareholders of Rong Hai have completed the registration of the equity pledge under the agreement with the competent local authority. If Rong Hai breaches its obligation under the consulting services agreement, Tongrong WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests.

This equity pledge agreement took effect upon execution and shall remain in full force and effective until Rong Hai and Tongrong WFOE’s satisfaction of all contractual obligations and settlement of all secured indebtedness. Upon Tongrong WFOE’s request, Rong Hai shall extend its operation period to sustain the effectiveness of this equity pledge agreement.

Call Option Agreement

Under the call option agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018 and the agreement to assign call option agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, each of the shareholders of Rong Hai irrevocably granted to WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Rong Hai. Also, Tongrong WFOE or its designee has the right to acquire any and all of its assets of Rong Hai. Without Tongrong WFOE’s prior written consent, Rong Hai’s shareholders cannot transfer their equity interests in Rong Hai, and Rong Hai cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option.

This call option agreement took effect upon execution. Rong Hai and Tongrong WFOE shall not terminate this call option agreement under any circumstances for any reason unless it is early terminated by Tongrong WFOE or by the requirements under the applicable laws. This call option agreement shall be terminated provided that all equity interest or assets under this option is transferred to Tongrong WFOE or its designee.

Voting Rights Proxy Agreement

Under the voting rights proxy agreement among Shengrong WFOE and the shareholders of Rong Hai dated November 30, 2018 and the agreement to assign voting rights proxy agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, each shareholder of Rong Hai irrevocably appointed Shengrong WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Rong Hai, including but limited to the power to vote on its behalf on all matters of Rong Hai requiring shareholder approval in accordance with the articles of association of Rong Hai.

The voting rights proxy agreement took effect upon execution of and shall remain in effect indefinitely for the maximum period of time permitted by law in consideration of Tongrong WFOE.

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CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating Agreement

Pursuant to the operating agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018 and the agreement to assign operating agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, Rong Hai and the shareholders of Rong Hai agreed not to enter into any transaction that could materially affect Rong Hai’s assets, obligations, rights or operations without prior written consent from Tongrong WFOE, including but not limited to the amendment of the articles of association of Rong Hai. Rong Hai and its shareholders agree to accept and follow our corporate policies provided by Tongrong WFOE in connection with Rong Hai’s daily operations, financial management and the employment and dismissal of Rong Hai’s employees. Rong Hai agreed that it should seek guarantee from Tongrong WFOE first if any guarantee is needed for Rong Hai’s performance of any contract or loan in the course of its business operation.

This operating agreement took effect upon execution and shall remain in full force and effective until Rong Hai’s valid operation term expires. Either party of Tongrong WFOE and Rong Hai shall complete approval or registration procedures for the extension of its business term three months prior to the expiration of its business term, for the purpose of the maintenance of the effectiveness of this operating agreement.

Material terms of each of the Wuge VIE Agreements are described below:

Technical Consultation and Services Agreement.

Pursuant to the technical consultation and services agreement between Wuge and Tongrong WFOE dated January 3, 2020, Tongrong WFOE has the exclusive right to provide consultation services to Wuge relating to Wuge’s business, including but not limited to business consultation services, human resources development, and business development. Tongrong WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Tongrong WFOE has the right to determine the service fees based on Wuge’s actual operation on a quarterly basis. This agreement will be effective as long as Wuge exists. Tongrong WFOE may terminate this agreement at any time by giving a 30 days’ prior written notice to Wuge.

Equity Pledge Agreement.

Under the equity pledge agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020, Wuge Shareholders pledged all of their equity interests in Wuge to Tongrong WFOE to guarantee Wuge’s performance of relevant obligations and indebtedness under the technical consultation and services agreement. In addition, Wuge Shareholders will complete the registration of the equity pledge under the agreement with the competent local authority. If Wuge breaches its obligation under the technical consultation and services agreement, Tongrong WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. This pledge will remain effective until all the guaranteed obligations are performed or the Wuge Shareholders cease to be shareholders of Wuge.

Equity Option Agreement.

Under the equity option agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020, each of Wuge Shareholders irrevocably granted to Tongrong WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Wuge. Also, Tongrong WFOE or its designee has the right to acquire any and all of its assets of Wuge. Without Tongrong WFOE’s prior written consent, Wuge’s shareholders cannot transfer their equity interests in Wuge and Wuge cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option. This pledge will remain effective until all options have been exercised.

Voting Rights Proxy and Financial Support Agreement.

Under the voting rights proxy and financial support agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020, each Wuge Shareholder irrevocably appointed Tongrong WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Wuge, including but not limited to the power to vote on its behalf on all matters of Wuge requiring shareholder approval in accordance with the articles of association of Wuge. The proxy agreement is for a term of 20 years and can be extended by Tongrong WFOE unilaterally by prior written notice to the other parties.

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CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On January 11, 2021, Makesi WFOE entered into a series of assignment agreements (the “Assignment Agreements”) with Tongrong WFOE, Wuge and Wuge Shareholders, pursuant to which Tongrong WFOE assign all its rights and obligations under the VIE Agreements to Makesi WFOE (the “Assignment”). The VIE Agreements and the Assignment Agreements grant Makesi WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Wuge, including absolute rights to control the management, operations, assets, property and revenue of Wuge. The Assignment does not have any impact on Company’s consolidated financial statements.

On June 30, 2020, the Company disposed of China Sunlong Environmental Technology Inc., The Company’s assets and liabilities on its consolidated balance sheets as of December 31, 2020 and December 31, 2019 and its statements of operations for the years ended December 31, 2020 and 2019 have been grouped and re-grouped based on this designation. The Company re-organized its operations to focus its resources on businesses that management believes will bring future profits to the Company.

As of the date of this report, substantially all of the Company’s primary operations are conducted in the PRC.

Note 2 – Summary of significant accounting policies

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for information pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).

Principles of consolidation

The consolidated financial statements of the Company include the accounts of CCNC and its wholly owned subsidiaries and VIEs. All intercompany transactions and balances are eliminated upon consolidation.

Use of estimates and assumptions

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of intangible assets, revenues, deferred revenues and plant and equipment, impairment of long-lived assets, collectability of receivables, inventory valuation allowance, and realization of deferred tax assets. Actual results could differ from these estimates.

Foreign currency translation and transaction

The reporting currency of the Company is the U.S. dollar. The Company in China conducts its businesses in the local currency, Renminbi (RMB), as its functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. The results of operations are translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Translation adjustments included in accumulated other comprehensive income (loss) amounted to $ 935,638 and $(832,267) as of December 31, 2020 and 2019, respectively. The balance sheet amounts, with the exception of shareholders’ equity as of December 31, 2020 and 2019 were translated at 6.52 RMB and 6.98 RMB to $1.00, respectively. The shareholders’ equity accounts were stated at their historical rate. The average translation rates applied to statement of income accounts for the years ended December 31, 2020 and 2019 were 6.90 RMB and 6.90 RMB, respectively. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.

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CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company because it has not engaged in any significant transactions that are subject to the restrictions.

Investments

The Company purchases certain liquid short term investments such as money market funds and or other short term debt securities marketed by financial institutions. These investments are not insured against loss of principal. These investments are accounted for as financial instruments that are marked to fair market value at the end of each reporting period. For investments that are held to maturity debt instruments, which have short maturities, and limited risk profiles, amortized cost may be the best approximation of their fair value and used for such investments.

Accounts receivable, net

Inventories

Inventories are comprised of raw materials and work in progress and are stated at the lower of cost or net realizable value using the first-in-first-out method in Shengrong WFOE and weighted average method in Wuhan HOST and Rong Hai. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and recognize an impairment charge against the inventory when the carrying value exceeds net realizable value. As of December 31, 2020 and 2019, no obsolescence and cost in excess of net realizable value were recognized.

Prepayments

Prepayments are funds deposited or advanced to outside vendors for future inventory or services to be received. As a standard practice in China, many of the Company’s vendors require a partial or full payment prior to production and shipment of finished goods This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which require any outstanding prepayments to be returned to the Company when the contract ends.

Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method after consideration of the estimated useful lives of the assets and estimated residual value. The estimated useful lives and residual value are as follows:

	Useful Life	Estimated Residual Value
Building	5 – 20 years		5	%
Office equipment and furnishing	5 years		5	%
Production equipment	3-10 years		5	%
Automobile	5 years		5	%
Leasehold improvements	Shorter of the remaining lease terms or estimated useful lives		0	%

The cost and related accumulated depreciation and amortization of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives.

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CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible assets

Intangible assets represent land use rights and patents and software licenses, and they are stated at cost, less accumulated amortization. Research and development costs associated with internally developed patents are expensed when incurred. Amortization expense is recognized on the straight-line basis over the estimated useful lives of the assets. All land in the PRC is owned by the government; however, the government grants “land use rights.” The Company has obtained the rights to use various parcels of land. The patents have finite useful lives and are amortized using a straight-line method that reflects the estimated pattern in which the economic benefits of the intangible asset are to be consumed. The Company amortizes the cost of the land use rights and patents, over their useful life using the straight-line method. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. The estimated useful lives are as follows:

		Useful Life
Land use rights		50 years
Patents		10 - 20 years
Software		5 years

Goodwill

Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is not amortized and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. Goodwill is carried at cost less accumulated impairment losses. If impairment exists, goodwill is immediately written off to its fair value and the loss is recognized in the consolidated statements of income. Impairment losses on goodwill are not reversed. In 2020, the Company recorded approximately $3.42 million in impairment to its Wuhan Host and Shengrong WFOE operating units. The entities were located at the epicenter of the COVID 19 virus. Accordingly, those entities were materially adversely impacted. In 2020, the Company recognized approximately $3.89 million in impairment of goodwill related to Rong Hai.

Impairment for long-lived assets

Long-lived assets, including plant, equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. In 2019, the Company recognized approximately $4.89 million in impairment to long lived assets related to Wuhan Host and Shengrong WFOE.

Fair value measurement

The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, short term held to maturity investments, notes receivable, accounts receivable, other receivables, prepayments, accounts payable, other payables and accrued liabilities, customer deposits, short term loans and taxes payable to approximate their fair values because of their short term nature.

●

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

●

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

F-16

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Customer deposits

In Shengrong WFOE, customer deposits represent amounts advanced by customers on product orders. Generally, the Company requires 3% to 10% advanced deposits from the customers upon the signing of the sales contracts. At various stages of the sales contract execution, the Company generally collects certain amounts of advanced deposits from the customers based on the approximate amount of cash flows needed at each stage. Customer deposits are reduced when the related sale is recognized in accordance with the Company’s revenue recognition policy.

In Wuhan HOST, customer deposits represent amounts advanced by customers on product orders. Generally, the Company requires 95% to 100% advanced deposits from the customers upon signing of the sales contracts. A few customers with good credit history are not required to make any deposit. Customer deposits are reduced when the related sale is recognized in accordance with the Company’s revenue recognition policy.

Rong Hai will from time to time receive payment in advance from its customers for products to be delivered within one operating period.

Wuge typically receives customer deposits for services to be rendered from its customers. As Wuge delivers the services, it will recognize these deposits to results of operations in accordance to its revenue recognition policy.

Revenue recognition

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon adoption of this new guidance as the Company’s revenue, other than retainage revenues, was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. However, the impact of the Company’s retainage revenue was not material as of the date of adoption, and as a result, did not result in an adjustment.

The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are primarily recognized at a point in time except for the retainage revenues where the retainage periods are recognized over the retainage period, usually is a period of twelve months.

F-17

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prior to January 1, 2018, the Company allowed its customers to retain 5% to 10% of the contract price as warranty retainage during the retainage period of 12 months to guarantee product quality. Retainage is considered as a payment term included as a part of the contract price, and was recognized as revenue upon the shipment of products. Due to nature of the retainage, the Company’s policy is to record revenue the full value of the contract without VAT, including any retainage, since the Company has experienced insignificant warranty retainage claims historically. Due to the infrequent and insignificant amount of warranty retainage claims, the ability to collect retainage was reasonably assured and was recognized at the time of shipment. On January 1, 2018, upon the adoption of ASU 2014-09 (ASC 606), revenues from product warranty retainage are recognized over the retainage period over 12 months. For the year ended December 31, 2020, less than 5% of our retainage revenues were recognized in our consolidated revenues and included in the Company’s equipment and systems revenues in the accompanying statements of income and comprehensive income.

Payments received prior to the relevant criteria for revenue recognition are met, are recorded as customer deposits.

The Company’s disaggregate revenue streams are summarized as follows:

	For the year ended December 31,
	2020		2019
Revenues – Equipment and systems	$	-	$	-
Revenues – Fuel materials		11,261,428		18,955,988
Revenues – Trading and others		591,455		628,489
Total revenues	$	11,852,883	$	19,584,477

Gross versus Net Revenue Reporting

Fuel materials revenue

After consideration of risk and reward, and the guidance under ASC 606, the Company has determined that is a principal in its fuel materials business, and accounts for revenues and costs revenue using the gross method.

Services revenue

Wuge recognizes service revenue under contracts with customers on a percentage of completion of each contract based on the receipt of objective acknowledgement by its customer that the Company has rendered a specific percentage of total services set forth in the contract. As of December 31, 2020, Wuge had entered into approximately RMB 97 million in service contracts, of which approximately RMB 6.9 million has been received in funds and approximately RMB 4.0 million has been recognized as revenue. As of December 31, 2020, approximately RMB 92 million in contract services have yet to be rendered or recognized.

Research and Development (“R&D”) Expenses

Research and development expenses include salaries and other compensation-related expenses paid to the Company’s research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the selling, general and administrative expenses and totaled $0 and $351,794 For the year ended December 31, 2020 and 2019, respectively.

F-18

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leases

In accordance ASC 842, the Company determines if an arrangement is a lease at inception. Operating and leases are recognized as its own right-of-use (“ROU”) asset category in the Company’s non-current assets, and the corresponding lease obligations are recognized to current and non-current liabilities.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represents the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. If the lease does not provide an implicit rate, management generally uses the Company’s incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives.

Income taxes

The Company accounts for income taxes in accordance with U.S. GAAP for income taxes. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized, or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. The Company incurred no such penalties and interest for the year ended December 31, 2020 and 2019. As of December 31, 2020, the Company’s PRC tax returns filed for 2017, 2018 and 2019 remain subject to examination by any applicable tax authorities.

Earnings per share

Basic earnings per share are computed by dividing income available to common shareholders of the Company by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares. 9,079,348 and 10,500,000 of outstanding warrants which is equivalent to convertible of 4,539,674 and 5,250,000 common shares were excluded from the diluted earnings per share calculation due to its anti-dilutive effect for the year ended December 31, 2020 and 2019, respectively. 824,000 of outstanding options were excluded from the diluted earnings per share calculation due to its anti-dilutive effect for the year ended December 31, 2020 and 2019.

Recently issued accounting pronouncements

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company does not believe the adoption of this ASU would have a material effect on the Company’s consolidated financial statements.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.

In December 2019, the FASB issued a new standard to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company is currently evaluating the impact of this standard to its consolidated financial statements.

F-19

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Business combination and restructuring

TJ Comex BVI

On April 2, 2018, the Company disposed of its subsidiary, TJComex BVI, in consideration of (i) its minimum contribution to the Company’s results of operation and (ii) the unsatisfactory synergy between the TJComex BVI business and the rest of the Company’s business. The Company’s decision to dispose TJComex BVI is to (i) improve the Company’s overall financial condition and results of operations, (ii) reduce the complexity of the Company’s business, (iii) focus the Company’s resources on the solid waste recycling business as well as developing environmental control business opportunities; and (iv) make it possible for the Company to pursue acquisition opportunities for more compatible business. TJComex BVI was disposed to Chuanliu Ni, a Chinese citizen who is the Chief Executive Officer and director of China Sunlong, for no consideration.

As of April 2, 2018, the net assets of TJComex BVI were $16,598 and will be recorded as a loss from disposal of subsidiary in the consolidated financial statements for the year ended December 31, 2018. As TJComex operating revenue was less than 1% of the Company’s revenue and the disposal did not constitute a strategic shift that will have a major effect on the Company’s operations and financial results, the results of operations for TJComex were not reported as discontinued operations under the guidance of Accounting Standards Codification 205.

Sunlong

On June 30, 2020, the Company entered into a share purchase agreement with Jiazhen Li, former CEO of the Company (the “Buyer”), Long Liao and Chunyong Zheng, who are former shareholders of Wuhan HOST Coating Materials Co., Ltd., an indirect subsidiary of the Company, (collectively the “Payees”). Pursuant to the Agreement, the Company agreed to sell, and the Buyer agreed to purchase all the issued and outstanding ordinary shares of China Sunlong (the “Sunlong Shares”). The Payees have a prior relationship with the Buyer and have agreed to be responsible for the payment of the purchase price on behalf of Buyer. The purchase price for the Sunlong Shares shall be $1,732,114, payable in consideration of cancellation of 1,012,932 shares of the Company owned by the Payees (the “CCNC Shares”). The CCNC Shares are valued at $1.71 per share, based on the closing price of the Company’s common stock on June 30, 2020.

Rong Hai

On November 30, 2018, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with Jirong Huang and Qihai Wang (collectively “Sellers”) and Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”), a company incorporated in China engaging in the sale of fuel materials and harbor cargo handling services. Pursuant to the SPA, TMSR shall issue an aggregate of 4,630,000 shares of TMSR’s common stock to the Rong Hai Shareholders, in exchange for Rong Hai Shareholders’ agreement to enter into, and their agreement to cause Rong Hai to enter into, certain VIE Agreements (the “Rong Hai VIE Agreements”) with Shengrong WFOE, through which Shengrong WFOE shall have the right to control, manage and operate Rong Hai in return for a service fee approximately equal to 100% of Rong Hai’s net income (“Acquisition”). On November 30, 2018, Shengrong WFOE, the Company’s indirectly owned subsidiary, entered into a series of VIE Agreements with Rong Hai and the Rong Hai Shareholders. The VIE Agreements are designed to provide WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Rong Hai, including absolute rights to control the management, operations, assets, property and revenue of Rong Hai. Rong Hai has the necessary license to carry out coal trading business in China. The Acquisition closed on November 30, 2018.

The Company’s acquisition of Rong Hai was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of Rong Hai based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed, plant and equipment, and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.

F-20

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition of Rong Hai based on a valuation performed by an independent valuation firm engaged by the Company:

Total consideration at fair value

9,260,000

	Fair Value
Cash	$	717,056
Other current assets		5,980,230
Plant and equipment		28,875
Other noncurrent assets		116,655
Goodwill		7,307,470
Total asset		14,150,286
Total liabilities		(4,890,286	)
Net asset acquired	$	9,260,000

Approximately $7.3 million of goodwill arising from the acquisition consists largely of synergies expected from combining the operations of the Company and Rong Hai. None of the goodwill is expected to be deductible for income tax purposes.

For the year ended December 31, 2020, the Company recorded an impairment in the amount of $3,896,818. The Company did not record an impairment of goodwill for the year ended December 31, 2019.

F-21

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Wuge

On January 3, 2020, the Company entered into a share purchase agreement with Sichuan Wuge Network Games Co., Ltd. (“Wuge”) and all the shareholders of Wuge (“Wuge Shareholders”). Pursuant to the share purchase agreement, the Company agreed to issue an aggregate of 4,000,000 shares of CCNC’s common stock to the Wuge Shareholders, in exchange for Wuge Shareholders’ agreement to enter into, and their agreement to cause Wuge to enter into, certain VIE agreements (“VIE Agreements”) with Tongrong WFOE the Company’s indirectly owned subsidiary, through which Tongrong WFOE shall have the right to control, manage and operate Wuge in return for a service fee equal to 100% of Wuge’s net income (the “Acquisition”). On January 3, 2020, Tongrong WFOE entered into a series of VIE Agreements with Wuge and the Wuge Shareholders. The VIE Agreements are designed to provide Tongrong WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Wuge, including absolute rights to control the management, operations, assets, property and revenue of Wuge. Wuge has all necessary license to carry out its business in China.Wuge is a technology company in development stage. It was incorporated in China in July 2019. Wuge Manor, the game Wuge is developing, is the world’s first game that combines Internet of Things (IoT) and e-commerce that is based on Code Chain platform. Through the game, players will be able to have access to hundreds of vendors and business owners in over 100 cities in China, participate in activities those businesses set up and collect points, which can be redeemed as equipment in the game or coupons usable when making purchase at that business. In addition, Wuge produced electronic tokens that can be stored in the Code Chain system to purchase virtual property based on real estate. The Acquisition closed on January 24, 2020.

The Company’s acquisition of Wuge was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of Wuge based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed, plant and equipment, and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.

The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition of Wuge based on a valuation performed by an independent valuation firm engaged by the Company:

Total consideration at fair value

7,200,000

	Fair Value
Cash	$	228,788
Other current assets		20,834
Plant and equipment		6,024
Other noncurrent assets		8,097
Goodwill		7,343,209
Total asset		7,606,952
Total liabilities		(406,952	)
Net asset acquired	$	7,200,000

Approximately $7.3 millions of goodwill arising from the acquisition consists largely of synergies expected from combining the operations of the Company and Wuge. None of the goodwill is expected to be deductible for income tax purposes. The Company did not record any impairment of goodwill related to Wuge for the year ended December 31, 2020.

Note 4 – Variable interest entity

On November 30, 2018, Tongrong WFOE entered into Contractual Arrangements with Rong Hai and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Rong Hai as VIE.

On January 3, 2020, Tongrong WFOE entered into Contractual Arrangements with Wuge and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Wuge as VIE.

F-22

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Tongrong WFOE is deemed to have a controlling financial interest and be the primary beneficiary of Rong Hai and Wuge, which are both determined to be businesses, because it has both of the following characteristics:

(1) The power to direct activities at Rong Hai and Wuge that most significantly impact such entity’s economic performance, and

(2) The obligation to absorb losses of, and the right to receive benefits from Rong Hai and Wuge that could potentially be significant to such entity.

Accordingly, the accounts of Rong Hai and Wuge are consolidated in the accompanying financial statements pursuant to ASC 810-10, Consolidation. In addition, their financial positions and results of operations are included in the Company’s consolidated financial statements beginning on November 30, 2018.

The carrying amount of the VIE’s assets and liabilities are as follows:

	December 31,		December 31,
	2020		2019

Current assets	$	9,600,157	$	8,687,451
Property, plants and equipment		1,268,272		19,057
Other noncurrent assets		196,415		127,782
Goodwill		11,650,157		7,289,454
Total assets		22,715,001		16,123,744

Current liabilities		8,766,619		6,067,264
Non-current liabilities		33,698		61,580
Total liabilities		8,800,317		6,128,844
Net assets	$	13,914,684	$	9,994,900

	December 31,		December 31,
	2020		2019

Short-term loan	$	475,103	$	-
Accounts payable		1,037,723		619,329
Other payables and accrued liabilities		103,323		301,230
Other payables – related party		6,090,841		5,082,068
Tax payables		57,815		202
Customer Advances		900,522		3,426
Lease liabilities		101,292		61,009
Total current liabilities		8,766,619		6,067,264
Lease liabilities - noncurrent		33,698		61,580
Total liabilities	$	8,800,317	$	6,128,844

The summarized operating results of the VIE’s are as follows:

	For the year ended December 31,
	2020

Operating revenues	$	11,852,883
Gross profit		1,114,981
Income from operations		(599,913	)
Net income	$	(539,398	)

The Company has the option but is not obligated to provide financial support if Wuge or Rong Hai become insolvent. The assets of Wuge and Rong Hai are typically used to the settle their own respective obligations.

F-23

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 – Accounts receivable and accounts receivable – related party

Accounts receivable consist of the following:

	December 31, 2020			December 31, 2019

Accounts receivable	$	1,670,526		$	2,221,319
Less: Allowance for doubtful accounts		(598,936	)		(24,055	)
Total accounts receivable, net	$	1,071,590		$	2,197,264

Movement of allowance for doubtful accounts is as follows:

	December 31, 2020		December 31, 2019

Beginning balance	$		$	-
Beginning balance from Wuhan HOST		-		260,764
Beginning balance from Rong Hai		24,055		472,082
Depositing ending balance of Hubei Shengrong		-		-
Addition		542,087		-
Recovery and reversals		-		(708,791	)
Exchange rate effect		32,794		-
Ending balance	$	598,936	$	24,055

Note 6 – Inventories

Inventories consist of the following:

	December 31, 2020		December 31, 2019

Raw materials	$	-	$	-
Work in progress		-		-
Finished goods		1,047,274		1,197,065
Total inventories	$	1,047,274	$	1,197,065

Note 7 – Plant and equipment, net

Plant and equipment consist of the following:

	December 31, 2020			December 31, 2019

Office equipment and furniture		76,605			39,688
Automobile		272,902			209,057
Subtotal		349,507			248,745
Less: accumulated depreciation and amortization		(266,674	)		(229,688	)
Total	$	82,833		$	19,057

Depreciation and amortization expense for the year ended December 31, 2020 and 2019 amounted to $19,869 and $8,345, respectively.

F-24

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Intangible assets, net

Intangible assets consist of the following:

	December 31, 2020			December 31, 2019

Development of technology	$	1,226,072		$	-
Software		598			-
Less: accumulated amortization		(149	)		-
Net intangible assets	$	1,226,521		$	-

Amortization expense for the year ended December 31, 2020 and 2019 amounted to $141 and $0, respectively.

Note 9 – Goodwill

The changes in the carrying amount of goodwill by business units are as follows:

	Wuhan HOST		Rong Hai			Wuge		Total
Balance as of December 31, 2019	$	-	$	7,289,454		$	-	$	7,289,454
Goodwill acquired through acquisition		-		-			7,140,304		7,140,304
Goodwill impairments		-		(3,896,818	)				(3,896,818	)
Foreign currency translation adjustment		-		504,181			613,036		1,117,217
Balance as of December 31, 2020	$	-	$	3,896,817		$	7,753,340	$	11,650,157

Note 10 – Related party balances and transactions

Related party balances

Other receivable – related party:

Name of related party	Relationship	December 31, 2020		December 31, 2019

Chengdu Yuan Code Chain Technology Co. Ltd	A company controlled by former shareholder of the Company	$	230,134	$

The Company advanced funds to the related party for technical services.

Other payables – related parties:

Name of related party	Relationship	December 31, 2020		December 31, 2019

Chuanliu Ni	Chief Executive Officer and director of a former subsidiary	$	325,907	$	325,907
Zhong Hui Holding Limited	Shareholder of the Company		140,500		140,500
Qihai Wang	Shareholder of the Company		24,729		166,673
Jiangsu Longying Education Technology Co. Ltd	A company in which shareholder hold shares		-		422,868
Jiangsu Longhai Film Culture Media Co. Ltd	Under common control of shareholder of the Company		-		280,954
Total		$	491,136	$	1,336,902

The above payables represent interest free loans and advances. These loans and advances are unsecured and due on demand.

F-25

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 – Debt

Short term loan

Short term loan due to bank is as follows:

Short term loans	Maturities	Weighted average interest rate			Collateral/Guarantee	December 31, 2020		December 31, 2019
Loan from Bank of Jiangsu	March 25, 2021		4.5	%	Personnel guarantee	$	268,203		-
Loan from Bank of Jiangsu	January 12, 2021		5.22	%	Guaranteed by Shibao Lin’s personal property		206,900		-
Total						$	475,103

Interest expense for the year ended December 31, 2020 and 2019 amounted to $18,235 and $23,251, respectively.

Note 12 – Taxes

Income tax

United States

CCNC was organized in the state of Delaware in April 2015 and re-incorporated in the state of Nevada in June 2018. CCNC’s U.S. net operating loss for the year ended December 31, 2020 amounted to approximately $1.4 million. As of December 31, 2020, CCNC’s net operating loss carry forward for United States income taxes was approximately $0.30 million. The net operating loss carry forwards are available to reduce future years’ taxable income through year 2038. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and continued losses in the United States. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management reviews this valuation allowance periodically and makes changes accordingly.

On December 22, 2017, the “Tax Cuts and Jobs Act” (“The 2017 Tax Act”) was enacted in the United States. Under the provisions of the Act, the U.S. corporate tax rate decreased from 34% to 21%. The 2017 Tax Act imposed a global intangible low-taxed income tax (“GILTI”), which is a new tax on certain off-shore earnings at an effective rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) with a partial offset for foreign tax credits. The Company determined that there are no impact of GILTI for the year ended December 31, 2019 and 2018, which the Company believes that it will be imposed a minimum tax rate of 10.5% and to the extent foreign tax credits are available to reduce its US corporate tax, which may result in no additional US federal income tax being due.

Cayman Islands

China Sunlong is incorporated in the Cayman Islands and are not subject to tax on income or capital gains under current Cayman Islands law. In addition, upon payments of dividends by China Sunlong to its shareholders, no Cayman Islands withholding tax will be imposed.

British Virgin Islands

Shengrong BVI and TJComex BVI are incorporated in the British Virgin Islands and are not subject to tax on income or capital gains under current British Virgin Islands law. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.

Hong Kong

TMSR HK is incorporated in Hong Kong and are subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax law, TMSR HK is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

F-26

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PRC

Tongrong WFOE, Wuhan HOST, Wuge and Rong Hai are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), Chinese enterprises are subject to income tax at a rate of 25% after appropriate tax adjustments.

Significant components of the provision for income taxes are as follows:

	For the year ended December 31, 2020			For the year ended December 31, 2019

Current	$	-		$	49,054
Deferred		(60,515	)		79,745
Total provision for income taxes	$	(60,515	)	$	128,799

Deferred tax assets

Bad debt allowances must be approved by the Chinese tax authority prior to being deducted as an expense item on the tax return.

Significant components of deferred tax assets were as follows:

	December 31, 2020			December 31, 2019

Net operating losses carried forward – U.S.	$	303,560		$	17,309
Net operating losses carried forward – PRC					-
Bad debt allowance		127,377			37,532
Valuation allowance		(303,560	)		(17,309	)
Deferred tax assets, net	$	127,377		$	37,532

Value added tax

Enterprises or individuals who sell commodities, engage in repair and maintenance or import and export goods in the PRC are subject to a value added tax in accordance with PRC laws. The value added tax (“VAT”) standard rates are 6% to 17% of the gross sales price and changed to 6% to 16% of gross sales starting in May 2018. The VAT standard rates changed to 6% to 13% of the gross sales prices starting in April 2019. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on sales of the finished products and services.

Taxes payable consisted of the following:

	December 31, 2020		December 31, 2019

VAT taxes payable	$	1,589	$	-
Income taxes payable		70,914		-
Other taxes payable		136		202
Total	$	72,639	$	202

F-27

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 – Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases” (Topic 842), and elected the package of practical expedients that does not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. The Company adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. The impact of the adoption on January 1, 2019 increased the right-of-uses and lease liabilities by approximately $298,000.

The Company had an office lease agreement with a 5-year lease term starting in December 2016 until December 2021 and another office lease agreement with a 5-year lease term starting in January 2018 until January 2023. Upon adoption of ASU 2016-02, the Company recognized lease labilities of approximately $298,000, with corresponding right-of-use (“ROU”) assets of the same amount based on the present value of the future minimum rental payments of the new lease, using an effective interest rate of 4.75%, which is determined using an incremental borrowing rate.

The weighted average remaining lease term of its existing leases is 2 years.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For the year ended December 31, 2020 and 2019, rent expenses amounted to $32,698 and $32,711, respectively.

The Company’s future lease obligations are presented below:

Twelve months ended December, 31	Operating lease amount
2021	$	103,726
2022		34,575
Total lease payments		138,301
Less: interest		(3,311	)
Present value of lease liabilities	$	134,990

Note 14 – Concentration of risk

Credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. As of December 31, 2020 and 2019, no cash were deposited with various financial institutions located in the U.S. As of December 31, 2020 and 2019, $998,717 and $2,483,213 and were deposited with various financial institutions located in the PRC, respectively. As of December 31, 2020 and 2019, $0 and $354 were deposited with one financial institution located in Hong Kong, respectively. While management believes that these financial institutions are of extremely high credit quality, it also continually monitors their credit worthiness. Should these financial institutions holding the Company’s deposits become insolvent, the Company may lose the entirety of its deposit; however, management believes that is extremely remote, and unlikely.

Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.

Customer and vendor concentration risk

For the year ended December 31, 2020, one customer accounted for 74.8% of the Company’s revenues. For the year ended December 31, 2019, three customers accounted for 35.3%, 23.7% and 14.4% of the Company’s revenues.

As of December 31, 2020, two customers accounted for 48.4% and 44.3% of the Company’s accounts receivable; and one customer accounted for 100% of the Company’s Customer Advances. As of December 31, 2019, two customers accounted for 77.0% and 21.9% of the Company’s accounts receivable.

For the year ended December 31, 2020, three suppliers accounted for 23.4%, 22.3% and 14.1% of the Company’s total purchases. For the year ended December 31, 2019, four suppliers accounted for 23.2%, 11.9%, 11.4% and 11.1% of the Company’s total purchases.

As of December 31, 2020, two suppliers accounted for 52.5% and 28.4% of the Company’s total prepayments; and three suppliers accounted for 42.3%, 28.6% and 26.5% of the Company’s total accounts payable. As of December 31, 2019, two suppliers accounted for 70.2% and 11.5% of the Company’s total prepayments; and four suppliers accounted for 45.5%, 25.0%, 16.4% and 13.1% of the Company’s total accounts payable.

F-28

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 – Equity

Restricted net assets

The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by Tongrong WFOE only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the accompanying unaudited condensed consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Tongrong WFOE.

Tongrong WFOE, Wuge and Rong Hai are required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, Shengrong WFOE may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion. Wuge and Rong Hai may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by State Administration of Foreign Exchange.

As a result of the foregoing restrictions, Tongrong WFOE, Wuge, and Rong Hai are restricted in their ability to transfer their net assets to the Company. Foreign exchange and other regulation in the PRC may further restrict Tongrong WFOE, Wuge and Rong Hai from transferring funds to China Sunlong in the form of dividends, loans and advances. As of December 31, 2020 and 2019, amounts restricted are the net assets of Tongrong WFOE, Wuge and Rong Hai which amounted to $2,247,476 and $2,697,561, respectively.

Stock split

On June 1, 2018, the Company’s shareholder approved a 2 for 1 stock split of the Company’s common stock at the Annual Meeting of Shareholders. The stock split was affected on June 20, 2018, pursuant to the completion of the reincorporation from Delaware to Nevada. All shares and per share amounts used herein and in the accompanying consolidated financial statements have been retroactively restated to reflect the stock split.

Common stock

On June 23, 2018, the Company issued an aggregate of 26,693 shares of the Company’s common stock, par value $0.0001 per share, to certain non-U.S. purchasers at a purchase price of $5.00 per share for aggregate proceeds of $133,335 pursuant to certain securities purchase agreement dated April 20, 2018 and June 22, 2018. The issuances were pursuant to the exemption from registration under Regulation S promulgated under the Securities Act of 1933, as amended.

On February 12, 2019, the Company’s warrant holders converted 294,971 of the Company’s warrants into 52,077 shares of the Company’s common stock using cashless exercises method.

On February 20, 2019, the Company’s warrant holders converted 415,355 of the Company’s warrants into 54,826 shares of the Company’s common stock using cashless exercises method.

On March 11, 2019, the Board granted an aggregate of 131,330 shares of restricted common stock, with a fair value of $261,347, determined using the closing price of $1.99 on March 11, 2019, to repay the debt the Company owed to two unrelated third parties. As the carrying value of the debt equaled to the fair value of the 131,330 common shares at $1.99 per share, no gain or loss were recognized upon this debt settlement.

On March 15, 2019, the Board granted an aggregate of 142,530 shares of restricted common stock, with a fair value of $290,761, determined using the closing price of $2.04 on March 15, 2019, to repay the debt the Company owed to one unrelated third party. As the carrying value of the debt equaled to the fair value of the 142,530 common shares at $2.04 per share, no gain or loss were recognized upon this debt settlement.

On April 4, 2019, the Company entered into certain securities purchase agreement with certain “non-U.S. Persons” as defined in Regulation S of the Securities Act of 1933, as amended pursuant to which the Company agreed to sell 1,492,000 shares of its common stock, par value $0.0001 per share, at a per share purchase price of $2.00. The net proceeds to the Company from this offering were approximately $2.9 million.

On November 20,2019, the company wrote off 947,037 common shares.

On December 23, 2019, the Company entered into certain securities purchase agreement (the “SPA”) with certain “non-U.S. Persons” (the “Purchasers”) as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to which the Company agreed to sell 3,692,859 shares of its common stock (“Common Stock”), par value $0.0001 per share, at a per share purchase price of $1.00. The net proceeds to the Company from this offering will be approximately $3.66 million.

F-29

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On January 3, 2020, the Company entered into a Share Purchase Agreement with Wuge and all the shareholders of Wuge (“Wuge Shareholders”). Wuge Shareholders are Wei Xu, Bibo Lin, Jiangsu Lingkong Network Joint Stock Co., Ltd., which is controlled by Wei Xu, and Anhui Shuziren Network Technology Co., Ltd., which is controlled by Wei Xu. Pursuant to the SPA, TMSR shall issue an aggregate of 4,000,000 shares of TMSR’s common stock to the Wuge Shareholders, in exchange for Wuge Shareholders’ agreement to enter into, and their agreement to cause Wuge to enter into, certain VIE agreements (“VIE Agreements”) with Tongrong Technology (Jiangsu) Co., Ltd. (“WFOE”), the Company’s indirectly owned subsidiary, through which WFOE shall have the right to control, manage and operate Wuge in return for a service fee equal to 100% of Wuge’s net income (“Acquisition”). On January 24, 2020, the Company completed the Acquisition and issued the Shares to the Wuge Shareholders.

On June 30, 2020, Code Chain New Continent Limited (the “Company”) entered into a share purchase agreement (the “Agreement”) with Jiazhen Li, former CEO of the Company (the “Buyer”), Long Liao and Chunyong Zheng, who are former shareholders of Wuhan HOST Coating Materials Co., Ltd., an indirect subsidiary of the Company, (collectively the “Payees”). Pursuant to the Agreement, the Company agreed to sell and the Buyer agreed to purchase all the issued and outstanding ordinary shares of China Sunlong Environmental Technology Inc., a Cayman Islands company and a subsidiary of the Company (the “Sunlong Shares”). The Payees have a prior relationship with the Buyer and have agreed to be responsible for the payment of the purchase price on behalf of Buyer. The purchase price for the Sunlong Shares shall be $1,732,114, payable in consideration of cancellation of 1,012,932 shares of the Company owned by the Payees (the “CCNC Shares”). The CCNC Shares are valued at $1.71 per share, based on the closing price of the Company’s common stock on June 30, 2020.

On August 11, 2020, pursuant to certain securities purchase agreements dated May 1, 2020, the Company issued 1,674,428 shares of its common, at a per share purchase price of $1.50, to the eleven investors. The gross proceeds to the Company from this private placement were approximately $2.51 million.

Warrants and options

On July 29, 2015, the Company sold 10,000,000 units at a purchase price of $5.00 per unit (“Public Units”) in its initial public offering. Each Public Unit consists of one share of the Company’s common stock, $0.0001 par value, and one warrant. Each warrant will entitle the holder to purchase one-half of one share of common stock at an exercise price of $2.88 per half share ($5.75 per whole share). Warrants may be exercised only for a whole number of shares of common stock. No fractional shares will be issued upon exercise of the warrants. The warrants will become exercisable on 30 days after the consummation of its initial Business Combination with China Sunlong on February 6, 2018. The warrants will expire February 5, 2023. The warrants will be redeemable by the Company at a price of $0.01 per warrant upon 30 days prior written notice after the warrants become exercisable, only in the event that the last sale price of the common stock equals or exceeds $12.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date on which notice of redemption is given.

The sponsor of the Company purchased, simultaneously with the closing of the Public Offering on July 29, 2015, 500,000 units at $5.00 per unit in a private placement for an aggregate price of $2,500,000. Each unit purchased is substantially identical to the units sold in the Public Offering.

The Company sold to the underwriter (and/or its designees), for $100, as additional compensation, an option to purchase up to a total of 800,000 units exercisable at $5.00 per unit (or an aggregate exercise price of $4,000,000) upon the closing of the Public Offering. Since the option is not exercisable until the earliest on the closing the initial Business Combination, the option will effectively represent the right to purchase up to 800,000 shares of common stock and 800,000 warrants to purchase 400,000 shares at $5.75 per full share for an aggregate maximum amount of $6,300,000. The units issuable upon exercise of this option are identical to those issued in the Public Offering.

In July 2016, the board of directors of the Company appointed two new directors. In August 2016, the sponsor of the Company granted an option to each of the two new directors to acquire 12,000 shares of common stock at a price of $4.90 per share vested immediately and exercisable commencing six months after closing of the initial Business Combination and expiring five years from the closing of the initial Business Combination.

The aforementioned warrants and options are deemed to be effective on February 6, 2018, the date of the consummation of its initial business combination with China Sunlong, as the Company was deemed to be the accounting acquiree in the transaction and the transaction was treated as a recapitalization of China Sunlong.

The summary of warrant activity is as follows:

					Weighted		Average
					Average		Remaining
	Warrants Outstanding		Exercisable Shares		Exercise Price		Contractual Life
December 31, 2019		9,079,348		4,539,674	$	5.75		3.14
Granted/Acquired		-		-	$	-		-
Forfeited		-		-	$	-		-
Exercised		-		-	$	-		-
December 31, 2020		9,079,348		4,539,674	$	5.75		2.13

F-30

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The summary of option activity is as follows:

			Weighted		Average
			Average		Remaining
	Options Outstanding		Exercise Price		Contractual Life
December 31, 2019		824,000	$	5.00		4.16
Granted/Acquired		-	$	-		-
Forfeited		-	$	-		-
Exercised		-	$	-		-
December 31, 2020		824,000	$	5.00		2.13

Note 16 – Commitments and contingencies

Contingencies

From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity.

Note 17 – Segment reporting

The Company follows ASC 280, Segment Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance. The Company’s chief operating decision maker evaluates performance and determines resource allocations based on a number of factors, the primary measure being income from operations.

The Company’s has discontinued Wuhan Host and Shengrong WFOE. The Company’s remain business segment and operations are Rong Hai and Wuge. The Company’s consolidated results of operations and consolidated financial position from continuing operations are almost all attributable to Rong Hai; accordingly, management believes that the consolidated balance sheets and statement of operations provide the relevant information to assess Rong Hai’s and Wuge’s performance.

The following represents assets and revenues by segments:

Total assets as of	December 31, 2020		December 31, 2019
Rong Hai and Tongrong WFOE	$	15,006,063	$	17,407,872
Wuge		2,304,566		-
CCNC, Citi Profit BVI and TMSR HK		7,824,490		71,521
Total Assets	$	25,135,119	$	17,479,393

Total revenues of	December 31, 2020		December 31, 2019
Rong Hai and Tongrong WFOE	$	11,261,428	$	19,584,477
Wuge		591,455		-
CCNC, Citi Profit BVI and TMSR HK		-		-
Total Assets	$	11,852,883	$	19,584,477

F-31

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18 – Discontinued Operations

The following depicts the financial position for the discounted operations of Wuhan Host, Shengrong WOFE, Shengrong HK and China Sunlong as of December 31, 2020 and December 31, 2019, and the result of operations for the discounted operations of Wuhan Host, Shengrong WOFE, Shengrong HK and China Sunlong for the year ended December 31, 2020 and 2019.

	December 31,		December 31,
Financial Position	2020		2019
CURRENT ASSETS
Cash and cash equivalents		-		1,544,177
Notes receivable		-		-
Accounts receivable, net		-		-
Other receivables, net		-		-
Other receivable - related party		-		-
Inventories		-		-
Prepayments		-		-
Total current assets		-		1,544,177
		-
PLANT AND EQUIPMENT, NET		-		-
		-
OTHER ASSETS		-
Goodwill		-		3,424,390
Intangible assets, net		-		-
Deferred tax assets		-		-
Total other assets		-		3,424,390
Total assets		-		4,968,567
		-
CURRENT LIABILITIES		-
Accounts payable		-		2,288,195
Other payables and accrued liabilities		-		1,332,430
Other payables - related parties		-		3,108,908
Customer deposits		-		3,019,264
Lease liabilities - current		-		98,582
Taxes payable		-		326,687
Total current liabilities		-		10,174,066
		-
OTHER LIABILITIES		-
Third party loan - noncurrent		-		143,345
Lease liabilities - noncurrent		-		95,752
Total other liabilities		-		239,097
		-
Total liabilities		-		10,413,163
		-
Net Assets		-		(5,444,596	)

F-32

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	December 31,			December 31,
Results of Operations	2020			2019
REVENUES
Equipment and systems	$	-		$	3,621,835
Coating and fuel materials		-			6,424,564
Trading and others		-			-
TOTAL REVENUES		-			10,046,399
		-			-
COST OF REVENUES		-			-
Equipment and systems		-			1,365,340
Coating and fuel materials		-			5,576,828
Trading and others		-			-
TOTAL COST OF REVENUES		-			6,942,168
		-
GROSS PROFIT		-			3,104,231
		-
OPERATING EXPENSES (INCOME)		-
Selling, general and administrative		-			1,377,008
Provision for (recovery of) doubtful accounts		(505,061	)		85,446
TOTAL OPERATING EXPENSES		(505,061	)		1,462,454
		-
INCOME FROM OPERATIONS		505,061			1,641,777
		-
OTHER INCOME (EXPENSE)		-			-
Loss on write off of operating and capital assets, and impairment of goodwill		-			(18,059,823	)
		-
INCOME (LOSS) BEFORE INCOME TAXES		505,061			(16,418,045	)
		-
PROVISION FOR INCOME TAXES (TAX BENEFIT)		-			(5,985	)
		-
NET INCOME (LOSS)	$	505,061		$	(16,412,060	)

Note 19 – Subsequent events

On February 1, 2021, approved by the Board of Directors and the Compensation Committee of the Company, Mr. Weidong (David) Feng was appointed Co-Chief Executive Officer of the Company and Dr. Jianing (George) Yu was appointed Chief Operating Officer of the Company, effective February 1, 2021.

On February 11, 2021, Mr. Min Zhu tendered his resignation as a director, the chairman of the Nominating and Corporate Governance Committee, a member of the Audit Committee and the Compensation Committee of Code Chain New Continent Limited (the “Company”), effective February 11, 2021. Mr. Zhu’s resignation was not a result of any disagreement with the Company’s operations, policies or procedures.

F-33

CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On the same day, Ms. Manli Long tendered her resignation as a director and a member of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee of the Company, effective February 11, 2021. Ms. Long’s resignation was not a result of any disagreement with the Company’s operations, policies or procedures.

On February 11, 2021, approved by the Board of Directors, the Nominating and Corporate Governance Committee and the Compensation Committee, Mr. Fei Gan was appointed as a director, the chairman of the Nominating and Corporate Governance Committee, a member of the Audit Committee and the Compensation Committee of the Company, and Mr. Jin Wang was appointed as a director and a member of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee of the Company, effective February 11, 2021.

On February 22, 2021, pursuant to a securities purchase agreement (the “Purchase Agreement”) with two institutional investors, Code Chain New Continent Limited, a Nevada company (the “Company”), closed (a) a registered direct offering (the “Registered Direct Offering”) for the sale of (i) 4,166,666 shares of common stock, par value $0.0001 of the Company (the “Shares”) and (ii) registered investor warrants, with a term of five years, exercisable immediately upon issuance, to purchase an aggregate of up to 1,639,362 shares of common stock (the “Registered Investor Warrant Shares”) at an exercise price of $6.72 per share, subject to adjustments thereunder, including a reduction in the exercise price, in the event of a subsequent offering at a price less than the then current exercise price, to the same price as the price in such offering (a “Price Protection Adjustment”) (the “Registered Investor Warrants”), and (b) a concurrent private placement (the “Private Placement” and collectively with the Registered Direct Offering, the “Offering”) for the sale of unregistered investor warrants, with a term of five and one-half years, first exercisable on the date that is the earlier of (i) six months after the date of issuance or (ii) the date on which the Company obtains stockholder approval approving the sale of all of the securities offered and sold under the Purchase Agreement (the “Stockholder Approval”) to purchase an aggregate of up to 2,527,304 shares of common stock (the “Unregistered Investor Warrant Shares”) at an exercise price of $6.72 per share, subject to adjustments thereunder, including (x) a Price Protection Adjustment and (y) in the event the exercise price is more than $6.10, a reduction of the exercise price to $6.10, upon obtaining the Stockholder Approval (the “Unregistered Investor Warrants”). The Shares, the Registered Investor Warrants, the Unregistered Investor Warrants, the Registered Investor Warrant Shares and the Unregistered Investor Warrant Shares are collectively referred to as the “Securities.” The Company received gross proceeds from the sale of the Securities of $24,999,996, before deducting placement agent fees and other Offering expenses. The Company intends to use the net proceeds from this Offering for working capital and general business purposes.

The Company has evaluated all material subsequent events that occurred after December 31, 2020 and up through March 26, 2021, and has determined that all events that require disclosure have been detailed above.

F-34

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on March 26, 2021.

CODE CHAIN NEW CONTINENT LIMITED

By:	/s/ Yimin Jin
	Name:	Yimin Jin
	Title:	Co-Chief Executive Officer and Co-Chairman of the Board (Principal Executive Officer)

By:

/s/ Yi Li

Name:

Yi Li

Title:

Chief Financial Officer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Position	Date

/s/ Yimin Jin	Chief Executive Officer and Co-Chairman of the Board of Directors	March 26, 2021
Yimin Jin	(Principal Executive Officer)

/s/ Wei Xu	President and Co-Chairman of the Board of Directors	March 26, 2021
Wei Xu	(Principal Executive Officer)

/s/ Weidong (David) Feng	Co-Chief Executive Officer	March 26, 2021
Weidong (David) Feng	(Principal Executive Officer)

/s/ Yi Li	Chief Financial Officer and Secretary	March 26, 2021
Yi Li	(Principal Financial Officer and Principal Accounting Officer)

/s/ Qihai Wang	Director	March 26, 2021
Qihai Wang

/s/ Jin Wang	Director	March 26, 2021
Jin Wang

/s/ Mingyue Cai	Director	March 26, 2021
Mingyue Cai

/s/ Fei Gan	Director	March 26, 2021
Fei Gan

/s/ Yajing Li	Director	March 26, 2021
Yajing Li

Code Chain New Continent Ltd - FORM 10-K - March 26, 2021

Attached files

Code Chain New Continent Ltd Reports