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EX-10.26 - EXHIBIT 10.26 - Yangtze River Port & Logistics Ltdv455221_ex10-26.htm
EX-23.1 - EXHIBIT 23.1 - Yangtze River Port & Logistics Ltdv455221_ex23-1.htm
EX-1.1 - EXHIBIT 1.1 - Yangtze River Port & Logistics Ltdv455221_ex1-1.htm

 

As filed with the Securities and Exchange Commission on December 20, 2016

 

Registration No. 333-209579

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

AMENDMENT NO. 8

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

YANGTZE RIVER DEVELOPMENT LIMITED

(Exact name of registrant as specified in its charter)

 

Nevada   4731   27-1636887
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer Identification
Number)

 

183 Broadway, Suite 5

New York, NY 10007

United States

646-861-3315

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

CSC Services of Nevada, Inc.

2215-B Renaissance Drive

Las Vegas, NV 89119

(888) 921-8397

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Joseph M. Lucosky, Esq.

John O’Leary, Esq.
Lucosky Brookman LLP

101 Wood Avenue South, 5th Floor

Woodbridge, NJ 08830

+1-732-395-4400 - telephone

+1-732-395-4401 - facsimile

 

Louis Taubman, Esq.

Joan Wu, Esq.
Hunter Taubman Fischer & Li LLC

1450 Broadway, 26th Floor

New York, NY 10017

+1- 917- 512-0827 - telephone

+1-212- 202-6380 - facsimile

  

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2 of the Exchange Act.

 

Large accelerated filer   ¨ Accelerated filer ¨
Non-accelerated filer   ¨ Smaller reporting company x

 

CALCULATION OF REGISTRATION FEE

 

Title of Class of 
Securities to be 
Registered
  Amount to 
be 
Registered
    Proposed 
Price Per 
Share (1)
    Proposed 
Aggregate 
Offering 
Price
    Amount of 
Registration
Fee
 
Common Stock, par value $0.0001 per share (the “Common Stock”)     [●]     $ [●]     $ 40,000,000     $ 4,028  
underwriters Warrants (2)     [●]     $ [●]     $ -     $ -  
Common Stock underlying underwriters Warrants (2)     [●]       [●]     $ 2,000,000     $ 200.14  
Total     [●]     $ [●]     $ 42,000,001     $ 4,229.40  

 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended, which represents the sale of shares at the maximum aggregate price per share

 

(2) We have agreed to issue, on the closing date of this offering, warrants to our underwriters exercisable at a rate of one warrant per share to purchase up to 5% of the aggregate number of common stock sold by the Registrant (the “Underwriters’ Warrants”). The underwriters Warrants will be exercisable at any time, and from time to time, in whole or in part, commencing 180 days from the effective date of the offering and expiring five years from the effective date of the offering.. This offering will remain open until the earlier of (i) a date mutually acceptable to us and the underwriters or (ii) [●], 2016, subject to extension upon agreement with the underwriters. The underwriters expects to deliver the shares against payment in New York, New York, on or about [●], 2016. Assuming an offering price of $[●] per share, on the closing date the underwriters would receive [●] underwriters Warrants at an aggregate purchase price of $ [●]. The exercise price of the underwriters Warrants is equal to 100% of the price of the common stock offered hereby. Assuming at an exercise price of $ [●] per share, we would receive, in the aggregate, $[●] upon exercise of the underwriters Warrants. underwriters

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment, which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

  

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION ON DECEMBER 2016,

     

 

YANGTZE RIVER DEVELOPMENT LIMITED

 

[●] Shares of Common Stock

 

Yangtze River Development Limited is offering [●] shares of our common stock.

 

Prior to this offering, our stock has been listed on the OTC Markets under the symbol “YERR”. We expect the offering price of our common stock to be $[●] per share. We intend to apply to list our common stock on the NASDAQ Global Select under the symbol “YERR”. We cannot assure you that our application will be approved.

 

    Per Common
Share
    Total  
Assumed public offering price   $ [●]     $ 40,000,000  
Underwriting discount (1)   $ [●]     $ 2,000,000  
Proceeds to us, before expenses   $ [●]     $ 38,000,000  

 

(1) Under the Underwriting Agreement, we will pay the underwriters a cash commission equal to $5% of the gross proceeds raised in the offering. In addition to the cash commission, we will also reimburse the underwriters for the full amount of its reasonable non-accountable expenses of up to $250,000, including in addition to (i) its legal expenses in an amount not to exceed $75,000 and costs of third-party due diligence reports in an amount not to exceed $25,000.

 

We expect our total cash expenses for this offering (including cash expenses payable to our underwriters for its reasonable, non-accountable expenses) up to $[●], exclusive of the above commissions. In addition, we will pay additional items of value in connection with this offering that are viewed by the Financial Industry Regulatory Authority (“FINRA”) as underwriting compensation, including reimbursement of (i) underwriters’ legal expenses not to exceed $75,000, and (iii) costs of third-party due diligence report in an amount not to exceed $25,000. These payments will further reduce proceeds available to us before expenses. If we complete this offering, then on the closing date, we will issue common stock to investors in the offering and, commencing 365 days from the effective date of this prospectus, underwriters Warrants to our underwriters are exercisable at a rate of one warrant per share to purchase up to 5% of the aggregate number of common stock sold in this offering, at an exercise price equal to 100% of the price at which we sell our common stock in this offering. The Underwriters Warrants will be exercisable at any time, and from time to time, in whole or in part, commencing 180 days from the effective date of the offering and expiring five years from the effective date of the offering.. We do not intend to list the Underwriters Warrants on an exchange or an over the counter quotation system. See “Underwriting” on page 47.

 

This offering will remain open until the earlier of (i) a date mutually acceptable to us and our underwriters or (ii) [●], subject to extension upon agreement with the underwriters.

 

The underwriters expects to deliver the shares against payment in New York, New York, on or about [●], 2016.

 

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING ON PAGE 6 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN SHARES OF OUR COMMON STOCK.

 

NEITHER THE SECURITIES AND EXCHANGE COMMITTEE NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

Boustead Securities, LLC

 

The date of this prospectus is December [●], 2016

 

 2 

 

 

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY 4
RISK FACTORS 6
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 25
USE OF PROCEEDS 25
DIVIDEND POLICY 26
CAPITALIZATION 27
DILUTION 27
DESCRIPTION OF BUSINESS 28
DESCRIPTION OF PROPERTY 40
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 41
UNDERWRITING 53
DIRECTORS AND EXECUTIVE OFFICERS 57
EXECUTIVE COMPENSATION 66
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 69
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 70
LEGAL PROCEEDINGS 72
DESCRIPTION OF SECURITIES 72
MARKET PRICE OF AND DIVIDENDS ON OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS 74
LEGAL MATTERS 76
EXPERTS 76
WHERE YOU CAN FIND MORE INFORMATION 77
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1

 

Neither we nor the underwriter have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock. Our business, financial condition, results of operations, and prospects may have changed since that date.

 

The information in this preliminary prospectus is not complete and is subject to change. No person should rely on the information contained in this document for any purpose other than participating in our proposed offering, and only the preliminary prospectus issued on [●], 2016, is authorized by us to be used in connection with our proposed offering. The preliminary prospectus will only be distributed by us and the underwriter named herein and no other person has been authorized by us to use this document to offer or sell any of our securities.

 

Until [●], 2016 (25 days after the commencement of our offering), all dealers that buy, sell, or trade our common stock, whether or not participating in our offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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PROSPECTUS SUMMARY

 

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in the common stock. You should carefully read the entire prospectus, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, before making an investment decision.

 

In this prospectus, unless otherwise noted or as the context otherwise requires, the “Company,” “YERR,” “we,” “us,” and “our”  refer to the combined business of Yangtze River Development Limited, a corporation formed under the laws of the State of Nevada, Energetic Mind Limited (“Energetic Mind”), which is our wholly-owned subsidiary formed under the laws of the British Virgin Islands, Energetic Mind’s wholly-owned subsidiary Ricofeliz Capital (HK) Ltd. (“Ricofeliz”), a company formed under the laws of Hong Kong, and Ricofeliz’s wholly-owned subsidiary, Wuhan Yangtze River Newport Logistics Co., Ltd. (“Wuhan Newport”), a wholly foreign-owned enterprise formed under the laws of the People’s Republic of China. “China” or “PRC” refers to the People’s Republic of China, excluding Hong Kong Special Administrative Region of China, Macau Special Administrative Region of China and the Taiwan Region.

 

This prospectus contains translations of certain Chinese currency Renminbi or RMB amounts, into U.S. dollar amounts at specified rates solely for the convenience of the reader. The relevant exchange rates are listed below:

 

   For the years 
   ended December 31, 
   2015   2014   2013 
Period Ended RMB: USD exchange rate   6.4917    6.1484    6.1090 
Period Average RMB: USD exchange rate   6.2288    6.1457    6.1938 

 

For the sake of clarity, this prospectus follows English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English. For example, the name of our Chief Executive Officer will be presented as “Xiangyao Liu,” even though, in Chinese, Mr. Liu’s name is presented as “Liu Xiangyao.”

 

We have relied on statistics provided by a variety of publicly-available sources regarding China’s expectations of growth. We did not, directly or indirectly, sponsor or participate in the publication of such materials, and these materials are not incorporated in this prospectus other than to the extent specifically cited in this prospectus. We have sought to provide current information in this prospectus and believe that the statistics provided in this prospectus remain up-to-date and reliable, and these materials are not incorporated in this prospectus other than to the extent specifically cited in this prospectus.

 

Overview

 

Yangtze River Development Limited is a Nevada corporation that operates through its wholly-owned subsidiary Energetic Mind Limited, a British Virgin Islands company, which holds 100% capital stock of Ricofeliz Capital (HK) Ltd., a Hong Kong company that holds 100% capital stock of Wuhan Yangtze River Newport Logistics Co., Ltd., a wholly foreign-owned enterprise formed under the laws of the People’s Republic of China that primarily engages in the business of real estate and infrastructural development with a port logistics center located in Wuhan, Hubei Province of China. Situated in the middle reaches of the Yangtze River, Wuhan Newport focuses on a large infrastructure development project implemented under China's latest "One Belt One Road" initiative and is believed to be strategically positioned in the anticipated "Pilot Free Trade Zone" of the Wuhan Port, a crucial trading window among China, the Middle East and Europe. To be fully developed upon completion, within the logistics center, there will be six operating zones: port operation area, warehouse and distribution area, cold chain logistics area, rail cargo loading area, exhibition area and business-related area. The logistics center is also expected to provide a number of shipping berths for cargo ships of various sizes. Wuhan Newport is expected to provide domestic and foreign businesses direct access to the anticipated Pilot Free Trade Zone in Wuhan. The project will include commercial buildings, professional logistic supply chain centers, direct access to the Yangtze River, Wuhan-Xinjiang-Europe Railway and ground transportation, storage and processing centers, and IT supporting services, among others.

  

Income generated from the use of warehouses, cargo loading and unloading, railway and highway transportation and logistics services and other logistics supporting services is expected to be the main source of our expected income upon completion of the entire logistics center. It is also expected that income from real estate sales and leasing would be a relatively minor portion of our expected income, since we are planning to sell or lease only a certain portion of our real estate properties, such as office spaces, in the near future for the sole purpose of recouping our initial capital investment. We plan to use the major area of our real estate properties for the development of our logistics center, from which our main source of expected income can be derived. These sources of income include, but are not limited to, the service fees we charge for our clients’ usage of warehouses, online information platform, ship berths, cold-chain storage, cargo handling, and shipment loading and unloading.

  

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Wuhan Yangtze River Newport Logistics Center

 

The Wuhan Yangtze River Newport Logistics Center (the “Logistics Center”), is expected to be an extensive complex located in Wuhan, the capital of the Hubei Province of China, a major transportation hub with numerous railways, roads and expressways passing through the city and connecting to major cities in China, as well as other international centers of commerce and business.

 

The Logistics Center is expected to occupy approximately 1,918,000 square meters, for which the construction and development are expected to be completed in three phases in three years and reach its target maximum annual profit by the end of 2021 assuming the entire funding required for construction of the Logistics Center of $1.03 billion is in place by 2020 and the Logistics Center is in operation according to our business plan. The following table illustrates the timeframe of our investment and construction progress.

 

Time   Phase of
Investment/Construction
    Percentage of Total
Anticipated
Investment/Construction (1)
    Production Capacity (2)  
1st Year (2017)     1st Phase       40 %     30 %
2nd Year (2018)     2nd Phase       70 %     40 %
3rd Year (2019)     3rd Phase       100 %     60 %
4th Year (2020)     Completed       100 %     75 %
5th Year (2021)     Completed       100 %     100 %

 

(1)The percentage of construction in a certain phase reflects the anticipated contribution of the investment in such particular phase. For example, contribution of 40% of the total investment in phase 1 will lead to construction of 40% of total value of the  Logistics Center.
(2)

The percentage of Production Capacity shows the fraction of the target maximum annual profit to be earned under the full operation of the Logistics Center. We target to reach our maximum annual profit by the end of 2021 assuming the entire funding required for construction of the Logistics Center of $1.03 billion is in place by 2020 and the Logistics Center is in operation according to our business plan.

  

The Logistics Center is projected to be constructed within the Wuhan Newport Yangluo Port, on the upper stream of the Yangtze River, and close to the northern base of Wuhan Iron and Steel, China's first mega-sized iron and steel production complex. The Logistics Center is expected to include a port terminal that will be located approximately 26.5km from the Wuhan Guan and 5.5km from the Yangluo Yangtze River Bridge. The operation area of the port is expected to consist of a riverbank of 1,039 meters with eight 5,000-to-10,000-ton berths, two of which are multi-purpose berths and the other six are general cargo berths. It is designed to be able to handle up to 5,000,000 tons of cargo annually, including up to 100,000 TEU for annual container throughput (including 20,000 TEU in freezers areas), 1,000,000 tons of iron and steel and 3,000,000 tons of general cargo.

 

Within the Logistics Center, functional areas will be divided into six operating zones: a port operation area, a warehouse and distribution area, a cold chain supply logistics area, a rail cargo loading area, an exhibition area and a business related area. The Logistics Center will also be complemented with container storage areas, multi-functional areas, general storage areas, multi-functional warehouse and infrastructural development, including new roads, gas stations, parking areas, gas and water pipes, electricity lines and all other facilities and equipment to operate the Logistics Center.

 

Aside from being situated in the Wuhan Yangluo Comprehensive Bonded Zone, Yangluo development area is amongst the third group of China’s Pilot Free Trade Zone (FTZ) applicants to submit FTZ applications to the State Council through the Wuhan municipal government for approval. Thus far, approvals have been granted to Shanghai, Tianjin, Guangdong and Fujian. Corporations within the approved free trade zones are typically entitled to a series of favorable regulations and policies that could help the businesses grow and succeed.

 

Wuhan Newport has signed a twenty-year lease agreement, the maximum number of years permitted by the applicable PRC laws, and with rights to renew at its sole discretion effective April 27, 2015 to lease approximately 1,200,000 square meters of land for building logistics warehouses in support of the Logistics Center. The warehouses are expected to comprise of port terminal zones, warehouse logistics zones, cold chain supply zones and railroad loading and unloading zones. The warehouses, once constructed, will connect the port terminal along the Yangtze River and the railways leading to Europe, satisfying the requirements of China’s latest “One Belt One Road” initiative. It will also be able to support large logistics companies in Wuhan and other nearby provinces, which we anticipate, will rent the warehouses, terminals and offices within the Logistics Center.

 

On November 17, 2016, for the purpose of further funding the construction of our Logistics Center, upon share exchange and conversion described below in “Description of Business”, we issued an aggregate of 100,000,000 shares of Common Stock of the Company to Wight International Construction, LLC (“Wight”). As part of the consideration, Wight agreed to procure up to $1 billion of construction financing to fund the development of our Logistics Center and plans to seek financing of $200 million each year for five years from 2017.

 

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OFFERING SUMMARY

 

Shares Offered:   [●] shares of common stock
     
Shares Outstanding Prior to the Completion of the Offering:   272,269,446 shares common stock
     
Shares to be Outstanding After the Offering:   [●] shares of common stock.
     
Proposed Offering Price per Share:   $[●]
     
Gross Proceeds to Us, Net of Underwriting Discount but Before Expenses:   $38,000,000
     
Symbol:   YERR
     
Transfer Agent:  

VStock Transfer, LLC

18 Lafayette Place

Woodmere, NY 11598

     
Use of Proceeds   We plan to devote the net proceeds of the offering for i) construction of the facilities, including the warehouse, cold-chain logistics area, and exhibition center; ii) construction of the rail-cargo operating area; iii) construction of the port terminal; and iv) general working capital to meet the needs of the continued development of the Logistics Center. See the “Use of Proceeds” section beginning on page 25.
     
Risk Factors   The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on Page 6. 
     
Dividend Policy:   We have no present plans to declare dividends and plan to retain our earnings to continue to grow our business.

 

Corporate information

 

Our principal executive office is located at 183 Broadway, Suite 5, New York, NY 10007 and our telephone number is (646) 861-3315. Our website address is www.yerr.com.cn. The information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part.

 

RISK FACTORS

 

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this prospectus, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our shares of common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Cautionary Note Regarding Forward Looking Statements” below for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this prospectus.

 

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Risks Relating to Our Business

 

MAJORITY OF OUR BUSINESS, ASSETS AND OPERATIONS ARE LOCATED IN THE PEOPLE’S REPUBLIC OF CHINA.

 

The majority of our business, assets and operations are located in the People’s Republic of China. The economy of the PRC differs from the economies of most developed countries in many respects. The economy of the PRC has been transitioning from a planned economy to a market-oriented economy. Although in recent years the PRC’s government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in the PRC is still owned by the PRC’s government. In addition, the PRC’s government continues to play a significant role in regulating industry by imposing industrial policies. The PRC’s government exercises significant control over the PRC’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Some of these measures benefit the overall economy of the PRC, but may have a negative effect on us.

 

ACTIONS OF GOVERNMENT OR CHANGE OF POLICIES MAY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

We are at risk from significant and rapid change in the legal systems, regulatory controls, and practices in areas in which we operate. These affect a wide range of areas including the real estate development approval system, employment practices, transportation, cargo storage, logistics, financing and sale of the buildings; our property rights; data protection; environment, health and safety issues; macro-economic policies, central government directions and instructions, China’s Five Year Plan, “One Belt One Road” initiative; and accounting, taxation and stock exchange regulation. Accordingly, changes to, or violation of, these systems, controls or practices could increase costs and have material and adverse impacts on the reputation, performance and financial condition of our development and operation.

 

WE HAVE SUSTAINED SIGNIFICANT RECURRING OPERATING LOSSES AND EXPERIENCED NEGATIVE CASH FLOW FOR OPERATIONS SINCE INCEPTION.

 

We have sustained recurring losses and experienced negative cash flow from operations since inception. Since inception, we have focused on developing and implementing our business plan. As of September 30, 2016, we have generated cumulative losses of approximately $26.4 million since inception, and we expect to continue to incur losses until 2018.  We believe that our existing cash resources will not be sufficient to sustain operations during the next twelve months. We need to generate revenue and raise funding in order to sustain our operations and continue to implement our business plan. If we are unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to us, we would likely be unable to execute upon the business plan or pay expenses as they are incurred, which would have a material, adverse effect on our business, financial condition and results of operations. The amount of future losses and when, if ever, we will achieve profitability are uncertain.

 

WE DERIVE THE MAJORITY OF OUR REVENUES FROM SALES IN THE PRC AND ANY DOWNTURN IN THE CHINESE ECONOMY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION.

 

The majority of our revenues are expected to be generated from sales of our properties and services in the PRC and we anticipate that revenues from such sales will continue to represent the substantial portion of our total revenues in the near future. Our sales and earnings can also be affected by changes in the general economy. Our success is influenced by a number of economic factors which affect consumer income, such as employment levels, business conditions, interest rates, oil and gas prices and taxation rates. Adverse changes in these economic factors, among others, may restrict consumer spending, thereby negatively affecting our sales and profitability.

 

WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION THAT COULD CAUSE US TO INCUR SIGNIFICANT LIABILITIES OR RESTRICT OUR BUSINESS ACTIVITIES.

 

Regulatory requirements could cause us to incur significant liabilities and operating expenses and could restrict our business activities. We are subject to statutes and rules regulating, among other things, certain developmental matters, building and site design, and matters concerning the protection of health and the environment. Our operating expenses may be increased by governmental regulations, such as building permit allocation ordinances and impact and other fees and taxes that may be imposed to defray the cost of providing certain governmental services and improvements. Any delay or refusal from government agencies to grant us necessary licenses, permits, and approvals could have an adverse effect on our operations.

 

OUR SALES WILL BE AFFECTED IF MORTGAGE FINANCING BECOMES MORE COSTLY OR OTHERWISE BECOMES LESS ATTRACTIVE.

 

Certain purchasers of our properties are expected to rely on mortgages to finance their purchases. An increase in interest rates may significantly increase the cost of mortgage financing, thus affecting the affordability of our properties. The PRC’s government and commercial banks may also increase the down payment requirement, impose other conditions or otherwise change the regulatory framework in a manner that would make mortgage financing unavailable or unattractive to potential property purchasers. If the availability or attractiveness of mortgage financing is reduced or limited, many of our prospective customers may not be able to purchase our properties and, as a result, our business, liquidity and results of operations could be adversely affected.

 

THE PRACTICE OF PRE-SELLING PROJECTS MAY EXPOSE US TO SUBSTANTIAL LIABILITIES.

 

It is common practice by property developers in China to pre-sell properties (while still under construction), which involves certain risks. For example, we may fail to complete a property development that may have been fully or partially pre-sold, which would leave us liable to purchasers of pre-sold units for losses suffered by them without adequate resources to pay the liability if funds have been used on the project. In addition, if a pre-sold property development is not completed on time, the purchasers of pre-sold units may be entitled to compensation for late delivery. If the delay extends beyond a certain period, the purchasers may be entitled to terminate the pre-sale agreement and pursue a claim for damages that exceeds the amount paid and our ability to recoup the resulting liability from future sales.

 

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WE ARE DEPENDENT ON THIRD-PARTY SUBCONTRACTORS, MANUFACTURERS, AND DISTRIBUTORS FOR ALL ARCHITECTURE, ENGINEERING AND CONSTRUCTION SERVICES, AND CONSTRUCTION MATERIALS. A DISCONTINUED SUPPLY OF SUCH SERVICES AND MATERIALS WILL ADVERSELY AFFECT OUR PROJECTS.

 

We are dependent on third-party subcontractors, manufacturers, and distributors for all architecture, engineering and construction services, and construction materials. A discontinued supply of such services and materials will adversely affect our construction projects and the success of the Company.

 

WE MAY BE ADVERSELY AFFECTED BY FLUCTUATIONS IN THE PRICE OF RAW MATERIALS AND SELLING PRICES OF OUR PROPERTIES.

  

The land and raw materials that are used in our projects have experienced significant price fluctuations in the past. There is no assurance that they will not be subject to future price fluctuations or pricing control. The land and raw materials that are used in our projects may experience price volatility caused by events such as market fluctuations or changes in governmental programs. The market price of land and raw materials may also experience significant upward adjustment, if, for instance, there is a material under-supply or over-demand in the market. These price changes may ultimately result in increases in the selling prices of our properties, and may, in turn, adversely affect our sales volume, sales, operating income, and net income.

 

WE FACE INTENSE COMPETITION FROM OTHER REAL ESTATE DEVELOPERS AND/OR LOGISTICS COMPANIES.

 

The real estate and logistics industries in the PRC are both highly competitive. Many of our competitors are well capitalized and have greater financial, marketing, and other resources than we do. Some of our competitors also have larger land banks, greater economies of scale, broader name recognition, a longer track record, and more established relationships in certain markets. Competition among property developers may result in increased costs for the acquisition of land for development, increased costs for raw materials, shortages of skilled contractors, oversupply of properties, decrease in property prices in certain parts of the PRC, a slowdown in the rate at which new buildings are approved and/or reviewed by the relevant government authorities and an increase in administrative costs for hiring or retaining qualified personnel, any of which may adversely affect our business and financial condition. Furthermore, property developers that are better capitalized than we are may be more competitive in acquiring land through the auction process. If we cannot respond to changes in market conditions as promptly and effectively as our competitors or effectively compete for land acquisition through the auction systems and acquire other factors of production, our business and financial condition will be adversely affected.

 

OVER-SUPPLY OF REAL ESTATE PROPERTIES COULD HAVE A MATERIAL ADVERSE AFFECT ON OUR RESULTS OF OPERATIONS.

 

Most of our assets consist of real estate properties within the premise of our Logistics Center. While our business will primarily revolve around the services provided by the Logistics Center, we expect to sell and/or lease properties to other businesses to generate revenue. Although we expect the value of our real estate properties to appreciate upon Yangluo Port’s obtaining the approval of the “Free Trade Zone” status, risk of property over-supply is increasing in parts of China on a macro-level, where property investment, trading and speculation have become overly active. We are exposed to the risk that in the event of actual or perceived over-supply, property prices may fall drastically, and our revenue and profitability will be adversely affected. If we cannot sell or lease our properties at a favorable price, we may not have the necessary capital resources to fully execute our business plan and therefore our results of operations will be adversely affected.

 

WE MAY NOT HAVE SUFFICIENT EXPERIENCE AS A COMPANY CONDUCTING STORAGE AND PROCESSING SERVICES, INFORMATION SERVICES AND LOGISTICS FINANCING, OR IN OTHER AREAS REQUIRED FOR THE SUCCESSFUL IMPLEMENTATION OF OUR BUSINESS PLAN.

 

We may not have sufficient experience as a company in conducting storage and processing services, information services, logistics financing or other areas required for the successful implementation of our business plan.   This may result in the Company experiencing difficulty in adequately operating and growing its business.  If our operating or management abilities consistently perform below expectations, then our business is unlikely to thrive.

 

WE ARE HEAVILY DEPENDENT UPON THE SERVICES OF EXPERIENCED PERSONNEL WHO POSSESS SKILLS THAT ARE VALUABLE IN OUR INDUSTRY, AND WE MAY HAVE TO ACTIVELY COMPETE FOR THEIR SERVICES.

 

We are heavily dependent upon our ability to attract, retain and motivate skilled personnel to serve our customers. Many of our personnel possess skills that would be valuable to all companies engaged in our industry. Consequently, we expect that we will have to actively compete for these employees. Some of our competitors may be able to pay our employees more than we are able to pay to retain them. Our ability to profitably operate is substantially dependent upon our ability to locate, hire, train and retain our personnel. There can be no assurance that we will be able to retain our current personnel, or that we will be able to attract and assimilate other personnel in the future. If we are unable to effectively obtain and maintain skilled personnel, the development and quality of our services could be materially impaired.

 

DEFAULTING ON BANK LOANS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS 

 

We plan to develop a full-service logistics center using the properties we have obtained land-use rights to. To finance the development, part of Company’s properties held for development and land lots under development have been pledged as collateral for financial institution loans. As of September 30, 2016, we have an outstanding loan payable to China Construction Bank totaling $43,237,084. The loan has a maturity date of May 29, 2020 and carries a weighted-average fixed annual interest rate of 5.936%. The secured bank loan with China Construction Bank contains certain protective contractual provisions that limit our activities in order to protect the lender. The risk of default may increase in the event of an economic downturn or due to our failure to successfully execute our business plan. Defaulting on our bank loans could result in loss of our collateralized assets and cause a material adverse effect on our results of operations.

 

WE HAVE LIMITED INSURANCE COVERAGE AGAINST DAMAGES OR LOSS WE MIGHT SUFFER.

 

We do not carry business interruption insurance and therefore any business disruption or natural disaster could result in substantial damages or losses to us. In addition, there are certain types of losses (such as losses from forces of nature) that are generally not insured because either they are uninsurable or insurance cannot be obtained on commercially reasonable terms. Should an uninsured loss or a loss in excess of insured limits occur, our business could be materially adversely affected. If we were to suffer any losses or damages to our properties, our business, financial condition and results of operations would be materially and adversely affected.

 

OUR OPERATING COMPANIES MUST COMPLY WITH ENVIRONMENTAL PROTECTION LAWS THAT COULD ADVERSELY AFFECT OUR PROFITABILITY.

 

We are required to comply with the environmental protection laws and regulations promulgated by the national and local governments of the PRC. Some of these regulations govern the level of fees payable to government entities providing environmental protection services and the prescribed standards relating to construction. Although construction technologies allow us to efficiently control the level of pollution resulting from our construction process, due to the nature of our business, wastes are unavoidably generated in the process. If we fail to comply with any of the environmental laws and regulations of the PRC, depending on the type and severity of the violation, we may be subject to, among other things, warnings from relevant authorities, imposition of fines, specific performance and/or criminal liability, forfeiture of profits made, or an order to close down our business operations and suspension of relevant permits.

 

 8 

 

 

THE OPERATING HISTORIES OF OUR OPERATING COMPANIES MAY NOT SERVE AS ADEQUATE BASES TO JUDGE OUR FUTURE PROSPECTS AND RESULTS OF OPERATIONS.

 

The operating histories of Wuhan Newport may not provide a meaningful basis for evaluating our business following consummation of the Second Share Exchange. Although the business of Wuhan Newport has grown rapidly since its inception, we cannot guarantee that we can achieve profitability or that we will have net profit in the future. We will encounter risks and difficulties that companies at a similar stage of development frequently experience, including the potential failure to:

 

  · obtain sufficient working capital to support our development and construction;
  · manage our expanding operations and continue to meet customers’ demands;
  · maintain adequate control of our expenses allowing us to realize anticipated income growth;
  · implement, adapt and modify our property development, sales, and business strategies as needed;
  · successfully integrate any future acquisitions; and
  · anticipate and adapt to changing conditions in the real estate industry resulting from changes in government regulations, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics.

 

If we are not successful in addressing any or all of the foregoing risks, our business may be materially and adversely affected.

 

WE MAY NOT BE ABLE TO SUCCESSFULLY EXECUTE OUR BUSINESS STRATEGY, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.

 

Since China is a large and diverse market, consumer trends and demands can vary significantly by region and Wuhan Newport’s experience in the markets in which it currently operates may not be applicable in other parts of China. As a result, we may not be able to leverage Wuhan Newport’s experience to fully execute our business strategy and plan. When we enter new markets, we may face intense competition from companies with greater experience or a more established presence in the targeted geographical areas or from other companies with similar business strategies. Therefore, we may not be able to adequately grow our sales due to intense competitive pressures and/or the substantial costs involved.

 

OUR FAILURE TO EFFECTIVELY MANAGE GROWTH MAY CAUSE A DISRUPTION OF OUR OPERATIONS RESULTING IN THE FAILURE TO GENERATE REVENUE AT THE LEVELS WE EXPECT.

 

In order to maximize potential growth in Wuhan Newport’s current and potential markets, we believe that we must be able to sell our properties and obtain clients to use the services provided by our Logistics Center to ensure the sustainable development capability of the Company and to maintain our operations. This strategy may place a significant strain on our management and our operational, accounting, and information systems. We expect that we will need to continue to improve our financial controls, operating procedures, and management information systems. We will also need to effectively train, motivate, and manage our employees. Our failure to effectively manage our operations could prevent us from generating the revenues we expect and therefore have a material adverse effect on the results of our operations.

 

IF WE NEED ADDITIONAL CAPITAL TO FUND OUR FUTURE OPERATIONS, WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT CAPITAL AND MAY BE FORCED TO LIMIT THE SCOPE OF OUR OPERATIONS.

 

If adequate additional financing is not available on reasonable terms, we may not be able to undertake ongoing real estate construction or continue to develop and expand the services of our Logistics Center, which may as a result impact our cash flow and we would have to modify our business plans accordingly. There is no assurance that additional financing will be available to us.

 

 9 

 

 

In connection with our growth strategies, we may experience increased capital needs and accordingly, we may not have sufficient capital to fund our future operations without additional capital investments. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the development of competitive projects undertaken by our competition; and (iii) the level of our investment in construction and development. We cannot assure you that we will be able to obtain capital in the future to meet our needs.

 

If we cannot obtain additional funding, we may be required to: (i) limit our operations and expansion; (ii) limit our marketing efforts; and (iii) decrease or eliminate capital expenditures. Such reductions could have a materially adverse effect on our business and our ability to compete.

 

Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving such additional capital that are favorable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to the common stock offered hereof. We cannot give you any assurances that any additional financing will be available to us, or if available, will be on terms favorable to us.

 

WE MAY NEED ADDITIONAL EMPLOYEES TO MEET OUR OPEARATIONAL NEEDS.

 

Our future success also depends upon our ability to attract and retain highly qualified personnel. We may need to hire additional managers and employees with industry experience from time to time, and our success will be highly dependent on our ability to attract and retain skilled management personnel and other employees. There can be no assurance that we will be able to attract or retain highly qualified personnel. Competition for skilled personnel in the real estate and logistics industries is significant. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees.

 

WE WILL INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH UNITED STATES CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS.

 

We will incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract or retain qualified individuals to serve on our board of directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 

WE HAVE IDENTIFIED MATERIAL WEAKNESSES IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING WHICH HAVE RESULTED IN MATERIAL MISSTATEMENTS IN OUR PREVIOUSLY ISSUED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015.

 

We have concluded that there are material weaknesses in our internal control over financial reporting for the fiscal year ended December 31, 2015, as we did not maintain effective controls over the selection and application of GAAP related to classification of capital transactions. Specifically, the members of our management team with the requisite level of accounting knowledge, experience and training commensurate with our financial reporting requirements did not analyze certain accounting issues at the level of detail required to ensure the proper application of GAAP in certain circumstances. These material weaknesses resulted in the restatement of our financial statements for the year ended December 31, 2015. Our management concluded that the Company’s previously issued financial statements for the year ended December 31, 2015 should no longer be relied upon. In light of the errors, management re-evaluated its assessment of our disclosure controls and procedures and internal control over financial reporting as of December 31, 2015 and concluded each was ineffective as of December 31, 2015.

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

 

 10 

 

 

Management identified the following material weaknesses in its assessment of the effectiveness of internal control over financial reporting as of December 31, 2015:

 

  Lack of adequate policies and procedures in internal audit function, which resulted in: (1) lack of communication between the internal audit department and the Audit Committee and the Board of Directors; (2) insufficient internal audit work to ensure that the Company’s policies and procedures have been carried out as planned;
  Lack of sufficient full-time accounting staff in our accounting department that have experience and knowledge in identifying and resolving complex accounting issues under U.S. Generally Accepted Accounting Principles (“GAAP”); and
  Lack of sufficient accounting personnel which would provide segregation of duties within our internal control procedures to support the accurate reporting of our financial results.

 

Any actions we have taken or may take to address the material weaknesses we had for the fiscal year ended December 31, 2015 are subject to continued management review supported by testing, as well as oversight by the Audit Committee of our Board of Directors. Although we believe that the steps we have taken sufficiently remediate the material weaknesses we had for the fiscal year ended December 31, 2015, we cannot assure you that these material weaknesses will not occur in the future and that we will be able to remediate such weaknesses in a timely manner, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. If our remedial measures are again insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to further restate our financial results. In addition, if we are unable to successfully remediate the material weaknesses in our internal controls or if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements.

   

OUR CERTIFICATES, PERMITS, AND LICENSES RELATED TO OUR OPERATIONS ARE SUBJECT TO GOVERNMENTAL CONTROL AND RENEWAL, AND FAILURE TO OBTAIN OR RENEW SUCH CERTIFICATES, PERMITS, AND LICENSES WILL CAUSE ALL OR PART OF OUR OPERATIONS TO BE TERMINATED.

 

Our operations require licenses, permits and, in some cases, renewals of these licenses and permits from various governmental authorities in the PRC. Our ability to obtain, maintain, or renew such licenses and permits on acceptable terms is subject to change, as are, among other things, the regulations and policies of applicable governmental authorities.

 

If our land use permits are revoked or suspended or we are unable to renew the permits for any reason, we cannot assure you that our business operations will not be stopped and, accordingly, our financial performance would be adversely affected.

 

IF THE LEGALITY OR VALIDITY OF OUR LEASE OF THE COLLECTIVE-OWNED LAND USE RIGHTS IS CHALLENGED, THERE MAY BE DISRUPTION TO THE DEVELOPMENT OF THE LAND AND SUCH DISRUPTION COULD HAVE A MATERIALLY ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.

 

We leased collective-owned land use rights from the Chunfeng Villagers’ Committees. The right to operate and manage such land is vested in the relevant local villagers’ committee or rural collective leadership who are allowed to divide the land into parcels and contracts the rights to operate such parcels of land to individual farmer households or, subject to the approval of local governments and the requisite vote of the farmer households, to any entity or person outside that village or rural collective.

 

Any change in law and the administrative system could render our lease unenforceable. According to the PRC Law on Land Administration, all lands in the PRC are either state-owned or collectively owned. Generally, lands in the urban areas of a city or town are state-owned, whereas lands in the rural areas of a city or town and all rural lands are, unless otherwise specified by law, collectively owned. When required, the state has the right to reclaim the collectively owned lands in accordance with law if such reclaim is beneficial to the public.

 

Additionally, the lease may subject to the preemptive rights of other farmers in the same village or rural collective. If the preemptive rights are not exercised within two months from the date on which we start using the parcels of land, it is very likely that the PRC courts will not enforce such preemptive rights. As of the date of this prospectus, two months or more have passed since we started using the land we leased from Chunfeng villagers’ committee and we have not received any claim from person purporting to assert the pre-emption rights.

 

If the legality or validity of our leases become subject to disputes or challenges, we may need to suspend at least part of our constructions on the respective land areas. We may incur costs and losses if we are required to remove our improvements, such as buildings and facilities that we have constructed or purchased. We could also lose our rights to use the land and our business, financial condition and results of operations could be materially and adversely affected.

 

 11 

 

 

OUR FACILITIES AND INVENTORY MAY BE AFFECTED BY FIRE OR NATURAL CALAMITIES. OUR OPERATIONS ARE ALSO SUBJECT TO THE RISK OF POWER OUTAGES, EQUIPMENT FAILURES OR LABOR DISTURBANCES AND OTHER BUSINESS INTERRUPTIONS. WE HAVE LIMITED INSURANCE COVERAGE AND DO NOT CARRY ANY BUSINESS INTERRUPTION INSURANCE.

 

A fire, floods or other natural calamity may result in significant damage to our production facilities and inventory. Our operations are subject to risks of various business interruptions, including power outages, equipment failures or disturbances from labor unrest. If we are unable to obtain timely replacements of damaged inventory or equipment, or if we are unable to find an acceptable contract manufacturer in the event our production facilities are damaged by a catastrophic event, then major disruptions to our production would result, which would have significant adverse effect on our operations and financial results. Our property insurance may not be sufficient to cover damages to our production facilities, and we do not carry any business interruption insurance covering lost profits as a result of the disruption to our production.

 

Risks Relating to Doing Business in China

 

IF OUR LAND USE RIGHTS ARE REVOKED, WE WOULD HAVE NO OPERATIONAL CAPABILITIES.

 

Under the PRC law, land is owned by the state or rural collective economic organizations. The state issues to tenants the rights to use property. Use rights can be revoked and the tenants may be forced to vacate at any time when redevelopment of the land is in the public interest. The public interest rationale is interpreted quite broadly and the process of land appropriation may be less than transparent. If this happens, we may be forced to (i) delay the construction of commercial facilities or (ii) curtail or cease construction on that land. We relied on these land use rights as the cornerstone of our operations, and the loss of such rights would have a material adverse effect on our business and results of operation. 

 

IN THE EVENT THE ACQUISITION OF WUHAN NEWPORT BY RICOFELIZ REQUIRES MOFCOM’S APPROVAL AND WE ARE NOT ABLE TO OBTAIN SUCH APPROVAL, THE ACQUISITION MAY BE UNWOUND.

 

On August 8, 2006, the PRC Ministry of Commerce (“MOFCOM”), the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission and the State Administration of Foreign Exchange jointly promulgated the Provisions on the Acquisition of Domestic Enterprises by Foreign Investors (the “M&A Rules ”), as amended by the Ministry of Commerce of the PRC on June 22, 2009. The M&A Rules require that a merger and acquisition of a domestic company with a “related party relationship” by a domestic company, enterprise or natural person in the name of an overseas company legitimately incorporated or controlled by the domestic company, enterprise or natural person shall be subject to examination and approval by MOFCOM. However, there is no definition or explanation of what constitutes a “related party relationship” in the M&A Rules, and, as a result, we are uncertain as to the interpretation of the M&A Rules with regard to the existing relationship between Mr. Xiangyao Liu, Ricofeliz and Wuhan Newport at the moment immediately before the acquisition of Wuhan Newport by Ricofeliz. If such relationship is considered as a “related party relationship”, the acquisition of Wuhan Newport by Ricofeliz, which has been approved by the local Wuhan Bureau of MOFCOM, may be subject to the approval of the national MOFCOM. Although M&A Rules have been effective since September 2006, we are not aware of any precedent for approval by MOFCOM of any related party acquisition conducted by PRC domestic individuals.    Since there is no clear guidance under the M&A Rules, it is difficult to determine whether MOFCOM or other PRC regulatory agencies would consider such approval necessary and, if so, whether we would be able to obtain MOFCOM approval, or if we fail to obtain such approval, what would be the consequence of such failure. Failure to obtain MOFCOM’s approval may result in regulatory actions or other sanctions (including administrative order to unwind the acquisition) from MOFCOM or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from our financing, investment, or operating activities into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects.

 

LABOR LAWS IN THE PRC MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

 

On June 29, 2007, the PRC’s government promulgated the Labor Contract Law of the PRC, which became effective on January 1, 2008. The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce. Further, the law requires certain terminations be based upon seniority and not merit. In the event that we decide to significantly change or decrease our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations.

 

 12 

 

 

WE MAY BE EXPOSED TO LIABILITIES UNDER THE FOREIGN CORRUPT PRACTICES ACT AND CHINESE ANTI-CORRUPTION LAW.

 

In connection with this offering, we will become subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes to government officials. We have operations, agreements with third parties, and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants or distributors of our company, because these parties are not always subject to our control. We are in the process of implementing an anticorruption program, which will prohibit the offering or giving of anything of value to foreign officials, directly or indirectly, for the purpose of obtaining or retaining business. The anticorruption program also requires that clauses mandating compliance with our policy be included in all contracts with foreign sales agents, sales consultants and distributors and that they certify their compliance with our policy annually. It further requires that all hospitality involving promotion of sales to foreign governments and government-owned or controlled entities be in accordance with specified guidelines. In the meantime, we believe to date we have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption laws. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants and/or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

 

UNCERTAINTIES WITH RESPECT TO THE PRC’S LEGAL SYSTEM COULD ADVERSELY AFFECT US.

 

We conduct a substantial amount of our business through our subsidiary in China. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiary is generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value.

 

Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, 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. In particular, because some of these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

 

GOVERNMENTAL CONTROL OF CURRENCY CONVERSION MAY AFFECT THE VALUE OF YOUR INVESTMENT.

 

The PRC government imposes controls on the convertibility of the Renminbi, or “RMB” into foreign currencies and, in certain cases, the remittance of currency out of China. We receive some revenue and incur some expenses in U.S. dollars but incur other expenses primarily in RMB. Although our main business is based in mainland China or based in Hong Kong with Chinese operating subsidiaries, some of our business may require us to use U.S. dollars. We choose quotations based on price competitiveness.

 

 13 

 

 

Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiary to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from 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 loans denominated in foreign currencies. The PRC government may also, at its discretion, restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our security-holders.

 

WE ARE A HOLDING COMPANY AND WE RELY ON FUNDING FOR DIVIDEND PAYMENTS FROM OUR SUBSIDIARIES, WHICH ARE SUBJECT TO RESTRICTIONS UNDER PRC LAWS.

 

We are a holding company incorporated in Nevada and we operate our core businesses through our subsidiaries in the PRC. Therefore, the availability of funds for us to pay dividends to our shareholders and to service our indebtedness depends upon dividends received from such PRC subsidiary. If our subsidiary incurs debt or losses, its ability to pay dividends or other distributions to us may be impaired. As a result, our ability to pay dividends and to repay our indebtedness will be restricted. PRC laws require that dividends be paid only out of the after-tax profit of our PRC subsidiary calculated according to PRC accounting principles, which differ in many aspects from generally accepted accounting principles in other jurisdictions. PRC laws also require enterprises established in the PRC to set aside part of their after-tax profits as statutory reserves. These statutory reserves are not available for distribution as cash dividends. In addition, restrictive covenants in bank credit facilities or other agreements that we or our subsidiary may enter into in the future may also restrict the ability of our subsidiary to pay dividends to us. These restrictions on the availability of our funding may impact our ability to pay dividends to our shareholders and to service our indebtedness.

  

OUR BUSINESS MAY BE MATERIALLY AND ADVERSELY AFFECTED IF ANY OF OUR PRC SUBSIDIARIES DECLARES BANKRUPTCY OR BECOMES SUBJECT TO A DISSOLUTION OR LIQUIDATION PROCEEDING.

 

The Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts.

 

Our PRC subsidiaries hold certain assets that are important to our business operations. If our PRC subsidiaries undergo a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

 

According to the SAFE’s Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, effective on December 17, 2012, and the Provisions for Administration of Foreign Exchange Relating to Inbound Direct Investment by Foreign Investors, effective May 13, 2013, if our PRC subsidiaries undergo a voluntary or involuntary liquidation proceeding, prior approval from the SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still need to conduct a registration process with the SAFE local branch. It is not clear whether “registration” is a mere formality or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past.

 

FLUCTUATIONS IN EXCHANGE RATES COULD ADVERSELY AFFECT OUR BUSINESS AND THE VALUE OF OUR SECURITIES.

 

Changes in the value of the RMB against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S. dollars we receive from our offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of paying dividends on our common stock or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.

 

 14 

 

 

Since July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

 

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

 

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, THIS OFFERING 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.

 

Recently, 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 some 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, our business and this offering. 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 shares could be rendered worthless.

 

CERTAIN POLITICAL AND ECONOMIC CONSIDERATIONS RELATING TO THE PRC COULD ADVERSELY AFFECT OUR COMPANY.

 

While the PRC’s government has pursued economic reforms since its adoption of the open-door policy in 1978, a large portion of the PRC’s economy is still operating under five-year plans and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the PRC’s government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the PRC’s government are unprecedented or experimental, and are expected to be refined and improved. Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating results may be adversely affected by changes in the PRC’s economic and social conditions as well as by changes in the policies of the PRC government, such as changes in laws and regulations (or the official interpretation thereof), measures which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of restrictions on currency conversion in addition to those described below.

 

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SINCE MOST OF OUR ASSETS ARE LOCATED IN PRC, ANY DIVIDENDS OF PROCEEDS FROM LIQUIDATION WILL BE SUBJECT TO THE APPROVAL OF THE RELEVANT CHINESE GOVERNMENT AGENCIES.

 

Our operating assets are located inside the PRC. Under the laws governing Foreign Invested Enterprise (“FIE”) in the PRC, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividends of proceeds from liquidation will be paid through Wuhan Newport, our PRC subsidiary, which is subject to the decision of the board of directors and subject to foreign exchange rules governing such repatriation. Any liquidation of a FIE is subject to the relevant commerce authority’s approval, registration in relevant Administration for Industry and Commerce and supervision as well as the foreign exchange control. Though the dividends of proceeds from liquidation can be remitted out of China to the investor after they have been approved by the commerce authority and SAFE, we cannot assure that we can always obtain such approvals. This may generate additional risk for our investors in case of dividend payment and liquidation.

 

IT MAY BE DIFFICULT TO EFFECT SERVICE OF PROCESS AND ENFORCEMENT OF LEGAL JUDGMENTS UPON OUR COMPANY AND OUR OFFICERS AND DIRECTORS BECAUSE THEY RESIDE OUTSIDE THE UNITED STATES.

 

As our operations are based in the PRC and a majority of our directors and officers reside in the PRC, service of process on the Company and such foreign directors and officers may be difficult to effect within the United States. Also, our main assets are located in the PRC and any judgment obtained in the United States against us may not be enforceable outside the United States.

 

THE CHINESE GOVERNMENT EXERTS SUBSTANTIAL INFLUENCE OVER THE MANNER IN WHICH WE MUST CONDUCT OUR BUSINESS ACTIVITIES.

 

We are dependent on our relationship with the local government in the provinces in which we operate our business. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. We believe that Wuhan Newport’s operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.

 

Future inflation in China may inhibit our ability to conduct business in China. In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for our properties rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have an adverse effect on profitability. These factors have led to the adoption by Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products.

 

 16 

 

 

OUR SALES AND OPERATING REVENUES COULD DECLINE DUE TO MACRO-ECONOMIC AND OTHER FACTORS OUTSIDE OF OUR CONTROL, SUCH AS CHANGES IN CLIENT CONFIDENCE AND DECLINES IN EMPLOYMENT LEVELS.

 

The real estate and logistics markets in China are susceptible to fluctuations in economic conditions. Our business substantially depends on the prevailing economic conditions in China. Changes in national and regional economic conditions, as well as local economic conditions where we conduct our operations and where prospective purchasers of the Company’s properties live, may result in more caution on the part of market participants and consequently fewer purchases. These economic uncertainties involve, among other things, conditions of supply and demand in local markets and changes in client confidence and income, employment levels, and government regulations. These risks and uncertainties could periodically have an adverse effect on consumer demand for and the pricing of our homes, which could cause our operating revenues to decline. A reduction in our revenues could in turn negatively affect the market price of our securities.

 

LIMITATIONS ON CHINESE ECONOMIC MARKET REFORMS MAY DISCOURAGE FOREIGN INVESTMENT IN CHINESE BUSINESSES.

 

The value of investments in Chinese businesses could be adversely affected by political, economic and social uncertainties in China. The economic reforms introduced in China in recent years are regarded by China’s national government as a way to introduce economic market forces into China. Given the overriding desire of the national government leadership to maintain stability in China amid rapid social and economic changes in the country, the economic market reforms of recent years could be slowed, or even reversed.

 

PRC REGULATIONS RELATING TO THE ESTABLISHMENT OF OFFSHORE SPECIAL PURPOSE COMPANIES BY PRC RESIDENTS MAY SUBJECT OUR PRC RESIDENT SHAREHOLDERS TO PENALTIES AND LIMIT OUR ABILITY TO INJECT CAPITAL INTO OUR PRC SUBSIDIARIES, LIMIT OUR PRC SUBSIDIARIES’ ABILITY TO DISTRIBUTE PROFITS TO US, OR OTHERWISE ADVERSELY AFFECT US.

 

The SAFE promulgated the Notice on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or Notice 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to material change of capitalization or structure of the PRC resident itself (such as capital increase, capital reduction, share transfer or exchange, merger or spin off). As of November 21, 2016, Mr. Xiangyao Liu, Mr. Linyu Chen and Mr. Long Zhao who are Chinese residents have completed the registration with SAFE under this Notice.

 

FAILURE TO COMPLY WITH THE INDIVIDUAL FOREIGN EXCHANGE RULES RELATING TO THE OVERSEAS DIRECT INVESTMENT OR THE ENGAGEMENT IN THE ISSUANCE OR TRADING OF SECURITIES OVERSEAS BY OUR PRC RESIDENT STOCKHOLDERS MAY SUBJECT SUCH STOCKHOLDERS TO FINES OR OTHER LIABILITIES.

 

Other than Notice 37, our ability to conduct foreign exchange activities in the PRC may be subject to the interpretation and enforcement of the Implementation Rules of the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended and supplemented, the “Individual Foreign Exchange Rules”). Under the Individual Foreign Exchange Rules, any PRC individual seeking to make a direct investment overseas or engage in the issuance or trading of negotiable securities or derivatives overseas must make the appropriate registrations in accordance with SAFE provisions. PRC individuals who fail to make such registrations may be subject to warnings, fines or other liabilities.

 

We may not be fully informed of the identities of all our beneficial owners who are PRC residents. For example, because the investment in or trading of our shares will happen in an overseas public or secondary market where shares are often held with brokers in brokerage accounts, it is unlikely that we will know the identity of all of our beneficial owners who are PRC residents. Furthermore, we have no control over any of our future beneficial owners and we cannot assure you that such PRC residents will be able to complete the necessary approval and registration procedures required by the Individual Foreign Exchange Rules.

 

 17 

 

 

It is uncertain how the Individual Foreign Exchange Rules will be interpreted or enforced and whether such interpretation or enforcement will affect our ability to conduct foreign exchange transactions. Because of this uncertainty, we cannot be sure whether the failure by any of our PRC resident stockholders to make the required registration will subject our PRC subsidiaries to fines or legal sanctions on their operations, delay or restriction on repatriation of proceeds of this offering into the PRC, restriction on remittance of dividends or other punitive actions that would have a material adverse effect on our business, results of operations and financial condition.

 

PRC REGULATIONS RELATING TO ACQUISITIONS OF PRC COMPANIES BY FOREIGN ENTITIES MAY LIMIT OUR ABILITY TO ACQUIRE PRC COMPANIES AND ADVERSELY AFFECT THE IMPLEMENTATION OF OUR ACQUISITION STRATEGY AS WELL AS OUR BUSINESS AND PROSPECTS.

 

The PRC State Administration of Foreign Exchange, or SAFE, issued a public notice in January 2005 concerning foreign exchange regulations on mergers and acquisitions in China. The public notice states that if an offshore company controlled by PRC’s residents intends to acquire a PRC company, such acquisition will be subject to strict examination by the relevant foreign exchange authorities. The public notice also states that the approval of the relevant foreign exchange authorities is required for any sale or transfer by the PRC’s residents of a PRC company’s assets or equity interests to foreign entities, such as us, for equity interests or assets of the foreign entities.

 

In April 2005, SAFE issued another public notice further explaining the January notice. In accordance with the April notice, if an acquisition of a PRC company by an offshore company controlled by PRC residents has been confirmed by a Foreign Investment Enterprise Certificate prior to the promulgation of the January notice, the PRC residents must each submit a registration form to the local SAFE branch with respect to their respective ownership interests in the offshore company, and must also file an amendment to such registration if the offshore company experiences material events, such as changes in the share capital, share transfer, mergers and acquisitions, spin-off transactions or use of assets in China to guarantee offshore obligations.

 

On May 31, 2007, SAFE issued another official notice known as “Circular 106,” which requires the owners of any Chinese company to obtain SAFE’s approval before establishing any offshore holding company structure to facilitate foreign financing or subsequent acquisitions in China.

 

If we decide to acquire a company organized under the laws of the PRC, we cannot assure investors that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals, filings and registrations for the acquisition. This may restrict our ability to implement our acquisition strategy and adversely affect our business and prospects.

 

CAPITAL OUTFLOW POLICIES IN CHINA MAY HAMPER OUR ABILITY TO REMIT INCOME TO THE UNITED STATES AND RESTRICTIONS ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO UTILIZE OUR REVENUES EFFECTIVELY.

 

The PRC’s government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive all of our revenue in RMB. Under our current corporate structure, our U.S. holding company may rely on dividend payments from our PRC subsidiary to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. Therefore, our PRC subsidiary is able to pay dividends in foreign currencies to us without prior approval from SAFE by complying with certain procedural requirements. However, approval from or registration with appropriate government authorities is required where RMB is to be converted into a foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. This could affect the ability of our PRC subsidiary to obtain foreign exchange through debt or equity financings, including by means of loans or capital contributions from us. In the future, the PRC government may also, at its discretion, restrict access to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our stockholders.

 

 18 

 

 

The majority of our revenues and operating expenses are denominated in RMB. The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Pursuant to the Foreign Currency Administration Rules, promulgated on January 29, 1996 and amended on January 14, 1997, and various regulations issued by SAFE and other relevant PRC government authorities, RMB is freely convertible only to the extent of current account items, such as trade-related receipts and payments, interest and dividends. Capital account items, such as direct equity investments, loans and repatriation of investments, require the prior approval from SAFE or its local branch for conversion of RMB into a foreign currency such as U.S. dollars, and remittance of the foreign currency outside the PRC. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiary to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy its foreign currency-denominated obligations. Currently, each of our PRC subsidiary and affiliates may purchase foreign exchange for settlement of “current account transactions,” including payment of dividends to us and payment of licensing fees and service fees to foreign licensors and service providers, without the approval of SAFE. However, approval from the SAFE or its local branch 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 loans denominated in foreign currencies.

 

BECAUSE OUR FUNDS ARE HELD IN BANKS THAT DO NOT PROVIDE INSURANCE, THE FAILURE OF ANY BANK IN WHICH WE DEPOSIT OUR FUNDS MAY AFFECT OUR ABILITY TO CONTINUE TO OPERATE.

 

Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. As a result, in the event of a bank failure, we may not have access to funds on deposit. Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash may impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue to operate.

 

IF WE ARE UNABLE TO OBTAIN BUSINESS INSURANCE IN THE PRC, WE MAY NOT BE PROTECTED FROM RISKS THAT ARE CUSTOMARILY COVERED BY INSURANCE IN THE UNITED STATES.

 

Business insurance is not readily available in the PRC. To the extent that we suffer a loss of a type that would normally be covered by insurance in the United States, such as product liability and general liability insurance, we would incur significant expenses in both defending any action and in paying any claims that result from a settlement or judgment. We have not obtained fire, casualty and theft insurance, and there is no insurance coverage for our raw materials, goods and merchandise, furniture or buildings in China. Any losses incurred by us will have to be borne by us without any assistance, and we may not have sufficient capital to cover material damage to, or the loss of, our production facility due to fire, severe weather, flood or other causes, and such damage or loss may have a material adverse effect on our financial condition, business and prospects.

 

UNDER THE NEW ENTERPRISE INCOME TAX LAW, WE MAY BE CLASSIFIED AS A “RESIDENT ENTERPRISE” OF CHINA. SUCH CLASSIFICATION MAY RESULT IN UNFAVORABLE TAX CONSEQUENCES TO US AND OUR NON-PRC SHAREHOLDERS. 

 

China passed a New Enterprise Income Tax Law, or the New EIT Law, which became effective on January 1, 2008. Under the New EIT Law, an enterprise established outside of China with de facto management bodies within China is considered a resident enterprise, meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the New EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. In addition, a circular issued by the State Administration of Taxation on April 22, 2009 clarified that dividends and other income paid by such resident enterprises will be considered to be the PRC’s source income and subject to the PRC’s withholding tax. This recent circular also subjects such resident enterprises to various reporting requirements with the PRC’s tax authorities.

  

 19 

 

 

Although substantially all of our management is currently located in the PRC, it remains unclear whether the PRC’s tax authorities would require or permit our overseas registered entities to be treated as PRC resident enterprises. We do not currently consider our company to be an PRC resident enterprise. However, if the PRC’s tax authorities determine that we are a resident enterprise for the PRC’s enterprise income tax purposes, a number of unfavorable PRC tax consequences may follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as the PRC’s enterprise income tax reporting obligations. This would also mean that income such as interest on offering proceeds and non-China source income would be subject to the PRC’s enterprise income tax at a rate of 25%. Second, although under the New EIT Law and its implementing rules, dividends paid to us from our PRC subsidiary would qualify as tax-exempt income, we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC authorities responsible for enforcing the withholding tax have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for the PRC’s enterprise income tax purposes. Finally, dividends paid to stockholders with respect to their shares of our common stock or any gains realized from transfer of such shares may generally be subject to the PRC’s withholding taxes on such dividends or gains at a rate of 10% if the shareholders are deemed to be non-resident enterprises or at a rate of 20% if the shareholders are deemed to be non-resident individuals.

 

PRICE INFLATION IN CHINA COULD AFFECT OUR RESULTS OF OPERATIONS IF WE ARE UNABLE TO PASS ALONG RAW MATERIAL PRICE INCREASES TO OUR CUSTOMERS.

 

Inflation in China has continued to rise over the last few years. Because we purchase raw materials from suppliers in China, price inflation has caused an increase in the cost of our raw materials.  Price inflation may affect the results of our operations if we are unable to pass along the price increases to our customers.  Similarly, the cost of constructing our new facility and the installation of equipment may increase as a result of these recent inflationary trends, which are expected to continue for the near future.  In addition, if inflation continues to rise in China, China could lose its competitive advantage as a low-cost manufacturing venue, which may in turn lessen the competitive advantages of our being based in China. Accordingly, inflation in China may weaken our competitiveness domestically and in international markets.

 

WE MAY RELY PRINCIPALLY ON DIVIDENDS AND OTHER DISTRIBUTIONS OF EQUITY PAID BY OUR PRC SUBSIDIARY TO FUND ANY CASH AND FINANCING REQUIREMENTS WE MAY HAVE, AND ANY LIMITATION ON THE ABILITY OF OUR PRC SUBSIDIARY TO PAY DIVIDENDS TO US COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR ABILITY TO CONDUCT OUR BUSINESS.

 

We are a holding company, and we may rely principally on dividends and other distributions of equity paid by our PRC subsidiary for our cash and financing requirements, which include the funds necessary to pay dividends and other cash distributions to our stockholders and to service any debt we may incur. In the future, if our PRC subsidiary incurs debt on its own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.

 

Under PRC laws and regulations, our PRC subsidiary, as a foreign-invested enterprise in the PRC, may pay dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital. At its discretion, it may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

 

Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

 

THE PRC GOVERNMENT MAY ISSUE FURTHER RESTRICTIVE MEASURES IN THE FUTURE.

 

We cannot assure you that the PRC’s government will not issue further restrictive measures in the future. The PRC government’s restrictive regulations and measures could increase our operating costs in adapting to these regulations and measures, limit our access to capital resources or even restrict our business operations, which could further adversely affect our business and prospects.

 

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OUR PRC SUBSIDIARY HAS TAKEN THE POSITION THAT IT IS COMPLIANT WITH THE TAXATION, ENVIRONMENTAL, EMPLOYMENT AND SOCIAL SECURITY RULES OF CHINA, AND IF THAT POSITION TURNS OUT TO BE WRONG, THEY MAY FACE PENALTIES IMPOSED BY THE PRC GOVERNMENT.

 

While we believe our PRC subsidiary has been in compliance with PRC taxation, environmental, employment and social security rules during their operations in China, we have not obtained letters from the PRC government authorities confirming such compliance. If any PRC government authority takes the position that there is non-compliance with the taxation, environmental protection, employment and/or social security rules by our PRC subsidiary, they may be exposed to penalties from PRC government authorities, in which case the operation of our PRC subsidiary in question may be adversely affected.

 

IF RELATIONS BETWEEN THE UNITED STATES AND CHINA WORSEN, OUR STOCK PRICE MAY DECREASE AND WE MAY HAVE DIFFICULTY ACCESSING THE U.S. CAPITAL MARKETS.

 

At various times during recent years, the United States and China have had disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade conflicts between the United States and China could adversely affect the market price of our common stock and our ability to access U.S. capital markets.

 

INTERPRETATION OF PRC LAWS AND REGULATIONS INVOLVES UNCERTAINTY.

 

Our core business is conducted within China and is governed by PRC’s laws and regulations. The PRC’s legal system is based on written statutes, and prior court decisions can only be used as a reference. Since 1979, the PRC’s government has promulgated laws and regulations in relation to economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, with a view to developing a comprehensive system of commercial law, including laws relating to property ownership and development. However, due to the fact that these laws and regulations have not been fully developed, and because of the limited volume of published cases and the non-binding nature of prior court decisions, interpretation of PRC’s laws and regulations involves a degree of uncertainty. Some of these laws may be changed without immediate publication or may be amended with retroactive effect. Depending on the government agency or how an application or case is presented to such agency, we may receive less favorable interpretations of laws and regulations than our competitors, particularly if a competitor has long been established in the locality of, and has developed a relationship with such agency. In addition, any litigation in China may be protracted and result in substantial costs and a diversion of resources and management attention. All of these uncertainties may cause difficulties in the enforcement of our land use rights, entitlements under our permits and other statutory and contractual rights and interests.

 

OUR COUNTERPARTY’S FAILURE TO PERFORM UNDER THE ARMADA AGREEMENT COULD MATERIALLY AND ADVERSLY AFFECT OUR RESULTS OF OPERATION AND WE ARE DEPENDANT ON THE FUNDING TO BE SECURED BY ARMADA.

 

On October 3, 2016, we entered into a Contribution, Conveyance and Assumption Agreement (the “Agreement”) and an Addendum to the Agreement (collectively with the Agreement, the “Armada Agreement”) with Armada Enterprises GP, LLC (“Armada GP” or “Armada”), to (i) complete certain share exchange and (ii) procure $1,000,000,000 in financing for the logistics project in the Logistics Center.

 

Pursuant to the Armada Agreement, we agreed to issue to Wight International Construction LLC, an entity related to Armada (“Wight”), a convertible promissory note in the amount of $500,000,000 (the “Note”) that may be convertible into 50,000,000 shares of our Common Stock. We also agreed to contribute 60,000,000 shares of our Common Stock at $8.33 per share, 50,000,000 of which will be issued to Armada upon closing (the “Contribution Shares”) and the remaining 10,000,000 (the “Reserve Shares”) will be reserved to be issued subject to Armada’s fulfillment of its obligation of procuring $1,000,000,000 in construction financing for the Logistics Center to be provided over a 3-year period or Wight’s completion of the construction of the Logistics Center. The 10,000,000 shares will be otherwise counted as our treasury shares upon Armada’s default on such obligation. As a result of the Armada Agreement, we may issue up to 110,000,000 shares of Common Stock, at a weighted-average price of $9.09 per share.

 

In consideration of Note, Contribution Shares and Reserve Shares, Wight issued to us 100,000,000 membership units in Wight valued at a minimum of $10 per unit. Based on a unit-for-unit exchange on the contribution of Wight to Armada LP, we expect to hold ultimately 100 million LP Units at a total value of One Billion Dollars ($1,000,000,000), which would convert to limited partnership units in Armada Enterprise LP, upon Armada’s contribution of Wight to Armada Enterprises LP. We expect the entity conversion to be completed in January 2017. 

 

Pursuant to the Agreement, we agreed to also engage Wight as our construction firm for the Logistics Center. Armada will procure up to $1,000,000,000 in construction financing for the completion of the Logistics Center at approximately $200,000,000 of new financing per year for five years from 2017.

 

The ability and willingness of Armada and Wight to perform its obligations under the Armada Agreement will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, and the overall financial condition of Armada.

 

We are dependent on the $1,000,000,000 financing to be secured by Armada to complete the construction of the Logistics Center and execute our business plan. Should Armada fail to honor its obligations under this Agreement, it may be difficult for us to secure immediate sufficient substitute financing to continue our business plan. Such failure to perform by Armada could have a material adverse effect on our business, financial condition, results of operations and cash flows.

  

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Risks Related to Our Offering and Ownership of Our Common stock

  

THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE OR MAY DECLINE REGARDLESS OF OUR OPERATING PERFORMANCE, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE OFFERING PRICE.

 

The offering price for our common stock will be determined through negotiations between the underwriter and our Company and may vary from the market price of our common stock following our offering. If you purchase our common stock in our offering, you may not be able to resell those shares at or above the offering price. We cannot assure you that the offering price of our common stock, or the market price following our offering, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our offering. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

  

  · actual or anticipated fluctuations in our revenue and other operating results;
  · the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
  · actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
  · announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;
  · price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
  · lawsuits threatened or filed against us; and
  · other events or factors, including those resulting from war or incidents of terrorism, or responses to these events.

 

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

 

WE HAVE BROAD DISCRETION IN THE USE OF THE NET PROCEEDS FROM OUR OFFERING AND MAY NOT USE THEM EFFECTIVELY.

 

To the extent (i) we raise more money than required for the purposes explained in the section titled “Use of Proceeds” or (ii) we determine that the proposed uses set forth in that section are no longer in the best interests of our Company, we cannot specify with any certainty the particular uses of such net proceeds that we will receive from our offering. Our management will have broad discretion in the application of such net proceeds, including working capital, possible acquisitions, and other general corporate purposes, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from our offering in a manner that does not produce income or that loses value.

 

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WE DO NOT INTEND TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE.

 

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

 

SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK, AS THE FUTURE SALE OF A SUBSTANTIAL AMOUNT OF OUTSTANDING COMMON STOCK IN THE PUBLIC MARKETPLACE COULD REDUCE THE PRICE OF OUR COMMON STOCK.

 

The market price of our shares could decline as a result of sales of substantial amounts of our shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our common stock. An aggregate of 272,269,446 shares will be outstanding before the consummation of this offering and [●] shares will be outstanding immediately after this offering. All of the shares sold in the offering will be freely transferable without restriction or further registration under the Securities Act. The remaining shares will be “restricted securities” as defined in Rule 144. These shares may be sold in the future without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act. See “Shares Eligible for Future Sale.”

 

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

 

The offering price of our shares is substantially higher than the pro forma net tangible book value per share of our common stock. Upon the completion of this offering, if you purchase shares in this offering, you will incur immediate dilution of approximately $[●] or approximately [●]% in the pro forma net tangible book value per share from the price per share that you pay for the shares. Accordingly, if you purchase shares in this offering, you will incur immediate and substantial dilution of your investment. See “Dilution” on page 27.

 

NEITHER MANAGEMENT NOR THE UNDERWRITERS HAVE PERFORMED DUE DILIGENCE ON MARKET AND INDUSTRY DATA CITED IN THIS PROSPECTUS.

 

This prospectus includes market and industry data that has been obtained from third-party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management’s knowledge of such industries has been developed through its experience and participation in these industries. Neither we nor our management have conducted due diligence or independently verified any of the data from such sources referred to in this prospectus or ascertained the underlying economic assumptions relied upon by such sources. Internally prepared and third-party market forecasts, in particular, are estimates only and may be inaccurate, especially over long periods of time. In addition, the underwriter has not independently verified any of the industry data prepared by management or ascertained the underlying estimates and assumptions relied upon by management. Furthermore, references in this prospectus to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey or article. If such market and industry data turned out to be inaccurate, management’s belief and perception of our competitive strength may need to be adjusted and, as a result, our business strategy may need to be changed which may have a negative effect on our results of operations.

 

THE CONTROLLING STOCKHOLDERS OF ARMADA ENTERPRISES LP AND JASPER LAKE HOLDINGS LIMITED, OUR MAJORITY STOCKHOLDERS, MAY HAVE SIGNIFICANT INFLUENCE OVER THE OUTCOME OF MATTERS SUBMITTED TO OUR STOCKHOLDERS FOR APPROVAL, WHICH MAY PREVENT US FROM ENGAGING IN CERTAIN TRANSACTIONS.

 

As of December 19, 2016, Wight International Holdings, LLC and Jasper Lake Holdings Limited beneficially own a combined 70.24% of our outstanding common stock. Mr. George Wight has sole voting and dispositive power of Wight International Holdings, LLC. Wight International Holdings, LLC beneficially owns 36.73% interest in the Company. Mr. Xiangyao Liu, our CEO and President of the Company, has sole voting and dispositive power of Jasper Lake Holdings Limited. Jasper Lake Holdings Limited beneficially owns 33.51% interest in the Company. As a result, these majority stockholders exercise significant influence over all matters requiring stockholder approval, including the appointment of our directors and the approval of significant corporate transactions. Their ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination that may be in the best interest of the Company.

 

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IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD.

 

The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of internal controls over financial reporting.

 

Our reporting obligations as a public company place a significant strain on our management and operational and financial resources and systems. Effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting may result in the loss of investor confidence in the reliability of our financial statements, which in turn may harm our business and negatively impact the trading price of our stock. Furthermore, we anticipate that we will continue to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

 

THERE IS A LIMITED MARKET FOR OUR COMMON STOCK, WHICH MAY MAKE IT DIFFICULT FOR HOLDERS OF OUR COMMON STOCK TO SELL THEIR STOCK.

 

We plan to apply to be listed on NASDAQ Global Select Market, but there is no assurance that we will be approved for the listing at this point. Our common stock currently trades on the OTC Markets under the symbol “YERR”. There is a limited trading market for our common stock and at times there is no trading in our common stock. Accordingly, there can be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock. Further, many brokerage firms will not process transactions involving low price stocks, especially those that come within the definition of a “penny stock.” If we cease to be quoted, holders of our common stock may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of our common stock, and the market value of our common stock would likely decline.

 

WE MAY BE SUBJECT TO THE PENNY STOCK RULES WHICH WILL MAKE SHARES OF OUR COMMON STOCK MORE DIFFICULT TO SELL.

 

We may be subject now and in the future to the SEC’s “penny stock” rules if our shares of common stock sell below $5.00 per share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.

 

In addition, the penny stock rules require that prior to a transaction, the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.

 

IF A MORE ACTIVE TRADING MARKET FOR OUR COMMON STOCK DEVELOPS, THE MARKET PRICE OF OUR COMMON STOCK IS LIKELY TO BE HIGHLY VOLATILE AND SUBJECT TO WIDE FLUCTUATIONS, AND HOLDERS OF OUR COMMON STOCK MAY BE UNABLE TO SELL THEIR SHARES AT OR ABOVE THE PRICE AT WHICH THEY WERE ACQUIRED.

 

The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:

 

quarterly variations in our revenues and operating expenses;

 

developments in the financial markets and worldwide economies;

 

announcements of innovations or new products or services by us or our competitors;

 

announcements by the PRC government relating to regulations that govern our industry;

 

significant sales of our common stock or other securities in the open market;

 

variations in interest rates;

 

changes in the market valuations of other comparable companies; and

 

changes in accounting principles.

 

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In addition, the market for Chinese companies that went public in the U.S. through reverse mergers, such as ours, is currently extremely volatile primarily due to recent allegations and, in some instances, findings of fraud among some of these companies.  If a stockholder were to file a class action suit against us following a period of volatility in the price of our securities, we would incur substantial legal fees and our management’s attention and resources would be diverted from operating our business to responding to such litigation, which may harm our business and reputation.

 

THE RIGHTS OF THE HOLDERS OF OUR COMMON STOCK MAY BE IMPAIRED BY THE POTENTIAL ISSUANCE OF PREFERRED STOCK.

 

Our board of directors has the right to create a new series of preferred stock. As a result, the Board of Directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that may adversely affect the voting power and equity interest of the holders of our common stock. Although we have no present intention to issue any additional shares of preferred stock or to create any new series of preferred stock, we may issue such shares in the future.

  

TRANSACTIONS ENGAGED BY OUR MAJORITY STOCKHOLDER MAY HAVE AN ADVERSE EFFECT ON THE PRICE OF OUR STOCK.

 

We do not know what plans, if any, Wight International Construction, LLC and Jasper Lake, our majority stockholders, have with respect to its ownership of our stock. In the event that they sell a substantial number of its shares of our common stock, such sale may lower the price of our stock.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward looking statements that involve risks and uncertainties, principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this prospectus, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this prospectus, which may cause our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements

 

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this prospectus. Before you invest in our securities, you should be aware that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this prospectus could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this prospectus to conform our statements to actual results or changed expectations.

 

USE OF PROCEEDS

 

We estimate that our net proceeds from the sale of the common stock that we are offering will be approximately $[●] assuming a public offering price of $[●] per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (or decrease) in the assumed offering price of $[●] per share, would increase (or decrease) the net proceeds to us from this offering by $[●], assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions.

 

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We intend to use the net proceeds to us from this offering to fund i) the construction of facilities, including the warehouse, cold-chain logistics area, and exhibition center; ii) the construction of the rail-cargo operating area; iii) the construction of the port terminal; and iv) general working capital to assist in the continued development of the Logistics Center.

 

Pending other uses, we intend to invest the proceeds to us in investment-grade, interest-bearing securities such as money market funds, certificates of deposit, or direct or guaranteed obligations of the U.S. government, or hold as cash. We cannot predict whether the proceeds invested will yield a favorable return. Our management will have broad discretion in the application of the net proceeds we receive from this offering, and investors will be relying on the judgment of our management regarding the application of the net proceeds.

 

We intend to use the net proceeds of this offering as follows after we complete the remittance process, and we have ordered the specific uses of proceeds in order of priority.

 

Description of Use  Estimated Amount of Net Proceeds 
Construction of the facilities, including the warehouse, cold-chain logistics area, and exhibition center  $13,000,000 
Construction of the rail-cargo operating area   7,000,000 
Construction of the port terminals and business related area   10,000,000 
Working capital   6,000,000 

General corporate use

   2,000,000 
Total  $38,000,000 

 

In order to continue our project constructions on the operating zones, we need to be able to perform more projects on different functional zones within the Logistics Center. Due to the capital-intensive construction project and limited unrestricted cash to pay for advances to subcontractors and third parties in different phases of various projects, we are limited to focusing our attention on the major infrastructure and facilities. We are targeting to complete the construction in three years and to complete 40% of the Logistics center by the end of Phase 1. We will start constructing major infrastructures and facilities in major operating zones, such as warehouses, office buildings, loading and unloading facilities and business centers, with the net proceeds from this offering.

 

For further capital needed to complete our construction and development of the Logistics Center, we have entered into certain Armada Agreement where Armada is obligated to finance $1 billion (See “Description of Business ” starting on page 30). We are still actively exploring financing opportunities and resources.

 

DIVIDEND POLICY

 

We plan to retain any earnings, for the foreseeable future, for our operations. We have never paid any dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will depend on our financial condition, operating results, capital requirements and such other factors as our Board of Directors deem relevant. In addition, our credit facility restricts our ability to pay dividends.

 

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CAPITALIZATION

 

The following tables set forth our capitalization as of December 31, 2015 on a pro forma as adjusted basis giving effect to the sale of the offering at an assumed public offering price of $[●] per share and to reflect the application of the proceeds after deducting the estimated underwriter fees. You should read this table in conjunction with our financial statements and related notes appearing elsewhere in this prospectus and “Use of Proceeds” and “Description of Securities.”

 

    On an actual basis;

 

    On a pro forma basis to give effect to the sale of the offering at an assumed public offering price of $[●] per share

 

    Actual     Pro forma (1)  
ASSETS                
Cash and cash equivalents   $ 512,569          
Other assets and receivables     6,259,865          
Real estate property completed     31,566,156          
Real estate properties and land lots under development     364,876,105          
Property and equipment, net     157,499          
Deferred tax assets     3,614,419          
Total Assets   $ 406,986,613          
                 
LIABILITIES AND EQUITY                
Liabilities                
Accounts payable   $ 5,526,610          
Due to related parties     32,045,112          
Other taxes payable     13,350          
Other payables and accrued liabilities     560,830          
Real estate property refund and compensation payable     25,274,753          
Convertible note     75,000,000       -  
Loans payable     44,502,981          
Total liabilities   $ 182,923,636          
                 
Equity                
Preferred stock at $0.0001 par value; 100,000,000 shares authorized; none issued or outstanding   $ -       -  
Common stock at $0.0001 par value; 500,000,000 shares authorized; 172,254,446 and 151,000,000 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively     17,225          
Additional paid-in capital (2)     242,622,947          
Accumulated losses     16,263, 010          
Accumulated other comprehensive (loss) income     (2,314,185 )        
Total Equity   $ 224,062,977          
Total Liabilities and Equity   $ 406,986,613          

 

(1) Gives effect to completion of the offering of [●] shares, at an assumed public offering price of $[●] per share and to reflect the application of the proceeds after deducting the estimated underwriting fee and our estimated offering expenses. (See note 2 below.)

 

(2) Pro forma additional paid in capital reflects the net proceeds we expect to receive, after deducting underwriting fees, Underwriter expense allowances and other expenses. We expect to receive net proceeds of approximately $38,000,000 ($40,000,000 offering, less underwriting fees of $2,000,000 and offering expenses of approximately $[●]).

 

DILUTION

 

The as adjusted net tangible book value of our common stock as of [●], was $[●], or approximately $[●] per share based upon [●] shares of common stock outstanding on such date. As adjusted net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities, divided by the total number of shares of common stock outstanding after giving effect to the sale of [●] shares of the common stock we are offering based upon an assumed combined public offering price of $[●] per share, the closing price of our common stock on the OTC Markets on [●], and after deducting underwriting discounts and commissions and estimated offering expenses of approximately $[●] million.

 

If you participate in this offering, your interest will be diluted to the extent of the difference between the offering price per share and the as adjusted net tangible book value per share of our common stock immediately after completion after this offering. This represents an immediate increase in as adjusted net tangible book value of $[●] per share to our existing stockholders and an immediate dilution of $[●] per share to investors participating in this offering.

 

The following table illustrates this dilution on a per share basis to new investors:

 

   Post-offering (1) 
Assumed public offering price per share  $ 
As adjusted net tangible book value per share as of [●] before giving effect to this offering  $ 
Increase in as adjusted net tangible book value per share attributed to new investors purchasing shares of common stock from us in this offering  $ 
As adjusted net tangible book value per share after giving effect to this offering  $ 
Dilution in as adjusted net tangible book value per share to new investors in this offering  $ 

  

(1) Assumes gross proceeds from offering of [●] common stock.

 

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DESCRIPTION OF BUSINESS

 

Overview

 

Yangtze River Development Limited is a Nevada corporation that operates through its wholly-owned subsidiary Energetic Mind, which operates through its wholly-owned subsidiary Ricofeliz Capital, which operates through its wholly-owned subsidiary Wuhan Newport, a wholly foreign-owned enterprise that primarily engages in the business of real estate and infrastructural development with a port logistics center located in Wuhan, Hubei Province of China. Situated in the middle reaches of the Yangtze River, Wuhan Newport is a large infrastructure development project implemented under China's latest "One Belt One Road" initiative and is believed to be strategically positioned in the anticipated "Pilot Free Trade Zone" of the Wuhan Port, a crucial trading window among China, the Middle East and Europe. To be fully developed upon completion, within the logistics center, there will be six operating zones: port operation area, warehouse and distribution area, cold chain logistics area, rail cargo loading area, exhibition area and business related area. The Logistics Center is also expected to provide a number of shipping berths for cargo ships of various sizes. Wuhan Newport is expected to provide domestic and foreign businesses direct access to the anticipated Pilot Free Trade Zone in Wuhan. The project will include commercial buildings, professional logistic supply chain centers, direct access to the Yangtze River, Wuhan-Xinjiang-Europe Railway and ground transportation, storage and processing centers, and IT supporting services, among others.

 

Income generated from the use of the warehouses, cargo loading and unloading, railway and highway transportation and logistics services and other logistics supporting services is expected to be the main source of our expected income. It is also expected that income from real estate sales and leasing would be a relatively minor portion of our expected income since we are planning to sell or lease only a small portion of our real estate properties such as office spaces. We plan to use the major area of our real estate properties for the development of our Logistics Center, from which our main source of expected income can be derived. Theses income includes but not limited to the service fees we charge for our clients’ usage of warehouses, online information platform, ship berths, cold-chain storages, cargo handling, shipment loading and unloading.

 

Wuhan Yangtze River Newport Logistics Center

 

The Wuhan Yangtze River Newport Logistics Center (the “Logistics Center”), is an extensive complex located in Wuhan, the capital of the Hubei Province of China, a major transportation hub city with access to numerous railways, roads and expressways passing through the city and connecting to major cities in China, as well as other international centers of commerce and business.

 

The Logistics Center is expected to occupy approximately 1,918,000 square meters, for which the construction and development are expected to be completed in three phases in three years and reach its target maximum annual profit by the end of 2021 assuming the entire funding required for construction of the Logistics Center of $1.03 billion is in place by 2020 and the Logistics Center is in operation according to our business plan. The following table illustrates the timeframe of our investment and construction progress.

 

Time   Phase of
Investment/Construction
    Percentage of Total
Anticipated
Investment/Construction (1)
    Production Capacity (2)  
1st Year (2017)     1st Phase       40 %     30 %
2nd Year (2018)     2nd Phase       70 %     40 %
3rd Year (2019)     3rd Phase       100 %     60 %
4th Year (2020)     Completed       100 %     75 %
5th Year (2021)     Completed       100 %     100 %
(1)The percentage of construction in a certain phase reflects the anticipated contribution of the investment in such particular phase. For example, contribution of 40% of the total investment in phase 1 will lead to construction of 40% of total value of the Logistics Center.
(2)

The percentage of Production Capacity shows the fraction of the target maximum annual profit to be earned under the full operation of the Wuhan Project. We target to reach its maximum annual profit by the end of 2021 assuming the entire funding required for construction of the Logistics Center of $1.03 billion is in place by 2020 and the Logistics Center is in operation according to our business plan.

 

The Logistics Center is located within the Wuhan Newport Yangluo Port, on the upper stream of the Yangtze River, and close to the northern base of Wuhan Iron and Steel, China's first mega-sized iron and steel production complex. The Logistics Center is expected to include a port terminal that will be located approximately 26.5km from the Wuhan Guan and 5.5km from the Yangluo Yangtze River Bridge. The operation area of the port is expected to consist of a riverbank of 1,039 meters with eight 5,000-to-10,000-ton berths, two of which are multi-purpose berths and the other six are general cargo berths. It is designed to be able to handle up to 5,000,000 tons of cargo annually, including up to 100,000 TEU for annual container throughput (including 20,000 TEU in freezer areas), 1,000,000 tons of iron and steel and 3,000,000 tons of general cargo.

 

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Within the Logistics Center, functional areas will be divided into six operating zones: a port operation area, a warehouse and distribution area, a cold chain supply logistics area, a rail cargo loading area, an exhibition area and a business related area. The Logistics Center will also be complemented with container storage areas, multi-functional areas, general storage areas, a multi-functional warehouse and infrastructural development, including new roads, gas stations, parking areas, gas and water pipes, electricity lines and all other facilities and equipment to operate the Logistics Center.

 

Aside from being situated in the Wuhan Yangluo Comprehensive Bonded Zone, the Yangluo development area is amongst the third group of China’s Pilot Free Trade Zone (FTZ) applicants to submit FTZ applications to the State Council. As of the date hereof, approvals have been granted to Shanghai, Tianjin, Guangdong and Fujian. Corporations within the approved free-trade zones are typically entitled to a series of favorable regulations and policies that could help the businesses grow and succeed.

 

Wuhan Newport has signed a twenty-year lease agreement, the maximum number of years permitted by the applicable PRC laws, and with rights to renew at its sole discretion effective April 27, 2015, to lease approximately 1,200,000 square meters of land for building logistics warehouses in support of the Logistics Center. The warehouses are expected to be comprised of port terminal zones, warehouse logistics zones, cold chain supply zones and railroad loading and unloading zones. The warehouses, once constructed, will connect the port terminal along the Yangtze River and the railway leading to Europe, satisfying the requirement of China’s latest “One Belt, One Road” initiative. It will also be able to support large logistics companies in Wuhan and other nearby provinces which will rent the warehouses, terminals and offices within the Logistics Center.

 

Logistics Center Highlights:

 

  The shipping center will be implemented under China’s latest “One Belt, One Road” initiative to promote the "Yangtze River Economic Belt";
     
  Wuhan Newport is part of the Yangluo port, which is part of the area that is currently seeking approval for status as a "Free-Trade Zone";
     
  Wuhan Newport is part of the "Yangluo Comprehensive Bonded Zone", which allows the enterprises in the zone to receive certain favorable tax treatments such as export tax rebates and less or free of value-added tax and consumption tax;

 

The “One Belt, One Road” Initiative

 

According to the Vision and Actions on Jointly Building Belt and Road issued by the National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce of the People's Republic of China, with State Council authorization in March 2015, "One Belt, One Road" (the “Initiative”) is a infrastructural development concept initiated by the leaders of the Chinese government in 2013. It refers to the New Silk Road Economic Belt, which will link China with Europe through Central and Western Asia, and the 21st Century Maritime Silk Road, which will connect China with Southeast Asian countries, Africa and Europe through the Pacific and Indian Ocean. Neither the belt, nor the road, follow a designated route, but serve as a conceptual roadmap for China’s plan to expand its presence commercially to the regions outside of the country and strengthen its economic relationships with the nations in these regions.

 

The “Belt” and the “Road” run through the continents of Asia, Europe and Africa, connecting the vibrant East Asian economic circle on one end and developed European economic circle on the other, and encompassing countries with huge potential for economic development. The Silk Road Economic Belt focuses on bringing together China, Central Asia, Russia and Europe (the Baltic), linking China with the Persian Gulf and the Mediterranean Sea through Central Asia and West Asia, and connecting China with Southeast Asia, South Asia and the countries along the Indian Ocean. The 21st-Century Maritime Silk Road is designed to go from China's coast to Europe through the South China Sea and the Indian Ocean in one route, and from China's coast through the South China Sea to the South Pacific in the other.

 

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On land, the Initiative is expected to focus on jointly building a new Eurasian Land Bridge and developing China-Mongolia-Russia, China-Central Asia-West Asia and China-Indochina Peninsula economic corridors by taking advantage of international transport routes, relying on core cities along the Belt and Road and using key economic industrial parks as cooperation platforms. At sea, the Initiative is expected to focus on jointly building smooth, secure and efficient transportation routes connecting major sea ports along the Belt and the Road. The China-Pakistan Economic Corridor and the Bangladesh-China-India-Myanmar Economic Corridor are closely related to the Belt and Road Initiative, and therefore require closer cooperation and greater progress. (Source: http://en.ndrc.gov.cn/newsrelease/201503/t20150330_669367.html; National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce of the People's Republic of China, with State Council authorization).

 

The following map illustrates the location of the New Silk Road Economic Belt and the 21st Century Maritime Silk Road:

 

 

(Source: Xinhua Finance Agency)

 

Recent Development

 

Armada Financing

 

On October 3, 2016, we entered into a Contribution, Conveyance and Assumption Agreement (the “Agreement”), an addendum to the Agreement, dated October 3, 2016, (“First Addendum”) and a Second Addendum to the Agreement, dated November 30, 2016 (“Second Addendum”), collectively with the Agreement, the “First Addendum and the “Second Addendum, the (“Armada Agreement”) with Armada Enterprises GP, LLC (“Armada GP”) and Wight International Construction, LLC, an entity affiliated with Armada GP (“Wight”) to (i) complete certain share exchange and (ii) procure $1,000,000,000 in financing for the construction of the Logistics Center.

 

Entity Conversion. Pursuant to the Armada Agreement, Armada GP will become the general partner of its current controlling entity, Bim Homes, Inc. (“Bim Homes”), upon Bim Homes’ conversion into Armada Enterprises LP (the “Armada LP”) via a statutory conversion under Delaware law. Meanwhile Armada GP will contribute its ownership in Wight in exchange for interests in Armada LP. We expect the entity conversion to be completed in January 2017.

 

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Share Exchange. Pursuant to the Armada Agreement, We agreed to issue to Wight a convertible promissory note in the amount of $500 million USD (the “Note”) that may be convertible into 50,000,000 shares of Company’s Common Stock at a conversion price at $10 per share (“Conversion Price”) at the sole election of Wight. The Company also agreed to contribute 60 million shares of the Common Stock at $8.33 per share, 50 million of which will be issued to Wight upon closing (the “Contribution Shares”) and the remaining 10,000,000 will be reserved with Company’s transfer agent (the “Reserve Shares”) and may be issued subject to Armada GP’s fulfillment of its obligation of procuring $1,000,000,000 in construction financing for the Logistics Center to be provided over a 3-year period. The 10 million shares shall be otherwise become Company’s treasury shares upon Armada GP’s default on such obligation. 

 

Consideration. In consideration of Company’s Note, Contribution Shares and Reserve Shares, Wight agreed to issue the Company 100 million preferred B membership units in Wight (“Preferred B Units”) valued at a minimum of $10 per unit for an aggregate value of $1 billion, which would be converted to limited partnership units in Armada LP (“LP Units”), upon Armada GP’s contribution of its interest in Wight to Armada LP. We will ultimately hold the LP Units at a total value of One Billion Dollars ($1,000,000,000) based upon an initial listing price of $10.00/per unit, which it plans to support by only issuing an amount of common LP Units whose 5% minimum annual distribution of $0.50 per unit can be supported historical annualized EBIDTA, contract revenue or cash on hand.

 

Financing. Pursuant to the Armada Agreement, we also agreed to engage Wight as its construction firm for construction of the Logistics Center, subject to compliance with the applicable PRC laws. Wight will procure up to $1,000,000,000 in construction financing for the completion of our Logistics Center at approximately $200 million USD of new financing per year for five years. Upon closing, Wight will provide us with proof of credit facilities of at least $500,000,000, which includes an allocation of $50 million USD in the form of debt security to help the Company to meet NASDAQ listing qualifications.

 

Wight plans to seek financing of $200 million each year for five years from 2017 and will use its discretionary funds from its own financing. Wight anticipates closing of the first $200 million financing as soon as January 2017 for the first year of construction to be applied in manner to be determined upon satisfaction of its due diligence and site visit on the Logistics Center. We anticipate Wight or its affiliates loaning money to special purpose vehicle(s) (“SPVs”) formed for the Wuhan project to fund the first year construction costs. The terms of the financing of the first year of construction will be set forth in a Construction Memorandum of Understanding to be executed by Wight and the Company. Wight, as the developer, will undertake and procure the financing on customary terms and conditions associated with construction financing. Wight plans to obtain the balance of the $800 million through various financial institutions in the form of construction loans. We anticipate that either Wight or SPVs will be the borrower depending upon how such loan will be structured while secured by land or buildings of the Wuhan project.

 

Closing Conditions. Closing shall occur upon (i) all parties’ representations and warranties are true and correct and (ii) the parties’ execution of a Memorandum Of Understanding outlining the material terms of the construction agreement by and among the Company, Wight and Armada GP or its affiliates.

 

Termination. Termination of the Armada Agreement may occur by (i) mutual written consent; (ii) by either party if the closing has not occurred within 60 days provided the terminating party is not in breach; and/or (iii) by either party if the other party materially breached any of its covenants or representations provided however that the breaching party will first have 30 days to cure.

 

On November 16, 2016, in connection with the Contribution Agreement, we entered into an Amended and Restated Limited Liability Company Agreement (the “LLC Agreement”) with Wight, whereby we acquired 100 million preferred B membership units, representing a 62.5% non-voting equity interest in Wight (“Preferred B Units”), which will be ultimately converted into 100 million LP units in Armada LP. In exchange, we issued a $500 million convertible promissory note and 50,000,000 shares of the Company’s common stock to Wight.

 

Dividends.   The Preferred B Units are specifically designated to be issued to the Company in exchange for the Note and Exchange Shares. The Company is entitled to receive dividend distributions from Common LP Units in Armada LP upon conversion of Preferred B Units, at a rate of 5% per annum, whether or not dividends have been declared by the Board of Directors and whether or not there are profits, surplus or other funds available for the payment of such dividends.  

 

Voting Rights.  Preferred B Units will not have any vote on Company matters unless specifically required by the Delaware Limited Liability Company Act.

 

Conversion. Preferred B Units shall not be convertible into that number of shares of any other units in Wight.

 

On November 17, 2016, Wight elected to convert the principal of the Note issued by us on November 16, 2016 in connection with the Armada Agreement in exchange for 50 million shares of our Common Stock.  Therefore, we issued 50 million shares of our Common Stock at the conversion price of $10 per share. As result of such conversion, Wight now owns 100,000,000 shares of our Common Stock which represents 36.73% of our voting power. Wight is now our largest shareholder.

 

On November 30, 2016, we entered a Second Addendum to clarify certain terms in connection with Armada Financing.

 

First Financing. The closing of first financing for Wight to deliver to the Company $50 million as working capital or part of a firm commitment offering and $150 million construction financing shall occur on or before January 18, 2017.

 

Distribution Preference. If Wight fails to deliver to the Company $50 million as working capital or part of a firm commitment offering and $150 million construction financing by January 18, 2017, we may cause Wight to immediately return all common stocks the Company issued to Wight.

 

Corporate History

 

On December 23, 2009, the Company was incorporated under the laws of the State of Nevada under the name of “Ciglarette, Inc.” Our operations at the time consisted of marketing and distributing a “smokeless” cigarette. During that time, we had no revenue and our operations were limited to capital formation, organization, and development of our business plan and target customer market.

 

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On March 1, 2011, the Company completed a reverse acquisition transaction through a share exchange with Kirin China Holding, a British Virgin Islands company (“Kirin China”), whereby the Company acquired all of the issued and outstanding shares of Kirin China in exchange for 18,547,297 shares of common stock, which represented approximately 98.4% of the total shares outstanding immediately following the closing of this share exchange (the “First Share Exchange”). Upon consummation of the First Share Exchange, the Company changed its name to “Kirin International Holding, Inc.” and traded under the symbol “KIRI” on the OTC Markets. As a result of the First Share Exchange, Kirin China became a wholly-owned subsidiary. The Company ceased the smokeless cigarette business and became a holding company, through various controlled entities in China and engaged in the development and operation of real estate in China. Through Kirin China, the Company engaged in private real estate development focusing on residential and commercial real estate development in “tier-three” cities in China. Tier-three cities are provincial capital cities with ordinary economic development and prefecture cities with relatively strong economic development.

 

On December 19, 2015, we entered into certain share exchange agreements with Energetic Mind and all the shareholders of Energetic Mind, whereby we acquired 100% of the issued and outstanding ordinary shares of Energetic Mind (the “Second Share Exchange”). Pursuant to the terms of the agreements for the Second Share Exchange, in exchange for 100% of the issued and outstanding ordinary shares of Energetic Mind, we agreed to issue to (i) the shareholders of Energetic Mind an aggregate of one hundred fifty-one million (151,000,000) shares of the Company’s common stock and (2) a certain related party an additional 8% convertible promissory note in the principal amount of one hundred fifty million dollars ($150,000,000), with a conversion price of $10.00 per share.

 

On December 31, 2015, we disposed all of its interests in i) Brookhollow Lake, LLC, ii) Newport Property Holding, LLC, iii) Kirin China, iv) Kirin Hopkins Real Estate Group LLC, v) Archway Development Group LLC, vi) Specturm International Enterprise, LLC and vii) wholly-owned subsidiary HHC-6055 Centre Drive LLC. The sale of Kirin China also effectively terminated the Company’s contractual relationship with Hebei Zhongding Real Estate Development Co. Ltd and XingtaiZhongdingJiye Real Estate Development Co., Ltd, both of which are companies formed under the laws of the People’s Republic of China and were deemed the Company’s variable interest entities prior to this sale (“Subsidiaries Sale”).

 

As a result of the Second Share Exchange and the Subsidiaries Sale, we currently operates its business solely through its wholly-owned subsidiary Energetic Mind, which is the sole shareholder of Ricofeliz, which engages its business through its wholly-owned subsidiary Wuhan Newport.

 

On January 13, 2016, we filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of the State of the State of Nevada, changing its name from “Kirin International Holding, Inc.” to “Yangtze River Development Limited”. Effective January 22, 2016, Company changed its stock symbol from “KIRI” to “YERR”.

 

Organization & Subsidiaries

 

Upon completion of the Second Share Exchange described above in “Corporate History,” Yangtze River Development Limited holds 100% of the ordinary shares of its wholly owned subsidiary, Energetic Mind, which holds all of the share capital of Ricofeliz Capital. Ricofeliz Capital holds all of the share capital of Wuhan Newport, a wholly foreign-owned enterprise located in Wuhan of Hubei Province in China.

 

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The following diagram illustrates our corporate structure as of the date of this prospectus:

 

 

Partnership and Cooperation

 

On October 3, 2016, we entered into an Armada Financing transaction described above in “Recent Development.” On November 16, 2016, we issued 50 million shares of common stock of the Company and a $500 million Convertible Promissory Note to Wight International Construction, LLC upon the receipt of 100 million Preferred B Member Units in Wight. On November 17, 2016, upon due notice delivered to the Company, Wight elected to convert $500 million principal amount of the Note into 50 million shares of common stock of the Company at a conversion price of $10 per share pursuant to the terms and conditions in the Note.

 

Upon completion of the share exchange and conversion described above, Yangtze River Development Limited holds 62.5% of the member units in Wight, which will be ultimately converted into 100 million LP units, representing approximately 25% of LP units in Armada Enterprises LP, dependent upon its ongoing valuation, while Wight holds 36.73% of Common Stock of the Company. Wight becomes the largest shareholder of the Company.

 

Overview of the Logistics Center

 

The Logistics Center is expected to be an extensive complex located in Wuhan, the capital of the Hubei Province of China, a major transportation hub with numerous railways, roads and expressways passing through the city and connecting to major cities in China, as well as other international centers of commerce and business.

 

The Logistics Center is expected to occupy approximately 1,918,000 square meters, for which the construction and development are expected to be completed in three phases in three years and reach its target maximum annual profit by the end of 2021 assuming the entire funding required for construction of the Logistics Center of $1.03 billion is in place by 2020 and the Logistics Center is in operation according to our business plan. The following table illustrates the timeframe of our investment and construction progress.

 

Time  

Phase of

Investment/Construction

   

Percentage of Total

Anticipated

Investment/Construction (1)

    Production Capacity (2)  
1st Year (2017)     1st Phase       40 %     30 %
2nd Year (2018)     2nd Phase       70 %     40 %
3rd Year (2019)     3rd Phase       100 %     60 %
4th Year (2020)     Completed       100 %     75 %
5th Year (2021)     Completed       100 %     100 %

 

  (1) The percentage of construction in a certain phase reflects the anticipated contribution of the investment in such particular phase. For example, contribution of 40% of the total investment in phase 1 will lead to construction of 40% of total value of the Logistics Center.
  (2) The percentage of Production Capacity shows the fraction of the target maximum annual profit to be earned under the full operation of the Logistics Center. We target to reach our maximum annual profit by the end of 2021 assuming the entire funding required for construction of the Logistics Center of $1.03 billion is in place by 2020 and the Logistics Center is in operation according to our business plan.

 

Office Complex Development

 

With the advantage of being in the anticipated Comprehensive Bonded Zone and Pilot Free Trade Zone, Wuhan Newport’s Logistics Center has obtained the land use rights to develop approximately 500,000 square meters of commercial lands until August 30, 2048 with rights of renewal, on which Wuhan Newport plans to build an office complex of approximately 700,000 square meters. As of the date of this prospectus, the complex, totaling approximately 100,000 square meters has been completed and there are 600,000 square meters outstanding to be constructed within the next five (5) years.

 

The office complex will be supported by a light railway line from downtown Wuhan that is undergoing construction. The complex will be accessible by two stations along the light railway line. In addition, a highway along the north shore of the Yangtze River in Wuhan is currently under construction; the completion of the highway is also expected to provide direct ground access between Wuhan city center and the Logistics Center and cut down the commute time to only 20 minutes.

 

Upon completion of the construction of the office buildings, Wuhan Newport plans to sell half of the complex while leasing out the remaining half for long-term rental income. It is the Company’s goal to recoup the initial capital investment costs for the entire projected logistics center through the sale of a certain portion of the complex and generate a stable return based on rent of the other half of the complex upon completion of the project.

 

Transportation and Logistics Services

 

Taking advantage of the regional highways, railways and waterways in the Yangluo area, we plan to develop a shipping hub with access to all types of cargo transportation and offer complementary services to businesses within this logistics center. We intend to create an efficient, reliable and comprehensive logistics service system by utilizing third-party service providers with offices within the Logistics Center to provide professional logistics services.

 

We are currently constructing the port terminal which will be the focal point of the Yangtze River Economic Belt. The Yangtze River riverbank, within our properties, measures 1,039 meters and will host eight cargo berths handling ships ranging from 5,000 to 10,000 tons.

 

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As of January 1, 2016, a government sponsored cargo transportation railway has been completed and launched leading to the premise of the Logistic Center, known as, the Wuhan-Xinjiang-Europe (“WXE”) Railway. The WXE is a part of the Silk Road Economic Zone, as it is within the “One Belt, One Road” initiative. The WXE Freight Train sets out from Wuhan to Xinjiang and finally ends in Hamburg, Germany. Wuhan Newport’s terminal will therefore be an important component of the “Silk Road Economic Belt” under the “One Belt, One Road” framework. (Source: http://www.wuhantime.com/detail.php?aid=1964 ; The Wuhan Time).

 

The custom facility at the Yangluo Comprehensive Bonded Area allows cargo vessels ranging from 5,000 to 10,000 tons to set out from Shanghai downstream via the Yangtze River in order to transport “Made in China” commodities to the Pacific Ocean and further to any other ports across the Indian Ocean. This same route will also return commodities from other countries directly back to Wuhan and then distribute them throughout the rest of China. Aside from being situated within the Wuhan Yangluo Comprehensive Bonded Zone, the Yangluo development area is amongst the third group of China’s Pilot Free Trade Zone applicants to submit applications to the State Council. As of the date hereof, approvals have so far been granted to Shanghai, Tianjin, Guangdong and Fujian. Enterprises within the approved pilot free-trade zones are typically entitled to a series of favorable regulations and policies that could help businesses grow and succeed. We believe that the approval will be granted within the near future.

 

The estimated cost of the Logistic Center is approximately $1.03 billion US dollars.

  

Cold Chain Logistics Services

 

A cold chain is a temperature-controlled supply chain for products that need to be kept under low temperatures. An unbroken cold chain is an uninterrupted series of storage and distribution activities which maintain a given temperature range. It is used to help extend and ensure the shelf life of products such as fresh agricultural produce, seafood and frozen food.

 

Within the Logistics Center, we plan to provide extensive storage and processing services to its customers. Meanwhile, a cold chain logistics service system will be established to better help the Company’s clients’ processing needs for their frozen foods, meats and other products that need special processing and handling. In addition, we will offer professional services with temperature controls, sorting, processing, packaging and delivery to ensure the reliability and safety of the logistics process.

 

Information Platform

 

To adapt to the needs of modern logistics service and meet the standards of the industry worldwide, we will establish comprehensive automated management systems, as well as develop an operation system, enquiry system and decision-making systems for all types of business information such as warehouse, storage, trade, distribution and transportation, movable assets supervision and freight forwarding. We plan to launch an integrated and information-sharing platform geared towards the demand of its targeted markets and potential clients.

 

We will establish a uniform information platform including an internet-based logistics information portal and an e-commerce platform to provide the Company’s clients with services such as logistics services tracking, service rating, online operation, electronic transaction, and etc. We expect this information portal to be equally reliable for both service providers and their respective clients.

 

We will also establish an e-commerce system based on the logistics information portal and it will provide clients with many updated services such as online transactions, online payments, online inquiries and business information communication. This will create a comprehensive service system and a business model with high integration of information flow, capital flow, trade flow and goods flow.

 

Portside Service

 

We also plan to provide incentives for companies that specialize in IT, production of new material and high-end equipment and manufacturing companies to station nearby the Logistics Center so that these companies can grow with the Logistics Center, leveraging each other’s specializations to serve each other’s business needs.

 

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Logistics Financing

 

Logistics financing is mainly based on using supplies as collateral to obtain financing for supply chains to improve their overall economic efficiency. Developing innovative logistics financing is significant because traditionally mortgages or loans are concentrated in real estate and logistics financing provides a lower systematic risk for lenders.

  

Compared to developed countries, logistics financing is a rather new field in China with a huge market potential of about $1 trillion. The driving force for logistics financial services in western countries is mainly attributable to financial institutions, as opposed to third-party private logistics companies in China who would occasionally provide financing options. 

 

Logistics financial services became a popular investment vehicle among these third-party lenders. However, the business of logistics financing has become too complex for these private lenders to handle, as they will need professional services to guide them through the process and thus safeguard their investments.

 

Even though the history of logistics financing has been relatively short in China, the appetite for this is expected to grow as the Pilot Free Trade Zones in Shanghai, Tianjin and the one expected to be granted in Wuhan, will likely attract more business and international financial institutions to launch offices or branches within these Pilot Free Trade Zones to serve the businesses in the areas. Logistics financing not only provides the businesses with a new alternative to meet their capital needs, but also opens a new channel for commercial banks to reach small and midsize businesses. While interest income generated from logistics financing transactions is often an important source of income for many multinational logistics companies, companies who are able to provide financing are often the industry leaders. Because logistics financing can be an effective channel for the Company to reach its targeted market, our Company plans to capture this first-mover advantage when logistics financing is still in its development stage in China.

 

In light of this market opportunity, we plan to establish and utilize e-commerce platforms to offer online booking, dealing and exhibiting services for electronic products, commodities, foods and metals. We also plan to provide comprehensive support services to complement logistics financing. Maritime insurance and training services will also be offered within the Logistic Center. We plan to help its clients raise construction capital through Build-Transfer (BT), Build-Operate-Transfer (BOT), corporate debt and equity financing. In addition, Company plans to collaborate and develop strategic alliances with other logistics or cargo shipping centers around the world.

 

Sales and Marketing

 

We plan to sell its properties by forming strategic alliances with CMST Development (Hankou) Co. Ltd. (“CMST-Hankou”), the Shanxi Chamber of Commerce in Hubei (“SCCH”) and the Wuhan Coal Business Association (“WCBA”).

 

Partnership with CMST

 

CMST-Hankou is a regional subsidiary of the CMST Development Co. Ltd, which is a state-owned enterprise that principally engages in the logistics and import & export businesses. CMST-Hankou’s core business includes warehouse storage, sale and distribution of commodities, and freight forwarding. Pursuant to the Memorandum of Understanding executed with CMST-Hankou on August 20, 2015, CMST-Hankou has agreed to transfer all of its warehouse storage and processing division, distribution service division and other existing businesses to the premises of the Logistics Center. In addition, CMST-Hankou has agreed to move its warehouse for steel trading business with the Shanghai Future Exchange to the Logistics Center. In consideration, we have agreed to offer CMST-Hankou a 5% discount for all services provided within the Logistics Center, including those within the warehouses, port terminal, and railway operating zones. In addition, CMST-Hankou has agreed to assist the Company with the establishment of an online commodity exchange platform to provide a comprehensive support system through the supply chain and provide necessary personnel to help with the management of the warehouse operations within the Logistics Center. Though at a slight discount, the Company is expected to receive fees based on CMST-Hankou’s large volume of commodities that need to be stored and use of complementary services at the warehouse facilities and operating areas, as well as rental income and/or property sales generated from the office complex. However, the partnership is subject to the terms and conditions of the definitive agreement between CMST-Hankou and the Company. No assurances can be provided at this point that such a definitive agreement will be executed.

 

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Partnership with SCCH

 

SCCH is a non-profit business coalition with 252 businesses across various industries as members. Pursuant to the Memorandum of Understanding executed with SCCH on July 27, 2015, SCCH has agreed to move its headquarters to the office complex within the Logistics Center by purchasing or leasing certain units. In consideration of a 7% discount to the purchase price of $2,729 per square meter of our properties, approximately 50 businesses within the organization plan to open offices in the Logistics Center and purchase at least 100,000 square meters of space within the office complex. SCCH, on behalf of 50 businesses, also executed a letter of intent to purchase approximately 100,000 square meters of storefront. In addition, because we expect the 50 businesses to have a total annual turnover of commodities of more than 5,000,000 tons, we have agreed to offer members of SCCH a 5% discount for all services provided within the Logistics Center, including those within the warehouses, port terminal, and railway operating zones. However, the partnership is subject to the terms and conditions of the definitive agreement between SCCH and the Company. No assurances can be provided at this point that such a definitive agreement will be executed.

 

Partnership with WCBA

 

WCBA is a non-profit business coalition with more than 300 businesses within the coal mining industry as members. Pursuant to the Memorandum of Understanding executed with WCBA on September 17, 2015, WCBA has agreed to move its headquarters to the office complex within the Logistics Center by purchasing or leasing certain units. We have agreed to offer WCBA member businesses a 5% discount to the purchase price of $2,729 per square meter of our properties. In addition, because we expect WCBA members to have a total annual turnover of coal-related commodities of more than 20,000,000 tons and will use the Company’s warehouse storage for at least 3,000,000 tons, we have agreed to offer members of WCBA a 5% discount for all services provided within the Logistics Center, including those within the warehouses, port terminal, and railway operating zones. However, the partnership is subject to the terms and conditions of the definitive agreement between WCBA and the Company. No assurances can be provided at this point that such a definitive agreement will be executed.

 

Market Opportunity for Logistics Finance

 

According to an industry review issued by the China Federation of Logistics and Purchasing, with the stabilization and recovery of the economy, the logistics industry began to rise gradually from the steady state before. According to statistics, the total value of social logistics goods in 2012 was 177.3 trillion yuan, with a year-on-year growth of 9.8%, dropping 2.5% compared with growth in 2011, dropping 0.2 percentage points compared with the first half of the year, rebounded by 0.2 percentage points compared to the first three quarters. National logistics added value is 3.5 trillion yuan, achieving a year-on-year growth of 9.1%. Although this figure is somewhat lower than the same period last year, it’s still 1 percentage point higher than the tertiary industry. Logistics value added has a share of 6.8% of GDP, accounting for 15.3% of the value added to the service sector. The total cost of national social logistics is 9.4 trillion yuan, with a year-on-year growth of 11.4%, dropping 7.1 % compared to the growth of last year. Total costs of social logistics account for 18% of GDP, with a year-on-year increase of 0.2 percentage points. The logistics cost of economic operations is still high. (Source: http://www.chinawuliu.com.cn/english/201406/16/290820.shtml; China Federation of Logistics and Purchasing).

 

Logistics financing provides financial services such as financing, clearance and insurance to support the logistics industry. It evolves as the logistics industry develops. Not only can logistics financing services improve the service capability and increase the profitability of third party logistics companies; it can also expand financing channels, decrease financing cost and increase the capital efficiency.

 

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The major target clients for logistics finance services are small and medium sized companies, which are an important sector of China’s economy and have great weight in the market. One of the biggest hurdles in the life cycle of these small and medium sized companies is lack of cash flow, which can become the “bottle neck” of their development and prevent progress. The need for logistics financing results from the lack of available credit financing facilities and the difficulty of obtaining financing on the capital markets. Therefore, logistics financing services protect against the financing problems by allowing these small and medium companies to use their raw materials and commodities as collateral to borrow money. Logistics financing increases the liquidity of cash flow, lowers the clearance risks and improves the efficiency of the economic operation. Upon completion of the Logistics Center, we expect to house many small and mid-size logistics companies. The offering of logistics financing will therefore become an important component of the business, as these businesses are expected to have financing needs as they grow their businesses.

 

Market Overview of Wuhan

 

Located in the middle reaches of the Yangtze River, Wuhan has been regarded as the gateway to nine provinces nearby. Beijing-Guangzhou Railway and the Yangtze River converge in Wuhan and also the Beijing-Jiulong Railway and the Beijing-Guangzhou Railway intersect in it, thus forming a railway network linking North China, Southwest China, Central South China and East China. Moreover, the Beijing-Zhuhai Expressway and the Shanghai-Chengdu Expressway converge in Wuhan and a high-speed railway along the Yangtze River will be completed in this area in the near future. A “flexible multimodal transportation system,” combining expressways, high-speed railways and water transportation on the Yangtze River will give greater prominence to Wuhan's position of strategic importance as a junction of water and land transportation in China.

 

According to the statistics published by the Wuhan government, Wuhan is the largest economic city in central China with an annual GDP of more than $160 billion. In 2015, the China State Council introduced and implemented the Midstream Yangtze River City Group Development Plan headed by Wuhan. In fact, the city was once called “The Oriental Chicago” by US Harper’s Magazine back in 1918. Wuhan is also among the largest inland logistics and cargo distribution centers in China, with its ability to cover approximately a 400 million person population in the five neighboring provinces including Hunan, Jiangxi, Anhui, Henan and Sichuan. At present, there are over 10,000 commercial organizations, 105,000 commodity networks, 4 commercial listed enterprises, and 8 comprehensive shopping centers on the list of China Top 100 Retail Shopping Centers. (Source: http://www.whfao.gov.cn/html/guide/201602/t20160204_45988.shtml ; Foreign Affairs Office of Wuhan City Government).

 

China is thoroughly implementing the strategy of coordinated regional development, expanding domestic demand, innovation-driven development and new urbanization, and building a new economic support belt relying on the Yangtze River. As a central city in the central region and the middle reach of the Yangtze River, as well as the country’s major transportation hub and science and technology base, Wuhan faces multiple overlapping strategic opportunities. Location, transportation, science, education, market and other advantages will be further enhanced and fully released and more quickly transformed into development and competitive advantage.

 

Wuhan is also a major transportation hub in Central China, situated at the midstream of the Yangtze River. Going west alongside the Yangtze upstream, includes cities or provinces such as Chongqing, Sichuan, Yunnan and Qinghai. Going east downstream, includes provinces such as Hunan, Anhui and Jiangsu, as well as municipal cities such as Shanghai, until finally ending at the Pacific Ocean. The railway runs north bound to Harbin, westbound to Urumqi, east bound to Shanghai and south bound to the Shenzhen Highway and expressways that stretch in all directions ensuring easy and convenient transportation to all of China’s provinces.

 

With the rapid development of inland waterway transportation in China, the logistics and port management industries have grown significantly. Wuhan is one of the major inland water ports in China. In 2014, the Wuhan government released an Opinion On Accelerating The Establishment Of Shipping Center In The Middle Reach Of Yangtze River, indicating that the government will help the Wuhan shipping center to be a well-equipped, surrounding industry developed internationally with a scaled and intelligent inland water shipping center with all port and shipping resources highly concentrated. In the Development Plan On Wuhan Logistics Space (2012-2020) published by the Wuhan city government, * Wuhan is strategically positioned as the critical joint of the global supply chain and the logistics transportation hub and information center of China. (Source: http://www.wuhan.gov.cn/hbgovinfo/szfxxgkml/fggw/szfwj/201505/t20150515_30288.html ; Wuhan City Government ).

 

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However, in Wuhan, logistics for domestic trade operate separately from those for international trade and all the resources are scattered and not concentrated to form a well-organized and well-managed international supply chain. It becomes very difficult for Wuhan to realize the synergy of business, logistics, money and information. In addition, a majority of the current logistics companies in Wuhan focus on traditional cargo transportation and storage services. Therefore, there exists an opportunity for an efficient, comprehensive and modern logistics service center like our Company’s Logistics Center to facilitate the channel of both regional and global logistics.

 

Competitive Advantages

 

The following factors reflect the Company’s advantages over the company’s competitors:

 

  Experienced Logistics Management Team.    We have a professional team with significant experience in logistics management. Members of the Company’s team have had work experience with well-known logistics management companies in different cities. In addition, the management members are well educated with degrees from top universities such as Huazhong University of Science and Technology, Wuhan University, University of British Columbia and the Chinese Academy of Social Sciences.

 

  Encouraging Policy Environment.    Under China’s latest “One Belt, One Road” initiative, the Company is strategically positioned in the anticipated “Pilot Free Trade Zone” of the Wuhan Port, a crucial trading window between China, the Middle East and Europe. In May 2015, the China State Council approved the nation’s economic strategic plan, the Vigorous Development Plan of Yangtze River Economic Belt. The Yangtze River Economic Belt has sharpened the focus on the Wuhan New Port Yangluo Terminal, the port project that the Company is developing.

 

  Unique Transportation Network.    Wuhan is located in the middle reaches of the Yangtze River, east facing south-eastern coastal economic developed area and west linking north-western raw material base.  The distance to metropolitan cities, such as Beijing, Shanghai, Hong Kong and Chongqing are within 1,200 kilometers.  As a central city on mainland China, Wuhan is capable of reaching over 30 provinces like Yunnan Province, Henan Province, Sichuan Province, Shanxi Province, Jiangxi Province and Hunan Province and 600 cities and counties in China.

 

  Highway: the Logistics Center is in close proximity to the Beijing-Zhuhai expressway, the Shanghai-Chengdu Expressway, and the Jiangbei Expressway.

 

  Waterway: the project adjacent to the Yangluo deep-water port, has eight 5,000-ton berths, directly leading to Jianghai. Yangluo Port is the largest national shipping port in Central China and the largest container port in the upper reaches of the Yangtze River. We will be strategically located for international procurement, distribution and delivery.

 

  Railway: through Chinese commodity freight logistics Beijing-Guangzhou, Beijing-Kowloon Railway, close to Beijing-Guangzhou railway extension line, special railway lines offer direct access to the center of the Wuhan Yangtze River Newport Logistics Center, through Jiangbei railway- Xianglushan station connects all of the domestic railway freight stations, and through the construction of the "Chinese new Europe" railway through the Continent.

 

  Airport: 30 kilometers from the Wuhan Tianhe airport.

 

  Light-rail transit: by the year 2018, two light rail stations are expected to be completed next to the Logistics Center, cutting the commute to downtown Wuhan to only 20 minutes.

 

  Jiangbei Expressway: after the completion of Jiangbei Expressway, commute by car from downtown Wuhan to the Logistics Centers is expected to be only about 20 minutes.

 

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The following maps illustrate the location of the Wuhan Newport Logistics Center and surrounding transportation network:

 

 

Employees

 

As of the date of this prospectus, we have a total of 87 employees, including our executive officers.

 

Our employees are not represented by any collective bargaining agreement, and we have never experienced a work stoppage. We believe we have good relations with our employees.

 

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Intellectual Property

 

Trademark

 

We are currently applying for trademark protection in China for our Company’s logo and we anticipate that we will be able to obtain the trademark within the next 12 months.

 

Domain Names

 

We have added the domain names i) www.yerr.com.cn; ii) www.cjxgwl.com; and iii) www.cjxgwl.cn to the Internet Content Provider License that we currently hold and we have received the updated ICP License covering the foregoing domain name.

 

Legal Proceedings

 

Currently there are no legal proceedings pending or threatened against the Company. However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise.

 

DESCRIPTION OF PROPERTY

 

Our corporate headquarters is located at 183 Broadway, 5th Floor, New York, NY 10007, for which we currently pay a rent of 6000.00 USD per month for our lease. As of the date hereof, we have completed the construction of seven commercial office buildings since 2010, occupying 92,755.8 square meters of space, including our sales and welcome center.

 

The following chart illustrates the properties we currently have the land use rights to in Wuhan, Hubei Province, China. We do not have ownership over such properties.

 

Certification

Number

of Land Use Right

  Location  Purpose of Use   Area (㎡)  

Termination

Date

Wu Xin Guo Yong (2008)
Di Zhuan No. 029
  South of Han Shi Road, Wuhan Yangluo Economic Development Zone, Hubei Province, PRC   Commercial    9,802.67   August 30, 2048
Wu Xin Guo Yong (2008)
Di Zhuan No. 030
           59,308.09    
Wu Xin Guo Yong (2008)
Di Zhuan No. 031
           79,178.94    
Wu Xin Guo Yong (2008)
Di Zhuan No. 032
           87,108.30    
Wu Xin Guo Yong (2009)
Di Zhuan No. 005
           176,853.70    
Wu Xin Guo Yong (2009)
Di Zhuan No. 006
           103,304.49    

 

 

The following chart illustrates the properties we currently lease in Wuhan, Hubei Province, PRC and New York, United States. We do not have ownership over such properties.

 

Name of the Property  Location  Purpose of Use     Area ()   Duration Date
Land Lease No. HZ20150427 (1)  Chunfeng Village, Yangluo Neighborhood, Wuhan, Hubei Province, PRC   Commercial    1,214,654.52   April 26, 2035
New York Office Premise  183 Broadway, New York, NY 10007   Commercial    Suite 5   April 15, 2017

 

 

(1)     On October 8, 2016, we entered an amendment to the Land Lease No. HZ20150427 Agreement (“Amendment”) that was executed on April 27, 2015 between the Company and Chunfeng Villagers Committee at the Yangluo Neighborhood Office in Xinzhou District, Wuhan (“CVC”). We agreed to make an advance payment of the first year rent to CVC (“First Year Rent”), upon the earlier of the following date or event to occur: (i) June 3rd, 2017; or (ii) within 5 days after the Company’s port terminal obtains approval from the government. The term of such land lease is 20 years from the date of CVC’s receipt of the First Year Rent.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS

AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the results of operations and financial conditions for the years ended December 31, 2015 and 2014 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors.  See “Cautionary Note Regarding Forward-looking Statements” on page 25.

  

Overview

 

Yangtze River Development Limited is a Nevada corporation that operates through its wholly-owned subsidiary Energetic Mind Limited, a British Virgin Islands company, which holds 100% of the capital stock of Ricofeliz Capital (HK) Ltd., a Hong Kong company that holds 100% of the capital stock of Wuhan Yangtze River Newport Logistics Co., Ltd., a wholly foreign-owned enterprise formed under the laws of the People’s Republic of China that primarily engages in the business of real estate and infrastructural development with a port Logistics Center located in Wuhan, Hubei Province of China. Situated in the middle reaches of the Yangtze River, Wuhan Newport is a large infrastructure development project implemented under China's latest "One Belt One Road" initiative and is believed to be strategically positioned in the anticipated "Pilot Free Trade Zone" of the Wuhan Port, a crucial trading window among China, the Middle East and Europe. To be fully developed upon completion, within the Logistics Center, there will be six operating zones: including port operation area, warehouse and distribution area, cold chain logistics area, rail cargo loading area, exhibition area and business related area. The logistics center is also expected to provide a number of shipping berths for cargo ships of various sizes. Wuhan Newport is expected to provide domestic and foreign businesses a direct access to the Pilot Free Trade Zone in Wuhan. The project will include commercial buildings, professional logistic supply chain centers, direct access to the Yangtze River, Wuhan-Xinjiang-Europe Railway and ground transportation, storage and processing centers, and IT supporting services, among others.

 

Our Logistics Center is an extensive complex located in Wuhan, the capital of the Hubei Province of China, a major transportation hub city with access to numerous railways, roads and expressways passing through the city and connecting to major cities in China, as well as other international centers of commerce and business.

 

The Logistics Center is expected to occupy approximately 1,918,000 square meters, for which the construction and development are expected to be completed in three phases in three years and reach its target maximum annual profit by the end of 2021 assuming the entire funding required for construction of the Logistics Center of $1.03 billion is in place by 2020 and the Logistics Center is in operation according to our business plan. The following table illustrates the timeframe of our investment and construction progress.

 

Time   Phase of
Investment/Construction
    Percentage of Total
Anticipated
Investment/Construction (1)
    Production Capacity (2)  
1st Year (2017)     1st Phase       40 %     30 %
2nd Year (2018)     2nd Phase       70 %     40 %
3rd Year (2019)     3rd Phase       100 %     60 %
4th Year (2020)     Completed       100 %     75 %
5th Year (2021)     Completed       100 %     100 %
(1)The percentage of construction in a certain phase reflects the anticipated contribution of the investment in such particular phase. For example, contribution of 40% of the total investment in phase 1 will lead to construction of 40% of total value of the Wuhan Project.
(2)

The percentage of Production Capacity shows the fraction of the target maximum annual profit to be earned under the full operation of the Wuhan Project. We target to reach its maximum annual profit by the end of 2021 assuming the entire funding required for construction of the Logistics Center of $1.03 billion is in place by 2020 and the Logistics Center is in operation according to our business plan.

  

The Logistics Center is located within the Wuhan Newport Yangluo Port, on the upper stream of the Yangtze River, and close to the northern base of Wuhan Iron and Steel, China's first mega-sized iron and steel production complex. The Logistics Center is expected to include a port terminal that will be located approximately 26.5km from the Wuhan Guan and 5.5km from the Yangluo Yangtze River Bridge. The operation area of the port is expected to consist of a riverbank of 1,039 meters with eight 5,000-to-10,000-ton berths, two of which are multi-purpose berths and the other six are general cargo berths. It is designed to be able to handle up to 5,000,000 tons of cargo annually, including up to 100,000 TEU for annual container throughput (including 20,000 TEU in freezers areas), 1,000,000 tons of iron and steel and 3,000,000 tons of general cargo.

 

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Within the Logistics Center, functional areas will be divided into six operating zones: a port operation area, a warehouse and distribution area, a cold chain supply logistics area, a rail cargo loading area, an exhibition area and a business related area. The Logistics Center will also be complemented with container storage areas, multi-functional areas, general storage areas, multi-functional warehouse and infrastructural development, including new roads, gas stations, parking areas, gas and water pipes, electricity lines and all other facilities and equipment to operate the Logistics Center. 

 

Aside from being situated in the Wuhan Yangluo Comprehensive Bonded Zone, the Yangluo development area is amongst the third group of China’s Pilot Free Trade Zone (FTZ) applicants to submit FTZ applications to the State Council. As of the date of this prospectus, approvals have been granted to Shanghai, Tianjin, Guangdong and Fujian. Enterprises within the approved free-trade zones are typically entitled to a series of favorable regulations and policies that could help the businesses grow and succeed. However, we can provide no assurance at this point that the FTZ application will in fact be approved.

 

Wuhan Newport has signed a twenty-year lease agreement, the maximum number of years permitted by the applicable PRC laws, and with rights to renew at its sole discretion, effective April 27, 2015 to lease approximately 1,200,000 square meters of land for building logistics warehouses in support of the Logistics Center. The warehouses are expected to comprise of port terminal zones, warehouse logistics zones, cold chain supply zones and railroad loading and unloading zones. The warehouses will connect the port terminal along the Yangtze River and the railway leading to Europe, satisfying the requirement of China’s latest “One Belt, One Road” initiative. It will also be able to support large logistics companies in Wuhan and other nearby provinces, which will rent the warehouses, terminals and offices within the Logistics Center.

 

Recent Development

 

Armada Financing

 

On October 3, 2016, we entered into the Armada Agreement to (i) complete certain share exchange and (ii) procure $1,000,000,000 in financing for the construction of the Logistics Center.

 

Entity Conversion. Pursuant to the Armada Agreement, Armada GP will become the general partner of its current controlling entity, Bim Homes, upon Bim Homes’ conversion into Armada LP via a statutory conversion under Delaware law. Meanwhile Armada GP will contribute its ownership in Wight in exchange for interests in Armada LP. We expect the entity conversion to be completed in January 2017.

 

Share Exchange. Pursuant to the Armada Agreement, we agreed to issue to Wight a convertible promissory note in the amount of $500 million USD that may be convertible into 50,000,000 shares of Company’s common stock at a conversion price at $10 per share (“Conversion Price”) at the sole election of Wight. We also agreed to contribute 60 million shares of the Common Stock at $8.33 per share, 50 million of which will be issued to Wight upon closing and the remaining 10,000,000 will be reserved with Company’s transfer agent and may be issued subject to Armada GP’s fulfillment of its obligation of procuring $1,000,000,000 in construction financing for the Logistics Center to be provided over a 3-year period. The 10 million shares shall otherwise become Company’s treasury shares upon Armada GP’s default on such obligation.

 

Consideration. In consideration of Company’s Note, Contribution Shares and Reserve Shares, Wight agreed to issue the Company 100 million membership units in Wight valued at a minimum of $10 per unit for an aggregate value of $1 billion, which would be converted to limited partnership units in Armada LP, upon Armada GP’s contribution of its interest in Wight to Armada LP. We will ultimately hold the LP Units at a total value of One Billion Dollars ($1,000,000,000) based upon an initial listing price of $10.00/per unit, which it plans to support by only issuing an amount of common LP Units whose 5% minimum annual distribution of $0.50 per unit can be supported historical annualized EBIDTA, contract revenue or cash on hand.

 

Financing. Pursuant to the Armada Agreement, we also agreed to engage Wight as its construction firm for construction of the Logistics Center, subject to compliance with the applicable PRC laws. Wight will procure up to $1,000,000,000 in construction financing for the completion of our Wuhan Project at approximately $200 million USD of new financing per year for five years. Upon closing, Wight will provide us with proof of credit facilities of at least $500,000,000, which includes an allocation of $50 million USD in the form of debt security to help the Company to meet NASDAQ listing qualifications.

 

Wight will seek financing of $200 million each year for five years from 2017 and will use its discretionary funds from its own financing. Wight anticipates closing of the first $200 million financing as soon as January 2017 for the first year of construction to be applied in manner to be determined upon satisfaction of its due diligence and site visit on the Logistics Center. We anticipate Wight or its affiliates loaning money to special purpose vehicle(s) (“SPVs”) formed for the Wuhan project to fund the first year construction costs. The terms of the financing of the first year of construction will be set forth in a Construction Memorandum of Understanding to be executed by Wight and the Company. Wight, as the developer, will undertake and procure the financing on customary terms and conditions associated with construction financing. Wight plans to obtain the balance of the $800 million through various financial institutions in the form of construction loans. We anticipate that either Wight or SPVs will be the borrower depending upon how such loan will be structured while secured by land or buildings of the Wuhan project.

 

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Closing Conditions. Closing shall occur upon (i) all parties’ representations and warranties are true and correct and (ii) the parties’ execution of a Memorandum Of Understanding outlining the material terms of the construction agreement by and among the Company, Wight and Armada GP or its affiliates.

 

Termination. Termination of the Armada Agreement may occur by (i) mutual written consent; (ii) by either party if the closing has not occurred within 60 days provided the terminating party is not in breach; and/or (iii) by either party if the other party materially breached any of its covenants or representations provided however that the breaching party will first have 30 days to cure.

 

On November 16, 2016, in connection with the Contribution Agreement, we entered into an LLC Agreement with Wight, whereby we acquired 100 million Preferred B Units in Wight, which will be ultimately converted into 100 million LP units in Armada LP. In exchange, we issued a $500 million convertible promissory note and 50,000,000 shares of the Company’s common stock to Wight.

 

Dividends.   The Preferred B Units are specifically designated to be issued to the Company in exchange for the Note and Exchange Shares. The Company is entitled to receive dividend distributions from Common LP Units in Armada LP upon conversion of Preferred B Units, at a rate of 5% per annum, whether or not dividends have been declared by the Board of Directors and whether or not there are profits, surplus or other funds available for the payment of such dividends.  

 

Voting Rights.  Preferred B Units will not have any vote on Company matters unless specifically required by the Delaware Limited Liability Company Act.

 

Conversion. Preferred B Units shall not be convertible into that number of shares of any other units in Wight.

 

On November 17, 2016, Wight elected to convert the principal of the Note issued by the Company on November 16, 2016 in connection with the Armada Agreement to 50 million shares of the Company’s Common Stock.  Pursuant to the exercise of the conversion rights, we issued 50 million shares of the Company’s common stock at the conversion price of $10 per share. As result of such conversion, Wight owns 100,000,000 shares of the Company’s common stock with 36.73% of the Company’s voting power. Wight is now the largest shareholder of the Company.

 

On November 30, 2016, we entered a Second Addendum to clarify certain terms in connection with Armada Financing.

 

First Financing. The closing of first financing for Wight to deliver to the Company $50 million as working capital or part of a firm commitment offering and $150 million construction financing shall occur on or before January 18, 2017.

 

Distribution Preference. If Wight fails to deliver to the Company $50 million as working capital or part of a firm commitment offering and $150 million construction financing by January 18, 2017, we may cause Wight to immediately return all common stocks the Company issued to Wight.

 

Management Evaluation On Armada Financing

 

The Armada LP Units are priced based upon its payment of a minimum annual distribution of 5% of its net asset value, or price, to the unit holders, as publicly traded limited partnership units are priced based upon its cash distributions to the unit holders. The Armada Limited Partnership Agreement (“LP Agreement”) fixed the minimum annual distribution of 5% at $0.50 per unit based upon a $10 per unit price rather than have the minimum annual distribution fluctuate based upon the price. The LP Agreement also subordinates units held by the general partner members as an internal control so that units held by the public are prioritized to receive their minimum distributions. We will receive 100,000,000 Armada LP Units. Each Preferred B unit in Wight will be contributed to Armada LP for one LP unit.

 

The Preferred B Unit value of $10 was set to enable a unit-for-unit exchange on the contribution of Wight to Armada LP. The number of units in Wight that would be contributed was determined by the projected cash flow of Wight’s operations and number of LP units whose minimum distribution could be supported by a discounted cash flow projection. The common and preferred A units of Wight will be contributed for subordinated Armada LP units as protection to the common LP units from any failure to meet those projections. We expect to hold ultimately 100 million Armada LP units at a total value of One Billion Dollars ($1,000,000,000). We expect the entity conversion to be completed in January 2017.

 

The Note we issued to Wight is convertible into 50 million shares of the Company’s Common Stock at $10 per share because the $10 per share is consistent to the conversion price in the convertible note that was issued to Jasper Lake Holdings Limited on December 19, 2015. We determined the valuation of $1.66 billion of the Company is a fair reflection of the value of the project in Wuhan to be completed in 3 years based upon a valuation report issued by an experienced real estate valuation agency in China - Beijing Jinggang Real Estate Appraisal Co., Ltd., an independent third party who holds the “Qualification Certificate for Real Estate Appraisal Company” in the People’s Republic Of China. Therefore we further determined that $10 per share is a fair conversion price for the Company with 172,269,446 shares of common stock outstanding as of the date of the Contribution Agreement. 

 

Remediation Effort Taken to Address the Material Weaknesses Identified for the Fiscal Year Ended December 31, 2015

 

We have concluded that there are material weaknesses in our internal control over financial reporting for the fiscal year ended December 31, 2015, as we did not maintain effective controls over the selection and application of GAAP related to the classification of capital transactions. Specifically, the members of our management team with the requisite level of accounting knowledge, experience and training commensurate with our financial reporting requirements did not analyze certain accounting issues at the level of detail required to ensure the proper application of GAAP in certain circumstances. These material weaknesses resulted in the restatement of our financial statements for the year ended December 31, 2015.

 

In addition to the implementation of effective internal control and oversight steps we have taken described in “Committees of the Board of Directors” beginning on page 57, we also plan to implement other measures in addition to those already in place to continue improving our internal control and oversight during 2016. We plan to achieve this primarily through ensuring appropriate review of accounting policies and procedures related to the accounting measurements by the members of management with the requisite level of knowledge, experience and training to appropriately apply GAAP.

 

We also intend to take the following actions to further improve our internal control for financial reporting:

 

  Provide more U.S. GAAP knowledge and SEC reporting requirement training to our CFO, accounting and other finance personnel;
  Hire additional personnel with sufficient U.S. GAAP experience;
  Establish formal policies and procedures in internal accounting and audit function;
  Implementation of an ongoing initiative and training in the Company to ensure the importance of internal controls and compliance with established policies and procedures are fully understood throughout the organization and plan to provide continuous U.S. GAAP knowledge training to relevant employees involved to ensure the performance of and compliance with those procedures and policies.

 

Although we believe that the steps we have taken sufficiently remediate the material weaknesses we had for the fiscal years ended December 31, 2015, any actions we have taken or may take to address those material weaknesses we had for the fiscal year ended December 31, 2015 are subject to continued management review supported by testing, as well as oversight by the Audit Committee of our Board of Directors.

 

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Factors Affecting our Operating Results

 

Growth of China’s Economy. We operate and derive all of our revenue from operations in China. Economic conditions in China, therefore, affect our operations, including the demand for our properties and services and the availability and prices of land maintenance, among other expenses. China has experienced significant economic growth with recorded Gross Domestic Product growth rates at 7.7% in 2013, 7.4% in 2014 and 6.9% in 2015. China is expected to experience continued growth in all areas of investment and consumption.  However, if the Chinese economy were to become significantly affected by a negative stimulus, China’s growth rate would likely to fall and our revenue could correspondingly decline.

 

Government Regulations.   Our business and results of operations are subject to PRC government policies and regulations regarding the following:

 

  Land Use Rights - According to the Land Administration Law of the PRC and Interim Regulations of the People’s Republic of China Concerning the Assignment and Transfer of the Right to the Use of the State-owned Land in the Urban Areas, individuals and companies are permitted to acquire rights to use urban land or land use rights for specific purposes, including residential, industrial and commercial purposes. We acquire land use rights from local governments and/or other entities for development of residential and commercial real estate projects. We do not have ownership over these properties.

 

  Land Development - According to the Urban Real Estate Development and Operation Administration Regulation, the Urban Real Estate Development and Operation Administration Rules of Hebei Province promulgated by the government of the Hebei Province, and the Real Estate Development Enterprise Qualification Administration Regulation, a real estate development enterprise shall obtain a Real Estate Development Enterprise Qualification Certificate. We obtained the related certificates and seek to ensure that each phase of our projects complies with our certificates.

 

  Project Financing - According to the Land Administration Law and the Property Law of the PRC, the land use rights, residential housing and other buildings still in the process of construction may be pledged and mortgaged. From time to time, we pledge and mortgage our land use rights and real properties to lenders in order to obtain project financing.

  

Interest Rate and Inflation Challenges. We are subject to market risks due to fluctuations in interest rates and refinancing of mid-term debt. Higher interest rates may also affect our revenues, gross profits and our ability to raise and service debt and to finance our developments. Inflation could result in increases in the price of raw materials and labor costs.  We do not believe that inflation or deflation has affected our business materially.

 

Acquisitions of Land Use Rights and Associated Costs. We acquire land use rights for development through the governmental auction process and by obtaining land use rights permits from third parties through negotiation, acquisition of entities, co-development or other joint venture arrangements. Our ability to secure sufficient financing for land use rights acquisitions and property development depends on internal cash flows in addition to lenders’ perceptions of our credit reliability, market conditions in the capital markets, investors’ perception of our securities, the PRC’s economy and the PRC’s government regulations that affect the availability and cost of financing real estate companies or property purchasers.

 

Critical Accounting Estimates

 

As discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, we consider our estimates on revenue recognition, impairment of long-lived assets, and real estate property refunds and compensation payables to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements. There have been no significant changes to these estimates in the nine months ended September 30, 2016.

 

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Results of Operations

 

Comparison of Three Months Ended September 30, 2016 and 2015

 

The following table sets forth the results of our operations for the periods indicated in U.S. dollars

 

   For the three months
ended September 30
 
   2016   2015 
   (Unaudited)   (Unaudited) 
         
Revenue  $-   $- 
Costs of revenue   -    - 
Gross profit   -    - 
           
Operating expenses          
Selling expenses  $-   $3,720 
General and administrative expenses   763,361    488,076 
Total operating expenses   763,361    491,796 
           
Loss from operations   (763,361)   (491,796)
           
Other expenses          
Other income   -    - 
Other expenses   -    (3,110)
Interest income   42    7 
Interest expenses   (2,156,558)   (730,629)
Total other expenses   (2,156,516)   (733,732)
           
Loss before income taxes   (2,919,877)   (1,225,528)
Income taxes expense   285,801    306,382 
Net loss  $(2,634,076)  $(919,146)
           
Other comprehensive loss          
Foreign currency translation adjustments   (1,120,502)   (817,493)
Comprehensive loss  $(3,754,578)  $(1,736,639)
           
Loss per share - basic and diluted  $(0.02)  $(0.01)
           
Weighted average shares outstanding - basic and diluted   172,268,077    151,000,000 

 

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Revenue.

 

We did not generate any revenue from the sales of real estate property for the three months ended September 30, 2016 and 2015. In addition, since our Logistics Center is still in its development stage and therefore is not yet in operation, we have not started providing any logistics service within our port terminal and have not generated any sales from providing such services.

 

Cost of Revenue.

 

For the three months ended September 30, 2016 and 2015, our cost of goods sold was $0, respectively.

 

Gross Profit.

 

Our gross margin was $0 for the three months ended September 30, 2016 and 2015, respectively.

 

Selling expenses.

 

No selling expenses occurred for the three months ended September 30, 2016, compared to $3,720 for the three months ended September 30, 2015, a decrease of $3,720. The decrease is primarily due to the decrease of marketing expenses.

 

General and administrative expenses.

 

Our general and administrative expenses consist of salaries, office expenses, utilities, business travel, amortization expenses (including legal expenses, accounting expenses and other professional service expenses) and stock compensation. General and administrative expenses were $763,361 for the three months ended September 30, 2016, compared to $488,076 for the three months ended September 30, 2015, an increase of $275,285 or 56 %. The significant increase is mainly because of the increase of expenses relating to professional services.

 

Loss from operations.

 

As a result of the factors described above, operating loss was $763,361 for the three months ended September 30, 2016, compared to operating loss of $491,796 for the three months ended September 30, 2015, an increase of operating loss of $271,565, or approximately 55%. The significant increase is mainly because of the increase of expenses relating to general and administrative expenses.

 

Other expenses.

 

We had other expenses totaling $2,156,516 for the three months ended September 30, 2016, compared to other expense totaling $733,732 for the three months ended September 30, 2015. The significant increase in expenses is mainly attributable to the interest of convertible bond issued on December 19, 2015, which was described elsewhere in the Quarterly Report. Our interest income and expenses were $42 and $2,156,558, respectively, for the three months ended September 30, 2016, compared to interest income and expenses of $7 and $730,629, respectively, for the three months ended September 30, 2015. No other income and expenses occurred for the three months ended September 30, 2016, compared to other income and expenses of $0 and $3,110, respectively, for the three months ended September 30, 2015.

 

Income tax.

 

We received an income tax benefit of $285,801 for the three months ended September 30, 2016, compared to $306,382 for the three months ended September 30, 2015. The slight decrease is mainly due to the decrease of net loss incurred from Wuhan Newport.

 

Net loss.

 

As a result of the factors described above, our net loss from operations for the three months ended September 30, 2016 was $2,634,076, compared to net loss of $919,146 for the three months ended September 30, 2015, an increase in loss of $1,714,930.

 

Foreign currency translation.

 

Our condensed consolidated financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiary is RMB. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the financial statements denominated in RMB into U.S. dollars are included in determining comprehensive income. Our foreign currency translation loss for the three months ended September 30, 2016 was $1,120,502, compared to a foreign currency translation loss of $817,493 for the three months ended September 30, 2015, an increase of $303,009. The significant decrease is mainly attributable to the depreciation of RMB against U.S. dollars.

 

Net loss available to common stockholders.

 

Net loss available to our common stockholders was $0.02 per share, for the three months ended September 30, 2016, compared to net loss of $0.01 per share for the three months ended September 30, 2015.

 

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Comparison of Nine Months Ended September 30, 2016 and 2015

 

The following table sets forth the results of our operations for the periods indicated in U.S. dollars

 

   For the nine months ended
September 30,
 
   2016   2015 
   (Unaudited)   (Unaudited) 
         
Revenue  $-   $- 
Costs of revenue   -    - 
Gross profit   -    - 
           
Operating expenses          
Selling expenses  $1,459   $8,006 
General and administrative expenses   4,558,102    1,470,700 
Total operating expenses   4,559,561    1,478,706 
           
Loss from operations   (4,559,561)   (1,478,706)
           
Other expenses          
Other income   2,827    - 
Other expenses   (28)   3,110 
Interest income   174    33 
Interest expenses   (6,474,519)   (2,326,475)
Total other expenses   (6,471,546)   (2,329,552)
           
Loss before income taxes   (11,031,107)   (3,808,258)
Income taxes expense   884,725    952,064 
Net loss  $(10,146,382)  $(2,856,194)
           
Other comprehensive loss          
Foreign currency translation adjustments   (7,913,387)   (682,081)
Comprehensive loss  $(18,059,769)  $(3,538,275)
           
Loss per share - basic and diluted  $(0.06)  $(0.02)
           
Weighted average shares outstanding - basic and diluted   172,268,077    151,000,000 

 

Revenue.

 

We did not generate any revenue from the sales of real estate property for the nine months ended September 30, 2016 and 2015, respectively. In addition, since our Logistics Center is still in its development stage and therefore is not yet in operation, we have not started providing any logistics service within our port terminal and have not generated any sales from providing such services.

 

Cost of Revenue.

 

During the nine months ended September 30, 2016 and 2015, our cost of goods sold was $0.

 

Gross Profit.

 

Our gross margin was $0 for the nine months ended September 30, 2016 and 2015, respectively.

 

Selling expenses.

 

Selling expenses was $1,459 for the nine months ended September 30, 2016, compared to $8,006 for the nine months ended September 30, 2015, a decrease of $6,547. The decrease is primary due to the decrease of marketing expenses.

 

 47 

 

 

General and administrative expenses.

 

Our general and administrative expenses consist of salaries, office expenses, utilities, business travel, amortization expenses (including legal expenses, accounting expenses and other professional service expenses) and stock compensation. General and administrative expenses were $4,558,102 for the nine months ended September 30, 2016, compared to $1,470,700 for the nine months ended September 30, 2015, an increase of $3,087,402 or 209%. The significant increase is mainly because of the increase of expenses related to professional services.

 

Loss from operations.

 

As a result of the factors described above, operating loss was $4,559,561 for the nine months ended September 30, 2016, compared to operating loss of $1,478,706 for the nine months ended September 30, 2015, an increase of operating loss of $3,080,855, or approximately 208%. The significant increase is mainly because of the increase of expenses relating to general and administrative expenses.

 

Other expenses.

 

We had other expenses totaling $6,471,546 for the nine months ended September 30, 2016, compared to other expense totaling $2,329,552 for the nine months ended September 30, 2015. The significant increase in expenses is mainly attributable to the interest of convertible bond issued on December 19, 2015, which was described elsewhere in the Quarterly Report. Our interest income and expenses were $174 and $6,474,519, respectively, for the nine months ended September 30, 2016, compared to interest income and expenses of $33 and $2,326,475, respectively, for the nine months ended September 30, 2015. Other income and expenses were $2,827 and $28, respectively, for the nine months ended September 30, 2016, compared to other income and expenses of $0 and $3,110, respectively, for the nine months ended September 30, 2015.

 

Income tax.

 

We received an income tax benefit of $884,725 for the nine months ended September 30, 2016, compared to $952,064 for the nine months ended September 30, 2015. The decrease is primary attributable to the decrease of net loss incurred from Wuhan Newport.

 

Net loss.

 

As a result of the factors described above, our net loss from operations for the nine months ended September 30, 2016 was $10,146,382, compared to net loss of $2,856,194 for the nine months ended September 30, 2015, an increase in loss of $7,290,188.

 

Foreign currency translation.

 

Our condensed consolidated financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiary is RMB. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the financial statements denominated in RMB into U.S. dollars are included in determining comprehensive income. Our foreign currency translation loss for the nine months ended September 30, 2016 was $7,913,387, compared to a foreign currency translation loss of $682,081 for the nine months ended September 30, 2015, an increase of $7,231,306. The significant decrease is primarily due to the depreciation of RMB against the U.S. dollars.

 

Net loss available to common stockholders.

 

Net loss available to our common stockholders was $0.06 per share for the nine months ended September 30, 2016, compared to net loss of $0.02 per share for the nine months ended September 30, 2015.

 

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Comparison of Fiscal Years Ended December 31, 2015 and 2014

 

  

For the Years Ended

December 31,

 
   2015   2014 
         
Revenue  $-   $3,458,295 
Cost of revenue   -    3,693,783 
Gross loss   -    (235,488)
           
Operating expenses          
Selling expenses   11,577    87,866 
General and administrative expenses   4,547,646    2,090,499 
Total operating expenses   4,559,223    2,178,365 
           
Loss from operations   (4,559,223)   (2,413,853)
           
Other expenses          
Other income   868    - 
Other expenses   (3,231)   - 
Interest income   55    10,996 
Interest expenses   (3,199,031)   (3,256,660)
Total other income (expenses)   (3,201,339)   (3,245,664)
           
Income (loss) before income taxes   (7,760,562)   (5,659,517)
Income taxes benefit   1,378,700    1,402,421 
Net loss  $(6,381,862)  $(4,257,096)
           
Other comprehensive loss          
Foreign currency translation adjustments   (6,649,917)   (147,341)
Comprehensive loss  $(13,031,779)  $(4,404,437)
           
Earnings (loss) per share - basic and diluted  $(0.04)  $(0.03)
           
Weighted average shares outstanding - basic and diluted   151,682,554    151,000,000 

  

Revenue.

 

During the fiscal year ended December 31, 2015, we did not generate any revenue, compared to revenue of $3,458,295 for the fiscal year ended December 31, 2014, a decrease of $3,458,295 or approximately 100.0%. The significant decrease was mainly because we did not engage in any steel trading during the fiscal year ended 2015.

 

We also did not generate any revenue from the sales of real estate property for the years ended December 31, 2015 and 2014.

 

Cost of Revenue.

 

Our cost of revenue sold consists of the cost of purchased goods. During the year ended December 31, 2015, our cost of goods sold was $nil, compared to $3,693,783 for the cost of goods sold for the year ended December 31, 2014, a decrease of $3,693,783 or approximately 100.0%. The decrease in the cost of revenue was mainly due to the lack of steel trading during the fiscal year ended 2015.

 

Gross Loss.

 

Our gross margin increased from a loss of $235,488 for the fiscal year ended December 31, 2014 to $nil for the fiscal year ended December 31, 2015. The increase of the gross margin is mainly due to the lack of steel trading during the fiscal year ended December 31, 2015 and we sold steel for less than the cost of goods during the fiscal year ended December 31, 2014.

  

Operating Expenses.

 

Operating expenses totaled $4,559,223 for the year ended December 31, 2015, compared to $2,178,365 for the year ended December 31, 2014, an increase of $2,380,858, or approximately 109%. The significant increase is mainly because of significant increase of general and administrative expenses offset by decrease in selling expenses.

 

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Selling, General and Administrative expenses.

 

Selling expenses decrease from $87,866 for the fiscal year ended December 31, 2014 to $11,577 for the fiscal year ended December 31, 2015, a decrease of $76,289, or approximately 86.83%. The decrease is mainly attributable to decrease in steel trading during the fiscal year ended December 31, 2015.

 

Our general and administrative expenses consist of salaries, office expenses, utilities, business travel, amortization expenses (including legal expenses, accounting expenses and other professional service expenses) and stock compensation. General and administrative expenses were $4,547,646 for the fiscal year ended December 31, 2015, compared to $2,090,499 for the fiscal year ended December 31, 2014, an increase of $2,457,147 or 118 %. The significant increase is mainly because of the increase of expenses related to professional fees in connection with our merger with Kirin and in preparation of this offering and application for listing to the NASDAQ Global Select Market.

 

Loss from Operations.

 

As a result of the factors described above, operating loss was $4,559,223 for the fiscal year ended December 31, 2015, compared to operating loss of $2,413,853 for the fiscal year ended December 31, 2014, an increase of operating loss of $2,145,370, or approximately 88.88%.

 

Other Expenses.

 

We had a total other expense of $3,201,339 for the fiscal year ended December 31, 2015, compared to a total expense of $3,245,664 for the fiscal year ended December 31, 2014. Our interest income and expense were $55 and $3,199,031, respectively, for the fiscal year ended December 31, 2015, compared to interest income and expenses of $10,996 and $3,256,660, respectively, for the fiscal year ended December 31, 2014. Other income and expenses were $868 and $3,231 for the fiscal year ended December 31, 2015, compared to $nil for the fiscal year ended December 31, 2014.

 

Income Tax.

 

We received an income tax benefit of $1,378,700 for the fiscal year ended December 31, 2015, compared to $1,402,421 for the fiscal year ended December 31, 2014.

 

Net Loss.

 

As a result of the factors described above, our net loss from operations for the year ended December 31, 2015 was $6,381,862, compared to net loss of $4,257,096 for the fiscal year ended December 31, 2014, an increase in loss of $2,124,766.

 

Foreign Currency Translation.

 

Our consolidated financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiary is RMB. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the financial statements denominated in RMB into U.S. dollars are included in determining comprehensive income. Our foreign currency translation loss for the year ended December 31, 2015 was $6,649,917, compared to $147,341 for the year ended December 31, 2014, an increase of $6,502,576.

 

Net Loss Available to Common Stockholders.

 

Net loss available to our common stockholders was $0.04 per share (basic and diluted), for the fiscal year ended December 31, 2015, compared to net loss of $0.03 per share (basic and diluted), for the year ended December 31, 2014.

 

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Liquidity and Capital Resources

 

The following table sets forth a summary of our cash flows for the nine months indicated:

 

  

Nine Months Ended

September 30,

 
   2016   2015 
Net Cash Used in Operating Activities  $(1,584,395)  $(3,479,819)
Net Cash Used in Investing Activities  $(1,851)  $- 
Net Cash Provided by Financing Activities  $1,127,682   $3,425,886 

 

We had a balance of cash and cash equivalents of $53,559 as of September 30, 2016. We have historically funded our working capital needs through advance payments from customers, bank borrowings, and capital from stockholders. Our working capital requirements are influenced by the state and level of our operations, and the timing of capital needed for projects. 

 

Operating Activities. Net cash used in operating activities was $1,584,395 for the nine months ended September 30, 2016, compared to net cash used in operating activities of $3,479,819 for the nine months ended September 30, 2015, a decrease of $1,895,424. The decrease in net cash used in operating activities was primarily contributed by the following factors:

 

  Share-based compensation expense contributed $2,014,664 cash inflow for nine months ended September 30, 2016. In the same period of 2015, share-based compensation expense contributed $0 cash inflow, which led to a decrease of $2,014,664 in net cash outflow.
     
  Changes in real estate properties and land lots under development provided $206,640 cash outflow for the nine months ended September 30, 2016, compared to changes in real estate properties and land lots under development contributed $702,362 cash outflow in the same period of 2015, which led to a decrease of $495,722 in net cash outflow.
     
  Changes in accounts payable provided $7,376 cash outflow for the nine months ended September 30, 2016, compared to $nil cash outflow for the nine months ended September 30, 2015, which lead to an increase of $7,376 in net cash outflow from operating activities.

 

  Changes in other payables and accrued liabilities provided $6,486,134 cash inflow for the nine months ended September 30, 2016, compared other payables and accrued liabilities contributed $94,571 cash inflow for the nine months ended September 30, 2015, which led to a decrease of $6,391,563 in net cash outflow.
     
  We have net loss of $10,146,382 for the nine months ended September 30, 2016, compared to net loss of $2,856,194 for the nine months ended September 30, 2015, which led to an increase of $7,290,188 in net cash outflow.

 

Investing Activities. Net cash used in investing activities was $1,851 for the nine months ended September 30, 2016, compared to $0 for the nine months ended September 30, 2015, representing an increase of $1,851 in cash outflow. The increase was primarily because of the increase of cash used for purpose of purchasing equipment.

 

Financing Activities. Net cash provided by financing activities was $1,127,682 for the nine months ended September 30, 2016, compared to net cash of $3,425,886 provided by financing activities for the nine months ended September 30, 2015, representing a decrease of $2,298,204 in cash inflow. The decrease was primarily because we had advances of $1,203,672 from related parties in the nine months ended September 30, 2016, compared to $3,587,869 for the nine months ended September 30, 2015.

 

As shown in our financial statements, we have negative cash flows from operations, sustained recurring losses for a number of years and currently we are not generating revenues. Over the past years, we have been funded through a combination of bank loans and advances from shareholders. On January 29, 2016, we received an undertaking commitment letter provided by our majority shareholder who is willing to provide sufficient funding on an as-needed basis. In addition, we plan to dispose of the existing developed real estate properties with market value of approximately $42 million when we need cash flows. We believe that, as a result of these, we currently have sufficient cash and financing commitments to meet our funding requirements for 18 months.

 

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The following table sets forth a summary of our cash flows for the fiscal years indicated:

 

  

Years Ended

December 31,

 
   2015   2014 
Net cash provided by from operating activities  $(4,735,142)  $(5,277,025)
Net cash provided by (used in) investing activities  $494,179   $(70,908)
Cash flows provided by financing activities  $4,698,162   $4,346,367 
Effect of exchange rate changes on cash and cash equivalent  $(996)  $(5,801)
Net increase (decrease) in cash and cash equivalents  $456,203   $(1,007,367)
Cash and cash equivalents - beginning of year  $56,366   $1,063,733 
Cash and cash equivalents - end of year  $512,569   $56,366 

 

We had a balance of cash and cash equivalents of $512,569 as of December 31, 2015 compared to a balance of $56,366 as of December 31, 2014. We have historically funded our working capital needs through advance payments from customers, bank borrowings, and capital from stockholders. Our working capital requirements are influenced by the state and level of our operations, and the timing of capital needed for projects.

 

Operating Activities. Net cash outflow from operating activities was $4,735,142 for the fiscal year ended December 31, 2015, compared to net cash outflow from operating activities of $5,277,025 for the year ended December 31, 2014, a decrease of $541,883. The decrease in net cash outflow from operating activities was primarily contributed by the following factors:

 

  Changes in prepayments (combination of others receivables) provided $nil cash outflow for the fiscal year ended December 31, 2015.  In the same period of 2014, changes in prepayments (combination of others receivables) provided $884,391 cash inflow, which led to a decrease of $884,391 in net cash inflow.

 

  Changes in real estate properties and land lots under development provided $778,977 cash outflow for the year ended December 31, 2015, compared to changes in real estate properties and land lots under development contributed $6,412,919 cash outflow in the same period of 2014, which led to a decrease of $5,633,942 in net cash outflow.

 

  Changes in accounts payable provided $nil cash inflow for the fiscal year ended December 31, 2015, compared to $4,486,912 cash inflow for the fiscal year ended December 31, 2014, which lead to a decrease of $4,486,912 in net cash inflow from operating activities.

 

  Changes in other payables and accrued liabilities provided $2,257,051 cash inflow for the fiscal year ended December 31, 2015, compared other payables and accrued liabilities contributed $72,260 cash inflow in the same period of 2014, which led to an increase of $2,184,791 in net cash inflow.

 

  We have net loss of $6,381,862 for the fiscal year ended December 31, 2015, compared to net loss $4,257,096 in the same period of 2014, which led to an increase of $2,124,766 increase in net cash outflow.

 

Investing Activities.   Net cash provided by investing activities was $494,179 for the fiscal year ended December 31, 2015, compared to net cash of $70,908 used in investing activities for the fiscal year ended December 31, 2014, represented an increase of $565,087.  The increase was primarily because of decrease of cash used for purpose of property and equipment, as well as the effect of share exchange completed in December, 2015.

 

Financing Activities. Net cash provided by financing activities was $4,698,162 for the fiscal year ended December 31, 2015, compared to net cash of $4,346,367 provided by financing activities for the fiscal year ended December 31, 2014, represented an increase of $351,795. The increase was primarily because we have a $176,599 of repayment of financial institution loans in the fiscal year ended December 31, 2015, compared to $488,146 for the same period in 2014.

 

As shown in our financial statements, we have negative cash flows from operations, sustained recurring losses for a number of years and currently we are not generating revenues. Over the past years, we have been funded through a combination of bank loans and advances from shareholders. On January 29, 2016, we received an undertaking commitment letter provided by our majority shareholder who is willing to provide sufficient funding on an as-needed basis. In addition, we plan to dispose of the existing developed real estate properties with market value of approximately $42 million when we need cash flows. We believe that, as a result of these, it currently has sufficient cash and financing commitments to meet its funding requirements for a reasonable period of time.

 

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Contractual Obligations

 

Jasper Lake Holdings Limited (“Jasper”), a related party, holds an 8% convertible promissory note in the principal amount of $75,000,000 with a maturity date of December 19, 2018. Upon maturity, Jasper may convert all or any portion of the then aggregate outstanding principal amount, together with any accrued and unpaid interest, into shares of Company’s common stock at $10.00 per share.

 

Off-Balance Sheet Arrangements

 

On January 29, 2016, we received an undertaking commitment letter provided by our majority shareholder who is willing to provide sufficient funding on an as-needed basis. We believe that the financial commitment provided by our majority shareholder could provide our company with sufficient capital resources to meet our capital needs for a reasonable period of time.

 

Recently Issued Accounting Guidance

 

As described in Note 2 to the Condensed Consolidated Financial Statements, we not believe recently issued but not yet effective accounting standards from ASU 2016-15, if currently adopted, would have a material effect of the condensed consolidated financial position, results of operation and cash flows.

  

UNDERWRITING

 

Boustead Securities, LLC., is acting as the representative of the underwriters of the offering (the “Representative”). We have entered into an underwriting agreement dated [●], 2016 with the Representative. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriters named below and each underwriters named below has severally agreed to purchase, at the public offering price, less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:

 

Name   Total Number of 
Shares
 
Boustead Securities, LLC     [●]  
Network 1Financial Securities, Inc. _____________     _____________  
Total:     [●]  

 

The underwriters are committed severally to purchase all of the shares of common stock offered by us. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’ several obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.

 

We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.

 

The underwriters propose to offer the shares of common stock offered by us to the public at the registered direct offering price set forth on the cover of this prospectus.

 

Our stock is currently listed on the OTC Markets under the symbol “YERR”. We intend to apply to list our common stock on the NASDAQ Global Select, but we cannot assure you that our application will be approved at this point.

 

Discounts, Commissions and Expense Reimbursement.  The following table shows the public offering price, underwriting discount and proceeds, before expenses, to us.

 

  Per Share   Total
Public offering price $ [●]   $ 40,000,000
Underwriting discounts and commissions to be paid by us (1) $ [●]   $ 2,000,000
Proceeds, before expenses, to us $ [●]   $ 38,000,000
Non-accountable expense allowance $ [●]   $ 250,000
Advisory fees $ [●]   $ 100,000

 

(1) The underwriting discounts and commissions are not payable with respect to the warrants issued to our underwriterss.  See “Underwriter’ Warrants” below.

 

We will reimburse the Representative for up to $250,000 of its reasonable non-accountable expenses incurred promptly when invoiced, the Representative’s legal expenses in an amount not to exceed $ 75,000 and costs of third-party due diligence reports in an amount not to exceed $25,000. Additionally, upon the earlier of the termination of the Underwriting Agreement or the completion of a Transaction, we agree to pay promptly in cash any unreimbursed expenses that have accrued as of such date.

 

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We estimate that the total expenses of the offering payable by us, excluding the total underwriting discount, will be approximately $[●] million.

   

Lock-Up Agreements.  We, our directors and executive officers and shareholders beneficially own in excess of 5% of the currently issued and outstanding shares of common stock will enter into lock-up agreements with the underwriters pursuant to which each of these persons or entities, for a period of time ranging from 90 days to 360 days from the effective date of the registration statement of which this prospectus is a part without the prior written consent of the underwriters, agree not to, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our securities or any securities convertible into or exercisable or exchangeable for our shares of common stock owned or acquired on or prior to the closing date of this offering (including any shares of common stock acquired after the closing date of this offering upon the conversion, exercise or exchange of such securities), or publicly disclose the intention to do any of the foregoing; (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the shares of common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of shares of common stock or such other securities, in cash or otherwise, except for certain exceptions and limitations; or (3) file or caused to be filed any registration statement relating to the offering of any of our shares of common stock. 

 

Underwriters’ Warrants.  We have agreed to issue to our underwriters warrants to purchase the number of our shares of common stock in the aggregate equal to 5% of the gross proceeds received by the Company from the Closing. The warrants will be exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days from the effective date of the offering, which period shall not extend further than five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(i). The warrants are exercisable at a per share price equal to 100% of the public offering price per share in the offering. The warrants are also exercisable on a cashless basis. The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. Neither our underwriters, nor permitted assignees under Rule 5110(g)(1), will sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective date of the offering. In addition, the warrants provide for registration rights upon request, in certain cases.  The demand registration right provided will not be greater than five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(iv). The piggyback registration right provided will not be greater than seven years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(v). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. The warrant exercise price and/or underlying shares may also be adjusted for issuances of shares of common stock at a price below the warrant exercise price. 

    

Electronic Offer, Sale and Distribution of Securities.  A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The Representative may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.

 

Stabilization.  In connection with this offering, the underwriters may engage in stabilizing transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.

 

Stabilizing transactions permit bids to purchase securities so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the securities while the offering is in progress. 

 

Syndicate covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the securities in the open market that could adversely affect investors who purchase in the offering.

  

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Penalty bids permit the Representative to reclaim a selling concession from a syndicate member when the securities originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.

 

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our securities or preventing or retarding a decline in the market price of our securities. As a result, the price of our securities in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our securities. These transactions may be effected on the NASDAQ Capital Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.

 

Passive Market Making.  In connection with this offering, underwriters and selling group members may engage in passive market making transactions in our shares of common stock on the NASDAQ Global Select or on the OTC Markets in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.

 

Potential Conflicts of Interest.  The underwriters and their affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own accounts and for the accounts of their customers and such investment and securities activities may involve securities and/or instruments of our Company. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

 

Selling Restrictions Outside the United States

 

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

  

European Economic Area

 

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, with effect from and including the date on which the Prospectus Directive is implemented in that Member State, an offer of securities may not be made to the public in that Member State, other than:

 

(a) to any legal entity that is a qualified investor as defined in the Prospectus Directive;

 

(b) to fewer than 100 or, if that Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than “qualified investors” as defined in the Prospectus Directive) subject to obtaining the prior consent of the Representative; or

 

(c) in any other circumstances that do not require the publication of a prospectus pursuant to Article 3 of the Prospectus Directive; provided that no such offer of securities shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.

 

For the purposes of the above, the expression an “offer of securities to the public” in relation to any securities in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in that Member State), and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in that Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

 

United Kingdom

 

This prospectus and any other material in relation to the shares described herein is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospective Directive (“qualified investors”) that also (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, (ii) who fall within Article 49(2)(a) to (d) of the Order or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). The shares are only available to, and any invitation, offer or agreement to purchase or otherwise acquire such shares will be engaged in only with, relevant persons. This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other person in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this prospectus or any of its contents.

 

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Hong Kong

 

The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571 Laws of Hong Kong) and any rules made thereunder.

 

People’s Republic of China

 

This prospectus has not been and will not be circulated or distributed in the PRC, and shares may not be offered or sold, and will not be offered or sold to any person for re-offering or resale, directly or indirectly, to any resident of the PRC except pursuant to applicable laws and regulations of the PRC.  For the purpose of this paragraph, PRC does not include Taiwan, and the special administrative regions of Hong Kong and Macau.

 

Singapore

 

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (SFA), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

 

Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

 

Japan

 

The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

 

Notice to Prospective Investors in Switzerland

 

The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.

 

Neither this document nor any other offering or marketing material relating to the offering, the Company, or the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the shares.

 

Notice to Prospective Investors in the Dubai International Financial Centre

 

This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.

 

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DIRECTORS AND EXECUTIVE OFFICERS

 

Our directors, executive officers and key employees are listed below.  The number of directors is determined by our Board of Directors.  All directors hold office until the next annual meeting of the Board or until their successors have been duly elected and qualified.  Officers are elected by the Board of Directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the Board of Directors.

 

Directors and Executive Officers

 

Name   Age   Position
Xiangyao Liu   44   Chief Executive Officer, President, Secretary and Chairman of the Board
Xin “Cindy” Zheng   37   Chief Financial Officer
James Stuart Coleman   59   Director
Zhanhuai Cheng   68   Director
Yanliang Wu   50   Director
Yu Zong   45   Director
Harvey Leibowitz (1) (2) (3) (4) (5) (6)   81   Independent Director
Zhixue Liu (2) (3) (5)   52   Independent Director
Tongming Wang (1) (4) (6)   56   Independent Director
Romano Tio (1) (2) (3) (4) (5) (6)   55   Independent Director
Daniel W. Heffernan (1) (2) (3) (4) (5) (6)   66   Independent Director
Zhihong Su (1) (2) (3) (4) (5) (6)   55   Independent Director

 

(1) Member of the Audit Committee

(2) Member of the Compensation Committee

(3) Member of the Nomination Committee

(4) Member of the Governance and Human Resources Committee

(5) Member of the Board Oversight Committee

(6) Member of the Social Media Committee

 

Xiangyao Liu, President, CEO, Secretary and Chairman of the Board (age 44)

 

Mr. Xiangyao Liu served in the state-owned Materials Bureau of Hebei Province and was involved in steel and other logistics trading between 1994 and 1996. From 1996 to 2003, he invested and established the Pacific Trade and Logistics in China, served as the General Manager and engaged in the trading and logistics of steel, agricultural products and other commodities. In 2010, Mr. Liu participated in the investment of Wuhan Renhe Group Limited, which held the Wuhan Huazhong Steel Trading Center Co., Ltd., at that time, supervising the logistics and trading of steel. He also started to engage in financial and security investments in Hong Kong. From November 2010 to December 2012, Mr. Liu was the deputy general manager of Wuhan Renhe Group Limited; From January 2012 to June 2015, Mr. Liu served as the Deputy General Manager of the Wuhan Huazhong Steel Trading Center Co., Ltd., which later became the Wuhan Yangtze River Newport Logistics Co. Ltd. He supervised the transition of the steel trading renter to a residential and commercial complex which supports the warehouses and docks, led projects to bring the Steel Trading Center into the Yangluo Comprehensive Bonded Zone and Free Trade Area in Wuhan, supervised the feasibility study of the Wuhan Yangtze River Newport Logistics Center and collaborated with the local government to develop the Yangluo Newport Project Plan, handling corporate structuring, strategic planning and operations management of the company. Mr. Liu was appointed as the CEO and the Chairman of the Board of the Company in July 2015 because of his managerial skills and expertise in the industry.

 

Mr. Liu received his Bachelor’s degree in Business Management from the Hebei Institute of Finance in 1994.

 

Xin “Cindy” Zheng, Chief Financial Officer (age 37)

 

Ms. Zheng joined the Company (formerly Kirin International Limited) in December 2009. From September 2010 to March 2011, she has been employed by the Company’s finance department where she has had oversight of the Company’s accounting and financing matters. Ms. Zheng was appointed as Chief Financial Officer in April 2011. Prior to joining the Company, Ms. Zheng was employed as Marketing Director for both XingtaiZhongdingJiye Real Estate Development Co., Ltd., and Hebei Zhongding Real Estate Development Co., Ltd., which through certain contractual arrangements, the Company controls. As Marketing Director, Ms. Zheng’s responsibilities included oversight of the Company’s marketing efforts. From May 2006 to December 2009, Ms. Zheng was employed in the Lighting Division of Philips, a Netherlands based fortune 500 company. Philips has generated approximately $9 billion dollars in revenue in China, where she was responsible for budgeting and financial planning for the operations of Philip’s lighting division in northern China. From April 2004 to May 2006, Ms. Zheng was employed by Mercer Consulting in China where she engaged in management consulting and financial modeling for a variety of companies, including state and privately owned business. Ms. Zheng graduated from the University of Bradford in the United Kingdom in February 2004 with a Master’s degree in Financial Management. She has extensive experience in accounting and capital markets.

 

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James Stuart ColemanDirector (age 59)

 

Mr. James Coleman has been the Chief Representative in the United States of Wuhan Yangtze River Newport Logistics Co., Limited since April 2015. Mr. Coleman has also been the CEO and CFO of Dream Recovery International, Inc., a drug and alcohol rehabilitation facility since January 2014. Mr. Coleman has also been a Partner of the Angel Capital Ltd, an angel capital investor in start-up companies since September 2012. Since April 2006, Mr. Coleman has served as an Associate Broker at Bond New York Properties, LLC, specializing in commercial real estate in New York. We have selected Mr. Coleman as a director because of his experience with the capital markets in the United States.

 

Mr. Coleman received his Bachelor’s degree in Arts from Allegheny College in 1978. He is also a licensed Associate Broker in the State of New York.

 

Zhanhuai Cheng, Director (age 68)

 

Mr. Zhanhuai Cheng has served as the Chief Technology Officer (“CTO”) of Wuhan Huazhong Steel Trading Center since December 2008 and is responsible for the planning and construction of the logistics warehouse, dock berths, and supporting residential and commercial buildings. Since July 2015, after Wuhan Huangzhong Steel Trading Center restructured into Wuhan Newport, Mr. Cheng continued serving as the CTO of Wuhan Newport. Mr. Cheng was appointed as a member of the Board in December 2015. From 2000 to 2007, Mr. Cheng was employed by the Wuhan City Port Authority Officers and was in charge of port construction planning. During his term with the office, Mr. Cheng worked with the various ports along the Yangtze River and accumulated great experience in port planning, wharf construction, operations and management. He helped various agencies of the Wuhan government to complete the transformation of the water network, port construction, etc., and obtained the title of advanced workers of Wuhan City. During his service, Mr. Cheng also directed the planning, development and construction of the Qingshan Port, Yangluo Port, Yangsi Port and other terminals in Wuhan.

 

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From 1993 to 2000, Mr. Cheng served as an officer of Wuhan Light Rail Construction and was in charge of resource development, project design, tendering and construction work. During his term of office, Mr. Cheng has contributed greatly to metro line planning and rail transit construction in Wuhan. These are recognized by the Wuhan Government with a number of honorary titles issued to him.

 

Mr. Cheng has also previously worked in the Wuhan Iron and Steel Limited, focusing on the production of railway and other construction, and port transportation projections. Mr. Cheng was also employed by the Ministry of Railways Bridge Engineering Bureau and served as a staff analyst and later on a vice dean of an academic institute, contributing to many projects and achieving great success. We have selected Mr. Cheng as a director because of his expertise in our industry.

 

Yanliang Wu, Director (age 50)

 

Mr. Wu has served as the deputy general manager of Wuhan Huazhong Steel Trading Center since June 2010. Since July 2015, after Wuhan Huangzhong Steel Trading Center re-structured into Wuhan Newport, Mr. Wu continued serving as the deputy general manager of Wuhan Newport. Mr. Wu has been working for Wuhan Yangtze River Newport Logistics Co. Ltd. since 2012, and is in charge of the company's indoor storage, outdoor yards, approval, planning and construction of warehouses, and operations management. Mr. Wu worked for Alpha Logistics Co, Ltd. in Montreal, Canada from 1997 to 2003, where he served as the Head of Logistics and coordinated the construction of the logistics network of the company in North America and the Pacific Rim. From 2002 to 2012, he was in charge of the company’s business development in the logistics industry in Mainland China, as well as leading the opening of its Shanghai branch. From 1986 to 1996, Mr. Wu worked in the head office of the state-owned Wuhan Metal Materials Corporation, serving as the Minister of Management and General Manager of Commodity Trading. During his employment, he received two accolades for his personal achievement in 1990 and 1992. He was also certified as a senior economist in China in September 1994. We have selected Mr. Wu as a director because of his expertise in our industry.

 

Mr. Wu received his Bachelor of Sciences degree in Logistics from Huazhong University of Science and Technology in 1986.

 

Yu Zong, Director (age 45)

 

Mr. Zong has served as the Deputy General Manager of Wuhan Yangtze River Newport Logistics Co. Ltd. from February 2012 to September 2015, and was in charge of the development, construction and management of the real estate. Mr. Zong became its general manager and legal representative in October 2015. In July 2015, after Wuhan Huangzhong Steel Trading Center re-structured into Wuhan Newport, Mr. Zong was appointed as the deputy general manager of Wuhan Newport. Mr. Zong was appointed as General Manager and Chief Representative of Wuhan Newport in October 2015. From September 2009 to January 2012, he worked in Wuhan Dingxin Real Estate Ltd. as the Deputy General Manager and Chief Engineer, leading the construction and management of the “Mocha Town” Phase II Development Project.  From 2007 to 2009, Mr. Zong worked in the China Railway Group Wuhan Properties Limited, as the minister of Engineering Planning Division, and participated in a large real estate project which had a total investment of six (6) billion RMB.   From 2003 to 2006, Mr. Zong worked in Hubei Jiuding Ltd., as the Deputy General Manager and Chief Engineer and was responsible for the construction and management of a villa project which occupied an area of 80,000 square meters and a total construction area of 70,000 square meters. During the construction period, his duties included preliminary design, construction report, project quality control, and compliance. From 2000 to 2002, Mr. Zong worked as the Project Manager for Pace Home Development Inc., in Canada, providing consulting services for various types of construction projects.  Mr. Zong also previously worked in the Wuhan Institute of Architecture Design Institute. We have selected Mr. Zong as a director because of his expertise in our industry.

 

Mr. Zong obtained his bachelor’s degree in Civil Engineering in 1993 from Wuhan University. He also obtained his master’ degree in Engineering from the University of British Columbia in 2004.

 

Harvey Leibowitz, Independent Director, Chair of the Audit and Compensation Committees (age 81)

 

Mr. Leibowtiz has been a director and Chair of the Audit Committee of ASTA Funding, Inc., a company listed on the NASDAQ since 2000. Mr. Leibowitz graduated from the City University of New York - Baruch College in 1955 with a bachelor’s degree in Accounting. Between 1955 and 1962, he was employed as a staff accountant at various accounting firms working on matters relating to audits, taxes and write-ups. From 1962 to 1979, Mr. Leibowtiz worked at Standard Financial Corporation, which acquired Sterling National Bank in 1965, in capacities including internal auditor and Senior Vice President in charge of commercial financing and factoring. From 1980 to 1994, Mr. Leibowitz worked for companies such as International Paper Company, Century Factors, Inc., and Foothill Financial Advisors, Inc., and was in charge of commercial financing involving secured loan financing. From 1994 to 1999, Mr. Leibowitz worked for Sterling National Bank as an internal auditor and was in charge of the Commercial Finance Department. Based on Mr. Leibowitz’s education and employment background, we have selected Mr. Leibowitz as a director and chairman of the Audit Committee because of his expertise in accounting and finance and the Board believes that Mr. Leibowitz qualifies as a “financial expert” as defined by the SEC rules.

 

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Zhixue Liu, Independent Director (age 52)

 

Mr. Liu obtained his Ph.D. in Management and is currently a professor at the School of Management of Huazhong University of Science and Technology. Mr. Liu has been teaching as a professor at the School of Management of the Huazhong University of Science & Technology since January 2011. Mr. Liu was appointed as a member of the Board in December 2015. Also currently the Deputy Director of the Product Operations and Logistics Management Department, Mr. Liu is one of the main drafters of The People’s Republic of China National Standard - Classification and Index of Logistics Enterprises  and  The People's Republic of China National Standard - Logistics Terminology . He is also a member of the National Ministry of Education Logistics Specialty Guidance Steering Committee, Board of Trustee of the National Natural Science Fund Committee Management Division, Committee of the National Professional Commission for Certification of Logistics Specialist, Deputy Secretary General of the China Logistics Technology Association, Executive Director of the China Society of Logistics, and Executive Director of the China Marketing Association.

 

Mr. Liu obtained his bachelor’s in Logistics from Huazhong University of Science and Technology in 1986. After his graduation, he served as an assistant, lecturer, associate professor, professor and doctoral tutor in the University, and focuses on researching and teaching logistics management, supply chain management, international trade, international business operations and marketing. Recently, he has published six (6) representative works, including the Modern Logistics Handbook, and more than forty (40) papers in domestic and foreign mainstream journals. He also hosted and participated in academic forums on Research on Model of Supply Chain Logistics Management and Case Studies on China's Auto Supply Chain and other studies initiated by the National Natural Science Foundation. Mr. Liu has led research on the Shandong Weifang City Logistics Development Strategy Plan, Planning of Jiangyin Yangtze Port Integrated Logistics Zone and Logistics Solutions for Dongfeng Vehicles, Study on Transition of Wuhan Iron and Logistics Transportation Companies and a number of other logistics management topics. Mr. Liu and his research have been awarded the Outstanding Scientific Achievement Award under China’s "Ninth Five-Year" key scientific and technological projects, and Second Place in the National Commerce Scientific Advancement Award. We have selected Mr. Liu as a director because of his expertise and scholarship in the industry.

 

Tongmin Wang, Independent Director (age 56)

 

Mr. Wang was a chief engineer of Logistical Equipment at Wuhan Iron and Steel Limited from January 2011. Mr. Wang has worked for Wuhan Iron and Steel Limited and Wuhan Port Terminal Foreign Trade Co., Ltd. since 2007. He has served as the deputy general manager of the Office of Corporate Integration, Chief Administrative Officer, Director of Cargo Unloading and Chief Engineer of Logistical Equipment. Mr. Wang worked for Wuhan Port Group from 1992 to 2007. During this period, he held positions include Deputy Administrate Officer, Deputy Director of the Wuhan Water Company, Director of the Wuhan Port Mechanical Company, Manager of the Office of the Corporate Integration, Director of the Cargo Unloading Division and etc. From 1981 to 1992, Mr. Wang worked for the Wuhan Port Machinery Plant of the Ministry of Transportation in China.

 

Mr. Wang possesses professional knowledge and more than three decades of experience in the management of a port. He is familiar with the logistics industry and takes a practical approach in the organization and management of cargo loading/unloading. He is able to utilize his expertise to solve practical problems involving the day-to-day operations at a port terminal. We have selected Mr. Wang as a director because of his expertise in the industry.

 

He received his bachelor’s degree in Mechanical Engineering from Wuhan Institute of Maritime and master’s degree in Industrial Management from the Chinese Academy of Social Sciences in 1998.

 

Romano Tio, Independent Director, Chair of the Social Media Committee (age 55)

 

Mr. Tio has served as the Managing Director at RM Capital Management LLC, a boutique real estate investment and advisory firm since June 2009. Earlier in his career, Mr. Tio was involved in the real estate sales and brokerage business for 25 years. From August 2003 to December 2007, Mr. Tio was a Managing Director at the Carlton Group Ltd., a New York boutique real estate investment banking firm where he was involved in over $3.5 billion worth of commercial real estate transactions. From January 2008 to May 2009, Mr. Tio served as a Managing Director and co-head of the commercial real estate efforts of HCP Real Estate Investors, LLC, an affiliate of Harbinger Capital Partners Funds, an over $10 billion private investment firm located in New York. Mr. Tio has also served as one of the independent directors of Bluerock Residential Growth REIT in New York since January 2009. Moreover, Mr. Tio has served as an independent Trustee of the Board of Trustees of Total Income+ Real Estate Fund, a closed-end interval fund organized by Bluerock, since July 2012. We have selected Mr. Tio as a director because of his expertise in finance.

 

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Mr. Tio received a B.S. degree in Biochemistry in 1982 from Hofstra University located in Hempstead, New York.

 

Daniel W. Heffernan, Independent Director Chair of the Nomination and Board Oversight Committees (age 55)

 

Mr. Heffernan has served as the Principal of HRK Associates, specializing in credit enhanced finance since 1998. Mr. Heffernan was the Principal of HRK Associates since January 2011. Mr. Heffernan was appointed as a member of the Board in December 2015. Prior to his position at HRK, from 1973 to 1986, Mr. Heffernan served as an officer at New York Life Insurance Company. From 1986 to 1998, Mr. Heffernan was employed as an officer at Jhminer, Co. Ltd., in New York. Mr. Heffernan has more than thirty years of financial experience in the highly specialized niche market of mitigation of risk through the use of insurance and reinsurance related financial products. He has provided services to clients operating throughout the U.S. and in the international marketplace, leveraging his experience in providing credit enhanced, customized financial solutions that provide a distinctive bridge to the capital markets.

 

Mr. Heffernan is actuarially trained and has previously worked for New York Life Insurance Company, where he ran the Pension Department and supervised its two hundred eighty employees, and MINET/MIPI Brokers. While at New York Life, he consulted with a client base in excess of 5,000 corporations and unions, providing services ranging from structuring to administration. We have selected Mr. Heffernan as a director because of his expertise in finance.

 

Mr. Daniel W. Heffernan obtained his bachelor’s degree in Theology from New York Shadowbrook Jesuit Seminary in 1972.

 

Zhihong SuIndependent Director, Chair of the Governance and Human Resources Committee (age 55)

 

Mr. Su has served as the managing partner of the Beijing Hengjun Law Firm since December 2001, practicing in areas such as securities, litigation, general corporate and banking. Mr. Su was appointed as member of the Board in January 2016. Mr. Su started his career as in-house counsel for China International Trust and Investment Corporation (“CITIC”) in December 1984, and was responsible for the legal affairs of overseas investments. In January 1990, Mr. Su was sent to station at the Washington DC-based law firm Arnold and Porter LLP as a foreign lawyer to oversee a full spectrum of legal matters of CITIC’s subsidiaries in the United States, namely, CITIC Steel Group, CITIC Buffalo Tungsten Company, CITIC Seattle Woodland and CITIC Florida Real Estate Co. Ltd. During his stay in Washington from 1990 to June 1996, he worked on a number of matters involving corporate and securities law. Upon returning to China in July 1996, Mr. Su worked for the Law Offices of Jiahe as one of the founding members and as an attorney until November 2001. We have chosen Mr. Su to serve as a director because of the perspective he brings to legal matters in China.

 

Mr. Su earned his bachelor’s degree in Laws (LLB) from China University of Political Science and Law where he had taught for a year after graduation before becoming a qualified Chinese lawyer in the same year.

 

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Term of Office

 

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board of Directors and hold office until removed by the Board.

 

Family Relationships

 

There are no family relationships between any of our directors or executive officers and any other directors or executive officers.

 

Involvement in Certain Legal Proceedings

 

Except as described below, to the best of our knowledge, none of our directors or executive officers has, during the past ten years:

 

  been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

  had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

 

  been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, by any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

 

  been found by a court of competent jurisdiction in a civil action or by the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

  been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

  been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

On December 19, 2015, James Coleman joined us as Executive Director. Prior to joining us, Mr. Coleman was the managing member and owner of Firebird International LLC, Dream International Holdings LLC and Dream Recovery International LLC, all of which are privately held companies engaged primarily in drug rehabilitation businesses, from January 2014 to September 2016. On September 13, 2016, all three entities mentioned above filed voluntary petitions in the United States Bankruptcy Court for the District of Southern Florida seeking relief under the provisions of chapter 7 of title 11 of the United States Code in order to facilitate liquidations in these three entities.

 

Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.

 

Code of Ethics

 

We have adopted a code of ethics as of the date of this prospectus that applies to our principal executive officer, principal financial officer, directors and principal accounting officer as well as our employees. Our standards are in writing and are to be posted on our website at www.yerr.com.cn at a future time. The following is a summation of the key points of the Code of Ethics we adopted:

 

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  Honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

  Full, fair, accurate, timely, and understandable disclosure reports and documents that a small business issuer files with, or submits to, the Commission and in other public communications made by our Company;

 

  Full compliance with applicable government laws, rules and regulations;

 

  The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

 

  Accountability for adherence to the code.

 

Corporate Governance

 

The business and affairs of the company are managed under the direction of our Board. We have conducted Board meetings regularly since inception. Each of our directors has attended all meetings either in person, via telephone conference, or through written consent for special meetings. In addition to the contact information in this prospectus, the Board has adopted procedures for communication with the officers and directors as of January 25, 2016. Each stockholder will be given specific information on how he/she can direct communications to the officers and directors of the Company at our annual stockholders’ meetings. All communications from stockholders are relayed to the members of the Board.

 

Board Leadership Structure and Role in Risk Oversight

 

Our Board is primarily responsible for overseeing our risk management processes. The Board receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The Board focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our company are consistent with the Board’s appetite for risk. While the Board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.

 

The audit committee, which was formed on January 25, 2016, assists our Board in its general oversight of, among other things, the company’s policies, guidelines and related practices regarding risk assessment and risk management, including the risk of fraud. As part of this endeavor, the audit committee reviews and assesses the company’s major financial, legal, regulatory, environmental and similar risk exposures and the steps that management has taken to monitor and control such exposures. The audit committee also reviews and assesses the quality and integrity of the company’s public reporting, the company’s compliance with legal and regulatory requirements, the performance and independence of the company’s independent auditors, the performance of the company’s internal audit department, the effectiveness of the company’s disclosure controls and procedures, and the adequacy and effectiveness of the company’s risk management policies and related practices.

 

Committees of the Board of Directors

 

On January 25, 2016, the Board formed and adopted charters for six standing committees: Audit Committee, Compensation Committee, Nomination Committee, Governance and Human Resources Committee, Board Oversight Committee, Social Media Committee (collectively the “Committees”). Each Committee consists of only independent directors of the Company. The Board also adopted charter for the Regulatory, Compliance and Government Affairs Committee, for which the charter will be implemented once the committee is formed. The Company believes that the adoption of these charters and the formation of these Committees is necessary for the implementation of effective internal control and oversight and a significant step towards remediating any material weakness the Company had for the fiscal year ended December 31, 2015.

 

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  Audit Committee:  Harvey Leibowitz (Chair), Zhihong Su, Daniel W. Heffernan, Romano Tio, Tongmin Wang

 

  Compensation Committee:  Harvey Leibowitz (Chair), Zhihong Su, Zhixue Liu, Romano Tio, Daniel W. Heffernan

 

  Nomination Committee:  Daniel W. Heffernan (Chair), Harvey Leibowitz, Zhixue Liu, Romano Tio, Zhihong Su

 

  Governance and Human Resources Committee:  Zhihong Su (Chair), Harvey Leibowitz, Romano Tio, Daniel W. Heffernan, Tongmin Wang

 

  Board Oversight Committee:  Daniel W. Heffernan (Chair), Zhixue Liu, Harvey Leibowitz, Romano Tio, Zhihong Su

 

  Social Media Committee:  Romano Tio (Chair), Harvey Leibowitz, Zhihong Su, Daniel W. Heffernan, Tongmin Wang

 

The Board also adopted an insider trading policy that allows insiders to sell securities of the Company pursuant to pre-arranged trading plans.

 

This insider trading policy was put into place because effective October 23, 2000, the Securities and Exchange Commission (the “SEC”) adopted rules related to insider trading. One of these rules, Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, provides an exemption to the insider trading rules in the form of an affirmative defense. Rule 10b5-1 recognizes the creation of formal programs under which executives and other insiders may sell the securities of publicly traded companies on a regular basis pursuant to written plans that are entered into at a time when the plan participants are not aware of material non-public information and that otherwise comply with the requirements of Rule 10b5-1.

 

The Board also adopted a written disclosure policy, which applies to all directors, officers and employees of the Company and its wholly owned subsidiaries, to ensure that communications to the investing public about the Company are timely, factual and accurate and are broadly disseminated in accordance with all applicable legal and regulatory requirements.

 

In addition, the Board adopted a whistleblower procedure that provides the Audit Committee the responsibility to ensure proper procedure of the receipt, retention, and treatment of complaints about the Company’s accounting, internal accounting controls, or auditing matters. The Audit Committee must also provide for confidential, anonymous submission by the Company’s employees of concerns about questionable accounting or auditing matters.

 

Lastly, the Board adopted a corporate governance policy for its website content, as well as procedures for shareholder’s communication with Directors. With all of the above referenced charters and procedures in place, the Company is committed to corporate governance practices that are compliance with applicable laws, regulations and exchange requirements.

 

The functions of each committee the Company formed and adopted charters for as of the date of this prospectus are described below: 

 

Audit Committee

 

The Audit Committee shall make such examinations as are necessary to monitor the corporate financial reporting and external audits of the Company and its subsidiaries; to provide to the Board the results of its examinations and recommendations derived therefrom; to outline to the Board improvements made, or to be made, in internal accounting controls; to nominate an independent auditor; and to provide to the Board such additional information and materials as it may deem necessary to make the Board aware of significant financial matters requiring Board attention.

 

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Compensation Committee

 

The purpose of the Compensation Committee is to review and make recommendations to the Board regarding all forms of compensation to be provided to the executive officers and directors of the Company, including stock compensation and loans, and all bonus and stock compensation to all employees.

 

Nomination Committee

 

The purpose of the Nomination Committee shall be to review and make recommendations to the Board regarding matters concerning corporate governance; review the composition of and evaluate the performance of the Board; recommend persons for election to the Board and evaluate director compensation; review the composition of committees of the Board and recommend persons to be members of such committees; review and maintain compliance of committee membership with applicable regulatory requirements; and review conflicts of interest of members of the Board and corporate officers.

 

Governance and Human Resources Committee

 

The Governance and Human Resources Committee shall be is responsible for (1) developing Company’s approach to the Board and corporate governance issues; (2) helping to maintain an effective working relationship between the Board and management; (3) exercising, within the limits imposed by the by-laws of the Company, by applicable laws, and by the Board, the powers of the Board for the management and direction of the affairs of the Company during the intervals between meetings of the Board; (4) reviewing and making recommendations to the Board for the appointment of senior executives of the Company and for considering their terms of employment; (5) reviewing succession planning, matters of compensation; (6) recommending awards under the Company’s long term and short term incentive plans; (7) assuming the role of administrator, whether by delegation or by statute, for the corporate-sponsored registered pension plans and the Supplementary Executive Retirement Plan of the Company and its wholly-owned subsidiaries and any future, additional or replacement plans relating to the plans; and (8) monitoring the investment performance of the trust funds for the plans and compliance with applicable legislation and investment policies.

 

Board Oversight Committee

 

The Board Oversight Committee shall assist the Board of Directors in the exercise of its responsibilities, particularly by defining the scope of the Committee’s authority in respect of risk oversight matters delegated to it by the Board of Directors.

 

Social Media Committee

 

The Social Media Committee shall oversee the social media strategy initiatives for the Company pursuant to Regulation FD. The Committee shall 1) provide compliant Regulation FD strategic leadership for social media through the alignment of social media strategies and activities with enterprise strategic objectives and processes; 2) establish and maintain corporate policies with respect to use of social media for both process-driven social engagements, as well as for use of social media by employees for participating in social conversations (e.g. blogging and Tweeting by subject matter experts); 3) prioritize social media initiatives and deliver final approvals and recommendations on proceeding with proposed social media projects, including process, technology, and organizational project; 4) ensure open communication between the social media department and the other functional units of the Company so as to promote collaborative strategies, planning, and implementation.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Under Section 16(a) of the Exchange Act, our directors and certain officers, and persons holding more than 10 percent of our common stock are required to file forms reporting their beneficial ownership of our common stock and subsequent changes in that ownership with the United States Securities and Exchange Commission.

 

Based solely upon a review of copies of such forms filed on Forms 3, 4, and 5, and amendments thereto furnished to us, we believe that as of the date hereof our executive officers, directors and greater than 10 percent beneficial owners have complied on a timely basis with all Section 16(a) filing requirements, except that a Form 3 and a Form 4 were not timely filed for Wight International Construction LLC.

 

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EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The Summary Compensation Table below sets forth information regarding the compensation awarded to or earned by the company’s executive officers for our fiscal years ended December 31, 2015 and 2014.

 

Name   Year  

Salary

($)

   

Bonus

($)

   

Securities-

based

Compensation

($)

   

All other

compensation

($)

   

Total

($)

 
Xiangyao Liu   2015     -       -       -       -       -  
Chief Executive Officer (1)   2014     -       -       -       -       -  
                                             

Jianfeng Guo

Former Chief Executive Officer,

  2015     -       -       -       -       -  
Former Chairman of the Board (2)   2014     -       -       -       -       -  
                                             
Longlin Hu   2015     37,500       -       -       -       37,500  
Former Chief Executive Officer (3)   2014     90,000       -       -       -       90,000  
                                             
Xin “Cindy” Zheng   2015     54,000       -       -       -       54,000  
Chief Financial Officer   2014     54,000       -       -       -       54,000  

 

  (1) On December 19, 2015, Company acquired Energetic Mind and its wholly-owned subsidiaries and in connection with that transaction, Mr. Liu was appointed as our President, Chief Executive Officer, Secretary and Chairman of the Board. The amounts in this table reflect compensation awarded or paid by Energetic Mind and its subsidiaries to Mr. Liu in the fiscal years ended 2014 and 2015. As of the date of this Annual Report, Mr. Liu is President, Chief Executive Officer, Secretary and Chairman of the Board.

 

  (2) Mr. Guo was appointed as our President and Chief Executive Officer on June 1, 2015 and resigned as an executive officer and director on December 19, 2015 as a result of the transaction described above in (1).

 

  (3) Mr. Hu resigned from all his officer and director positions as president and chief executive office of the Company and as a member of the board of directors on June 1, 2015. Prior to his resignation, Mr. Hu served as the President and Chief Executive Officer and a member of the Board of Directors from March 1, 2011.

 

Employment Agreements

 

We have employment agreements with all of our directors and officers except for Xiangyao Liu.

 

Option Grants

 

We had no outstanding equity awards as of the end of fiscal year 2015.

 

Option Exercises and Fiscal Year-End Option Value Table

 

There were no stock options exercised during the fiscal year ended December 31, 2015 by the executive officers.

 

Long-Term Incentive Plans and Awards

 

There were no awards made to a named executive officer in fiscal 2015 under any long-term incentive plan.

 

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Change-in-Control Arrangements

 

None.

 

Director Compensation Table

 

The following table sets forth the compensation received by each of our Directors.

 

Name  

Fees

Earned

or Paid

in Cash

($)

   

Stock

Awards

($)

   

Option

Awards

($)

   

Non-Equity

Incentive Plan

Compensation

($)

   

Non-Qualified

Deferred

Compensation

($)

   

All Other

Compensation

($)

    Total
($)
 
Xiangyao Liu
Chairman of the Board
    -       -       -       -       -       -       -  
James Stuart Coleman
Executive Director (1)
    2,301       -       -       -       -       -       2,301  
Zhanhuai Cheng
Executive Director (1)
    789       -       -       -       -       -       789  
Yanliang Wu
Executive Director (1)
    789       -       -       -       -       -       789  
Yu Zong
Executive Director (1)
    789       -       -       -       -       -       789  
Harvey Leibowitz
Independent Director (2)
    2,104       -       -       -       -       -       2,104  
Zhixue Liu
Independent Director (3)
    789       -       -       -       -       -       -  
Tongmin Wang
Independent Director (3)
    789       -       -       -       -       -       789  
Daniel W. Heffernan
Independent Director (4)(5)
    -       -       -       -       -       -       -  
Romano Tio
Independent Director (4)(5)
    -       -       -       -       -       -       -  
Zhihong Su
Independent Director (3)(5)
    -       -       -       -       -       -       -  
JianfengGuo (6)     -       -       -       -       -       -       -  
Yaojun Liu (6)     -       -       -       -       -       -       -  
Shan Cui (6)     -       -       -       -       -       -       -  
Ran Liu (6)     -       -       -       -       -       -       -  
Yau On Tse (6)     -       -       -       -       -       -       -  
Longlin Hu (7)     -       -       -       -       -       -       -  

 

  (1) As employee directors, James Coleman will be provided with cash compensation of $70,000 per year and Yanliang Wu, Yu Zong and Zhanhuai Cheng will be provided with cash compensation of $24,000 per year, payable monthly.

 

  (2) As an independent director and Chair of the Audit Committee, Harvey Leibowitz will be provided with the following compensation: (a) the Company will issue him 20,000 shares of restricted common stock for services rendered to the Company, with an annual compensation in cash of $48,000, payable quarterly; and (b) during the directorship term, the Company will reimburse the independent directors for all reasonable out-of-pocket travel expenses incurred by the director in attending any in-person meetings, provided that the director complies with the generally applicable policies, practices and procedures of the Company for submission of expense reports, receipts or similar documentation of such expenses.

 

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  (3) As independent directors, Zhihong Su, Tongmin Wang and Zhixue Liu will be provided with the following compensation: (a) the Company will issue each a total of 10,000 shares of restricted common stock for services rendered to the Company, with an annual compensation in cash of $24,000, payable monthly; and (b) during the directorship term, the Company will reimburse the independent directors for all reasonable out-of-pocket travel expenses incurred by the director in attending any in-person meetings, provided that the director complies with the generally applicable policies, practices and procedures of the Company for submission of expense reports, receipts or similar documentation of such expenses.

 

  (4) As independent directors, Daniel W. Heffernan and Romano Tio will be provided with the following compensation: (a) the Company will issue each a total of 15,000 shares of restricted common stock for services rendered to the Company, with an annual compensation in cash of $48,000, payable quarterly; and (b) during the directorship term, the Company will reimburse the independent directors for all reasonable out-of-pocket travel expenses incurred by the director in attending any in-person meetings, provided that the director complies with the generally applicable policies, practices and procedures of the Company for submission of expense reports, receipts or similar documentation of such expenses.

 

  (5) Individuals were appointed as members of the Board in January, 2016.

 

  (6) Individuals resigned as members of the Board on December 19, 2015.

 

  (7) Mr. Hu resigned as a member of the Board on June 1, 2015.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding our shares of common stock beneficially owned as of December 19, 2016, for (i) each stockholder known to be the beneficial owner of 5% or more of the Company’s outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.

 

Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at the address of: c/o 183 Broadway, Suite 5, New York, NY 10007.

 

Name of Beneficial Owner  Amount
and Nature
of
Beneficial
Ownership
   Percent of
Common
Stock (1)
 
Xiangyao Liu, CEO, President, Secretary and Chairman of the Board (3)   91,240,000    33.51%
James Stuart Coleman, Executive Director (4)   4,060,000    1.49%
Zhanhuai Cheng, Executive Director   0    0%
Yanliang Wu, Executive Director   0    0%
Yu Zong, Executive Director   0    0%
Harvey Leibowitz, Independent Director   0    0%
Zhixue Liu, Independent Director   0    0%
Tongmin Wang, Independent Director   0    0%
Daniel W. Heffernan, Independent Director   0    0%
Romano Tio, Independent Director   0    0%
Zhihong Su, Independent Director   0    0%
Xin “Cindy” Zheng, CFO   0    0%
All directors and executive officers as a group (12 people)   95,300,000    35.00%
5% Shareholders:          
George Wight (2)   

100,000,000

    36.73%
Jasper Lake Holdings Limited (3)   91,240,000    33.51%
Crestlake Holdings Limited (5)   16,600,000    6.10%
Fortunate Drift Limited (6)   16,600,000    

6.10

%
Majestic Symbol Limited (7)   16,600,000    

6.10

%
Prolific Lion Limited (8)   14,575,348    5.35%

 

(1) Based on 272,269,446 shares of Common Stock outstanding as of December 19, 2016.

 

(2)George Wight, has sole voting and dispositive power of shares beneficially owned by Wight International Construction, LLC.

 

(3)Mr. Liu has sole voting and dispositive power of shares beneficially owned by Jasper Lake Holdings Limited.

 

(4)Mr. Coleman owns all of the membership interest of Best Future Investment LLC., which owns 4,060,000 shares of the Company’s common stock. Mr. Coleman may be deemed to be the beneficial owner of the shares of our common stock held by Best Future Investment LLC.

 

(5)Yanling Hu has sole voting and dispositive power of shares beneficially owned by Crestlake Holdings Limited.

 

(6)Linyu Chen has sole voting and dispositive power of shares beneficially owned by Fortunate Drift Limited.

 

(7)Long Zhao has sole voting and dispositive power of shares beneficially owned by Majestic Symbol Limited.

 

(8)Zhimin Chen has sole voting and dispositive power of shares beneficially owned by Prolific Lion Limited. Additionally, Mr. Chen has sole voting and dispositive power of 1,746,000 shares beneficially owned by Valiant Power Limited.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions with Related Persons

 

The following includes a summary of certain transactions in the fiscal year ended December 31, 2015 and as of September 30, 2016, of which we were or are to be a participant and the amount involved exceeded or exceeds $120,000 and in which any related person had or will have a direct or indirect material interest (other than compensation described in Item 11 of this Report). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

  

Loans from a Related Party

 

On July 13, 2015, Wuhan Renhe Group Co., Ltd ("Wuhan Renhe"), where Xiangyao Liu, our CEO and President, was a majority shareholder, transferred all of its interests in Wuhan Newport to Ricofeliz. As a former shareholder of Wuhan Newport, Wuhan Renhe provided numerous loans to Wuhan Newport prior to the transfer. As of September 30, 2016 and December 31, 2015, the amounts due to Wuhan Renhe were $28,050,884 and $28,822,089, respectively. The amounts are unsecured, interest free and do not have a fixed repayment date. On June 30, 2015, Wuhan Renhe forgave a total amount of $285,413,074 with the Company. The Company has credited the amount of $285,413,074 to additional paid-in capital in equity. As of September 30, 2016 and December 31, 2015, the amounts due to Wuhan Renhe Real Estate Co., Ltd, an entity controlled by Geng Wang, who is an affiliate of Wuhan Renhe, were $649,905 and $667,776, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.

 

As of September 30, 2016 and December 31, 2015, the amounts due to Weibin Zhao, an officer of Wuhan Newport and a related party, were $123,130 and $126,516, respectively. The amount is unsecured, interest free and does not have a fixed repayment date. 

 

As of September 30, 2016 and December 31, 2015, the amounts due to Best Future Investment LLC, an entity controlled by our Executive Director, James Coleman, were $46 and $nil, respectively. The amounts are unsecured, interest free and does not have a fixed repayment date.

 

As of September 30, 2016 and December 31, 2015, the amounts due to Mr Liu Xiangyao, our President and CEO, were $3,607,224 and $2,428,731, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.

 

 

On December 19, 2015, the Company entered into certain share exchange agreements with Energetic Mind and all the shareholders of Energetic Mind whereby the Company acquired 100% of the issued and outstanding ordinary shares of Energetic Mind from these shareholders, including Xiangyao Liu, who was appointed as Company’s executive officer and Chairman of the Board upon completion of the transaction.  As part of the transaction, the Company agreed to issue to Jasper Lake Holdings Limited, an entity Mr. Liu has investing and dispositive power of, an 8% convertible promissory note in the principal amount of $150,000,000 (the “Note”).

 

Subsequently, on December 31, 2015, the Company entered into certain stock purchase and business sale agreements with Kirin Global Enterprises, Inc., a California corporation and an entity controlled by a former officer and director of the Company whereby the Company sold its interest in certain subsidiaries for an aggregate of $75,000,002.00. Pursuant to the terms of the agreement for this transaction, Jasper agreed to finance Kirin Global $75,000,000 for a partial payment of the transaction through reduction of the Note by $75,000,000. As a result of this transaction, the outstanding balance due to Jasper under the Note is $75,000,000.00 plus any accrued interest.  The issuance of the Note at the closing of the transaction has been determined to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act.

 

Director Independence

 

The Board has adopted a formal set of Director Independence Guidelines (the “Guidelines”) with respect to the determination of director independence, which either conform to or are more exacting than the independence requirements of the NASDAQ Global Select listing standards, and the full text of which will soon to be available on our website at www.yerr.com.cn, under “Investor Relations”.

 

NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:

 

  (A)   a director who is, or at any time during the past three years was, employed by the company;

 

  (B)    a director who accepted or who has a Family Member who accepted any compensation from the company in excess of $100,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than the following:

 

  (i)    compensation for board or board committee service;
  (ii) compensation paid to a Family Member who is an employee (other than an executive officer) of the company; or
  (iii) benefits under a tax-qualified retirement plan, or non-discretionary compensation. Provided, however, that in addition to the requirements contained in this paragraph (B), audit committee members are also subject to additional, more stringent requirements under Rule 4350(d).

 

  (C)   a director who is a Family Member of an individual who is, or at any time during the past three years was, employed by the company as an executive officer;

 

  (D)   a director who is, or has a Family Member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which the company made, or from which the company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more, other than the following:

 

  (i) payments arising solely from investments in the company's securities; or
  (ii) payments under non-discretionary charitable contribution matching programs.

 

  (E)  a director of the issuer who is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the issuer serve on the compensation committee of such other entity; or

 

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  (F)   a director who is, or has a Family Member who is, a current partner of the company's outside auditor, or was a partner or employee of the company's outside auditor who worked on the company's audit at any time during any of the past three years.

 

  (G)   in the case of an investment company, in lieu of paragraphs (A)-(F), a director who is an "interested person" of the company as defined in Section 2(a)(19) of the Investment Company Act of 1940, other than in his or her capacity as a member of the board of directors or any board committee. 

 

As of December 19, 2016, our Board is composed of six committees and eleven members, of which six directors are independent directors. The six independent directors are Harvey Leibowitz, Daniel W. Heffernan, Romano Tio, Zhihong Su, Tongmin Wang and Zhixue Liu. In addition, as indicated above in “Directors and Executive Officers”, each of our six board committee is composed entirely of independent directors, including the chairperson of the audit committee and compensation committee. We believe that having a majority of independent directors that make up our Board and committees exclusively of independent directors benefits the company, as well as our stockholders. Company also believes that director independence, formation of board committees and the adoption of committee charters address any material weaknesses the Company has had in the past.

 

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LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

 

DESCRIPTION OF SECURITIES

 

Introduction

 

In the discussion that follows, we have summarized selected provisions of our Articles of Incorporation relating to our capital stock. This summary is not complete. This discussion is subject to the relevant provisions of Nevada law and is qualified in its entirety by reference to our Articles of Incorporation and our Bylaws. You should read our articles of incorporation and our bylaws as currently in effect for provisions that may be important to you.

 

Authorized Capital Stock

 

Our authorized share capital consists of 500,000,000 shares of common stock, par value $0.0001 per share, and 100,000,000 shares of preferred stock, par value $0.0001 per share. As of December 19, 2016, 272,269,446 shares of our common stock and no shares of our preferred stock were outstanding.

 

Common Stock

 

Each share of our common stock entitles its holder to one vote in the election of each director and on all other matters voted on generally by our stockholders, other than any matter that (1) solely relates to the terms of any outstanding series of preferred stock or the number of shares of that series and (2) does not affect the number of authorized shares of preferred stock or the powers, privileges and rights pertaining to the common stock. No share of our common stock affords any cumulative voting rights. This means that the holders of a majority of the voting power of the shares voting for the election of directors can elect all directors to be elected if they choose to do so.

 

Holders of our common stock will be entitled to dividends in such amounts and at such times as our Board of Directors in its discretion may declare out of funds legally available for the payment of dividends. We currently intend to retain our entire available discretionary cash flow to finance the growth, development and expansion of our business and do not anticipate paying any cash dividends on the common stock in the foreseeable future. Any future dividends will be paid at the discretion of our Board of Directors after taking into account various factors, including:

 

  general business conditions;
  industry practice;
  our financial condition and performance;

 

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  our future prospects;
  our cash needs and capital investment plans;
  our obligations to holders of any preferred stock we may issue;
  income tax consequences; and
  the restrictions Nevada and other applicable laws and our credit arrangements then impose.

 

If we liquidate or dissolve our business, the holders of our common stock will share ratably in all our assets that are available for distribution to our stockholders after our creditors are paid in full and the holders of all series of our outstanding preferred stock, if any, receive their liquidation preferences in full.

 

Our common stock has no preemptive rights and is not convertible or redeemable or entitled to the benefits of any sinking or repurchase fund.

 

Preferred Stock

 

At the direction of our Board of Directors, without any action by the holders of our common stock, we may issue one or more series of preferred stock from time to time. Our Board of Directors can determine the number of shares of each series of preferred stock, the designation, powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions applicable to any of those rights, including dividend rights, voting rights, conversion or exchange rights, terms of redemption and liquidation preferences, of each series.

 

Undesignated preferred stock may enable our Board of Directors to render more difficult or to discourage an attempt to obtain control of our company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of preferred stock may adversely affect the rights of our common stockholders. For example, any preferred stock issued may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. As a result, the issuance of shares of preferred stock, or the issuance of rights to purchase shares of preferred stock, may discourage an unsolicited acquisition proposal or bids for our common stock or may otherwise adversely affect the market price of our common stock or any existing preferred stock.

 

Warrants

 

There are no outstanding warrants.

 

Transfer Agent and Registrar

 

The Transfer Agent for our common stock is VStock Transfer, LLC located at 18 Lafayette Pl, Woodmere, NY 11598. The telephone number is: (212) 828-8436.

 

 73 

 

 

MARKET PRICE OF AND DIVIDENDS ON OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

Our common stock trades on the OTC Markets under the symbol “YERR”.  The OTC Markets is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) equity securities. An OTC Markets equity security generally is any equity that is not listed or traded on a national securities exchange.

 

Price Range of Common Stock

 

The following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the OTC Markets’ quotation service.  These bid prices represent prices quoted by broker-dealers on the OTC Markets quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions.

 

 74 

 

 

 

    Fiscal Year 2016  
    High     Low  
             
First Quarter (January 1 - March 31)   $ 6.15     $ 3.70  
Second Quarter (April 1 - June 30)   $ 7.50     $ 3.80  
Third Quarter (July 1 - September 30)   $ 5.50     $ 3.50  
Fourth Quarter (October 1 - December 19)   $ 6.40     $ 3.50  

 

    Fiscal Year 2015  
    High     Low  
             
First Quarter (January 1 - March 31)   $ 0.45     $ 0.07  
Second Quarter (April 1 - June 30)   $ 1.90     $ 0.25  
Third Quarter (July 1 - September 30)   $ 3.20     $ 1.12  
Fourth Quarter (October 1 - December 31)   $ 8.40     $ 1.84  

 

    Fiscal Year 2014  
    High     Low  
                 
First Quarter (January 1 - March 31)   $ 0.11     $ 0.10  
Second Quarter (April 1 - June 30)   $ 1.83     $ 0.10  
Third Quarter (July 1 - September 30)   $ 0.52     $ 0.16  
Fourth Quarter (October 1 - December 31)   $ 0.24     $ 0.06  

 

Holders

 

As of December 19, 2016, there were 60 holders of record of our common stock.  Because shares of the Company’s common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of the Company’s shares is substantially larger than the number of stockholders of record.

 

Dividends

 

We have never declared or paid a cash dividend. Any future decisions regarding dividends will be made by our Board of Directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our Board of Directors has complete discretion on whether to pay dividends. Even if our Board of Directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board of Directors may deem relevant.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

We do not have in effect any compensation plans under which our equity securities are authorized for issuance.

 

 75 

 

 

LEGAL MATTERS

 

The validity of the share of Common Stock offered hereby will be passed upon for us by Lucosky Brookman LLP. Hunter Taubman Fischer & Li LLC is acting as counsel to the Underwriter.

 

The current address of Lucosky Brookman LLP is 101 Wood Avenue South, Fifth Floor, Woodbridge, New Jersey 08830.

 

EXPERT

 

The consolidated financial statements for each of the years ended December 31, 2015 and 2014, as set forth in this prospectus and elsewhere in the registration statement have been so included in reliance on the report of Centurion ZD CPA Limited (previously DCAW (CPA) Limited, as successor to Dominic K.F. Chan & Co), an independent registered public accounting firm, given on their authority as experts in accounting and auditing. The current address of Centurion ZD CPA Limited is located in Rooms 2105-06, 21/F., Office Tower, Langham Place, 8 Argyle Street, Mongkok, Kowloon, Hong Kong.

 

On December 14, 2015, Company dismissed its former independent registered public accounting firm, Marcum Bernstein & Pinchuk LLP. The decision to change the independent registered public accounting firm was recommended and approved by the Board of Directors of the Company. On December 15, 2015, the Board of Directors of the Company appointed DCAW (CPA) Limited (as successor to Dominic K.F. Chan & Co) as its new independent registered public accounting firm to audit and review the Company’s financial statements for the fiscal years ended December 31, 2014 and 2015.

 

On November 15, 2016, the Company was informed by DCAW (CPA) Limited (now Centurion ZD CPA Limited) that on November 14, 2016, it had changed its name from “DCAW (CPA) Limited” to “Centurion ZD CPA Limited”.

  

 76 

 

 

INTERESTS OF NAMED EXPERTS AND COUNSEL

 

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant. Nor was any such person connected with the registrant as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We filed with the SEC a registration statement under the Securities Act for the common stock in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits that were filed with the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement.

 

We file annual, quarterly, and current reports and other information with the SEC. Our filings with the SEC are available to the public on the SEC’s website at www.sec.gov. Those filings are also available to the public on our corporate website at www.yerr.com.cn. The information we file with the SEC or contained on, or linked to through, our corporate website or any other website that we may maintain is not part of this prospectus or the registration statement of which this prospectus is a part. You may also read and copy, at the SEC’s prescribed rates, any document we file with the SEC, including the registration statement (and its exhibits) of which this prospectus is a part, at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.

 

 77 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015 AND 2014

 

TABLE OF CONTENTS

 

  Pages
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2015 and 2014 F-3
Consolidated Statements of Operations and Comprehensive Loss for years ended December 31, 2015 and 2014 F-4
Consolidated Statements of Changes in Equity for years ended December 31, 2015 and 2014 F-5
Consolidated Statements of Cash Flows for years ended December 31, 2015 and 2014 F-6
Notes to the Consolidated Financial Statements F-7 - F-19

 

 F-1 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Stockholders of

Yangtze River Development Limited

 

We have audited the accompanying consolidated balance sheets of Yangtze River Development Limited (the “Company”) (formerly known as Kirin International Holding, Inc.) as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive loss, changes in owners’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Yangtze River Development Limited as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Dominic K.F. Chan & Co.  
Dominic K.F. Chan & Co.  
Certified Public Accountants  
Hong Kong, March 30, 2016  

 

 F-2 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

CONSOLIDATED BALANCE SHEETS

 

   December 31, 
   2015   2014 
ASSETS          
Cash and cash equivalents  $512,569   $56,366 
Other assets and receivables   6,259,865    2,937,545 
Real estate property completed   31,566,156    33,025,319 
Real estate properties and land lots under development   364,876,105    384,610,172 
Property and equipment, net   157,499    237,475 
Deferred tax assets   3,614,419    2,420,449 
Total Assets  $406,986,613   $423,287,326 
           
LIABILITIES AND EQUITY          
Liabilities          
Accounts payable  $5,526,610   $5,837,471 
Due to related parties   32,045,112    322,388,060 
Other taxes payable   13,350    28,203 
Other payables and accrued liabilities   560,830    264,558 
Real estate property refund and compensation payable   25,274,753    25,158,858 
Convertible note   75,000,000    - 
Loans payable   44,502,981    47,185,161 
Total liabilities  $182,923,636   $400,862,311 
           
Equity          
Preferred stock at $0.0001 par value; 100,000,000 shares authorized; none issued or outstanding  $-   $- 
Common stock at $0.0001 par value; 500,000,000 shares authorized; 172,254,446 and 151,000,000 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively   17,225    15,100 
Additional paid-in capital   242,622,947    27,955,331 
Accumulated losses   (16,263,010)   (9,881,148)
Accumulated other comprehensive (loss) income   (2,314,185)   4,335,732 
Total Equity  $224,062,977   $22,425,015 
Total Liabilities and Equity  $406,986,613   $423,287,326 

 

See notes to the consolidated financial statements

 

 F-3 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

   For the Years Ended December 31, 
   2015   2014 
         
Revenue  $-   $3,458,295 
Cost of revenue   -    3,693,783 
Gross loss   -    (235,488)
           
Operating expenses          
Selling expenses   11,577    87,866 
General and administrative expenses   4,547,646    2,090,499 
Total operating expenses   4,559,223    2,178,365 
           
Loss from operations   (4,559,223)   (2,413,853)
           
Other expenses          
Other income   868    - 
Other expenses   (3,231)   - 
Interest income   55    10,996 
Interest expenses   (3,199,031)   (3,256,660)
Total other expenses   (3,201,339)   (3,245,664)
           
Loss before income taxes   (7,760,562)   (5,659,517)
Income taxes benefit   1,378,700    1,402,421 
Net loss  $(6,381,862)  $(4,257,096)
           
Other comprehensive loss          
Foreign currency translation adjustments   (6,649,917)   (147,341)
Comprehensive loss  $(13,031,779)  $(4,404,437)
Loss per share - basic and diluted  $(0.04)  $(0.03)
           
Weighted average shares outstanding - basic and diluted   151,682,554    151,000,000 

 

See notes to the consolidated financial statements

 

 F-4 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

   Common stock   Additional       Accumulated
other
     
   Number of
shares
   Amount  

paid-in

capital

  

Accumulated

losses

   Comprehensive
(loss) income
   Total 
                         
Balance as of January 1, 2014   151,000,000   $15,100   $27,955,331   $(5,624,052)  $4,483,073   $26,829,452 
Net loss   -    -    -    (4,257,096)   -    (4,257,096)
Foreign currency translation adjustment   -    -    -    -    (147,341)   (147,341)
Balance as of December 31, 2014   151,000,000   $15,100   $27,955,331   $(9,881,148)  $4,335,732   $22,425,015 
                               
Forgiveness of loan from Wuhan Renhe   -    -    285,413,074    -    -    285,413,074 
Effect of share exchange   20,596,546    2,060    (86,182,521)   -    -    (86,180,461)
Restricted shares issued for services   657,900    65    3,749,965    -    -    3,750,030 
Extinguishment of debt with a former officer   -    -    11,687,098    -    -    11,687,098 
Net loss   -    -    -    (6,381,862)   -    (6,381,862)
Foreign currency translation adjustment   -    -    -    -    (6,649,917)   (6,649,917)
Balance as of December 31, 2015   172,254,446   $17,225   $242,622,947   $(16,263,010)  $(2,314,185)  $224,062,977 

 

See notes to the consolidated financial statements

 

 F-5 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   For the Years Ended December 31, 
   2015   2014 
Cash Flows from Operating Activities:          
Net loss  $(6,381,862)  $(4,257,096)
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation of property, and equipment   79,064    80,133 
Loss on disposal of property, and equipment   3,082    - 
Deferred tax benefit   (1,378,700)   (1,402,421)
Share-based compensation expense   1,808,867    - 
Changes in operating assets and liabilities:          
Prepayments   -    884,391 
Other assets and receivables   (1,534,700)   (57,758)
Real estate property completed   (312,163)   (276,595)
Real estate properties and land lots under development   (778,977)   (6,412,919)
Accounts payable   -    4,486,912 
Other taxes payable   (13,914)   28,204 
Other payables and accrued liabilities   2,257,051    72,260 
Real estate property refund and compensation payables   1,517,110    1,577,864 
Net Cash Used In Operating Activities   (4,735,142)   (5,277,025)
           
Cash Flows from Investing Activities:          
Purchase of property and equipment   (11,733)   (70,908)
Proceeds from disposal of property and equipment   130    - 
Effect of share exchange   505,782    - 
Net Cash Provided By (Used In) Investing Activities   494,179    (70,908)
           
Cash Flows from Financing Activities:          
Proceeds from financial institution loans   -    47,187,464 
Repayment of financial institution loans   (176,599)   (488,146)
Advances from related parties   4,874,761    4,834,513 
Repayment to related parties   -    (47,187,464)
Net Cash Provided By Financing Activities   4,698,162    4,346,367 
           
Effect of Exchange Rate Changes on Cash and Cash Equivalents   (996)   (5,801)
           
Net Increase (Decrease) In Cash and Cash Equivalents   456,203    (1,007,367)
Cash and Cash Equivalents at Beginning of Year   56,366    1,063,733 
Cash and Cash Equivalents at End of Year  $512,569   $56,366 
           
Supplemental Cash Flow Information:          
Cash paid for interest expense  $3,001,771   $3,256,660 
Cash paid for income tax  $-   $- 
           
Supplemental Disclosure of Non-Cash Transactions:          
Forgiveness of loans from an owner  $285,413,074   $- 
Issuance of convertible note  $150,000,000   $- 
Reduction of convertible note  $75,000,000   $- 

 

See notes to the consolidated financial statements

 

 F-6 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

 

The consolidated financial statements include the financial statements of Yangtze River Development Limited (the “Company” or “Yangtze River”) and its subsidiaries, Energetic Mind Limited (“Energetic Mind”), Ricofeliz Capital (HK) Limited (“Ricofeliz Capital”), and Wuhan Yangtze River Newport Logistics Co., Ltd. (“Wuhan Newport”).

 

The Company, formerly named as Kirin International Holding, Inc., and Ciglarette, Inc., was incorporated in the State of Nevada on December 23, 2009. The Company was a development stage company and has not generated significant revenue since inception to March 1, 2011.

 

On March 1, 2011, the Company entered into a share exchange agreement that Kirin China Holding Limited (“Kirin China”) became the Company’s wholly-owned subsidiary. Kirin China engaged in the development and sales of residential and commercial real estate properties, and development of land lots in People’s Republic of China (“China”, or the “PRC”).

 

On December 19, 2015, the Company completed a share exchange (the “Share Exchange”) with Energetic Mind and all the shareholders of Energetic Mind, whereby Yangtze River acquired 100% of the issued and outstanding capital stock of Energetic Mind, in exchange for 151,000,000 shares of Yangtze River’s common stock, which constituted approximately 88% of its issued and outstanding shares on a fully-diluted basis of Yangtze River immediately after the consummation of the Share Exchange, and an 8% convertible note (the “Note”) in the principal amount of $150,000,000. As a result of the Share Exchange, Energetic Mind became Yangtze River’s wholly-owned subsidiary and Jasper Lake Holdings Limited (“Jasper”), the former shareholder of Energetic Mind, became Yangtze River’s controlling stockholder. The Share Exchange transaction with Energetic Mind was treated as an acquisition, with Energetic Mind as the accounting acquirer and Yangtze River as the acquired party. The financial statements before the date of the Share Exchange are those of Energetic Mind with the results of the Company being consolidated from the date of the Share Exchange.

 

Energetic Mind owns 100% of Ricofeliz Capital and operates its business through its subsidiary Wuhan Newport.

 

Wuhan Newport was a wholly owned subsidiary of Wuhan Renhe Group Co., Ltd. (the “Wuhan Renhe”), a company incorporated in the PRC as at September 23, 2002. On July 13, 2015, Wuhan Renhe transferred all of the equity interests of the Company to Ricofeliz Capital, a company incorporated in Hong Kong on March 25, 2015. Ricofeliz Capital was incorporated by Energetic Mind, a company incorporated in British Virgin Islands (“BVI”). Energetic Mind was incorporated by Mr. Liu Xiangyao on January 2, 2015, and was subsequently purchased by various companies incorporated in BVI or the United States of America (“USA”), among whom Jasper became its 64% owner. Jasper was 100% owned by Mr. Liu Xiangyao, a Hong Kong citizen.

 

The major assets of Wuhan Newport include land lots for developing commercial buildings that are in line with the principal activities of Kirin China.

 

On December 31, 2015, the Company entered into certain stock purchase and business sale agreements (the “Agreements”) with Kirin Global Enterprises, Inc. (the “Purchaser”), a California corporation and an entity controlled by a former officer and director of the Company whereby the Company sold its interest in certain subsidiaries (see note 11) for an aggregate of $75,000,002. (the “Sale”).

 

Pursuant to the terms of the Agreements, Jasper agreed to finance the Sale by reducing Company’s financial obligations of the Note by an aggregate of $75,000,000. In addition, the Purchaser agreed to pay the remaining two dollar in cash.

 

Upon completion of the Sale, the Company operates its business solely through its subsidiary Wuhan Newport, primarily engaging in the business as a port logistic center located in the middle reaches of the Yangtze River in the PRC.

 

 F-7 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

2.1 Basis of presentation

 

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

 

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

 

The consolidated balance sheets are presented unclassified because the time required to complete real estate projects and the Company’s working capital considerations usually stretch for more than one-year period.

 

2.2 Use of estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. Significant accounting estimates reflected in the consolidated financial statements include: (i) the allowance for doubtful debts; (ii) accrual of estimated liabilities; and (iii) contingencies; (iv) deferred tax assets; (v) impairment of long-lived assets; (vi) useful lives of property plant and equipment; and (vii) real estate property refunds and compensation payables.

 

2.3 Cash and cash equivalents

 

Cash and cash equivalents consist of cash and bank deposits with original maturities of three months or less, which are unrestricted as to withdrawal and use the Company maintains accounts at banks and has not experienced any losses from such concentrations.

 

2.4 Property and equipment

 

The property and equipment are stated at cost less accumulated depreciation. The depreciation is computed on a straight-line method over the estimated useful lives of the assets with 5% salvage value. Estimated useful lives of property and equipment are stated in Note 7.

 

The Company eliminates the cost and related accumulated depreciation of assets sold or otherwise retired from the accounts and includes any gain or loss in the statement of income. The Company charges maintenance, repairs and minor renewals directly to expenses as incurred; major additions and betterment to equipment are capitalized.

 

2.5 Impairment of long-lived assets

 

The Company applies the provisions of ASC No. 360 Sub topic 10, "Impairment or Disposal of Long-Lived Assets"(ASC 360- 10) issued by the Financial Accounting Standards Board ("FASB"). ASC 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

 

The Company tests long-lived assets, including property and equipment and finite lived intangible assets, for impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There were no impairment losses in the years ended December 31, 2015 and 2014.

 

 F-8 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

2.6 Fair values of financial instruments

 

ASC Topic 825, Financial Instruments (“Topic 825”) requires disclosure of fair value information of financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Topic 825 excludes certain financial instruments and all nonfinancial assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts do not represent the underlying value of the Company.

 

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.

 

As of December 31, 2015 and 2014, financial instruments of the Company primarily comprise of cash, accrued interest receivables, other receivables, short-term bank loans, deposits payables and accrued expenses, which were carried at cost on the balance sheets, and carrying amounts approximated their fair values because of their generally short maturities.

 

2.7 Convertible notes

 

In accordance with ASC subtopic 470-20, the convertible notes are initially carried at the principal amount of the convertible notes. Debt premium or discounts, which are the differences between the carrying value and the principal amount of convertible notes at the issuance date, together with related debts issuance cost, are subsequently amortized using effective interest method as adjustments to interest expense from the debt issuance date to its first redemption date. Convertible notes are classified as a current liability if they are or will be callable by the Company or puttable by the debt holders within one year from the balance sheet date, even though liquidation may not be expected within that period.

 

2.8 Foreign currency translation and transactions

 

The Company’s consolidated financial statements are presented in the U.S. dollar (US$), which is the Company’s reporting currency. Yangtze River, Energetic Mind, and Ricofeliz Capital uses US$ as its functional currency. Wuhan Newport uses RenminbiYuan (“RMB”) as its functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the statements of operations.

 

In accordance with ASC 830, Foreign Currency Matters, the Company translated the assets and liabilities into US$ using the rate of exchange prevailing at the applicable balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in owners’ equity as part of accumulated other comprehensive income.

 

   December 31, 
   2015   2014 
Balance sheet items, except for equity accounts   6.4917    6.1460 
           
   For the Years Ended
December 31,
 
   2015   2014 
Items in the statements of operations and comprehensive income, and statements of cash flows   6.2288    6.1457 

 

2.9 Revenue recognition

 

The Company recognizes revenue from steel trading when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collection is reasonably assured.

 

Real estate sales are reported in accordance with the provisions of ASC 360-20, Property, Plant and Equipment, Real Estate Sales.

 

 F-9 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

Revenue from the sales of completed properties and properties where the construction period is twelve months or less is recognized by the full accrual method when (a) sale is consummated; (b) the buyer’s initial and continuing involvements are adequate to demonstrate a commitment to pay for the property; (c) the receivable is not subject to future subordination; (d) the Company has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property. A sale is not considered consummated until (a) the parties are bound by the terms of a contract or agreement, (b) all consideration has been exchanged, (c) any permanent financing for which the seller is responsible has been arranged, (d) all conditions precedent to closing have been performed. Fair value of buyer’s payments to be received in future periods pursuant to sales contract is classified under accounts receivable. Sales transactions not meeting all the conditions of the full accrual method are accounted for using the deposit method of accounting. Under the deposit method, all costs are capitalized as incurred, and payments received from the buyer are recorded as a deposit liability.

 

Revenue and profit from the sale of development properties where the construction period is more than twelve months is recognized by the percentage-of-completion method on the sale of individual units when the following conditions are met: (a)construction is beyond a preliminary stage; (b) the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit; (c) sufficient units have already been sold to assure that the entire property will not revert to rental property; (d) sales prices are collectible and (e) aggregate sales proceeds and costs can be reasonably estimated. If any of these criteria are not met, proceeds are accounted for as deposits until the criteria are met and/or the sale consummated.

 

The Company has not generated any revenue from the sales of real estate property for the years ended December 31, 2015 and 2014.

 

2.10 Real estate capitalization and cost allocation

 

Real estate property completed and real estate properties and land lots under development consist of commercial units under construction and units completed. Properties under development or completed are stated at cost or estimated net realizable value, whichever is lower. Cost capitalization of development and redevelopment activities begins during the predevelopment period, which we define as the activities that are necessary to begin the development of the property. We cease capitalization upon substantial completion of the project, but no later than one year from cessation of major construction activity. We also cease capitalization when activities necessary to prepare the property for its intended use have been suspended. Costs include costs of land use rights, direct development costs, interest on indebtedness, construction overhead and indirect project costs. The Company acquires land use rights with lease terms of 40 years through government sale transaction. Land use rights are divided and transferred to customers after the Company delivers properties. The Company capitalizes payments for obtaining the land use rights, and allocates to specific units within a project based on units’ gross floor area. Costs of land use rights for the purpose of property development are not amortized. Other costs are allocated to units within a project based on the ratio of the sales value of units to the estimated total sales value.

 

2.11 Capitalization of interest

 

In accordance with ASC 360, Property, Plant and Equipment, interest incurred during construction is capitalized to properties under development. For the years ended December 31, 2015 and 2014, nil and nil were capitalized as properties under development, respectively.

 

2.12 Advertising expenses

 

Advertising costs are expensed as incurred, or the first time the advertising takes place, in accordance with ASC 720-35, Advertising Costs. For the years ended December 31, 2015 and 2014, the Company recorded advertising expenses of $7,724 and $47,187, respectively.

 

2.13 Share-based compensation

 

The Company grants restricted shares to its non-employee consultants. Awards granted to non-employees are measured at fair value at the earlier of the commitment date or the date the services are completed, and are recognized using graded vesting method over the period the service is provided.

 

2.14 Income taxes

 

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

 

The Company adopts a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation process, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. As of December 31, 2015 and 2014, the Company did not have any uncertain tax position.

 

 F-10 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

2.15 Land Appreciation Tax (“LAT”)

 

In accordance with the relevant taxation laws in the PRC, the Company is subject to LAT based on progressive rates ranging from 30% to 60% on the appreciation of land value, which is calculated as the proceeds of sales of properties less deductible expenditures, including borrowing costs and all property development expenditures. LAT is prepaid at 1% to 2% of the pre-sales proceeds each year as required by the local tax authorities, and is settled generally after the construction of the real estate project is completed and majority of the units are sold. The Company provides LAT as expensed when the related revenue is recognized based on estimate of the full amount of applicable LAT for the real estate projects in accordance with the requirements set forth in the relevant PRC laws and regulations. LAT would be included in income tax expense in the statements of operations and comprehensive income (loss).

 

2.16 Earnings (loss) per share

 

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

 

2.17 Comprehensive loss

 

Comprehensive loss includes net income (loss) and foreign currency adjustments. Comprehensive loss is reported in the consolidated statements of operations and comprehensive loss. Accumulated other comprehensive loss, as presented on the consolidated balance sheets are the cumulative foreign currency translation adjustments.

 

2.18 Contingencies

 

In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. In accordance with ASC No. 450 Sub topic 20, “Loss Contingencies”, the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

 

2.19 Recently issued accounting pronouncements

 

The Company does not believe other recently issued but not yet effective accounting standards from ASU 2016-01, if currently adopted, would have a material effect of the consolidated financial position, results of operation and cash flows.

 

 F-11 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

3. RISKS

 

(a) Liquidity risk

 

The Company is 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.

 

(b) 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.

 

(c) Concentration risk

 

For the year ended December 31, 2014, two customers accounted for all of sales. There were no sales for the year December 31, 2015.

 

   Years Ended December 31, 
   2015   2014 
         
Customer A   -    20%
Customer B   -    80%
    -    100%

 

For the year ended December 31, 2014, products purchased from two suppliers accounted for all of product purchases. There were no sales for the year December 31, 2015.

 

   Years Ended December 31, 
   2015   2014 
         
Supplier A   -    19%
Supplier B   -    81%
    -    100%

 

 F-12 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

4. OTHER ASSETS AND RECEIVABLES

 

Other assets and receivables as of December 31, 2015 and 2014 consisted of:

 

   December 31, 
   2015   2014 
         
Deposits  $847   $3,611 
Working capital borrowed by contractors   -    12,431 
Individual income tax receivable   -    361 
Staff allowance   -    72,346 
Prepaid consulting and legal fees   1,941,163    - 
Underwriting commission deposit   1,606,000    - 
Excessive business tax and related urban construction and education surcharge   1,726,408    1,814,991 
Excessive land appreciation tax   985,447    1,033,805 
   $6,259,865   $2,937,545 

 

Business tax and LAT are payable each year at 5% and 1% - 2% respectively of customer deposits received. The Company recognizes sales related business tax and LAT in the income statement to the extent that they are proportionate to the revenue recognized each period. Any excessive amounts of business and LAT liabilities recognized at period-end pursuant to tax laws and regulations over the amounts recognized in the income statement are capitalized in prepayments and will be expensed in subsequent periods.

 

5. REAL ESTATE PROPERTY COMPLETED

 

The account balance and components of the real estate property completed were as follow:

 

   December 31, 
   2015   2014 
Properties completed          
Wuhan Centre China Grand Steel Market          
Costs of land use rights  $7,716,994   $8,151,059 
Other development costs   23,849,162    24,874,260 
   $31,566,156   $33,025,319 

 

As of December 31, 2015, the sole and wholly owned developing project of the Company is called Wuhan Centre China Grand Steel Market (Phase 1) Commercial Building in the south of Hans Road, Wuhan Yangluo Economic Development Zone with approximately 222,496.6 square meters of total construction area. Since June 2009, the Company commenced the construction of the project that funded through a combination of bank loans and advances from shareholders. The Company has obtained certificates representing titles of the land use rights used for the development of the project. As of December 31, 2015, the Company has completed the construction of four buildings covering area of approximately 35,350.4square meters of construction area. The Company values the real estate assets based on estimates using present value by quoted prices for comparable real estate projects.

 

6. REAL ESTATE PROPERTIES AND LAND LOTS UNDER DEVELOPMENT

 

The components of real estate properties and land lots under development were as follows:

 

   December 31, 
   2015   2014 
Properties under development          
Wuhan Centre China Grand Steel Market          
Costs of land use rights  $9,306,948   $9,830,445 
Other development costs   38,982,735    40,385,963 
           
Land lots under development          
Costs of land use rights   316,586,422    334,393,764 
   $364,876,105   $384,610,172 

 

The investments in undeveloped land were acquired in September, 2007. The Company leases the land under land use right leases with various terms from the PRC government, and does not have ownership of the underlying land.

 

As of December 31, 2015, the Company has three buildings under development of the project described in Note 5 covering area of approximately 57,450.4 square meters of construction area.

 

Land use right with net book value of $181,287,079, including in real estate held for development and land lots undeveloped were pledged as collateral for the financial institution loan as at December 31, 2015. (See Note 10).

 

 F-13 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

7. PROPERTY AND EQUIPMENT

 

The Company’s property and equipment used to conduct day-to-day business are recorded at cost less accumulated depreciation. Depreciation expenses are calculated using straight-line method over the estimated useful life with 5% of estimated salvage value below:

 

   Useful life   December 31, 
   Years   2015   2014 
             
Fixture, furniture and office equipment      $63,474   $56,710 
Vehicles       528,424    605,642 
Less: accumulated depreciation        (434,399)   (424,877)
Property and equipment, net       $157,499   $237,475 

 

Depreciation expense totaled $76,419 and $80,133 for the years ended December 31, 2015 and 2014, respectively.

 

8. OTHER PAYABLES AND ACCRUED LIABILITIES

 

Other payables and accrued liabilities as of December 31, 2015 and 2014 consisted of:

 

   December 31, 
   2015   2014 
         
Salaries payable  $182,716   $75,301 
Business tax and related urban construction and education surcharge   12,947    121 
Deposits from contractors   167,907    177,351 
Interests payable in connection with convertible note   197,260    - 
Others   -    11,785 
   $560,830   $264,558 

 

9. REAL ESTATE PROPERTY REFUND AND COMPENSATION PAYABLE

 

During the years 2012 and 2011, the Company signed 443 binding agreements of sales of commercial offices of the project with floor area of 22,790 square meters to unrelated purchasers (the transactions or the real estate sales transactions). The Company received deposits and considerations from the purchasers as required by the agreements. The construction commenced in the 2010, which was originally expected to be delivered to customers in late of 2012. No revenue was recognized from the sales of the commercial offices due to the reason stated below.

 

Owing to commercial reasons, the Company decided to terminate the agreements made for the sale of the real estate properties in relation to the project of Wuhan Centre China Grand Market. According to the agreements of sales, the Company is obliged to compensate the purchaser at a rate equal to 6% per annum or 0.05% per day on the deposits paid. In the years ended December 31, 2015 and 2014, the Company incurred $1,528,126 and $1,547,428 compensation expenses which were included in general and administrative expenses.

 

As at December 31, 2015, 375 out of 443 agreements were cancelled, and no completed office (or real estate certificate) has been delivered to the purchaser. The Company is still in the progress of negotiating with the purchasers for the cancellation of the remaining agreements. The directors of the Company are of the opinion that almost all of the purchasers shall accept the cancellation. If, finally the purchaser insisted on the execution of the agreement, the Company will accept.

 

Real estate property refund and compensation payable represent the amount of customer deposits received and the compensation calculated in accordance with the provisions in the sales agreements. The payable consists of the followings:

 

   December 31, 
   2015   2014 
         
Property sales deposits  $20,152,652   $21,297,363 
Compensation   5,122,101    3,861,495 
   $25,274,753   $25,158,858 

 

 F-14 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

10. LOANS PAYABLE

 

   Weighted-
average
interest
       December 31 
Bank name  rate   Term   2015   2014 
China Construction Bank   6.33%  From May 30, 2014 to May 29, 2020    44,502,981    47,185,161 

 

Interest expenses incurred on loans payable for the years ended December 31, 2015 and 2014 was $3,001,771 and $3,256,660, respectively.

 

Land use right with net book value of $181,287,079, including in real estate held for development and land lots under development were pledged as collateral for the loan as at December 31, 2015.

 

The aggregate maturities of loans payable of each of years subsequent to December 31, 2015 are as follows:

 

2016   $ 154,043  
2017     10,783,000  
2018     10,783,000  
2019     12,323,428  
2020     10,459,510  
    $ 44,502,981  

 

11. DISPOSAL OF SUBSIDIARIES

 

On December 31, 2015, the Company sold all of its interests in i) Brookhollow Lake, LLC, ii) Newport Property Holding, LLC, iii) wholly-owned subsidiary Kirin China, iv) wholly-owned subsidiary Kirin Hopkins Real Estate Group, v) wholly-owned subsidiary Archway Development Group LLC, vi) wholly-owned subsidiary Specturm International Enterprise, LLC and vii) wholly-owned subsidiary HHC-6055 Centre Drive LLC (collectively referred to as the “Kirin Subsidiaries”). The sale of Kirin China also effectively terminated Company’s contractual relationship with Hebei Zhongding Real Estate Development Co. Ltd and XingtaiZhongdingJiye Real Estate Development Co., Ltd, both of which are companies formed under the laws of the People’s Republic of China and were deemed Company’s variable interest entities prior to the Sale.

 

The Company sold its interests in Kirin Subsidiaries for an aggregate of $75,000,002 for the Sale. The carrying amount of the net assets of Kirin Subsidiaries was $63,312,904 as of disposal date and the Company recognized the differences of $11,687,098 to shareholders' equity as a capital transaction.

 

12. CONVERTIBLE NOTE

 

On December 19, 2015, the Company issued an 8% convertible note in the principal amount of $150,000,000 to Jasper, a related party, in the Share Exchange (see note 1). The holder of the Note may convert all or any portion of the then aggregate outstanding principal amount, together with any accrued and unpaid interest, into shares of Company’s common stock at $10.00 per share.

 

On December 31, 2015, pursuant to the terms and conditions of the Agreements, Jasper, financed the Purchaser for the Sale by reducing Company’s financial obligations under the Note by an aggregate of $75,000,000 (see note 1). As a result of the Sale, the outstanding balance due to Jasper under the Note was $75,000,000 plus any accrued interest.

 

There was no beneficial conversion feature attributable to the Note as the set conversion price of the Note was greater than the fair value of the common share price at the date of issuance. The Company has accounted for the Note in accordance with ASC 470-20, as a single instrument as a non-current liability. The Note is initially carried at the gross cash received at the issuance date.

 

The interest expense for the convertible note included in the consolidated statements of operations is $197,260 and nil for the years ended December 31, 2015 and 2014. Note issuance costs are immaterial.

 

13. EMPLOYEE RETIREMENT BENEFIT

 

The Company has made employee benefit contribution in accordance with Chinese relevant regulations, including retirement insurance, unemployment insurance, medical insurance, work injury insurance and birth insurance. The Company recorded the contribution in the salary and employee charges when incurred. The contributions made by the Company were $64,005 and $17,507 for the years ended December 31, 2015 and 2014, respectively.

 

 F-15 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

14. INCOME TAXES

 

The Company was incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporate income tax. No provision for federal corporate income tax has been made in the financial statements as there are no assessable profits.

 

Energetic Mind was incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, Energetic Mind is not subject to tax on income.

 

Ricofeliz Capital was incorporated in Hong Kong. No provision for Hong Kong profits tax has been made in the financial statements as there are no assessable profits.

 

Wuhan Newport was incorporated in the PRC, was governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”). The EIT rate of PRC is 25%.

 

Income tax expenses for the years ended December 31, 2015 and 2014 are summarized as follows:

 

   Years Ended December 31, 
   2015   2014 
         
Current  $-   $- 
Deferred tax benefit   1,378,700    1,402,421 
   $1,378,700   $1,402,421 

 

A reconciliation of the income tax benefit (expenses) determined at the PRC EIT income tax rate to the Company’s effective income tax benefit is as follows:

 

   Years Ended December 31, 
   2015   2014 
         
EIT at the PRC statutory rate of 25%  $1,940,140   $1,414,879 
Permanent items   -    (12,458)
Valuation allowance   (561,440)   - 
   $1,378,700   $1,402,421 

 

The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the years ended December 31, 2015 and 2014, the Company had no unrecognized tax benefits.

 

The Company does not anticipate any significant increase to its liability for unrecognized tax benefit within the next 12 months. The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.

 

Deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements at each year-end and tax loss carry forwards. The tax effects of temporary differences that give rise to the following approximate deferred tax assets and liabilities as of December 31, 2015 and 2014 are presented below.

 

   December 31, 
   2015   2014 
Deferred tax assets          
Operating loss carry forward  $303,237   $229,288 
Excess of interest expenses   1,398,582    648,140 
Accrued expenses   1,912,600    1,543,021 
   $3,614,419   $2,420,449 

 

The Company had net operating losses carry forward of $1,212,948 as of December 31, 2015 which will expire on various dates between December 31, 2018 and 2019.

 

 F-16 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

15. LOSS PER SHARE

 

   Years Ended December 31, 
   2015   2014 
Numerator:          
Net loss for basic and diluted loss per share  $(6,381,862)  $(4,257,096)
           
Denominator:          
Weighted average number of common shares outstanding-basic and diluted   151,682,554    151,000,000 
           
Basic and diluted loss per share  $(0.04)  $(0.03)

 

246,900 common shares resulting from the assumed conversions of 8% Convertible Note (note 12) were excluded from the calculation of diluted loss per share for the year ended December 31, 2015 as their effect is anti-dilutive.

 

16. RELATED PARTY TRANSACTIONS

 

16.1 Nature of relationships with related parties

 

Name   Relationships with the Company
Wuhan Renhe Group Co., Ltd (“Wuhan Renhe”)   Former shareholder (Mr Wang Geng) of Wuhan Newport
Wuhan Renhe Real Estate Co., Ltd. (“Renhe RE”)   Mr Wang Geng, the director of the Company, holds 100% of Renhe RE
Mr Zhao Weibin   Officer
Mr Liu Xiangyao   Director  

 

16.2 Related party balances and transactions

 

Amount due to Wuhan Renhe were $28,822,089 and $322,388,060 as at December 31, 2015 and 2014, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.

 

On June 30, 2015, Wuhan Renhe forgave a total amount of $285,413,074 with the Company. The Company has credited the amount of $285,413,074 to additional paid-in capital in equity.

 

A summary of changes in the amount due to Wuhan Renhe is as follows:

 

   December 31, 
   2015   2014 
         
At beginning of year  $322,388,060   $366,755,923 
Advances from the related party   28,463,394    4,834,513 
Repayment to the related party   -    (47,187,464)
Forgiveness of loan   (285,413,074)   - 
Exchange difference adjustment   (36,616,291)   (2,014,912)
At end of year  $28,822,089   $322,388,060 

 

Amount due to Renhe RE were $667,776 and nil as at December 31, 2015 and 2014, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.

 

A summary of changes in the amount due to Renhe RE is as follows:

 

   December 31, 
   2015   2014 
         
At beginning of year  $-   $- 
Advances from the related party   667,776    - 
At end of year  $667,776   $- 

 

Amount due to Mr Zhao Weibin were $ 126,516 and nil as at December 31, 2015 and 2014, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.

 

 F-17 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

A summary of changes in the amount due to Mr Zhao Weibin is as follows:

 

   December 31, 
   2015   2014 
         
At beginning of year  $-   $- 
Advances from the officer   126,516    - 
At end of year  $126,516   $- 

 

Amount due to Mr Liu Xiangyao were $2,428,731 and nil as at December 31, 2015 and 2014, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.

 

A summary of changes in the amount due to Mr Liu Xiangyao is as follows:

 

   December 31, 
   2015   2014 
         
At beginning of year  $-   $- 
Advances from the director   2,428,731    - 
At end of year  $2,428,731   $- 

 

17. SHARE-BASED COMPENSATION EXPENSES

 

On December 27, 2015, the Company granted 317,345 and 340,555 shares of the Company’s restricted common stock to a number of consultants, in exchange for its legal and professional services to the Company for the years ended December 31, 2015 and 2016, respectively. These shares were valued at $5.7 per share, the closing bid price of the Company’s common stock on the date of grant. Total compensation expense recognized in the general and administrative expenses of the consolidated statement of operations for the year ended December 31, 2015 was $1,808,867. Total compensation expense of approximately $1,941,163 will be recognized in 2016. The shares attributable to fiscal 2015 and 2016 were issued on December 30, 2015.

 

18. CONCENTRATION OF CREDIT RISKS

 

As of December 31, 2015 and 2014, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in China and the US, which management believes are of high credit quality.

 

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. The business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

No customer accounted for more than 10% of total accounts receivable as of December 31, 2015 and 2014.

 

19. COMMITMENTS AND CONTINGENCIES

 

Operating lease commitments

 

For the years ended December 31, 2015 and 2014, rental expenses under operating leases were $6,000 and nil, respectively.

 

The future obligations for operating leases as of December 31, 2015 are as follows:

 

2016  $72,000 
2017   18,000 
Total minimum payment required  $90,000 

 

Legal proceeding

 

The Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of the management, is likely to have a material adverse effect on the business, financial condition or results of operations. The Company did not identify any contingency as of December 31, 2015.

 

 F-18 

 

 

YANGTZE RIVER DEVELOPMENT LIMITED

(FORMERLY KIRIN INTERNATIONAL HOLDING, INC.)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

 

20. SUBSEQUENT EVENT

 

The management evaluated all events subsequent to the balance sheet date through the date the consolidated financial statements were available to be issued. Except for the followings, there are no significant matters to make material adjustments or disclosure in the consolidated financial statements.

 

On January 13, 2016, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of the State of Nevada, changing its name from “Kirin International Holding, Inc.” to “Yangtze River Development Limited”.

 

Effective January 22, 2016, upon approval by FINRA, Yangtze River Development Limited, or formerly Kirin International Holding, Inc., changed its stock symbol from “KIRI” to “YERR”.

 

On January 25, the board of directors (the “Board”) of the Company formed and adopted charters for six standing committees: Audit Committee, Compensation Committee, Nomination Committee, Governance and Human Resources Committee, Board Oversight Committee, Social Media Committee (collectively the “Committees”). Each Committee consists of only independent directors of the Company. The Board also adopted charter for the Regulatory, Compliance and Government Affairs Committee, for which the charter will be implemented once the committee is formed. The Company believes that the adoption of these charters and formation of these Committees are necessary for the implementation of effective internal control and oversight and a significant step towards remediating any material weakness the Company currently has. Members of the Committees are as set forth below

 

  Audit Committee: Harvey Leibowitz (Chair), Zhihong Su, Daniel W. Heffernan, Romano Tio, Tongmin Wang
     
  Compensation Committee: Harvey Leibowitz (Chair), Zhihong Su, Zhixue Liu, Romano Tio, Daniel W. Heffernan
     
  Nomination Committee: Daniel W. Heffernan (Chair), Harvey Leibowitz, Zhixue Liu, Romano Tio, Zhihong Su
     
  Governance and Human Resources Committee: Zhihong Su (Chair), Harvey Leibowitz, Romano Tio, Daniel W. Heffernan, Tongmin Wang
     
  Board Oversight Committee: Daniel W. Heffernan (Chair), Zhixue Liu, Harvey Leibowitz, Romano Tio, Zhihong Su
     
  ●  Social Media Committee: Romano Tio (Chair), Harvey Leibowitz, Zhihong Su, Daniel W. Heffernan, Tongmin Wang

 

The Company believes that all members of each of the audit and compensation committees are independent and that Mr. Harvey Leibowitz qualifies as an “audit committee financial expert,” as that term is defined in applicable regulations of the SEC.

 

The Audit Committee is responsible for making such examinations as are necessary to monitor the corporate financial reporting and external audits of the Company and its subsidiaries; to provide to the Board the results of its examinations and recommendations derived there from; to outline to the Board improvements made, or to be made, in internal accounting controls; to nominate independent auditor; and to provide to the Board such additional information and materials as it may deem necessary to make the Board aware of significant financial matters requiring Board attention.

 

The Company believes that the adoption of these charters and formation of these Committees, specifically that of the Audit Committee, are necessary for the implementation of effective internal control.

 

21. RESTRICTED NET ASSETS

 

PRC laws and regulations permit payments of dividends by the Company’s subsidiary incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the Company’s subsidiary incorporated in the PRC are required to annually appropriate 10% of their net income to the statutory reserve prior to payment of any dividends, unless such reserve have reached 50% of their respective registered capital. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each subsidiary. As a result of the restrictions described above and elsewhere under PRC laws and regulations, the Company’s subsidiary incorporated in the PRC are restricted in their ability to transfer a portion of their net assets to the Company in the form of dividends or advances from PRC subsidiary. Such restriction amounted to $297,052,074 as of December 31, 2015. Except for the above, there is no other restriction on the use of proceeds generated by the Company’s subsidiary to satisfy any obligations of the Company.

 

22. GOING CONCERN

 

As shown in the accompanying financial statements, the Company has sustained recurring losses and negative cash flows from operations. Over the past years, the Company has been funded through a combination of bank loans and advances from shareholders. On January 29, 2016, the Company received an undertaking commitment letter provided by the Company’s majority shareholder who is willing to provide sufficient funding on an as-needed basis. In addition, the Company plans to dispose of the existing developed real estate properties with market value of approximately $42 million when the Company needs cash flows. The Company believes that, as a result of these, it currently has sufficient cash and financing commitments to meet its funding requirements for a reasonable period of time.

 

 F-19 

 

  

 YANGTZE RIVER DEVELOPMENT LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2016 AND 2015

 

TABLE OF CONTENTS

 

  Pages
Condensed Consolidated Balance Sheets F-21
Condensed Consolidated Statements of Operations and Comprehensive Loss F-22
Condensed Consolidated Statements of Changes in Equity F-23
Condensed Consolidated Statements of Cash Flows F-24
Notes to Unaudited Condensed Consolidated Financial Statements F-25 - F-39

 

 F-20 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

Condensed Consolidated Balance Sheets

 

  

September 30,

2016

  

December 31,

2015

 
   (Unaudited)     
ASSETS          
Cash and cash equivalents  $53,559   $512,569 
Other assets and receivables   4,246,107    6,259,865 
Real estate property completed   30,721,419    31,566,156 
Real estate properties and land lots under development   355,315,562    364,876,105 
Property and equipment, net   107,557    157,499 
Deferred tax assets   4,390,429    3,614,419 
Total Assets  $394,834,633   $406,986,613 
           
LIABILITIES AND EQUITY          
Liabilities          
Accounts payable  $5,371,544   $5,526,610 
Due to related parties   32,431,189    32,045,112 
Other taxes payable   38,980    13,350 
Other payables and accrued liabilities   7,010,317    560,830 
Real estate property refund and compensation payable   25,668,811    25,274,753 
Convertible note   75,000,000    75,000,000 
Loans payable   43,237,084    44,502,981 
Total Liabilities  $188,757,925   $182,923,636 
           
Equity          
Preferred stock at $0.0001 par value; 100,000,000 shares authorized; none issued or outstanding  $-   $- 
Common stock at $0.0001 par value; 500,000,000 shares authorized; 172,269,446 and 172,254,446 shares issued and outstanding at September 30, 2016 and December 31, 2015 respectively   17,227    17,225 
Additional paid-in capital   242,696,445    242,622,947 
Accumulated losses   (26,409,392)   (16,263,010)
Accumulated other comprehensive loss   (10,227,572)   (2,314,185)
Total Equity  $206,076,708   $224,062,977 
Total Liabilities and Equity  $394,834,633   $406,986,613 

 

See notes to unaudited condensed consolidated financial statements

 

 F-21 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

Condensed consolidated Statements of OPERATIONS and Comprehensive LOSS

 

   For the nine months ended
September 30,
   For the three months ended
September 30
 
   2016   2015   2016   2015 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Revenue  $-   $-   $-   $- 
Costs of revenue   -    -    -    - 
Gross profit   -    -    -    - 
                     
Operating expenses                    
Selling expenses   1,459    8,006    -    3,720 
General and administrative expenses   4,558,102    1,470,700    763,361    488,076 
Total operating expenses   4,559,561    1,478,706    763,361    491,796 
                     
Loss from operations   (4,559,561)   (1,478,706)   (763,361)   (491,796)
                     
Other expenses                    
Other income   2,827    -    -    - 
Other expenses   (28)   (3,110)   -    (3,110)
Interest income   174    33    42    7 
Interest expenses   (6,474,519)   (2,326,475)   (2,156,558)   (730,629)
Total other expenses   (6,471,546)   (2,329,552)   (2,156,516)   (733,732)
                     
Loss before income taxes   (11,031,107)   (3,808,258)   (2,919,877)   (1,225,528)
Income taxes expense   884,725    952,064    285,801    306,382 
Net loss  $(10,146,382)  $(2,856,194)  $(2,634,076)  $(919,146)
                     
Other comprehensive loss                    
Foreign currency translation adjustments   (7,913,387)   (682,081)   (1,120,502)   (817,493)
Comprehensive loss  $(18,059,769)  $(3,538,275)  $(3,754,578)  $(1,736,639)
                     
Loss per share - basic and diluted  $(0.06)  $(0.02)  $(0.02)  $(0.01)
                     
Weighted average shares outstanding - basic and diluted   172,268,077    151,000,000    172,268,077    151,000,000 

 

See notes to unaudited condensed consolidated financial statements

 

 F-22 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

condensed consolidated Statements of CHANGES IN Equity

 

   Common stock   Additional       Accumulated
other
comprehensive
     
   Number of       paid-in   Accumulated   (loss)
     
   shares   Amount   capital   losses   income   Total 
                         
Balance as of January 1, 2015   151,000,000   $15,100   $27,955,331   $(9,881,148)  $4,335,732   $22,425,015 
                               
Forgiveness of loan from Wuhan Renhe   -    -    285,413,074    -    -    285,413,074 
Effect of share exchange   20,596,546    2,060    (86,182,521)   -    -    (86,180,461)
Restricted shares issued for services   657,900    65    3,749,965    -    -    3,750,030 
Extinguishment of debt with a former officer   -    -    11,687,098    -    -    11,687,098 
Net loss   -    -    -    (6,381,862)   -    (6,381,862)
Foreign currency translation adjustment   -    -    -    -    (6,649,917)   (6,649,917)
Balance as of December 31, 2015   172,254,446   $17,225   $242,622,947   $(16,263,010)  $(2,314,185)  $224,062,977 
                               
Restricted shares issued for services   15,000    2    73,498    -    -    73,500 
Net loss   -    -    -    (10,146,382)   -    (10,146,382)
Foreign currency translation adjustment   -    -    -    -    (7,913,387)   (7,913,387)
Balance as of September 30, 2016 (Unaudited)   172,269,446   $17,227   $242,696,445   $(26,409,392)  $(10,227,572)  $206,076,708 

 

See notes to unaudited condensed consolidated financial statements

 

 F-23 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

condensed Consolidated Statements of Cash Flows

 

   (Unaudited)
For the Nine Months Ended
September 30,
 
   2016   2015 
Cash Flows from Operating Activities:          
Net loss  $(10,146,382)  $(2,856,194)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation of property, and equipment   48,450    61,675 
Deferred tax benefit   (884,725)   (952,064)
Share-based compensation expense   2,014,664    - 
Changes in operating assets and liabilities:          
Other assets and receivables   -    72,151 
Real estate property completed   -    (314,959)
Real estate properties and land lots under development   (206,640)   (702,362)
Accounts payable   (7,376)   - 
Other taxes payable   26,343    (28,077)
Other payables and accrued liabilities   6,486,134    94,571 
Real estate property refund and compensation payables   1,085,137    1,145,440 
Net Cash Used In Operating Activities   (1,584,395)   (3,479,819)
           
Cash Flows from Investing Activities:          
Purchase of property and equipment   (1,851)   - 
Net Cash Used In Investing Activities   (1,851)   - 
           
Cash Flows from Financing Activities:          
Advances from related parties   1,203,672    3,587,869 
Repayment of financial institution loans   (75,990)   (161,983)
Net Cash Provided By Financing Activities   1,127,682    3,425,886 
           
Effect of Exchange Rate Changes on Cash and Cash Equivalents   (446)   (318)
           
Net Decrease In Cash and Cash Equivalents   (459,010)   (54,251)
Cash and Cash Equivalents at Beginning of Period   512,569    56,366 
Cash and Cash Equivalents at End of Period  $53,559   $2,115 
           
Supplemental Cash Flow Information:          
Cash paid for interest expenses  $-   $2,326,475 
Cash paid for income tax  $-   $- 
           
Supplemental Disclosure of Non-Cash Transaction:          
Forgiveness of loans from an owner  $-   $285,413,074 

 

See notes to unaudited condensed consolidated financial statements

 

 F-24 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO unaudited condensed FINANCIAL STATEMENTS

 

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

 

The condensed consolidated financial statements include the financial statements of Yangtze River Development Limited (the “Company” or “Yangtze River”) and its subsidiaries, Energetic Mind Limited (“Energetic Mind”), Ricofeliz Capital (HK) Limited (“Ricofeliz Capital”), and Wuhan Yangtze River Newport Logistics Co., Ltd. (“Wuhan Newport”).

 

The Company, formerly named as Kirin International Holding, Inc., and Ciglarette, Inc., was incorporated in the State of Nevada on December 23, 2009. The Company was a development stage company and has not generated significant revenue since inception to March 1, 2011.

 

On March 1, 2011, the Company entered into a share exchange agreement that Kirin China Holding Limited (“Kirin China”) became the Company’s wholly-owned subsidiary. Kirin China engaged in the development and sales of residential and commercial real estate properties, and development of land lots in People’s Republic of China (“China”, or the “PRC”).

 

On December 19, 2015, the Company completed a share exchange (the “Share Exchange”) with Energetic Mind and all the shareholders of Energetic Mind, whereby Yangtze River acquired 100% of the issued and outstanding capital stock of Energetic Mind, in exchange for 151,000,000 shares of Yangtze River’s common stock, which constituted approximately 88% of its issued and outstanding shares on a fully-diluted basis of Yangtze River immediately after the consummation of the Share Exchange, and an 8% convertible note (the “Note”) in the principal amount of $150,000,000. As a result of the Share Exchange, Energetic Mind became Yangtze River’s wholly-owned subsidiary and Jasper Lake Holdings Limited (“Jasper”), the former shareholder of Energetic Mind, became Yangtze River’s controlling stockholder. The Share Exchange transaction with Energetic Mind was treated as an acquisition, with Energetic Mind as the accounting acquirer and Yangtze River as the acquired party. The financial statements before the date of the Share Exchange are those of Energetic Mind with the results of the Company being consolidated from the date of the Share Exchange.

 

Energetic Mind owns 100% of Ricofeliz Capital and operates its business through its subsidiary Wuhan Newport.

 

Wuhan Newport was a wholly owned subsidiary of Wuhan Renhe Group Co., Ltd. (the “Wuhan Renhe”), a company incorporated in the PRC as at September 23, 2002. On July 13, 2015, Wuhan Renhe transferred all of the equity interests of the Company to Ricofeliz Capital, a company incorporated in Hong Kong on March 25, 2015. Ricofeliz Capital was incorporated by Energetic Mind, a company incorporated in British Virgin Islands (“BVI”). Energetic Mind was incorporated by Mr. Liu Xiangyao on January 2, 2015, and was subsequently purchased by various companies incorporated in BVI or the United States of America (“USA”), among whom Jasper became its 64% owner. Jasper was 100% owned by Mr. Liu Xiangyao, a Hong Kong citizen.

 

The major assets of Wuhan Newport include land lots for developing commercial buildings that are in line with the principal activities of Kirin China.

 

On December 31, 2015, the Company entered into certain stock purchase and business sale agreements (the “Agreements”) with Kirin Global Enterprises, Inc. (the “Purchaser”), a California corporation and an entity controlled by a former officer and director of the Company whereby the Company sold its interest in certain subsidiaries (see note 11) for an aggregate of $75,000,002. (the “Sale”).

 

Pursuant to the terms of the Agreements, Jasper agreed to finance the Sale by reducing Company’s financial obligations of the Note by an aggregate of $75,000,000. In addition, the Purchaser agreed to pay the remaining two dollars in cash.

 

Upon completion of the Sale, the Company operates its business solely through its subsidiary Wuhan Newport, primarily engaging in the business as a port logistic center located in the middle reaches of the Yangtze River in the PRC.

 

 F-25 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO unaudited condensed FINANCIAL STATEMENTS

 

2. Summary of Significant Accounting Policies

 

2.1 Basis of presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

 

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

 

The condensed consolidated balance sheets are presented unclassified because the time required to complete real estate projects and the Company’s working capital considerations usually stretch for more than one-year period.

 

2.2 Use of estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. Significant accounting estimates reflected in the condensed consolidated financial statements include: (i) the allowance for doubtful debts; (ii) accrual of estimated liabilities; and (iii) contingencies; (iv) deferred tax assets; (v) impairment of long-lived assets; (vi) useful lives of property plant and equipment; and (vii) real estate property refunds and compensation payables.

 

2.3 Cash and cash equivalents

 

Cash and cash equivalents consist of cash and bank deposits with original maturities of three months or less, which are unrestricted as to withdrawal and use the Company maintains accounts at banks and has not experienced any losses from such concentrations.

 

2.4 Property and equipment

 

The property and equipment are stated at cost less accumulated depreciation. The depreciation is computed on a straight-line method over the estimated useful lives of the assets with 5% salvage value. Estimated useful lives of property and equipment are stated in Note 7.

 

The Company eliminates the cost and related accumulated depreciation of assets sold or otherwise retired from the accounts and includes any gain or loss in the statement of income. The Company charges maintenance, repairs and minor renewals directly to expenses as incurred; major additions and betterment to equipment are capitalized.

 

2.5 Impairment of long-lived assets

 

The Company applies the provisions of ASC No. 360 Sub topic 10, “Impairment or Disposal of Long-Lived Assets” (ASC 360- 10) issued by the Financial Accounting Standards Board (“FASB”). ASC 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

 

The Company tests long-lived assets, including property and equipment and finite lived intangible assets, for impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There were no impairment losses in the nine months ended September 30, 2016 and 2015.

 

 F-26 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

2.6 Fair values of financial instruments

 

ASC Topic 825, Financial Instruments (“Topic 825”) requires disclosure of fair value information of financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Topic 825 excludes certain financial instruments and all nonfinancial assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts do not represent the underlying value of the Company.

 

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.

 

As of September 30, 2016 and 2015, financial instruments of the Company primarily comprise of cash, accrued interest receivables, other receivables, short-term bank loans, deposits payables and accrued expenses, which were carried at cost on the balance sheets, and carrying amounts approximated their fair values because of their generally short maturities.

 

2.7 Convertible notes

 

In accordance with ASC subtopic 470-20, the convertible notes are initially carried at the principal amount of the convertible notes. Debt premium or discounts, which are the differences between the carrying value and the principal amount of convertible notes at the issuance date, together with related debts issuance cost, are subsequently amortized using effective interest method as adjustments to interest expense from the debt issuance date to its first redemption date. Convertible notes are classified as a current liability if they are or will be callable by the Company or puttable by the debt holders within one year from the balance sheet date, even though liquidation may not be expected within that period.

 

2.8 Foreign currency translation and transactions

 

The Company’s condensed consolidated financial statements are presented in the U.S. dollar (US$), which is the Company’s reporting currency. Yangtze River, Energetic Mind, and Ricofeliz Capital uses US$ as its functional currency. Wuhan Newport uses Renminbi Yuan (“RMB”) as its functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the statements of operations.

 

In accordance with ASC 830, Foreign Currency Matters, the Company translated the assets and liabilities into US$ using the rate of exchange prevailing at the applicable balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in owners’ equity as part of accumulated other comprehensive income.

 

   September 30, 2016   December 31, 2015 
Balance sheet items, except for equity accounts   6.6702    6.4917 

 

   For the nine months ended
September 30,
   For the three months ended
September 30,
 
   2016   2015   2016   2015 
                     
Items in the statements of operations and comprehensive income, and statement of cash flows   6.5798    6.1735    6.6667    6.3031 

 

 F-27 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

2.9 Revenue recognition

 

The Company recognizes revenue from steel trading when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collection is reasonably assured.

 

Real estate sales are reported in accordance with the provisions of ASC 360-20, Property, Plant and Equipment, Real Estate Sales.

 

Revenue from the sales of completed properties and properties where the construction period is twelve months or less is recognized by the full accrual method when (a) sale is consummated; (b) the buyer’s initial and continuing involvements are adequate to demonstrate a commitment to pay for the property; (c) the receivable is not subject to future subordination; (d) the Company has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property. A sale is not considered consummated until (a) the parties are bound by the terms of a contract or agreement, (b) all consideration has been exchanged, (c) any permanent financing for which the seller is responsible has been arranged, (d) all conditions precedent to closing have been performed. Fair value of buyer’s payments to be received in future periods pursuant to sales contract is classified under accounts receivable. Sales transactions not meeting all the conditions of the full accrual method are accounted for using the deposit method of accounting. Under the deposit method, all costs are capitalized as incurred, and payments received from the buyer are recorded as a deposit liability.

 

Revenue and profit from the sale of development properties where the construction period is more than twelve months is recognized by the percentage-of-completion method on the sale of individual units when the following conditions are met: (a)construction is beyond a preliminary stage; (b) the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit; (c) sufficient units have already been sold to assure that the entire property will not revert to rental property; (d) sales prices are collectible and (e) aggregate sales proceeds and costs can be reasonably estimated. If any of these criteria are not met, proceeds are accounted for as deposits until the criteria are met and/or the sale consummated.

 

The Company has not generated any revenue from the sales of real estate property for the nine months and three months ended September 30, 2016 and 2015.

 

2.10 Real estate capitalization and cost allocation

 

Real estate property completed and real estate properties and land lots under development consist of commercial units under construction and units completed. Properties under development or completed are stated at cost or estimated net realizable value, whichever is lower. Cost capitalization of development and redevelopment activities begins during the predevelopment period, which we define as the activities that are necessary to begin the development of the property. We cease capitalization upon substantial completion of the project, but no later than one year from cessation of major construction activity. We also cease capitalization when activities necessary to prepare the property for its intended use have been suspended. Costs include costs of land use rights, direct development costs, interest on indebtedness, construction overhead and indirect project costs. The Company acquires land use rights with lease terms of 40 years through government sale transaction. Land use rights are divided and transferred to customers after the Company delivers properties. The Company capitalizes payments for obtaining the land use rights, and allocates to specific units within a project based on units’ gross floor area. Costs of land use rights for the purpose of property development are not amortized. Other costs are allocated to units within a project based on the ratio of the sales value of units to the estimated total sales value.

 

2.11 Capitalization of interest

 

In accordance with ASC 360, Property, Plant and Equipment, interest incurred during construction is capitalized to properties under development. For the nine months ended September 30, 2016 and 2015, $nil and $nil were capitalized as properties under development, respectively.

 

2.12 Advertising expenses

 

Advertising costs are expensed as incurred, or the first time the advertising takes place, in accordance with ASC 720-35, Advertising Costs. For the nine months ended September 30, 2016 and 2015, the Company recorded advertising expenses of $1,459 and $nil, respectively. For the three months ended September 30, 2016 and 2015, the company recorded advertising expenses of $nil and $nil, respectively.

 

2.13 Share-based compensation

 

The Company grants restricted shares to its non-employee consultants. Awards granted to non-employees are measured at fair value at the earlier of the commitment date or the date the services are completed, and are recognized using graded vesting method over the period the service is provided.

 

 F-28 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

2.14 Income taxes

 

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

 

The Company adopts a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation process, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. As of September 30, 2016 and 2015, the Company did not have any uncertain tax position.

 

2.15 Land Appreciation Tax (“LAT”)

 

In accordance with the relevant taxation laws in the PRC, the Company is subject to LAT based on progressive rates ranging from 30% to 60% on the appreciation of land value, which is calculated as the proceeds of sales of properties less deductible expenditures, including borrowing costs and all property development expenditures. LAT is prepaid at 1% to 2% of the pre-sales proceeds each year as required by the local tax authorities, and is settled generally after the construction of the real estate project is completed and majority of the units are sold. The Company provides LAT as expensed when the related revenue is recognized based on estimate of the full amount of applicable LAT for the real estate projects in accordance with the requirements set forth in the relevant PRC laws and regulations. LAT would be included in income tax expense in the statements of operations and comprehensive income (loss).

 

2.16 Earnings (loss) per share

 

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

 

2.17 Comprehensive loss

 

Comprehensive loss includes net income (loss) and foreign currency adjustments. Comprehensive loss is reported in the condensed consolidated statements of operations and comprehensive loss. Accumulated other comprehensive loss, as presented on the condensed consolidated balance sheets are the cumulative foreign currency translation adjustments.

 

2.18 Contingencies

 

In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. In accordance with ASC No. 450 Sub topic 20, “Loss Contingencies”, the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

 

2.19 Recently issued accounting pronouncements

 

The Company does not believe other recently issued but not yet effective accounting standards from ASU 2016-15, if currently adopted, would have a material effect of the condensed consolidated financial position, results of operation and cash flows.

 

 F-29 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

3. Risks

 

(a) Liquidity risk

 

The Company is 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.

 

(b) 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.

 

4. OTHER assets and receivables

 

Other assets and receivables as of September 30, 2016 and December 31, 2015 consisted of:

 

  

September 30,

2016

   December 31,
2015
 
   (Unaudited)     
Deposits  $825   $847 
Prepaid consulting and legal fees   -    1,941,163 
Underwriting commission and rental deposit   1,606,000    1,606,000 
Excessive business tax and related urban construction and education surcharge   1,680,207    1,726,408 
Excessive land appreciation tax   959,075    985,447 
   $4,246,107   $6,259,865 

 

Business tax and LAT are payable each year at 5% and 1% - 2% respectively of customer deposits received. The Company recognizes sales related business tax and LAT in the income statement to the extent that they are proportionate to the revenue recognized each period. Any excessive amounts of business and LAT liabilities recognized at period-end pursuant to tax laws and regulations over the amounts recognized in the income statement are capitalized in prepayments and will be expensed in subsequent periods.

 

 F-30 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

5. REAL ESTATE PROPERTY COMPLETED

 

The account balance and components of the real estate property completed were as follow:

 

  

September 30,

2016

   December 31, 2015 
   (Unaudited)     
Properties completed          
Wuhan Centre China Grand Steel Market          
Costs of land use rights  $7,510,480   $7,716,994 
Other development costs   23,210,939    23,849,162 
   $30,721,419   $31,566,156 

 

As of September 30, 2016, the sole and wholly owned developing project of the Company is called Wuhan Centre China Grand Steel Market (Phase 1) Commercial Building in the south of Hans Road, Wuhan Yangluo Economic Development Zone with approximately 222,496.6 square meters of total construction area. Since June 2009, the Company commenced the construction of the project that funded through a combination of bank loans and advances from shareholders. The Company has obtained certificates representing titles of the land use rights used for the development of the project. As of September 30, 2016, the Company has completed the construction of four buildings covering area of approximately 35,350.4 square meters of construction area. The Company values the real estate assets based on estimates using present value by quoted prices for comparable real estate projects.

 

6. REAL ESTATE PROPERTIES AND LAND LOTS UNDER DEVELOPMENT

 

The components of real estate properties and land lots under development were as follows:

 

  

September 30,

2016

   December 31,
2015
 
   (Unaudited)     
Properties under development          
Wuhan Centre China Grand Steel Market          
Costs of land use rights  $9,057,886   $9,306,948 
Other development costs   38,143,366    38,982,735 
           
Land lots under development Costs of land use rights   308,114,310    316,586,422 
   $355,315,562   $364,876,105 

 

The investments in undeveloped land were acquired in September, 2007. The Company leases the land under land use right leases with various terms from the PRC government, and does not have ownership of the underlying land.

 

As of September 30, 2016, the Company has three buildings under development of the project described in Note 5 covering area of approximately 57,450.4 square meters of construction area.

 

Land use right with net book value of $176,435,688, including in real estate held for development and land lots undeveloped were pledged as collateral for the financial institution loan as at September 30, 2016. (See Note 10).

 

 F-31 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

7. Property and Equipment

 

The Company’s property and equipment used to conduct day-to-day business are recorded at cost less accumulated depreciation. Depreciation expenses are calculated using straight-line method over the estimated useful life with 5% of estimated salvage value below:

 

   Useful life
years
 

September 30,

2016

   December 31,
2015
 
      (Unaudited)     
Fixture, furniture and office equipment  5  $63,860   $63,474 
Vehicles  5   514,283    528,424 
Less: accumulated depreciation      (470,586)   (434,399)
Property and equipment, net     $107,557   $157,499 

 

Depreciation expense totaled $48,450 and $61,675 for the nine months ended September 30, 2016 and 2015, respectively. For the three months ended September 30, 2016 and 2015, the company recorded depreciation expenses of $14,533 and $21,151, respectively.

 

8. OTHER PAYABLES AND ACCRUED LIABILITIES

 

Other payables and accrued liabilities as of September 30, 2016 and December 31, 2015 consisted of:

 

  

September 30,

2016

   December 31,
2015
 
   (Unaudited)     
Salaries payable  $189,946   $182,716 
Business tax and related urban construction and education surcharge   11,939    12,947 
Deposits from contractors   163,413    167,907 
Convertible bond interest payable   4,697,260    197,260 
Interest payable   1,947,759    - 
   $7,010,317   $560,830 

 

9. REAL ESTATE PROPERTY REFUND AND COMPENSATION PAYABLe

 

During the years 2012 and 2011, the Company signed 443 binding agreements of sales of commercial offices of the project with floor area of 22,790 square meters to unrelated purchasers (the transactions or the real estate sales transactions). The Company received deposits and considerations from the purchasers as required by the agreements. The construction commenced in the 2010, which was originally expected to be delivered to customers in late of 2012. No revenue was recognized from the sales of the commercial offices due to the reason stated below.

 

Owing to commercial reasons, the Company decided to terminate the agreements made for the sale of the real estate properties in relation to the project of Wuhan Centre China Grand Market. According to the agreements of sales, the Company is obliged to compensate the purchaser at a rate equal to 6% per annum or 0.05% per day on the deposits paid. In the nine months ended September 30, 2016 and 2015, the Company incurred $1,085,137 and $1,156,554 compensation expenses which were included in general and administrative expenses.

 

As at September 30, 2016, 375 out of 443 agreements were cancelled, and no completed office (or real estate certificate) has been delivered to the purchaser. The Company is still in the progress of negotiating with the purchasers for the cancellation of the remaining agreements. The directors of the Company are of the opinion that almost all of the purchasers shall accept the cancellation. If, finally the purchaser insisted on the execution of the agreement, the Company will accept.

 

Real estate property refund and compensation payable represent the amount of customer deposits received and the compensation calculated in accordance with the provisions in the sales agreements. The payable consists of the followings:

 

  

September 30,

2016

   December 31,
2015
 
   (Unaudited)     
Property sales deposits  $19,613,351   $20,152,652 
Compensation   6,055,460    5,122,101 
   $25,668,811   $25,274,753 

 

 F-32 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

10. Loans payable

 

Bank name  Weighted average
interest rate
  Term  September 30,
2016
   December 31, 2015 
         (Unaudited)     
China Construction Bank  Fixed annual rate of 5.936%  From May 30, 2014 to May 29, 2020  $43,237,084   $44,502,981 
         $43,237,084   $44,502,981 

 

Interest expenses incurred on loans payable for the nine months ended September 30, 2016 and 2015 was $1,974,519 and $2,326,475, respectively.

 

Land use right with net book value of $176,435,688, including in real estate held for development and land lots under development were pledged as collateral for the loan as at September 30, 2016.

 

The aggregate maturities of loans payable of each of years subsequent to September 30, 2016 are as follows:

 

   (Unaudited) 
2016  $74,960 
2017   10,494,438 
2018   10,494,438 
2019   11,993,643 
2020   10,179,605 
   $43,237,084 

 

11. CONVERTIBLE NOTE

 

On December 19, 2015, the Company issued an 8% convertible note in the principal amount of $150,000,000 to Jasper, a related party, in the Share Exchange (see note 1). The holder of the Note may convert all or any portion of the then aggregate outstanding principal amount, together with any accrued and unpaid interest, into shares of Company’s common stock at $10.00 per share.

 

On December 31, 2015, pursuant to the terms and conditions of the Agreements, Jasper, financed the Purchaser for the Sale by reducing Company’s financial obligations under the Note by an aggregate of $75,000,000 (see note 1). As a result of the Sale, the outstanding balance due to Jasper under the Note was $75,000,000 plus any accrued interest.

 

There was no beneficial conversion feature attributable to the Note as the set conversion price of the Note was greater than the fair value of the common share price at the date of issuance. The Company has accounted for the Note in accordance with ASC 470-20, as a single instrument as a non-current liability. The Note is initially carried at the gross cash received at the issuance date.

 

The interest expense for the convertible note included in the condensed consolidated statements of operations is $4,500,000 and $nil for the nine months ended September 30, 2016 and 2015. Note issuance costs are immaterial.

 

12. Employee Retirement Benefit

 

The Company has made employee benefit contribution in accordance with Chinese relevant regulations, including retirement insurance, unemployment insurance, medical insurance, work injury insurance and birth insurance. The Company recorded the contribution in the salary and employee charges when incurred. The contributions made by the Company were $103,505 and $24,503 for the nine months ended September 30, 2016 and 2015, respectively.

 

 F-33 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

13. INCOME TAXES

 

The Company was incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporate income tax. No provision for federal corporate income tax has been made in the financial statements as there are no assessable profits.

 

Energetic Mind was incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, Energetic Mind is not subject to tax on income.

 

Ricofeliz Capital was incorporated in Hong Kong. No provision for Hong Kong profits tax has been made in the financial statements as there are no assessable profits.

 

Wuhan Newport was incorporated in the PRC, was governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”). The EIT rate of PRC is 25%.

 

Income tax expenses for the nine months and three months ended September 30, 2016 and 2015 are summarized as follows:

 

   For the nine months ended
September 30,
   For the three months ended
September 30,
 
   2016   2015   2016   2015 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Deferred tax benefit  $884,725   $952,064   $285,801   $306,382 
   $884,725   $952,064   $285,801   $306,382 

 

A reconciliation of the income tax benefit determined at the PRC EIT income tax rate to the Company’s effective income tax benefit is as follows:

 

   September 30, 
   2016   2015 
   (Unaudited)   (Unaudited) 
EIT at the PRC statutory rate of 25%  $2,757,777   $952,064 
Valuation allowance   (1,873,052)   - 
   $884,725   $952,064 

 

The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the nine months ended September 30, 2016 and 2015, the Company had no unrecognized tax benefits.

 

The Company does not anticipate any significant increase to its liability for unrecognized tax benefit within the next 12 months. The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.

 

Deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their reported amounts in the condensed consolidated financial statements at each year-end and tax loss carry forwards. The tax effects of temporary differences that give rise to the following approximate deferred tax assets and liabilities as of September 30, 2016 and December 31, 2015 are presented below.

 

  

September 30,

2016

   December 31,
2015
 
   (Unaudited)     
Deferred tax assets          
Operating loss carry forward  $357,376   $303,237 
Excess of interest expenses   1,848,095    1,398,582 
Accrued expenses   2,184,958    1,912,600 
   $4,390,429   $3,614,419 

 

The Company had net operating losses carry forward of $1,410,129 as of September 30, 2016 which will expire on various dates between December 31, 2018 and 2019.

 

 F-34 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

14. loss per share

 

   For the nine months ended
September 30,
   For the three months ended
September 30,
 
   2016   2015   2016   2015 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Numerator:                    
Net loss for basic and diluted loss per share  $(10,146,382)  $(2,856,194)  $(2,634,076)  $(919,146)
                     
Denominator:                    
Weighted average number of common shares outstanding-basic and diluted   172,268,077    151,000,000    172,268,077    151,000,000 
                     
Basic and diluted loss per share  $(0.06)  $(0.02)  $(0.02)  $(0.01)

 

7,950,411 common shares resulting from the assumed conversion of 8% Convertible Note (note 11) were excluded from the calculation of diluted loss per share for the nine months and three months ended September 30, 2016 as their effect is anti-dilutive.

 

15. Related Party Transactions

 

15.1 Nature of relationships with related parties

 

  Name   Relationships with the Company
  Wuhan Renhe Group Co., Ltd (“Wuhan Renhe”)   Former shareholder (Mr Wang Geng) of Wuhan Newport
  Wuhan Renhe Real Estate Co., Ltd. (“Renhe RE”)   Mr. Wang Geng, the director of the Company, holds 100% of Renhe RE
  Best Future Investment LLC.   Mr. James Coleman, the executive director of the company
  Mr Zhao Weibin   Officer
  Mr Liu Xiangyao   Director

 

15.2 Related party balances and transactions

 

Amount due to Wuhan Renhe were $28,050,884 and $28,822,089 as at September 30, 2016 and December 31, 2015, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.

 

On June 30, 2015, Wuhan Renhe forgave a total amount of $285,413,074 with the Company. The Company has credited the amount of $285,413,074 to additional paid-in capital in equity.

 

A summary of changes in the amount due to Wuhan Renhe is as follows:

 

  

September 30,

2016

   December 31,
2015
 
   (Unaudited)     
At beginning of period  $28,822,089   $322,388,060 
Advances from the related party   -    28,463,394 
Forgiveness of loan   -    (285,413,074)
Exchange difference adjustment   (771,205)   (36,616,291)
At end of period  $28,050,884   $28,822,089 

 

Amount due to Renhe RE were $649,905 and $667,776 as at September 30, 2016 and December 31, 2015, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.

 

 F-35 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

A summary of changes in the amount due to Renhe RE is as follows:

 

  

September 30,

2016

   December 31,
2015
 
   (Unaudited)     
At beginning of period  $667,776   $- 
Advances from the related party   -    667,776 
Exchange difference adjustment   (17,871)   - 
At end of period  $649,905   $667,776 

 

Amount due to Best Future Investment were $46 and $nil as at September 30, 2016 and December 31, 2015, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.

 

A summary of changes in the amount due to Best Future Investment is as follows:

 

  

September 30,

2016

   December 31,
2015
 
   (Unaudited)     
At beginning of period  $-   $- 
Repayment to the related party   (4,394)   - 
Advances from the related party   4,440    - 
At end of period  $46   $- 

 

Amount due to Mr Zhao Weibin were $123,130 and $126,516 as at September 30, 2016 and December 31, 2015, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.

 

A summary of changes in the amount due to Mr Zhao Weibin is as follows:

 

   September 30,
2016
   December 31,
2015
 
   (Unaudited)     
At beginning of period  $126,516   $126,516 
Exchange difference adjustment   (3,386)   - 
At end of period  $123,130   $126,516 

 

Amount due to Mr Liu Xiangyao were $3,607,224 and $2,428,731 as at September 30, 2016 and December 31, 2015, respectively. The amount is unsecured, interest free and does not have a fixed repayment date.

 

A summary of changes in the amount due to Mr Liu Xiangyao is as follows:

 

   September 30,
2016
   December 31,
2015
 
   (Unaudited)     
At beginning of period  $2,428,731   $- 
Advances from the director   1,193,956    2,428,731 
Exchange difference adjustment   (15,463)   - 
At end of period  $3,607,224   $2,428,731 

 

 F-36 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

16. SHARE-BASED COMPENSATION EXPENSES

 

On December 27, 2015, the Company granted 317,345 and 340,555 shares of the Company’s restricted common stock to a number of consultants, in exchange for its legal and professional services to the Company for the years ended December 31, 2015 and 2016, respectively. These shares were valued at $5.7 per share, the closing bid price of the Company’s common stock on the date of grant. Total compensation expense recognized in the general and administrative expenses of the consolidated statement of operations for the year ended December 31, 2015 was $1,808,867. Total compensation expense of approximately $1,941,163 will be recognized in 2016 when all the services been rendered. The shares attributable to fiscal 2015 and 2016 were issued on December 30, 2015.

 

On January 25, 2016, the Company granted 15,000 shares of the Company’s restricted common stock to a consultant, in exchange for its legal and professional services to the Company for the year 2016. These shares were valued at $4.9 per share, the closing bid price of the Company’s common stock on the date of grant. This compensation expense of approximately $73,500 was recognized in 2016.

 

Total compensation expenses recognized in the general and administrative expenses of the condensed consolidated statements of operations for the nine months ended September 30, 2016 and 2015 was $2,014,663 and $nil respectively. For the three months ended September 30, 2016 and 2015, the company recorded compensation expenses of $nil and $nil, respectively.

 

17. Concentration of Credit Risks

 

As of September 30, 2016 and December 31, 2015, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in China and the US, which management believes are of high credit quality.

 

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. The business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

No customer accounted for more than 10% of total accounts receivable as of September 30, 2016 and December 31, 2015.

 

18. Commitments and Contingencies

 

Operating lease commitments

 

For the nine months ended September 30, 2016 and 2015, rental expenses under operating leases were $54,000 and $nil, respectively.

 

The future obligations for operating leases of each of years subsequent to September 30, 2016 are as follows:

 

   (Unaudited) 
2017  $39,000 
2018   - 
Total minimum payment required  $39,000 

 

Legal proceeding

 

The Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of the management, is likely to have a material adverse effect on the business, financial condition or results of operations.

 

The Company did not identify any contingency as of September 30, 2016.

 

 F-37 

 

 

Yangtze River Development Limited

(FORMERLY Kirin International Holding, Inc.)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

19. RESTRICTED NET ASSETS

 

PRC laws and regulations permit payments of dividends by the Company’s subsidiary incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the Company’s subsidiary incorporated in the PRC are required to annually appropriate 10% of their net income to the statutory reserve prior to payment of any dividends, unless such reserve have reached 50% of their respective registered capital. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each subsidiary. As a result of the restrictions described above and elsewhere under PRC laws and regulations, the Company’s subsidiary incorporated in the PRC are restricted in their ability to transfer a portion of their net assets to the Company in the form of dividends or advances from PRC subsidiary. Such restriction amounted to $287,214,468 as of September 30, 2016. Except for the above, there is no other restriction on the use of proceeds generated by the Company’s subsidiary to satisfy any obligations of the Company.

 

20. SUBSEQUENT EVENT

 

The management evaluated all events subsequent to the balance sheet date through the date the condensed consolidated financial statements were available to be issued. Except for the followings, there are no significant matters to make material adjustments or disclosure in the condensed consolidated financial statements.

 

Armada Transaction

 

On October 3, 2016, Company entered into a Contribution, Conveyance and Assumption Agreement (the “Agreement”) and an Addendum to the Agreement (collectively with the Agreement, the “Armada Agreement”) with Armada Enterprises GP, LLC, a Delaware limited liability company (“Armada GP”) to (i) complete certain share exchange and (ii) procure $1,000,000,000 in financing for the construction of the Logistics Center.

 

Entity Conversion. Pursuant to the Armada Agreement, Armada GP will become the general partner of its current controlling entity, Bim Homes, Inc. (“Bim Homes”), upon Bim Homes’ conversion into Armada Enterprises LP (the “Armada LP”) via a statutory conversion under Delaware law. Meanwhile Armada GP will contribute its ownership in Wight International Construction LLC, an entity affiliated with Armada GP (“Wight”) in exchange for interests in Armada LP.

 

Share Exchange. Pursuant to the Armada Agreement, the Company agreed to issue to Wight a convertible promissory note in the amount of $500 million USD (the “Note”) that may be convertible into 50,000,000 shares of Company’s Common Stock at a conversion price at $10 per share (“Conversion Price”) at the sole election of Wight. The Company also agreed to contribute 60 million shares of the Common Stock at $8.33 per share, 50 million of which will be issued to Wight upon closing (the “Contribution Shares”) and the remaining 10,000,000 will be reserved with Company’s transfer agent (the “Reserve Shares”) and may be issued subject to Armada GP’s fulfillment of its obligation of procuring $1,000,000,000 in construction financing for the Logistics Center to be provided over a 3-year period. The 10 million shares shall be otherwise become Company’s treasury shares upon Armada GP’s default on such obligation.

 

Consideration. In consideration of Company’s Note, Contribution Shares and Reserve Shares, Wight agreed to issue the Company 100 million preferred B membership units in Wight (“Preferred B Units”) valued at a minimum of $10 per unit for an aggregate value of $1 billion, which would be converted to limited partnership units in Armada LP (“LP Units”), upon Armada GP’s contribution of its interest in Wight to Armada LP. Armada shall also pay the Company a non-refundable $2 million USD (the “Cash Investment”) by selling at least $12 million USD worth of the warrants issued by Bim Homes. The Cash Investment will be held by the Company in escrow as a break-up fee in the event that Armada GP does not obtain financing in the amount of at least $50 million USD for the Company (the “Break-up Fee”). The Break-up Fee shall become a working capital fund for the Company if Armada GP obtains such financing.

  

Financing. Pursuant to the Armada Agreement, the Company also agreed to engage Wight as its construction firm for construction of the Logistics Center, subject to compliance with the applicable PRC laws. Wight will procure up to $1,000,000,000 in construction financing for the completion of our Wuhan Project at approximately $200 million USD of new financing per year for five years. Upon closing, Wight will provide us with proof of credit facilities of at least $500,000,000, which includes an allocation of $50 million USD in the form of debt security to help the Company to meet NASDAQ listing qualifications.

 

Wight will seek financing of $200 million each year for five years and will use its discretionary funds from its own financing. Wight anticipates closing as soon as January 2017 for the first year of construction to be applied in manner to be determined upon satisfaction of its due diligence and site visit on the Company’s Wuhan project. Wight, as the developer, will undertake and procure the financing on customary terms and conditions associated with construction financing. Wight plans to obtain the rest $800 million through various financial institutions in the form of construction loans. The obligor shall be determined upon how such loans will be constructed.

 

Closing Conditions. Closing shall occur upon (i) all parties’ representations and warranties are true and correct and (ii) the parties’ execution of a Memorandum Of Understanding outlining the material terms of the construction agreement by and between the Company and Armada GP or its affiliates.

 

Termination. Termination of the Armada Agreement may occur by (i) mutual written consent; (ii) by either party if the closing has not occurred within 60 days provided the terminating party is not in breach; and/or (iii) by either party if the other party materially breached any of its covenants or representations provided however that the breaching party will first have 30 days to cure.

 

The Company will not receive any cash at closing of the Armada Transaction. On October 3, 2016, Armada Enterprises GP and its affiliate, Wight International Construction, LLC were engaged to assist the Company in acquiring construction financing up to $1 billion over a five year period. There is no guarantee that the Company and its advisors will be successful in securing financing.

 

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 F-39 

 

 

PART II- INFORMATION NOT REQUIRED IN THE PROSPECTUS

 

Item 13. Other Expenses Of Issuance And Distribution.

 

Set forth below is an itemization of the total expenses, excluding placement discounts and commissions, that we expect to incur in connection with this offering. With the exception of the SEC registration fee, the FINRA filing fee and the NASDAQ Global Select Market listing fee, all amounts are estimates.

 

Securities and Exchange Commission Registration Fee   $ 4229.40  
NASDAQ Global Select Market Listing Fee*     225,000  
FINRA*     [●]  
Legal Fees and Expenses*     [●]  
Accounting Fees and Expenses*     [●]  
Printing and Engraving Expenses*     [●]  
Miscellaneous Expenses*     [●]  
Total Expenses   $ [●]  

 

* To be filed by amendment

 

All amounts are estimates other than the SEC’s registration fee. We are paying all expenses of the offering listed above.

 

Item 14. Indemnification of Directors and Officers.

 

Subsection 7 of Section 78.138 of the Nevada Revised Statutes (the “Nevada Law”) provides that, subject to certain very limited statutory exceptions, a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer, unless it is proven that the act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and such breach of those duties involved intentional misconduct, fraud or a knowing violation of law. The statutory standard of liability established by Section 78.138 controls even if there is a provision in the corporation’s articles of incorporation unless a provision in the Company’s Articles of Incorporation provides for greater individual liability.

 

Subsection 1 of Section 78.7502 of the Nevada Law empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (any such person, a “Covered Person”), against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Covered Person in connection with such action, suit or proceeding if the Covered Person is not liable pursuant to Section 78.138 of the Nevada Law or the Covered Person acted in good faith and in a manner the Covered Person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe the Covered Person’s conduct was unlawful.

 

Subsection 2 of Section 78.7502 of the Nevada Law empowers a corporation to indemnify any Covered Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in the capacity of a Covered Person against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by the Covered Person in connection with the defense or settlement of such action or suit, if the Covered Person is not liable pursuant to Section 78.138 of the Nevada Law or the Covered Person acted in good faith and in a manner the Covered Person reasonably believed to be in or not opposed to the best interests of the Corporation. However, no indemnification may be made in respect of any claim, issue or matter as to which the Covered Person shall have been adjudged by a court of competent jurisdiction (after exhaustion of all appeals) to be liable to the corporation or for amounts paid in settlement to the corporation unless and only to the extent that the court in which such action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances the Covered Person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

 

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Section 78.7502 of the Nevada Law further provides that to the extent a Covered Person has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in Subsection 1 or 2, as described above, or in the defense of any claim, issue or matter therein, the corporation shall indemnify the Covered Person against expenses (including attorneys’ fees) actually and reasonably incurred by the Covered Person in connection with the defense.

 

Subsection 1 of Section 78.751 of the Nevada Law provides that any discretionary indemnification pursuant to Section 78.7502 of the Nevada Law, unless ordered by a court or advanced pursuant to Subsection 2 of Section 78.751, may be made by a corporation only as authorized in the specific case upon a determination that indemnification of the Covered Person is proper in the circumstances. Such determination must be made (a) by the stockholders, (b) by the board of directors of the corporation by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding, (c) if a majority vote of a quorum of such non-party directors so orders, by independent legal counsel in a written opinion, or (d) by independent legal counsel in a written opinion if a quorum of such non-party directors cannot be obtained.

 

Subsection 2 of Section 78.751 of the Nevada Law provides that a corporation’s articles of incorporation or bylaws or an agreement made by the corporation may require the corporation to pay as incurred and in advance of the final disposition of a criminal or civil action, suit or proceeding, the expenses of officers and directors in defending such action, suit or proceeding upon receipt by the corporation of an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the corporation. Subsection 2 of Section 78.751 further provides that its provisions do not affect any rights to advancement of expenses to which corporate personnel other than officers and directors may be entitled under contract or otherwise by law.

 

Subsection 3 of Section 78.751 of the Nevada Law provides that indemnification pursuant to Section 78.7502 of the Nevada Law and advancement of expenses authorized in or ordered by a court pursuant to Section 78.751 does not exclude any other rights to which the Covered Person may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his or her official capacity or in another capacity while holding his or her office. However, indemnification, unless ordered by a court pursuant to Section 78.7502 or for the advancement of expenses under Subsection 2 of Section 78.751 of the Nevada Law, may not be made to or on behalf of any director or officer of the corporation if a final adjudication establishes that his or her acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and were material to the cause of action. Additionally, the scope of such indemnification and advancement of expenses shall continue for a Covered Person who has ceased to be a director, officer, employee or agent of the corporation, and shall inure to the benefit of his or her heirs, executors and administrators.

 

Section 78.752 of the Nevada Law empowers a corporation to purchase and maintain insurance or make other financial arrangements on behalf of a Covered Person for any liability asserted against such person and liabilities and expenses incurred by such person in his or her capacity as a Covered Person or arising out of such person’s status as a Covered Person whether or not the corporation has the authority to indemnify such person against such liability and expenses.

 

The Bylaws of the Company provide for indemnification of Covered Persons substantially identical in scope to that permitted under the Nevada Law. Such Bylaws provide that the expenses of directors and officers of the Company incurred in defending any action, suit or proceeding, whether civil, criminal, administrative or investigative, must be paid by the Company as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it is ultimately determined by a court of competent jurisdiction that the director or officer is not entitled to be indemnified by the Company.

 

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Item 15. Recent Sales of Unregistered Securities.

 

On December 19, 2015, upon completion of the Second Share Exchange describe above in “Description of Business”, the Company issued to (i) the acquiree shareholders an aggregate of one hundred fifty-one million (151,000,000) shares of Company’s common stock, and a certain acquiree shareholder an additional 8% convertible promissory note (the “Note”) in the principal amount of one hundred fifty million dollars ($150,000,000). The Note may be converted all or any portion of the then aggregate outstanding principal amount, together with any accrued and unpaid interest, into shares of Company’s common stock at $10.00 per share. The principal amount of the Note was subsequently reduced to $75,000,000 as a result of the Subsidiaries Sale consummated on December 31, 2015, as described above in “Description of Business”. The issuance of the shares and the Note at the closing of the underlying transactions has been determined to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act.

 

On December 28, 2015, Company issued an aggregate of 657,900 shares of common stock to nine individuals and three entities for services rendered. The issuance of the shares has been determined to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act.

 

On January 25, 2016, Company issued an aggregate of 15,000 shares of common stock to one individual for services rendered. The issuance of the shares has been determined to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act.

 

On November 17, 2016, upon share exchange and conversion described above in “Description of Business” with Wight International Construction, LLC, we issued an aggregate of 100,000,000 shares of common stock of the Company to Wight International Construction, LLC. As a result, Wight holds 36.73% of Common Stock of the Company and is now now the largest shareholder of the Company. The issuance of the shares has been determined to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act.

 

Item 16. Exhibits.

 

Exhibit
Number
  Description
     
1.1†   Form of Underwriting Agreement
2.1   Share Exchange Agreement, dated December 19, 2015, by and between the Company and Crestlake Holdings Limited (incorporated by reference to Exhibit 2.1 filed on Current Report to Form 8-K with the SEC on December 21, 2015)
2.2   Share Exchange Agreement, dated December 19, 2015, by and between the Company and Start Well International Limited (incorporated by reference to Exhibit 2.2 filed on Current Report to Form 8-K with the SEC on December 21, 2015)
2.3   Share Exchange Agreement, dated December 19, 2015, by and between the Company and Majestic Symbol Limited (incorporated by reference to the Exhibit 2.3 filed on Current Report to Form 8-K with the SEC on December 21, 2015)
2.4   Share Exchange Agreement, dated December 19, 2015, by and between the Company and Best Future Investment LLC (incorporated by reference to the Exhibit 2.4 filed on Current Report to Form 8-K with the SEC on December 21, 2015)
2.5   Share Exchange Agreement, dated December 19, 2015, by and between the Company and Fortunate Drift Limited (incorporated by reference to the Exhibit 2.5 filed on Current Report to Form 8-K with the SEC on December 21, 2015)
2.6   Share Exchange Agreement, dated December 19, 2015, by and between the Company and Jasper Lake Holdings Limited (incorporated by reference to Exhibit 2.6 filed on Current Report to Form 8-K with the SEC on December 21, 2015)
3.1   (a) Original Articles of Incorporation dated December 23, 2009
    (b) Certificate of Correction dated April 21, 2010
    (c) Certificate of Amendment dated March 10, 2011
    (d) Certificate of Correction dated March 14, 2011
    (e) Certificate of Amendment dated January 13, 2016
3.2   Bylaws (Incorporated by reference to Exhibit 3.2 filed on Company’s Registration Statement on Form S-1 filed with the SEC on April 28, 2010)
4.1   8% Convertible Promissory Note issued to Jasper Lake Holdings Limited (incorporated by reference to Exhibit 4.1 filed on Current Report to Form 8-K with the SEC on December 21, 2015)
4.2   Amended 8% Convertible Promissory Note issued to Jasper Lake Holdings Limited in the amount of $75,000,000 upon completion of the Subsidiaries Sale (Incorporated by reference to Exhibit 4.2 filed on Annual Report on Form 10-K filed with the SEC on February 2, 2016)
4.3   Specimen Common Stock Certificate

 

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5.1*   Opinion of Lucosky Brookman LLP, counsel of Yangtze River Development Limited, as to the validity of the common stock
10.1   Stock Purchase and Business Sale Agreement, dated December 31, 2015, by and between the Company and Kirin Global Enterprises, Inc. for the sale of Brookhollow Lake, LLC (incorporated by reference to Exhibit 10.1 filed on Current Report to Form 8-K with the SEC on January 7, 2016)
10.2   Stock Purchase and Business Sale Agreement, dated December 31, 2015, by and between the Company and Kirin Global Enterprises, Inc. for the sale of New Port Property Holding, LLC (incorporated by reference to Exhibit 10.2 filed on Current Report to Form 8-K with the SEC on January 7, 2016)
10.3   Stock Purchase and Business Sale Agreement, dated December 31, 2015, by and between the Company and Kirin Global Enterprises, Inc. for the sale of Kirin China Holding Ltd. (incorporated by reference to Exhibit 10.3 filed on Current Report to Form 8-K with the SEC on January 7, 2016)
10.4   Stock Purchase and Business Sale Agreement, dated December 31, 2015, by and between the Company and Kirin Global Enterprises, Inc. for the sale of Kirin Hopkins Real Estate Group (incorporated by reference to Exhibit 10.4 filed on Current Report to Form 8-K with the SEC on January 7, 2016)
10.5   Stock Purchase and Business Sale Agreement, dated December 31, 2015, by and between the Company and Kirin Global Enterprises, Inc. for the sale of Archway Development Group LLC (incorporated by reference to Exhibit 10.5 filed on Current Report to Form 8-K with the SEC on January 7, 2016)
10.6   Stock Purchase and Business Sale Agreement, dated December 31, 2015, by and between the Company and Kirin Global Enterprises, Inc. for the sale of Spectrum International Enterprise, LLC (incorporated by reference to Exhibit 10.6 filed on Current Report to Form 8-K with the SEC on January 7, 2016)
10.7   Stock Purchase and Business Sale Agreement, dated December 31, 2015, by and between the Company and Kirin Global Enterprises, Inc. for the sale of HHC-6055 Centre Drive LLC (incorporated by reference to Exhibit 10.7 filed on Current Report to Form 8-K with the SEC on January 7, 2016)
10.8**   Offer and Acceptance Letter between the Company and Daniel W. Heffernan
10.9**   Offer and Acceptance Letter between the Company and Harvey Leibowitz
10.10**   Offer and Acceptance Letter between the Company and James Coleman
10.11**   Offer and Acceptance Letter between the Company and Zhixue Liu
10.12**   Offer and Acceptance Letter between the Company and Romano Tio
10.13**   Offer and Acceptance Letter between the Company and Tongmin Wang
10.14**   Offer and Acceptance Letter between the Company and Yanliang Wu
10.15**   Offer and Acceptance Letter between the Company and Yu Zong
10.16**   Offer and Acceptance Letter between the Company and Zhanhuai Cheng
10.17**   Offer and Acceptance Letter between the Company and Zhihong Su
10.18**   English translation of Memorandum of Understanding between the Company and CMST Development (Hankou) Co. Ltd.
10.19**   English translation of Memorandum of Understanding between the Company and Shanxi Chamber of Commerce in Hubei
10.20**   English translation of Memorandum of Understanding between the Company and Wuhan Coal Business Association
10.21**   Undertaking Letter Provided by the Majority Shareholder dated January 29, 2016
10.22   Contribution, Conveyance and Assumption Agreement Dated October 3, 2016 By and Among the Company, Armada Enterprises GP and Wight International Construction, LLC. (incorporated by reference to Exhibit 10.1 filed on Quarterly Report to Form 10-Q with the SEC on October 24, 2016)
10.23   Addendum to Contribution, Conveyance and Assumption Agreement Dated October 3, 2016 By and Among the Company, Armada Enterprises GP and Wight International Construction, LLC. (incorporated by reference to Exhibit 10.2 filed on Quarterly Report to Form 10-Q with the SEC on October 24, 2016)
10.24 Convertible Promissory Note between Company and Wight International Construction, LLC dated November 16, 2016 (incorporated by reference to Exhibit 10.1 filed on Current Report to Form 8-K with the SEC on November 23, 2016)
10.25   Amended and Restated Limited Liability Company Agreement between Company and Wight International Construction, LLC, dated November 16, 2016 (incorporated by reference to Exhibit 10.1 filed on Current Report to Form 8-K with the SEC on November 23, 2016)
10.26†   Second Addendum to Contribution, Conveyance and Assumption Agreement dated November 30, 2016
14.1   Code of Business Conduct and Ethics of the Company (incorporated by reference to Exhibit 10.7 filed on Current Report to Form 8-K with the SEC on January 28, 2016)
21.1   List of Subsidiaries (Incorporated by reference to Exhibit 4.2 filed on Annual Report on Form 10-K filed with the SEC on February 2, 2016)
23.1†   Consent of Centurion ZD CPA Limited (as successor to Dominic K.F. Chan & Co)
23.2*   Consent of Lucosky Brookman LLP, counsel of Yangtze River Development Limited (included in Exhibit 5.1).

99.1

  Notice of Conversion dated November 16, 2016 (incorporated by reference to Exhibit 99.1 filed on Current Report to Form 8-K with the SEC on November 23, 2016).
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Schema
101.CAL*   XBRL Taxonomy Calculation Linkbase
101.DEF*   XBRL Taxonomy Definition Linkbase
101.LAB*   XBRL Taxonomy Label Linkbase
101.PRE*   XBRL Presentation Linkbase

  

* To be filed by amendment.
** Previously filed.
Filed herewith.

 

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Item 17. Undertakings.

 

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

The undersigned Registrant hereby undertakes that:

 

The undersigned registrant hereby undertakes:

 

(1)To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i)To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

(ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

 

(iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

(2)That for the purpose of determining any liability under the Securities Act of 1933 each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3)To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4)That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

(5)That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

 

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i)Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii)Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii)The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv)Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(6)The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

 

(7)Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

(8)The undersigned Registrant hereby undertakes:

 

(1)That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(2)That for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, New York on December 20, 2016.

 

  YANGTZE RIVER DEVELOPMENT LIMITED
     
  By: /s/ Xiangyao Liu
    Xiangyao Liu
   

President and Chief Executive Officer

(Principal Executive Officer)

     
  Date:

December 20, 2016

     
  By: /s/ Xin Zheng
    Xin Zheng
   

Chief Financial Officer

(Principal Financial and Accounting Officer)

     
  Date:

December 20, 2016

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Name   Title   Date
         
/s/ Xiangyao Liu   President, Chief Executive Officer and Director   December 20, 2016
Xiangyao Liu   (Principal Executive Officer)    
    Chief Financial Officer    
         
/s/ Xin Zheng   (Principal Financial and Accounting Officer)   December 20, 2016
Xin Zheng        
         
/s/ James Stuart Coleman   Director   December 20, 2016
James Stuart Coleman        
         
/s/ Zhanhuai Cheng   Director   December 20, 2016
Zhanhuai Cheng        
         
/s/ Yanliang Wu   Director   December 20, 2016
Yanliang Wu        
         
/s/ Yu Zong   Director   December 20, 2016
Yu Zong        
         
/s/ Harvey Leibowitz   Independent Director   December 20, 2016
Harvey Leibowitz        
         
/s/ Zhixue Liu   Independent Director   December 20, 2016
Zhixue Liu        
         
/s/Tongming Wang   Independent Director   December 20, 2016
Tongming Wang        
         
/s/ Romano Tio   Independent Director   December 20, 2016
Romano Tio        
         
/s/ Daniel W. Heffernan   Independent Director   December 20, 2016
Daniel W. Heffernan        
         
/s/ Zhihong Su   Independent Director   December 20, 2016
Zhihong Su        

 

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