EDGAR 10-K Filing

Company CIK: 1605810
Filing Year: 2022
Filename: 1605810_10-K_2022_0001185185-22-000431.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS.
Our Corporate History and Background
We were incorporated in the State of Nevada on September 5, 2013. Our original business plan was to sell freshly squeezed juices from mobile stands in London, United Kingdom, but this business was not successful, and we did not generate any revenue from this business.
On April 7, 2017, we completed the acquisition of PGL and as a result, PGL became our wholly-owned subsidiary and the former shareholders of PGL became the holders of approximately 98.4% of our issued and outstanding capital stock on a fully-diluted basis. We changed our name to Porter Holding International, Inc. on May 8, 2017 to more accurately reflect our new business. For accounting purposes, the transaction with PGL was treated as a reverse acquisition, with PGL as the acquirer and the Company as the acquired party.
As described below in more detail, through our PRC VIEs that have contractual arrangements with PGL’s subsidiary, Qianhai Porter, we are at the early stage of developing our O2O (Online to Offline) business and our goal is to become a leading innovative O2O business platform operator providing both online E-commerce and offline physical business facilities to our customers.
Our Corporate Structure
PRC laws and regulations prohibit or restrict foreign ownership of companies that operate Internet information and content, Internet access, online games, mobile, value added telecommunications and certain other businesses in which we are engaged or could be deemed to be engaged. Given such restrictions on direct ownership of some aspects of our business by foreign investors, we conduct our operations in the PRC through our VIEs. Our PRC subsidiary Qianhai Porter has nominal operations or assets. As a result of the contractual arrangements by and among Qianhai Porter, Portercity and Portercity’s shareholders, under generally accepted accounting principles in the United States, or U.S. GAAP, we are considered the primary beneficiary of the VIEs and thus consolidate the VIEs’ results in our consolidated financial statements.
PGL, a Seychelles holding company, was formed on October 13, 2016. The share capital of the company is $50,000 divided into 500,000,000 ordinary shares of $0.0001 par value each. On December 6, 2016, the authorized and issued capital of PGL increased to $725,000 divided into 7,250,000,000 shares with a par value of $0.0001 each.
On November 29, 2016, Mr. Zongjian Chen, the sole shareholder of PPBGL, transferred 100% of the outstanding shares of PPBGL to PGL. As PGL was also owned and controlled by Mr. Zongjian Chen then, the share transfer was accounted for as a common control transaction. Other than its 100% ownership of PPBGL, PGL has no significant assets and no other business operations.
PPBGL was incorporated in Hong Kong on September 21, 2016 as a company with limited liability as an investment holding company. Upon incorporation, PPBGL issued 1 ordinary share at HK$1. Also, on September 21, 2016, an additional 9,999 ordinary shares were issued, and Mr. Zongjian Chen held all the 10,000 ordinary shares of PPBGL on behalf of the original investors of Portercity. PPBGL has no significant assets or business operations.
Qianhai Porter was incorporated in the PRC as a wholly foreign-owned enterprise with limited liability on November 21, 2016. Qianhai Porter was set up by PPBGL. Qianhai Porter was incorporated to control the shareholders’ voting interests in Portercity and become the primary beneficiary of Portercity and its subsidiaries, or the VIEs.
Portercity’s equity interests were held by Mr. Zonghua Chen (brother of Mr. Zongjian Chen) and Ms. Xiaomei Xiong (spouse of Mr. Zongjian Chen) on behalf of other investors, including Mr. Zonghua Chen himself.
On December 1, 2016, Portercity acquired a 100% equity interest in Porter Consulting, from Shenzhen Porter Holdings Co., Ltd., for a cash consideration of $144,154 (RMB1,000,000).
In August 2019, Porter E-Commerce acquired 60% of the equity interest in Maihuolang E-Commerce, which is engaged in the business of online e-commerce. In October 2019, shareholders of Maihuolang E-Commerce reached an agreement to increase the registered capital of Maihuolang E-Commerce from RMB 5,000,000 (approximately $718,205) to RMB 5,263,157 (approximately $756,005), and such additional registered capital was contributed by Maihuolang (Beijing) Technology Development Co., Ltd., an entity controlled by a minority shareholder of Maihuolang E-Commerce, Mr. Kezhan Ma. Consequently, Porter E-Commerce’s equity interest in Maihuolang E-Commerce was reduced to 57%. Because Maihuolang E-Commerce failed to realize anticipated benefits and value creation, on July 15, 2020, Porter E-Commerce entered into an equity transfer agreement with Mr. Kezhan Ma, whereby Porter E-Commerce transferred its 57% equity interests in Maihuolang E-Commerce to Mr. Kezhan Ma, for cash consideration of RMB 650,000 (approximately $95,735) which amount is payable in one-time payment within eight months of the filing of the equity transfer with the local Business Registration agency. The payment was made by Mr. Kezhan Ma on July 27, 2020.
In July 2021, Porter E-commerce and Mr. Shoubao Guo established Shenzhen Xinsanmao Wine Co., Ltd in Shenzhen, China, with a registered capital of RMB1,000,000 (approximately $155,198). Porter E-commerce and Mr. Shoubao Guo hold 51% and 49% of equity interests in Xinsanmao Wine, respectively. Xinsanmao Wine is engaged in the business of wine distribution.
Contractual Agreements Establishing the VIE Structure
On December 15, 2016, our indirectly wholly-owned Chinese subsidiary, Qianhai Porter, Portercity and the shareholders of Portercity entered into the following commercial arrangements, or collectively, VIE Agreements, pursuant to which we have contractual rights to control and operate the businesses of Portercity and Portercity’s subsidiaries:
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Pursuant to a commission management and consulting services agreement, or the Service Agreement, Qianhai Porter agreed to act as the exclusive management and advisory consultant of Portercity and provide client management, marketing promotion counseling, corporate management and counseling, finance counseling and personnel training services to Portercity. In exchange, Portercity agreed to pay Qianhai Porter a management and consulting fee to be equivalent to the amount of net profit before tax of Portercity;
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Pursuant to an exclusive right and option to purchase agreement, or the Option Agreement, the shareholders of Portercity granted to Qianhai Porter the exclusive right and option to purchase, at any time during the term of the Option Agreement, all of the assets of and equity interests shares in Portercity, at the exercise price equal to the lowest possible price permitted by Chinese laws;
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Pursuant to a shareholders’ voting rights proxy agreement, or the Voting Rights Agreement, each of the shareholders of Portercity irrevocably appointed the representatives designated by Qianhai Porter to exercise its exclusive voting right of shareholders in the general meeting of shareholders of Portercity; and
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Pursuant to an equity interest pledge agreement, the Pledge Agreement, the shareholders of Portercity pledged all of the equity interests in Portercity and any and all legitimate income generated from such equity interests to Qianhai Porter to ensure the rights, privileges and concessions of Qianhai Porter under this and the above contractual arrangements.
The foregoing description of the VIE Agreements is qualified in its entirety by reference to the text of the VIE Agreements, a copy of each of the VIE Agreements is incorporated by reference as Exhibits 10.1 through 10.4 hereto.
As a result of the above contractual arrangements, we maintain substantial control over the VIEs’ daily operations and financial affairs, election of their senior executives and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of the VIEs, we are entitled to consolidate the financial results of the VIEs in our own consolidated financial statements under Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 810 and related subtopics related to the consolidation of variable interest entities, or ASC Topic 810.
However, our stockholders will not and may never directly hold equity interests in the VIEs which are the operating companies in China. Uncertainties exist as to our ability to enforce the VIE Agreements, and the VIE Agreements have not been tested in a court of law. The Chinese regulatory authorities could disallow this VIE structure, which would likely result in a material change in our operations and the value of our common stock, including that it could cause the value of such securities to significantly decline or become worthless. In addition, we rely on the contractual arrangements with the VIE Portercity and its shareholders to operate, which may not be as effective as direct ownership in providing operational control and may have potential conflicts of interests with us. Due to great uncertainties under Chinese law and jurisdictional limits, we, as a Nevada holding company, may face substantial challenges in enforcing these contractual agreements. See “Risk Factors-Risks Related to the VIE Structure” for a detailed discussion of the risks, uncertainties and challenges related to the contractual arrangements.
Notwithstanding the foregoing, in the opinion of Guang Dong LianRui Law Firm, our PRC legal counsel:
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the ownership structures of our wholly-foreign owned enterprise and VIEs in China do not violate any applicable PRC law, regulation, or rule currently in effect; and
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the contractual arrangements between our wholly-foreign owned enterprise, the material variable interest entity and the variable interest entity’s equity holders governed by PRC laws are valid, binding and enforceable in accordance with their terms and applicable PRC laws, rules, and regulations currently in effect, and does not violate any applicable PRC law, regulation, or rule currently in effect.
We have been further advised by our PRC legal counsel, Guang Dong LianRui Law Firm, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities may, in the future, take a view that is contrary to the opinion of our PRC legal counsel; that if the PRC government finds that the agreements that establish the structure for operating our Internet-based business do not comply with PRC government restrictions on foreign investment in the aforesaid business we engage in, we could be subject to severe penalties including being prohibited from continuing operations. See “Risk Factors-Risks Related to the VIE Structure.”
The chart below presents our corporate structure as of the date of this report:
Our principal executive offices are located at 36th Floor, Shenzhen Development Center, #2010, Renmin South Road, Luohu District, Shenzhen, Guangdong, China, 518001. The telephone number at our principal executive office is 86-755-22230666.
Our Platforms and Service Offerings
With the development of mobile Internet, e-commerce, social networks, physical stores and the coming of big data economy era, the online and offline worlds are becoming increasingly more integrated. The Online to Offline (O2O) business model that contains the original business-to-business (B2B), business-to-consumer (B2C) and consumer-to-consumer (C2C) is in the rapid development., O2O is no longer a one-way consumption model, which neither merely guides traditional purchasers to consume online nor only leads online consumers to enjoy offline experience or service. The O2O commerce solutions industry in China has witnessed fast growth in the past decade.
We are a commercial platform provider that offers “O2O (Network + Entity) * Services” and only focus on commodities and merchants. We provide commodities with concrete platforms for promotions in terms of online marketing coverage and offline marketing services. The online marketing coverage for merchants refers to services such as global promotion of corporate brand & image of merchants, layout of distributor and agency channels, sharing of supply and demand information, creation of commercial credit, recruitment of talents. The offline marketing services are offered to merchants with value-added services such as brand marketing, financial services, credit guarantees, capital market access and public listing, training, education, summits, government relations, and third-party professional services referrals.
Specifically, we are currently developing and plan to provide following core products and services to our customers:
1. Our PT37.com platform (also known as “platform business opportunity” with ICP qualification, established and went into operation at 2009), is a commercial cloud platform, in which all kinds of global small and medium-sized enterprises can apply for access and obtain services free of charge. It is a professional information-supply-and-demand platform with high degree of flexibility, in which enterprises could achieve enterprise informatization within a short time. Through the platform, the enterprises can internally realize IMIS information management and externally release information, display product and services. At present, the categories of products on the pt37.com platform include books, videos, instruments, household appliances, electronic products, home furniture, clothing, automobiles, toys, food and beauty. Each category could be further divided into sub-categories with various search criteria and parameters, allowing merchants to accurately search for information and increase the relevance of searched results. Currently, there are millions of member companies registered on the platform. We do not charge them but we will select high-quality merchant customers based on the transaction volume to enter our O2O platform for operation. In other words, this is a customer resources screening pool as well as the starting point of our “O2O (Network + Entity) * Services” business model.
2. Our 17yugo.com platform (also known as: Porter E-Mall, with ICP qualifications, established and went into operation at 2018) is the online section of our “O2O (Network + Entity) * Services” business model. Currently hundreds of merchants have been selected from member enterprises and thousands of goods of origin have been stationed. In the future, these merchants and products will be stationed in offline Port City simultaneously, and the layout of Porter E-Mall will be synchronized with the physical Port City.
3. Our Port City platform is offline section of our “O2O (Network + Entity) * Services” business model. Regional center cities are top choices of Port City, which may cover more than 1 million square meters. Each Port City will have functions including exhibition, brokerage, procurement, wholesale, order, hotel, conference, warehousing, logistics, distribution and payment. At the same time, within the 200-kilometer range around the Potter City, the traditional 50-square-meter physical stores will be upgraded to form “satellite” physical stores in Porter City with in-depth sales and other services.
Port City platform is built by third parties or through cooperation with third-party property owners. We conduct management and profit earning through operating the platform. The first physical Port City is currently under construction, and the upgrades of nearly thousands of “satellite” stores have been completed.
4. Our payment platform is dedicated to the development of internet software and hardware services for enterprises and individuals. At present, the external services include Internet payment, mobile payment, POS machine receipt, electronic technology development, and Internet marketing services, while the internal services are to provide payment services for our own O2O platform.
Since 2017, we have carried out a large number of value-added services for all of our merchant members and customers based on the simultaneous operation of the “O2O (Network + Entity) * Services” business model, and thus earned revenues. In 2017, by collecting conference fees, we organized member companies to conduct new economic summits and forums to preach and disseminate our “O2O (Network + Entity) * Services” business model. In 2018, we began to screen member merchant enterprises to enter our O2O platform, and provided them with “O2O (Network + Entity) * Services” commercial operation services. For those qualified enterprises, we offer public listing consulting services, which help us achieve good returns. At the beginning of 2019, we began to expand the global trade and commodity import and export business of the stationed enterprises. Due to the global covid-19 pandemic starting in 2020, business and trade of the world was unable to develop as usual. We are now engaging in developing our business in areas including e-commerce, cross-boarder trade and influencer live stream sales etc. to enhance our performance. In 2021, we will strive to achieve breakthrough in our consultancy services on influencer sales, e-commerce, bulk trade, supply chain, as well as other possible new promotional tools to achieve the desired results.
Investment and Corporate Management Consulting Services
According to the development demand and future goals of our customers, in 2018 we started to offer a series of services such as business planning, financial guidance, business matching and guidance for listing primarily in the United States. At present, in our customer pool, many small and medium-sized enterprises have increased their public awareness. They are seeking the potential advantages of being a listed company and striving for obtaining the recognition of international capital to accelerate their corporate expansion. But many enterprises themselves may not be familiar with the listing requirements, laws and regulations of different capital markets, and the process of obtaining financing from overseas markets.
In order to help our customers who intend to access to the overseas capital market, we have a team of experienced professionals who have professional knowledge of the listing rules and regulations of various capital markets. We aim to make full use of our expertise and resources in the capital markets to assist these customers to achieve their goals.
Starting from the second quarter of 2018, through Portercity and Porter Commercial, we have been providing investment and corporate management consulting services to our clients, especially those who have the intention to be publicly listed in the stock exchanges in the United States and other countries. We categorize our consulting services into three phases:
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Phase I consulting services primarily include due diligence review, market research and feasibility study, business plan drafting, accounting record review, and business analysis and recommendations etc. Management estimates that Phase I normally takes around three months to complete based on its past experiences.
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Phase II consulting services primarily include reorganization, pre-listing education and tutoring, talent search, legal and audit firm recommendation and coordination, VIE contracts and other public-listing related documents review, merger and acquisition planning, investor referral and pre-listing equity financing source identification and recommendation, independent directors and audit committee candidates recommendation; shell company identification and recommendation for customers expecting to become publicly listed through reverse merger transaction; etc. Management estimates that Phase II normally takes about five months to complete based its past experiences.
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Phase III consulting services primarily include assistance in preparation of customers’ registration statement under IPO transactions or Form 8-K under reverse merger transactions; assistance in answering comments and questions received from regulatory agencies etc. Management believes it is very difficult to estimate the timing of this phase of service as the completion of Phase III services is not within the Company’s control.
Each phase of consulting services is standalone and fees associated with each phase are usually clearly identified in service agreements. Revenue from providing Phase I and Phase II consulting services to customers is recognized based on the output methods, including surveys of performance completed to date or milestones reached of each phase only when the Company has an enforceable right to payment for performance completed to date. Otherwise, such revenue is recognized at a point in time when services are delivered and accepted by customers. Revenue from providing Phase III consulting services to customers is recognized upon completion of reverse merger transaction or IPO transaction, which is evidenced by filing of 8-K for reverse merger transaction or receipt of effective notice from regulatory agencies for IPO transaction. Revenue that has been billed, collected but not yet recognized is reflected as deferred revenue on the consolidated balance sheets.
Depending on the complexity of the underlying service arrangement and related terms and conditions, significant judgments, assumptions and estimates may be required to determine when substantial delivery of contract elements has occurred, whether any significant ongoing obligations exist subsequent to contract execution, whether amounts due are collectible and the appropriate period or periods in which, or during which, the completion of the earnings process occurs. Depending on the magnitude of specific revenue arrangements, adjustment may be made to the judgments, assumptions and estimates regarding contracts executed in any specific period.
On June 28, 2018, Portercity and Mr. Zhibo Mao established Weifang Portercity in Weifang, Shandong Province, the PRC, with a registered capital of RMB1,000,000 (approximately $146,000). Portercity and Mr. Zhibo Mao hold 60% and 40% equity interest in Weifang Portercity, respectively. Weifang Portercity is intended to be engaged in the business of providing various consulting services to its clients, especially to those who have the intention to be publicly listed in the stock exchanges in the United States and other countries. As of December 31, 2020, Weifang Portercity has not commenced operations. In January 2021, Weifang Portercity agreed with the local government to terminate this project, as a result of the local government changing its development strategy. Weifang Portercity received a compensation of approximately $538,665from the local government to compensate its upfront establishment expenses including expenditure relating to office renovation, office equipment and supplies. Weifang Portercity was dissolved on April 22, 2021.
Training services
Starting from the first quarter of 2019, the Company, via PPBGL and Porter Commercial, provides various training services to its clients, primarily related to e-commerce platform operation, expansion of channels and other promotion strategies, and capital market operation, via live and online sessions. In order to recognize revenue, the Company is required to identify an approved contract with commitments to perform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. The fees associated with the course of training sessions are clearly identified in service agreements. Training service revenue is recognized at the time when the training sessions stipulated in the contract are completed.
Our Customers
Currently, through our VIE entity, Porter Consulting, we partner with China Payment, a third-party online payment service provider, to promote China Payment’s online payment platform to companies and businesses in Shenzhen and in return share a portion of the processing fees earned by China Payment as commission.
In addition, Porter Consulting partners with Shenzhen Zhongfu, a third-party online payment service provider, under which Porter Consulting agreed to promote Shenzhen Zhongfu’s online payment platform, including the Point of Sale (POS) system, to companies and businesses in China and in return obtain a certain amount of commission based on the volume of trading through such online payment platform.
Starting from the second quarter of 2018, through Portercity and Porter Commercial, we have been providing investment and corporate management consulting services to our clients, especially those who have the intention to be publicly listed in the stock exchanges in the United States and other countries. They are usually small and medium-sized enterprises based in China.
Our Intellectual Property
The following table illustrates the title of different software copyrights that our VIEs own, their certificate numbers, first publication dates, and certificate issuance dates. We regard our software copyrights important to our success and our competitive position. Using these software, our merchant clients can post and offer products to their customers over our online marketplace. In addition, such software will allow us to analyze online businesses’ operational data and customers’ consumption data and provide value-added data analysis services to our merchant customers to help them manage their business operations, sales channel and customer expansion.
Copyright Title
Owner
Certificate Number
First Publication
			Date
Issue Date
PT37B&M Online Trading System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
6-25-2009
10-23-2009
PT37 Bidding System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
6-20-2009
10-23-2009
PT37 Fuzzy and Precise Search System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
6-20-2009
10-23-2009
PT37 Enterprise/Individual E-Commerce Data Trading Bidding System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
6-20-2009
10-23-2009
PT37-IMIS Integrated Management Information System v. 2.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
7-1-2009
10-23-2009
PT37 Promotion Alliance System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
6-20-2009
10-23-2009
PT37 Group Purchase System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
6-20-2009
10-23-2009
PT37 Industry Trading System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
3-20-2009
11-27-2009
Porter AI Shopping Guide Robot System v. 1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
11-17-2009
5-11-2010
Porter Payment System v.2.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
11-15-2009
3-24-2010
PT37-IMIS Integrated Management Information System v. 1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
3-10-2009
6-3-2011
PT37 Supermarket System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
12-30-2010
8-6-2011
PT37 Advertorial Publication System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
12-30-2010
8-6-2011
PT37 Cloud Intelligence System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
6-30-2010
8-6-2011
PT37 Special Area Gateway System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
12-30-2010
8-6-2011
PT37 Financing and Loan Automatic Selection System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
12-30-2010
8-6-2011
PT37 Porter Communication Platform System v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
12-30-2010
8-6-2011
PT37Open Platform Software v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
6-10-2010
8-6-2011
Porter Credit System Software v.1.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
6-10-2010
8-6-2011
PT37 Orienting Information System v.2.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
12-30-2010
8-6-2011
PT37 Green Online Purchase AI System v.2.0
Shenzhen Porter Commercial Perspective Network Co., Ltd.
12-30-2010
8-6-2011
We have also registered the following trademarks in China:
Mark
Registration Number
Description
Valid Period
波特
construction model
June 13, 2021-June 13, 2031
波特城
construction related
October 7, 2016- October 6, 2026
波特城
security and safeguard related
October 7, 2016- October 6, 2026
波特城
advertisement related
October 7, 2016- October 6, 2026
波特城
urban planning related
October 7, 2016- October 6, 2026
波特城
pledge and loan related
October 7, 2016- October 6, 2026
advertisement related
July 6, 2021-July 6, 2031
computer programming related
June 6, 2021-June 6, 2031
We registered www.17yugo.com and www.pt37.com as our domain names on March 16, 2010 and September 16, 2008, respectively.
Our Competition
Our O2O competitors in China include (i) major e-commerce companies, such as Alibaba Group, which operates taobao.com and tmall.com, and JD.com, Inc.; (2) major traditional brick and mortar shopping centers that aim to offer a one-stop shopping experience, such as Walmart China supercenters and Mixc malls. We believe that the principal competitive factors in our industry include network coverage, brand recognition and reputation, product quality, selection and pricing and quality of customer service. While many of our current or potential competitors have substantially greater financial and technical resources, longer operating histories and more established brand names and relationships than we do, we are confident that our business model will offer our customers one-stop services at a relatively low price and accordingly enhance our competitive position.
Regulation
Because all of our operating entities are located in the PRC, we are regulated by the national and local laws of the PRC. This section summarizes the major PRC regulations relating to our business.
The Telecommunications Regulations
The Telecommunications Regulations, promulgated by the PRC State Council on September 25, 2000 and amended on February 6, 2016, or the Telecom Regulations, set out the general framework under which domestic Chinese companies such as the Company’s PRC subsidiaries and VIEs may engage in various types of telecommunications services in the PRC. The Telecom Regulations defines value-added telecommunications services as telecommunications and information services provided through public networks. Pursuant to the Telecom Regulations, commercial operators of value-added telecommunications services must first obtain an operating license from the Ministry of Industry and Information Technology, or its provincial level counterparts.
The Catalog of Telecommunications Business, or the Catalog, which was issued as an attachment to the Telecom Regulations and last updated on June 6, 2019, further categorizes value-added telecommunication services into two classes: Class 1 value-added telecommunication services and Class 2 value-added telecommunication services. Online data processing and transaction processing business and Information services provided via internet fall within Class 2 value-added telecommunications services.
On July 3, 2017, the Ministry of Industry and Information Technology amended the Measures on the Administration of Telecommunications Business Operating Permits, or the Telecom License Measures, which became effective on September 1, 2017, to supplement the Telecom Regulations. The Telecom License Measures sets forth the types of licenses required to operate value-added telecommunications services and the qualifications and procedures for obtaining such licenses. The Telecom License Measures also provides that an operator providing value-added services in multiple provinces is required to obtain an inter-regional license, whereas an operator providing value-added services in one province is required to obtain an intra-provincial license. Any telecommunication services operator must conduct its business in accordance with the specifications in its license.
In addition, the Chinese government restricts foreign investment in Internet-related businesses. Accordingly, we operate our Internet-related businesses in China through Portercity, our VIE operating in Shenzhen China.
Regulations Relating to Foreign Investment
The Guidance Catalogue of Industries for Foreign Investment, or the Catalogue, was promulgated and has been amended from time to time by the Ministry of Commerce and the National Development and Reform Commission. In Catalogue, Industries for foreign investment are divided into three categories: encouraged, restricted and prohibited. Establishment of wholly foreign-owned enterprises is generally allowed in encouraged industries. Some restricted industries are limited to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. In addition, restricted category projects are subject to higher-level government approvals. Foreign investors are not allowed to invest in industries in the prohibited category. Industries not listed in the Catalogue are generally open to foreign investment unless specifically restricted by other PRC regulations.
In June 2019, the Ministry of Commerce and the National Development and Reform Commission promulgated the Special Management Measures (Negative List) for the Access of Foreign Investment, or the Negative List, effective July 30, 2019. Foreign investment in value-added telecommunication business (excluding e-commerce business, domestic multi-party communications services, store and forward services and call center services) falls within the Negative List.
On March 15, 2019, the Standing Committee of the National People’s Congress passed the Foreign Investment Law of PRC, which took effect on January 1, 2020. The Law of the People’s Republic of China on China-Foreign Equity Joint Ventures, the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises, and the Law of the People’s Republic of China on China-Foreign Contractual Joint Ventures were replaced at the same time. On December 26, 2019, the Regulation on the Implementation of the Foreign Investment Law of the PRC, was issued by the State Council and came into force on January 1, 2020. The Foreign Investment Law of PRC adopts the mechanism of the negative list to regulate foreign investment. A foreign investor may not invest in a field which is prohibited by the foreign investment access negative list from investment. To invest in a field restricted by the foreign investment access negative list from investment, a foreign investor shall meet the investment conditions set out in the negative list. The latest Special Administrative Measures (Negative List) for Foreign Investment Access (2021), or the Negative List, which was promulgated by the Ministry of Commerce of China and the National Development and Reform Commission of China on December 27, 2021, and took effect on January 1, 2022.
In light of the above restrictions and requirements, we conduct our business through our consolidated VIEs.
Under PRC law, the establishment of a wholly foreign owned enterprise is subject to the approval of the Ministry of Commerce or its local counterparts and the wholly foreign owned enterprise must register with the competent industry and commerce bureau.
Foreign Investment in Value-Added Telecommunications Businesses
The Regulations for Administration of Foreign-invested Telecommunications Enterprises promulgated by the PRC State Council in December 2001 and subsequently amended in February 2016 set forth detailed requirements with respect to capitalization, investor qualifications and application procedures in connection with the establishment of a foreign-invested telecommunications enterprise. These regulations prohibit a foreign entity from owning more than 50% of the total equity interest in any value-added telecommunications service business in China and require the major foreign investor in any value-added telecommunications service business in China have a good and profitable record and operating experience in this industry.
The Measures for the Administration of Internet Information Services
The governing law for Internet information service is the Measures for the Administration of Internet Information Services, or the Internet Content Provider (“ICP”) Measures, which went into effect on September 25, 2000. Under the ICP Measures, any entity that provides information to online Internet users must obtain an operating license from Ministry of Industry and Information Technology (“MIIT”) or its local branch at the provincial level in accordance with the Telecom Regulations described above.
The ICP Measures further stipulate that entities providing online information services in areas of news, publishing, education, medicine, health, pharmaceuticals and medical equipment must obtain permission from responsible national authorities prior to applying for an operating license from MIIT or its local branch at the provincial or municipal level. Moreover, ICPs must display their operating license numbers in a conspicuous location on their websites. ICPs must police their websites to remove categories of harmful content that are broadly defined. Currently, our VIE, Portercity holds an ICP license which was renewed on December 10, 2019, expiring on December 10, 2024.
Internet Information Security and Online Privacy
Regulatory authorities in China have implemented and are considering further legislative and regulatory proposals concerning data protection. China’s new Data Security Law went into effect on September 1, 2021. The Data Security Law provides that the data processing activities must be conducted based on “data classification and hierarchical protection system” for the purpose of data protection and prohibits entities in China from transferring data stored in China to foreign law enforcement agencies or judicial authorities without prior approval by the Chinese government. The Data Security Law sets forth the legal liabilities of entities and individuals found to be in violation of their data protection obligations, including rectification order, warning, fines of up to RMB5 million, suspension of relevant business, and revocation of business permits or licenses.
In addition, the PRC Cybersecurity Law provides that personal information and important data collected and generated by operators of critical information infrastructure in the course of their operations in the PRC should be stored in the PRC, and the law imposes heightened regulation and additional security obligations on operators of critical information infrastructure. According to the initial Cybersecurity Review Measures promulgated by the Cyberspace Administration of China (“CAC”) and certain other PRC regulatory authorities in April 2020 and becoming effective in June 2020, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. Any failure or delay in the completion of the cybersecurity review procedures may prevent the critical information infrastructure operator from using or providing certain network products and services, and may result in fines of up to ten times the purchase price of such network products and services. The PRC government recently launched cybersecurity reviews against a number of mobile apps operated by several US-listed Chinese companies and prohibited these apps from registering new users during the review periods.
On July 10, 2021, the CAC issued the Cybersecurity Review Measures (revised draft for public comments), which took effect on February 15, 2022. The revised Cybersecurity Review Measures authorize the CAC to conduct cybersecurity review on a range of activities that affect or may affect national security. The PRC National Security Law defines various types of national security, including technology security and information security. The revised Cybersecurity Review Measures expands the cybersecurity review to data processing operators in possession of personal information of over 1 million users if the operators intend to list their securities in a foreign country. Under the revised Cybersecurity Review Measures, the scope of entities required to undergo cybersecurity review to assess national security risks that arise from data processing activities would be expanded to include all critical information infrastructure operators who purchase network products and services and all data processors carrying out data processing activities that affect or may affect national security. In addition, the revised Cybersecurity Review Measures provide that all such entities that maintain or store the personal information of more than 1 million users and undertake a public listing of securities in a foreign country would be required to pass cybersecurity review, which would focus on the potential risk of core data, important data, or a large amount of personal information being stolen, leaked, destroyed, illegally used or exported out of China, or critical information infrastructure being affected, controlled or maliciously used by foreign governments after such a listing. An operator that violates these Measures shall be dealt with in accordance with the provisions of the PRC Cybersecurity Law and the PRC Data Security Law.
On November 14, 2021, the CAC released the Regulations on Network Data Security (draft for public comments) and accepted public comments until December 13, 2021. The draft Regulations on Network Data Security provide more detailed guidance on how to implement the general legal requirements under legislations such as the Cybersecurity Law, Data Security Law and the Personal Information Protection Law. The draft Regulations on Network Data Security follow the principle that the state will regulate based on a data classification and multi-level protection scheme, under which data is largely classified into three categories: general data, important data and core data. Personal data and important data will be subject to “key” protection and core data to “strict” protection.
On August 20, 2021, the Standing Committee of the National People’s Congress of China promulgated the Personal Information Protection Law which became effective on November 1, 2021. The Personal Information Protection Law provides a comprehensive set of data privacy and protection requirements that apply to the processing of personal information and expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in China, and the processing of personal information of persons in China outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in China. The Personal Information Protection Law also provides that critical information infrastructure operators and personal information processing entities who process personal information meeting a volume threshold to be set by Chinese cyberspace regulators are also required to store in China personal information generated or collected in China, and to pass a security assessment administered by Chinese cyberspace regulators for any export of such personal information. Lastly, the Personal Information Protection Law contains proposals for significant fines for serious violations of up to RMB 50 million or 5% of annual revenues from the prior year and may also be ordered to suspend any related activity by competent authorities.
Foreign Currency Exchange
Under the Foreign Currency Administration Rules promulgated in 1996 and revised in 1997, and various regulations issued by the State Administration of Foreign Exchange (SAFE) and other relevant PRC government authorities, RMB is convertible into other currencies without prior approval from SAFE only to the extent of current account items, such as trade related receipts and payments, interest and dividends and after complying with certain procedural requirements. The conversion of RMB into other currencies and remittance of the converted foreign currency outside PRC for the purpose of capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior approval from SAFE or its local office. Payments for transactions that take place within China must be made in RMB. Unless otherwise approved, PRC companies must repatriate foreign currency payments received from abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by SAFE or its local office. Unless otherwise approved, domestic enterprises must convert all of their foreign currency proceeds into RMB.
On October 21, 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, which became effective as of November 1, 2005. According to the notice, a special purpose company, or SPV, refers to an offshore company established or indirectly controlled by PRC residents for the special purpose of carrying out financing of their assets or equity interest in PRC domestic enterprises. Prior to establishing or assuming control of an SPV, each PRC resident, whether a natural or legal person, must complete the overseas investment foreign exchange registration procedures with the relevant local SAFE branch. The notice applies retroactively. As a result, PRC residents who have established or acquired control of these SPVs that previously made onshore investments in China were required to complete the relevant overseas investment foreign exchange registration procedures by March 31, 2006. These PRC residents must also amend the registration with the relevant SAFE branch in the following circumstances: (i) the PRC residents have completed the injection of equity investment or assets of a domestic company into the SPV; (ii) the overseas funding of the SPV has been completed; (iii) there is a material change in the capital of the SPV. Under the rules, failure to comply with the foreign exchange registration procedures may result in restrictions being imposed on the foreign exchange activities of the violator, including restrictions on the payment of dividends and other distributions to its offshore parent company, and may also subject the violators to penalties under the PRC foreign exchange administration regulations.
On August 29, 2008, SAFE promulgated Circular 142 which regulates the conversion by a foreign-funded enterprise of foreign currency into RMB by restricting how the converted RMB may be used. In addition, SAFE promulgated Circular 45 on November 9, 2011 in order to clarify the application of Circular 142. Under Circular 142 and Circular 45, the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations of Circular 142 and Circular 45 could result in severe penalties, such as heavy fines as set out in the relevant foreign exchange control regulations. On July 4, 2014, SAFE promulgated SAFE Circular 36, which launched a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises in certain designated areas from August 4, 2014. However, SAFE Circular 36 continues to prohibit foreign-invested enterprises from directly or indirectly using the Renminbi converted from their foreign exchange capitals for purposes beyond its business scope. On March 30, 2015, SAFE promulgated Circular 19, to expand the reform nationwide. Circular 19 will come into force and replace both Circular 142 and Circular 36 on June 1, 2015. Circular 36 allows enterprises established within the pilot areas to use their foreign exchange capitals to make equity investment and removes certain other restrictions provided under Circular 142 for these enterprises. Circular 19 will remove those restrictions for all foreign-invested enterprises established in the PRC. However, both Circular 36 and Circular 19 continue to prohibit foreign-invested enterprises from, among other things, using the Renminbi fund converted from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises.
Dividend Distributions
Under applicable PRC regulations, foreign invested enterprises (FIEs) in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a FIE in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.
After-tax profits/losses with respect to the payment of dividends out of accumulated profits and the annual appropriation of after-tax profits as calculated pursuant to PRC accounting standards and regulations do not result in significant differences as compared to after-tax earnings as presented in our financial statements. However, there are certain differences between PRC accounting standards and regulations and U.S. generally accepted accounting principles, arising from different treatment of items such as amortization of intangible assets and change in fair value of contingent consideration rising from business combinations.
In addition, under the Enterprise Income Tax (EIT) Law, the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates, which was issued on January 29, 2008, the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, which became effective on December 8, 2006, and the Notice of the State Administration of Taxation Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties, which became effective on October 27, 2009, dividends from our PRC operating subsidiaries paid to us through our Hong Kong subsidiary may be subject to a withholding tax at a rate of 10%, or at a rate of 5% if our Hong Kong subsidiary is considered a “beneficial owner” that is generally engaged in substantial business activities and entitled to treaty benefits under the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion.
Laws and Regulations Related to Employment and Labor Protection
On June 29, 2007, the National People’s Congress promulgated the Employment Contract Law of PRC (“Employment Contract Law”), which became effective as of January 1, 2008 and amended on December 28, 2012. The Employment Contract Law requires employers to provide written contracts to their employees, restricts the use of temporary workers and aims to give employees long-term job security.
Pursuant to the Employment Contract Law, employment contracts lawfully concluded prior to the implementation of the Employment Contract Law and continuing as of the date of its implementation shall continue to be performed. Where an employment relationship was established prior to the implementation of the Employment Contract Law but no written employment contract was concluded, a contract must be concluded within one month after its implementation.
On September 18, 2008, the State Council promulgated the Implementing Regulations for the PRC Employment Contract Law which came into effect immediately. These regulations interpret and supplement the provisions of the Employment Contract Law.
Our standard employment contract complies with the requirements of the Employment Contract Law and its implementing regulations in all material aspects. We have entered into written employment contracts with all of our full-time employees.
Human Capital
As of December 31, 2021, we had a total of 24 employees, all of whom are full-time employees. The following table sets forth the number of our full-time employees by function.
Function
Number of Employees
Finance
Sales and Marketing
IT and Engineering
General and Administrative
Total
Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages. We believe we maintain good relations with our employees.
Available Information
The SEC maintains a website that contains our reports, proxy and information statements, and our other SEC filings. The address of the SEC’s website is www.sec.gov.

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ITEM 1A. RISK FACTORS
ITEM 1A. 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 report, 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 common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Special Notes Regarding Forward-Looking Statements” above 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 report.
Risks Related to the VIE Structure
PRC laws and regulations governing our businesses and the validity of certain of our Contractual Arrangements are uncertain. If we are found to be in violation of such PRC laws and regulations, our business may be negatively affected, and we may be forced to relinquish our interests in those operations.
PRC laws and regulations prohibit or restrict foreign ownership of companies that operate Internet information and content, Internet access, online games, mobile, value added telecommunications and certain other businesses in which we are engaged or could be deemed to be engaged. Consequently, we conduct certain of our operations and businesses in the PRC through our VIEs. All our revenue is generated by contractually controlled and managed entity, Portercity, and its subsidiaries.
The Contractual Arrangements give us control over Portercity, and its subsidiaries and enable us to consolidate their financial results in our results of operations as we are considered the primary beneficiary of Portercity and its subsidiaries pursuant to generally accepted accounting principles in the United States, or US GAAP. Although the structure we have adopted is consistent with longstanding industry practice, and is commonly adopted by comparable companies in China, the PRC government may not agree that these arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future.
In the opinion of Guang Dong LianRui Law Firm, our PRC counsel, the ownership structures of our wholly-foreign owned enterprise and our VIEs in China do not violate any applicable PRC law, regulation or rule currently in effect; and the contractual arrangements between our material wholly-foreign owned enterprise, our material variable interest entity and their respective equity holders governed by PRC law are valid, binding and enforceable in accordance with their terms and applicable PRC laws and regulations currently in effect and will not violate any applicable PRC law, rule or regulation currently in effect. However, Guang Dong LianRui Law Firm has also advised us that there are substantial uncertainties regarding the interpretation and application of current PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities and PRC courts may in the future take a view that is contrary to the opinion of our PRC legal counsel.
Our Nevada holding company, PGL and PPBGL are considered foreign investors and Qianhai Porter is considered foreign invested enterprises under PRC law. As a result, PGL, PPBGL and Qianhai Porter are subject to certain limitations under PRC law on foreign ownership of Chinese companies. These laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.
The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. If the imposition of any of these government actions causes us to lose our right to direct the activities of any of our VIEs or otherwise separate from them and if we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of our VIEs in our consolidated financial statements. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations, and cause the value of our securities to decline significantly or become worthless.
Substantial uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law, which may materially impact the viability of our current corporate structure.
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which came into effect on January 1, 2020 and replaced the existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. On December 26, 2019, the Regulation on the Implementation of the Foreign Investment Law of the PRC, was issued by the State Council and came into force on January 1, 2020. However, the Foreign Investment Law fails to address VIE issues explicitly which leaves uncertainty about the legality of VIE structure under PRC laws. For instance, the Foreign Investment Law has a catch-all provision under the definition of “foreign investment” which includes investments made by foreign investors in China through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Though the Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractual arrangement would not be interpreted as a type of indirect foreign investment activities under the definition in the future. The State Council may in the future promulgate laws and regulations that deem investments made by foreign investors through contractual arrangements as “foreign investment,” and our VIE contractual arrangements may be subject to and be deemed to violate the market entry requirements in China. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to be taken by companies with respect to existing VIE contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure and business operations.
Our contractual arrangements may not be as effective in providing control over the variable interest entities as direct ownership.
We rely on contractual arrangements with our VIEs to operate our electronic platform in China and other businesses in which foreign investment is restricted or prohibited. These contractual arrangements may not be as effective as direct ownership in providing us with control over our VIEs.
If we had direct ownership of the VIEs, we would be able to exercise our rights as an equity holder directly to effect changes in the boards of directors of the entity, which could effect changes at the management and operational level. Under our contractual arrangements, we would be able to change the members of the boards of directors of the entity only by exclusively exercising the equity holders’ voting rights and would have to rely on the variable interest entity and the variable interest entity equity holders to perform their obligations in the contractual arrangements in order to exercise our control over the variable interest entity. The variable interest entity equity holders may have conflicts of interest with us or our shareholders, and they may not act in the best interests of our company or may not perform their obligations under these contracts. For example, our VIEs and their equity holders could breach their contractual arrangements with us by, among other things, failing to conduct their operations, including maintaining our website and using our domain names and trademarks which the relevant variable interest entity has exclusive rights to use, in an acceptable manner or taking other actions that are detrimental to our interests. Pursuant to the call option, we may replace the equity holders of the VIEs at any time pursuant to the contractual arrangements. However, if any equity holder is uncooperative and any dispute relating to these contracts or the replacement of the equity holders remains unresolved, we will have to enforce our rights under the contractual arrangements through the operations of PRC law and arbitral or judicial agencies, which may be costly and time-consuming and will be subject to uncertainties in the PRC legal system. See “-Any failure by our VIEs or their equity holders to perform their obligations under the contractual arrangements would have a material adverse effect on our business, financial condition and results of operations.” Consequently, the contractual arrangements may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership.
Any failure by our VIEs or their equity holders to perform their obligations under the contractual arrangements would have a material adverse effect on our business, financial condition and results of operations.
If our VIEs or their equity holders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. Although we have entered into an option agreement in relation to our variable interest entity, which provides that we may exercise an option to acquire, or nominate a person to acquire, ownership of the equity in that entity or, in some cases, its assets, to the extent permitted by applicable PRC laws, rules and regulations, the exercise of the option is subject to the review and approval of the relevant PRC governmental authorities. We have also entered into an equity interest pledge agreement with respect to the variable interest entity to secure certain obligations of such VIES or their equity holders to us under the contractual arrangements. However, the enforcement of such agreement through arbitral or judicial agencies may be costly and time-consuming and will be subject to uncertainties in the PRC legal system. Moreover, our remedies under the equity pledge agreement are primarily intended to help us collect debts owed to us by the variable interest entity equity holders under the contractual arrangements and may not help us in acquiring the assets or equity of the variable interest entity.
The contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration or court proceedings in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. Moreover, there are almost no precedents and little formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law, and as a result it may be difficult to predict how an arbitration panel or court would view such contractual arrangements. As a result, uncertainties in the PRC legal system could limit our ability to enforce the contractual arrangements. Under PRC law, if the losing parties fail to carry out the arbitration awards or court judgments within a prescribed time limit, the prevailing parties may only enforce the arbitration awards or court judgments in PRC courts, which would require additional expense and delay. In the event we are unable to enforce the contractual arrangements, we may not be able to exert effective control over the variable interest entities, and our ability to conduct our business, as well as our financial condition and results of operations, may be materially and adversely affected.
Mr. Zonghua Chen’s association with VIEs could pose a conflict of interest which may result in VIEs decisions that are adverse to our business.
Mr. Zonghua Chen, our Chairman, President, Chief Executive Officer, Chief Financial Officer and the beneficial owner of 55.71% of our outstanding Common Stock owns 40% of the equity interests in Portercity and its subsidiaries, from which we derived all of our revenue in the fiscal year ended December 31, 2021, pursuant to the Contractual Arrangements. As a result, conflicts of interest may arise from time to time and these conflicts may result in management decisions that could negatively affect our operations and potentially result in the loss of opportunities.
Our arrangements with the VIEs and their shareholders may be subject to scrutiny by the PRC tax authorities. Any adjustment of related party transaction pricing could lead to additional taxes, which could have an adverse effect on our income and expenses.
The tax regime in China is rapidly evolving and there is significant uncertainty for taxpayers in China as PRC tax laws may be interpreted in significantly different ways. The PRC tax authorities may assert that we or our subsidiaries or VIEs or their equity holders owe and/or are required to pay additional taxes on previous or future revenue or income. In particular, under applicable PRC laws, rules and regulations, arrangements and transactions among related parties, such as the contractual arrangements with our VIEs, may be subject to audit or challenge by the PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that our agreements with the VIEs and their shareholders were not entered into based on arm’s length negotiations. As a result, they may adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. Such an adjustment may require that we pay additional PRC taxes plus applicable penalties and interest, if any.
We may lose the ability to use, or otherwise benefit from, the ICP license held by our VIEs, which could severely disrupt our business, render us unable to conduct some or all of our business operations and constrain our growth.
Our VIE, Portercity, holds an ICP license that is necessary for our business operations, to which foreign investments are typically restricted or prohibited under applicable PRC law. The contractual arrangements contain terms that specifically obligate variable interest entity equity holders to ensure the valid existence of the variable interest entities and restrict the disposal of material assets of the variable interest entities. However, in the event the variable interest entity equity holders breach the terms of these contractual arrangements and voluntarily liquidate any of our VIEs or any of our VIEs declares bankruptcy and all or part of its assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to conduct some or all of our business operations or otherwise benefit from the assets held by the variable interest entity, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, if our variable interest entity undergoes a voluntary or involuntary liquidation proceeding, its equity holders or unrelated third-party creditors may claim rights to some or all of the assets of such variable interest entity, thereby hindering our ability to operate our business as well as constrain our growth.
Risks Related to Doing Business in China
The Chinese government may intervene or influence our operations in China at any time, or may exert more control over offerings conducted outside China and/or non-Chinese investment in China-based companies, which could result in a material change in our operations and in the value of our securities. Any actions by the Chinese government to exert more oversight and control over non-Chinese investment in China-based companies could significantly limit or completely hinder our ability to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
We conduct substantially all our business operations in China. Accordingly, our results of operations, financial condition and prospects are significantly dependent on economic and political developments in China. China’s economy differs from the economies of developed countries in many aspects, including the level of development, growth rate and degree of government control over foreign exchange and allocation of resources. While China’s economy has experienced significant growth in the past 30 years, the growth has been uneven across different regions and periods and among various economic sectors in China. We cannot assure you that China’s economy will continue to grow, or that if there is growth, such growth will be steady and uniform, or that if there is a slowdown, such slowdown will not have a negative effect on its business and results of operations.
The PRC government exercises significant control over China. Accordingly, our results of operations, financial condition and prospects are significantly dependent on economic and political developments in China. The Chinese government recently has published new policies that significantly affected certain industries such as the education and internet industries. In addition, recent statements made by the Chinese government have indicated an intent to increase the government’s oversight and control over offerings of companies with significant operations in China that are to be conducted in foreign markets, as well as foreign investment in China-based issuers like us. Any such action, once taken by the Chinese government, could significantly limit or completely hinder our ability to offer our securities, and could cause the value of such securities to significantly decline or become worthless.
Recently, the Chinese government provided new guidance on China-based companies raising capital outside of China, including through arrangements via variable interest entities (“VIEs”). The Opinions on Strictly Cracking Down on Illegal Securities Activities issued by the Chinese government on July 6, 2021 called for:
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tightening oversight of data security, cross-border data flow and administration of classified information, as well as amendments to relevant regulation to specify responsibilities of overseas listed Chinese companies with respect to data security and information security;
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enhanced oversight of overseas listed companies as well as overseas equity fundraising and listing by Chinese companies; and
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extraterritorial application of China’s securities laws.
On December 24, 2021, the CSRC released the Administrative Provisions of the State Council Regarding Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Administrative Provisions”), and the Measures Regarding Recordation of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Measures”). The Administrative Provisions and Measures aim to establish a unified supervision system and promote cross-border regulatory cooperation. The Measures lay out filing procedures for domestic companies to record both direct and indirect overseas listings with the CSRC. If a domestic enterprise intends to indirectly offer and list securities in an overseas market, the filing obligation falls on a major operating entity incorporated in the PRC and such filing shall be submitted within three business days after the overseas listing application is initially filed. The required submission materials with respect to an initial public offering and listing overseas shall include, among other things, a completed report and related undertakings; regulatory opinions, recordation receipt, approval notice and other documents issued by competent regulatory authorities of relevant industries (if applicable); security assessment opinion issued by relevant regulatory authorities (if applicable); PRC legal opinion; and prospectus for the offering.
According to the Q&A held by CSRC officials for journalists thereafter, the CSRC will adhere to the principle of non-retroactive application of law and first focus on issuers conducting initial public offerings and follow-on offerings by requiring them to complete the recordation procedures. Other issuers will be given a sufficient transition period. The CSRC officials also noted that the regulation system contemplated by the draft Administrative Provisions and Measures differentiates between IPOs and follow-on offerings to take into account overseas capital markets’ fast and efficient features and to reduce impacts on overseas financing activities by domestic companies.
As there are still uncertainties regarding the enactment, interpretation and implementation of regulations and rules under the umbrella of the Opinions on Strictly Cracking Down on Illegal Securities Activities, there is no assurance that our business, operating results, cash flows and prospect will not be negatively affected by new regulatory requirements in the future.
Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.
We conduct substantially all of our business through our operating subsidiary and VIEs in the PRC. Our operating subsidiary and VIEs are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to FIEs. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations, and rules are not always uniform, and enforcement of these laws, regulations, and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. In addition, all of our executive officers and most of our directors are residents of China and not of the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could be difficult for investors to effect service of process in the United States or to enforce a judgment obtained in the United States against our Chinese operations, subsidiary or VIEs.
You may have difficulty enforcing judgments against us.
Most of our assets are located outside of the United States and most of our current operations are conducted in the PRC. In addition, all of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Our counsel as to PRC law has advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. Courts in China may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security, or the public interest. So, it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States.
The PRC government exerts substantial influence over the manner in which we must conduct our business activities in China.
The PRC 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, import and export tariffs, environmental regulations, land use rights, property, and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate 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 or joint ventures.
We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.
The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations.
We only have contractual control over our website. We do not directly own the website due to the restriction of foreign investment in businesses providing value-added telecommunication services in China, including internet information provision services. This may significantly disrupt our business, subject us to sanctions, compromise enforceability of related contractual arrangements, or have other harmful effects on us. The PRC government recently launched cybersecurity reviews against a number of mobile apps operated by several US-listed Chinese companies and prohibited these apps from registering new users during the review periods.
The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our business. We cannot assure you that we will be able to maintain our existing licenses or obtain new ones. If the PRC government considers that we were operating without the proper approvals, licenses or permits or promulgates new laws and regulations that require additional approvals or licenses or imposes additional restrictions on the operation of any part of our business, it has the power, among other things, to levy fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant business or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material adverse effect on our business and results of operations.
Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.
Currently, all of our revenues are settled in RMB, and any future restrictions on currency exchanges may limit our ability to use revenue generated in RMB to fund any future business activities outside China or to make dividend or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain, including primarily the restriction that FIEs may only buy, sell or remit foreign currencies after providing valid commercial documents, at those banks in China authorized to conduct foreign exchange business. In addition, conversion of RMB for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items.
To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiary’ dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB.
Restrictions under PRC law on our PRC subsidiary’s ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our business.
Substantially all of our revenues are earned by our PRC subsidiary and VIEs. However, PRC regulations restrict the ability of our PRC subsidiary to make dividends and other payments to their offshore parent companies. PRC legal restrictions permit payments of dividends by our PRC subsidiary only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiary is also required under PRC laws and regulations to allocate at least 10% of its annual after-tax profits determined in accordance with PRC generally accepted accounting principles to a statutory general reserve fund until the amounts in said fund reaches 50% of its registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Any limitations on the ability of our PRC subsidiary to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.
Our business is subject to complex and evolving laws and regulations regarding privacy and data protection. Compliance with China’s new Data Security Law, Cybersecurity Review Measures, Personal Information Protection Law, Regulations on Network Data Security (draft for public comments), as well as additional laws, regulations and guidelines that the Chinese government promulgates in the future may entail significant expenses and could materially affect our business.
Regulatory authorities in China have implemented and are considering further legislative and regulatory proposals concerning data protection. China’s new Data Security Law went into effect on September 1, 2021. The Data Security Law provides that the data processing activities must be conducted based on “data classification and hierarchical protection system” for the purpose of data protection and prohibits entities in China from transferring data stored in China to foreign law enforcement agencies or judicial authorities without prior approval by the Chinese government. The Data Security Law sets forth the legal liabilities of entities and individuals found to be in violation of their data protection obligations, including rectification order, warning, fines of up to RMB5 million, suspension of relevant business, and revocation of business permits or licenses.
In addition, the PRC Cybersecurity Law provides that personal information and important data collected and generated by operators of critical information infrastructure in the course of their operations in the PRC should be stored in the PRC, and the law imposes heightened regulation and additional security obligations on operators of critical information infrastructure. According to the initial Cybersecurity Review Measures promulgated by the Cyberspace Administration of China (“CAC”) and certain other PRC regulatory authorities in April 2020 and becoming effective in June 2020, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. Any failure or delay in the completion of the cybersecurity review procedures may prevent the critical information infrastructure operator from using or providing certain network products and services, and may result in fines of up to ten times the purchase price of such network products and services. The PRC government recently launched cybersecurity reviews against a number of mobile apps operated by several US-listed Chinese companies and prohibited these apps from registering new users during the review periods.
On July 10, 2021, the CAC issued the Cybersecurity Review Measures (revised draft for public comments), which took effect on February 15, 2022. The revised Cybersecurity Review Measures authorize the CAC to conduct cybersecurity review on a range of activities that affect or may affect national security. The PRC National Security Law defines various types of national security, including technology security and information security. The revised Cybersecurity Review Measures expands the cybersecurity review to data processing operators in possession of personal information of over 1 million users if the operators intend to list their securities in a foreign country. Under the revised Cybersecurity Review Measures, the scope of entities required to undergo cybersecurity review to assess national security risks that arise from data processing activities would be expanded to include all critical information infrastructure operators who purchase network products and services and all data processors carrying out data processing activities that affect or may affect national security. In addition, the revised Cybersecurity Review Measures provide that all such entities that maintain or store the personal information of more than 1 million users and undertake a public listing of securities in a foreign country would be required to pass cybersecurity review, which would focus on the potential risk of core data, important data, or a large amount of personal information being stolen, leaked, destroyed, illegally used or exported out of China, or critical information infrastructure being affected, controlled or maliciously used by foreign governments after such a listing. An operator that violates these Measures shall be dealt with in accordance with the provisions of the PRC Cybersecurity Law and the PRC Data Security Law.
On November 14, 2021, the CAC released the Regulations on Network Data Security (draft for public comments) and accepted public comments until December 13, 2021. The draft Regulations on Network Data Security provide more detailed guidance on how to implement the general legal requirements under legislations such as the Cybersecurity Law, Data Security Law and the Personal Information Protection Law. The draft Regulations on Network Data Security follow the principle that the state will regulate based on a data classification and multi-level protection scheme, under which data is largely classified into three categories: general data, important data and core data. Personal data and important data will be subject to “key” protection and core data to “strict” protection. If we are deemed as a data processor listed overseas under the draft Regulations, we will be required to carry out an annual data security assessment on our own or by engaging a third party data security services institution and submit a data security assessment report for the prior year to the local cyberspace affairs administration department before January 31 of each year. The Regulations on Network Data Security (draft for public comments) were released for public comments and subject to further changes.
On August 20, 2021, the Standing Committee of the National People’s Congress of China promulgated the Personal Information Protection Law which became effective on November 1, 2021. The Personal Information Protection Law provides a comprehensive set of data privacy and protection requirements that apply to the processing of personal information and expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in China, and the processing of personal information of persons in China outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in China. The Personal Information Protection Law also provides that critical information infrastructure operators and personal information processing entities who process personal information meeting a volume threshold to be set by Chinese cyberspace regulators are also required to store in China personal information generated or collected in China, and to pass a security assessment administered by Chinese cyberspace regulators for any export of such personal information. Lastly, the Personal Information Protection Law contains proposals for significant fines for serious violations of up to RMB 50 million or 5% of annual revenues from the prior year and may also be ordered to suspend any related activity by competent authorities.
We believe that we will be able to comply with the requirements of the PRC Cybersecurity Law, the PRC Data Security Law and related implementing regulations. However, interpretation, application and enforcement of these laws, rules and regulations evolve from time to time and their scope may continually change, through new legislation, amendments to existing legislation or changes in enforcement. Compliance with the PRC Cybersecurity Law and the PRC Data Security Law could increase the cost to us in providing our services, require changes to our operations or may prevent us from providing certain services.
PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary or limit our PRC subsidiary's ability to increase their registered capital or distribute profits.
SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of the SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. According to the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment released on February 13, 2015 by SAFE, local banks will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment registration, under SAFE Circular 37 from June 1, 2015.
According to SAFE Circular 37, our shareholders or beneficial owners, who are PRC residents, are subject to SAFE Circular 37 or other foreign exchange administrative regulations in respect of their investment in our company. We have notified substantial beneficial owners of common stock who we know are PRC residents of their filing obligations. Nevertheless, we may not be aware of the identities of all of our beneficial owners who are PRC residents. We do not have control over our beneficial owners and there can be no assurance that all of our PRC-resident beneficial owners will comply with SAFE Circular 37 and subsequent implementation rules, and there is no assurance that the registration under SAFE Circular 37 and any amendment will be completed in a timely manner, or will be completed at all. The failure of our beneficial owners who are PRC residents to register or amend their foreign exchange registrations in a timely manner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiary to fines and legal sanctions. Such failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiary and limit our PRC subsidiary’s ability to distribute dividends to our company. These risks may have a material adverse effect on our business, financial condition and results of operations.
Furthermore, SAFE Circular 37 is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, and we cannot predict how these regulations will affect our business operations or future strategy. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. These risks could in the future have a material adverse effect on our business, financial condition and results of operations.
PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of our future financings to make loans to our PRC subsidiary and our consolidated VIEs, or to make additional capital contributions to our PRC subsidiary.
We, as a holding company, are permitted under PRC laws and regulations to provide funding to our PRC subsidiary, which is treated as a foreign-invested enterprise under PRC laws, through loans or capital contributions. However, loans by us to our PRC subsidiary to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE and capital contributions to our PRC subsidiary are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System, and registration with other governmental authorities in China.
SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign- Invested Enterprises, or Circular 142, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, or Circular 59, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses, or Circular 45. According to Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of bank loans that have been transferred to a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign invested enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in the PRC in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to grant loans to non-associated enterprises. Violations of SAFE Circular 19 and Circular 16 could result in administrative penalties. Circular 19 and Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from our future financings, to our PRC subsidiary, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.
Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such loans to any of our consolidated VIEs and their subsidiaries, each a PRC domestic company. Meanwhile, we are not likely to finance the activities of our consolidated VIEs and their subsidiaries by means of capital contributions given the restrictions on foreign investment in the businesses that are currently conducted by our consolidated VIEs and their subsidiaries.
In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiary or any consolidated variable interest entity or future capital contributions by us to our PRC subsidiary. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiary or consolidated VIEs and their subsidiaries when needed. If we fail to complete such registrations or obtain such approvals, our ability to use foreign currency, including the proceeds we received from our future financings, and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.
We are required under PRC laws and regulations to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. Although we have made contributions to some employee benefit plans, such as social security plans, we may have not made adequate employee benefit payments required by PRC regulations. We may be required to make up the contributions for these plans as well as pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
Under the Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.
On March 16, 2007, the National People’s Congress of China passed a new Enterprise Income Tax Law, or the EIT Law. On November 28, 2007, the State Council of China passed its implementing rules, which took effect on January 1, 2008. Under the 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 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.
On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises. According to the Criteria of de facto Management Bodies, or the Notice, further interprets the application of the EIT Law and its implementation non-Chinese enterprise or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10%, when paying dividends to its non-PRC shareholders. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise incorporated by a Chinese natural person, nor detailed measures on imposition of tax from non-domestically incorporated resident enterprises are available. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.
We may be deemed to be a resident enterprise by Chinese tax authorities. If the PRC tax authorities determine that we are a “resident enterprise” for the PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as interest on financing proceeds and non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued a guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for the PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation, which a 10% withholding tax is imposed on dividends we pay to our non-PRC shareholders and with respect to gains derived by our non-PRC stockholders from transferring our shares.
If we were treated as a “resident enterprise” by the PRC tax authorities, we would be subject to taxation in both the U.S. and China, and our PRC tax may not be used as a credit to reduce our U.S. tax.
We and our stockholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a Chinese establishment of a non-Chinese company, or immovable properties located in China owned by non-Chinese companies.
In October 2017, the State Administration of Taxation issued the Bulletin on Issues Concerning the Withholding of Non-PRC Resident Enterprise Income Tax at Source, or Bulletin 37, which replaced the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued by the State Administration of Taxation on December 10, 2009, and partially replaced and supplemented rules under the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Bulletin 7, issued by the State Administration of Taxation on February 3, 2015. Pursuant to Bulletin 7, an “indirect transfer” of PRC assets, including a transfer of equity interests in an unlisted non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of the underlying PRC assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. According to Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in China, immoveable properties located in China, and equity investments in PRC resident enterprises and any gains from the transfer of such asset by a direct holder, who is a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In the case of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred, and may consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to immoveable properties located in China or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Pursuant to Bulletin 37, the withholding agent shall declare and pay the withheld tax to the competent tax authority in the place where such withholding agent is located within 7 days from the date of occurrence of the withholding obligation, while the transferor is required to declare and pay such tax to the competent tax authority within the statutory time limit according to Bulletin 7. Late payment of applicable tax will subject the transferor to default interest. Both Bulletin 37 and Bulletin 7 do not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange.
There is uncertainty as to the application of Bulletin 37 or previous rules under Bulletin 7. We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our company may be subject to filing obligations or taxes if our company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions, under Bulletin 37 and Bulletin 7. For transfer of shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiary may be requested to assist in the filing under Bulletin 37 and Bulletin 7. As a result, we may be required to expend valuable resources to comply with Bulletin 37 and Bulletin 7 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
Fluctuations in exchange rates could adversely affect our business and the value of our securities.
The value of our common stock will be indirectly affected by the foreign exchange rate between the U.S. dollar and RMB and between those currencies and other currencies in which our sales may be denominated. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars, as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.
Since July 2005, the RMB has no longer been 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.
The increased regulatory scrutiny focusing on U.S.-listed companies with significant operations in China in the U.S. could add uncertainties to our business operations, share price and reputation. Although our former auditor, Friedman LLP, and current auditor, YCM CPA INC., are both subject to inspection by the PCAOB, trading in our securities may be prohibited under the HFCA Act if the PCAOB subsequently determines our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, and as a result, the U.S. OTC markets may determine to prohibit the trading of our common stock. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges or the OTC markets, if its auditor is not subject to the PCAOB inspections for two consecutive years instead of three.
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 on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud.
In recent years, as part of increased regulatory focus in the United States on access to audit information, the United States enacted the HFCA Act in December 2020. The HFCA Act includes requirements for the SEC to identify issuers whose audit reports are prepared by auditors that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. The HFCA Act also requires public companies on this SEC list to certify that they are not owned or controlled by a foreign government and make certain additional disclosures in their SEC filings. In addition, if the auditor of a U.S. listed company’s financial statements is not subject to PCAOB inspections for three consecutive “non-inspection” years after the law becomes effective, the SEC is required to prohibit the securities of such issuer from being traded on a U.S. national securities exchange, such as NYSE and Nasdaq, or in U.S. over-the-counter markets. On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement the foregoing certification and disclosure requirements and that it was seeking public comment on the issuer identification process as well as the submission and disclosure requirements. On May 13, 2021, the PCAOB issued proposed PCAOB Rule 6100 Board Determinations Under the Holding Foreign Companies Accountable Act for public comment. The proposed rule provides a framework for making determinations as to whether PCAOB is unable to inspect an audit firm in a foreign jurisdiction, including the timing, factors, bases, publication and revocation or modification of such determinations, and such determinations will be made on a jurisdiction-wide basis in a consistent manner applicable to all firms headquartered in the jurisdiction.
Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCA Act”), which if enacted into law would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive “non-inspection” years instead of three.
On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 2, 2021, the SEC adopted amendments to finalize the interim final rules previously issued in March 2021, and established procedures to identify issuers and prohibit the trading of the securities of certain registrants as required by the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. The final amendments require SEC identified issuers to submit documentation to the SEC establishing that, if true, it is not owned or controlled by a governmental entity in the public accounting firm’s foreign jurisdiction. The amendments also require that an SEC-identified issuer that is a “foreign issuer,” as defined in Exchange Act Rule 3b-4, provide certain additional disclosures in its annual report for itself and any of its consolidated foreign operating entities. An SEC-identified issuer will be required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified. If a registrant is identified as an SEC identified issuer based on its annual report for the fiscal year ending December 31, 2021, the registrant will be required to comply with the submission or disclosure requirements in its annual report filing covering the fiscal year ending December 31, 2022. Accordingly, if we are determined by the SEC to be an SEC identified issuer, we will incur additional costs in complying with the submission and disclosure requirements in the annual report for each year in which we are identified. In the event that we are deemed to have had three consecutive “non-inspection” years by the SEC, our securities will be prohibited from trading on any national securities exchange or over-the-counter markets in the United States. Moreover, if the AHFCA Act is enacted into law, it would reduce the time before our securities may be prohibited from trading or delisted from three years to two years.
On December 16, 2021, pursuant to the HFCA Act, the PCAOB issued a Determination Report which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in mainland China of the People’s Republic of China and Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in such jurisdictions. In addition, the PCAOB’s report identified specific registered public accounting firms which are subject to these determinations. Our current registered public accounting firm, YCM CPA INC., or our former registered public accounting firm, Friedman LLP, is not headquartered in mainland China or Hong Kong and was not identified in this report as a firm subject to the PCAOB’s determination.
As an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, our current auditor YCM CPA INC. is required by the laws of the United States to undergo regular inspections by the PCAOB. YCM CPA INC. is headquartered in Irvine, California. In addition, PCAOB is able to inspect the audit workpapers of our PRC subsidiary and VIEs, as such workpapers are electronic files possessed by our registered public accounting firms. However, if the PCAOB determines in the future that it cannot inspect or fully investigate our auditor at such future time, trading in our securities would be prohibited under the HFCA Act.
While we understand that there has been dialogue among the CSRC, the SEC and the PCAOB regarding the inspection of PCAOB-registered accounting firms in China, and our former auditor Friedman LLP and current auditor YCM CPA INC. are subject to inspection by the PCAOB, there can be no assurance that our auditors or us will be able to comply with requirements imposed by U.S. regulators in the future. The value of our securities could be adversely affected as a result of anticipated negative impacts of the HFCA Act upon, as well as negative investor sentiment towards, China-based companies listed in the United States, regardless of our actual operating performance.
Furthermore, as part of ongoing efforts to protect U.S. investors, the U.S. President’s Working Group on Financial Markets, or the PWG, released a report in August 2020 recommending certain enhancements to listing standards on U.S. stock exchanges, including that the PCAOB have access to work papers of the principal audit firm for the audit of each company as a condition to initial and continued exchange listing. Companies unable to satisfy this standard as a result of governmental restrictions on access to audit work papers and practices in their jurisdiction may satisfy this standard by providing a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate inspection of the co-audit firm. The SEC announced that its staff have been directed to prepare and develop proposals in response to the report of the PWG. Any resulting actions, proceedings or new rules could adversely affect the trading of China-based issuers in the United States, such as Porter Holding International, Inc. and substantially reduce or effectively terminate the trading of Porter Holding International, Inc.’s securities in the United States.
Risks Related to Our Business and Industry
Our business operations have been and may continue to be materially and adversely affected by the outbreak of the coronavirus (COVID-19).
An outbreak of respiratory illness caused by COVID-19 emerged in late 2019 and has spread within the PRC and globally. The coronavirus is considered to be highly contagious and poses a serious public health threat. Most of our revenues and our workforce are concentrated in China. The resurgence of coronavirus cases resulted in lockdown of cities, travel restrictions, and the temporary closure of stores and facilities in China for the past few months. The negative impacts of the COVID-19 outbreak on our business have included:
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quarantines impeded our ability to recruit new clients and made us postpone providing services to existing clients. Travel restrictions limited clients’ ability to visit and meet us in person, which made it harder to build trust and engage clients.
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the update of products information on our e-commerce platform and the delivery of goods may be delayed due to the late resumption of work by manufacturers. The imported goods on our platform will face more challenges as the pandemic continues outside China; and
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the operations of our distributors have been and could continue to be negatively impacted by the epidemic, which may in turn adversely impact our distribution channel.
Our results of operations, revenues and financial condition for the fiscal year 2021 were materially adversely affected by the coronavirus pandemic. The duration and intensity of disruptions resulting from the coronavirus outbreak is uncertain. It is unclear as to when the outbreak will be contained, and we also cannot predict if the impact will be short-lived or long-lasting. The extent to which the coronavirus impacts our future financial results will, in part, depend on its future developments. At present, management is actively looking for a business breakthrough to increase revenue in 2022. We will continue to monitor and mitigate developments affecting our workforce, our customers, and the public at large to the extent we are able to do so.
As the Company has working capital deficiency and accumulated deficit, there is substantial doubt about our ability to continue as a going concern.
Our consolidated financial statements included in this report include an explanatory paragraph that indicates that they were prepared assuming that we would continue as a going concern. As discussed in Note 2 to the consolidated financial statements included with this report, we had a working capital deficiency, accumulated deficit from recurring net losses incurred for the current and prior years as of December 31, 2021. These conditions raise substantial doubt about our ability to continue as a going concern. The ability to continue as a going concern is dependent upon generating profitable operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. There can be no assurance that we will be successful in its plans described above or in attracting equity or alternative financing on acceptable terms, or if at all. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
We have identified material weaknesses in our internal control over financial reporting. If we fail to remediate the material weaknesses or maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our shares may be adversely affected
To implement Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC adopted rules requiring public companies to include a report of management on the company’s internal control over financial reporting in their annual reports on Form 10-K. Under current law, we are subject to the requirement that we maintain internal controls and that management perform periodic evaluation of the effectiveness of internal controls, assuming our filing status remains as a smaller reporting company. A report of our management is included under Item 9A of this Annual Report on Form 10-K. Our management has identified the following material weaknesses in our internal control over financial reporting:
(1) We did not hold any formal board meetings or shareholders meetings during the last fiscal year;
(2) We do not have an audit committee;
(3) We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements;
(4) We do not have appropriate policies and procedures in place to evaluate the proper accounting and disclosures of key documents and agreements of revenue process;
(5) We have not maintained sufficient internal controls over cash related controls, including failure to segregate cash handling and accounting functions and did not require dual signature on the Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that we had limited transactions in our bank accounts; and
(6) We retain copies of all financial data and material agreements; however, there is no formal procedure or evidence of normal backup of our data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors. We did not implement appropriate information technology controls.
A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. We have taken measures and plan to continue to take measures to remedy this material weakness. However, the implementation of these measures may not fully address the material weakness in our internal control over financial reporting. Our failure to address any control deficiency could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, effective internal control over financial reporting is important to prevent fraud. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our shares, may be materially and adversely affected.
If we fail to hire, train and retain qualified managerial and other employees, our business and results of operations could be materially and adversely affected.
We place substantial reliance on the consulting and financial service industry experience and knowledge of our senior management team as well as their relationships with other industry participants. The loss of the services of one or more members of our senior management could hinder our ability to effectively manage our business and implement our growth strategies. Finding suitable replacements for our current senior management could be difficult, and competition for such personnel of similar experience is intense. If we fail to retain our senior management, our business and results of operations could be materially and adversely affected.
Our consulting service personnel are critical to maintaining the quality and consistency of our services, brand and reputation. It is important for us to attract qualified managerial and other employees who have experience in consulting services and are committed to our service approach. There may be a limited supply of such qualified individuals. We must hire and train qualified managerial and other employees on a timely basis to keep pace with our growth while maintaining consistent quality of services across our operations. We must also provide continuous training to our managerial and other employees so that they are equipped with up-to-date knowledge of various aspects of our operations and can meet our demand for high-quality services. If we fail to do so, the quality of our services may decrease, which in turn, may cause a negative perception of our brand and adversely affect our business.
The proper functioning of our online platforms is essential to our business. Any failure to maintain the satisfactory performance of our websites could materially and adversely affect our business and reputation.
The satisfactory performance, reliability and availability of our online platforms are critical to our future success and our ability to attract and retain future customers and provide quality customer service. Any system interruptions caused by telecommunications failures, computer viruses, hacking or other attempts to harm our systems that result in the unavailability or slowdown of our website or reduced order fulfillment performance could adversely affect the daily operations of our business. Our servers may also be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to system interruptions, website slowdown or unavailability, delays or errors in transaction processing, loss of data or the inability to accept and fulfill customer orders. Security breaches, computer viruses and hacking attacks have become more prevalent in our industry. We can provide no assurance that our current security mechanisms will be sufficient to protect our IT systems from any third-party intrusions, viruses or hacker attacks, information or data theft or other similar activities. Any such future occurrences could reduce customer satisfaction, damage our reputation and result in a material decrease in our revenue.
We are exposed to potential liability for information on our websites and for products and services sold through our websites, and we may incur significant costs and damage to our reputation as a result of defending against such potential liability.
We provide third-party content on our websites such as their products, links to third-party websites, advertisements and content provided by customers and users of our O2O platforms. We could be exposed to liability with respect to such third-party information. Among other things, we may face assertions that, by directly or indirectly providing such third-party content or links to other websites, we should be liable for defamation, negligence, copyright or trademark infringement, or other actions by parties providing such content or operating those websites. We may also face assertions that content on our websites, including statistics or other data we compile internally, or information contained in websites linked to our websites contains false information, errors or omissions, and users and our customers could seek damages for losses incurred as a result of their reliance upon or otherwise relating to incorrect information. We may also be subject to fines and other sanctions by the government for such incorrect information. Moreover, our relevant consolidated controlled entities, as Internet advertising service providers, are obligated under PRC laws and regulations to monitor the advertising content shown on our websites for compliance with applicable law. Violation of applicable law may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the offending advertisements and orders to publish advertisements correcting the misleading information. In case of serious violations, the PRC authorities may revoke the offending entities’ advertising licenses and/or business licenses. In addition, our websites could be used as a platform for fraudulent transactions and third-party products and services sold through our websites and mobile apps may be defective. The measures we take to guard against liability for third-party content, information, products and services may not be adequate to exonerate us from relevant civil and other liabilities.
Any such claims, with or without merit, could be time-consuming to defend and result in litigation and significant diversion of management’s attention and resources. Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against these claims and suffer damage to our reputation.
Regulation of the Internet industry in China, including censorship of information distributed over the Internet, may materially and adversely affect our business.
China has enacted laws, rules and regulations governing Internet access and the distribution of news, information or other content, as well as products and services, through the Internet. In the past, the PRC government has prohibited the distribution of information through the Internet that it deems to be in violation of applicable PRC laws, rules and regulations. In particular, under regulations promulgated by the State Council, the MIIT, the General Administration of Press and Publication (formerly the State Press and Publications Administration) and the Ministry of Culture, Internet content providers and Internet publishers are prohibited from posting or displaying content over the Internet that, among other things: (1) opposes the fundamental principles of the PRC constitution, (2) compromises state security, divulges state secrets, subverts state power or damages national unity, (3) disseminates rumors, disturbs social order or disrupts social stability, (4) propagates obscenity, pornography, gambling, violence, murder or fear or incites the commission of crimes, or (5) insults or slanders a third party or infringes upon the lawful right of a third party.
If any Internet content we offer through our consolidated controlled entities were deemed by the PRC government to violate any of such content restrictions, we would not be able to continue such offerings and could be subject to penalties, including confiscation of illegal revenues, fines, suspension of business and revocation of required licenses, which could have a material adverse effect on our business, financial condition and results of operations. We may also be subject to potential liability for any unlawful actions of our customers or affiliates or for content we distribute that is deemed inappropriate. It may be difficult to determine the type of content that may result in liability to us, and if we are found to be liable, we may be forced to cease operation of our websites in China.
We may not be able to manage our expansion of operations effectively.
We are in the process of developing our business in order to meet the potentially increasing demand for our future products and services, as well as capture new market opportunities. As we continue to grow, we must continue to improve our operational and financial systems, procedures and controls, increase service capacity and output, and expand, train and manage our growing employee base. In order to fund our on-going operations and our future growth, we need to have sufficient internal sources of liquidity or access to additional financing from external sources. Furthermore, our management will be required to maintain and strengthen our relationships with our customers and other third parties. As of December 31, 2021, we only had 24 employees. As a result, our continued expansion has placed, and will continue to place, significant strains on our management personnel, systems and resources. We also will need to further strengthen our internal control and compliance functions to ensure that we will be able to comply with our legal and contractual obligations and minimize our operational and compliance risks. Our current and planned operations, personnel, systems, internal procedures and controls may not be adequate to support our future growth. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.
We depend heavily on key personnel, and turnover of key employees and senior management could harm our business.
Our future business and results of operations depend in significant part upon the continued contributions of our key technical and senior management personnel, including Zonghua Chen, our Chairman, Chief Executive Officer and Chief Financial Officer. They also depend in significant part upon our ability to attract and retain additional qualified management, technical, marketing and sales and support personnel for our operations. If we lose a key employee or if a key employee fails to perform in his or her current position, or if we are not able to attract and retain skilled employees as needed, our business could suffer. Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team. We depend on the skills and abilities of these key employees in managing the technical, marketing and sales aspects of our business, any part of which could be harmed by further turnover.
Our holding company structure may limit the payment of dividends.
We have no direct business operations, other than our ownership of our subsidiaries. While we have no current intention of paying dividends, should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investment. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions as discussed below. If future dividends are paid in RMB, fluctuations in the exchange rate for the conversion of RMB into U.S. dollars may reduce the amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars.
Chinese regulations currently permit the payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations. Our subsidiaries in China are also required to set aside a portion of their after-tax profits according to Chinese accounting standards and regulations to fund certain reserve funds. Currently, our subsidiaries in China are the only sources of revenues or investment holdings for the payment of dividends. If they do not accumulate sufficient profits under Chinese accounting standards and regulations to first fund certain reserve funds as required by Chinese accounting standards, we will be unable to pay any dividends.
After-tax profits/losses with respect to the payment of dividends out of accumulated profits and the annual appropriation of after-tax profits as calculated pursuant to PRC accounting standards and regulations do not result in significant differences as compared to after-tax earnings as presented in our financial statements. However, there are certain differences between PRC accounting standards and regulations and U.S. GAAP, arising from different treatment of items such as amortization of intangible assets and change in fair value of contingent consideration rising from business combinations.
Risks Related to the Market for Our Common Stock
Our common stock is quoted on the OTC markets, which may have an unfavorable impact on our stock price and liquidity.
Our common stock is quoted on the OTC Pink market. The OTC Pink market is a significantly more limited market than the New York Stock Exchange or NASDAQ. The quotation of our shares on the OTC Pink may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future. We plan to list our common stock as soon as practicable. However, we cannot assure you that we will be able to meet the initial listing standards of any stock exchange, or that we will be able to maintain any such listing.
We are subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.
The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is currently a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.
For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.
Provisions in our charter documents and under Nevada law could discourage a takeover that stockholders may consider favorable.
Provisions in our articles of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our board of directors has the right to determine the authorized number of directors. In addition, we are authorized to issue up to 250,000,000 shares of preferred stock, in one or more classes or series as may be determined by our board of directors. The issuance of shares of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock.
We do not intend to pay dividends for the foreseeable future.
For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant.
General Risk Factors
Our business plan is based on a relatively new model that may not be successful and we may not successfully implement our business strategies.
Our business plan has not been examined or tested by the market. Our products and services are targeted at an emerging market and any potential increase in our revenues depends on the achievement by our current and future clients, which is a new market in the region. In addition, we cannot guarantee the full and successful implementation of our business strategies. To ensure the successful reception of our products and services in China, great efforts must to be made in promotion and business partner development. However, we cannot guarantee successful promotion of our products and services and we may not be able to realize our business goals.
We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we violated these laws could have a material adverse effect on our business.
We are subject to the Foreign Corrupt Practice Act, or 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 have operations, agreements with third parties, and make most of our sales in China. The PRC also strictly prohibits bribery of government officials. Our activities in China create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents, or distributors of our Company, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents, 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 U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including SOX and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES.
Our executive offices and all of our PRC subsidiaries and consolidated entities are located at 36th Floor, Shenzhen Development Center, #2010, Renmin South Road, Luohu District, Shenzhen, Guangdong, China, 518001, which consist of approximately 1,678.75 square meters. We lease our facilities pursuant to a lease agreement that our variable interest entity, Portercity entered into with Beijing Na Sheng Hong Sale and Service Center on November 27, 2017 for a lease term commencing on December 1, 2017 and ending on February 28, 2023. We believe that all our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business. We do not own or rent any real estate or other properties.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. Other than the legal proceedings set forth below, we are currently not aware of any legal proceedings or claims that would require disclosure under Item 103 of Regulation S-K. However, 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.
On April 13, 2020, Henan Longji Real Estate Development Co., Ltd. (“Longji Real Estate”) filed an action against Porter E-Commerce, Zongjian Chen and Xue’an Yan related to certain loan in the principal amount of RMB 2.0 million (approximately $283,082) which loan occurred before Porter E-Commerce merged with the Company. On May 10, 2020, Porter E-Commerce, Zongjian Chen, Xue’an Yan and Longji Real Estate reached a settlement under which Porter E-Commerce agreed to pay off the loan principal of RMB 2.0 million in two installments before June 30, 2021 and interest accrued on unpaid principal since January 1, 2020 at a rate of 6% per annum. In addition, under the settlement, Zongjian Chen and Xue’an Yan, the two original shareholders of Porter E-Commerce agreed to be severally and jointly liable for the repayment of the principal and interest of the loan. Porter E-Commerce, Zongjian Chen and Xue’an Yan were also jointly liable for the litigation costs of RMB11,400 (approximately $1,614). As of March 31, 2022, RMB 0.8 million (approximately $125,707) of the total RMB 2.0 million (approximately $283,082) has been repaid. Longji Real Estate and Porter E-Commerce have verbally agreed to extend the repayment of the loan.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock is quoted and traded on the OTC markets under the symbol “ULNV.” Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Approximate Number of Holders of Our Common Stock
As of March 31, 2022, there were approximately 313 holders of record of our common stock, which does not include the number of stockholders holding shares of our common stock in “street name”. We believe the actual number of stockholders is greater than the number of holders of record.
Dividend Policy
We have never declared or paid any dividends, nor do we have any present plan to pay any cash dividends on our common stock in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters-Securities Authorized for Issuance Under Equity Compensation Plans.”
Recent Sales of Unregistered Securities
We have not sold any equity securities during the 2021 fiscal year that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the 2021 fiscal year.
Purchases of Equity Securities
No repurchases of our common stock were made during the fiscal year ended December 31, 2021.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains certain forward-looking information. See “Special Note Regarding Forward Looking Statements” above for certain information concerning those forward-looking statements. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.
Overview
Porter Holding International, Inc. is a holding company incorporated in Nevada, the United States. As a holding company with no material operations of its own, Porter Holding International, Inc. conducts its business through the VIEs in China. The VIEs contributed 100% of our consolidated results of operations and cash flows for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the VIEs accounted for 100% of our consolidated total assets and total liabilities.
Since 2016, Porter Consulting has partnered with China Payment Technology Co., Ltd., a third-party online payment service provider (“China Payment”) to promote China Payment’s online payment platform to companies and businesses in Shenzhen and in return share a portion of the processing fees earned by China Payment as commission. Porter Consulting also partners with Shenzhen Xinghua Tongfu Technology Co., Ltd., a third-party online payment service provider (“Shenzhen Tongfu”), under which Porter Consulting agreed to promote Shenzhen Tongfu’s online payment platform, including the Point of Sale (POS) system, to companies and businesses in China and in return obtain a certain amount of commission based on the volume of trading through such online payment platform
As a company with limited operation history, we are at the early stage of developing our O2O business and our goal is to become a leading innovative O2O business platform operator providing both online E-commerce and offline physical business facilities to our merchant customers, where they can conduct business, interact with their existing and potential end-consumers face to face. Different from most other O2O companies, which often lack of integrated platforms, our goal is to provide one-stop services for our customers through our integrated online and offline platforms. As described fully below, we are developing and intend to offer products and services including both (i) hosting our online marketplaces, www.pt37.com and www.17yugo.com for our merchant clients to post and sell their products and services online and (ii) managing and operating physical business facilities that our online merchant clients can utilize to conduct their businesses offline. We are currently developing merchant clients who are engaged in businesses including manufacturing, real estate, trade and financing. In the future, we intend to expand our merchant client base to industries of big data, new materials, new energy, green food and environment protection. In addition, we are planning to collaborate with key opinion leaders (“KOLs”) to promote the merchandises on our e-commerce platform.
According to the development demand and future goals of our customers, in 2018 we started to offer a series of services such as business planning, financial guidance, business matching and guidance for listing primarily in the United States. At present, in our customer pool, many small and medium-sized enterprises have increased their public awareness. They are seeking the potential advantages of being a listed company and striving for obtaining the recognition of international capital to accelerate their corporate expansion. However, many enterprises themselves may not be familiar with the listing requirements, laws and regulations of different capital markets, and the process of obtaining financing from overseas markets.
In order to help our customers who intend to access overseas capital markets, we have a team of experienced professionals who have professional knowledge of the listing rules and regulations of various capital markets. We will make full use of our expertise and resources in the capital markets to assist these customers to achieve their goals.
Update on COVID-19
The ongoing coronavirus pandemic has had a material adverse effect on our industry and the markets in which we operate. Most of our revenues and our workforce are concentrated in China. The pandemic also impeded our ability to recruit new clients and made us postpone providing services to existing clients. Travel restrictions from time to time also limited clients’ ability to visit and meet us in person, which made it harder to build trust and engage clients. Updates of products information on our e-commerce platform and the delivery of goods were also delayed due to the late resumption of work by manufacturers. The imported goods on our platform face more challenges as the pandemic continues outside China, and our distribution channel has been disrupted as the operations of our distributors are interrupted by the outbreak. The foregoing adverse impacts might be mitigated as the Chinese government has rolled out an array of favorable fiscal measures.
However, as the coronavirus outbreak continues globally, the extent to which the coronavirus impacts our operations and results in the long-term will depend on future developments, including, among others, actions of the Chinese government to contain imported infections, which are highly uncertain and cannot be reasonably predicted. Our total revenues for the fiscal year ended December 31, 2021 have decreased significantly as compared with the fiscal year of 2020. There is no guarantee that our total revenues during the fiscal year ending December 31, 2022 will not continue to decline. The outbreak has resurged locally from time to time. At present, management is actively looking for a business breakthrough to increase revenue in 2022. We will continue to monitor and mitigate developments affecting our workforce, our customers, and the public at large to the extent we are able to do so. See “Risks Related to Our Business-Our business operations have been and may continue to be materially and adversely affected by the outbreak of the coronavirus (COVID-19).”
Results of Operations
Comparison of Years Ended December 31, 2021 and 2020
The following table sets forth key components of our results of operations during the years ended December 31, 2021 and 2020, both in dollars and as a percentage of our revenue.
Years Ended December 31,
Fluctuation
Amount
Amount
Amount
%
Revenue
$ 111,056
$ 550,249
(439,193
)
(79.82 )%
Cost of revenue
(55,169
)
(404,625
)
349,456
(86.37 )%
Gross profit
55,887
145,624
(89,737
)
(61.62 )%
Operating expenses
General and administrative expenses
(996,694
)
(2,488,857
)
1,492,163
(59.95 )%
Loss from operations
(940,807
)
(2,343,233
)
1,402,426
(59.85 )%
Other income
915,395
33,106
882,289
2665.04 %
Loss before income taxes
(25,412
)
(2,310,127
)
2,284,715
(98.90 )%
Income tax expense
-
-
-
-
Net loss
(25,412
)
(2,310,127
)
2,284,715
(98.90 )%
Less: Net loss attributable to non-controlling interests
(2,087
)
(21,643
)
19,556
(90.36 )%
Net loss attributable to Porter Holding International Inc. common stockholders
$ (23,325
)
$ (2,288,484
)
2,265,159
(98.98 )%
Revenue. Our revenue was $111,056 for the year ended December 31, 2021, compared to $550,249 for the same period last year. Starting from the second quarter of 2018, we commenced providing various consulting services to our customers, especially those who have the intention to be publicly listed primarily on the stock exchanges in the United States, and we received service income from the provision of these consulting services totaled nil and $306,297 for the years ended December 31, 2021 and 2020, respectively. The significant decrease of revenue was mainly attributable to the impacts of COVID-19 and depressed market demand. Starting from 2019, we provide various training services to our clients, primarily related to e-commerce platform operation, expansion of channels, promotion strategy and capital market operation, via live and online sessions. The service income from providing training services totaled $43,328 and $138,776 for the year ended December 31, 2021 and 2020, respectively. Through Porter Consulting we have also promoted the payment service of third-party payment service providers to merchants in Shenzhen and in return share a portion of the processing fees earned by such third-party payment service providers as commission. Our commission totaled $ 25,582 and $46,491 for the years ended December 31, 2021 and 2020, respectively. The approximately 44.97% decline in commission for 2021 was also the result of the COVID-19 pandemic. Revenues of $17,115 and $28,996 were generated from trading business for the years ended December 31, 2021 and 2020, respectively. Revenue of others were $25,031 and $29,689 for the years ended December 31, 2021 and 2020, respectively. The Company started the wine sales business in late 2021 and revenue of wine sales was $23,854 for the year ended December 31, 2021. Revenue of others were $1,177 and $29,689 for the year ended December 31, 2021 and 2020, respectively.
Cost of revenue. Our cost of revenue was $55,169 for the year ended December 31, 2021, compared to $404,625 for the same period last year. Cost of revenue refers to the cost incurred in third-party payment service and other business. The decrease of cost of revenue is in line with the decrease of revenue.
Gross profit and gross margin. Our gross profit was $55,887 for the year ended December 31, 2021, compared with a gross profit of $145,624 for the same period last year. Gross profit as a percentage of revenue (gross margin) was 50.32% for year ended December 31, 2021, compared to 26.47% for year ended December 31, 2020. The increase of gross profit ratio was mainly due to the cease of consulting services with lower profit margin.
General and administrative expenses. As shown below, our general and administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional fees and other expenses incurred in connection with general operations. Our general and administrative expenses decreased by $1,492,163 to $996,694 for the year ended December 31, 2021, compared to $2,488,857 for the same period in 2020. Decrease was mainly due to that allowance for doubtful accounts decreased from $1,051,816 to $15,370 during the year ended December 31, 2021. Due to the impact of COVID-19, the Company assessed that the collectability being not probable and hence provide bad debt provision for majority of receivable from the investment and corporate management consulting services for the prior year. Besides, no impairment reserved during the year ended December 31, 2021. An impairment of $86,428 related to the goodwill, as well as intangible assets and equipment was recognized for the year ended December 31, 2020. Moreover, there was a decrease in salary and staff benefit, lease and management fee and legal and professional fees of $150,541, $63,443 and $143,536, respectively, compared to the prior year. The decrease was mostly due to the depressed market demand and the cost reduction strategy of the Company as a result of the impact of COVID-19.
Fluctuation
Amount
%
Amount
%
Amount
%
Salary and staff benefits
$ 340,563
34.17
$ 491,104
19.73
$ (150,541
)
(30.65
)
Lease and management fee
273,091
27.40
336,534
13.52
(63,443
)
(18.85
)
Legal and professional fees
279,494
28.04
423,030
17.00
(143,536
)
(33.93
)
Depreciation and amortization
11,424
1.15
38,627
1.55
(26,241
)
(67.93
)
Bad debt provision
15,370
1.54
1,051,816
42.26
(1,036,446
)
(98.54
)
Impairment
-
-
86,428
3.47
(86,428
)
(100.00
)
Others
76,752
7.70
61,318
2.47
14,472
23.60
Total
$ 996,694
100.00
$ 2,488,857
100.00
$ (1,492,163
)
(59.95
)
Other income. Our other income was $915,395 and $33,106 for the years ended December 31, 2021 and 2020, respectively. The increase was primarily due to the compensation received with the termination of the Weifang project. During January 2021, Weifang Portercity agreed with the local government to terminate the project, which was signed on August 25, 2018 for Weifang Portercity to facilitate investment and promote business opportunities for the Weifang region. As the local government changed its development strategy, it determined to terminate the Weifang project. Consequently, Weifang Portercity received a compensation of approximately $538,665 from the local government to compensate its upfront establishment expenses including expenditure relating to office renovation, office equipment and supplies. Weifang Portercity was dissolved on April 22, 2021. Besides, $71,947 investment gain was recognized during the year ended December 31, 2021. Due to the termination of the consulting business, deferred revenue of $258,454 carried forward recognized into other income for the years ended December 31, 2021.
Income tax expense. Our Income tax expense was nil and $nil for the years ended December 31, 2021 and 2020, respectively.
Net loss. As a result of the cumulative effect of the factors described above, our net loss was $25,412 for the year ended December 31, 2021 compared with the net loss of $2,310,127 in 2020.
Liquidity and Capital Resources
Working Capital
December 31, 2021
December 31, 2020
Current Assets
$ 438,456
$ 425,149
Current Liabilities
3,763,925
3,539,288
Working Capital Deficit
$ (3,325,469
)
$ (3,114,139
)
As of December 31, 2021, we had cash of $31,196. To date, we have financed our operations primarily through borrowings from our stockholders and related parties.
Going Concern Uncertainties
The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern.
We have considered whether there is substantial doubt about our ability to continue as a going concern given (1) our loss from operations $940,807 for the year ended December 31, 2021, (2) our accumulated deficit of $4,498,598 as of December 31, 2021 and (3) the fact that we had negative operating cash flows of $638,806 for the year ended December 31, 2021.
As of December 31, 2021, our cash balance was $31,196 and our working capital deficit was $3,325,469. Our cash balance as of December 31, 2021 is not sufficient to support our operations for the next 12 months after the date that the financial statements issued. The negative operating results of cash flow and working capital deficit for the year ended December 31, 2021 raise substantial doubt about our ability to continue as a going concern. Our continued operations are highly dependent upon our ability to increase revenues and if needed, to complete equity and/or debt financing.
In evaluating if there is substantial doubt about our ability to continue as a going concern, we are trying to alleviate the going concern risk through (1) increasing cash generated from operations by controlling operating expenses and increasing more live steaming e-commerce events to bring up e-commerce revenue, (2) financing from domestic banks and other financial institutions, and (3) equity or debt financing. We have certain plans to mitigate these adverse conditions and to increase the liquidity of the Company.
However, if we are unable to obtain the necessary additional capital on a timely basis and on acceptable terms, we will be unable to implement our current plans for expansion, repay debt obligations or respond to competitive market pressures, which will have negative impacts upon our business, prospects, financial condition and results of operations. On an on-going basis, the Company also received and will continue to receive financial support commitments from the Company’s related parties.
We believe if we are unable to obtain our resources to fund operations, we may be required to delay, scale back or eliminate some or all of our planned operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.
Years Ended December 31,
Net cash used in operating activities
$ (638,806
)
$ (916,939
)
Net cash (used in) provided by investing activities
(977
)
67,494
Net cash provided by financing activities
661,120
608,542
Effect of exchange rate changes on cash
(15,053
)
41,082
Net increase (decrease) in cash
6,284
(199,821
)
Cash at the beginning of year
24,912
224,733
Cash at the end of year
$ 31,196
$ 24,912
Operating Activities
Net cash used in operating activities was $638,806 for the year ended December 31, 2021, as compared to $916,939 net cash used in operating activities for the year ended December 31, 2020. The net cash used in operating activities for the year ended December 31, 2021 was mainly due to our net loss of $25,412, a decrease in operating lease liabilities of $218,666 and a decrease in accruals and other payables of $350,374, partially offset by the increase in amortization of operating lease right-of-use assets of $239,042. The net cash used in operating activities for the year ended December 31, 2020 was mainly due to our net loss of $2,310,127, the decrease in operating lease liability of $317,389, partially offset by a decrease in prepayments and other receivables of $12,615 and an increase in accrual and other payables of $202,791.
Investing Activities
Net cash used in investing activities was $977 for the year ended December 31, 2021, as compared to $67,494 net cash provided by investing activities for the year ended December 31, 2020. The net cash used in investing activities for the year ended December 31, 2021 was mainly attributable to the purchase of $977 of equipment. The net cash provided by investing activities for the year ended December 31, 2020 was mainly attributable to the purchase of $3,594 of equipment, $20,277 of intangible assets and offset by $91,365 proceeds from disposal of investments.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2021 was $661,120, as compared to $608,542 for the year ended December 31, 2020. For the year ended December 31, 2021, we obtained advances of $2,586,474 from shareholders and repaid $1,925,354 to shareholders. For the year ended December 31, 2020, we obtained proceeds from sales of non-controlling interests of $71,502, advances of $3,352,297 from shareholders, repaid $2,815,257 to shareholders.
Critical Accounting Policies and Estimates
We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our consolidated financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management. The discussion of our critical accounting policies contained in Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies,” is incorporated herein by reference.
Recent Accounting Pronouncements
For further information on recently issued accounting pronouncements, see Note 2-Summary of Significant Accounting Policies in the accompanying notes to consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number
Report of Independent Registered Public Accounting Firm for the year ended December 31, 2021 (PCAOB ID No. 6781)
Report of Independent Registered Public Accounting Firm for the year ended December 31, 2020 (PCAOB ID No. 711)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 2020
Consolidated Statements of Changes in Stockholders’ Deficit for the Years Ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of Porter Holding International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Porter Holding International, Inc. and subsidiaries (collectively, the “Company”) as of December 31, 2021, and the related consolidated statement of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company records an accumulated deficit as of December 31, 2021, and the Company currently has net working capital deficit, continued net losses and negative cash flows from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or are required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.
We determined that there are no critical audit matters.
/s/ YCM CPA, Inc.
We have served as the Company’s auditor since 2021.
PCAOB ID 6781
Irvine, California
April 13, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Porter Holding International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Porter Holding International, Inc. (the “Company”) as of December 31, 2020, and the related consolidated statements of operations and comprehensive loss, changes in deficit and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company records an accumulated deficit as of December 31, 2020, and the Company currently has net working capital deficit, continued net losses and negative cash flows from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment of long-lived assets
Description of Critical Audit Matter
As discussed in Note 2 to the consolidated financial statements, the Company evaluated the recoverability of long-lived assets, including equipment with finite lives, intangible assets subject to amortization and operating lease right-of-use assets, whenever events or changes in circumstances, such as a significant adverse change to market conditions that will impact the future use of the assets, indicate that the carrying value of an asset may not be recoverable. As of December 31, 2020, the Company had working capital deficiency and accumulated deficiency. Besides, the Company has the recurring losses from operations and negative operating cash flows for the year ended December 31, 2020. The Company considered these as indicators that certain long-lived tangible assets may be impaired as of December 31, 2020. Due to challenging industry and economic conditions, the Company tested its long-lived assets during the year ended December 31, 2020. The Company’s evaluation of long-lived assets is primarily using estimated future undiscounted cash flows over its remaining lease term to its carrying value. In order to access there is any impairment of operating lease right-of-use assets, the Company tested whether the asset can be recovered in a few aspects, including, current and future plan of utilization of the lease space, continuity of the lease and fund for the future lease payment.
We identified the evaluation of the impairment analysis for long-lived assets as a critical audit matter because of the significant estimates and assumptions management used. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.
How We Addressed the Matter in Our Audit
The primary procedures we performed to address these critical audit matters included the following:
●
We obtained an understanding and evaluated the reasonableness of management’s process for developing the undiscounted cash flow and the assumptions of the operating lease right-of-use assets.
●
We observed the current utilization of lease space and gained understanding of the management’s intention and ability of continuity of the lease.
/s/ Friedman LLP
We served as the Company’s auditor from 2019 to 2022.
New York, New York
April 15, 2021
PORTER HOLDING INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2021 AND 2020
(In U.S. dollars)
ASSETS
CURRENT ASSETS
Cash
$ 31,196
$ 24,912
Accounts receivable, net, nil and $30,933 allowance for doubtful accounts as of December 31, 2021 and 2020, respectively
1,494
18,502
Prepayments and other receivables
48,120
46,315
Due from stockholders
338,616
335,420
Other current assets
19,030
-
Total current assets
438,456
425,149
NON-CURRENT ASSETS
Long-term rental deposits
39,515
38,592
Long-term prepayments
5,758
Equipment, net
13,355
24,434
Operating lease right-of-use assets
310,882
539,945
Total non-current assets
364,492
608,729
TOTAL ASSETS
$ 802,948
$ 1,033,878
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable
$ 127,044
$ 145,644
Accruals and other payables
328,852
683,482
Deferred revenue
239,831
355,398
Taxes payable
91,596
Due to stockholders
2,764,405
2,046,988
Operating lease liabilities - current
303,067
216,180
Total current liabilities
3,763,925
3,539,288
NON-CURRENT LIABILITIES
Operating lease liabilities - non-current
52,902
347,656
TOTAL LIABILITIES
3,816,827
3,886,944
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ DEFICIT
Common stock, par value $0.001 per share; 750,000,000 shares authorized, 508,110,000 shares issued and outstanding as of December 31, 2021 and 2020
508,110
508,110
Additional paid-in capital
1,128,241
1,128,241
Accumulated deficit
(4,498,598
)
(4,489,416
)
Accumulated other comprehensive loss
(155,290
)
(80,923
)
Total Porter Holding International, Inc. stockholders’ deficit
(3,017,537
)
(2,933,988
)
Non-controlling interests
3,658
80,922
Total stockholders’ deficit
(3,013,879
)
(2,853,066
)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
$ 802,948
$ 1,033,878
The accompanying notes are an integral part of these consolidated financial statements.
PORTER HOLDING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
(In U.S. dollars)
REVENUE
$ 111,056
$ 550,249
COST OF REVENUE
(55,169
)
(404,625
)
GROSS PROFIT
55,887
145,624
OPERATING EXPENSES
(996,694
)
(2,488,857
)
LOSS FROM OPERATIONS
(940,807
)
(2,343,233
)
OTHER INCOME, NET
915,395
33,106
NET LOSS BEFORE TAXES
(25,412
)
(2,310,127
)
Income tax expense
-
-
NET LOSS
(25,412
)
(2,310,127
)
Less: Net loss attributable to non-controlling interests
(16,230
)
(21,643
)
Net loss attributable to Porter Holding International, Inc. common stockholders
(9,182
)
(2,288,484
)
Other comprehensive loss
Foreign currency translation loss
(79,711
)
(168,843
)
Total Comprehensive loss
(105,123
)
(2,478,970
)
Less: comprehensive loss attributable to non-controlling interests
(21,574
)
(16,763
)
Comprehensive loss attributable to Porter Holding International, Inc. common stockholders
$ (83,549
)
$ (2,462,207
)
Basic and diluted loss per share
$ -
*
$ -
*
Weighted average number of common shares outstanding - basic and diluted
508,110,000
508,110,000
* Less than $0.01 per share
The accompanying notes are an integral part of these consolidated financial statements.
PORTER HOLDING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
(In U.S. dollars)
Porter Holding International, Inc. Stockholders
Common stock
Additional
Accumulated
other
Non-
Number
paid-in
Accumulated
comprehensive
controlling
of shares
Amount
capital
deficit
income (loss)
interests
Total
Balance at December 31, 2019
508,110,000
$ 508,110
$ 1,077,986
$ (2,200,932
)
$ 92,800
$ 182,406
$ (339,630
)
Sales of subsidiary shares to non-controlling interests
-
-
50,255
-
-
21,247
71,502
Disposal of a subsidiary
-
-
-
-
-
(105,968
)
(105,968
)
Net loss
-
-
-
(2,288,484
)
-
(21,643
)
(2,310,127
)
Foreign currency translation adjustment
-
-
-
-
(173,723
)
4,880
(168,843
)
Balance at December 31, 2020
508,110,000
$ 508,110
$ 1,128,241
$ (4,489,416
)
$ (80,923
)
$ 80,922
$ (2,853,066
)
Cancellation of a subsidiary
(55,690
)
(55,690
)
Net loss
-
-
-
(9,182
)
-
(16,230
)
(25,412
)
Foreign currency translation adjustment
-
-
-
-
(74,367
)
(5,344
)
(79,711
)
Balance at December 31, 2021
508,110,000
$ 508,110
$ 1,128,241
$ (4,498,598
)
$ (155,290
)
$ 3,658
$ (3,013,879
)
The accompanying notes are an integral part of these consolidated financial statements.
PORTER HOLDING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
(In U.S. dollars)
Cash flows from operating activities
Net loss
$ (25,412
)
$ (2,310,127
)
Adjustments to reconcile net loss to cash (used in) provided by operating activities:
Loss on disposal of equipment
-
Impairment on goodwill
-
34,584
Impairment on intangible asset and equipment
-
51,844
Gain on disposal of a subsidiary
(62,008
)
(4,791
)
Depreciation and amortization
12,386
38,627
Amortization of operating lease right-of-use assets
239,042
307,954
Allowance for doubtful accounts
15,370
1,051,816
Changes in assets and liabilities
Accounts receivable
1,692
2,691
Prepayments and other receivables
4,161
12,615
Other current assets
(18,799
)
-
Operating lease liabilities
(218,666
)
(317,389
)
Accounts payable
(21,816
)
1,722
Accruals and other payables
(350,374
)
202,791
Deferred revenue
(122,562
)
59,675
Tax payable
(91,933
)
(48,951
)
Net cash used in operating activities
(638,806
)
(916,939
)
Cash flows from investing activities
Purchase of equipment
(977
)
(3,594
)
Purchase of intangible asset
-
(20,277
)
Proceeds from disposal of investments
-
91,365
Net cash (used in) provided by investing activities
(977
)
67,494
Cash flows from financing activities
Sales of subsidiary shares to non-controlling interests
-
71,502
Advances from shareholders
2,586,474
3,352,297
Repayments to shareholders
(1,925,354
)
(2,815,257
)
Net cash provided by financing activities
661,120
608,542
Effect of exchange rates on cash
(15,053
)
41,082
Net increase (decrease) in cash
6,284
(199,821
)
Cash at beginning of year
24,912
224,733
Cash at end of year
$ 31,196
$ 24,912
The accompanying notes are an integral part of these consolidated financial statements.
PORTER HOLDING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31 2021 AND 2020
(In U.S. dollars)
1.
ORGANIZATION AND BUSINESS
Porter Holding International, Inc. (formerly known as Uni Line Corp., “ULNV”) was incorporated in the State of Nevada on September 5, 2013. The Company and its subsidiaries and VIE entities collectively referred to as the “Company”.
As of December 31, 2021, the Company has subsidiaries incorporated in countries and jurisdictions including the People’s Republic of China (“PRC”), Hong Kong, and Seychelles As of December 31, 2021, the Company also effectively controls a number of variable interest entities (“VIEs”) through the Primary Beneficiaries, as defined below. The VIEs include:
(a) Shenzhen Portercity Investment Co. Ltd. (“Portercity”);
(b) Shenzhen Porter Warehouse E-Commerce Co. Ltd. (“Porter E-Commerce”) (Portercity 100% owned);
(c) Shenzhen Porter Shops Lot Technology Co., Ltd. (“Porter Consulting”) (Portercity 85% owned);
(d) Shenzhen Porter Commercial Perspective Network Co. Ltd. (“Porter Commercial”) (Portercity 100% owned); and
(e) Shenzhen Xinsanmao Wine Co., Ltd (“Xinsanmao Wine”) (Porter E-Commerce 51% owned).
As a result of the above contractual arrangements, or the Contractual Arrangements, Porter Group Limited, a Republic of Seychelles company and our wholly-owned subsidiary (“PGL”) has substantial control over the VIE Entities’ daily operations and financial affairs, election of their senior executives and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of the VIE Entities, the Company is entitled to consolidate the financial results of the VIE Entities in its own consolidated financial statements under Financial Accounting Standards Board Accounting Standard Codification (“ASC”) Topic 810 and related subtopics related to the consolidation of variable interest entities, or ASC Topic 810.
On June 28, 2018, Portercity and Mr. Zhibo Mao established Weifang Portercity in Weifang, Shandong Province, the PRC, with a registered capital of RMB 1,000,000 (approximately $155,198). Portercity and Mr. Zhibo Mao hold 60% and 40% equity interest in Weifang Portercity, respectively. Weifang Portercity is intended to be engaged in the business of providing various consulting services to its clients, especially to those who have the intention to be publicly listed in the stock exchanges in the United States and other countries. As of December 31, 2020, Weifang Portercity has not commenced operations. In January 2021, Weifang Portercity agreed with the local government to terminate this project, as a result of the local government changing its development strategy. Weifang Portercity received a compensation of approximately $538,665 from the local government to compensate its upfront establishment expenses including expenditure relating to office renovation, office equipment and supplies. Weifang Portercity was dissolved on April 22, 2021.
In August 2019, Porter E-Commerce acquired 60% of the equity interest in Shenzhen Qianhai Maihuolang E-commerce Co., Ltd. (“Maihuolang E-commerce”), which is engaged in the business of online E-commerce. In October 2019, the shareholders of Maihuolang E-commerce resolved that the registered capital from RMB 5,000,000 ($775,988) to RMB 5,263,157 ($816,829), and such increase in registered capital would be contributed by the non-controlling interest shareholder. Consequently, the equity interest in Maihuolang E-commerce owned by the Company was changed to 57%. On July 15, 2020, Porter E-Commerce entered into an Equity Transfer Agreement (the “Agreement”) with Mr. Kezhan Ma, whereby Porter E-Commerce transferred its 57% equity interests in Maihuolang E-Commerce to Mr. Kezhan Ma, for cash consideration of RMB 650,000 (approximately $101,020) which amount is received on July 27, 2020. The Company did not report the operation of Maihuolang E-commerce as discontinued operation as the sale did not represent a strategic shift that would have a major effect on the Company’s operations and financial results. An impairment loss of $52,603 and a disposal gain of $4,791 were recognized for the year ended December 31, 2020.
In July 2020, the shareholders of Porter Consulting resolved that the registered capital from RMB 1,000,000 ($155,198) to RMB 1,176,470 ($182,585), and such increase in registered capital would be contributed by the non-controlling interest shareholder. Consequently, the equity interest in Porter Consulting owned by the Company was changed to 85%. Besides, Porter Consulting change from Shenzhen Yihuilian Information Consulting Co. Ltd. to Shenzhen Porter Shops Lot Technology Co., Ltd.
In July 2021, Porter E-commerce and a third party person established Xinsanmao Wine in Shenzhen, Guangdong Province, with a registered capital of RMB1,000,000 (approximately $155,198). Porter E-commerce holds 51% equity interest in Xinsanmao Wine, respectively. Xinsanmao Wine is intended to be engaged in the business of wine distribution.
The Company and its subsidiaries and VIE entities (collectively referred to as the “Company”) focus its business as an innovative O2O (Online to Offline) business platform operator covering both online E-commerce and offline commercial chain entity of three dimensional synchronous operation together with integrated comprehensive services for merchant clients, service income from organizing and delivering an event and forum, and third-party payment service. Starting from the second quarter of 2018, the Company provides investment and corporate management consulting services to its clients.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
Liquidity and Going Concern
The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for the Company’s business, and adversely impact its results of operations. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Its estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
The Company has considered whether there is substantial doubt about its ability to continue as a going concern due to (1) its recurring loss from operations $940,807 for the year ended December 31, 2021, (2) its accumulated deficit of $4,498,598 as of December 31, 2021 and (3) the fact that the Company had negative operating cash flows of $638,806 for the year ended December 31, 2021.
In evaluating if there is substantial doubt about its ability to continue as a going concern, the Company is trying to alleviate the going concern risk through (1) increasing cash generated from operations by controlling operating expenses and expanding more revenue streams, (2) loans from existing directors and shareholders, and (3) equity or debt financing. The Company has certain plans to mitigate these adverse conditions and to increase the liquidity of the Company.
As of December 31, 2021, the Company has $31,196 in cash and a working capital deficit of $3,325,469. The Company cash balance as of December 31, 2021 is not sufficient to support our operations for the next 12 months after the date that the consolidated financial statements issued. The negative operating results of cash flow and working capital deficit for the quarter ended December 31, 2021 raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.
During the year ended December 2021, the Company received loans from shareholders of $2,586,474. On an on-going basis, the Company will continue to receive financial support commitments from the Company’s related parties. However, if the Company is unable to obtain the necessary additional capital on a timely basis and on acceptable terms, the Company will be unable to implement its current plans for expansion, repay debt obligations or respond to competitive market pressures, which will have negative influence upon its business, prospects, financial condition and results of operations.
The Company believes if it is unable to obtain its resources to fund operations, it may be required to delay, scale back or eliminate some or all of its planned operations, which may have a material adverse effect on its business, results of operations and ability to operate as a going concern.
Use of Estimates
The preparation of these consolidated financial statements requires management of the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its consolidated financial statements.
Basis of Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and consolidated VIEs. All significant inter-company balances and transactions have been eliminated upon consolidation.
A subsidiary is an entity in which (i) the Company directly or indirectly controls more than 50% of the voting power; or (ii) the Company has the power to appoint or remove the majority of the members of the board of directors or to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders.
The consolidation also includes non-controlling interest which mainly consists of 15% of the equity interest of Porter Consulting, 49% of the equity interest of Xinsanmao Wine and 40% of the equity interest of Weifang Portercity (dissolved on April 22, 2021). The non-controlling interests are presented in the consolidated balance sheets, separately from equity attributable to the shareholders of the Company. Non-controlling interests in the results of the Company are presented on the consolidated statement of operations as an allocation of the total income or loss for the year between non-controlling interest holders and the shareholders of the Company.
VIE Consolidation
For the consolidated VIEs, management made evaluations of the relationships between the Company and the VIEs and the economic benefit flow of contractual arrangements with the VIEs. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, the Company controls the shareholders’ voting interests in these VIEs. As a result of such evaluation, management concluded that the Company is the primary beneficiary of its consolidated VIEs.
PRC laws and regulations prohibit or restrict foreign ownership of companies that operate Internet information and content, Internet access, online games, mobile, value added telecommunications and certain other businesses in which the Company is engaged or could be deemed to be engaged. Consequently, the Company conducts certain of its operations and businesses in the PRC through its VIEs. The Company consolidates in its consolidated financial statements all of the VIEs of which the Company is the primary beneficiary.
The following financial information of the Company’s consolidated VIEs (including subsidiary of VIEs) is included in the accompanying consolidated financial statements:
December 31, 2021
December 31, 2020
ASSETS
CURRENT ASSETS
Cash
$ 21,645
$ 13,013
Accounts receivable, net
1,494
3,132
Prepayments and other receivables
48,071
46,026
Due from shareholders
445,774
435,975
Amount due from the Company and its non-VIE subsidiaries(1)
680,330
441,759
Other current assets
19,030
-
Total current assets
1,197,314
939,905
NON-CURRENT ASSETS
Long term rental deposit
39,515
38,592
Long term prepayment
5,758
Equipment, net
12,752
23,410
Operating lease right-of-use assets
310,882
539,945
Total non-current assets
363,889
607,705
TOTAL ASSETS
$ 1,561,203
$ 1,547,610
CURRENT LIABILITIES
Accounts payable
$ 127,044
$ 145,644
Accruals and other payables
319,930
645,073
Deferred revenue
239,831
355,398
Tax payable
91,596
Amounts due to shareholders of the Company
2,996,334
2,294,151
Operating lease liability - current
303,067
216,180
Total current liabilities
3,986,932
3,748,042
NON-CURRENT LIABILITIES
Operating lease liability - non-current
52,902
347,656
TOTAL LIABILITIES
$ 4,039,834
$ 4,095,698
(1) Amount due from the Company and its non-VIE subsidiaries consists of inter-company from other non-VIE subsidiaries within the Company.
Net revenue
$ 111,056
$ 471,518
Net income (loss)
$ 225,852
$ (1,969,711
)
Net cash used in operating activities
$ (405,653
)
$ (537,112
)
Net cash (used in) provided by investing activities
(977
)
67,494
Net cash provided by financing activities
414,848
277,186
Revenue Recognition
The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five step model prescribed under Accounting Standards Update (“ASU”) No. 2014-09: (i) identify contract(s) with a customer: Due to impact of COVID-19, the Company, starting from first quarter of 2020, determines to receive cash prior to performing investment and corporate management consulting services in order to ensure probable collection of consideration and hence existence of a contract; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the Company satisfies the performance obligation.
Revenues are recognized when control of the promised goods or services is transferred to the customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration the Company expect to be entitled to in exchange for those goods or services.
The Company via Porter Consulting earned commissions of $25,582 and $46,491 for the years ended December 31, 2021 and 2020 respectively, primarily from a third-party payment service provider when China UnionPay card transactions are completed and settled. Revenue related to commissions is recognized in the consolidated statement of operations at the time when the underlying transaction is completed.
The third-party payment provider is a China UnionPay card acquiring institution and earns processing fees from China UnionPay card transactions. The Company’s performance obligation is to promote, via Porter Consulting, the payment service of the third-party payment service provider to merchants in Shenzhen, for which the Company shares a portion of the processing fees earned by the third-party payment service provider from China UnionPay, as commission.
Starting from the second quarter of 2018, the Company via Portercity provides various consulting services to its clients, especially to those who have the intention to be publicly listed in the stock exchanges in the United States and other countries. The Company categorizes its consulting services into three phases:
Phase I consulting services primarily include due diligence review, market research and feasibility study, business plan drafting, accounting record review, and business analysis and recommendations etc. Management estimates that Phase I normally takes around three months to complete based on its past experiences.
Phase II consulting services primarily include reorganization, pre-listing education and tutoring, talent search, legal and audit firm recommendation and coordination, VIE contracts and other public-listing related documents review, merger and acquisition planning, investor referral and pre-listing equity financing source identification and recommendation, independent directors and audit committee candidates recommendation; shell company identification and recommendation for customers expecting to become publicly listed through reverse merger transaction; etc. Management estimates that Phase II normally takes about five months to complete based its past experiences.
Phase III consulting services primarily include assistance in preparation of customers’ registration statement under IPO transactions or Form 8-K under reverse merger transactions; assistance in answering comments and questions received from regulatory agencies etc. Management believes it is very difficult to estimate the timing of this phase of service as the completion of Phase III services.
Under Accounting Standards Codification Topic 606 (“ASC Topic 606”), in order to recognize revenue, the Company is required to identify an approved contract with commitments to perform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. Each phase of consulting services is standalone and fees associated with each phase are usually clearly identified in service agreements. Revenue from providing Phase I and Phase II consulting services to customers is recognized based on the output methods, including surveys of performance completed to date or milestones reached of each phase only when the Company has an enforceable right to payment for performance completed to date. Otherwise, such revenue is recognized at a point in time when services are delivered and accepted by customers. Revenue from providing Phase III consulting services to customers is recognized upon completion of reverse merger transaction or IPO transaction, which is evidenced by filing of 8-K for reverse merger transaction or receipt of effective notice from regulatory agencies for IPO transaction. Revenue that has been billed, collected but not yet recognized is reflected as deferred revenue on the consolidated balance sheets.
Depending on the complexity of the underlying service arrangement and related terms and conditions, significant judgments, assumptions and estimates may be required to determine when substantial delivery of contract elements has occurred, whether any significant ongoing obligations exist subsequent to contract execution, whether amounts due are collectible and the appropriate period or periods in which, or during which, the completion of the earnings process occurs. Depending on the magnitude of specific revenue arrangements, adjustment may be made to the judgments, assumptions and estimates regarding contracts executed in any specific period. Service income from consulting services, totaled nil and $306,297 was recognized for the years ended December 31, 2021 and 2020, respectively.
In accordance with ASC 606, the Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned by Porter Perspective Business Group Limited, a Hong Kong company and wholly-owned subsidiary of PGL (“PPBGL”) as commissions. When the Company is primarily obligated in a transaction, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, or has several but not all of these indicators, revenues should be recorded on a gross basis. When the Company is not the primary obligor, does not bear the inventory risk and does not have the ability to establish the price, revenues are recorded on a net basis. The Company determined that it is not the primary obligor in its cosmetic trading business. For the years ended December 31, 2021 and 2020, the Company recognized a net revenue of $17,115 and $28,996 for commission services, when control of the products has transferred, being at the point the products are delivered to the customer and the customer has accepted the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products.
Starting from the first quarter of 2019, the Company, via PPBGL, Maihuolang E-commerce and Porter Commercial, provides various training services to its clients, primarily related to e-commerce platform operation, expansion of channels and promotion strategy, and capital market operation, via live and online sessions. Under ASC Topic 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to perform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. The fees associated with the course of training sessions are clearly identified in service agreements. Training service revenue is recognized at the time when the training sessions stipulated in the contract are completed. The Company recognized $43,328 and $138,776 for the year ended December 31, 2021 and 2020 for training services.
Starting from August 2021, the Company, via Xinsanmao Wine, provides wine sales business with its clients. There is no variable consideration and non-cash consideration agreed with the customers. The transaction price is fixed and allocated to the agreed goods, the only performance obligation. The revenue is recognized at a point in time once the Company has determined that the customers have obtained control over the goods. Control is typically deemed to have been transferred to the customers when the performance obligation is fulfilled, usually at the time of delivery, at the transaction price. The revenue of wine sales business is $23,854 for the year ended December 31, 2021.
Practical expedients and exemption
The Company has not incurred any costs to obtain contracts.
Other service income is earned when services have been rendered.
Revenue by major product line
Corporate management consulting services
$ -
$ 306,297
Training service
43,328
138,776
Third-party payment service
25,582
46,491
Trading business
17,115
28,996
Wine sales
23,854
-
Others
1,177
29,689
$ 111,056
$ 550,249
Taxation
Income taxes are accounted for using an asset and liability approach which requires the recognition of income taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred income taxes are determined based on the differences between the accounting basis and the tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws (refer to the header “Tax Cuts and Jobs Act” in Note 10 to the consolidated financial statements for further discussion on the impact to the enacted tax laws in 2017). Deferred tax assets are reduced by a valuation allowance, if based on available evidence, it is considered that it is more likely than not that some portion of or all of the deferred tax assets will not be realized. In making such determination, the Company considers factors including future reversals of existing taxable temporary differences, future profitability, and tax planning strategies. If events were to occur in the future that would allow the Company to realize more of its deferred tax assets than the presently recorded net amount, an adjustment would be made to the deferred tax assets that would increase income for the period when those events occurred. If events were to occur in the future that would require the Company to realize less of its deferred tax assets than the presently recorded net amount, an adjustment would be made to the valuation allowance against deferred tax assets that would decrease income for the period when those events occurred. Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities.
The Company’s deferred tax assets relate to the Company’s net operating losses in the U.S. and net operating losses and temporary differences between accounting basis and tax basis for its China-based subsidiaries and VIEs, which are subject to corporate income tax in the PRC under the PRC Corporate Income Tax Law (the “CIT Law”).
Uncertain Tax Positions
Management reviews regularly the adequacy of the provisions for taxes as they relate to the Company’s income and transactions. In order to assess uncertain tax positions, the Company applies a more likely than not threshold and a two-step approach for tax position measurement and financial statement recognition. For 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 processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement. The Company had no uncertain tax position as of December 31, 2021 and 2020.
According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.
Foreign Currency and Foreign Currency Translation
The functional currency of ULNV and PGL is the United States dollar (“US dollar”). The functional currency of the PPBGL is the Hong Kong dollar. The VIEs with operations in PRC uses the local currency, the Chinese Yuan (“RMB”), as their functional currencies. An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.
Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the statements of comprehensive loss.
The consolidated financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange rates used to translate each period’s Statement of operation. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the consolidated balance sheets.
Translation of amounts from RMB and HKD into U.S. dollars has been made at the following exchange rates:
Balance sheet items, except for equity accounts
　
December 31, 2021
RMB6.3726 to $1
HKD7.7996 to $1
December 31, 2020
RMB6.5250 to $1
HKD7.7534 to $1
　
　
　
Statement of operation and cash flows items
　
　
For the year ended December 31, 2021
RMB6.4508 to $1
HKD7.7727 to $1
For the year ended December 31, 2020
RMB6.9042 to $1
HKD7.7559 to $1
Cash
Cash consist of cash on hand and at banks and highly liquid investments, which are unrestricted from withdrawal or use, and which have original maturities of three months or less when purchased.
Accounts Receivable, Net
The carrying value of accounts receivable is reduced by an allowance that reflects the Company’s best estimate of the amounts that will not be collected. The Company makes estimations of the collectability of accounts receivable. Many factors are considered in estimating the general allowance, including reviewing delinquent accounts receivable, performing an aging analysis and a customer credit analysis, and analyzing historical bad debt records and current economic trends.
Equipment
Equipment are recorded at cost less accumulated depreciation and accumulated impairment. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
Estimated useful lives (years)
Office and computer equipment
　
3-5
Expenditure for maintenance and repairs is expensed as incurred.
The gain or loss on the disposal of equipment is the difference between the net sales proceeds and the lower of the carrying value or fair value less cost to sell the relevant assets and is recognized in general and administrative expenses in the consolidated statements of comprehensive loss.
Intangible Assets
Intangible assets mainly comprise domain names and trademarks. Intangible assets are recorded at cost less accumulated amortization and impairment with no residual value. Amortization of intangible assets is computed using the straight-line method over their estimated useful lives.
The estimated useful lives of the Company’s intangible assets are listed below:
Estimated useful lives (years)
Software copyright
Domain names and trademarks
　
Impairment of Long-lived Assets
Long-lived assets, including property and equipment with finite lives and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recover-ability of the assets based on the non-discounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values.
As of December 31, 2021 and 2020, nil and $10,816 of impairment of equipment was recognized, respectively. The Company evaluated the impairment of equipment by going concern issues.
As of December 31, 2021 and 2020, $962 and $41,028 impairment of intangible assets was recognized, respectively. Since the considerations to be received for the disposal of 57% ownership of Maihuolang E-Commerce in July 2020 was lower than the related net carrying value, $18,019 impairment was made to the intangible assets, on top of the full impairment of goodwill. Besides, the Company further impaired remaining $962 and $23,009 of intangible assets during the impairment assessment as of December 31, 2021 and 2020.
Goodwill
The Company allocates goodwill from business combinations to reporting units based on the expectation that the reporting unit is to benefit from the business combination. The Company evaluates its reporting units on an annual basis and, if necessary, reassigns goodwill using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.
Application of the goodwill impairment test requires judgments, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and the determination of the fair value of each reporting unit. The Company first assesses qualitative factors to determine whether it is more likely than not that goodwill is impaired. If the more likely than not threshold is met, the Company performs a quantitative impairment test.
During the year ended December 31, 2021 and 2020, the Company performed goodwill impairment testing. Based on the impairment test result per the fact that the considerations to be received for the disposal of 57% ownership of Maihuolang E-Commerce in July 2020 was lower than the related net carrying value, the Company fully impaired the goodwill of $34,584 as of December 31, 2020.
Net loss per share of common stock
The Company has adopted ASC Topic 260, “Earnings per Share,” (“EPS”) which requires presentation of basic EPS on the face of the Statements of operation for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying consolidation financial statements, basic earnings (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
Net loss attributable to Porter Holding International, Inc.
$ (9,182
)
$ (2,288,484
)
Weighted average number of common shares outstanding - basic and diluted
508,110,000
508,110,000
Basic and diluted loss per share
$ -
*
$ -
*
* Less than $0.01 per share
The Company has no potentially dilutive securities, such as options or warrants, currently issued and outstanding.
Segments
The Company evaluates a reporting unit by first identifying its operating segments, and then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meets the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has two reportable segments in consulting services, as well as training services and others.
Fair Value of Financial Instruments
U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:
Level 1 - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - include other inputs that are directly or indirectly observable in the market place.
Level 3 - unobservable inputs which are supported by little or no market activity.
The carrying value of the Company’s financial instruments, including cash, accounts and other receivables, other current assets, accounts and other payables, and other short-term liabilities approximate their fair value due to their short maturities.
Leases
The Company accounts for its leases under ASC 842, Leases. Under this guidance, the Company determines if an arrangement is a lease or contains a lease at inception, operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use (“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. The Company elected the package of practical expedients permitted under the transition guidance to combine the lease and non-lease components as a single lease component for operating leases associated with the Company’s office space lease, and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
The Company recognized no impairment of ROU assets as of December 31, 2021 and 2020.
The operating lease is included in operating lease right-of-use assets, operating lease liabilities-current and operating lease liabilities-non-current on the consolidated balance sheets.
Recent Accounting Pronouncements
Accounting standards adopted on January 1, 2021
On December 18, 2019, the FASB issued ASU No. 2019-12, Income taxes (Topic 740), Simplifying the Accounting for Income Taxes. This guidance amends ASC Topic 740 and addresses several aspects including 1) evaluation of step-up tax basis of goodwill when there is not a business combination, 2) policy election to not allocate consolidated taxes on a separate entity basis to entities not subject to income tax, 3) accounting for tax law changes or rates during interim periods, 4) ownership changes from equity method investment to subsidiary or vice versa, 5) elimination of exception to intraperiod allocation when there is gain in discontinued operations and a loss from continuing operations, 6) treatment of franchise taxes that are partially based on income. The Company adopted ASU2019-12 effective on January 1, 2021.
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update No. 2016-13,”Financial Instruments - Credit Losses (Topic 326)” (“ASU 2016-13”). ASU 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023.The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its consolidated financial statements, particularly its recognition of allowances for accounts receivable.
In October 2020, the FASB issued ASU 2020-10, “Codification Improvements”. The amendments in this Update represent changes to clarify the Codification or correct unintended application of guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments in this Update affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. ASU 2020-10 is effective for the Company for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022.The amendments in this Update should be applied retrospectively. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have material impact on the consolidated financial position, statements of operations and cash flows.
3.
BUSINESS COMBINATIONS
Disposition
On July 15, 2020, Porter E-Commerce entered into the Agreement with Mr. Kezhan Ma, whereby Porter E-Commerce transferred its 57% equity interests in Maihuolang E-Commerce to Mr. Kezhan Ma, for cash consideration of RMB 650,000 (approximately $95,735) which amount is received on July 27, 2020. The Company did not report the operation of Maihuolang E-commerce as discontinued operation as the sale did not represent a strategic shift that would have a major effect on the Company’s operations and financial results. An impairment loss of $52,603 and a disposal gain of $4,791 were recognized for the year ended December 31, 2020.
4.
ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
December 31, 2021
December 31, 2020
Billed
$ -
$ 46,303
Unbilled
1,494
3,132
Accounts receivable
$ 1,494
$ 49,435
Less: allowance for doubtful accounts
-
(30,933
)
$ 1,494
$ 18,502
The following table sets forth the movement of allowance for doubtful accounts:
December 31, 2021
December 31, 2020
Beginning
$ 30,933
$ 3,065
Additions
15,370
1,051,816
Write off
(46,303
)
(1,023,948
)
Exchange rate difference
-
-
Balance
$ -
$ 30,933
5.
PREPAYMENTS AND OTHER RECEIVABLES
Prepayments and other receivables consist of the following:
December 31, 2021
December 31, 2020
Prepayments
$ 9,278
$ 10,448
Other receivables
38,842
35,867
$ 48,120
$ 46,315
6.
EQUIPMENT, NET
Equipment, net consist of the following:
December 31, 2021
December 31, 2020
Office and computer equipment
$ 77,940
$ 185,009
Less: Accumulated depreciation
(64,585
)
(149,130
)
13,355
35,879
Impairment
-
(10,816
)
Exchange rate difference
-
(629
)
Net value
$ 13,355
$ 24,434
Depreciation expenses charged to the consolidated statements of operations for the years ended December 31, 2021 and 2020 were $12,386 and $19,435, respectively. Loss on disposal of equipment for the years ended December 31, 2021 and 2020 were $113 and nil, respectively. As of December 31, 2021 and 2020, nil and $10,816 of impairment of equipment was recognized, respectively.
7.
INTANGIBLE ASSETS, NET
Intangible assets, net, consist of the following:
December 31, 2021
December 31, 2020
Software copyright
$
$ -
Domain names and trademarks
-
42,473
Intangible asset
42,473
Less: Accumulated amortization
(27
)
(18,126
)
24,347
Impairment
(962
)
(23,009
)
Exchange rate difference
-
(1,338
)
Net value
$ -
$ -
Amortization charged to the consolidated statements of operations for the years ended December 31, 2021 and 2020 were $27 and $19,192, respectively. As of December 31, 2021 and 2020, $962 and $23,009 impairment were recognized respectively.
8.
ACCRUALS AND OTHER PAYABLES
Accruals and other payables consist of the following:
December 31, 2021
December 31, 2020
Salary payables
$ 25,086
$ 185,396
Refund to a third party*
188,306
306,513
Accrued professional fees
-
33,735
Accrued rental expenses
58,690
155,539
Others
56,770
2,299
$ 328,852
$ 683,482
*Refund to a third party is resulted from the fact that Henan Longji Real Estate Development Co., Ltd. (“Longji Real Estate”) filed an action against Porter E-Commerce, Zongjian Chen and Xue’an Yan related to a loan of RMB 2,000,000 (approximately $313,844) which occurred before Porter E-Commerce merged with the Company on April 13, 2020. On May 10, 2020, Porter E-Commerce, Zongjian Chen, Xue’an Yan and Longji Real Estate reached a settlement under which Porter E-Commerce agreed to pay off the loan principal of RMB 2,000,000 in two installments before June 30, 2021 and interest accrued on unpaid principal since January 1, 2020 at a rate of 6% per annum. In addition, under the settlement, Zongjian Chen and Xue’an Yan, the two original shareholders of Porter E-Commerce agreed to be severally and jointly liable for the payoff of the principal and interest of the loan. This amount is co-related to the amount due from shareholders in Note 9. As of December 31 2021, there is remaining RMB 1,200,000 (approximately $188,306) not yet repaid. The extension was agreed verbally between Longji Real Estate and the Company.
9.
BALANCES WITH RELATED PARTIES
Note
December 31, 2021
December 31, 2020
Due from shareholders
Mr. Zongjian Chen and Ms. Xiaomei Xiong (wife of Mr. Zongjian Chen)
(a)
$ 313,844
$ 306,513
Mr. Zongjian Chen (brother of Mr. Zonghua Chen)
24,772
28,907
$ 338,616
$ 335,420
Due to shareholders
Mr. Zonghua Chen (the Company’s Chairman, Chief Executive Officer, Chief Financial Officer and President)
$ 1,690,871
$ 2,046,988
Ms. Xiaomei Xiong (wife of Mr. Zongjian Chen)
1,073,534
-
$ 2,764,405
$ 2,046,988
(a)
On April 13, 2020, Longji Real Estate filed an action against Porter E-Commerce, Zongjian Chen and Xue’an Yan related to certain loan of RMB 2,000,000 (approximately $283,082) which occurred before Porter E-Commerce merged with the Company. On May 10, 2020, Porter E-Commerce, Zongjian Chen, Xue’an Yan and Longji Real Estate reached a settlement under which Porter E-Commerce agreed to pay off the loan principal of RMB 2,000,000 in two installments before June 30, 2021 and interest accrued on unpaid principal since January 1, 2020 at a rate of 6% per annum. In addition, under the settlement, Zongjian Chen and Xue’an Yan, the two original shareholders of Porter E-Commerce agreed to be severally and jointly liable for the payoff of the principal and interest of the loan. Porter E-Commerce, Zongjian Chen and Xue’an Yan were also jointly liable for the litigation costs of RMB11,400 (approximately $1,789). This is co-related to the amount of refund to a third party in Note 8. As of December 31 2021, there is remaining RMB 2,000,000 due from Mr. Zongjian Chen and Ms. Xiaomei Xiong.
All the above balances of due to shareholders are due on demand, interest-free and unsecured. The Company used the funds for its operations. For the year ended December 31, 2021, the Company had transactions amounted $2,586,474 from shareholders and $1,925,354 to shareholders, comparing to $3,352,297 from shareholders and $2,815,257 to shareholders for the same period in 2020.
10.
INCOME TAXES
The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.
ULNV is incorporated in the State of Nevada and is subject to the U.S. federal tax and has incurred net operating loss for income tax purposes through December 31, 2021. As of December 31, 2021, future net operating losses of approximately $57,637 from ULNV are available to offset future taxable income. Accumulated deficit for the Company as of December 31, 2021 and December 31, 2020 was $4,498,598 and $4,489,416, respectively.
The 2017 Tax Act created a new requirement that, for the periods beginning after January 1, 2018, certain income (referred to as global intangible low taxed income or “GILTI”) earned by foreign subsidiaries in excess of a deemed return on tangible assets of foreign corporations must be included in U.S. taxable income. The GILTI income is eligible for a deduction, which lowers the effective tax rate to 10.5% for calendar years 2018 through 2025 and 13.125% after 2025. Under U.S. GAAP, companies are allowed to make an accounting policy election to either (i) account for GILTI as a component of tax expense in the period in which a company is subject to the rules - the period cost method, or (ii) account for GILTI in a company’s measurement of deferred taxes - the deferred method. The Company elected to account for GILTI in the period the tax is incurred. The Company did not generate any GILTI during the year ended December 31, 2021.
PGL is registered as an international business company and is exempted from corporation tax in Seychelles.
PPBGL is subject to Hong Kong profits tax rate of 16.5%. For the year ended December 31, 2021, it did not have any assessable profits arising in or derived from Hong Kong and accordingly no provision for Hong Kong profits tax was made. For the years ended December 31, 2021 and 2020, it did not have any assessable profits arising in or derived from Hong Kong and accordingly no provision for Hong Kong profits tax was made.
PRC Tax
The Company’s subsidiary and consolidated VIEs in China are subject to corporate income tax (“CIT”) at 25% for the years ended December 31, 2021 and 2020. As of December 31, 2021, the Company had $3,329,239 of net operating loss carried forward from the foreign subsidiaries which will expire in various years through 2026.
A reconciliation of the income tax expense determined at the statutory income tax rate to the Company’s income taxes is as follows:
Loss before income taxes
$ (25,412
)
$ (2,310,127
)
United States statutory income tax rate
%
%
Income benefit expense computed at statutory corporate income tax rate
(5,337
)
(485,126
)
Reconciling items:
Effect of different tax jurisdictions
(67,495
)
(88,589
)
Non-deductible expenses
4,393
345,994
Change in valuation allowance
68,439
227,721
Income tax expense
$ -
$ -
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2021 and 2020 are presented below:
December 31, 2021
December 31, 2020
Deferred tax assets:
Net operating loss carryforwards:
- United States of America
$ 12,104
$ 11,432
- Hong Kong
45,910
44,147
- PRC
832,310
766,306
890,324
821,885
Less: Valuation allowance
(890,324
)
(821,885
)
Acquisition/(Disposal):
- PRC
-
(187,240
)
Less: Valuation allowance
-
187,240
$ -
$ -
Management believes that it is more likely than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the foreseeable future. As a result, a valuation allowance was provided against the full amount of the potential tax benefits.
11.
CHINA CONTRIBUTION PLAN
The Company’s subsidiaries and consolidated VIEs in China participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company’s subsidiaries and consolidated VIEs to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company’s China-based subsidiaries and consolidated VIEs have no further commitments beyond their monthly contributions. For the years ended December 31, 2021 and 2020, the Company’s China based subsidiaries and consolidated VIEs contributed a total of $29,820 and $20,644, respectively, to these funds.
12.
OPERATING LEASE
The Company has operating leases for its office facilities. The lease is located at 36th Floor, Shenzhen Development Center, #2010, Renmin South Road, Luohu District, Shenzhen, Guangdong, China, 518001, which consist of approximately 1,678.75 square meters. The Company's leases have remaining terms of approximately 14 months for a lease term commencing on December 1, 2017 and ending on February 28, 2023. The lease deposit is $39,515, with a rent free period from December 1, 2017 to February 28, 2018. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes.
The following table provides a summary of leases by balance sheet location as of December 31, 2021 and 2020:
Assets/liabilities
December 31, 2021
December 31, 2020
Assets
Operating lease right-of-use assets
$ 310,882
$ 539,945
Liabilities
Operating lease liability - current
$ 303,067
$ 216,180
Operating lease liability - non-current
52,902
347,656
Total lease liabilities
$ 355,969
$ 563,836
The operating lease expenses for the year ended December 31, 2021 and 2020 were as follows:
Lease Cost
Classification
December 31, 2021
December 31, 2020
Operating lease cost
General and administrative expenses
$ 278,527
$ 336,534
Maturities of operating lease liabilities at December 31, 2021 were as follows:
Maturity of Lease Liabilities
Operating Leases
12 months ending December 31,
$ 320,592
53,432
Total lease payments
374,024
Less: interest
(18,055
)
Present value of lease payments
$ 355,969
Lease liabilities include lease and non-lease component such as management fee.
Future minimum lease payments, which do not include the non-lease components, as of December 31, 2021 were as follows:
12 months ending December 31,
$ 237,089
39,515
Total
$ 276,604
Lease Term and Discount Rate
December 31, 2021
December 31, 2020
Weighted-average remaining lease term (years)
Operating leases--- Shenzhen Development Center, 36/F, LuoHu, Shenzhen
1.17
2.17
Weighted-average discount rate (%)
Operating leases
%
%
13.
CONCENTRATIONS AND CREDIT RISK
(a)
Concentrations
In the year ended December 31, 2021, one customer accounted for 32% of the Company’s revenues.
In the year ended December 31, 2020, one customer accounted for 56% of the Company’s revenues,.
No other customer accounts for more than 10% of the Company’s revenue in the years ended December 31, 2021 and 2020.
As of December 31, 2021, one customer accounted for 99% of the Company’s accounts receivable. As of December 31, 2020, one customer accounted for 83% of the Company’s accounts receivable.
(b)
Credit risk
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash. As of December 31, 2021 and 2020, substantially all of the Company’s cash were held by major financial institutions located in the PRC, which management believes are of high credit quality.
For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.
14.
SEGMENT REPORTING
Beginning in the year ended December 31, 2021, the Company reports two reportable segments in consulting services, wine sales as well as training services and others.
Revenues and associated costs are directly attributable to the related segments. Unallocated corporate costs primarily include corporate initiatives, corporate shared costs, such as finance and legal, are managed centrally at a consolidated level.
The Company’s Chief Operating Decision Maker does not evaluate operating segments using asset information.
Information about segments during the periods presented were as follows. For comparative purposes, amounts in prior period has been recast:
Years Ended December 31,
Revenue
Consulting services
$ -
$ 306,297
Wine sales
23,854
-
Training services and others
87,202
243,952
Total revenue
111,056
550,249
Loss from operations
Consulting services
$ (477,869
)
$ (1,717,636
)
Wine sales
(29,554
)
-
Training services and others
(199,982
)
(252,653
)
Corporate costs, unallocated
(233,402
)
(372,944
)
Total loss from operations
$ (940,807
)
$ (2,343,233
)
15.
SUBSEQUENT EVENT
In March 2022, Porter Consulting and two third parties established Guizhou yueqian smart zone Management Co., Ltd., (“Guizhou yueqian”) with a registered capital of RMB1,000,000 (approximately $155,198). Porter Consulting holds 52% equity interest in Guizhou yueqian. Guizhou yueqian is intended to be engaged in the business of management.
The Company has analyzed its operations subsequent to December 31, 2021 to the date these consolidation financial statements were issued, except as disclosed herein, there is no any material subsequent events to disclose in these consolidated financial statements except above.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
On February 28, 2022, the Board approved the dismissal of Friedman LLP as the Company’s independent registered public accounting firm and the appointment of YCM CPA INC. as the Company’s new independent registered public accounting firm for the fiscal year ended December 31, 2021.
The audit reports of Friedman LLP on the Company's financial statements as of and for the years ended December 31, 2020 and 2019 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the audit reports included an explanatory paragraph that described factors that raised substantial doubt about the Company’s ability to continue as a going concern.
During Friedman LLP’s term of audit engagement from March 4, 2019 to February 28, 2022 the Company had no “disagreements” (as described in Item 304(a)(1)(iv) of Regulation S-K) with Friedman LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Friedman LLP, would have caused it to make reference to the subject matter of such disagreements in its audit reports.
During the Company’s two most recent fiscal years, and for the subsequent interim period through February 28, 2022, there was one “reportable event” within the meaning of Item 304(a)(1)(v) of Regulation S-K, relating to disclosure of material weaknesses in the Company’s internal control over financial reporting. As previously reported, the management of the Company identified following material weaknesses as of December 31, 2020:
(1) the Company did not hold any formal board meetings or shareholders meetings during the last fiscal year;
(2) the Company does not have an audit committee;
(3) the Company does not have sufficient and skilled in-house accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with its financial reporting requirements;
(4) the Company does not have appropriate policies and procedures in place to evaluate the proper accounting and disclosures of key documents and agreements of revenue process;
(5) the Company has not maintained sufficient internal controls over cash related controls, including failure to segregate cash handling and accounting functions and did not require dual signature on the Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that it had limited transactions in its bank accounts; and
(6) the Company retains copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of its data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors. The Company did not implement appropriate information technology controls.
During the Company’s two most recent fiscal years ended December 31, 2021, and for the subsequent interim period through February 28, 2022, neither the Company nor anyone on its behalf consulted YCM regarding (i) the application of accounting principles to a specified transaction, either completed or proposed; or on the type of audit opinion that might be rendered on the consolidated financial statements of the Company, and neither a written report nor oral advice was provided to the Company that YCM concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2021. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.
Management conducted its evaluation of disclosure controls and procedures under the supervision of our Chief Executive Officer and our Chief Financial Officer. Based upon, and as of the date of this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of December 31, 2021 due to the material weaknesses in our internal control over financial reporting, which are described below.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the framework set forth in the report entitled Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on our assessment, as a result of the material weaknesses described below, our Chief Executive Officer and Chief Financial Officer determined that, as of December 31, 2021, our internal control over financial reporting was not effective because of the following material weaknesses in our internal control over financial reporting has been identified:
(1) We did not hold any formal board meetings or shareholders meetings during the last fiscal year;
(2) We do not have an audit committee;
(3) We do not have sufficient and skilled in-house accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements;
(4) We do not have appropriate policies and procedures in place to evaluate the proper accounting and disclosures of key documents and agreements of revenue process;
(5) We have not maintained sufficient internal controls over cash related controls, including failure to segregate cash handling and accounting functions and did not require dual signature on the Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that we had limited transactions in our bank accounts; and
(6) We retain copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of our data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors. We did not implement appropriate information technology controls.
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual financial statements will not be prevented or detected in a timely basis.
We plan to take steps to remediate these material weaknesses as soon as practicable by implementing a plan to improve our internal control over financial reporting including, but not limited to, hiring additional staff and/or outside consultants experienced in US GAAP financial reporting as well as in SEC reporting requirements. Our management team will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements.
Our management does not believe that these material weaknesses had a material effect on our financial condition or results of operations or caused our consolidated financial statements as of and for the year ended December 31, 2021 to contain a material misstatement.
Changes in internal control over financial reporting
Except for the matters described above, there were no changes in our internal controls over financial reporting during the fourth quarter of our fiscal year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
The following sets forth the name and position of each of our current executive officers and directors.
NAME
AGE
POSITION
Zonghua Chen
Chairman, Chief Executive Officer, President and Chief Financial Officer
Jun Chen
Director
Maozi Cong
Director
Zonghua Chen. Mr. Zonghua Chen has served as a member of our board of directors and as our Chairman, Chief Executive Officer, Chief Financial Officer and President since December 19, 2016. He has served as general manager, corporate representative and executive director at Shenzhen Portercity Investment Co. Ltd. since May 2013, with responsibilities including site selection and promotion of “Porter City - O2O Industry and Trade Financial Platform” project. From September 2010 to April 2013, Mr. Chen served as executive general manager in Shenzhen Porter Warehouse E-commerce Co., Ltd., with responsibilities including the development of the O2O (online to offline) business model. Mr. Chen holds a College Diploma in Accounting from Shenzhen University and a Postgraduate Diploma in Economics from Guangdong Academy of Social Sciences.
Jun Chen. Mr. Jun Chen has served as a member of our board of directors since October 28, 2016. He previously served as our Chairman, Chief Executive Officer, President and Chief Financial Officer from October 28, 2016 to December 19, 2016. Since April 2009, Mr. Chen has worked as an attorney at Guangdong Lianrui Law Firm, including as a Partner since May 2014, where he is responsible for providing comprehensive litigation and corporate counseling services for clients. Prior to that, Mr. Chen worked in Guangzhou Shenzhen Law Firm as Apprentice Lawyer from July 2007 until April 2009. Mr. Chen obtained his Master degree in Law from Northwest University of Politics and Law in China in 2007.
Maozi Cong. Mr. Maozi Cong has served as a member of our board of directors since December 19, 2016. Mr. Cong has more than 40 years of experience practicing traditional Chinese medicine. He also published more than 20 medical theses and has participated to edit Family Medicine Valuable Book, China Acupotomology, Spinal System Diseases and Cervical Spine. Mr. Cong is also a director and medical adviser of Canadian Traditional Medicine Association, lifetime professor of the World Institute of Traditional Chinese Medicine and Standing Committee member of National College of Traditional Chinese Medicine Orthopedics Association. Mr. Cong holds a college diploma from Beijing Guangming Traditional Chinese Medicine Correspondence University.
Directors and executive officers are elected until their successors are duly elected and qualified. There are no arrangements or understandings known to us pursuant to which any director or executive officer was or is to be selected as a director (or director nominee) or executive officer.
Family Relationships
There are no family relationships among our directors or officers.
Involvement in Certain Legal Proceedings
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 offences);
●
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, of 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 Securities and Exchange 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 (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Board Composition
The board of directors is currently composed of three members, Mr. Zonghua Chen, Mr. Jun Chen and Mr. Maozi Cong. All board action requires the approval of a majority of the directors in attendance at a meeting at which a quorum is present.
We currently do not have standing audit, nominating or compensation committees. Our entire board of directors handles the functions that would otherwise be handled by each of the committees. We intend, however, to establish an audit committee, a nominating committee and a compensation committee of the board of directors as soon as practicable. We envision that the audit committee will be primarily responsible for reviewing the services performed by our independent auditors, evaluating our accounting policies and our system of internal controls. The nominating committee would be primarily responsible for nominating directors and setting policies and procedures for the nomination of directors. The nominating committee would also be responsible for overseeing the creation and implementation of our corporate governance policies and procedures. The compensation committee will be primarily responsible for reviewing and approving our salary and benefit policies (including stock options), including compensation of executive officers.
None of our directors is an audit committee financial expert. Upon the establishment of an audit committee, the board will determine whether any of the directors qualify as an audit committee financial expert.
Code of Ethics and Business Conduct
We have adopted a Code of Ethics and Business Conduct that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer, and addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations of the code. A copy of the Code of Ethics and Business Conduct has been filed as Exhibit 14.1 to our Current Report on Form 8-K filed on April 7, 2017 and is hereby incorporated by reference into this annual report. During the fiscal year ended December 31, 2021, there were no amendments to or waivers of our Code of Ethics and Business Conduct. If we effect an amendment to, or waiver from, a provision of our Code of Business Ethics and Conduct, we intend to satisfy our disclosure requirements by describing such amendment or waiver via a current report on Form 8-K.
Section 16(A) Beneficial Ownership Reporting Compliance
We are not subject to Section 16(a) of the Exchange Act.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table - Fiscal Years Ended December 31, 2021 and 2020
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the noted periods. No other executive officers received total annual salary and bonus compensation in excess of $100,000.
Name and
			Principal Position
Year
Salary
			($)
Bonus
			($)
Stock
			Awards
			($)
Option
			Awards
			($)
Nonequity
			Incentive Plan
			Compensation
			($)
Nonqualified
			Deferred
			Compensation
			Earnings
			($)
All Other
			Compensation
			($)
Total
			($)
Zonghua Chen, CEO and CFO
13,371
-
-
-
-
-
-
13,371
5,657
-
-
-
-
-
-
5,657
Employment Agreements
All of our executive officers have executed our standard employment agreement. Our employment agreements with our executives provide the amount of each executive officer’s salary and establish their eligibility to receive a bonus. Our VIE, Portercity, entered into an employment agreement with Mr. Zonghua Chen, on July 1, 2020, under which Mr. Chen was employed as the company’s general manager without a fixed term of employment. Mr. Chen receives a monthly salary of approximately $471.4 under the employment agreement. He is also subject to customary confidentiality covenants under the employment agreement.
Outstanding Equity Awards at Fiscal Year End
No unexercised options, stock that has not vested or outstanding equity incentive plan awards were held by any of our named executive officers at December 31, 2021.
Compensation of Directors
No member of our board of directors received any compensation for their services as a director during the year ended December 31, 2021.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial ownership of our common stock as of March 31, 2022 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group. Unless otherwise specified, the address of each of the officers and directors set forth below is in care of the Company, 1609, Feng Rui Ge, Fenghu Building, Buji, Luohu, Shenzhen, Guangdong, China 518000. The registered address of each of the 5% shareholders (other than officers and directors) set forth below is Second Floor, The Quadrant, Manglier Street, Victoria, Mahe, 999126 Seychelles.
Name and Address of Beneficial Owner
Title of Class
Amount and Nature of
Beneficial Ownership(1)
Percent of Class(2)
Zonghua Chen, Chairman, CEO, President and CFO(3)
Common Stock
283,064,414
55.71
%
Jun Chen, Director
Common Stock
2,180,000
*
Maozi Cong, Director
Common Stock
15,923,300
*
All officers and directors as a group (3 persons named above)
Common Stock
301,167,714
59.27
%
Softsilver Investment Co., Ltd.(3)(4)
Common Stock
27,910,000
5.49
%
Enbang Fortune Limited(3)(5)
Common Stock
25,862,000
5.09
%
Huatai International Limited(3)(6)
Common Stock
28,560,000
5.62
%
Zongjian Chen(7)
Common Stock
31,000,000
6.10
%
Porter Investment Limited(8)
Common Stock
158,821,691
31.26
%
* Less than 1%
(1)
Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock.
(2)
A total of 508,110,000 shares of our common stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of March 31, 2022. For each beneficial owner above, any options or other securities exercisable or convertible within 60 days have been included in the denominator.
(3)
Includes (i) 30,000,000 shares held by Mr. Zonghua Chen, (ii) 2,110,000 shares held by Zonghua Chen’s wife, Ping He; and (iii) an aggregate of 250,954,414 shares held by shareholders who have entered into voting agreements with Zonghua Chen, including Softsilver Investment Co., Ltd., Huatai International Limited and Enbang Fortune Limited, under which these shareholders agreed to vote consistently with Zonghua Chen in the exercise all of their rights as shareholders of the Company. The voting agreements do not have the expiration date.
(4)
Zhaoyu Zou is the director of Softsilver Investment Co., Ltd. and has voting and dispositive power of the securities held by it.
(5)
Zan Cui is the director of Enbang Fortune Limited and has voting and dispositive power of the securities held by it.
(6)
Li Ma is the director of Huatai International Limited and has voting and dispositive power of the securities held by it.
(7)
Includes (i) 30,000,000 shares held by Mr. Zongjian Chen, and (ii) 1,000,000 shares held by Zongjian Chen’s wife, Xiaomei Xiong.
(8)
Xiaofang Huang is the director of Porter Investment Limited and has voting and dispositive power of the securities held by it.
Changes in Control
None.
Securities Authorized for Issuance Under Equity Compensation Plans
We do not have any compensation plans in effect under which our equity securities are authorized for issuance.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions with Related Persons
The following includes a summary of transactions since the beginning of the last fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under Item 11 “Executive Compensation”). 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.
●
As of December 31, 2021, we owed $1,690,871 to our Chairman, CEO and CFO, Mr. Zonghua Chen, who loaned to us to support our business operations. Such loans do not accrue interests and are payable upon demand.
●
As of December 31, 2021, we owed $1,073,534 to Ms. Xiaomei Xiong, sister-in-law of our Chairman, CEO and CFO Mr. Zonghua Chen, who loaned to us to support our business operations. Such loans do not accrue interests and are payable upon demand.
●
As of December 31, 2021, there was an amount of $313,844 due from Mr. Zongjian Chen, brother of our Chairman, CEO and CFO, and Ms. Xiaomei Xiong who is the wife of Mr. Zongjian Chen. This is related to a loan of RMB 2 million (approximately $313,844) which occurred before Porter E-Commerce merged with the Company. On April 13, 2020, Henan Longji Real Estate Development Co., Ltd. (“Longji Real Estate”) filed an action against Porter E-Commerce, Zongjian Chen and Xue’an Yan related to the aforementioned loan. On May 10, 2020, Porter E-Commerce, Zongjian Chen, Xue’an Yan and Longji Real Estate reached a settlement under which Porter E-Commerce agreed to pay off the loan principal of RMB 2 million in two installments before June 30, 2021 and interest accrued on unpaid principal since January 1, 2020 at a rate of 6% per annum. In addition, under the settlement, Zongjian Chen and Xue’an Yan, the two original shareholders of Porter E-Commerce agreed to be severally and jointly liable for the payoff of the principal and interest of the loan. Porter E-Commerce, Zongjian Chen and Xue’an Yan were also jointly liable for the litigation costs of RMB11,400 (approximately $1,614).
●
In addition, there was $24,772 due from Mr. Zongjian Chen, brother of our Chairman, CEO and CFO Mr. Zonghua Chen, as of December 31, 2021.
Promoters and Certain Control Persons
We did not have any promoters at any time during the past five fiscal years.
Director Independence
We currently do not have any independent directors, as the term “independent” is defined by the Listing Rules of the Nasdaq Stock Market.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Independent Auditors’ Fees
The following table represents fees billed for each of the last two fiscal years for professional audit services rendered by our independent registered public accounting firm:
Audit fees(1)
$ 165,000
$ 120,000
Audit-related fees
-
-
Tax fees
-
-
All other fees
-
-
Total
$ 165,000
$ 120,000
(1)
“Audit Fees” consisted of the aggregate fees billed for professional services rendered for the audit of our annual financial statements and the reviews of the financial statements included in our Forms 10-Q and for any other services that were normally provided in connection with our statutory and regulatory filings or engagements.
Pre-Approval Policies and Procedures
Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our auditors must be approved in advance by our board of directors to assure that such services do not impair the auditors’ independence from us. In accordance with its policies and procedures, our board of directors pre-approved the audit service performed by our auditors for our consolidated financial statements as of and for the year ended December 31, 2021.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) List of Documents Filed as a Part of This Report:
(1) Index to Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm for the year ended December 31, 2021 (PCAOB ID No. 6781)
Report of Independent Registered Public Accounting Firm for the year ended December 31, 2020 (PCAOB ID No. 711)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2021 and 2020
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
(2) Index to Financial Statement Schedules:
All schedules have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or because it is not required.
(3) Index to Exhibits
See exhibits listed under Part (b) below.
(b) Exhibits:
Exhibit No.
Description
3.1
Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 10, 2017)
3.2
Amended and Restated Bylaws adopted on May 8, 2017 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 10, 2017)
10.1
Commission Management and Consulting Services Agreement, by and among Qianhai Porter, Portercity and shareholders of Portercity, dated December 15, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 7, 2017)
10.2
Exclusive Right and Option to Purchase Agreement, by and among Qianhai Porter, Portercity and shareholders of Portercity, dated December 15, 2016 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 7, 2017)
10.3
Shareholders’ Voting Rights Proxy Agreement, by and among Qianhai Porter, Portercity and shareholders of Portercity, dated December 15, 2016 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 7, 2017)
10.4
Equity Interest Pledge Agreement, by and among Qianhai Porter, Portercity and shareholders of Portercity, dated December 15, 2016 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on April 7, 2017)
10.5
Form of Labor Contract (English translation) (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 7, 2017)
10.6
Special Merchants Expansion Agreement of Union Pay Card (English translation), by and between Porter Consulting and China Payment Technology Co., Ltd., dated February 28, 2017 (incorporated by reference to Exhibit 10.12 to the Company’s Amendment No. 2 to Current Report on Form 8-K filed on May 23, 2017)
10.7
Product Agency Agreement (English translation), by and between Porter Consulting and Shenzhen Xinghua Tongfu Technology Co., Ltd., dated May 22, 2016 (incorporated by reference to Exhibit 10.13 to the Company’s Amendment No. 2 to Current Report on Form 8-K filed on May 23, 2017)
10.8
Lease Agreement (English translation), by and between Portercity and Beijing Na Sheng Hong Sale and Service Center, dated November 27, 2017 (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K filed on March 30, 2018).
10.9
Supplemental Lease Agreement (English translation), by and between Portercity and Beijing Na Sheng Hong Sale and Service Center, dated November 27, 2017 (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed on March 30, 2018).
14.1
Code of Ethics and Business Conduct of the Company (incorporated by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K filed on April 7, 2017)
21.1
Subsidiaries of the Company
23.1
Consent of Guang Dong LianRui Law Firm
31.1
Certifications of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
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101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
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