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Jinxuan Coking Coal Ltd – ‘20-F’ for 12/31/19

On:  Wednesday, 4/29/20, at 4:19pm ET   ·   For:  12/31/19   ·   Accession #:  1104659-20-53399   ·   File #:  333-222784

Previous ‘20-F’:  ‘20-F’ on 4/30/19 for 12/31/18   ·   Next:  ‘20-F’ on 4/29/21 for 12/31/20   ·   Latest:  ‘20-F’ on 4/29/22 for 12/31/21   ·   1 Reference:  By:  Jinxuan Coking Coal Ltd. – Next ‘20-F’ on 4/29/21 for 12/31/20

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 4/29/20  Jinxuan Coking Coal Ltd           20-F       12/31/19   90:5.7M                                   Toppan Merrill/FA

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549 

FORM 20-F

OR

For the fiscal year ended December 31, 2019

OR

OR

Date of event requiring this shell company report  

For the transition period from   to   

Commission file number: 333-222784

JINXUAN COKING COAL LIMITED

(Exact Name of Registrant as Specified in its Charter)

N/A

(Translation of Registrant’s Name into English)

Cayman Islands

(Jurisdiction of Incorporation or Organization)

Xiangyang Guo, Chief Executive Officer

Jinxuan Coking Coal Limited

Taiyuan, Shanxi, China

Taiyuan, Shanxi, PRC

+ 86 – 351 – 7020402

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

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

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

An aggregate of 14,333,334 Ordinary Shares, par value US$0.001 per share, as of December 31, 2019. 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨ No x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ¨ No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

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

Yes ¨ No x

TABLE OF CONTENTS  

INTRODUCTION

Unless the context otherwise requires, in this annual report on Form 20-F references to:

GLOSSARY OF SELECTED MINING TERMS

Anthracite coal. A hard natural coal containing few volatile hydrocarbons which burns slowly and gives intense heat almost without flame.

Ash. Impurities consisting of silica, iron, alumina, and other incombustible matter that are contained in coal. Since ash increases the weight of coal, it adds to the cost of handling and can affect the burning characteristics of coal.

Bituminous coal. A common type of coal with moisture content less than 20% by weight. It is dense and black and often has well-defined bands of bright and dull material.

British thermal unit, or “Btu.” A measure of the thermal energy required to raise the temperature of one pound of pure liquid water one degree Fahrenheit at the temperature at which water has its greatest density (39 degrees Fahrenheit).

Coke. A hard, dry carbon substance produced by heating coal to a very high temperature in the absence of air. Coke is used in the manufacture of iron and steel. Its production results in a number of useful by-products.

Hard coking coal. Hard coking coal is a type of metallurgical coal that is a necessary ingredient in the production of strong coke. It is evaluated based on the strength, yield, and size distribution of coke produced from such coal which is dependent on rank and plastic properties of the coal. Hard coking coals trade at a premium to other coals due to their importance in producing strong coke and as they are a limited resource.

Industrial coal. Coal generally used as a heat source in the production of lime, cement, or for other industrial uses and is not considered thermal coal or metallurgical coal.

Metallurgical coal. The various grades of coal with suitable carbonization properties to make coke or be used as a pulverized injection ingredient for steel manufacture, including hard coking coal (see definition above), semi-soft coking coal (“SSCC”), and PCI coal (see definition below). Also known as “met” coal, its quality depends on four important criteria: (1) volatility, which affects coke yield; (2) the level of impurities including sulfur and ash, which affect coke quality; (3) composition, which affects coke strength; and (4) other basic characteristics that affect coke oven safety. Metallurgical coal typically has particularly high Btu characteristics but low ash and sulfur content.

Nitrogen oxide (“NOx”). Produced as a gaseous by-product of coal combustion. It is a harmful pollutant that contributes to smog.

PCI Coal. Coal used by steelmakers for pulverized coal injection (“PCI”) into blast furnaces to use in combination with the coke used to produce steel. The use of PCI allows a steel maker to reduce the amount of coke needed in the steel making process.

Preparation plant. Preparation plants are usually located on a mine site, although one plant may serve several mines. A preparation plant is a facility for crushing, sizing, and washing coal to remove impurities and prepare it for use by a particular customer. The washing process has the added benefit of removing some of the coal’s sulfur content.

Reserve. The part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination.

Sulfur. One of the elements present in varying quantities in coal that contributes to environmental degradation when coal is burned. Sulfur dioxide is produced as a gaseous by-product of coal combustion.

Thermal coal. Coal used by power plants and industrial steam boilers to produce electricity, steam or both. It generally is lower in Btu heat content and higher in volatile matter than metallurgical coal.

Tons. A “short” or net ton is equal to 2,000 pounds. A “metric” ton is approximately 2,205 pounds; a “long” or British ton is equal to 2,240 pounds. Unless otherwise indicated, the metric ton is the unit of measure referred to in this document. The international standard for quoting price per ton is based in U.S. dollars per metric ton.

Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2019, 2018, and 2017.

This annual report contains translations of certain Renminbi amounts into U.S. dollars at specified rates. Unless otherwise stated, the translation of Renminbi into U.S. dollars has been made at RMB6.9762 to US$1.00, the noon buying rate in effect on December 31, 2019, as set forth in the H.10 Statistical Release of the Federal Reserve Board. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On April 29, 2020, the noon buying rate was RMB7.0704 to US$1.00.

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. Known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information—D. Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but not limited to, statements relating to:

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. You should thoroughly read this annual report and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

This annual report contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. Our industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have material and adverse effect on our business and the market price of our Ordinary Shares. In addition, the rapidly changing nature of China’s branded long-term apartment rental industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Part I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

Item 3. KEY INFORMATION

A. Selected Financial Data

The following table sets forth selected historical statements of operations for the years ended December 31, 2019, 2018, 2017 and 2016, and balance sheet data as of December 31, 2019, 2018, 2017 and 2016. Our selected statements of operations data for the years ended December 31, 2019, 2018 and 2017, and selected consolidated balance sheets information as of December 31, 2019 and 2018 have been derived from our audited consolidated financial statements included elsewhere in this annual report. Our selected statements of operations data for the year ended December 31, 2016 and selected consolidated balance sheets information as of December 31, 2017 and 2016 have been derived from our audited consolidated financial statements not included in this annual report. The consolidated financial statements are prepared and presented in accordance with GAAP. Historical results are not necessarily indicative of the results for any future periods.

You should read this Selected Financial Data section together with our consolidated financial statements and the related notes and “Item 5. Operating and Financial Review and Prospects” below.

The following table sets forth the selected consolidated statements of comprehensive income (loss) data for the years ended December 31, 2019, 2018, 2017 and 2016.

Selected Statements of Operations Information: 

Selected Consolidated Balance Sheets Information:

Exchange Rate Information

Our business is primarily conducted in China and all of our revenues are received, and substantially all of our expenses are paid, and denominated in RMB. Capital accounts of our condensed financial statements are translated into U.S. dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the period. RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Risks Relating to our Business and Industry

Our limited operating history makes evaluating our business difficult.

We were formed in in 2012 and started generating revenue in the year ended December 31, 2015. Thus, our limited operating history may not provide a meaningful basis for you to evaluate our business, financial performance, and prospects. We are, and expect for the foreseeable future to be, subject to all the risks and uncertainties, inherent in a new business. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies with a limited operating history. In particular, you should consider that there is a significant risk that we may not be able to:

If we are unsuccessful in addressing any of these risks, our business may be materially and adversely affected.

We may incur losses, negative cash flows from operating activities, or negative working capital in the future. If we are not able to stay profitable or raise sufficient capital to cover our capital needs, we may not continue as a going concern.

For the years ended December 31, 2017 and 2018, we recorded a net loss of $745,660 and $61,924, respectively. For the year ended December 31, 2019, we recorded a net income of $946,535 because of the increase in our revenue and gross profit. Our ability to achieve profitability depends on the competitiveness of our products and services as well as our ability to control costs and to provide new products and services to meet the market demands and attract new customers. Due to a history of operating loss in 2017 and 2018, the numerous risks and uncertainties associated with our business, we may not be able to stay profitable in the long-term after 2019.

In addition, our net cash provided by operations for the year ended December 31, 2019 was $827,020, net cash used in operations for the year ended December 31, 2018 was $2,217,943. Net cash provided by operating activities for the year ended December 31, 2019 was mainly derived from the net income of $946,535, and the increase of accounts payable of $4,198,587, notes payable of $1,833,744, offsetting by the increase of accounts receivable of $6,132,590. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations.” Although we have improved the liquidity position and adopted related cost reduction measures, we cannot assure you that we will continue to achieve such efficiency or sustain such cost reductions. If we are unable to generate revenues that significantly exceed our costs and expenses, we will continue to incur losses in the future.

If we are unable to stay profitable or raise sufficient capital to cover our capital needs, we may not continue as a going concern. There can be no assurance that we can obtain additional financing. Our ability to obtain additional financing is subject to a number of factors, which may be beyond our control. See “—We may not be able to obtain additional financing to support our business and operations, and our equity or debt financings may have an adverse effect on our business operations and share price.”

Our consolidated financial statements for each of the three years ended December 31, 2019, 2018 and 2017 included in this annual report beginning on page F-1 have been prepared based on the assumption that we will continue on a going concern basis. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty.

We are primarily a holding company and depend on distributions from our subsidiaries to meet our financial obligations.

We own Shanxi Jinxuan, whose former name is Liulin Junhao, directly through Jinxuan BVI. Our operations are conducted exclusively through Shanxi Jinxuan, in which we own 100% of the equity interest at the date of this annual report. The operations of Shanxi Jinxuan are our sole source of revenues. We have no operations independent of those of Shanxi Jinxuan. As a result, we are dependent upon the performance of Shanxi Jinxuan and will be subject to the financial, business, and other factors affecting such subsidiary as well as general economic and financial conditions. As substantially all of our operations are conducted through our subsidiary, we are dependent on the cash flow of our subsidiary to meet our obligations.

Because virtually all of our assets are held by Shanxi Jinxuan, the claims of our shareholders will be structurally subordinate to all existing and future liabilities and obligations, and trade payables of such subsidiary. In the event of a bankruptcy, liquidation or reorganization of the Company, our assets and those of our subsidiaries’ will be available to satisfy the claims of our shareholders only after all of Shanxi Jinxuan’s liabilities and obligations have been paid in full.

Our future operating results have been and may continue to be affected by fluctuations in the prices of or blended coking coal. We may not be able to pass on cost increases to customers.

We are subject to short-term volatility in the prices of blended coking coal. Our operating profits may be negatively affected by fluctuations in the price of blended coking coal. We may not be able to pass the increased cost of blended coking coal in the future. This may adversely affect our gross margins and profitability. Our sales agreements with customers generally contain provisions that permit the parties to adjust the contract price of the blended coking coal upward or downward at specified times or if market spot price of coking coal fluctuates significantly. However, in the event that blended coking coal we sourced for specific customers increased to such extent and we fail to agree on a price with our customer under these provisions or otherwise pass on cost increases to the customers, many agreements permit customers to terminate the contract or refuse to buy all of the quantities contracted for. Market prices for blended coking coal fluctuate in most regions in China. A general rise in coking coal prices also may adversely affect the price of, and demand for, coke and products made with coke such as iron, steel and concrete. This may in turn lead to a fall in demand for our products.

Our future capital needs are uncertain and we may need to raise additional funds in the future.

We may require additional cash resources in the future due to changed business conditions or other future developments. We cannot assure you that our revenues will be sufficient to meet our operational needs and capital requirements in the future. In the past, we have not encountered difficulties in obtaining financing. However, we cannot assure you that financing will be available in amounts or on terms acceptable to us. Our future capital needs and other business reasons could require us to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations or our ability to pay dividends to our shareholders.

Our success depends substantially on the continued retention of certain key personnel and our ability to hire and retain qualified personnel in the future to support our growth and execute our business strategy.

If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. While we depend on the abilities and participation of our current management team generally, we rely particularly upon Xiangyang Guo, our CEO, and Yajun Shi, our CFO, who are responsible for the development and implementation of our business plan. The loss of the services of Xiangyang Guo, our CEO, and Yajun Shi, our CFO, for any reason could significantly adversely impact our business and results of operations. Competition for senior management and in the coal industry in the PRC is intense and the pool of qualified candidates is limited. We cannot assure you that the services of our senior executives and other key personnel will continue to be available to us, or that we will be able to find a suitable replacement for them if they were to leave.

A significant portion of our revenue is concentrated on a few large customers, and we do not have long-term customer supply agreements with our key customers and rely upon our longstanding relationship with them. If we lose one or more of our customers, our results of operations may be adversely and materially impacted.

For the year ended December 31, 2019, we served 2 customers, Shanxi Meijin Jiaohua Co., Ltd. (“Meijin”) and Shanxi Meijin Jiaohua Yangqu Co., Ltd (“Meijin Jiaohua”), consisting of 99% and 1% of our sales revenue, respectively. For the year ended December 31, 2018, four customers, Shanxi Meijin Wuzi Supply Co., Ltd.(“Meijin Wuzi”), Shanxi Hongyao Kesheng Trading Co., Ltd. (“Hongyao”), Shanxi Chuangli Trading Co., Ltd (“Chuangli”) and Meijin Jiaohua, consisted of 33%, 17%, 14% and 11% of our sales revenue, respectively. For the year ended December 31, 2017, we served two customers, Shanxi Jinquan Energy Co. Ltd and Liulin County Xin’an Yuanda Coking Coal Co. Ltd, consisting of 54% and 46% of our sales revenue, respectively. As a consequence, we may have large amounts of collectibles from these large customers. Additionally, all of our customers send us supply orders specifying the characteristics of blended coking coals that they require, and we supply them on an order-to-order basis without long-term supply agreements. If we lose one or more large customers like these, our sales revenue will decrease and our financial condition and results of operations may be materially adversely impacted.

We had sourced blended coking coal primarily from a supplier. If we lose the supplier, our operation may be disrupted, and our results of operations may be adversely and materially impacted.

For the year ended December 31, 2019, we sourced all of our coking coal from one supplier, Liulin Xin’an Yuanda Coal Co., Ltd (“Xin’an Yuanda” or “Partner Manufacturer”). For the year ended December 31, 2018, we sourced 60% of our coking coal raw materials from one supplier, 16% of our coking coal raw materials from a second supplier, and the rest from several other suppliers. For the year ended December 31, 2017, we did not source raw coking coal from our suppliers and relied upon our raw coking coal reserves. If we lose one or more suppliers and are unable to swiftly engage new suppliers, our production operation may continue to be disrupted and/or suspended, and we may not be able to deliver finished products to our customers on time. We may also have to pay a higher price to source from a different supplier on short notice. While we are actively searching for and negotiating with new suppliers and we are actively identifying and discussing with supplier targets to merge and/or acquire, there is no guarantee that we will be able to locate appropriate new suppliers and/or supplier merger targets in our desired timeline. As such, our results of operations may be adversely and materially impacted.

We have one steady supplier, but in the event that we lose the supplier, or that the supplier is no longer able to source us the blended coking coal we need, our results of operations may be adversely and materially impacted.

For the year ended December 31, 2019, we found a reliable supplier that provided all of the blended coking coal we sourced. Because we are a comparatively smaller customer, the supplier we source from may choose to prioritize supply for other larger customers. While our supplier is able to prioritize our orders, we cannot guarantee we will not encounter this in the near future, in which case, our operations will be disrupted and our revenues significantly and adversely impacted.

Increases in transportation costs could make our operations less competitive and result in the loss of customers.

Coal distributors depend upon rail, barge, trucking, overland conveyor, and other systems to deliver coal to markets. We typically transport blended coking coal from our suppliers, and as such, increases in transportation costs will lead to less competitive pricing for blended coking coal products. Additionally, since we arrange to transport blended coking coal to our customers from our supplier’s facilities to the point of use, any disruption of these transportation services because of weather-related problems, strikes, lock-outs, or other events could temporarily impair our ability to supply coal to customers and thus could adversely affect our results of operations. For example, the high volume of raw coal shipped from all Shanxi Province mines could create temporary congestion on the rail systems servicing that region. If transportation for blended coking coal becomes unavailable or uneconomic for our customers, our ability to sell blended coking coal could suffer.

We may not be able to meet quality specifications required by our customers and as a result could incur economic penalties or cancelled agreements which would reduce our sales and profitability.

Most of blended coking coal sales agreements contain provisions requiring us to deliver coking coal meeting quality thresholds for certain characteristics such as sulfur content, ash content, volatility and ash fusion temperature. If we are not able to deliver products that meet these specifications, because, for example, a supplier fails to produce blended coking coal of the proper quality, we may incur economic penalties, including price adjustments, the rejection of deliveries or termination of the contracts.

We do not have any registered patents or other intellectual property and we may not be able to maintain the confidentiality of our blending processes.

We have no patents covering our blending processes and we rely on the confidentiality of our blending processes in producing a competitive product.  The confidentiality of our know-how may not be maintained and we may lose any meaningful competitive advantage which might arise through our proprietary processes.

Our insurance coverage may not be adequate. Any material loss to our properties or assets may have a material adverse effect on our financial condition and operations.

We and our subsidiaries and operating company are insured in amounts that may not adequately cover the risks of our business operations. As a result, any material loss or damage to our properties or other assets, or personal injuries arising from our business operations in excess of our insurance coverage may have a material adverse effect on our financial condition and operations.

Import of blended coking coal from other countries may continue to increase and may result in our obtaining lower prices for our products and/or reduced quantities in demand for our products.

Imported coking coal consisted of 24%, 15%, and 8% of total coking coal consumption in the PRC in 2019, 2018, and 2017 , respectively, and imported coking coal is increasingly used to bridge the supply and demand gap in the PRC market. Other than regulatory factors, the main obstacle to the slow growth of imported coking coal in the PRC is that the majority of coke making furnaces are configured to receive only coking coal with characteristics specific to the coking coal produced in the PRC, and re-configuration cost of the furnaces for them to receive imported coking coal is currently high. If more furnaces undergo re-configuration and new furnaces are put in use, imported coking coal may increasingly make up the coking coal consumption in the PRC. More inflow of imported coking coal may result in lower prices for our products and/or reduced quantities in demand for our products.

Because we are a Cayman Islands corporation and all of our business is conducted in the PRC, you may be unable to bring an action against us or our officers and directors or to enforce any judgment you may obtain.

We are incorporated in the Cayman Islands and conduct our operations primarily in China. Substantially all of our assets are located outside of the United States. In addition, all of our directors and officers reside outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands or in China in the event that you believe we have violated your rights, either under United States federal or state securities laws or otherwise, or if you have a claim against us. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may not permit you to enforce a judgment against our assets or the assets of our directors and officers.

Our lack of effective internal controls over financial reporting may affect our ability to accurately report our financial results or prevent fraud which may affect the market for and price of our Ordinary Share.

To implement Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the company’s internal control over financial reporting. Prior to filing of our registration statement and prospectus, we were not subject to these rules. As a result, we do not have in place effective disclosure controls and procedures or internal controls over financial reporting. See “Item 15. Controls and Procedures—Internal Control over Financial Reporting.” We are subject to the requirement that we maintain internal controls and that management perform periodic evaluation of the effectiveness of the internal controls. 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 market for and trading price of our Ordinary Shares, may be materially and adversely affected if we do not have effective internal controls. We do not presently have the financial resources or personnel to develop or implement systems that would provide us with the necessary information on a timely basis so as to be able to implement financial controls. As a result, we may not discover any problems in a timely manner and current and potential shareholders could lose confidence in our financial reporting, which would harm our business and the trading price of our Ordinary Shares. The absence of internal controls over financial reporting may inhibit investors from purchasing our shares and may make it more difficult for us to raise funds in a debt or equity financing.

Because we are an “emerging growth company,” we may not be subject to requirements that other public companies are subject to, which could affect investor confidence in us and our Ordinary Shares.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from disclosure and other requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for so long as we are an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important. See “Item 4. Information on the Company—A. History and Development of the Company— Emerging Growth Company Status.”

Substantial declines in coking coal prices may reduce our revenues, and sustained prices at those levels or lower levels may further reduce our revenues and adversely affect our operating results, cash flows, financial condition, and stock price.

Our results of operations are substantially dependent upon the prices we receive for our coking coal. The price for coking coal in the PRC market ranged from RMB928 ($137.39) to RMB1,528 ($226.21) per ton in the year of 2017. The price for coking coal in the PRC market ranged from RMB1,091 ($165) to RMB1,464 ($221) per ton in the year of 2018. The price for coking coal in the PRC market ranged from RMB1,138 ($165) to RMB1,438 ($208)  per ton in the year of 2019. Those prices depend upon factors beyond our control (some of which are described in more detail in other risk factors below), including:

Fluctuating coking coal prices in the PRC may impose significant challenges for us to adjust our operation and production to meet the demands of our customers and ensure our access to blended coking coal, and may materially adversely affect our operating results and cash flows.

Lower demand for coking coal by PRC steel producers would reduce our revenues and could further reduce the price of our coking coal.

We distribute coking coal that is used by PRC coke manufacturers to supply to the PRC steel industries. Any deterioration in conditions in the PRC steel industry, including the demand for steel and the continued financial viability of the industry, would reduce the demand for our coking coal. In addition, foreign steel industry increasingly relies on processes to make steel that do not use coke, such as electric arc furnaces or pulverized coal processes. If this trend becomes more popular in the PRC, the amount of coking coal that we sell and the prices that we receive for it may decrease, thereby reducing our revenues and adversely impacting our earnings.

Competition within the coal industry may adversely affect our ability to sell coking coal, and excess production capacity in the industry could put downward pressure on coal prices.

We compete with numerous other coking coal producers in various regions of the PRC and to a lesser extent, coking coal producers from other countries. See “Item 4. Information on the Company—B. Business Overview—Competition” for more information relating to the competitive landscape of the industry in which we compete. This competition affects the prices we are able to sell our products, and our ability to retain or attract customers. In addition, if the currencies of our foreign competitors decline against the RMB, those competitors may be able to offer lower prices to our customers than we can.

In the past, high demand for coal and attractive pricing brought new investors to the coal industry, leading to the development of new mines and added production capacity. Subsequent overcapacity in the industry has contributed, and may continue to contribute, to lower coal prices. In addition, lower coal prices set by our competitors may also put downward pressure on coal prices.

Our ability to collect payments from our customers could be impaired if their creditworthiness and financial health deteriorates.

Our ability to receive payment for coking coal sold and delivered depends on the continued creditworthiness and financial health of our customers. Competition with other coal suppliers could force us to extend credit to customers and on terms that could increase the risk we bear on payment default.

Our industry is heavily regulated and we may not be able to remain in compliance with all such regulations and we may be required to incur substantial costs in complying with such regulation.

We are subject to extensive regulation by China’s national, provincial, county, and local authorities in jurisdictions in which our products are sold, regarding the storage and distribution of our product, such as the environment protection laws, the tax laws, and the labor contract laws. See “Item 4. Information on the Company – B. Business Overview—Regulations.”

We may not be able to comply with current laws and regulations, or any future laws and regulations. To the extent that new regulations are adopted, we will be required to adjust our activities in order to comply with such regulations. We may be required to incur substantial costs in order to comply. Our failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material and adverse effect on our business, operations, and finances. Changes in applicable laws and regulations may also have a negative impact on our sales.

New legislation or administrative regulations (or judicial interpretations of existing laws and regulations), including proposals related to the protection of the environment that would further regulate and tax the coal industry, may also require us and our customers to change operations significantly or incur increased costs.

Our business operation may be materially and negatively affected by economic policy involving the coal industry promulgated by the Shanxi provincial government.

Due to various circumstances in the coal industry, such as over-extraction, inappropriate extraction, and persistent safety issues experienced by smaller mining operations in Shanxi Province, the Shanxi provincial government has vowed to recoup and is in the process of recouping the Shanxi coal industry with prerogatives of restricting coal output and closing down smaller mining operations in mass. Shanxi provincial authorities have promulgated various guidance and policies that limit the total quantity of coal mined by coal mining companies in Shanxi, and output requirement for mining companies in Shanxi which have resulted in industry consolidation and closing of smaller mines, and in turn a lower total quantity of coal output. While there are uncertainties as to the specific effect of such policies, restricting coal output may limit our access to raw materials needed in our production process, and we may not be able to deliver the amount of coking coal under existing sales orders or at a price acceptable to the customers. If the remaining larger coal mines who survive the industry consolidation in Shanxi decide to use its bargaining power, this may increase the prices we are able to negotiate for such raw materials, this may negatively impact our access to raw materials, and in turn our results of operations.

Terrorist attacks or military conflict could result in disruption of our business.

Terrorist attacks and threats, escalation of military activity in response to such attacks or acts of war may negatively affect our business, financial condition and results of operations. Our business is affected by general economic conditions, fluctuations in consumer confidence and spending, and market liquidity, which can decline as a result of numerous factors outside of our control, such as terrorist attacks and acts of war. Future terrorist attacks, rumors or threats of war, actual conflicts involving China or its allies, or military or trade disruptions affecting our customers may materially adversely affect our operations. As a result, there could be delays or losses in transportation and deliveries of our products to our customers, decreased sales of coal and extensions of time for payment of accounts receivable from customers. Strategic targets such as energy-related assets may be at greater risk of terrorist attacks than other targets. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. Any, or a combination, of these occurrences could have a material adverse effect on Shanxi Jinxuan’s business, financial condition and results of operations.

We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.

Our business could be materially and adversely affected by natural disasters, health epidemics or other public safety concerns affecting the PRC. Natural disasters may give rise to server interruptions to construction business as well as adversely affect our ability to operate our production facility. In recent years, there have been outbreaks of epidemics in China and globally, such as the coronavirus at the end of 2019, H1N1 flu, avian flu or another epidemic. Our business operations could be disrupted by any of these epidemics. In addition, our results of operations could be adversely affected to the extent that any health epidemic harms the Chinese economy in general. A prolonged outbreak of any of these illnesses or other adverse public health developments in China or elsewhere in the world could have a material adverse effect on our business operations.  Such outbreaks could significantly impact the construction and transportation industries, which could severely disrupt our operations and adversely affect our business, financial condition and results of operations. Our headquarter is located in Taiyuan city, where our management and employees currently reside and our facilities locate. Consequently, if any natural disasters, health epidemics or other public safety concerns were to affect Taiyuan or cause travel restriction in or out of Taiyuan city or its surrounding areas, our operation may experience material disruptions, which may materially and adversely affect our business, financial condition and results of operations.

Subsequent to December 31, 2019, COVID-19 has spread rapidly to the other parts of China and around the world. The governments of many countries around the globe have adopted measures to control the spread of the COVID019, including quarantines, travel restrictions, and temporary closure of stores.

All of our revenue and workforce are concentrated in China. Consequently, the COVID-19 outbreak may have material negative impact on our total revenues, collectability of receivables, and other financial position or results of operations. Our business has been impacted by the COVID-19 in a few ways, including but not limited to, temporary closure of business, limited business hours, and restrictions on our employees’ ability to travel and/or visit clients and partners for a prolonged period of time. We have been closely monitoring the impact of COVID-19 on macro economy and coking coal industry in general, as well as the extent to which COVID-19 impacts our business, results of operations and financial condition. However, the extent of impact of COVID-19 on our business for the fiscal year ended December 31, 2020 cannot be estimated with confidence at this time.

Risks Relating to Doing Business in the PRC

Changes in the policies of the PRC government could have a significant impact upon our ability to operate profitably in the PRC.

We conduct all of our operations and all of our revenue is generated in the PRC. Accordingly, economic, political, and legal developments in the PRC will significantly affect our business, financial condition, results of operations, and prospects. Policies of the PRC government can have significant effects on economic conditions in the PRC and the ability of businesses to operate profitably. Our ability to operate profitably in the PRC may be adversely affected by changes in policies by the PRC government, including changes in laws, regulations, or their interpretation.

Because our business is dependent upon government policies that encourage a market-based economy, changes in the political or economic climate in the PRC may impair our ability to operate profitably, if at all.

Although the PRC government has been pursuing a number of economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in the PRC. Because of the nature of our business, we are dependent upon the PRC government pursuing policies that encourage private ownership of businesses. We cannot assure you that the PRC government will pursue policies favoring a market-oriented economy or that existing policies will not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the PRC.

We may not be able to distribute our assets upon liquidation and dividend payment will be subject to restrictions under Chinese foreign exchange rule.

Our assets are located inside China. Under the laws governing foreign investment enterprises in China, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend payment will be subject to the decision of the board of directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to both the relevant government agency’s approval and supervision as well as the foreign exchange control. This may generate additional risk for our investors in case of liquidation.

Governmental control of currency conversion may limit our ability to utilize our net revenues effectively.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our net revenues in RMB. As we are an offshore holding company of our PRC subsidiary, the majority of our net revenues are received in RMB. Similarly, as our operation is primarily based in the PRC and our suppliers are primarily based in Shanxi Province presently, most of our future payments are also likely to continue to be in the form of RMB  . As such, we believe restrictions on the transfer of cash into and out of China, as well as on the exchange of currency will not materially impede our ability to use cash in our operations. Under our current corporate structure, our company in the Cayman Islands relies on dividend payments from our PRC subsidiary to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange of the PRC (“SAFE”) by complying with certain procedural requirements. Therefore, our PRC subsidiary is able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such as the repayment of loans denominated in foreign currencies. But approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the overseas investment registrations by the beneficial owners of our company who are PRC residents.

In light of the flood of capital outflows of China in recent years due to the weakening RMB, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movement. More restrictions and substantial vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account. The PRC government may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our Ordinary Shares.

Regulations relating to offshore investment activities by PRC residents may limit our ability to acquire PRC companies and could adversely affect our business.

In July 2014, SAFE promulgated the Circular on Issues Concerning Foreign Exchange Administration over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents via Special Purpose Vehicles, or “Circular 37,” which replaced Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip Investment through Offshore Special Purpose Vehicles, or “Circular 75.” According to Circular 37, prior registration with the local SAFE branch is required for Chinese residents to contribute domestic assets or interests to offshore companies, known as “SPV”s. Moreover, Circular 37 applies retroactively. As a result, Chinese residents who have contributed domestic assets or interests to a SPV, but failed to complete foreign exchange registration of overseas investments as required before July 4, 2014, shall send a letter to SAFE and its branches for explanation. SAFE and its branches shall, under the principle of legality and legitimacy, conduct supplementary registration, and impose administrative punishment on those in violation of the administrative provisions on the foreign exchange pursuant to the law. Circular 37 further requires amendment to a PRC resident’s registration in the event of any significant changes with respect to the SPV, such as an increase or decrease in the capital contributed by PRC individuals, share transfer or exchange, merger, division, or other material event. Under these regulations, PRC residents’ failure to comply with specified registration procedures may result in restrictions being imposed on the foreign exchange activities of the relevant PRC entity, including the payment of dividends and other distributions to its offshore parent, as well as restrictions on capital inflows from the offshore entity to the PRC entity, including restrictions on its ability to contribute additional capital to its PRC subsidiaries. Further, failure to comply with the SAFE registration requirements could result in penalties under PRC law for evasion of foreign exchange regulations.

Bingshan Guo, Xiangyang Guo, Yonghong Che, Haigang Yan, and Ji Li, who are our beneficial owners and are PRC residents, have initiated the application for the initial foreign exchange registrations.  

We have urged our current shareholders who are PRC residents to make the necessary applications, filings, and amendments as required under Circular 37 and other related rules. We attempt to comply, and attempt to ensure that our shareholders who are subject to these rules comply with the relevant requirements. We cannot, however, provide any assurances that all of our shareholders who are PRC residents will comply with our request to make or obtain any applicable registration or comply with other requirements of Circular 37 or other related rules. Further, we cannot assure you that our future ultimate shareholders who are PRC residents will provide sufficient supporting documents required by the SAFE or complete the required registration with the SAFE in a timely manner, or at all. Any failure by any of our shareholders who is a PRC resident, or is controlled by a PRC resident, to comply with relevant requirements under these regulations could subject us to fines or sanctions imposed by the PRC government, including restrictions on Shanxi Jinxuan’s ability to pay dividends or make distributions to us and on our ability to increase our investment in Shanxi Jinxuan.

Because our business is conducted in RMB and the price of our Ordinary Shares is quoted in U.S. dollars, changes in currency conversion rates may affect the value of investments.

Our business is conducted in the PRC, our books and records are maintained in RMB, which is the currency of the PRC, and the financial statements that we file with the SEC and provide to our shareholders are presented in U.S. dollars. Changes in the exchange rate between the RMB and dollar affect the value of our assets and the results of our operations in U.S. dollars. The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the United States. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition.

Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China.

From time to time, we may receive requests from certain U.S. agencies to investigate or inspect our operations, or to otherwise provide information. While we will be compliant with these requests from these regulators, there is no guarantee that such requests will be honored by those entities who provide services to us or with whom we associate, especially as those entities are located in China. Furthermore, under current PRC laws, an on-site inspection of our facilities by any of these regulators may be limited or disallowed, and therefore be difficult to facilitate.

Under the PRC Enterprise Income Tax Law, or the “EIT Law,” we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.

The EIT Law and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws. The implementing rules promulgated under the EIT Law define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. In April 2009, the State Administration of Taxation, or “SAT,” issued a circular, known as “Circular 82,” which provides certain specific criteria for determining whether the “de facto management bodies” of a PRC-controlled enterprise that is incorporated offshore is located in China. However, there are no further detailed rules or precedents governing the procedures and specific criteria for determining “de facto management body.” Although our board of directors and management are located in the PRC, it is unclear if the PRC tax authorities would determine that we should be classified as a PRC “resident enterprise.”

If we are deemed as a PRC “resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiary and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient” status. This could have a material and adverse effect on our overall effective tax rate, our income tax expenses and our net income. Furthermore, dividends, if any, paid to our shareholders may be decreased as a result of the decrease in distributable profits. In addition, if we were considered a PRC “resident enterprise”, any dividends we pay to our non-PRC investors, and the gains realized from the transfer of our Ordinary Shares may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty). It is unclear whether holders of our Ordinary Shares would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. This could have a material and adverse effect on our business operations.

If we become directly subject to the scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation.

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. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on us, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from developing our growth. If such allegations are not proven to be groundless, we and our business operations will be severely affected.

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

We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any review of us, our SEC reports, other filings or any of our other public pronouncements.

The ownership of our Ordinary Shares is concentrated among a small number of shareholders, and if our principal shareholders, director, and officers choose to act together, they may be able to significantly influence management and operations, which may prevent us from taking actions that may be favorable to you.

Our ownership is concentrated among a small number of shareholders, including our founder, director, officers, and entities related to these persons. Accordingly, these shareholders, acting together, will have the ability to exert substantial influence over all matters requiring approval by our shareholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control of the Company or impeding a merger or consolidation, takeover or other business combination that could be favorable to you.

The requirements of being a public company may strain our resources and divert management’s attention.

Compliance with the Exchange Act and the Sarbanes-Oxley Act and other applicable securities rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. In addition, complying with public company disclosure rules makes our business more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.

We have incurred increased costs as a result of being a public company, which we expect will further increase after we cease to qualify as an “emerging growth company.”

We are a public company and incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, impose various requirements on the corporate governance practices of public companies. As an “emerging growth company” pursuant to the JOBS Act, we may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance increased disclosure requirements.

Our Ordinary Shares are considered a “penny stock” which is subject to restrictions on marketability, so you may not be able to sell your shares.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our Ordinary Shares is currently less than $5.00 per share and therefore is designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose some information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell the Ordinary Shares and may affect the ability of investors to sell their shares. These regulations may likely have the effect of limiting the trading activity of the Company’s Ordinary Shares and reducing the liquidity of an investment in its Ordinary Shares. In addition, investors may find it difficult to obtain accurate quotations of the Ordinary Shares and may experience a lack of buyers to purchase our Company’s stock or a lack of market makers to support the stock price.

If our Ordinary Shares becomes tradable in the secondary market, we will be subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our Ordinary Shares, which in all likelihood would make it difficult for our shareholders to sell their shares.

Substantial future sales of our Ordinary Shares or the anticipation of future sales of our Ordinary Shares in the public market could cause the price of our Ordinary Shares to decline.

Sales of substantial amounts of our Ordinary Shares in the public market after the consummation of our initial public offering, or the perception that these sales could occur, could cause the market price of our Ordinary Shares to decline. As of December 31, 2019 and as of the date of this annual report, we have 14,333,334 Ordinary Shares outstanding that are available for sale subject to certain restrictions  . Sales of these shares into the market could cause the market price of our Ordinary Shares to decline.

Our shareholders may face significant restrictions on the resale of our securities due to state “Blue Sky” laws.

Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state.

We do not know whether our securities will be registered or exempt from registration under the laws of any state. A determination regarding registration will be made by those broker-dealers, if any, who agree to serve as the market-makers for our Ordinary Shares. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our securities. You should therefore consider the resale market for our Ordinary Shares to be limited, as you may be unable to resell your shares without the significant expense of state registration or qualification.

Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our shareholders have limited protections against interested director transactions, conflicts of interest and similar matters.

The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and NYSE AMEX Equities exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions, we have not yet adopted these measures.

We do not currently have independent audit or compensation committees  . As a result, the board of directors has the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our shareholders without protections against interested director transactions, conflicts of interest and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.

If the price of our Ordinary Shares is volatile once our Ordinary Shares commence trading on the OTC market, purchasers of Ordinary Shares could incur substantial losses.

The price of our Ordinary Shares is likely to be volatile, once our Ordinary Shares commence trading on the OTC market. As a result of this volatility, investors may not be able to sell their shares of Ordinary Shares at or above the initial public offering price. The price for our Ordinary Shares may be influenced by many factors, including general economic, industry and market conditions.

A decline in the market price of our Ordinary Shares could cause investors to lose some or all of their investment and may adversely impact our ability to attract and retain employees and raise additional capital. In addition, shareholders may initiate securities class action lawsuits if the market price of our shares drops significantly, which may cause us to incur substantial costs and could divert the time and attention of our management.

Moreover, we cannot assure you that any securities analysts will initiate or maintain research coverage of our company and of Ordinary Shares. We do not control analysts or the content and opinions included in their reports. The price of our Ordinary Shares could decline if one or more equity research analysts downgrade our Ordinary Shares or if analysts issue other unfavorable commentary or cease publishing reports about us or our business.

We do not intend to pay cash dividends on our Ordinary Shares in the foreseeable future.

We do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the right of holders of our Ordinary Shares to receive dividends declared by our board of directors may be restricted to the extent we issue preferred shares with dividend rights superior to those of our Ordinary Shares.

Our Ordinary Shares represent equity interests and are subordinate to existing and future indebtedness.

Our Ordinary Shares represent equity interests in our Company and, as such, rank junior to any indebtedness of our Company now existing or created in the future, as well as to the rights of any preferred shares that may be issued in the future. In the future, we may incur substantial amounts of debt and other obligations that will rank senior to our Ordinary Shares or to which our Ordinary Shares will be structurally subordinated.

If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States domestic issuers, and we are not be required to disclose in our periodic reports all of the information that United States domestic issuers are required to disclose. While we are currently qualified as a foreign private issuer, we may cease to qualify as a foreign private issuer in the future.

Anti-takeover provisions in our amended and restated memorandum of association and articles of association may discourage, delay, or prevent a change in control.

Some provisions of our amended and restated memorandum and articles of association, may discourage, delay, or prevent a change in control of our company or management that shareholders may consider favorable, including, among other things, the following:

Our board of directors may decline to register transfers of Ordinary Shares in certain circumstances.

Our board of directors may, in its sole discretion, decline to register any transfer of any Ordinary Share which is not fully paid up or on which we have a lien. Our directors may also decline to register any transfer of any Ordinary Shares unless (i) the instrument of transfer is lodged with us, accompanied by the certificate for the shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; (ii) the instrument of transfer is in respect of only one class of shares; (iii) the instrument of transfer is properly stamped, if required; (iv) in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four; (v) the shares conceded are free of any lien in favor of us; or (vi) a fee of such sum as our board of directors may from time to time require, is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within one month after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal. The registration of transfers may, on 14 days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year.

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

Our corporate affairs are governed by our amended and restated memorandum and articles of association, by the Companies Law (Revised) of the Cayman Islands and by the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English common law. Decisions of the Privy Council (which is the final Court of Appeal for British overseas territories such as the Cayman Islands) are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court and the Court of Appeal are generally of persuasive authority but are not binding in the courts of the Cayman Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive but not binding authority. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws relative to the United States. Therefore, our public shareholders may have more difficulty protecting their interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

You may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.

Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our articles of association allow our shareholders holding shares representing in aggregate not less than 10% of our voting share capital in issue, to requisition a general meeting of our shareholders, in which case our directors are obliged to call such meeting. Advance notice of at least 21 clear days is required for the convening of our annual general shareholders’ meeting and at least 14 clear days’ notice any other general meeting of our shareholders. A quorum required for a meeting of shareholders consists of at least one shareholder present or by proxy, representing not less than one-third in nominal value of the total issued voting shares in our company.

If we are classified as a passive foreign investment company, United States taxpayers who own our Ordinary Shares may have adverse United States federal income tax consequences.

A non-U.S. corporation such as ourselves will be classified as a passive foreign investment company, which is known as a “PFIC,” for any taxable year if, for such year, either

Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.

If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our Ordinary Shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.

Item 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

We were incorporated in the Cayman Islands on February 24, 2017. Our PRC operating company, Shanxi Jinxuan, was incorporated as a PRC entity pursuant to PRC law on October 16, 2012. Pursuant to PRC laws, each entity formed under PRC law shall have a certain business scope approved by the Administration of Industry and Commerce or its local counterpart. As such, Shanxi Jinxuan’s business scope is to engage in distributing and reselling of coking coal, its main operation.

We were incorporated by our controlling shareholder Mr. Xiangyang Guo. We directly hold 100% of the equity interests of Jinxuan BVI, a limited company formed in the British Virgin Islands in 2017. Jinxuan BVI holds 100% of the equity interests of each of Jacqueline HK, a limited liability company established in Hong Kong in 2017, and Junhao HK, a limited liability company established in Hong Kong in 2017. Jacqueline HK holds a 25% equity interest in Shanxi Jinxuan, and Junhao HK holds a 75% equity interest in Shanxi Jinxuan. Neither Jacqueline HK nor Junhao HK has any business operation other than being a pass-through entity and holding the 25% and 75% equity interests in Shanxi Jinxuan, respectively.

On December 31, 2016, Mr. Xiangyang Guo acquired 72% of the equity interests in Shanxi Jinxuan and became its controlling shareholder. Between June 19, 2017 and August 5, 2017, we acquired 100% of the equity interests of Shanxi Jinxuan, through a series of transactions with the then shareholders of Shanxi Jinxuan, including Mr. Xiangyang Guo. More specifically, on June 19, 2017, Junhao HK acquired the 75% equity interest of Shanxi Jinxuan, and Merit Sky Holding Limited, a Hong Kong limited company then controlled by Mr. Bingshan Guo, acquired the 25% equity interest of Shanxi Jinxuan (which was subsequently transferred to Jacqueline HK on July 16, 2017).

As such, our controlling shareholder Mr. Xiangyang Guo has had a controlling ownership interest in Shanxi Jinxuan since January 1, 2017.

Our principal executive offices are located at T4-1802-1812, Huarun building, No.1 Changxin road, Wanbailin District  , Taiyuan, Shanxi, PRC, and our phone number is + 86–351–7020402. We maintain a corporate website at http://www.bestjxjm.com. The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report.

For information regarding our principal capital expenditures, see “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Capital Expenditures.”

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting and financial disclosure requirements that are applicable to other public companies, that are not emerging growth companies, including, but not limited to, (1) presenting only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations in this annual report, (2) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (3) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and (4) exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We intend to take advantage of these exemptions.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. As a result, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We could remain an emerging growth company for up to five years, or until the earliest of (1) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (2) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months, or (3) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

Foreign Private Issuer Status

We are a foreign private issuer within the meaning of the rules under the Exchange. As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:

B. Business Overview

Through Shanxi Jinxuan, our operating company, we are a Shanxi Province-based distributor and seller of blended coking coal, also known as metallurgical coke, that is primarily used to produce coke. Coke produced by coking facilities is used mainly in the steel-making process by steel mills. We provide two types of services, namely blended coking coal distribution services and agent services to our customers. Prior to the fiscal year ended December 31, 2019, we were a manufacturer and supplier of blended coking coal. We started generating revenue in the year ended December 31, 2015. For the year ended December 31, 2017, revenue from blended coking coal was $79,946 and 44% of our revenue, and revenue from agent fee from third parties was $99,811 and 56% of our revenue. For the year ended December 31, 2018, revenue from blended coking coal was $6,684,112 and 99% of our revenue, and revenue from agent fee from third parties was $37,616 and 1% of our revenue. For the year ended December 31, 2019, revenue from blended coking coal was $5,219,06and 82% of our revenue, and revenue from agent fee from third parties was $1,166,929 and 18% of our revenue.

For our blended coking coal distribution services, we distribute blended coking manufactured by Liulin Xin’an Yuanda Coal Co., Ltd. ("Xin'an Yuanda" or "Partner Manufacturer") to customers. In September 2019, we entered into a cooperation agreement (the “Cooperation Agreement”) with Xin’an Yuanda through our subsidiary Shanxi Jinxuan, pursuant to which Xin’an Yuanda shall produce blended coking coal according to our instructions and under our supervision. Our technical personnel directs the mixing ratio of the products on site and supervises the entire blending process. Pursuant to the Cooperation Agreement, Xin’an Yuanda purchases raw coal according to our specifications, provides coal washing and blending plants, provides manufacturing facilities, and operates such facilities. We obtain ownership of the blended coking coal after the blending process completes. Therefore, we act as the principal and recognize revenue in the amount of total consideration charged to customers, upon the completion of our performance obligation. The Cooperation Agreement is a framework agreement which remains effective for one year since September 26, 2019.

The products we distribute are batches of blended coking coal of a uniform mix that conform to our customers’ specifications. This is achieved by the proprietary electric coking coal blender that our Partner Manufacturer uses in blending and manufacturing coking coal raw materials of various grades and characteristics into the specified uniform mix.

For our agent services, we accept orders from our customers, purchase blended coking coal that meets the specific requirements of the customers, and hire third-party carriers to deliver blended coking coal products to the premises of our customers. We sign contracts with customers, suppliers and carriers separately. Unlike with respect to our Partner Manufacturer, we do not provide instructions to or supervise the manufacturing process of the suppliers we cooperate with for our agent services.

Our current customers are coke producing companies based in the Shanxi Province.

Our revenue is primarily generated through sales of blended coking coal based upon customer specifications. For the year ended December 31, 2019, 2018, and 2017, we generated revenue of $6,385,992, $6,721,728, and $179,757 in the aggregate, respectively, with $1,166,929, $37,616, and $99,811 generated from agent fee from third parties. For the year ended December 31, 2019, 2018, and 2017, we produced and sold a total of 36,845, 85,587, and 806, tons of coking coal, respectively. Our net income for the year ended December 31, 2019, was $946,535, net loss for the year ended December 31, 2018 was $61,924, and net loss for the year ended December 31, 2017 was $745,660. We incurred profit from our operations of $1,251,634 in the year ended December 31, 2019, income from our operations of $33,985 in the year ended December 31, 2018, and losses from our operations of $746,538 in the year ended December 31, 2017. All of the blended coking coal we sourced for the year ended December 31, 2019 and all of our raw materials, various grades of coking coal, for the years ended December 31, 2018 and 2017 were from suppliers based in Shanxi Province, the PRC. For the year ended December 31, 2019, our revenue from agent fees from third parties was $1,166,929, or 18%. For the year ended December 31, 2018, our revenue from agent fees from third parties was $37,616, or 1%. For the year ended December 31, 2017, our revenue from agent fees from third parties was $99,811, or 56% of our revenue. See more detailed information in “Item 5. Operating and Financial Review and Prospects – D. Trend Information” in this annual report.

Marketing, Sales, and Customer Contracts

As of December 31, 2019, we maintained our marketing and sales forces with two employees. We focus on meeting the needs and specifications of our customers rather than just focusing on generating more revenue. As such, our marketing efforts are centered on customer needs and requirements. By offering coking coal in grades of specific qualities of heat content, sulfur and ash, and other characteristics relevant to our customers, we are able to serve a diverse customer base.

We serve a limited number of customers and our top customers are a few coking coal resale companies and coke producing companies. For the year ended December 31, 2017, we served two customers, Shanxi Jinquan Energy Co. Ltd and Xin’an Yuanda, consisting of 54% and 46% of our sales revenue, respectively. For the year ended December 31, 2018, we served four customers, Meijin Wuzi, Hongyao, Chuangli, and Meijin Jiaohua, consisting of 33%, 17%, 14% and 11% of our sales revenue, respectively. For the year ended December 31, 2019, we served two customers, Meijin and Meijin Yangqu, consisting of 99% and 1% of our sales revenue, respectively. We usually supply our customers a certain quantity of blended coking coal, during a one-month term, for a fixed price, pursuant to a form of sales order entered into in the ordinary course of business. When market volatility is significant, we will supply blended coking coal on an adjusted price agreed by our customers. In the event we cannot agree on an adjusted price with our customer, the spot price of coking coal on the Dalian Futures Exchange will be used. Customer orders also typically contain provisions requiring us to deliver blended coking coal that meets quality thresholds for certain characteristics such as sulfur content, ash content, volatility and ash fusion temperature. We believe we are not dependent upon these customers and will be able to find new customers swiftly on commercially reasonable terms because, with Shanxi Province being the largest coke producing province in the PRC market, our location’s proximity to coke producing companies enable us to better access the market, build customer relationships, and swiftly transport and supply the blended coking coal needed by our customers.

Competition 

Virtually all of blended coking coal sales are in the PRC market. Our major competitors are PRC-based companies that sell or provide blended coking coal to coke manufacturing facilities. We primarily compete with Shanxi Coking Coal Group Co., Ltd. and Shanxi Lasen Energy Co., Ltd., both of which are located in Shanxi Province. Some of our competitors are coke manufacturing companies with coking coal blending operations, such as Shanxi Coking Coal Group, who are much larger than us in operation and sales revenue, have greater financial capabilities and longer operating history. The principal factors on which we compete are coal prices, coal quality and characteristics, transportation costs, customer relationships and the reliability of supply. The demand for coking coal is significantly dependent on the general economy in the PRC and the PRC domestic demand for steel.

Suppliers

For the year ended December 31, 2019, we relied on one supplier, our Partner Manufacturer, for blended coke coal needed for us to fill the orders of our customers. For the year ended December 31, 2018, we relied on four suppliers and our raw coking coal reserves to provide us with the raw coking coal needed for us to fill the orders of our customers, Xiaoyi Xindafu Trading Co., Ltd. which provided 60% of our raw materials, Shanxi Yidayang Coal Transportation Co. Ltd which provided 16% of our raw materials, and the remaining 24% provided by two other coking coal suppliers. For the year ended December 31, 2017, we did not source raw coking coal from our suppliers and relied upon our raw coking coal reserves.

We are located in Shanxi Province, a region with many suppliers who have access to various coal mining fields in Shanxi, a region with relatively abundant coal reserves. As of the date of this report, we are solely dependent on one supplier, our Partner Manufacturer, for blended coking coal. While we believe that we are able to establish relationship with alternative suppliers on commercially reasonable terms in a relatively short period of time if we stop sourcing blended coking coal from our Partner Manufacturer for any reason, in the event that we fail to do so, our results of operations and financial position may suffer.

In response to the new challenge in the supply of coking coal, we have carried out our new strategy of establishing relationship with a larger number of new suppliers, and are more actively identifying supplier targets to merge with and/or acquire. As of the date of this annual report, we have not entered into supply agreements or supply orders with new suppliers. Our ideal targets are suppliers with a minimum annual supply capacity of 1 million ton. While we are actively identifying and discussing with supplier targets to merge and/or acquire, there is no guarantee that we will be able to locate appropriate targets in our desired timeline. As of the date of this annual report, no acquisition or merger agreements have been entered into.

Our Strategies

Our long-term object is to establish our company as the regional leader in the coking coal industry while continuing to expand our supplier and customer base. Our key strategies to achieve this objective are described below:

Types of Coal and Coking Coal Characteristics

Physical and chemical characteristics of coal are very important in measuring quality and determining the best end use of particular coal types. Coal is generally classified as either coking coal or thermal coal (also known as steam and industrial coal). Sulfur, ash and moisture content as well as coking characteristics are key attributes in grading metallurgical coal while heat value, ash, and sulfur content are important variables in rating thermal coal.

We currently distribute, market and transport blended coking coal with specific characteristics that meet the specifications of each of our customers, by sourcing blended coking coals from our Partner Manufacturer with the various grades in characteristics, such as heat value, sulfur content, ash and moisture content, strength and volatility.

Coking coal is classified into three major categories of hard coking coal (“HCC”), semi-soft coking coal, and pulverized coal injection coal (“PCI”). PCI coal is not used in coke making but is rather injected directly into the lower region of blast furnaces to supply both energy and carbon for iron reduction. The use of PCI can be a substitute for some of the metallurgical coke that would otherwise have been used.

Thermal and industrial coal is the most abundant form of coal and is commonly referred to as steam coal. Such coal has a relatively high heat value and has long been used for steam generation in electric power and industrial boiler plants.

Anthracite coal is commonly used as a reduction agent for various applications such as briquetting, charcoal, and iron ore pellets. Anthracite coal is a crossover coal and has been successfully used in the PCI coal market.

Coking coal is high-grade bituminous coal used to produce coke. Specifically, coking coal is a carbon material resulting from the manufactured purification of multifarious blends of bituminous coal.

Coking coal is primarily used to produce coke, which is primarily utilized in the production of steel by steel mills. 1.4 to 1.6 ton of coking coal is needed to manufacture 1 ton of coke. Specifically, coke is a solid carbonaceous residue derived from coking coal from which the volatile constituents are driven off by baking in an oven without oxygen at high temperatures. Coke is produced by heating particulate coals of very specific properties in a refractory oven in the absence of oxygen to about 1,100 °C (2000 °F) or as high as 2,000 °C. As temperature increases inside the coal mass, it melts or becomes plastic, fusing together as devolatilization occurs, and ultimately resolidifies and condenses into particles large enough for blast furnace use. During this process, much of the hydrogen, oxygen, nitrogen, and sulfur are released as volatile by-products, leaving behind a poorly crystalline and porous carbon product. The quality and properties of the resulting coke is inherited from the selected coals, as well as how they are handled and carbonized in coke plant operations. In terms of coal properties, coke quality is largely influenced by coal rank, composition (reactive and inert macerals and minerals), and an inherent ability when heated to soften, become plastic, and resolidify into a coherent mass.

Bituminous coal must meet a set of criteria for use as coking coal as determined by particular coal assay techniques. These include moisture content, ash content, sulfur content, volatile content, tar and plasticity. The greater the volatile matter in coal, the more by-products can be produced. It is generally considered that levels of 26% to 29% percent of volatile matter in the coal blend are good for coking purposes. Thus different types of coal are proportionally blended to reach acceptable levels of volatility before the coking process begins.

PRC Coking Coal Resources and Reserves

Even though coal is generally an abundant resource in the PRC, coking coal reserves are much smaller.

According to a report on PRC coking coal issued by Changjiang Securities Co., Ltd. dated September 11, 2018, the identified coal reserves in the PRC consist of a majority of gas coal (1/3 of which is coking coal), while coking coal and fat coal constitute 23% and 13% of the coal reserves in China, respectively. China’s identified coking coal reserves amounts to 280,360 million tons, constituting 13% of the world’s coking coal reserves. Approximately 80% of coking coal resources in the PRC considered easy to mine, i.e. buried within 1 km underground, are located in Shanxi Province and Guizhou Province. Shanxi Province has identified 169.46 billion tons of coking coal in their reserves, accounting for 56% of the national coking coal reserves; 33.16 billion tons of which are obtainable, accounting for 51.3% of all obtainable coking coal in the country. The coking coal identified as well as obtainable in Shanxi Province’s ranks first in the PRC. The provinces ranked second, third, fourth, and fifth in identified coking coal reserves are Anhui Province with 23.62 billion tons, Shandong Province with 17.27 billion tons, Guizhou Province with 9.96 billion tons, and Heilongjiang Province with 9.82 billion tons.

Coking coal, especially high-quality coking coal is an important material for steel production. However, coking coal, especially high-quality coking coal has become a scarce resource in the PRC due to inappropriate mining or extraction where exhaustive mining has continued for quite some time, and high-quality coals were extracted and utilized as low-quality coals. Because of the scarcity of the coking coal resource, high-quality coking coal sometimes need to be imported from other countries. In 2019, Mongolia was China’s largest coking coal import supplier, accounting for 10.9% of annual coking coal consumption in the PRC market.

The qualities of extracted coking coal in the PRC vary significantly from region to region, and from mine to mine. Coking coal with less than 1 percent sulfur content is generally considered high-quality coking coal, and the coal reserve in the PRC has a limited quantity of identified high-quality coking coal, especially outside of the Shanxi Province. Coking coal extracted from the Shanxi Liulin region is generally high-quality coking coal with low ash and sulfur content, while the No.4 Coking Coal of Central Hedong Coalfield, in the Shanxi Liulin region, is a rare type of high-quality coking coal. The raw materials used by our Partner Manufacturer are mainly sourced from Shanxi Liulin mines.

We require our Partner Manufacturer to source and produce with coking coal raw materials with less than 1 percent sulfur content, and it is able to consistently produce blended coking coal with an approximately 0.8% sulfur content. According to the coal quality classification of People’s Republic of China, a sulfur content of 0.71-0.95% is classified as medium-lower-sulfur coal.

Pricing and Backlog

To date, we price blended coking coal on an order-to-order basis, based on Dalian Futures Exchange’s coking coal spot price, adjusted for both the qualities and characteristics of coking coal raw materials used for each order, and the qualities and characteristics of blended coking coal products. We sell blended coking coal primarily to coke making facilities on an as-needed basis. Due to the variability and fluctuation of the PRC market price of blended coking coal, we enter into fixed term and fixed price sales orders that allow price adjustment. Our sale contracts are usually for a period of three months and we typically do not have long-term sales contracts, but we intend to maintain close business relationships with our major customers. Our sales orders with customers generally contain provisions that permit the parties to adjust the contract price of the blended coking coal upward or downward with the fluctuation of PRC market prices of raw coking coal, represented by the coking coal spot price of Dalian Futures Exchange. For example, we may adjust these contract prices because of increases or decreases in the price of raw coal from our suppliers, general inflation or deflation, or changes in the cost of producing blended coking coal caused by such things as changes in taxes, fees, royalties or the laws regulating the mining, production, sale or use of coal. However, if we fail to agree on an adjusted price with our customers under these provisions, the sales orders shall be executed at the PRC market price represented by coking coal spot price of Dalian Futures Exchange. In China, the purchase price of coking coal fluctuated greatly between RMB1,138 ($165) per ton and RMB1,438 ($208) per ton, in the period from January 2019 to December 2019, with an increase trend. The purchase price of coking coal fluctuated greatly between RMB1,091 (approximately $165) per ton and RMB1,461 (approximately $221) per ton, in the period from January 2018 to December 2018. The purchase price of coking coal fluctuated greatly between RMB949 (approximately $138.3) per ton and RMB1,361.5 (approximately $206.2) per ton, in the period from January 2017 to December 2017, with a generally increasing trend. Top quality raw coking coal is critical for us to maintain our operating efficiencies and deliver blended coking coal to our customers which meets their specifications. Since top quality raw coking coal is more limited in supply, its price tends to be more volatile. A general rise in coking coal prices also may adversely affect the price of, and demand for, coke and products made with coke such as pig iron, steel and concrete. This may in turn lead to a fall in demand for our products.

We generally have not employed forward contracts or other financial instruments to hedge commodity price risk. 

Inflation

Inflation has not had a material effect on our business because our supply orders and sales orders are both based in RMB, and we do not anticipate that inflation will materially affect our business in the foreseeable future

Seasonality

We believe our operation and sales do not experience seasonality. 

Properties and Facilities

Prior to January 2019, our blending and manufacturing facility was located inside the Hongxing’s plant in Liulin County, 6,889.04 square meter (74,153 square feet). We subleased three offices, and additional land to house our blending facility from Hongxing, for an annual rent of RMB 130,000 payable annually, with a term from January 1, 2015, to December 31, 2020. The production and operation of our company was carried out in the blending and manufacturing facility. Pursuant to our lease agreement with Hongxing, the lease agreement may be terminated by either Hongxing or us, with written notice to the other party three months in advance, and the terminating party shall pay the other party a termination fee in the amount of RMB 65,000 (approximately $9,750), which is 10% of the total rent amount for the entire lease term from January 1, 2015 to December 31, 2020. We elected to terminate the agreement in January 2019 and changed our business address.

Our office is located at T4-1802-1812, Huarun Building, No.1 Changxin road, Wanbailin District, Taiyuan, Shanxi, at 816.96 square meters, which we lease for an annual rent of RMB 680,000, payable annually, from an unrelated third-party. The term of this lease is from January 11, 2019, to March 31, 2022.

We believe our office is sufficient for our current operation.

Employees

As of the date of this annual report, we had approximately 15 employees, all of which are full-time. There is no labor union. We believe our relations with our employees are good.

Intellectual Property

We do not have any registered patents or other intellectual property and we rely on the confidentiality of our proprietary blending processes in producing a competitive product  . We may not be able to maintain the confidentiality of our blending processes.

Legal Proceedings

From time to time, we are subject to legal proceedings, investigations and claims incidental to the conduct of our business. We are not currently a party to any legal proceeding or investigation which, in the opinion of our management, is likely to have a material adverse effect on our business, financial condition or results of operations.

Regulations

The following summarizes the principal PRC regulations related to our business operations.

Regulations related to blended coking coal operation

Blended coking coal products are subject to price supervisions by the relevant PRC government bodies pursuant to the Law of the PRC on the Coal Industry (Revised in 2016) (the “Coal Industry Law”). Our distribution and sale of blended coking coal is subject to the supervision and administration of relevant PRC government bodies pursuant to the Coal Industry Law.

The Coal Industry Law

The PRC Coal Industry Law was adopted on August 29, 1996, by the Standing Committee of the National People’s Congress (“NPCSC”) of the PRC and was revised in 2009, 2011, 2013, and 2016 respectively. The latest revised Coal Industry Law was effective as of November 7, 2016.

The Coal Industry Law also provides that the price administration department under the State Council, together with the department in charge of the coal industry under the State Council and other relevant departments, shall have the power to exercise supervision and control over the price of coal, that the quality of coal supplied to customers by coal mining and coal trading enterprises shall meet the national or trade standards and the quality of a specific type of coal shall match its grade and price, and that unified control shall be maintained over the import and export of coal in accordance with the relevant regulations of the State Council according to the Coal Industry Law.

According to the Measures for the Administration of Quotas for the Export of Coal, an order jointly issued by NDRC, Ministry of Commerce (“MOFCOM”), and the General Administration of Customs in January 2004, China’s coal exports have been subject to a government approval system since July 1, 2004, under which the NDRC and the MOFCOM are responsible for determining the total volume of China’s coal export quota and allocating the quota among the authorized coal exporters. The total quota will take into consideration China’s economic needs, national use of coal resources, the PRC government’s economic policy and the dynamics in the domestic and international coal markets.

As a distributor of coking coal, we do not import raw materials, nor do we export our products, and therefore we are not subject to the relevant production and/or export and import quotas. Our sales orders and supply orders are executed with prices that abide by the relevant rules and guidance.

Environmental Protection Laws

China has adopted extensive environmental laws and regulations that affect operation of coal production, storage, and transportation. There are national and local standards applicable to emissions control, discharges to surface and subsurface water and the generation, handling, storage, transportation, treatment, and disposal of waste materials. Pursuant to the PRC Environmental Protection Law (Revised in 2014), the competent department of environmental protection under the State Council shall supervise and manage environmental protection work throughout the country in a unified manner. The competent departments of environmental protection of the local people’s governments at the county level or above shall supervise and manage environmental protection work within their respective administrative areas in a unified manner. According to the Measures, any person or entity engaging in coal business operation shall ensure the quality of the coal and promote the environmental protection in conformity with the relevant laws, regulations and rules, coal industry policies and industrial standards. The coal storage yard for coal business operation use shall be scientific and reasonable in layout and conform to the overall plan for land utilization. The coal business operators shall take necessary measures to reduce dust emission in an unorganized manner during the course of coal loading and unloading, storage, processing and transportation.

We have abided by and plan to continue to abide by the relevant PRC environment protection law in our business operation. The Environmental Protection Bureau of Liulin County issued Shanxi Jinxuan a certificate on August 3, 2017 certifying that since January 1, 2015, Shanxi Jinxuan has abided by national and local laws and regulations on environmental protection, there has been no unlawful act in our operation, and that Shanxi Jinxuan has not been subject to any environmental administrative penalty or complaint. For the fiscal years ended December 31, 2019, 2018 and 2017, Shanxi Jinxuan had not been subject to any environmental administrative penalty or complaint.

Provisions on Foreign Investment

The Foreign Investment Law of the PRC, or the Foreign Investment Law, was formally adopted by the 2^nd session of the thirteenth National People’s Congress on March 15, 2019, and became effective on January 1, 2020. The Foreign Investment Law is formulated to further expand opening-up, vigorously promote foreign investment and protect the legitimate rights and interests of foreign investors. According to the Foreign Investment Law, foreign investments are entitled to pre-entry national treatment and are subject to negative list management system. The pre-entry national treatment means that the treatment given to foreign investors and their investments at the stage of investment access is not lower than that of domestic investors and their investments. The negative list management system means that the state implements special administrative procedures for access of foreign investment in specific fields. Foreign investors shall not invest in any forbidden fields stipulated in the negative list and shall meet the conditions stipulated in the negative list before investing in any restrictive fields. According to the most updated negative list, the processing and selling of blending coking coal is neither restricted nor prohibited.

Foreign investors’ investment, earnings and other legitimate rights and interests within the territory of China shall be protected in accordance with the law, and all national policies on supporting the development of enterprises shall equally apply to foreign-invested enterprises. The state guarantees that foreign-invested enterprises participate in the formulation of standards in an equal manner. The state guarantees that foreign-invested enterprises participate in government procurement activities through fair competition in accordance with the law. The State shall not expropriate any foreign investment except under special circumstances. In special circumstances, the state may levy or expropriate the investment of foreign investors in accordance with the law for the needs of the public interest. The expropriation and requisition shall be conducted in accordance with legal procedures and timely and reasonable compensation shall be given. In carrying out business activities, foreign-invested enterprises shall comply with relevant provisions on labor protection, social insurance, tax, accounting, foreign exchange and other matters stipulated in laws and regulations.

From January 1, 2020, the Wholly Foreign-Owned Enterprises Law of the PRC, together with the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures and the Law of the People’s Republic of China on Sino-Foreign Cooperative Joint Ventures shall be abolished. The organization form, organization and activities of foreign-invested enterprises shall be governed by the laws of the Company Law of the People’s Republic of China and the Partnership Enterprise Law of the People’s Republic of China. Foreign-invested enterprises established before the implementation of the Foreign Investment Law may retain the original business organization and so on within five years after the implementation of the Foreign Investment Law.

On December 26, 2019, the State Council promulgated the Implementation Regulations on the Foreign Investment Law, which came into effect on January 1, 2020, and it further requires that foreign-invested enterprises and domestic enterprises shall be treated equally with respect to policy making and implementation. Pursuant to the Implementation Regulations on the Foreign Investment Law, if the existing foreign-invested enterprises fail to change their original forms as of January 1, 2025, the relevant market regulation departments will not process other registration matters for the enterprises, and may disclose their relevant information to the public.

On December 30, 2019, the MOFCOM and the State Administration for Market Regulation jointly issued the Measures for Reporting of Foreign Investment Information, or the Foreign Investment Information Measures, which came into effect on January 1, 2020 and replaced the Interim Administrative Measures for the Record-filing of the Establishment and Modification of Foreign-invested Enterprises. Since January 1, 2020, for foreign investors carrying out investment activities directly or indirectly in the PRC, foreign investors or foreign-invested enterprises shall submit investment information through the Enterprise Registration System and the National Enterprise Credit Information Publicity System operated by the State Administration for Market Regulation. Foreign investors or foreign-invested enterprises shall disclose their investment information by submitting reports for their establishments, modifications and cancellations and their annual reports in accordance with the Foreign Investment Information Measures. If a foreign-invested enterprise investing in the PRC has finished submitting its reports for its establishment, modifications and cancellation and its annual reports, the relevant information will be shared by the competent market regulation department to the competent commercial department, and does not require such foreign-invested enterprise to submit the reports separately.

Shanxi Jinxuan has completed the registration as a whole foreign owned enterprise on June 19, 2017 and the Administrative Bureau for Industry and Commerce of Shanxi Province has issued Shanxi Jinxuan the relevant business license on the same date.

Regulations on Foreign Exchange

Foreign Exchange Settlement

The Circular of the State Administration of Foreign Exchange on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or SAFE Circular No.19, which was promulgated by the SAFE on March 30, 2015 and became effective as of June 1, 2015, adopts the approach of discretional foreign exchange settlement, under which the foreign exchange capital in the capital account of a foreign-invested enterprise for which the foreign-invested enterprise has obtained confirmation by the local SAFE branches regarding the rights and interests of monetary contribution (or the book-entry registration of monetary contribution by the banks) can be settled at the banks based on the actual operation needs of such foreign-invested enterprise. The capital in Renminbi obtained by the foreign-invested enterprise from the discretionary settlement of foreign exchange capital shall be managed under the account pending for foreign exchange settlement payment. The proportion of discretionary settlement of foreign exchange capital is temporarily determined as 100%, subject to the adjustment of the SAFE.

Regulations Relating to Foreign Exchange Registration of Overseas Investment by PRC Residents

SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or “Circular 37,” issued by SAFE and effective in July 4, 2014, regulates foreign exchange matters in relation to the use of special purpose vehicles, or “SPVs”, by PRC residents or entities to seek offshore investment and financing and conduct round trip investment in China. Under Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or interests, while “round trip investment” refers to the direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. Circular 37 requires that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with the SAFE or its local branch. SAFE Circular 37 further provides that option or share-based incentive tool holders of a non-listed SPV can exercise the options or share incentive tools to become a shareholder of such non-listed SPV, subject to registration with SAFE or its local branch.

PRC residents or entities who have contributed legitimate domestic or offshore interests or assets to SPVs but have yet to obtain SAFE registration before the implementation of the Circular 37 shall register their ownership interests or control in such SPVs with SAFE or its local branch. An amendment to the registration is required if there is a material change in the SPV registered, such as any change of basic information (including change of such PRC residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. Failure to comply with the registration procedures set forth in Circular 37, or making misrepresentation on or failure to disclose controllers of foreign-invested enterprise that is established through round-trip investment, may result in restrictions on the foreign exchange activities of the relevant foreign-invested enterprises, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations. As of the date of this report, Xiangyang Guo, Bingshan Guo, Yonghong Che, Haigang Yan, and Ji Li have initiated their application for the initial foreign exchange registrations.

Regulations Relating to Employment and Social Insurance

Pursuant to the PRC Labor Law effective as of January 1, 1995 (as amended on August 27, 2009), and the PRC Labor Contract Law effective as of January 1, 2008 (as amended on December 28, 2012), a written labor contract shall be executed by employer and an employee when the employment relationship is established, and an employer is under an obligation to sign an unlimited-term labor contract with any employee who has worked for the employer for ten consecutive years. Further, if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract must have an unlimited term, with certain exceptions. All employers are required to establish a system for labor safety and sanitation, strictly abide by state rules and standards and provide employees with appropriate workplace safety training. Moreover, all PRC enterprises are generally required to implement a standard working time system of eight hours a day and forty hours a week, and if the implementation of such standard working time system is not appropriate due to the nature of the job or the characteristics of business operation, the enterprise may implement a flexible working time system or comprehensive working time system after obtaining approvals from the relevant authorities.

Pursuant to the Social Insurance Law of China effective from July 1, 2011, and the Housing Fund Regulation which was amended and became effective on March 24, 2002, employers in China shall pay contributions to the social insurance plan and the housing fund plan for their employees, and such contribution amount payable shall be calculated based on the employee actual salary in accordance with the relevant regulations. As of December 31, 2019, we have been making full contributions to the social insurance plan and the housing plan for our employees.  

Regulations on Tax

PRC Enterprise Income Tax Law

In January 2008, the PRC Enterprise Income Tax Law, or the “EIT Law,” took effect, which was last amended by the Standing Committee of the National People’s Congress on December 29, 2018. The EIT Law applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except where tax incentives are granted to special industries and projects. An enterprise established outside China with “de facto management bodies” within China is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income.

Under the EIT Law and its implementation regulations, dividends generated from the business of a PRC subsidiary after January 1, 2008 and payable to its foreign investor may be subject to a withholding tax rate of 10% if the PRC tax authorities determine that the foreign investor is a non-resident enterprise, unless there is a tax treaty with China that provides for a preferential withholding tax rate. Distributions of earnings generated before January 1, 2008 are exempt from PRC withholding tax.

Under the PRC Enterprise Income Tax Law, an enterprise established outside China with “de facto management bodies” within China is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. The implementing regulations of the EIT Law define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. On April 22, 2009, the State Administration of Taxation, or SAT issued the Circular on Issues Concerning the Identification of Chinese-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance With the Actual Standards of Organizational Management, or Circular 82, which provides certain specific criteria for determining whether the “de facto management bodies” of a PRC-controlled enterprise that is incorporated offshore is located in China. However, there are no further detailed rules or precedents governing the procedures and specific criteria for determining “de facto management body.”

PRC Value-added Tax Law

Pursuant to the Interim Regulations on Value-added Tax of China, or VAT Regulations which was promulgated by the State Council on December 13, 1993 and became effective as of January 1, 1994 and further amended on November 10, 2008, February 6, 2016 and November 19, 2017, and the last amendment of which became effective on November 19, 2017, all units and individuals engaging in the sale of goods, provision of processing, repair and fitting services, and importation of goods within the territory of China are taxpayers of value-added tax ( or VAT), and shall pay VAT in accordance with the VAT Regulations. According to the VAT Regulations, the VAT tax rate for the PRC enterprises was 16% before April 1, 2019 and 13% after that date, unless the VAT for an enterprise is otherwise exempted or reduced according to the VAT Regulations and other relevant regulations.

We have abided by the relevant PRC tax laws in our operation. The local office of State Administration of Taxation of Liulin County issued Shanxi Jinxuan a certificate dated August 25, 2017, certifying that since January 1, 2015, Shanxi Jinxuan has abided by current national and local laws and regulations on taxation, made timely tax return filings and does not have outstanding tax arrears. As of the date of this report, we have not been found in violation of the VAT Regulations or other applicable laws and regulations.

Labor Laws and Social Insurance

Pursuant to the PRC Labor Law and the PRC Labor Contract Law, employers must execute written labor contracts with full-time employees. All employers must comply with local minimum wage standards. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative and criminal liability in the case of serious violations.

In addition, according to the PRC Social Insurance Law, employers in China must provide employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance, and housing funds.

C. Organizational Structure

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

D. Property, Plants and Equipment

Our office is located at T4-1802-1812, Huarun building, No.1 Changxin road, Wanbailin District, Taiyuan, Shanxi, PRC, where we lease the office space with an aggregate floor area of approximately 817 square meters.

Item 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report. This report contains forward-looking statements. See “Special Note Regarding Forward-looking Statements.” In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.

A. Operating Results

Overview

We are a Shanxi Province-based company engaging in distributing and reselling blended coking coal in China. The blended coking coal we distribute is also known as metallurgical coke, used to produce coke for use mainly in the steel-making process.

For our blended coking coal distribution services, in September 2019, we entered into the Cooperation Agreement with Xin’an Yuanda, our Partner Manufacturer, through our subsidiary Shanxi Jinxuan, pursuant to which Xin’an Yuanda shall produce blended coking coal according to our instructions and under our supervision. Our technical personnel directs the mixing ratio of the products on our Partner Manufacturer’s site and supervise the entire blending process. Pursuant to the Cooperation Agreement, Xin’an Yuanda shall purchase raw coal according to our specifications, provide plant for coal washing and blending, provide manufacturing facilities, and operate such facilities. We take delivery of the blended coking coal after the blending process completes. Therefore, we act as the principal and recognize revenue in the amount of total consideration charged to customers, upon the completion of our performance obligation. The Cooperation Agreement is a framework agreement which remains effective for one year since September 26, 2019.

When serving as an agent, we accept orders from our customers, purchase blended coking coal that meets the specific requirements of the customers, and hire third-party carriers to deliver blended coking coal products to the premises of our customers. We sign contracts with customers, suppliers and carriers separately. Unlike with respect to our Partner Manufacturer, we do not provide instructions to or supervise the manufacturing process of the suppliers we cooperate with for our agent services. As we satisfy our performance obligations, we recognize revenue in the amount we expect to be entitled to for arranging the supplier to provide its goods. Our fee is the net amount of consideration we retain after paying the supplier and the carrier the consideration received in exchange for the goods to be provided by the supplier and transport services to be provided by the carrier. In addition, the supplier assumes our performance obligations and contractual rights in the contract signed with customer so that we are no longer obliged to satisfy the performance obligations to transfer the blended coking coal to the customer. Our contracts with our agency service customers specify the prices and terms for our service provided.

Our customers from above two revenue streams are both based in the Shanxi Province, the PRC.

All of our revenue and workforce are concentrated in China. Consequently, the COVID-19 outbreak may materially adversely affect our business operations and our financial condition and operating results for the fiscal year ending December 31, 2020, including, but not limited to, a decrease in our total revenues, slower collection of accounts receivables, increase in allowance for doubtful accounts and significant downward adjustments or impairment to our long-lived assets. We have been closely monitoring the impact of COVID-19 on macro economy and coking coal industry in general, as well as the extent to which COVID-19 impacts our business, results of operations and financial condition. Because of the significant uncertainties surrounding the COVID-19 outbreak, the extent of the business disruption and the related financial impact cannot be estimated with confidence at this time.

Factors and Trends Affecting Our Financial Performance

We believe that the following factors will affect our financial performance:

Our customer base in Shanxi Province and nearby provinces- Our only customers are coal companies with steady demand for blended coking coal, which contains moderate level of sulfa to meet stringent environmental regulations. The Chinese government has reduced its regulatory restrictions on the coal industry in recent years, which has positively impacted our business. We have generated substantially all of our revenues from sales of blended coking coal and agent services. We expect the sales of blended coking coal to continue to be the primary source of our revenues in the foreseeable future. Our success, therefore, depends on our customers’ continued reliance on blended coking coal and our ability to source the specified coal. However, we expect that the novel coronavirus (COVID-19), which spread rapidly to many countries around the world, would negatively affect the demand for coking coal and would have a material adverse impact on our business, results of operations and financial condition.

Securing suppliers with access to high quality coking coal raw materials- Our Partner Manufacturer is located in Liulin, Shanxi Province, and has access to the high quality raw coking coal in Liulin, - an area famed as China’s “King of Coal,” which has higher processing yield and lower processing cost than lower quality raw coking coal. As such, our Partner Manufacturer could access a great quantity of high quality raw coking coal with low raw material costs and low transportation costs. Therefore, if we stop sourcing from our Partner Manufacturer or secure suppliers with access to high quality raw materials with low costs, we will experience higher purchase cost and thus lower margin.

PRC coal market’s supply of blended coking coal – we rely heavily on the sufficient supply of blended coking coal in the PRC market to fulfill our customers’ orders. Therefore, if the PRC market supply of blended coking coal decreases or if we are not able to secure sufficient quantity to fulfill our customers’ orders, then we may not be able to generate revenue and may suffer net loss, in addition to potential reputation loss associated with the failure to fulfill customer orders.

PRC Government’s policy on coal production, coal price, and steel production – The PRC government’s policies concerning the coal and steel industries have changed in response to the broader economic circumstances and the market conditions. Further restrictions on coal production and limitations on coal prices may both increase the cost for our operation. While we have been and believe that we may continue to pass on the increased raw material cost to our customers, steel mills may seek alternative resources in producing coke-replacement products needed in steel making, and thus lower the general demand for coke, and in turn, coking coal. Additionally, any restriction or limitation on steel production may negatively affect the demand for blended coking coal, which is primarily used to produce the coke used in steel making. While blended coking coal with medium to low level of sulfur makes it more environmentally friendly than high sulfur coking coal, more stringent environmental policies may still negatively impact the demand for the blended coking coal we distribute, as blended coking coal with lower level of sulfur is more costly to manufacture and priced higher.

Taxation

Cayman Islands 

Under the current laws of the Cayman Islands, companies incorporated in the Cayman Islands are not subject to taxation on income or capital gains. Additionally, upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed.

The Cayman Islands currently has no exchange control restrictions. The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands, save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not a party to any double tax treaties.

British Virgin Islands

Jinxuan BVI is incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, Jinxuan BVI is not subject to tax on income or capital gains. Additionally, if dividends are paid by Jinxuan BVI to its shareholders, no BVI withholding tax will be imposed.

Hong Kong

In accordance with the relevant tax laws and regulations of Hong Kong, a company registered in Hong Kong is subject to income taxes within Hong Kong at the applicable tax rate on taxable income. From year of assessment of 2018/2019 onwards, Hong Kong profit tax rates are 8.25% on assessable profits up to HK$2,000,000, and 16.5% on any part of assessable profits over HK$2,000,000.

Jacqueline HK and Junhao HK are both incorporated in Hong Kong and do not conduct any substantial operations of their own. As such, under the Hong Kong tax laws, both Jacqueline HK and Junhao HK are exempted from income tax on their foreign-derived income and are not subject to withholding taxes on remittance of dividends. Since neither Jacqueline HK nor Junhao HK have any assessable profits for the year ended December 31, 2019 and 2018, no provision for Hong Kong profits tax has been made in the financial statements. We have not provided for deferred income tax liabilities on the PRC entities’ undistributed earnings of RMB nil as of December 31, 2019 and 2018, because we control the timing of the undistributed earnings and it is probable that the earnings will not be distributed. We plan to reinvest those earnings in the PRC indefinitely in the foreseeable future.

China

Under the New EIT Law, domestic enterprises and foreign investment enterprises, or FIEs, are subject to a unified 25% enterprise income tax rate, except for certain entities that are entitled to tax holidays or exemptions.

Under the New EIT Law, dividends paid by an FIE to any of its foreign non-resident enterprise investors are subject to a 10% withholding tax. Thus, the dividends, if and when payable by our PRC subsidiary to its offshore parent entities, would be subject to a 10% withholding tax. A lower tax rate will be applied if such foreign non-resident enterprise investor’s jurisdiction of incorporation has signed a tax treaty or arrangement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income with China. There is such a tax arrangement between the PRC and Hong Kong. Thus, the dividends, if and when payable by Shanxi Jinxuan, our PRC subsidiary to the offshore parent entity located in Hong Kong, would be subject to a 5% withholding tax rather than the statutory rate of 10%, provided that the offshore entities located in Hong Kong meet the requirements stipulated by relevant PRC tax regulations. Furthermore, pursuant to the applicable circular and interpretations of the New EIT Law, dividends from earnings created prior to 2008 but distributed after 2008 are not subject to withholding income tax. Our effective tax rate was 24% and -23% for the years ended December 31, 2019 and 2018, respectively. As a result, $292,956 and $11,567 income tax expense were recognized for the years ended December 31 2019 and 2018, respectively.

Economic and Political Risks

Our operations are conducted in the PRC. Accordingly, our business, financial conditions and results may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

Our operations in the PRC are subject to risks relating to, among others, the political, economic and legal environment and foreign currency exchange. Our results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, industry production regulations and guidance, anti-inflationary measures, currency conversions, remittances abroad, and rates and methods of taxation, among other things.

On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which came into effect on January 1, 2020 and replaced 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.

Results of Operations 

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Revenue

Our revenue for the years ended December 31, 2019 and 2018 were derived from the following sources:

For the years ended December 31, 2019 and 2018, we generated revenue of $6,385,992 and $6,721,728, respectively, with a decrease of $335,736, or 5%. This was mainly due to the decrease of product sales to third parties of $1,465,049, or 22%, for the year ended December 31, 2019 as compared to the year ended December 31, 2018. The decrease of product sales to third parties was due to fewer customers developed in 2019 as we focused on providing agent services for our major customer.

Cost of revenue

Our cost of revenue for the years ended December 31, 2019 and 2018 were $3,984,493 and $5,663,877 respectively.

Our cost of revenue generated from product sales to third parties for the year ended December 31, 2019 was $3,984,493, as compared to $5,663,877 for the year ended December 31, 2018, representing a decrease of $1,679,384, or 30%. For the year ended December 31, 2019, our cost of revenue mainly comprised of coking coal and technical personnel’s performance salary. For the year ended December 31, 2018, our cost of revenue mainly comprised of raw material costs, inbound transportation expense, production costs, depreciation, workers’ salary and site lease. The decrease of cost of revenue was mainly because we only provided agent services in the first nine months of fiscal year 2019, when the revenue is recognized on a net basis and no cost of revenue was recognized. For the last three months of fiscal year 2019, we recognized cost of revenue for our sales of blended coking coal.

Gross profit and gross margin

Our gross profit for the year ended December 31, 2019 was $2,401,499, as compared to $1,057,851 for the year ended December 31, 2018, representing an increase of $1,343,648, or 127%. The overall gross margin increased from 16% in fiscal year 2018 to 38% in 2019. The increase of gross margin was due to the increase in the portion of agent fee from third parties, which had 100% margin, from 1% of our revenue in the fiscal year 2018 to 18% in the fiscal year 2019. The gross profit margin for our product sales was 24% compared with 15% for the year ended December 31, 2018, which was due to the fact that the blended coking coal we sold in 2019 were all clean coal, while in 2018, part of our product sales was steam coal with comparatively lower price and profits.

Operating expenses

The following table sets forth the breakdown of our operating expenses for the years ended December 31, 2019 and 2018:

Selling and marketing expenses

Our selling and marketing expenses consisted primarily of transportation expense and staff salary relating to selling and marketing. Selling and marketing expenses for the year ended December 31, 2019 was $497,198, or 8% of our total revenue, while selling and marketing expenses for the year ended December 31, 2018 was $355,369, or 5% of our total revenue. The increase of $141,829 was mainly due to the increase of shipping and handling expenses.

General and administrative expenses

General and administrative expenses consisted primarily of staff salaries incurred by our general and administrative department, office lease, audit, legal and financial consulting fee. General and administrative expenses were $652,667, or 10%, of total revenue for the year ended December 31, 2019, as compared to $650,845, or 10%, of total revenue for the year ended December 31, 2018, representing a decrease of $1,822.

Other expense, net

Other expense mainly included interest expenses on loan from a third party and bank charges. Other income mainly represented the refund of overpaid income taxes and interest income on deposits placed with commercial banks.

Net income (loss)

As a result of the foregoing, our net income for the year ended December 31, 2019 was $946,535 as compared to net loss $61,924 for the year ended December 31, 2018.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

The following table sets forth key components of our results of operations during the years ended December 31, 2018 and 2017.

Revenue

Our revenue for the years ended December 31, 2018 and 2017 were derived from the following sources:

For the years ended December 31, 2018 and 2017, we generated revenue of $6,721,728 and $179,757 respectively, with an increase of $6,541,971 or 3,639%. This was mainly derived from increase of product sales to third parties of $6,604,166 or 8,261% as compared to the year ended December 31, 2017. In fiscal year 2018, the government deregulated the industry to some extent. As a result, the number of customers increased from 1 in fiscal year 2017 to 12 in fiscal year 2018, and the quantity of coal to product sales increased from 806 tons in in fiscal year 2017 to 85,587 tons in fiscal year 2018.

Cost of revenue

Our cost of revenue for the years ended December 31, 2018 and 2017 were $5,663,877 and $99,274 respectively.

Our cost of revenue mainly comprised of product costs, depreciation, workers’ wages and site rental fees. Our cost of revenue for the year ended December 31, 2018 was $5,663,877, as compare to $99,274 for the year ended December 31, 2017, an increase of $5,564,603 or 5,605%. This was mainly due to the increase of coal cost of $4,940,623 as compared to the same period of 2017. The increase in the cost was due to the significant increase in our sales for the year ended December 31, 2018.

Gross profit and gross margin

For the year ended December 31, 2018, the total gross profit for our product sales was $1,057,851, and the gross profit margin for our product sales was 15% compared with negative 24% for the year ended December 31, 2017. The increase in gross profit was primarily due to the increase of revenue generated from product sale, the stable production overhead expense as well as the decrease of the labor cost. However, the overall gross margin decreased from 45% in fiscal year 2017 to 16% in 2018 due to the greater proportion of revenue generated from product sale to third party. The portion of agent fee from third parties, which has 100% margin, decreased from 56% of our revenue for the fiscal 2017 to 1% in the fiscal year 2018. For the year ended December 31, 2018, our agent fee decreased mainly due to more effort was put into our product sale.

Operating Expenses

The following table sets forth the breakdown of our operating expenses for the years ended December 31, 2018 and 2017:

Selling and marketing expenses

Our selling and marketing expenses consisted primarily of shipping, handling cost and staff salary relating to selling and marketing. Selling and marketing expenses for the year ended December 31, 2018 was $355,369, or 5% of our total revenue, while selling and marketing expenses for the year ended December 31, 2017 was $104,730, or 58% of our total revenue. The increase of $250,639 was mainly due to the increase of shipping and handling expenses.

General and administrative expenses

General and administrative expenses consisted primarily of staff salaries, audit, legal and financial consulting fee incurred by our general and administrative departments. General and administrative expenses were $650,845 or 10% of total revenue for the year ended December 31, 2018, as compared to $722,291 or 402% of total revenue for the year ended December 31, 2017, a decrease of $71,446 or 10%. The decrease was mainly due to the reduction of professional fee related to listing of the Company.

Impairment loss on equipment

We identified impairment indicators for the coal distributor as of December 31, 2018. The coal distributor is an equipment used for coal blending bought in February 2016, and was not regularly used in the daily manufacture. It is not expect to generate future cash inflow to the Company. Thus we recognized full impairment for the equipment in 2018.

Other income (expense)

Other income mainly represented interest income on bank deposit placed with commercial banks. Other expense mainly included interest expenses on loan from a third party and bank charges.

Net loss

As a result of the foregoing, our net loss for the year ended December 31, 2018 was $61,924 as compared to $745,660 for the year ended December 31, 2017.

Liquidity and Capital Resources

Cash and cash equivalent

As of December 31, 2019, we had cash and cash equivalent of $115,440, a decrease of $733,082 from $848,522 as of December 31, 2018, mainly due to net cash used in financing activities of $ 1,420,335  and net cash used in investing activities of $134,635, offset by net cash provided by operating activities of $827,020.

As of December 31, 2018, we had cash and cash equivalent of $848,522, an increase of $844,406 from $4,116 as of December 31, 2017, mainly due to net cash provided by financing activities of $2,335,641 and net cash provided by investing activities of $755,581, offset by net cash used in operating activities of $2,217,943.

Summary of cash flows

The following table summarizes our cash flows for the years ended December 31, 2019, 2018 and 2017:

Cash flow from operating activities

Net cash provided by operating activities was $827,020 for the year ended December 31, 2019, and net cash used in operating activities was $2,217,943 for the year ended December 31, 2018.

Net cash provided by operating activities for the year ended December 31, 2019 was mainly derived from the net income of $946,535, and the increase of accounts payable of $4,198,587, notes payable of $1,833,744, offsetting by the increase of accounts receivable of $6,132,590.

Net cash used in operating activities was $2,217,943 for the year ended December 31, 2018, an increase of $1,342,721 or 153% from $875,222 for the year ended December 31, 2017.

Net cash used in operating activities for the year ended December 31, 2018 was mainly derived from the net loss of $61,924 and the increase of note receivable of $2,633,621, accounts receivable of $237,358, offsetting by the increase of account payable of $235,170 and other payable of $188,607.

Net cash used in operating activities for the year ended December 31, 2017 was mainly derived from a net loss of $745,660.

Cash flow from investing activities

Net cash used in investing activities was $134,635 for the year ended December 31, 2019, and net cash provided by investing activities of $755,581 for the year ended December 31, 2018. Net cash used in investing activities for the year ended December 31, 2019 was due to the purchase of fixed assets.

Net cash provided by investing activities was $755,581 for the year ended December 31, 2018, an increase of $99,924, or 15% from cash provided by investing activities of $655,657 for the year ended December 31, 2017, mainly due to the collection of deposit for acquisition from third parties of $755,581 in 2018.

Net cash provided by investing activities was $655,657 for the year ended December 31, 2017, mainly consisted of repayment from a related party and third parties. We made advances to third parties and related parties in the year ended December 31, 2016, and such advances were classified as cash flow from investing activity.

Cash flow from financing activities

Net cash used in financing activities for the year ended December 31, 2019 was $1,420,335, and net cash provided by financing activities for the year ended December 31, 2018 was $2,335,641. We repaid the loan from a third party in the amount of $2,174,399 and received a loan from a related party, Mr. Xiangyang Guo, in the amount of $724,800 during the year ended December 31, 2019.

Net cash provided by financing activities for the year ended December 31, 2018 was $2,335,641, an increase of $2,169,413 from $166,228 for the year ended December 31, 2017. We obtained a short-term loan from a third party in the amount of $2,336,546 for our operational during the year ended December 31, 2018.

Net cash provided by financing activities for the year ended December 31, 2017 was $166,228, consisted mainly of loans from a third party in the amount of $18,183 and from a related party in the amount of  $148,045 for our operational use. 

Critical Accounting Policies, Estimates and Judgments

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.

Recently issued accounting standards 

The discussion of the recent accounting pronouncements contained in Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies”, is incorporated herein by reference.

Capital Expenditures

We incurred capital expenditures of $134,635, nil, and $215,485 for the fiscal years ended December 31, 2019, 2018, and 2017, respectively. The capital expenditures in 2019, 2018, and 2017 were primarily related to expenditures made in connection with purchase of property and equipment.

Impact of Foreign Currency Fluctuations

Our subsidiaries maintain their books and records in RMB. Our reporting currency is USD. In general, for consolidation purposes, we translate assets and liabilities into USD using the applicable exchange rates prevailing at the balance sheet date, and the statement of income is translated at average exchange rates during the reporting period. Adjustments resulting from the translation of their financial statements are recorded as accumulated other comprehensive income. The foreign currency translation from RMB to USD could materially affect our financial condition and results of operations due to the fluctuation of exchange rate. The exchange rates in effect is shown below:

We did not have any foreign currency investments hedged by currency borrowings or other hedging instruments in fiscal years 2019, 2018, and 2017.  

C. Research and Development, Patents and Licenses, etc.

Research and Development

None. 

D. Trend Information 

Other than disclosed elsewhere in this annual report, we are not aware of any trends, demands, commitments or events for the fiscal year ended December 31, 2019 that are reasonably likely to have a material effect on our net revenue, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not indicative of future results of operations or financial conditions.

E. Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements for the year-ended December 31, 2019 that have or that in the opinion of management are likely to have, a current or future material effect on our financial condition or results of operations.

F. Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2019:

We lease office premise under an operating lease agreement that expires on March 31, 2022.

G. Safe Harbor

This annual report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, among other things, statements relating to:

You should thoroughly read this annual report and the documents that we refer to in this annual report with the understanding that our actual results in the future may be materially different from or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this annual report include additional factors which could adversely affect our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report.

The forward-looking statements made in this annual report relate only to events or information as of the date on which these statements are made in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this annual report. You should not rely upon forward-looking statements as predictions of future events.

Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth information regarding our directors and executive officers as of the date of this annual report. The business address of all of our directors and executive officers is T4-1802-1812, Huarun Building, No.1 Changxin Road, Wanbailin District, Taiyuan, Shanxi, the PRC.

The following is a brief biography of each of our executive officers and directors:

Mr. Xiangyang Guo has served as the Company’s Chief Executive Officer since July 1, 2017, and the Chairman of our board since December 20, 2016. He has also served as Shanxi Jinxuan’s chairman and member of Shanxi Jinxuan’s board since December 20, 2016. Mr. Guo has also been the President of the Supervisory Board of Beijing Jinxuan Investment Co., Ltd. (“Beijing Jinxuan”), a related party of the Company, since February 2015. Mr. Guo attended Xiamen University and graduated with bachelor degrees in both Management and Law. 

Mr. Shi jointly operated a private kindergarten with his business partners from January 2014 to June 2019. From October 2009 to December 2013, Mr. Shi handled issues and matters associated with the dissolution of Shanxi Wulin Metallurgical Group Co., Ltd. (“Wulin Group”). From November 2006 to September 2009, Mr. Shi served as the general manager of Wulin Group. From November 2005 to October 2006, Mr. Shi served as the general manager of Shanxi Qipanshan Foundry Coke Co., Ltd. From October 1989 to October 2005, Mr. Shi held multiple positions at Wulin Group successively, including accountant, financial director, audit director, deputy chief accountant and financial deputy general manager. Mr. Shi is an auditor with intermediate level certification and an accountant with intermediate level certification.

B. Compensation of Directors and Executive Officers

Compensation of Directors and Executive Officers

For the year ended December 31, 2019, we paid an aggregate amount of RMB730,295 ($105,864) in cash compensation to our directors and executive officers. 

Our PRC subsidiary is required by PRC laws and regulations to make contributions equal to certain percentages of each employee’s salary for his or her retirement benefit, medical insurance benefits, housing funds, unemployment and other statutory benefits. Our PRC subsidiary paid retirement and similar benefits for our officers and directors in the year ended December 31, 2019.

Employment Agreements

On July 1, 2017, we entered into the employment agreement with our CEO, Mr. Xiangyang Guo. On November 15, 2019, we entered into the employment agreement with our CFO, Yajun Shi.

Each of our executive officers is employed for a specified time period, which will be renewed upon both parties’ agreement thirty days before the end of the current employment term. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, including but not limited to the commitments of any serious or persistent breach or non-observance of the terms and conditions of the employment, conviction of a criminal offense, willful disobedience of a lawful and reasonable order, fraud or dishonesty, receipt of bribery, or severe neglect of his or her duties. An executive officer may terminate his or her employment at any time with a one-month prior written notice. Each executive officer has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information.

Our employment agreement with Mr. Xiangyang Guo, our CEO, had a term of January 1, 2017, to December 31, 2019, with an annual salary of $9,000. Our employment relationship with Mr. Xiangyang Guo was automatically renewed for one additional year on January 1, 2020 pursuant to the terms of the employment agreement.

Our employment agreement with Mr. Yajun Shi, our CFO, has a term of November 15, 2019, to November 14, 2022, with an annual salary of RMB103,200 ($14,960).

C. Board Practices

Board of Directors

Our board of directors currently consists of one director. Currently, our director is not “independent” as that term is defined in Rule 10A-3 under the Exchange Act, since our director is the Chief Executive Officer of our Company. Furthermore, our board of directors are not required to meet the “independence” requirements of Rule 10A-3 under the Exchange Act. A director is not required to hold any shares in our company to qualify to serve as a director. Subject to any separate requirement pursuant to our Articles of Association, a director may vote with respect to any contract, transaction or arrangement in which he or she is materially interested provided the nature of the interest is disclosed prior to its consideration and as long as he has not been disqualified by the chairman of the relevant board meeting.

Committees of the Board of Directors

Our board of directors has not established any committees, including an audit committee, a compensation committee, a nominating committee or any committee performing a similar function. The functions of those committees are being undertaken by the board of directors. Because we do not have any independent directors, our board of directors believes that the establishment of committees of the board of directors would not provide any benefits to our company and could be considered more form than substance.

Family Relationships

There is no family relationship among any of our director or executive officers.

Duties of Directors

Subject to the provisions of the Cayman Companies Law, our amended and restated memorandum and articles, our business shall be managed by the directors, who may exercise all our powers. No prior act of the directors shall be invalidated by any subsequent alteration of our memorandum or articles. However, to the extent allowed by the Cayman Companies Law, shareholders may by special resolution validate any prior or future act of the directors which would otherwise be in breach of their duties.

The directors may delegate any of their powers to any committee consisting of one or more persons who need not be shareholders and may include non-directors so long as the majority of those persons are directors; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the directors.

The board of directors may establish any local or divisional board of directors or agency and delegate to it its powers and authorities (with power to sub-delegate) for managing any of our affairs whether in the Cayman Islands or elsewhere and may appoint any persons to be members of a local or divisional board of directors, or to be managers or agents, and may fix their remuneration.

The directors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, either generally or in respect of any specific matter, to be our agent with or without authority for that person to delegate all or any of that person’s powers.

The directors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, whether nominated directly or indirectly by the directors, to be our attorney or our authorized signatory and for such period and subject to such conditions as they may think fit. The powers, authorities and discretions, however, must not exceed those vested in, or exercisable, by the directors under the articles.

The board of directors may remove any person so appointed and may revoke or vary the delegation.

The directors may exercise all of our powers to borrow money and to mortgage or charge its undertaking, property and assets both present and future and uncalled capital or any part thereof, to issue debentures and other securities whether outright or as collateral security for any debt, liability or obligation of ours or our parent undertaking (if any) or any subsidiary undertaking of us or of any third party.

A director shall not, as a director, vote in respect of any contract, transaction, arrangement or proposal in which he has an interest which (together with any interest of any person connected with him) is a material interest (otherwise then by virtue of his interests, direct or indirect, in shares or debentures or other securities of, or otherwise in or through, us) and if he shall do so his vote shall not be counted, nor in relation thereto shall he be counted in the quorum present at the meeting, but (in the absence of some other material interest than is mentioned below) none of these prohibitions shall apply to:

(a) the giving of any security, guarantee or indemnity in respect of:

(i) money lent or obligations incurred by him or by any other person for our benefit or any of our subsidiaries; or

(ii) a debt or obligation of ours or any of our subsidiaries for which the director himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security;

(b) where we or any of our subsidiaries is offering securities in which offer the director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which the director is to or may participate;

(c) any contract, transaction, arrangement or proposal affecting any other body corporate in which he is interested, directly or indirectly and whether as an officer, shareholder, creditor or otherwise howsoever, provided that he (together with persons connected with him) does not to his knowledge hold an interest representing one per cent or more of any class of the equity share capital of such body corporate (or of any third body corporate through which his interest is derived) or of the voting rights available to shareholders of the relevant body corporate;

(d) any act or thing done or to be done in respect of any arrangement for the benefit of the employees of us or any of our subsidiaries under which he is not accorded as a director any privilege or advantage not generally accorded to the employees to whom such arrangement relates; or

(e) any matter connected with the purchase or maintenance for any director of insurance against any liability or (to the extent permitted by the Cayman Companies Law) indemnities in favor of directors, the funding of expenditure by one or more directors in defending proceedings against him or them or the doing of anything to enable such director or directors to avoid incurring such expenditure.

A director may, as a director, vote (and be counted in the quorum) in respect of any contract, transaction, arrangement or proposal in which he has an interest which is not a material interest or as described above.

Terms of Directors and Officers

Our officers are elected by and serve at the discretion of the board of directors and the shareholders voting by ordinary resolution.

D. Employees

As of December 31, 2019, we had 15 full time employees , all of whom are full-time. There is no labor union. We believe our relations with our employees are good. As required by PRC laws and regulations, we participate in various employee social security plans for our employees that are administrated by local governments, including housing, pension, medical insurance, and unemployment insurance. We compensate our employees with basic salaries.

E. Share Ownership

The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our Ordinary Shares as of the date of this annual report.

Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. Percentage of beneficial ownership of each listed person prior to this offering is based on 14,333,334 Ordinary Shares outstanding as of the date of this annual report .

Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of 5% or more of our Ordinary Shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of Ordinary Shares beneficially owned by a person listed below and the percentage ownership of such person, Ordinary Shares underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this annual report are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise indicated in the footnotes to this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for all Ordinary Shares shown as beneficially owned by them. As of the date of the annual report, we have four shareholders of record holding beneficial ownership of 5% or more, none of which are located in the United States.

Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Please refer to “Item 6. Directors, Senior Management and Employees — E. Share Ownership.”

B. Related Party Transactions

Material Transactions with Related Parties 

Mr. Yonghong Che was the controlling shareholder, director, and general manager of Shanxi Jinxuan prior to February 2015 and one of the principal shareholders of Shanxi Jinxuan from December 31, 2016, to June 19, 2017. Mr. Che is also a 10% beneficial owner of the Company.

Mr. Xiangyang Guo, as the Company’s CEO, director, and chairman of the board, is a related party of the Company.

Mr. Bingshan Guo, as a 25% beneficial owner of the Company, has been a related party of the Company since August 5, 2017.

Hongxing had been a related party of Shanxi Jinxuan from March 1, 2015, to December 21, 2016, during which time Beijing Jinxuan was the 100% owner of Shanxi Jinxuan and Feiyue Mao was the beneficial owner of Beijing Jinxuan. During the same period and as of the date of this report, Feiyue Mao was and is the general manager and legal representative of Hongxing.

See “Item 4. Information on the Company—C. Organizational Structure.”

Payables to Related Party

For the year ended December 31, 2015, we received a non-interest bearing loan from Mr. Yonghong Che in the amount of $80,303. As of December 31, 2018, $50,996 of the loan was outstanding. As of December 31, 2019, we had fully repaid the loan.

For the year ended December 31, 2019, 2018 and 2017, we received advances from Mr. Bingshan Guo in the amount of nil, nil and $222,362, for purposes of paying professional service fees incurred by the Company in connection with our initial public offering in 2017. The advances from Mr. Bingshan Guo were interest-free and due on demand. As of December 31, 2019 and as of the date of this annual report, $198,556 is due to Mr. Bingshan Guo.

For the year ended December 31,2019, 2018 and 2017, we received advances from Mr. Xiangyang Guo in the amount of $724,800, nil and $153,547 for purposes of our operational activities. As of December 31, 2019, $860,067 was due to Mr. Xiangyang Guo.

Employment Agreements

See “Item 6. Directors, Senior Management and Employees — B. Compensation — Employment Agreements”.

C. Interests of Experts and Counsel

Not applicable.

Item 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

We have appended consolidated financial statements filed as part of this annual report.

Legal Proceedings

From time to time, we are subject to legal proceedings, investigations and claims incidental to the conduct of our business. We are not currently a party to any legal proceeding or investigation which, in the opinion of our management, is likely to have a material adverse effect on our business, financial condition or results of operations.  

Dividend Policy

We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.

Under Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts due in the ordinary course of business.

If we determine to pay dividends on any of our Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our BVI subsidiary, Jinxuan BVI.

Current PRC regulations permit our indirect PRC subsidiary to pay dividends to Jacqueline HK and Junhao HK from the revenues from the operations of our PRC operating entity, Shanxi Jinxuan, if any, determined in accordance with Chinese accounting standards and regulations. In addition, our subsidiary in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.

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. Furthermore, if our subsidiaries and affiliates in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from the operations of our PRC operating entity, Shanxi Jinxuan, we may be unable to pay dividends on our Ordinary Shares.

Cash dividends, if any, on our Ordinary Shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%.

Generally, there is no prior SAFE approval required for remitting dividends of a foreign invested enterprise. According to Circular of Foreign Exchange on Further Facilitating Trades and Investments and Improving Authenticity Check by SAFE, effective as of April 26, 2016, when handling the outward remittance of profits exceeding the equivalent of USD50,000 for an enterprise incorporated in the PRC, a bank shall, based on the truthful transaction principle, review the enterprise’s board resolution on profit distribution (or partners’ resolution on profit distribution) in connection with the remittance, the originally filed tax registration form and financial statements evidencing the profits. Upon completion of the remittance, the bank shall affix the seal and provide endorsement to the original tax registration form stating the actual amount remitted and the date of remittance.

Our board of directors has complete discretion on whether to pay dividends, subject to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our Ordinary Shares. Cash dividends on our Ordinary Shares, if any, will be paid in U.S. dollars.

B. Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report. 

Item 9. THE OFFER AND LISTING

A. Offering and Listing Details.

We filed a Registration Statement on Form F-1 for the sale of up to 1,000,000 Shares of Ordinary Shares, for $0.08 per share, on January 30, 2018, which became effective on March 22, 2018. On September 28, 2018, we completed the sale of 1,000,000 Shares of Ordinary Shares for $0.08 per share. Our Ordinary Shares are not currently quoted on any market, but we are in the process of working with market makers to file an application to OTC Markets Group Inc. for quotation on OTCBB.

B. Plan of Distribution

Not applicable.

C. Markets

Our Ordinary Shares are not currently quoted on any market, but we are in the process of working with market makers to file an application to OTC Markets Group Inc. for quotation on OTCBB.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Amended and Restated Memorandum and Articles of Association

We incorporate by reference into this annual report our amended and restated memorandum and articles of association filed as Exhibit 3.1 to our F-1 registration statement (File No. 333-222784) filed with the SEC on January 30, 2018.

C. Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company”, “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions,” or elsewhere in this annual report.

D. Exchange Controls

See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Foreign Exchange” and “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Dividend Distribution.”

E. Taxation

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes levied by the Government of the Cayman Islands that are likely to be material to holders of Ordinary Shares. The Cayman Islands are not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.

People’s Republic of China Taxation

Under the EIT Law, an enterprise established outside the PRC with a “de facto management body” within the PRC is considered a PRC resident enterprise for PRC corporate income tax purposes and is generally subject to a uniform 25% corporate income tax rate on its worldwide income as well as tax reporting obligations. Under the Implementation Rules, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, the SAT Circular 82 issued in April 2009 specifies that certain offshore-incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if all of the following conditions are met: (a) senior management personnel and core management departments in charge of the daily operations of the enterprises have their presence mainly in the PRC; (b) their financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises, and minutes and files of their board’s and shareholders’ meetings are located or kept in the PRC; and (d) half or more of the enterprises’ directors or senior management personnel with voting rights habitually reside in the PRC. Further to SAT Circular 82, the SAT issued SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on PRC resident enterprise status and administration on post-determination matters. If the PRC tax authorities determine that the Company is a PRC resident enterprise for PRC corporate income tax purposes, a number of unfavorable PRC tax consequences could follow. For example, Shanxi Jinxuan may be subject to corporate income tax at a rate of 25% with respect to its worldwide taxable income. Also, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our Ordinary Shares and potentially a 20% of withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and with respect to gains derived by our non-PRC individual shareholders from transferring our Ordinary Shares.

It is unclear whether, if we are considered a PRC resident enterprise, holders of our Ordinary Shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. See “Item 3. Key Information—D. Risk Factors—Risk Factors Relating to Doing Business in China—Under the PRC Enterprise Income Tax Law, or the ‘EIT Law’, we may be classified as a ‘resident enterprise’ of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders. Such classification would likely result in unfavorable tax consequences to us and our non-PRC Shareholders and have a material adverse effect on our results of operations”.

United States Federal Income Tax Considerations

The following does not address the tax consequences to any particular investor or to persons in special tax situations such as: