ITEM 1. BUSINESS.
On January 15, 2018,
we acquired all of the issued and outstanding shares of the capital stock of PBG Water International Solutions, Inc. a Nevada corporation
(“PBG”). PBG was organized to explore the market in the United States for wastewater treatment solutions and subsequently
expanded its focus to markets outside the United States. Previously, PBG had entered into a License and Supply Agreement (the “License
Agreement”) with Beijing QHY Environment S&T Co. Ltd. (“Beijing QHY”), a corporation organized under the
laws of the People’s Republic of China (the “Licensor”), pursuant to which PBG was granted the exclusive right
to 21 patents and related technologies related to wastewater treatment solutions.
Organizational History
We
were incorporated in the state of Nevada on October 16, 2007. On September 13, 2011, we consummated a Share Exchange Agreement
with the shareholders of Vast Glory Holdings Limited, pursuant to which we acquired 100% of the outstanding capital stock of Vast
Glory. At the time of the acquisition, Vast Glory controlled the operations of and was entitled to receive the pre-tax profits
of its variable interest entity, Changchun Decens Foods Co., Ltd. (“Decens Foods”), a PRC company.
In
July 2014, we filed a Form 15 and elected to cease filing under the Exchange Act. Subsequently, on July 23, 2014, we entered into
an agreement with Decens Foods and its shareholders relinquishing our interests in Decens Foods to its shareholders in China. Concurrently,
we disposed of our interest in Vast Glory and hence, the entities owned by it. Consequently, as of July 31, 2014, we were once
again a corporation with no business and minimal or nominal assets.
On January 15, 2018,
we acquired all of the issued and outstanding shares of the capital stock of PBG in exchange for 46,839,439 shares of common stock
and 19,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) pursuant to an Exchange Agreement
dated as of November 17, 2017 (The “Exchange Agreement”). Each share of Series A Preferred Stock was subsequently converted
into 1,000 shares of our common stock on April 18, 2018.
Our
organizational structure is as follows:
The
acquisition of PBG was accounted for as a “reverse acquisition”, whereby PBG is the continuing entity for financial
reporting purposes and was deemed, for accounting purposes, to be the acquirer of our company. Although we legally acquired
PBG, in accordance with the applicable accounting guidance for accounting for a reverse acquisition, PBG’s historical financial
statements are now the financial statements of the registrant and its assets and liabilities were brought forward at their historical
book value and no goodwill was been recognized.
On May 14, 2018 we
filed a registration statement on Form 10 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
registering our common stock, as a result of which we became subject to all of the reporting obligations imposed by Section 13(a)
of the Exchange Act.
On July 31, 2018, we
changed our corporate name to QHY Group.
Business Overview
In April 2017, we entered
into a License and Supply Agreement (the “License Agreement”) with Beijing QHY Environment S&T Co. Ltd. and Mr.
Mao Xu, pursuant to which we acquired the exclusive right to 21 patents and related technologies for the treatment of wastewater.
The License Agreement was subsequently amended in certain respects. The patents subject to the License as amended include two international
patents and 19 Chinese national patents covering a variety of compositions, processes and equipment which can be used to treat
wastewater. The agreement grants us the worldwide exclusive right to use the technologies which are the subject of the License
for a term extending through June 30, 2037, or, if later, the last to expire of the patents which are the subject of the License.
The patents relate to various compounds, methodologies and equipment used in the treatment of wastewater. The License requires
that we pay a royalty equal to 1% of our net revenues, as defined in the License, with a one-time fee of $1 million to be paid
no later than December 31, 2021. Mao Xu, our Chairman of the Board and Chief Executive Officer, is a significant shareholder of
our Company and owns a majority of the outstanding shares of Beijing QHY Environment S&T Co. Ltd. (the “Beijing QHY”).
Although we entered
into the License Agreement and an Amendment to the License Agreement, certain key provisions, including the specific products to
be sold to us by Beijing QHY, the specifications for such products and trademarks to be developed by Beijing QHY which we will
be permitted to use, have not been agreed upon and included in the License, in part because Beijing QHY continues to modify the
products in response to the needs and requests of prospective customers. The parties will agree upon these provisions, including
the price to be charged for each product, at the time products are ordered by customers.
We initially intended
to recruit personnel in the United States to commence efforts to market solutions for the treatment of wastewater based upon the
intellectual property acquired pursuant to the Licensing Agreement. These solutions include stand-alone processing plants designed
to be transported, housed and maintained in standard shipping containers and mineral based compounds used to treat the subject
wastewaters. Commencing in late 2018, however, we began to explore the market for our products outside the United States
In addition to licensing
certain key technologies from Beijing QHY, we will likely purchase from Beijing QHY any equipment, supplies and other consumables
ordered by our clients. The prices at which such items are acquired by us will be determined by negotiation between Beijing QHY
and our directors.
The systems to be provided
by us are based upon advanced principles associated with flocculation, coagulation and separation. The main ingredient, referred
to as Yiyou ion separation purifier, is a natural mineral based powder that under the right conditions breaks the ionic bonds in
organic and inorganic matters in wastewater. The substances then re-bond with positive and negative ions in Yiyou, causing the
pollutants to cohere initially into micro particles and over a short time, into larger particles which fall to the bottom of the
processing container allowing the “clean” water to be siphoned off for further treatment depending upon the desired
quality of the water. Because of the speed at which our systems can cleanse certain wastewater streams, it may be particularly
useful in a variety of situations where the goal is not to purify the water to the point where it can be consumed by humans or
animals but rather simply eliminate a sufficient quantity of the pollutants to allow the water to be recycled into rivers or lakes
or reused in an industrial process.
Our systems have been
demonstrated to be effective in the treatment of various streams of wastewater and, in our estimation, can economically be used
to treat wastewater in a variety of industries as well as polluted lakes and ponds. To date, in addition to laboratory studies,
we have conducted demonstrations in the field for potential customers. These have included the decentralized treatment of wastewater
for a local government in Bazhou, Hebei Province, China; the treatment of sewage drains along the Suzhou River in Shanghai, China;
the treatment of liquids pooled in a leachate refuse landfill in Henan Province, China; the treatment of industrial, shale wastewater,
in Colorado, where our system was tested against that developed by Armada Water Assets; the treatment of wastewater generated by
a mining operation in Kellogg, Idaho; the treatment of the liquid discharge from a paper producing facility in Oklahoma and the
treatment of wastewater removed from a settling pond on an industrialized hog farm. In each of these cases, our system was shown
to be effective in reducing the amount of pollutants in the effluent treated and the systems remain in operation in Shanghai and
Hebei, China.
A principle advantage
of our system is that the processing plant has been designed to be housed in a standard international shipping container, allowing
for easy transportation and installation. Once a container arrives at a designated site, there is little to do beyond hooking it
up to a power source and adding the necessary connecting pipes. Systems can be scaled to meet a customer’s needs simply by
adding more processing containers.
We envision that our
systems can be used in a variety of industries, such as industrial wastewater treatment where the pollutants include chemicals,
heavy metals and mining runoff; sewage treatment and the purification of waste ponds typically found on industrial sized poultry,
pork and cattle farms; residential wastewater treatment where the pollutants vary and can be combined with industrial wastes and
rainwater runoff. Significantly, because of the portability and size of the basic processing plant, our systems can easily be combined
with other common methods of treating wastewaters to enhance their effectiveness and efficiency.
In September 2019,
the Commonwealth Scientific and Industrial Research Organization (CSIRO), an independent Australian federal government agency responsible
for scientific research, completed a preliminary evaluation of our technology for the removal of a number of perfluoroalkyl substances
(PFAS) from wastewater. CSIRO’s preliminary investigation on the ability of our technology to remove four PFAS compounds
commonly found in water, perfluorobutanoic acid (PFBA), perfluorohexane sulfonic acid (PFHxS), perfluorooctanoic acid (PFOA) and
perfluorooctane sulfonic acid (PFOS). The four were chosen as representative of the group of PFAS compounds for this proof of concept
study. The report states that the study assessed the extent of removal of the four PFAS compounds, PFBA, PFHxS, PFOA and PFOS,
and demonstrated that our product is nearly 100% effective at removing them from filtered wastewater solutions within minutes.
According to the United
States Environmental Protection Agency (US EPA), PFAS are a group of man-made chemicals that includes PFOA, PFOS, GenX, and other
chemicals. PFAS have been manufactured and used in a variety of industries around the globe since the 1940s and are still in use
today. PFOA and PFOS have been the most extensively produced and studied of these chemicals. Both chemicals are very persistent
in the environment and in the human body -- they accumulate over time and don’t break down. There is evidence that exposure
to PFAS can lead to adverse human health effects. US EPA has started to take actions to support states, tribes and local communities
in addressing challenges with PFAS, and identify solutions to address PFAS in the environment, including but not limited to PFOA
Stewardship Program, Draft Interim Recommendations for Addressing Groundwater Contaminated with PFOA and PFOS, etc.
We believe, based on
our own observations and in part on a report issued by the China Society for Environmental Sciences in November 2015, that the
technology underlying our System is advanced in the sense that:
|
●
|
used on a standalone basis it effectively removes various water contaminants to meet dischargeable standards, but it can be combined with other water treatment technics, such as Biological Reduction, Reverse Osmosis, Permeable Reactive Barriers, etc., to meet more stringent requirements desired by a customer;
|
|
●
|
our system is generally less expensive than treatment systems using traditional polymeric flocculants - polyaluminum chloride (PAC) and polyacrylamide (PAM)- in that the capital investment required is less than that of traditional systems, the utility (power) costs are less than that of traditional systems and the footprint of a system of ours, a standardized shipping container is smaller than that associated with traditional systems;
|
|
●
|
our system requires less time to remove pollutants than that required by traditional methods. This allows our system to act as a nearly continuous flow system where the wastewater moves from one chamber to another within the “shipping container” as the pollutants drop to the bottom leaving a clear liquid at the top of the container to be siphoned off;
|
|
●
|
our system can be housed in a mobile shipping container where multiple containers can be aggregated to form a larger unit. This allows for flexibility in design and reduced space needs;
|
|
●
|
The active ingredient in our system is a naturally occurring non-toxic mineral based powder that under the right conditions breaks the ionic bonds in organic and inorganic matters in wastewaters. The result is that the system produces two outputs – water to the desired purity and a non-hazardous odorless sludge which can easily be disposed. No secondary pollutant is created.
|
The Market
The demand for clean
pollutant free water continues to grow. As the supply of water is limited and the population continues to grow, the market for
technologies designed to recapture contaminated water so that it can be recycled for industrial uses or purified for use as drinking
water continues to expand. The processes employed to clean water range from simple gravity ponds to engineered chemical treatments.
According to Hexa Research, the global water and wastewater treatment market was approximately $478 billion in 2016 and is expected
to grow to nearly $675 billion by 2025.
Competition
The market for wastewater
and industrial wastewater treatment can be divided by industry, the processing method used to treat the wastewater and whether
the output is intended to be used for industrial purposes or human and animal consumption. Although there are certain well-known
technologies employed across a variety of industries, often a customer requires an engineered solution unique to its needs and
a number of technologies are combined to achieve the desired result. Consequently, the sales cycle is often long and tedious requiring
one on one meetings at which the provider convinces the prospective customer of the benefits of its system. Given that adoption
of a system often requires significant capital expenditures, customers are reluctant to switch to new, unproven systems. As a result,
we intend to market our systems to entities first seeking to treat their wastewaters and in situations where we believe the portability
and scalability of our processing system will prove advantageous.
There are numerous
large, highly sophisticated and well financed engineering firms and other entities engaged in the design of water treatment facilities.
Competitors range from those capable of designing, maintaining and operating large municipal water facilities, those dealing with
the disposal needs of laboratories, hospitals and other medical facilities and those engaged in recycling water used on farms.
Regulation
Our existing and planned
water operations are subject to extensive national, provincial and local laws and regulations in China, which govern the protection
of the environment, health and safety, water allocation rights, and the manner in which we collect, treat, discharge and dispose
of wastewater. Our planned operations in other countries including the United States, will be also subject to regulatory standards
and code enforcement, which typically require that our solutions and products meet stringent performance criteria.
In the United States,
these requirements include the United States Clean Water Act of 1972. The Clean Water Act regulates discharges of wastewater treatment
facilities into lakes, rivers, streams and groundwater. In addition to requirements applicable to our wastewater collection systems,
our operations require discharge permits under the National Pollutant Discharge Elimination System (“NPDES”) permit
program established under the Clean Water Act, which must be renewed every five years. Pursuant to the NPDES permit program, the
Environmental Protection Agency (“EPA”) and implementing states set maximum discharge limits for wastewater effluents
and overflows from wastewater collection systems. Discharges that exceed the limits specified under NPDES permits can lead to the
imposition of penalties, and persistent non-compliance could lead to significant penalties and compliance costs. The Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), authorizes the EPA, and comparable state
laws authorize state environmental authorities, to issue orders and bring enforcement actions to compel responsible parties to
investigate and take remedial actions at any site that is determined to present an actual or potential threat to human health or
the environment because of an actual or threatened release of one or more hazardous substances. If we enter into operations of
utilities that provide water and wastewater services to residential, commercial, industrial, and public, we will be subject to
economic regulation by certain state utility commissions or other entities engaged in utility regulation, collectively referred
to as Public Utility Commissions (“PUCs”).
International standards
that will regulate our operations are established by such organizations as the International Code Council (ICC), the International
Association of Plumbing and Mechanical Officials (IAPMO), and the national regulatory standards that vary by country. For example,
major standards and guidelines in European countries include Kiwa NV (Netherlands), Association Française de Normalisation
(France), Swiss Gas and Water Industry Association (Switzerland), Water Regulations Advisory Scheme (UK).
We also may be required
to obtain various environmental permits from regulatory agencies for our operations. Certain of these permits require substantial
lead time to obtain and, once obtained, require that certain compliance tasks must be completed on a regular basis in order to
maintain such permits.
In developing business
opportunities, we have undertaken various trial wastewater treatment projects with potential customers, and independent certified
institutions were engaged to assess the output of each project. In each case, the results met the regulatory standards the potential
customer had targeted. The wastewater we ran trials on included the discharge from a lead-zinc mining operation, an industrial
sized cattle farm, a paper mill, a polluted urban river, industrial park sewages, and an oil and gas field.
Employees
We currently have two
officers and five employees. In seeking to market our water solutions business, we have relied heavily on the efforts of our principal
shareholders, Mao Xu and Roy Teng, and from time to time we have engaged various independent contractors.
ITEM 1A. RISK FACTORS.
An investment in
our common stock involves a high degree of risk. You should carefully consider the following risk factors in addition to other
information in this Report before purchasing our common stock. The risks and uncertainties described below are those that we currently
deem to be material and that we believe are specific to our company, our industry and our stock. In addition to these risks, our
business may be subject to risks currently unknown to us. If any of these or other risks actually occurs, our business may be adversely
affected, the trading price of our common stock may decline and you may lose all or part of your investment.
Risks Related to Our Operations
COVID – 19 Pandemic
The financial statements
contained in this Report as well as the description of our business contained herein, unless otherwise indicated, principally reflect
the status of our business and the results of our operations as of December 31, 2020. Economies throughout the world have been
severely disrupted by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes
as a result of the outbreak of the COVID-19 Coronavirus. Although we remain in the marketing stage, our efforts to develop and
market our products and raise necessary capital have been and will likely be further adversely impacted by the outbreak of COVID-19,
in particular as a result of travel restrictions and quarantine orders adopted in China, and we cannot forecast with any certainty
when the disruptions caused by COVID – 19 will no longer impact our business and the results of our operations. In reading
the risk factors set forth below, in each case, consider the additional uncertainties caused by the outbreak of COVID – 19
and the possibility that additional uncertainties and disruptions may result from future health related outbreaks.
We have not generated any revenues
and may not be able to continue to operate as a going concern.
We have not generated
any revenues and suffered net losses of $819,516 and $1,219,623 for the years ended December 31, 2020 and 2019, respectively, and
at December 31, 2020, we had an accumulated deficit of $7,296,236. The report of our independent registered public accountants
on our financial statements as of and for the years ended December 31, 2020 and 2019 states that these and other factors raise
uncertainty about our ability to continue as a going concern.
We require significant funding to
commence operations.
In order to carry out
our intended business plan, we will require significant funding to fund operating expenses prior to generating significant revenues.
There is no guarantee that we will be able to raise sufficient capital to implement our plan of operations. The inability to obtain
any such funding could materially affect our ability to implement our business plan.
The proceeds of the sale of our common
stock completed in December 2018 may not be available to pay our expenses.
The proceeds from the
sale of our common stock to seven investors completed in December 2018 were collected by a related party located in China and are
to be used to pay to manufacturers in China for the wastewater treatment equipment we would purchase if we received an order and
likely will not be available to us to pay our expenses. As of December 31, 2020, other than such proceeds which are considered
“due from a related party”, we had a minimal amount of cash on hand, clearly not sufficient to fund ongoing operations.
We will need to continue to rely on loans from our major shareholders and directors for payments of expenditures other than those
for equipment purchased from manufacturers in China.
We are subject to significant operating
risks.
Our business is subject
to numerous risks associated with a new, under-capitalized company engaged in our business sector. Such risks include, but are
not limited to, the need to gain the confidence of potential customers, competition from well-established and well-capitalized
companies, risks associated with pricing, volumes and demand for wastewater treatment services, regulatory and environmental risks,
as well as unanticipated difficulties regarding the marketing and sale of our services. There can be no assurance that we will
ever generate commercial sales or achieve profitability. Should this be the case, our common stock would become worthless and investors
in our common stock or other securities could lose their entire investment.
Certain members of our management are
not familiar with American business practices.
Mr. Mao Xu, our Chairman
and a principal shareholder, is a citizen of the People’s Republic of China. Mr. Mao is not familiar with American business
practices. Mr. Mao’s lack of familiarity with American business practices may adversely impact our ability to raise capital
and market our products.
Risks Related to our Growth
We depend on our significant shareholders,
without whose services our business operations could be adversely affected or cease.
At this time, our significant
shareholders wholly responsible for the development and execution of our business plan. If these shareholders should choose to
cease their efforts on our behalf before we hire additional personnel, our operations could be adversely effected. Even if we are
able to find additional personnel, it is uncertain whether we could find qualified management who could develop our business along
the lines described herein or would be willing to work for compensation that we could afford.
We will need to increase the size
of our organization and may experience difficulties in managing growth.
We are a small company
with a limited management team, limited corporate infrastructure and limited resources. We expect to experience a period of significant
expansion in headcount, facilities, infrastructure and overhead to address potential growth and market opportunities and to meet
our reporting requirements under the Exchange Act. Future growth will impose significant added capital requirements, as well as
added responsibilities on members of management, including the need to identify, recruit, maintain and integrate new personnel.
Our future financial performance and our ability to compete effectively will depend, in part, on our ability to manage any future
growth effectively.
We expect our operating expenses
to increase substantially as we attempt to grow our business and we may need to raise additional funds to meet the demands of growth
initiatives.
We expect that our
operating expenses will increase substantially as we endeavor to implement growth initiatives by marketing our products. As a result,
we may need to raise additional funds in the future, and such funds may not be available on commercially reasonable terms, if at
all. If we cannot raise funds on acceptable terms, we may not be able to implement our business plan, take advantage of future
opportunities, or respond to competitive pressures or unanticipated requirements. This could seriously harm our business, financial
condition and results of operations.
To meet our capital
needs, we may be required to make additional borrowings or be required to issue debt securities in the capital markets. We can
provide no assurances that we will be able to access the debt capital markets or do so on favorable terms. We will depend primarily
on operations to fund our expenses and to pay the principal and interest on any debt we may incur. Our ability to meet our expenses
depends on our future performance, which will be affected by financial, business, economic, competitive, legislative, regulatory
and other factors beyond our control. If our business does not generate sufficient cash flow from operations or if we are unable
to incur indebtedness sufficient to enable us to fund our liquidity needs, we may be unable to plan for or respond to changes in
our business which would prevent us from maintaining or increasing our business and cause our operating results and prospects to
be affected adversely.
We may not be able to fully develop
the water treatment solutions we are presently targeting.
We believe that one
of our competitive advantages will be our ability to develop all-inclusive services that offer proprietary and innovative water
treatment systems and solutions. The technologies we have licensed and on which we depend have only recently been developed. We
have not engaged independent engineers or our own personnel to conduct testing to determine the long-term effectiveness of such
systems, nor have we deployed these solutions with any customers to determine commercial acceptance. Accordingly, we can offer
no assurances as to the effectiveness or commercial viability of our treatment systems.
Our proposed water treatment solutions
are unproven and may not achieve widespread market acceptance among prospective customers. If we are unable to sell our water treatment
systems, our business will suffer.
Our solutions and processes
for water treatment will compete with other forms of water treatment technologies that currently are in operation or may be developed
throughout the world. Our water treatment solutions and the systems on which they are based may not achieve widespread market acceptance.
Our success with our water treatment solutions will depend on our ability to market our system and services to businesses on terms
and conditions acceptable to us and to establish and maintain successful relationships with various water providers and state regulatory
agencies.
We believe that market
acceptance of our systems will depend on many factors including:
|
●
|
our current and future relationships with market participants;
|
|
●
|
the perceived advantages of our systems over competing water treatment solutions;
|
|
●
|
the safety and efficacy of our systems;
|
|
●
|
the availability of alternative water treatment solutions;
|
|
●
|
the pricing and cost effectiveness of our systems;
|
|
●
|
our ability to access businesses and water providers that may use our systems;
|
|
●
|
the effectiveness of our sales and marketing efforts;
|
|
●
|
publicity concerning our systems and technology or competitive solutions;
|
|
●
|
timeliness in assembling and installing our systems on or near customer sites;
|
|
|
|
|
●
|
our ability to respond to changes in regulations; and
|
|
●
|
our ability to provide effective service and maintenance of our systems to our customers’ satisfaction.
|
If our systems fail
to achieve or maintain market acceptance or if new technologies are introduced by others that are more favorably received than
our systems, are more cost effective, or otherwise render our systems obsolete, we may not be able to sell our systems. If we are
unable to sell our systems, our business and prospects would suffer.
Our operations are subject to extensive
environmental laws and regulations. Our operating costs may increase as a result of complying with environmental laws and regulations.
We also could incur substantial costs as a result of violations of or liabilities under such laws and regulations.
Our existing and planned
water operations are subject to extensive national, provincial and local laws in China which govern the protection of the environment,
health and safety, water allocation rights, and the manner in which we collect, treat, discharge and dispose of wastewater. Our
planned operations in other countries including the United States, will be also subject to regulatory standards and code enforcement,
which typically require that our solutions and products meet stringent performance criteria. These requirements include the United
States Clean Water Act of 1972 and comparable laws and regulations in other countries. We may also be required to obtain various
environmental permits from regulatory agencies for our operations. Certain of these permits require substantial lead time to obtain
and, once obtained, require that certain tasks be completed on a regular basis in order to maintain such permits. Governmental
regulatory agencies also set conditions and standards for the water and wastewater services we deliver. If we deliver water or
wastewater services to our customers that do not comply with regulatory standards, or otherwise violate environmental laws, regulations
or permits, or other health and safety and water quality regulations, we could incur substantial fines, penalties or other sanctions
or costs or damage to our reputation. In the most serious cases, regulators could force us to discontinue operations. We will incur
substantial operating and capital costs on an ongoing basis to comply with environmental laws and regulations and other health
and safety and water quality regulations. These laws and regulations, and their enforcement, have tended to become more stringent
over time, and new or stricter requirements could increase our costs.
Although we may seek
to recover ongoing compliance costs in our pricing, there can be no guarantee that such pricing may be sustained in the marketplace.
We may also incur liabilities under environmental laws and regulations requiring us to investigate and clean up environmental contamination
at off-site locations where we have disposed of waste or caused adverse environmental impacts. We may also be subject to liability
if we improperly handle, transport, process or dispose of contaminated water and other wastes. The discovery of previously unknown
conditions, the improper handling by us of contaminated water or other materials, or the imposition of cleanup obligations in the
future, could result in significant costs, and could adversely affect our financial condition, results of operations, cash flow
and liquidity. Such remediation losses may not be covered by insurance and may make it difficult for us to secure insurance in
the future at acceptable rates. If any remediation losses that are not covered by insurance are excessive, we may be required to
significantly curtail our operations.
Our business depends on spending
for the treatment of wastewater and this spending may be adversely affected by industry and financial market conditions that are
beyond our control.
We will depend on our
customers’ willingness to make operating and capital expenditures to treat their wastewaters. A belief on the part of our
potential customers that their businesses may decline may cause our customers to curtail spending, thereby reducing demand for
our services. Industry conditions are influenced by numerous factors over which we have no control.
Geopolitical conditions and global
economic factors may adversely affect us.
Uncertain geopolitical
conditions and global economic factors may adversely affect our business. Adverse factors affecting economic conditions worldwide
have contributed to a general inconsistency in the world’s economies may adversely impact our business, resulting in reduced
demand for water remediation and supply. The current and ongoing uncertainty of the international economic situation, civil unrest,
terrorist activity and military actions may continue to adversely affect global economic conditions. Economic and market conditions
could deteriorate as a result of any of the foregoing reasons. We may experience material adverse effects on our business, financial
condition, results of operations and cash flows as a consequence of the foregoing factors.
Changes in laws and regulations over
which we have no control can significantly affect our business and results of operations.
Any governmental entity
that regulates our operations may enact new legislation or adopt new regulations or policies at any time, and new judicial decisions
may change the interpretation of existing legislation or regulations at any time. The individuals who serve as regulators are elected
or are political appointees. Therefore, elections which result in a change of political administration or new appointments may
also result in changes in the individuals who serve as regulators and the policies of the regulatory agencies that they serve.
New laws or regulations, new interpretations of existing laws or regulations, or changes in agency policy, including as a response
to shifts in public opinion, or conditions imposed during the regulatory hearing process may affect our business in a number of
ways.
If we do not compete successfully against
existing and new competitors, we may lose market share and suffer losses.
There are numerous
large, highly sophisticated and well financed engineering firms and other entities engaged in the design of water treatment facilities
and processes for the treatment of waste waters. Competitors range from those capable of designing, maintaining and operating large
municipal water facilities, those dealing with the disposal needs of laboratories, hospitals and other medical facilities and those
engaged in recycling water used on farms.
We believe that our
ability to compete depends upon many factors both within and beyond our control. Some of our current and potential competitors
may have greater financial, engineering, marketing, and other resources than we have. Certain of our competitors may be able to
devote greater resources to marketing and promotional campaigns and devote substantially more resources to system development than
us. Increased competition may reduce our market share and require us to increase our marketing and promotional efforts, which could
negatively affect our operating margins or force us to incur losses. There can be no assurance that we will be able to compete
successfully against current and future competitors, and competitive pressures may have a material adverse effect on our business,
prospects, financial condition and results of operations.
Risks Related to Ownership of Common
Stock and Operation as a Public Company.
There is no active trading market
for our common stock, and there is no assurance that an active trading market for our common stock will develop, which would adversely
affect the ability of our investors to sell their shares in the public market.
Our
common stock is quoted on OTC Pink under the symbol “QHYG”; however; an active trading market for our shares does not
exist. We cannot assure you that a regular trading market for our shares of common stock will develop, or that if one develops,
that it will be sustained.
The market price and trading volume
of shares of our common stock may be volatile.
If a market develops
for our securities, the market price of our common stock could fluctuate significantly for many reasons, including reasons unrelated
to our specific performance, such as reports by industry analysts, investor perceptions, or announcements by our competitors regarding
their own performance, as well as general economic and industry conditions. For example, to the extent that other large companies
within our industry experience declines in their share price, our share price may decline as well. Fluctuations in operating results
or the failure of operating results to meet the expectations of public market analysts and investors may negatively impact the
price of our securities.
Quarterly operating
results may fluctuate in the future due to a variety of factors that could negatively affect revenues or expenses in any particular
quarter, including vulnerability of our business to a general economic downturn; changes in the laws that affect our products or
operations; competition; compensation related expenses; application of accounting standards; and our ability to comply with all
necessary regulatory permits and/or licenses to conduct our business. In addition, if the market price of our shares should ever
drop significantly, stockholders could institute securities class action lawsuits against us, even though there may be no legal
basis for any such lawsuit. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention
of our management and other resources.
Our Chairman of the Board and Chief
Executive Officer owns the Licensor and therefore actions taken on behalf the Licensor may not be in the best interests of our
stockholders.
Mr. Mao Xu, our Chairman
of the Board and Chief Executive Officer, who beneficially owns a significant portion of our outstanding shares of common stock,
owns the patents we licensed and holds a majority of the outstanding shares of the Licensor, Beijing QHY, and therefore has a conflict
of interest in matters affecting the License Agreement, and actions taken on behalf of the Licensor may not be in the best interests
of our stockholders.
Key Provisions of the License Agreement
Have not been Finalized.
Although the parties
have entered into a License Agreement and an Amendment to the License Agreement with respect to the patents and technologies licensed
by us from Beijing QHY, certain key provisions which are to be set forth on schedules to the License, including the products to
be sold to us by Beijing QHY, the specifications for such products and trademarks to be developed by Beijing QHY which we will
be permitted to use, have not been agreed upon and included in the License. The parties will agree upon these provisions at the
time products are ordered by customers. As changes are made to the products, there will be a need to agree upon new prices. The
prices agreed upon by us and Beijing QHY will impact our ability to generate positive cash flow and achieve profitability.
We may suffer a change in control
and our business could be significantly harmed if an owner of a significant number of our shares, including our Chairman of the
Board and Chief Executive Officer or another director, pledges his shares to secure loans and defaults in the payment of those
loans.
If Mr. Mao Xu, our
Chairman of the Board and Chief Executive Officer, who owns a significant portion of our outstanding shares, or Roy Teng, our other
director, who also owns a significant number of our outstanding shares, was to pledge his shares to secure the payment of a loan,
and then default in the payment of that loan, the default could result in a sale of a substantial number of our common shares resulting
in a decrease in the price of our shares and a change in control of our company.
Currently, nearly all of
our operations and management are located in China. U.S. investors may experience difficulties in attempting to effect service
of process and to enforce judgments based upon U.S. federal securities laws against the company and its non-U.S. resident officers
and directors.
While we are
organized under the laws of State of Nevada, Mao Xu, our Chairman resides in China, and Roy Teng, our other director spends little
time in the United States and his family resides in China. Consequently, it may be difficult for investors to effect service of
process on such officers and directors in the United States and to enforce in the United States judgments obtained in United States
courts against such persons based on the civil liability provisions of the United States securities laws. Since nearly all of our
assets are located outside of the U.S. it may be difficult or impossible for U.S. investors to collect a judgment against us. As
well, any judgment obtained in the United States against us may not be enforceable.
If we fail to develop and maintain
an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud, as a
result, current and potential stockholders could lose confidence in our financial reports, which could harm our business and the
trading price of our common stock.
Effective internal
controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the Sarbanes-Oxley
Act of 2002 requires our management to evaluate and report on our internal controls over financial reporting. Compliance with Section
404 requires that we strengthen, assess and test our system of internal controls to provide the basis for our report. The process
of strengthening our internal controls and complying with Section 404 is expensive and time consuming and requires significant
management attention. We cannot be certain that the measures we undertake will ensure that we will maintain adequate controls over
our financial processes and reporting in the future. Furthermore, if we are able to rapidly grow our business, the internal controls
that we will need will become more complex, and significantly more resources will be required to ensure our internal controls remain
effective. Failure to implement required controls, or difficulties encountered in their implementation, could harm our operating
results or cause us to fail to meet our reporting obligations. If we discover a material weakness in our internal controls, the
disclosure of that fact, even if the weakness is quickly remedied, could diminish investors’ confidence in our financial
statements and harm our stock price. In addition, non-compliance with Section 404 could subject us to a variety of administrative
sanctions, including the suspension of trading, ineligibility for listing on the OTC Markets, and the inability of registered broker-dealers
to make a market in our common stock, which would further reduce our stock price.
We will incur significant costs as
a result of operating as a public company and our management will be required to devote substantial time to compliance efforts.
As a public company,
we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act
and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated
with accessing the public markets and public reporting. Our management and other personnel will need to devote a substantial amount
of time and financial resources to comply with these requirements, as well any new requirements implemented by the SEC. Moreover,
these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming
and costly and could lead to a diversion of management time and attention from revenue generating activities to compliance activities.
We are currently unable to estimate these costs with any degree of certainty. These rules and regulations could also make it more
difficult for us to attract and retain qualified persons to serve on our board of directors and board committees or as executive
officers and more expensive for us to obtain director and officer liability insurance.
Our common stock is subject to the
“Penny Stock” Rules of the SEC and the trading market in our securities is limited, which makes transactions in our
stock cumbersome and may reduce the value of an investment in our stock.
The SEC has adopted
Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security
that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve
a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve
a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment
experience and objectives of the person; and (b) make a reasonable determination that the transactions in penny stocks are suitable
for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks
of transactions in penny stocks.
The broker or dealer
must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the
penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination;
and (b) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers
may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more
difficult for investors to dispose of our common shares and cause a decline in the market value of our stock.
Disclosure also has
to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions
payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing
recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Financial Industry Regulatory Authority
(“FINRA”) sales practice requirements may also limit your ability to buy and sell our common stock, which could depress
the price of our shares.
FINRA has adopted rules
that require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending
that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers,
broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment
objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative
low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers
to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares, have an adverse
effect on the market for our shares, and thereby depress our share price.
Since our principal stockholders
beneficially own in excess of a majority of our outstanding of common stock, you will not have the ability to determine the outcome
of matters requiring stockholder approval.
Our principal stockholders
beneficially own in excess of a majority of our outstanding shares of our common stock. As a result, you will not have the ability
to determine the outcome of matters requiring the approval of stockholders, including: (a) election of our board of directors;
(b) removal of any of our directors; (c) amendments to our Articles of Incorporation or bylaws; (d) adoption of measures that could
delay or prevent a change in control or impede a merger, takeover or other business combination involving us, or (e) other significant
corporate transactions, including the incurrence of debt or acquisition of a target business.
We may suffer a change in control
and our business could be significantly harmed if we fail to meet certain financial targets.
PBG Water Solutions
and the Company entered into a Loan Agreement with an entity (the “Lender”) controlled by Roy Teng Lender. The Lender
has provided operating capital to PBG Water Solutions since its inception, and to the Company since the consummation of PBG SEA.
In compensation for the loan, the Company issued to the Lender a 3-year cashless warrant, which entitles the Lender to purchase
50 million (50,000,000) shares of the Company’s common stock at an exercise price of $0.0. The warrant cannot be exercised
if we meet certain financial targets. If these financial targets are not met and the Lender was to exercise the warrant, Mr. Teng
would own a majority of our outstanding shares of common stock and would be in a position to control our business.
Under our Articles of Incorporation,
our Board of Directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial
to common stockholders and with the ability to adversely affect stockholder voting power and perpetuate the board’s control
over our company.
Our Board of Directors
by resolution may authorize the issuance of up to 5,000,000 shares of preferred stock in one or more series with such limitations
and restrictions as it may determine, in its sole discretion, with no further authorization by security holders required for the
issuance of such shares. The Board may determine the specific terms of the preferred stock, including designations; preferences;
conversions rights; cumulative, relative; participating; and optional or other rights, including: voting rights; qualifications;
limitations; or restrictions of the preferred stock.
The issuance of preferred
stock may adversely affect the voting power and other rights of the holders of common stock. Preferred stock may be issued quickly
with terms calculated to discourage, make more difficult, delay or prevent a change in control of our company or make removal of
management more difficult. As a result, the Board of Directors’ ability to issue preferred stock may discourage the potential
hostile acquirer, possibly resulting in beneficial negotiations. Negotiating with an unfriendly acquirer may result in terms more
favorable to us and our stockholders. Conversely, the issuance of preferred stock may adversely affect the market price of, and
the voting and other rights of the holders of the common stock. We presently have no plans to issue any preferred stock.
We may, in the future, issue additional
shares of common stock, which would reduce investors’ percent of ownership and may dilute our share value.
Our Articles of Incorporation,
as amended, authorize the issuance of 1,000,000,000 shares of common stock. As of March 15, 2021, we had outstanding 87,269,789
shares of common stock. The future issuance of common stock may result in substantial dilution in the percentage of our common
stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance
of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the
shares held by our investors, and might have an adverse effect on any trading market for our common stock.
We do not foresee paying cash dividends
on our common stock in the foreseeable future and, as a result, our investors’ sole source of gain, if any, will depend on
capital appreciation, if any.
We do not plan to declare
or pay any cash dividends on our shares of common stock in the foreseeable future. As a result, investors should not rely on an
investment in our securities if they require the investment to produce dividend income. Capital appreciation, if any, of our shares
may be investors’ sole source of gain for the foreseeable future. Moreover, investors may not be able to resell their shares
of our common stock at or above the price they paid for them.