STARLIGHT SUPPLY CHAIN MANAGEMENT COMPANY (OTCMKTS:SLSC) Files An 8-K Completion of Acquisition or Disposition of Assets
ITEM 2.01COMPLETION OF ACQUISITION OR DISPOSITION OF
ASSETS
On November 18, 2016 (the Closing Date), Starlight Supply Chain
Management Company (Starlight or the Company), a Nevada
corporation, closed on the share exchange described below with
the shareholders (the Sing Kong Stockholders) of Sing Kong Supply
Chain Management Co. Limited (Sing Kong-HK), a Hong Kong company.
As a result, Sing Kong-HK is now a wholly owned subsidiary of
Starlight. Starlight, the Sing Kong Stockholders and Sing Kong-HK
shall sometimes be collectively referred to as the Parties. Under
the Exchange Agreement, the Sing Kong Stockholders exchanged all
of the shares that they held in Sing Kong-HK for 4,752,217,304
shares of Starlights common stock. A copy of the Exchange
Agreement was attached as Exhibit 2.1 to the Starlight Form 8-K
filed with the Securities Exchange Commission on October 6, 2016.
The consummation of the exchange transaction under which
Starlight acquired 100% of the equity ownership of Sing Kong-HK
shall be referred to as the Transaction.
Sing Kong-HK operates its supply chain management business
through the use of a variable interest entity structure (VIE). It
has established a wholly foreign owned entity, Starlight
Consultation Service (Shenzhen) Co., Ltd. (WFOE) in the Peoples
Republic of China (PRC) that has acquired effective control of
Sing Kong Supply Chain Management Co., Ltd. Shenzhen (Sing
Kong-China or the Operating Company) through the VIE structure.
Sing Kong-China is 100% owned by a citizen of the PRCJessica Qu
who also serves as its Chief Executive Officer. The contractual
arrangements between Sing Kong-China and the WFOE enable us to
exercise effective control over, and realize substantially all of
the economic risks and benefits arising from the activities of
Sing Kong-China. As a result, we include the financial results of
Sing Kong-China in our consolidated financial statements in
accordance with generally accepted accounting principles in the
United States, or U.S.GAAP, as if Sing Kong-China were a
wholly-owned subsidiary. However, the contractual arrangements
may not be as effective in providing operational control as
direct ownership. See Risk Factors Risks Related to Our
Structure. Sing Kong-HK, the WFOE and Sing Kong-China shall be
collectively referred to as Sing Kong.
For accounting purposes, the Transaction was treated as a reverse
acquisition with Sing Kong-HK as the acquirer and Starlight as
the acquired party. When we refer in this report to business and
financial information for periods prior to the consummation of
the Transaction, we are referring to the business and financial
information of Sing Kong-HK unless the context suggests
otherwise.
The sole officer and director of Starlight is CHAN Wai Lun. As a
result of the closing of the Transaction with Sing Kong-HK, the
former shareholders of Starlight, including CHAN Wai Lun who was
issued 1,833,148,178 shares of the Companys common stock in
connection with the closing, own approximately 28.1% of the total
outstanding shares of our common stock. Without including the new
shares issued to CHAN Wai Lun in connection with the closing, the
former shareholders of the Company own less than 1% of the
Companys outstanding shares of common stock following the
closing. Prior to the closing and before the issuance of shares
to CHAN Wai Lun in connection with the closing, the former
shareholders (other than CHAN Wai Lun) held 40% of the Companys
outstanding shares of common stock.
FORM 10 DISCLOSURE
As disclosed elsewhere in this report, on November 18, 2016, we
acquired Sing Kong-HK in a reverse acquisition transaction. Item
2.01(f) of Form 8-K states that if the registrant was a shell
company, the statusof the Company immediately before the reverse
acquisition transaction disclosed under Item 2.01, then the
registrant must disclose the information that would be required
if the registrant were filing a general form for registration of
securities on Form 10.
Accordingly, we are providing below the information that would be
included if we were to file a Form 10. Please note that the
information provided below relates to the combined enterprises
after the acquisition of Sing Kong-HK except that information
relating to periods prior to the date of the reverse acquisition,
other than financial data, only relates to Starlight Supply Chain
Management Company.
In this report, we rely on and refer to information and
statistics regarding our industry that we have obtained from a
variety of sources. This information is publicly available for
free and has not been specifically prepared for us for use in
this report or otherwise, although we believe that this
information is generally reliable.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS
This Form 8-K and other reports filed by the Company from time to
time with the Securities and Exchange Commission (collectively
the Filings) contain or may contain forward-looking statements
and information that are based upon beliefs of, and information
currently available to, the Companys management as well as
estimates and assumptions made by the Companys management. When
used in the filings the words anticipate, believe, estimate,
expect, future, intend, plan or the negative of these terms and
similar expressions as they relate to the Company or the Companys
management identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future
events and are subject to risks, uncertainties, assumptions and
other factors (including the risks contained in the section of
this report entitled Risk Factors) relating to the Companys
industry, operations and results of operations and any businesses
that may be acquired by the Company. Should one or more of these
risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may differ
significantly from those anticipated, believed, estimated,
expected, intended or planned.
Although the Company believes that the expectations reflected in
the forward-looking statements are reasonable, the Company cannot
guarantee future results, levels of activity, performance or
achievements. Except as required by applicable law, including the
securities laws of the United States, the Company does not intend
to update any of the forward-looking statements to conform these
statements to actual results. The following discussion should be
read in conjunction with the Companys pro forma financial
statements and the related notes included herein.
BUSINESS
History of Starlight Supply Chain Management
Company
Starlight Supply Chain Management Company (the Company or
Starlight) was originally incorporated in Nevada under the name
Live Fit Corp. on December 13, 2013 and, since the date of the
Transaction reported herein, it maintains its principal executive
offices at Room 805-806, Xinghe Century Towers A, CaiTian Road
No. 3069, Shenzhen City, Futian District, Peoples Republic of
China. The Company was formed to develop and market online
personal training through its website, www.livefittime.com,
which, when fully developed, would have allowed its clients to
hire personal trainers who would oversee their training,
nutrition and overall health life>
The Company filed a registration statement on Form S-1 with the
U.S. Securities and Exchange Commission (the SEC) on July 8,
2014, which was declared effective on September 3, 2014. However,
the Company did not generate any revenue and, in September 2015,
management of the Company determined that it would be in our
stockholders best interests to abandon the Companys business plan
and to seek a possible business combination.
As a result, the Company became a shell company (as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended (the Exchange Act)) with nominal assets and no
business operations, and it sought to identify, evaluate and
investigate various companies with the intent that, if such
investigation warranted, a reverse merger transaction could be
negotiated and completed to which the Company would acquire a
target company with an operating business with the intent of
continuing the acquired companys business as a publicly held
entity. On May 19, 2016, the Company changed its name to
Starlight Supply Chain Management Company and on the Closing
Date, it completed the Transaction described in Item 2.01, above.
From and after the Closing Date of the Transaction described in
Item 2.01, above, the Companys primary operations will now
consist of the operations of Sing Kong.
Throughout the remainder of this report, when we use phrases such
as we, our, company and us, we are referring to Starlight, Sing
Kong-HK, the WFOE and Sing Kong-China as a combined entity.
Sing Kong Supply Chain Management Company
Limited
Sing Kong Supply Chain Management Company Limited (Sing Kong-HK)
was incorporated under the laws of Hong Kong on April 16, 2016,
and established a wholly foreign owned entity, Starlight
Consultation Service (Shenzhen) Co., Ltd. (WFOE) in the Peoples
Republic of China (China) on May 6, 2016. The WFOE entered into
variable interest entity agreements (VIE) with Sing Kong Supply
Chain Management Co. Ltd. Shenzhen (Sing Kong-China or the
Operating Company), under which we exercise effective control
over, and realize substantially all of the economic risks and
benefits arising from the activities of Sing Kong-China. Sing
Kong-China was organized in Shenzhen under the laws of China on
October 29, 2015. Sing Kong-HK is a development stage company,
providing supply chain management (SCM) services through Sing
Kong-China. Although Sing Kong-China is only a year old, its
management team has in excess of 25 combined years working in the
SCM business, and its business has grown rapidly.
We have sixteen SCM customers in China, and our services have
principally involved sourcing of raw materials in the minerals
and glass area for their manufacturing operations, assistance
with the logistics associated with delivering raw materials to
our manufacturing customers and delivery of our manufacturing
customers products to their customers. Between May 1, 2016 and
October 31, 2016, out principal suppliers were Shenzhen Tongdao
Fuqiang Supply Chain Management Co., Ltd., Shanghai Lihao Metal
Materials Co., Ltd., Shenzhen Fengxi Supply Chain Management
Limited, Guangzhou Yi Yun Hui Xin trade limited company. We
purchased aluminum from these suppliers and then resold the
aluminum to our supply chain customers.
Sing Kong has developed a proprietary SCM online software system
that is integrated with logistics service centers located in
Foshan, Shenzhen, Shanghai and Guangzhou in China. We anticipate
that as we grow we will enter into similar arrangement in other
key distribution/manufacturing cities. Although our SCM online
software is primarily used internally, it is available to our
customers to support their development and growth. We anticipate
that we will need to conduct further development and that we will
be contracting with a significant provider of IT services such as
SAP or Oracle to utilize their data base platform as our customer
base grows and demand for our product offerings or services
increases. Further, Sing Kongs finance team will consult with
customers to help them to transform and adapt to the new supply
chain model.
Sing Kong expects to primarily serve three types of customers:
1.
Customers who need nonferrous metals like copper, aluminum
and zinc to begin with, as well as other mineral resources in
the future. We expect to also focus upon the glass industry
in Hebei Province.
2.
SME (small and medium enterprise) owners who have a big
trading volume in their industry but lack a SCM online system
to support further company development and growth; and
3.
SME owners who want to grow sufficiently to become a listed
company.
We anticipate that we will offer our customers three categories
of services:
1.
SCM services;
2.
SCM online platform services; and
3.
SCM company transformation services to assist with the goal
of becoming a listed company.
Principal Products or Services
SCM Services. We are a
provider of supply chain management solutions, consisting of
various software and service offerings. Supply chain management
is the set of processes, technology and expertise involved in
managing supply, demand and fulfillment throughout divisions
within a company and with its customers, suppliers and partners.
The business goals of our solutions include increasing supply
chain efficiency, reducing costs and enhancing customer and
supplier relationships by managing variability, reducing
complexity, improving operational visibility and increasing
operating velocity. Our initial business has been focused upon
sourcing nonferrous metals for customers at prices that allow us
to make a profit in the resale of those products to our
customers. We are optimistic that our business will grow and that
we will be providing the services outlined in this description of
our plan in the future to our customers.
Our offerings will be designed to help customers better achieve
the following critical operational objectives:
Visibility a clear and unobstructed view up and down the
supply chain
Planning supply chain optimization to match supply and demand
considering system-wide constraints
Collaboration interoperability with supply chain partners
Control management of data and business processes across the
extended supply chain
The first task that our management undertook was to develop a
comprehensive, detailed business plan (our Starlight Supply Chain
Business Brochure) which covers all the services which we intend
to offer our customers. Specifically, those services are as
follows:
IT Overall Planning
Supply chain process planning overview
Supply chain process planning procurement
Supply chain process planning logistics
Major Data
Raw materials data maintenance
Supplier data maintenance
Client data maintenance
Purchasing and Warehousing Management
Expense and asset procurement
Expense and asset check and receipt check
Inventory counting
Purchase return
Outsourcing
Supplier delivery
Sales and Distribution
Service sales
Loan applications
Consignment
International Trade Management
Project review
Importing
Exporting
Domestic third party trade
Domestic trade control
Commodity trading
Trade expenses and payment
Product returns
Client Management
Client credit maintenance
Client credit control
SCM Online Platform Services. We
believe that the continuous development of our technology systems
is essential not only to improve our internal operations and
financial performance, but also to provide our customers with the
most cost-effective, timely and reliable solutions. We have one
full time IT specialist and anticipate that as we grow we will
hire other IT programmers and specialists to work in the further
development of the Companys online platform. Although we believe
that our platform is adequate for our needs in the near future,
we anticipate that we will need to conduct further development
and that we will be contracting with a significant provider of IT
services such as SAP or Oracle to utilize their data base
platform as our customer base grows and demand for our product
offerings or services increases.
Information technology is a critical differentiator for customers
in the supply chain logistics industry, providing the crucial
ability to track the locations of products and raw materials
along the supply chain. We have developed and maintain a
proprietary technology platform that we utilize within the
Company and that we also offer to customers to assist them in
developing, maintaining and accessing key data on their customers
and the location of products and raw materials. We believe that
our processes and our software solutions enhance productivity,
optimize decision-making and result in more efficient and
cost-effective processes for our customers.
Our goal is to grow our technology department and capability so
that we can design and implement customized solutions that
integrate multiple systems into a functional, compatible and
seamless communication and operating environment. We believe that
this will be a critical differentiator for customers, many of
whom operate disparate and disjointed systems. We are hopeful
that the development of highly tailored and integrated solutions
will provide significant benefits to our customers, and translate
into longer relationships and opportunities to realize higher
margins. We anticipate that our services will be targeted
primarily at SME owners who need a SCM online system to support
further company development and growth.
SCM Company Transformation Services. We
intend to offer our services to SME owners who want to grow
sufficiently to become a listed company. We intend to assist
these business owners through three channels:
Pooled procurement which should lead to lower prices for raw
materials purchase prices and as a result higher gross
margins on products
Pooled sales decreased costs of sales and expanded sales
channels
Pooled logistics decreased costs in the logistics associated
in sourcing raw materials and components and in delivering
products to customers, and concentration of information
Financing Assistance. We anticipate
being able to assist our customers in obtaining financing as a
result of their utilization of our SCM processes. Recently, we
entered into an agreement with China Postal Bank, through which
our customers will be able to obtain financing if they satisfy
the criteria established through the use of our SCM processes.
Financing for small and medium sized enterprises in China is
difficult, and we believe that this relationship with China
Postal Bank will give us a competitive advantage and will assist
our customers to obtain financing, which they would otherwise
have difficulty obtaining on their own. The availability of
financing for raw materials and components to build out orders
should enable our customers to increase their sales volume at a
much faster rate than would be possible without such financing
and, therefore, to accelerate their growth in order to meet the
goal of becoming a listed company.
Relationships with suppliers
We have a network of approximately 16 suppliers and manufacturers
with whom we have developed relationships through the prior
business experience of our management team. Our experience,
market knowledge and ability to negotiate on the basis of bulk
purchases enable us to deliver lower cost supply options for our
customers. We negotiate with suppliers on behalf of our
customers.
Sales and Marketing
We market our services to both existing and potential clients
through our director of marketing. His marketing efforts have
been primarily directed towards businesses with whom he had
previously done business when employed by another supply chain
management company that is no longer in business. We intend to
hire additional personnel in sales and marketing to work under
his direction to market our services in China. We have also begun
working with the provincial government in Hebei Province, and
believe that they will assist us with introductions to small and
medium sized enterprises that could use our services and
processes.
We intend to foster relationships between our senior team members
and our clients senior management. We believe that these
relationships ensure that both parties are focused on
establishing priorities, aligning objectives and driving client
value. We are optimistic that this approach will provide us with
a forum for addressing client concerns and to grow our business.
Competition
The markets in which we operate are highly competitive. Our
competitors are diverse and offer a variety of solutions
targeting various segments of the extended supply chain as well
as the enterprise as a whole. Some competitors compete with
suites of applications, while most offer solutions designed
specifically to target particular functions or industries. We
face strong competition across the entire competitive landscape,
including competition on breadth and quality of product and
service offerings, pricing, delivery times and after-sales
support.
We consider our closest competitor to be Shenzhen Eternal Asia
Supply Chain Management Ltd., as well as the larger trading
companies and importers and the in-house buying functions of
retailers. However, we believe that we are able to distinguish
ourselves from all other participants in the industry because of
our financing assistance program, independently researched and
developed Starlight Supply Chain Business Brochure, IT platform,
industry trading center and management team.
Properties
The Companys headquarters is currently located in approximately
116.48 square meters of office space at Room 805-806, Xinghe
Century Towers A, CaiTian Road No. 3069, Shenzhen City, Futian
District, Peoples Republic of China. The Company leases this
office space from an unaffiliated third party for a monthly
rental of RMB21,500 (US$3,180). The lease expires on April 10,
2017, and may be extended upon the mutual agreement of the
parties. We believe that our existing office facilities will be
sufficient for our operations for the next year.
The Company also anticipates leasing office space in Hebei
province, Peoples Republic of China, and anticipates entering
into a lease for such space within the next three months. The
Hebei Province office will be used to serve customers located in
that area, and management is optimistic that with the support of
the local government, it will be able to develop a number of new
SCM customers.
Sing Kongs Chairman, Mr. WU Yun Fai, provides the Company with
free use of office space located at Room 1001, Chaowai SOHO
Building A, Chaoyang District, Beijing, Peoples Republic of
China. The office space is leased by an affiliate of Mr. Wu.
Employees
At September 30, 2016, we had six full-time employees. Our future
success depends upon the continued service of our key technical,
sales and senior management personnel and our ability to attract,
train and retain other highly qualified personnel.
to the relevant regulations in the PRC, we are required to make
contributions for each of our PRC employees, at rates based upon
the employees standard salary base as determined by the local
Social Security Bureau, to a defined contribution retirement
scheme organized by the local Social Security Bureau in respect
of the retirement benefits for Sing Kong-Chinas employees in the
PRC.
Government Regulation
The sourcing and export trade industry is not subject to specific
industry regulatory oversight. To the extent that we are involved
with the logistics of shipping our customers products to
countries outside of China, we rely upon the international
freight companies with whom we work to help us comply with any
applicable legal requirements (licenses, approvals and permits)
in the destination countries.
We are aware that our supply chain partners are subject to
regulations within China and they are responsible for their own
compliance with relevant local labor and occupational health and
safety requirements.
Legal Proceedings
We are not currently involved in any material litigation or
similar proceedings.
Principal Executive Office
Our principal executive office is located at Room 805-806, Xinghe
Century Towers A, CaiTian Road No. 3069, Shenzhen City, Futian
District, Peoples Republic of China and our telephone number is
86-755-8254-8283.
Filing Status
We file reports with the SEC. You can read and copy any materials
we file with the SEC at its Public Reference Room at 450 Fifth
Street, NW, Washington, DC 20549. You can obtain additional
information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains
an Internet site (www.sec.gov) that contains reports and other
information regarding issuers that file electronically with the
SEC, including us.
CONTRACTUAL ARRANGEMENTS AMONG OUR WHOLLY-FOREIGN
OWNED ENTITY, THE VARIABLE INTEREST ENTITY AND THE VARIABLE
INTEREST ENTITY HOLDER
We are structured to conduct our business operations through a
wholly-foreign owned entity and a variable interest entity. The
variable interest entity, which is incorporated in the PRC and
100% owned by a PRC citizen, operates our business. Specifically,
our variable interest entity is Sing Kong-China. Sing Kong-China
is 100%-owned by QU Ting Ting, who is also its Chief Executive
Officer. We have entered into certain contractual arrangements,
as described in more detail below, which collectively enable us
to exercise effective control over the variable interest entity
and realize substantially all of the economic risks and benefits
arising from the variable interest entity. As a result, we will
include the financial results of the variable interest entity in
our consolidated financial statements in accordance with U.S.GAAP
as if it were our wholly-owned subsidiary.
The following diagram is a simplified illustration of the
ownership structure and contractual arrangements that we have in
place for our variable interest entity:
Contracts that Give Us Effective Control of the Variable
Interest Entity
The following is a summary of the common contractual arrangements
that provide us with effective control of our variable interest
entity and that enable us to receive substantially all of the
economic benefits from its operations.
Exclusive option agreement. The
variable interest entity equity holder has granted the
wholly-foreign owned entity an exclusive call option to purchase
her equity interest in the variable interest entity at an
exercise price equal to the higher of (i)the base price of RMB10;
and (ii)the minimum price as permitted by applicable PRC laws.
The wholly-foreign owned entity may nominate another entity or
individual to purchase the equity interest under the option. The
option is exercisable subject to the condition that applicable
PRC laws, rules and regulations do not prohibit completion of the
transfer of the equity interest to the option. The wholly-foreign
owned entity can require the variable interest entity to
distribute all distributable profits to its shareholders, and the
variable interest entity equity holder has agreed to promptly
donate any profit, interest, dividend or proceeds of liquidation
to the WFOE. The exclusive option agreement remains in effect
until the equity interest that is the subject of such agreement
is transferred to the WFOE. The parties to the exclusive option
agreement are QU Ting Ting as the variable interest entity equity
holder, Sing Kong-China and the WFOE.
Power of Attorney. to the
power of attorney, the variable interest entity equity holder, QU
Ting Ting, irrevocably authorizes the WFOE, or any person
designated by the WFOE, to exercise her rights as an equity
holder of the variable interest entity, including the right to
attend and vote at equity holders’ meetings and to appoint
directors, supervisors, the chief executive officer and other
senior management members.
Equity interest pledge agreement. to
the equity interest pledge agreement, the variable interest
entity equity holder has pledged all of her interests in the
equity of the variable interest entity as a continuing first
priority security interest in favor of the WFOE to secure the
performance of obligations by the variable interest entity and/or
its equity holder under the other structure contracts. The WFOE
is entitled to be paid in priority with the equity interest of
the variable interest entity equity holder based on the monetary
valuation that such equity interest is converted into or from the
proceeds from the auction or sale of the equity interest in the
event of any breach or default under the other structure
contracts. In addition, during the term of the pledge, the WFOE
is entitled to receive dividends distributed on the equity
interest. The equity interest pledge agreement remains in force
for the duration of the other structure contracts. The parties to
the equity pledge agreement are QU Ting Ting as the variable
interest entity equity holder, the variable interest entity and
the WFOE. The equity interest pledge relating to our variable
interest entity will be registered with the appropriate office of
the Administration for Industry and Commerce inChina.
Contracts that Enable Us to Receive Substantially All of
the Economic Benefits from the Variable Interest Entity
Exclusive business cooperation
agreement. The variable interest entity
has entered into an exclusive technical services agreement with
the wholly-foreign owned entity to which the wholly-foreign owned
entity provides exclusive technical services to the variable
interest entity. In exchange, the variable interest entity pays a
service fee to the wholly-foreign owned entity which typically
amounts to what would be substantially all of the variable
interest entity’s pre-tax profit (absent the service fee),
resulting in a transfer of substantially all of the profits from
the variable interest entity to the wholly-foreign owned entity.
The exclusive option agreement and the equity interest pledge
agreement described above also entitle the WFOE to all dividends
and other distributions declared by the variable interest entity.
RISK FACTORS
Before investing in our common stock you should carefully
consider the following risk factors, the other information
included herein and the information included in our other reports
and filings. Our business, financial condition and the trading
price of our common stock could be adversely affected by these
and other risks.
Risks Related to Our Business
Our limited operating history makes it difficult to
evaluate our future prospects and results of
operations.
The Company is in the process of developing its business and has
a limited operating history. You should consider our future
prospects in light of the risks and uncertainties experienced by
early stage companies. Some of these risks and uncertainties
relate to our ability to:
offer products of sufficient quality to attract and retain a
larger customer base;
attract additional customers and increase spending per
customer;
increase awareness of our products and continue to develop
customer loyalty;
respond to competitive market conditions;
respond to changes in our regulatory environment;
maintain effective control of our costs and expenses;
raise sufficient capital to sustain and expand our business;
and
attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing any of these risks and
uncertainties, our business may be materially and adversely
affected.
Our business is sensitive to general economic
conditions.
Our business may be negatively affected by a downturn in general
economic conditions in major importing countries and regions and
rising labor and material costs in China.
Negative perception or publicity of Chinese products
may hurt our business.
Any negative perception or publicity of Chinese products may
cause a decline in demand for Chinese products outside of China
and in turn negatively affect our sales and revenue.
We envision a period of rapid growth that may impose
a significant burden on our administrative and operational
resources which, if not effectively managed, could impair our
growth.
Based upon managements experience with other supply chain
management companies and our experience during the six month
period ended October 31, 2016, we envision a period of rapid
growth that may impose a significant burden on our administrative
and operational resources. The growth of our business will
require significant investments of capital and managements close
attention. Our ability to effectively manage our growth will
require us to substantially expand the capabilities of our
administrative and operational resources and to attract, train,
manage and retain qualified management, IT, sales and marketing
and other personnel; We may be unable to do so. In addition, our
failure to successfully manage our growth could result in our
sales not increasing commensurately with capital investments. If
we are unable to successfully manage our growth, we may be unable
to achieve our goals.
We may not be able to raise the additional capital
necessary to execute our business strategy, which could result in
the curtailment of our operations.
We will need to raise additional funds to fully fund our existing
operations and for development and expansion of our business. We
have no current arrangements with respect to sources of
additional financing and the needed additional financing may not
be available on commercially reasonable terms, on a timely basis
or at all. The inability to obtain additional financing when
needed would have a negative effect on us, including possibly
requiring us to curtail our operations. If any future financing
involves the sale of equity securities, the shares of common
stock held by our stockholders could be substantially diluted. If
we borrow money or issue debt securities, the Company will be
subject to the risks associated with indebtedness, including the
risk that interest rates may fluctuate and the possibility that
it may not be able to pay principal and interest on the
indebtedness when due. Insufficient funds will prevent us from
implementing our business plan and will require us to delay,
scale back or eliminate certain of our operations.
We will be required to hire and retain skilled
managerial personnel, IT and sales and marketing
personnel.
Our continued success depends in large part on our ability to
attract, train, motivate and retain qualified management, IT,
sales and marketing personnel. Any failure to attract and retain
the required managerial and technical personnel that are integral
to our business may have a negative impact on the operation of
Sing Kong, which would have a negative impact on revenues. There
can be no assurance that we will be able to attract and retain
skilled persons and the loss of skilled technical personnel would
adversely affect us.
We are dependent upon our officers and management for
direction and the loss of any of these persons could adversely
affect our operations and results.
We are dependent upon our officers for implementation of our
proposed strategy and execution of our business plan. The loss of
any of our officers could have a material adverse effect upon our
results of operations and financial position. We do not maintain
key person life insurance for any of our officers. The loss of
any of our officers could delay or prevent the achievement of our
business objectives.
We may be sued or become a party to litigation, which
could require significant management time and attention and
result in significant legal expenses and may result in an
unfavorable outcome, which could have a material adverse effect
on our business, financial condition,
results of operations and cash flows.
We may be subject to a number of lawsuits from time to time
arising in the ordinary course of our business. The expense of
defending ourselves against such litigation may be significant.
The amount of time to resolve these lawsuits is unpredictable and
defending ourselves may divert managements attention from the
day-to-day operations of our business, which could adversely
affect our business, results of operations and cash flows. In
addition, an unfavorable outcome in such litigation could have a
material adverse effect on our business, results of operations
and cash flows.
We have identified material weaknesses in our
internal control over financial reporting. If we fail to maintain
an effective system of internal control over financial reporting,
we may not be able to accurately report our financial results or
prevent fraud. As a result, stockholders could lose confidence in
our financial and other public reporting, which would harm our
business and the trading price of our common stock.
Effective internal control over financial reporting is necessary
for us to provide reliable financial reports and, together with
adequate disclosure controls and procedures, are designed to
prevent fraud. Any failure to implement required new or improved
controls, or difficulties encountered in their implementation,
could cause us to fail to meet our reporting obligations.
Ineffective internal control could also cause investors to lose
confidence in our reported financial information, which could
have a negative effect on the trading price of our common stock.
We have identified material weaknesses in our internal control
over financial reporting in Starlight, Sing Kong-HK and Sing
Kong-China. As defined in Regulation12b-2 under the Exchange Act,
a material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of our annual or interim consolidated financial
statements will not be prevented, or detected on a timely basis.
Specifically, we determined that we had the following material
weaknesses in our internal control over financial reporting: (i)
we have limited controls over information processing; (ii) we
haveinadequate segregation of duties; (iii)we do not have a
formal audit committee with a financial expert; and (iv) we do
not have sufficient formal written policies and procedures for
accounting and financial reporting with respect to the
requirements and application of both generally accepted
accounting principles in the United States of America, or GAAP,
and SEC guidelines.
Starlight has in the past and we intend in the future to utilize
a third party independent contractor for the preparation of our
financial statements in an effort to remediate the deficiency.
The implementation of this initiative will not fully address any
material weakness or other deficiencies that we may have in our
internal control over financial reporting. Although the financial
statements and footnotes are reviewed by our management, we do
not have a formal policy to review significant accounting
transactions and the accounting treatment of such transactions.
The third party independent contractor is not involved in the day
to day operations of the Company and may not be provided
information from management on a timely basis to allow for
adequate reporting/consideration of certain transactions.
Even if we develop effective internal controls over financial
reporting, such controls may become inadequate due to changes in
conditions, or the degree of compliance with such policies or
procedures may deteriorate, which could result in the discovery
of additional material weaknesses and deficiencies. In any event,
the process of determining whether our existing internal control
over financial reporting is compliant with Section404 of the
Sarbanes-Oxley Act (Section404) and sufficiently effective
requires the investment of substantial time and resources by our
senior management. As a result, this process may divert internal
resources and take a significant amount of time and effort to
complete. In addition, we cannot predict the outcome of this
process and whether we will need to implement remedial actions in
order to establish effective controls over financial reporting.
The determination of whether or not our internal controls are
sufficient and any remedial actions required could result in us
incurring additional costs that we did not anticipate, including
the hiring of additional outside consultants. We may also fail to
timely complete our evaluation, testing and any remediation
required to comply with Section404.
We are required, to Section404, to furnish a report by management
on, among other things, the effectiveness of our internal control
over financial reporting. However, for as long as we are a
smaller reporting company, our independent registered public
accounting firm will not be required to attest to the
effectiveness of our internal control over financial reporting to
Section404. While we could be a smaller reporting company for an
indefinite amount of time, and thus relieved of the
above-mentioned attestation requirement, an independent
assessment of the effectiveness of our internal control over
financial reporting could detect problems that our managements
assessment might not. Such undetected material weaknesses in our
internal control over financial reporting could lead to financial
statement restatements and require us to incur the expense of
remediation.
Our independent auditors have issued an audit opinion
for our company, which includes a statement describing our going
concern status. Our financial status creates a doubt whether we
will continue as a going concern.
Our auditors have issued a going concern opinion regarding our
company. This means there is substantial doubt we can continue as
an ongoing business for the next twelve months. The financial
statements do not include any adjustments that might result from
the uncertainty regarding our ability to continue in business. As
such we may have to cease operations and investors could lose
part or all of their investment in our company.
Risks Related to the Peoples Republic of China
Our Chinese operations subject us to certain risks
inherent in conducting business operations in China, including
political instability and foreign government regulation, which
could significantly impact our ability to operate in such
countries and impact our results of operations.
We conduct substantially all of our business in China.Our Chinese
operations are, and will be, subject to risks generally
associated with conducting businesses in foreign countries, such
as:
foreign laws and regulations that may be materially different
from those of the United States;
changes in applicable laws and regulations;
challenges to, or failure of, title;
labor and political unrest;
foreign currency fluctuations;
changes in foreign economic and political conditions;
export and import restrictions;
tariffs, customs, duties and other trade barriers;
difficulties in staffing and managing foreign operations;
longer time periods in collecting revenues;
difficulties in collecting accounts receivable and enforcing
agreements;
possible loss of properties due to nationalization or
expropriation; and
limitations on repatriation of income or capital.
Specifically, foreign governments may enact and enforce laws and
regulations requiring increased ownership by businesses and/or
state agencies, which could adversely affect our ownership
interests in then existing ventures. The Companys ownership
structure may not be adequate to accomplish its business
objectives in China. Foreign governments also may impose
additional taxes and/or royalties on our business, which would
adversely affect our profitability. In certain locations,
governments have imposed restrictions, controls and taxes, and in
others, political conditions have existed that may threaten the
safety of employees and our continued presence in those
countries. Internal unrest, acts of violence or strained
relations between a foreign government and Sing Kong or other
governments may adversely affect our operations. These
developments may, at times, significantly affect our results of
operations, and must be carefully considered by our management
when evaluating the level of current and future activity in such
countries.
Chinas economic policies could affect our
business.
Substantially all of our assets are located in China and
substantially all of our revenue is derived from our operations
in China. Accordingly, our results of operations and prospects
are subject, to a significant extent, to economic, political and
legal developments in China.
While Chinas economy has experienced significant growth in the
past twenty years, growth has been irregular, both geographically
and among various sectors of the economy. The Chinese government
has implemented various measures to encourage economic growth and
guide the allocation of resources. Some of these measures benefit
the overall economy of China, but may also have a negative effect
on us. For example, our operating results and financial condition
may be adversely affected by the government control over capital
investments or changes in tax regulations.
The economy of China has been transitioning from a planned
economy to a more market-oriented economy. In recent years the
Chinese government has implemented measures emphasizing the
utilization of market forces for economic reform and the
reduction of state ownership of productive assets and the
establishment of corporate governance in business enterprises;
however, a substantial portion of productive assets in China are
still owned by the Chinese government. In addition, the Chinese
government continues to play a significant role in regulating
industry development by imposing industrial policies. It also
exercises significant control over China’s economic growth
through the allocation of resources, controlling payment of
foreign currency-denominated obligations, setting monetary policy
and providing preferential treatment to particular industries or
companies.
Fluctuation of the RMB may affect our financial
condition by affecting the volume of cross-border money
flow.
The value of the RMB fluctuates and is subject to changes in the
PRCs political and economic conditions. Since July 2005, the
conversion of RMB into foreign currencies, including USD, has
been based on rates set by the Peoples Bank of China which are
set based upon the interbank foreign exchange market rates and
current exchange rates of a basket of currencies on the world
financial markets.
We may face obstacles from the communist system in
the PRC.
Foreign companies conducting operations in the PRC face
significant political, economic and legal risks. The Communist
regime in the PRC, including a stifling bureaucracy, may hinder
Western investment.
We may have difficulty establishing adequate
management, legal and financial controls in the
PRC.
The PRC historically has been deficient in Western >
Because our assets and operations are located in
China, you may have difficulty enforcing any civil liabilities
against us under the securities and other laws of the United
States or any state.
We are a holding company, and all of our assets are located in
the PRC. In addition, our directors and officers are
non-residents of the United States, and all or a substantial
portion of the assets of these non-residents are located outside
the United States. As a result, it may be difficult for investors
to effect service of process within the United States upon these
non-residents, or to enforce against them judgments obtained in
United States courts, including judgments based upon the civil
liability provisions of the securities laws of the United States
or any state.
There is uncertainty as to whether courts of the PRC would
enforce:
Judgments of United States courts obtained against us or
these non-residents based on the civil liability provisions
of the securities laws of the United States or any state; or
In original actions brought in the PRC, liabilities against
us or non-residents predicated upon the securities laws of
the United States or any state. Enforcement of a foreign
judgment in the PRC also may be limited or otherwise affected
by applicable bankruptcy, insolvency, liquidation,
arrangement, moratorium or similar laws relating to or
affecting creditors’ rights generally and will be subject to
a statutory limitation of time within which proceedings may
be brought.
The PRC legal system embodies uncertainties, which
could limit law enforcement availability.
The PRC legal system is a civil law system based on written
statutes. Unlike common law systems, decided legal cases have
little precedence. In 1979, the PRC government began to
promulgate a comprehensive system of laws and regulations
governing economic matters in general. The overall effect of
legislation over the past 27 years has significantly enhanced the
protections afforded to various forms of foreign investment in
China. Our PRC operating subsidiary and affiliate is subject to
PRC laws and regulations. However, these laws and regulations
change frequently and the interpretation and enforcement involve
uncertainties. For instance, we may have to resort to
administrative and court proceedings to enforce the legal
protection that we are entitled to by law or contract. However,
since PRC administrative and court authorities have significant
discretion in interpreting statutory and contractual terms, it
may be difficult to evaluate the outcome of administrative court
proceedings and the level of law enforcement that we would
receive in more developed legal systems. Such uncertainties,
including the inability to enforce our contracts, could affect
our business and operation. In addition, confidentiality
protections in China may not be as effective as in the United
States or other countries. Accordingly, we cannot predict the
effect of future developments in the PRC legal system,
particularly with regard to our business, including the
promulgation of new laws. This may include changes to existing
laws or the interpretation or enforcement thereof, or the
preemption of local regulations by national laws. These
uncertainties could limit the availability of law enforcement,
including our ability to enforce our agreements.
Risks Related to Starlights Stock
There can be no assurance that a liquid public market
for our common stock will exist.
Although Starlights shares