10-K
1
f10k2020_jowayhealth.htm
ANNUAL REPORT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2020
☐ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from _______ to __________
Commission File Number:
333-108715
Joway Health Industries Group Inc.
(Exact Name of Registrant as Specified in Its
Charter)
No. 2, Baowang Road, Baodi Economic Development Zone, Tianjin, P.R.China 301800
(Address of Principal Executive Offices) (Zip Code)
(86) 022-22533666
(Registrant’s telephone
number, including area code)
Securities registered pursuant
to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
None N/A N/A
Securities registered pursuant to Section 12(g)
of the Act:
Common Stock, par value $0.001
(Title of class)
Indicate by check mark if the Registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant
is not required to file Reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Note – Checking the box above will
not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under
those Sections.
Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the Registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes
☐ No ☒
Indicate by check mark whether the Registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small Reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”
or an “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller Reporting company ☒
Emerging Growth company ☐
If an emerging growth company, indicate by
check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a Report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
Reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit Report. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☒ No ☐
The aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed year
was $385,200. Solely for purposes of this Annual Report, shares of common stock held by executive officers and directors of the Registrant
as of such date have been excluded because such persons may be deemed to be affiliates. This determination of executive officers and
directors as affiliates is not necessarily a conclusive determination for any other purposes.
Note.—If a determination as to whether
a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market
value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided
that the assumptions are set forth in this Form.
20,054,000 shares of common
stock were issued and outstanding as of August 5, 2021.
JOWAY HEALTH INDUSTRIES GROUP INC.
Annual Report ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ii
PART I 1
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS 20
ITEM 1B. UNRESOLVED STAFF COMMENTS 26
ITEM 2. PROPERTIES 26
ITEM 3. LEGAL PROCEEDINGS 26
ITEM 4. MINE SAFETY DISCLOSURES 26
ITEM 6. SELECTED FINANCIAL DATA 28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 36
ITEM 9A. CONTROLS AND PROCEDURES 36
ITEM 9B. OTHER INFORMATION 38
PART III 39
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 39
ITEM 11. EXECUTIVE COMPENSATION 41
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 45
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 46
SIGNATURES 49
i
Information Regarding Forward-Looking Statements
In addition to historical information, this Report
contains predictions, estimates and other forward-looking statements that relate to future events or our future financial performance.
These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity,
performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed
or implied by the forward-looking statements. These risks and other factors include those listed under “Risk Factors” and
elsewhere in this Report. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology.
Forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from
any future results, performances or achievements expressed or implied by the forward-looking statements. We discuss many of these risks
in this Report in greater detail under the heading “Risk Factors.” Given these uncertainties, you should not place undue reliance
on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as
of March 31, 2021. You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this Annual Report
completely and with the understanding that our actual future results may be materially different from what we expect.
Except as required by law, we assume no obligation
to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated
in these forward-looking statements, even if new information becomes available in the future. Given
these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
ii
PART I
Item 1. BUSINESS.
Overview
We are incorporated in the state of Nevada. Prior
to the consummation of the Merger as of December 31, 2020, as more specifically described below, Joway Health Industries Group Inc. (the
“Company” or “Joway Health”), through our PRC Operating Entities, were engaged in the manufacture, distribution
and sales of tourmaline-related healthcare products. Our principal executive offices were located at No. 19. Baowang Road, Baodi
Economic Development Zone, Tianjin City, P.R.China 301800.
As of December 31, 2020, we become a shell company
as a result of the Merger described below as we no longer have any business operations.
Recent Developments
Effects of COVID-19
The COVID-19 pandemic and resulting global disruptions
have affected our businesses, as well as those of our customers and suppliers. To serve our customers while also providing for the safety
of our employees and service providers, we have modified numerous aspects of our logistics, transportation, supply chain, purchasing,
and after-sale processes. Beginning in Q1 2020, we made numerous process updates across our operations nationwide, and adapted our fulfillment
network, to implement employee and customer safety measures, such as enhanced cleaning and physical distancing, personal protective gear,
disinfectant spraying, and temperature checks. We will continue to prioritize employee and customer safety and comply with evolving state
and local standards as well as to implement standards or processes that we determine to be in the best interests of our employees, customers,
and communities.
Due to the COVID-19 pandemic, our PRC subsidiaries
were temporarily shut down from February 1st, 2020 to March 31st, 2020. Our business was negatively impacted and
generated lower revenue and net income in 2020. Revenues from our PRC subsidiaries which had been disposed on December 31, 2020 were $225,419
for the year ended December 31, 2020, a decrease of $383,755, or 63%, compared to $609,174 in the same period of last year. The
decrease in revenues for the year ended December 31, 2020 was mainly due to the impact of COVID-19 pandemic. The extent of the
impact of COVID-19 on the Company’s results of operations and financial condition will depend on the virus’ future developments,
including the duration and spread of the outbreak and the impact on the Company’s customers, which are still uncertain and cannot
be reasonably estimated at this point of time.
Entry into a Material Definitive Agreement
On November 20, 2020, Joway Health entered into
a Merger Agreement (the “Merger Agreement”) with Dynamic Elite International Limited, a British Virgin Islands company and
a wholly-owned subsidiary of the Company (“Dynamic Elite”), Crystal Globe Limited, a British Virgin Islands company (“Crystal
Globe”) and Joway Merger Subsidiary Limited, a British Virgin Islands company and a wholly-owned subsidiary of Crystal Globe (“Merger
Sub”). The Merger Agreement provides that, upon the terms and subject to the satisfaction or waiver of the conditions set forth
therein, Merger Sub will be merged with and into Dynamic Elite (the “Merger”), with Dynamic Elite continuing as the surviving
corporation as a wholly-owned subsidiary of Crystal Globe. The special committee of the Board of Directors of the Company unanimously
approved the Merger Agreement and the transactions contemplated thereby.
Crystal Globe, as the majority shareholder holding
approximately 86.81% of the Company, is also the sole shareholder of Dynamic Elite. Mr. Jinghe Zhang, as the President, Chief Executive
Officer, Chairman and Director, and the majority beneficial owner of the Company, also serves as sole shareholder and executive director
of Crystal Globe. As a result, the Company and Dynamic Elite are under common control of Crystal Globe and Mr. Jinghe Zhang.
Pursuant to the terms of the Merger Agreement,
at the effective time of the Merger (the “Effective Time”) and as a result of the Merger, the ordinary shares of common stock
of Dynamic Elite issued and outstanding immediately prior to the Effective Time, all of which are held by the Company, were cancelled
and extinguished. In accordance with the Merger Agreement, Crystal Globe has offered to pay cash consideration to the Company of $0.045
per share for the outstanding shares of the common stock of the Company (the “Merger Consideration”). At the date of the Merger
Agreement, we had 20,054,000 shares of common stock outstanding.
1
The consummation of the Merger was subject to
customary closing conditions, including, among others, (i) the Merger having not then been enjoined, made illegal or otherwise prohibited
by any applicable law or any order, judgment, decree, injunction or ruling (whether temporary, preliminary or permanent) of any governmental
authority (each, a “Governmental Order”) or by any proceeding then pending by a governmental authority seeking any Governmental
Order; the truth and accuracy of the other party’s representations and warranties in the Merger Agreement, subject in certain
cases to a de minimis, materiality or material adverse effect (each as described in the Merger Agreement) standard; and (ii) the
compliance with or performance, in all material respects, of the other party’s covenants and obligations in the Merger Agreement
required to be performed at or prior to the consummation of the Merger.
The Merger Agreement contained certain termination
rights for the Company and Crystal Globe if the Merger was not consummated on or before December 31, 2020.
Completion of Acquisition or Disposition
of Assets
Pursuant to the terms of the Merger Agreement
dated November 20, 2020, as of December 31, 2020, the Effective Time of the Merger, the 10,000 ordinary shares of common stock of Dynamic
Elite issued and outstanding immediately which were held by the Company, were cancelled for $0.045 per share for the outstanding shares
of the common stock of the Company as Merger Consideration.
In January 2021, the Company had received $119,070
from Crystal Globe and distributed proportionately to the Company’s minority shareholders, other than Crystal Globe, which represents
2,646,000 shares of our common stock. Since the remaining 17,408,000 shares of our common stock is owned by Crystal Globe, the $0.045
per share payment for the 17,408,000 shares was offset and Crystal Globe did not receive any cash payment in connection with the Merger.
Change in Shell Company Status
As a result of the consummation of the Merger,
the Company became a shell company as of December 31, 2020.
Corporate History
Joway Health Industries Group, Inc.
We were originally formed as a Texas corporation
on March 21, 2003. On October 1, 2010, as a result of a transaction with Dynamic Elite (the “Share Exchange”), Dynamic
Elite became our wholly-owned subsidiary and we ceased to be a shell company. Dynamic Elite was the holding company of all the equity
of Tianjin Junhe Management Consulting Co., Ltd. (“Junhe Consulting”). In December 2010, the Company changed its jurisdiction
of incorporation from the State of Texas to the State of Nevada and changed its name to Joway Health Industries Group, Inc. In connection
with these changes, the Company adopted new Articles of Incorporation and Bylaws.
Share Exchange Transaction
On October 1, 2010, we entered into a Share
Exchange Agreement with Crystal Globe, the sole shareholder of Dynamic Elite International Limited, pursuant to which Crystal Globe transferred
all of its shares in Dynamic Elite to us in exchange for 15,215,426 shares of our common stock. As a result, Dynamic Elite became our
wholly-owned subsidiary and we ceased to be a shell company, and Crystal Globe held a total of 18,515,426 shares (approximately 92.6%)
of our issued and outstanding common stock.
The Share Exchange was treated for accounting
purposes as a reverse acquisition. Therefore, the Company’s financial statements after the Share Exchange were those of Dynamic
Elite and its subsidiaries and controlled companies on a consolidated basis, as if the Share Exchange had been in effect retroactively
for all periods presented.
2
Dynamic Elite
Dynamic Elite was founded on June 2, 2010
under the laws of the British Virgin Islands by Crystal Globe and Evan Liu, the sole shareholder of Crystal Globe, at the request of Mr.
Jinghe Zhang. Mr. Liu is a friend of Mr. Jinghe Zhang. On September 15, 2010, Dynamic Elite established a wholly-owned subsidiary
— Tianjin Junhe Management Consulting Co., Ltd. (“Junhe Consulting”), as a wholly foreign-owned enterprise (WOFE) under
the laws of the PRC for the purposes of acquiring Tianjin Joway Shengshi Group Co., Ltd. and engaging in the manufacture, distribution
and sale of tourmaline products in China. Under Article 6 of the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises,
adopted April 12, 1986 at the 4th Sess. of the 6th National People’s Congress and as amended on October 31, 2000 (“PRC
WOFE Law”) and Article 7 of the Detailed Rules for the Implementation, any person or entity that intends to establish an enterprise
in the PRC with foreign capital is required to submit an application for examination and approval to the appropriate department under
the State Council. On September 9, 2010, the local Tianjin City government issued a certificate of approval approving the foreign
ownership of Junhe Consulting by Dynamic Elite. Mr. Jinghe Zhang was appointed as the Executive Director of Junhe Consulting.
PRC Operating Entities
All of our business operations were conducted
through our PRC Operating Entities. The chart below sets forth our corporate structure prior to the consummation of the Merger as of December
31, 2020. As of January 1, 2021, as a result of the Merger, we no longer have any subsidiaries.
Joway Shengshi
On May 17, 2007, Mr.
Jinghe Zhang, Mr. Lijun Si and Mr. Baogang Song founded Tianjin Joway Textile Co., Ltd. as a limited liability company under the PRC law.
On November 24, 2009, the company changed its name to Tianjin Joway Shengshi Group Co., Ltd. (“Joway Shengshi”). The
registered capital of Joway Shengshi is RMB 50,000,000 and its term of operation will expire on May 16, 2022. Mr. Jinghe Zhang
is the Executive Director and General Manager of Joway Shengshi. On July 1, 2010, Mr. Lijun Si transferred 4% of the equity interest
in Joway Shengshi to Mr. Jinghe Zhang. As a result, Mr. Zhang owns 99% of the equity interest in Joway Shengshi and Mr. Baogang Song
owns the remaining 1% of the equity interest of Joway Shengshi. As of December 31, 2020 and 2019, Joway Shengshi was the sole shareholder
of Joway Technology, Joway Decoration, and Shengtang Trading.
3
Joway Technology
Joway Technology was incorporated
under PRC law on March 28, 2007, with a registered capital of RMB 1,100,000. It was formed to engage in intelligent engineering design
and construction, development and sales of electronics, water filters, and other similar products. Prior to July 25, 2010, Joway
Shengshi held 90.91% of Joway Technology. On July 25, 2010 Joway Shengshi acquired the remaining 9.09% of Joway Technology from Mr.
Jingyun Chen for RMB 100,000 in cash. As a result of the acquisition, Joway Shengshi became the sole shareholder of Joway Technology.
Joway Decoration
Joway Decoration was cofounded
by Joway Shengshi and Mr. Jingyun Chen under PRC law on April 22, 2009, with a registered capital of RMB 2,000,000. It was formed
to engage in the business of intelligent electric heating project design and construction, development and sales of electronics technology
and water filters, and the manufacture and sales of wood products. Prior to July 9, 2010, Joway Shengshi owned 90% of Joway Decoration.
On July 9, 2010, Joway Shengshi entered into a share acquisition agreement with Mr. Jingyun Chen to acquire the remaining 10% of
the shares of Joway Decoration for RMB 200,000 in cash. As a result of the acquisition, Joway Shengshi became the sole shareholder of
Joway Decoration.
Shengtang Trading
Shengtang Trading was cofounded
by Joway Shengshi and Mr. Jingyun Chen under PRC law on September 18, 2009, with a registered capital of RMB 2,000,000. It was formed
to engage in the business of importing and exporting merchandise and technology; knitwear, biochemistry (excluding toxic chemicals and
drugs), and the wholesale and retail sale of hardware. Prior to July 28, 2010, Joway Shengshi owned 95% of Shengtang Trading. On
July 28, 2010, Joway Shengshi entered into a share acquisition agreement with Mr. Aiying Wang to acquire the remaining 5% of the
shares of Shengtang Trading for RMB 100,000 in cash. As a result of the acquisition, Joway Shengshi became the sole shareholder of Shengtang
Trading.
VIE Agreements
On September 16, 2010,
prior to the Share Exchange, Junhe Consulting, Dynamic Elite’s wholly owned subsidiary had entered into a series of control agreements
with Joway Shengshi and all of the owners of Joway Shengshi, which agreements allow Junhe Consulting to control Joway Shengshi. Through
our ownership of Dynamic Elite, Dynamic Elite’s ownership of Junhe Consulting and Junhe Consulting’s agreements with Joway
Shengshi, we believe that Joway Health controls Joway Shengshi and therefore, we consolidate the results of operations of Joway Shengshi
and its subsidiaries with ours as variable interest entities.
In connection with the Share
Exchange and as consideration for entering into the VIE Agreements, Mr. Jinghe Zhang and Mr. Baogang Song, the shareholders of Joway Shengshi,
entered into a Call Option Agreement with the sole shareholder of Crystal Globe, pursuant to which the shareholders of Joway Shengshi
have the right to purchase up to 100% of the shares of Crystal Globe at an aggregate price equal to $20,000 over the next three years.
The Call Option vested as to 34% of the shares of Crystal Globe on April 2, 2011, and vests as to 33% on April 2 of 2012 and
2013. As a result, the shareholders of Joway Shengshi became the indirect beneficial owners of the shares of the Company held by Crystal
Globe.
Under PRC law the acquisition
of Joway Shengshi by Junhe Consulting must be structured as a cash transaction with the purchase price based on the appraised value of
the equity interest or assets to be sold. Neither Junhe Consulting nor Dynamic Elite had sufficient cash to pay the appraised value of
the equity interest or assets of Joway Shengshi. Alternatively, the shareholders of Joway Shengshi entered into a series of contractual
agreements (the “VIE Agreements”) which enabled Dynamic Elite to gain control of Joway Shengshi and be entitled to receive
100% of the profits of Joway Shengshi and is obligated for 100% of the losses of Joway Shengshi. As a result of the VIE agreements, we
are able to consolidate Joway Shengshi’s financial statements, including the results of operations, assets and liabilities of Joway
Shengshi and its subsidiaries without triggering the regulatory requirements of PRC law. Under PRC law the VIE Agreements are considered
commercial transactions among legal entities and individuals, and do not trigger the PRC requirements that apply to acquisitions, although
the pledge by Joway Shengshi’s equity holders of all their equity in Joway Shengshi to Junhe Consulting pursuant to the Equity Pledge
Agreement (the “Equity Pledge”) must be registered with the appropriate governmental agency. The Equity Pledge was registered
with local administration department for industry and commerce pursuant to the Section 1 of Article 226 of PRC Property Law passed
by National People’s Congress on March 16, 2007.
4
Through Junhe Consulting,
we effectively and substantially controlled Joway Shengshi and its three wholly owned subsidiaries Joway Technology, Shengtang Trading
and Joway Decoration.
The VIE Agreements included:
Terms of the VIE Agreements
Consulting Agreement
Under the Consulting Agreement,
Joway Shengshi retained Junhe Consulting to (i) provide general advice and assistance relating to the management and operation of
Joway Shengshi’s business; (ii) provide general advice and assistance with respect to employment and staffing issues, including
recruiting and training of management personnel, administrative personnel and other staff, establishing an efficient payroll management
system, and relocation assistance; (iii) provide business development advice and assistance; and (iv) such other advice and
assistance as may be agreed upon by the parties. In return, Joway Shengshi agreed to pay Junhe Consulting quarterly a consulting fee in
an amount equal to all of Joway Shengshi’s net income for that quarter within fifteen (15) days after receipt of Joway Shengshi’s
quarterly financial statements. Joway Shengshi shall cause the owners of Joway Shengshi to pledge their equity interests in Joway Shengshi
to Junhe Consulting to secure the payment of the foregoing consulting fee.
Joway Shengshi was subject
to a number of covenants typical for this type of transaction, including the obligation to provide monthly, quarterly and Annual Reports,
and other information requested by Junhe Consulting. In addition, Joway Shengshi was subject to a number of negative covenants, including
the agreement that it should not (i) issue, purchase or redeem any equity or debt, or equity or debt securities; (ii) create,
incur, assume or suffer to exist any liens upon any of its property or assets (except certain enumerated liens); (iii) wind up, liquidate
or dissolve its affairs or enter into any transaction of merger or consolidation, or sale of all or substantially all of its assets; (iv) declare
or pay any dividends; (v) incur, assume or suffer to exist any indebtedness, (other than certain enumerated exceptions); (vi) lend
money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest
in, or make any capital contribution to, any other Person, except receivables in the ordinary course of business; (vii) enter into
any transaction or series of related transactions, whether or not in the ordinary course of business, with any of its affiliates or related
parties, other than on terms and conditions substantially as favorable to Joway Shengshi as would be obtainable in a comparable arm’s-length
transaction; (viii) make any expenditure for fixed or capital assets (including, without limitation, expenditures for maintenance
and repairs which are capitalized in accordance with generally accepted accounting principles in the PRC and capitalized lease obligations)
during any quarterly period which exceeds the aggregate the amount contained in the budget; (ix) amend or modify or change its Articles
of Association or business license, or any agreement entered into by it, with respect to its capital stock, or enter into any new agreement
with respect to its capital stock; or (x) engage (directly or indirectly) in any business other than those types of business prescribed
within the business scope of its business license.
5
The Consulting Agreement may
be terminated by Junhe Consulting for any reason at any time. In addition, the Consulting Agreement may be terminated by Junhe Consulting
by written notice in the event of a material breach by Joway Shengshi which, in the case of breach of a non-financial obligation, has
not been remedied within fourteen (14) days following the receipt of such written notice. Either party may terminate the Consulting
Agreement by written notice to the other party if (i) the other party becomes bankrupt or insolvent or is the subject of proceedings
or arrangements for liquidation or dissolution or ceases to carry on business or becomes unable to pay its debts as they become due; (ii) if
the operations of Junhe Consulting are terminated; or (iii) if circumstances arise which materially and adversely affect the performance
or the objectives of the Consulting Agreement.
Operating Agreement
Under the Operating Agreement,
Junhe Consulting agreed to guarantee Joway Shengshi’s performance of contracts, agreements or transactions with third parties in
consideration for the pledge by Joway Shengshi to Junhe Consulting of all of Joway Shengshi’s assets. In addition, Joway Shengshi
and its shareholders agreed that Joway Shengshi would not, without the prior written consent of Junhe Consulting, enter into any transactions
which may materially affect the assets, obligations, rights or the operations of Joway Shengshi (excluding transactions entered into in
the ordinary course of business and the lien obtained by relevant counter parties due to such agreements), including transactions involving
(i) the borrowing of money or assumption of any debt; (ii) the sale or purchase from any third party any asset or right, including,
but not limited to, any intellectual property rights; (iii) the provision of any guarantees to any third parties using its assets
or intellectual property rights; or (iv) the assignment of any business agreements to any third party. Joway Shengshi and its shareholders
also agreed to appoint to Joway Shengshi’s board of directors, and Joway Shengshi’s General Manager, Chief Financial Officer,
and other senior officers those persons recommended or selected by Junhe Consulting.
Voting Rights Proxy Agreement
Under the Proxy Agreement,
the Shareholders irrevocably granted to Junhe Consulting, for the maximum period of time permitted by law, all of their voting rights
as shareholders of Joway Shengshi. In addition, the Shareholders agreed not to transfer their equity interest in Joway Shengshi to any
third party (other than Junhe Consulting or a designee of Junhe Consulting). The Proxy Agreement may not be terminated without the unanimous
consent of all Parties, except Junhe Consulting, which may terminate the Proxy Agreement with or without cause on thirty (30) days
prior written notice.
Option Agreement
Under the Option Agreement,
the Shareholders irrevocably granted to Junhe Consulting or its designee an exclusive option to purchase at any time, to the extent permitted
under PRC Law, all or a portion of the Shareholders’ Equity Interest in Joway Shengshi for a price equal to the capital paid in
by the Shareholders on a pro rata basis in accordance with the percentage of the Shareholders’ Equity Interest acquired, subject
to applicable PRC laws and regulations.
6
Equity Pledge Agreement
Under the Equity Pledge Agreement,
the Shareholders pledged all of their right, title and interest in their equity interests in Joway Shengshi to Junhe Consulting to guarantee
Joway Shengshi’s performance of its obligations under the Consulting Services Agreement. The pledge expired two (2) years after
the satisfaction by Joway Shengshi of all of its obligations under the Consulting Services Agreement. During the term of the Equity Pledge
Agreement, Junhe Consulting was entitled to vote, control, sell, or dispose of the Pledged Collateral in the event the Company did not
perform its obligations under the Consulting Services Agreement. In addition, Junhe Consulting was entitled to collect any and all dividends
declared or paid in connection with the Pledged Collateral.
Through these contractual
arrangements, we had the ability to substantially influence the daily operations and financial affairs of Joway Shengshi and to receive,
through our subsidiaries, all of its profits. As a result, we were considered the primary beneficiary of Joway Shengshi and its operations,
and Joway Shengshi and its subsidiaries were deemed to be our variable interest entities. Accordingly, we were able to consolidate into
our financial statements the results, assets and liabilities of Joway Shengshi and its subsidiaries.
Call Option Agreement
As part of the reorganization
of Joway Shengshi, Mr. Liu and the shareholders of Joway Shengshi entered into a Call Option Agreement, pursuant to which the shareholders
of Joway Shengshi had the right to purchase up to 100% of the shares of Crystal Globe at an aggregate price equal of $20,000 over the
next three years. In addition, the Option Agreement also provides that Mr. Liu should not dispose any of the shares of Crystal Globe
without consent of Mr. Jinghe Zhang and Mr. Baogang Song. Upon the consummation of the Share Exchange Transaction, Crystal Globe
became the principal shareholder of Joway Health (f/k/a G2 Ventures, Inc.) and Mr. Zhang and Mr. Song became indirect beneficial
owners of the shares in Joway Health held by Crystal Globe pursuant to this Call Option Agreement.
On November 13, 2016, Mr.
Jinghe Zhang exercised his Call Option as to 99% of the shares of Crystal Globe and Mr. Baogang Song exercised his Call Option as to 1%
of the shares of Crystal Globe. As a result of exercising his Call Option, Mr. Zhang became the controlling shareholder of Crystal Globe
and in turn, the controlling shareholder of the Company. On November 20, 2016, Mr. Song transferred his 1% of the shares of Crystal Globe
to Mr. Zhang. Mr. Zhang thus controlled 17,408,000 shares, or 86.81%, of the issued and outstanding shares of the Company’s common
stock.
As a result of the Merger,
we become a shell company on December 31, 2020 and no longer have any subsidiaries.
Business Description
Prior to the consummation
of the Merger, we, through our PRC Operating Entities, were engaged in the manufacture and sales of tourmaline-related healthcare products,
and had a total of 21 full time employees.
As a result of the consummation
of the Merger on December 31, 2020, we became a shell company and as of the date of this Annual Report, we have no full time employees.
Starting from January 1, 2021, we have no longer any business operations.
Introduction to Tourmaline
Tourmaline is a crystal silicate
mineral compounded with elements such as aluminum, iron, magnesium, sodium, lithium, or potassium. Tourmaline is classified as a semi-precious
stone and the gem comes in a wide variety of colors. (Source: http://en.wikipedia.org/wiki/Tourmaline)
Tourmaline has the ability
to become its own source of electric charge, as it is both pyroelectric, as well as piezoelectric. When it is put under pressure or when
it is dramatically heated or cooled, tourmaline creates an electrical charge capable of emitting far infrared rays (“FIR”)
and negative ions. (Source: http://www.globalhealingcenter.com/tourmaline.html)
FIRs are invisible waves
of energy capable of penetrating deep into the human body. Negative ions are atoms that have a negative electric charge. FIRs and
negative ions are perceived to have certain health benefits. (Source: http://www.globalhealingcenter.com/tourmaline.html)
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Because it is a permanent
source of FIRs and negative ions, tourmaline is perceived to have certain health benefits (Source: Niwa Institute for Immunology, Japan.
Int J. Biometeorol 1993 Sep; 37(3) 133-8). In view of its perceived health benefits, tourmaline has been used to manufacture a wide range
of healthcare products, including apparel, bedding, water purifiers, sauna rooms, and personal care products.
While tourmaline has perceived
health benefits, the actual benefits of tourmaline to human health are unknown. The full efficacy of tourmaline to human health requires
further significant clinical study. We are not aware of any formal clinical studies which have validated the health benefits of tourmaline.
We purchased liquid tourmaline
from domestic Chinese companies which, in turn, imported it from South Korea. Liquid tourmaline is readily available and its price has
remained relatively stable. We had not experienced any shortage in tourmaline but as a precaution, we closely monitored its price and
have several back-up suppliers until we become a shell company.
China’s Tourmaline Health-Related Products Market
The use of tourmaline in health-related
products in China began in 2001. Although more and more companies are producing tourmaline health-related products every year, the market
for these products in China is still in its infancy and highly fragmented. (Source: 2010-2012 China’s tourmaline market and investment
prospects research Report, Institute of China Uniway Economics, August, 2010).
Currently, there are numerous
kinds of tourmaline health-related products on the market, including tourmaline clothes, tourmaline mattresses, tourmaline water machines,
etc. In China, users of tourmaline health-related products are typically middle-aged and elderly people and demand for tourmaline health-related
products is still relatively low compared to the size of the Chinese population.
In 2015, New Material is listed
in the state development strategies in the State Council Report by Premier Keqiang Li. Tourmaline is defined as New Material and Tourmaline
Processing Technology is designated as New Material Application Technology.
We believe that the main challenge
for the tourmaline health-related product companies is market development rather than competition. With rising living standards, increasing
disposable income, higher health consciousness and the greater awareness of the health benefits of tourmaline, we believe that the tourmaline
health products market will grow rapidly in the next few years.
Manufacturing Process
Prior to the consummation
of the Merger, we had two manufacturing processes.
One manufacturing process
consisted of applying or infusing raw textiles with liquid or granular tourmaline and then producing products from these tourmaline-infused
textiles. This process was used to produce Male and Female Underpants, Tourmaline Scarves and Tourmaline Pillowcases.
Our second manufacturing process
consisted of applying or infusing already finished products with liquid or granular tourmaline. We purchased finished products, such as
clothing, bedding, and mattresses and then, using one or more of the techniques described below, coat and/or infuse the products with
liquid or granular tourmaline.
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We coated or infused liquid
or granular tourmaline into our products using one or more of the following methods:
The Spray Method
We used special high-pressure
nozzles to spray liquid tourmaline onto the surface of the product. Through this process, the tourmaline particles were attached onto
the surface of the product. We then used a high-temperature ironing machine to embed the tourmaline particles into the fibers of the product.
This method is generally used in the manufacture of large pieces of textile products, such as mattresses.
The Dip Method
We completely immersed fabrics into liquid tourmaline
and then stirred the fabrics in the liquid tourmaline to ensure the tourmaline particles attach to the surface of the fabrics. Finally,
we embedded the tourmaline particles into the fibers by applying heat with our special high-temperature ironing machine. This method
is used in the manufacture of smaller products, such as underwear, scarves, and shirts.
The Filling Method
We filled the products with
tourmaline particles. This method is generally used to make activated water machines and other water treatment products.
The three methods mentioned
above were keys to our manufacturing process. We protected our manufacturing methods via confidentiality agreements entered into between
us and our employees. Pursuant to the confidentiality agreement, the employees were prohibited from unlawfully revealing and using our
confidential technology during his/her term of employment and ten years after the termination of employment.
Our Products and Services
Prior to the consummation
of the Merger as of December 31, 2020, we were primarily in the manufacture of the following three series of tourmaline-related healthcare
products:
1. Healthcare Knit Goods Series
For the fiscal years ended December 31, 2020 and
2019, reported as part of loss from operations of our discontinued component, our healthcare knit goods series of products accounted for
approximately 15.5% and 11.3% of our annual sales revenue, respectively. This series of products was comprised of tourmaline treated mattresses,
bed linen, underwear, and shirts. We used either the spray or dip method to embed tourmaline particles into the fabric of this series
of products.
Set forth below is a list of our major healthcare knit goods products,
the trademarks or marks under which they were marketed and the manufacturing method employed prior to the consummation of the Merger as
of December 31, 2020:
No. Products Trademark/Mark Manufacturing Method
1 Golden Mattress Spray Method
2 Tourmaline Mattress Spray Method
3 Tourmaline Underwear Dip Method
4 Tourmaline Bed Linens Spray Method
5 Tourmaline Pillow Spray Method
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2. Daily Healthcare and Personal Care Series
For the fiscal years ended
December 31, 2020 and 2019, reported as part of loss from operations of our discontinued component, our daily healthcare and personal
care series of products accounted for approximately 27.9% and 34.7% of our annual sales revenue, respectively. This series was comprised
of tourmaline-treated waist protectors, knee protectors, scarves, and shampoo and soap products. We used all three production methods
to embed tourmaline particles into these products. We believe these tourmaline-treated daily healthcare products and personal care products
produce FIRs and negative ions which have perceived health benefits. This series was also comprised of four edible products without tourmaline
treatment, including Xin-Nao-Ling Fish Oil Soft Gel, Zhi-Li-Bao Fish Oil Soft Gel, Glucosamine Chondroitin Sulfate
& Calcium Capsule and Vegetable and Fruit Enzyme Juice, which are subject to CFDA regulation.
Set forth below is a list
of our major products in the daily healthcare and personal care series, the trademarks or marks under which they were marketed and the
manufacturing method employed prior to the consummation of the Merger as of December 31, 2020:
No. Products Trademark/Mark Manufacture Method
1 Tourmaline Waist Protector Spray Method
2 Tourmaline Scarves Dip Method
3 Tourmaline Shampoo Filling Method
4 Tourmaline Soap Filling Method
5 Tourmaline Toothpaste Filling Method
6 Xin-Nao-Ling Fish Oil Soft Gel N/A
7 Zhi-Li-Bao Fish Oil Soft Gel N/A
3. Wellness House and Activated Water Machine
For the years ended December
31, 2020 and 2019, reported as part of loss from operations of our discontinued component, our wellness house and activated water machine
series of products accounted for approximately 56.7% and 54.0% of our annual sales revenue, respectively. This series of products was
comprised mainly of tourmaline wellness houses, foot sauna bucket, tourmaline activated water machines and drinking mugs. Our tourmaline
wellness house resembled a regular sauna room in which users experienced heat sessions. However, the inner layer of our wellness house
were coated with tourmaline, which emits FIRs and negative ions when heated. Tourmaline is perceived to have certain health benefits.
We supplied two types of wellness houses: one for family use, which was designed to be installed in the corner of a room and can contain
three people; the other was customized and constructed on site for commercial bathrooms or spas according to their specifications. Our
tourmaline activated water machines and drinking mugs were infused tourmaline particles into filters. Our Foot Sauna Bucket was filled
with tourmaline particles on the bottom.
Set forth below is a list
of our major products in the wellness house and activated water machine series, the trademarks or marks under which they were marketed
and the manufacturing method employed prior to the consummation of the Merger as of December 31, 2020:
No. Products Trademark/Mark Manufacturing Method
1 Wellness House for family use Spray Method
2 Tourmaline Water Mug Filling Method
3 Tap Water Purifier Filling Method
4 Foot Sauna Bucket Filling Method
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Return Policy
It was our normal commercial
practice to only allow the return of goods that did not conform to the customer’s order due to some occasional error in packaging
or shipment. The return should be requested within seven days of purchase. Customers may also request a free repair of defective products
within 15 days of purchase. For products purchased more than 15 days previously, we charged a service fee of 110% of the cost of repaired
or replaced parts. For the years ended December 31, 2020 and 2019, we did not have sales return occurred.
Services: Wellness House Maintenance
Our wellness house products
generally carry a one-year warranty. When the warranty expires, we provide our customers the option to engage us to service and maintain
their wellness houses for a fee equal to 200% of the cost of the repaired or replaced parts.
For the years ended December
31, 2020 and 2019, the maintenance fees were $2,052 and $27,119, respectively, accounting for approximately 9% and 23% of sauna sales
revenue, respectively.
Manufacturing Facilities
Prior
to the consummation of the Merger as of December 31, 2020, our
manufacturing facilities were located in Baodi District, Tianjin City, PRC, and occupied an area of approximately 2,500 square meters.
We had 1 employee engaged in manufacturing as of December 31, 2020.
After the consummation of
the Merger as of December 31, 2020, we no longer had manufacturing facilities and any employees for the manufacturing facilities.
Customers and Suppliers
Customers
Below is a list of our top
three customers for the years 2020 and 2019, respectively, prior to the consummation of the Merger as of December 31, 2020.
Top Three Customers in 2020
No. Name Amount (RMB) Amount (US$) Products Sold Percentage of Sales
Top Three Customers in 2019
No. Name Amount (RMB) Amount (US$) Products Sold Percentage of Sales
Our main customers were franchisees
that were authorized to sell our products exclusively. In 2020, we did not have any customer accounted for more than 10% of our annual
sales revenue and in 2019, we had three customers accounted for more than 10% of our annual sales revenue.
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Suppliers
Below is a list of our top
three suppliers in 2020 and 2019, respectively, prior to the consummation of the Merger as of December 31, 2020.
Top Three Suppliers in 2020
No. Name Amount (RMB) Amount (US$) Product Purchased Percentage of Purchase
3 Zhejiang Taikang Biotechnology Co. Ltd ¥ 95,346 $ 13,823 Mattress 8.0 %
Top Three Suppliers in 2019
No. Name Amount (RMB) Amount (US$) Product Purchased Percentage of Purchase
In 2020 and 2019, we had one
supplier accounted for 28.1% and 18.5% of our annual raw materials purchases, respectively. We do not have long term contracts with any
of our suppliers since the raw materials we use are readily available on the market at generally stable prices.
Franchise Stores
Prior to the consummation
of the Merger as of December 31, 2020, approximately 88% and 78% of our annual sales in 2020 and 2019, respectively, were made to our
franchisees.
As of December 31, 2020, there
were approximately 49 franchise stores across the PRC that were authorized to sell our products exclusively. Set forth below is a geographical
breakdown of the franchise stores:
Region Number of Franchise Stores
Northeastern China (Liaoning, Jilin, Heilongjiang) 2
Northern China (Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia) 38
Central China (Henan, Hubei, Hunan, Jiangxi) 8
Southwestern China (Chongqing, Sichuan, Guizhou, Yunnan, Tibet) 1
We used multiple criteria
to select our franchisees, including financial condition, sales network, sales personnel, and facilities.
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We typically entered into
a standard franchising agreement with the applicant. Pursuant to the agreement, the franchisee was authorized to sell our products exclusively
at a predetermined retail price. In exchange, we provided them with products at a discounted price, geographical exclusivity, and marketing,
training and technological support. The franchisee was also required to adhere to certain standards of product merchandising, promotion
and presentment. No initial franchise fees were required from the franchisee, nor was the franchisee required to pay any continuing royalties.
The agreement was generally for a term of three years and was renewable on the mutual agreement of both parties.
After the consummation of
the Merger as of December 31, 2020, we have no franchise stores across the PRC.
Marketing and Sales
Prior to the consummation
of the Merger as of December 31, 2020, our primary marketing strategies were directed towards both our franchisees and end users, and
the marketing efforts of our franchisees were directed towards end users. We assisted franchisees on monthly product introduction seminars,
which were open to both our franchisees and to the general public.
The franchise stores were
responsible for the cost of organizing the monthly product introduction seminars and meetings and we were responsible for the travel expenses
of our employees who attended these meetings and seminars to explain and promote our various product lines. There were on average 3 such
seminars and meetings each month nationwide in 2019. Generally, we chose the venue for the product seminars and meetings based on market
prospects, sales volume and the extent of meeting preparation. During the year ended December 31, 2020, we did not hold a product seminar
and meeting due to the COVID-19.
Below is a breakdown of our