As filed with the Securities and Exchange Commission on June 10, 2016

Registration No. 333-208583

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

PRE-EFFECTIVE AMENDMENT 4 TO
REGISTRATION STATEMENT ON FORM F-1
UNDER THE SECURITIES ACT OF 1933

 

HEBRON TECHNOLOGY CO., LTD.

(Exact name of registrant as specified in its charter)

 

Not Applicable

(Translation of Registrant’s Name into English)

 

British Virgin Islands		3490		Not Applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

 

c/o Zhejiang Xibolun Automation Project Technology Co., Ltd. No. 587-A 15 th Road, 3 rd Av., Binhai Ind. Park Economic & Technology Development Zone Wenzhou, Zhejiang Province People’s Republic of China 325000 +86-577-8689-5678 — telephone		C T Corporation System 111 Eighth Avenue New York, New York 10011 +1-800-624-0909 — telephone
(Address, including zip code, and telephone number, including area code, of principal executive offices)		(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

Anthony W. Basch, Esq. Jingwen Luo, Esq. Kaufman & Canoles, P.C. Two James Center, 14 th Floor 1021 East Cary Street Richmond, Virginia 23219 +1-804-771-5700 — telephone +1-888-360-9092 — facsimile		Joseph M. Lucosky, Esq. Lucosky Brookman LLP 101 Wood Avenue South 5 th Floor Woodbridge, NJ 08830 +1-732-395-4400 — telephone +1-732-395-4401 — facsimile

 

Approximate date of commencement of proposed sale to public: As soon as practicable after the effective date of this Registration Statement.

If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

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CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered		Proposed Maximum Aggregate Offering Price (1)				Amount of Registration Fee
Common Shares (2)		$	20,000,000			$	2,014
Placement Agent Warrants (3)		$	1				—
Common Shares Underlying Placement Agent Warrants (3)		$	1,200,000				121
Total		$	21,200,001			$	2,135	(4)

(1)

The registration fee for securities is based on an estimate of the Proposed Maximum Aggregate Offering Price of the securities, assuming the sale of the maximum number of common shares at the expected offering price of $4.00 per share, and such estimate is solely for the purpose of calculating the registration fee pursuant to Rule 457(o).

(2)

In accordance with Rule 416(a), the Registrant is also registering an indeterminate number of additional common shares that shall be issuable pursuant to Rule 416 to prevent dilution resulting from share splits, share dividends or similar transactions.

(3)

We have agreed to issue, on the closing date of this offering, warrants to our placement agent, Spartan Securities Group, Ltd. (the “Placement Agent”), exercisable at a rate of one warrant per share to purchase up to 5% of the aggregate number of common shares sold by the Registrant (the “Placement Agent Warrants”). The price to be paid by the Placement Agent for the Placement Agent Warrants is $0.001 per warrant. The closing date will be a date mutually acceptable to the Placement Agent and the Registrant after the minimum offering has been sold. Assuming a maximum placement and an offering price of $4.00 per share, on the closing date the Placement Agent would receive 250,000 Placement Agent Warrants at an aggregate purchase price of $250. The exercise price of the Placement Agent Warrants is equal to 120% of the price of the common shares offered hereby. Assuming a maximum placement and an exercise price of $4.80 per share, we would receive, in the aggregate, $1,200,000 upon exercise of the Placement Agent Warrants. The common shares underlying the Placement Agent Warrants are exercisable within three year of the date of this offering and are deemed to commence simultaneously with the Placement Agent Warrants.

(4)

Previously paid.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We will not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated June 10, 2016

Hebron Technology Co., Ltd.

Minimum Offering: 2,500,000 Common Shares
Maximum Offering: 5,000,000 Common Shares

This is an initial public offering of common shares of Hebron Technology Co., Ltd, a British Virgin Islands company. We are offering a minimum of 2,500,000 and a maximum of 5,000,000 of our common shares.

Prior to this offering, there has been no public market for our common shares. The initial public offering price of our common shares is expected to be $4.00 per share. We have applied to list our common shares on NASDAQ Capital Market under the symbol “HEBT.” We cannot assure you that our application will be approved; if it is not approved, we will not complete this offering.

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. Investing in our common shares involves risks. See “Risk Factors” beginning on page 10 .

		Per Common Share				Minimum Offering				Maximum Offering
Assumed public offering price		$	4.00			$	10,000,000			$	20,000,000
Placement discount*		$	0.16			$	400,000			$	800,000
Proceeds to us, before expenses		$	3.84			$	9,600,000			$	19,200,000

*

Under the Placement Agreement, we will pay our Placement Agent a fundraising commission equal to 4% of the gross proceeds raised in the offering.

We expect our total cash expenses for this offering (including cash expenses payable to our placement agent for its out-of-pocket expenses) to be approximately $1,047,857, exclusive of the above commissions. The placement agent, Spartan Securities Group, Ltd., must sell the minimum number of securities offered 2,500,000 if any are sold. The placement agent is only required to use its best efforts to sell the maximum number of securities offered 5,000,000. The offering will terminate upon the earlier of: (i) a date mutually acceptable to us and our placement agent after which the minimum offering is sold or (ii) August 31, 2016. Until we sell at least 2,500,000 common shares, all investor funds will be held in an escrow account at Wilmington Trust N.A., as Escrow Agent. If we do not sell at least 2,500,000 common shares by August 31, 2016, all funds will be promptly returned to investors (within three business day) without interest or deduction. If we complete this offering, net proceeds will be delivered to our company on the closing date. We will not be able to use such proceeds in China, however, until we complete certain remittance procedures in China. If we complete this offering, then on the closing date, we will issue common shares to investors in the offering and placement agent warrants to our placement agent exercisable at a rate of one warrant per share to purchase up to 5% of the aggregate number of Common Shares sold in this offering, at an exercise price equal to 120% of the price at which we sell our common shares in this offering. We do not intend to list the placement agent warrants either on an exchange or an over the counter quotation system.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Spartan Securities Group, Ltd.

The date of this prospectus is            , 2016.

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Prospectus Summary			1
Risk Factors			10
Special Note Regarding Forward-Looking Statements			31
Use of Proceeds			31
Dividend Policy			32
Exchange Rate Information			33
Capitalization			36
Dilution			37
Post-Offering Ownership			38
Management’s Discussion and Analysis of Financial Condition and Results of Operations			39
Quantitative and Qualitative Disclosures About Market Risk			49
Business			51
Description of Property			76
Management			78
Executive Compensation			83
Related Party Transactions			85
Principal Shareholders			86
Description of Share Capital			87
Shares Eligible for Future Sale			96
Material Tax Consequences Applicable to U.S. Holders of Our Common Shares			97
Enforceability of Civil Liabilities			103
Placement and Plan of Distribution			104
Expenses Relating to This Offering			109
Legal Matters			110
Experts			110
Interests of Named Experts and Counsel			110
Disclosure of Commission Position on Indemnification			110
Where You Can Find Additional Information			110
Financial Statements			F-1

Neither we nor the placement agent have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our common shares only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common shares. Our business, financial condition, results of operations, and prospects may have changed since that date.

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The information in this preliminary prospectus is not complete and is subject to change. No person should rely on the information contained in this document for any purpose other than participating in our proposed initial public offering, and only the preliminary prospectus issued on             , 2016 is authorized by us to be used in connection with our proposed initial public offering. The preliminary prospectus will only be distributed by us and the placement agent named herein and no other person has been authorized by us to use this document to offer or sell any of our securities.

Until            , 2016 (25 days after the commencement of our initial public offering), all dealers that buy, sell, or trade our common shares, whether or not participating in our initial public offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as placement agents and with respect to their unsold allotments or subscriptions.

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Prospectus Summary

This summary highlights information contained in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before making an investment in our common shares. You should carefully consider, among other things, our consolidated financial statements and the related notes and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

Prospectus Conventions

Except where the context otherwise requires and for purposes of this prospectus only, “we”, “us”, “our company”, “Company”, “our”, “Hebron” and “HEBT” refer to

•

Hebron Technology Co., Ltd., a British Virgin Islands company limited by shares (“Hebron Technology” when individually referenced);

•

Hong Kong Xibolun Technology Limited, a Hong Kong limited company (“HK Xibolun” when individually referenced), which is a wholly owned subsidiary of Hebron Technology;

•

Zhejiang Xibolun Automation Project Technology Co., Ltd. (“Xibolun Automation”) (also referred to as  or Zhejiang Xibolun Automatically Control System Engineering Technology Co., Ltd. in China), a PRC company, which is a wholly-owned subsidiary of HK Xibolun; and

•

Wenzhou Xibolun Fluid Equipment Co., Limited (“Xibolun Equipment”) (also referred to as  or Wenzhou Xibolun Fluid Equipments Co., Ltd. in China), a PRC company, which is a wholly-owned subsidiary of HK Xibolun, which holds 70% of Xibolun Equipment through HK Xibolun’s 100% subsidiary, Xibolun Automation, and which holds 30% of Xibolun Equipment directly.

In addition, Hebron is the English romanization of Xibolun in Chinese.

This prospectus contains translations of certain RMB amounts into U.S. dollar amounts at specified rates solely for the convenience of the reader. The relevant exchange rates are listed below:

		For the years ended December 31,
		2015				2014				2013
Period Ended RMB: USD exchange rate			6.4917				6.1460				6.1140
Period Average RMB: USD exchange rate			6.2288				6.1457				6.1982

For the sake of clarity, this prospectus follows English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English. For example, the name of our chief executive officer will be presented as “Anyuan Sun,” even though, in Chinese, Mr. Sun’s name is presented as “Sun Anyuan.”

We have relied on statistics provided by a variety of publicly-available sources regarding China’s expectations of growth. We did not, directly or indirectly, sponsor or participate in the publication of such materials, and these materials are not incorporated in this prospectus other than to the extent specifically cited in this prospectus. We have sought to provide current information in this prospectus and believe that the statistics provided in this prospectus remain up-to-date and reliable, and these materials are not incorporated in this prospectus other than to the extent specifically cited in this prospectus.

Overview

We develop, manufacture and provide customized installation of valves and pipe fittings for use in the pharmaceutical, biological, food and beverage, and other clean industries. We are a highly specialized high-tech enterprise producing, researching, developing and installing valves and pipe fitting products with an established sales and distribution network. We offer our customers comprehensive pipeline design, installation, construction, ongoing maintenance services as well as holistic solution services.

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We are located in Wenzhou in southeastern Zhejiang Province, near the south bank of the Ou River, which has long provided the main transport artery for the mountainous southeastern section of Zhejiang. Our Company is located near the Wenzhou airport, train station and international container terminal, which makes it convenient for us to provide our service to customers located throughout China. In 1984, Wenzhou was designated one of China’s “open” cities in the new policy of inviting foreign investment, and there has been considerable economic growth in Wenzhou. We are engaged in a permitted industry for foreign investment. A branch rail line, completed in the late 1990s, links the city with the Zhejiang-Jiangxi trunk line at Jinhua. Expressways northeast to Ningbo and northwest to Jinhua opened for traffic in the early 21 ^st century. Newer and larger port facilities also have been constructed, including docks near the mouth of the Ou River with berths capable of accommodating 10,000-ton ships. The city’s airport, on the seacoast, provides scheduled flights to many cities in China. The population was 3,039,500 according to the 2010 Chinese Census.

Our product line originally focused on the construction service and pharmaceutical engineering sectors. In 2005, we shifted our product line to focus primarily on the pharmaceutical engineering sector based on the demands of our clients and our strong technology. All of our products are produced in compliance with China Good Manufacturing Practices (“GMP”), thereby assisting our customers to attain the relevant GMP certifications. We believe our products enjoy a good reputation in the industries in which we operate.

We specialize in installing valves and pipes for customers that require customized fluid control system solutions. We also specialize in designing and implementing solutions services for industries with a high need for sanitary fluid systems with product manufacture, installation services and after-sales services. Currently, we have customers for our services in the pharmaceutical, dairy product, water purification, beverage production, cosmetics and chemical industries, and we are looking forward to expanding our customer base in the future to more clean industries.

We promote our brand through our sales staff, trade shows, fairs, forums, internet, direct communications with potential customers, and business networks. In addition, our products and pricing can be easily tailored to the customers’ needs and we price our products aggressively. We pride ourselves on high quality services and products, so that our customers receive good value for the price they pay.

Research and development is an important part of our operations and is integral to achieving its long-term objectives. In April 2011 we jointly established the “Zhejiang University (Hebron) Technology Research and Development Center” with Zhejiang University to advance valve research and process technology. Current efforts and collaborations are focused on optimizing the process control valve. In addition, we have sent employees to Italy, Germany and the United States to study clean product manufacturing, installation and connection process so that we remain current on advanced international technology. It is through these collaborations that our company has managed to secure important breakthroughs resulting in proprietary knowledge and patents. While we continue collaborations with Zhejiang University, we have also begun to build our own research and development team.

The Company’s research and development team focuses on mechanical design, mechatronics, CAD design, mold design and welding. Quality control is an important aspect of the team’s work and ensuring quality at every stage of the process has been a key driver in maintaining and developing brand value for the Company.

Industry and Market Background

Our company’s primary market is the pharmaceutical industry in China. We provide design and installation services to our clients which are primarily pharmaceutical manufacturers, and our product line focuses primarily on the pharmaceutical engineering sector. “Pharmaceutical engineering” is a branch of pharmaceutical science and technology that involves development and manufacturing of products, processes, and components in the pharmaceuticals industry, such as drugs and biologics.

The Chinese government has expressed its position in support of the biomedical industry. In October 2011, five Chinese government agencies jointly issued the Guidelines for the Major Fields of High Technology Industrialization Given Priority in Development at Present (“Guidelines”) which listed the major fields of industrialization of 137 high technologies in the ten largest industries that are given priority in development in China. They include 17 technologies in biology industry. In addition, our installation services

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are closely related to several listed high technologies, such as automated production assembly line of item 26 (Chinese pharmaceutical technology and equipment) and products overall systematic integration of high-end research and design services of item 133 (R&D services). The Guidelines show that Chinese government encourages and promotes the development of the technologies that our Company focuses.

Chinese pharmaceutical industry is developing quickly. According to Chinese Bureau of Statistics, the principal business income of Chinese manufacturers in pharmaceutical industry in 2015 was approximately $410.0 billion, increased 9.1% than in 2014, while the total growth of Chinese manufacturers of all industries was 0.8%. The total profit of Chinese manufacturers in pharmaceutical industry in 2015 was approximately $42.2 billion, increased 12.9% than in 2014, while the total profit of Chinese manufacturers of all industries decreased 2.3%.

Observers such as the Economist Intelligence Unit (EIU) and IMS Health are upbeat about the prospects for China’s pharmaceutical market. Key drivers of market expansion are the rising health care awareness and needs fueled by economic growth, large and aging population, increasing total and per capita heath spending, and the ongoing healthcare reform and 12 ^th Five-Year Plan supportive measures. By 2020, healthcare expenditures in China are anticipated to reach $1 trillion. It is possible that before 2020, China will become the second largest pharmaceutical market, behind only the U.S.

Our Services and Products

The largest part of our revenues has come from the design and installation of engineering solutions for our clients. We design and install systems for customers that require fluid management and processing systems in clean industries. In particular, we have built expertise in customizing solutions such as liquid pharmaceutical processing lines for bio-pharmaceutical plants, milk production and processing systems for dairies. In implementing these solutions for our customers, we use a combination of third party components and our products, depending on the needs of a given customer. While the number of customers we serve with our installation services is relatively low, these services result in the largest part of our revenues due to the high price of such services per project.

Our product line focuses primarily on the pharmaceutical engineering sector, although our products are used in the medical, biological, food and beverage, and other clean industries. Our product line includes the following:

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Currently, a significant portion of our fluid equipment products and services are provided to pharmaceutical companies for pharmaceutical engineering construction or maintenance. In addition to designing and installation services, we also provide holistic pharmaceutical engineering solution services which combine product manufacturing, installation and after-sales service. When we receive an order for technological piping system installation services from pharmaceutical companies, we design the layout of the project according to their needs and provide them with recommendations for equipment to purchase. Once they agree with the design and purchase the appropriate equipment, we install the equipment for them. We produce multiple products for the pharmaceutical industry and many of our customers choose to use our products for the installation. In the course of installation, we also retain subcontractors for electricity, water and other industries that are out of our service range to ensure that the project is completed and ready to put into service. The pharmaceutical industry has specific sanitation requirements in the course of installation, and our customers need to apply for Good Manufacturing Practice (“GMP”) certifications from China Food and Drug Administration, thus we perform our services accordingly to meet such pharmaceutical standards and issue paper records or related documents regarding the installation process to assist our customers in applying for GMP certifications. After installation, we provide after-sales service to promote our customers’ satisfaction towards our services and products.

The service processes for projects in different industries are similar, with differences in the standard of project acceptance, sanitation requirement of products, installation precision, certain application requirements and the specific components used in the installation.

Our Opportunity and Strategy

Our internal growth strategy includes building our brand, expanding our services, developing repair and maintenance business, increasing market penetration of our existing products, developing new products and increasing our targeting of the pharmaceutical market in China. We hope to establish branch offices across China through direct sales, distributors and integrators. We also plan to establish several repair and maintenance centers to develop our repair and maintenance service. In addition, we have advised our services and products online to enable our customers to choose suitable services and products for their needs through telephone, in person and online communications with Company technicians. We plan to establish an on-line store so customers can choose our products and services directly online. Our internal growth strategy also includes the innovation of new products and enhancing our research and development team. We have contracted with Zhejiang University to assist with research and development. We have also created our own research and development department.

Competitive Strengths

We believe we have the following competitive strengths. Some of our competitors also have these or equivalent strengths.

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Our Challenges and Risks

Our primary challenges and risks include the following. We recommend that you carefully read and consider all of the risks in the section entitled “Risk Factors” before deciding to invest in our common shares.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our common shares held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period.

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Corporate Information

We are a British Virgin Islands (also referred to as “BVI”) company limited by shares. Our current corporate structure is as follows prior to completion of this offering:

Following completion of our initial public offering, ownership of Hebron Technology will be as follows, assuming completion of the minimum and maximum offerings, respectively. To the extent we complete an offering between the minimum and maximum offerings, the percentage ownership of participants in our initial public offering will between the below amounts:

Our facilities are located on an 11 acre parcel in Wenzhou in Southeastern Zhejiang Province. Our principal executive offices are located at c/o Zhejiang Xibolun Automation Project Technology Co., Ltd., No. 587-A 15 ^th Road, 3 ^rd Av., Binhai Ind. Park, Economic & Technology Development Zone, Wenzhou, Zhejiang Province, People’s Republic of China 325000. The telephone number of our principal executive offices is +86-0577-8689-5678. Our registered agent in the British Virgin Islands is Offshore Incorporations Limited. Our registered office and our registered agent’s office in the British Virgin Islands are both at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Our agent in the United States is Mr. Yung Kong Chin, 136-40 39 ^th Avenue, 602B Garden Plaza, Flushing New York, 11354. We maintain a website at www.hebrontechnology.com , on which we will post our key corporate governance documents, including our board committee charters and our code of ethics. We do not incorporate the information on our website into this prospectus and you should not consider any information on, or that can be accessed through, our website as part of this prospectus.

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Summary Financial Information

In the table below, we provide you with historical selected financial data for the fiscal years ended December 31, 2015 and 2014. This information is derived from our consolidated financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of the results that may be expected for any future period. When you read this historical selected financial data, it is important that you read it along with the historical financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

(All amounts in thousands of U.S. dollars, except for share and per share data)

		For years ended December 31,
		2015				2014
		US$				US$
Statement of operation data:
Revenues			22,995				16,735
Gross profit			8,739				6,093
Operating expenses			(2,686	)			(1,317	)
Income from operations			6,053				4,776
Other income (expense)			(40	)			(66	)
Provision for income taxes			(1,618	)			(1,299	)
Net income			4,395				3,411
Earnings per share, basic and diluted			0.37				0.28
Weighted average common shares outstanding			12,000				12,000
Balance sheet data
Current assets			16,836				11,551
Total assets			30,134				22,778
Current liabilities			13,652				9,764
Total liabilities			13,652				9,764
Total equity			16,482				13,014

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industry is more resilient in the wake of general economic slowdown, if there is a decline in economic activity in China and the other markets in which we operate or a protracted slowdown in industries on which we rely for our sales, demand for our services and our revenue will likewise decrease.

Any decline in the availability, or increase in the cost of raw materials could materially affect our earnings.

Our valve manufacturing operations depend heavily on the availability of various raw materials and energy resources. The mix of raw materials used in the production of valves is mainly composed of casting steel blank parts, forging steel blank parts and steel. Steel costs account for approximately 30% of our total manufacturing costs. The fuel costs in our manufacturing operations, particularly heavy oil and electricity, account for approximately 2% of total manufacturing costs. The availability of raw materials and energy resources may decline and their prices may fluctuate greatly. If our suppliers are unable or unwilling to provide us with raw materials on terms favorable to us, we may be unable to produce certain products. While valve production is only a very small part of our business, inability to produce certain products could result in a decrease in profit and damage to our reputation in our industry. In the event our raw material and energy costs increase, we may not be able to pass these higher costs on to our customers in full or at all. Any increase in the prices for raw materials or energy resources could materially increase our costs and therefore lower our earnings.

China’s appreciating currency may make our products more expensive to export to other countries.

While we sell most of our products in China, we may also export our products to a variety of other countries from time to time. Historically, we have relied on favorable exchange rates between China and other countries to drive revenues from products sold abroad. Over the last several years, China’s currency has appreciated against most foreign currencies, causing our products have become more expensive in other countries. To the extent the Chinese RMB continues to appreciate, our products could become more expensive and, as a result, less attractive to potential customers in other countries. Although the RMB strengthened against the U.S. dollar over the last five years, the RMB’s significant weakening against the U.S. dollar since July 2015 has largely undone such prior increases. See “Exchange Rate Information.”

Outstanding bank loans may reduce our available funds.

We have approximately $0.8 million in bank loans outstanding as of December 31, 2015. The loans are held at multiple banks, and all of the debt is guaranteed by members of our management, their immediate family members and unrelated third parties. In particular, our Chief Executive Officer and his brother have guaranteed this debt with recourse to their respective residences, and unrelated third parties have extended guarantees of our company’s debt in order to assist us in obtaining such loans. There can be no guarantee that we will be able to pay all amounts when due or refinance the amounts on terms that are acceptable to us or at all. If we are unable to make our payments when due or to refinance such amounts, our property could be foreclosed and our business could be negatively affected.

Reciprocal debt guarantees may reduce our assets if we are required to honor a guarantee made in favor of a third party.

In the past, we have occasionally entered into reciprocal debt guarantees with other local businesses in order to meet funding requirements of lenders, who sometimes require greater assets or income than we have individually, but that could be satisfied if similarly situated businesses agreed to guarantee each other’s debts. These guarantees are typically time-limited and tend to be two years in length. Although we do not currently have a guarantee obligation, we could be subject to loss in the future if we undertake to guarantee another party’s debt and such third party subsequently defaults in payment.

Our bad debt expense is material.

Financial difficulties experienced by our customers could result in risks to accounts receivable and could also include delays in collection, a reduction in liquidity and an eventual increase in bad debt. Although we recovered the majority of our bad debt in 2014, our bad debt expense was material during fiscal 2015 and fiscal 2013. For the year ended December 31, 2015, we had a bad debt expense of $367,314, for the year ended December 31, 2014, we had a recovery of bad debt expense of $368,713 and for the year ended December 31, 2013, we recorded a bad debt expense of $370,024.

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We may have liability under our contract with Zhejiang University.

We signed a Research and Collaboration Agreement with Zhejiang University on January 20, 2011. Pursuant to the agreement, Zhejiang University was responsible for conducting the research and development work of intelligent process control valve on behalf of us, and we were obligated to pay Zhejiang University a total of RMB 1 million (approximately $0.15 million) in several installments. We made payments to Zhejiang University in accordance with the specific milestones stipulated in the agreement and a total of RMB 0.65 million (approximately $0.10 million) as required by the agreement was paid as of December 31, 2015.

In addition, the agreement requires us to pay a total amount of RMB 0.35 million to Zhejiang University depending on the sales of the products, which consists of RMB 0.07 million per year for 5 years starting from May 31, 2012. As of June 10, 2016, RMB 0.15 million remains outstanding because we have not put any such products from the research into market for sales, and Zhejiang University has never required us to pay for any balance by sending us any invoice. Based on the terms of the agreement, we consider that this payment is not due. However, we plan to pay the required amount according to the terms in the Research and Collaboration Agreement in the future once we start selling the products. We do not intend to make payment until the conditions in the agreement are met. Zhejiang University could file a lawsuit against us claiming the balance and damages if we refuse to pay on its demand. Such a lawsuit, whether or not successful, may cost us considerable time and expenses.

The loss of any of our key customers could reduce our revenues and our profitability.

We consider our major customers in each period to be those customers that accounted for more than 10% of overall revenues in such period.

For the year ended December 31, 2015, two major customers accounted for approximately 11%, and 10% of the Company’s total sales, respectively. As of December 31, 2015, two customers accounted for approximately 63% and 14% of the Company’s total contracts receivable and accounts receivable balance, respectively.

For the year ended December 31, 2014, five major customers accounted for approximately 19%, 17%, 16%, 15% and 13% of the Company’s total sales, respectively. As of December 31, 2014, four customers accounted for 30%, 27%, 25% and 12% of the Company’s total contract receivable and accounts receivable balance, respectively.

We have not entered into long-term contracts with any of these major customers and instead rely on individual orders from such customers. Therefore, there can be no assurance that we will maintain or improve the relationships with these customers, or that we will be able to continue to serve these customers at current levels or at all. As the majority of our revenues are driven by individual orders for installation services, our major customers often change each period based on when a given order is placed. Although long-term contracts do not exist in our industry and our customers often make orders repeatedly, if we cannot maintain long-term relationships with major customers or replace major customers from period to period with equivalent customers, the loss of such sales could have an adverse effect on our business, financial condition and results of operations.

We rely on a relatively limited number of vendors.

We consider our major vendors in each period to be those vendors that accounted for more than 10% of overall purchases in such period.

For the year ended December 31, 2015, two major sub-contractors accounted for approximately 45% and 21% of subcontract costs, respectively. For the year ended December 31, 2015, two suppliers accounted for 22% and 15% of the Company’s accounts payable balance, respectively.

For the year ended December 31, 2014, one major sub-contractor accounted for approximately 27% of subcontract costs. As of December 31, 2014, one supplier accounted for 34% of the Company’s accounts payable balance.

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We have not entered into long-term contracts with any of these major vendors and instead rely on individual projects with such vendors. Although we believe that we can locate replacement vendors readily on the market for prevailing prices and that we would not have significant difficulty replacing a given vendor, any difficulty in replacing such a vendor could negatively affect our company’s performance to the extent it results in higher prices or a slower supply chain.

Any disruption in the supply chain of raw materials and our products could adversely impact our ability to produce and deliver products.

As to the products we manufacture, we must manage our supply chain for raw materials and delivery of our products. Supply chain fragmentation and local protectionism within China further complicates supply chain disruption risks. Local administrative bodies and physical infrastructure built to protect local interests pose transportation challenges for raw material transportation as well as product delivery. In addition, profitability and volume could be negatively impacted by limitations inherent within the supply chain, including competitive, governmental, legal, natural disasters, and other events that could impact both supply and price. Any of these occurrences could cause significant disruptions to our supply chain, manufacturing capability and distribution system that could adversely impact our ability to produce and deliver products.

We do not maintain a reserve for warranty or defective products/installation claims. Our costs could increase if we experience a significant number of claims.

The Company generally obtains the customers’ acceptance when the Company delivers product or renders service to its customers. The Company will not recognize revenue until a Completion and Evaluation Report has been provided by the customer. The Completion and Evaluation Report proves the quality of the installation projects, and there is no additional service performed by the Company later. Therefore, revenue is recognized when a Completion and Evaluation Report has been provided by the customer.

In practice, the Company allows customers to reserve approximately 5 – 10% of the agreed purchase or installation price as the quality security retention for a period of one year after the Company delivers and/or implement a solution for them.

The Company considers this one year term as a warranty period for the Company’s products sold or services provided as defined under ASC Subtopic 450-20. Historically, the Company has not experienced significant customer complaints about the products and none of customers have claimed damages for any loss incurred due to quality problems. Therefore, no separate warranty provisions were provided as at December 31, 2015, 2014 and 2013 based on historical experience.

We believe that our customer support teams, our quality assurance and manufacturing monitoring procedures will continue to keep claims at a level that does not support a need for a reserve. However, if we were to experience a significant increase in claims or failures to pay this final payment, our financial results could be adversely affected. Moreover, China’s Product Quality Law generally allows customers two years (and in some cases ten years) to seek compensation for damages caused by product quality deficiencies in cases in which the product lacks an expiration period.

Rapid expansion could significantly strain our resources, management and operational infrastructure, which could impair our ability to meet increased demand for our products and hurt our business results.

To accommodate our anticipated growth, we will need to expand capital resources and dedicate personnel to implement and upgrade our accounting, operational and internal management systems and enhance our record keeping and contract tracking system. Such measures will require us to dedicate additional financial resources and personnel to optimize our operational infrastructure and to recruit more personnel to train and manage our growing employee base. If we cannot successfully implement these measures efficiently and cost-effectively, we will be unable to satisfy the demand for our products, which will impair our revenue growth and hurt our overall financial performance.

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We must manage growth in operations to maximize our potential growth and achieve our expected revenues and any failure to manage growth will cause a disruption of our operations and impair our ability to generate revenue.

In order to maximize potential growth in our current and potential markets, we believe that we must expand the scope of our valve manufacturing and production facilities and capabilities and continue to develop new and improved valves. This expansion will place a significant strain on our management and our operational, accounting, and information systems. We expect that we will need to continue to improve our financial controls, operating procedures and management information systems. We will also need to effectively train, motivate and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect.

We cannot assure you that our internal growth strategy will be successful, which may result in a negative impact on our growth, financial condition, results of operations and cash flow.

One of our strategies is to grow internally through establishing our services in additional markets by increasing the development of new products and improving the quality of existing products. However, many obstacles to this expansion exist, including, but not limited to, increased competition from similar businesses, our ability to improve our products and product mix to realize the benefits of our research and development efforts, unexpected costs, costs associated with marketing efforts. We cannot, therefore, assure you that we will be able to successfully overcome such obstacles and establish our services in any additional markets. Our inability to implement this internal growth strategy successfully may have a negative impact on our growth, future financial condition, results of operations or cash flows.

Failure to manage our growth could strain our management, operational and other resources, which could materially and adversely affect our business and prospects.

Our internal growth strategy includes building our brand, expanding our services, developing repair and maintenance business, increasing market penetration of our existing products, developing new products and increasing our targeting of the pharmaceutical market in China. Pursuing these strategies has resulted in, and will continue to result in substantial demands on management resources. In particular, the management of our growth will require, among other things:

If we are not able to manage our growth successfully, our business and prospects would be materially and adversely affected.

Our bank accounts are not insured or protected against loss.

We maintain our cash with various banks and trust companies located in the PRC. Our cash accounts are not insured or otherwise protected. While China is currently considering implementation of banking insurance policies, it has not yet done so. Should any bank or trust company holding our cash deposits become insolvent, or if we are otherwise unable to withdraw funds, we would lose the cash on deposit with that particular bank or trust company.

Our Chinese subsidiaries’ books and records are prepared in accordance with China GAAP, not U.S. GAAP.

Substantially all of the business operations of the Company are located in Mainland China. Although Hebron Technology’s reports are prepared in accordance with U.S. GAAP, our PRC subsidiaries’ books and records are prepared in accordance with China GAAP. Despite our efforts to improve the Company’s controls

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and procedures, our accounting personnel do not have sufficient knowledge, experience and training in maintaining our books and records in accordance with U.S. GAAP standard. 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, current and potential shareholders could lose confidence in our financial reporting, which would harm the value of our shares.

We are substantially dependent upon our senior management and key research and development personnel.

We are highly dependent on our senior management to manage our business and operations and our key research and development personnel for the development of new products and the enhancement of our existing products and technologies. In particular, we rely substantially on our Chief Executive Officer, Anyuan Sun and our Chief Financial Officer, Steven Fu, to manage our operations. We also depend on our Chief Technical Officer, Xiaoliang Xue, for the development of new technology and products.

While we provide the legally required personal insurance for the benefit of our employees, we do not maintain key man life insurance on any of our senior management or key personnel other than our Chief Executive Officer, Mr. Anyuan Sun. The loss of any one of them would have a material adverse effect on our business and operations. Competition for senior management and our other key personnel is intense and the pool of suitable candidates is limited. We may be unable to locate a suitable replacement for any senior management or key personnel that we lose. In addition, if any member of our senior management or key personnel joins a competitor or forms a competing company, they may compete with us for customers, business partners and other key professionals and staff members of our company. Although each of our senior management and key personnel has signed a confidentiality agreement in connection with his employment with us, we cannot assure you that we will be able to successfully enforce these provisions in the event of a dispute between us and any member of our senior management or key personnel.

We compete for qualified personnel with other technology companies and research institutions. Intense competition for these personnel could cause our compensation costs to increase, which could have a material adverse effect on our results of operations. Our future success and ability to grow our business will depend in part on the continued service of these individuals and our ability to identify, hire and retain additional qualified personnel. If we are unable to attract and retain qualified employees, we may be unable to meet our business and financial goals.

We are heavily dependent upon the services of experienced personnel who possess skills that are valuable in our industry, and we may have to actively compete for their services.

We are heavily dependent upon our ability to attract, retain and motivate skilled personnel to serve our customers. Many of our personnel possess skills that would be valuable to all companies engaged in our industry. Consequently, we expect that we will have to actively compete for these employees. Some of our competitors may be able to pay our employees more than we are able to pay to retain them. Our ability to profitably operate is substantially dependent upon our ability to locate, hire, train and retain our personnel. There can be no assurance that we will be able to retain our current personnel, or that we will be able to attract and assimilate other personnel in the future. If we are unable to effectively obtain and maintain skilled personnel, the development and quality of our services could be materially impaired. See “Our Business — Employees.”

We depend on intellectual property licensed from third parties, and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

Our Chief Executive Officer grants us the right to use two trademarks, three patents and one copyright without payment. As our Chief Executive Officer’s permission to use these two trademarks is provided at his discretion, he could choose to discontinue such permission in the future. While currently the only third party who grants us intellectual property license is our Chief Executive Officer, it is possible for us to obtain license from any other third parties. Any termination of these licenses could result in the loss of significant rights and could harm our ability to commercialize our products. We must therefore rely on those third parties to enforce their rights and obligations. If they do not successfully enforce such rights and obligations, our development and commercialization of such technology could be delayed or prevented.

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When we license intellectual property from third parties, those parties generally retain most or all of the obligations to maintain and extend, as well as the rights to assert, prosecute and defend, that intellectual property. If we or our licensors fail to adequately protect this intellectual property or if we do not have exclusivity for the marketing of our products, our ability to commercialize products could suffer.

If we fail to protect our intellectual property rights, it could harm our business and competitive position.

We rely on a combination of patent, copyright, trademark and trade secret laws and non-disclosure agreements and other methods to protect our intellectual property rights. We are currently in control of 20 patents in China covering our valve production technology, 17 of which are now owned by PRC entities, and 3 of which are now owned by Mr. Anyuan Sun.

In addition, for those 3 patents owned by Mr. Anyuan Sun, Mr. Sun currently has no intention to transfer them to the ownership of our PRC entities. Although we are using the patents for free, there are possibilities that Mr. Sun may require us to pay royalties in future. If so, it will certainly increase our operational costs and adversely affect our business profitability.

Likewise, two of four trademarks and one copyright as disclosed in the section of “Our Intellectual Property” we are currently using are under Mr. Anyuan Sun’s ownership but we’re currently using them for free. There is also a possibility that we will be required by Mr. Sun to pay royalties in future. If so, it will certainly increase our operation cost and adversely affect our business profitability. Fortunately, we have successfully applied on our own name two trademarks in 2015, for both of which we have obtained the certificate issued by the authority (SAIC).

As to the licenses on aforementioned three patents, two trademarks, and one copyright, the license agreements we signed with Mr. Anyuan Sun did not specify expiration dates but only stated that we are entitled to use them during the valid terms of the patents, trademarks, and copyrights, which indicated that if the terms expire and Mr. Sun does not want to extend them, the licenses will expire. Also, according to China’s Intellectual Property Laws, including Patent Law, Trademark Law, and Copyrights Law, the license agreement is valid once the agreement is signed and the registration with regulatory agencies is not a necessity for the agreement to be valid. However, if the agreement is not registered, then the general public may not be aware of the agreement and the licensees’ rights will not be protected when the licensor assigns the intellectual property rights to other parties. We filed with the regulatory agencies the registration application of the license agreements in March of 2016, and the whole process shall be completed in a couple of months. In addition, since the license agreements are non-exclusive, Mr. Sun is still entitled to sign license agreements with other parties. If Mr. Sun does so, the market shares for our products which are manufactured and sold with these licensed intellectual property rights will certainly be shrunk and our profits will be affected adversely.

The process of seeking patent protection can be lengthy and expensive, our patent applications may fail to result in patents being issued, and our existing and future patents may be insufficient to provide us with meaningful protection or commercial advantage. Our patents and patent applications may also be challenged, invalidated or circumvented.

We also rely on trade secret rights to protect our business through non-disclosure provisions in employment agreements with employees. If our employees breach their non-disclosure obligations, we may not have adequate remedies in China, and our trade secrets may become known to our competitors.

Implementation of PRC intellectual property-related laws has historically been lacking, primarily because of ambiguities in the PRC laws and enforcement difficulties. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other western countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such litigation and an adverse determination in any such litigation, if any, could result in substantial costs and diversion of resources and management attention, which could harm our business and competitive position.

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We may be exposed to intellectual property infringement and other claims by third parties which, if successful, could disrupt our business and have a material adverse effect on our financial condition and results of operations.

Our success depends, in large part, on our ability to use and develop our technology and know-how without infringing third party intellectual property rights. If we sell our branded products internationally, and as litigation becomes more common in China, we face a higher risk of being the subject of claims for intellectual property infringement, invalidity or indemnification relating to other parties’ proprietary rights. Our current or potential competitors, many of which have substantial resources and have made substantial investments in competing technologies, may have or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our branded products in either China or other countries, including the United States and other countries in Asia. In addition, the defense of intellectual property suits, including patent infringement suits, and related legal and administrative proceedings can be both costly and time consuming and may significantly divert the efforts and resources of our technical and management personnel. Furthermore, an adverse determination in any such litigation or proceedings to which we may become a party could cause us to:

each of which could effectively prevent us from pursuing some or all of our business and result in our customers or potential customers deferring or limiting their purchase or use of our branded products, which could have a material adverse effect on our financial condition and results of operations.

Risks Related to Doing Business in China

If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expand significant resources to investigate and resolve the matter which could harm our business operations, this offering and our reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.

Recently, U.S. public companies that have substantially all of their operations in China, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company, our business and this offering. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our company and business operations will be severely hampered and your investment in our stock could be rendered worthless.

Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially and adversely affect our competitive position.

Substantially all of our business operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects are subject to economic, political and legal developments in

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China. Although the Chinese economy is no longer a planned economy, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market. These government involvements have been instrumental in China’s significant growth in the past 30 years. In response to the recent global and Chinese economic downturn, the PRC government has adopted policy measures aimed at stimulating the economic growth in China. If the PRC government’s current or future policies fail to help the Chinese economy achieve further growth or if any aspect of the PRC government’s policies limits the growth of our industry or otherwise negatively affects our business, our growth rate or strategy, our results of operations could be adversely affected as a result.

Labor laws in the PRC may adversely affect our results of operations.

On June 29, 2007, the PRC government promulgated a new labor law, namely, the Labor Contract Law of the PRC, which became effective on January 1, 2008, which was further amended on December 28, 2012 (effective July 1, 2013). The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce. Further, it requires certain terminations be based upon seniority and not merit. In the event we decide to significantly change or decrease our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations. The Labor Contract Law also mandates that employers provide social welfare packages to all employees, increasing our labor costs. To the extent competitors from outside China are not affected by such requirements, we could be at a comparative disadvantage.

Imposition of trade barriers and taxes may reduce our ability to do business internationally, and the resulting loss of revenue could harm our profitability.

We may experience barriers to conducting business and trade in our targeted emerging markets in the form of delayed customs clearances, customs duties and tariffs. In addition, we may be subject to repatriation taxes levied upon the exchange of income from local currency into foreign currency, substantial taxes on profits, revenues, assets and payroll, as well as value-added tax. The markets in which we plan to operate may impose onerous and unpredictable duties, tariffs and taxes on our business and products, and there can be no assurance that this will not reduce the level of sales that we achieve in such markets, which would reduce our revenues and profits.

Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.

China passed an Enterprise Income Tax Law (the “EIT Law”) and implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.

On April 22, 2009, the State Administration of Taxation of China issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate stamps, board and stockholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management are often resident in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC stockholders.

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Hebron Technology does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of the Notice, so we believe the Notice is not applicable to us. However, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in the Notice to evaluate the tax residence status of Hebron Technology.

We do not believe that we meet some of the conditions outlined. As a holding company, the key assets and records of Hebron Technology including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that have been deemed a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we believe that Hebron Technology should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in the Notice were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we will continue to monitor our tax status.

If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Currently, we do not have any non-China source income, so this would have minimal effect on us; however, if we develop non-China source income in the future, we could be adversely affected. Second, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income.” Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC stockholders and with respect to gains derived by our non-PRC stockholders from transferring our shares.

If we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both the U.S. and China, but our PRC source income will not be taxed in the U.S. again because the U.S.-China tax treaty will avoid double taxation between these two nations.

Since our operations and assets are located in the PRC, shareholders may find it difficult to enforce a U.S. judgment against the assets of our company, our directors and executive officers.

Our operations and assets are located in the PRC. In addition, most of our executive officers and directors are non-residents of the U.S., and substantially all the assets of such persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S. against us or any of these persons. See “Enforceability of Civil Liabilities.”

We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.

In connection with this offering, we will become subject to the U.S. Foreign Corrupt Practices Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes to government officials. We have operations, agreements with third parties, and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants or distributors of our company, because these parties are not always subject to our control. We are in process of implementing an anticorruption program, which prohibits the offering or giving of anything of value to foreign officials, directly or indirectly, for the purpose of obtaining or retaining business. The anticorruption program also requires that clauses mandating compliance with our policy be included in all contracts with foreign sales agents, sales consultants and distributors and that they certify their compliance with our policy annually. It further requires that all hospitality involving promotion of sales to foreign governments and government-owned or controlled entities are in accordance with specified guidelines. In the meantime, we believe to date we have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption law.

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However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

Uncertainties with respect to the PRC legal system could adversely affect us.

We conduct all of our business through our subsidiaries in China. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value.

Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC operating subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

In utilizing the proceeds of this offering in the manner described in “Use of Proceeds,” as an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries.

Any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are FIEs, to finance their activities cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange, or SAFE. Currently, China is holding more open and tolerate attitude toward FIEs. More open rules and regulations are published in recent years to replace previous ones which are more restrictive. On March 30 ^th , 2015, SAFE promulgated Circular 19 which is about Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises) and effective since June 1, 2015. Circular 19 has made some important changes in rules regarding the conversion of foreign exchanges to RMB, which are as follows in particular:

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On May 10, 2013, SAFE released Circular 21, which came into effect on May 13, 2013; also, on February 13, 2015 SAFE published Circular 13 (Circular of the State Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies ) to update some measures stipulated in Circular 21. According to Circular 21, SAFE has significantly simplified the foreign exchange administration procedures with respect to the registration, account openings and conversions, settlements of FDI-related foreign exchange, as well as fund remittances. Meanwhile, Circular 13 has further simplified foreign exchange administration procedures, most important among which is that SAFE delegated foreign exchange registration to the banks, meanwhile the related registration approval by SAFE has been annulled.

Even with more and more open policy toward FDI and FIEs, Circulars mentioned above may still have some limit our ability to convert, transfer and use the net proceeds from this offering and any offering of additional equity securities in China, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.

We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by the Ministry of Commerce of China, or MOFCOM, or its local counterpart. We may not be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our PRC subsidiaries. If we fail to receive such approvals, we will not be able to use the proceeds of this offering and capitalize our PRC operations, which could adversely affect our liquidity and our ability to fund and expand our business.

Governmental control of currency conversion may affect the value of your investment.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents

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us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our security-holders.

Fluctuations in exchange rates could adversely affect our business and the value of our securities.

Changes in the value of the RMB against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S. dollars we receive from our initial public offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of paying dividends on our common shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products of foreign manufacturers or products relying on foreign inputs.

Since July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market. Although the RMB strengthened against the U.S. dollar over the last five years, the RMB’s significant weakening against the U.S. dollar since July 2015 has largely undone such prior increases.

We reflect the impact of currency translation adjustments in our financial statements under the heading “accumulated other comprehensive income (loss).” For the years ended December 31, 2015 and 2014, we had foreign currency translation loss adjustments of $927,892 and $56,001, respectively. Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to penalties and limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us, or otherwise adversely affect us.

The SAFE promulgated the Notice on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or Notice 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to material change of capitalization or structure of the PRC resident itself (such as capital increase, capital reduction, share transfer or exchange, merger or spin off). On October 16, 2015, 9 of our 10 shareholders who are Chinese residents completed the registration with SAFE under this Notice.

Failure to comply with the Individual Foreign Exchange Rules relating to the overseas direct investment or the engagement in the issuance or trading of securities overseas by our PRC resident stockholders may subject such stockholders to fines or other liabilities.

Other than Notice 37, our ability to conduct foreign exchange activities in the PRC may be subject to the interpretation and enforcement of the Implementation Rules of the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended and supplemented, the “ Individual Foreign Exchange Rules ”). Under the Individual Foreign Exchange Rules, any PRC individual seeking to make a direct investment overseas or engage in the issuance or trading of negotiable securities or derivatives

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overseas must make the appropriate registrations in accordance with SAFE provisions. PRC individuals who fail to make such registrations may be subject to warnings, fines or other liabilities.

We may not be fully informed of the identities of all our beneficial owners who are PRC residents. For example, because the investment in or trading of our shares will happen in an overseas public or secondary market where shares are often held with brokers in brokerage accounts, it is unlikely that we will know the identity of all of our beneficial owners who are PRC residents. Furthermore, we have no control over any of our future beneficial owners and we cannot assure you that such PRC residents will be able to complete the necessary approval and registration procedures required by the Individual Foreign Exchange Rules.

It is uncertain how the Individual Foreign Exchange Rules will be interpreted or enforced and whether such interpretation or enforcement will affect our ability to conduct foreign exchange transactions. Because of this uncertainty, we cannot be sure whether the failure by any of our PRC resident stockholders to make the required registration will subject our PRC subsidiaries to fines or legal sanctions on their operations, delay or restriction on repatriation of proceeds of this offering into the PRC, restriction on remittance of dividends or other punitive actions that would have a material adverse effect on our business, results of operations and financial condition.

Chinese economic growth slowdown may cause negative effect to our business.

Since 2014, Chinese economic growth has been slowing down from double-digit GDP speed. This situation has impacted many types of service industries, such as restaurant and tourism, and some manufacturing industry. Our business operations in China mainly rely on the pharmaceutical industry, which is less influenced by economic growth slowdown than service industries. However, if China’s economic growth continues to slow down, then our pharmaceutical engineering installation will be adversely affected due to the slow expansion or shrinkage of the pharmaceutical industry. Recession in the steel industry on the other hand may cause us to benefit from decreased material costs.

Risks Related to Our Corporate Structure and Operation

We will incur additional costs as a result of becoming a public company, which could negatively impact our net income and liquidity.

Upon completion of this offering, we will become a public company in the United States. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, Sarbanes-Oxley and rules and regulations implemented by the SEC and The NASDAQ Capital Market require significantly heightened corporate governance practices for public companies. We expect that these rules and regulations will increase our legal, accounting and financial compliance costs and will make many corporate activities more time-consuming and costly.

We do not expect to incur materially greater costs as a result of becoming a public company than those incurred by similarly sized U.S. public companies. If we fail to comply with these rules and regulations, we could become the subject of a governmental enforcement action, investors may lose confidence in us and the market price of our common shares could decline.

The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.

Upon completion of this offering, we will be a publicly listed company in the United States. As a publicly listed company, we will be required to file periodic reports with the Securities and Exchange Commission upon the occurrence of matters that are material to our company and shareholders. In some cases, we will need to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This may give them advantages in competing with our company. Similarly, as a U.S.-listed public company, we will be governed by U.S. laws that our competitors, which are mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, our public listing could affect our results of operations.

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We are a “foreign private issuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.

We are a foreign private issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.

As a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.

A lack of insurance could expose us to significant costs and business disruption.

While we have not purchased insurance to cover our assets and property of our business, it could leave our business unprotected from loss. If we were to incur substantial losses or liabilities due to fire, explosions, floods, other natural disasters or accidents or business interruption, our results of operations could be materially and adversely affected.

Land-use rights policy may cause significantly adverse effect to our operation.

China has very conservative land ownership and land use policy. All the lands in China are either belonging to the nation or collective units. Currently, our PRC entities’ new office buildings are in construction on the land we leased from Dalangqiao Village, which is a collective unit and legal owning the land acknowledged by the local government. Therefore, the new offices will not be under the risk of being identified as illegal building, and we can continue its use of the new office as long as the lease do not expire or be terminated. However, since under PRC laws the building registration shall be in consistency with the land use right of the land it occupies, which will stay collectively owned by the members of the Dalangqiao Village, our PRC entities will not get Property Ownership Certificate in relation to the buildings of the new office, thus brings risks that our PRC entities may not be able to use the new office if any dispute arises between the company and the members of the Dalangqiao Village which adversely effects, annuls, or even worse brings termination to the lease.

We may construct our new office site more slowly than previously anticipated.

Although we began to build our new office site in 2014, construction has been delayed recently as we have shifted our focus away from being a pure manufacturer of products into being a service provider. As a result, we have put less emphasis on the office site, which will largely be a manufacturing hub. Moreover, we have been reliant on third-party inspections of construction as a condition to further stages, which inspections have also been delayed. Finally, if we shift our business focus entirely away from construction of products into provision of services, we may elect not to proceed with construction of the new office site. If we were to decide not to complete this project, in its current state the new office site would not be usable without expenditure of additional funds and could result in an impairment or write-off of some of our assets.

Unqualified individual subcontractors may bring joint liability to us.

We and our PRC entities, Xibolun Equipment and Xibolun Automation, sometimes subcontract portions of our projects to third parties to complete. According to Construction Law and Qualification Standard for Labor Subcontracting in Construction Business of the PRC, individual contractors are not in a position to

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obtain any qualification of labor subcontracting. So the subcontracting contracts by Xibolun Equipment and Xibolun Automation to such individual contractors are under the risk of being declared of avoidance of qualification by applicable courts. Article 29 of the Construction Law requires that “the overall contractors and subcontractors shall bear joint responsibilities to project owners for the subcontracted projects”. Even though our PRC entities Xibolun Equipment and Xibolun Automation are very cautious with subcontracting the projects to other parties, there are still possibilities that our PRC entities may subcontract the projects to individuals or parties without required qualifications. Despite the facts that the law enforcement and regulation on these types of subcontracting are not very strict, if the construction completed by unqualified individual subcontractors does not meet required quality and accident occurs, our PRC entities may jointly bear the subsequences pursuant to the Article 64 of the Construction Law. Also, according to the Article 54 of the Regulation on the Quality Management of Construction Projects, the liabilities for the subsequences could be indemnifying the damages and paying penalty which could be ranging from five hundred thousand up to one million RMB.

Risks Related to Our Initial Public Offering and Ownership of Our Common Shares

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common shares less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although we could lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common shares held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our stock price may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail our company of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Entities controlled by our employees, officers and/or directors will control a majority of our common shares, decreasing your influence on shareholder decisions.

Assuming the sale of the maximum offering, entities controlled by our employees, officers and/or directors will, in the aggregate, beneficially own approximately 58.5% of our outstanding common shares. Assuming the sale of the minimum offering, entities controlled by our employees, officers and/or directors will, in the aggregate, beneficially own approximately 68.5% of our outstanding common shares. As a result, our employees, officers and directors will possess substantial ability to impact our management and affairs and the outcome of matters submitted to shareholders for approval. These shareholders, acting individually or as a group, could exert control and substantial influence over matters such as electing directors and approving mergers or other business combination transactions. This concentration of ownership and voting power may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our common shares. These actions may be taken even if they are opposed by our other shareholders, including those who purchase common shares in this offering. See “Principal Shareholders.”

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As a “controlled company” under the rules of The NASDAQ Capital Market, we may exempt our company from certain corporate governance requirements that could adversely affect our public shareholders.

Following this offering, our principal shareholder will beneficially own a majority of the voting power of our outstanding common shares. Under the Rule 4350(c) of The NASDAQ Capital Market, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors to be independent, as defined in The NASDAQ Capital Market rules, and the requirement that our compensation and nominating and corporate governance committees consist entirely of independent directors. Although we do not intend to rely on the “controlled company” exemption under The NASDAQ Capital Market rules, we could elect to rely on this exemption in the future. If we elected to rely on the “controlled company” exemption, a majority of the members of our board of directors might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors. Accordingly, while we remain a controlled company relying on the exemption and during any transition period following a time when we are no longer a controlled company, you would not have the same protections afforded to shareholders of companies that are subject to all of The NASDAQ Capital Market corporate governance requirements.

If we elect to follow certain NASDAQ Capital Market rules available to foreign private issuers, our company could fail to meet corporate governance standards applicable to U.S. domestic issuers.

We are a foreign private issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.

As a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common shares may decline.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In addition, beginning with our 2016 annual report on Form 20-F to be filed in 2017, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We are in the process of designing, implementing, and testing the internal control over financial reporting required to comply with this obligation, which process is time consuming, costly, and complicated. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 20-F following the date on which we are no longer an “emerging growth company,” which may be up to five full years following the date of this offering. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common shares could be negatively affected, and we could become subject to investigations by the

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stock exchange on which our securities are listed, the Securities and Exchange Commission, or the SEC, or other regulatory authorities, which could require additional financial and management resources.

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

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the securities exchange on which we list, and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation and results of operations.

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

The market price of our common shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

The initial public offering price for our common shares will be determined through negotiations between the Placement Agent and us and may vary from the market price of our common shares following our initial public offering. If you purchase our common shares in our initial public offering, you may not be able to resell those shares at or above the initial public offering price. We cannot assure you that the initial public offering price of our common shares, or the market price following our initial public offering, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our initial public offering. The market price of our common shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many

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companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

We have broad discretion in the use of the net proceeds from our initial public offering and may not use them effectively.

To the extent (i) we raise more money than required for the purposes explained in the section titled “Use of Proceeds” or (ii) we determine that the proposed uses set forth in that section are not no longer in the best interests of our Company, we cannot specify with any certainty the particular uses of such net proceeds that we will receive from our initial public offering. Our management will have broad discretion in the application of such net proceeds, including working capital, and other general corporate purposes, including paying tax due, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income or that loses value.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our common shares if the market price of our common shares increases.

There may not be an active, liquid trading market for our common shares.

Prior to this offering, there has been no public market for our common shares. An active trading market for our common shares may not develop or be sustained following this offering. You may not be able to sell your shares at the market price, if at all, if trading in our shares is not active. The initial public offering price was determined by negotiations between us and the Placement Agent based upon a number of factors. The initial public offering price may not be indicative of prices that will prevail in the trading market.

Investors risk loss of use of funds allocated for purchases, with no right of return, during the offering period.

We cannot assure you that all or any shares will be sold. Spartan Securities Group, Ltd., our placement agent, is offering our common shares on a “best efforts, minimum-maximum basis.” We have no firm commitment from anyone to purchase all or any of the common shares offered. If offers to purchase a minimum of 2,500,000 common shares are not received on or before August 31, 2016, escrow provisions require that all funds received be promptly refunded. If refunded, investors will receive no interest on their funds. During the offering period, investors will not have any use or right to return of the funds.

We will incur increased costs as a result of being a public company.

As a public company, we will incur legal, accounting and other expenses that we did not incur as a private company. For example, we must now engage U.S. securities law counsel and U.S. GAAP auditors that we did not require prior to this offering, and we will have annual payments for listing on a stock exchange if we are so listed. In addition, the Sarbanes-Oxley Act, as well as new rules subsequently implemented by the SEC and NASDAQ, has required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal, accounting and financial compliance costs and to make certain corporate activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements. While it is impossible to determine the amounts of such expenses in advance, we expect that we will incur additional expenses of between $500,000 and $1 million per year that we did not experience prior to commencement of this offering.

Our classified board structure may prevent a change in our control.

Our board of directors is divided into three classes of directors. The current terms of the directors expire in 2017, 2018 and 2019. Directors of each class are chosen for three-year terms upon the expiration of their

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current terms, and each year the shareholders elect one class of directors. The staggered terms of our directors may reduce the possibility of a tender offer or an attempt at a change in control, even though a tender offer or change in control might be in the best interest of our shareholders. See “Management — Board of Directors and Board Committees.”

Shares eligible for future sale may adversely affect the market price of our common shares, as the future sale of a substantial amount of outstanding common shares in the public marketplace could reduce the price of our common shares.

The market price of our shares could decline as a result of sales of substantial amounts of our shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our common shares. An aggregate of 12,000,000 common shares is outstanding immediately before the consummation of this offering and 17,000,000 common shares will be outstanding immediately after this offering, if the maximum offering is raised. All of the common shares sold in the offering will be freely transferable without restriction or further registration under the Securities Act. The remaining shares will be “restricted securities” as defined in Rule 144. These shares may be sold in the future without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act. See “Shares Eligible for Future Sale.”

You will experience immediate and substantial dilution.

The initial public offering price of our common shares is substantially higher than the pro forma net tangible book value per share of our common shares. Assuming the completion of the minimum offering, if you purchase shares in this offering, you will incur immediate dilution of approximately $2.30 or approximately 58.0% in the pro forma net tangible book value per share from the price per share that you pay for the shares. Assuming the completion of the maximum offering, if you purchase shares in this offering, you will incur immediate dilution of approximately $2.00 or approximately 50.0% in the pro forma net tangible book value per share from the price per share that you pay for the common shares. Accordingly, if you purchase shares in this offering, you will incur immediate and substantial dilution of your investment. See “Dilution.”

British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect their interests.

British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.

The laws of the British Virgin Islands provide little protection for minority shareholders, so minority shareholders will have little or no recourse if the shareholders are dissatisfied with the conduct of our affairs.

Under the law of the British Virgin Islands, there is little statutory law for the protection of minority shareholders other than the provisions of the BVI Business Companies Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of the corporation, our amended and restated memorandum and articles of association. Shareholders are entitled to have the affairs of the company conducted in accordance with the general law and the articles and memorandum.

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There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law, since the common law of the British Virgin Islands for business companies is limited. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to law and the constituent documents of the corporation. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s memorandum and articles of association, then the courts will grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders, which are more limited than the rights afforded minority shareholders under the laws of many states in the United States.

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Use of Proceeds

After deducting the estimated placement discount and offering expenses payable by us, we expect to receive net proceeds of approximately $8,552,143 from this offering if the minimum offering is sold and approximately $18,152,143 if the maximum offering is sold. The net proceeds from this offering must be remitted to China before we will be able to use the funds to grow our business. The procedure to remit funds may take several months after completion of this offering, and we will be unable to use the funds in China until remittance is completed. (See “Risk Factors — We must remit the offering proceeds to China before they may be used to benefit our business in China, and this process may take a number of months.”)

We intend to use the net proceeds of this offering as follows after we complete the remittance process, and we have ordered the specific uses of proceeds in order of priority. We do not expect that our priorities for fund allocation would change if the amount we raise in this offering exceeds the size of the minimum offering but is less than the maximum offering. We expect to devote any funds raised over the minimum offering amount to our working capital needs, including devoting further resources to the below uses of proceeds.

Description of Use		Estimated Amount of Net Proceeds (Minimum Offering)				Estimated Amount of Net Proceeds (Maximum Offering)
Expansion of installation services		$	3,500,000			$	8,200,000
Development of repair and maintenance business (1)			1,300,000				3,500,000
Establishment of on-line store of products and services			810,000				2,750,000
Working capital and payment of taxes due (2)			2,520,000				3,100,000
Personnel expenses, SOX compliance			422,143				602,143
Total		$	8,552,143			$	18,152,143

(1)

We started our repair and maintenance service business in 2015. We provide pharmaceutical manufacturers repair and maintenance services after the expiration of their product and installation service warranties. We have established a repair and maintenance center in Nanjing, Jiangsu Province to cover Eastern China (Jiangsu Province, Zhejiang Province, Anhui Province and Shanghai) with an investment of RMB 2,452,684 (approximately $400,000). Over the next 3 years, we plan to use a portion

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In order to grow our installation services business, we need to be able to perform more projects at the same time. Due to limited unrestricted cash to pay for advances to subcontractors in different projects, we are generally limited to two projects at the same time. With the proceeds from this offering, we will aim to conduct two to four more projects simultaneously. As the capacity to perform more projects at the same time increases, we plan to add three more branch offices with six new employees for sales or technology support to each new office to guarantee our services to clients. We expect the new branch offices will be located in Linyi in Shandong Province, Chengdu in Sichuan Province and Nanjing in Jiangsu Province (in addition to the current one in Nanjing) respectively. We currently do not have any plans to expand our installation services through acquiring any assets or businesses.

In addition, we intend to establish an online store for our products and services with the net proceeds from this offering. With the help from an unrelated third-party web design and maintenance company, we have already initially set up our own online store website in the form of a Business-to-Business platform. Though the website is set up, it is still in the process of technical testing and improvement without being promoted or operated. We will develop our own operation administration, internet technology team, online store maintenance offices, product storage, and logistic and delivery center to provide our customers with online consulting, online ordering, delivery, installation, and after-sales service. We plan to begin by building our online store team and facilities to conduct market research and analysis about online store operation. When we complete our analysis, we will maintain our platform website, test and promote the website and put it into daily operation. We will also provide initial consulting services regarding our holistic production technique solution services for pharmaceutical engineering and food manufacturing systems. We currently do not have any plans to use any third-party online stores as our platform for online service. Also, we do not currently plan to establish our online store through acquiring any assets or businesses.

Pending use of the net proceeds, we intend to invest our net proceeds in short-term, interest bearing, investment-grade obligations. These investments may have a material adverse effect on the U.S. federal income tax consequences of an investment in our common shares. It is possible that we may become a passive foreign investment company for U.S. federal income taxpayers, which could result in negative tax consequences to you. These consequences are discussed in more detail in “Taxation.”

Dividend Policy

We have never declared or paid any cash dividends on our common shares. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the Board of Directors may deem relevant.

Under British Virgin Islands law, we may only pay dividends from surplus (the excess, if any, at the time of the determination of the total assets of our company over the sum of our liabilities, as shown in our books of account, plus our capital), and we must be solvent before and after the dividend payment in the sense that we will be able to satisfy our liabilities as they become due in the ordinary course of business; and the realizable value of assets of our company will not be less than the sum of our total liabilities, other than deferred taxes as shown on our books of account, and our capital.

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If we determine to pay dividends on any of our common shares in the future, as a holding company, we will be dependent on receipt of funds from our operating subsidiaries. Current PRC regulations permit our PRC subsidiaries to pay dividends to HK Xibolun only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. Our subsidiaries in China are required to set aside statutory reserves and have done so.

In addition, pursuant to the EIT Law and its implementation rules, dividends generated after January 1, 2008 and distributed to us by our PRC subsidiaries are subject to withholding tax at a rate of 10% unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.

Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations in China may be used to pay dividends to our company.

Exchange Rate Information

Our financial information is presented in U.S. dollars. Our functional currency is Renminbi (“RMB”), the currency of the PRC. Transactions which are denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China at the dates of the transactions. Exchange gains and losses resulting from transactions denominated in a currency other than the RMB are included in statements of operations as foreign currency transaction gains or losses. Our financial statements have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 52, “Foreign Currency Translation”, which was subsequently codified within ASC 830, “Foreign Currency Matters”. The financial information is first prepared in RMB and then is translated into U.S. dollars at period-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in shareholders’ equity. The relevant exchange rates are listed below:

		For the years ended December 31,
		2015				2014
Period Ended RMB: USD exchange rate			6.4917				6.1460
Period Average RMB: USD exchange rate			6.2288				6.1457

We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. We do not currently engage in currency hedging transactions.

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

		Midpoint of Buy and Sell Prices for U.S. Dollar per RMB
Period		Period-End				Average				High				Low
2011			6.3540				6.4633				6.6357				6.3318
2012			6.3090				6.3115				6.3862				6.2289
2013			6.1090				6.1938				6.3087				6.1084
2014			6.1484				6.1458				6.2080				6.0881
2015			6.4917				6.2288				6.4917				6.0933
January			6.1732				6.1390				6.1732				6.1172
February			6.1646				6.1509				6.1732				6.1398
March			6.1197				6.1429				6.1646				6.1197
April			6.0993				6.1075				6.1175				6.0993
May			6.1065				6.1015				6.1098				6.0933
June			6.1076				6.1109				6.1210				6.1036
July			6.2098				6.1136				6.2098				6.1047
August			6.3771				6.3333				6.4129				6.2096
September			6.3568				6.3685				6.3836				6.3559
October			6.3185				6.3503				6.3600				6.3185
November			6.3982				6.3703				6.3982				6.3181
December			6.4917				6.4509				6.4917				6.3980
2016 (through June 8, 2016)			6.5665				6.5272				6.6046				6.4479
January			6.6058				6.5678				6.6058				6.5023
February			6.5543				6.5497				6.5854				6.5169
March			6.4889				6.5071				6.5543				6.4559
April			6.4738				6.4783				6.4994				6.4605
May			6.5825				6.5287				6.5834				6.4595
June (through June 8, 2016)			6.5665				6.5718				6.5818				6.5651

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As of June 8, 2016, the exchange rate was RMB 6.5665 to $1.00. Over the past several years, the Renminbi has moved from a period of being tightly linked to the U.S. dollar to a period of revaluation and strengthening against the dollar. Since July 2015 the Renminbi has experienced a period of significant weakening against the U.S. dollar, as seen in the chart below. (Board of Governors of the Federal Reserve System).

USD:RMB Exchange Rate

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Capitalization

The following tables set forth our capitalization as of April 30, 2016 on a pro forma as adjusted basis giving effect to the sale of the minimum and maximum offering at an assumed public offering price of $4.00 per share and to reflect the application of the proceeds after deducting the estimated placement fees. You should read this table in conjunction with our financial statements and related notes appearing elsewhere in this prospectus and “Use of Proceeds” and “Description of Share Capital.”

Minimum Offering (2,500,000 Common Shares)
U.S. Dollars

		As of April 30, 2016
		Actual				Pro forma (1)
Assets:
Current Assets		$	16,691,490			$	25,243,633
Other Assets			14,030,581				14,030,581
Total Assets		$	30,722,071				39,274,214
Liabilities:
Current Liabilities		$	14,122,221				14,122,221
Other Liabilities			—				—
Total Liabilities		$	14,122,221				14,122,221
Shareholder’s Equity:
Common shares $0.001 par value per share, 50,000,000 shares authorized, 12,000,000 shares issued and outstanding, actual; 50,000,000 shares authorized, 14,500,000 shares issued and outstanding, pro forma		$	12,000				14,500
Additional paid-in capital (2)			108,970				8,658,613
Retained earnings			16,875,386				16,875,386
Accumulated other comprehensive income			(396,506	)			(396,506	)
Total shareholders’ equity			16,599,850				25,151,993
Total Liabilities and Shareholders’ Equity		$	30,722,071			$	39,274,214

(1)

Gives effect to (i) our recapitalization completed as of April 29, 2015, pursuant to which we have 12,000,000 common shares issued and outstanding and 50,000,000 authorized prior to completion of this offering and (ii) the sale of the minimum offering, as applicable, at an assumed public offering price of $4.00 per share and to reflect the application of the proceeds after deducting the estimated placement discounts (4% commission), and our estimated offering expenses. (See note 2 below.)

(2)

Pro forma adjusted for IPO additional paid in capital reflects the net proceeds we expect to receive, after deducting placement discount, Placement Agent expense allowance and approximately $837,857 in other expenses. In a minimum offering, we expect to receive net proceeds of approximately $8,552,143 ($10,000,000 offering, less placement discount of $400,000, accountable expense allowance of $210,000 and offering expenses of $837,857).

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Maximum Offering (5,000,000 Common Shares)
U.S. Dollars

		As of April 30, 2016
		Actual				Pro forma (1)
Assets:
Current Assets		$	16,691,490			$	34,843,633
Other Assets			14,030,581				14,030,581
Total Assets		$	30,722,071				48,874,214
Liabilities:
Current Liabilities		$	14,122,221				14,122,221
Other Liabilities			—				—
Total Liabilities		$	14,122,221				14,122,221
Shareholder’s Equity:
Common shares $0.001 par value per share, 50,000,000 shares authorized, 12,000,000 shares issued and outstanding, actual; 50,000,000 shares authorized, 17,000,000 shares issued and outstanding, pro forma		$	12,000				17,000
Additional paid-in capital (2)			108,970				18,256,113
Retained earnings			16,875,386				16,875,386
Accumulated other comprehensive income			(396,506	)			(396,506	)
Total shareholders’ equity			16,599,850				34,751,993
Total Liabilities and Shareholders’ Equity		$	30,722,071			$	48,874,214

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share or approximately 56.6% from the assumed offering price of $4.00 per common share. Net tangible book value per common share would increase to the benefit of present shareholders by $0.35 per share attributable to the purchase of the common shares by investors in this offering.

If the maximum offering is sold, we will have 17,000,000 common shares outstanding upon completion of the offering. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after April 30, 2016, will be approximately $34,751,993 or $2.04 per common share. This would result in dilution to investors in this offering of approximately $1.96 per common share or approximately 48.9% from the assumed offering price of $4.00 per common share. Net tangible book value per common share would increase to the benefit of present shareholders by $0.66 per share attributable to the purchase of the common shares by investors in this offering.

The following table sets forth the estimated net tangible book value per common share after the offering and the dilution to persons purchasing common shares based on the foregoing minimum and maximum offering assumptions.

		Minimum Offering (1)				Maximum Offering (2)
Assumed offering price per common share		$	4.00			$	4.00
Net tangible book value per common share before the offering		$	1.38			$	1.38
Increase per common share attributable to payments by new investors		$	0.35			$	0.66
Pro forma net tangible book value per common share after the offering		$	1.73			$	2.04
Dilution per common share to new investors		$	2.27			$	1.96

Post-Offering Ownership

The following chart illustrates our pro forma proportionate ownership, upon completion of the offering under alternative minimum and maximum offering assumptions, by present shareholders and investors in this offering, compared to the relative amounts paid by each. The charts reflect payment by present shareholders as of the date the consideration was received and by investors in this offering at the offering price without deduction of commissions or expenses. The charts further assume no changes in net tangible book value other than those resulting from the offering.

		Shares Purchased								Total Consideration								Average Price Per Share
		Amount				Percent				Amount				Percent
MINIMUM OFFERING
Existing shareholders			12,000,000				83	%		$	16,599,850				66	%		$	1.38
New investors			2,500,000				17	%		$	8,552,143				34	%		$	3.42
Total			14,500,000				100.0	%		$	25,151,993				100.0	%		$	1.73

		Shares Purchased								Total Consideration								Average Price Per Share
		Amount				Percent				Amount				Percent
MAXIMUM OFFERING
Existing shareholders			12,000,000				71	%		$	16,599,850				48	%		$	1.38
New investors			5,000,000				29	%		$	18,152,143				52	%		$	3.63
Total			17,000,000				100.0	%		$	34,751,993				100.0	%		$	2.04

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

Overview

We are engaged in the manufacture of fluid equipment including valves, pipe fittings and others, with particular emphasis on the manufacture and installation of intelligentized valves, used in the pharmaceutical, biological, food and beverage, and other clean industries. Our products and services are primarily used in pharmaceutical engineering construction.

In addition to selling our products to third parties for installation, we also provide installation services for our customers in China. A significant majority of our revenues have come from these installation services. We anticipate that we will continue to derive significant income from our installation services, both of our products and those purchased from third parties. The profit margins associated with installing our customized valve and pipe fitting designs have historically been higher than those associated with the sale of our products for installation by third parties.

(1)

Installation services .  We specialize in installing valves and pipes with skilled and experienced workers and professional equipment. Revenues from installation services were approximately 87%, 84% and 73% of our total revenues for the years ended December 31, 2015, 2014 and 2013, respectively.

(2)

Fluid equipment .  We develop and manufacture valves and pipe fittings for use in pharmaceutical, biological, food and beverage, and other clean industries with an established sales and distribution network. Revenues from the sales of fluid equipment constitute approximately 13%, 16%, and 27% of our total revenues for the years ended December 31, 2015, 2014, and 2013, respectively.

Results of Operations

Overview

The following table presents an overview of our results of operations for the year ended December 31, 2015 and 2014:

		Year ended December 31,								Changes
		2015				2014				($)				(%)
Revenues			22,995,123				16,734,593				6,260,530				37	%
Cost of sales			14,255,811				10,642,093				3,613,718				34	%
Gross profit			8,739,312				6,092,500				2,646,812				43	%
General and administrative			1,129,679				177,703				951,976				536	%
Research and development expense			121,760				40,606				81,154				200	%
Selling expense			1,434,230				1,098,365				335,865				31	%
Income from operations			6,053,643				4,775,826				1,277,817				27	%
Other income			15,321				5,083				10,238				201	%
Interest expense			(55,619	)			(70,496	)			14,877				(21	)%
Income before income taxes			6,013,345				4,710,413				1,302,932				28	%
Income taxes			1,617,751				1,299,403				318,348				24	%
Net income			4,395,594				3,411,010				984,584				29	%
Foreign currency translation gain (loss)			(927,892	)			(56,001	)			(871,891	)			1,557	%
Comprehensive income			3,467,702				3,355,009				112,693				3	%

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Revenue

The following table sets forth the breakdown of our revenue for the year ended December 31, 2015 and 2014, respectively:

		Years ended December 31,																Changes ($)				Changes (%)
		2015				%				2014				%
Installation service			20,069,997				87	%			13,973,998				84	%			6,095,999				44	%
Fluid equipment sales			2,925,126				13	%			2,760,595				16	%			164,531				6	%
Total revenue			22,995,123								16,734,593

Revenue from installation service was $20,069,997 and $13,973,998 for the years ended December 31, 2015 and 2014, respectively, representing an increase approximately of $6.1 million, because the Company completed more contracts during fiscal 2015. The details are illustrated in the table below:

		Number of Projects				Average Project Revenue (USD)
2015			10			$	2.0 million
2014			8			$	1.7 million

For the years ended December 31, 2015 and 2014, revenue from sales of our fluid equipment was $2,925,126 and $2,760,595, respectively, representing an increase approximately of $0.2 million due to higher sales volume. The Company did not have revenue from fluid equipment control system trading sales for the years ended December 31, 2015 and 2014.

Cost of revenue

The following table presents a breakdown of our cost of revenue for the year ended December 31, 2015 and 2014.

		Years ended December 31,																Changes ($)				Changes (%)
		2015				%				2014				%
Installation service			11,746,747				82	%			8,381,622				79	%			3,365,125				40	%
Fluid equipment sales			2,509,064				18	%			2,260,471				21	%			248,594				11	%
Total cost of revenue			14,255,811								10,642,093

For fiscal 2015 and 2014, cost of installation services were $11,746,747 and $8,381,622, respectively, representing an increase of $3.4 million, which was consistent with the 40% increase in the installation revenue in fiscal 2015.

For fiscal 2015 and 2014, cost of our fluid equipment sales were $2,509,064 and $2,260,471, respectively, representing an approximate increase of $0.25 million, which resulted from more valves and pipes were sold during fiscal 2015.

Since the Company did not have fluid equipment control systems sales in fiscal 2015 and 2014, we recognized $Nil in cost of Fluid equipment controlling system trading in fiscal 2015 and 2014, respectively.

Gross profit

The following table presents the gross profit of our businesses for the year ended December 31, 2015 and 2014:

		Years ended December 31,																Changes ($)				Changes (%)
		2015				%				2014				%
Installation service			8,325,251				41	%			5,592,376				40	%			2,730,875				49	%
Fluid equipment sales			416,062				14	%			500,124				18	%			(84,063	)			(17	)%
Gross profit			8,741,313				38	%			6,092,500				36	%

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The gross profit percentage for fiscal 2015 increased 2% from fiscal 2014, primarily because the Company was able to charge high margin on the installation projects. Gross profit from installation service was increased by 49% or approximately $2.7 million for fiscal 2015 as compared to fiscal 2014.

Gross profit from our fluid equipment sales had a slight decrease in fiscal 2015 as compared to fiscal 2014. Due to increase of cost in 2015, the gross profit percentage from fluid equipment sales reduced from 18% in fiscal 2014 to 14% in fiscal 2015. The Company did not have fluid equipment control system sales in fiscal 2015 and 2014.

Expenses

		Years ended December 31,																Changes ($)				Changes (%)
		2015				%				2014				%
General and administrative expenses			1,129,679				42	%			177,703				14	%			951,976				536	%
Research development expenses			121,760				5	%			40,606				3	%			81,154				200	%
Selling expense			1,434,230				53	%			1,098,365				83	%			335,865				31	%
Total operating expense			2,685,669								1,316,674								1,368,995				104	%

General and administrative expenses

For fiscal 2015, our general and administrative expenses were $1,129,679, representing an approximate increase of $0.95 million compared to fiscal 2014. The significant increase of general and administrative expenses in fiscal 2015 was mainly because the Company had a net recovery of $368,713 bad debt expense in fiscal 2014 and a bad debt expense of $367,314 in fiscal 2015. In addition, the Company incurred more professional accounting and legal expense in connection with listing on NASDAQ which resulted in higher general and administrative expenses in fiscal 2015 comparing to the same period of fiscal 2014.

Research and development expense

For fiscal 2015, our R&D expenses were $121,760, representing an increase of $81,154 comparing to $40,606 research and development expense in fiscal 2014.

Selling expense

For the fiscal 2015, our selling expenses were $1, 434,230, representing a 31% increase from fiscal 2014. The increase was mainly due to higher commission and marketing expense incurred in promoting our installation service in fiscal 2015.

Interest expense

Our interest expenses for fiscal 2015 were $55,619, representing a 21% decrease comparing to $70,496 in fiscal 2014.

Other income (expense)

Other income is used to record our non-operating income, including government grants and others. For the year ended December 31, 2015 and 2014, the other income was $15,321 and $5,083 respectively.

Income taxes and other taxes

For the years ended December 31, 2015 and 2014, revenues generated in China were subject to corporate income tax at a unified rate of 25%. The provision for income taxes increased by $318,348 in fiscal 2015 compared to fiscal 2014, which are consistent with the increase in our net income before taxes. The effective tax rate for fiscal 2015 was approximately 27%, which was consistent with the effective tax rate for fiscal 2014.

The Company has accrued unpaid tax liabilities of approximately $6.8 million as of December 31, 2015, both of which are governed by the local tax authority. The management has had unofficial discussions with the local tax authority to settle the unpaid tax liabilities if the Company is able to successfully launch its IPO bid.

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The Company did not record any potential interest and penalty amount associated with the unpaid tax liabilities because the management believes that it is very likely that they will be able to get the interest and penalty waived once they reach the settlement with the tax authority. It is very difficult to determine how much the Company could potentially be liable for. It is the management’s best estimate that the potential tax loss contingency related to these interests and penalties can be either nil or as much as $2.8 million, which consist of the following:

		Tax payable balance as of December 31, 2015				Tax loss contingencies estimated
Income tax payable		$	5,337,203			$	2.2 million
Value added tax payable			114,207				—
Business tax payable			1,131,127				0.5 million
Other taxes payable			229,743				0.1 million
Total		$	6,812,280			$	2.8 million

While all of the tax years since the Company’s inception are still subject to examination by the local tax authorities, the Company has not received any notices or assessment. In practice, since all of the taxes owed are local taxes, the local tax authority is typically more flexible and willing to provide incentives or settlements with the local small and medium-size businesses to relieve their burden and to stimulate the local economy. Management believes it is highly possible that the Company can reach into an agreement with the local tax authority to result in a much less amount owed.

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We have never declared or paid any cash dividends to our shareholders. We do not plan to pay any dividends out of our retained earnings for the years ended December 31, 2015 and 2014. With respect to retained earnings accrued after such date, our Board of Directors may declare dividends after taking into account our operations, earnings, financial condition, cash requirements and availability and other factors as it may deem relevant at such time. Any declaration and payment, as well as the amount, of dividends will be subject to our By-Laws, charter and applicable Chinese and U.S. state and federal laws and regulations, including the approval from the shareholders of each subsidiary which intends to declare such dividends, if applicable.

We have limited financial obligations dominated in US dollars, thus the foreign currency restrictions and regulations in the PRC on the dividends distribution will not have a material impact on the liquidity, financial condition and results of operations of the Company.

The following table provides information about our working capital and other factors the Company takes into consideration to measure its liquidity as of December 31, 2015 and 2014.

Working Capital

		For the year ended December 31, 2015				For the years ended December 31, 2014
Current asset		$	16,835,897			$	11,550,583
Current liabilities			13,652,325				9,764,087
Working Capital			3,183,572				1,786,496
Contract and accounts receivable turnover in days			111				113
Contract and accounts receivable turnover ratio			3.28				3.22
Inventory turnover in days			61				99

Our working capital was $3,183,572 as of December 31, 2015, increased approximately $1.4 million from December 31, 2014, mainly due to higher contract receivable and inventory balance as of December 31, 2015.

For the years ended December 31, 2015 and 2014, our accounts receivable including contract receivable turnover in days were 111 days and 113 days, respectively. The turnover in days for fiscal 2015 was consistent with the turnover in days for fiscal 2014. The Company switched its focus from products manufacture to installation service in 2014 and 2015, most of the high margin installation contracts were large and complicated projects, which required longer service time and those customers usually made payments in 3 to 6 months after the completion of the projects.

As of December 31, 2015, our net contract receivable balance was $7,798,424 related to our installation projects. Due to the high value of each installation project, it typically takes about 3 to 6 months for the customers to pay off the balances for the installation projects. With the increasing collection efforts, we believe we are able to successfully collect the balance.

As of December 31, 2015, the balances of our net accounts receivable, customer security deposits and net other receivable were $892,854, $1,925,721 and $101,773, respectively, including the balance aged over 6 months of $460,909, $752,037 and $358, respectively. We are confident to collect these balances in accordance with contract terms.

As of December 31, 2014, our total contracts receivable, accounts receivable and customer security deposits amounted to $5,028,311, $297,846 and $1,649,854, respectively. All the balances due as of December 31, 2014 have been fully collected by December 31, 2015.

Since the income tax payable balance is due on demand, the income tax payable balance is classified as current liability. We are in the process of a settlement discussion with Wenzhou tax authority. Therefore, the exact payment date of this local tax liability is uncertain.

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We intend to continue to carefully execute our growth plans and manage market risk. Our anticipated short-term and long-term liquidity requirements primarily include working capital for funding our ongoing operations. We plan to fund our future liquidity requirements from cash provided by operating activities. We currently anticipate that we will be able to meet our needs to fund our operations beyond the next twelve months with operating cash flows and existing cash balances.

Cash Flows

The following table provides detailed information about our net cash flows for the year ended December 31, 2015 and 2014.

		Years ended December 31,
		2015				2014
Net cash provided by operating activities		$	3,931,953			$	2,761,714
Net cash provided by (used in) investing activities			(3,136,462	)			(5,080,901	)
Net cash provided by financing activities			8,830				2,512,797
Effect of exchange rate changes on cash			(63,145	)			(949	)
Net increase in cash		$	741,176			$	192,661
Cash at beginning of period			376,467				183,806
Cash at end of period		$	1,117,643			$	376,467

Operating Activities

Net cash provided by operating activities for fiscal 2015 was approximately $3.9 million, which was primarily attributable to a net profit around $4.4 million, adjusted for non-cash items for approximately $0.7 million and adjustments for changes in working capital around $1.2 million. The adjustments for changes in working capital mainly included (i) increase in accounts and contract receivable around $2.98 million from recent completed installation projects, (ii) increase in inventory around $1.1 million related to the installation service and (iii) increase in progress billing around $0.57 million due to more progress billings, which was offset by the decrease in advance from customers about $0.53 million related to installation service and decrease in accounts payable around $0.9 million.

Net cash provided by operating activities for fiscal 2014 was approximately $2.8 million, which was primarily attributable to a net profit around $3.4 million, adjusted for non-cash items for approximately $0.1 million and adjustments for changes in working capital around $0.7 million. The adjustments for changes in working capital mainly included (i) increase in payments to suppliers around $1.3 million to settle the accounts payable balances, and (ii) increase in progress billing around $2.7 million due to more progress billings, which was partially offset by the decrease in inventory about $1.8 million related to installation service.

Investing Activities

Net cash used in investing activities was approximately $3.1 million for fiscal 2015. It was primarily attributable to the approximately $2.9 million spending on constructing the Company’s new office and manufacturing facility.

Net cash used in investing activities was around $5.1 million for fiscal 2014, representing an increase of $3.1 million compared to the same period of fiscal 2013. The net cash used in investing activities for fiscal 2014 was primarily attributable to the approximately $4.3 million spending on constructing the Company’s new office and manufacturing facility and $1.1 million deposit on the equipment purchase.

Financing activities

Net cash provided by financing activities was around $8,830 for fiscal 2015, which was mainly attributable to the short-term loans approximately of $0.85 million, which was offset by the repayment of short-term bank loan of approximately of $0.84 million.

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Net cash provided by financing activities was around $2.5 million for the six months ended June 30, 2014 and for the year ended December 31, 2014, which was mainly attributable to decrease in restricted cash of $2.5 million from the collection of restricted cash.

Loan facility

As of December 31, 2015, we had $814,116 in short-term bank loans. These are bank loans with a one year maturity and must be paid in full upon maturity. We have had good credit performance all the time and believe our current creditors will renew their loans to us after our loans mature as they did in the past. For more details about our debts, please see the Notes to the consolidated financial statements.

Short-term loans consisted of the following as of December 31, 2015 and 2014:

Lender		December 31, 2015				Term				Int. Rate/Year
Wenzhou Bank		$	107,830				November 9, 2015 to November 9, 2016				9.00	%
Wenzhou Bank			73,170				November 26, 2015 to November 26,   2016				3.92	%
Bank of China Longwan Branch			223,362				April 21, 2015 to April 20, 2016				6.69	%
Bank of China Longwan Branch			97,047				April 21, 2015 to April 20, 2016				6.96	%
Bank of China Longwan Branch			312,707				June 8, 2015 to June 1, 2016				6.12	%
Total		$	814,116

Lender		December 31, 2014				Term				Interest Rate/Year
Bank of China Longwan Branch		$	253,824				October 22, 2014 to April 21, 2015				7.00	%
Bank of China Longwan Branch			110,641				October 22, 2014 to April 21, 2015				7.28	%
Bank of China Longwan Branch			224,536				December 9, 2014 to June 9, 2015				6.44	%
Bank of China Longwan Branch			115,522				December 15, 2014 to June 9, 2015				6.44	%
Wenzhou Bank			146,437				September 19, 2014 to September 19,   2015				9.00	%
Total		$	850,960

The loans outstanding were guaranteed by the shareholders’ immediate family members and unrelated third parties. All matured loans have been repaid or refinanced on or prior to the date of maturity.

Obligations Under Material Contracts

The Company leases its main office space under a non-cancelable operating lease agreement. The lease will be terminated in 2017, and rental payment is RMB 1,518,000 per year.

Our subsidiary Xibolun Automation was formed and registered in September 24, 2012. Total registered capital of Xibolun Automation is $3 million. As of the date of this prospectus, we have paid $2,040,000 of the $3 million registered capital. The newly amended Corporate Law of China effective on March 1, 2014 repeals minimum registered capital requirements and investment payments time limits. However, the Notice of the Ministry of Commerce on Improving the Administration of Foreign Investment Review, which was issued on June 17, 2014, provides that, “For a foreign investment item approved before March 1, 2014, the investor shall continue to fulfill the investment obligation in accordance with the terms of the original contract or bylaws. If modification is required, the investor may file an application to the competent commerce authority, and the commerce authorities at any level shall review the application in accordance with the relevant requirements of this Notice.” According to Xibolun Automation bylaws amendment, we are required to fund

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the remaining balance within 60 months after registration date. Therefore, from the legal perspective, we are required to make the final payment by September 23, 2017.

However, since we can reduce our registered capital after submitting the application to local government agency and getting approval, from an accounting perspective, the shortfall between the registered capital and actual shareholder contribution is no longer be treated as obligation for the Company. Therefore, this part is not included in the financial statement.

If Xibolun Automation fails to fund the full amount of registered capital by September 23, 2017, and does not or is not able to reduce the amount of registered capital to the amount that it has paid, HK Xibolun as the sole shareholder will be liable for the balance. When Xibolun Automation is wound up in the future, if its assets are not enough to pay off the liabilities, the creditors will have right to demand HK Xibolun to pay off the remaining debt, with the limit of the unpaid balance of the registered capital.

Capital Expenditures

We have been constructing our new building in C05, Binhai Ind. Park, Dalangqiao Village, Shacheng Town, Longwan District, Wenzhou, Zhejiang Province, China. We spent approximately $8.8 million in construction by December 31, 2015. We plan to invest additional $5 million to complete the construction of this new building. We intend to finance this new building with our own internal source of funding and future capital to be raised. However, we do not plan to use any portion of the proceeds from this offering to finance it. There is no external bank loan committed to finance this expansion. If needed, we can adjust or slow down the construction progress and the expansion size based on the availability of capital support.

Originally we planned to use this building as a warehouse, factory, research and development center, showroom, and cafeteria. The factory was planned to expand our production capacity of valves. However, since we have changed our focus from valve manufacture to installation services, we did not have a specific plan to expand our production capacity then. In addition to the fact that the construction was pending for intermediated acceptance by a third party inspection organization, the construction was temporarily halted in 2015. Currently, as we plan to expand our installation services, we anticipate the demand of our production will increase. Also, judging by the current project development status of the area, we expect to obtain the intermediated inspection and acceptance in August 2016, and we plan to resume the construction of this building afterwards according to the original purpose but may comparatively slow down the construction process and limit the expansion size to fit for the production demand.

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The following pictures are design sketches:

Impact of Inflation

We do not believe the impact of inflation on our company is material. Our operations are in China and China’s inflation rates have been relatively stable in the last three years: 1.6% in 2015, 2.06% in 2014 and 2.57% for 2013.

Impact of Foreign Currency Fluctuations

We do not believe the impact of foreign currency fluctuations on our company is material.

Regarding purchase of raw materials, we are subject to commodity price risks arising from price fluctuations in the market prices of the raw materials. We have generally been able to pass on cost increases through price adjustments. However, the ability to pass on these increases depends on market conditions influenced by the overall economic conditions in China.

Regarding sales, export sales only accounted a small portion of our revenues, and most of export sales contracts are not priced in foreign currency because they were sold to foreign companies’ agents in China. Our export sales for the years ended December 31, 2015 and fiscal 2014 accounted for 1.1% and 0.7% of total revenue and none of our revenue priced in the foreign currency, respectively.

The Company had a one-time transaction in fiscal 2013 for the fluid equipment control system trading business, which was priced in USD and represented 91.1% of export revenue and 17.4% of total revenue in fiscal 2013. The Company does not believe the one time transaction establishes the pattern of export sales.

We have not had any foreign currency investments hedged by currency borrowings or other hedging instruments. We manage our price risks through productivity improvements and cost-containment measures.

Off-balance Sheet Commitments and Arrangements

There were no off-balance sheet arrangements for the years ended December 31, 2015 and 2014 that have or that in the opinion of management are likely to have, a current or future material effect on our financial condition or results of operations.

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Critical Accounting Policies

We believe it is helpful to investors to understand the critical accounting policies underlying our financial statements and the following discussion of our Company’s financial condition and results of operations.

Uses of estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during each reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include: the allowances for doubtful accounts, the valuation of inventory, realizability of deferred tax assets, costs to complete contracts, estimated useful lives and fair value in connection with the impairment of property and equipment and accruals for income tax uncertainties.

Revenue recognition

The Company recognizes revenue from sales of installation contracts to provide installation services for pharmaceutical and beverage companies and sales of valves and other fluid equipment.

Installation contracts: Sales from fixed-price construction contracts are recognized on the completed contract method. This method is used because the typical contract is completed in four months or less, and financial position and results of operations do not vary significantly from those which would result from use of the percentage-of completion method. A contract is considered complete when all costs except insignificant items have been incurred, and the installation is operating according to specifications or has been accepted by the customer. Contract costs include all direct material, subcontract cost, and labor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

Sales of product: sales are recognized at the date of shipment from the Company’s facilities to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, ownership has passed, no other significant obligations of the Company exist and collectability is reasonably assured. Management considers delivery to occur upon shipment provided title and risk have passed to the customer, which is generally when the product is shipped to the customer from the Company’s facility. The Company’s sales revenue consists of the invoiced value of goods, net of value-added tax (“VAT”).

The Company recognizes product revenue and installation revenue separately. The manufacture of fluid equipment comprises two stages: (a) manufacture; and (b) installation. In practice, the Company signs product and installation contracts separately with customers. Customers have the choice to use its own staff or external contractors to install the products. The Company sells the product and provides installation service on a standalone basis, and the price is determined based on the market competitive rate of each unit. No allocation is needed for such circumstances. The Company included the similar wording above in the Note 2 “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” of the updated financial statements.

The Company generally provides a one year warranty period for products sold and installation services performed. No warranty cost provisions were provided as at December 31, 2015 and 2014, because the actual warranty cost incurred was insignificant based on historical experience.

Accounts and Contract Receivables

Accounts and contracts receivable are stated at net realizable value. An allowance for doubtful accounts is established based on the management’s assessment of the recoverability of accounts and other receivables. A considerable amount of judgment is required in assessing the realizability of these receivables, including the current credit worthiness of each customer and the related aging analysis. An allowance is provided for accounts when management has determined that the likelihood of collection is doubtful.

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Inventories

Inventories are stated at the lower of cost or market value. Inventories consist of raw materials, finished goods, working in process, low value consumables, and installation projects in process that had not been completed.

Income taxes

The Company’s subsidiaries in China are subject to the income tax laws of the PRC and Hong Kong. No taxable income was generated outside the PRC and Hong Kong for the years ended December 31, 2015 and 2014. The Company accounts for income tax under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred income taxes will be recognized if significant temporary differences between tax and financial statements occur. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of December 31, 2015 and 2014, no valuation allowance is considered necessary.

In the normal course of business, the Company may be subject to challenges from taxing authorities regarding the amounts of taxes due. These challenges may alter the timing or amount of taxable income or deductions. Management determines whether the benefits of its tax positions are more-likely-than-not of being sustained upon audit based on the technical merits of the tax position. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated.

The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the years ended December 31, 2015 and 2014. All tax returns since the Company’s inception are still subject to examination by tax authorities.

Under the Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated by the PRC, income tax is payable by enterprises at a rate of 25% of their taxable income.

The Company believes that it has provided the best estimates of its accrued tax liabilities because those accruals are based on the prevailing tax rates stipulated by the laws. It is the Company’s policy that interest and penalties related to unpaid taxes are classified as income tax expense in the period they are assessed or incurred since the management believes that it is very difficult to estimate the amount of interest and penalties the Company will actually pay and in most likely scenario, an settlement will be reached with tax authority and interest and penalties can either be waived or reduced. The Company has had unofficial discussions with the local tax authority to settle the existing tax liabilities. The tax authority has not made any settlement proposal or adjustment in prior communications with the Company.

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Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income but are included in determining other comprehensive income, a component of stockholders’ equity. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July 2005, the RMB has not been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar or the Euro in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in RMB exchange rate and lessen intervention in the foreign exchange market. Although the RMB strengthened against the U.S. dollar over the last five years, the RMB’s significant weakening against the U.S. dollar since July 2015 has largely undone such prior increases.

Interest Rate Risk

Our interest rate risk arises from short and long-term borrowings. As of December 31, 2015 and 2014, we had no borrowings with variable rates and we were not exposed to cash flow interest rate risk. Borrowings issued at fixed rates expose us to fair value interest rate risk. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Cash Flows-Financing Activities-Loan Facility” for our short-term loans as of December 31, 2015 and 2014.

As of December 31, 2015 and 2014, we had no long-term interest-bearing assets or long-term interest bearing liabilities.

Credit Risk

Our cash and cash equivalents are invested primarily in savings and deposit accounts with original maturities of three months or less. Savings and deposit accounts generate a small amount of interest income.

Inflation

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material effect on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross profit and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase with these increased costs.

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Principal Activities

Below is a brief summary of principal activities of our Company since its formation.

Main Categories of Products and Services

We provided installation services and fluid equipment sales for the years ended December 31, 2015 and 2014. We also provided a one-time fluid equipment control system sales for the year ended December 31, 2013. We did not provide fluid equipment control system sales for the years ended December 31, 2015 or 2014.

New Products and Services

We have developed an intelligent process control valve which can be wholly produced by ourselves through our collaboration with Zhejiang University. We provided a limited number of these products to existing customers for trial use in December 2013 in order to collect quality and reliability data for the product. The customers can pay us after 2 years of use if they are satisfied with the product, or return it to us otherwise. Once we are satisfied with the feedback from the customers and decide that the product is stable enough to be distributed more widely, we will start to produce it and sell it on a large scale. Currently we are still collecting data from our customers who use it. It may take more than 2 years to collect sufficient data to make this determination.

We started the business of repair and maintenance services in 2015. It is provided to pharmaceutical manufacturers after the expiration of warranty about products and installation services. We have established a repair and maintenance center in Nanjing, Jiangsu Province to cover Eastern China (Jiangsu Province, Zhejiang Province, Anhui Province and Shanghai) with investment of RMB 2,452,684 (approximately $380,000). Over the next 3 years, we plan to establish five additional repair and maintenance centers in Shanghai, Beijing, Nanjing, Chengdu and Linyi respectively to cover Central China, Northeastern China, Northern China, Southern China, and Northwestern China, with Shanghai being the center.

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Corporate Structure

Below is a chart illustrating our current corporate structure:

Organization and description of business

Hebron Technology

Hebron Technology Co., Ltd. (“Hebron Technology” or the “Company”), through its subsidiaries, is engaged in the manufacture of fluid equipment and installation service for pharmaceutical engineering construction in the People’s Republic of China. Beginning with the commencement of its installation services business in 2012, the Company has transformed from a manufacturing oriented products company into a services oriented company.

Hebron Technology is a limited company established under the laws of the British Virgin Islands on May 29, 2012 as a holding company. Mr. Anyuan Sun, the Chairman of the Board and CEO of the Company, is the ultimate controlling shareholder (the “Controlling Shareholder”) of the Company. The Company has an indefinite term. The agent of the Company in the United States is Mr. Yung Kong Chin, 136-40 39 ^th Avenue, 602B Garden Plaza, Flushing New York, 11354.

As part of the reorganization as described below (the “Reorganization”), the Company became the ultimate parent company of (i) Hong Kong Xibolun Technology Limited (“HK Xibolun”), (ii) Wenzhou Xibolun Fluid Equipment Co., Limited (“Xibolun Equipment”) and (iii) Zhejiang Xibolun Automation Project Technology Co., Ltd. (“Xibolun Automation”), which were all controlled by the Controlling Shareholder before the Reorganization.

Xibolun Equipment

The predecessor of the Company, Xibolun Equipment was incorporated on January 25, 2005. Currently, 30% of its equity is held by HK Xibolun, and 70% of its equity is held by Xibolun Automation. Xibolun Equipment is primarily engaged in the manufacture of fluid equipment including valves, pumps, pipe fittings and other products, with a particular emphasis on intelligentized valves.

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HK Xibolun

HK Xibolun is a limited company formed in accordance with laws and regulations of Hong Kong on June 14, 2011, as a trading company. HK Xibolun is wholly owned by Hebron Technology.

Xibolun Automation

Xibolun Automation was incorporated on September 24, 2012. It is currently 100% owned by HK Xibolun. Xibolun Automation has mainly engaged in installation services for pharmaceutical engineering construction since its incorporation in 2012.

Reorganization

For the purpose of the IPO, we reorganized our company as described below. As part of this Reorganization, Hebron Technology became the ultimate holding company of HK Xibolun, Xibolun Automation and Xibolun Equipment, which were all controlled by the Controlling Shareholder before the Reorganization. In some cases, the equity transfer agreement entry date and the actual effective may be different. According to PRC law, since Xibolun Equipment and Xibolun Automation are foreigner invested companies, the share transfer is effective as of the approval date. As HK Xibolun is incorporated in Hong Kong, its equity transfer is effective as of the transfer agreement entry date. In the following statements regarding reorganization, the equity transfer effective dates of Xibolun Equipment and Xibolun Automation are as approval date while the equity transfer effective dates of HK Xibolun are as transfer agreement entry date.

Xibolun Equipment

Xibolun Equipment was incorporated on January 25, 2005 as a Sino-Foreign joint venture. It met the requirements of Xibolun Equipment’s joint venture status according to Chinese laws because 70% of the equity was initially held by Wenzhou City Xibolun Fluid Equipment Factory (“Xibolun Factory”), a Chinese partnership founded by the Controlling Shareholder, Mr. Lingmin Sun and Mr. Bin Wang on May 6, 2003, and the remaining 30% was held by Ms. Kong Sok Kin, who is an Italian citizen. On April 13, 2006, Xibolun Factory transferred 60% of its equity in Xibolun Equipment to the Controlling Shareholder, and the rest 10% to Mr. Yuanshun Shao. On September 15, 2010, Ms. Kong Sok Kin transferred 30% of her equity in Xibolun Equipment to Mr. Gongqi Xiang, while Mr. Yuanshun Shao transferred 10% of his equity in Xibolun Equipment to the Controlling Shareholder. After the above transactions, by July 20, 2011, Xibolun Equipment was owned by the Controlling shareholder and another foreign shareholder, Mr. Gongqi Xiang, a Spanish citizen, by holding shares of 70% and 30%, respectively. On June 30, 2011, HK Xibolun entered into an equity transfer agreement with Mr. Xiang, in which HK Xibolun agreed to acquire 30% ownership interest of Xibolun Equipment for RMB 300,000. The transfer was effective on July 21, 2011. On July 29, 2013, the Controlling shareholder transferred his 70% ownership interest in Xibolun Equipment to Xibolun Automation for RMB 700,000 equal to 70% of the registered capital of Xibolun Equipment. Because Xibolun Automation is a wholly owned subsidiary of HK Xibolun, as a result of these equity transfers, Xibolun Equipment is 100% owned by HK Xibolun.

HK Xibolun

HK Xibolun was formed in accordance with laws and regulations of Hong Kong on June 14, 2011. By the time of its incorporation, as the Controlling Shareholder owned 70% of the equity of Xibolun Equipment, and an offshore and non-Controlling Shareholder held entity was needed to hold 30% of the shares of Xibolun Equipment in order to maintain its Sino-Foreign joint venture status, Mr. Lingmin Sun nominally held 100% of the equity of HK Xibolun for the Controlling Shareholder pursuant to a Shareholding Entrustment Agreement by and between the controlling shareholder and Mr. Lingmin Sun entered on May 21, 2011. According to the Shareholding Entrustment Agreement mentioned above, the controlling shareholder actually owned 100% of the shares of HK Xibolun and had all the rights and duties of the shares while Mr. Lingmin Sun was the nominal shareholder who had no actual rights or duties regarding the shares. On May 15, 2012, in order to meet the new requirement that a foreign company should be held by a non-Chinese citizen, Mr. Lingmin Sun transferred 100% of the equity of HK Xibolun to Mr. Shih Chang Chen, who is a friend of Mr. Anyuan Sun and a Taiwanese citizen. Pursuant to the Shareholding Entrustment Agreement by and between Mr. Lingmin Sun and Mr. Shih Chang Chen entered on May 21, 2012, they both agreed that the

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equity of HK Xibolun would be entrusted to Mr. Chen, and Mr. Chen would hold the aforesaid equity for Mr. Lingmin Sun (who continued to act for the benefit of Mr. Anyuan Sun) without any actual rights of shares such as disposition rights and rights to retain proceeds. On October 22, 2012, in anticipation of an initial public offering (“IPO”) of its equity securities, Mr. Shih Chang Chen transferred all his equity in HK Xibolun to Hebron Technology without any consideration. As a result, HK Xibolun became a wholly owned subsidiary of Hebron Technology.

Xibolun Automation

Xibolun Automation was incorporated on September 24, 2012 and initially owned by Hebron Technology (80%), Xibolun Equipment (10%), and Zhejiang Xibolun Technology Co., Ltd. (“Zhejiang Xibolun”), a Chinese company also controlled by the Controlling Shareholder (10%). On October 30, 2012, HK Xibolun entered into separate equity transfer agreements with Hebron Technology, Xibolun Equipment, and Zhejiang Xibolun, pursuant to which HK Xibolun acquired Hebron Technology’s 80% ownership interest, Xibolun Equipment’s 10% ownership interest and Zhejiang Xibolun’s 10% ownership interest in Xibolun Automation without consideration. The transfers were effective as of December 5, 2012.

Mr. Anyuan Sun initially owned 70% of Xibolun Equipment while HK Xibolun owns the other 30%. HK Xibolun was established as an offshore entity by Mr. Lingmin Sun as a nominal owner. In order to meet China’s regulation on maintaining Sino-Foreign joint venture status, Mr. Anyuan Sun designated his brother Mr. Lingmin Sun as the nominal owner of HK Xibolun. Prior to October 22, 2012, Mr. Shih Chang Chen nominally held 100% of HK Xibolun on behalf of Mr. Lingmin Sun, who nominally held HK Xibolun for Mr. Anyuan Sun. Mr. Lingmin Sun had no voting rights or equity transfer rights regarding the shares of HK Xibolun. Consequently, HK Xibolun is effectively controlled by Mr. Anyuan Sun. Prior to the reorganization, Mr. Anyuan Sun owned 70% of the shares of Xibolun Equipment while HK Xibolun held the other 30% of the shares. Upon reorganization, Mr. Anyuan Sun transferred his ownership of Xibolun Equipment to Xibolun Automation, Xibolun Automation now owns 70% of Xibolun Equipment while HK Xibolun still owns the other 30%. HK Xibolun also owns 100% of the shares of Xibolun Automation. After the reorganization process, HK Xibolun, Xibolun Equipment and Xibolun Automation directly or indirectly became 100% subsidiaries of the Hebron Technology.

After reorganization, Mr. Zuoqiao Sun Zhang was the sole shareholder of the company since August 5, 2013. As Mr. Sun Zhang is the father of Mr. Anyuan Sun, Mr. Sun Zhang nominally held all the shares of Hebron Technology for Mr. Sun who has the rights to direct voting and transfer the shares, which made Mr. Sun the controlling shareholder of Hebron Technology. After the April 2015 share transfers from Mr. Sun Zhang to different parties at the approval of Mr. Anyuan Sun, Mr. Sun Zhang nominally holds 49.82% of Hebron Technology’s issued and outstanding shares, while Mr. Anyuan Sun holds 15% of the Company’s shares through Wise Metro Development Co., Ltd., a British Virgin Islands company. Also, Mr. Lingmin Sun holds 9% of the Company’s shares through Vast Express Development Co. Ltd., a British Virgin Islands company, and Mr. Chengchun Wang holds 9% of the Company’s shares through Able State International Industrial Co., Ltd., a British Virgin Islands company. Both Mr. Anyuan Sun and Mr. Lingmin Sun are Mr. Sun Zhang’s sons, and Mr. Wang is Mr. Anyuan Sun’s father-in-law. Though they appear to be four separate shareholders, Mr. Sun Zhang, with voting rights, equity transfer rights and rights to retain proceeds from equity transfer withheld by Mr. Anyuan Sun, nominally holds his shares for Mr. Anyuan Sun. Although Mr. Lingmin Sun and Mr. Chengchun Wang have rights to retain proceeds from equity transfer, but Mr. Anyuan Sun has the sole right to direct the voting of the shares held by them. In addition, Mr. Lingmin Sun and Mr. Anyuan Sun have the shared power to direct the transfer of the shares held by Mr. Lingmin Sun, and Mr. Anyuan Sun has the sole right to direct the transfer of shares held by Mr. Chengchun Wang. By virtue of Mr. Anyuan Sun’s power to direct voting and equity transfer with regards to the shares held by Mr. Sun Zhang, Mr. Lingmin Sun and Mr. Wang, in addition to his being the Company’s Chairman of the Board and Chief Executive Officer who actually controls the board and runs the Company, Mr. Anyuan Sun is the ultimate controlling shareholder of the Company in control of a total of 82.82% of the Company’s issued and outstanding shares prior to commencement of initial public offering. Based on the above, before and after the reorganization, Hebron Technology, HK Xibolun, Xibolun Equipment and Xibolun Automation are all considered under common control by Mr. Anyuan Sun.

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The above mentioned transactions were accounted for in a manner similar to a recapitalization. Hebron Technology and its wholly-owned subsidiary HK Xibolun, who own 100% interest of Xibolun Automation and Xibolun Equipment, were effectively controlled by the same Controlling Shareholder before and after the reorganization and therefore the Reorganization is considered under common control. The consolidation of Hebron Technology and its subsidiaries has been accounted for at historical cost as of the beginning of the first period presented in the accompanying consolidated financial statements.

Our Services

We specialize in installing valves and pipes for customers that require customized fluid control system solutions. We also specialize in designing and implementing solutions for industries with a high need for sanitary fluid systems. Currently, we have customers for our services in the industries of pharmaceuticals, dairy products, water purification, beverage production, cosmetics and chemical industry. We hope to expand our customer base in the future to the semi-conductor, electronic and other clean industries, but we have no near-term plans to provide services in any of these industries. Due to the requirements in these industries to avoid contamination, we focus on designing systems that may be easily and frequently cleaned and maintained. We use skilled workers to install these systems. Because the scope of a given project can be relatively large, our revenues per installation project tend to be much higher than the average product-only order; accordingly, installation services make up the largest component of our revenues. Revenues from installation services were approximately 87% and 84% of our total revenues for the years ended December 31, 2015 and 2014, respectively.

We started the business of repair and maintenance service in 2015. It is provided to pharmaceutical manufacturers after the expiration of warranty about products and installation services. We have established a repair and maintenance center in Nanjing, Jiangsu Province to cover Eastern China (Jiangsu Province, Zhejiang Province, Anhui Province and Shanghai) with investment of RMB 2,452,684 (approximately $380,000). Over the next 3 years, we plan to establish five additional repair and maintenance centers in Shanghai, Beijing, Nanjing, Chengdu and Linyi respectively to cover Central China, Northeastern China, Northern China, Southern China, and Northwestern China, with Shanghai being the center.

The following pictures illustrate some of our installation projects:

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Our Products

Our product line was originally focused on the construction service and pharmaceutical engineering sectors. In 2005, we shifted our product line to focus primarily on the pharmaceutical engineering sector. We focus on innovation and developing new products. Revenues from product sales were approximately 13%, and 16% of our total revenues for the years ended December 31, 2015 and 2014, respectively.

Our products are used in the pharmaceutical, biological, food and beverage, and other clean industries. All of our products are produced and in compliance with China Good Manufacturing Practices. Our products enjoy a good reputation in the industry. Additionally, we have established sales offices in Shanghai, Taiwan and Wenzhou City.

The following products are examples illustrating our expertise and R&D capability.

Diaphragm Valve

We have multiple variations of the diaphragm valve including the process control diaphragm valve, pneumatic diaphragm valve, manual diaphragm valve and three-way diaphragm valve and diaphragm tank bottom valve. All of these valves are widely used in the bio-pharmacy, bio-vaccines, electronic semiconductor, water purification and food and beverage industries. These valves can be designed and manufactured according to customers’ unique specifications, such as working temperature, connection mode, driving mode, and control mode.

Our flagship product, the process control diaphragm valve, is a microprocessor-based smart locator. It can adjust the valve opening quickly and accurately allowing it to achieve the control of fluid flow rate, temperature. This valve is user-customizable and features remote automatic control, which makes it suitable for use in sealed spaces.

Angle Seat Valve

The angle seat valve is a pneumatic valve, which is widely used in the process of food and chemicals, and sterilization, including high-pressure sterilization. These valves can be designed and manufactured according to customers’ unique specifications, such as working temperature, connection mode, driving mode, and control mode.

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Sanitary Centrifugal Pump

The Sanitary Centrifugal Pump is a centrifugal pump with an open impeller design. It is made from stainless steel to provide for better pressurization, earthquake resistance, impact resistance, lower operating noise and to protect against corrosive substances. The pump uses a hydrodynamic design to decrease its operating temperature.

Sanitary Liquid-Ring Pump

Our Sanitary Liquid-Ring Pump is a self-priming pump specially designed for pumping with gas or other gas liquids. This pump is used in the food, chemical and pharmaceutical industries. In addition, this pump can be used with volatiles such as alcohol, acetone or other solvents and near the boiling point temperature of other liquids. The pump can be used to perform both exhaust and intake functions.

Clean-in-Place (“CIP”) Return Pump

Our CIP Return Pump is specially designed for pumping with gas or other gas liquids. This pump is used in the food, chemical and pharmaceutical industries. In addition, this pump can be used with volatiles such as alcohol, acetone or other solvents and near the boiling point temperature of other liquids. The pump can be used to perform both exhaust and intake functions. The CIP design allows for easier cleaning without requiring disassembly of the closed pipe system, making it appropriate for use in industries that demand high levels of hygiene and frequent cleaning of systems.

Sanitary Ball Valves

Our sanitary ball valves are used in the biological, pharmaceutical, water purification, food and beverage industries. The ball valves are designed for simple operation and can open and close rapidly. The valves are designed to eliminate dead legs (the inhibition of fluid-flow), have good seal performance and are resistant to high temperatures.

Sanitary Pipe Fittings

Our sanitary pipe fittings are used in biological, pharmaceutical, water purification, electronics and semi-conductor fields and are commonly used in the water injection process. The major designs include elbows, tees, crosses, head size, 180-degree u-tee and connectors. These pipe fittings are compliant with bio-pharmaceutical standards.

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Intelligent Process Control Valve

Expanded View of Intelligent Process Control Valve

Previously, we could only install our own angle seat valves or diaphragm valves on the intelligent control sections imported from other countries, such as Japan, Germany and United States, to produce intelligent process control valves for sale. Through our collaboration with Zhejiang University, we have developed an intelligent process control valve which can be wholly produced by us, though this product is still in trial period. While non-intelligent process control valves can only operate manually or through air compression, intelligent process control valves contain CPU chips and other electronic elements that enable them to operate automatically. Intelligent process control valves are mostly used in sterile workshops, workshops with automated production lines and other environments which are unfit for manual operation. However, intelligent process control valves are higher in production cost and maintenance cost compared with non-intelligent ones, so customers usually deploy them only for purposes that have higher technical requirements than non-intelligent valves can serve.

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Sources of Raw Materials

We purchase raw materials on the market at prevailing market prices. We purchase from a variety of suppliers and believe these raw materials are widely available. If we were unable to purchase from our primary suppliers, we do not expect we would face difficulties in locating another supplier at substantially the same price.

We have secure and efficient access to all the raw materials necessary for the production of our products. We believe our relationships with the suppliers of these raw materials are strong. We do not expect the prices of such raw materials to vary greatly from their current prices, as there has traditionally been little price volatility for such materials.

Three suppliers have historically occupied more than 10% of our total expenses. Below is a description showing the percentage of purchases from such suppliers to the extent it exceeds 10% of our expenses in a given period:

For the year ended December 31, 2015, two major sub-contractors accounted for approximately 45% and 21% of subcontract costs, respectively. For the year ended December 31, 2015, two suppliers accounted for 22% and 15% of the Company’s accounts payable balance, respectively.

For the year ended December 31, 2014, one major sub-contractor accounted for approximately 27% of subcontract costs. As of December 31, 2014, one supplier accounted for 34% of the Company’s accounts payable balance.

Distribution Channels and Methods of Competition

Domestic Markets and Customers

Our sales network has a presence in Shanghai, Taiwan and Wenzhou City.

International Markets

All of our products are available for sale to international markets. We plan to explore the international market with our valves and pipe fittings products in 2016, though there is no guarantee that we will be able to conduct the plan. Although our efforts to focus on higher-margin installation services continue, the Company has no current plans to expand internationally and instead intends to focus its growth efforts within China with regards to the services we provide as a result of the Company’s assessment of current market opportunities.

Activity Distribution of Revenues

The chart below is a breakdown of total revenues by activities for the year ended December 31, 2015 and 2014, respectively.

		Years Ended December 31,
		2015				2014
Installation services			87	%			84	%
Fluid equipment			13				16
Total			100	%			100	%

Geographic Distribution of Revenues

The chart below is a breakdown of total revenues by geographic market in the years ended December 31, 2015 and 2014, respectively.

		Years Ended December 31,
		2015				2014
Domestic			98.9	%			99.3	%
Export			1.1				0.7
Total			100.0	%			100.0	%

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Customer Concentration

Because of the nature of our business which involves relatively large value sales of installation services or products to a discrete number of customers, sales to a small number of customers amount to a great percentage of our total revenue.

For the year ended December 31, 2015, two major customers accounted for approximately 11%, and 10% of the Company’s total sales, respectively. As of December 31, 2015, two customers accounted for approximately 63% and 14% of the Company’s total contracts receivable and accounts receivable balance, respectively.

For the year ended December 31, 2014, five major customers accounted for approximately 19%, 17%, 16%, 15% and 13% of the Company’s total sales, respectively. As of December 31, 2014, four customers accounted for 30%, 27%, 25% and 12% of the Company’s total contract receivable and accounts receivable balance, respectively.

Summary of Customer Agreements

Our customers order our services and products using our form of purchase agreement, the material terms of which are summarized in the exhibit 10.1. While the contract price depends on the services or products we deliver in any particular case, the remaining business terms are generally similar.

The 5% to 10% of the contract price is considered a quality guaranty, which is paid shortly after the end of the one year period beginning on customer acceptance of delivery or installation. During this one year quality assurance period, we cooperate with our customers to ensure the products work as expected, repairing or paying for the cost of repair or replacement for covered occurrences during such period.

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Our Competitive Position

Our primary competitors are the following companies. We have set forth our assessment of our companies’ relative strengths and challenges. This table represents our belief about our competitive position and is based on our observations, rather than objective data. Our assessment may not be shared by others, including such competitors, but it does represent management’s assessment of our industry position.

However, we compete with them in different areas. Currently there is no competitor that competes with us on all areas.

Competitors		Products/Services		Comparative Strengths/Challenges
GEA Group Aktiengesellschaft (“GEA”)		Valves, valve-related products and installation services		We believe GEA’s brand is more well-known. We compete against GEA’s installation services on the basis of price.
Austar International (“Austar”)		Valves, valve-related products and installation services		We believe Austar’s international brand name is more well-known. We compete against Austar’s installation services on the basis of price.
Shanghai Langmai Clean Technology Co., Ltd. (“Shanghai Langmai”)		Installation services		Shanghai Langmai provides only installation services, while we provide both installation services and products. We compete against Shanghai Langmai on the basis of range of products and services, installation speed and service.
Sensong Group (“Sensong”)		Installation services		Sensong’s brand name is more well-known, but it provides only installation services, while we provide both installation services and products. We compete against Sensong on the basis of installation speed.
Shandong Weifang Regal Circulation Equipment Co. (“Shandong Weifang”)		Installation services		Shandong Weifang’s market share is relatively small. We compete against Shandong Weifang on the basis of installation speed and services.
Nanjing Inavo Bio-engineering Co., Ltd. (“Nanjing Inavo”)		Valves and valve-related products		We compete against Nanjing Inavo’s products on the basis of price and brand recognition.
GEMÜ Gebr. Müller Apparatebau GmbH & Co. KG (“GEMÜ”)		Valves and valve-related products		We believe GEMÜ’s international brand name is more well-known. We compete against GEMÜ on the basis of price and delivery speed.
Christian Bürkert GmbH & Co. KG (“Bürkert”)		Valves and valve-related products		We believe Bürkert’s international brand name is more well-known. We compete against Bürkert on the basis of price, delivery speed and service.

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Competitors		Products/Services		Comparative Strengths/Challenges
Crane Process Flow Technologies Ltd. (“Saunders Valves”)		Valves and valve-related products		We believe Saunders Valves’ international brand name is more well-known. We compete against Saunders Valves on the basis of price, delivery/installation speed and service.
Wenzhou Baiji Machinery Manufacturing Co., Ltd. (“Wenzhou Baiji”)		Valves and valve-related products		We compete against Wenzhou Baiji on the basis of product quality, delivery speed and service.
Ningbo Information Pharmaceutical Equipment Co., Ltd. (“Ningbo Information”)		Pharmaceutical equipment		Ningbo Information generally has lower prices and, we believe, lower visibility than our company. We compete against Ningbo Information on the basis of quality, service and delivery speed.

Awards and Recognition

Our CEO, Mr. Anyuan Sun, is a member of American Society of Mechanical Engineers (“ASME”). Our products meet ASME Bioprocessing Equipment Standards (“BPE”). We have earned a certificate of ISO9001. All our products are designed and manufactured according to the standards of the International Standardization Organization (“ISO”), German Institute for Standardization (“DIN”), Safety Management System (“SMS”), ASME and BPE.

Year		Award		Regulatory Body		Significance
2007		AAA Credit Rating		Hangzhou Credit Evaluation Company & Bank of China Zhejiang Branch		AAA is the highest credit ranking available to Chinese enterprises and evidences strong credit and ability to repay debt.
		Longwan District Hi-Tech Enterprise		Wenzhou Longwan District Government		This award recognizes our R&D capabilities and technology and makes us eligible for beneficial tax policies.
2008		Chinese Meritorious Enterprise in Food and Pharmaceutical Machinery Industry Base		China Machinery Enterprise Management Association, Research Institute of Machinery Industry Economic & Management, & Wenzhou Food and Pharmaceutical Machinery Industry Association		It is awarded for our contributions to industry and society.
		Zhejiang Province Small and Medium-sized Entities in Technology Certificate		Department of Science and Technology of Zhejiang Province		This award recognizes our R&D capabilities and technology and makes us eligible for policy support available to technology based enterprises.
		Affiliate of the American Society of Mechanical Engineers		The American Society of Mechanical Engineers		Mr. Anyuan Sun is entitled to all the privileges granted by the Constitution of the Society.

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Year		Award		Regulatory Body		Significance
2009		AAA Credit Rating		Hangzhou Credit Evaluation Company & Bank of China Zhejiang Branch		AAA is the highest credit ranking available to Chinese enterprises and evidences strong credit and ability to repay debt.
		AAA Certificate of Enterprise Credit Grade		China Medical Equipment Engineering Association		AAA is the highest credit ranking available to Chinese enterprises and evidences strong credit and ability to repay debt.
		Affiliate of the American Society of Mechanical Engineers		The American Society of Mechanical Engineers		Mr. Anyuan Sun is entitled to all the privileges granted by the Constitution of the Society.
2010		AAA Credit Rating		Hangzhou Credit Evaluation Company & Bank of China Zhejiang Branch		AAA is the highest credit ranking available to Chinese enterprises and evidences strong credit and ability to repay debt.
		Small and Medium-sized Enterprise Technology Innovation Fund Project Certificate		China Department of Science and Technology Small and Medium-sized Enterprise Technology Innovation Fund Project Management Center		This award granted us funding for research on our Intelligent Control Valves project.
		Quality Management System Certificate		China Classification Society Certification Company		Our sanitary valves and pipe fittings conform to GB/T 19001-2000 —  ISO 9001:2000.
2011		Small and Medium-sized Enterprise Technology Innovation Fund Project Certificate		China Department of Science and Technology Small and Medium-sized Enterprise Technology Innovation Fund Project Management Center		This award granted us funding for research on our Intelligent Control Valves project.
		Quality Management System Certificate		China Classification Society Certification Company		Our sanitary valves and pipe fittings conform to GB/T 19001-2008 —  ISO 9001:2008.
		Wenzhou Longwan Patent Model Enterprise		Wenzhou Longwan District Government		It is awarded because we have many innovative patents.
2012		AAA Credit Rating		Hangzhou Credit Evaluation Company & Bank of China Zhejiang Branch		AAA is the highest credit ranking available to Chinese enterprises and evidences strong credit and ability to repay debt.
		Zhejiang Province Industrial Products Executive Standard Registration Certificate		Wenzhou Quality Technical Supervising Bureau Longwan Branch		It is awarded as technical reference for the enterprise organizing production, sales and accepting product quality supervision and inspection, and signing trade contracts.
		Membership of CAPE		China Association For Pharmaceutical Equipment		It is a national industry association.

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Year		Award		Regulatory Body		Significance
2013		Quality Management System Certificate		China Classification Society Certification Company		Our sanitary valves and pipe fittings conform to GB/T 19001-2000 —  ISO 9001:2000.
2015		Wenzhou Economic & Technology Development Zone Science and Technology Enterprise		Wenzhou Economic & Technology Development Zone Science and Technology Bureau		This award recognizes us as an enterprise which complies with the industrial policy of China and continues to conduct research and development to transform technology into product to form our core intellectual property.
		Wenzhou City Science and Technology (innovation) Enterprise		Wenzhou Science and Technology Bureau		This award recognizes us as an enterprise which complies with the industrial policy of China and continues to conduct research and development to transform technology into product to form our core intellectual property.
2016		Quality Management System Certificate		China Quality Certification Center		Our production line (according to Quality Requirement) mainly focuses on valves and pipes conforms to ISO 9001:2008 GB/T 19001-2008.

Research and Development

We are committed to researching and developing valves for use in the pharmaceutical, biological, food and beverage, semi-conductor, electronic and other clean industries. We believe scientific and technological innovations will help our Company achieve its long-term strategic objectives. Our research and development efforts, led by our Chief Technical Officer, Xiaoliang Xue, are an integral part of our operations and the crux of its competitive advantage and differentiation strategy.

The Research and Development team has ten (10) dedicated researchers and analysts focusing on mechanical design, mechatronics, CAD design, mold design and welding. Quality control is an important aspect of the team’s work and ensuring quality at every stage of the process has been a key driver in maintaining and developing brand value for the Company.

In addition, we sent employees to Italy, Germany and the United States to study clean product manufacturing, installation and connection process so that the Company is current on advanced International Technology. It is through these collaborations that we have managed to secure important breakthroughs resulting in proprietary knowledge and patents.

For the years ended December 31, 2015 and 2014, we spent $121,760 and $40,606, respectively, on R&D. We anticipate that we will focus our research and development efforts on improving existing products and developing new technology in the coming years.

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Our Research Projects

We have participated in following numerous scientific projects.

Project Description		Time Period		Government Agency		Subsidy
Pneumatic Diaphragm Valve Device		2007 – 2009		Bureau of Science and Technology of Longwan District of Wenzhou City		RMB 100,000
Butterfly Valve Pneumatic Actuator		2008 – 2010		Bureau of Science and Technology of Wenzhou City		RMB 250,000
Intelligent Control Valve		2009 – 2012		Chinese Ministry of Science and Technology and Zhejiang Bureau of Science and Technology		RMB 1,050,000
Aseptic Diaphragm Remote Control		2011 – 2012		Bureau of Science and Technology of Longwan District of Wenzhou City		RMB 170,000
Intelligent and Efficient Development of Multi-Process Valve		2012 – 2013		Bureau of Economic Development of Economic-Technological Development District of Wenzhou City		RMB 100,000

In the above projects, the government agencies provided us subsidies to support us to develop various scientific research projects. These projects are funded to encourage research and development. We have successfully developed all the products in the above projects which passed the examination of the governmental agencies.

We have collaborated with Zhejiang University on R&D. We signed a Research and Collaboration Agreement with Zhejiang University on January 20, 2011. Pursuant to the agreement, Zhejiang University was responsible for conducting the research and development work of intelligent process control valve on behalf of the Company, and the company was obligated to pay Zhejiang University a total of RMB 1 million (approximately $0.15 million) in several installments. The Company made payments to Zhejiang University in accordance with the specific milestones stipulated in the agreement and a total of RMB 0.65 million (approximately $0.10 million) as required by the agreement was paid as of December 31, 2015. The Company accounted for the payments as R&D expenses in accordance with ASC 730-20 for the related periods.

This agreement has been performing in material aspects. One of the most important results is the development of the intelligent process control valve which can be wholly produced by ourselves. In addition, the agreement requires us to pay a total amount of RMB 0.35 million to Zhejiang University depending on the sales of the products, which consists of RMB 0.07 million per year for 5 years starting from May 31, 2012. As of June 10, 2016, RMB 0.15 million remains outstanding because we have not put any such products into market for sales, and Zhejiang University has never required us to pay for any balance by sending us any invoice. Based on the terms of the agreement, we consider that this payment is not due. However, we plan to pay the required amount according to the terms in the Research and Collaboration Agreement in the future once we start selling the products. We do not intend to make the payment until the conditions in the agreement are met. If Zhejiang University were to demand payment at some time in the future prior to our determination that the payment was due, we would need to decide whether to contest such demand or to pay. For more details, please see “Risk Factors –We may have liability under our contract with Zhejiang University.”

Although we have created our own research and development department, we plan to continue the collaboration with Zhejiang University. Because of its rich academic resources, the collaboration with Zhejiang University helps our operations by improving our R&D.

Since 2015, we plan to develop the intelligent remote control service. We hope to use the internet of things to establish an intelligent remote control system and a data center solutions division system. It will enable us to position, track and monitor the actual operation of the equipment of pharmaceutical manufacturers 24 hours and online. In this way, we can target issues promptly and conduct troubleshooting on the basis of advanced technology. As a result, we will be more efficient in serving our clients and reducing the clients’ operation and maintenance cost significantly.

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Our Intellectual Property

We rely on our technology patents to protect our domestic business interests and ensure our competitive position in our industry. The issued patents we hold are as follows:

Patent Name

Patent No.

Patent Type

Application Date

Issuance Date

Expiration Date

Owner

Valve pneumatic actuator with prompting switch

ZL 2010 2 0668775.3

Utility model

12/20/2010

7/20/2011

12/19/2020

Xibolun Automation

Sampling valves

ZL 2010 2 0668776.8

Utility model

12/20/2010

7/20/2011

12/19/2020

Xibolun Automation

Three-way diaphragm valves

ZL 2010 2 0668430.8

Utility model

12/20/2010

7/20/2011

12/19/2020

Xibolun Automation

Microporous membrane filters

ZL 2010 2 0668429.5

Utility model

12/20/2010

7/20/2011

12/19/2020

Xibolun Automation

Tank bottom valve

ZL 2010 2 0668772. X

Utility model

12/20/2010

7/20/2011

12/19/2020

Xibolun Automation

Angle seat valve

ZL 2011 2 0513124.1

Utility model

12/9/2011

8/22/2012

12/8/2021

Xibolun Automation

Diaphragm valve body

ZL 2011 2 0512271.7

Utility model

12/9/2011

8/22/2012

12/8/2021

Xibolun Automation

Diaphragm valve

ZL 2011 2 0512279.3

Utility model

12/9/2011

8/29/2012

12/8/2021

Xibolun Automation

Angle seat valve

ZL 2011 2 0510956.8

Utility model

12/9/2011

8/22/2012

12/8/2021

Xibolun Automation

A type of valve stem of sterile respondent valve

ZL 2014 2 0616427. X

Utility model

10/23/2014

2/25/2015

10/22/2024

Xibolun Automation

A type of sterile respondent valve

ZL 2014 2 0616627.5

Utility model

10/23/2014

4/1/2015

10/22/2024

Xibolun Automation

A type of diaphragm valve with double diaphragms

ZL 2013 2 0890760.5

Utility model

12/30/2013

6/18/2014

12/29/2023

Anyuan Sun

A type of valve terminal on valve controller

ZL 2014 2 0617591.2

Utility model

10/23/2014

2/25/2015

10/22/2024

Xibolun Automation

A type of blow-down valve

ZL 2014 2 0616636.4

Utility model

10/23/2014

3/11/2015

10/22/2024

Xibolun Automation

A type of valve pneumatic actuator

ZL 2014 2 0617900.6

Utility model

10/23/2014

2/25/2015

10/22/2024

Xibolun Automation

A type of sanitary grade ball valve

ZL 2014 2 0616568.1

Utility model

10/23/2014

2/25/2015

10/22/2024

Xibolun Automation

A type of manual and pneumatic combine sterile sampling valve

ZL 2014 2 0027096.6

Utility model

1/16/2014

6/25/2014

1/15/2024

Anyuan Sun

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Patent Name

Patent No.

Patent Type

Application Date

Issuance Date

Expiration Date

Owner

Process control diaphragm valve

ZL 2012 3 0602853.4

Design

12/5/2012

5/1/2013

12/4/2022

Xibolun Automation

Process control angle seat valve

ZL 2012 3 0602850.0

Design

12/5/2012

4/17/2013

12/4/2022

Xibolun Automation

A type of manual sterile sampling valve

ZL 2013 1 0751950.3

Invention

12/30/2013

1/13/2016

12/29/2033

Anyuan Sun

Our Chief Executive Officer, Mr. Anyuan Sun, personally holds three patents that our company has the license to use pursuant to agreements that provide us the right, without further payment, to use such patents for their applicable terms. The right is non-exclusive and is terminable at Mr. Sun’s decision; however, Mr. Sun does not currently intend to license the right to any third party. Mr. Sun does not, at the present time, have any plans to transfer the patents to our company, either.

In addition, we have the right to use the following trademark registrations issued in the PRC, among which two registrations are held by our Chief Executive Officer:

Trademarks		Reg. No.		Issue Date		Expiration Date		Owner		Goods/Services
		3903979		12/28/2005		12/27/2025		Anyuan Sun		Metal pipe elbows; metal pipe joints; metal valves (not machine accessories); metal pipe fittings; additional materials for metal pipe; metal reinforce materials for pipes; metal pipe clams; metal sleeves; metal pipes; steel pipes
		5610464		12/7/2009		12/6/2019		Anyuan Sun		Steel pipes; metal pipes, metal pipe clams; metal water pipes; metal pipe elbows; metal pipe fittings; metal pipe joints, metal collecting tubes; metal sleeves
		14488573		6/14/2015		6/13/2025		Xibolun Automation		Construction status check; construction; heating equipment installation and repair; indoor construction; machine installation, maintenance, and repair; medical equipment installation and repair; vehicle maintenance service; machine installation and repair; sanitary equipment installation and repair; water pipe installation
		14488475		7/28/2015		7/27/2025		Xibolun Automation		Steel alloy; metal valves (not machine accessories); metal pipes; steel moulds; metal tracks; common metal alloy wire (except fuses); metal grommets; metal hinge; metal tools; padlock

Our Chief Executive Officer, Mr. Anyuan Sun, personally holds two trademarks that our company has the license to use pursuant to an agreement that provides us the right, without further payment, to use such trademarks for their applicable terms. The right is non-exclusive and is terminable at Mr. Sun’s decision; however, Mr. Sun does not currently intend to license the right to any third party. Mr. Sun does not, at the present time, have any plans to transfer the trademarks to our company, either.

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Also, Mr. Anyuan Sun holds the copyright of a computer software below:

Copyright Name		Reg. No.		Completion Date		Owner
Proportioning locator control system V1.0		2013SR072143		9/1/2012		Anyuan Sun

Our company has the license to use the copyright above pursuant to an agreement that provides us the right, without further payment, to use such copyright for its applicable terms. The right is non-exclusive and is terminable at Mr. Sun’s decision; however, Mr. Sun does not currently intend to license the right to any third party. Mr. Sun does not, at the present time, have any plans to transfer the copyright to our company, either.

Our Employees

As of June 10, 2016, we employed total of 87 full-time and 0 part-time employees in the following functions:

Number of Employees (Full/Part Time)

Department

June 10, 2016

December 31, 2015

December 31, 2014

December 31, 2013

Senior Management

11/0

11/0

10/0

20/0

Research and Development

10/0

10/0

8/0

4/0

Production

50/0

50/0

47/0

43/0

Sales

16/0

16/0

10/0

8/0

Total

87/0

87/0

75/0

75/0

Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages.

We are required under PRC law to make contributions to employee benefit plans at specified percentages of our after-tax profit. In addition, we are required by PRC law to cover employees in China with various types of social insurance. We believe that we are in material compliance with the relevant PRC employment laws.

Chinese Laws and Regulations

Laws and Regulations in China Regarding Medical Devices Manufacturing and Distribution

Laws regulating medical device manufacturers and distributors cover a broad array of subjects. We must comply with numerous additional state and local laws relating to matters such as safe working conditions, manufacturing practices, environmental protection and fire hazard control. We believe we are in compliance with these laws and regulations in all material respects. So far, our industry does belong to pharmacy or hospitality so that we do not need to get special license or approval for our business operation. Meanwhile, we have successfully obtained two licenses for manufacture and installation of special equipment from regulatory authorities in recent months. However, the licenses have to be renewed in October 2019. Also, unanticipated changes in existing regulatory requirements or adoption of new requirements may force us to incur more cost to maintain the licenses and failure to do so could materially adversely affect our business, financial condition and results of operations.

We and our PRC entities sometimes subcontract portions of our projects to third parties to complete. See section titled “Risk Factors — Unqualified individual subcontractors may bring joint liability to us.” According to Construction Law and Qualification Standard for Labor Subcontracting in Construction Business of the PRC, individual contractors are not in a position to obtain any qualification of labor subcontracting. So the subcontracting contracts by Xibolun Equipment and Xibolun Automation to such individual contractors are under the risk of being declared of avoidance of qualification by applicable courts. Article 29 of the Construction Law requires that “the overall contractors and subcontractors shall bear joint responsibilities to project owners for the subcontracted projects”. Even though our PRC entities Xibolun Equipment and Xibolun Automation are very cautious with subcontracting the projects to other parties, there are still possibilities that our PRC entities may subcontract the projects to individuals or parties without required qualifications. Despite the facts that the law enforcement and regulation on these types of subcontracting are

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not very strict, if the construction completed by unqualified individual subcontractors does not meet required quality and accident occurs, our PRC entities may jointly bear the subsequences pursuant to the Article 64 of the Construction Law. Also, according to the Article 54 of the Regulation on the Quality Management of Construction Projects, the liabilities for the subsequences could be indemnifying the damages and paying penalty which could be ranging from five hundred thousand up to one million RMB.

Regulation on Product Liability

Manufacturers and vendors of defective products in the PRC may incur liability for losses and injuries caused by such products. Under the General Principles of the Civil Laws of the PRC, which became effective on January 1, 1987 and were amended on August 27, 2009, manufacturers or retailers of defective products that cause property damage or physical injury to any person will be subject to civil liability.

In 1993, the General Principles of the PRC Civil Law were supplemented by the Product Quality Law of the PRC (as amended in 2000 and 2009) and the Law of the PRC on the Protection of the Rights and Interests of Consumers (as amended in 2009), which were enacted to protect the legitimate rights and interests of end-users and consumers and to strengthen the supervision and control of the quality of products. If our products are defective and cause any personal injuries or damage to assets, our customers have the right to claim compensation from us.

The PRC Tort Law was promulgated on December 26, 2009 and became effective from July 1, 2010. Under this law, a patient who suffers injury from a defective medical device can claim damages from either the medical institution or the manufacturer of the defective device. If our valve products and installation and construction services injure a patient, and if the patient claims damages from the medical institution, the medical institution is entitled to claim repayment from us. Pursuant to the PRC Tort Law, where a personal injury is caused by a tort, the tortfeasor shall compensate the victim for the reasonable costs and expenses for treatment and rehabilitation, as well as death compensation and funeral costs and expenses if it causes the death of the victim. There is no cap on monetary damages the plaintiffs may seek under the PRC Tort Law.

Regulation on Foreign Exchange Control

Foreign exchange in China is primarily regulated by:

Under the Foreign Currency Administration Regulations, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments and trade and service-related foreign exchange transactions. Conversion of Renminbi into foreign currency for capital account items, such as, loans, investment in securities and repatriation of investments, however, remains subject to the registration of the SAFE or its local counterparts as required by law. Under the Administration Rules, foreign-invested enterprises may buy, sell and remit foreign currencies at banks authorized to conduct foreign exchange transactions for settlement of current account transactions after providing valid commercial documents and, in the case of capital account item transactions, only after registration with the SAFE and, as the case may be, other relevant PRC government authorities as required by law. Capital investments directed outside of China by foreign-invested enterprises are also subject to restrictions, which include registration filing with MOFCOM. If the investment is made to the sensitive countries, districts, or industries, it needs to be approved by MOFCOM.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi will be permitted to fluctuate within a band against a basket of certain foreign currencies. We receive a significant portion of our revenue in Renminbi, which is not a freely convertible currency. Under our current structure, our income will be primarily derived from dividend

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payments from our subsidiaries in China. Even though we may remit the income from China to anywhere we want, the fluctuation of exchange rate may be a disadvantage to us if Renminbi depreciated.

Regulation on Foreign Exchange Registration of Offshore Investment by PRC Residents

The Notice on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, promulgated by SAFE on July 14, 2014 and designed to replace the former circular commonly known as “Notice 75”, requires registration of PRC residents with local branches of SAFE with respect to their direct establishment or indirect control of an offshore entity (referred to in Notice 37 as “special purpose vehicle.”), where such offshore entity are established for the purpose of overseas investment or financing, provided that PRC residents contribute their legally owned assets or equity into such entity.

Notice 37 further requires amendment to the registration where any significant changes with respect to the special purpose vehicle capitalization or structure of the PRC resident itself (such as capital increase, capital reduction, share transfer or exchange, merger or spin off).

Regulation on Dividend Distributions

Our PRC subsidiaries, Xibolun Automation and Xibolun Equipment, are wholly foreign-owned and joint venture enterprises under the PRC law. The principal regulations governing the distribution of dividends paid by wholly foreign-owned enterprises include:

Under these regulations, wholly foreign-owned and joint venture enterprises in China may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. In addition, an enterprise in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until its cumulative total reserve funds reaches 50% of its registered capital. Our Company’s reserve fund has not yet reached this level. The board of directors of a wholly foreign-owned enterprise has the discretion to allocate a portion of its after-tax profits to its employee welfare and bonus funds. These reserve funds, however, may not be distributed as cash dividends.

On March 16, 2007, the National People’s Congress enacted the Enterprise Income Tax Law, and on December 6, 2007, the State Council issued the Implementation Regulations on the Enterprise Income Tax Law, both of which became effective on January 1, 2008. Under this law and its implementation regulations, dividends payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise will be subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a lower withholding tax rate. See “Taxation.”

M&A Rules and Regulation on Overseas Listings

On August 8, 2006, six PRC regulatory agencies, MOFCOM, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly adopted the Regulation on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006. The M&A Rules purport, among other things, to require that offshore SPVs that are controlled by PRC companies or individuals and that have been formed for overseas listing purposes through acquisitions of PRC domestic interests held by such PRC companies or individuals, obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. On September 21, 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings.

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While the application of the M&A Rules remains unclear, our PRC counsel, Yunnan Tianwaitian Law Firm, have advised us that, based on their understanding of the current PRC laws and regulations as well as the notice announced on September 21, 2006:

Our PRC counsel also advises us, however, that there is still uncertainty as to how the M&A Rules will be interpreted and implemented. If the CSRC or other PRC regulatory agencies, subsequently determine that CSRC approval was required for this offering, we may need to apply for remedial approval from the CSRC and we may be subject to penalties and administrative sanctions administered by these regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from this offering into the PRC, or take other actions that could materially adversely affect our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common shares. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of our common shares. Consequently, even though our PRC counsel believes the probability for the aforementioned actions is small, if you engage in market trading or other activities in anticipation of, and prior to, settlement and delivery, you do so at the risk settlement and delivery may not occur.

In addition, if the CSRC later requires that we obtain its approval for this offering, we may be unable to obtain a waiver of the CSRC approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding the CSRC approval requirements could have a material adverse effect on the trading price of our common shares.

Restriction on Foreign Ownership

The principal regulation governing foreign ownership of businesses in the PRC is Guidance Catalogue for Industrial Structure Adjustments (2015 edition), effective as of April 10, 2015 (the “Catalogue”). The Catalogue classifies the various industries into three categories: encouraged, restricted and prohibited. Our company’s primary market is the pharmaceutical industry. We are not engaged in any activities placing us in the encouraged, restricted or prohibited categories and so it could be inferred that we are engaged in a permitted industry for foreign investment. Such a designation offers businesses certain advantages. For example, businesses engaged in permitted industries:

The National Development and Reform Commission and MOFCOM periodically jointly revise the Foreign Investment Industrial Guidance Catalogue. As such, there is a possibility that our company’s business may fall outside the scope of the definition of a permitted industry in the future. Should this occur, we would no longer benefit from such designation.

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On January 19, 2015, China’s Ministry of Commerce issued a draft Foreign Investment Law. The effective date of the official publication of the law is yet unknown. In the draft, foreign investment in China will be classified into three categories: prohibited, restricted, and others. This idea of classification is similar as previously published Catalogue. If the foreign investment falls in the areas that are closely related to national security, then it will be prohibited; if the investment may have some impact on national security but could be controlled through conditions, then it can be done with restrictions or qualifications; if the investment falls outside of those two categories, then it will not need approval from China government to operate in China.

According to the current Catalogue, our company’s business does not fall in any prohibited or restricted industries. If China’s Ministry of Commerce adopts a list as same as the Catalogue along with the draft, the draft will have very limited impact on our business, if any. The probability that our business will be classified as prohibited or restricted industry is very low. However, If China’s Ministry of Commerce adopts a list by our business is prohibited or restricted, and it treats our business in China as foreign investment by deciding our actual controller is Mr. Sun Zhang who is not a Chinese citizen, we may face certain restrictions or even be prohibited to conduct business in China.

Regulations on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC Subsidiaries

An offshore company may invest equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after investment. Such equity investment is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which include the Wholly Foreign Owned Enterprise Law, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Contractual Joint Venture Enterprise Law, all as amended from time to time, and their respective implementing rules; the Tentative Provisions on the Foreign Exchange Registration Administration of Foreign-Invested Enterprise; and the Notice on Certain Matters Relating to the Change of Registered Capital of Foreign-Invested Enterprises.

Under the aforesaid laws and regulations, the increase of the registered capital of a foreign-invested enterprise is subject to the prior approval by the original approval authority of its establishment. In addition, the increase of registered capital and total investment amount shall both be registered with SAIC.

Shareholder loans made by offshore parent holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purposes, which debts are subject to a number of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Measures on Administration on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation rules, and the Administration Rules on the Settlement, Sale and Payment of Foreign Exchange.

Under these regulations, the shareholder loans made by offshore parent holding companies to their PRC subsidiaries shall be registered with SAFE. Furthermore, the total amount of foreign debts that can be incurred by such PRC subsidiaries, including any shareholder loans, shall not exceed the difference between the total investment amount and the registered capital amount of the PRC subsidiaries, both of which are subject to governmental approval.

Regulations on Trademarks

Trademarks are protected by the PRC Trademark Law adopted in 1982, as subsequently amended, as well as the Implementation Regulations of the PRC Trademark Law adopted by the State Council in 2002 and 2013. The Trademark Office under the SAIC handles trademark registrations. Trademarks can be registered for a term of ten years and can be extended for another ten years if requested upon expiration of the first or any renewed ten-year term. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Where a trademark for which a registration application has been made is identical or similar to another trademark which has already been registered or been subject to a preliminary examination and approval for use on the same type of or similar commodities or services, the application for such trademark registration may be rejected. Any person applying for the registration of a trademark may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through

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such other party’s use. Trademark license agreements must be filed with the Trademark Office or its regional offices. We are currently using at no expense two trademarks registered in China and owned by Mr. Anyuan Sun. Meanwhile, we have successfully applied on our own name two trademarks in 2015, for both of which we have obtained the certificate issued by the authority (SAIC).

Regulations on Patents

The PRC Patent Law provides for patentable inventions, utility models and designs, which must meet three conditions: novelty, inventiveness and practical applicability. The State Intellectual Property Office is responsible for examining and approving patent applications. A patent is valid for a term of twenty years in the case of an invention and a term of ten years in the case of utility models and designs. We have obtained 20 patents, 17 are owned by us, and 3 are still under the ownership of Mr. Anyuan Sun but we are currently using them without payment pursuant to two freely terminable nonexclusive licenses from Mr. Sun.

PRC Enterprise Income Tax Law and Individual Income Tax Law

Under the Enterprise Income Tax Law or EIT Law, enterprises are classified as resident enterprises and non-resident enterprises. PRC resident enterprises typically pay an enterprise income tax at the rate of 25%. An enterprise established outside of the PRC with its “de facto management bodies” located within the PRC is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a PRC domestic enterprise for enterprise income tax purposes. The implementation rules of the EIT Law define “de facto management body” as a managing body that in practice exercises “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.

The SAT Circular 82 issued by the SAT in April 2009 provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled offshore incorporated enterprise is located in China. Pursuant to the SAT Circular 82, a PRC-controlled offshore incorporated enterprise has its “de facto management body” in China only if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (d) more than half of the enterprise’s directors or senior management with voting rights habitually reside in the PRC. The SAT Bulletin 45, in effect from September 2011, provides more guidance on the implementation of the SAT Circular 82 and provides for procedures and administration details on determining resident status and administration on post-determination matters. Although the SAT Circular 82 and the SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth there may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or PRC enterprise groups or by PRC or foreign individuals.

Due to the lack of applicable legal precedents, it remains unclear how the PRC tax authorities will determine the PRC tax resident treatment of a foreign company controlled by individuals. We may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.

Regarding other local taxes and VAT tax, please see the discussion in PRC Business Tax and PRC VAT Tax sections.

Employment Laws

In accordance with the PRC National Labor Law, which became effective in January 1995, and the PRC Labor Contract Law, which became effective in January 2008, as amended subsequently in 2012, employers must execute written labor contracts with full-time employees in order to establish an employment relationship. All employers must compensate their employees equal to at least the local minimum wage standards. All employers are required to establish a system for labor safety and sanitation, strictly abide by

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state rules and standards and provide employees with appropriate workplace safety training. In addition, employers in China are obliged to pay contributions to the social insurance plan and the housing fund plan for employees.

We have entered into employment agreements with all of our full-time employees. We have contributed to the basic and minimum social insurance plan. Due to a high employee turnover rate in our industry, it is difficult for us to comply fully with the law. While we believe we have made adequate provision of such outstanding amounts of contributions to such plans in our financial statements, any failure to make sufficient payments to such plans would be in violation of applicable PRC laws and regulations and, if we are found to be in violation of such laws and regulations, we could be required to make up the contributions for such plans as well as to pay late fees and fines.

Description of Property

There is no private land ownership in China. Individuals and entities are permitted to acquire land use rights for specific purposes. We were granted land use rights for our facilities in Wenzhou, which extend until December 31, 2036. Following is a list of our properties, all of which we lease:

Property		Rental Term		Space		Ground Floor Area
C05, Binhai Ind. Park, Dalangqiao Village, Shacheng Town, Longwan District, Wenzhou, Zhejiang Province, China		Jan. 1, 2012 –  Dec. 31, 2036				17,537 m 2
No. 587, 15 th Road, 3 rd Av., Binhai Ind. Park Economic & Technology Development Zone Wenzhou, Zhejiang Province, China		May 11, 2016 –  May 10, 2017		12,580 m 2
Room 332 (self-assigned number), No. 1192, Third floor, Husong Highway, Songjiang District, Shanghai, China		Jul. 1, 2015 –  Jun. 30, 2016 (Renewal lease has been signed on May 13, 2016 and renewal rental term: July 1, 2016 –  June 30, 2017)				82 m 2
No. 425, Section 2, Liao Road, Hemei Township, Changhua County, Taiwan		Terminable on demand of landlord				105 m 2

Our property in No. 587 15 ^th Road, 3 ^rd Av., Binhai Ind. Park, Economic & Technology Development Zone, Wenzhou is our central office and manufacturing facility. At this location, we have a variety of heavy equipment required to produce our valves, pipefittings and other products, including computer numerical control (“CNC”) milling machines, office equipment and product testing equipment. Our offices in Shanghai and Taiwan are sales offices and contain typical office equipment. None of our properties are encumbered by debt, and we are not aware of any environmental concerns or limitations on the use of our properties for the purposes we currently use them or intend to use them in the future.

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Recent Capital Expenditures and Divestitures

The following table sets forth our principal capital expenditures and divestitures (including interests in other companies) for years ended December 31, 2015 and 2014:

		Years ended December 31,
		2015				2014				2013				2012
Investments in manufacturing equipment		$	239,917			$	1,092,754			$	715,785			$	208,142
Investments in factory construction			2,896,545				4,310,624				992,107				980,186
Investments in land use rights											—				—
Investments in electrical equipment							—				—				—
Investments in transportation equipment											—				—
Total		$	3,136,462			$	5,403,378			$	1,707,892			$	1,188,328

The source of funds for our expenditures in the years of 2015, 2014, 2013 and 2012 were primarily from operations. All expenditures were incurred in Wenzhou.

We currently anticipate capital expenditures of approximately USD $12 million in 2016 and 2017, including approximately USD $5 million for plant construction in Wenzhou, and approximately USD $7 million for purchasing equipment to manufacture production. We anticipate that the sources of funding for our 2016 and 2017 capital expenditures will be from our cash from operations or bank loan if needed.

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Management

Executive Officers and Directors

The following table provides information regarding our executive officers and directors as of June 10, 2016:

Name		Age		Position(s)
Anyuan Sun		39		Chief Executive Officer and Chairman of Board
Xiaoliang Xue		31		Chief Technical Officer
Steven Fu		44		Chief Financial Officer and Director
Xiao Jin		52		Financial Controller
Zuoqiao Sun Zhang		62		Director
Xuesong Liu		43		Independent Director
Hua Zhang		51		Independent Director
Xianpang Hu		48		Independent Director
Haiying Xiang		34		Independent Director

The business address of each of the directors and senior management is c/o Zhejiang Xibolun Automation Project Technology Co., Ltd., No. 587-A 15 ^th Road, 3 ^rd Av. Binhai Ind. Park, Economic & Technology Development Zone, Wenzhou, Zhejiang, China 325000.

Anyuan Sun .  Mr. Sun was our director from May 2012 to August 2013, and he was appointed as the Chairman of the Board of Directors in September 2015. Mr. Sun is also the Chief Executive Officer of the Company. He is a director of Xibolun Equipment since January 2016, a Supervisor of Zhejiang Xibolun since 2014 and a director of HK Xibolun since 2012. Mr. Sun is a valve engineer who co-founded our oldest subsidiary, Xibolun Equipment, in 2005. For more than ten years, Mr. Sun has also served as our Company’s chief engineer and president. Mr. Sun completed his continuing education in Zhejiang University in 2011 and he earned his MBA from City University of Macau in 2014.

Xiaoliang Xue .  Mr. Xue has been with the Company for over ten years. He is also a director of Xibolun Equipment since January 2016. Mr. Xue started his employment with Xibolun Equipment. During his time in the Company, he has helped our company to obtain more than 20 inventions and patents. In addition to serving as our Chief Technical Officer now, Mr. Xue used to serve in Xibolun Equipment as a technician, technical director, sales director and engineering director since 2005 to assist with and manage technology, sales and engineering related matters. During his tenure in the Company, Mr. Xue has been involved in the development and design of a variety of valves, such as sanitary ball valves, sanitary butterfly valves and sanitary diaphragm valves.

Steven Fu .  Mr. Fu is our Chief Financial Officer and director. Mr. Fu started his employment as CFO with Hebron Technology in January 2014. From 2009 through 2013, Mr. Fu was the Director of Asia Pacific, International Alliance Associates, with chief financial officer responsibilities. Mr. Fu earned his bachelor’s degree of Accountancy from Nanyang Technological University, Singapore, in 1996. Mr. Fu is also a Fellow Chartered Accountant of Singapore. He has 20 years of investment and financing experience in Asia, along with restructuring work experience. Mr. Fu is proficient in managing various aspects of the investment market across various industries. He has extensive experience in both the private equity market and the stock market.

Xiao Jin .  Mr. Jin has been our Financial Controller since 2012. Mr. Jin started his employment with Xibolun Equipment. He has overall responsibility for the Company’s accounting, financial management, internal control and financing services. From 2002 through April of 2012, Mr. Jin was the Chief Financial Officer of Zhejiang Juneng Lesi Pharmaceutical Co., Ltd., where he was responsible for the company’s overall accounting, financial management, internal control, financing, investment and administration, logistics management and outreach work. Mr. Jin received his Executive MBA from Shanghai Jiaotong University in 2011 and his bachelor’s degree majored in Economic Management from Open College in Party School of the Central Committee of C.P.C. in 2002 in China.

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Zuoqiao Sun Zhang .  Mr. Sun Zhang was a director of our Company since 2013 to September 2015, and he was appointed as the director of the Company again in January 15, 2016. He has been a Supervisor of Xibolun Automation since 2012. Since our founding, Mr. Sun Zhang has been our largest shareholder. Mr. Sun Zhang has been involved in business since 1985, when he established the first electrical appliance switch factory in Wenzhou, which employed more than 50 people. From 1996 to 2003, he was the factory manager of Si Jia Tong Yong Biological and Chemical Dairy Products in Wenzhou. From 2004 to 2012 he expanded his business geological coverage to Wuhan City and North China for our company. Over 30 years in business, Mr. Sun Zhang has become an expert in the valve manufacturing sector for pharmaceutical and medical companies. In addition to his activities with our company, Mr. Sun Zhang also invests privately. Mr. Sun Zhang graduated from Wenzhou Adult Vocational High School in 2011. We have selected Mr. Sun as a director because of his experience in the valve manufacturing business.

Xuesong Liu .  Since 2015, Dr. Xuesong Liu has been the General Manager and Chairman of the Board of Luoyang Zeda Huikang Pharmaceutical Technology Co., Ltd., and the Chairman of the Board of both Hangzhou Zeda Health Technology Co., Ltd. and Hangzhou Huikang Health Care Product Co., Ltd. Started from 2011, he has been the deputy director of the Institute of Modern Traditional Chinese Medicine of Zhejiang University, a doctoral supervisor in College of Pharmaceutical Science of Zhejiang University, General Manager and Chairman of the Board of Suzhou Zeda XingBang Pharmaceutical Technology Co., Ltd., Chairman of the Board of Suzhou Zheyuan Automation Engineering Technology Co., Ltd. and Supervisor of Hangzhou Enneng Technology Co., Ltd. From 2010, Dr. Liu started to be a director in Hangzhou Tianchang Railway Equipment Technology Co., Ltd. and a professor in College of Pharmaceutical Science of Zhejiang University. Since 2009, Dr. Liu has been the Chairman of the Board of Wenzhou Zhekang Pharmaceutical Equipment Technology Co., Ltd. He is also the director of the Chinese Medicine Pharmaceutical Engineering Research Laboratory in Zhejiang University since 2006. At Zhejiang University, his work focuses on process analytical technology, advanced manufacturing technology and quality control technology for pharmaceutical production. Over the past five years, he has undertaken approximately twenty-five scientific research projects in his fields of expertise, including ten projects at a national or province level, including projects for China’s National Natural Science Foundation and National Development and Reform Commission. Dr. Liu received a doctorate degree majored in Pharmaceutical Analysis in 2005, a master’s degree majored in Industry Automation in 1998, and a bachelor’s degree majored in Industry Electric Automation in 1995, all from Zhejiang University. We have selected Dr. Liu as a director because of his expertise in our industry.

Hua Zhang .  Since 2009, Mr. Zhang has been the General Manager of Hangzhou Topchoice Medical Investment Management Co., Ltd. He has also been a Manager of Hangzhou Fenghao Technology Co., Ltd. since 2003. From 2001 through 2009, Mr. Zhang was the Chief Executive Officer of Zhejiang Topchoice Investment Technology Co., Ltd. In these roles, Mr. Zhang has leveraged his expertise in the financial investment and medical equipment industries. From 1987 to 2001, Mr. Zhang was an associate professor and dean at Zhejiang Physical Education Technology Institute. Mr. Zhang obtained his bachelor degree in Education from Zhejiang University in 1987. We have chosen Mr. Zhang to serve as a director because of his expertise in finance.

Xianpang Hu .  Mr. Hu was appointed as a member of the Academic Committee of China Academy of Management Science since 2013. Since 2011, Mr. Hu has served as the Director of the Institute of Law of China Academy of Management Science and the Secretary General of Chen Guang Zhong Education Foundation. In addition, he has been a researcher in the Institute of Education Science of China Academy of Management Science since 2010. From 2009, Mr. Hu has also served as a lawyer in Beijing Hanheng Law Firm. Mr. Hu brings his experience as a lawyer who has published more than 20 papers on legal matters in China. In his capacity with the Institute of Law, Mr. Hu has organized and hosted international symposia on criminal law matters. From 2010 to 2014, Mr. Hu was the Vice President of the Zhejiang Chamber of Commerce in Beijing. From October 2010 to March 2011, Mr. Hu was the Deputy Director of the Second Prosecution Office of Shanxi Provincial People’s Procuratorate. Mr. Hu received his doctorate degree from the Central University of Nationalities in 2009 in China. After being a postdoctoral researcher in legal studies area in China University of Political Science and Law from 2009 to 2012, he also obtained a postdoctoral

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certificate in 2012. We have chosen Mr. Hu to serve as a director because of the perspective he brings to legal matters in China and his reputation as a well-respected scholar.

Haiying Xiang .  Ms. Xiang is a Senior Internal Controller with Siemens Limited China where she has worked since 2012. She works in the Controlling Department of Industry Sector and is tasked with Sarbanes-Oxley compliance and support, coordination of compliance with global risk management and internal control programs for eighteen operating companies and analysis and optimization of business processes. She has been a Supervisor of Shanghai Bobo Biological Technology Co., Ltd. since 2011. Previously she was an Internal Controller at Siemens Mechanical Drive (Tianjin) Co., Ltd. from 2008 through 2011, where she focused on compliance, internal controls and risk control. Before that, Ms. Xiang was a member of the Trading Department of Qingdao Far East Gem and Jewelry Co., Ltd. from 2006 through 2007. Ms. Xiang obtained her certified Internal Auditor qualification in 2012. She received her bachelor’s degree in Economics from Nankai University in 2004. She also received her master’s degree in Economics from Nankai University in 2006. We have chosen Ms. Xiang as a director because of her experience with financial matters and experience with public company compliance matters. We appointed Ms. Xiang as our audit committee financial expert.

Election of Officers

Our executive officers are elected by, and serve at the discretion of, our board of directors. Our Chief Executive Officer, Anyuan Sun, is the son of one of our directors, Mr. Zuoqiao Sun Zhang. Other than these relationships, there is no family relationship among any of our directors or executive officers.

Board of Directors and Board Committees

Our board of directors consists of seven (7) directors. We expect that all current directors will continue to serve after this offering. A majority of our Board of Directors (namely, Mr. Xuesong Liu, Mr. Hua Zhang, Mr. Xianpang Hu and Ms. Haiying Xiang) are independent, as such term is defined by The Nasdaq Capital Market.

The directors are divided into three classes, as nearly equal in number as the then total number of directors permits. Class I directors shall face re-election at our annual general meeting of shareholders in 2017 and every three years thereafter. Class II directors shall face re-election at our annual general meeting of shareholders in 2018 and every three years thereafter. Class III directors shall face re-election at our annual general meeting of shareholders in 2019 and every three years thereafter.

If the number of directors changes, any increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly as possible. Any additional directors of a class elected to fill a vacancy resulting from an increase in such class will hold office for a term that coincides with the remaining term of that class. Decreases in the number of directors will not shorten the term of any incumbent director. These board provisions could make it more difficult for third parties to gain control of our company by making it difficult to replace members of the Board of Directors.

A director may vote in respect of any contract or transaction in which he is interested, provided, however that the nature of the interest of any director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter. A general notice or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof of the nature of a director’s interest shall be sufficient disclosure and after such general notice it shall not be necessary to give special notice relating to any particular transaction. A director may be counted for a quorum upon a motion in respect of any contract or arrangement which he shall make with our company, or in which he is so interested and may vote on such motion.

Mr. Anyuan Sun currently holds both the positions of Chief Executive Officer and Chairman of the Board. These two positions have not been consolidated into one position; Mr. Sun simply holds both positions at this time. We do not have a lead independent director because of the foregoing reason and also because we believe our independent directors are encouraged to freely voice their opinions on a relatively small company board. We believe this leadership structure is appropriate because we are a relatively small company in the process of listing on a public exchange; as such we deem it appropriate to be able to benefit from the guidance of Mr. Sun as both our principal executive officer and Chair of the Board. Our Board of Directors

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plays a key role in our risk oversight. The Board of Directors makes all relevant Company decisions. As a smaller company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.

Board Committees

We have established three standing committees under the board: the audit committee, the compensation committee and the nominating committee. The audit committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company, including the appointment, compensation and oversight of the work of our independent auditors. The compensation committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans). The nominating committee of the board of directors is responsible for the assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers diversity of opinion and experience when nominating directors.

Haiying Xiang qualifies as an audit committee financial expert and she is the chair of the audit committee. Xianpang Hu is the chair of the compensation committee. Xuesong Liu is the chair of the nominating committee. Xuesong Liu and Xianpang Hu serve on all three committees, Hua Zhang serves in compensation committee and nomination committee, Haiying Xiang only serves in audit committee, and each is an independent director.

Duties of Directors

Under British Virgin Islands law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. See “Description of Share Capital — Differences in Corporate Law” for additional information on our directors’ fiduciary duties under British Virgin Islands law. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association. We have the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our board of directors include, among others:

Interested Transactions

A director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. A director must promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction we have entered into or are to enter into. A general notice or disclosure to the board or otherwise contained in the minutes of a meeting or a written resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.

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Remuneration and Borrowing

The directors may receive such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Our board of directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party.

Qualification

There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting. There are no other arrangements or understandings pursuant to which our directors are selected or nominated.

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proceedings referred to above, the director is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the director or officer in connection with the proceedings.

We may purchase and maintain insurance in relation to any of our directors or officers against any liability asserted against the directors or officers and incurred by the directors or officers in that capacity, whether or not we have or would have had the power to indemnify the directors or officers against the liability as provided in our amended and restated memorandum and articles of association.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers or persons controlling our company under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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Summary Compensation Table

The following table presents summary information regarding the total compensation awarded to, earned by, or paid to each of the named executive officers for services rendered to us for the year ended December 31, 2015 and 2014.

Name and Principal Position		Fiscal Year				Salary ($)				Bonus ($)				Stock Awards ($)				All Other Compensation ($)				Total ($)
Anyuan Sun Chief Executive Officer			2015				32,109				0				0				0				32,109
			2014				32,544				0				0				0				32,544
Steven Fu Chief Financial Officer			2015				100,000				0				0				0				100,000
			2014				100,000				0				0				0				100,000
Xiaoliang Xue Chief Technical Officer			2015				19,265				0				0				0				19,265
			2014				19,526				0				0				0				19,526

Employment Agreements

Our employment agreements with our officers generally provide for employment for a specific term (typically approximately two years at a time) and pay annual salary, health insurance, pension insurance, and paid vacation and family leave time. The agreement may be terminated by either party as permitted by law. In the event of a breach or termination of the agreement by our company, we may be obligated to pay the employee twice the ordinary statutory rate. In the event of a breach or termination causing loss to our company by the employee, the employee may be required to indemnify us against loss.

Anyuan Sun

We entered an employment agreement with our Chief Executive Officer, Mr. Sun, effective as of January 1, 2012 and running through December 31, 2014 that provided a salary of RMB16,667 per month. We have entered into a new employment agreement with Mr. Sun effective as of January 1, 2015 and running through December 31, 2016, with the salary of RMB16,667 per month. We also entered into an engagement letter between Hebron Technology and Mr. Sun on September 9, 2015 which indicated that Mr. Sun would serve as the Chief Executive Officer of Hebron Technology from January 1, 2015 to December 31, 2016 with no separate compensation in addition to the salary in the employment agreement mentioned above.

Steven Fu

We entered an employment agreement with our Chief Financial Officer, Mr. Steven Fu, on January 1, 2014 that was valid through December 31, 2014 at an annual salary of $100,000. On January 1, 2015, we entered an employment agreement with Mr. Fu effective as of January 1, 2015 which runs through December 31, 2015 at an annual salary of $100,000. On December 12, 2015, we entered an employment agreement with Mr. Fu effective as of January 1, 2016 which runs through December 31, 2016 at an annual salary of $100,000.

Xiaoliang Xue

We entered an employment agreement with our Chief Technical Officer, Mr. Xiaoliang Xue, effective as of January 1, 2012 which runs through December 31, 2014, with a salary of RMB 10,000 per month. On January 1, 2015, we entered an employment agreement with Mr. Xue effective as of January 1, 2015 which runs through December 31, 2016 at the salary of RMB 10,000 per month. We also entered into an engagement letter between Hebron Technology and Mr. Xue on April 27, 2016 which indicated that Mr. Xue would serve as the Chief Technical Officer of Hebron Technology from January 1, 2015 to December 31, 2016 with no separate compensation in addition to the salary in the employment agreement mentioned above.

Xiao Jin

We entered an employment agreement with our Financial Controller, Mr. Xiao Jin, effective as of January 16, 2014 which runs through January 15, 2017, with a salary of RMB 7,500 per month on January 16, 2014.

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Director Compensation — Fiscal 2015, 2014 and 2013

During fiscal 2015, 2014 and 2013, no members of our Board of Directors received compensation in their capacity as directors.

Director Compensation — Non-Employee Directors

Historically, we have not paid our non-employee directors. Upon completion of this offering, we plan to pay our independent directors an annual cash retainer of $10,000. We will also reimburse all directors for any out-of-pocket expenses incurred by them in connection with their services provided in such capacity. In addition, we may provide incentive grants of stock, options or other securities convertible into or exchangeable for, our securities. For the years ended December 31, 2015, 2014 and 2013, we did not pay any non-employee directors because we did not have any non-employee directors.

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(approximately $344,615.38) to the loans agreements, trade financing agreements, letters of guarantee, funding agreements and other credit agreements entered by and between Xibolun Equipment and Bank of China Longwan Branch during October 16, 2014 and January 23, 2016.

Principal Shareholders

The following table sets forth information with respect to beneficial ownership of our common shares as of June 10, 2016 by:

•

Each person who is known by us to beneficially own more than 5% of our outstanding common shares;

•

Each of our director, director nominees and named executive officers; and

•

All directors and named executive officers as a group.

The number and percentage of common shares beneficially owned before the offering are based on 12,000,000 common shares outstanding as of June 10, 2016. We have effected a simultaneous 1,000 for 1 stock split and issuance of 15,000,000 common shares and subsequent repurchase of 4,000,000 of our common shares, which resulted in our company having 50,000,000 authorized common shares, of $0.001 par value per share, of which 12,000,000 are issued and outstanding prior to completion of this offering. Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. Beneficial owners have same voting rights as holders of record. In computing the number of common shares beneficially owned by a person listed below and the percentage ownership of such person, common shares underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of June 10, 2016 are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise indicated in the footnotes to this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for all common shares shown as beneficially owned by them. Unless otherwise indicated in the footnotes, the address for each principal shareholder is in the care of our Company at c/o Zhejiang Xibolun Automation Project Technology Co., Ltd., No. 587-A 15 ^th Road, 3 ^rd Av. Binhai Ind. Park, Economic & Technology Development Zone, Wenzhou, Zhejiang, China 325000. As of the date of the Prospectus, we have eleven (11) shareholders of record. Currently there is no record holder in the United States.

Named Executive Officers and Directors

Amount of Beneficial Ownership (1)

Pre-Offering Percentage Ownership

Post- Minimum Offering Percentage Ownership

Post- Maximum Offering Percentage Ownership

Directors and Named Executive Officers:

Anyuan Sun, Chief Executive Officer and Chairman (2)

9,938,400

82.82

%

68.54

%

58.46

%

Xiaoliang Xue, Chief Technical Officer

0

*

*

*

Steven Fu, Chief Financial Officer and Director

0

*

*

*

Xiao Jin, Financial Controller

0

*

*

*

Zuoqiao Sun Zhang, Director (3)

0

*

*

*

Xuesong Liu, Director

0

*

*

*

Hua Zhang, Director

0

*

*

*

Haiying Xiang, Director

0

*

*

*

Xianpang Hu, Director

0

*

*

*

All directors and executive officers as a group (9 persons)

9,938,400

82.82

%

68.54

58.46

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Named Executive Officers and Directors		Amount of Beneficial Ownership (1)				Pre-Offering Percentage Ownership				Post- Minimum Offering Percentage Ownership				Post- Maximum Offering Percentage Ownership
5% Beneficial Owners:
Wise Metro Development Co., Ltd. (4)			1,800,000				15	%			12.41	%			10.59	%
Yung Kong Chin (5)			1,200,000				10	%			8.28	%			7.06	%
Vast Express Development Co. Ltd. (6)			1,080,000				9	%			7.45	%			6.35	%
Able State International Industrial Co., Ltd. (7)			1,080,000				9	%			7.45	%			6.35	%

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The following are summaries of the material provisions of our amended and restated memorandum and articles of association that will be in force at the time of the closing of this offering and the BVI Business Companies Act, insofar as they relate to the material terms of our common shares. The forms of our amended and restated memorandum and articles of association are filed as exhibits to the registration statement of which this prospectus is a part. As a convenience to potential investors, we provide the below description of BVI law and our memorandum and articles of association together with a comparison to similar features under Delaware law.

Placement Agent Warrants

Upon completion of this offering, we will issue warrants to purchase up to 250,000 common shares to our Placement Agent (such warrants, the “Placement Agent Warrants”) assuming maximum placement. The Placement Agent Warrants are described in the section of this prospectus entitled “Placement and Plan of Distribution.”

Common Shares

General

All of our issued common shares are fully paid and non-assessable. Certificates representing the common shares are issued in registered form. Our shareholders who are non-residents of the British Virgin Islands may freely hold and vote their common shares.

At the completion of this offering, there will be between 14,500,000 (assuming the sale of 2,500,000) and 17,000,000 (assuming the sale of 5,000,000) common shares issued and outstanding. The total number of shares outstanding excludes any shares underlying Placement Agent Warrants we issue to our Placement Agent in this offering.

Listing

We have applied to list our common shares on The NASDAQ Capital Market under the symbol “HEBT.” We cannot guarantee that we will be successful in listing the common shares; however, we will not complete this offering unless we are so listed.

Transfer Agent and Registrar

The transfer agent and registrar for the common shares is Island Capital Management, LLC, 15500 Roosevelt Boulevard, Suite 301, Clearwater, FL 33760. Island Capital Management, LLC, is a wholly owned subsidiary of a parent company that also wholly owns our placement agent Spartan Securities Group, Ltd.

Distributions

The holders of our common shares are entitled to such dividends as may be declared by our board of directors subject to the BVI Business Companies Act.

Voting rights

Any action required or permitted to be taken by the shareholders must be effected at a duly called annual or special meeting of the shareholders entitled to vote on such action and may be effected by a resolution in writing. At each general meeting, each shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative) will have one vote for each common share which such shareholder holds.

Election of directors

Delaware law permits cumulative voting for the election of directors only if expressly authorized in the certificate of incorporation. The laws of the British Virgin Islands, however, do not specifically prohibit or restrict the creation of cumulative voting rights for the election of our directors. Cumulative voting is not a concept that is accepted as a common practice in the British Virgin Islands, and we have made no provisions in our memorandum and articles of association to allow cumulative voting for elections of directors.

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Meetings

We must provide written notice of all meetings of shareholders, stating the time, place and, in the case of a special meeting of shareholders, the purpose or purposes thereof, at least 7 days before the date of the proposed meeting to those persons whose names appear as shareholders in the register of members on the date of the notice and are entitled to vote at the meeting. Our board of directors shall call a special meeting upon the written request of shareholders holding at least 30% of our outstanding voting shares. In addition, our board of directors may call a special meeting of shareholders on its own motion. A meeting of shareholders held in contravention of the requirement to give notice is valid if shareholders holding at least 90 percent of the total voting rights on all the matters to be considered at the meeting have waived notice of the meeting and, for this purpose, the presence of a shareholder at the meeting shall constitute waiver in relation to all the shares which that shareholder holds.

The management of us is entrusted to our board of directors, who will make corporate decisions by board resolution. Our directors are free to meet at such times and in such manner and places within or outside the BVI as the directors determine to be necessary or desirable. A 3 days’ notice of a meeting of directors must be given. At any meeting of directors, a quorum will be present if half of the total number of directors is present, unless there are only 2 directors in which case the quorum is 2. If a quorum is not present, the meeting will be dissolved. If a quorum is present, votes of half of present directors are required to pass a resolution of directors.

As few as one third of our outstanding shares may be sufficient to hold a shareholder meeting. Although our memorandum and articles of association require that holders of at least one-third of our outstanding shares appear in person or by proxy to hold a shareholder meeting, to the extent we fail to have quorum on this initial meeting date, we can reschedule the meeting for the next business day or later, at which second meeting the holders of one third or more of our outstanding shares will constitute a quorum. As mentioned, at the initial date set for any meeting of shareholders, a quorum will be present if there are shareholders present in person or by proxy representing not less than one-third of the issued common shares entitled to vote on the resolutions to be considered at the meeting. A quorum may comprise a single shareholder or proxy and then such person may pass a resolution of shareholders and a certificate signed by such person accompanied where such person be a proxy by a copy of the proxy instrument shall constitute a valid resolution of shareholder. If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of shareholders, shall be dissolved; in any other case it shall stand adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the shares or each class or series of shares entitle to vote on the matter to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved. No business may be transacted at any general meeting unless a quorum is present at the commencement of business. If present, the chair of our board of directors shall be the chair presiding at any meeting of the shareholders.

A corporation that is a shareholder shall be deemed for the purpose of our memorandum and articles of association to be present in person if represented by its duly authorized representative. This duly authorized representative shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were our individual shareholder.

Protection of minority shareholders

We would normally expect British Virgin Islands courts to follow English case law precedents, which permit a minority shareholder to commence a representative action, or derivative actions in our name, to challenge (1) an act which is ultra vires or illegal, (2) an act which constitutes a fraud against the minority by parties in control of us, (3) the act complained of constitutes an infringement of individual rights of shareholders, such as the right to vote and pre-emptive rights and (4) an irregularity in the passing of a resolution which requires a special or extraordinary majority of the shareholders.

Pre-emptive rights

There are no pre-emptive rights applicable to the issue by us of new common shares under either British Virgin Islands law or our memorandum and articles of association.

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Transfer of common shares

Subject to the restrictions in our memorandum and articles of association and applicable securities laws, any of our shareholders may transfer all or any of his or her common shares by written instrument of transfer signed by the transferor and containing the name and address of the transferee. Our board of directors may resolve by resolution to refuse or delay the registration of the transfer of any common share. If our board of directors resolves to refuse or delay any transfer, it shall specify the reasons for such refusal in the resolution. Our directors may not resolve or refuse or delay the transfer of a common share unless: (a) the person transferring the shares has failed to pay any amount due in respect of any of those shares; or (b) such refusal or delay is deemed necessary or advisable in our view or that of our legal counsel in order to avoid violation of, or in order to ensure compliance with, any applicable, corporate, securities and other laws and regulations.

Liquidation

If we are wound up and the assets available for distribution among our shareholders are more than sufficient to repay all amounts paid to us on account of the issue of shares immediately prior to the winding up, the excess shall be distributable pari passu among those shareholders in proportion to the amount paid up immediately prior to the winding up on the shares held by them, respectively. If we are wound up and the assets available for distribution among the shareholders as such are insufficient to repay the whole of the amounts paid to us on account of the issue of shares, those assets shall be distributed so that, to the greatest extent possible, the losses shall be borne by the shareholders in proportion to the amounts paid up immediately prior to the winding up on the shares held by them, respectively. If we are wound up, the liquidator appointed by us may, in accordance with the BVI Business Companies Act, divide among our shareholders in specie or kind the whole or any part of our assets (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as the liquidator deems fair upon any property to be divided and may determine how such division shall be carried out as between the shareholders or different classes of shareholders.

Calls on common shares and forfeiture of common shares

Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their common shares in a notice served to such shareholders at least 14 days prior to the specified time of payment. The common shares that have been called upon and remain unpaid are subject to forfeiture.

Redemption of common shares

Subject to the provisions of the BVI Business Companies Act, we may issue shares on terms that are subject to redemption, at our option or at the option of the holders, on such terms and in such manner as may be determined by our memorandum and articles of association and subject to any applicable requirements imposed from time to time by, the BVI Business Companies Act, the SEC, The NASDAQ Capital Market, or by any recognized stock exchange on which our securities are listed.

Modifications of rights

All or any of the special rights attached to any class of shares may, subject to the provisions of the BVI Business Companies Act, be amended only pursuant to a resolution passed at a meeting by a majority of the votes cast by those entitled to vote at a meeting of the holders of the shares of that class.

Changes in the number of shares we are authorized to issue and those in issue

We may from time to time by resolution of our board of directors: