10-K: Zhanling International Faces Going Concern Doubts Amidst Losses

Zhanling International Limited reported no revenue and increased net losses for fiscal year 2025, raising substantial doubt about its ability to continue as a going concern.

Summary

• Zhanling International Limited is a development-stage company incorporated on July 16, 2009, with no revenues generated from operations since inception.
• The company reported a net loss of $39,857 for the fiscal year ended May 31, 2025, an increase from $30,865 in the prior fiscal year.
• Cash used in operating activities was $35,933 for fiscal year 2025, compared to $39,113 in fiscal year 2024.
• As of May 31, 2025, the company had a working capital deficiency of $8,956, a shareholders deficit of $48,231, and an accumulated deficit of $430,067.
• The company has no cash on hand as of May 31, 2025, and relies on advances from related parties to meet obligations.
• On June 19, 2025, the company issued 3,367,800 shares of common stock at $0.01 per share to settle $33,678 in outstanding debts, including $32,985 to its CEO, YongQing Liu.
• The company changed its fiscal year end from December 31 to May 31, effective June 5, 2024.
• A 1-for-50 reverse stock split was approved effective March 16, 2022, resulting in 73,200 shares of common stock issued and outstanding.

Sentiment

Score: 2

Explanation: The company is a development-stage entity with no revenue since inception, increasing net losses, and a substantial shareholders deficit. It faces significant going concern doubts and material weaknesses in internal controls. Its reliance on related party funding and the termination of a previous acquisition attempt highlight operational challenges and uncertainty.

Positives

• Cash used in operating activities decreased slightly from $39,113 in fiscal year 2024 to $35,933 in fiscal year 2025.
• Management has plans to seek additional capital through private placement or further loans from related parties to address going concern issues.

Negatives

• The company has generated no revenue since its inception in July 2009.
• Net loss increased to $39,857 for the fiscal year ended May 31, 2025, from $30,865 in the prior year.
• Working capital deficiency worsened to $8,956 as of May 31, 2025, from $8,374 in the prior year.
• Shareholders deficit significantly increased to $48,231 as of May 31, 2025, from $8,374 in the prior year.
• Accumulated deficit grew to $430,067 as of May 31, 2025.
• The company has no cash on hand and does not have sufficient cash to fund ongoing operational expenses beyond 12 months.
• Identified material weaknesses in internal control over financial reporting, including lack of an Audit Committee, no written policies and procedures, and inadequate information technology controls.
• Significant dependence on related party funding, with $38,285 owed to the CEO as of May 31, 2025.
• The company issued shares to its CEO to settle debt, indicating reliance on related party financing.

Risks

• Trading in securities may be prohibited under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB cannot inspect the auditor for three (or two, if amended) consecutive years, potentially leading to delisting.
• China's political climate, economic conditions, and changes in government policies, laws, and regulations (e.g., cybersecurity, anti-monopoly) could materially adversely affect business, financial condition, and results of operations.
• Governmental control of currency conversion in China may restrict the ability of PRC subsidiaries to remit foreign currency for dividends or other payments.
• Failure to comply with Individual Foreign Exchange Rules by PRC resident stockholders may subject them to fines or other liabilities and affect the company's ability to conduct foreign exchange activities.
• The company may be classified as a Resident Enterprise of China under the Enterprise Income Tax Law, resulting in a 25% tax rate on worldwide income and a 10% withholding tax on dividends to non-PRC stockholders.
• The company has not identified a target business and has a limited operating history and resources, making it difficult for investors to evaluate merits or risks.
• Future acquisitions could be difficult to integrate, disrupt business, dilute stockholder value, and strain resources, with potential for undiscovered liabilities or adverse operating issues.
• Probable lack of business diversification, as the company is likely to effect only a single business combination, making its success dependent on that single business.
• Limited ability to evaluate the target business management, and the current sole officer/director may not devote full efforts post-acquisition.
• Dependence on the continued services of current management, and the sole officer may allocate time to other business activities, causing conflicts of interest.
• Inability to obtain additional financing, if and when required, to complete a business combination or fund the operations and growth of the target business.
• Intense competition from other entities for business combination opportunities, with many competitors possessing greater technical, human, and financial resources.
• Financing requirements to fund operations associated with reporting obligations under the Exchange Act, dependent on management's willingness to fund costs.

Future Outlook

The company intends to use proceeds from financing and future earnings for the acquisition of operating entities in the PRC. It does not expect to pay any cash dividends for the foreseeable future. The ability of future PRC subsidiaries to distribute dividends will depend on their distributable earnings and compliance with PRC regulations, including setting aside 10% of after-tax profits to a statutory reserve until it reaches 50% of registered capital.

Management Comments

• We are now in the process of evaluation any potential business opportunities though we cannot assure that it will be able to commence profitable operations.
• Management has plans to seek additional capital through a private placement of its common stock or obtain further loans from related parties as needed.
• We believe that we will have available sufficient financial resources available from its management to continue to pay accounting and other professional fees and other miscellaneous expenses that may be required until the Company commences business operations following a business combination.
• The Board is of the opinion that such committees [Audit, Compensation, Nominating] are not necessary since the Company is an early exploration stage company and has only two directors, and to date, such directors have been performing the functions of such committees.

Industry Context

The company operates as a development-stage entity with a stated objective to acquire companies in the large consumption platform sector in China. This strategy places it within the broader trend of foreign entities seeking to capitalize on China's consumer market, but also exposes it to significant regulatory and geopolitical risks specific to China, including increased oversight on foreign listings, data security, and anti-monopoly enforcement. The lack of an identified target business and limited operating history means it is not yet directly competing within a specific industry segment but is positioned to enter one through acquisition.

Comparison to Industry Standards

• The company's status as a development-stage entity with no revenue and recurring losses is not comparable to established industry standards for operating companies.
• Its reliance on related party funding and the absence of an independent audit committee or formal internal controls fall significantly below corporate governance benchmarks for publicly traded companies, particularly those seeking to list on major exchanges like NASDAQ.
• The identified material weaknesses in internal control over financial reporting (lack of audit committee, written policies, IT controls) indicate a substantial deviation from best practices and regulatory expectations for financial reporting integrity.
• The company's auditor, Enrome LLP, is PCAOB registered and not currently subject to HFCAA determinations, which is a positive compared to firms headquartered in mainland China or Hong Kong, but the underlying risk of PRC regulatory intervention remains.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently involved in any legal proceedings and is not aware of any pending or potential legal actions.

Related Party Transactions

• As of May 31, 2025, the company owed $38,285 to Mr. YongQing Liu, the Chief Executive Officer, President, and Chairman of the Board of Directors, for funds advanced. These amounts are unsecured, bear no interest, and are payable on demand.
• On June 19, 2025, 3,298,500 shares of common stock were issued to the Chief Executive Officer (a related party) to settle $32,985 in amounts due.

Stakeholder Impact

• Shareholders face significant dilution risk from future equity financings and the recent share issuance to creditors. The going concern doubt and lack of revenue pose substantial risk to investment value. Lack of dividends is explicitly stated.
• Creditors, including the CEO, had debts settled through the issuance of common stock, indicating a conversion of debt to equity.
• Management/Employees: The company is highly dependent on its current sole officer and director, YongQing Liu, who also provides financing. The lack of full-time employees prior to a business combination suggests limited operational infrastructure.
• Potential Acquisition Targets: The company's limited financial resources and reliance on common stock for acquisitions may limit its competitiveness in securing attractive target businesses.

Next Steps

• Evaluate potential business opportunities.
• Seek additional capital through private placement of common stock or loans from related parties.
• Implement remediation initiatives for internal control weaknesses, including creating a position to segregate duties, increasing personnel resources and technical accounting expertise, preparing written policies and procedures for accounting and financial reporting, and adding staff for disclosure compliance.
• Acquire operating entities in the PRC using financing proceeds and future earnings.

Key Dates

Recommendation

The company is a development-stage entity with no revenue since inception, consistently increasing net losses, and a significant shareholders deficit, raising substantial doubt about its ability to continue as a going concern. It relies heavily on related party funding, as evidenced by the CEO advancing funds and converting debt to equity. Furthermore, the company has identified material weaknesses in its internal controls, including the absence of an independent audit committee and formal policies, which are critical for financial integrity and investor confidence. The ongoing search for a target business since 2009 without success, coupled with the termination of a previous acquisition attempt, indicates a lack of clear operational progress. These factors collectively point to extreme financial instability, high operational risk, and poor corporate governance, making it a highly speculative and risky investment.

Keywords

Development Stage Company, SEC 10-K, Financial Reporting, Going Concern, China Risks, Corporate Governance, Management Changes, Capital Raise, Reverse Stock Split, Shareholder Deficit, Net Loss, Audit Weaknesses, Related Party Transactions, Acquisition Strategy