UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 20-F ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report_________________ For the transition period from to Commission file number 001-37829 HEBRON TECHNOLOGY CO., LTD.(Exact name of Registrant as specified in its charter) British Virgin Islands (Jurisdiction of incorporation or organization) No. 936, Jinhai 2rd Road, Konggang New AreaLongwan DistrictWenzhou City, Zhejiang ProvincePeople’s Republic of China (Address of principal executive offices) Steven Fu, Chief Financial Officer+86-577-8689-5678– telephonediqiuren139@139.comNo. 936, Jinhai 2nd Road, Konggang New AreaLongwan District(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Symbol Name of each exchange on which registeredClass A common shares, par value $0.001 per share HEBT Nasdaq Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:8,491,177 Class A Common Shares and 7,778,400 Class B Common Shares Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934. ☐ Yes ☒ No Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See thedefinitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☐Accelerated filer ☐Non-accelerated filer ☒Emerging growth company ☒ If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected notto use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of theExchange Act: ☐ † The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its AccountingStandards Codification after April 5, 2012. Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☒International Financial Reporting Standards as issued by the InternationalAccounting Standards Board ☐Other ☐ If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). ☐ Yes ☒ No (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No Table of Contents Page PART I Item 1.Identity of Directors, Senior Management and Advisers1Item 2.Offer Statistics and Expected Timetable1Item 3.Key Information1Item 4.Information on the Company22Item 4A.Unresolved Staff Comments49Item 5.Operating and Financial Review and Prospects50Item 6.Directors, Senior Management and Employees65Item 7.Major Shareholders and Related Party Transactions72Item 8.Financial Information74Item 9.The Offer and Listing75Item 10.Additional Information76Item 11.Quantitative and Qualitative Disclosures About Market Risk84Item 12.Description of Securities Other than Equity Securities84 PART II Item 13.Defaults, Dividend Arrearages and Delinquencies85Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds85Item 15.Controls and Procedures86Item 15T.Controls and Procedures86Item 16.[Reserved]87Item 16A.Audit Committee Financial Expert87Item 16B.Code of Ethics87Item 16C.Principal Accountant Fees and Services87Item 16D.Exemptions from the Listing Standards for Audit Committees88Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers88Item 16F.Change in Registrant’s Certifying Accountant88Item 16G.Corporate Governance88Item 16H.Mine Safety Disclosure88 PART III Item 17.Financial Statements89Item 18.Financial Statements89Item 19.Exhibits89 i Conventions Used in this Annual Report Except where the context otherwise requires and for purposes of this annual report on Form 20-F only, “we,” “us,” “our company,” “Company,” “our”and “Hebron” 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 ownedsubsidiary of Hebron Technology; ●Zhejiang Xibolun Automation Project Technology Co., Ltd. (“Xibolun Automation”) (also referred to as orZhejiang Xibolun Automatically Control System Engineering Technology Co., Ltd. in China), a PRC company, which is a wholly-owned subsidiaryof HK Xibolun; and ●Wenzhou Xibolun Fluid Equipment Co., Limited (“Xibolun Equipment”) (also referred to as or Wenzhou XibolunFluid Equipments Co., Ltd. in China), a PRC company, which is a wholly-owned subsidiary of HK Xibolun, which holds 70% of Xibolun Equipmentthrough 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 annual report contains translations of certain RMB amounts into U.S. dollar amounts at a specified rate solely for the convenience of the reader. Theexchange rates in effect as of December 31, 2018 and 2017 were US $1.00 for RMB 6.8755 and RMB 6.5074, respectively. The average exchange rates forthe years ended December 31, 2018, 2017 and 2016 were US $1.00 for RMB 6.6090, RMB 6. 7578 and RMB 6.6441, respectively. We use period-endexchange rates for assets and liabilities and average exchange rates for revenue and expenses. Capital accounts are translated at their historical exchange rateswhen the capital transactions occurred. Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listedtherein are due to rounding. For the sake of clarity, this annual report follows the English naming convention of first name followed by last name, regardless of whether anindividual’s name is Chinese or English. For example, the name of the Chief Executive Officer will be presented as “Anyuan Sun,” even though, in Chinese,Mr. Sun’s name is presented as “Sun Anyuan.” We obtained the industry and market data used in this annual report or any document incorporated by reference from industry publications, research,surveys and studies conducted by third parties and our own internal estimates based on our management’s knowledge and experience in the markets in whichwe operate. We did not, directly or indirectly, sponsor or participate in the publication of such materials, and these materials are not incorporated in thisannual report other than to the extent specifically cited in this annual report. We have sought to provide current information in this annual report and believethat the statistics provided in this annual report remain up-to-date and reliable, and these materials are not incorporated in this annual report other than to theextent specifically cited in this annual report. ii SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS Certain matters discussed in this report may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended (the “SecuritiesAct”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and involve known and unknown risks, uncertainties and other factorsthat may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed orimplied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions areintended to identify such forward-looking statements. Our actual results may differ materially from the results anticipated in these forward-looking statementsdue to a variety of factors, including, without limitation, those discussed under “Item 3—Key Information—Risk Factors,” “Item 4—Information on theCompany,” “Item 5—Operating and Financial Review and Prospects,” and elsewhere in this report, as well as factors which may be identified from time totime in our other filings with the Securities and Exchange Commission (the “SEC”) or in the documents where such forward-looking statements appear. Allwritten or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. The forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is signed. Except as required bylaw, we assume no responsibility for updating any forward-looking statements. iii PART I Item 1.Identity of Directors, Senior Management and Advisers Not applicable for annual reports on Form 20-F. Item 2.Offer Statistics and Expected Timetable Not applicable for annual reports on Form 20-F. Item 3.Key Information A.Selected Financial Data The following table presents the selected consolidated financial information for our company. The selected consolidated statements of comprehensiveincome data for the three years ended December 31, 2018, 2017 and 2016, and the selected consolidated balance sheets data as of December 31, 2018, 2017and 2016 have been derived from our audited consolidated financial statements. Our historical results do not necessarily indicate results expected for anyfuture periods. The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our auditedconsolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” below. Our audited consolidated financialstatements are prepared and presented in accordance with US GAAP. (All amounts in U.S. dollars, except Shares outstanding) Statement of operations data: Year ended December 31, 2018 2017 2016 Revenue $25,290,060 $29,200,445 $27,097,836 Cost of revenue 17,712,108 18,756,284 16,636,258 Gross profit 7,577,952 10,444,161 10,461,578 General and administrative 3,298,188 3,683,594 932,911 Selling expenses 1,337,321 2,187,253 1,742,147 Bad debt expenses (recovery) 7,913,442 187,715 (227,873)Research and development expenses 358,411 508,282 33,847 (Loss) income from operations (5,329,410) 3,877,317 7,980,546 Other income, net (426,585) 377,174 6,431 Interest expense (208,306) (56,953) (49,625)Income from investment 168,534 - - (Loss) income before income taxes (5,795,767) 4,197,538 7,937,352 Income taxes provision (recovery) (651,052) (2,938,849) 2,002,467 Net income (loss) (5,144,715) 7,136,387 5,934,885 Foreign currency translation (loss) 1,755,528 2,249,081 (1,401,124)Comprehensive income $(6,900,243) $9,385,468 $4,533,761 Balance sheet data: As December 31, 2018 2017 2016 Current assets $38,421,753 $38,580,847 $34,579,071 Total assets $56,653,676 $54,548,682 $47,079,357 Current liabilities $19,683,974 $13,189,549 $15,399,512 Total liabilities $19,896,325 $14,016,144 $15,932,287 Total shareholders’ equity $36,757,351 $40,532,538 $31,147,070 Shares outstanding 16,269,577 14,695,347 14,695,347 1 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 aredenominated 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 thetransactions. Exchange gains and losses resulting from transactions denominated in a currency other than the RMB are included in statements of operationsas foreign currency transaction gains or losses. Our financial statements have been translated into U.S. dollars in accordance with ASC 830, “ForeignCurrency 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 andliabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the capitaltransactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss)in shareholders’ equity. 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 ofRMB into foreign exchange and through restrictions on foreign trade. We do not currently engage in currency hedging transactions. 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 Pricesfor U.S. Dollar per RMB Period Period-End Average High Low 2009 6.8272 6.8310 6.8483 6.8130 2010 6.6018 6.7696 6.8344 6.6018 2011 6.3585 6.4640 6.6357 6.3318 2012 6.3086 6.3116 6.3862 6.2289 2013 6.0220 6.0720 6.2195 5.9778 2014 6.1411 6.1463 6.1758 6.0924 2015 6.4917 6.2288 6.4917 6.0933 2016 6.9448 6.6441 7.0672 6.4494 2017 6.5063 6.7569 6.9575 6.4773 2018 6.6090 6.8755 6.9737 6,2649 2019 (through May 10, 2019) 6.8193 6.7419 6.8772 6.6868 January 6.7035 6.7917 6.8772 6.7035 February 6.6876 6.7401 6.7790 6.6868 March 6.7119 6.7129 6.7342 6.6912 April 6.7357 6.7157 6.7380 6.6931 May (through May 10, 2019) 6.8193 6.7616 6.8193 6.7346 B.Capitalization and Indebtedness Not applicable for annual reports on Form 20-F. C.Reasons for the Offer and Use of Proceeds Not applicable for annual reports on Form 20-F. 2 D.Risk Factors Risks Related to Our Business and Industry We may incur liability for unpaid taxes, including penalties. In the normal course of its business, our Company, including in particular Xibolun Automation and Xibolun Equipment, may be subject to challengesfrom various PRC taxing authorities regarding the amounts of taxes due. Although the Company’s management believes the Company has paid all or accruedfor all taxes owed by the Company, PRC taxing authorities may take the position that the Company owes more taxes than it has paid based on transactionsconducted by HK Xibolun, which may be deemed a resident enterprise, thereby resulting in taxable liability for us. HK Xibolun’s purchases and sales of fluidequipment control systems offshore in 2013 could, if so challenged, result in a tax liability for our company. (See “Risk Factors — Under the EnterpriseIncome Tax Law, we may be classified as a ‘Resident Enterprise’ of China. Such classification will likely result in unfavorable tax consequences to us and ournon-PRC stockholders.”) The Company recorded a tax liability of $9,085,746 and $7,067,593 as of December 31, 2018 and 2017, respectively, for the possible underpayment ofincome and business taxes. It is possible that the tax liability of the Company for past taxes may be higher than those amounts, if the PRC authoritiesdetermine that we are subject to penalties. Although we have had unofficial discussions with the local tax authority and believe that it is possible that theCompany will reach an agreement with the local tax authority resulting in a settlement of tax liability lower than the amount currently accrued before the endof fiscal 2019, we have no guarantee that we will be able to negotiate such a reduction on the tax liability and we cannot be certain as to how much penaltieswould be assessed, if any. To the extent our Company is able to negotiate such amounts, national-level taxing authorities may take the position thatlocalities are without power to reduce such liabilities, and such PRC taxing authorities may attempt to collect unpaid taxes and penalties in amounts greatlyexceeding management’s estimates. Our industry is competitive in China. The market for installation service in the pharmaceutical industry is fragmented and relatively competitive. Many of our clients require bidding processbefore choosing installation service providers. We compete on the basis of price and service quality. The domestic market for valve products is fragmented and highly competitive. We estimate that there are three relatively large companies with which wecompete and more than one hundred smaller companies with regional presences. The number of these companies varies from time to time. Some of our valveproducts compete on the basis of price and are sold in fragmented markets with low barriers to entry, allowing less expensive domestic producers to gainmarket share and reduce our margins. To the extent these competitors are able to grow and consolidate, they may be able to take advantage of economies ofscale, which could put further pressure on our margins. Our revenue will decrease if the industries in which our customers operate experience a protracted slowdown. Our services mainly serve as key components in projects and machines operated by our customers which are mostly in the pharmaceutical industry.Therefore, we are subject to the general changes in economic conditions affecting this industry segment of the economy. If the pharmaceutical industry inwhich our customers operate do not grow or if there is a contraction in those industries, demand for our services will decrease. Demand for our services istypically affected by a number of overarching economic factors, including, but not limited to, interest rates, the availability and magnitude of private andgovernmental investment in infrastructure projects and the health of the overall global economy. Although pharmaceutical industry is more resilient in thewake 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 slowdownin industries on which we rely for our sales, demand for our services and our revenue will likewise decrease. 3 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 inthe production of valves is mainly composed of casting steel blank parts, forging steel blank parts and steel. Steel costs account for approximately 30% of ourtotal manufacturing costs. The fuel costs in our manufacturing operations, particularly heavy oil and electricity, account for approximately 2% of totalmanufacturing costs. The availability of raw materials and energy resources may decline and their prices may fluctuate greatly. If our suppliers are unable orunwilling 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 verysmall 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 eventour 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 rawmaterials 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 haverelied on favorable exchange rates between China and other countries to drive revenues from products sold abroad. Over the last several years, China’scurrency has appreciated against most foreign currencies, causing our products have become more expensive in other countries. To the extent the ChineseRMB continues to appreciate, our products could become more expensive and, as a result, less attractive to potential customers in other countries. The RMBdepreciated from 2014 through the end of 2016, appreciated against the U.S. dollar in 2017, and has depreciated since the beginning of 2018. See “ExchangeRate Information.” Outstanding bank loans may reduce our available funds. We have approximately $1.7 million and $0.9 million in bank loans outstanding as of December 31, 2018 and December 31, 2017, respectively. Theloans are held at multiple banks, and all of the debt is guaranteed by members of our management, their immediate family members and unrelated thirdparties. In particular, our Chief Executive Officer and his brother have guaranteed this debt with recourse to their respective residences, and unrelated thirdparties 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 allamounts 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 suchamounts, 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 guaranteeeach 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. 4 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 wasresponsible for conducting the research and development work of intelligent process control valve on behalf of us, and we were obligated to pay ZhejiangUniversity a total of RMB 1 million (approximately $0.15 million) in several installments. We made payments to Zhejiang University in accordance with thespecific 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 ofDecember 31, 2018. 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, whichconsists of RMB 0.07 million per year for 5 years starting from May 31, 2012. As of December 31, 2018, RMB 0.15 million remains outstanding because wehave 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 usany 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 theterms in the Research and Collaboration Agreement in the future once we start selling the products. We do not intend to make payment until the conditionsin 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 alawsuit, whether or not successful, may cost us considerable time and expense. The loss of any of our key customers could reduce our revenues and our profitability. For the year ended December 31, 2018, four customers accounted for approximately 13%, 12%, 11% and 10% of the Company’s total revenue,respectively. As of December 31, 2018, two general contractors who provided the Company’s installation projects accounted for approximately 58% and42% of the Company’s total contracts receivable balance, respectively. For the year ended December 31, 2017, four major customers accounted for approximately 22%, 21%, 13% and 10% of the Company’s total revenue. Asof December 31, 2017, two general contractors for the Company’s installation projects accounted for approximately 58% and 42% of the Company’s totalcontracts receivable balance, respectively. For the year ended December 31, 2016, two major customers each accounted for approximately 10% of the Company’s total revenue. As of December 31,2016, two general contractors for the Company’s installation projects accounted for approximately 51% and 45% of the Company’s total contracts receivablebalance, 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 customersat current levels or at all. As the majority of our revenues are driven by individual orders for installation services, our major customers often change eachperiod 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, ifwe cannot maintain long-term relationships with major customers or replace major customers from period to period with equivalent customers, the loss ofsuch 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, 2018, six major sub-contractors accounted for approximately 21%, 19%, 18%, 16%, 15% and 11% of subcontract costs,respectively. For the year ended December 31, 2018, three supplier accounted for 34%, 21% and 15% of the Company’s accounts payable balance, and noindividual supplier accounted for more than 10% of the Company’s advance to suppliers balance. For the year ended December 31, 2017, three major sub-contractors accounted for approximately 44%, 18% and 16% of subcontract costs, respectively.For the year ended December 31, 2017, only one supplier accounted for 18% of the Company’s accounts payable balance, and only one supplier accountedfor 17% of the Company’s total advance to suppliers balance. For the year ended December 31, 2016, three major sub-contractors accounted for approximately 44%, 22% and 15% of subcontract costs, respectively.For the year ended December 31, 2016, only one supplier accounted for 10% of the Company’s accounts payable balance. 5 We have not entered into long-term contracts with any of these major vendors and instead rely on individual projects with such vendors. Although webelieve that we can locate replacement vendors readily on the market for prevailing prices and that we would not have significant difficulty replacing a givenvendor, any difficulty in replacing such a vendor could negatively affect our company’s performance to the extent it results in higher prices or a slowersupply 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 andlocal protectionism within China further complicates supply chain disruption risks. Local administrative bodies and physical infrastructure built to protectlocal interests pose transportation challenges for raw material transportation as well as product delivery. In addition, profitability and volume could benegatively impacted by limitations inherent within the supply chain, including competitive, governmental, legal, natural disasters, and other events thatcould impact both supply and price. Any of these occurrences could cause significant disruptions to our supply chain, manufacturing capability anddistribution 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 ofclaims. The Company generally obtains the customers’ acceptance when the Company delivers product or renders service to its customers. The Company willnot recognize revenue until a Completion and Evaluation Report has been provided by the customer. The Completion and Evaluation Report proves thequality of the installation projects, and there is no additional service performed by the Company later. Therefore, revenue is recognized when a Completionand 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 retentionfor 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 Subtopic450-20. Historically, the Company has not experienced significant customer complaints about the products and none of customers have claimed damages forany loss incurred due to quality problems. Therefore, no separate warranty provisions were provided as at December 31, 2018, 2017 and 2016 based onhistorical experience. We believe that our customer support teams, our quality assurance and manufacturing monitoring procedures will continue to keep claims at a level thatdoes 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 financialresults could be adversely affected. Moreover, China’s Product Quality Law generally allows customers two years (and in some cases ten years) to seekcompensation 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 increaseddemand 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 dedicateadditional financial resources and personnel to optimize our operational infrastructure and to recruit more personnel to train and manage our growingemployee 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. 6 We must manage growth in operations to maximize our potential growth and achieve our expected revenues and any failure to manage growth will causea 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 andproduction facilities and capabilities and continue to develop new and improved valves. This expansion will place a significant strain on our managementand our operational, accounting, and information systems. We expect that we will need to continue to improve our financial controls, operating proceduresand management information systems. We will also need to effectively train, motivate and manage our employees. Our failure to manage our growth coulddisrupt 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, resultsof 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 andimproving the quality of existing products. However, many obstacles to this expansion exist, including, but not limited to, increased competition fromsimilar 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 ourservices in any additional markets. Our inability to implement this internal growth strategy successfully may have a negative impact on our growth, futurefinancial 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 businessand prospects. Our internal growth strategy includes building our brand, expanding our services, developing repair and maintenance business, increasing marketpenetration of our existing products, developing new products and increasing our targeting of the pharmaceutical market in China. Pursuing these strategieshas resulted in, and will continue to result in substantial demands on management resources. In particular, the management of our growth will require, amongother things: ●continued enhancement of our research and development capabilities; ●information technology system enhancement; ●stringent cost controls and sufficient liquidity; ●strengthening of financial and management controls and information technology systems; ●increased marketing, sales and support activities; and ●hiring and training of new personnel. 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 Chinais currently considering implementation of banking insurance policies, it has not yet done so. Should any bank or trust company holding our cash depositsbecome insolvent, or if we are otherwise unable to withdraw funds, we would lose the cash on deposit with that particular bank or trust company. 7 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 inaccordance with U.S. GAAP, our PRC subsidiaries’ books and records are prepared in accordance with China GAAP. Despite our efforts to improve theCompany’s controls and procedures, our accounting personnel do not have sufficient knowledge, experience and training in maintaining our books andrecords in accordance with U.S. GAAP standards. If we fail to maintain an effective system of internal control over financial reporting, we may not be able toaccurately report our financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in our financial reporting, whichwould 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 thedevelopment of new products and the enhancement of our existing products and technologies. In particular, we rely substantially on our Chief ExecutiveOfficer, Anyuan Sun and our Chief Financial Officer, Steven Fu, to manage our operations. We also depend on our Chief Technical Officer, Xiaoliang Xue, forthe 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 oursenior management or key personnel other than our Chief Executive Officer, Mr. Anyuan Sun. The loss of any one of them would have a material adverseeffect on our business and operations. Competition for senior management and our other key personnel is intense and the pool of suitable candidates islimited. 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 seniormanagement or key personnel joins a competitor or forms a competing company, they may compete with us for customers, business partners and other keyprofessionals and staff members of our company. Although each of our senior management and key personnel has signed a confidentiality agreement inconnection 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 betweenus 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 ourcompensation costs to increase, which could have a material adverse effect on our results of operations. Our future success and ability to grow our businesswill 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 toattract 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 activelycompete 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 skillsthat would be valuable to all companies engaged in our industry. Consequently, we expect that we will have to actively compete for these employees. Someof 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 dependentupon 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 beable to attract and assimilate other personnel in the future. If we are unable to effectively obtain and maintain skilled personnel, the development and qualityof our services could be materially impaired. See “Our 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, whichwould 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’spermission to use these two trademarks is provided at his discretion, he could choose to discontinue such permission in the future. While currently the onlythird 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. Anytermination of these licenses could result in the loss of significant rights and could harm our ability to commercialize our products. We must therefore rely onthose third parties to enforce their rights and obligations. If they do not successfully enforce such rights and obligations, our development andcommercialization of such technology could be delayed or prevented. 8 When we license intellectual property from third parties, those parties generally retain most or all of the obligations to maintain and extend, as well asthe 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 nothave 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 ourintellectual property rights. We are currently in control of 34 patents in China covering our valve production technology, 31 of which are now owned byPRC 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 ouroperational 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 successfully applied on our own name twotrademarks 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 notspecify expiration dates but only stated that we are entitled to use them during the valid terms of the patents, trademarks, and copyrights, which indicatedthat 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, includingPatent Law, Trademark Law, and Copyrights Law, the license agreement is valid once the agreement is signed and the registration with regulatory agencies isnot 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 thelicensees’ rights will not be protected when the licensor assigns the intellectual property rights to other parties. We filed with the regulatory agencies theregistration application of the license agreements in March of 2016, and the whole process shall be completed in a couple of months. In addition, since thelicense 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 ourproducts 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 ourexisting and future patents may be insufficient to provide us with meaningful protection or commercial advantage. Our patents and patent applications mayalso 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 ouremployees breach their non-disclosure obligations, we may not have adequate remedies in China, and our trade secrets may become known to ourcompetitors. Implementation of PRC intellectual property-related laws has historically been lacking, primarily because of ambiguities in the PRC laws andenforcement difficulties. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States orother western countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigationto 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 andan adverse determination in any such litigation, if any, could result in substantial costs and diversion of resources and management attention, which couldharm our business and competitive position. 9 We may be exposed to intellectual property infringement and other claims by third parties which, if successful, could disrupt our business and have amaterial 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 propertyrights. 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 claimsfor intellectual property infringement, invalidity or indemnification relating to other parties’ proprietary rights. Our current or potential competitors, many ofwhich have substantial resources and have made substantial investments in competing technologies, may have or may obtain patents that will prevent, limitor 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 inAsia. In addition, the defense of intellectual property suits, including patent infringement suits, and related legal and administrative proceedings can be bothcostly and time consuming and may significantly divert the efforts and resources of our technical and management personnel. Furthermore, an adversedetermination in any such litigation or proceedings to which we may become a party could cause us to: ●pay damage awards; ●seek licenses from third parties; ●pay ongoing royalties; ●redesign our branded products; or ●be restricted by injunctions, each of which could effectively prevent us from pursuing some or all of our business and result in our customers or potential customers deferring orlimiting 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 expandsignificant resources to investigate and resolve the matter which could harm our business operations and our reputation and could result in a loss of yourinvestment 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 negativepublicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centeredaround financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or alack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock ofmany U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are nowsubject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear whateffect this sector-wide scrutiny, criticism and negative publicity will have on our company and our business. If we become the subject of any unfavorableallegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/ordefend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our company andbusiness operations will be severely hampered and your investment in our stock could be rendered worthless. 10 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 prospectsare subject to economic, political and legal developments in China. Although the Chinese economy is no longer a planned economy, the PRC governmentcontinues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of othergovernment policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB andforeign currencies, and regulate the growth of the general or specific market. These government involvements have been instrumental in China’s significantgrowth in the past 30 years. In response to the recent global and Chinese economic downturn, the PRC government has adopted policy measures aimed atstimulating the economic growth in China. If the PRC government’s current or future policies fail to help the Chinese economy achieve further growth or ifany aspect of the PRC government’s policies limits the growth of our industry or otherwise negatively affects our business, our growth rate or strategy, ourresults 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 andsignificantly 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 amanner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial conditionand 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 dutiesand tariffs. In addition, we may be subject to repatriation taxes levied upon the exchange of income from local currency into foreign currency, substantialtaxes on profits, revenues, assets and payroll, as well as value-added tax. The markets in which we plan to operate may impose onerous and unpredictableduties, 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 suchmarkets, 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 taxconsequences 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 EITLaw, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can betreated 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. 11 On April 22, 2009, the State Administration of Taxation of China issued the Notice Concerning Relevant Issues Regarding Cognizance of ChineseInvestment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, furtherinterpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group. Pursuant to the Notice, anenterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporatedresident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personneldecisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate stamps, board andstockholder 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 residententerprise 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 payingdividends to its non-PRC stockholders. Hebron Technology does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlledoffshore incorporated enterprise within the meaning of the Notice, so we believe the Notice is not applicable to us. However, in the absence of guidancespecifically 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 theresolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outsidethe 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 “residententerprise” by the PRC tax authorities. Accordingly, we believe that Hebron Technology should not be treated as a “resident enterprise” for PRC tax purposesif 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 issubject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” asapplicable 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 taxconsequences 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 enterpriseincome tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income taxat 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 sourceincome in the future, we could be adversely affected. Second, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiarieswould qualify as “tax-exempt income.” Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification couldresult 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 ournon-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 sourceincome 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, ourdirectors 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 substantiallyall 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 ajudgment obtained in the U.S. against us or any of these persons. 12 We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law. As a Nasdaq-listed public company, we are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, and other laws that prohibit improper payments oroffers 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 ofobtaining 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 ofunauthorized payments or offers of payments by one of the employees, consultants or distributors of our company, because these parties are not alwayssubject to our control. We are in process of implementing an anticorruption program, which prohibits the offering or giving of anything of value to foreignofficials, directly or indirectly, for the purpose of obtaining or retaining business. The anticorruption program also requires that clauses mandatingcompliance with our policy be included in all contracts with foreign sales agents, sales consultants and distributors and that they certify their compliancewith our policy annually. It further requires that all hospitality involving promotion of sales to foreign governments and government-owned or controlledentities are in accordance with specified guidelines. In the meantime, we believe to date we have complied in all material respects with the provisions of theFCPA and Chinese anti-corruption law. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants or distributors of ourCompany may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severecriminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. Inaddition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or thatwe 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 PRCsubsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable towholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedentialvalue. 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 ofeconomic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisionsand their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system isbased 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 aresult, 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 beprotracted 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 ourrecent initial public offering to make loans or additional capital contributions to our PRC operating subsidiaries, which could materially and adverselyaffect our liquidity and our ability to fund and expand our business. In utilizing the proceeds of our recent initial public offering in the manner described in the section titled “Use of Proceeds” in our initial public offeringregistration statement, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. 13 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 theiractivities cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange, or SAFE. Currently, China is holdingmore open and tolerate attitude toward FIEs. More open rules and regulations are published in recent years to replace previous ones which are morerestrictive. On March 30th, 2015, SAFE promulgated Circular 19 which is about Reforming the Management Approach regarding the Settlement of ForeignExchange Capital of Foreign-invested Enterprises) and effective since June 1, 2015. Circular 19 has made some important changes in rules regarding theconversion of foreign exchanges to RMB, which are as follows in particular: (1)Instead of the payment-based exchange settlement system under previous Circular 142 and Circular 88, new rules of discretional foreign exchangesettlement have been established, which means the foreign exchange capital in the capital account of foreign-invested enterprises for which theconfirmation of rights and interests of monetary contribution by the local foreign exchange bureau (or the book-entry registration of monetarycontribution by the banks in accordance with Circular 13 as we mentioned in the comment below) has been handled can be settled at the banksbased on the actual operation needs of the enterprises, and the proportion of foreign exchange which can be discretionally converted by each FIE istemporarily determined as 100% (SAFE may adjust such scale as necessary). So regulation wise FIEs no longer needs to report the use of its RMBbefore or after a conversion which are required by previous Circular 142 and Circular 88. However, actually SAFE and the banks are experiencing atransitional period in this regard, so for the time being, most banks still need the FIEs to report their proposed use of the RMB to be converted fromforeign exchanges, as well as the actual use of the RMB obtained in the last conversion. Certainly, the transitional period will not be too long andtherefore optimistically from the year of 2016, the report obligation will no longer be required. (2)Foreign currency-denominated capital no longer needs to be verified by an accounting firm before converting into RMB. (3)As stipulated in Circular 19, the use of capital by FIEs shall follow the principles of authenticity and self-use within the business scope ofenterprises, shall not be used for the following purposes: a)it shall not be directly or indirectly used for the payment beyond the business scope of the enterprises or the payment prohibited by nationallaws and regulations; b)it shall not be directly or indirectly used for investment in securities unless otherwise provided by laws and regulations; c)it shall not be directly or indirectly used for granting the entrust loans in RMB (unless permitted by the scope of business), repaying the inter-enterprise borrowings (including advances by the third party) or repaying the bank loans in Renminbi that have been sub-lent to the third party;and d)it shall not be used for paying the expenses related to the purchase of real estate not for self-use, except for the foreign-invested real estateenterprises. On May 10, 2013, SAFE released Circular 21, which came into effect on May 13, 2013; also, on February 13, 2015 SAFE published Circular13 (Circular of the State Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment-related Foreign ExchangeAdministration Policies) to update some measures stipulated in Circular 21. According to Circular 21, SAFE has significantly simplified the foreignexchange administration procedures with respect to the registration, account openings and conversions, settlements of FDI-related foreign exchange, as wellas fund remittances. Meanwhile, Circular 13 has further simplified foreign exchange administration procedures, most important among which is that SAFEdelegated 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 usethe net proceeds from our initial public offering and any offering of additional equity securities in China, which may adversely affect our liquidity and ourability 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 ofCommerce 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 respectto 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 our initial publicoffering and capitalize our PRC operations, which could adversely affect our liquidity and our ability to fund and expand our business. 14 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 ofChina. We receive substantially all of our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend paymentsfrom our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreigncurrency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchangeregulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions can be madein foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate governmentauthorities 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 loansdenominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current accounttransactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not beable 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’spolitical and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, andthe 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 ourinitial 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 wouldreceive 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 forother 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 ourproducts 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 exchangemarket to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollarin 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 andlessen intervention in the foreign exchange market. The RMB depreciated from 2014 through the end of 2016, appreciated in 2017, and has depreciatedsince the beginning of 2018. 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, 2018, 2017 and 2016, we had foreign currency translation gain (loss) adjustments of -$1.8 million, $2.2 million and-$1.4 million, respectively. Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we havenot entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactionsmay 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 byPRC 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 topenalties and limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us, or otherwiseadversely affect us. The SAFE promulgated the Notice on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment throughSpecial 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 theirestablishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities mustupdate their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to material change of capitalization or structureof the PRC resident itself (such as capital increase, capital reduction, share transfer or exchange, merger or spin off). On October 16, 2015, 9 of ourshareholders who are Chinese residents completed the registration with SAFE under this Notice. 15 Failure to comply with the Individual Foreign Exchange Rules relating to the overseas direct investment or the engagement in the issuance or trading ofsecurities 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 theImplementation Rules of the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended andsupplemented, the “Individual Foreign Exchange Rules”). Under the Individual Foreign Exchange Rules, any PRC individual seeking to make a directinvestment overseas or engage in the issuance or trading of negotiable securities or derivatives overseas must make the appropriate registrations inaccordance 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 ofour 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 willknow 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 wecannot assure you that such PRC residents will be able to complete the necessary approval and registration procedures required by the Individual ForeignExchange Rules. It is uncertain how the Individual Foreign Exchange Rules will be interpreted or enforced and whether such interpretation or enforcement will affect ourability to conduct foreign exchange transactions. Because of this uncertainty, we cannot be sure whether the failure by any of our PRC resident stockholdersto make the required registration will subject our PRC subsidiaries to fines or legal sanctions on their operations, delay or restriction on repatriation ofproceeds of the initial public offering into the PRC, restriction on remittance of dividends or other punitive actions that would have a material adverse effecton 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 serviceindustries, 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 ourpharmaceutical engineering installation will be adversely affected due to the slow expansion or shrinkage of the pharmaceutical industry. Recession in thesteel industry on the other hand may cause us to benefit from decreased material costs. Risks Related to Our Corporate Structure and Operation Our dual class structure concentrates a majority of voting power in our Chief Executive Officer, who is the only owner of our Class B common shares. On March 7, 2018, we re-classified and re-designated our common shares into Class A common shares and Class B common shares by filing the ThirdAmended and Restated Memorandum of Association with the BVI Registrar of Corporate Affairs. Our Class B common shares have five votes per share, andour Class A common shares have one vote per share. Because of the five-to-one voting ratio between our Class B and Class A common shares, the holders ofour Class B common shares collectively continue to control a majority of the combined voting power of our Common Shares and therefore are able to controlall matters submitted to our shareholders for approval. The sole beneficial owner of such Class B common shares is our Chief Executive Officer, Mr. AnyuanSun, who beneficially owns 1,800,000 Class B common shares through Wise Metro Development Co., Ltd. and 5,978,400 Class B common shares throughMr. Zuoqiao Sun Zhang. Mr. Sun holds in the aggregate 82.1% of the voting power of our capital stock. This concentrated control may limit or preclude yourability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and anymerger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval. In addition, this mayprevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our shareholders. Future transfers by holders of Class B common shares will generally result in those shares converting to Class A common shares, subject to limitedexceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B common shares to Class A common shares will have theeffect, over time, of increasing the relative voting power of those holders of Class B common shares who retain their shares in the long term. We incur additional costs as a result of being a public company, which could negatively impact our net income and liquidity. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, Sarbanes-Oxleyand rules and regulations implemented by the SEC and The NASDAQ Capital Market require significantly heightened corporate governance practices forpublic companies. We expect that these rules and regulations will increase our legal, accounting and financial compliance costs and will make manycorporate activities more time-consuming and costly. We do not expect to incur materially greater costs as a result of our having become a public company than those incurred by similarly sized U.S. publiccompanies. If we fail to comply with these rules and regulations, we could become the subject of a governmental enforcement action, investors may loseconfidence in us and the market price of our Class A common shares could decline. 16 The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies. As a publicly listed company, we are required to file periodic reports with the Securities and Exchange Commission upon the occurrence of matters thatare material to our company and shareholders. In some cases, we will need to disclose material agreements or results of financial operations that we would notbe required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This maygive them advantages in competing with our company. Similarly, as a U.S.-listed public company, we are governed by U.S. laws that our competitors, whichare mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases ourcompetitiveness against such companies, our continued public listing could affect our results of operations. 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 provideyou the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for youto 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 besubject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we willnot 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 subjectto 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 thatselect 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 andanti-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 privateissuer 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 timeas 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 toincur substantial losses or liabilities due to fire, explosions, floods, other natural disasters or accidents or business interruption, our results of operations couldbe 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 theland acknowledged by the local government. Therefore, the new offices will not be under the risk of being identified as illegal building, and we can continueits 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 consistencywith 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 getProperty 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 ifany dispute arises between the company and the members of the Dalangqiao Village which adversely effects, annuls, or even worse brings termination to thelease. 17 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 the Construction Law and Qualification Standard for Labor Subcontracting in Construction Business of the PRC, individual contractors are notin a position to obtain any qualification of labor subcontracting. So the subcontracting contracts by Xibolun Equipment and Xibolun Automation to suchindividual contractors are under the risk of being declared in 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 entitiesXibolun Equipment and Xibolun Automation are very cautious with subcontracting the projects to other parties, there are still possibilities that our PRCentities may subcontract the projects to individuals or parties without required qualifications. Despite the facts that the law enforcement and regulation onthese types of subcontracting are not very strict, if the construction completed by unqualified individual subcontractors does not meet required quality andaccident occurs, our PRC entities may jointly bear the consequences pursuant to Article 64 of the Construction Law. Also, according to the Article 54 of theRegulation on the Quality Management of Construction Projects, the liabilities for the consequences could be indemnifying the damages and paying penaltywhich could be ranging from five hundred thousand up to one million RMB. Risks Related to 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 willmake our Class A 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 anemerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that arenot 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 ofholding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Wecould be an emerging growth company for up to five years, although we could lose that status sooner if our revenues exceed $1.07 billion, if we issue morethan $1 billion in non-convertible debt in a three year period, or if the market value of our Class A common shares held by non-affiliates exceeds $700million 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 cannotpredict if investors will find our Class A common shares less attractive because we may rely on these exemptions. If some investors find our Class A commonshares less attractive as a result, there may be a less active trading market for our Class A 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 applyto private companies. We have irrevocably elected not to avail our company of this exemption from new or revised accounting standards and, therefore, willbe subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. 18 As a “controlled company” under the rules of The NASDAQ Capital Market, we may exempt our company from certain corporate governancerequirements that could adversely affect our public shareholders. Our principal shareholder beneficially owns a majority of the voting power of our outstanding common shares. Under the Rule 4350(c) of The NASDAQCapital 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” andmay elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors to be independent, asdefined in The NASDAQ Capital Market rules, and the requirement that our compensation and nominating and corporate governance committees consistentirely of independent directors. Although we do not intend to rely on the “controlled company” exemption under The NASDAQ Capital Market rules, wecould 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 ofdirectors might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely ofindependent directors. Accordingly, while we remain a controlled company relying on the exemption and during any transition period following a time whenwe are no longer a controlled company, you would not have the same protections afforded to shareholders of companies that are subject to all of TheNASDAQ 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 governancestandards 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 besubject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we willnot 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 subjectto 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 thatselect 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 andanti-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 privateissuer 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 timeas the information provided by U.S. domestic reporting companies. If we continue to be unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in theaccuracy and completeness of our financial reports and the market price of our Class A common shares may decline. As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control.In addition, beginning with the first annual report on Form 20-F, we have been required to furnish a report by management on the effectiveness of our internalcontrol over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. If we continue to identify material weaknesses in our internal control overfinancial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financialreporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controlover financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of ourClass A common shares could be negatively affected, and we could become subject to investigations by the 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 are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, theSarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the securities exchange on which we list, and other applicable securities rules andregulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our management,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, semiannual, andcurrent reports with respect to our business and operating results. 19 As a result of disclosure of information in this annual report on Form 20-F and in filings required of a public company, our business and financialcondition are more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims aresuccessful, 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, andthe time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation andresults 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 officerliability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also makeit more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensationcommittee, and qualified executive officers. The market price of our Class A common shares may be volatile or may decline regardless of our operating performance, and you may not be able to resellyour shares. The trading price for our common shares (or Class A common shares since March 19, 2018) has fluctuated since we first listed our common shares. Sinceour common shares became listed on the Nasdaq on December 27, 2016, the trading price of our common shares (or Class A common shares since March 19,2018) has ranged from US $0.5 to US $7.02 per common share, and the last reported trading price on May 10, 2019 was $0.88 per Class A common share. Themarket price of our common shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: ●actual or anticipated fluctuations in our revenue and other operating results; ●the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; ●actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow ourcompany, or our failure to meet these estimates or the expectations of investors; ●announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, jointventures, or capital commitments; ●price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; ●lawsuits threatened or filed against us; and ●other events or factors, including those resulting from war or incidents of terrorism, or responses to these events. In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices ofequity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performanceof those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involvedin securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect ourbusiness. 20 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 anydividends in the foreseeable future. As a result, you may only receive a return on your investment in our Class A common shares if the market price of ourClass A common shares increases. We incur increased costs as a result of being a public company. As a public company, we 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 as a private company, and we will have annual payments for listing on a stockexchange if we are so listed. In addition, the Sarbanes-Oxley Act, as well as new rules subsequently implemented by the SEC and NASDAQ, has requiredchanges in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal, accounting and financialcompliance costs and to make certain corporate activities more time-consuming and costly. In addition, we incur additional costs associated with our publiccompany reporting requirements. While it is impossible to determine the amounts of such expenses in advance, we expect that we will incur additionalexpenses of between $500,000 and $1 million per year that we did not experience as a private company. 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 2019, 2020 and 2021. Directors of each classare chosen for three-year terms upon the expiration of their current terms, and each year the shareholders elect one class of directors. The staggered terms ofour 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 thebest interest of our shareholders. British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect theirinterests. British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. Thecircumstances 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 inthe 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 Islandscourts 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 thatare penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of theBritish 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 theshareholders 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 BVIBusiness Companies Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action to enforcethe constituent documents of the corporation, our amended and restated memorandum and articles of association. Shareholders are entitled to have the affairsof the company conducted in accordance with the general law and the articles and memorandum. 21 There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law, since the common lawof 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 expressdissatisfaction 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 ofthe company conducted properly according to law and the constituent documents of the corporation. As such, if those who control the company havepersistently disregarded the requirements of company law or the provisions of the company’s memorandum and articles of association, then the courts willgrant 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 authorizedbusiness 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 provisionsrequiring approval of a special or extraordinary majority of shareholders, which are more limited than the rights afforded minority shareholders under the lawsof many states in the United States. Item 4.Information on the Company A.History and Development of the Company 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 fittingproducts with an established sales and distribution network. We offer our customers comprehensive pipeline design, installation, construction, ongoingmaintenance services as well as holistic solution services. We provide our installation services and valve and pipe fitting products in the following areas: ●Pharmaceuticals ●Biology ●Food ●Beverage Our sales network has presence in Shanghai, Wenzhou and Taiwan. We mainly provide installation services for our customers, although we also sell our products to third parties for installation. A significant majority ofour revenues have come from these installation services. We anticipate that we will continue to derive significant income from our installation services, bothof our products and those purchased from third parties. The profit margins associated with installing our customized valve and pipe fitting designs havehistorically been higher than those associated with the sale of our products for installation by third parties. We specialize in installing valves and pipes for customers that require customized fluid control system solutions. We also specialize in designing andimplementing solutions services for industries with a high need for sanitary fluid systems with product manufacture, installation services and after-salesservices. Currently, we have customers for our services in the industries of pharmaceuticals, dairy products, water purification, beverage production,cosmetics and chemical industry, and we are looking forward to expanding our customer base in the future to more clean industries. The Company is located in Wenzhou in the Southeastern Zhejiang Province, which is situated on the south bank of the Ou River, some 19 miles (30 km)from its mouth. The estuary of the Ou River is filled with small islands and mud banks, but the port is accessible by ships of up to about 1,000 tons. The Oulong provided the main transport artery for the mountainous southeastern section of Zhejiang. The Company is adjacent to the Wenzhou airport, train stationand international container terminal. Wenzhou, with its tradition as a commercial city, its dense population, and the scarcity of cultivated land in the region, long has been home to thosehighly skilled at doing business. Its citizens started their own household businesses and workshops in the early 1970s, and their efforts redoubled later in thedecade as China officially began to liberalize economic policy and to move toward more of a market system. This became known as the “Wenzhou model”;there are now tens of thousands of Wenzhou merchants doing business around the country and abroad. 22 In 1984, Wenzhou was designated one of China’s “open” cities in the new policy of inviting foreign investment, and there has been considerableeconomic growth in Wenzhou. We are engaged in a permitted industry for foreign investment. Local products now include ceramics, machinery, chemicals,electronics, processed foods, and wearing apparel; shipbuilding is also important. The region’s transportation infrastructure has been greatly improved. Abranch rail line, completed in the late 1990s, links the city with the Zhejiang-Jiangxi trunk line at Jinhua. Expressways northeast to Ningbo and northwest toJinhua opened for traffic in the early 21st century. Newer and larger port facilities also have been constructed, including docks near the mouth of the Ou Riverwith berths capable of accommodating 10,000-ton ships. The city’s airport, on the seacoast, provides scheduled flights to many cities in the country. Thepopulation was 3,0395,00 according to the 2010 Chinese Census. Principal Activities Below is a brief summary of principal activities of our Company since its formation. ●January 25, 2005, Xibolun Equipment was incorporated. ●June 14, 2011, HK Xibolun is formed in accordance with laws and regulations of Hong Kong. ●July 21, 2011, HK Xibolun acquired 30% ownership interest of Xibolun Equipment. ●May 29, 2012, Hebron Technology is established under the laws of the British Virgin Islands as a holding company. ●September 24, 2012, Xibolun Automation is incorporated. ●December 5, 2012, HK Xibolun acquired 100% ownership interest of Xibolun Automation from Hebron Technology, Xibolun Equipment, andZhejiang Xibolun. ●October 22, 2012 Hebron Technology acquired 100% ownership interest of HK Xibolun. As a result, HK Xibolun became a wholly owned subsidiaryof Hebron Technology. ●July 29, 2013, Mr. Anyuan Sun transferred his 70% ownership interest in Xibolun Equipment to Xibolun Automation. ●April 11, 2018, Hebron Technology acquired a 49% equity interest in Xuzhou Weijia Bio-Tech Co., Ltd. ●April 16, 2019, Hebron Technology entered into a Securities Purchase Agreement with Wise Metro Development Co., Ltd. (“Wise”), Zuoqiao SunZhang(“Sun Zhang”; and together with Wise, “Sellers”) and NiSun International Enterprise Management Group Co., Ltd. (“NiSun”) pursuant towhich NiSun would acquire 7,778,400 Class B Common Shares from the Sellers. On December 27, 2016, we completed an initial public offering of 2,695,347 common shares. The offering was completed at an issuance price of $4.00per share. Prior to the offering, the Company had 12,000,000 issued and outstanding shares, and after the offering, the Company had 14,695,347 issued andoutstanding shares. The Company issued to the placement agent in the initial public offering, warrants to purchase 134,768 common shares for an exerciseprice of $4.80 per share. The placement agent’s warrants have a term of three years. On March 7, 2018, we re-classified and re-designated our common shares into Class A common shares and Class B common shares by filing the ThirdAmended and Restated Memorandum of Association with the BVI Registrar of Corporate Affairs. Pursuant to the Third Amended and Restated Memorandumof Association, our authorized shares are re-classified and re-designated into 50,000,000 common shares of par value of US$0.001 each, of which 40,000,000share are designated as Class A common shares of par value of US$0.001 each and 10,000,000 shares are designated as Class B common shares of par value ofUS$0.001 each. Each Class A common share is entitled to one vote and each Class B common share is entitled to five votes on all matters subject to vote atour shareholders’ meetings. After the reclassification and re-designation, 6,916,947 Class A common shares and 7,778,400 Class B common shares wereissued and outstanding. Our Chief Executive Officer, Mr. Anyuan Sun, beneficially owns all of the 7,778,400 Class B common shares. The Nasdaqmarketplace effective date is March 12, 2018. On March 10, 2018, we entered into a share acquisition agreement with the sole shareholder of Xuzhou Weijia Bio-Tech Co., Ltd. (“Weijia Bio-Tech”)and Weijia Bio-Tech to acquire 49% of the equity in Weijia Bio-Tech. As consideration, we are obligated to issue 1,442,778 unregistered Class A commonshares (based on an agreed value of $2.00 per share) to the individuals designated by the selling shareholder of Weijia Bio-Tech within 20 business days aftersigning the agreement. On April 17, 2018, the parties signed an addendum to extend 20 business days to 40 business days. Effective as of April 9, 2018, weissued 1,442,778 unregistered Class A common shares pursuant to the agreement. On or about April 11, 2018, we completed the acquisition of the 49%equity interest in Weijia Bio-Tech. On April 16, 2019, Hebron Technology entered into a Securities Purchase Agreement with Wise Metro Development Co., Ltd. (“Wise”), Zuoqiao SunZhang (“Sun Zhang”; and together with Wise, “Sellers”) and NiSun International Enterprise Management Group Co., Ltd. (“NiSun”) pursuant to which NiSunwould acquire 7,778,400 Class B Common Shares from the Sellers. Simultaneously, the Company and its subsidiaries will enter into a series of contracts to acquire effective control over Fintech (shanghai) InvestmentHolding Co., Ltd (“Fintech”), a Chinese company focused on the provision of financial services and an affiliate of NiSun, in return for cash or cashequivalents to be determined based on an assessment by an independent third party business valuation firm (the “Fintech Acquisition”). 23 Also as part of the transaction, the Company will grant to Sellers the option (the “Option”) to purchase the Company’s equity interest in ZhejiangXibolun Automation Project Technology Co., Ltd., the Company’s 49% equity interest in Xuzhou Weijia Biotechnology Co., Ltd. and the Company’s equityinterest in Wenzhou Xibolun Fluid Equipment Co., Limited, Chinese operating subsidiaries of the Company. The purchase price will be based on assessmentby an independent third party business valuation firm at the time the Option is exercised. The Option may be exercised beginning six (6) months followingthe Closing Date and expires if not exercised prior to the second anniversary of the closing date of the transactions. These above mentioned transactions willbe the subject of a shareholder vote to be held at a special meeting of shareholders in May 2019. Main Categories of Products and Services We provided installation services and fluid equipment sales for the years ended December 31, 2018, 2017 and 2016. We also provided a one-time fluidequipment control system sales for the year ended December 31, 2013. We did not provide fluid equipment control system sales for the years endedDecember 31, 2018, 2017 and 2016. 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 theproduct. 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 thefeedback 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 aboutproducts and installation services. We have established a repair and maintenance center in Nanjing, Jiangsu Province to cover Eastern China (JiangsuProvince, Zhejiang Province, Anhui Province and Shanghai) with investment of RMB 2,452,684 (approximately $380,000). Over the next 2 years, we plan toestablish five additional repair and maintenance centers in Shanghai, Beijing, Nanjing, Chengdu and Linyi respectively to cover Central China, NortheasternChina, Northern China, Southern China, and Northwestern China, with Shanghai being the center. B.Business Overview Our Services We specialize in installing valves and pipes for customers that require customized fluid control system solutions. We also specialize in designing andimplementing solutions for industries with a high need for sanitary fluid systems. Currently, we have customers for our services in the industries ofpharmaceuticals, dairy products, water purification, beverage production, cosmetics and chemical industry. We hope to expand our customer base in thefuture 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 therequirements in these industries to avoid contamination, we focus on designing systems that may be easily and frequently cleaned and maintained. We useskilled workers to install these systems. Because the scope of a given project can be relatively large, our revenues per installation project tend to be muchhigher than the average product-only order; accordingly, installation services make up the largest component of our revenues. Revenues from installationservices were approximately 68%, 81% and 90% of our total revenues for the years ended December 31, 2018 and 2017 and 2016, respectively. We started the business of repair and maintenance service in 2015. It is provided to pharmaceutical manufacturers after the expiration of warranty aboutproducts and installation services. We have established a repair and maintenance center in Nanjing, Jiangsu Province to cover Eastern China (JiangsuProvince, Zhejiang Province, Anhui Province and Shanghai) with investment of RMB 2,452,684 (approximately $380,000). Over the next 2 years, we plan toestablish five additional repair and maintenance centers in Shanghai, Beijing, Nanjing, Chengdu and Linyi respectively to cover Central China, NortheasternChina, Northern China, Southern China, and Northwestern China, with Shanghai being the center. 24 The following pictures illustrate some of our installation projects: (1)Holistic solution for process pipeline of power for injection production line for a company in Beijing, China. (2)Holistic solution for process pipeline of medicaments production line for a company in Shandong, China. (3)Holistic solution for process pipeline of chemical & pharmaceutical production line for a company in Tianjin, China. 25 (4)Holistic solution for process pipeline of pharmaceutical water system for a company in Guangdong, China. (5)Holistic solution for process pipeline of an automatic biological engineering project for a company in Shandong, China. 26 Our Products Our product line was originally focused on the construction service and pharmaceutical engineering sectors. In 2005, we shifted our product line to focusprimarily on the pharmaceutical engineering sector. We focus on innovation and developing new products. Revenues from product sales were approximately32%, 19% and 10% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. Our products are used in the pharmaceutical, biological, food and beverage, and other clean industries. All of our products are produced and incompliance with China Good Manufacturing Practices. Our products enjoy a good reputation in the industry. Additionally, we have established sales officesin 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 diaphragmvalve and three-way diaphragm valve and diaphragm tank bottom valve. All of these valves are widely used in the bio-pharmacy, bio-vaccines, electronicsemiconductor, water purification and food and beverage industries. These valves can be designed and manufactured according to customers’ uniquespecifications, 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 andaccurately allowing it to achieve the control of fluid flow rate, temperature. This valve is user-customizable and features remote automatic control, whichmakes 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-pressuresterilization. These valves can be designed and manufactured according to customers’ unique specifications, such as working temperature, connection mode,driving mode, and control mode. 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 todecrease 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 boilingpoint 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 pharmaceuticalindustries. 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 closedpipe 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 forsimple operation and can open and close rapidly. The valves are designed to eliminate dead legs (the inhibition of fluid-flow), have good seal performanceand 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 thewater injection process. The major designs include elbows, tees, crosses, head size, 180-degree u-tee and connectors. These pipe fittings are compliant withbio-pharmaceutical standards. 27 Intelligent Process Control Valve 28 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, suchas Japan, Germany and United States, to produce intelligent process control valves for sale. Through our collaboration with Zhejiang University, we havedeveloped an intelligent process control valve which can be wholly produced by us, though this product is still in trial period. While non-intelligent processcontrol valves can only operate manually or through air compression, intelligent process control valves contain CPU chips and other electronic elements thatenable them to operate automatically. Intelligent process control valves are mostly used in sterile workshops, workshops with automated production linesand other environments which are unfit for manual operation. However, intelligent process control valves are higher in production cost and maintenance costcompared with non-intelligent ones, so customers usually deploy them only for purposes that have higher technical requirements than non-intelligent valvescan serve. 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 widelyavailable. If we were unable to purchase from our primary suppliers, we do not expect we would face difficulties in locating another supplier at substantiallythe 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 suppliersof 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 beenlittle price volatility for such materials. 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, 2018, six major sub-contractors accounted for approximately 21%, 19%, 18%, 16%, 15% and 11% of subcontract costs,respectively. For the year ended December 31, 2018, three supplier accounted for 34%, 21% and 15% of the Company’s accounts payable balance, and noindividual supplier accounted for more than 10% of the Company’s advance to suppliers balance. For the year ended December 31, 2017, three major sub-contractors accounted for approximately 44%, 18% and 16% of subcontract costs, respectively.For the year ended December 31, 2017, only one supplier accounted for 18% of the Company’s accounts payable balance, and one supplier accounted for17% of the Company’s total advance to suppliers balance. For the year ended December 31, 2016, three major sub-contractors accounted for approximately 44%, 22% and 15% of subcontract costs, respectively.For the year ended December 31, 2016, only one supplier accounted for 10% 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 are exploring the international market with our valves and pipe fittings products,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, theCompany has no current plans to expand internationally and instead intends to focus its growth efforts within China with regards to the services we provideas a result of the Company’s assessment of current market opportunities. 29 Activity Distribution of Revenues The chart below is a breakdown of total revenues by activities for the year ended December 31, 2018, 2017 and 2016, respectively. Fiscal 2018 Fiscal 2017 Fiscal 2016 Installation services 68% 81% 90%Fluid equipment 32% 19% 10%Total 100% 100% 100% Geographic Distribution of Revenues Nearly all (approximately 99%) of the Company’s revenue is generated in the PRC. 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, 2018, seven major customers accounted for approximately 14%, 13%, 12%, 11%, 11%, 10% and 10% of theCompany’s total revenue. As of December 31, 2018, two general contractors for the Company’s installation projects accounted for approximately 69% and10% of the Company’s total contracts receivable balance, respectively. For the year ended December 31, 2017, four major customers accounted for approximately 22%, 21%, 13% and 10% of the Company’s total revenue. Asof December 31, 2017, two general contractors (“Contractor A” and “Contractor B”) for the Company’s installation projects accounted for approximately58% and 42% of the Company’s total contracts receivable balance, respectively. For the year ended December 31, 2016, two major customers each accounted for approximately 10% of the Company’s total revenue. As of December 31,2016, two general contractors (“Contractor A” and “Contractor B”) for the Company’s installation projects accounted for approximately 51% and 45% of theCompany’s total contracts receivable balance, respectively. Summary of Customer Agreements Our customers order our services and products using our form of purchase agreement. While the contract price depends on the services or products wedeliver 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 customeracceptance of delivery or installation. During this one year quality assurance period, we cooperate with our customers to ensure the products work asexpected, repairing or paying for the cost of repair or replacement for covered occurrences during such period. 30 Methods of Competition We plan to compete domestically by establishing new branch offices in more cities in China. Currently, we plan to add three more branch offices inLinyi, Chengdu and Nanjing. We will also develop our online store, which will enable our customers to communicate with us online and order, purchase andhave our products and services delivered in a more convenient and faster manner. With the development of the company, we plan to increase our capacity toconduct 2 to 4 more service projects at a time. To expand our business as mentioned above, we expect to recruit more employees to ensure service qualityand efficiency. Most of our service customers are companies in the biological pharmaceutical industry, which is an industry with great development potential andcustomer demand in China. We compete on the basis of the experience and technology we have developed in serving customers in this industry for over 10years. In addition, our holistic biological pharmaceutical engineering solution services combine product manufacturing, installation and after-sales services.Most of our competitors in this area only install the components they purchase from third parties without capacity to manufacture on their own, while most ofour product provider competitors focus on producing products without installation services. We not only produce our own products through research anddevelopment, but also provide installation and after-sales services. If any problem occurs after sales or installation, our customers can look to us for productand installation support, rather than having to reach out to other service providers. If customers face issues outside our specialty, we can contact theappropriate subcontractors to ensure that our customers’ needs are met and they need only look to us for help. We have a professional team with productresearch and development staff, production staff, installation service staff, and project designers. We have focused on providing high quality services quickly and at a low price. We are able to reduce the overall price of the projects we perform byproducing some of the components. Because we produce lots of components and we stock different products in a proper proportion based on experience withmarket demand, it normally takes us only a short time to complete the projects with less likelihood of delay due to shortages of components from othersuppliers. Also, our products and pricing can be easily tailored to the customers’ needs, and we price our products aggressively. We have short cycles inproviding products. On average it takes only one week from receiving orders to delivery to the customer. All of our products are in compliance with GMPstandards. We pride ourselves on high quality services and products, so that our customers receive good value for the price they pay. 31 Our Competitive Position Our primary competitors are the following companies. We have set forth our assessment of our companies’ relative strengths and challenges. This tablerepresents 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/ChallengesGEA Group Aktiengesellschaft (“GEA”) Valves, valve-related productsand installation services We believe GEA’s brand is more well-known. We compete against GEA’sinstallation services on the basis of price. Austar International (“Austar”) Valves, valve-related productsand installation services We believe Austar’s international brand name is more well-known. We competeagainst Austar’s installation services on the basis of price. Shanghai Langmai Clean TechnologyCo., Ltd. (“Shanghai Langmai”) Installation services Shanghai Langmai provides only installation services, while we provide bothinstallation services and products. We compete against Shanghai Langmai onthe 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 installationservices, while we provide both installation services and products. We competeagainst Sensong on the basis of installation speed. Shandong Weifang Regal CirculationEquipment Co. (“Shandong Weifang”) Installation services Shandong Weifang’s market share is relatively small. We compete againstShandong Weifang on the basis of installation speed and services. Nanjing Inavo Bio-engineering Co., Ltd.(“Nanjing Inavo”) Valves and valve-relatedproducts We compete against Nanjing Inavo’s products on the basis of price and brandrecognition. GEMÜ Gebr. Müller Apparatebau GmbH& Co. KG (“GEMÜ”) Valves and valve-relatedproducts We believe GEMÜ’s international brand name is more well-known. We competeagainst GEMÜ on the basis of price and delivery speed. Christian Bürkert GmbH & Co. KG(“Bürkert”) Valves and valve-relatedproducts We believe Bürkert’s international brand name is more well-known. Wecompete against Bürkert on the basis of price, delivery speed and service. Crane Process Flow Technologies Ltd.(“Saunders Valves”) Valves and valve-relatedproducts We believe Saunders Valves’ international brand name is more well-known. Wecompete against Saunders Valves on the basis of price, delivery/installationspeed and service. Wenzhou Baiji Machinery ManufacturingCo., Ltd. (“Wenzhou Baiji”) Valves and valve-relatedproducts We compete against Wenzhou Baiji on the basis of product quality, deliveryspeed and service. Ningbo Information PharmaceuticalEquipment Co., Ltd. (“NingboInformation”) Pharmaceutical equipment Ningbo Information generally has lower prices and, we believe, lower visibilitythan our company. We compete against Ningbo Information on the basis ofquality, service and delivery speed. 32 Awards and Recognition Our CEO, Mr. Anyuan Sun, is a member of American Society of Mechanical Engineers (“ASME”). Our products meet ASME Bioprocessing EquipmentStandards (“BPE”). We have earned a certificate of ISO9001. All our products are designed and manufactured according to the standards of the InternationalStandardization Organization (“ISO”), German Institute for Standardization (“DIN”), Safety Management System (“SMS”), ASME and BPE. Year Award Regulatory Body Significance2007 AAA Credit Rating Hangzhou Credit Evaluation Company & Bank ofChina Zhejiang Branch AAA is the highest credit ranking available toChinese enterprises and evidences strong credit andability to repay debt. Longwan District Hi-Tech Enterprise Wenzhou Longwan District Government This award recognizes our R&D capabilities andtechnology and makes us eligible for beneficial taxpolicies. 2008 Chinese Meritorious Enterprise inFood and Pharmaceutical MachineryIndustry Base China Machinery Enterprise Management Association,Research Institute of Machinery Industry Economic &Management, & Wenzhou Food and PharmaceuticalMachinery Industry Association It is awarded for our contributions to industry andsociety. Zhejiang Province Small andMedium-sized Entities inTechnology Certificate Department of Science and Technology of ZhejiangProvince This award recognizes our R&D capabilities andtechnology and makes us eligible for policysupport available to technology based enterprises. Affiliate of the American Society ofMechanical Engineers The American Society of Mechanical Engineers Mr. Anyuan Sun is entitled to all the privilegesgranted by the Constitution of the Society. 33 Year Award Regulatory Body Significance2009 AAA Credit Rating Hangzhou Credit Evaluation Company & Bank ofChina Zhejiang Branch AAA is the highest credit ranking available to Chineseenterprises and evidences strong credit and ability torepay debt. AAA Certificate of EnterpriseCredit Grade China Medical Equipment EngineeringAssociation AAA is the highest credit ranking available to Chineseenterprises and evidences strong credit and ability torepay debt. Affiliate of the American Societyof Mechanical Engineers The American Society of Mechanical Engineers Mr. Anyuan Sun is entitled to all the privileges grantedby the Constitution of the Society. 2010 AAA Credit Rating Hangzhou Credit Evaluation Company & Bank ofChina Zhejiang Branch AAA is the highest credit ranking available to Chineseenterprises and evidences strong credit and ability torepay debt. Small and Medium-sizedEnterprise Technology InnovationFund Project Certificate China Department of Science and TechnologySmall and Medium-sized Enterprise TechnologyInnovation Fund Project Management Center This award granted us funding for research on ourIntelligent Control Valves project. Quality Management SystemCertificate China Classification Society CertificationCompany Our sanitary valves and pipe fittings conform to GB/T19001-2000 — ISO 9001:2000. 2011 Small and Medium-sizedEnterprise Technology InnovationFund Project Certificate China Department of Science and TechnologySmall and Medium-sized Enterprise TechnologyInnovation Fund Project Management Center This award granted us funding for research on ourIntelligent Control Valves project. Quality Management SystemCertificate China Classification Society CertificationCompany Our sanitary valves and pipe fittings conform to GB/T19001-2008 — ISO 9001:2008. Wenzhou Longwan Patent ModelEnterprise Wenzhou Longwan District Government It is awarded because we have many innovative patents. 2012 AAA Credit Rating Hangzhou Credit Evaluation Company & Bank ofChina Zhejiang Branch AAA is the highest credit ranking available to Chineseenterprises and evidences strongcredit and ability torepay debt. Zhejiang Province IndustrialProducts Executive StandardRegistration Certificate Wenzhou Quality Technical Supervising BureauLongwan Branch It is awarded as technical reference for the enterpriseorganizing production, sales and accepting productquality supervision and inspection, and signing tradecontracts. Membership of CAPE China Association For Pharmaceutical Equipment It is a national industry association. 34 Year Award Regulatory Body Significance2013 Quality Management SystemCertificate China Classification SocietyCertification Company Our sanitary valves and pipe fittings conform to GB/T 19001-2000 — ISO 9001:2000. 2015 Wenzhou Economic &Technology Development ZoneScience and TechnologyEnterprise Wenzhou Economic & TechnologyDevelopment Zone Science andTechnology Bureau This award recognizes us as an enterprise which complies with theindustrial policy of China and continues to conduct research anddevelopment to transform technology into product to form our coreintellectual property. Wenzhou City Science andTechnology (innovation)Enterprise Wenzhou Science and TechnologyBureau This award recognizes us as an enterprise which complies with theindustrial policy of China and continues to conduct research anddevelopment to transform technology into product to form our coreintellectual property. 2016 Quality Management SystemCertificate China Quality Certification Center Our production line (according to Quality Requirement) mainlyfocuses on valves and pipes conforms to ISO 9001:2008 GB/T19001-2008. 2018 High-tech Enterprise Certificate Zhejiang Science and TechnologyBureau & Zhejiang Finance Bureau This certificate reflects that the company is a high-tech enterprise,and its products have innovative competitiveness. Safety production standardizationcertificate Wenzhou Safety Production SupervisionBureau Indicates that the company’s production meets the requirements forsafe production. Research and Development We are committed to researching and developing valves for use in the pharmaceutical, biological, food and beverage, semi-conductor, electronic andother clean industries. We believe scientific and technological innovations will help our Company achieve its long-term strategic objectives. Our researchand 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, molddesign 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 inmaintaining 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 thatthe Company is current on advanced International Technology. It is through these collaborations that we have managed to secure important breakthroughsresulting in proprietary knowledge and patents. For the years ended December 31, 2018, 2017 and 2016, we spent $358,411, $508,282 and $33,847, respectively, on R&D. The decrease in R&Dexpense in fiscal 2018 was due to less R&D projects. However, we anticipate that we will continue to focus our research and development efforts ondeveloping new technology and improving existing products in the coming years. 35 Our Research Projects We have participated in following numerous scientific projects. Project Description Time Period Government Agency SubsidyPneumatic Diaphragm Valve Device 2007 – 2009 Bureau of Science and Technology of LongwanDistrict of Wenzhou City RMB 100,000 Butterfly Valve Pneumatic Actuator 2008 – 2010 Bureau of Science and Technology of WenzhouCity RMB 250,000 Intelligent Control Valve 2009 – 2012 Chinese Ministry of Science and Technology andZhejiang Bureau of Science and Technology RMB 1,050,000 Aseptic Diaphragm Remote Control 2011 – 2012 Bureau of Science and Technology of LongwanDistrict of Wenzhou City RMB 170,000 Intelligent and Efficient Development of Multi-ProcessValve 2012 – 2013 Bureau of Economic Development of Economic-Technological Development District of WenzhouCity RMB 100,000 In the above projects, the government agencies provided us subsidies to support us to develop various scientific research projects. These projects arefunded to encourage research and development. We have successfully developed all the products in the above projects which passed the examination of thegovernmental 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 valveon behalf of the Company, and the company was obligated to pay Zhejiang University a total of RMB 1 million (approximately $0.15 million) in severalinstallments. The Company made payments to Zhejiang University in accordance with the specific milestones stipulated in the agreement and a total of RMB0.65 million (approximately $0.1 million) as required by the agreement was paid as of December 31, 2018. The Company accounted for the payments asR&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 valvewhich can be wholly produced by ourselves. In addition, the agreement requires us to pay a total amount of RMB 0.35 million to Zhejiang Universitydepending 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 December 31, 2018, RMB0.15 million remains outstanding because we have not put any such products into market for sales, and Zhejiang University has never required us to pay forany 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 requiredamount 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 thepayment until the conditions in the agreement are met. If Zhejiang University were to demand payment at some time in the future prior to our determinationthat 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 haveliability 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 itsrich academic resources, the collaboration with Zhejiang University helps our operations by improving our R&D. In 2015, we began developing intelligent remote control service. We hope to use the internet of things to establish an intelligent remote control systemand a data center solutions division system. It will enable us to position, track and monitor the actual operation of the equipment of pharmaceuticalmanufacturers 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. 36 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 wehold are as follows: Patent Name Patent No. PatentType ApplicationDate IssuanceDate ExpirationDate OwnerValve pneumatic actuator with promptingswitch ZL 2010 2 0668775.3 Utility model 12/20/2010 7/20/2011 12/19/2020 XibolunAutomation Sampling valves ZL 2010 2 0668776.8 Utility model 12/20/2010 7/20/2011 12/19/2020 XibolunAutomation Three-way diaphragm valves ZL 2010 2 0668430.8 Utility model 12/20/2010 7/20/2011 12/19/2020 XibolunAutomation Microporous membrane filters ZL 2010 2 0668429.5 Utility model 12/20/2010 7/20/2011 12/19/2020 XibolunAutomation Tank bottom valve ZL 2010 2 0668772. X Utility model 12/20/2010 7/20/2011 12/19/2020 XibolunAutomation Angle seat valve ZL 2011 2 0513124.1 Utility model 12/9/2011 8/22/2012 12/8/2021 XibolunAutomation Diaphragm valve body ZL 2011 2 0512271.7 Utility model 12/9/2011 8/22/2012 12/8/2021 XibolunAutomation Diaphragm valve ZL 2011 2 0512279.3 Utility model 12/9/2011 8/29/2012 12/8/2021 XibolunAutomation Angle seat valve ZL 2011 2 0510956.8 Utility model 12/9/2011 8/22/2012 12/8/2021 XibolunAutomation A type of valve stem of sterile respondentvalve ZL 2014 2 0616427. X Utility model 10/23/2014 2/25/2015 10/22/2024 XibolunAutomation A type of sterile respondent valve ZL 2014 2 0616627.5 Utility model 10/23/2014 4/1/2015 10/22/2024 XibolunAutomation A type of diaphragm valve with doublediaphragms 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 XibolunAutomation A type of blow-down valve ZL 2014 2 0616636.4 Utility model 10/23/2014 3/11/2015 10/22/2024 XibolunAutomation A type of valve pneumatic actuator ZL 2014 2 0617900.6 Utility model 10/23/2014 2/25/2015 10/22/2024 XibolunAutomation A type of sanitary grade ball valve ZL 2014 2 0616568.1 Utility model 10/23/2014 2/25/2015 10/22/2024 XibolunAutomation A type of manual and pneumatic combinesterile sampling valve ZL 2014 2 0027096.6 Utility model 1/16/2014 6/25/2014 1/15/2024 Anyuan Sun 37 Patent Name Patent No. PatentType ApplicationDate IssuanceDate ExpirationDate OwnerProcess control diaphragm valve ZL 2012 3 0602853.4 Design 12/5/2012 5/1/2013 12/4/2022 XibolunAutomation Process control angle seat valve ZL 2012 3 0602850.0 Design 12/5/2012 4/17/2013 12/4/2022 XibolunAutomation 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 provideus 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 patentsto 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 ChiefExecutive Officer: Trademarks Reg. No. IssueDate ExpirationDate Owner Goods/Services 3903979 12/28/2005 12/27/2025 Anyuan Sun Metal pipe elbows; metal pipe joints; metal valves (notmachine accessories); metal pipe fittings; additional materialsfor metal pipe; metal reinforce materials for pipes; metal pipeclams; 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, metalcollecting tubes; metal sleeves 14488573 6/14/2015 6/13/2025 XibolunAutomation Construction status check; construction; heating equipmentinstallation and repair; indoor construction; machineinstallation, maintenance, and repair; medical equipmentinstallation and repair; vehicle maintenance service; machineinstallation and repair; sanitary equipment installation andrepair; water pipe installation 14488475 7/28/2015 7/27/2025 XibolunAutomation Steel alloy; metal valves (not machine accessories); metalpipes; 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 thatprovides 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’sdecision; 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 transferthe trademarks to our company, either. Also, Mr. Anyuan Sun holds the copyright of a computer software below: Copyright Name Reg. No. CompletionDate OwnerProportioning locator control system V1.0 2013SR072143 9/1/2012 Anyuan Sun 38 Our company has the license to use the copyright above pursuant to an agreement that provides us the right, without further payment, to use suchcopyright 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 licensethe 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 December 31, 2018, we employed total of 88 full-time and no part-time employees in the following functions: Department December 31,2018 December 31,2017 December 31,2016 December 31,2015Senior Management 10 11 11 11Research and Development 10 9 10 10Production 56 54 50 50Sales 12 15 16 16Total 88 89 87 87 Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any workstoppages. We are required under PRC law to make contributions to employee benefit plans at specified percentages of our after-tax profit. In addition, we arerequired by PRC law to cover employees in China with various types of social insurance. We believe that we are in material compliance with the relevantPRC 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 locallaws relating to matters such as safe working conditions, manufacturing practices, environmental protection and fire hazard control. We believe we are incompliance 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 getspecial license or approval for our business operation. Meanwhile, we have successfully obtained two licenses for manufacture and installation of specialequipment from regulatory authorities in recent months. However, the licenses have to be renewed in October 2019. Also, unanticipated changes in existingregulatory requirements or adoption of new requirements may force us to incur more cost to maintain the licenses and failure to do so could materiallyadversely 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 — Unqualifiedindividual subcontractors may bring joint liability to us.” According to Construction Law and Qualification Standard for Labor Subcontracting inConstruction Business of the PRC, individual contractors are not in a position to obtain any qualification of labor subcontracting. So the subcontractingcontracts by Xibolun Equipment and Xibolun Automation to such individual contractors are under the risk of being declared of avoidance of qualificationby applicable courts. Article 29 of the Construction Law requires that “the overall contractors and subcontractors shall bear joint responsibilities to projectowners for the subcontracted projects”. Even though our PRC entities Xibolun Equipment and Xibolun Automation are very cautious with subcontractingthe projects to other parties, there are still possibilities that our PRC entities may subcontract the projects to individuals or parties without requiredqualifications. Despite the facts that the law enforcement and regulation on these types of subcontracting are not very strict, if the construction completed byunqualified individual subcontractors does not meet required quality and accident occurs, our PRC entities may jointly bear the subsequences pursuant tothe Article 64 of the Construction Law. Also, according to the Article 54 of the Regulation on the Quality Management of Construction Projects, theliabilities for the subsequences could be indemnifying the damages and paying penalty which could be ranging from five hundred thousand up to onemillion RMB. 39 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 GeneralPrinciples of the Civil Laws of the PRC, which became effective on January 1, 1987 and were amended on August 27, 2009, manufacturers or retailers ofdefective 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 theLaw 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 andinterests of end-users and consumers and to strengthen the supervision and control of the quality of products. If our products are defective and cause anypersonal 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 adefective medical device can claim damages from either the medical institution or the manufacturer of the defective device. If our valve products andinstallation and construction services injure a patient, and if the patient claims damages from the medical institution, the medical institution is entitled toclaim 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 thereasonable costs and expenses for treatment and rehabilitation, as well as death compensation and funeral costs and expenses if it causes the death of thevictim. 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: ●The Foreign Currency Administration Regulations (1996), as amended on January 14, 1997 and August 5, 2008; and ●The Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules. 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, suchas, loans, investment in securities and repatriation of investments, however, remains subject to the registration of the SAFE or its local counterparts asrequired by law. Under the Administration Rules, foreign-invested enterprises may buy, sell and remit foreign currencies at banks authorized to conductforeign exchange transactions for settlement of current account transactions after providing valid commercial documents and, in the case of capital accountitem transactions, only after registration with the SAFE and, as the case may be, other relevant PRC government authorities as required by law. Capitalinvestments directed outside of China by foreign-invested enterprises are also subject to restrictions, which include registration filing with MOFCOM. If theinvestment 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 politicaland economic conditions. The conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank ofChina. 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, theRenminbi will be permitted to fluctuate within a band against a basket of certain foreign currencies. We receive a significant portion of our revenue inRenminbi, which is not a freely convertible currency. Under our current structure, our income will be primarily derived from dividend payments from oursubsidiaries 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 usif Renminbi depreciated. 40 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 RoundtripInvestment 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 offshoreentity (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 orstructure 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. Theprincipal regulations governing the distribution of dividends paid by wholly foreign-owned enterprises include: ●Corporate Law (1993) as amended in 2005 and 2013; ●The Wholly Foreign-Owned Enterprise Law (1986), as amended in 2000; ●The Wholly Foreign-Owned Enterprise Law Implementation Regulations (1990), as amended in 2001; and ●The Enterprise Income Tax Law (2007) and its Implementation Regulations (2007). Under these regulations, wholly foreign-owned and joint venture enterprises in China may pay dividends only out of their accumulated profits, if any, asdetermined 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 aportion 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 theImplementation Regulations on the Enterprise Income Tax Law, both of which became effective on January 1, 2008. Under this law and its implementationregulations, 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 forTaxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly adopted the Regulation on Mergers and Acquisitions of DomesticEnterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006. The M&A Rules purport, among other things, to requirethat offshore SPVs that are controlled by PRC companies or individuals and that have been formed for overseas listing purposes through acquisitions of PRCdomestic interests held by such PRC companies or individuals, obtain the approval of the CSRC prior to publicly listing their securities on an overseas stockexchange. On September 21, 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it bySPVs seeking CSRC approval of their overseas listings. 41 While the application of the M&A Rules remains unclear, our prior PRC counsel, Yunnan Tianwaitian Law Firm, advised us that, based on theirunderstanding of the current PRC laws and regulations as well as the notice announced on September 21, 2006: ●the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings such as our initial public offering are subject tothe CSRC approval procedures under the M&A Rules; and ●despite the lack of any definitive rule or interpretation from CSRC, the main purpose of the M&A rule is for national security and national industrialpolicy and so far none of the Chinese companies that have completed their public listing in the U.S. have obtained such approval; and ●Our business operations in China do not belong to a prohibited industry by foreign investment; and ●Our M&A to our Chinese subsidiary companies have all obtained properly the approval from local governmental authorizations; and ●Our BVI company is not established by a Chinese citizen. Accordingly, although the purpose of BVI incorporation is for overseas listing, the M&Arule should not apply to us. 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 orother PRC regulatory agencies, subsequently determine that CSRC approval was required for our initial public offering, we may need to apply for remedialapproval from the CSRC and we may be subject to penalties and administrative sanctions administered by these regulatory agencies. These regulatoryagencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, or take other actions that could materiallyadversely affect our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our Class A common shares.Consequently, even though our PRC counsel believes the probability for the aforementioned actions is small, if you engage in market trading or otheractivities 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 our initial public offering, we may be unable to obtain a waiver of the CSRCapproval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding the CSRC approvalrequirements could have a material adverse effect on the trading price of our Class A common shares. Restriction on Foreign Ownership The principal regulation governing foreign ownership of businesses in the PRC is Guidance Catalogue for Industrial Structure Adjustments (2015edition), effective as of April 10, 2015 (the “Catalogue”). The Catalogue classifies the various industries into three categories: encouraged, restricted andprohibited. Our company’s primary market is the pharmaceutical industry. We are not engaged in any activities placing us in the encouraged, restricted orprohibited categories and so it could be inferred that we are engaged in a permitted industry for foreign investment. Such a designation offers businessescertain advantages. For example, businesses engaged in permitted industries: ●are not subject to restrictions on foreign investment, and, as such, foreigners can own a majority interest in Sino-foreign joint ventures or establishwholly-owned foreign enterprises in the PRC; ●provided such business has total investment of less than $100 million, are subject to regional (not central) government examination and approvalwhich are generally more efficient and less time-consuming. Our current total investment is less than $100 million. 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. 42 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 yetunknown. In the draft, foreign investment in China will be classified into three categories: prohibited, restricted, and others. This idea of classification issimilar as previously published Catalogue. If the foreign investment falls in the areas that are closely related to national security, then it will be prohibited; ifthe 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 Commerceadopts 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 businesswill 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 orrestricted, 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 mayface 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 theWholly Foreign Owned Enterprise Law, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Contractual Joint Venture Enterprise Law, allas amended from time to time, and their respective implementing rules; the Tentative Provisions on the Foreign Exchange Registration Administration ofForeign-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 theoriginal 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 onAdministration on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation rules, and theAdministration 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 differencebetween 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 PRCTrademark Law adopted by the State Council in 2002 and 2013. The Trademark Office under the SAIC handles trademark registrations. Trademarks can beregistered 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 PRCTrademark Law has adopted a “first-to-file” principle with respect to trademark registration. Where a trademark for which a registration application has beenmade is identical or similar to another trademark which has already been registered or been subject to a preliminary examination and approval for use on thesame type of or similar commodities or services, the application for such trademark registration may be rejected. Any person applying for the registration of atrademark may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been used byanother party and has already gained a “sufficient degree of reputation” through such other party’s use. Trademark license agreements must be filed with theTrademark 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). 43 Regulations on Patents The PRC Patent Law provides for patentable inventions, utility models and designs, which must meet three conditions: novelty, inventiveness andpractical applicability. The State Intellectual Property Office is responsible for examining and approving patent applications. A patent is valid for a term oftwenty 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 nonexclusivelicenses 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 enterprisestypically pay an enterprise income tax at the rate of 25%. An enterprise established outside of the PRC with its “de facto management bodies” located withinthe PRC is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a PRC domestic enterprise for enterprise income taxpurposes. The implementation rules of the EIT Law define “de facto management body” as a managing body that in practice exercises “substantial andoverall 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 aPRC-controlled offshore incorporated enterprise is located in China. Pursuant to the SAT Circular 82, a PRC-controlled offshore incorporated enterprise hasits “de facto management body” in China only if all of the following conditions are met: (a) the senior management and core management departments incharge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination orapproval 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 thePRC. The SAT Bulletin 45, in effect from September 2011, provides more guidance on the implementation of the SAT Circular 82 and provides forprocedures and administration details on determining resident status and administration on post-determination matters. Although the SAT Circular 82 andthe SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals orforeign individuals, the determining criteria set forth there may reflect the SAT’s general position on how the “de facto management body” test should beapplied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or PRC enterprise groups orby 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 foreigncompany controlled by individuals. We may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification wouldlikely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and thevalue 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 inJanuary 2008, as amended subsequently in 2012, employers must execute written labor contracts with full-time employees in order to establish anemployment relationship. All employers must compensate their employees equal to at least the local minimum wage standards. All employers are required toestablish a system for labor safety and sanitation, strictly abide by state rules and standards and provide employees with appropriate workplace safetytraining. 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 ofsuch outstanding amounts of contributions to such plans in our financial statements, any failure to make sufficient payments to such plans would be inviolation 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 thecontributions for such plans as well as to pay late fees and fines. 44 C.Organizational structure Corporate Structure Below is a chart illustrating our current corporate structure: 45 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 andinstallation service for pharmaceutical engineering construction in the People’s Republic of China. Beginning with the commencement of its installationservices 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. AnyuanSun, the Chairman of the Board and CEO of the Company, is the ultimate controlling shareholder (the “Controlling Shareholder”) of the Company. TheCompany has an indefinite term. The agent of the Company in the United States is Mr. Yung Kong Chin, 136-40 39th Avenue, 602B Garden Plaza, FlushingNew York, 11354. As part of the reorganization as described below (the “Reorganization”), the Company became the ultimate parent company of (i) Hong Kong XibolunTechnology Limited (“HK Xibolun”), (ii) Wenzhou Xibolun Fluid Equipment Co., Limited (“Xibolun Equipment”) and (iii) Zhejiang Xibolun AutomationProject 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, and70% 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. 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 iswholly 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 ininstallation services for pharmaceutical engineering construction since its incorporation in 2012. Reorganization For the purpose of our initial public offering, we reorganized our company as described below. As part of this Reorganization, Hebron Technologybecame the ultimate holding company of HK Xibolun, Xibolun Automation and Xibolun Equipment, which were all controlled by the ControllingShareholder before the Reorganization. In some cases, the equity transfer agreement entry date and the actual effective may be different. According to PRClaw, since Xibolun Equipment and Xibolun Automation are foreigner invested companies, the share transfer is effective as of the approval date. As HKXibolun is incorporated in Hong Kong, its equity transfer is effective as of the transfer agreement entry date. In the following statements regardingreorganization, the equity transfer effective dates of Xibolun Equipment and Xibolun Automation are as approval date while the equity transfer effectivedates of HK Xibolun are as transfer agreement entry date. 46 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 venturestatus according to Chinese laws because 70% of the equity was initially held by Wenzhou City Xibolun Fluid Equipment Factory (“Xibolun Factory”), aChinese 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 ControllingShareholder, 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, byholding shares of 70% and 30%, respectively. On June 30, 2011, HK Xibolun entered into an equity transfer agreement with Mr. Xiang, in which HK Xibolunagreed to acquire 30% ownership interest of Xibolun Equipment for RMB 300,000. The transfer was effective on July 21, 2011. On July 29, 2013, theControlling shareholder transferred his 70% ownership interest in Xibolun Equipment to Xibolun Automation for RMB 700,000 equal to 70% of theregistered 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 ControllingShareholder owned 70% of the equity of Xibolun Equipment, and an offshore and non-Controlling Shareholder held entity was needed to hold 30% of theshares of Xibolun Equipment in order to maintain its Sino-Foreign joint venture status, Mr. Lingmin Sun nominally held 100% of the equity of HK Xibolunfor the Controlling Shareholder pursuant to a Shareholding Entrustment Agreement by and between the controlling shareholder and Mr. Lingmin Sun enteredon May 21, 2011. According to the Shareholding Entrustment Agreement mentioned above, the controlling shareholder actually owned 100% of the sharesof 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 dutiesregarding 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. LingminSun 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 theShareholding Entrustment Agreement by and between Mr. Lingmin Sun and Mr. Shih Chang Chen entered on May 21, 2012, they both agreed that the equityof 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 ofMr. 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 initialpublic offering (“IPO”) of its equity securities, Mr. Shih Chang Chen transferred all his equity in HK Xibolun to Hebron Technology without anyconsideration. 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%), andZhejiang 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 whichHK Xibolun acquired Hebron Technology’s 80% ownership interest, Xibolun Equipment’s 10% ownership interest and Zhejiang Xibolun’s 10% ownershipinterest in Xibolun Automation without consideration. The transfers were effective as of December 5, 2012. 47 Mr. Anyuan Sun initially owned 70% of Xibolun Equipment while HK Xibolun owns the other 30%. HK Xibolun was established as an offshore entityby Mr. Lingmin Sun as a nominal owner. In order to meet China’s regulation on maintaining Sino-Foreign joint venture status, Mr. Anyuan Sun designatedhis 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 onbehalf of Mr. Lingmin Sun, who nominally held HK Xibolun for Mr. Anyuan Sun. Mr. Lingmin Sun had no voting rights or equity transfer rights regardingthe 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 ofXibolun Equipment to Xibolun Automation, Xibolun Automation now owns 70% of Xibolun Equipment while HK Xibolun still owns the other 30%. HKXibolun also owns 100% of the shares of Xibolun Automation. After the reorganization process, HK Xibolun, Xibolun Equipment and Xibolun Automationdirectly 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 theapproval of Mr. Anyuan Sun, Mr. Sun Zhang nominally holds 49.82% of Hebron Technology’s issued and outstanding shares, while Mr. Anyuan Sun holds15% of the Company’s shares through Wise Metro Development Co., Ltd., a British Virgin Islands company. Also, Mr. Lingmin Sun holds 9% of theCompany’s shares through Vast Express Development Co. Ltd., a British Virgin Islands company, and Mr. Chengchun Wang holds 9% of the Company’sshares through Able State International Industrial Co., Ltd., a British Virgin Islands company. Both Mr. Anyuan Sun and Mr. Lingmin Sun are Mr. SunZhang’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 thevoting 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 todirect 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’sChairman of the Board and Chief Executive Officer who actually controls the board and runs the Company, Mr. Anyuan Sun is the ultimate controllingshareholder of the Company in control of a total of approximately 68% of the Company’s issued and outstanding shares. Based on the above, before and afterthe reorganization, Hebron Technology, HK Xibolun, Xibolun Equipment and Xibolun Automation are all considered under common control by Mr. AnyuanSun. The above mentioned transactions were accounted for in a manner similar to a recapitalization. Hebron Technology and its wholly-owned subsidiary HKXibolun, who own 100% interest of Xibolun Automation and Xibolun Equipment, were effectively controlled by the same Controlling Shareholder beforeand after the reorganization and therefore the Reorganization is considered under common control. The consolidation of Hebron Technology and itssubsidiaries has been accounted for at historical cost as of the beginning of the first period presented in the accompanying consolidated financial statements. 48 D.Property, plant and equipment 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 landuse 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 GroundFloor AreaNo. 936, Jinhai 2rd Road, Konggang New Area, Longwan District Wenzhou City,Zhejiang Province, China (C05, Binhai Ind. Park, Dalangqiao Village, ShachengTown, Longwan District, Wenzhou). Jan. 1, 2012 – Dec. 31, 2036 17,537 m2 Room 332 (self-assigned number), No. 1192, Third floor, Husong Highway, SongjiangDistrict, Shanghai, China July 1, 2016 – June 30, 2019 82 m2 Airport Xiaowei Beiyuan, Shacheng standard facility, Wenzhou, Zhejiang Province,China January 20, 2017 – May 30, 2037 1,860 m2 Our property in No.936 Jinhai 2nd Ave. Airport New District, Longwan District, Wenzhou, Zhejiang Province, China is our central office andmanufacturing facility. At this location, we have a variety of heavy equipment required to produce our valves, pipefittings and other products, includingcomputer numerical control (“CNC”) milling machines, office equipment and product testing equipment. Our office in Shanghai is a sales offices and containtypical 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 ourproperties for the purposes we currently use them or intend to use them in the future. Item 4A.Unresolved Staff Comments None. 49 Item 5.Operating and Financial Review and Prospects The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidatedfinancial statements and related notes that appear in this annual report. In addition to historical consolidated financial information, the followingdiscussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussedin the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annualreport, particularly in “Risk Factors.” A.Operating Results Overview We are engaged in the manufacture of fluid equipment including valves, pipe fittings and others, with particular emphasis on the manufacture andinstallation of intelligentized valves, used in the pharmaceutical, biological, food and beverage, and other clean industries. Our products and services areprimarily 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 majorityof 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 havehistorically 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 frominstallation services were approximately 68%, 81% 90% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. (2)Fluid equipment. We develop and manufacture valves and pipe fittings for use in pharmaceutical, biological, food and beverage, and other cleanindustries with an established sales and distribution network. Revenues from the sales of fluid equipment constitute approximately 32%, 19% and10% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. The following table presents an overview of our results of operations for the year ended December 31, 2018 and 2017: Year ended December 31, Changes 2018 2017 ($) (%) Revenue $25,290,060 $29,200,445 (3,910,385) (13)%Cost of revenue 17,712,108 18,756,284 (1,044,176) (6)%Gross profit 7,577,952 10,444,161 (2,866,209) (27)%General and administrative 3,298,188 3,683,594 (385,406) (10)%Selling expenses 1,337,321 2,187,253 (849,932) (39)%Bad debt expenses 7,913,442 187,715 (7,725,727) 4,116%Research and development expenses 358,411 508,282 (149,871) (29)% Total operating expenses 12,907,362 6,566,844 6,340,518 97%(Loss) income from operations (5,329,410) 3,877,317 (9,206,727) (237)%Other income, net (426,585) 377,174 (803,759) (213)%Interest expense (208,306) (56,953) (151,353) 266%Income from investment 168,534 - 168,534 - Total other (expense) income, net (466,357) 320,221 (786,578) (246)%(Loss) income before income taxes (5,795,767) 4,197,538 (9,993,305) (238)%Income taxes (recovery) (651,052) (2,938,849) 2,287,797 (78)%Net (loss) income (5,144,715) 7,136,387 (12,281,102) (172)%Foreign currency translation (loss) (1,755,528) 2,249,081 (4,004,609) (178)%Comprehensive (loss) income $(6,900,243) $9,385,468 (1,6285,711) (174)% 50 The following table presents an overview of our results of operations for the year ended December 31, 2017 and 2016: Year ended December 31, Changes 2017 2016 ($) (%) Revenue $29,200,445 $27,097,836 2,102,609 8%Cost of revenue 18,756,284 16,636,258 2,120,026 13%Gross profit 10,444,161 10,461,578 (17,417) 0%General and administrative 3,683,594 932,911 2,750,683 295%Selling expenses 2,187,253 1,742,147 445,106 26%Bad debt expenses (recovery) 187,715 (227,873) 415,588 (182)%Research and development expenses 508,282 33,847 474,435 1,402% Total operating expenses 6,566,844 2,481,032 4,085,812 165%Income from operations 3,877,317 7,980,546 (4,103,229) (51)%Other income, net 377,174 6,431 370,743 5,765%Interest expense (56,953) (49,625) (7,328) 15% Total other (expense) income, net 320,221 (43,194) 363,415 (841)%Income before income taxes 4,197,538 7,937,352 (3,739,814) (47)%Income taxes provision (recovery) (2,938,849) 2,002,467 (4,941,316) (247)%Net income 7,136,387 5,934,885 1,201,502 20%Foreign currency translation (loss) 2,249,081 (1,401,124) 3,650,205 (261)%Comprehensive income $9,385,468 $4,533,761 4,851,707 107% Revenue The following table sets forth the breakdown of our revenue for the year ended December 31, 2018 and 2017: Years ended December 31, Changes Changes 2018 % 2017 % ($) (%) Installation service $17,297,212 68% $23,748,141 81% (6,450,929) (27)%Fluid equipment sales 7,992,848 32% 5,452,304 19% 2,540,544 47%Total revenue $25,290,060 $29,200,445 (3,910,385) (13)% The following table sets forth the breakdown of our revenue for the year ended December 31, 2017 and 2016: Years ended December 31, Changes Changes 2017 % 2016 % ($) (%) Installation service $23,748,141 81% $24,299,062 90% (550,921) (2)%Fluid equipment sales 5,452,304 19% 2,798,774 10% 2,653,530 95%Total revenue $29,200,445 $27,097,836 51 Revenue from installation service was $17.3 million and $23.7 million for the years ended December 31, 2018, and 2017, respectively, representing adecrease of approximately of $6.45 million, due to a decrease in project volume during fiscal 2018. In fiscal 2018, the Company had 6 major installationprojects, comparing to 12 installation projects in fiscal 2017. However, the average individual contract amount increased from $2.0 million in fiscal 2017 to$2.6 million in fiscal 2018. Revenue from installation service was $23.7 million and $24.3 million for the years ended December 31, 2017, and 2016,respectively, representing a decrease of approximately of $0.55 million, due to a decrease in contract amount during fiscal 2017. The details are illustrated inthe table below: Number of Major Projects Average ProjectRevenue (USD) 2018 6 $ 2.6 million 2017 12 $ 2.0 million 2016 10 $ 2.4 million For the years ended December 31, 2018 and 2017, revenue from sales of our fluid equipment was $8.0 million and $5.5 million, respectively,representing an increase of approximately $2.54 million primarily due to the increase of valve demand resulting from our efforts to expand our sales networkand increase marketing activities. For the years ended December 31, 2017 and 2016, revenue from sales of our fluid equipment was $5.5 million and $2.8million, respectively, representing an increase of approximately $2.65 million primarily due to the increase of Valve demand resulting from our efforts toexpand our sales network and increase marketing activities. Cost of revenue The following table presents a breakdown of our cost of revenue for the year ended December 31, 2018 and 2017. Years ended December 31, Changes Changes 2018 % 2017 % ($) (%) Installation service 10,941,208 62% 14,278,067 76% (3,336,859) (23)%Fluid equipment sales 6,770,900 38% 4,478,217 24% 2,292,683 51%Total cost of revenue 17,712,108 18,756,284 (1,044,176) The following table presents a breakdown of our cost of revenue for the year ended December 31, 2017 and 2016. Years ended December 31, Changes Changes 2017 % 2016 % ($) (%) Installation service 14,278,067 76% 14,363,420 86% (85,352) (1)%Fluid equipment sales 4,478,217 24% 2,272,838 14% 2,025,379 97%Total cost of revenue 18,756,284 16,636,258 For fiscal 2018 and 2017, cost of installation services were $10.9 million and $14.3 million, respectively, representing a decrease of $3.3 million, whichwas in line with the decrease in the installation revenue in fiscal 2018. For fiscal 2017 and 2016, cost of installation services were $14.3 million and $14.4million, respectively, representing a decrease of $0.08 million, which was in line with the decrease in the installation revenue in fiscal 2017. For fiscal 2018 and 2017, cost of our fluid equipment sales were $6.8 million and $4.5 million, respectively, representing an approximate increase of$2.3 million, which was consistent with the 47% increase in fluid equipment sales in fiscal 2018. For fiscal 2017 and 2016, cost of our fluid equipment saleswere $4.5 million and $2.3 million, respectively, representing an approximate increase of $2.0 million, which was consistent with the 95% increase in thefluid equipment sales in fiscal 2017. 52 Gross profit The following table presents the gross profit of our businesses for the year ended December 31, 2018 and 2017: Years ended December 31, Changes Changes 2018 % 2017 % ($) (%) Installation service 6,356,004 37% 9,470,074 40% (3,114,070) (33)%Fluid equipment sales 1,221,948 15% 974,087 18% 247,861 25%Gross profit 7,577,952 30% 10,444,161 36% (2,886,209) (27)% The following table presents the gross profit of our businesses for the year ended December 31, 2017 and 2016: Years ended December 31, Changes Changes 2017 % 2016 % ($) (%) Installation service 9,470,074 40% 9,935,642 41% (465,568) (5)%Fluid equipment sales 974,087 18% 525,936 19% 448,151 85%Gross profit 10,444,161 36% 10,461,578 39% (17,417) (0.2)% The gross profit percentage for fiscal 2018 decreased 6% from fiscal 2017, primarily because the gross profit from installation sales decreased for fiscal2018 as compared to fiscal 2017. Gross profit from installation service for fiscal 2018 decreased approximately $3.1 million or 33% as compared to fiscal2017. The gross profit percentage for fiscal 2017 decreased 3% from fiscal 2016, primarily because the gross profit from installation sales decreased for fiscal2017 as compared to fiscal 2016. Gross profit from installation service for fiscal 2017 decreased approximately $0.5 million or 5% or as compared to fiscal2016. Gross profit from our fluid equipment sales increased 25% in fiscal 2018 as compared to fiscal 2017. The gross profit percentage from fluid equipmentsales sight decreased from 18% in fiscal 2017 to 15% in fiscal 2018. Gross profit from our fluid equipment sales increased 85% in fiscal 2017 as compared to fiscal 2016. The gross profit percentage from fluid equipmentsales sight decreased from 19% in fiscal 2016 to 18% in fiscal 2017. 53 Expenses Years ended December 31, Changes Changes 2018 % 2017 % ($) (%) General and administrative expenses 3,298,188 26% 3,683,594 56% (385,406) (10)%Selling expense 1,337,321 10% 2,187,253 33% (849,932) (39)%Bad debt expenses 7,913,442 61% 187,715 3% 7,725,727 4,116%Research development expenses 358,411 3% 508,282 8% (149,871) (29)%Total operating expense 12,907,362 6,566,844 6,340,518 97% Years ended December 31, Changes Changes 2017 % 2016 % ($) (%) General and administrative expenses 3,683,594 56% 932,911 38% 2,750,683 295%Selling expense 2,187,253 33% 1,742,147 70% 445,106 26%Bad debt expenses (recovery) 187,715 3% (227,873) (9)% 415,588 (182)%Research development expenses 508,282 8% 33,847 1% 474,435 1,402%Total operating expense 6,566,844 2,481,032 4,085,812 165% General and administrative expenses For fiscal 2018, our general and administrative expenses were $3.3 million, representing an approximate decrease of $0.4 million compared to fiscal2017. The decrease in general and administrative expenses was mainly due to the Company spent less professional fees in fiscal 2018. In fiscal 2017, theCompany had more consulting and professional services related to acquire new technology and mergers and acquisitions (M&A). For fiscal 2017, our general and administrative expenses were $3.7 million, representing an approximate increase of $2.8 million compared to fiscal2016. The increase in general and administrative expenses was mainly due to the Company incurring approximately $0.8 million in expenses for consultingrelated to acquire new technology for improving its manufacturing and installation processes, approximately $0.8 million in expenses for consulting relatedto mergers and acquisitions (M&A). In addition, investor’s relations and NASDAQ fees increased $0.13 million due to the Company’s listing on NASDAQ inDecember 2016. In addition, conference expenses increased $0.22 million due to the Company’s personnel attending oversea exhibitions. 54 Selling expense For the fiscal 2018, our selling expenses were $1.3 million, representing a 39% decrease from fiscal 2017. The decrease was mainly due to less marketingactivities related to Company listing in fiscal 2018. For the fiscal 2017, our selling expenses were $2.2 million, representing a 26% increase from fiscal 2016. The increase was mainly due to more marketingactivities were incurred after the Company listed in NASDAQ in December 2016. Bad debt expenses (recovery) For the fiscal 2018, we recorded a bad debt expense of approximately $7.9 million. For the fiscal 2017 and 2016, we had a bad debt expense ofapproximately $0.2 million and a bad debt recovery of approximately 0.2 million. The increase of bad debt expenses was mainly due to we recordedapproximately $7.6 million bad debt allowance for our prepayments and advances to suppliers in fiscal 2018. Research and development expenses For fiscal 2018, our research and development (R&D) expenses were $0.4 million, representing a decrease of $0.1 million compared to $0.5 million inresearch and development expenses in fiscal 2017. The decrease in R&D expense was due to less investment on R&D devices in fiscal year 2018. For fiscal 2017, our research and development (R&D) expenses were $0.5 million, representing an increase of $0.5 million compared to $33,847 inresearch and development expenses in fiscal 2016. The increase in R&D expense was due to an increase in the investment on R&D activities in developingintellectual valve controller system. Interest expense Our interest expenses for fiscal 2018 were $208,306, representing a 266% increase compared to $56,953 in fiscal 2017 due to higher loan balance andhigher interest rate in fiscal 2018. Our interest expenses for fiscal 2017 were $56,953, representing a 15% increase compared to $49,625 in fiscal 2016 due to higher loan balance andhigher interest rate in fiscal 2017. Other income (expense), net Other income (expense), net is used to record our non-operating income and expense, including government grants and other expenses. For the yearsended December 31, 2018, the Company had a net other income expense of $426,585. For the year ended December 31, 2017 and 2016, the other income, netwas $377,174 and $6,431 respectively. The decrease in other income for the year ended December 31, 2018 was due to net loss from disposition of fixedassets. 55 Income taxes and other taxes For years ended December 31, 2018, Xibolun Automation is recognized as a High-technology Company by Chinese government, the revenues generatedby Xibolun Automation were subject to a favorable income tax rate of 15%. The High-technology certificate is valid for three year starting from November30, 2018 and is subject to renewal. Xibolun Equipment is subject to corporate income tax at unified rate of 25%. For the years ended 2017 and 2016,revenues generated in China were subject to corporate income tax at a unified rate of 25%. The recovery for income taxes benefit was $0.7 million,representing an effective tax rate of negative 11.2%. The provision for income taxes decreased by $2.3 million in fiscal 2018 compared to fiscal 2017, which was mainly because the Company reversed theaccumulated tax liabilities before January 1, 2015 of approximately $5.0 million in fiscal 2017, as well as the Company had a net loss in fiscal 2018. Theeffective tax rate in fiscal 2018 were approximately negative 11.2%, comparing to the effective tax rate of approximately negative 70% for fiscal year 2017;the significant change was mainly due to the income tax settlement with the local tax authority. The provision for income taxes decreased by $4,941,316 in fiscal 2017 compared to fiscal 2016, which was mainly because the Company reversed theaccumulated tax liabilities before January 1, 2015 of approximately $5.0 million, as well as the decrease of income before taxes. The effective tax rate fiscalin 2017 were approximately (70)%, a significant decrease from the effective tax rate of approximately 25% for fiscal year 2016; the decrease was mainly dueto the income tax settlement with the local tax authority. The provision for income taxes increased by $384,716 in fiscal 2016 compared to fiscal 2015, which are consistent with the increase in the incomebefore taxes. The effective tax rate fiscal in 2016 were approximately 25%, slightly decreased from the effective tax rate of approximately 27% for fiscal year2015. In the normal course of its business, the Company, in particular including Xibolun Automation and Xibolun Equipment, may be subject to challengesfrom various PRC taxing authorities regarding the amounts of taxes due. The Company’s management believes the Company has paid or accrued for all taxesowed by the Company. As of December 31, 2018, 2017 and 2016, the Company had accrued total tax liabilities of $9.1 million, $7.1 million and $8.7million, respectively, related to taxable years since the inception. According to PRC taxation regulation and administrative practice and procedures, thestatute of limitation on the tax authority’s audit or examination of previously filed tax returns expires three years from the date they were filed. As ofDecember 31, 2017, the tax payable before adjustment was $12.0 million. The Company obtained a written statement from the local tax authority that noadditional taxes are due as of December 31, 2014. Based on these facts, the Company reversed the accrued tax liabilities in the total amount of approximately$5.0 million relating to the tax liabilities accrued for the period prior to January 1, 2015, resulting in the decrease of accrued tax liabilities fromapproximately $12.0 million to $7.1 million as of December 31, 2017. The Company has not made any additional tax payments since 2015 and will continueto discuss with the local tax authority to try to settle the remaining tax liabilities as soon as practicable, mostly related to its unpaid income tax and businesstax, both of which are governed by the local tax authority. The total amount of unpaid tax liabilities was accrued based on the calculation using the current prevailing tax rates without including potential interestand penalties because management cannot be certain as to how much interest and penalties would be assessed, if any. Those potential interest and penaltyliabilities are contingent upon the outcome of tax settlement and management estimates that the potential contingent loss related to potential interest andpenalties could be Nil or as high as $1.4 million based on rates stipulated by the tax authority. Due to uncertainties associated with the status ofexaminations, including the protocols of finalizing audits by the relevant tax authorities, there is a high degree of uncertainty regarding the future cashoutflows associated with the interest and penalties on these unpaid tax balances. The final outcome of this tax uncertainty is dependent upon various mattersincluding tax examinations, interpretation of tax laws or expiration of the statute status of limitations. As the ongoing settlement discussions continue,management believes that it is more likely than not that the Company will not have to pay any interest and penalties associated with the unpaid taxes. 56 B.Liquidity and Capital Resources Prior to our initial public offering in December 2016, we financed our operations primarily through cash provided by operating activities. Our currentcash and cash equivalents primarily consist of cash on hand, which are unrestricted as to withdrawal and use and are deposited with banks in China. We received net proceeds of approximately $10.1 million from our initial public offering. As of December 31, 2017, the Company had utilized around$9.5 million from the IPO proceeds in purchase of inventory of approximately $5.9 million for production, paid approximately $3.2 million for consultingfees, and paid approximately $0.4 million in operating expenses related to our Nasdaq listing. As of December 31, 2017, the balance of IPO proceeds wasapproximately $0.6 million. We expect that we are able to obtain additional loans from banks or private placements of our securities if necessary. We are expecting to generateadditional cash flows in the near term from our installation projects and equipment sales, and from our developing new customers, expanding our equipmentsales and expanding our sales networks. As of December 31, 2018, 2017 and 2016, we had cash of $947,588, $3,220,781 and $11,875,893, respectively. On December 26, 2016, the Companyannounced the completion of a public offering of 2,695,347 shares of its common stock at a public offering price of $4.00 per share. The gross proceeds fromthe offering were approximately $10.8 million before deducting placement agents’ commissions and other offering expenses, resulting in net proceeds ofapproximately $10.1 million. In connection with the offering, the Company’s common stock began trading on the NASDAQ Capital Market beginning onDecember 26, 2016 under the symbol “HEBT”. Subject to the possibility that we may be required to pay some or all of certain taxes due by our company in three to five years by installment, we believethat our current cash, cash flows provided by operating activities and access to help from our related party will be sufficient to meet our working capital needsfor at least the next 12 months. Substantially all of our operations are conducted in China and all of our revenues, expense, and cash are denominated in Renminbi (RMB). RMB issubject to the exchange control regulation in China, and, as a result, we may have difficulty distributing any dividends outside of China due to PRCexchange control regulations that restrict its ability to convert RMB into U.S. Dollars. Since all of the cash balance reported by us as of the latest balance sheet date, December 31, 2018, is foreign cash (RMB), the amount of foreign cash wehave is the total amount of our cash, which is $947,588. Under applicable PRC regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined inaccordance with PRC accounting standards and regulations. In addition, a foreign-invested 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 the accumulative amount of such reserves reaches 50% of its registeredcapital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate a portionof its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation. Under PRC law,RMB is currently convertible into U.S. Dollars under a company’s “current account,” which includes dividends, trade and service-related foreign exchangetransactions, without prior approval of the State Administration of Foreign Exchange (SAFE), but is not from a company’s “capital account,” which includesforeign direct investments and loans, without the prior approval of the SAFE. 57 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 yearsended December 31, 2018, 2017 and 2016. With respect to retained earnings accrued after such date, our Board of Directors may declare dividends aftertaking 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 federallaws 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 dividendsdistribution 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 ofDecember 31, 2018, 2017 and 2016: Working Capital For theyear ended For theyear ended December 31,2018 December 31,2017 Current asset $38,421,753 $38,580,847 Current liabilities 19,683,974 13,189,549 Working Capital 18,737,779 25,391,298 Contract and accounts receivable turnover in days 344 196 Contract and accounts receivable turnover ratio 1.06 1.86 Inventory turnover in days 14 24 Our working capital was $18.7 million as of December 31, 2018, a decrease of approximately $6.7 million from December 31, 2017, mainly due tohigher short-term loans, notes payables, accrued liabilities and tax payable balance as of December 31, 2018. For the year ended December 31, 2018 and for the year ended December 31, 2017, our accounts receivable including contract receivable turnover in dayswere 344 and 196 days, respectively. The slow in turnover in the fiscal 2018 was due to the high margin installation contracts were 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, 2018, and December 31, 2017, our net contract receivable balance was $24,669,365 and $16,904,722, respectively, related to ourinstallation 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 theinstallation projects. With the increasing collection efforts, we believe we are able to successfully collect the balance. As of December 31, 2018, the balances of our net accounts receivable, retainage receivables and net other receivable were $2,655,845, $3,146,986 and$767,681, respectively. As of December 31, 2017, the balances of our net accounts receivable, retainage receivables and net other receivable were$1,419,305, $2,564,404 and $240,284, respectively. 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 asettlement discussion with Wenzhou tax authority. Therefore, the exact payment date of this local tax liability is uncertain. 58 We intend to continue to carefully execute our growth plans and manage market risk. Our anticipated short-term and long-term liquidity requirementsprimarily include working capital for funding our ongoing operations. We plan to fund our future liquidity requirements from cash provided by operatingactivities. 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 andexisting cash balances. Cash Flows The following table provides detailed information about our net cash flows for the year ended December 31, 2018, 2017 and 2016: Year ended December 31, 2018 2017 2016 Net cash (used in) provided by operating activities $(725,080) $(6,096,784) $1,577,301 Net cash used in investing activities (115,210) (3,126,777) (980,921)Net cash provided by financing activities 730,669 916,640 10,266,160 Effect of exchange rate changes on cash (94,239) (292,869) (104,290)Net (decrease) increase in cash $(203,860) $(8,599,790) $10,758,250 Cash and restricted cash at beginning of year 3,276,103 11,875,893 1,117,643 Cash and restricted cash at end of year $3,072,243 $3,276,103 $11,875,893 Operating Activities Net cash used in operating activities for fiscal 2018 was approximately $0.7 million, which was primarily attributable to a net loss of approximately $5.1million, adjusted for non-cash items of approximately $7.9 million and adjustments for changes in working capital of approximately $3.5 million. Theadjustments for changes in working capital mainly included (i) an increase in accounts and contract receivable of $10.4 million from recent completedinstallation projects, (ii) an increase in tax payable of $2.7 million, (iii) an increase in notes payable of $2.1 million, and (iv) a decrease in inventory of $1.2million. Net cash used in operating activities for fiscal 2017 was approximately $6.1 million, which was primarily attributable to a net income of approximately$7.1 million, adjusted for non-cash items of approximately $1.2 million and adjustments for changes in working capital of approximately $14.4 million. Theadjustments for changes in working capital mainly included (i) an increase in accounts and contract receivable of $3.9 million from recent completedinstallation projects, (ii) an increase in advance to suppliers and prepayments of $7.1 million to secure the supply and meet the needs of increasinginstallation services and equipment sales, (iii) a decrease in deferred revenue of $1.1 million, and (iv) a decrease in tax payable around $2.4 million, whichwas offset by the decrease in inventory of $0.8 million. Net cash provided by operating activities for fiscal 2016 was approximately $1.6 million, which was primarily attributable to a net profit around $5.9million, adjusted for non-cash items for approximately $0.6 million and adjustments for changes in working capital around $4.9 million. The adjustments forchanges in working capital mainly included (i) increase in accounts and contract receivable around $4.97 million from recent completed installation projects,(ii) decrease in accounts payable around $0.3 million and (iii) increase in advance to suppliers around $2.86 million, which was offset by the decrease inadvance from customers about $0.55 million related to installation service and increase in tax payable around $2.5 million. Investing Activities Net cash used in investing activities was approximately $0.1 million for fiscal 2018, $3.1 million for fiscal 2017 and $0.98 million for fiscal 2016 nearlyall of which was primarily attributable to amounts spent on constructing the Company’s new office and manufacturing facility. 59 Financing activities Net cash provided in financing activities was approximately $0.7 million for fiscal 2018. It was primarily attributable to the approximately $2.0 millionproceeds from various loans, offset by the loan repayments of during the year. Net cash provided in financing activities was approximately $0.9 million for fiscal 2017. It was primarily attributable to the approximately $1.05million proceeds from various loans, offset by the loan repayments of during the year. Net cash used in financing activities was approximately $10.27 million for fiscal 2016. It was primarily attributable to the approximately $10.78 millionproceeds from the Company’s initial public offering, offset by the disbursement of the direct costs related to the initial public offering of $0.65 million. Loan facility As of December 31, 2018, we had $1,698,058 in bank loans. These are bank loans with a one to three years maturity and must be paid in full uponmaturity. 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 inthe past. For more details about our debts, please see the Notes to the consolidated financial statements. Loans consisted of the following as of December 31, 2018: Lender December 31,2018 Term EffectiveInterest Rate Bank of China Longwan Branch $202,894 April 13, 2016 to April 14, 2019 5.70%Bank of China Longwan Branch 186,168 June 8, 2016 to April 14, 2019 5.70%Industrial Bank Co. Ltd. Wenzhou Branch 727,220 July 17, 2018 to July 17, 2019 6.04%Longwan Rural Commercial Bank Shacheng Branch 290,888 July 23, 2018 to July 17, 2019 8.71%Longwan Rural Commercial Bank Shacheng Branch 290,888 July 25, 2018 to July 17, 2019 8.71%Total 1,698,058 Less: current portion (1,698,058) Long term portion $- Loans consisted of the following as of December 31, 2017: Lender December 31,2017 Term EffectiveInterest Rate Bank of China Longwan Branch $262,009 April 13, 2016 to April 14, 2019 5.70%Bank of China Longwan Branch 303,501 June 8, 2016 to April 14, 2019 5.70%Longwan Rural Commercial Bank Shacheng Branch 307,342 September 30, 2017 to September 28, 2018 10.45%Total $872,852 Less: current portion 457,940 Long term portion 414,912 All principal of the above loans as of December 31, 2018 are due upon maturity and interest payments are due on monthly basis. For the loans borrowedfrom various bank, the outstanding balances were guaranteed by the Controlling Shareholder’s immediate family members and unrelated third parties. 60 On November 9, 2017, the Company entered into a sale leaseback agreement (the “Agreement”) with Zhongli International Leasing Co., Ltd (“Zhongli”).Pursuant to the Agreement, the Company sold certain machinery purchased during the year to Zhongli for approximately $691,520 (RMB 4.5 million). TheCompany then leased back the machinery from Zhongli for 48 months with a specified monthly payment over the lease term. The Company has a purchaseoption at a price of Nil to buy back this equipment by the end of the lease term. All these machines are currently being used by the Company for productionpurposes. The Company’s management has concluded that this transaction does not qualify for sale-leaseback accounting in accordance with ASC 840-40-25-11 and shall record under the financing method. Under the financing method, the assets remain on the Company’s consolidated balance sheet and theproceeds from the transactions are recorded as a financing liability. Obligations under Material Contracts The Company signed two lease agreements to rent office and facility for its operations. The office lease has a lease term from July 1. 2017 to June 30,2019, and the facility lease has a lease term from June 1, 2017 to May 30, 2037. As of December 31, 2018, the Company was obligated under operating leasesfor minimum rentals as follows: For the Year Ending December 31, 2019 $213,332 2020 213,332 2021 213,332 2022 213,332 2023 and thereafter 3,075,536 $3,928,864 Capital Expenditures We spent $74,210 on property and equipment and $41,000 on intangible assets in fiscal 2018. We spent approximately $3.1 million during the fiscal2017 for our new building on No. 936, Jinhai 2rd Road, Konggang New Area, Longwan District Wenzhou City, Zhejiang Province, China (C05, Binhai Ind.Park, Dalangqiao Village, Shacheng Town, Longwan District, Wenzhou). The building was completed during the year ended December 31, 2017. 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 stablein the last three years: 2.1% in 2018, 1.9% in 2017 and 2.3% in 2016. 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. Wehave generally been able to pass on cost increases through price adjustments. However, the ability to pass on these increases depends on market conditionsinfluenced 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 currencybecause they were sold to foreign companies’ agents in China. Our export sales for the year ended December 31, 2018, 2017 and 2016 accounted for less 1%of total revenue and none of revenue priced in the foreign currency. We have not had any foreign currency investments hedged by currency borrowings or other hedging instruments. We manage our price risks throughproductivity improvements and cost-containment measures. 61 Critical Accounting Policies We believe it is helpful to investors to understand the critical accounting policies underlying our consolidated financial statements and the followingdiscussion of our Company’s financial condition and results of operations. Basis of consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the UnitedStates of America (“U.S. GAAP”) and have been consistently applied. The consolidated financial statements include the financial statements of Hebron Technology, HK Xibolun, Xibolun Automation and XibolunEquipment. All inter-company balances and transactions are eliminated upon consolidation. For the Company’s equity investment which the Company doesnot have control and is not the primary beneficiary, but has significant influence in the decision-making of the ordinary course of business, the equitymethod is applied. Uses of estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reportedamounts of revenue and expenses during each reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected inthe Company’s consolidated financial statements include: the allowance for doubtful accounts, the valuation of inventory, realizability of deferred tax assets,costs to complete contracts, estimated useful lives and fair values in connection with the impairment of property and equipment and accruals for income taxuncertainties. Revenue recognition The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018 using the modified retrospectiveapproach. Revenues for the year ended December 31, 2018 were presented under ASC 606, and revenues for the years ended December 31, 2017 and 2016were not adjusted and continue to be presented under ASC Topic 605, Revenue Recognition. There is no adjustment to the opening balance of retainedearnings at January 1, 2018 since there was no change to the timing and pattern of revenue recognition upon adoption of ASC 606. Under ASC 606, revenueis recognized when control of promised goods or services is transferred to the Company’s customers in an amount of consideration to which an entity expectsto be entitled to in exchange for those goods or services. The Company’s revenues are primarily derived from the following sources: Sales of products: The Company recognizes revenue when the products are delivered and control is transferred. The Company generally provides awarranty for a period of 12 months after the customers receive the products. The Company determines that such product warranty is not a separatedperformance obligation because the nature of warranty is to provide assurance that a product will function as expected and in accordance with the customer’sspecifications and the Company has not sold the warranty separately. From its past experience, the Company has not experienced any material warranty costsand, therefore, the Company does not believe an accrual for warranty cost is necessary for the years ended December 31, 2018, 2017 and 2016. TheCompany’s sales revenue consists of the invoiced value of goods, net of value-added tax (“VAT”). Installation contracts: The Company recognizes revenue associated with these contracts over time as services are performed and the transfer of controloccurs, based on a percentage-of-completion method using cost-to-cost input methods as a measure of progress. When the percentage-of-completion methodis used, the Company estimates the costs to complete individual contracts and records as revenue that portion of the total contract price that is consideredcomplete based on the relationship of costs incurred to date to total anticipated costs (the cost-to-cost approach). 62 Under the cost-to-cost approach, the use of estimated costs to complete each contract is a significant variable in the process of determining recognizedrevenue, requires judgment and can change throughout the duration of a contract due to contract modifications and other factors impacting job completion.The costs of earned revenue includes all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor,supplies, tools and repairs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. The Company sometimes enters into installation service contracts in connection with product sales. The manufacture of fluid equipment control systemscomprises two stages: (a) manufacture; and (b) installation. The Company always enters into separate product and installation contracts with the customer asthe customer has the choice to use its own staff or external contractors to install the products based on product installation manuals provided by theCompany when the products are delivered. The Company usually sells the product on a standalone basis and also is engaged by customers to install thesystems they purchase from other suppliers. It is the Company’s policy to sell its products at the set prices regardless of whether the customer separately entersinto an installation contract with the Company. The Company always prices its installation services at market competitive rates regardless of whether theinstallation service relates to its own products or standalone installation services. Therefore, the Company determined there are two sperate performanceobligations, and recognizes product sales and installation revenue separately. Accounts and Contract Receivables Accounts and contract receivables from equipment sales and installation services are stated at net realizable value. An allowance for doubtful accounts isestablished based on the management’s assessment of the recoverability of accounts and other receivables. Judgment is required in assessing the realizabilityof these receivables, including the current credit worthiness of each customer and the related aging analysis. An allowance is provided for accounts whenmanagement has determined that the likelihood of collection is doubtful. The Company writes off accounts and contract receivables against the allowancewhen a balance is determined to be uncollectible. Retainage receivables Retainage receivables represent the amount retained by the Company’s customers to ensure the quality of the installation services and any possiblefollow-up maintenance related to the installation. The term of these retainage receivables is typically within one year after the completion date of theinstallation project. If there is no dispute regarding the quality of the installation project during the year, such retainage receivable should be paid by theCompany’s customer. Management regularly reviews aging of retainage receivables and changes in payment trends and records an allowance whenmanagement believes collection of amounts due are at risk. Inventories Inventories are stated at the lower of cost or market value. Inventories consist of raw materials, finished goods, working in process, low valueconsumables, and installation projects in process that had not been completed. Provision is made for slow moving, obsolete or unusable inventory. 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 PRCand Hong Kong for the years ended December 31, 2018, 2017 and 2016. The Company accounts for income tax under the asset and liability method, whichrequires recognition of deferred tax assets and liabilities for the expected future tax consequences of the differences between financial statement carryingamounts of assets and liabilities versus the tax basis of assets and liabilities. Deferred tax assets are also provided for carryforward losses which can be used tooffset future taxable income. 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 notbe realized. As of December 31, 2018, 2017 and 2016, no valuation allowance is considered necessary. 63 The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. Anuncertain 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 taxexamination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likelihood of being realized onexamination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties incurred related to underpayment of incometax are classified as income tax expense in the period incurred. No significant penalties relating to income taxes have been incurred during the years endedDecember 31, 2018, 2017 and 2016. As of December 31, 2018, the tax years ended December 31, 2016 through December 31, 2018 for the Company’s PRCsubsidiaries remain open for statutory examination by PRC tax authorities. Under the Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated by the PRC, income tax is payable by enterprises at arate 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 ratesstipulated by the laws. The Company did not record any penalties associated with those accruals. The Company did not record any penalties associated withthose accruals since management believes that it is not possible to reasonably estimate the amount of penalties the Company may have to pay, if any. It is theCompany’s policy that penalties related to any unpaid taxes are classified as income tax expense in the period they are assessed or incurred. The Companyhas had unofficial discussions with the local tax authority to settle the existing tax liabilities. The tax authority has not made any settlement proposal oradjustment in the communications with the Company. C.Research and development, patents and licenses Research and Development For the years ended December 31, 2018, 2017 and 2016, we spent $358,411, $508,282 and $33,847, respectively, on R&D. We anticipate that we willfocus our research and development efforts on improving existing products and developing new technology in the coming years. We are committed to researching and developing valves for use in the pharmaceutical, biological, food and beverage, semi-conductor, electronic andother clean industries. We believe scientific and technological innovations will help our Company achieve its long-term strategic objectives. Our researchand development efforts, led by our Chief Technical Officer, Xiaoliang Xue, are an integral part of our operations and the crux of its competitive advantageand differentiation strategy. The Research and Development team has ten (10) dedicated researchers and analysts focusing on mechanical design, mechatronics, CAD design, molddesign 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 inmaintaining 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 thatthe Company is current on advanced International Technology. It is through these collaborations that we have managed to secure important breakthroughsresulting in proprietary knowledge and patents. D.Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that arereasonably likely to have a material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that wouldcause reported financial information not necessarily to be indicative of future operating results or financial condition. E.Off-balance Sheet Arrangements There were no off-balance sheet arrangements as of December 31, 2018, December 31, 2017 and December 31, 2016 that have or that in the opinion ofmanagement are likely to have, a current or future material effect on our financial condition or results of operations. F.Tabular Disclosure of Contractual Obligations The following table sets forth our contractual obligations as of December 31, 2018: Payment Due by Period Less than 1 – 3 3 – 5 More than Contractual Obligations Total 1 year years years 5 years Bank loans $1,698,058 $1,698,058 $- $- $- Operating lease arrangement 1,438,176 81,525 77,894 77,894 1,122,969 Financing lease arrangement 389,642 179,291 156,939 55,412 - Total $3,525,876 $1,958,874 $234,833 $133,306 $1,122,969 G.Safe Harbor See “SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS.” 64 Item 6.Directors, Senior Management and Employees A.Directors and Management The following table provides information regarding our executive officers and directors: Name Age Position(s)Anyuan Sun 41 Chief Executive Officer and Chairman of BoardXiaoliang Xue 33 Chief Technical OfficerSteven Fu 46 Chief Financial OfficerXiao Jin 54 Financial ControllerZuoqiao Sun Zhang 64 DirectorLingmin Sun 35 DirectorXuesong Liu 45 Independent DirectorHua Zhang 53 Independent DirectorXianpang Hu 50 Independent DirectorHaiying Xiang 36 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-A15th Road, 3rd 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 September2015. Mr. Sun is also the Chief Executive Officer of the Company. He is a director of Xibolun Equipment since January 2016, a Supervisor of ZhejiangXibolun since 2014 and a director of HK Xibolun since 2012. Mr. Sun is a valve engineer who co-founded our oldest subsidiary, Xibolun Equipment, in2005. For more than ten years, Mr. Sun has also served as our Company’s chief engineer and president. Mr. Sun completed his continuing education inZhejiang 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 startedhis employment with Xibolun Equipment. During his time in the Company, he has helped our company to obtain more than 20 inventions and patents. Inaddition to serving as our Chief Technical Officer now, Mr. Xue used to serve in Xibolun Equipment as a technician, technical director, sales director andengineering director since 2005 to assist with and manage technology, sales and engineering related matters. During his tenure in the Company, Mr. Xue hasbeen 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. Mr. Fu started his employment as CFO with Hebron Technology in January 2014. From 2009 through2013, Mr. Fu was the Director of Asia Pacific, International Alliance Associates, with chief financial officer responsibilities. Mr. Fu earned his bachelor’sdegree of Accountancy from Nanyang Technological University, Singapore, in 1996. Mr. Fu is also a Fellow Chartered Accountant of Singapore. He has 20years of investment and financing experience in Asia, along with restructuring work experience. Mr. Fu is proficient in managing various aspects of theinvestment 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 responsibilityfor the Company’s accounting, financial management, internal control and financing services. From 2002 through April of 2012, Mr. Jin was the ChiefFinancial 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 ShanghaiJiaotong University in 2011 and his bachelor’s degree majored in Economic Management from Open College in Party School of the Central Committee ofC.P.C. in 2002 in China. 65 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 Companyagain 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 morethan 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 to2012 he expanded his business geological coverage to Wuhan City and North China for our company. Over 30 years in business, Mr. Sun Zhang has becomean expert in the valve manufacturing sector for pharmaceutical and medical companies. In addition to his activities with our company, Mr. Sun Zhang alsoinvests privately. Mr. Sun Zhang graduated from Wenzhou Adult Vocational High School in 2011. We have selected Mr. Sun Zhang as a director because ofhis experience in the valve manufacturing business. Lingmin Sun. Mr. Lingmin Sun has served as our Marketing Director since March 2017 and a member of our Board of Directors since December 2017. Inthis role as the Marketing Director, he is responsible for all aspects of sales and marketing of our products and product-related services. Mr. Sun has managedsales and marketing services related to pharmaceutical fluid equipment and engineering for more than 10 years and accumulated a wealth of customerresources and management experience. From March 2014 to February 2017, he was the Director of Marketing for Zhejiang Xibolun Automatically ControlSystem Engineering Technology Co., Ltd. We have elected Mr. Sun as a director to serve as a director because of his business and management skills andexperience in our industry and business. Xuesong Liu. Since 2015, Dr. Xuesong Liu has been the General Manager and Chairman of the Board of Luoyang Zeda Huikang PharmaceuticalTechnology 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 supervisorin College of Pharmaceutical Science of Zhejiang University, General Manager and Chairman of the Board of Suzhou Zeda XingBang PharmaceuticalTechnology Co., Ltd., Chairman of the Board of Suzhou Zheyuan Automation Engineering Technology Co., Ltd. and Supervisor of Hangzhou EnnengTechnology Co., Ltd. From 2010, Dr. Liu started to be a director in Hangzhou Tianchang Railway Equipment Technology Co., Ltd. and a professor inCollege of Pharmaceutical Science of Zhejiang University. Since 2009, Dr. Liu has been the Chairman of the Board of Wenzhou Zhekang PharmaceuticalEquipment Technology Co., Ltd. He is also the director of the Chinese Medicine Pharmaceutical Engineering Research Laboratory in Zhejiang Universitysince 2006. At Zhejiang University, his work focuses on process analytical technology, advanced manufacturing technology and quality control technologyfor 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 andReform Commission. Dr. Liu received a doctorate degree majored in Pharmaceutical Analysis in 2005, a master’s degree majored in Industry Automation in1998, and a bachelor’s degree majored in Industry Electric Automation in 1995, all from Zhejiang University. We have selected Dr. Liu as a director becauseof 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 beena Manager of Hangzhou Fenghao Technology Co., Ltd. since 2003. From 2001 through 2009, Mr. Zhang was the Chief Executive Officer of ZhejiangTopchoice Investment Technology Co., Ltd. In these roles, Mr. Zhang has leveraged his expertise in the financial investment and medical equipmentindustries. From 1987 to 2001, Mr. Zhang was an associate professor and dean at Zhejiang Physical Education Technology Institute. Mr. Zhang obtained hisbachelor 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 EducationFoundation. 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 legalmatters in China. In his capacity with the Institute of Law, Mr. Hu has organized and hosted international symposia on criminal law matters. From 2010 to2014, 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 Directorof the Second Prosecution Office of Shanxi Provincial People’s Procuratorate. Mr. Hu received his doctorate degree from the Central University ofNationalities in 2009 in China. After being a postdoctoral researcher in legal studies area in China University of Political Science and Law from 2009 to2012, he also obtained a postdoctoral certificate in 2012. We have chosen Mr. Hu to serve as a director because of the perspective he brings to legal mattersin China and his reputation as a well-respected scholar. 66 Haiying Xiang. Ms. Xiang is a Commercial Officer at China Tiesiju Civil Engineering Group Co., Ltd Angolan Branch and responsible for contractmanagement, commercial information management and marketing management. Previously she was a Senior Internal Controller with Siemens Limited Chinawhere she 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 ofbusiness processes. She has been a Supervisor of Shanghai Bobo Biological Technology Co., Ltd. since 2011. Previously she was an Internal Controller atSiemens 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 certifiedInternal Auditor qualification in 2012. She received her bachelor’s degree in Economics from Nankai University in 2004. She also received her master’sdegree in Economics from Nankai University in 2006. We have chosen Ms. Xiang as a director because of her experience with financial matters andexperience 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 and Chairman of the Board,Anyuan Sun, and one of our directors, Lingmin Sun, are the sons of one of our directors, Mr. Zuoqiao Sun Zhang. Anyuan Sun and Lingmin Sun are brothers.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 until the next annual meeting ofshareholders at which their respective class of directors is re-elected or until their successors have been duly elected and qualified. A majority of our Board ofDirectors (namely, Mr. Xuesong Liu, Mr. Hua Zhang, Mr. Xianpang Hu and Ms. Haiying Xiang) are independent, as such term is defined by The NasdaqCapital Market. The directors are divided into three classes, as nearly equal in number as the then total number of directors permits. Class III directors shall face re-election at our annual general meeting of shareholders in 2019 and every three years thereafter. Class I directors shall face re-election at our annual generalmeeting of shareholders in 2020 and every three years thereafter. Class II directors shall face re-election at our annual general meeting of shareholders in 2021and 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 classas 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 thatcoincides with the remaining term of that class. Decreases in the number of directors will not shorten the term of any incumbent director. These boardprovisions 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 inany 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 thedirectors 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’sinterest shall be sufficient disclosure and after such general notice it shall not be necessary to give special notice relating to any particular transaction. Adirector 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 sointerested and may vote on such motion. Mr. Anyuan Sun currently holds both the positions of Chief Executive Officer and Chairman of the Board. We do not have a lead independent directorbecause we believe our independent directors are encouraged to freely voice their opinions on a relatively small company board. We believe this leadershipstructure is appropriate because we are a relatively small company; as such we deem it appropriate to be able to benefit from the guidance of Mr. Sun as bothour principal executive officer and Chairman of the Board. Our Board of Directors plays a key role in our risk oversight. The Board of Directors makes allrelevant Company decisions. As a smaller company with a relatively small board of directors, we believe it is appropriate to have the involvement and inputof all of our directors in risk oversight matters. 67 Board Committees We have established three standing committees under the board: the audit committee, the compensation committee and the nominating committee. Theaudit committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of ourcompany, including the appointment, compensation and oversight of the work of our independent auditors. The compensation committee of the board ofdirectors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation, and alsoadministers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans). The nominatingcommittee of the board of directors is responsible for the assessment of the performance of the board, considering and making recommendations to the boardwith respect to the nominations or elections of directors and other governance issues. The nominating committee considers diversity of opinion andexperience 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 compensationcommittee. Xuesong Liu is the chair of the nominating committee. Xuesong Liu and Xianpang Hu serve on all three committees, Hua Zhang serves incompensation 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 aduty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care tous, our directors must ensure compliance with our amended and restated memorandum and articles of association. We have the right to seek damages if a dutyowed by our directors is breached. The functions and powers of our board of directors include, among others: ●appointing officers and determining the term of office of the officers; ●authorizing the payment of donations to religious, charitable, public or other bodies, clubs, funds or associations as deemed advisable; ●exercising the borrowing powers of the company and mortgaging the property of the company; ●executing checks, promissory notes and other negotiable instruments on behalf of the company; and ●maintaining or registering a register of mortgages, charges or other encumbrances of the company. 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 haveentered 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 theboard 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 asinterested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give specialnotice relating to any particular transaction. 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 prepaidall traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees ofour board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committeewill assist the directors in reviewing and approving the compensation structure for the directors. Our board of directors may exercise all the powers of thecompany to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and othersecurities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party. 68 Qualification There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a generalmeeting. There are no other arrangements or understandings pursuant to which our directors are selected or nominated. Limitation of Director and Officer Liability Under British Virgin Islands law, each of our directors and officers, in performing his or her functions, is required to act honestly and in good faith with aview to our best interests and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. BritishVirgin Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers anddirectors, except to the extent any such provision may be held by the British Virgin Islands courts to be contrary to public policy, such as to provideindemnification against civil fraud or the consequences of committing a crime. Under our memorandum and articles of association, we may indemnify our directors, officers and liquidators against all expenses, including legal fees,and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with civil, criminal, administrative or investigativeproceedings to which they are party or are threatened to be made a party by reason of their acting as our director, officer or liquidator. To be entitled toindemnification, these persons must have acted honestly and in good faith with a view to the best interest of the company and, in the case of criminalproceedings, they must have had no reasonable cause to believe their conduct was unlawful. Such limitation of liability does not affect the availability ofequitable remedies such as injunctive relief or rescission. These provisions will not limit the liability of directors under United States federal securities laws. We may indemnify any of our directors or anyone serving at our request as a director of another entity against all expenses, including legal fees, andagainst all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings.We may only indemnify a director if he or she acted honestly and in good faith with the view to our best interests and, in the case of criminal proceedings, thedirector had no reasonable cause to believe that his or her conduct was unlawful. The decision of our board of directors as to whether the director actedhonestly and in good faith with a view to our best interests and as to whether the director had no reasonable cause to believe that his or her conduct wasunlawful, is in the absence of fraud sufficient for the purposes of indemnification, unless a question of law is involved. The termination of any proceedings byany judgment, order, settlement, conviction or the entry of no plea does not, by itself, create a presumption that a director did not act honestly and in goodfaith and with a view to our best interests or that the director had reasonable cause to believe that his or her conduct was unlawful. If a director to beindemnified has been successful in defense of any proceedings referred to above, the director is entitled to be indemnified against all expenses, includinglegal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the director or officer in connection with theproceedings. We may purchase and maintain insurance in relation to any of our directors or officers against any liability asserted against the directors or officers andincurred 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 theliability 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 companyunder the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in theSecurities Act and is therefore unenforceable. Involvement in Certain Legal Proceedings To the best of our knowledge, none of our directors or officers has been convicted in a criminal proceeding, excluding traffic violations or similarmisdemeanors, nor has any been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or finalorder enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federalor state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Related PartyTransactions,” our directors and officers have not been involved in any transactions with us or any of our affiliates or associates which are required to bedisclosed pursuant to the rules and regulations of the SEC. 69 Code of Business Conduct and Ethics The Company has adopted a Code of Business Conduct and Ethics that applies to the Company’s directors, officers, employees and advisors. The Codeof Ethics is attached as an exhibit to this annual report. We have also posted a copy of our code of business conduct and ethics on our website atwww.hebrontechnology.com. B.Compensation Director Compensation All directors hold office until the next annual meeting of shareholders at which their respective class of directors is re-elected or until their successorshave been duly elected and qualified. Officers are elected by and serve at the discretion of the Board of Directors. Employee directors do not receive anycompensation for their services. Non-employee directors are entitled to receive $10,000 per year for serving as directors and may receive option grants fromour company. In addition, non-employee directors are entitled to receive reimbursement for their actual travel expenses for each Board of Directors meetingattended. During fiscal 2018, 2017 and 2016, no employee members of our Board of Directors received compensation in their capacity as directors. During the year ended December 31, 2018, we paid each of our four independent directors an annual director fee of $10,000. We also reimburse alldirectors for any out-of-pocket expenses incurred by them in connection with their services provided in such capacity. In addition, we may provide incentivegrants of stock, options or other securities convertible into or exchangeable for, our securities. Prior to our initial public offering, we did not pay any non-employee directors because we did not have any non-employee directors. Executive Compensation We currently do not have a compensation committee approving our salary and benefit policies. Our board of directors determined the compensation tobe paid to our executive officers based on our financial and operating performance and prospects, and contributions made by the officers’ to our success.Each of the named officers will be measured by a series of performance criteria by the board of directors, or the compensation committee on a yearly basis.Such criteria will be set forth based on certain objective parameters such as job characteristics, required professionalism, management skills, interpersonalskills, related experience, personal performance and overall corporate performance. Our board of directors has not adopted or established a formal policy or procedure for determining the amount of compensation paid to our executiveofficers. The board of directors will make an independent evaluation of appropriate compensation to key employees, with input from management. The boardof directors has oversight of executive compensation plans, policies and programs. 70 Summary Compensation Table The following table presents summary information regarding the total compensation awarded to, earned by, or paid to each of the named executiveofficers for services rendered to us for the year ended December 31, 2018, 2017 and 2016. Name and Principal Position Fiscal Year Salary($) Bonus($) Stock Awards($) All Other Compensation($) Total($) Anyuan Sun 2018 60,000 0 0 0 60,000Chief Executive Officer 2017 60,000 0 0 0 60,000 2016 30,102 0 0 0 30,102 Steven Fu 2018 45,000 0 0 0 45,000 Chief Financial Officer 2017 45,000 0 0 0 45,000 2016 100,000 0 0 0 100,000 Xiaoliang Xue 2018 30,000 0 0 0 30,000 Chief Technical Officer 2017 30,000 0 0 0 30,000 2016 18,061 0 0 0 18,061 Employment Agreements Our employment agreements with our officers generally provide for employment for a specific term (typically approximately two years at a time) and payannual salary, health insurance, pension insurance, and paid vacation and family leave time. The agreement may be terminated by either party as permittedby 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 approximately $2,522 per month. We renewed the employment agreement a few times and the current one provided an annualsalary of $60,000 for the period from January 1, 2019 to December 31, 2019. Steven Fu We entered an employment agreement with our Chief Financial Officer, Mr. Steven Fu, on January 1, 2014 and running through December 31, 2014 at anannual salary of $100,000. We renewed the employment agreement a few times and the current one provided an annual salary of $45,000 for the period fromJanuary 1, 2019 to December 31, 2019. Xiaoliang Xue We entered an employment agreement with Chief Technical Officer, Mr. Xiaoliang Xue, effective as of January 1, 2012 and running through December31, 2014 at the salary of approximately $1,513 per month. We renewed the employment agreement a few times and the current one provided an annual salaryof $30,000 for the period from January 1, 2019 to December 31, 2019. Xiao Jin We entered an employment agreement with our Financial Controller, Mr. Xiao Jin, effective as of January 16, 2014 and running through January 15,2017 with a salary of approximately $1,135 per month. We renewed the employment agreement a few times and the current one provided a salary ofapproximately $1,135 per month for the period from January 1, 2019 to December 31, 2019. 71 Item 7.Major Shareholders and Related Party Transactions Major Shareholders The following table sets forth information with respect to beneficial ownership of our common shares as of May 15, 2019 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 are based on 16,269,577 common shares outstanding as of May 15, 2019. Informationwith respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common shares. Beneficialownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect tosecurities. Beneficial owners have same voting rights as holders of record. In computing the number of common shares beneficially owned by a person listedbelow and the percentage ownership of such person, common shares underlying options, warrants or convertible securities held by each such person that areexercisable or convertible within 60 days of May 15, 2019 are deemed outstanding, but are not deemed outstanding for computing the percentage ownershipof any other person. Except as otherwise indicated in the footnotes to this table, or as required by applicable community property laws, all persons listed havesole voting and investment power for all common shares shown as beneficially owned by them. Unless otherwise indicated in the footnotes, the address foreach principal shareholder is in the care of our Company at c/o Zhejiang Xibolun Automation Project Technology Co., Ltd., No. 587-A 15th Road, 3rd Av.Binhai Ind. Park, Economic & Technology Development Zone, Wenzhou, Zhejiang, China 325000. As of May 15, 2019, we have 106 shareholders of record. Named Executive Officers and Directors Amount of Beneficial Ownership(1) PercentageOwnership Percentage Voting Power (2) Directors and Named Executive Officers: Anyuan Sun, Chief Executive Officer and Chairman(3) 7,778,400 47.8% 82.1%Xiaoliang Xue, Chief Technical Officer 0 0% 0%Steven Fu, Chief Financial Officer 0 0% 0%Xiao Jin, Financial Controller 0 0% 0%Zuoqiao Sun Zhang, Director(4) 0 0% 0%Lingmin Sun, Director 0 0% 0%Xuesong Liu, Director 0 0% 0%Hua Zhang, Director 0 0% 0%Haiying Xiang, Director 0 0% 0%Xianpang Hu, Director 0 0% 0%All directors and executive officers as a group (10 persons) 7,778,400 47.8% 82.1%5% Beneficial Owners: Wise Metro Development Co., Ltd.(5) 1,800,000 11.1% 19.0%Yung Kong Chin(6) 1,200,000 7.4% 2.5% (1)Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the common shares.All shares represent only common shares held by shareholders as no options are issued or outstanding. (2)Class A common shares have one vote per share. Class B common shares have five votes per share. (3)Includes the sole power to direct the voting and disposition of (a) the 1,800,000 Class B common shares held by Wise Metro Development Co., Ltd.(“Wise”), (b) the 5,978,400 Class B common shares held by Mr. Zuoqiao Sun Zhang (“Sun Zhang”; and together with Wise, “Sellers”). Due to hisownership of a majority of all outstanding common shares and the fact that his shares are the only outstanding Class B common shares (which have fivevotes per share rather than one vote like Class A common shares), Mr. Anyuan Sun effectively controls our Company. As noted elsewhere in this report, on April 16, 2019, Hebron Technology entered into a Securities Purchase Agreement with Sellers and NiSunInternational Enterprise Management Group Co., Ltd. (“NiSun”) pursuant to which NiSun would acquire 7,778,400 Class B Common Shares from theSellers. (4)Mr. Zuoqiao Sun Zhang, the father of Mr. Anyuan Sun, is nominally holding 5,978,400 Class B common shares of the Company for Mr. Anyuan Sun. Mr.Zuoqiao Sun Zhang does not, directly or indirectly, exercise or share voting or investment power of any shares held by him and disclaims beneficialownership of such shares. (5)Wise Metro Development Co., Ltd., holding 1,800,000 Class B common shares of the Company, is solely owned by Mr. Anyuan Sun, who has the solepower to direct the voting and disposition of such shares. (6)Mr. Yung Kong Chin owns 90% of Paces Battle Group, Inc., a capital broker/dealer, through Westwind LLC owned by him. He is not a FINRA registeredperson, and has no role in the operations of Paces Battle Group. 72 Related party transactions In addition to the executive officer and director compensation arrangements discussed in “Executive Compensation,” below we describe transactionssince January 1, 2010, to which we have been a participant, in which the amount involved in the transaction is material to our company and in which any ofthe following is a party: (a) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under commoncontrol with, our Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of our Company that gives themsignificant influence over our Company, and close members of any such individual’s family; (d) key management personnel, that is, those persons havingauthority and responsibility for planning, directing and controlling the activities of our Company, including directors and senior management of companiesand close members of such individuals’ families; and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by anyperson described in (c) or (d) or over which such a person is able to exercise significant influence. There are no related party transactions for the year ended December 31, 2018 and 2017, except the transactions mentioned below. For the year ended December 31, 2016 and 2015, the Chairman of the Board and CEO of the Company, advanced $68,397 and $920,660, respectively, tothe Company for working capital purpose. The advances were due on demand and non-interest bearing. The Company had outstanding balance of $68,397and $0 due to related parties as of December 31, 2016 and 2015, respectively. For the year ended December 31, 2014, the Company purchased $298,893 valve parts from its related party, Zhejiang Xibolun, an entity controlled bythe same Controlling Shareholder of the Company, Mr. Anyuan Sun, and sold $81,358 valves to Zhejiang Xibolun. As of December 31, 2015 and 2014, theCompany had $Nil due from related party — Zhejiang Xibolun. Mr. Anyuan Sun, the controlling shareholder of the Company, and his wife Ms. Xiaojie Wang jointly provided a guarantee of RMB7,000,000(approximately $1,076,923) to the loan agreements, trade financing agreements, letters of guarantee, funding agreements and other credit agreements enteredinto by and between Xibolun Equipment and Bank of China Longwan Branch on April 1, 2014 and April 1, 2016. Mr. Zhiling Sun, Mr. Anyuan Sun’scousin, and his wife Mr. Zhenguo Wang jointly provided guarantees of RMB7,000,000 (approximately $1,076,923) to the loan agreements, trade financingagreements, letters of guarantee, funding agreements and other credit agreements entered into by and between Xibolun Equipment and Bank of ChinaLongwan Branch on April 1, 2014 and April 1, 2016. Mr. Anyuan Sun, the controlling shareholder of the Company, provided a real property as collateral for RMB2,190,000 (approximately $336,923.07) tothe loans agreements, trade financing agreements, letters of guarantee, funding agreements and other credit agreements entered by and between XibolunEquipment and Bank of China Longwan Branch during October 16, 2014 and January 23, 2016. Mr. Lingmin Sun, brother of Mr. Anyuan Sun, provided areal property as collateral for RMB2,240,000 (approximately $344,615.38) to the loans agreements, trade financing agreements, letters of guarantee, fundingagreements and other credit agreements entered by and between Xibolun Equipment and Bank of China Longwan Branch during October 16, 2014 andJanuary 23, 2016. Mr. Anyuan Sun, the controlling shareholder of the Company, provided a guarantee of RMB 800,000 (approximately $115,195) to the loan agreementsentered by and between Xibolun Equipment and Wenzhou Bank on November 24, 2016 ending November 24, 2017. The loan was repaid upon the maturitydate. Mr. Anyuan Sun, the controlling shareholder of the Company, and his wife Ms. Xiaojie Wang, jointly provided a guarantee of RMB 4,000,000(approximately $614,653) to the loan agreements entered by and between Xibolun Auto and Bank of China Longwan Branch on April 13, 2016 ending April14, 2019. Ms. Zhiling Sun, Mr. Anyuan Sun’s cousin, and her husband Mr. Zhenguo Wang jointly provided a guarantee of RMB 4,000,000 (approximately$614,653) for the loan agreements entered by and between Xibolun Auto and Bank of China Longwan Branch on April 13, 2016 ending April 14, 2021. Ms. Zhiling Sun, Mr. Anyuan Sun’s cousin, provided a guarantee of RMB 2,000,000 (approximately $307,327) to the loan agreements entered by andbetween Xibolun Auto and Longwan Rural Commercial Bank Shacheng Branch on September 30, 2017 ending September 28, 2018. Mr. Anyuan Sun, the controlling shareholder of the Company, provided real property as collateral valued at RMB 1,980,000 (approximately $304,269)for the loan agreements entered into by and between Xibolun Auto and Bank of China Longwan Branch on June 8, 2016 ending April 14, 2021. Mr. Lingmin Sun, brother of Mr. Anyuan Sun, provided real property as collateral valued at RMB2,030,000 (approximately $311,953) for the loanagreements entered by and between Xibolun Auto and Longwan Rural Commercial Bank Shacheng Branch on September 17, 2017 ending September 28,2018. 73 Future Related Party Transactions Our Corporate Governance Committee of our board of directors (which consists solely of independent directors) have approved all related partytransactions. All material related party transactions are made or entered into on terms that are no less favorable to use than can be obtained from unaffiliatedthird parties. C.Interests of experts and counsel Not applicable for annual reports on Form 20-F. ITEM 8.Financial Information A.Consolidated Statements and Other Financial Information Please refer to Item 18. We incorporate by reference in the Registration Statement on Form F-3 (File No. 333- 222995) our consolidated balance sheets as of December 31, 2018and 2017, and the related consolidated statements of operations and comprehensive income, changes in equity and cash flows for each of the years in thethree-year period ended December 31, 2018, which appears in this Annual Report on Form 20-F. Legal and Administrative Proceedings We are currently not a party to any material legal or administrative proceedings and are not aware of any pending or threatened material legal oradministrative proceedings against us. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary courseof our business. 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 tofinance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determinationrelating 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 ourcompany 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 inthe 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 companywill not be less than the sum of our total liabilities, other than deferred taxes as shown on our books of account, and our capital. 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 ouroperating 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 least10% 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 isalso 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 determinedat the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminatefuture losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event ofliquidation. 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 PRCsubsidiaries are subject to withholding tax at a rate of 10% unless otherwise exempted or reduced according to treaties or arrangements between the PRCcentral 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 andservice-related foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of Foreign Exchange, orSAFE, by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cashgenerated from the operations in China may be used to pay dividends to our company. B.Significant Changes We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report. 74 Item 9.The Offer and Listing A.Offer and listing details Our common shares (or Class A common shares since March 19, 2018) have been listed on the Nasdaq Capital Market since December 27, 2016 underthe symbol “HEBT.” The table below shows, for the periods indicated, the high and low market prices for our shares. Market Price Per Share High Low Yearly: 2016 (from December 27, 2016) $5.85 4.95 2017 $5.93 2.53 2018 $2.65 0.50 2019 (through May 10, 2019) $1.66 0.70 Quarterly: Fourth quarter 2016 (from December 27, 2016) $5.85 4.95 First quarter 2017 $5.93 3.30 Second quarter 2017 $4.24 2.53 Third quarter 2017 $3.90 2.54 Fourth quarter 2017 $3.57 2.63 First quarter 2018 $2.61 1.45 Second quarter 2018 $2.37 1.50 Third quarter 2018 $2.16 1.25 Fourth quarter 2018 $1.60 0.50 First quarter 2019 $1.66 0.72 Monthly: December 2018 $0.99 0.50 January 2019 $1.01 0.72 February 2019 $1.06 0.80 March 2019 $1.66 0.79 April 2019 $0.96 0.68 May 2019 (through May 10, 2019) $0.96 0.75 B.Plan of distribution Not applicable for annual reports on Form 20-F. C.Markets Our Class A common shares are listed on the Nasdaq Capital Market under the symbol “HEBT.” D.Selling shareholders Not applicable for annual reports on Form 20-F. E.Dilution Not applicable for annual reports on Form 20-F. F.Expenses of the issue Not applicable for annual reports on Form 20-F. 75 Item 10.Additional Information A.Share capital Not applicable for annual reports on Form 20-F. B.Memorandum and articles of association The information required by this item is incorporated by reference to the material headed “Description of Share Capital” in our Registration Statement onForm F-1, File no. 333-208583, filed with the SEC on July 13, 2016, as amended. C.Material contracts We have not entered into any material contracts other than in the ordinary course of business and otherwise described elsewhere in this annual report. D.Exchange controls Foreign Currency Exchange The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreignexchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may bemade in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registrationwith appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expensessuch as the repayment of foreign currency-denominated loans or foreign currency is to be remitted into China under the capital account, such as a capitalincrease or foreign currency loans to our PRC subsidiaries. In August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment andSettlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise offoreign currency-registered capital into RMB by restricting how the converted RMB may be used. In addition, SAFE promulgated Circular 45 on November9, 2011 in order to clarify the application of SAFE Circular 142. Under SAFE Circular 142 and Circular 45, the RMB capital converted from foreign currencyregistered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authorityand may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital convertedfrom foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and suchRMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign DirectInvestment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various specialpurpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, thereinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise toits foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in differentprovinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign ExchangeAdministration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administrationby SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall processforeign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. 76 We typically do not need to use our offshore foreign currency to fund our PRC operations. In the event we need to do so, we will apply to obtain therelevant approvals of SAFE and other PRC government authorities as necessary. SAFE Circular 75 Under the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Financing and Roundtrip Investment ThroughOffshore Special Purpose Vehicles, or SAFE Circular 75, issued by SAFE on October 21, 2005 and its implementation rules, a PRC resident (whether a naturalor legal person) is required to complete an initial registration with its local SAFE branch before incorporating or acquiring control of an offshore specialpurpose vehicle, or SPV, with assets or equity interests in a PRC company, for the purpose of offshore equity financing. The PRC resident is also required toamend the registration or make a filing upon (1) the injection of any assets or equity interests in an onshore company or undertaking of offshore financing, or(2) the occurrence of a material change that may affect the capital structure of a SPV. SAFE also subsequently issued various guidance and rules regarding theimplementation of SAFE Circular 75, which imposed obligations on PRC subsidiaries of offshore companies to coordinate with and supervise any PRC-resident beneficial owners of offshore entities in relation to the SAFE registration process. Regulation of Dividend Distribution The principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in the PRC are the Company Law of the PRC,as amended, the Wholly Foreign-owned Enterprise Law and its implementation regulations and the Equity Joint Venture Law and its implementationregulations. Under these laws, rules and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, asdetermined in accordance with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises arerequired to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of such reserves reaches 50% of their registeredcapital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscalyears may be distributed together with distributable profits from the current fiscal year. E.Taxation The following sets forth the material British Virgin Islands, Chinese and U.S. federal income tax consequences related to an investment in our Class Acommon shares. It is directed to U.S. Holders (as defined below) of our Class A common shares and is based upon laws and relevant interpretations thereof ineffect as of the date of this annual report, all of which are subject to change. This description does not deal with all possible tax consequences relating to aninvestment in our Class A common shares, such as the tax consequences under state, local and other tax laws. The following brief description applies only to U.S. Holders (defined below) that hold Class A common shares as capital assets and that have the U.S.dollar as their functional currency. This brief description is based on the tax laws of the United States in effect as of the date of this annual report and on U.S.Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and administrative interpretations thereofavailable on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the taxconsequences described below. 77 The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of shares andyou are, for U.S. federal income tax purposes, ●an individual who is a citizen or resident of the United States; ●a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any statethereof or the District of Columbia; ●an estate whose income is subject to U.S. federal income taxation regardless of its source; or ●a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantialdecisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. Generally HEBT is a tax-exempt company incorporated in the British Virgin Islands. HK Xibolun is subject to Hong Kong profits tax rate. Xibolun Automation andXibolun Equipment are governed by PRC laws. Our company pays PRC enterprise income taxes, value added taxes and business taxes in China for revenues from Xibolun Automation and XibolunEquipment and is governed by British Virgin Islands tax laws as to HEBT. (The business tax has been incorporated into VAT since May 1, 2016.) People’s Republic of China Enterprise Taxation The following brief description of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, which will affect theamount of dividends, if any, we are ultimately able to pay to our shareholders. See “Dividend Policy.” PRC enterprise income tax is calculated based on taxable income determined under PRC accounting principles. The Enterprise Income Tax Law (the“EIT Law”), effective as of January 1, 2008, enterprises pay a unified income tax rate of 25% and unified tax deduction standards are applied equally to bothdomestic-invested enterprises and foreign-invested enterprises. Under the EIT Law, an enterprise established outside of the PRC with “de facto managementbodies” within the PRC is considered a resident enterprise and will normally be subject to the enterprise income tax at the rate of 25% on its global income. Ifthe PRC tax authorities subsequently determine that we, HK Xibolun or any future non-PRC subsidiary should be classified as a PRC resident enterprise, thensuch entity’s global income will be subject to PRC income tax at a tax rate of 25%. In addition, under the EIT Law, payments from Xibolun Automation orXibolun Equipment to us may be subject to a withholding tax. The EIT Law currently provides for a withholding tax rate of 20%. If HEBT or HK Xibolun isdeemed to be a non-resident enterprise, then it will be subject to a withholding tax at the rate of 10% on any dividends paid by its Chinese subsidiaries tosuch entity. In practice, the tax authorities typically impose the withholding tax rate of 10% rate, as prescribed in the implementation regulations; however,there can be no guarantee that this practice will continue as more guidance is provided by relevant government authorities. We are actively monitoring theproposed withholding tax and are evaluating appropriate organizational changes to minimize the corresponding tax impact. According to the Sino-U.S. Tax Treaty which was effective on January 1, 1987 and aimed to avoid double taxation disadvantage, income that is incurredin one nation should be taxed by that nation and exempted from the other nation, but for the dividend that is generated in China and distributed to foreignerin other nations, a rate 10% tax will be charged. Our company will have to withhold that tax when we are distributing dividends to our foreign investors. If we do not fulfill this duty, we will receive afine up to five times of the amount we are supposed to pay as tax or other administrative penalties from government. The worst case could be criminal chargeof tax evasion to responsible persons. The criminal penalty for this offense depends on the tax amount the offender evaded, and the maximum penalty will be3-7 years imprisonment plus fine. 78 PRC Value Added Tax Pursuant to the Provisional Regulation of China on Value Added Tax and its implementing rules, issued in December 1993, all entities and individualsthat are engaged in the businesses of sales of goods, provision of repair and placement services and importation of goods into China are generally subject to aVAT at a rate of 17% (with the exception of certain goods which are subject to a rate of 13%) of the gross sales proceeds received, less any VAT already paidor borne by the taxpayer on the goods or services purchased by it and utilized in the production of goods or provisions of services that have generated thegross sales proceeds. PRC Business Tax Companies in China are generally subject to business tax and related surcharges by various local tax authorities at rates ranging from 3% to 20% onrevenue generated from providing services and revenue generated from the transfer of intangibles. However, since May 1, 2016, the Business Tax has beenincorporated into Value Added Tax in China, which means there will be no more Business Tax and accordingly some business operations previously taxed inthe name of Business Tax will be taxed in the manner of VAT thereafter. In general, this newly implemented policy is intended to relieve many companiesfrom heavy taxes under currently slowing down economy. In the case of Hebron’s Chinese subsidiaries, even though the VAT rate is 17%, with thedeductibles the company may get in the business process, it will bear less burden than previous Business Tax. British Virgin Islands Taxation Under the BVI Business Companies Act as currently in effect, a holder of common shares who is not a resident of the British Virgin Islands is exemptfrom British Virgin Islands income tax on dividends paid with respect to the common shares and all holders of common shares are not liable to the BritishVirgin Islands for income tax on gains realized during that year on sale or disposal of such shares. The British Virgin Islands does not impose a withholdingtax on dividends paid by a company incorporated or re-registered under the BVI Business Companies Act. There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands on companies incorporated or re-registered under the BVIBusiness Companies Act. In addition, shares of companies incorporated or re-registered under the BVI Business Companies Act are not subject to transfertaxes, stamp duties or similar charges. There is no income tax treaty or convention currently in effect between the United States and the British Virgin Islands or between China and the BritishVirgin Islands. 79 United States Federal Income Taxation The following does not address the tax consequences to any particular investor or to persons in special tax situations such as: ●banks; ●financial institutions; ●insurance companies; ●regulated investment companies; ●real estate investment trusts; ●broker-dealers; ●traders that elect to mark-to-market; ●U.S. expatriates; ●tax-exempt entities; ●persons liable for alternative minimum tax; ●persons holding our common shares as part of a straddle, hedging, conversion or integrated transaction; ●persons that actually or constructively own 10% or more of our voting shares; ●persons who acquired our common shares pursuant to the exercise of any employee share option or otherwise as consideration; or ●persons holding our common shares through partnerships or other pass-through entities. Prospective purchasers are urged to consult their own tax advisors about the application of the U.S. Federal tax rules to their particular circumstances aswell as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our common shares. Tax Treaties As above mentioned, according to the Sino-U.S. Tax Treaty which was effective on January 1, 1987 and aimed to avoid double taxation disadvantage,income that is incurred in one nation should be taxed by that nation and exempted from the other nation, but for the dividend that is generated in China anddistributed to foreigners in other nations, a rate 10% tax will be charged. 80 Taxation of Dividends and Other Distributions on our Common Shares Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to thecommon shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date ofreceipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federalincome tax principles). The dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received fromother U.S. corporations. With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable toqualified dividend income, provided that (1) the common shares are readily tradable on an established securities market in the United States, or we areeligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not apassive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3)certain holding period requirements are met. Under U.S. Internal Revenue Service authority, common shares are considered for purpose of clause (1) above tobe readily tradable on an established securities market in the United States if they are listed on The NASDAQ Capital Market. You are urged to consult yourtax advisors regarding the availability of the lower rate for dividends paid with respect to our common shares. Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (asdiscussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the grossamount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxeseligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our commonshares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.” To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income taxprinciples), it will be treated first as a tax-free return of your tax basis in your Class A common shares, and to the extent the amount of the distribution exceedsyour tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles.Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxablereturn of capital or as capital gain under the rules described above. Taxation of Dispositions of Common Shares Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxabledisposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the commonshares. The gain or loss will generally be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held theClass A common shares for more than one year, you will generally be eligible for reduced tax rates. The deductibility of capital losses is subject tolimitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitationpurposes. 81 Passive Foreign Investment Company A non-U.S. corporation is considered a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year if either: ●at least 75% of its gross income is passive income, defined as income from interest, dividends, rents, royalties, gains on property producing foreignpersonal holding company income and certain other income that does not involve the active conduct of a trade or business; or ●at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets thatproduce or are held for the production of passive income (the “asset test”). We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in whichwe own, directly or indirectly, at least 25% (by value) of the stock. Based on the market price of our common shares, the value of our assets and the composition of our assets and income, we believe that we were not aPFIC for our taxable year ended December 31, 2018 December 31, 2017 or December 31, 2016. However, given the factual nature of the analyses and the lackof guidance, no assurance can be given. We do not expect to be a PFIC for our taxable year ending December 31, 2018. However, because PFIC status is afactual determination for each taxable year which cannot be made until the close of the taxable year, our actual PFIC status will not be determinable until theclose of the taxable year and, accordingly, there is no guarantee that we will not be a PFIC for the current taxable year or any future taxable year. We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. In particular, because the value ofour assets for purposes of the asset test will generally be determined based on the market price of our common shares, our PFIC status will depend in large parton the market price of our common shares. Accordingly, fluctuations in the market price of the common shares may cause us to become a PFIC. In addition,the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and howquickly, we spend the cash we raised in our initial public offering. If we are a PFIC for any year during which you hold common shares, we will continue to betreated as a PFIC for all succeeding years during which you hold common shares. However, if we cease to be a PFIC, you may avoid some of the adverseeffects of the PFIC regime by making a “deemed sale” election with respect to the common shares. If we are a PFIC for any taxable year during which you hold common shares, you will be subject to special tax rules with respect to any “excessdistribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the common shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions youreceived during the shorter of the three preceding taxable years or your holding period for the common shares will be treated as an excess distribution. Underthese special tax rules: ●the excess distribution or gain will be allocated ratably over your holding period for the common shares; ●the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated asordinary income, and ●the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable tounderpayments of tax will be imposed on the resulting tax attributable to each such year. The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses forsuch years, and gains (but not losses) realized on the sale of the common shares cannot be treated as capital, even if you hold the common shares as capitalassets. 82 A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatmentdiscussed above. If you make a mark-to-market election for the common shares, you will include in income each year an amount equal to the excess, if any, ofthe fair market value of the common shares as of the close of your taxable year over your adjusted basis in such common shares. You are allowed a deductionfor the excess, if any, of the adjusted basis of the common shares over their fair market value as of the close of the taxable year. However, deductions areallowable only to the extent of any net mark-to-market gains on the common shares included in your income for prior taxable years. Amounts included inyour income under a mark-to-market election, as well as gain on the actual sale or other disposition of the common shares, are treated as ordinary income.Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the common shares, as well as to any loss realized on the actualsale or disposition of the common shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included forsuch common shares. Your basis in the common shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-marketelection, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicablecapital gains rate for qualified dividend income discussed above under “Taxation of Dividends and Other Distributions on our Common shares” generallywould not apply. The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 daysduring each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including TheNASDAQ Capital Market. If the common shares are regularly traded on The NASDAQ Capital Market and if you are a holder of common shares, the mark-to-market election would be available to you were we to be or become a PFIC. Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatmentdiscussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxableyear such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available onlyif such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. Wedo not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold common shares inany year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 regarding distributions received on the common sharesand any gain realized on the disposition of the common shares. You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our common shares and the electionsdiscussed above. Information Reporting and Backup Withholding Dividend payments with respect to our common shares and proceeds from the sale, exchange or redemption of our common shares may be subject toinformation reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S.Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or whois otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification onU.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting andbackup withholding rules. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability,and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S.Internal Revenue Service and furnishing any required information. Under the Hiring Incentives to Restore Employment Act of 2010, certain United States Holders are required to report information relating to commonshares, subject to certain exceptions (including an exception for common shares held in accounts maintained by certain financial institutions), by attaching acomplete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they holdcommon shares. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules. F.Dividends and paying agents Not applicable for annual reports on Form 20-F. G.Statement by experts Not applicable for annual reports on Form 20-F. H.Documents on display We are subject to the information requirements of the Exchange Act. In accordance with these requirements, the Company files reports and otherinformation with the SEC. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C.20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov that contains reports and other information regarding registrants that file electronically with the SEC. I.Subsidiary Information Not applicable. 83 Item 11.Quantitative and Qualitative Disclosures About Market Risk We are exposed to a variety of financial risks, including market risk (including currency risk, price risk and cash flow and fair value interest rate risk),credit risk and liquidity risk. Our overall risk management program focuses on preservation of capital and the unpredictability of financial markets and hassought to minimize potential adverse effects on our financial performance and position. Foreign Exchange Risk While our reporting currency is the U.S. Dollar, all of our consolidated sales and consolidated costs and expenses are denominated in the RMB. All ofour assets are denominated in the RMB. As a result, we are exposed to foreign exchange risk as our sales and results of operations may be affected byfluctuations in the exchange rate between the U.S. Dollar and the RMB. If the RMB depreciates against the U.S. Dollar, the value of our RMB sales, earningsand assets as expressed in our U.S. Dollar financial statements will decline. Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates andstockholders’ equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income but areincluded in determining other comprehensive income, a component of stockholders’ equity. We have not entered into any hedging transactions in an effortto 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 economicconditions. 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 foreignexchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against theU.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 RMBexchange rate and lessen intervention in the foreign exchange market. The RMB depreciated from 2014 through the end of 2016, but has appreciatedapproximately 20% against the U.S. dollar since the beginning of 2017. Interest Rate Risk Our interest rate risk arises from short and long-term borrowings. As of December 31, 2018 and 2017, we had no borrowings with variable rates and wewere not exposed to cash flow interest rate risk. Borrowings issued at fixed rates expose us to fair value interest rate risk. As of December 31, 2018 and 2017, we had no long-term interest-bearing assets or long-term interest-bearing liabilities. Credit Risk Our cash is invested primarily in savings and deposit accounts with original maturities of three months or less. Savings and deposit accounts generate asmall amount of interest income. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, contracts receivable,accounts receivable and retainage receivables. As of December 31, 2018, and 2017, $3,063,692 and $3,216,938, respectively, of the Company’s cash was ondeposit at financial institutions in the PRC where there currently is no rule or regulation requiring such financial institutions to maintain insurance to coverbank deposits in the event of bank failure. While management believes that these financial institutions are of high credit quality, it also continually monitorstheir creditworthiness. Contracts receivable, accounts receivable and retainage receivables are typically unsecured and derived from revenue earned from customers, therebythey are exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring ofoutstanding balances. Inflation Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do notbelieve 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 anadverse effect on our ability to maintain current levels of gross profit and selling, general and administrative expenses as a percentage of net sales if theselling prices of our products do not increase with these increased costs. Item 12.Description of Securities Other than Equity Securities With the exception of Items 12.D.3 and 12.D.4, this Item 12 is not applicable for annual reports on Form 20-F. As to Items 12.D.3 and 12.D.4, this Item 12is not applicable, as the Company does not have any American Depositary Shares. 84 PART II Item 13.Defaults, Dividend Arrearages and Delinquencies We do not have any material defaults in the payment of principal, interest, or any installments under a sinking or purchase fund. Item 14.Material Modifications to the Rights of Securities Holders and Use of Proceeds Material Modifications to the Rights of Security Holders On March 7, 2018, we filed the Third Amended and Restated Memorandum of Association with the BVI Registrar of Corporate Affairs. Pursuant to theThird Amended and Restated Memorandum of Association, our authorized shares are re-classified and re-designated into 50,000,000 common shares of parvalue of US$0.001 each, of which 40,000,000 share are designated as Class A common shares of par value of US$0.001 each and 10,000,000 shares aredesignated as Class B common shares of par value of US$0.001 each. Each Class A common share is entitled to one vote and each Class B common share isentitled to five votes on all matters subject to vote at our general meetings. Future transfers by holders of Class B common shares will generally result in thoseshares converting to Class A common shares, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion ofClass B common shares to Class A common shares will have the effect, over time, of increasing the relative voting power of those holders of Class B commonshares who retain their shares in the long term. Each Class B Common Share is convertible into one (1) Class A Common Share at any time by the holder. The right to convert are exercisable by theholder of the Class B Common Share delivering a written notice to the Company that such holder elects to convert a specified number of Class B CommonShares into Class A Common Shares. The number of Class B Common Shares held by a holder will be automatically and immediately converted into an equaland corresponding number of Class A Common Shares upon any direct or indirect sale, transfer, assignment or disposition of such number of Class BCommon Shares by the holder or an Affiliate or such holder or the direct or indirect transfer or assignment of the voting power attached to such number ofClass B Common Shares through voting proxy or otherwise to any person or entity that is not an Affiliate of such holder. For the avoidance of doubt, thecreation of any pledge, charge, encumbrance or other third party right of whatever description on any of Class B Common Shares to secure contractual orlegal obligations shall not be deemed as a sale, transfer, assignment or disposition unless and until any such pledge, charge, encumbrance or other third-partyright is enforced and results in the third party holding directly or indirectly beneficial ownership or voting power through voting proxy or otherwise to therelated Class B Common Shares, in which case all the related Class B Common Shares shall be automatically converted into the same number of Class ACommon Shares. Any conversion of Class B Common Shares into Class A Common Shares shall be effected by means of the re-designation of each relevantClass B Common Share as a Class A Common Share. All Class B Common shares will be automatically converted into the same number of Class A CommonShares as soon as the Class B Shareholder beneficially owns less than 388,920 Class B Common Shares. Class A Common Shares are not convertible into Class B Common Shares under any circumstances. Save and except for voting rights and conversion rights as set out in the Third Amended and Restated Memorandum of Association, the Class ACommon Shares and the Class B Common Shares shall rank pari passu and shall have the same rights, preferences, privileges and restrictions. Use of Proceeds The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number: 333-208583) in relation to ourinitial public offering of 2,695,347 of our common shares, at an initial offering price of $4.00 per share, and the issuance to the placement agent in the initialpublic offering of warrants to purchase 134,768 common shares. Our initial public offering closed in December 2016. Spartan Securities Group, Ltd. was theplacement agent for our initial public offering. We received and used net proceeds of approximately $10.1 million from our initial public offering. As of December 31, 2018, the Company had utilizedfull proceeds from the IPO proceeds in purchase of inventory of approximately $5.9 million for production, paid approximately $3.6 million for consultingfees, and paid approximately $0.6 million in operating expense related to the U.S. listing. 85 Item 15.Controls and Procedures (a)Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) that aredesigned to ensure that information required to be disclosed in our reports that we file or submit under the Security Exchange Act of 1934 is recorded,processed, summarized and reported, within the time period specified in the SEC’s rules and forms, and is accumulated and communicated to ourmanagement, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow for timelydecisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures,no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required toapply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of December 31, 2018, the end of the fiscal year covered by this report, our management, under the supervision and with the participation of our ChiefExecutive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures. Based on theevaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2018, our disclosure controls and procedures wereineffective. Such conclusion is due to the presence of material weakness in internal control over financial reporting as described below. (b)Management’s annual report on internal control over financial reporting. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. We assessed theeffectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making its assessment, management used the 2013Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 COSO Framework”).The 2013 COSO Framework outlines the 17 underlying principles and the following fundamental components of a company’s internal control:,(i) controlenvironment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Our management has implemented andtested our internal control over financial reporting based on these criteria and identified certain material weaknesses set forth below. Based on the assessment,management determined that, as of December 31, 2018, we did not maintain effective internal control over financial reporting due to the existence of thefollowing material weaknesses: ●The Company does not have adequate internal accounting personnel with sufficient knowledge of the US GAAP and SEC reporting standards, whichcould lead to material misstatements being undetected in a timely manner. (c)Attestation report of the registered public accounting firm. Not applicable. (d)Changes in internal control over financial reporting. The following changes in our internal controls over financial reporting occurred during the twelve months ended December 31, 2018 and havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting: ●We have begun to maintain written policies and procedures, and prepare Board minutes and resolutions for significant transactions on a timely basis.We believe these efforts will improve our internal controls. Although we believe there is room to improve our segregation of duties related to certain job responsibilities for initiating, authorizing, and recording ofcertain transactions, our ability to improve such segregation is limited as a small-size public company. Item 15T.Controls and Procedures Not applicable. 86 Item 16.[Reserved] Item 16A.Audit Committee Financial Expert The Company’s board of directors has determined that Ms. Haiying Xiang qualifies as an “audit committee financial expert” in accordance withapplicable Nasdaq Capital Market standards. The Company’s board of directors has also determined that Ms. Xiang and the other members of the AuditCommittee are all “independent” in accordance with the applicable Nasdaq Capital Market standards. Item 16B.Code of Ethics The Company has adopted a Code of Business Conduct and Ethics that applies to the Company’s directors, officers, employees and advisors. The Codeof Ethics is attached as an exhibit to this annual report. We have also posted a copy of our code of business conduct and ethics on our website atwww.hebrontechnology.com. Item 16C.Principal Accountant Fees and Services Wei, Wei & Co., LLP was appointed by the Company on February 26, 2019 to serve as its independent registered public accounting firm for fiscal 2018.Audit services provided by Wei, Wei & Co., LLP for fiscal 2018 included the examination of the consolidated financial statements of the Company; andservices related to periodic filings made with the SEC. Friedman LLP was appointed by the Company to serve as its independent registered public accountingfirm for fiscal 2017 and 2016. Audit services provided by Friedman LLP for fiscal 2017 and 2016 included the examination of the consolidated financialstatements of the Company; and services related to periodic filings made with the SEC. Fees Paid To Independent Registered Public Accounting Firm Audit Fees Wei, Wei & Co., LLP's fee for the annual audit of our financial statements for fiscal 2018 was $180,000. Friedman LLP’s fees for the annual audit of our financial statements and review of the financial statements for fiscal 2017 and 2016 were $175,000 and$145,000, respectively. Audit-Related Fees The Company has not paid Wei, Wei & Co., LLP for audit-related services in fiscal 2018. The Company has not paid Friedman LLP for audit-related services in fiscal 2017 and 2016. Tax Fees The Company has not paid Wei, Wei & Co., LLP for tax services in fiscal 2018. The Company has not paid Friedman LLP for tax services in fiscal 2017 and 2016. All Other Fees The Company has not paid Wei, Wei & Co., LLP for any other services in fiscal 2018. The Company has not paid Friedman LLP for any other services in fiscal 2017 and 2016. Audit Committee Pre-Approval Policies Before Wei, Wei & Co., LLP and Friedman LLP were engaged by the Company to render audit or non-audit services, the engagement was approved bythe Company’s audit committee. All services rendered by Wei, Wei & Co., LLP and Friedman LLP have been so approved. Percentage of Hours The percentage of hours expended on the principal accountants’ engagement to audit our consolidated financial statements for 2018 that were attributedto work performed by persons other than Wei, Wei & Co., LLP’s full-time permanent employees was less than 50%. 87 Item 16D.Exemptions from the Listing Standards for Audit Committees Not applicable. Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers Neither the Company nor any affiliated purchaser has purchased any shares or other units of any class of the Company’s equity securities registered bythe Company pursuant to Section 12 of the Securities Exchange Act during the fiscal year ended December 31, 2018. Item 16F.Change in Registrant’s Certifying Accountant Not applicable. Item 16G.Corporate Governance We are incorporated in the British Virgin Islands and our corporate governance practices are governed by applicable British Virgin Islands law. Inaddition, because our Class A common shares are listed on The Nasdaq Capital Market, we are subject to Nasdaq’s corporate governance requirements. Other than as described in this section, our corporate governance practices do not differ from those followed by domestic companies listed on theNASDAQ Capital Market. NASDAQ Listing Rule 5635 generally provides that shareholder approval is required of U.S. domestic companies listed on theNASDAQ Capital Market prior to issuance (or potential issuance) of securities equaling 20% or more of the company’s common stock or voting power forless than the greater of market or book value. Notwithstanding this general requirement, NASDAQ Listing Rule 5615(a)(3)(A) permits foreign private issuerslike the Company to follow their home country practice rather than this shareholder approval requirement. The Company, therefore, is not required to obtainsuch shareholder approval prior to entering into a transaction with the potential to issue securities as described above. Item 16H.Mine Safety Disclosure Not applicable. 88 PART III Item 17.Financial Statements See Item 18. Item 18.Financial Statements Our consolidated financial statements are included at the end of this annual report, beginning with page F-1. Item 19.Exhibits Exhibit No. Description of Exhibit 1.1(1) Articles of Association of Hebron Technology Co., Ltd. 1.2(2) First Amended and Restated Articles of Association of Hebron Technology Co., Ltd. 1.3(1) Memorandum of Association of Hebron Technology Co., Ltd. 1.4(1) First Amended and Restated Memorandum of Association of Hebron Technology Co., Ltd. 1.5(2) Second Amended and Restated Memorandum of Association of Hebron Technology Co., Ltd. 1.6(5) Third Amended and Restated Memorandum of Association of Hebron Technology Co., Ltd. 2.1(6) Registrant’s Form of Class A common share Certificate 2.2(6) Registrant’s Form of Class B common share Certificate 8.1(3) List of Subsidiaries of the Registrant 11.1 (4) Code of Business Conduct and Ethics 12.1(7) Certification of Chief Executive Officer Required by Rule 13a-14(a) 12.2(7) Certification of Chief Financial Officer Required by Rule 13a-14(a) 13.1(7) Certification of Chief Executive Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code 13.2(7) Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code 15.1(7) Consent Letter of Friedman LLP 15.2(7) Consent Letter of Wei, Wei & Co., LLP 99.1(7) Press release dated May 15, 2019 titled “Hebron Technology Co., Ltd. Reports Fiscal Year 2018 Financial Results” 101.INS(7) XBRL Instance Document. 101.SCH(7) XBRL Taxonomy Extension Schema Document. 101.CAL(7) XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF(7) XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB(7) XBRL Taxonomy Extension Labels Linkbase Document. 101.PRE(7) XBRL Taxonomy Extension Presentation Linkbase Document. (1)Incorporated by reference to Form F-1 filed on April 29, 2016 (Accession No.: 0001144204-16-097715) (2)Incorporated by reference to Form F-1 filed on June 13, 2016 (Accession No.: 0001144204-16-107930) (3)Incorporated by reference to Form F-1 filed on December 16, 2015 (Accession No.: 0001144204-15-071344) (4)Incorporated by reference to Form 20-F filed on April 11, 2017 (File No.: 001-37829) (5)Incorporated by reference to Form 6-K filed on March 9, 2018 (File No.: 001-37829) (6)Incorporated by reference to Form 20-F filed on April 26, 2018 (File No.: 001-37829) (7)Filed herewith. 89 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned tosign this annual report on its behalf. Hebron Technology Co., Ltd. By:/s/ Anyuan Sun Name:Anyuan Sun Title:Chief Executive Officer Date: May 15, 2019 90 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIES TABLE OF CONTENTS Consolidated Financial Statements Reports of Independent Registered Public Accounting FirmsF-2 – F-3Consolidated Balance SheetsF-4Consolidated Statements of Operations and Comprehensive Income (Loss)F-5Consolidated Statements of Changes in Shareholders’ EquityF-6Consolidated Statements of Cash FlowsF-7Notes to Consolidated Financial StatementsF-8 – F-29 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the board of directors of Hebron Technology Co., Limited. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Hebron Technology Co., Limited. and its subsidiaries (collectively, the “Company”) as ofDecember 31, 2018, and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ equity, and cash flowsfor the year ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, theconsolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results oftheir operations and their cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United Statesof America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required tohave, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understandingof internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control overfinancial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, aswell as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Wei, Wei & Co., LLP We have served as the Company’s auditor since 2019 New York, New YorkMay 15, 2019 F-2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the board of directors of Hebron Technology Co., Limited. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Hebron Technology Co., Limited. and its subsidiaries (collectively, the “Company”) as ofDecember 31, 2017 and 2016, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flowsfor each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”).In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity withaccounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required tohave, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain anunderstanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internalcontrol over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, aswell as evaluating the overall presentation of the consolidated financial statement. We believe that our audits provide a reasonable basis for our opinion. /s/ Friedman LLP We have served as the Company’s auditor since 2013. New York, New YorkApril 25, 2018 F-3 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS December 31, December 31, 2018 2017 ASSETS CURRENT ASSETS: Cash $947,588 $3,220,781 Restricted Cash 2,124,655 55,322 Contracts receivable, net 24,669,365 16,904,972 Accounts receivable, net 2,655,845 1,419,305 Notes receivable 81,611 689,171 Retainage receivables, net 3,146,986 2,564,404 Inventories 365,480 1,582,501 Prepayments and advances to suppliers, net 3,568,003 11,904,107 Other receivables, net 767,681 240,284 Prepaid expenses and other current assets 94,539 - TOTAL CURRENT ASSETS 38,421,753 38,580,847 Property and equipment at cost, net of accumulated depreciation 12,515,894 14,588,262 Land use right, net of accumulated amortization 969,339 1,086,148 Deposits for rent 43,633 46,101 Equity investment 3,054,090 - Deferred tax assets 1,648,967 247,324 TOTAL ASSETS $56,653,676 $54,548,682 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Short-term loans $1,698,058 $457,940 Notes Payable 2,117,382 55,322 Accounts payable 1,361,687 1,276,784 Accrued expenses and other current liabilities 2,112,472 1,327,513 Other loan payable - current 177,291 179,182 Advances from customers 3,131,338 2,825,215 Taxes payable 9,085,746 7,067,593 TOTAL CURRENT LIABILITIES 19,683,974 13,189,549 Other loan payable - long-term 212,351 411,683 Long-term loans - 414,912 TOTAL LIABILITIES 19,896,325 14,016,144 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: Common stock Class A common stock, $0.001 par value, 40,000,000 shares authorized, 8,491,177 and 6,916,947 shares issued andoutstanding as of December 31, 2018 and 2017, respectively 8,491 6,917 Class B common stock, $0.001 par value, 10,000,000 shares authorized, 7,778,400 shares issued and outstanding asof December 31, 2018 and 2017, respectively. 7,778 7,778 Additional paid-in capital 13,361,447 10,237,965 Retained earnings 24,732,776 29,877,491 Accumulated other comprehensive income (loss) (1,353,141) 402,387 TOTAL SHAREHOLDERS’ EQUITY 36,757,351 40,532,538 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $56,653,676 $54,548,682 The accompanying notes are an integral part of these consolidated financial statements. F-4 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS) For the Years Ended December 31, 2018 2017 2016 REVENUE Installation service $17,297,212 $23,748,141 $24,299,062 Fluid equipment sales 7,992,848 5,452,304 2,798,774 25,290,060 29,200,445 27,097,836 COST OF REVENUE Cost of product and services 17,458,252 18,080,777 16,192,810 Business and sales related taxes 253,856 675,507 443,448 GROSS PROFIT 7,577,952 10,444,161 10,461,578 OPERATING EXPENSES General and administrative expenses 3,298,188 3,683,594 932,911 Selling expenses 1,337,321 2,187,253 1,742,147 Bad debt expenses (recovery) 7,913,442 187,715 (227,873)Research and development expenses 358,411 508,282 33,847 Total operating expenses 12,907,362 6,566,844 2,481,032 (LOSS) INCOME FROM OPERATIONS (5,329,410) 3,877,317 7,980,546 OTHER INCOME (EXPENSE) Other income, net (426,585) 377,174 6,431 Interest expense (208,306) (56,953) (49,625) Income from investment 168,534 - - Total other (expense) income, net (466,357) 320,221 (43,194) (LOSS) INCOME BEFORE INCOME TAXES (5,795,767) 4,197,538 7,937,352 (BENEFIT FROM) PROVISION FOR INCOME TAXES (651,052) (2,938,849) 2,002,467 NET (LOSS) INCOME $(5,144,715) $7,136,387 $5,934,885 OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation (loss) income (1,755,528) 2,249,081 (1,401,124) COMPREHENSIVE (LOSS) INCOME $(6,900,243) $9,385,468 $4,533,761 Basic and diluted (loss) earnings per common share Basic $(0.33) $0.49 $0.49 Diluted $(0.33) $0.49 $0.49 Weighted average number of shares outstanding Basic 15,760,633 14,695,347 12,029,538 Diluted 15,760,633 14,695,347 12,046,045 The accompanying notes are an integral part of these consolidated financial statements. F-5 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Class ACommon Stock Class BCommon Stock Additionalpaid in Retained AccumulatedOtherComprehensive Shares Amount Shares Amount capital Earnings Income (Loss) Total Balance atJanuary 1,2016* 4,221,600 $4,222 7,778,400 $7,778 $108,970 $16,806,219 $(445,570) $16,481,619 Issuance ClassA shares -IPO 2,695,347 2,695 - - 10,128,995 - - 10,131,690 Net income - - - 5,934,885 - 5,934,885 Foreigncurrencytranslationloss - - - - (1,401,124) (1,401,124)Balance atDecember31, 2016 6,916,947 6,917 7,778,400 7,778 10,237,965 22,741,104 (1,846,694) 31,147,070 Net income - - - - - 7,136,387 - 7,136,387 Foreigncurrencytranslationincome - - - - - 2,249,081 2,249,081 Balance atDecember31, 2017 6,916,947 6,917 7,778,400 7,778 10,237,965 29,877,491 402,387 40,532,538 Net loss - - - - - (5,144,715) - (5,144,715)Foreigncurrencytranslationloss - - - - - - (1,755,528) (1,755,528)Issuance ofclass Acommonstock forconsultingservices 131,452 131 - - 239,369 - - 239,500 Issuance ofclass Acommonstock forequityinvestment 1,442,778 1,443 - - 2,884,113 - - 2,885,556 Balance atDecember31, 2018 8,491,177 $8,491 7,778,400 $7,778 $13,361,447 $24,732,776 $(1,353,141) $36,757,351 * Retrospectively adjusted the reclassification of the Company’s common stock (see Note 14) The accompanying notes are an integral part of these consolidated financial statements. F-6 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2018 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(5,144,715) $7,136,387 $5,934,885 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,195,161 939,995 517,402 Loss on disposition of property and equipment 283,487 12,179 228,245 Deferred tax expense (benefit) (1,471,938) 11,526 56,968 Bad debt expense (recovery) 7,913,442 187,715 (227,873)Changes in operating assets and liabilities: Contracts receivable (9,019,036) (2,992,867) (5,893,527)Accounts receivable (1,383,452) (950,850) 922,611 Notes receivable 593,674 (378,205) (85,107)Retainage receivables (748,903) (80,360) (548,357)Prepayment and advances to suppliers 93,149 (7,127,018) (2,861,600)Inventories 1,177,956 788,000 427,878 Other receivables (598,764) (156,074) (1,535)Accounts payable 146,546 26,450 (290,717)Notes Payable 2,148,292 53,272 - Advances from customers 429,217 (370,964) 528,193 Deferred revenue - (1,071,355) 3,161 Taxes payable 2,770,253 (2,365,120) 2,484,264 Accrued expenses and other current liabilities 890,551 240,505 382,410 NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (725,080) (6,096,784) 1,577,301 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of property and equipment (74,210) (3,126,777) (7,667)Payments for intangible assets (41,000) - - Payments for construction in progress - - (973,254)NET CASH (USED IN) INVESTING ACTIVITIES (115,210) (3,126,777) (980,921) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short-term bank loans 1,995,763 295,954 301,019 Repayment of short-term bank loans (1,088,667) - (795,443)Proceeds from long-term loans - 173,873 556,885 Repayment of long-term loans - (47,353) - Repayment/Proceeds from other loan (176,427) 582,205 - Repayment of other loan - (21,457) - Repayment of (proceeds from) related parties - (66,582) 72,009 Proceeds from issuance of shares in IPO - - 10,131,690 NET CASH PROVIDED BY FINANCING ACTIVITIES 730,669 916,640 10,266,160 EFFECT OF EXCHANGE RATE CHANGE ON CASH (94,239) (292,869) (104,290)NET (DECREASE) INCREASE IN CASH (203,860) (8,599,790) 10,758,250 CASH AND RESTRICTED CASH-beginning of year 3,276,103 11,875,893 1,117,643 CASH AND RESTRICTED CASH-end of year $3,072,243 $3,276,103 $11,875,893 SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for income taxes $42,250 $- $- Cash paid for interest $91,917 $75,704 $50,705 Non-cash financing activities Warrants issued to placement agent in connection with the Company’s IPO $- $- $488,730 Issuance of shares for consulting services $239,500 $- $- Issuance of shares for equity investment $2,885,556 $- $- The accompanying notes are an integral part of these consolidated financial statements. F-7 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 — ORGANIZATION AND BUSINESS DESCRIPTION Organization Hebron Technology Co., Ltd, (“Hebron Technology”) is a limited company established under the laws of the British Virgin Islands on May 29, 2012 as aholding company. Mr. Anyuan Sun (“Mr. Sun”), the Chairman of the Board and CEO of the Company, is the ultimate controlling shareholder (“theControlling Shareholder”) of the Company. Hong Kong Xibolun Technology Limited (“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 controlled by the same Controlling Shareholder. Zhejiang Xibolun Automation Project Technology Co., Ltd. (“Xibolun Automation”) was incorporated on September 24, 2012 in the People’s Republic ofChina (“China” or “PRC”) and initially owned by Hebron Technology, Xibolun Equipment, and Zhejiang Xibolun Technology Co., Ltd. (“ZhejiangXibolun”), a Chinese company also controlled by Mr. Sun. Wenzhou Xibolun Fluid Equipment Co., Limited (“Xibolun Equipment”) was incorporated in China on January 25, 2005. Prior to the reorganizationdescribed below, Xibolun Equipment was owned by the Controlling shareholder and another foreign shareholder, Mr. Gongqi Xiang, with each owning 70%and 30% equity interest, respectively. Mr. Gongqi Xiang is holding shares on behalf of Mr. Sun. Therefore, Xibolun Equipment is considered ultimatelycontrolled by Mr. Sun. Reorganization On October 30, 2012, HK Xibolun entered into separate equity transfer agreements with Hebron Technology, Xibolun Equipment, and Zhejiang Xibolun,pursuant to which shareholders of Xibolun Automation agreed to transfer all of their equity interests in Xibolun Automation to HK Xibolun. The transferbecame effective on December 5, 2012. Xibolun Equipment was incorporated on January 25, 2005. By July 20, 2011, Xibolun Equipment was owned by the Controlling shareholder and anotherforeign shareholder, Mr. Gongqi Xiang, by holding shares of 70% and 30%, respectively. On July 21, 2011, HK Xibolun entered into an equity transferagreement with Mr. Gongqi Xiang, who owned 30% of Xibolun Equipment’s shares, in which Mr. Gongqi Xiang agreed to transfer his 30% ownershipinterest of Xibolun Equipment to Xibolun Automation for RMB 300,000. On July 29, 2013, Mr. Sun transferred his 70% ownership interest in Xibolun Equipment to Xibolun Automation as well for RMB 700,000, which is now awholly owned subsidiary of HK Xibolun. Subsequent to the transfers, Xibolun Equipment became a wholly owned subsidiary of HK Xibolun. On October 22, 2012, in anticipation of an initial public offering (“IPO”) of its equity securities, the shareholder of HK Xibolun transferred his shares in HKXibolun to the Company without any consideration and as a result, HK Xibolun became a wholly-owned subsidiary of the Company. F-8 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 — ORGANIZATION AND BUSINESS DESCRIPTION (Continued) The above mentioned transactions were accounted for as a recapitalization. Hebron Technology and its wholly-owned subsidiary HK Xibolun, which owns a100% interest of Xibolun Automation and Xibolun Equipment, were effectively controlled by the same Controlling Shareholder before and after thereorganization and therefore the Reorganization was considered under common control. Hebron Technology, HK Xibolun, Xibolun Automation and Xibolun Equipment are collectively referred to as the “Company”. The Company, through itsmain operational subsidiaries, is engaged in the manufacture of fluid equipment including valves, pumps, pipe fittings and others, with particular emphasison the intelligentized valves and installation services for pharmaceutical engineering construction. Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ofAmerica (“U.S. GAAP”) and have been consistently applied. The consolidated financial statements include the financial statements of Hebron Technology, HK Xibolun, Xibolun Automation and Xibolun Equipment.All inter-company balances and transactions are eliminated upon consolidation. For the Company’s equity investment which the Company does not havecontrol and is not the primary beneficiary, but has significant influence in the decision-making of the ordinary course of business, the equity method isapplied. Uses of estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during each reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in theCompany’s consolidated financial statements include: the allowance for doubtful accounts, the valuation of inventory, realizability of deferred tax assets,costs to complete contracts, estimated useful lives and fair values in connection with the impairment of property and equipment and accruals for income taxuncertainties. F-9 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue recognition The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018 using the modified retrospective approach.Revenues for the year ended December 31, 2018 were presented under ASC 606, and revenues for the years ended December 31, 2017 and 2016 were notadjusted and continue to be presented under ASC Topic 605, Revenue Recognition. There is no adjustment to the opening balance of retained earnings atJanuary 1, 2018 since there was no change to the timing and pattern of revenue recognition upon adoption of ASC 606. Under ASC 606, revenue isrecognized when control of promised goods or services is transferred to the Company’s customers in an amount of consideration to which an entity expects tobe entitled to in exchange for those goods or services. The Company’s revenues are primarily derived from the following sources: Sales of products: The Company recognizes revenue when the products are delivered and control is transferred. The Company generally provides a warrantyfor a period of 12 months after the customers receive the products. The Company determines that such product warranty is not a separate performanceobligation because the nature of warranty is to provide assurance that a product will function as expected and in accordance with the customer’sspecifications and the Company has not sold the warranty separately. From its past experience, the Company has not experienced any material warranty costsand, therefore, the Company does not believe an accrual for warranty cost is necessary for the years ended December 31, 2018, 2017 and 2016. TheCompany’s sales revenue consists of the invoiced value of goods, net of value-added tax (“VAT”). Installation contracts: The Company recognizes revenue associated with these contracts over time as services are performed and the transfer of controloccurs, based on a percentage-of-completion method using cost-to-cost input methods as a measure of progress. When the percentage-of-completion methodis used, the Company estimates the costs to complete individual contracts and records as revenue that portion of the total contract price that is consideredcomplete based on the relationship of costs incurred to date to total anticipated costs (the cost-to-cost approach). Under the cost-to-cost approach, the use of estimated costs to complete each contract is a significant variable in the process of determining recognizedrevenue, requires judgment and can change throughout the duration of a contract due to contract modifications and other factors impacting job completion.The costs of earned revenue includes all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor,supplies, tools and repairs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. The Company sometimes enters into installation service contracts in connection with product sales. The manufacture of fluid equipment control systemscomprises two stages: (a) manufacture; and (b) installation. The Company always enters into separate product and installation contracts with the customer asthe customer has the choice to use its own staff or external contractors to install the products based on product installation manuals provided by theCompany when the products are delivered. The Company usually sells the product on a standalone basis and also is engaged by customers to install thesystems they purchase from other suppliers. It is the Company’s policy to sell its products at the set prices regardless of whether the customer separately entersinto an installation contract with the Company. The Company always prices its installation services at market competitive rates regardless of whether theinstallation service relates to its own products or standalone installation services. Therefore, the Company determined there are two sperate performanceobligations, and recognizes product sales and installation revenue separately. F-10 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash The Company maintains cash with financial institutions in China, which are typically not insured or otherwise protected. Should any of these institutionsholding the Company’s cash become insolvent, or if the Company is unable to withdraw funds for any reason, the Company could lose the cash on depositwith that institution. Restricted Cash Restricted cash consists of cash equivalents used as collateral to secure bank borrowings. The Company is required to keep certain amounts on deposit thatare subject to withdrawal restrictions. The restricted cash balance is associated with the Company’s short-term borrowings, thus, classified as a current asset.As of December 31, 2018, and 2017, the Company had restricted cash of $2,124,655 and $55,322, respectively, related to the bank acceptance notes payable. In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requirescompanies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconcilingbeginning-of-period and end-of-period total amounts presented in the statement of cash flows. The Company adopted the new standard effective January 1,2018, using the retrospective transition method. Accounts and contract receivables Accounts and contract receivables from equipment sales and installation services are stated at net realizable value. An allowance for doubtful accounts isestablished based on the management’s assessment of the recoverability of accounts and other receivables. Judgment is required in assessing the realizabilityof these receivables, including the current credit worthiness of each customer and the related aging analysis. An allowance is provided for accounts whenmanagement has determined that the likelihood of collection is doubtful. The Company writes off accounts and contract receivables against the allowancewhen a balance is determined to be uncollectible. Retainage receivables Retainage receivables represent the amount retained by the Company’s customers to ensure the quality of the installation services and any possible follow-upmaintenance related to the installation. The term of these retainage receivables is typically within one year after the completion date of the installationproject. If there is no dispute regarding the quality of the installation project during the year, such retainage receivable should be paid by the Company’scustomer. Management regularly reviews aging of retainage receivables and changes in payment trends and records an allowance when management believescollection of amounts due are at risk. F-11 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Inventories Inventories are stated at the lower of cost or net realizable value. Inventories consist of raw materials, finished goods, work in process, low value consumables,and installation projects in process that have not been completed. Provision is made for slow-moving, obsolete or unusable inventory. Advances to suppliers The Company advances funds to certain suppliers for purchases of raw materials, plant and equipment. These advances are interest free, unsecured and short-term in nature and are reviewed periodically to determine whether their carrying value has become impaired. The Company recorded a provision for doubtfulaccounts of $386,563, $18,717 and $19,284 for the years ended December 31, 2018, 2017 and 2016, respectively. Property and equipment Property and equipment are recorded at cost. Depreciation is provided in amounts sufficient to amortize the cost of the related assets over their useful livesusing the straight line method, as follows: Useful lifeBuildings 20 yearsMachinery and equipment 3 - 10 yearsTransportation equipment 4 yearsOffice equipment 3 - 5 yearsLeasehold improvements Shorter of remaining lease term or life of assets Equity method of accounting for investments The Company evaluates the method of accounting for investments in which it holds an equity interest based on the amount of control it exercises over theoperations of the investee, exposure to losses in excess of its investment, the ability to significantly influence the investee and whether the Company is theprimary beneficiary of the investee. Under the voting interest model, the Company applies the equity method when the Company owns or controls from 20%to 50% of the voting shares, or below 20% of the voting shares when significant influence can be exercised over the operating and financial policies of theinvestee company. Under the Variable Interest (VIE) Model, the investments are accounted for under the equity method if the Company has determined itdoes not have a controlling financial interest and therefore is not the VIE’s primary beneficiary. On March 10, 2018, the Company entered into a share acquisition agreement (the “Agreement”) with the sole shareholder of Xuzhou Weijia BiotechnologyCo., Ltd. (“Weijia”) to acquire 49% of the equity in Weijia. Pursuant to the Agreement, the Company issued 1,442,778 unregistered Class A common shares(based on an agreed value of $2.00 per share, totalling $2,885,556) as a consideration to the individuals designated by the selling shareholder of Weijia. TheCompany accounts for its investment in Weijia under the equity method of accounting. As of December 31, 2018, the investment accounted for was$3,054,090 and is included in equity investment on the Consolidated Balance Sheets. For the year ended December 31, 2018, the Company recorded incomeof $168,534 from its investment in Weijia. F-12 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Land use right The Company’s land use right is valued at cost. The land use right is amortized on straight line method over the term of the land use right. Research and development costs Research and development costs are expensed to operations as incurred and include fees paid to third party contractors. Long-lived assets and other acquired intangible assets The Company reviews its long-lived assets, including property and equipment and identifiable intangibles, for impairment. Long-lived assets are reviewedfor impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assetsis measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment andcertain identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assetsexceeds its fair value. The Company did not record any impairment as of December 31, 2018, 2017 and 2016. 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 andHong Kong for the years ended December 31, 2018, 2017 and 2016. The Company accounts for income tax under the asset and liability method, whichrequires recognition of deferred tax assets and liabilities for the expected future tax consequences of the differences between financial statement carryingamounts of assets and liabilities versus the tax basis of assets and liabilities. Deferred tax assets are also provided for carryforward losses which can be used tooffset future taxable income. 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 notbe realized. As of December 31, 2018, 2017 and 2016, no valuation allowance is considered necessary. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. Anuncertain 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 taxexamination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likelihood of being realized onexamination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties incurred related to underpayment of incometax are classified as income tax expense in the period incurred. No significant penalties relating to income taxes have been incurred during the years endedDecember 31, 2018, 2017 and 2016. As of December 31, 2018, the tax years ended December 31, 2016 through December 31, 2018 for the Company’s PRCsubsidiaries remain open for statutory examination by PRC 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 of25% 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 ratesstipulated by the laws (see Note 12). F-13 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Value added tax Sales revenue represents the invoiced value of goods, net of a VAT. All of the Company’s products that are sold in the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price. The value-added tax rate was reduced to 16% from May 1, 2018, and was further reduced to 13% from April1 2019. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product. Foreign currency translation Since the Company operates primarily in the PRC, the Company’s functional currency is the Chinese Yuan (“RMB”). The Company’s financial statementshave been translated into the reporting currency of the United States Dollar. Assets and liabilities of the Company are translated at the exchange rate at eachreporting period end date. Equity is translated at historical rates. Income and expense accounts are translated at the average rate of exchange during thereporting period. The resulting translation adjustments are reported under other comprehensive income (loss). Gains and losses resulting from the translationsof foreign currency transactions and balances are reflected in the results of operations. The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. Norepresentation is made that the RMB amounts could have been, or could be, converted into USDs at the rates used in translation. Fair value of financial instruments The Company follows the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) 820, Fair ValueMeasurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair valuehierarchy to classify the inputs used in measuring fair value as follows: F-14 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair value of financial instruments (continued) Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. Level 2 — Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities inmarkets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. Level 3 — Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions market participants would use in pricingthe asset or liability based on the best available information. The carrying amounts reported in the balance sheets for cash, contracts receivable, accounts receivable, notes receivable, retainage receivables, prepaymentsand advances to suppliers, other receivables, accounts payable, advances from customers, deferred revenue, tax payable, due to related parties and accruedexpenses and other current liabilities, approximate their fair value based on the short-term maturity of these instruments. The Company believes that thecarrying amount of the short-term and long term loans approximates fair value based on the terms of the borrowings and current market rates as the rates of theborrowings are reflective of the current market rate. Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, contracts receivable,accounts receivable and retainage receivables. As of December 31, 2018 and 2017, $949,578 and $3,216,938 of the Company’s cash was on deposit atfinancial institutions in the RMB where there currently is no rule or regulation requiring such financial institutions to maintain insurance to cover bankdeposits in the event of bank failure. While management believes that these financial institutions are of high credit quality, it also continually monitors theircreditworthiness. Contracts receivable, accounts receivable and retainage receivables are typically unsecured and derived from revenue earned from customers, therebyexposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstandingbalances. Earnings (loss) per share The Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). Basic EPS is measured as netincome (loss) divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effecton a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of theperiods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decreaseloss per share) are excluded from the calculation of diluted EPS. For the year ended December 31, 2018, since the company had a loss, basic and dilutive lossper share are the same. For the years ended December 31, 2017 and 2016, 0 and 16,507 unexercised Public Offering Warrants were dilutive, and wereincluded in the computation of diluted EPS. Statements of cash flows In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company are calculated based upon the local currencies andtranslated at the average exchange rates during the reporting period. As a result, amounts related to assets and liabilities reported on the Company’sstatements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet. F-15 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Reclassifications Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reportedresults of operations. Recent Accounting Pronouncements The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accountingstandards that are issued. In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 specifies theaccounting for leases. For operating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at thepresent value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of thelease is allocated over the lease term, on a generally straight-line basis. ASU 2016-02 is effective for public business entities for annual reporting periods andinterim periods within those years beginning after December 15, 2018. The Company does not expect this guidance will have a material impact on itsconsolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments(“ASU 2016-13”) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replacesthe existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. The Company is currently in the processof evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements. In February 2018, the FASB issued ASU 2018-02, which allows a reclassification from accumulated other comprehensive income to retained earnings foradjustments to tax effects that were originally recorded in other comprehensive income due to changes in the U.S. federal corporate income tax rate resultingfrom the enactment of the U.S. tax reform legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act. The Company does not expect thisguidance will have a material impact on its consolidated financial statements. In March 2018, the FASB issued ASU 2018-05 — Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.118 (“ASU 2018-05”), which amends the FASB Accounting Standards Codification and XBRL Taxonomy based on the Tax Cuts and Jobs Act (the “Act”)that was signed into law on December 22, 2017 and Staff Accounting Bulletin No. 118 (“SAB 118”) that was released by the Securities and ExchangeCommission. The Act changes numerous provisions that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits and mayadditionally have international tax consequences for many companies that operate internationally. The Company does not believe this guidance will have amaterial impact on its consolidated financial statements. F-16 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements (continued) On June 20, 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-BasedPayment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under ASU No. 2018-07, theexisting employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with theexception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantorhad paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model fornonemployee awards. The new standard is effective for us on January 1, 2019. Early adoption is permitted, including in interim periods, and should beapplied to all new awards granted after the date of adoption. The Company does not expect this guidance will have a material impact on its consolidatedfinancial statements. In August 2018, the FASB Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes tothe Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements.ASU 2018-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted for any removed or modifieddisclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis.The Company does not expect this guidance will have a material impact on its consolidated financial statements. Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have material impact on the consolidatedfinancial position, statements of operations and cash flows. F-17 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 — CONTRACT RECEIVABLES, NET The contracts receivable consists of the following: December 31,2018 December 31,2017 Contract receivables $24,669,365 $16,904,972 Allowance for doubtful accounts - - $24,669,365 $16,904,972 The contract receivables are generally due when the Company completes the related installation project. The Company offers longer credit terms to two of itsmajor general contractors, who accounted for 100%, 86% and 90% of total contract revenue for the years ended December 31, 2018, 2017 and 2016,respectively, for the purpose of maintaining our long-term relationship. The Company had not incurred any bad debts with these two general contractors inthe past and considers these contracts receivable fully collectible. Thus, the Company did not provide any allowance for doubtful accounts for theseoutstanding contract receivable for the years ended December 31, 2018 and 2017. Note 4 — ACCOUNTS RECEIVABLE, NET The accounts receivable consists of the following: December 31, 2018 December 31, 2017 Accounts receivables $2,953,585 $1,715,607 Allowance for doubtful accounts (297,740) (296,302) $2,655,845 $1,419,305 The movement in the allowance for doubtful accounts can be reconciled as follows: December 31, 2018 December 31, 2017 Beginning of the year $296,302 $494,459 Recovery - (222,816)Provision 17,301 - Foreign exchange effect (15,863) 24,659 $297,740 $296,302 Note 5 — INVENTORIES The inventories consist of the following: December 31, 2018 December 31, 2017 Raw materials $46,009 $- Finished goods 251,869 1,309,830 Installation projects in process 67,602 272,671 $365,480 $1,582,501 There were no inventory reserves as of December 31, 2018 and 2017. F-18 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 — PREPAYMENTS AND ADVANCES TO SUPPLIERS, NET Prepayments and advances to suppliers consisted of the following: December 31, 2018 December 31, 2017 Advances made to raw material suppliers (a) $8,010,272 $6,984,783 Advances made to construction subcontractors (b) 2,907,750 3,764,954 Advances made for purchases of equipment 910,872 962,396 Prepaid consulting fees - 841,216 Others 3,906 43,393 Subtotal 11,832,800 12,596,742 Allowance for doubtful accounts (8,264,797) (692,635) $3,568,003 $11,904,107 (a)The prepayments and deposits on raw materials are generally required by our suppliers for the purpose of ongoing business relationships. Theprepayments and deposits are not directly associated with any specific purchase contract or any specific price but will be used to offset any accountspayable balance resulting from any specific purchase order priced at market. (b)Advances to construction subcontracts represent the prepayments made by the Company to our construction subcontractors at the beginning of ourcustomer projects for the purpose of acquiring necessary construction materials, equipment and required deposits. Changes of allowance for doubtful accounts for the years ended December 31, 2018 and 2017 are as follows: December 31, 2018 December 31, 2017 Beginning balance $692,635 $272,858 Provision 7,609,244 386,563 Foreign exchange effect (37,082) 33,214 Ending balance $8,264,797 $692,635 The Company recorded $7,609,244 bad debt provision related to the prepayment and advances to suppliers for the year ended December 31, 2018 due toslow utilization of those prepayments and advances in fiscal 2018. For the years ended December 31, 2017 and 2016, the Company recorded $386,563 and$18,717 bad debt provision for the years ended December 31, 2017 and 2016, respectively. Note 7 — PROPERTY AND EQUIPMENT, NET Property and equipment, net, consists of the following: December 31, 2018 December 31, 2017 Buildings $11,032,207 $11,656,259 Machinery equipment 2,858,928 4,385,129 Transportation equipment 518,612 567,757 Office equipment 37,518 18,963 Leasehold improvements 551,582 334,978 Subtotal 14,998,846 16,963,086 Less: accumulated depreciation (2,482,952) (2,374,824)Property, plant and equipment, net $12,515,894 $14,588,262 Depreciation and amortization expense was $1,134,136, $884,947 and $461,412 for the years ended December 31, 2018, 2017 and 2016, respectively. Forthe years ended December 31, 2018, 2017 and 2016, the Company disposed of certain obsolete machinery equipment for no proceeds and recognized a lossof $283,487, $12,179 and 228,245 respectively. F-19 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 — LAND USE RIGHT The Company carries its land use right at cost less accumulated amortization. All land in China is government owned and cannot be sold to any individual orcompany. However, the government grants the user a “land use right” (the “Right”) to use the land. The Company has the Right to use the land for 25 yearsand amortizes the Right on a straight-line basis over the period of 25 years. The amortization expense was $61,025, $55,048 and $55,990 for the years endedDecember 31, 2018, 2017and 2016, respectively. December 31, 2018 December 31, 2017 Land use right $1,352,629 $1,429,142 Less: accumulated amortization (383,290) (342,994)Land use right, net $969,339 $1,086,148 The estimated future amortization expense is as follows: Year ending December 31, 2019 $57,166 2020 57,166 2021 57,166 2022 57,166 2023 57,166 Thereafter 710,051 Total estimated future amortization expenses $995,881 F-20 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 — DEBT Debt consisted of the following loans: Lender December 31,2018 Term EffectiveInterest Rate Bank of China Longwan Branch $202,894 April 13, 2016 to April 14, 2019* 5.70%Bank of China Longwan Branch 186,168 June 8, 2016 to April 14, 2019* 5.70%Industrial Bank Co. Ltd. Wenzhou Branch 727,220 July 17, 2018 to July 17, 2019 6.04%Longwan Rural Commercial Bank Shacheng Branch 290,888 July 23, 2018 to July 17, 2019 8.71%Longwan Rural Commercial Bank Shacheng Branch 290,888 July 25, 2018 to July 17, 2019 8.71%Total 1,698,058 Less: current portion (1,698,058) Long term portion $- *both loans from Bank of China Longwan Branch were fully repaid upon maturity. All principal of the above loans as of December 31, 2018 are due upon maturity and interest payments are due on a monthly basis. For these loans, theoutstanding balances were guaranteed by the Controlling Shareholder’s immediate family members and unrelated third parties. Lender December 31,2017 Term EffectiveInterest Rate Bank of China Longwan Branch $262,009 April 13, 2016 to April 14, 2019 5.70%Bank of China Longwan Branch 303,501 June 8, 2016 to April 14, 2019 5.70%Longwan Rural Commercial Bank Shacheng Branch 307,342 September 30, 2017 to September 28, 2018 10.45%Total 872,852 Less: current portion 457,940 Long term portion $414,912 All principal of the above loans as of December 31, 2017 are due upon maturity and interest payments are due on a monthly basis. For these loans, theoutstanding balances were guaranteed by the Controlling Shareholder’s immediate family members and unrelated third parties. Interest expense for these loans was $ 91,977, $48,730 and $49,625 for the years ended December 31, 2018, 2017 and 2016, respectively. F-21 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10 — BANK ACCEPTANCE NOTES PAYABLE Bank acceptance notes payable consisted of the following as of December 31, 2018 and 2017: December 31, 2018 December 31, 2017 Bank acceptance notes payable $2,117,382 $55,322 Total $2,117,382 $55,322 Bank acceptance notes are issued by financial institutions on the Company’s behalf to vendors with a specific due date usually for a period within one year.These notes can either be endorsed by the vendor to other third parties as payment or can be factored to other financial institutions before becoming due. Pursuant to the loan facility agreement signed on January 19, 2018 between the Company and China Zheshang Bank, the Company had bank acceptancenotes of $2,117,382 (RMB 14.5 million) with maturity dates of six months after the issuance date. The Company was also required to maintain restricted cashdeposits of $2,124,655 (RMB 14.6 million) to guarantee the bank notes as of December 31, 2018. These notes were fully paid upon maturity and therestricted deposit was also released upon the payment. F-22 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11 — SALES LEASEBACK On November 9, 2017, the Company entered into a sale leaseback agreement (the “Agreement”) with Zhongli International Leasing Co., Ltd (“Zhongli”).Pursuant to the Agreement, the Company sold certain machinery purchased during the year to Zhongli for approximately $691,520 (RMB 4.5 million). TheCompany then leased back the machinery from Zhongli for 48 months with specified monthly payments over the lease term. The Company has a bargainpurchase option at a price of Nil to buyback this equipment by the end of the lease term. All these machines are currently being used by the Company for itsproduction purposes. The Company concluded this transaction does not qualify for sale-leaseback accounting in accordance with ASC 840-40-25-11 andshall record under the lease financing method. Under the lease financing method, the assets remain on the Company’s consolidated balance sheet and theproceeds from the transactions are recorded as a financing liability. The minimum payments of the lease term has 35 months from December 17, 2017 to November 17, 2021. As of December 31, 2018, the lease paymentsbalance are as follows: Total lease payment as of December 31, 2017 $590,865 Less: foreign exchange effect (31,634)Less: payments during the year (168,589)Total loan balance as of December 31, 2018 389,642 Less: current portion of payment obligation (177,291)Long term payable as of December 31, 2018 $212,351 According to the agreement, future obligations for payments of the above lease agreement are as below: Twelve months ended December 31, 2018 2019 $177,291 2020 156,939 2021 55,412 Total $389,642 Interest expense incurred for the year ended December 31, 2018 and 2017 amounted to $85,186 and $8,223, respectively. F-23 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 — INCOME TAXES Taxes payable consisted of the following: December 31,2018 December 31,2017 Income tax payable $5,763,945 $5,503,770 Value added tax payable 2,024,902 351,098 Business tax payable 878,133 978,130 Other taxes payable 418,766 234,595 Total taxes payable $9,085,746 $7,067,593 In the normal course of its business, the Company, including in particular Xibolun Automation, Xibolun Equipment, may be subject to challenges fromvarious PRC taxing authorities regarding the amounts of taxes due. The Company’s management believes the Company has paid or accrued for all taxesowed by the Company. As of December 31, 2017 and 2016, the Company had accrued (before adjustment) total tax liabilities of $12.0 million and $8.7million, respectively, related to taxable years since the inception. According to PRC taxation regulation and administrative practice and procedures, thestatute of limitation on the tax authority’s audit or examination of previously filed tax returns expires three years from the date they were filed. The Companyobtained a written statement from the local tax authority that no additional taxes are due as of December 31, 2014. Based on these facts, the Companyreversed the accrued tax liabilities in the total amount of approximately $5.0 million relating to the tax liabilities accrued for the period prior to January 1,2015, resulting in the decrease of accrued tax liabilities from approximately $12 million to $7 million as of December 31, 2017. The Company has not madeany additional tax payments since 2015 and will continue to discuss with the local tax authority to try to settle the remaining tax liabilities as soon aspracticable, mostly related to its unpaid income tax and business tax, both of which are governed by the local tax authority. The total amount of unpaid tax liabilities was accrued based on the calculation using the current prevailing tax rates without including potential interest andpenalties because management cannot be certain as to how much interest and penalties would be assessed, if any. Those potential interest and penaltyliabilities are contingent upon the outcome of tax settlement and management estimates that the potential contingent loss related to potential interest andpenalties could be Nil or as high as $1.4 million based on rates stipulated by the tax authority. Due to uncertainties associated with the status ofexaminations, including the protocols of finalizing audits by the relevant tax authorities, there is a high degree of uncertainty regarding the future cashoutflows associated with the interest and penalties on these unpaid tax balances. The final outcome of this tax uncertainty is dependent upon various mattersincluding tax examinations, interpretation of tax laws or expiration of the statute of limitations. As the ongoing settlement discussions continue,management believes that it is more likely than not that the Company will not have to pay any interest and penalties associated with the unpaid taxes. F-24 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 — INCOME TAXES (Continued) Hebron Technology was incorporated in the BVI and is not subject to income taxes under the current laws of the BVI. HK Xibolun is a trading companyregistered in Hong Kong and subject to corporate income tax at 17.5% if revenue is generated in Hong Kong. Starting from the year ended December 31, 2018, Xibolun Automation is recognized as a High-technology Company by Chinese government, the revenuesgenerated by Xibolun Automation were subject to a favorable income tax rate of 15%. The High-technology certificate is valid for three year starting fromNovember 30, 2018 and is subject to renewal. Xibolun Equipment is subject to corporate income tax at unified rate of 25%. For the years ended 2017 and2016, revenues generated in China were subject to corporate income tax at a unified rate of 25%. i)The components of the income tax provision (benefit) are as follows: For the yearendedDecember 31, 2018 For the yearended December 31, 2017 For the yearended December 31, 2016 Current tax provision $820,886 $2,024,388 $1,945,499 Current tax recovery - (4,974,763) - Deferred tax provision (recovery) (1,471,938) 11,526 56,968 Total $(651,052) $(2,938,849) $2,002,467 ii)The following table summarizes deferred tax assets resulting from differences between financial accounting basis and tax basis of assets andliabilities: For the yearended December 31, 2018 For the yearended December 31, 2017 For the yearended December 31, 2016 Non-current: Provision for doubtful accounts $1,648,967 $247,324 $191,913 Depreciation expense - - 51,050 Total $1,648,967 $247,324 $242,963 No valuation allowance against the deferred tax assets is considered necessary since the Company believes that it will more likely than not utilize the futurebenefits. The following table reconciles the China statutory rates to the Company’s effective tax rate for the years ended December 31, 2018, 2017 and 2016. For theyear endedDecember 31,2018 For theyear ended December 31,2017 For theyear ended December 31,2016 China Income tax statutory rate (25.0)% 25.0% 25.0%Effect of favorable income tax rate in certain entity in PRC* 4.0% - - Non-deductible items in China and others 0.1% 2.3% 0.2%Foreign loss not recognized in China 9.7% 69.0% - Effect of tax reversal for previous years -% (166.3)% - Effective tax rate (11.2)% (70.0)% 25.2% * Xibolun Automation is subject to income tax rate of 15% starting from fiscal 2018. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. As ofDecember 31, 2018, the tax years ended December 31, 2016 through December 31, 2018 for the Company’s PRC subsidiaries remain open for statutoryexamination by PRC tax authorities. F-25 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13 — CONCENTRATION OF MAJOR CUSTOMERS AND SUPPLIERS For the year ended December 31, 2018, four customers accounted for approximately 13%, 12%, 11% and 10% of the Company’s total revenue. For the yearended December 31, 2018, six major sub-contractors accounted for approximately 21%, 19%, 18%, 16%, 15% and 11% of subcontract costs, respectively. Asof December 31, 2018, two general contractors who provided the Company’s installation projects accounted for approximately 58% and 42% of theCompany’s total contracts receivable balance, respectively. For the year ended December 31, 2018, three supplier accounted for 34%, 21% and 15% of theCompany’s accounts payable balance, and no individual supplier accounted for more than 10% of the Company’s advance to suppliers balance. For the year ended December 31, 2017, four major customers accounted for approximately 22%, 21%, 13% and 10%, respectively, of the Company’s totalrevenue. For the year ended December 31, 2017, three major sub-contractors accounted for approximately 44%, 18% and 16% of the total subcontract costs,respectively. As of December 31, 2017, two general contractors who provided for the Company’s installation projects accounted for approximately 58% and42% of the Company’s total contracts receivable balance, respectively. For the year ended December 31, 2017, only one supplier accounted for 18% of theCompany’s accounts payable balance, and one supplier accounted for 17% of the Company’s advance to suppliers balance. For the year ended December 31, 2016, two major customers each accounted for approximately 11% and 10% of the Company’s total revenue. For the yearended December 31, 2016, three major sub-contractors accounted for approximately 44%, 22% and 15% of the total subcontract costs, respectively. As ofDecember 31, 2016, two general contractors (“Contractor A” and “Contractor B”) who provided for the Company’s installation projects accounted forapproximately 51% and 45% of the Company’s total contracts receivable balance, respectively. For the year ended December 31, 2016, only one supplieraccounted for 10% of the Company’s accounts payable balance. F-26 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14 — SHAREHOLDERS’ EQUITY On April 6, 2015, the Board of Directors adopted a consent resolution to effectuate a 1:1000 stock split. Simultaneously on April 6, 2015, the Company alsoissued additional 15,000,000 common shares for nominal consideration. On April 29, 2015, the Company repurchased 4,000,000 common shares in totalfrom current shareholders in accordance with their share percentages as treasury stock for a nominal consideration. As a result, the Company had 50,000,000authorized common shares, $0.001 par value per share. All the existing shareholders and directors of the Company consider this issuance of 15 million common shares and repurchase of 4 million common shareson April 29, 2015 was part of the company’s recapitalization to result in 12,000,000 common shares issued and outstanding prior to completion of the initialpublic offering. No cash or other consideration was paid for these stock issuances and repurchase. The Company believes it is appropriate to reflect the1:1000 stock split and repurchase that resulted in 12,000,000 shares of our common stock issued and outstanding on a retroactive basis similar to stock splitor dividend pursuant to ASC 260. The Company has retroactively restated all shares and per share data for all the periods presented. On December 26, 2016, the Company completed its initial public offering (“IPO”) of 2,695,347 shares of its common stock at a public offering price of $4.00per share. The gross proceeds from the offering were approximately $10.8 million before deducting placement agents’ commissions and other offeringexpenses, resulting in net proceeds of approximately $10.1 million. In connection with the offering, the Company’s common stock began trading on theNASDAQ Capital Market beginning on December 26, 2016 under the symbol “HEBT”. On November 20, 2017, the Board approved an amendment to the Company’s article of association to re-designate their common shares into Class Acommon shares and Class B common shares. The Class A common shares have one vote per share, and the Class B common shares have five votes per share.The Third Amended and Restated Memorandum of Association was filed with the BVI Registrar of Corporate Affairs on March 7, 2018. Public Offering Warrants In connection with the IPO on December 26, 2016, the Company issued warrants equal to five percent (5%) of the shares issued in the IPO, totaling 134,768units to the placement agents (the “Public Offering Warrants”). The warrants carry a term of three years, and shall not be exercisable for a period of six monthsfrom the closing of the IPO and shall be exercisable at $4.80 per share. Management determined that these warrants are equity instruments because thewarrants are both a) indexed to its own stock; and b) classified in stockholders’ equity. The warrants were recorded at their fair value on the date of grant as acomponent of stockholders’ equity. As of December 31, 2018, the total number of warrants outstanding was 134,768 with weighted average remaining life of1 year. No warrants were exercised as of December 31, 2018. The fair value of this Public Offering Warrants was $488,730. The fair value has been estimated using the Black-Scholes pricing model with the followingweighted-average assumptions: risk free rate of 1.58%; expected term of 3 years; exercise price of the warrants of $4.80; volatility of 90.7%; and expectedfuture dividends of nil. F-27 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14 — SHAREHOLDERS’ EQUITY (Continued) Equity Investment in Weijia On March 10, 2018, the Company entered into a share acquisition agreement (the “Agreement”) with the sole shareholder of Xuzhou Weijia BiotechnologyCo., Ltd. (“Weijia”) to acquire 49% of the equity in Weijia. Pursuant to the Agreement, the Company issued 1,442,778 unregistered Class A common shares(based on an agreed value of $2.00 per share, totalling $2,885,556) as a consideration to the individuals designated by the selling shareholder of Weijia. TheCompany accounts for its investment in Weijia under the equity method of accounting. As of December 31, 2018, the investment was $3,054,090 and isincluded in equity investment on the Consolidated Balance Sheets. For the year ended December 31, 2018, the Company recorded equity income of$116,138 from its investment in Weijia. Shares Issued for Consulting Services On January 13, 2016, the Company signed a consulting agreement with Weitian Group LLC (“Weitian”), to engage Weitian to provide certain consultingservices. The agreement terminated on March 12, 2018. Pursuant to the agreement, the Company was required to pay Weitian $58,500 (the “Service Fee”). OnMarch 15, 2018, the Company and Weitian signed a settlement agreement, pursuant to which the Company issued 31,452 unregistered Class A commonshares to Weitian to settle the Service Fee on March 13, 2018 and the Company recorded a consulting fee of $58,500 included in general and administrativeexpense for the year ended December 31, 2018. On December 26, 2017, the Company signed a consulting agreement with Real Miracle Investments Ltd. (“Miracle”), to engage Miracle as its consultant toprovide professional services related to the Company’s business strategies, marketing development, business operations, and merger and acquisitions, etc. Asof December 31, 2017, the consulting services were not performed. The agreement has a term for one year. Pursuant to the agreement, the Company agreed topay total of 100,000 shares of the Company’s common stock as compensation for the services within 90 days after signing of the agreement. The Companyissued 100,000 unregistered Class A common shares to Miracle on March 12, 2018. The fair value of those shares was assessed at $181,000 based on thestock price of those shares upon issuance and the Company recorded a consulting fee expense of $181,000 included in the general and administrativeexpense for the year ended December 31, 2018. Note 15 — COMMITMENTS AND CONTINGENCIES The Company signed several lease agreements to rent office and a facility for its operations. The lease are from June 1, 2017 to May 30, 2037. As ofDecember 31, 2018, the Company was obligated under operating leases for minimum rentals as follows: For the Year Ending December 31, 2019 $213,332 2020 213,332 2021 213,332 2022 213,332 2023 and thereafter 3,075,536 $3,928,864 F-28 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 16 — SUBSEQUENT EVENTS The Company has analyzed its operations subsequent to December 31, 2018, through the date the financial statements were available to be issued and havedetermined that the Company does not have any material subsequent events to disclose in these consolidated financial statements. F-29 Exhibit 12.1 CERTIFICATION I, Anyuan Sun, certify that: 1. I have reviewed this annual report on Form 20-F of Hebron Technology Co., Ltd.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the companyand have (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annualreport that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control overfinancial reporting. Date: May 15, 2019By:/s/ Anyuan Sun Name: Anyuan Sun Title:Chief Executive Officer Exhibit 12.2 CERTIFICATION I, Steven Fu, certify that: 1. I have reviewed this annual report on Form 20-F of Hebron Technology Co., Ltd.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the companyand have (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annualreport that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control overfinancial reporting. Date: May 15, 2019By:/s/ Steven Fu Name: Steven Fu Title:Chief Financial Officer Exhibit 13.1 CERTIFICATION In connection with the Annual Report of Hebron Technology Co., Ltd. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2018 as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), I, Anyuan Sun, Chief Executive Officer of the Company, certify, pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 15, 2019By:/s/ Anyuan Sun Name: Anyuan Sun Title:Chief Executive Officer Exhibit 13.2 CERTIFICATION In connection with the Annual Report of Hebron Technology Co., Ltd. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2018 as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven Fu, Chief Financial Officer of the Company, certify, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 15, 2019By:/s/ Steven Fu Name: Steven Fu Title:Chief Financial Officer Exhibit 15.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement of Hebron Technology Co., Ltd. on Form F-3 (File No. 333- 222995) and thisForm 20-F of our report dated April 25, 2018 relating to the consolidated balance sheets of Hebron Technology Co., Ltd. and subsidiaries as of December 31,2017, and the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows for each of the yearsin the two-year period ended December 31, 2017, which appears in this Annual Report on Form 20-F. We also consent to the reference to us under theheading “Experts” in such Form 20-F. /s/ Friedman LLP New York, New York May 15, 2019 Exhibit 15.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement of Hebron Technology Co., Ltd. on Form F-3 (File No. 333-222995) of our report dated May 15, 2019 relating to the consolidated financial statements of Hebron Technology Co., Ltd. andsubsidiaries which appears in this Annual Report on Form 20-F for the year ended December 31, 2018. We also consent to thereference to us under the heading “Experts” in such Registration Statement. Very truly yours, Flushing, New YorkMay 15, 2019 Exhibit 99.1 Hebron Technology Co., Ltd. Reports Fiscal Year 2018 Financial Results WENZHOU, China, May 15, 2018 /PRNewswire/ -- Hebron Technology Co., Ltd. ("Hebron" or the "Company") (Nasdaq: HEBT), a developer, manufacturerand installer of valves and pipe fittings for use in the pharmaceutical, biological, food and beverage, and other clean industries, today announced its financialresults for the fiscal year ended December 31, 2018. Fiscal Year 2018 Financial Highlights Year ended December 31, Changes 2018 2017 ($) (%) Revenue $25,290,060 $29,200,445 (3,910,385) (13)%Installation service 17,297,212 23,748,141 (6,450,929) (27)%Fluid equipment sales 7,992,848 5,452,304 2,540,544 47% Gross profit 7,577,952 10,444,161 (2,866,209) (27)%(Loss) Income from operations (5,329,410) 3,877,317 (9,206,727) (238)%Net income (5,144,715) 7,136,387 (12,281,102) (172)%Basic and diluted EPS $(0.33) $0.49 (0.82) (167)% ·Total revenues decreased by 13.0% to $25.29 million for the twelve months ended December 31, 2018.·Operating (loss) income decreased 237.5% to operation loss of $5.3 million for the twelve months ended December 31, 2018 from operation incomeof $4.07 million for the same period of the prior fiscal year, primarily due to bad debt provision of $7.9 million for the twelve months endedDecember 31, 2018.·Net loss was $5.14 million, for the twelve months ended December 31, 2018, compared to net income of $7.14 million for the same period of theprior fiscal year. Years ended December 31, Changes Changes 2018 % 2017 % ($) (%) Installation service 6,356,004 37% 9,470,074 40% (3,114,070) (33)%Fluid equipment sales 1,221,948 15% 974,087 18% 247,861 25%Gross profit 7,577,952 30% 10,444,161 36% (2,886,209) (27)% Revenues Total revenues decreased by 13.0% to $25.29 million for the twelve months ended December 31, 2018 mainly due to decreasing installation revenues.Revenue from installation service was $17.30 million for the year ended December 31, 2018, representing a 27% decrease from last year. Due to marketcompetition, the Company had 6 major installation projects in fiscal 2018, comparing to 12 major installation projects in fiscal 2017 although the averageindividual contract amount increased from $2.0 million in fiscal 2017 to $2.6 million in fiscal 2018. Revenues from fluid equipment sales increased by 47%to $7.99 million for the twelve months ended December 31, 2018 due to increasing valve demands. Cost of revenues and gross profit Total cost of revenues decreased by $1.04 million to $17.71 million for the twelve months ended December 31, 2018, mainly due to decrease in the cost ofinstallation service in fiscal 2018. For fiscal 2018, cost of installation service was $10.94 million representing a decrease of $3.3 million from 2017 due tolower installation service revenue, offset by an increase of $2.29 million in cost of fluid equipment sales. Overall gross profit decreased by 27% or $2.89 million to $7.58 million for the twelve months ended December 31, 2018 from $10.44 million for the sameperiod of the prior fiscal year. is the decrease was primarily due to gross profit from installation sales decreasing 33% in fiscal 2018 as compared to fiscal2017. Overall gross profit margin for fiscal 2018 was 30%, decreased from 36% in fiscal 2017. The gross profit margins for both of the Company’s installationservice and fluid equipment sales decreased by 3% from fiscal 2017. Operating expenses Total operating expenses increased by $6.3 million, or 96.6%, to $12.9 million for the twelve months ended December 31, 2018. The significant increase inoperating expense was primarily due to $7.7 million increase in bad debt provision, which was offset by a decrease of $0.8 million in selling expense and a$0.4 million decrease in general and administrative expenses. For fiscal 2018, the Company’s general and administrative expenses were $3.30 million, representing an approximate decrease of $0.4 million compared tofiscal 2017. The decrease in general and administrative expenses was mainly due to the Company’s lesser professional fees in fiscal 2018. For fiscal 2018, the Company’s research and development (“R&D”) expenses were $0.36 million, representing a decrease of $0.15 million from fiscal 2017.The decrease in R&D expense was due to less R&D projects and devices in fiscal year 2018. For fiscal 2018, the Company’s selling expenses were $1.34 million, representing a 39% decrease from fiscal 2017. The decrease was mainly due to lessrevenue in fiscal 2018. Operating (loss) income Operating loss was $5.3 million for twelve months ended December 31, 2018, representing a decrease of 237% from operating income of $4.07 million infiscal 2017, which was mainly due to less revenue and significant increase in operating expense during fiscal 2018. Net income Net loss was $5.14 million for the twelve months ended December 31, 2018, compared to net income of $7.14 million for fiscal 2017. Financial Condition As of December 31, 2018, the Company had cash and restricted cash balance of $3.07 million. Net cash used in operating activities was approximately $0.73 million for the twelve months ended December 31, 2018, compared to net cash used inoperating activities of $6.10 million for the same period of the prior fiscal year. Net cash used in investing activities was approximately $0.12 million for fiscal 2018, compared to approximately $3.13 million for fiscal 2017. Net cash provided by financing activities was approximately $0.73 million for fiscal 2018, compared to approximately $0.92 million for fiscal 2017. About Hebron Technology Co., Ltd. Established in January 2005 and headquartered in Wenzhou City, Zhejiang Province, China, Hebron Technology Co., Ltd. ("Hebron" or the "Company")engages in research, development, and manufacture of highly specialized valves and pipe fitting products for use in the pharmaceutical, biological, food andbeverage, and other clean industries. The Company also offers its customers comprehensive pipeline design, installation, construction, and ongoingmaintenance services as holistic solution services. For more information about the Company, please visit www.xibolun.com. Forward-Looking Statements This press release contains information about Hebron's view of its future expectations, plans and prospects that constitute forward-lookingstatements. Actual results may differ materially from historical results or those indicated by these forward-looking statements as a result of a variety offactors including, but not limited to, risks and uncertainties associated with its ability to raise additional funding, its ability to maintain and grow itsbusiness, variability of operating results, its ability to maintain and enhance its brand, its development and introduction of new products and services, thesuccessful integration of acquired companies, technologies and assets into its portfolio of products and services, marketing and other business developmentinitiatives, competition in the industry, general government regulation, economic conditions, dependence on key personnel, the ability to attract, hire andretain personnel who possess the technical skills and experience necessary to meet the requirements of its clients, and its ability to protect its intellectualproperty. Hebron encourages you to review other factors that may affect its future results in Hebron's registration statement and in its other filings with theSecurities and Exchange Commission. For more information, please contact: In China:Hebron Technology Co., Ltd. Ms. Yingping ChenSecretaryPhone: +86-180-6776-3129 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS December 31, December 31, 2018 2017 ASSETS CURRENT ASSETS: Cash $947,588 $3,220,781 Restricted Cash 2,124,655 55,322 Contracts receivable, net 24,669,365 16,904,972 Accounts receivable, net 2,655,845 1,419,305 Notes receivable 81,611 689,171 Retainage receivables, net 3,146,986 2,564,404 Inventories 365,480 1,582,501 Prepayments and advances to suppliers, net 3,568,003 11,904,107 Other receivables, net 767,681 240,284 Prepaid expenses and other current assets 94,539 - TOTAL CURRENT ASSETS 38,421,753 38,580,847 Property and equipment at cost, net of accumulated depreciation 12,515,894 14,588,262 Land use right, net of accumulated amortization 969,339 1,086,148 Deposits for rent 43,633 46,101 Equity investment 3,054,090 - Deferred tax assets 1,648,967 247,324 TOTAL ASSETS $56,653,676 $54,548,682 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Short-term loans $1,698,058 $457,940 Notes Payable 2,117,382 55,322 Accounts payable 1,361,687 1,276,784 Accrued expenses and other current liabilities 2,112,472 1,327,513 Other loan payable - current 177,291 179,182 Advances from customers 3,131,338 2,825,215 Taxes payable 9,085,746 7,067,593 TOTAL CURRENT LIABILITIES 19,683,974 13,189,549 Other loan payable - long-term 212,351 411,683 Long-term loans - 414,912 TOTAL LIABILITIES 19,896,325 14,016,144 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: Common stock Class A common stock, $0.001 par value, 40,000,000 shares authorized, 8,491,177 and 6,916,947 shares issued andoutstanding as of December 31, 2018 and 2017, respectively 8,491 6,917 Class B common stock, $0.001 par value, 10,000,000 shares authorized, 7,778,400 shares issued and outstanding asof December 31, 2018 and 2017, respectively. 7,778 7,778 Additional paid-in capital 13,361,447 10,237,965 Retained earnings 24,732,776 29,877,491 Accumulated other comprehensive income (loss) (1,353,141) 402,387 TOTAL SHAREHOLDERS’ EQUITY 36,757,351 40,532,538 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $56,653,676 $54,548,682 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS) For the Years Ended December 31, 2018 2017 2016 REVENUE Installation service $17,297,212 $23,748,141 $24,299,062 Fluid equipment sales 7,992,848 5,452,304 2,798,774 25,290,060 29,200,445 27,097,836 COST OF REVENUE Cost of product and services 17,458,252 18,080,777 16,192,810 Business and sales related taxes 253,856 675,507 443,448 GROSS PROFIT 7,577,952 10,444,161 10,461,578 OPERATING EXPENSES General and administrative expenses 3,298,188 3,683,594 932,911 Selling expenses 1,337,321 2,187,253 1,742,147 Bad debt expenses (recovery) 7,913,442 187,715 (227,873)Research and development expenses 358,411 508,282 33,847 Total operating expenses 12,907,362 6,566,844 2,481,032 (LOSS) INCOME FROM OPERATIONS (5,329,410) 3,877,317 7,980,546 OTHER INCOME (EXPENSE) Other income, net (426,585) 377,174 6,431 Interest expense (208,306) (56,953) (49,625) Income from investment 168,534 - - Total other (expense) income, net (466,357) 320,221 (43,194) (LOSS) INCOME BEFORE INCOME TAXES (5,795,767) 4,197,538 7,937,352 (BENEFIT FROM) PROVISION FOR INCOME TAXES (651,052) (2,938,849) 2,002,467 NET (LOSS) INCOME $(5,144,715) $7,136,387 $5,934,885 OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation (loss) income (1,755,528) 2,249,081 (1,401,124) COMPREHENSIVE (LOSS) INCOME $(6,900,243) $9,385,468 $4,533,761 Basic and diluted (loss) earnings per common share Basic $(0.33) $0.49 $0.49 Diluted $(0.33) $0.49 $0.49 Weighted average number of shares outstanding Basic 15,760,633 14,695,347 12,029,538 Diluted 15,760,633 14,695,347 12,046,045 HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Class ACommon Stock Class BCommon Stock Additionalpaid in Retained AccumulatedOtherComprehensive Shares Amount Shares Amount capital Earnings Income (Loss) Total Balance atJanuary 1,2016* 4,221,600 $4,222 7,778,400 $7,778 $108,970 $16,806,219 $(445,570) $16,481,619 Issuance ClassA shares -IPO 2,695,347 2,695 - - 10,128,995 - - 10,131,690 Net income - - - 5,934,885 - 5,934,885 Foreigncurrencytranslationloss - - - - (1,401,124) (1,401,124)Balance atDecember31, 2016 6,916,947 6,917 7,778,400 7,778 10,237,965 22,741,104 (1,846,694) 31,147,070 Net income - - - - - 7,136,387 - 7,136,387 Foreigncurrencytranslationincome - - - - - 2,249,081 2,249,081 Balance atDecember31, 2017 6,916,947 6,917 7,778,400 7,778 10,237,965 29,877,491 402,387 40,532,538 Net loss - - - - - (5,144,715) - (5,144,715)Foreigncurrencytranslationloss - - - - - - (1,755,528) (1,755,528)Issuance ofclass Acommonstock forconsultingservices 131,452 131 - - 239,369 - - 239,500 Issuance ofclass Acommonstock forequityinvestment 1,442,778 1,443 - - 2,884,113 - - 2,885,556 Balance atDecember31, 2018 8,491,177 $8,491 7,778,400 $7,778 $13,361,447 $24,732,776 $(1,353,141) $36,757,351 * Retrospectively adjusted the reclassification of the Company’s common stock (see Note 14) HEBRON TECHNOLOGY CO., LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2018 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(5,144,715) $7,136,387 $5,934,885 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,195,161 939,995 517,402 Loss on disposition of property and equipment 283,487 12,179 228,245 Deferred tax expense (benefit) (1,471,938) 11,526 56,968 Bad debt expense (recovery) 7,913,442 187,715 (227,873)Changes in operating assets and liabilities: Contracts receivable (9,019,036) (2,992,867) (5,893,527)Accounts receivable (1,383,452) (950,850) 922,611 Notes receivable 593,674 (378,205) (85,107)Retainage receivables (748,903) (80,360) (548,357)Prepayment and advances to suppliers 93,149 (7,127,018) (2,861,600)Inventories 1,177,956 788,000 427,878 Other receivables (598,764) (156,074) (1,535)Accounts payable 146,546 26,450 (290,717)Notes Payable 2,148,292 53,272 - Advances from customers 429,217 (370,964) 528,193 Deferred revenue - (1,071,355) 3,161 Taxes payable 2,770,253 (2,365,120) 2,484,264 Accrued expenses and other current liabilities 890,551 240,505 382,410 NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (725,080) (6,096,784) 1,577,301 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of property and equipment (74,210) (3,126,777) (7,667)Payments for intangible assets (41,000) - - Payments for construction in progress - - (973,254)NET CASH (USED IN) INVESTING ACTIVITIES (115,210) (3,126,777) (980,921) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short-term bank loans 1,995,763 295,954 301,019 Repayment of short-term bank loans (1,088,667) - (795,443)Proceeds from long-term loans - 173,873 556,885 Repayment of long-term loans - (47,353) - Repayment/Proceeds from other loan (176,427) 582,205 - Repayment of other loan - (21,457) - Repayment of (proceeds from) related parties - (66,582) 72,009 Proceeds from issuance of shares in IPO - - 10,131,690 NET CASH PROVIDED BY FINANCING ACTIVITIES 730,669 916,640 10,266,160 EFFECT OF EXCHANGE RATE CHANGE ON CASH (94,239) (292,869) (104,290)NET (DECREASE) INCREASE IN CASH (203,860) (8,599,790) 10,758,250 CASH AND RESTRICTED CASH-beginning of year 3,276,103 11,875,893 1,117,643 CASH AND RESTRICTED CASH-end of year $3,072,243 $3,276,103 $11,875,893 SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for income taxes $42,250 $- $- Cash paid for interest $91,917 $75,704 $50,705 Non-cash financing activities Warrants issued to placement agent in connection with the Company’s IPO $- $- $488,730 Issuance of shares for consulting services $239,500 $- $- Issuance of shares for equity investment $2,885,556 $- $-
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