CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical facts, included in this Form 10-K including, without limitation, statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s market projections, financial position, business strategy and the plans and objectives of management for future operations, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof); expansion and growth of the Company’s business and operations; and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company’s expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation; and other factors, most of which are beyond the control of the Company. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Consequently, all of the forward-looking statements made in this Form 10-K are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Organizational History
Transit Pro Tech Inc. (“Transit Pro Delaware” or the “Company”) was formed by Weihong Du in June 2023 to engage in the business of developing, marketing and distributing leading edge software for the detection of faults and other defects in railroad tracks; the inspection of tunnel walls for stability and providing ancillary monitoring systems related to the safe operation of railroads and vehicles generally.
Our Corporate Structure
We (“Transit Pro Delaware”) are a Delaware corporation formed in June 2023. We have a wholly-owned subsidiary Transit Pro Tech Ltd. (“TP Hong Kong”), a limited liability company formed in Hong Kong. TP Hong Kong, in turn, owns Shenzhen Guantu Technology Co. Limited (“SGTCL”), which it formed in Shenzhen. References herein to “Transit Pro,” the “Company, “we,” “us” and words of similar import, unless otherwise indicated, refer collectively to Transit Pro Delaware, TP Hong Kong and SGCTL.
The founding shareholders of Transit Pro Delaware (collectively, the “Shareholders”), own all of the outstanding shares of Shenzhen Beyebe Internet Technology Co. Limited (“Beyebe”) in the same proportions as their interests in Transit Pro Delaware and Mr. Weihong Du, our Chairman and Chief Executive Officer, is Beyebe’s executive director and general manager. Beyebe is engaged in developing and marketing computer compliance software and hardware in the PRC. Beyebe is the owner of all of the outstanding equity of Beyebe AI Technology Inc. (“Beyebe AI”), a corporation formed under the laws of the state of California headquartered in Los Angeles.
As more fully discussed below, we have entered into a Loan Agreement wherein Beyebe AI has agreed to lend us up to $1,000,000 to defray our expenses and a License Agreement with Beyebe wherein we have granted Beyebe the right to use and distribute within China hardware and software incorporating our intellectual property.
The following charts show our corporate structure, including the relationships resulting from the Loan Agreement with Beyebe AI and the License Agreement with Beyebe:
The Industry
According to the Federal Railroad Administration, the United States has the largest rail network in the world. It is estimated that as of the end of 2022, the United States had more than 140,000 miles (225,308 kilometers) of rail lines and that its operators had more than 28,000 locomotives and 1.6 million rail cars. In comparison, according to the Transportation Overview Report of the Ministry of Transport of China, as of the end of 2022, China had 155,000 kilometers of railways in operation, including 42,000 kilometers of high-speed railways; 22,100 railway locomotives, 77,000 railway passenger cars and 997,000 railway freight cars.
Sustained railroad infrastructure investment, adoption of new inspection technologies, the development of better track components, and advances in inspection and maintenance practices have decreased two of the leading causes of accidents: track and equipment failures. Proactive maintenance helps keep rail networks safe, improving service and reliability. Class I railroads’ mainline train accident rate in the United States decreased 48% from 2000 to 2022. Additionally, the equipment-caused accident rate is down 21% since 2000 and 2022 marked the lowest-ever rate of track-related accidents.
According to the Association of American Railroads, from 1980 to 2022, America’s privately owned freight railroads spent about $780 billion — averaging well over $23 billion per year over the past five years — to maintain and improve their networks. That investment amounts to more than $260,000 spent on average annually per mile of freight rail network. Inspections and maintenance of tracks and railbeds account for a significant portion of the amounts expended.
According to the Yanguan Tianxia Data Center, from 2015 to 2021, the Chinese railway repair and maintenance industry increased from USD8.19 billion to USD15.90 billion. In 2022, the Chinese railway repair and maintenance industry was estimated at approximately USD17.40 billion.
Track Inspection
There are a variety of methods used to detect flaws in rails ranging from visual inspections to highly sophisticated methods which rely upon ultrasound, magnetic induction and radiography. The different methods of inspection can be used in a variety of ways, such as a walking stick or hand pushed trolley, which might be used when a small section of track is to be inspected, for example, to follow up on an indication uncovered by a rail car or truck. Specially equipped rail inspection cars and trucks referred to as HiRail trucks are the principal tools used to inspect large volumes of track. Almost all of these trucks exclusively rely upon ultrasonic testing, though some are capable of performing multiple tests. In addition to testing equipment, these trucks are equipped with high-speed computers with advanced specialized software used to analyze the results and detect defects.
There are a number of manufacturers of road/rail inspection trucks and the Company does not intend to directly compete with these firms with respect to the manufacture, production and distribution of inspection vehicles. We do not intend to compete in the market for the manufacture or operation of HiRail trucks. We intend to develop more advanced sophisticated software to analyze the results obtained through the various methods of track inspection to improve fault detection. Further, as the industry moves to newer or complimentary methods of detecting faults, the Company intends to seek to develop specialized software to analyze the results of such methods.
Driver Management Systems
In addition to its focus on track maintenance, the railway industry is seeking to develop other modern technological solutions to improve safety in the operation of trains and around railroad tracks and rights of way. Further, there are efforts to develop systems to monitor engineers when driving a train to ensure they remain focused. In addition to developing rail flaw detection software, the Company intends to participate in the development of software related to ancillary methods of improving rail performance and decreasing accidents. In particular, the Company intends to develop intelligent video analysis tools to assess a driver’s ability to focus in real time and alert someone at control center if a driver is sleepy, inattentive or otherwise distracted. Such products may also be used in automobiles, trucks and other vehicles, including airplanes.
Business Objectives
Our primary goal is to develop a reputation within the United States and in other countries outside of China as a developer of leading-edge software for the detection of railroad track faults. This will require that we build upon the knowledge base developed by Mr. Du to develop and then constantly upgrade our software to ensure that it is compatible with the measurements obtained by current and newly developed hardware. In addition, we must seek to uncover new ways to analyze the information obtained through various methods of inspection to provide customers with more sophisticated information to enable them to more effectively monitor their rail lines.
We believe the knowledge base of Mr. Du and other members of our management provides us with a sound basis upon which to develop new software for the detection of rail faults and initially we will rely upon experienced software engineers to develop our systems. By maintaining our headquarters in the United States, we will have personnel readily available to meet with prospective customers to discuss their needs and coordinate our efforts to provide the information they are seeking. We believe that by combining the efforts of experienced software engineers in China and the efforts of our US personnel, we will be able to promptly respond to changes in the industry.
Sales and Marketing
Our approach to sales and marketing can be best understood through the concept of customer alignment. The railroad industries in most countries are dominated by a small number of large governmental and private operators. Further, the markets for rail monitoring equipment are generally dominated by a few large manufacturers. Initially, we will target our marketing efforts by approaching both rail operators, including subways, and equipment manufacturers to determine what they believe are the current opportunities in their countries to improve the information obtained through leading fault detection equipment and design analytical software to provide such data. Successful positioning requires that we earn a reputation within the United States as a preferred software supplier by delivering sophisticated analyses with results rail operators can rely upon to reduce accidents from track failures.
Our marketing strategy involves developing long-term working relationships with customers. These relationships enable us to develop barriers to entry to competitors by establishing and maintaining advanced quality approvals, certifications and tooling investments that are difficult and expensive to duplicate.
Many owners and operators of railroads, and the manufacturers and users of fault detection equipment, are large well-financed enterprises that seek out new products and services beyond their own country. Consequently, many trade shows attract participants from various countries. Although our initial marketing efforts primarily will be directed at potential customers in the United States and Canada, we will also explore opportunities to market our products and services to potential customers outside of the United States.
We do not intend for the foreseeable future to actively market our products and services to railway operators in the PRC and no monies invested in Transit Pro Delaware will be devoted to marketing activities in the PRC. Our management believes that because of the economic tensions between the United States and the PRC, Chinese officials responsible for railway construction and maintenance will be reluctant to rely upon technologies owned by a US entity. For that reason, much of our intellectual property, including patents filed in the United States, will be owned by TP Hong Kong. Because Hong Kong is now subject to the domination and control of the government of the PRC, to the extent our intellectual property is owned by a Hong Kong entity, it will be subject to many of the legal and operational risks associated with doing business within the PRC. For a more complete discussion of these issues, see the Risk Factors under the subheading “Risks Associated with Business Operations in China” in Item 1A. Risk Factors.
Because we do not intend to devote resources invested in Transit Pro Delaware to sales and marketing in the Chinese market, we have entered into a license agreement with Beyebe granting it the right for agreed upon fees to use and distribute within China hardware and software incorporating our intellectual property. To sell products and services into the Chinese railway industry, a vendor must be an entity organized and operating in the PRC, with previous experience in the industry. In addition, the vendor must have various ISO certifications, including ISO9001:2015 quality management certification, ISO14001:2015 environmental standard certification and ISO45001:2018 health standard certification and five-star after-sales certification. We believe that Beyebe has the qualifications required to market our driver management and rail flaw detection systems in China. Because Beyebe is owned by the initial shareholders of Transit Pro Delaware, conflicts of interest are inherent in any transaction between Transit Pro Delaware and Beyebe and its subsidiary, Beyebe AI.