RISK
FACTORS
An
investment in our shares of common stock involves a high degree of risk. Before deciding whether to invest in our shares of common stock,
you should consider carefully the risks described below, together with all of the other information set forth in this prospectus, including
the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated
financial statements and related notes. If any of these risks actually occurs, our business, financial condition, results of operations
or cash flow could be materially and adversely affected, which could cause the trading price of our shares of common stock to decline,
resulting in a loss of all or part of your investment. The risks described below and in the sections referenced above are not the only
ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business. You
should only consider investing in our shares of common stock if you can bear the risk of loss of your entire investment.
Risks
Relating to Doing Business in the PRC
If the PRC government deems that any of
our contractual arrangements do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these
regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced
to relinquish our interests in those operations.
Foreign ownership of internet-based
businesses, such as distribution of online information, is subject to restrictions under current PRC laws and regulations. For example,
foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider (except
e-commerce) and any such foreign investor must have experience in providing value-added telecommunications services overseas and maintain
a good track record in accordance with the Guidance Catalog of Industries for Foreign Investment promulgated in 2007, as amended in 2011
and in 2015, respectively, and other applicable laws and regulations.
Muliang Viagoo is a holding
company incorporated in Nevada. As a holding company with no material operations of our own, we conduct a substantial majority of our
operations through our subsidiary in the People’s Republic of China, or “PRC” or “China.” Shanghai Mufeng,
our subsidiary in China, derives its economic benefits from Shanghai Muliang, the variable interest entity, and its subsidiaries. We
receive the economic benefits of the VIE’s business operations through certain contractual arrangements. Investors in our common
shares offered in this offering are purchasing shares of the U.S. holding company and not shares of the VIE and its subsidiaries in China
that are conducting the business operations. For a description of the VIE contractual arrangements, see “Corporation History
and Structure” on page 80.
It is uncertain whether any
new PRC laws, rules or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide.
In particular, in January 2015, the Ministry of Commerce, or MOC, published a discussion draft of the proposed Foreign Investment Law
for public review and comments. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and
introduces the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise,
or an FIE. Under the draft Foreign Investment Law, variable interest entities would also be deemed as FIEs, if they are ultimately “controlled”
by foreign investors, and would be subject to restrictions on foreign investments. However, the draft law has not taken a position on
what actions will be taken with respect to the existing companies with the “variable interest entity” structure, whether
or not these companies are controlled by Chinese parties. It is uncertain when the draft will be signed into law and whether the final
version will have any substantial changes from the draft. Substantial uncertainties exist with respect to the enactment timetable, interpretation
and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate
governance and business operations” below. If the ownership structure, contractual arrangements and business of our company are
found to be in violation of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the required permits
or approvals, the relevant governmental authorities would have broad discretion in dealing with such violation, including levying fines,
confiscating our income, shutting down our servers, discontinuing or placing restrictions or onerous conditions on our operations, requiring
us to undergo a costly and disruptive restructuring, restricting or prohibiting our use of proceeds from this offering to finance our
business and operations in China and taking other regulatory or enforcement actions that could be harmful to our business. Any of these
actions could cause significant disruption to our business operations and could severely damage our reputation, which would in turn materially
and adversely affect our business, financial condition and results of operations.
PRC regulations relating to investments
in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiaries to liability
or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase
their registered capital or distribute profits.
In July 2014, SAFE promulgated
the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and
Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaces the previous SAFE Circular 75. SAFE Circular
37 requires PRC residents, including PRC individuals and PRC corporate entities, to register with SAFE or its local branches in connection
with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents
and may be applicable to any offshore acquisitions that we may make in the future.
Under SAFE Circular 37, PRC
residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special
purpose vehicles, or SPVs, are required to register such investments with SAFE or its local branches. In addition, any PRC resident who
is a direct or indirect shareholder of an SPV, is required to update its registration with the local branch of SAFE with respect to that
SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders
to update their registration with the local branch of SAFE to reflect any material change. If any PRC resident shareholder of such SPV
fails to make the required registration or to update the registration, the subsidiary of such SPV in China may be prohibited from distributing
its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited
from making additional capital contributions into its subsidiaries in China. In February 2015, SAFE promulgated a Notice on Further Simplifying
and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13. Under SAFE Notice 13, applications for
foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE
Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations
under the supervision of SAFE. We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares
in our holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may
not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we
compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all other shareholders or beneficial
owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations
or approvals required by SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure
by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our
overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends to us
or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, as these foreign
exchange and outbound investment related regulations are relatively new and their interpretation and implementation has been constantly
evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border investments and transactions,
will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent
review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated
borrowings, which may adversely affect our financial condition and results of operations. We cannot assure you that we have complied
or will be able to comply with all applicable foreign exchange and outbound investment related regulations. In addition, if we decide
to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain
the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict
our ability to implement our acquisition strategy and could adversely affect our business and prospects.
As a holding company with
PRC subsidiaries, we may transfer funds to our Affiliate Entities or finance our operating entity by means of loans or capital contributions.
Any capital contributions or loans that we, as an offshore entity, make to our Company’s PRC subsidiaries, including from the proceeds
of this offering, are subject to the above PRC regulations. We may not be able to obtain necessary government registrations or approvals
on a timely basis, if at all. If we fail to obtain such approvals or make such registration, our ability to make equity contributions
or provide loans to our Company’s PRC subsidiaries or to fund their operations may be negatively affected, which may adversely
affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations and commitments. As
a result, our liquidity and our ability to fund and expand our business may be negatively affected.
We must remit the offering proceeds to
China before they may be used to benefit our business in China, and this process may take several months to complete.
The process for sending the
proceeds from this offering back to China may take as long as six months after the closing of this offering. In utilizing the proceeds
of this offering in the manner described in “Use of Proceeds,” as an offshore holding company of our PRC operating subsidiaries,
we may make loans to our Affiliated Entities, or we may make additional capital contributions to our Affiliate Entities. Any loans to
our Affiliated Entities are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are foreign-invested
enterprises, to finance their activities cannot exceed statutory limits and must be registered with SAFE.
To remit the proceeds of the offering,
we must take the following steps:
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First,
we will open a special foreign exchange account for capital account transactions. To open this account, we must submit to SAFE certain
application forms, identity documents, transaction documents, form of foreign exchange registration of overseas investments of the
domestic residents, and foreign exchange registration certificate of the invested company. As of the date of this prospectus, we
have already opened a special foreign exchange account for capital account transactions. |
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● |
Second,
we will remit the offering proceeds into this special foreign exchange account. |
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Third,
we will apply for settlement of the foreign exchange. In order to do so, we must submit to SAFE certain application forms, identity
documents, payment order to a designated person, and a tax certificate. |
The timing of the process
is difficult to estimate because the efficiencies of different SAFE branches can vary significantly. Ordinarily the process takes several
months but is required by law to be accomplished within 180 days of application.
We may also decide to finance
our subsidiaries by means of capital contributions. These capital contributions must be approved by MOFCOM or its local counterpart.
We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to future capital
contributions by us to our subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of this offering and to
capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and
expand our business. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese
operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
The uncertainties with respect to the Chinese
legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in
China with little advance notice could adversely affect us and limit the legal protections available to you and us.
We conduct a substantial
majority of our operations through our subsidiary in the People’s Republic of China. Shanghai Mufeng, our subsidiary in China,
derives its economic benefits from Shanghai Muliang, the variable interest entity, and its subsidiaries. We are not a Chinese operating
company. Muliang Viagoo receives economic benefits from Shanghai Muliang’s business operations in China through certain contractual
arrangements (the “VIE” Agreements”), and because of which, we are regarded as the primary beneficiary of Shanghai
Muliang for accounting purposes and, therefore, we are able to consolidate the financial results of Shanghai Muliang in our consolidated
financial statements in accordance with U.S. GAAP. Accordingly, economic, political and legal developments in the PRC will significantly
affect our business, financial condition, results of operations and prospects. Policies of the PRC government can have significant effects
on economic conditions in the PRC and the ability of businesses to operate profitably. Our ability to operate profitably in the PRC may
be adversely affected by changes in policies by the PRC government, including changes in laws, regulations or their interpretation, particularly
those dealing with the Internet, including censorship and other restriction on material which can be transmitted over the Internet, security,
intellectual property, money laundering, taxation and other laws that affect our ability to operate our website.
There are substantial uncertainties
regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing
our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations
are sometimes vague and may be subject to future changes, and their official interpretation and enforcement could be unpredictable, with
little advance notice. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws
and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or
interpreted in a manner different from our current understanding of these laws and regulations. New laws and regulations that affect
existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing
or new PRC laws or regulations may have on our business.
The PRC legal system is a
civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited
for reference but have limited precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and
regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced
the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal
system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China.
In particular, the PRC legal
system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are
relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations, and rules may not
be uniform and enforcement of these laws, regulations and rules involves uncertainties. These uncertainties may affect our judgment on
the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties
may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us.
From time to time, we may
have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities
have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the
outcome of administrative and court proceedings and the level of legal protection we enjoy, than in more developed legal systems. Furthermore,
the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or
at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime
after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual
property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operation.
Furthermore, the relevant
business currently carried out by our PRC subsidiaries and our investment in the PRC subsidiaries currently are not subject to the national
security review under applicable PRC laws and regulations. However, if our future business operations or potential mergers and acquisitions
we enter into in the PRC are related to material infrastructure or other national security sensitive areas or industries involving certain
key technologies, national security review requirements will likely apply and the review result that is in compliance with PRC laws should
be definitive. It remains unclear when the specific implementation measures of the Foreign Investment Law will be issued by the State
Council. Given the uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law, its application
may require further rules to be issued by Chinese government, which may incur and increase our compliance costs and expenses and accordingly
our financial condition and operation will be adversely affected.
In the extreme case-scenario,
we may be required to unwind the contractual arrangement and/or dispose of the VIE or their subsidiaries, which could have a material
and adverse effect on our business, financial conditions and result of operations.
Because our business is dependent upon
government policies that encourage a market-based economy, change in the political or economic climate in the PRC may impair our ability
to operate profitably, if at all.
Although the PRC government
has been pursuing a number of economic reform policies for more than two decades, the PRC government continues to exercise significant
control over economic growth in the PRC. Because of the nature of our business, we are dependent upon the PRC government pursuing policies
that encourage private ownership of businesses. Restrictions on private ownership of businesses would affect the securities business
in general and businesses using real estate service in particular. We cannot assure you that the PRC government will pursue policies
favoring a market-oriented economy or that existing policies will not be significantly altered, especially in the event of a change in
leadership, social or political disruption, or other circumstances affecting political, economic and social life in the PRC.
PRC laws and regulations governing the
VIE’s current business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair
our ability to operate profitable.
There are substantial uncertainties
regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing
our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations
are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty.
The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may
be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner
different from our understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses
may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have
on our business.
There are uncertainties under the PRC laws
relating to the procedures for U.S. regulators to investigate and collect evidence from companies located in the PRC.
According to Article 177
of the newly amended PRC Securities Law which became effective in March 2020 (the “Article 177”), the securities regulatory
authority of the PRC State Council may collaborate with securities regulatory authorities of other countries or regions in order to monitor
and oversee cross border securities activities. Article 177 further provides that overseas securities regulatory authorities
are not allowed to carry out investigation and evidence collection directly within the territory of the PRC, and that any Chinese entities
and individuals are not allowed to provide documents or materials related to securities business activities to overseas agencies without
prior consent of the securities regulatory authority of the PRC State Council and the competent departments of the PRC State Council.
Our PRC counsel, Grandall
Law Firm, has advised us of their understanding that (i) the Article 177 is applicable in the limited circumstances related
to direct investigation or evidence collection conducted by overseas authorities within the territory of the PRC (in such case, the foregoing
activities are required to be conducted through collaboration with or by obtaining prior consent of competent Chinese authorities); (ii)
the Article 177 does not limit or prohibit the Company, as a company duly incorporated in Nevada and to be listed on Nasdaq,
from providing the required documents or information to Nasdaq or the SEC pursuant to applicable Listing Rules and U.S. securities laws;
and (iii) as the Article 177 is relatively new and there is no implementing rules or regulations which have been published
regarding application of the Article 177, it remains unclear how the law will be interpreted, implemented or applied by the Chinese
Securities Regulatory Commission or other relevant government authorities. As of the date hereof, we are not aware of any implementing
rules or regulations which have been published regarding application of Article 177. However, we cannot assure you that relevant
PRC government agencies, including the securities regulatory authority of the PRC State Council, would reach the same conclusion as we
do. As such, there are uncertainties as to the procedures and time requirement for the U.S. regulators to bring about investigations
and evidence collection within the territory of the PRC.
Our principal business operation
is conducted in the PRC. In the event that the U.S. regulators carry out investigation on us and there is a need to conduct investigation
or collect evidence within the territory of the PRC, the U.S. regulators may not be able to carry out such investigation or evidence
collection directly in the PRC under the PRC laws. The U.S. regulators may consider cross-border cooperation with securities regulatory
authority of the PRC by way of judicial assistance, diplomatic channels or regulatory cooperation mechanism established with the securities
regulatory authority of the PRC.
Because our business is conducted in RMB
and the price of our shares of common stock is quoted in United States dollars, changes in currency conversion rates may affect the value
of your investments.
Our business is conducted
in the PRC, our books and records are maintained in RMB, which is the currency of the PRC, and the financial statements that we file
with the SEC and provide to our shareholders are presented in United States dollars. Changes in the exchange rate between the RMB and
dollar affect the value of our assets and the results of our operations in United States dollars. The value of the RMB against the United
States dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic
conditions and perceived changes in the economy of the PRC and the United States. Any significant revaluation of the RMB may materially
and adversely affect our cash flows, revenue and financial condition. Further, our shares offered by this prospectus are offered in United
States dollars, and we will need to convert the net proceeds we receive into RMB in order to use the funds for our business. Changes
in the conversion rate between the United States dollar and the RMB will affect that amount of proceeds we will have available for our
business.
Under the PRC Enterprise Income Tax Law,
or the EIT Law, we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences
to us and our non-PRC shareholders.
The EIT Law and its implementing
rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered
“resident enterprises” under PRC tax laws. The implementing rules promulgated under the EIT Law define the term “de
facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance
and assets of an enterprise. In April 2009, the State Administration of Taxation, or SAT, issued a circular, known as Circular 82, which
provides certain specific criteria for determining whether the “de facto management bodies” of a PRC-controlled enterprise
that is incorporated offshore is located in China. However, there are no further detailed rules or precedents governing the procedures
and specific criteria for determining “de facto management body.” Although our board of directors and management are located
in the PRC, it is unclear if the PRC tax authorities would determine that we should be classified as a PRC “resident enterprise.”
If we are deemed as a PRC
“resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%,
although dividends distributed to us from our existing PRC subsidiary and any other PRC subsidiaries which we may establish from time
to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient” status. This could have
a material and adverse effect on our overall effective tax rate, our income tax expenses and our net income. Furthermore, dividends,
if any, paid to our shareholders may be decreased as a result of the decrease in distributable profits. In addition, if we were considered
a PRC “resident enterprise”, any dividends we pay to our non-PRC investors and the gains realized from the transfer of our
shares of common stock may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate of 10% in the
case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax
treaty). It is unclear whether holders of our shares of common stock would be able to claim the benefits of any tax treaties between
their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. This could have a material
and adverse effect on the value of your investment in us and on the price of our shares of common stock.
There are significant uncertainties under
the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore
subsidiaries may not qualify to enjoy certain treaty benefits.
Under the PRC EIT Law and
its implementation rules, the profits of a foreign invested enterprise generated through operations, which are distributed to its immediate
holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong
and the PRC, such rate may be reduced to 5% if a Hong Kong resident enterprise owns more than 25% of the equity interest in the PRC company.
Our PRC subsidiary is wholly-owned by our Hong Kong subsidiary. Moreover, under the Notice of the State Administration of Taxation on
Issues regarding the Administration of the Dividend Provision in Tax Treaties promulgated on February 20, 2009, the tax payer needs to
satisfy certain conditions to enjoy the benefits under a tax treaty. These beneficial owner of the relevant dividends, and (2) the corporate
shareholder to receive dividends from the PRC subsidiary must have continuously met the direct ownership thresholds during the 12 consecutive
months preceding the receipt of the dividends. Further, the State Administration of Taxation promulgated the Notice on How to Understand
and Recognize the “Beneficial Owner” in Tax Treaties on October 27, 2009, which limits the “beneficial owner”
to individuals, projects or other organizations normally engaged in substantive operations, and sets forth certain detailed factors in
determining the “beneficial owner” status. In current practice, a Hong Kong enterprise must obtain a tax resident certificate
from the relevant Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue
such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate
from the relevant Hong Kong tax authority. As of the date of this prospectus, we have not commenced the application process for a Hong
Kong tax resident certificate from the relevant Hong Kong tax authority, and there is no assurance that we will be granted such a Hong
Kong tax resident certificate.
Even after we obtain the
Hong Kong tax resident certificate, we are required by applicable tax laws and regulations to file required forms and materials with
relevant PRC tax authorities to prove that we can enjoy 5% lower PRC withholding tax rate. We intend to obtain the required materials
and file with the relevant tax authorities when it plans to declare and pay dividends, but there is no assurance that the PRC tax authorities
will approve the 5% withholding tax rate.
U.S. regulatory bodies may be limited in
their ability to conduct investigations or inspections of our operations in China.
Any disclosure of documents
or information located in China by foreign agencies may be subject to jurisdiction constraints and must comply with China’s state
secrecy laws, which broadly define the scope of “state secrets” to include matters involving economic interests and technologies.
There is no guarantee that requests from U.S. federal or state regulators or agencies to investigate or inspect our operations will be
honored by us, by entities who provide services to us or with whom we associate, without violating PRC legal requirements, especially
as those entities are located in China. Furthermore, under the current PRC laws, an on-site inspection of our facilities by any of these
regulators may be limited or prohibited.
The PRC Securities Law was
promulgated in December 1998 and was subsequently revised in October 2005, June 2013, August 2014 and December 2019. According to Article
177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly
conduct investigation or evidence collection activities within the territory of the PRC. While there is no detailed interpretation regarding
the rule implementation under Article 177, it will be difficult for an overseas securities regulator to conduct investigation or evidence
collection activities in China.
If we become directly subject to the scrutiny,
criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate
and resolve the matter which could harm our business operations, stock price and reputation.
U.S. public companies that
have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors,
financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered
on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate
corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism
and negative publicity, the publicly traded stock of many U.S. listed Chinese companies sharply decreased in value and, in some cases,
has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting
internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative
publicity will have on us, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations
are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company.
This situation will be costly and time consuming and distract our management from developing our growth. If such allegations are not
proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the
value of our stock.
The disclosures in our reports, other filings
with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.
We are regulated by the SEC
and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by
the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosure and public pronouncements are not subject
to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject
to the review by China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the capital markets in
China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local
regulator has done any review of us, our SEC reports, other filings or any of our other public pronouncements.
Changes in China’s economic, political
or social conditions or government policies could have a material adverse effect on our business and results of operations.
Our organic fertilizer and
agricultural products operations are located in China. Accordingly, our business, prospects, financial condition and results of operations
may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth
in China as a whole.
The Chinese economy differs
from the economies of most developed countries in many respects, including the amount of government involvement, level of development,
growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing
the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of
improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government.
In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies.
The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling
payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries
or companies.
While the Chinese economy
has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the
economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources.
Some of these measures may benefit the overall Chinese economy but may have a negative effect on us. For example, our financial condition
and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In
addition, in the past the Chinese government has implemented certain measures, including interest rate increases, to control the pace
of economic growth. These measures may cause decreased economic activity in China, and since 2012, China’s economic growth has
slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely
affect our business and results of operations.
Market, economic and other conditions in
China may adversely affect the demand for our products and services.
Our industry depends upon
the overall level of economic conditions and consumer spending in China. A sustained deterioration in the general economic conditions
in China, including any turmoil in the economy, distresses in financial markets, or reduced market liquidity, as well as increased government
intervention, may reduce the number of our customers. Small-to-medium size business owners, in particular, are more susceptible to adverse
changes in market, economic and regulatory conditions and the level of consumption in China. As a result, the demand for our existing
and new products and services could decrease, and our financial performance could be adversely affected.
Adverse market trends may
affect our financial performance. Such trends may include, but are not limited to, the followings:
| |
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fluctuations
in consumer demand, which reflect the prevailing economic and demographic conditions; |
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low levels
of consumer and business confidence associated with recessionary environments which may in turn reduce consumer spending. |
We may be adversely affected by the complexity,
uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses
or permits applicable to our business may have a material adverse effect on our business and results of operations.
The PRC government extensively
regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in
the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement
involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or omissions may
be deemed to be in violation of applicable laws and regulations.
The evolving PRC regulatory
system for the internet industry may lead to the establishment of new regulatory agencies. For example, in May 2011, the State Council
announced the establishment of a new department, the State Internet Information Office (with the involvement of the State Council Information
Office, the MITT, and the Ministry of Public Security). The primary role of this new agency is to facilitate the policy-making and legislative
development in this field, to direct and coordinate with the relevant departments in connection with online content administration and
to deal with cross-ministry regulatory matters in relation to the internet industry.
The Circular on Strengthening
the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, issued by the MITT in July 2006,
prohibits domestic telecommunication service providers from leasing, transferring or selling telecommunications business operating licenses
to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation
of a telecommunications business in China. According to this circular, either the holder of a value-added telecommunication services
operation permit or its shareholders must directly own the domain names and trademarks used by such license holders in their provision
of value-added telecommunication services. The circular also requires each license holder to have the necessary facilities, including
servers, for its approved business operations and to maintain such facilities in the regions covered by its license. If an ICP License
holder fails to comply with the requirements and also fails to remedy such non-compliance within a specified period of time, the MITT
or its local counterparts have the discretion to take administrative measures against such license holder, including revoking its ICP
License.
The interpretation and application
of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have
created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities
of, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required
for conducting our business in China or will be able to maintain our existing licenses or obtain new ones. If the PRC government considers
that we were operating without the proper approvals, licenses or permits or promulgates new laws and regulations that require additional
approvals or licenses or imposes additional restrictions on the operation of any part of our business, it has the power, among other
things, to levy fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant business or impose
restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material adverse effect on
our business and results of operations.
PRC regulation of loans to, and direct
investment in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from this offering and/or future
financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.
In July 2014, SAFE promulgated
the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and
Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaces the previous SAFE Circular 75. SAFE Circular
37 requires PRC residents, including PRC individuals and PRC corporate entities, to register with SAFE or its local branches in connection
with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents
and may be applicable to any offshore acquisitions that we may make in the future.
Under SAFE Circular 37, PRC
residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special
purpose vehicles, or SPVs, are required to register such investments with SAFE or its local branches. In addition, any PRC resident who
is a direct or indirect shareholder of an SPV, is required to update its registration with the local branch of SAFE with respect to that
SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders
to update their registration with the local branch of SAFE to reflect any material change. If any PRC resident shareholder of such SPV
fails to make the required registration or to update the registration, the subsidiary of such SPV in China may be prohibited from distributing
its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited
from making additional capital contributions into its subsidiaries in China. In February, 2015, SAFE promulgated a Notice on Further
Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13. Under SAFE Notice 13, applications
for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under
SAFE Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations
under the supervision of SAFE. We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares
in our Nevada holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However,
we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor
can we compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all other shareholders or
beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable
registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations,
or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict
our overseas or cross-border investment activities, and limit our PRC subsidiaries’ ability to make distributions or pay dividends
to us or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, as these foreign
exchange and outbound investment related regulations are relatively new and their interpretation and implementation has been constantly
evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border investments and transactions,
will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent
review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated
borrowings, which may adversely affect our financial condition and results of operations. We cannot assure you that we have complied
or will be able to comply with all applicable foreign exchange and outbound investment related regulations. In addition, if we decide
to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain
the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict
our ability to implement our acquisition strategy and could adversely affect our business and prospects.
As an offshore holding company
of our PRC subsidiary, we may make loans to our PRC subsidiary, the VIE and the VIE’s subsidiaries, or may make additional capital
contributions to our PRC subsidiary, subject to satisfaction of applicable governmental registration and approval requirements.
We may also decide to finance
our PRC subsidiary by means of capital contributions. According to the relevant PRC regulations on foreign-invested enterprises in China,
these capital contributions are subject to registration with or approval by the MOFCOM or its local counterparts. In addition, the PRC
government also restricts the convertibility of foreign currencies into Renminbi and use of the proceeds. On March 30, 2015, SAFE promulgated
Circular 19, which took effect and replaced certain previous SAFE regulations from June 1, 2015. SAFE further promulgated Circular 16,
effective on June 9, 2016, which, among other things, amend certain provisions of Circular 19. According to SAFE Circular 19 and SAFE
Circular 16, the flow and use of the Renminbi capital converted from foreign currency denominated registered capital of a foreign-invested
company is regulated such that Renminbi capital may not be used for business beyond its business scope or to provide loans to persons
other than affiliates unless otherwise permitted under its business scope. Violations of the applicable circulars and rules may result
in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Regulations. If the VIE requires
financial support from us or our wholly-owned subsidiary in the future and we find it necessary to use foreign currency-denominated capital
to provide such financial support, our ability to fund the VIE’s operations will be subject to statutory limits and restrictions,
including those described above. These circulars may limit our ability to transfer the net proceeds from this offering to the VIE and
our PRC subsidiary, and we may not be able to convert the net proceeds from this offering into Renminbi to invest in or acquire any other
PRC companies in China. Despite the restrictions under these SAFE circulars, our PRC subsidiary may use its income in Renminbi generated
from their operations to finance the VIE through entrustment loans to the VIE or loans to the VIE’s shareholders for the purpose
of making capital contributions to the VIE. In addition, our PRC subsidiary can use Renminbi funds converted from foreign currency registered
capital to carry out any activities within their normal course of business and business scope, including to purchase or lease servers
and other relevant equipment and fund other operational needs in connection with their provision of services to the relevant VIE under
the applicable exclusive technical support agreements.
In light of the various requirements
imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that
we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if
at all, with respect to future loans to our PRC subsidiary or the VIE or future capital contributions by us to our PRC subsidiary. If
we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from this offering
and to fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability
to fund and expand our business.
PRC laws and regulations governing the
VIE’s current business operations are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including
those regarding the enforcement of laws, and sudden or unexpected changes, with little advance notice, in laws and regulations in China
could adversely affect us and limit the legal protections available to you and us.
There are substantial uncertainties
regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing
our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations
are sometimes vague and may be subject to future changes, and their official interpretation and enforcement could be unpredictable, with
little advance notice. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws
and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or
interpreted in a manner different from our understanding of these laws and regulations. New laws and regulations that affect existing
and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new
PRC laws or regulations may have on our business.
Our
WFOE, Shanghai Mufeng, VIE and its subsidiaries are formed under and governed by the laws of the PRC. The PRC legal system is a civil
law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for
reference, but have limited precedential value. Since these laws and regulations are relatively new and the PRC legal system continues
to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and the enforcement of these laws,
regulations and rules involves uncertainties.
In
1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general, such
as foreign investment, corporate organization and governance, commerce, taxation and trade. The overall effect of legislation over the
past three decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, since
the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations and rules are not always uniform and
enforcement of these laws, regulations and rules involves uncertainties and sudden changes, sometimes with little advance notice. As
a significant part of our business is conducted in China, our operations are principally governed by PRC laws and regulations, which
may limit legal protections available to us. Uncertainties due to evolving laws and regulations could also impede the ability of a China-based
company, such as our company, to obtain or maintain permits or licenses required to conduct business in China. In the absence of required
permits or licenses, governmental authorities could impose material sanctions or penalties on us. In addition, some regulatory requirements
issued by certain PRC government authorities may not be consistently applied by other PRC government authorities (including local government
authorities), thus making strict compliance with all regulatory requirements impractical, or in some circumstances impossible. For example,
we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract.
However, since PRC administrative and court authorities have discretion in interpreting and implementing statutory and contractual terms,
it may be more difficult to predict the outcome of administrative and court proceedings and the level of legal protection we enjoy than
in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules, some of
which are not published on a timely basis or at all and may have retroactive effect. As a result, we may not be aware of our violation
of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China
may be protracted, resulting in substantial costs and diversion of resources and management attention.
The
PRC government has significant oversight and discretion over the conduct of our business and may intervene or influence our operations
as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new
policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the
possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business,
financial condition and results of operations. Furthermore, the PRC government has recently indicated an intent to exert more oversight
and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in China-based
companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer
or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become
worthless.
Furthermore,
if China adopts more stringent standards with respect to certain areas such as environmental protection or corporate social responsibilities,
we may incur increased compliance costs or become subject to additional restrictions in our operations. Certain areas of the law, including
intellectual property rights and confidentiality protections in China may also not be as effective as in the United States or other countries.
In addition, we cannot predict the effects of future developments in the PRC legal system on the VIE’s business operations,
including the promulgation of new laws, or changes to existing laws or the interpretation or enforcement thereof. These uncertainties
could limit the legal protections available to us and our investors, including you.
We may become
subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may
be liable for improper use or appropriation of personal information provided by our customers.
We may become subject to
a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. These laws and regulations
are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain
and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous laws and regulations regarding privacy
and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data. Such laws and regulations
often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.
We expect to obtain information
about various aspects of our operations as well as regarding our employees and third parties. We also maintain information about various
aspects of our operations as well as regarding our employees. The integrity and protection of our customer, employee and company data
is critical to our business. Our customers and employees expect that we will adequately protect their personal information. We are required
by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to
safeguard such information.
The PRC Criminal Law, as
amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions,
companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained during the
course of performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016,
the Standing Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which
became effective on June 1, 2017.
Pursuant to the Cyber Security
Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’
personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products
and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws
and regulations.
The Civil Code of the PRC
(issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for
privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration
of China, MIIT, and the Ministry of Public Security have been increasingly focused on regulation in the areas of data security and data
protection.
The PRC regulatory requirements
regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration
of China, the Ministry of Public Security and the SAMR, have enforced data privacy and protection laws and regulations with varying and
evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into
effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a
cybersecurity review when purchasing network products and services which do or may affect national security.
In November 2016, the Standing
Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became
effective in June 2017. The CSL is the first PRC law that systematically lays out the regulatory requirements on cybersecurity and data
protection, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny. The legal consequences
of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for
rectification, shutting down the websites, and revocation of business license or relevant permits. In April 2020, the Cyberspace Administration
of China and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective in June 2020.
Pursuant to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when
purchasing network products and services which do or may affect national security. On July 10, 2021, the Cyberspace Administration of
China issued a revised draft of the Measures for Cybersecurity Review for public comments (“Draft Measures”), which required
that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data
processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated
the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the
risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited
the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information
being affected, controlled, or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has
said that under the proposed rules companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when
seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and
maliciously exploited by foreign governments,” The cybersecurity review will also investigate the potential national security risks
from overseas IPOs. We do not know what regulations will be adopted or how such regulations will affect us and our listing on Nasdaq.
In the event that the Cyberspace Administration of China determines that we are subject to these regulations, we may be required to delist
from Nasdaq and we may be subject to fines and penalties. On June 10, 2021, the Standing Committee of the NPC promulgated the PRC Data
Security Law, which will take effect on September 1, 2021. The Data Security Law also sets forth the data security protection obligations
for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing or other
illegal means, and the collection and use of such data should not exceed the necessary limits The costs of compliance with, and other
burdens imposed by, CSL and any other cybersecurity and related laws may limit the use and adoption of our products and services and
could have an adverse impact on our business. Further, if the enacted version of the Measures for Cybersecurity Review mandates clearance
of cybersecurity review and other specific actions to be completed by companies like us, we face uncertainties as to whether such clearance
can be timely obtained, or at all.
If the new PRC Data Security
Law is enacted in September, we will not be subject to the cybersecurity review by the CAC for this offering, given that: (i) our products
and services are offered not directly to individual users but through our institutional customers; (ii) we do not possess a large amount
of personal information in our business operations; and (iii) data processed in our business does not have a bearing on national security
and thus may not be classified as core or important data by the authorities. However, there remains uncertainty as to how the Draft Measures
will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules,
or detailed implementation and interpretation related to the Draft Measures. If any such new laws, regulations, rules, or implementation
and interpretation comes into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of
such laws on us.
We cannot assure you that
PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that we can fully or timely
comply with such laws. In the event that we are subject to any mandatory cybersecurity review and other specific actions required by
the CAC, we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty,
we may be further required to suspend our relevant business, shut down our website, or face other penalties, which could materially and
adversely affect our business, financial condition, and results of operations.
Failure to make adequate contributions
to various employee benefit plans as required by PRC regulations may subject us to penalties.
We are required under PRC
laws and regulations to participate in various government sponsored employee benefit plans, including certain social insurance, housing
funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries,
including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations
where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments
in China given the different levels of economic development in different locations. We have not made adequate employee benefit payments.
We may be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees
or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
The M&A Rules and certain other PRC
regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult
for us to pursue growth through acquisitions in China.
The Regulations on Mergers
and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006
and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements
that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some
instances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC
domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking
if certain thresholds are triggered. In addition, the security review rules issued by the MOC that became effective in September 2011
specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers
and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security”
concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including
by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring
complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such
transactions could be time consuming, and any required approval processes, including obtaining approval from the MOC or its local counterparts
may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our
market share.
Any failure to comply with PRC regulations
regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other
legal or administrative sanctions.
In February 2012, SAFE promulgated
the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of
Overseas Publicly-Listed Company, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC
citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas
publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could
be the PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution
must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests.
We, our executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less
than one year and who have been granted options or other awards are subject to these regulations. Failure to complete the SAFE registrations
may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary
and limit our PRC subsidiary’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict
our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law.
Regulatory bodies of the United States
may be limited in their ability to conduct investigations or inspections of our operations in China.
From time to time, the Company
may receive requests from certain U.S. agencies to investigate or inspect the Company’s operations or to otherwise provide information.
While the Company will be compliant with these requests from these regulators, there is no guarantee that such requests will be honored
by those entities who provide services to us or with whom we associate, especially as those entities are located in China. Furthermore,
an on-site inspection of our facilities by any of these regulators may be limited or entirely prohibited. Such inspections, though permitted
by the Company and its affiliates, are subject to the capricious nature of Chinese enforcers and may therefore be impossible to facilitate.
The recent joint statement by the SEC and
PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more
stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S.
auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.
On April 21, 2020, SEC Chairman
Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the
risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement
emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks
of fraud in emerging markets.
On May 18, 2020, Nasdaq filed
three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market”,
(ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii)
apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.
On May 20, 2020, the U.S.
Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a
foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB
inspection. If the PCAOB is unable to inspect the Company’s auditors for three consecutive years, the issuer’s securities
are prohibited to trade on a U.S. stock exchange. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign
Companies Accountable Act. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law.
On March 24, 2021, the SEC
announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of
the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms
10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction
and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that
jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required
to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction,
and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence
on, such a registrant.
On June 22, 2021, the U.S.
Senate passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive
non-inspection years required for triggering the prohibitions under the Holding Foreign Companies Accountable Act from three years to
two, and thus, would reduce the time before our securities may be prohibited from trading or delisted.
On December 2, 2021,
the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the Holding Foreign Companies
Accountable Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued
by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely
because of a position taken by an authority in foreign jurisdictions.
On December 16, 2021, the
PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting
firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions.
On August 26, 2022, the
PCAOB signed a Statement of Protocol (SOP) Agreement with the CSRC and the MOF of the PRC regarding cooperation in the oversight of PCAOB-registered
public accounting firms in the PRC and Hong Kong. The SOP remains unpublished and is subject to further interpretation and implementation.
Pursuant to the fact sheet with respect to the SOP disclosed by the SEC, the SOP seeks to establish a method for the PCAOB to conduct
inspections of PCAOB-registered public accounting firms in the PRC and Hong Kong, as contemplated by the Sarbanes-Oxley Act. Under the
agreement, (a) the PCAOB has sole discretion to select the firms, audit engagements and potential violations it inspects and investigates
without consultation with, or input from, PRC authorities; (b) procedures are in place for PCAOB inspectors and investigators to view
complete audit work papers with all information included and for the PCAOB to retain information as needed; (c) the PCAOB has direct
access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates; and (d) the
PCAOB shall have the unfettered ability to transfer information to the SEC in accordance with the Sarbanes-Oxley Act, and the SEC can
use the information for all regulatory purposes, including administrative or civil enforcement actions. The PCAOB is required to reassess
its determinations as to whether it is able to carry out inspections and investigations completely and without obstruction by the end
of 2022.
On December 15, 2022,
the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms
headquartered in mainland China and Hong Kong and voted to vacate its previous determinations. However, should PRC authorities obstruct
or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB will consider the need to issue a new determination.
Our auditor, the independent
registered public accounting firm that issues the audit report included elsewhere in this prospectus, as an auditor of companies that
are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which
the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards. Our auditor
is headquartered in San Mateo, California, and is subject to inspection by the PCAOB on a regular basis with the last inspection in October
2019, and our auditor is not subject to the determinations announced by the PCAOB on December 16, 2021. Despite that we have a U.S. based
auditor that is registered with the PCAOB and subject to PCAOB inspection, there are still risks to the company and investors if it is
later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority
in a foreign jurisdiction. Such risks include but not limited to that trading in our securities may be prohibited under the Holding Foreign
Companies Accountable Act and as a result an exchange may determine to delist our securities.
These recent developments
would add uncertainties to our offering and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and
more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures,
adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial
statements. It remains unclear what the SEC’s implementation process related to the March 2021 interim final amendments will entail
or what further actions the SEC, the PCAOB or Nasdaq will take to address these issues and what impact those actions will have on U.S.
companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange (including a national securities
exchange or over-the-counter stock market). In addition, the March 2021 interim final amendments and any additional actions, proceedings,
or new rules resulting from these efforts to increase U.S. regulatory access to audit information could create some uncertainty for investors,
the market price of our common stock could be adversely affected, trading in our securities may be prohibited and we could be delisted
if we and our auditor are unable to meet the PCAOB inspection requirement or being required to engage a new audit firm, which would require
significant expense and management time.
The M&A Rules
and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which
could make it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers
and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006
and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements
that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some
instances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC
domestic enterprise. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in
which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction
involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of
a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the Anti-Monopoly Law promulgated by the SCNPC
effective in 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds (i.e.,
during the previous fiscal year, (i) the total global turnover of all operators participating in the transaction exceeds RMB10 billion
and at least two of these operators each had a turnover of more than RMB400 million within China, or (ii) the total turnover within China
of all the operators participating in the concentration exceeded RMB 2 billion, and at least two of these operators each had a turnover
of more than RMB 400 million within China) must be cleared by MOFCOM before they can be completed.
Moreover, the Anti-Monopoly
Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition,
the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign
investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors
may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review
by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through
a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying
with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming,
and any required approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability
to complete such transactions, which could affect our ability to expand our business or maintain our market share.
The approval of
the China Securities Regulatory Commission may be required in connection with this offering, and, if required, we cannot predict whether
we will be able to obtain such approval.
The Regulations on Mergers
and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies requires an
overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies
or individuals to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of
such special purpose vehicle’s securities on an overseas stock exchange.
Our PRC counsel, Grandall
Law Firm, has advised us based on their understanding of the current PRC laws, rules and regulations that the CSRC’s approval is
not required for the listing and trading of our common stock on Nasdaq in the context of this offering, given that: (i) our PRC subsidiary
was incorporated as a wholly foreign-owned enterprise by means of direct investment rather than by merger or acquisition of equity interest
or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules that are our beneficial
owners; (ii) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this
prospectus are subject to the M&A Rules; and (iii) no provision in the M&A Rules clearly classifies contractual arrangements
as a type of transaction subject to the M&A Rules.
However, our PRC counsel,
Grandall Law Firm, has further advised us that there remains some uncertainties as to how the M&A Rules will be interpreted or implemented
in the context of an overseas offering and its opinions summarized above are subject to any new laws, rules and regulations or detailed
implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies,
including the CSRC, would reach the same conclusion as we do. If it is determined that CSRC approval is required for this offering, we
may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek CSRC approval for this offering. These sanctions
may include fines and penalties on our operations in the PRC, limitations on our operating privileges in the PRC, delays in or restrictions
on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of
dividends by our PRC subsidiary, or other actions that could have a material and adverse effect on our business, financial condition,
results of operations, reputation and prospects, as well as the trading price of our common stock. Furthermore, the CSRC or other PRC
regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and
delivery of the common stock that we are offering. Consequently, if you engage in market trading or other activities in anticipation
of and prior to the settlement and delivery of the common stock we are offering, you would be doing so at the risk that the settlement
and delivery may not occur.
Risks
Relating to Our Business and Industry
Our fertilizer
business is seasonal and affected by factors beyond our control, which may cause our sales and operating results to fluctuate significantly.
The
sale of products from our fertilizer-related segments is partially dependent upon planting and growing seasons, which vary from year
to year, and are expected to result in both seasonal patterns and substantial fluctuations in quarterly sales and profitability. Different
from the traditional organic fertilizer that mostly be only used as starter fertilizer, our products can be used as both the starter
fertilizer and regular fertilizer, which can be applied during all the periods through the crops’ growth. Weather conditions and
natural disasters, such as heavy rains, hail, floods, freezing conditions, windstorms or fire, also affect decisions by our distributors,
direct customers and end users about the types and amounts of products to use and the timing of harvesting and planting. As we increase
our sales in our current markets and expand into new markets in different geographies, it is possible that we may experience different
seasonality patterns in our business.
Disruptions
may lead to delays in harvesting or planting by growers which can result in pushing orders to a future quarter, which could negatively
affect results for the quarter in question and cause fluctuations in our operating results. Seasonal variations may be especially pronounced
because our product lines are mainly sold in China. Planting and growing seasons, climatic conditions and other variables on which sales
of our products are dependent vary from year to year and quarter to quarter. As a result, we may experience substantial fluctuations
in quarterly sales.
The
overall level of seasonality in our business is difficult to evaluate as a result of our relatively early stage of development, our limited
number of commercialized products, our expansion into new geographical territories, the introduction of new products and the timing of
introductions of new products. Even though we have implemented safety measures, the Company had insufficient inventory in April, May,
October and November. It is possible that our business may be more seasonal or experience seasonality in different periods than anticipated.
Other factors may also contribute to the unpredictability of our operating results, including the size and timing of significant distributor
transactions, the delay or deferral of use of our commercial technology or products and the fiscal or quarterly budget cycles of our
direct customers, distributors, licensees and end users. Customers may purchase large quantities of our products in a particular quarter
to store and use over long periods of time or time their purchases to manage their inventories, which may cause significant fluctuations
in our operating results for a particular quarter or year.
Unavoidable
Insufficient Inventory during busy seasons may cause us to lose some portion of our sales.
Traditional
organic fertilizers do have seasonal sales because their use can only be applied as starter fertilizers before the crops are planted.
Our organic fertilizers can be used as a starter fertilizer or as regular fertilizers which can be applied during the entire growing
period of the crops to supplement the nutrients needed for growth. The Company’s inventory during the peak seasons (such as April
to May, and October to November) is insufficient. The Company’s fertilizer production capacity has been upgraded from the original
50,000 tons to 70,000 tons, however, and the seasonal inventory supply gap is still unavoidable. The inevitable inventory shortage may
cause us to lose some portion of our sales.
Competition
in fertilizer and agricultural industrial products is intense and requires continuous technological development.
We
currently face significant direct and indirect competition in the markets in which we operate. The markets for fertilizers are intensely
competitive and rapidly changing. Many companies engage in the development of fertilizers, and speed in commercializing a new product
can be a significant competitive advantage.
In
most segments of the fertilizer markets, the number of products available to end customers is steadily increasing as new products are
introduced. We may be unable to compete successfully against our current and future competitors, which may result in price reductions,
reduced margins and the inability to achieve market acceptance for products containing our seed traits and technology. In addition, many
of our competitors have substantially greater financial, marketing, sales, distribution and technical resources than us, and some of
our competitors have more experience in R&D, regulatory matters, manufacturing and marketing. We anticipate increased competition
in the future as new companies enter the market and new technologies become available. Programs to improve genetics and crop protection
chemicals are generally concentrated within a relatively small number of large companies, while non-genetic approaches are underway with
a broader set of companies. Mergers and acquisitions in the plant science, specialty food ingredient and agricultural biotechnology seed
and chemical industries may result in even more resources being concentrated among a smaller number of our competitors.
Our
technology may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more
of our competitors, which will prevent or limit our ability to generate revenues from the commercialization of our seed traits and technology.
At the same time, the expiration of patents covering existing products reduces the barriers to entry for competitors. Our ability to
compete effectively and to achieve commercial success depends, in part, on our ability to control manufacturing and marketing costs;
effectively price and market our products, successfully develop an effective marketing program and an efficient supply chain, develop
new products with properties attractive to food manufacturers or growers and commercialize our products quickly without incurring major
regulatory costs. We may not be successful in achieving these factors and any such failure may adversely affect our business, results
of operations and financial condition.
We may not be successful in developing
marketable or commercial technologies.
Through our patented technology,
we process crop straw in three hours (including corn, rice, wheat, cotton, and other crops) into high quality organic nutritious fertilizer
rich in small molecules, easily absorbed by crops. Our success depends in part on our ability to identify and develop high value fertilizer
and agriculture industrial technologies for use in commercial products. Through our technology sourcing and product development collaborations
we commit substantial efforts and other resources to accomplish this. It may take several years, if at all, before many of our products
complete the development process and become available for production and commercialization.
As of the date of this registration
statement, many of our products have been commercialized by our patented technology. There can be no assurance that our future fertilizer
productivity and agriculture industrial technologies will be viable for commercial use, or that we will be able to generate revenues
from those technologies, in a significant manner or at all. If seeds or other products that utilize our fertilizer or technology are
unsuccessful in achieving their desired effect or otherwise fail to be commercialized, we will not receive revenues from our customers
or royalty payments from the commercialization of the fertilizer and technologies we develop, which could materially and adversely affect
our business, financial condition, results of operations and growth strategy.
Fertilizers containing the
following traits or biological treatments that we develop may be unsuccessful or fail to achieve commercialization for any of the following
reasons:
| |
● |
our fertilizers may not
be successfully validated in the target crops; |
| |
● |
our fertilizers may not
have the desired effect on the relevant crop sought by our end market; |
| |
● |
We, our joint ventures
or collaborators may be unable to obtain the requisite regulatory approvals for the fertilizers; |
| |
● |
our competitors may launch
competing or more effective fertilizers; |
| |
● |
we may be unable to patent
and/or obtain breeders’ rights or any other intellectual property rights on our traits and technologies in the necessary jurisdictions; |
| |
● |
even if we obtain patent
and/or breeders’ rights or any other intellectual property rights on our fertilizers or processing technologies, such rights
may be later challenged by competitors or other parties; and |
| |
● |
even if we obtain patent
and/or breeders’ rights or any other intellectual property rights on our fertilizers, competitors may design competing products
that do not infringe these intellectual property rights. |
If we are unable to compete successfully
with our competitors, our financial condition and results of operations may be harmed.
We encounter intense competition
in each of our business segments on a national, regional and local level. Competition in the industry is primarily based on quality of
services, brand name recognition, geographic coverage and range of services. New and existing competitors may offer competitive rates,
greater convenience or superior services, which could attract customers away from us, resulting in lower revenues for our operations.
Competition among fertilizer companies may cause a decrease in price of sales to attract or retain talented employees.
Our major competitors are
Shijiazhuang Xixing Fertilizer Science and Technology Limited, Nanjing Ningliang Bio-chemistry Engineering Limited, Shijiazhuang Jintaiyang
Biology Organic Fertilizer Limited, Beijing Wotu Tiandi Biological Science Limited, Zhenzhou Yongfeng Biology Fertilizer Limited, Shandong
Jianong Biological Engineering Limited, Beijing Aeronautics Hengfeng Technology Limited, Beijing Century Armstrong Biological Technology
Limited, GengLiduo Biological Technology Limited.
We do not have multinational
competitors. Due to the high price of organic fertilizers from other countries, China has few organic fertilizer imports. The fertilizers
produced by international fertilizer companies entering the Chinese organic fertilizer market are mainly special functional fertilizers
such as foliar fertilizers. These functional fertilizers are not selling well in the domestic market due to high price.
Some of our competitors may
have a broader national presence than us, a more established branding recognition than us in major markets and more financial or other
resources than us. Others may have smaller aggregate businesses than us but may be more established and have greater market presence
and brand name recognition on a local or regional basis. We are also subject to competition from other large national and international
companies. These companies may have more financial or other resources than us. If we fail to compete effectively, our business operations
and financial condition will suffer.
The loss of any of our key suppliers and/or
customers could have a materially adverse effect on our results of operations.
We consider our major
suppliers in each period to be those suppliers that accounted for more than 10% of overall purchases in such period. For the years ended
December 31, 2021 and 2020, 77% and 45% of our supplies came from five and two key suppliers, respectively. For the nine months ended
September 30, 2022 and 2021, 94% and 60% of our supplies came from four key suppliers respectively. Although we believe that we can locate
replacement suppliers readily on the market for prevailing prices and that we may not have significant difficulty replacing a given supplier,
any difficulty in replacing such a supplier could adversely affect our company’s performance to the extent it results in higher
prices, slower supply chain and ultimately less desirable results of operations.
In addition, for the years
ended December 31, 2021 and 2020, two key customers accounted for 71% and 78% of our revenues, respectively. For the nine months ended
September 30, 2022 and 2021, two key customers accounted for 81% and 63% of our revenues respectively. As the majority of our revenues
are driven by individual orders for organic fertilizers, there can be no assurance that we will maintain or improve the relationships
with customers who do not have long-term contracts with us. Our major customers often change each period based on when a given order
is placed. If we cannot maintain long-term relationships with major customers or replace major customers from period to period with equivalent
customers, the loss of such sales could have an adverse effect on our business, financial condition and results of operations.
We have engaged in transactions with related parties, and
such transactions present possible conflicts of interest that could have an adverse effect on our business and results of operations.
We have entered into a
number of transactions with related parties, including our shareholders, directors and executive officers. For example, for
fiscal year ended December 31, 2021, we borrowed $4,909,854, $11,663, and $18,605, respectively, from Mr. Lirong Wang, Mr. Guohua Lin,
and Ms. Xueying Sheng, related parties of the Company. And for the nine months ended September 30, 2022, we borrowed $1,260,651, $0 and
$2,565 respectively, from Mr. Lirong Wang, Mr. Guohua Lin, and Ms. Xueying Sheng. See “Related Party Transactions”
on page 105. We may in the future enter into additional transactions with entities in which members of our board of directors and other
related parties hold ownership interests.
Transactions with the entities
in which related parties hold ownership interests present potential for conflicts of interest, as the interests of these entities and
their shareholders may not align with the interests of the Company and our unaffiliated shareholders with respect to the negotiation
of, and certain other matters related to, our purchases from and other transactions with such entities. Conflicts of interest may also
arise in connection with the exercise of contractual remedies under these transactions, such as the treatment of events of default.
Currently, our Board of Directors
has authorized the Audit Committee upon its formation to review and approve all material related party transaction. We rely on the laws
of the State of Nevada, which provide that directors owe a duty of care and a duty of loyalty to our company. Nevertheless, we may have
achieved more favorable terms if such transactions had not been entered into with related parties and these transactions, individually
or in the aggregate, may have an adverse effect on our business and results of operations or may result in government enforcement actions
or other litigation.
Our product development cycle is lengthy
and uncertain and we may never generate revenues or earn revenues on the sale of our products currently in development.
The research and development
in the crop productivity and agriculture biotech industries is expensive, complex, prolonged and uncertain. We may spend many years and
dedicate significant financial and other resources developing products that may never generate revenues or come to market. Our process
of developing and commercializing technologies involves several phases and can take several years from discovery to commercialization
of a product.
Development of new or improved agricultural products involves risks of failure inherent
in the development of products based on innovative and complex technologies. These risks include the possibility that:
| |
● |
our products will fail to perform as expected in the field; |
| |
● |
our products will not receive necessary regulatory permits and governmental clearances in the markets in which we intend to sell them; |
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our products may have adverse effects on consumers; |
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● |
consumer preferences, which are unpredictable and can vary greatly, may change quickly, making our products no longer desirable; |
| |
● |
our competitors develop new products that have other more appealing characteristics than our products; |
| |
● |
our products will be viewed
as too expensive by food companies or growers as compared to competitive products; |
| |
● |
our products will be difficult
to produce on a large scale or will not be economical to grow; |
| |
● |
intellectual property and
other proprietary rights of third parties will prevent us, our research and development partners or our licensees from marketing
and selling our products; |
| |
● |
we may be unable to patent
or otherwise obtain intellectual property protection for our discoveries in the necessary jurisdictions; |
| |
● |
we or the customers that
we sell our products to may be unable to fully develop or commercialize our products in a timely manner or at all; and |
| |
● |
third parties may develop
superior or equivalent products. |
We intend to continue to
invest in research and development including additional and expanded field testing to validate potential products in real world conditions.
Because of the long product development cycle and the complexities and uncertainties associated with biotech and agricultural industrial
technologies, there can be no assurance that we will ever generate significant revenues from the technologies or products that we are
currently developing without significant delay, without the incurrence of unanticipated costs or at all.
We depend on our key personnel and research
employees, and we may be adversely affected if we are unable to attract and retain qualified scientific and business personnel.
Our business is dependent
on our ability to recruit and maintain highly skilled and qualified individuals through direct employment or collaboration arrangements,
with expertise in a range of disciplines, including biology, chemistry, plant genetics, agronomics, mathematics programming and other
subjects relevant to our business. Our ability to recruit such a work force depends in part on our ability to maintain our market leadership
in agricultural biotech industry in China. Maintaining our ability to attract highly-skilled workers and leading scientific institutions
depends in part on our ability to maintain a strong technology platform and state-of-the-art facilities, as well as our ability to consistently
and successfully commercialize our technology. There can be no assurance that we will be able to maintain leading scientific capabilities
or continue to successfully maintain advanced technology in the market.
We do not enter into non-compete agreements
with our employees, and therefore we may be unable to prevent our competitors from benefiting from the expertise of our former employees.
We do not enter into non-compete
agreements with our employees, which prevents us from limiting our key employees from joining our competitors or competing directly against
us. As a result, we may be unable to prevent our competitors from benefiting from the expertise of such employees. Direct competition
by a former employee could materially adversely affect our business, results of operations and ability to capitalize on our proprietary
information.
We have a limited operating history in
our market, which makes it difficult to evaluate our future prospects.
We started engaging in our
business in the last few years and have limited revenues to date. As our business develops or responds to competition, we may continue
to introduce new products and services or make adjustments to our existing offerings and business model. In connection with the introduction
of new products or in response to general economic conditions, we may impose more stringent borrower qualifications to ensure the quality
of loans facilitated by our companies, which may negatively affect the growth of our business. Any significant change to our business
model may not achieve expected results and may have a material and adverse impact on our financial conditions and results of operations.
It is therefore difficult to effectively assess our future prospects. The risks and challenges we encounter or may encounter in this
developing and rapidly evolving market may have impacts on our business and prospects. These risks and challenges include our ability
to, among other things:
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● |
navigate an evolving regulatory
environment; |
| |
● |
expand the base of borrowers
and lenders; |
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● |
broaden our loan product
offerings; |
| |
● |
enhance our risk management
capabilities; |
| |
● |
improve our operational
efficiency; |
| |
● |
cultivate a vibrant consumer
finance ecosystem; |
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● |
maintain the security of
our IT infrastructure and the confidentiality of the information provided and utilized across our platform; |
| |
● |
attract, retain and motivate
talented employees; and |
| |
● |
defend ourselves against
litigation, regulatory, intellectual property, privacy or other claims. |
If we fail to educate potential
borrowers and lenders about the value of our services, if the market for our services does not develop as we expect, or if we fail to
address the needs of our target market, or other risks and challenges, our business and results of operations will be harmed.
The loss of any of our key customers could
reduce our revenues and our profitability.
For the years ended December
31, 2021 and 2020, revenue from two customers represented 71% and 78% of our revenue, respectively. For the nine months ended September
30, 2022 and 2021, revenue from two customers represented 81% and 63% of our revenue, respectively. As the majority of our revenues are
driven by individual orders for fertilizer products, there can be no assurance that we will maintain or improve the relationships with
customers who do not have long-term contracts with us. Our major customers often change each period based on when a given order is placed.
If we cannot maintain long-term relationships with major customers or replace major customers from period to period with equivalent customers,
the loss of such sales could have an adverse effect on our business, financial condition and results of operations.
Any failure of any of our key suppliers
to deliver necessary materials could result in delays in our products development or marketing schedules.
For the years ended December
31, 2021 and 2020, five and two suppliers accounted for 77% and 45% of our purchases, respectively. For the nine months ended September
30, 2022, four suppliers accounted for 96% of our purchases, respectively. We are dependent on our suppliers for our products. Our suppliers
may fail to meet timelines or contractual obligations or provide us with sufficient products, which may adversely affect our business.
Certain of our contracts with key suppliers can be terminated by the supplier upon giving notice within a certain period and restrict
us from using other suppliers. Failure to appropriately structure or adequately manage our agreements with third parties may adversely
affect our supply of products. We are also subject to credit risk with respect to our third-party suppliers. If any such suppliers become
insolvent, an appointed trustee could potentially ignore the service contracts we have in place with such party, resulting in increased
charges or the termination of the service contracts. We may not be able to replace a service provider within a reasonable period of time,
on as favorable terms or without disruption to our operations. Any adverse changes to our relationships with third-party suppliers could
have a material adverse effect on our image, brand and reputation, as well as on our business, financial condition and results of operations.
In
addition, to the extent that our creditworthiness might be impaired, or general economic conditions decline, certain of our key suppliers
may demand onerous payment terms that could materially adversely affect our working capital position, or such suppliers may refuse to
continue to supply to us. A number of our key suppliers have taken out trade credit insurance on our ability to pay them. To the extent
that such trade credit insurance becomes unobtainable or more expensive due to market conditions, we may face adverse changes to payment
terms by our key suppliers, or they may refuse to continue to supply us.
We may have difficulty managing the risk
associated with doing business in the Chinese fertilizer and agricultural products industry.
In general, the fertilizer
and agricultural products industry in China is affected by a series of factors, including, but not limited to, natural, economic and
social such as climate, market, technology, regulation, and globalization, which makes risk management difficult. Fertilizer and agricultural
products operations in China face similar risks as present in other countries, however, in the PRC these can either be mitigated or exacerbated
due to governmental intervention through policy promulgation and implementation either in the fertilizer and agricultural products or
sectors which provide critical inputs to fertilizer and agricultural products such as energy or outputs such as transportation. While
not an exhaustive list, the following factors could significantly affect our ability to do business:
| ● | food,
feed, and energy demand; |
| ● | agricultural,
financial, energy and renewable energy and trade policies; |
| ● | input
and output pricing due to market factors and regulatory policies; |
| ● | production
and crop progress due to adverse weather conditions, equipment deliveries, and water and
irrigation conditions; and |
| ● | infrastructure
conditions and policies. |
Currently, we do not hold
and do not intend to purchase insurance policies to protect revenue in the case that the above conditions cause losses of revenue.
If we do not compete effectively, our results
of operations could be harmed.
Our industry in China is
intensely competitive and evolving. Our competitors operate with different business models, have different cost structures or participate
selectively in different market segments. They may ultimately prove more successful or more adaptable to new regulatory, technological
and other developments. Some of our current and potential competitors have significantly more financial, technical, marketing and other
resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their services. Our
competitors may also have longer operating histories, more extensive borrower or lender bases, greater brand recognition and brand loyalty
and broader partner relationships than us. Additionally, a current or potential competitor may acquire one or more of our existing competitors
or form a strategic alliance with one or more of our competitors. If we are unable to compete with such companies and meet the need for
innovation in our industry, the demand for our services could stagnate or substantially decline, we could experience reduced revenues
or our services could fail to achieve or maintain more widespread market acceptance, any of which could harm our business and results
of operations.
If we fail to promote and maintain our
brand in an effective and cost-efficient way, our business and results of operations may be harmed.
The continued development
and success of our business relies on the recognition of our brands. We believe that developing and maintaining awareness of our brand
effectively is critical to attracting new and retaining existing borrowers and lenders to our services. Successful promotion of our brand
and our ability to attract qualified borrowers and sufficient lenders depend largely on the effectiveness of our marketing efforts and
the success of the channels we use to promote our services. Our efforts to build our brand have caused us to incur significant expenses,
and it is likely that our future marketing efforts will require us to incur significant additional expenses. These efforts may not result
in increased revenues in the immediate future or at all and, even if they do, any increases in revenues may not offset the expenses incurred.
If we fail to successfully promote and maintain our brand while incurring substantial expenses, our results of operations and financial
condition would be adversely affected, which may impair our ability to grow our business.
If we fail to develop and maintain an effective
system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.
Our independent registered
public accounting firm has not conducted an audit of our internal control over financial reporting. We also have a history of not filing
our periodic reports on time due to uncontrollable reasons. As defined in the standards established by the Public Company Accounting
Oversight Board of the United States, or PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely basis.
One material weakness that
has been identified related to our lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S.
GAAP and SEC reporting requirements to properly address complex U.S. GAAP accounting issues and to prepare and review our consolidated
financial statements and related disclosures to fulfil U.S. GAAP and SEC financial reporting requirements. The other material weakness
that has been identified related to our lack of comprehensive accounting policies and procedures manual in accordance with U.S. GAAP.
We have implemented a number
of measures to address the material weaknesses that have been identified in connection with the audits of our consolidated financial
statements as of and for the two years ended December 31, 2021 and 2020. However, there is no assurance that we will not have any material
weakness in the future. Failure to discover and address any control deficiencies could result in inaccuracies in our financial statements
and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover,
ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud. Ineffective internal control
over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting
from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate
our financial statements from prior periods.
Failure to maintain effective internal
controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating
results.
If we fail to comply with
the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting or to remedy any material
weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements,
cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common
shares.
Pursuant to Section 404 of
the Sarbanes-Oxley Act and current SEC regulations, we are required to prepare assessments regarding internal controls over financial
reporting. In connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover
“material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight
Board, or the PCAOB. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more
than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
The PCAOB defines “significant deficiency” as a deficiency that results in more than a remote likelihood that a misstatement
of the financial statements that is more than inconsequential will not be prevented or detected. We determined that our disclosure controls
and procedures over financial reporting are not effective and were not effective as of December 31, 2021.
The process of designing
and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business
and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate
to satisfy our reporting obligations as a public company. We cannot assure you that we will implement and maintain adequate controls
over our financial process and reporting in the future or that the measures we will take will remediate any material weaknesses that
we may identify in the future.
Our business depends on the continued efforts
of our senior management. If one or more of our key executives were unable or unwilling to continue in their present positions, our business
may be severely disrupted.
Our business operations depend
on the continued services of our senior management, particularly the executive officers named in this prospectus. While we have provided
different incentives to our management, we cannot assure you that we can continue to retain their services. We currently do not carry
a “key man” life insurance on the officers. Therefore, if one or more of our key executives are unable or unwilling to continue
in their present positions, we may incur substantial cost or may not be able to replace them at all. Consequently, our future growth
may be constrained, our business may be severely disrupted, and our financial condition and results of operations may be materially and
adversely affected. If that is the case, we may incur additional expenses to recruit, train and retain qualified personnel. In addition,
although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that any member
of our management team will not join our competitors or form a competing business. If any dispute arises between our current or former
officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable
to enforce them at all.
Competition for employees is intense, and
we may not be able to attract and retain the qualified and skilled employees needed to support our business.
We believe our success depends
on the efforts and talent of our employees, including risk management, software engineering, financial and marketing personnel. Our future
success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for highly
skilled technical, risk management and financial personnel is extremely intense. We may not be able to hire and retain these personnel
at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for
experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
In addition, we invest significant
time and expenses in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain
our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our services and our
ability to serve borrowers and lenders could diminish, resulting in a material adverse effect to our business.
Increases in labor costs in the PRC may
adversely affect our business and results of operations.
The economy in China has
experienced increases in inflation and labor costs in recent years. As a result, average wages in the PRC are expected to continue to
increase. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pension, housing
fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies
for the benefit of our employees. The relevant government agencies may examine whether an employer has made adequate payments to the
statutory employee benefits, and those employers who fail to make adequate payments may be subject to late payment fees, fines and/or
other penalties. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able
to control our labor costs or pass on these increased labor costs to our users by increasing the fees of our services, our financial
condition and results of operations may be adversely affected.
We do not have any business insurance coverage.
Insurance companies in China
currently do not offer as extensive of an array of insurance products as insurance companies in more developed economies do. Currently,
we do not have any business liability or disruption insurance to cover our operations. We have determined that the costs of insuring
for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for
us to have such insurance. Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources,
which could have an adverse effect on our results of operations and financial condition.
We face Risks Relating to natural disasters,
health epidemics and other outbreaks, which could significantly disrupt our operations.
We are vulnerable to natural
disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots,
terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures, technology service failures or
internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware, as well as adversely affect
our ability to provide products and services on our service.
Our business could also be
adversely affected by the effects of virus, flu and other diseases. Our business operations could be disrupted if any of our employees
is suspected of having virus, flu and other diseases, since it could require our employees to be quarantined and/or our offices to be
disinfected. In addition, our results of operations could be adversely affected to the extent that any of these epidemics harms the Chinese
economy in general.
We may be subject to the general risks
underlying the agriculture industry in PRC market.
The agriculture industry
in the PRC market has been mature. Particularly, we are principally engaged in the fertilizer processing and distribution business in
the People’s Republic of China. Therefore, we need to be cautious in selecting our business focus and expansion strategy, and we
should be constantly aware of the innovation risk, technology risk and market risk in the industries. If we fail to make an accurate
judgment of the current market, our performance can be severely impacted.
We may be adversely affected by global
economic conditions.
Our ability to continue to
develop and grow our business, build proprietary distribution channels and generate revenues from product sales and royalty payments
may be adversely affected by global economic conditions in the future, including instability in credit markets, declining consumer and
business confidence, fluctuating commodity prices and interest rates, volatile exchange rates and other challenges that could affect
the global economy such as the changing financial regulatory environment. For example, our customers and licensees may experience deterioration
of their businesses, cash flow shortages or difficulties obtaining financing, which could adversely affect the demand for our technologies,
products and services. In addition, our earnings may be adversely affected by fluctuations in the price of certain commodities, such
as grains, milk, meat, biofuels and biomaterials. If commodity prices are negatively impacted, the value of our products could be directly
and negatively impacted. Additionally, growers’ incomes have historically been negatively affected by commodity prices. As a result,
fluctuations in commodity prices could have an impact on growers’ purchasing decisions and negatively affect their ability and
decisions to purchase our seeds or products that incorporate our proprietary technology. We cannot anticipate all of the ways in which
the current economic climate and financial market conditions could adversely impact our business.
Changes in laws and regulations
to which we are subject, or to which we may become subject in the future, may materially increase our costs of operation, decrease our
operating revenues and disrupt our business.
Laws and regulatory standards
and procedures that impact our business are continuously changing. Responding to these changes and meeting existing and new requirements
may be costly and burdensome. Changes in laws and regulations may occur that could:
| |
● |
impair or eliminate our
ability to source technology and develop our products, including validating our products through field trials and passing biosafety
evaluations; |
| |
● |
increase our compliance
and other costs of doing business through increases in the cost to protect our intellectual property, including know-how, trade secrets
and regulatory data, or increases in the cost to obtain the necessary regulatory approvals to commercialize and market the products
we develop directly or jointly; |
| |
● |
require significant product
redesign or redevelopment; |
| |
● |
render our seed traits
and technology and products that incorporate them less profitable or less attractive compared to competing products; |
| |
● |
reduce the amount of revenues
we receive from government grants, licenses or other royalties; and |
| |
● |
discourage us and other
collaborators from offering, and end markets from purchasing, products that incorporate our seed traits and technology. |
Any of these events could
have a material adverse effect on our business, results of operations and financial condition. Legislation and jurisprudence on intellectual
property in the key markets where we seek protection, primarily in China, is evolving and changes in laws could affect our ability to
obtain or maintain intellectual property protection for our products. Any changes to these existing laws and regulations may materially
increase our costs, decrease our revenues and disrupt our business.
The overall agricultural industry is susceptible
to commodity price changes and we, along with our food manufacturing customers and grower customers, are exposed to market risks from
changes in commodity prices.
Changes in the prices of
certain commodity products could result in higher overall cost along the agricultural supply chain, which may negatively affect our ability
to commercialize our products We will be susceptible to changes in costs in the agricultural industry as a result of factors beyond our
control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, product recalls
and government regulations. As a result, we may not be able to anticipate or react to changing costs by adjusting our practices, which
could cause our operating results to deteriorate.
Our operations are subject to various health
and environmental risks associated with our use, handling and disposal of potentially toxic materials.
We are subject to numerous
federal, state, local and foreign environmental, health and safety laws and regulations, including those governing laboratory procedures,
the handling, use, storage, treatment, manufacture and disposal of wastes, discharge of pollutants into the environment and human health
and safety matters.
Although there are no hazardous
substances in the raw materials used by us that will affect and damage the company’s employees, factory, other property and the
environment. The safety of raw materials is also one of the requirements when applying for the fertilizer registration certificate. We
cannot completely eliminate the risk of contamination or discharge and any resultant injury from these materials. If these risks were
to materialize, we could be subject to fines, liability, reputational harm or otherwise adverse effects on our business. We may be sued
for any injury or contamination that results from our use or the use by third parties of these materials, or may otherwise be required
to remedy the contamination, and our liability may exceed any insurance coverage and our total assets. Furthermore, compliance with environmental,
health and safety laws and regulations may be expensive and may impair our Research & Development efforts. If we fail to comply with
these requirements, we could incur substantial costs and liabilities, including civil or criminal fines and penalties, clean-up costs
or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance. In addition, we cannot
predict the impact on our business of new or amended environmental, health and safety laws or regulations or any changes in the way existing
and future laws and regulations are interpreted and enforced. These current or future laws and regulations may impair our research, development
or production efforts.
Failure to maintain or enhance our brands
or image could have a material and adverse effect on our business and results of operations.
We believe our brands are
associated with a well-recognized, integrated fertilizers company in the local markets that it operates, with consistent high-quality
products end customers in China. Our brands are integral to our sales and marketing efforts. Our continued success in maintaining and
enhancing our brand and image depends to a large extent on our ability to satisfy customer needs by further developing and maintaining
quality of services across our operations, as well as our ability to respond to competitive pressures. If we are unable to satisfy customer
needs or if our public image or reputation were otherwise diminished, our business transactions with our customers may decline, which
could in turn adversely affect our results of operations.
Any failure to protect our trademarks and
other intellectual property rights could have a negative impact on our business.
We believe our intellectual
property rights are critical to our success. Any unauthorized use of our intellectual property rights could harm our competitive advantages
and business. Implementation of Chinese intellectual property-related laws have historically been lacking, primarily because of ambiguities
in Chinese laws and enforcement difficulties. Accordingly, intellectual property rights and confidentiality protections in China may
not be as effective as in the United States or other western countries. Furthermore, policing unauthorized use of proprietary technology
is difficult and expensive, and we may need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability,
scope and validity of our proprietary rights or those of others. Such litigation and an adverse determination in any such litigation,
if any, could result in substantial costs and diversion of resources and management attention, which could harm our business and competitive
position. If we are unable to adequately protect our brand, trademarks and other intellectual property rights, we may lose these rights
and our business may suffer materially.
Our outstanding long-term loan and other
financing arrangement payable may adversely affect our available cash flow and our ability to operate our business.
As of September 30, 2022
and December 31, 2021, our long-term loan payable balances were $48,998 and $283, 860 respectively. We also have advances from related
parties (Mr. Lirong Wang, Ms. Xueying Sheng and Mr. Guohua Lin) for working capital of the Company which are due on demand, non-interest
bearing, and unsecured. For further information, see “Related Party Transactions” on page 105.
Our outstanding and future
loans, combined with our other financial obligations and contractual commitments, could have negative consequences on our business and
financial condition. We believe that our cash, cash equivalents on hand will be sufficient to meet our current and anticipated needs
for general corporate purposes for at least the next 12 months. However, we need to make continued investment for our expansion in facilities
and to retain talents to remain competitive. There can be no assurance that we will be able to raise additional capital on terms favorable
to us, or at all, if and when required, especially if we experience disappointing operating results. If adequate capital is not available
to us as required, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our facilities
or respond to competitive pressures could be significantly limited.
Increases in labor costs in the PRC may
adversely affect our business and our profitability.
China’s economy has
experienced increases in labor costs in recent years. China’s overall economy and the average wage in China is expected to continue
to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages
and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our customers by increasing
prices for our products or services, our profitability and results of operations may be materially and adversely affected.
In addition, we have been
subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory
employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing
insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract
Law, that became effective in January 2008 and its implementing rules that became effective in September 2008 and its amendments that
became effective in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying
remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide
to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation
rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business
and results of operations. Besides, pursuant to the Labor Contract Law and its amendments, dispatched employees are intended to be a
supplementary form of employment and the fundamental form should be direct employment by enterprises and organizations that require employees.
Further, it is expressly stated in the Interim Provisions on Labor Dispatch that became effective on March 1, 2014 that the number of
seconded employees an employer uses may not exceed 10% of its total labor force and the employer has a two-year transition period to
comply with such requirement. The VIE and its consolidated subsidiaries and consolidated branch offices used seconded employees for their
principal business activities. The transition period ended on February 29, 2016, and those PRC subsidiaries have taken steps to decrease
the number of seconded employees. If the relevant PRC subsidiaries are deemed to have violated the limitation on the use of seconded
employees under the relevant labor laws and regulations, we may be subject to fines and incur other costs to make required changes to
our current employment practices.
As the interpretation and
implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice does not and
will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If
we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees
and our business, and our financial condition and results of operations could be materially and adversely affected.
We may be liable for improper use or
appropriation of personal information provided by our customers.
We may become subject to
a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. These laws and regulations
are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain
and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous laws and regulations regarding privacy
and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data. Such laws and regulations
often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.
We expect to obtain information
about various aspects of our operations as well as regarding our employees and third parties. We also maintain information about various
aspects of our operations as well as regarding our employees. The integrity and protection of our customer, employee and company data
is critical to our business. Our customers and employees expect that we will adequately protect their personal information. We are required
by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to
safeguard such information.
The PRC Criminal Law, as
amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions,
companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained during the
course of performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016,
the Standing Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which
became effective on June 1, 2017.
Pursuant to the Cyber Security
Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’
personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products
and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws
and regulations.
The Civil Code of the PRC
(issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for
privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration
of China, MIIT, and the Ministry of Public Security have been increasingly focused on regulation in the areas of data security and data
protection.
The PRC regulatory requirements
regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration
of China, the Ministry of Public Security and the SAMR, have enforced data privacy and protection laws and regulations with varying and
evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into
effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a
cybersecurity review when purchasing network products and services which do or may affect national security.
In November 2016, the Standing
Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became
effective in June 2017. The CSL is the first PRC law that systematically lays out the regulatory requirements on cybersecurity and data
protection, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny. The legal consequences
of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for
rectification, shutting down the websites, and revocation of business license or relevant permits. In April 2020, the Cyberspace Administration
of China and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective in June 2020.
Pursuant to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when
purchasing network products and services which do or may affect national security. On July 10, 2021, the Cyberspace Administration of
China issued a revised draft of the Measures for Cybersecurity Review for public comments (“Draft Measures”), which required
that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data
processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated
the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the
risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited
the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information
being affected, controlled, or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has
said that under the proposed rules companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when
seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and
maliciously exploited by foreign governments,” The cybersecurity review will also investigate the potential national security risks
from overseas IPOs. We do not know what regulations will be adopted or how such regulations will affect us and our listing on Nasdaq.
In the event that the Cyberspace Administration of China determines that we are subject to these regulations, we may be required to delist
from Nasdaq and we may be subject to fines and penalties. On June 10, 2021, the Standing Committee of the NPC promulgated the PRC Data
Security Law, which will take effect on September 1, 2021. The Data Security Law also sets forth the data security protection obligations
for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing or other
illegal means, and the collection and use of such data should not exceed the necessary limits The costs of compliance with, and other
burdens imposed by, CSL and any other cybersecurity and related laws may limit the use and adoption of our products and services and
could have an adverse impact on our business. Further, if the enacted version of the Measures for Cybersecurity Review mandates clearance
of cybersecurity review and other specific actions to be completed by companies like us, we face uncertainties as to whether such clearance
can be timely obtained, or at all.
If the new PRC Data Security
Law is enacted in September, we will not be subject to the cybersecurity review by the CAC for this offering, given that: (i) our products
and services are offered not directly to individual users but through our institutional customers; (ii) we do not possess a large amount
of personal information in our business operations; and (iii) data processed in our business does not have a bearing on national security
and thus may not be classified as core or important data by the authorities. However, there remains uncertainty as to how the Draft Measures
will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules,
or detailed implementation and interpretation related to the Draft Measures. If any such new laws, regulations, rules, or implementation
and interpretation comes into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of
such laws on us.
We cannot assure you that
PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that we can fully or timely
comply with such laws. In the event that we are subject to any mandatory cybersecurity review and other specific actions required by
the CAC, we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty,
we may be further required to suspend our relevant business, shut down our website, or face other penalties, which could materially and
adversely affect our business, financial condition, and results of operations.
A severe or prolonged downturn in the global
or Chinese economy could materially and adversely affect our business and our financial condition.
The Chinese economy has slowed
down since 2012 and such slowdown may continue. There is considerable uncertainty over the long-term effects of the expansionary monetary
and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including
the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa, which
have resulted in volatility in oil and other markets, and over the conflicts involving Ukraine and Syria. There have also been concerns
on the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial
disputes. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political
policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese
economy may materially and adversely affect our business, results of operations and financial condition. In addition, continued turbulence
in the international markets may adversely affect our ability to access capital markets to meet liquidity needs.
Risks Relating to Our Corporate Structure
If the PRC government deems that the contractual
arrangements in relation to Shanghai Muliang, the consolidated variable interest entity, do not comply with PRC regulatory restrictions
on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the
future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
The
PRC government regulates telecommunications-related businesses through strict business licensing requirements and other government regulations.
These laws and regulations also include limitations on foreign ownership of PRC companies that engage in telecommunications-related businesses.
Specifically, foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunications service
provider (except for e-commerce, domestic multi-party communication, storage and forwarding classes and call centers) under the Special
Administrative Measures for Access of Foreign Investment (Negative List) (Edition 2020), which was promulgated on June 23, 2020 and implemented
on July 23, 2020, and such major foreign investor in a Foreign-Invested Telecommunications Enterprise must have experience in providing
value-added telecommunications services, or VATS, and maintain a good track record in accordance with the Administrative Provisions on
Foreign-Invested Telecommunications Enterprises (revised in 2016), and other applicable laws and regulations.
Muliang
Viagoo is a holding company incorporated in Nevada. As a holding company with no material operations of our own, we conduct a substantial
majority of our operations through our subsidiary in the People’s Republic of China. Shanghai Mufeng, our subsidiary in China,
derives its economic benefits from Shanghai Muliang, the variable interest entity, and its subsidiaries. We receive the economic benefits
of the VIE’s business operations through certain contractual arrangements. Investors in our common shares offered in this offering
are purchasing shares of the U.S. holding company and not shares of the VIE and its subsidiaries in China that are conducting the business
operations. For a description of the VIE contractual arrangements, see “Corporation History and Structure-Contractual Arrangements”
on page 82.
The VIE contributed 92% and
97% of the Company’s consolidated results of operations and cash flows for the years ended December 31, 2021 and 2020, respectively.
As of December 31, 2021 and 2020, the VIE accounted for 97% and 99% of the consolidated total assets of the Company respectively.
We
rely on and expect to continue to rely on our wholly owned PRC subsidiary’s contractual arrangements with Shanghai Muliang and
its shareholders to operate our business. These contractual arrangements may not be as effective in providing us with control over Shanghai
Muliang as ownership of controlling equity interests would be in providing us with control over, or enabling us to derive economic benefits
from the operations of Shanghai Muliang. Under the current contractual arrangements, as a legal matter, if Shanghai Muliang or any of
its shareholders executing the VIE Agreements fails to perform its, his or her respective obligations under these contractual arrangements,
we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws,
including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For
example, if shareholders of a variable interest entity were to refuse to transfer their equity interests in such variable interest entity
to us or our designated persons when we exercise the purchase option pursuant to these contractual arrangements, we may have to take
a legal action to compel them to fulfill their contractual obligations.
If
(i) the applicable PRC authorities invalidate these contractual arrangements for violation of PRC laws, rules and regulations, (ii) any
variable interest entity or its shareholders terminate the contractual arrangements (iii) any variable interest entity or its shareholders
fail to perform its/his/her obligations under these contractual arrangements, or (iv) if these regulations change or are interpreted
differently in the future, our business operations in China would be materially and adversely affected, and the value of your shares
would substantially decrease or even become worthless. Further, if we fail to renew these contractual arrangements upon their expiration,
we would not be able to continue our business operations unless the then current PRC law allows us to directly operate businesses in
China.
In
addition, if any variable interest entity or all or part of its assets become subject to liens or rights of third-party creditors, we
may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial
condition and results of operations. If any of the variable interest entities undergoes a voluntary or involuntary liquidation proceeding,
its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to
operate our business, which could materially and adversely affect our business and our ability to generate revenues.
All
of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC.
The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties
in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these
contractual arrangements, we may be precluded from operating our business, which would have a material adverse effect on our financial
condition and results of operations.
These
contractual arrangements may not be as effective as direct ownership in providing us with control over the VIE. For example, the VIE
and their shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations
in an acceptable manner or taking other actions that are detrimental to our interests. If we had direct ownership of the VIE, we would
be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIE, which in turn could implement
changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual
arrangements, we rely on the performance by the VIE and their shareholders of their obligations under the contracts to exercise control
over the VIE. The shareholders of our consolidated VIE may not act in the best interests of our company or may not perform their obligations
under these contracts. Such risks exist throughout the period in which we intend to operate certain portions of our business through
the contractual arrangements with the VIE.
If
the VIE or their shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial
costs and expend additional resources to enforce such arrangements. For example, if the shareholders of the VIE refuse to transfer their
equity interest in the VIE to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if
they otherwise act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.
In addition, if any third parties claim any interest in such shareholders’ equity interests in the VIE, our ability to exercise
shareholders’ rights or foreclose the share pledge according to the contractual arrangements may be impaired. If these or other
disputes between the shareholders of the VIE and third parties were to impair our control over the VIE, our ability to consolidate the
financial results of the VIE would be affected, which would in turn result in a material adverse effect on our business, operations and
financial condition.
In
the opinion our PRC legal counsel, each of the contractual arrangements among our WFOE, the VIE and its shareholders governed by PRC
laws are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. However,
our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current
and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may ultimately take a view that is contrary to
the opinion of our PRC legal counsel. In addition, it is uncertain whether any new PRC laws or regulations relating to variable interest
entity structures will be adopted or if adopted, what they would provide. PRC government authorities may deem that foreign ownership
is directly or indirectly involved in the VIE’s shareholding structure. If our corporate structure and contractual arrangements
are deemed by the MIIT or the MOFCOM or other regulators having competent authority to be illegal, either in whole or in part, we may
lose control of our consolidated VIE and have to modify such structure to comply with regulatory requirements. However, there can be
no assurance that we can achieve this without material disruption to our VATS business. Furthermore, if we or the VIE is found to be
in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals,
the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including,
without limitation:
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revoking the business license
and/or operating licenses of our WFOE or the VIE; |
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discontinuing or placing
restrictions or onerous conditions on our operations through any transactions among our WFOE, the VIE and its subsidiaries; |
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imposing fines, confiscating
the income from our WFOE, the VIE or its subsidiaries, or imposing other requirements with which we or the VIE may not be able to
comply; |
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placing restrictions on
our right to collect revenues; |
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shutting down our servers
or blocking our app/websites; |
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requiring us to restructure
our ownership structure or operations, including terminating the contractual arrangements with the VIE and deregistering the equity
pledges of the VIE, which in turn would affect our ability to consolidate, derive economic interests from the VIE; or |
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restricting or prohibiting
our use of the proceeds of this offering to finance our business and operations in China. |
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taking other regulatory
or enforcement actions against us that could be harmful to our business. |
The
imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business. In addition,
it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of the
VIE in our consolidated financial statements, if the PRC government authorities were to find our corporate structure and contractual
arrangements to be in violation of PRC laws and regulations. If the imposition of any of these government actions causes us to lose our
right to direct the activities of the VIE or our right to receive substantially all the economic benefits and residual returns from the
VIE and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to
consolidate the financial results of the VIE in our consolidated financial statements. Either of these results, or any other significant
penalties that might be imposed on us in this event, would have a material adverse effect on our financial condition and results of operations.
We rely on contractual
arrangements with the VIE and their shareholders for a large portion of our business operations. These arrangements may not be as effective
as direct ownership in providing operational control. Any failure by the VIE or their shareholders to perform their obligations under
such contractual arrangements would have a material and adverse effect on our business.
We
have relied and expect to continue relying on contractual arrangements with the VIE and their shareholders to operate our business in
China. The revenues contributed by the VIE and their subsidiaries constituted substantially all of our net revenue for the year of 2021
and 2020.
These
contractual arrangements may not be as effective as direct ownership in providing us with control over the VIE. For example, the VIE
and their shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations
in an acceptable manner or taking other actions that are detrimental to our interests. If we had direct ownership of the VIE, we would
be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIE, which in turn could implement
changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual
arrangements, we rely on the performance by the VIE and their shareholders of their obligations under the contracts to exercise control
over the VIE. The shareholders of our consolidated VIE may not act in the best interests of our company or may not perform their obligations
under these contracts. Such risks exist throughout the period in which we intend to operate certain portions of our business through
the contractual arrangements with the VIE.
If
the VIE or their shareholders fail to perform their respective obligations under the contractual arrangements, we may have difficulty
in enforcing any rights the Company may have under the VIE Agreements in PRC and have to incur substantial costs and expend additional
resources to enforce such arrangements. For example, if the shareholders of the VIE refuse to transfer their equity interest in the VIE
to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they otherwise act in bad
faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations. In addition, if any
third parties claim any interest in such shareholders’ equity interests in the VIE, our ability to exercise shareholders’
rights or foreclose the share pledge according to the contractual arrangements may be impaired. If these or other disputes between the
shareholders of the VIE and third parties were to impair our control over the VIE, our ability to consolidate the financial results of
the VIE would be affected, which would in turn result in a material adverse effect on our business, operations and financial condition.
Any failure by
Shanghai Muliang, the consolidated variable interest entity, or its shareholders to perform their obligations under our contractual arrangements
with them would have a material adverse effect on our business.
We refer to the shareholders
of the VIE as its nominee shareholders because although they remain the holders of equity interests on record in the VIE, pursuant to
the terms of the relevant power of attorney, such shareholders have irrevocably authorized the individual appointed by Shanghai Mufeng
to exercise their rights as a shareholder of the relevant VIE. If the VIE, or its shareholders fail to perform their respective obligations
under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements.
We may also have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming
damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of Shanghai Muliang were to refuse
to transfer their equity interest in Shanghai Muliang to us or our designee if we exercise the purchase option pursuant to these contractual
arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform
their contractual obligations.
All the agreements under
our contractual arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in China. Accordingly,
these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures.
The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties
in the PRC legal system could limit our ability to enforce these contractual arrangements. See “Risks Relating to Doing Business
in China-Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us”
on page 29. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of
a consolidated variable interest entity should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding
the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are
final and parties cannot appeal arbitration results in court unless such rulings are revoked or determined unenforceable by a competent
court. If the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only
enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses
and delay. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles
in the process of enforcing these contractual arrangements, our ability to conduct our business may be negatively affected.
We are a holding company and will rely
on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments
to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends
to holders of our common stock.
We are a holding company
and conduct substantially all of our business through Shanghai Muliang, which is a limited liability company established in China and
its subsidiaries. We may rely on dividends to be paid by our PRC subsidiary to fund our cash and financing requirements, including the
funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating
expenses. If our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability
to pay dividends or make other distributions to us.
Under PRC laws and regulations,
our PRC subsidiary, which is a wholly foreign-owned enterprise in China, may pay dividends only out of its accumulated profits as determined
in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside
at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount
of such fund reaches 50% of its registered capital.
Our PRC subsidiary generates
primarily all of its revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency
exchange may limit the ability of our PRC subsidiary to use its Renminbi revenues to pay dividends to us. The PRC government may continue
to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by State Administration
of Foreign Exchange (the “SAFE”) for cross-border transactions falling under both the current account and the capital account.
Any limitation on the ability of our PRC subsidiary to pay dividends or make other kinds of payments to us could materially and adversely
limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund
and conduct our business.
In addition, the Enterprise
Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable
by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between
the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated. Any
limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit
our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and
conduct our business.
The shareholders
of the VIE may have actual or potential conflicts of interest with us, which may materially and adversely affect our business and financial
condition.
As of the date of this prospectus,
we are not aware any conflicts between the shareholders of the VIE and us. However, the shareholders of the VIE may have actual or potential
conflicts of interest with us in the future. These shareholders may refuse to sign or breach, or cause the VIE to breach, or refuse to
renew, the existing contractual arrangements we have with them and the VIE, which would have a material and adverse effect on our ability
to effectively control the VIE and receive economic benefits from it. For example, the shareholders may be able to cause our agreements
with the VIE to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements
to us on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the
best interests of our company or such conflicts will be resolved in our favor, particularly given the relatively large number of shareholders
that Shanghai Muliang Industry Co., Ltd. and Shanghai Zongbao and Shanghai Zongbao Environmental Construction Co., Ltd., two of the VIE,
has. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company.
If we cannot resolve any conflict of interest or dispute between us and these shareholders, we would have to rely on legal proceedings,
which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
Our contractual
arrangements are governed by PRC law. Accordingly, these contracts would be interpreted in accordance with PRC law, and any disputes
would be resolved in accordance with PRC legal procedures.
Investors
in our shares of common stock should be aware that they are purchasing equity in Muliang Viagoo Technology Inc., our Nevada holding company,
which does not directly own substantially all of our business in China conducted by the VIE. Although we have been advised by our PRC
legal counsel that our contractual arrangements constitute valid and binding obligations enforceable against each party of such agreements
in accordance with their terms, they may not be as effective in providing control over Shanghai Muliang Industry Co., Ltd., our operating
entities as direct ownership. If the PRC operating entities or the registered shareholders fail to perform their respective obligations
under the contractual arrangements, we may incur substantial costs and expend substantial resources to enforce our rights. All of these
contractual arrangements are governed by and interpreted in accordance with PRC laws, and disputes arising from these contractual arrangements
will be resolved through arbitration or litigation in the PRC. However, the legal system in the PRC is not as developed as in other jurisdictions,
such as the United States. There are very few precedents and little official guidance as to how contractual arrangements in the context
of a variable interest entity should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the
outcome of arbitration or litigation. These uncertainties could limit our ability to enforce these Contractual Arrangements. In the event
we are unable to enforce these contractual arrangements or we experience significant delays or other obstacles in the process of enforcing
these contractual arrangements, we may lose the benefits derived from the assets owned by Shanghai Muliang Industry Co., Ltd. Our financial
performance may be adversely and materially affected as a result and we may not be eligible to consolidate the financial results of the
PRC Operating Entities into our financial results.
Contractual arrangements
in relation to the VIE may be subject to scrutiny by the PRC tax authorities and they may determine that we or the VIE owe additional
taxes, which could negatively affect our financial condition and the value of your investment.
Under
applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the
PRC tax authorities within ten years after the taxable year when the transactions are conducted. The PRC enterprise income tax law requires
every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties
to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related
party transactions that are inconsistent with arm’s length principles. We may face material and adverse tax consequences if the
PRC tax authorities determine that the contractual arrangements between Shanghai Mufeng, the variable interest entity Shanghai
Muliang and the shareholders of Shanghai Muliang were not entered into on an arm’s length basis in such a way as to result in an
impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust Shanghai Muliang income in the form of
a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded
by Shanghai Muliang for PRC tax purposes, which could, in turn, increase their tax liabilities without reducing Shanghai Mufeng tax expenses.
In addition, if Shanghai Mufeng requests the Shanghai Muliang Shareholders to transfer their equity interests in Shanghai Muliang at
nominal or no value pursuant to these contractual arrangements, such transfer could be viewed as a gift and subject Shanghai Mufeng to
PRC income tax. Furthermore, the PRC tax authorities may impose late payment fees and other penalties on Shanghai Muliang for the adjusted
but unpaid taxes according to the applicable regulations. Our results of operations could be materially and adversely affected if Shanghai
Muliang’s tax liabilities increase or if they are required to pay late payment fees and other penalties.
We
may lose the ability to use, or otherwise benefit from, the licenses, approvals and assets
held by the VIE, which could severely disrupt our business, render us unable to conduct some
or all of our business operations and constrain our growth.
We
rely on contractual arrangements with the VIE to use, or otherwise benefit from, certain foreign restricted licenses and permits that
we need or may need in the future as our business continues to expand, such as the internet content provider license, or the ICP license
held by Shanghai Muliang, the VIE.
The
contractual arrangements contain terms that specifically obligate the VIE’ shareholders to ensure the valid existence of the VIE
and restrict the disposal of material assets of the VIE. However, in the event the VIE’ shareholders breach the terms of these
contractual arrangements and voluntarily liquidate the VIE, or the VIE declare bankruptcy and all or part of their assets become subject
to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to conduct some or all
of our business operations or otherwise benefit from the assets held by the VIE, which could have a material adverse effect on our business,
financial condition and results of operations. Furthermore, if the VIE undergo a voluntary or involuntary liquidation proceeding, their
shareholders or unrelated third-party creditors may claim rights to some or all of the assets of the VIE, thereby hindering our ability
to operate our business as well as constrain our growth.
If the custodians or authorized users of
our controlling non-tangible assets, including chops and seals, fail to fulfill their responsibilities, or misappropriate or misuse these
assets, our business and operations may be materially and adversely affected.
Under PRC law, legal documents
for corporate transactions, including agreements and contracts that our business relies on, are executed using the chop or seal of the
signing entity or with the signature of a legal representative whose designation is registered and filed with the relevant local branch
of the State Administration for Market Regulation, (“SMAR”) formerly known as the State Administration for Industry and Commerce
(“SAIC”). We generally execute legal documents by affixing chops or seals, rather than having the designated legal representatives
sign the documents.
We use two major types of
chops: corporate chops and finance chops. Chops are seals or stamps used by a PRC company to legally authorize documents, often in place
of a signature. We use corporate chops generally for documents to be submitted to government agencies, such as applications for changing
business scope, directors or company name, and for legal letters. We use finance chops generally for making and collecting payments,
including issuing invoices. Use of corporate chops must be approved by our legal department and administrative department, and use of
finance chops must be approved by our finance department. The chops of our subsidiary and consolidated VIE are generally held by the
relevant entities so that documents can be executed locally. Although we usually utilize chops to execute contracts, the registered legal
representatives of our subsidiary and consolidated VIE have the apparent authority to enter into contracts on behalf of such entities
without chops, unless such contracts set forth otherwise.
In order to maintain the
physical security of our chops, we generally have them stored in secured locations accessible only to the designated key employees of
our legal, administrative or finance departments. Our designated legal representatives generally do not have access to the chops. Although
we have approval procedures in place and monitor our key employees, including the designated legal representatives of our subsidiary
and consolidated VIE, the procedures may not be sufficient to prevent all instances of abuse or negligence. In addition, we also separate
the authorized user of chops from the keeper of keys to the storage room and install security camera for the storage room. There is a
risk that our key employees or designated legal representatives could abuse their authority, for example, by binding our subsidiary and
consolidated VIE with contracts against our interests, as we would be obligated to honor these contracts if the other contracting party
acts in good faith in reliance on the apparent authority of our chops or signatures of our legal representatives. If any designated legal
representative obtains control of the chop in an effort to obtain control over the relevant entity, we would need to have a shareholder
or board resolution to designate a new legal representative to take legal action to seek the return of the chop, apply for a new chop
with the relevant authorities, or otherwise seek legal remedies for the legal representative’s misconduct. If any of the designated
legal representatives obtains and misuses or misappropriates our chops and seals or other controlling intangible assets for whatever
reason, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could
involve significant time and resources to resolve the matter, while distracting management from our operations, and our business operations
may be materially and adversely affected.
Substantial uncertainties exist with respect
to the interpretation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate
governance and business operations.
The
Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015, or the 2015 FIL Draft, which
expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company
is considered a foreign-invested enterprise, or an FIE. Under the 2015 FIL Draft, VIE that are controlled via contractual arrangement
would also be deemed as foreign invested enterprises, if they are ultimately “controlled” by foreign investors.
On
March 15, 2019, the National People’s Congress approved the Foreign Investment Law of the PRC, or the FIL, which will come into
effect on January 1, 2020, repealing simultaneously the Law of the PRC on Sino-foreign Equity Joint Ventures, the Law of the PRC on Wholly
Foreign-owned Enterprises and the Law of the PRC on Sino-foreign Cooperative Joint Ventures, together with their implementation rules
and ancillary regulations. Pursuant to the FIL, foreign investment refers to any investment activity directly or indirectly carried out
by foreign natural persons, enterprises, or other organizations, including investment in new construction project, establishment of foreign
funded enterprise or increase of investment, merger and acquisition, and investment in any other way stipulated under laws, administrative
regulations, or provisions of the State Council. Although the FIL has deleted the particular reference to the concept of “actual
control” and contractual arrangements compared to the 2015 FIL Draft, there is still uncertainty regarding whether the VIE would
be identified as a FIE in the future.
Even
if the VIE were to be identified as a FIE in the future, we believe that our current business would not be adversely affected. However,
if we were to engage in any business conduct involving third parties identified as prohibited or restricted on the Negative List, the
VIE as well as its subsidiary may be subject to laws and regulations on foreign investment. In addition, our shareholders would also
be prohibited or restricted to invest in certain sectors on the Negative List. However, even if the VIE were to be identified as a FIE,
the validity of our contractual arrangements with Shanghai Muliang and its shareholders as well as our corporate structure would not
be adversely affected. We would still be able to receive benefits from the VIE in accordance with the contractual agreements. In addition,
as the Chinese government has been updating the Negative List in recent years and reducing the sectors prohibited or restricted for foreign
investment, it is probable in the future that, even if the VIE is identified as a FIE, it is still allowed to acquire or hold equity
of enterprises in sectors currently prohibited or restricted for foreign investment.
Furthermore,
the PRC Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign
investment may maintain their structure and corporate governance within five years after the implementing of the PRC Foreign Investment
Law.
In
addition, the PRC Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments
in the PRC, including, among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency,
its contributions, profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or
compensation lawfully acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments
to the foreign investors; governments at all levels and their departments shall enact local normative documents concerning foreign investment
in compliance with laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto FIEs,
set market access restrictions and exit conditions, or intervene with the normal production and operation activities of FIEs; except
for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in
a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; and mandatory technology transfer
is prohibited.
Notwithstanding
the above, the PRC Foreign Investment Law stipulates that foreign investment includes “foreign investors invest through any other
methods under laws, administrative regulations or provisions prescribed by the State Council”. Therefore, there are possibilities
that future laws, administrative regulations or provisions prescribed by the State Council may regard contractual arrangements as a form
of foreign investment, and then whether our contractual arrangement will be recognized as foreign investment, whether our contractual
arrangement will be deemed to be in violation of the foreign investment access requirements and how the above-mentioned contractual arrangement
will be handled are uncertain.
The Chinese government exerts substantial
influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from
Chinese authorities to list on U.S exchanges, however, if the VIE or the holding company were required to obtain approval in the future
and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange,
which would materially affect the interest of the investors.
The
Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through
regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those
relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these
jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures
and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future,
including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional
or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular
regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
For
example, the Chinese cybersecurity regulator announced on July 2 that it had begun an investigation of Didi Global Inc. (NYSE: DIDI)
and two days later ordered that the company’s app be removed from smartphone app stores.
As such, the Company’s
business segments may be subject to various government and regulatory interference in the provinces in which they operate. The Company
could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government
sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties
for any failure to comply. The Chinese government may intervene or influence our operations at any time with little advance notice, which
could result in a material change in our operations and in the value of our common stock. Any actions by the Chinese government to exert
more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly
limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to
significantly decline or become worthless.
Furthermore, it is uncertain
when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and
even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain
permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S.
exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to
its business or industry. As a result, our common stock may decline in value dramatically or even become worthless should we become subject
to new requirement to obtain permission from the PRC government to list on U.S. exchange in the future.
Recently,
the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued
the Opinions on Severe and Lawful Crackdown on Illegal Securities Activities, which was available to the public on July 6, 2021. These
opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings
by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory
systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data
privacy protection. Moreover, the State Internet Information Office issued the Measures of Cybersecurity Review (Revised Draft for Comments,
not yet effective) on July 10, 2021, which requires operators with personal information of more than 1 million users who want to list
abroad to file a cybersecurity review with the Office of Cybersecurity Review. The aforementioned policies and any related implementation
rules to be enacted may subject us to additional compliance requirement in the future. While we believe that our operations are not affected
by this, as these opinions were recently issued, official guidance and interpretation of the opinions remain unclear in several respects
at this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions
or any future implementation rules on a timely basis, or at all.
Certain judgments
obtained against us by our shareholders may not be enforceable.
We
conduct a substantial majority of our operations through our subsidiary in the People’s Republic of China, or “PRC”
or “China.” Shanghai Mufeng, our subsidiary in China, derives its economic benefits from Shanghai Muliang, the variable interest
entity, and its subsidiaries Most of our assets are located in China, and substantially all of our assets are located outside of the
United States. In addition, all our senior executive officers reside within China for a significant portion of the time and most
are PRC nationals. Substantially all of the assets of these persons are located outside the United States. As a result, it may be
difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that
you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful
in bringing an action of this kind, the laws of the U.S. and of China may render you unable to enforce a judgment against our assets
or the assets of our directors and officers.
Substantial uncertainties exist with respect
to the interpretation and implementation of PRC Foreign Investment Law and how it may impact the viability of our current corporate structure,
corporate governance and business operations.
On March 15, 2019, the National
People’s Congress approved the Foreign Investment Law, which took effect on January 1, 2020 and replaced three existing laws on
foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned
Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC
regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative
efforts to unify the corporate legal requirements for both foreign and domestic invested enterprises in China. The Foreign Investment
Law establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view
of investment protection and fair competition.
According to the Foreign
Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted by one or more natural
persons, business entities, or otherwise organizations of a foreign country (collectively referred to as “foreign investor”)
within China, and the investment activities include the following situations: (i) a foreign investor, individually or collectively with
other investors, establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares,
shares in assets, or other like rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively
with other investors, invests in a new project within China; and (iv) investments in other means as provided by laws, administrative
regulations, or the State Council.
According to the Foreign
Investment Law, the State Council will publish or approve to publish the “negative list” for special administrative measures
concerning foreign investment. The Foreign Investment Law grants national treatment to foreign-invested entities, or FIEs, except for
those FIEs that operate in industries deemed to be either “restricted” or “prohibited” in the “negative
list”. Because the “negative list” has yet to be published, it is unclear whether it will differ from the current Special
Administrative Measures for Market Access of Foreign Investment (Negative List). The Foreign Investment Law provides that FIEs operating
in foreign restricted or prohibited industries will require market entry clearance and other approvals from relevant PRC governmental
authorities. If a foreign investor is found to invest in any prohibited industry in the “negative list”, such foreign investor
may be required to, among other aspects, cease its investment activities, dispose of its equity interests or assets within a prescribed
time limit and have its income confiscated. If the investment activity of a foreign investor is in breach of any special administrative
measure for restrictive access provided for in the “negative list”, the relevant competent department shall order the foreign
investor to make corrections and take necessary measures to meet the requirements of the special administrative measure for restrictive
access.
The “variable interest
entity” structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessary licenses and
permits in the industries that are currently subject to foreign investment restrictions in China. Under the Foreign Investment Law, variable
interest entities that are controlled via contractual arrangement would also be deemed as FIEs, if they are ultimately “controlled”
by foreign investors. Therefore, for any companies with a VIE structure in an industry category that is included in the “negative
list” as restricted industry, the VIE structure may be deemed legitimate only if the ultimate controlling person(s) is/are of
PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities,
then the variable interest entities will be treated as FIEs and any operation in the industry category on the “negative list”
without market entry clearance may be considered as illegal.
The PRC government will establish
a foreign investment information reporting system, according to which foreign investors or foreign-invested enterprises shall submit
investment information to the competent department for commerce concerned through the enterprise registration system and the enterprise
credit information publicity system, and a security review system under which the security review shall be conducted for foreign investment
affecting or likely affecting the state security.
Furthermore, the Foreign
Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may
maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law.
In addition, the Foreign
Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including,
among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions,
profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully
acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign
investors; governments at all levels and their departments shall enact local normative documents concerning foreign investment in compliance
with laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto FIEs, set market access
restrictions and exit conditions, or intervene with the normal production and operation activities of FIEs; except for special circumstances,
in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation
or requisition of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited.
Notwithstanding the above,
the Foreign Investment Law stipulates that foreign investment includes “foreign investors invest through any other methods under
laws, administrative regulations or provisions prescribed by the State Council”. Therefore, there are possibilities that future
laws, administrative regulations or provisions prescribed by the State Council may regard contractual arrangements as a form of foreign
investment, and then whether our contractual arrangement will be recognized as foreign investment, whether our contractual arrangement
will be deemed to be in violation of the foreign investment access requirements and how the above-mentioned contractual arrangement will
be handled are uncertain.
Risks Relating
to this Offering
Our common stock has a limited public trading
market.
There is a limited established
public trading marketing for our common stock, and there can be no assurance that one will ever develop. Market liquidity will depend
on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There
can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment
or liquidate it at a price that reflects the value of the business. As a result, holders of our securities may not find purchasers for
our securities should they to sell securities held by them. Consequently, our securities should be purchased only by investors having
no need for liquidity in their investment and who can hold our securities for an indefinite period of time.
We are not likely to pay dividends in the
foreseeable future.
We currently intend to retain
any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any dividends in the
foreseeable future but will review this policy as circumstances dictate.
Our common stock may be subject now and
in the future to the SEC’s “Penny Stock”.
We may be subject now and
in the future to the SEC’s “penny stock” rules if our shares of common stock sell below $5.00 per share. Penny stocks
generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized
risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation
of the broker-dealer and its salesperson and monthly account statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally
or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.
In addition, the penny stock
rules require that prior to a transaction; the broker dealer must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome
and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common
stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.
The offering price for our shares of common
stock may not be indicative of prices that will prevail in the trading market and such market prices may be volatile.
The offering price for our
shares of common stock will be determined by negotiations between us and the underwriter and does not bear any relationship to our earnings,
book value or any other indicia of value. We cannot assure you that the market price of our shares of common stock will not decline significantly
below the offering price. The financial markets in the United States and other countries have experienced significant price and volume
fluctuations in the last few years. Volatility in the price of our shares of common stock may be caused by factors outside of our control
and may be unrelated or disproportionate to changes in our results of operations.
You will experience immediate and substantial
dilution in the net tangible book value of our shares of common stock purchased.
The offering price of our
shares of common stock is substantially higher than the net tangible book value per share of our common stock. Consequently, when you
purchase our shares of common stock in the offering and upon completion of the offering, you will incur immediate dilution of US$3.00 per
share, based on an assumed offering price of US$4.00 per share. In addition, you may experience further dilution to the extent that additional
shares of common stock are issued upon exercise of outstanding warrants or options we may grant from time to time.
We do not intend to pay dividends for the
foreseeable future.
We currently intend to retain
any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the
foreseeable future. As a result, you may only receive a return on your investment in our shares of common stock if the market price of
our shares of common stock increases.
If securities or industry analysts do not
publish research or reports about our business, or if they publish a negative report regarding our shares of common stock, the price
of our shares of common stock and trading volume could decline.
The trading market for our
shares of common stock may depend in part on the research and reports that industry or securities analysts publish about us or our business.
We do not have any control over these analysts. If one or more of the analysts who cover us downgrade us, the price of our shares of
common stock would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports
on us, we could lose visibility in the financial markets, which could cause the price of our shares of common stock and the trading volume
to decline.
The market price of our shares of common
stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above
the offering price.
The offering price for our
shares of common stock will be determined through negotiations between the underwriter and us and may vary from the market price of our
shares of common stock following our offering. If you purchase our shares of common stock in this offering, you may not be able to resell
those shares at or above the offering price. The market price of our shares of common stock 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; |
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● |
actions of securities analysts
who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company 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, joint ventures
or capital commitments; |
| |
● |
price and volume fluctuations
in the overall stock market, including as a result of trends in the economy as a whole; |
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● |
lawsuits threatened or
filed against us; and |
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● |
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 of equity securities
of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance
of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If
we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of
management from our business and adversely affect our business.
Our management has broad discretion to
determine how to use the funds raised in the offering and may use them in ways that may not enhance our results of operations or the
price of our shares of common stock.
We anticipate that we will
use the net proceeds from this offering for working capital and other corporate purposes. Our management will have significant discretion
as to the use of the net proceeds to us from this offering and could spend the proceeds in ways that do not improve our results of operations
or enhance the market price of our shares of common stock.
Nasdaq may apply
additional and more stringent criteria for our initial and continued listing because we plan to have a small public offering and insiders
will hold a large portion of the company’s listed securities.
Nasdaq
Listing Rule 5101 provides Nasdaq with broad discretionary authority over the initial and continued listing of
securities in Nasdaq and Nasdaq may use such discretion to deny initial listing, apply additional or more
stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on
any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on Nasdaq
inadvisable or unwarranted in the opinion of Nasdaq, even though the securities meet all enumerated criteria for
initial or continued listing on Nasdaq. In addition, Nasdaq has used its discretion to deny initial or continued
listing or to apply additional and more stringent criteria in the instances, including but not limited to: (i) where the company engaged
an auditor that has not been subject to an inspection by the Public Company Accounting Oversight Board (“PCAOB”), an auditor
that PCAOB cannot inspect, or an auditor that has not demonstrated sufficient resources, geographic reach, or experience to adequately
perform the company’s audit; (ii) where the company planned a small public offering, which would result in insiders holding a large
portion of the company’s listed securities. Nasdaq was concerned that the offering size was insufficient to establish
the company’s initial valuation, and there would not be sufficient liquidity to support a public market for the company; and (iii)
where the company did not demonstrate sufficient nexus to the U.S. capital market, including having no U.S. shareholders, operations,
or members of the board of directors or management. Our public offering will be relatively small and the insiders of our Company will
hold a large portion of the company’s listed securities. Nasdaq might apply the additional and more stringent criteria
for our initial and continued listing, which might cause delay or even denial of our listing application.
Voting
Rights Proxy Agreement and Irrevocable Power of Attorney
Under which each shareholder
of the VIE grant to any person designated by WFOEs to act as its attorney-in-fact to exercise all shareholder rights under PRC law and
the relevant articles of association, including but not limited to, appointing directors, supervisors and officers of the VIE as well
as the right to sell, transfer, pledge and dispose all or a portion of the equity interest held by such shareholders of the VIE. The
proxy and power of attorney agreements will remain effective as long as WFOEs exist. The shareholders of the VIE do not have the right
to terminate the proxy agreements or revoke the appointment of the attorney-in-fact without written consent of the WFOEs.
Exclusive
Option Agreement
Under which each shareholder
of the VIE granted 9F or any third party designated by 9F the exclusive and irrevocable right to purchase from such shareholders of the
VIE, to the extent permitted by PRC law and regulations, all or part of their respective equity interests in the VIE for a purchase price
equal to the registered capital. The shareholders of the VIE will then return the purchase price to 9F or any third party designated
by 9F after the option is exercised. 9F may transfer all or part of its option to a third party at its own option. The VIE and its shareholders
agree that without prior written consent of 9F, they may not transfer or otherwise dispose the equity interests or declare any dividends.
The restated option agreement will remain effective until 9F or any third party designated by 9F acquires all equity interest of the
VIE.
Spousal
Consent
The spouse of each shareholder
of the VIE has entered into a spousal consent letter to acknowledge that he or she consents to the disposition of the equity interests
held by his or her spouse in the VIE in accordance with the exclusive option agreement, the power of attorney and the equity pledge agreement
regarding VIE structure described above, and any other supplemental agreement(s) may be consented by his or her spouse from time
to time. Each such spouse further agrees that he or she will not take any action or raise any claim to interfere with the arrangements
contemplated under the mentioned agreements. In addition, each such spouse further acknowledges that any right or interest in the equity
interests held by his or her spouse in the VIE do not constitute property jointly owned with his or her spouse and each such spouse unconditionally
and irrevocably waives any right or interest in such equity interests.
Loan
Agreement
Pursuant to the loan agreements
between WFOEs and each shareholder of the VIE, WFOEs extended loans to the shareholders of the VIE, who had contributed the loan principal
to the VIE as registered capital. The shareholders of VIE may repay the loans only by transferring their respective equity interests
in VIE to 9F Inc. or its designated person(s) pursuant to the exclusive option agreements. These loan agreements will remain
effective until the date of full performance by the parties of their respective obligations thereunder.
VIE Agreements that enables
Muliang Viagoo to receive substantially all of the economic benefits from the VIE include:
Equity
Interest Pledge Agreement
Pursuant to equity interest
pledge agreement, each shareholder of the VIE has pledged all of his or her equity interest held in the VIE to WFOEs to secure the performance
by VIE and their shareholders of their respective obligations under the contractual arrangements, including the payments due to WFOEs
for services provided. In the event that the VIE breach any obligations under these agreements, WFOEs as the pledgees, will be entitled
to request immediate disposal of the pledged equity interests and have priority to be compensated by the proceeds from the disposal of
the pledged equity interests. The shareholders of the VIE shall not transfer their equity interests or create or permit to be created
any pledges without the prior written consent of WFOEs. The equity interest pledge agreement will remain valid until the master exclusive
service agreement and the relevant exclusive option agreements and proxy and power of attorney agreements, expire or terminate.
Master
Exclusive Service Agreement
Pursuant to exclusive service
agreement, WFOEs have the exclusive right to provide the VIE with technical support, consulting services and other services. WFOEs shall
exclusively own any intellectual property arising from the performance of the agreement. During the term of this agreement, the VIE may
not accept any services covered by this agreement provided by any third party. The VIE agree to pay service fees to be determined and
adjusted at the sole discretion of the WFOEs. The agreement will remain effective unless WFOEs terminate the agreement in writing.
Risks
in relation to the VIE structure
Muliang Viagoo believes that
the contractual arrangements with the VIE and their current shareholders are in compliance with PRC laws and regulations and are legally
enforceable. However, uncertainties in the PRC legal system could limit the Muliang Viagoo’s ability to enforce the contractual
arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC
government could:
| ● | Revoke the business and operating
licenses of the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities; |
| ● | Discontinue or restrict the
operations of any related-party transactions among the Muliang Viagoo’s PRC subsidiaries
or consolidated affiliated entities; |
| ● | Impose fines or other requirements
on the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities; |
| ● | Require the Muliang Viagoo’s
PRC subsidiaries or consolidated affiliated entities to revise the relevant ownership structure
or restructure operations; and/or; |
| ● | Restrict or prohibit the Muliang
Viagoo’s use of the proceeds of the additional public offering to finance the Muliang
Viagoo’s business and operations in China; |
| ● | Shut down the Muliang Viagoo’s
servers or blocking the Muliang Viagoo’s online platform; |
| ● | Discontinue or place restrictions
or onerous conditions on the Muliang Viagoo’s operations; and/or |
| ● | Require the Muliang Viagoo
to undergo a costly and disruptive restructuring. |
Muliang Viagoo’s ability
to conduct its business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result,
Muliang Viagoo may not be able to consolidate the VIE in its consolidated financial statements as it may lose the ability to receive
economic benefits from the VIE. Muliang Viagoo currently does not believe that any penalties imposed or actions taken by the PRC government
would result in the liquidation of the Company, WFOEs, or the VIE.
The
following table sets forth the assets, liabilities, results of operations and cash flows of the VIE and their subsidiaries, which are
included in Muliang Viagoo’s consolidated financial statements after the elimination of intercompany balances and transactions:
Under
the VIE Arrangements, Muliang Viagoo has
the power to direct activities of the VIE and can have assets transferred out of the VIE. Therefore, Muliang Viagoo considers
that there is no asset in the VIE that can be used only to settle obligations of the VIE, except for assets that correspond to the amount
of the registered capital and PRC statutory reserves, if any. As the VIE are incorporated as limited liability companies under the Company
Law of the PRC, creditors of the VIE do not have recourse to the general credit of Muliang Viagoo for
any of the liabilities of the VIE.
Currently
there is no contractual arrangement which requires Muliang Viagoo to provide additional
financial support to the VIE. However, as Muliang Viagoo conducts its businesses primarily
based on the licenses held by the VIE, Muliang Viagoo has provided and will continue to
provide financial support to the VIE.
Revenue-producing
assets held by the VIE include certain internet content provision (“ICP”) licenses and other licenses, domain names and trademarks.
The ICP licenses and other licenses are required under relevant PRC laws, rules and regulations for the operation of internet businesses
in the PRC, and therefore are integral to Muliang Viagoo’s operations. The ICP licenses
require that core PRC trademark registrations and domain names are held by the VIE that provide the relevant services.
Muliang Viagoo consolidates
the following entities, including wholly-owned subsidiaries, Muliang HK, Shanghai Mufeng, Viagoo, and its wholly controlled variable
interest entities, Muliang Industry, and Zongbao, 60% controlled Agritech Development, 99% controlled Fukang, 65% controlled Zhonglian,
80% controlled Yunnan Muliang and 51% controlled Heilongjiang. Accordingly, the 40% equity interest holder of Agritech Development, 1%
equity interest holders in Fukang, 35% equity interest holders in Zhonglian, 20% interest in Yunnan Muliang, and 49% equity interest
in Heilongjiang are accounted as non-controlling interest in the Company’s consolidated financial statements.
The variable interest entities
consolidated for which the Company is deemed the primary beneficiary. All significant inter-company accounts and transactions have been
eliminated in consolidation.
Liquidity
and Going Concern
As reflected in the accompanying
consolidated financial statements, we had a net income of $1,393,597 and $1,525,631 for the nine months ended September 30, 2022, and
2021, respectively. Our cash balances as of September 30, 2022, and December 31, 2021, were $240,801 and $38,013, respectively. We had
current liabilities of $9,925,853 and $13,770,110 on September 30, 2022, and December 31, 2021, which would be due within the next 12
months. In addition, we had a net current assets (working capital) of $6,626,068 and $5,403,720 at September 30, 2022 and December 31,
2021, respectively.
As a result of the improved
liquidity since last fiscal year, the Company has resolved the going concern issue.
Use of Estimates
In preparing financial statements
in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Significant estimates, required by management, include the recoverability of long-lived assets
and the valuation of inventories. Actual results could differ from those estimates.
Accounts Receivable
We state accounts receivable
at cost, net of allowance for doubtful accounts. Based on our past experience and current practice in the PRC, management provides for
an 100% allowance for doubtful accounts equivalent to those accounts that are not collected within one year, and 50% for receivables
outstanding for longer than six months. It is management’s belief that the current bad debt allowance adequately reflects an appropriate
estimate based on management’s judgment.
Inventory Valuation
We value our fertilizer inventories
at the lower of cost, determined on a weighted average basis, and net realizable value (the estimated market price). Substantially all
inventory expenses, packaging and supplies are valued by the weighted average method.
Revenue Recognition
On January 1, 2018, the Company
adopted ASC 606 using the modified retrospective method. Results for the reporting period beginning after January 1, 2018 are presented
under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historic
accounting under Topic 605.
Management has determined
that the adoption of ASC 606 did not impact the Company’s previously reported financial statements in any prior period nor did
it result in a cumulative effect adjustment to opening retained earnings.
Revenue for sale of products
is derived from contracts with customers, which primarily include the sale of fertilizer products and environmental protection equipment.
The Company’s sales arrangements do not contain variable consideration. The Company recognizes revenue at a point in time based
on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied and control
of the products has been transferred to the customer. For vast majority of the Company’s product sales, the performance obligations
and control of the products transfer to the customer when products are delivered, and customer acceptance is made.
Revenue
for logistics-related service is derived from Viagoo subsidiaries. Through an online service
platform, the company provides the operation management service to support customers. For
VTM service, revenue is charged to carriers based on certain percentage of the freight charges.
For VES service, revenue is recognized based on monthly subscription by vehicles and by users.
For system integration service, revenue is recognized over time based on the progress of
project and annual maintenance service.
Income Taxes
The Company accounts for income
taxes under the provision of FASB ASC 740-10, which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets
to the amount expected to be realized.
New Accounting Standards
In February 2016, the FASB
issued Accounting Standards Update No. 2016-02 (ASU 2016-02) “Leases (Topic 842)”. ASU 2016-02 requires a lessee to recognize
in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing
its right to use the underlying asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning
after December 15, 2018. Early adoption is permitted. For finance leases, a lessee is required to do the following:
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● |
Recognize
a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial
position |
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Recognize
interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income |
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Classify
repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability
and variable lease payments within operating activities in the statement of cash flows. |
For operating leases, a lessee
is required to do the following:
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● |
Recognize
a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial
position |
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Recognize
a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis |
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Classify
all cash payments within operating activities in the statement of cash flows. |
In July 2018, the FASB issued
Accounting Standards Update No. 2018-11 (ASU 2018-11), which amends ASC 842 so that entities may elect not to recast their comparative
periods in transition (the “Comparatives Under 840 Option”). ASU 2018-11 allows entities to change their date of initial
application to the beginning of the period of adoption. In doing so, entities would:
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● |
Apply
ASC 840 in the comparative periods. |
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● |
Provide the disclosures
required by ASC 840 for all periods that continue to be presented in accordance with ASC 840. |
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Recognize the effects of
applying ASC 842 as a cumulative-effect adjustment to retained earnings for the period of adoption. |
In addition, the FASB also
issued a series of amendments to ASU 2016-02 that address the transition methods available and clarify the guidance for lessor costs
and other aspects of the new lease standard.
The management has reviewed
the accounting pronouncements and adopted the new standard on January 1, 2019 using the modified retrospective method of adoption.
In December 2019, the FASB issued
ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides an exception to the general methodology
for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This update also
(1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account
for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of
goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and
when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws
or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The standard is effective
for the Company for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently in the process
of evaluating the impact of the adoption on its consolidated financial statements.
In August 2018, the FASB issued
ASU 2018-13, “Fair Value Measurement (Topic 820), – Disclosure Framework – Changes to the Disclosure Requirements
for Fair Value Measurement,” which makes a number of changes meant to add, modify or remove certain disclosure requirements
associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. The amendments
in this Update modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, Conceptual
Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits.
The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the
most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively
to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December
15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential
impacts of ASU 2018-13 on its consolidated financial statements.
In February 2020, the FASB
issued ASU 2020-02, “Financial Instruments — Credit Losses (Topic 326) and Leases (topic 842) Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update
No. 2016-02, Leases (topic 842)”. This ASU provides guidance regarding methodologies, documentation, and internal controls related
to expected credit losses. This ASU is effective for interim and annual periods beginning after December 15, 2019, and early adoption
is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements.
The Company believes that there
were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results
of operations.
Results of Operations
We are principally engaged
in the organic fertilizer manufacture and distribution business in the PRC, which account for 91.5% of our total revenue for the nine
months ended September 30, 2022.
As a result of the COVID-19
outbreak in December 2019 and continuing in the year of 2020, the Company’s businesses, results of operations, financial position
and cash flows were adversely affected in 2020. However, the COVID-19 was under control for the nine months ended September 30, 2022
in China. And we are growing our revenue steadily currently and will keep growing through 2022.
Results of Operations for the Three
Months Ended September 30, 2022 and 2021
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Three Months Ended
September 30, | | |
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| | |
2022 | | |
2021 | | |
Fluctuation | | |
| |
| | |
$ | | |
$ | | |
$ | | |
% | |
| Revenues-fertilizer | |
| 3,436,002 | | |
| 3,135,009 | | |
| 300,993 | | |
| 9.6 | % |
| Revenues-logistic | |
| 158,144 | | |
| 206,521 | | |
| (48,377 | ) | |
| -23.4 | % |
| Subtotal of revenue | |
| 3,594,146 | | |
| 3,341,530 | | |
| 252,616 | | |
| 7.6 | % |
| Cost-fertilizer | |
| 1,967,194 | | |
| 2,058,843 | | |
| (91,649 | ) | |
| -4.5 | % |
| Cost- logistic | |
| 110,801 | | |
| 95,943 | | |
| 14,858 | | |
| 15.5 | % |
| Subtotal of cost | |
| 2,077,995 | | |
| 2,154,786 | | |
| (76,791 | ) | |
| -3.6 | % |
| Gross profit | |
| 1,516,151 | | |
| 1,186,744 | | |
| 329,407 | | |
| 27.8 | % |
| Gross margin | |
| 42.18 | % | |
| 35.51 | % | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| General and administrative expenses | |
| 362,562 | | |
| 348,288 | | |
| 14,274 | | |
| 4.1 | % |
| Selling expenses | |
| 97,798 | | |
| 122,274 | | |
| (24,476 | ) | |
| -20.0 | % |
| Total operating expenses | |
| 460,360 | | |
| 470,562 | | |
| (10,202 | ) | |
| -2.2 | % |
| Income(loss) from operations | |
| 1,055,791 | | |
| 716,182 | | |
| 339,609 | | |
| 47.4 | % |
| Other income (expense): | |
| | | |
| | | |
| | | |
| | |
| Interest income (expense) | |
| 13,419 | | |
| (25,884 | ) | |
| 39,303 | | |
| -151.8 | % |
| Asset impairment loss | |
| (241,730 | ) | |
| - | | |
| (241,730 | ) | |
| N/A | |
| Other income (expense), net | |
| 6,771 | | |
| 43,773 | | |
| (37,002 | ) | |
| -84.5 | % |
| Total other income (expense) | |
| (221,540 | ) | |
| 17,889 | | |
| (239,429 | ) | |
| -1338.4 | % |
| Income before income taxes | |
| 834,251 | | |
| 734,071 | | |
| 100,180 | | |
| 13.6 | % |
| Income taxes | |
| 441,266 | | |
| 7,469 | | |
| 433,797 | | |
| N/A | |
| Net income (loss) | |
| 392,985 | | |
| 726,602 | | |
| (333,617 | ) | |
| -45.9 | % |
Revenue
Total revenue for fertilizer
increased from $3,135,009 for the three months ended September 30, 2021, to $3,436,002 for the three months ended September 30, 2022,
which represented an increase of $300,993, or approximately 9.6%. The increase in revenue was mainly due to the slight recovery from
the impact of COVID-19. Traditionally, we experience some seasonality in our sales. We tend to sell more fertilizer products in the fourth
quarter of the year. Additionally, there has been a general recovery in the economy after the height of the pandemic. We expect to see
a trend of improving sales as the pandemic moves further into the past.
Our revenue from our logistics
operations decreased from $206,521 for the three months ended September 30, 2021, to $158,144 for the three months ended September 30,
2022, which represented a decrease of $48,377, or approximately 23.4%. Our revenue from our logistics operations went down during those periods due to the market condition for tech biz. Enterprise customers
were concerned about higher inflation.
Cost
of sales
Cost
of sales for fertilizer slightly decreased from $2,058,843 for the three months ended September 30, 2021, to $1,967,194 for the three
months ended September 30, 2022, which represented a decrease of approximately $91,649, or 4.5%. The decrease in the cost of revenue
for fertilizer was due to the slight decrease in the cost of raw materials.
Cost of sales for logistic
increased from $95,943 for the three months ended September 30, 2021, to $110,801 for the three months ended September 30, 2022, which
represented an increase of approximately $14,858, or 15.5%. The increase in the cost of revenue for logistic was due to the rising labor
cost.
Expenses
We
incurred $97,798 in selling expenses for the three months ended September 30, 2022, compared to $122,274 for the three months ended September
30, 2021. We incurred $362,562 in general and administrative expenses for the three months ended September 30, 2022, compared to $348,288
for the three months ended September 30, 2021. Total selling, general and administrative expenses decreased by $10,202, or 2.2% for the
three months ended September 30, 2022, as compared to the same period in 2021. Our selling expenses decreased by $24,476, and our general
and administrative expenses increased by $14,274. We expect our general and administrative expenses to increase in the near future if
we successfully complete our public offering.
Interest
income (expense)
We
generated $13,419 in interest income during the three months ended September 30, 2022, compared with interest expense of $25,884 for
the three months ended September 30, 2021.
Net
income
Our
net income was $392,985 for the three months ended September 30, 2022, compared with a net income of $726,602 for the three months ended
September 30, 2021, representing a decrease of $333,617.
Results
of Operations for the Nine Months Ended September 30, 2022 and 2021
| | |
Nine Months Ended
September 30, | | |
| | |
| |
| | |
2022 | | |
2021 | | |
Fluctuation | | |
| |
| | |
$ | | |
$ | | |
$ | | |
% | |
| Revenues-fertilizer | |
| 6,474,751 | | |
| 6,856,190 | | |
| (381,439 | ) | |
| -5.6 | % |
| Revenues-logistic | |
| 608,896 | | |
| 616,859 | | |
| (7,963 | ) | |
| -1.3 | % |
| Revenues -others | |
| - | | |
| 120 | | |
| (120 | ) | |
| -100.0 | % |
| Subtotal of revenue | |
| 7,083,647 | | |
| 7,473,169 | | |
| (389,522 | ) | |
| -5.2 | % |
| Cost-fertilizer | |
| 3,648,418 | | |
| 4,234,896 | | |
| (586,478 | ) | |
| -13.8 | % |
| Cost- logistic | |
| 369,205 | | |
| 327,845 | | |
| 41,360 | | |
| 12.6 | % |
| Cost- others | |
| - | | |
| 90 | | |
| (90 | ) | |
| -100.0 | % |
| Subtotal of cost | |
| 4,017,623 | | |
| 4,562,831 | | |
| (545,208 | ) | |
| -11.9 | % |
| Gross profit | |
| 3,066,024 | | |
| 2,910,338 | | |
| 155,686 | | |
| 5.3 | % |
| Gross margin | |
| 43.28 | % | |
| 38.94 | % | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| General and administrative expenses | |
| 708,796 | | |
| 1,057,544 | | |
| (348,748 | ) | |
| -33.0 | % |
| Selling expenses | |
| 218,395 | | |
| 331,678 | | |
| (113,283 | ) | |
| -34.2 | % |
| Total operating expenses | |
| 927,191 | | |
| 1,389,222 | | |
| (462,031 | ) | |
| -33.3 | % |
| Income(loss) from operations | |
| 2,138,833 | | |
| 1,521,116 | | |
| 617,717 | | |
| 40.6 | % |
| Other income (expense): | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| (64,147 | ) | |
| (91,529 | ) | |
| 27,382 | | |
| -29.9 | % |
| Asset impairment loss | |
| (241,730 | ) | |
| - | | |
| (241,730 | ) | |
| N/A | |
| Other income (expense), net | |
| 8,313 | | |
| 103,513 | | |
| (95,200 | ) | |
| -92.0 | % |
| Total other income (expense) | |
| (297,564 | ) | |
| 11,984 | | |
| (309,548 | ) | |
| -2583.0 | % |
| Income before income taxes | |
| 1,841,269 | | |
| 1,533,100 | | |
| 308,169 | | |
| 20.1 | % |
| Income taxes | |
| 447,672 | | |
| 7,469 | | |
| 440,203 | | |
| N/A | |
| Net income (loss) | |
| 1,393,597 | | |
| 1,525,631 | | |
| (132,034 | ) | |
| -8.7 | % |
Revenue
Total revenue for fertilizer
decreased from $6,856,190 for the nine months ended September 30, 2021, to $6,474,751 for the nine months ended September 30, 2022, which
represented a decrease of $381,439, or approximately 5.6%. The decrease in revenue was mainly due to the continuing impact of COVID-19.
Traditionally, we experience some seasonality in our sales. We tend to sell more fertilizer products in the fourth quarter of the year.
Additionally, there has been a general recovery in the economy after the height of the pandemic. We expect to see a trend of improving
sales as the pandemic moves further into the past.
Our
revenue from our logistics operations also decreased from $616,859 for the nine months ended September 30, 2021, to $608,896 for the
nine months ended September 30, 2022, which represented a decrease of $7,963, or approximately 1.3%. Our revenue from our logistics operations went down during those periods due to the market condition for tech biz. Enterprise customers
were concerned about higher inflation.
Cost of sales
Cost of sales for fertilizer
decreased from $4,234,896 for the nine months ended September 30, 2021, to $3,648,418 for the nine months ended September 30, 2022, which
represented a decrease of approximately $586,478, or 13.8%. The decrease in the cost of revenue for fertilizer was in line with the decrease
in revenue.
Cost
of sales for logistic increased from $327,845 for the nine months ended September 30, 2021, to $369,205 for the nine months ended September
30, 2022, which represented an increase of approximately $41,360, or 12.6%. The increase in the cost of revenue for logistic was due
to the rising labor cost.
Gross profit
The gross profit for fertilizer
increased from $2,621,294 for the nine months ended September 30, 2021, to a gross profit of $2,826,333 for the nine months ended September
30, 2022. And the gross margin for fertilizer increased from 38.2% for the nine months ended September 30, 2021, to 43.7% for the nine
months ended September 30, 2022.
The gross profit for logistic
decreased from $289,014 for the nine months ended September 30, 2021, to a gross profit of $239,691 for the nine months ended September
30, 2022. And the gross margin for logistic decreased from 46.9% for the nine months ended September 30, 2021, to 39.4% for the nine
months ended September 30, 2022
Expenses
We incurred $218,395 in
selling expenses for the nine months ended September 30, 2022, compared to $331,678 for the nine months ended September 30, 2021. We
incurred $708,796 in general and administrative expenses for the nine months ended September 30, 2022, compared to $1,057,544 for the
nine months ended September 30, 2021. Total selling, general and administrative expenses decreased by $462,031, or 33.3% for the nine
months ended September 30, 2022, as compared to the same period in 2021. Our selling expenses decreased by $113,283, and our general
and administrative expenses decreased by $348,748. We expect our general and administrative expenses to increase in the near future if
we successfully complete our public offering.
Interest income (expense)
We incurred $64,147 in
interest expense during the nine months ended September 30, 2022, compared with interest expense of $91,529 for the nine months ended
September 30, 2021.
Net income
Our net income was $1,393,597
for the nine months ended September 30, 2022, compared with a net income of $1,525,631 for the nine months ended September 30, 2021,
representing a decrease of $132,034.
Liquidity and Capital Resources
Liquidity is the ability
of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on a going
concern basis. At September 30, 2022 and December 31, 2021 our net current assets (working capital) were $6,626,068 and $5,403,720, respectively.
We have financed our operations
over the nine months ended September 30, 2022 and 2021 primarily through proceeds from net cash inflow from operations.
The components of cash flows
are discussed below:
| | |
Nine Months Ended | |
| | |
September 30, | |
| | |
2022 | | |
2021 | |
| Net cash provided by (used in) operating activities | |
$ | (1,135,389 | ) | |
$ | 4,388,257 | |
| Net cash provided by (used in) investing activities | |
| (128,623 | ) | |
| (1,221,133 | ) |
| Net cash used in financing activities | |
| 1,172,536 | ) | |
| (3,594,247 | ) |
| Exchange rate effect on cash | |
| 294,264 | | |
| 156,869 | |
| Net cash inflow (outflow) | |
$ | 202,788 | | |
$ | (270,255 | ) |
Cash Provided by Operating Activities
Net cash used in operating
activities was $1,135,389 for the nine months ended September 30, 2022. The net cash outflow consisted primarily of a decrease of $3,115,395
in account payable and accrued payable, an increase of $703,821 in account receivable, an increase of $1,442,971 in inventory, an increase
of $1,629,424 in other receivable, a decrease of $353,255 in other payable; and offset by net income of $1,393,597, depreciation and
amortization of $524,121, assets impairment loss of $241,730, a decrease of $3,653,412 in prepayment.
Net cash provided by operating
activities was $4,388,257 for the nine months ended September 30, 2021. The net cash inflow consisted primarily of net income of $1,525,631,
depreciation and amortization of $532,346, a decrease of $4,660,950 in account receivable, a decrease of $10,746,267 in other receivable,
which were offset by an increase of $979,020 in prepayment, a decrease of $9,107,812 in accounts payable and accrued payables, and a
decrease of $3,068,139 in other payable.
Cash used in Investing Activities
The Company purchased office
equipment in amount of $128,623 for the nine months ended September 30, 2022.
Net cash used in investing
activities was $1,221,133 for the nine months ended September 30, 2021. The activities referred to the construction in progress of $1,221,133.
Cash Used in Financing Activities
Net cash provided by financing
activities was $1,172,536 for the nine months ended September 30, 2022. During the period, cash used in financing activities mainly consisted
of the short-term loans repayment of $262,875 and offset by proceeds from related party of $1,435,411.
Net cash used in financing
activities was $3,594,247 for the nine months ended September 30, 2021. During the period, cash used in financing activities mainly consisted
of the proceeds from related parties of $1,023,389 and repayment of short-term loan of $4,617,637.
We anticipate that our current
cash reserves plus cash from our operating activities will not be sufficient to meet our ongoing obligations and fund our operations
for the next twelve months. As a result, we will need to seek additional funding in the near future. We currently do not have a specific
plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from
the sale of shares of our common stock or renewing our current obligations with lenders. We may also seek to obtain short-term loans
from our directors or unrelated parties. Additional funding may not be available, or at acceptable terms, to us at this time. If we are
unable to obtain additional financing, we may be required to reduce the scope of our business development activities, which could harm
our business plans, financial condition and operating results.
Contractual Commitments and Commitments for Capital Expenditure
Contractual Commitments
The following table summarizes
our contractual obligations at September 30, 2022 and the effect those obligations are expected to have on our liquidity and cash flow
in future periods.
| | |
Payments Due by Period as of
September 30, 2022 | |
| | |
Total | | |
Less than
1 Year | | |
2 – 3
Years | | |
4 – 5
Years | | |
Over
5 Years | |
| Contractual obligations | |
| | |
| | |
| | |
| | |
| |
| Loans | |
$ | 1,093,316 | | |
$ | 1,044,318 | | |
$ | 48,998 | | |
$ | - | | |
$ | - | |
| Others | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
$ | 1,093,316 | | |
$ | 1,044,318 | | |
$ | 48,998 | | |
$ | - | | |
$ | - | |
Commitments for Capital Expenditure
There were no non-cancelable
commitments for capital expenditure as of September 30, 2022.
Off Balance Sheet Items
We do not have any off-balance
sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into
operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial
statements in accordance with generally accepted accounting principles in the United States.
Item 3. Quantitative and Qualitative Disclosures
about Market Risk
Not applicable because we
are a smaller reporting company.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b)
under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation
of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure
controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period ended September 30, 2022.
Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are
effective as of September 30, 2022 to ensure that information required to be disclosed by the Company in the reports that the Company
files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s
CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the quarterly period
ended September 30, 2022, there has been no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over
financial reporting. We will continue to monitor the deficiencies identified in internal controls and make changes that our management
deems necessary.
BUSINESS
Overview
We primarily engage in the manufacturing
and distribution of organic fertilizer and the sales of agricultural products in the PRC. Our organic fertilizer products are sold under
our brand names “Zongbao,” “Fukang,” and “Muliang.”
Through our patented technology,
we process crop straw (including corn, rice, wheat, cotton, and other crops) into high quality organic nutritious fertilizers that are
easily absorbed by crops in three hours. Straws are common agricultural by-products. In PRC, farmers usually remove the straw stubble
that are remains after grains, by burning them in order to continue farming on the same land. These activities have resulted in significant
air pollution, and they damage the surface structure of the soil with loss of nutrients. We turn waste into treasure by transforming
the straws into organic fertilizer, which also effectively reduces air pollution. The straw organic fertilizer we produce does not contain
the heavy metals, antibiotics and harmful bacteria that are common in the traditional manure fertilizer. Our fertilizers also provide
optimum levels of primary plant nutrients, including multi-minerals, proteins and carbohydrates that promote the healthiest soils capable
of growing the healthy crops and vegetables. It can effectively reduce the use of chemical fertilizers and pesticides as well as reduce
the penetration of large chemical fertilizers and pesticides into the soil, thus avoiding water pollution. Therefore, our fertilizer
can effectively improve the fertility of soil, and the quality and safety of agricultural products.
We generated our revenue
mainly from our organic fertilizers, which accounted for approximately 91.5% and 91.7% of our total revenue for the nine months
ended September 30, 2022, and 2021, respectively. We currently have two integrated factories in Weihai City, Shandong Province, PRC,
to produce our organic fertilizers, which have been in operation since August 2015. We plan to improve the technology for our existing
straw organic fertilizer production lines in the following aspects: (i) adopt more advanced automatic control technology for raw material
feed to shorten the processing time of raw material, and (ii) manufacture powdered organic fertilizer instead of granular organic fertilizer
production in order to avoid the drying and cooling process, as such will increase our production capacity.
In addition, we plan to engage
in the processing and distribution of black goat products, with business commencing at the end of 2022. We are currently constructing
a deep-processing slaughterhouse and processing plant which is expected to have the capacity of slaughtering 200,000 black goats per
year in Chuxiong City, Yunnan Province, in China. Our black goat processing products will include goat rib lets, goat loin roast, goat
loin chops, goat rack, goat leg, goat shoulder, goat leg shanks, ground goat meat, goat stew meat, whole goat, half goat, lamb viscera,
etc. We expect to start generating revenue from the black goat products in 2022.
Our 42,895 square meters
of industrial land and 28,549 square meters of factory and office space located in Jinshan District, Shanghai was sold to the highest
bidder for RMB 74.52 million (US$11.42 million), and the buyer’s funds have been placed in escrow administered by the court. The
Court has distributed the funds to the mortgagee bank and contractor in April 2021. Our assets include (i) 22,511 square meters of industrial
land and 10,373 square meters of plant area and straw organic fertilizer production line in Weihai City, Shandong Province, and (ii)
more than $2 million investment of land use right and the black goat slaughtering and processing plant located in Shuangbai County, Chuxiong
City, Yunnan Province, China.
As the factory area in Jinshan
District, Shanghai City is too close to the urban area to produce straw organic fertilizer, some factory buildings, office buildings
and spare land in Jinshan District, Shanghai City, were leased to third parties. In August, 2020, the land use right and building of
this factory was listed on Taobao’s online auction platform for sale by the Shanghai Jinshan People’s Court. The sale price
achieved after competitive biddings was RMB 74,515,000 (approximately $11.42 million). Based on this, we have entered into a settlement
agreement with the lienholders of the property and all liens and legal claims attached to our subsidiary Shanghai Zongbao was cleared
on April 3rd 2021. We plan to use the remaining sales proceeds for general working capital needs. The manufacturing base for
the project of Shanghai Zongbao has already been relocated to our property in Weihai and therefore the sale of the land use rights and
building facility has no material adverse impact on our operations.
Investors in our shares of
common stock should be aware that they are purchasing equity in Muliang Viagoo Technology, Inc., our Nevada holding company, which does
not directly own substantially all of the business in China conducted by the VIE. Please refer to the information contained in and incorporated
by reference under the heading “Risks Relating to Our Corporate Structure” on page 46 of this prospectus.
Corporation History and Structure
Muliang Viagoo is a holding
company incorporated in Nevada. As a holding company with no material operations of our own, we conduct a substantial majority of our
operations through our subsidiary in the People’s Republic of China, or “PRC” or “China.” Shanghai Mufeng,
our subsidiary in China, derives its economic benefits from Shanghai Muliang, the variable interest entity, and its subsidiaries. We
receive the economic benefits of the VIE’s business operations through certain contractual arrangements. Investors in our common
shares offered in this offering are purchasing shares of the U.S. holding company and not shares of the VIE and its subsidiaries in China
that are conducting the business operations.
The following diagram
illustrates and assumes the completion of the Reorganization, including consolidation of our subsidiaries and VIE, as well as the disposition
of Viagoo Pte Ltd. and its subsidiaries:
Shanghai Muliang Industry
Co., Ltd. (referred to herein as “Shanghai Muliang”) was incorporated in PRC on December 7, 2006 as a limited liability company,
owned 95% by Lirong Wang and 5% by Zongfang Wang. Shanghai Muliang through its own operations and its subsidiaries is engaged in the
business of developing, manufacturing and selling organic fertilizers and bio-organic fertilizers for use in the agricultural industry.
On May 27, 2013, Shanghai
Muliang entered into and consummated an equity purchase agreement whereby it acquired 99% of the outstanding equity of Weihai Fukang
Bio-Fertilizer Co., Ltd. (“Fukang”), a corporation organized under the laws of the People’s Republic of China. Fukang
was incorporated in Weihai City, Shandong Province on January 6, 2009. Fukang is focused on the distribution of organic fertilizers and
the development of new bio-organic fertilizers. As a result of the completion of the transaction, Fukang became a 99% owned subsidiary
of Shanghai Muliang, with the remaining 1% equity interest owned by Mr. Hui Song.
On July 11, 2013, Shanghai
Muliang established a wholly owned subsidiary, Shanghai Muliang xu Development Co., Ltd. (“Agritech Development”) in Shanghai,
China. On November 6, 2013, Shanghai Muliang sold 40% of the outstanding equity of Agritech Development to Mr. Jianping Zhang for consideration
of approximately $65,000 or RMB 400,000. Agritech Development does not currently conduct any operations.
On July 17, 2013, Shanghai
Muliang entered into an equity purchase agreement to acquire 100% of the outstanding equity of Shanghai Zongbao Environmental Construction
Co., Ltd. (“Shanghai Zongbao”) with consideration of approximately $3.2 million or RMB 20 million, effectively becoming the
wholly-owned subsidiary of Shanghai Muliang. Shanghai Zongbao was incorporated in Shanghai on January 25, 2008. Shanghai Zongbao processes
and distributes organic fertilizers. Shanghai Zongbao wholly owns Shanghai Zongbao Environmental Construction Co., Ltd. Cangzhou Branch
(“Zongbao Cangzhou”).
On August 21, 2014, Muliang Agricultural
Limited (“Muliang HK”) was incorporated in Hong Kong as an investment holding company.
On January 27, 2015, Muliang
HK incorporated a wholly foreign-owned enterprise, Shanghai Mufeng Investment Consulting Co., Ltd (“Shanghai Mufeng”), in
China.
On July 8, 2015, Mullan Agritech
entered into certain stock purchase agreement with Muliang Agriculture, Inc., pursuant to which Mullan Agritech, for a consideration
of $5,000, acquired 100% interest in Muliang HK and its wholly-owned subsidiary Shanghai Mufeng. Both Muliang HK and Shanghai Mufeng
are controlled by the Company’s sole officer and director, Lirong Wang.
On July 23, 2015, Shanghai Muliang
established a wholly owned subsidiary, Shanghai Muliang Agricultural Sales Co., Ltd. (“Muliang Sales”) in Shanghai, China.
On September 3, 2015, Mullan
Agritech effected a split of its outstanding common stock resulting in an aggregate of 150,525,000 shares outstanding of which 120,000,000
were owned by Chenxi Shi, the founder of Mullan Agritech and its sole officer and director. The remaining 30,525,000 were held by a total
of 39 investors.
On January 11, 2016, Mullan Agritech
issued 129,475,000 shares of its common stock to Lirong Wang for an aggregate consideration of $64,737.50. On the same date, Chenxi Shi,
the sole officer and director of Mullan Agritech on that date, transferred 120,000,000 shares of common stock of the Company held by
him to Lirong Wang for $800 pursuant to a transfer agreement.
On February 10, 2016, Shanghai
Mufeng entered into a set of contractual agreements known as Variable Interest Entity (“VIE”) Agreements, including (1) Exclusive
Technical Consulting and Service Agreement, (2) Equity Pledge Agreement, and (3) Call Option Cooperation Agreement, with Shanghai Muliang,
and its Principal Shareholders. As a result of the Stock Purchase Agreement and the set of VIE Agreements, Shanghai Muliang, along with
its consolidated subsidiaries, became entities controlled by Mullan Agritech, whereby Mullan Agritech would derive all substantial economic
benefit generated by Shanghai Muliang and its subsidiaries.
As a result, Mullan Agritech
has a direct wholly-owned subsidiary, Muliang HK and an indirectly wholly owned subsidiary Shanghai Mufeng. Through its VIE Agreements,
Mullan Agritech exercises control over Shanghai Muliang. Shanghai Muliang has two wholly-owned subsidiaries (Shanghai Zongbao and Muliang
Sales), one 99% owned subsidiary (Fukang), one 60% owned subsidiary (Agritech Development), and one indirectly wholly owned subsidiary
Zongbao Cangzhou.
On June 6, 2016, Shanghai
Muliang established a wholly-owned subsidiary, namely, Muliang (Ningling) Bio-chemical Fertilizer Co. Ltd (“Ningling Fertilizer”)
in Henan Province, the central plain of China. Ningling Fertilizer is setup for a new production line of bio-chemical fertilizer and
has not begun any operation yet.
On July 7, 2016, Shanghai
Muliang established a subsidiary, namely, Zhonglian Huinong (Beijing) Technology Co., Ltd (“Zhonglian”) in Beijing City,
China. Shanghai Muliang owns 65% shares of Zhonglian, and a third-party company, Zhongrui Huilian (Beijing) Technology Co., Ltd owns
the other 35% shares. Zhonglian is to develop and operate an online agricultural products trading platform.
On October 27, 2016, Shanghai
Muliang established a subsidiary, namely, Yunnan Muliang Animal Husbandry Development Co., Ltd (“Yunnan Muliang”) in Yunnan
Province, China. Shanghai Muliang owns 55% shares of Yunnan Muliang, and a third-party company, Shuangbai County Development Investment
Co., Ltd. owns the other 45% shares. Yunnan Muliang was setup for the sales development of West China.
On October 12, 2017, the
Company canceled the registration of Ningling with the administration authorities for Industry and Commerce. Ningling has historically
been reported as a component of our operations and incurred $33,323 to loss before income taxes provisions for the year ended December
31, 2017. The termination does not constitute a strategic shift that will have a major effect on our operations or financial results
and as such, the termination is not classified as discontinued operations in our consolidated financial statements.
On June 19, 2020, the Company
entered into a Share Exchange Agreement with Viagoo Pte Ltd. and all the shareholders of Viagoo for the acquisition of 100%
equity interest of Viagoo. Pursuant to the SEA, Muliang shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right,
title and interest in and to the Viagoo’s capital stock. The aggregate purchase price for the Shares shall be US$2,830,800, payable
in 1,011,000 shares of the Company’s restricted common stock, valued at $2.80 per share.
Muliang HK, Shanghai Mufeng,
Shanghai Muliang, Shanghai Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development, Yunnan Muliang, Zhonglian, and Viagoo
are referred to as subsidiaries. The Company and its consolidated subsidiaries are collectively referred to herein as the “Company”,
“we” and “us”, unless specific reference is made to an entity.
On April 4, 2019, the Company’s
Board of Directors and majority shareholder approved a 5 to 1 reverse stock split of all of the issued and outstanding shares of the
Company’s common stock, the change of corporate name from “Mullan Agritech Inc.” to “Muliang Agritech Inc,”
and the creation of one hundred million (100,000,000) shares of Blank Check Preferred Stock.
On December 16, 2022,
the Company entered into a share purchase agreement (the “Agreement”) with Viagoo Inc. (the “Buyer”), pursuant
to which the Buyer purchased 100% of the issued and outstanding ordinary shares of Viagoo Pte Ltd., a Singapore private limited liability
company and a 100% parent company of NexG Pte. Ltd., and TPS Solutions Hong Kong Limited, from the Company in exchange for a consideration
of US$ 5,254,001.20 to be paid to the Company.
Our board of directors
and our majority shareholder is planning to effect a 2 to 1 reverse split of our common stock and preferred stock, and plan to file the
changes with the Nevada Secretary of State. The reverse split will combine each two shares of our outstanding common stock or preferred
stock into one share of common stock or preferred stock. No fractional shares will be issued in connection with the reverse split, and
any fractional shares resulting from the reverse split were rounded up to the nearest whole share. Further details pertaining to the
timing and terms of the reverse stock split remains under review.
On April 5, 2019, we filed a
Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the Name Change
and to authorize the creation of Blank Check Preferred Stock. As a result, the capital stock of the Company consists of 500,000,000 shares
of common stock, $0.0001 par value, and 100,000,000 shares of blank check preferred stock, $0.0001 par value. To the fullest extent permitted
by the laws of the State of Nevada, as the same now exists or may hereafter be amended or supplemented, the Board of Directors may fix
and determine the designations, rights, preferences or other variations of each class or series within each class of preferred stock
of the Company. The Company may issue the shares of stock for such consideration as may be fixed by the Board of Directors.
On April 16, 2019, we filed a
Certificate of Change to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the reverse stock
split. Any fractional shares are to be rounded up to whole shares. The reverse stock split does not affect the par value or the number
of authorized shares of common stock of the Company.
The reverse stock split and
the name change took effect on May 7, 2019. In connection with the name change, our stock symbol changed to “MULG”.
On June 26, 2020, the Company
filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of the State of the State of Nevada, changing its
name from “Muliang Agritech, Inc.” to “Muliang Viagoo Technology, Inc.”.
Contractual
Arrangements
Shanghai Muliang was incorporated
in PRC on December 7, 2006 as a limited liability company, owned 95% by Lirong Wang and 5% by Zongfang Wang. Shanghai Muliang through
its own operations and its subsidiaries is engaged in the business of developing, manufacturing, and selling organic fertilizers and
bio-organic fertilizers for use in the agricultural industry.
Shanghai Muliang is deemed
the variable interest entity or VIE. Due to PRC legal restrictions on foreign ownership, neither we nor our subsidiaries own any
direct equity interest in Shanghai Muliang. Instead, we receive the economic benefits of Shanghai Muliang’s business operation
through a series of contractual arrangements Shanghai Mufeng, Shanghai Muliang and the Shanghai Muliang Shareholders entered into a series
of contractual arrangements, also known as the VIE Agreements. Because of the VIE Agreements, we are regarded as the primary beneficiary
of Shanghai Muliang for accounting purpose, and, therefore, we are able to consolidate the financial results of Shanghai Muliang in our
consolidated financial statements in accordance with U.S. GAAP. However, neither we nor our subsidiaries own any share in Shanghai Muliang.
It is likely that investors in this offering will never hold ownership interests, direct or indirect, in the VIE and would merely have
a contractual relationship. The VIE structure cannot completely replicate a foreign investment in China-based companies. Instead, the
VIE structure provides contractual exposure to foreign investment in us.
If Shanghai Muliang and its
subsidiary or the Shanghai Muliang Shareholders fail to perform their respective obligations under the contractual arrangements, we could
be limited in our ability to enforce the contractual arrangements with Shanghai Muliang and its subsidiary and we would not be able to
continue to consolidate the financial results of the variable interest entity in our financial statements.
As a result of these contractual
arrangements, we have become the primary beneficiary of, and we treat Shanghai Muliang and its subsidiaries as the variable interest
entity under U.S. GAAP. We have consolidated the financial results of the VIE in our consolidated financial statements in accordance
with U.S. GAAP.
The
tables below demonstrate the quantitative metrics of the U.S. holding company and the VIE
(Shanghai Muliang Industry Co., Ltd.), for the nine months ended September 30, 2022 and for
the fiscal years ended December 31, 2021 and 2020. Please read this data together with our
consolidated financial statements and related notes included in the registration statement
of which this prospectus is a part.
As of and for the nine months ended September
30, 2022
| | |
Shanghai Muliang Industry Co.,
Ltd. (VIEs) | | |
Consolidated Financials | | |
% of the Consolidated Financials | |
| | |
| | |
| | |
| |
| Current assets | |
$ | 15,700,547 | | |
$ | 16,551,921 | | |
| 95 | % |
| Non-current assets | |
| 7,616,546 | | |
| 8,292,046 | | |
| 92 | % |
| Total Assets | |
| 23,317,093 | | |
| 24,843,967 | | |
| 94 | % |
| Current liabilities | |
| 8,516,935 | | |
| 9,925,853 | | |
| 86 | % |
| Non-current liabilities | |
| 109,526 | | |
| 142,349 | | |
| 77 | % |
| Total liabilities | |
| 8,626,461 | | |
| 10,068,202 | | |
| 86 | % |
| Total shareholders’ equity (deficit) | |
| 14,690,632 | | |
| 14,775,765 | | |
| 99 | % |
| Revenues | |
| 6,474,751 | | |
| 7,083,647 | | |
| 91 | % |
| Cost of goods sold | |
| 3,648,418 | | |
| 4,017,623 | | |
| 91 | % |
| Gross profit | |
| 2,826,333 | | |
| 3,066,024 | | |
| 92 | % |
| Total operating expenses | |
| 483,249 | | |
| 927,191 | | |
| 52 | % |
| Income before taxes | |
| 2,045,520 | | |
| 1,841,269 | | |
| 111 | % |
| Net income | |
| 1,650,353 | | |
| 1,393,597 | | |
| 118 | % |
| Net cash provided by (used in) operating activities | |
| (1,038,837 | ) | |
| (1,135,389 | ) | |
| 91 | % |
| Net cash provided by (used in) investing activities | |
| (128,623 | ) | |
| (128,623 | ) | |
| 100 | % |
| Net cash provided by (used in) financing activities | |
$ | 1,172,536 | | |
$ | 1,172,536 | | |
| 100 | % |
As of and for the year ended December 31, 2021
| | |
Shanghai
Muliang
Industry
Co., Ltd. (VIE) | | |
Consolidated
Financials | | |
% of the
Consolidated Financials | |
| | |
| | |
| | |
| |
| Current assets | |
$ | 18,972,383 | | |
$ | 19,173,830 | | |
| 99 | % |
| Non-current assets | |
| 8,995,363 | | |
| 9,726,617 | | |
| 92 | % |
| Total Assets | |
| 27,967,746 | | |
| 28,900,447 | | |
| 97 | % |
| Current liabilities | |
| 12,788,253 | | |
| 13,770,110 | | |
| 93 | % |
| Non-current liabilities | |
| 7,957,593 | | |
| 422,480 | | |
| 1884 | % |
| Total liabilities | |
| 20,745,846 | | |
| 14,192,590 | | |
| 146 | % |
| Total shareholders’ equity (deficit) | |
| 7,221,900 | | |
| 14,707,857 | | |
| 49 | % |
| Revenues | |
| 9,732,758 | | |
| 10,635,402 | | |
| 92 | % |
| Cost of goods sold | |
| 5,910,793 | | |
| 6,388,771 | | |
| 93 | % |
| Gross profit | |
| 3,821,965 | | |
| 4,246,631 | | |
| 90 | % |
| Total operating expenses | |
| 3,782,843 | | |
| 2,501,093 | | |
| 151 | % |
| Income before taxes | |
| - | | |
| 1,946,158 | | |
| N/A | |
| Net income | |
| - | | |
| 1,731,177 | | |
| N/A | |
| Net cash provided by (used in) operating activities | |
| 5,486,592 | | |
| 4,930,236 | | |
| 111 | % |
| Net cash provided by (used in) investing activities | |
| (1,158,773 | ) | |
| (1,158,773 | ) | |
| 100 | % |
| Net cash provided by (used in) financing activities | |
$ | (4,328,560 | ) | |
$ | (4,363,568 | ) | |
| 99 | % |
As of and for the year ended December 31, 2020
| | |
Shanghai
Muliang
Industry
Co., Ltd. (VIE) | | |
Consolidated
Financials | | |
% of the
Consolidated Financials | |
| | |
| | |
| | |
| |
| Current assets | |
$ | 25,878,427 | | |
$ | 26,306,653 | | |
| 98 | % |
| Non-current assets | |
| 8,863,429 | | |
| 8,882,047 | | |
| 100 | % |
| Total Assets | |
| 34,741,856 | | |
| 35,188,700 | | |
| 99 | % |
| Current liabilities | |
| 20,471,148 | | |
| 21,161,217 | | |
| 97 | % |
| Non-current liabilities | |
| 6,709,833 | | |
| 1,426,080 | | |
| 471 | % |
| Total liabilities | |
| 27,180,981 | | |
| 22,587,297 | | |
| 120 | % |
| Total shareholders’ equity (deficit) | |
| 7,560,875 | | |
| 12,601,403 | | |
| 60 | % |
| Revenues | |
| 10,635,138 | | |
| 11,008,532 | | |
| 97 | % |
| Cost of goods sold | |
| 6,116,664 | | |
| 6,248,757 | | |
| 98 | % |
| Gross profit | |
| 4,518,474 | | |
| 4,759,775 | | |
| 95 | % |
| Total operating expenses | |
| 3,844,012 | | |
| 3,141,996 | | |
| 122 | % |
| Income before taxes | |
| - | | |
| 584,928 | | |
| N/A | |
| Net income | |
| - | | |
| 979,907 | | |
| N/A | |
| Net cash provided by (used in) operating activities | |
| 1,414,110 | | |
| 1,807,790 | | |
| 78 | % |
| Net cash provided by (used in) investing activities | |
| - | | |
| (75,346 | ) | |
| N/A | |
| Net cash provided by (used in) financing activities | |
$ | (1,648,247 | ) | |
$ | (1,368,247 | ) | |
| 120 | % |
Each of the agreements under
the VIE Arrangements is described in detail below. For the complete text of these agreements, please see the copies filed as exhibits
to the registration statement of which this prospectus forms a part.
Call Option and Cooperation Agreement
Pursuant to the Call Option
and Cooperation Agreement, the shareholders of Shanghai Muliang agree to exclusively grant the WFOE with an irrevocable call option to
request the shareholders to transfer their equity shares in Shanghai Muliang to the WFOE and/or its designated entity or individual,
as well as the absolute discretion on determining the specific time, method and times of its exercise of call option. The shareholders
shall not, without WFOE’s written consent, transfer or otherwise dispose of any equity or create any encumbrance or other third-party
rights on any equity, increase or decrease the registered capital of Shanghai Muliang, declare the distribution of or actually distribute
any distributable profits, dividends or bonus shares, agree or causes the merger or division of Shanghai Muliang, directly or indirectly
hold any equity in, or become the director or employee of, or provide any services for entities engaging in any business that is similar
to or competing with Shanghai Muliang, cause Shanghai Muliang to be terminated, liquidated or dissolved, and amend the articles of Shanghai
Muliang.
Equity Pledge Agreements
Pursuant to the Equity Pledge
Agreements, the shareholders of Shanghai Muliang pledged all of the equity interests in Shanghai Muliang to WFOE as a guarantee for (a)
the performance of contractual obligations under the Call Option and Cooperation Agreement and (b) the repayment of (i) all monetary
payment obligations of Shanghai Muliang under any transaction agreement, (ii) all direct, indirect and derivative losses and loss of
foreseeable profits suffered by the WFOE due to any breaching of Shanghai Muliang, and (iii) all fees incurred by WFOE for its enforcement
of the contractual obligations of Shanghai Muliang. The shareholders may not transfer the pledged equity without WFOE’s prior written
consent.
Exclusive Technical Consultation and Service
Agreement
Pursuant to the exclusive
technical consultation and service agreement between Shanghai Mufeng Investment Consulting Group and Shanghai Muliang, Shanghai Mufeng
is engaged as exclusive provider of support and consulting services concerning the technologies and market development to Shanghai Muliang.
For such services, Shanghai Muliang agree to pay service fees determined based on all of their net income to Shanghai Muliang.
Our Industry
The Status and Market Demand of Straw Organic Fertilizer Industry
in China
Straw in China is in a large
quantity, and has wide variety and broad distribution. The annual output of straw is more than 700 million tons, according to the China
Industry Information Network’s report on “2017 China Straw Resource Reserves and Utilization Market Overview.” Straw
contains more than 3 million tons of nitrogen, more than 700,000 tons of phosphorus and nearly 7 million tons of potassium, equivalent
to more than a quarter of China’s current fertilizer amount of use and equivalent to 300 million tons of standard coal. However,
nearly 100 million tons of straws are burned directly in the fields every year, which not only seriously damages the beneficial bacteria
in the soil surface, but also directly leads to severe air pollution and increases the greenhouse effect. With the significant amount
of production of straws in China, so long as part of the straw can be recycled every year, it will bring huge sustainable recycling resources
to the fertilizer industry. On November 25, 2015, the National Development and Reform Commission, the Ministry of Finance, the Ministry
of Agriculture and the Ministry of Environmental Protection jointly issued a notice, requiring the utilization rate of straw to exceed
85% by 2020.
Market demand in China for
organic fertilizer is significant. According to the National Bureau of Statistics in 2019, the China national sales volume of organic
fertilizers in 2018 was 133.42 million tons. According to the current policy of encouraging less use of chemical fertilizer, improving
the quality of agricultural products and restoring land, it is estimated that the demand of organic fertilizers will increase to 180
million tons by 2020. At the same time, according to a governmental advocate of increasing proportion of organic fertilizer to 50% of
the total use of fertilizer, the demand in China for organic fertilizer will reach more than 500 million tons by 2030.
The Environmental Considerations of Promoting Straw Organic Fertilizer
Less Air Pollution. Even
if each county area builds a 100,000 tons of straw disposal factories, 100 counties in total can approximately reduce 10 million tons
of straw burning, reduce carbon dioxide emissions by 15 million tons, and reduce a large number of carbon monoxide, volatile organic
particles (PM), nitrogen oxides, benzene, polycyclic aromatic hydrocarbons and other harmful gases.
Less soil pollution, more
environment restoration. Straw is a circulating agricultural resource and the best organic fertilizer resource, according to Baidu. Straw
organic fertilizer is also the main measure to convert wasteland, tidal flat and saline-alkali land into arable land, to transform barren
land into medium-low yield field and to upgrade medium-low yield field to high-quality fertile field.
Less water pollution. The utilization
rate of traditional chemical fertilizers is generally below 30%, and 70% of the dissolved chemical fertilizers directly enter the underground
water bodies and flow into rivers, resulting in eutrophication of water bodies. Increasing the application of organic fertilizer is one
of the important methods to reduce water pollution.
The High Growth of Logistics and Last Mile
Delivery Market in China
According to research done
by Reportlinker.com (https://www.reportlinker.com/p05819554/Global-Last-Mile-Delivery-Industry.html?utm_source=GNW), the global last
mile delivery market is estimated to reach USD 53.4 billion by 2027. China, the world’s second largest economy is expected to reach
a market size of USD 9.3 billion by the year 2027, representing a compound annual growth rate (CAGR) of 7.1% over the analysis period
of 2020 to 2027.
With Muliang Viagoo’s
last mile delivery platform, we are placed in a good position to aggregate the carriers and merchant’s orders, taking advantage
of the route optimization and tracking technologies to drive down the cost per delivery. The platform is able to expand beyond Muliang’s
business network of organic fertilizer supplies to food distribution, restaurants and eCommerce merchants.
Our Products
We are committed to ensuring
the quality of our agricultural products. We aim to provide high-quality and environmentally friendly straw organic fertilizer for our
customers. Our organic fertilizers are the products of natural decomposition and are easy for plants to absorb and digest. Our powder
form fertilizer maximizes the survival rate of microorganisms, ensures faster nutrient absorption and increases soil improvement seed
and processing productivity. While we are primarily engaged in producing organic fertilizers, we also sell agriculture food products
such as apples. We generated our revenue mainly from our organic fertilizers, which constituted approximately 91.5% and 91.7% of our
total revenue for the nine months ended September 30, 2022 and 2021, respectively. In addition, we engage in the processing and distribution
of black goat products, with business commencing at the end of 2022. We are currently constructing a deep-processing slaughterhouse and
processing plant which is expected to have the capacity of slaughtering 200,000 black goats per year in Chuxiong City, Yunnan Province,
in China. We expect to start generating revenue from the black goat products in 2022. The rest of our revenues for the last two fiscal
years comes from the sales of agricultural foods as an intermediate sales agent for large diary companies in China such as Bright Dairy &
Food Co., Ltd., and Mengniu Dairy industry Limited.
Organic Fertilizer
Our fertilizer products are sold
under our brand names “Zongbao,” “Fukang,” and “Muliang.” There are seven lines of our organic fertilizers
including:
| |
●
|
Soil
improvement and preparation fertilizer, which includes compound microbes, probiotics that can supplement microorganisms and trace
elements of soil. It can be used as both starter fertilizer and regular fertilizer; |
| |
● |
Root
protection fertilizer, which is an organic nutrient water-soluble fertilizer that can help the growth of crops’ roots; |
| |
● |
Foliar
nutrition fertilizer, which is a biological growth promoter to help customers take care of the foliar of their plants; |
| |
● |
Lower
pesticide residue fertilizer, which can help our customers reduce the usage of pesticide and enhance the resistance ability for plants; |
| |
● |
Fruit
special fertilizer which contains enhanced nutrient availability to increase plant performance; |
| |
● |
Fruit
tree fertilizer that promotes healthy roots and fruit growth and are ideal for all fruit trees and berries; and |
| |
● |
Corn
and peanuts fertilizer that are specially used for corns and peanuts. |
Our organic fertilizer contains
all-purpose nutrition that can be used in the different stages of plant growth. It aims to increase soil fertility, improve soil aggregate
structure, provide nutrient absorption ability for crop, improve water retention capacity and improve fertilizer utilization, thus creating
a sustainable environment and healthy soil.
Future Products
Black Goat Processing Products
Currently we engage in the
processing and distribution of black goat products, with business commencing at the end of 2022. We are currently constructing a deep-processing
slaughterhouse and processing plant which is expected to have the capacity of slaughtering 200,000 black goats per year in Chuxiong City,
Yunnan Province, in China. Our black goat processing products will include goat rib lets, goat loin roast, goat loin chops, goat rack,
goat leg, goat shoulder, goat leg shanks, ground goat meat, goat stew meat, whole goat, half goat, lamb viscera, etc. We expect to start
generating revenue from the black goat products in 2022.
Forage Grass
We are exploring the options
to use forage grass as an alternative for traditional feed for live-stocks. We currently have several research and development projects
with schools and institutions. See “Research and Development” on page 93.
Our Technology
and Manufacturing Process
We utilize
our patented technologies to process crop straws into organic fertilizer.
Crop
straws include the stems, roots, leaves, pods and vines of crops. The main ingredients are cellulose, hemicellulose and lignin, as well
as a small amount of minerals. Straw is a crude fiber material that is waxy and lignified. The fermentation cycle is long for the straw
to be processed into organic fertilizer, as it takes 15 days to 60 days for microbial action. This is a common challenge for the large-scale
and timely manufacturing of straw fertilizer.
The
crop straws will be processed into a nutrient-rich organic fertilizer in a closed container by low-pressure, medium-temperature acid
hydrolysis technology (with 9-to-13-kg pressure and at 150-to-180-degree temperature). The basic principle is as follows:
We utilize
cellulose hydrolysis, hemicellulose hydrolysis and lignin hydrolysis methods to process cellulose, hemicellulose and lignin into short-chain
cellulose, polysaccharide, monosaccharide, oligomer, etc. Based on the demand for our organic fertilizers and the controlled processing
conditions, on average our methods produce a mix with a majority of short-chain cellulose, some polysaccharides and a small amount of
monosaccharides.
The
straws are stored in our warehouse after compacting them in a briquetting machine. The straw compacts are easy to transfer and occupy
less storage space. The straw compacts will be first crushed to 3 cm to 5 cm in length. The straws are then processed in the hydrothermal
degradation tank for 2 to 3 hours. We pump steam generated by a boiler into the hydrothermal degradation tank, so that the temperature
in the hydrothermal degradation tank is maintained between 150°C and 180°C and the pressure is maintained at 0.9-1.3MPa. After
2-3 hours of thermal degradation, we release the pressure to 0.2~0.4MPa. By releasing the pressure, the straws explode to the storage
tank, resulting in a mechanical treatment of the explosion impinging stream, breaking the cellulose, hemicellulose and lignin in the
straw, breaking the hydrogen bonds, degrading fiber crystallization regions into an amorphous stage and degrading macromolecules into
micro-molecules. After that, we add different auxiliary materials through an automatic batching system to make different organic fertilizers
suitable for different crops. We then repeat a process of crushing, granulating, cooling and screening before packaging the fertilizers
into products.
Sales
and Marketing
We
believe that our sales services, combined with the quality and reputation of our products will help us retain and attract new customers.
We
distribute and sell our products to our end-customers through several different channels, including professional markets and the sales
department of our company and distributors:
| |
● |
Professional
Market: we built a long-term cooperation relationship with private agricultural companies and agricultural cooperative associations
for sales; |
| |
● |
Sales
Department: we have sixteen sales representatives with our sales department that are professionally trained to efficiently promote
and deliver products to our customers; |
| |
● |
Third-party
Agent and Distributors: we utilize various third-party agents and distributors to sell and distribute our products; and |
| |
● |
E-commerce:
we are designing and setting up an online trading platform to sell our products, which is expected to be completed in 2022. |
By
using various channels to sell and distribute our products to customers, we can directly serve our customers and end-customers by providing
customer service and support.
Suppliers
and Customers
Suppliers
Most of our suppliers are
local suppliers from Qingdao city, Shandong province. The main raw materials for organic feeds include: (i) hydrolysed crop straw, which
are chemically decayed wheat straw, corn straw and other kinds of crop straw, accounting for about 54% of the total raw materials; (ii)
plant ash (Potassium carbonate, K2CO3), accounting for estimated 4% of the total raw materials; and (iii) Humic acid, accounting for
about 3% of the total raw materials. Other auxiliary materials include monoammonium phosphate, urea, etc.
The following table sets
forth information as to each supplier that accounted for 10% or more of the Company’s purchase for the periods presented.
| | |
For the nine months ended September
30, | |
| Suppliers | |
2022 | | |
2021 | |
| | |
Amount | | |
% | | |
Amount | | |
% | |
| A | |
| 1,412,513 | | |
| 30 | % | |
| N/A
| | |
| N/A
| |
| B | |
| 1,689,611 | | |
| 36 | % | |
| 593,100 | | |
| 14 | % |
| C | |
| 691,015 | | |
| 15 | % | |
| 746,589 | | |
| 17 | % |
| D | |
| N/A | | |
| N/A | | |
| 621,387 | | |
| 15 | % |
| E | |
| 697,444 | | |
| 15 | % | |
| 619,532 | | |
| 14 | % |
| | |
For the year ended December 31, | |
| Suppliers | |
2021 | | |
2020 | |
| | |
Amount | | |
% | | |
Amount | | |
% | |
| A | |
| 977,168 | | |
| 19 | % | |
| N/A | | |
| N/A | |
| B | |
| 913,496 | | |
| 18 | % | |
| 2,618,036 | | |
| 35 | % |
| C | |
| 837,216 | | |
| 16 | % | |
| N/A | | |
| N/A | |
| D | |
| 623,261 | | |
| 12 | % | |
| 725,566 | | |
| 10 | % |
| E | |
| 621,401 | | |
| 12 | % | |
| N/A | | |
| N/A | |
Customers
Our customers are mainly
located in provinces of Guangdong, Jilin and Shandong.
The following table sets
forth information as to each customer that accounted for 10% or more of the Company’s revenues for the periods presented.
| | |
For the nine months ended September
30, | |
| Customer | |
2022 | | |
2021 | |
| | |
Amount | | |
% | | |
Amount | | |
% | |
| Guangzhou Lvxing Organic Agricultural Products Co., Ltd | |
| 2,551,090 | | |
| 39 | % | |
| 2,407,951 | | |
| 32 | % |
| Guangzhou Xianshangge Trading Co., Ltd | |
| 2,715,338 | | |
| 42 | % | |
| 2,308,618 | | |
| 31 | % |
| | |
For the years ended December 31, | |
| Customer | |
2021 | | |
2020 | |
| | |
Amount | | |
% | | |
Amount | | |
% | |
| Guangzhou Lvxing Organic Agricultural Products Co., Ltd | |
| 3,521,542 | | |
| 36 | % | |
| 2,597,402 | | |
| 36 | % |
| Guangzhou Xianshangge Trading Co., Ltd | |
| 3,414,994 | | |
| 35 | % | |
| 3,011,449 | | |
| 42 | % |
Our
Growth Strategy
We
intend to build upon our proven ability to produce high-quality organic fertilizer and increase our presence and market share in the
agriculture industry. We have begun to implement the growth strategies described below and expect to continue to do so over the several
years following this offering. Although the net proceeds of this offering will be available to assist us to implement our growth strategies,
we cannot estimate the ultimate amount of capital needed to achieve our expected growth. We may need additional capital to implement
these strategies, particularly in the event we pursue acquisitions of complementary businesses or technologies.
Scale
Up Production of Organic Fertilizer and Accelerate Penetration in Local and Regional Markets
We plan to construct a new
organic fertilizer factory in Heilongjiang Province, China. We have entered into a strategic cooperation agreement with Suihua City of
Heilongjiang Province to produce a total of 1 million tons of organic fertilizer. We expect to produce 70,000 tons of organic fertilizer
in 2021 and the remaining within the next 5 years. In addition, we will establish warehouse and distribution center in Heilongjiang Province,
which is expected to accelerate penetration in the local and regional market.
Increase
Sources of Revenue by Expanding Our Current Business
We engage in the processing
and distribution of black goat products, with business commencing at the end of 2022. We are currently constructing a deep-processing
slaughterhouse and processing plant which is expected to have the capacity of slaughtering 200,000 black goats per year in Chuxiong City,
Yunnan Province, in China. We expect to start generating revenue from the black goat products in 2022. Demand for lamb in China as an
alternative to pork is increasing due to growing concern on swine disease and pork quality. We plan to offer lamb and lamb products to
consumers via a subscription program available on our website and mobile app in the future.
Continue
to Invest in Research and Development and Expand Our Product Portfolio
We have invested significant
capital in the development and improvement of our products. One of the R&D results introduced us to a type of forage grass that contains
30% more protein than other crops. We plan to work with the forage grass farmers in Xinjiang Province and to produce plant protein powder
from the forage grass to be used in food and beverages in 2022.
Competitive
Advantages
Competitive Advantages of Our Technology
| |
●
|
Quick
disposal: straw can be disposed into powder in three hours. |
| |
● |
Continuous
operation: the production line is formed with connecting hydrolysis tanks, which allows the full use of steam heat and continuous
charging, hydrolysis and discharge. |
| |
● |
Environmental
protection: all the disposal devices are closed containers and pipelines to avoid gas and material leakage. |
| |
●
|
High
fertilizer efficiency: the organic fertilizer matrix after straw disposal has a higher content of organic matter than the compost
products of livestock and poultry manure, and it has a comprehensive organic nutritional composition. It also avoids pesticide, insect
pest returning to the field, excessive loose soil and the hidden trouble of fermenting and burning seedlings in the field. |
| |
● |
Less
space: 80,000 tons of straw disposal plant only need 6.6 – 8.2 acres of land. |
| |
● |
Strong
replicability: our technology and production line can be replicated in different countries. |
Competitive
Advantage of Our Products
| |
● |
Quality
Advantage. Compared with the traditional compost manure fermented fertilizer, our product has a high concentration of organic matter
and small molecular organic nutrients that can be directly absorbed by crops rich in fulvic acid, polysaccharides and monosaccharides.
The effectiveness of our product is 50% higher than the same amount of conventional organic fertilizer. |
| |
● |
Safety
advantage. Compared with traditional livestock and poultry manure composting fermented fertilizer, our product generates less residue
of heavy metals, antibiotics, toxic and harmful bacteria, avoids the pollution of soil, and ensures the quality and safety of agricultural
products. |
Intellectual
Property
We
rely on certain intellectual property to protect our domestic business interests and ensure our competitive position in our industry.
We have 12 patents and 5
registered trademarks in China on sludge and straw technology, and we are a pilot company of technology in Jinshan District, Shanghai.
Among the patents we now own, “microwave induced catalytic hydrolysis treatment sludge” was reviewed by Chinese Academy of
Sciences Shanghai Technology Chaxin Consulting Centre (the “Centre”) (report no. 200921C0703709, 200821C0701507). According
to the review by the Centre, there is no public report of the same kind of research, and therefore, the project is innovative and is
advanced at the international level.
Patents
We
own the following patents through our subsidiaries and/or VIE entities:
| No. |
|
Patent
Name |
|
Patent
Number |
|
Certificate
Number |
| 1 |
|
Pressure
relief material discharge and storage device |
|
ZL2009200705204 |
|
130427 |
| 2 |
|
Chemical
catalytic hydrolysis tank |
|
ZL2009200705219 |
|
1370181 |
| 3 |
|
Material
storage bin with crusher |
|
ZL2009200706156 |
|
1370214 |
| 4 |
|
Pneumatic
check valve type tank cap |
|
ZL2009200706160 |
|
1370180 |
| 5 |
|
Regenerative
heat exchanger |
|
ZL2009200705223 |
|
1419186 |
| 6 |
|
Method
for preparing novel material by catalyzing and hydrolyzing mud through microwave inducing |
|
ZL2008100346358 |
|
814191 |
| 7 |
|
Method
for removing heavy metals from activated sludge |
|
ZL2009100494481 |
|
1224500 |
| 8 |
|
Method
for comprehensively treating grating garbage and activated sludge in sewage plant |
|
ZL2009100494462 |
|
1276553 |
| 9 |
|
Method
for preparing water soluble quick-acting organic fertilizer from activated sludge |
|
ZL2009100494458 |
|
1311657 |
| 10 |
|
Mechanical
force chemical treating method for organic solid wastes |
|
ZL2009100494477 |
|
1372950 |
| 11 |
|
Method
for preparing fuel oil by activated sludge in pipe bundle cracking furnace |
|
ZL2011100405076 |
|
1513772 |
| 12 |
|
Method
for directly flashing treated water into superheated steam and application |
|
ZL2011100405127 |
|
2306463 |
Trademarks
We own several trademarks
through our subsidiaries and/or VIE entities, including Muliang, Zongbao, Xiutubao, Vijifeng, Jingletu, and Huangdicao. Muliang and Zongbao
are our company’s brand names.
Our
Property, Plant and Equipment
Our principal executive office
is located at 2498 Wanfeng Highway, Lane 181, Fengjing Town, Jinshan District, Shanghai, China, and our telephone number is (86) 21-67355092.
The office space belongs to our President and Chief Executive Officer, Mr. Lirong Wang, who allows us to use the space for free.
Property, plant and equipment
at September 30, 2022 and December 31, 2021 consisted of:
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Building | |
$ | 2,716,912 | | |
$ | 3,037,848 | |
| Operating equipment | |
| 2,661,049 | | |
| 2,981,424 | |
| Vehicle | |
| 79,717 | | |
| 89,134 | |
| Office equipment | |
| 78,124 | | |
| 100,851 | |
| Apple Orchard | |
| 898,849 | | |
| 1,110,067 | |
| Construction in progress | |
| 2,795,018 | | |
| 3,125,180 | |
| | |
| 9,229,669 | | |
| 10,444,504 | |
| Less: Accumulated depreciation | |
| (3,279,128 | ) | |
| (3,250,242 | ) |
| | |
$ | 5,950,541 | | |
$ | 7,194,262 | |
For the nine months ended
September 30, 2022 and 2021, depreciation expense amounted to $524,121 and $532,346, respectively. Depreciation is not taken during the
period of construction or equipment installation. Upon completion of the installation of manufacturing equipment or any construction
in progress, construction in progress balances will be classified to their respective property and equipment category.
The construction in progress
of $2,795,018 represents the investment of a black goat processing plant located in Shuangbai County, Chuxiong City, Yunnan Province,
PRC.
Our
Employees
As of the date of this prospectus, we have 135
full-time employees. The following table sets forth the number of our employees by function:
| Functional Area | |
Number of Employees | |
| Senior management | |
| 16 | |
| Sales, Technical and Procurement | |
| 26 | |
| IT Development & Solutions | |
| 11 | |
| Accounting | |
| 5 | |
| Human resources and administrative personnel | |
| 7 | |
| Warehouse | |
| 5 | |
| Factory | |
| 65 | |
| Total | |
| 135 | |
We provide social insurance
for each employee in accordance with Chinese law, including pension insurance, medical insurance, unemployment insurance, work injury
insurance and maternity insurance and housing provident fund.
Legal
Proceedings
There
are no actions, suits, proceedings, inquiries or investigation before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against
or affecting our company that are outside the ordinary course of business or in which an adverse decision could have a material adverse
effect.
However,
from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may arise.
PRC
Regulations
Our
operation in China is subject to a number of PRC laws and regulations. This section summarizes all material PRC laws and regulations
relevant to our business and operations in China and the key provisions of such regulations.
Fertilizer
License
The
examination and approval of fertilizer license is based on Article 25 of the Agricultural Law of the People’s Republic of China,
the Management for the Administration of Fertilizer Registration (Order No. 32 and No. 38 by the Ministry of Agriculture), and the Requirements
for Fertilizer Registration Materials (Publication No. 161 from the Ministry of Agriculture). Organic fertilizers are required to be
registered with provincial agricultural department.
There
are four examination and approval requirements for obtaining a fertilizer license (1) A valid business license issued by Administration
for Industry and Commerce, whose business scope shall cover the industry of fertilizer; (2) Products must comply with the relevant requirements
of laws, regulations and relevant national policies (such as safety and environmental protection); (3) The product quality must comply
with national standards, industry standards, local standards or enterprise standards approved by the quality supervision department;
and (4) The application materials must be true, legal, complete and effective.
All
of our fertilizer products currently have valid five-year fertilizer licenses that are renewable upon the expiration date in the year
of 2022.
Regulations on
Intellectual Property Rights
Regulations on Copyright
The
Copyright Law of the PRC, or the Copyright Law, which took effect on June 1, 1991 and was amended in 2001, 2010 and
2020 (the current effective revision became effective on April 1, 2010 while the latest revision has not yet come into effect until
June 1, 2021), provides that Chinese citizens, legal persons, or other organizations shall, whether published or not, own copyright
in their copyrightable works, which include, among others, works of literature, art, natural science, social science, engineering technology
and computer software. Copyright owners enjoy certain legal rights, including right of publication, right of authorship and right of
reproduction. The Copyright Law as revised in 2001 extends copyright protection to Internet activities and products disseminated
over the Internet. In addition, PRC laws and regulations provide for a voluntary registration system administered by the Copyright Protection
Center of China, or the CPCC. According to the Copyright Law, an infringer of the copyrights shall be subject to various
civil liabilities, which include ceasing infringement activities, apologizing to the copyright owners and compensating the loss of copyright
owner. Infringers of copyright may also subject to fines and/or administrative or criminal liabilities in severe situations.
The Computer Software
Copyright Registration Measures, or the Software Copyright Measures, promulgated by the National Copyright Administration,
or the NCA on April 6, 1992 and latest amended on February 20, 2002, regulates registrations of software copyright, exclusive
licensing contracts for software copyright and assignment agreements. The NCA administers software copyright registration and the CPCC,
is designated as the software registration authority. The CPCC shall grant registration certificates to the Computer Software Copyrights
applicants which meet the requirements of both the Software Copyright Measures and the Computer Software Protection
Regulations (Revised in 2013).
The Provisions of the
Supreme People’s Court on Certain Issues Related to the Application of Law in the Trial of Civil Cases Involving Disputes on Infringement
of the Information Network Dissemination Rights specifies that disseminating works, performances or audio-video products
by the internet users or the internet service providers via the internet without the permission of the copyright owners shall be deemed
to have infringed the right of dissemination of the copyright owner.
The Measures for Administrative
Protection of Copyright Related to Internet, which was jointly promulgated by the NCA and the MII on April 29, 2005 and became
effective on May 30, 2005, provides that upon receipt of an infringement notice from a legitimate copyright holder, an ICP operator
must take remedial actions immediately by removing or disabling access to the infringing content. If an ICP operator knowingly transmits
infringing content or fails to take remedial actions after receipt of a notice of infringement that harms public interest, the ICP operator
could be subject to administrative penalties, including an order to cease infringing activities, confiscation by the authorities of all
income derived from the infringement activities, or payment of fines.
On May 18, 2006, the
State Council promulgated the Regulations on the Protection of the Right to Network Dissemination of Information (as
amended in 2013). Under these regulations, an owner of the network dissemination rights with respect to written works, performance or
audio or video recordings who believes that information storage, search or link services provided by an Internet service provider infringe
his or her rights may require that the Internet service provider delete, or disconnect the links to, such works or recordings.
Patent Law
According to the Patent
Law of the PRC (Revised in 2008), the State Intellectual Property Office is responsible for administering patent law in the
PRC. The patent administration departments of provincial, autonomous region or municipal governments are responsible for administering
patent law within their respective jurisdictions. The Chinese patent system adopts a first-to-file principle, which means that when
more than one person file different patent applications for the same invention, only the person who files the application first is entitled
to obtain a patent of the invention. To be patentable, an invention or a utility model must meet three criteria: novelty, inventiveness
and practicability. A patent is valid for twenty years in the case of an invention and ten years in the case of utility models and designs.
Trademark Law
Trademarks are protected
by the Trademark Law of the PRC which was adopted in 1982 and subsequently amended in 1993, 2001, 2013 and 2019 respectively
as well as by the Implementation Regulations of the PRC Trademark Law adopted by the State Council in 2002 and as most
recently amended on April 29, 2014. The Trademark Office of the State Administration for Market Regulation of the PRC handles trademark
registrations. The Trademark Office grants a ten-year term to registered trademarks and the term may be renewed for another ten-year period
upon request by the trademark owner. A trademark registrant may license its registered trademarks to another party by entering into trademark
license agreements, which must be filed with the Trademark Office for its record. As with patents, the Trademark Law has adopted a first-to-file principle
with respect to trademark registration. If a trademark applied for is identical or similar to another trademark which has already been
registered or subject to a preliminary examination and approval for use on the same or similar kinds of products or services, such trademark
application may be rejected. Any person applying for the registration of a trademark may not injure existing trademark rights first obtained
by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient
degree of reputation” through such party’s use.
Regulations
on Domain Names
The MIIT promulgated the Measures
on Administration of Internet Domain Names, or the Domain Name Measures on August 24, 2017, which took effect
on November 1, 2017 and replaced the Administrative Measures on China Internet Domain Names promulgated by MII
on November 5, 2004. According to the Domain Name Measures, the MIIT is in charge of the administration of PRC internet
domain names. The domain name registration follows a first-to-file principle. Applicants for registration of domain names shall
provide the true, accurate and complete information of their identities to domain name registration service institutions. The applicants
will become the holder of such domain names upon the completion of the registration procedure.
Corporate Laws and Industry Catalogue Relating
to Foreign Investment
The establishment, operation
and management of companies in China are mainly governed by the PRC Company Law, as most recently amended in 2018, which applies to both
PRC domestic companies and foreign-invested companies. On March 15, 2019, the National People’s Congress approved the Foreign Investment
Law, and on December 26, 2019, the State Council promulgated the Implementing Rules of the PRC Foreign Investment Law, or the Implementing
Rules, to further clarify and elaborate the relevant provisions of the Foreign Investment Law. The Foreign Investment Law and the Implementing
Rules both took effect on January 1, 2020 and replaced three major previous laws on foreign investments in China, namely, the Sino-foreign
Equity Joint Venture Law, the Sino-foreign Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their
respective implementing rules. Pursuant to the Foreign Investment Law, “foreign investments” refer to investment activities
conducted by foreign investors (including foreign natural persons, foreign enterprises or other foreign organizations) directly or indirectly
in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in the PRC
solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar
rights and interests of enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with
other investors, and (iv) investment in other methods as specified in laws, administrative regulations, or as stipulated by the State
Council. The Implementing Rules introduce a see-through principle and further provide that foreign-invested enterprises that invest in
the PRC shall also be governed by the Foreign Investment Law and the Implementing Rules.
The Foreign Investment Law
and the Implementing Rules provide that a system of pre-entry national treatment and negative list shall be applied for the administration
of foreign investment, where “pre-entry national treatment” means that the treatment given to foreign investors and their
investments at market access stage is no less favorable than that given to domestic investors and their investments, and “negative
list” means the special administrative measures for foreign investment’s access to specific fields or industries, which will
be proposed by the competent investment department of the State Council in conjunction with the competent commerce department of the
State Council and other relevant departments, and be reported to the State Council for promulgation, or be promulgated by the competent
investment department or competent commerce department of the State Council after being reported to the State Council for approval. Foreign
investment beyond the negative list will be granted national treatment. Foreign investors shall not invest in the prohibited fields as
specified in the negative list, and foreign investors who invest in the restricted fields shall comply with the special requirements
on the shareholding, senior management personnel, etc. In the meantime, relevant competent government departments will formulate a catalogue
of industries for which foreign investments are encouraged according to the needs for national economic and social development, to list
the specific industries, fields and regions in which foreign investors are encouraged and guided to invest. The current industry entry
clearance requirements governing investment activities in the PRC by foreign investors are set out in two categories, namely the Special
Entry Management Measures (Negative List) for the Access of Foreign Investment (2020 version), or the 2020 Negative List, promulgated
by the National Development and Reform Commission and the Ministry of Commerce, or the MOFCOM, on June 24, 2020 and took effect on July
23, 2020, and the Encouraged Industry Catalogue for Foreign Investment (2020 version), or the 2020 Encouraged Industry Catalogue, promulgated
by the MOFCOM on December 27, 2020 and took effect on January 27, 2021. Industries not listed in these two categories are generally deemed
“permitted” for foreign investment unless specifically restricted by other PRC laws. The flat panel display industry is not
on the Negative List and therefore we are not subject to any restriction or limitation on foreign ownership.
According to the Implementing
Rules, the registration of foreign-invested enterprises shall be handled by the SAMR or its authorized local counterparts. Where a foreign
investor invests in an industry or field subject to licensing in accordance with laws, the relevant competent government department responsible
for granting such license shall review the license application of the foreign investor in accordance with the same conditions and procedures
applicable to PRC domestic investors unless it is stipulated otherwise by the laws and administrative regulations, and the competent
government department shall not impose discriminatory requirements on the foreign investor in terms of licensing conditions, application
materials, reviewing steps and deadlines, etc. However, the relevant competent government departments shall not grant the license or
permit enterprise registration if the foreign investor intends to invest in the industries or fields as specified in the negative list
without satisfying the relevant requirements. In the event that a foreign investor invests in a prohibited field or industry as specified
in the negative list, the relevant competent government department shall order the foreign investor to stop the investment activities,
dispose of the shares or assets or take other necessary measures within a specified time limit, and restore to the status prior to the
occurrence of the aforesaid investment, and the illegal gains, if any, shall be confiscated. If the investment activities of a foreign
investor violate the special administration measures for access restrictions on foreign investments as stipulated in the negative list,
the relevant competent government department shall order the investor to make corrections within the specified time limit and take necessary
measures to meet the relevant requirements. If the foreign investor fails to make corrections within the specified time limit, the aforesaid
provisions regarding the circumstance that a foreign investor invests in the prohibited field or industry shall apply.
Pursuant to the Foreign Investment
Law and the Implementing Rules, and the Information Reporting Measures for Foreign Investment jointly promulgated by the MOFCOM and the
SAMR, which took effect on January 1, 2020, a foreign investment information reporting system shall be established and foreign investors
or foreign-invested enterprises shall report investment information to competent commerce departments of the government through the enterprise
registration system and the enterprise credit information publicity system, and the administration for market regulation shall forward
the above investment information to the competent commerce departments in a timely manner. In addition, the MOFCOM shall set up a foreign
investment information reporting system to receive and handle the investment information and inter-departmentally shared information
forwarded by the administration for market regulation in a timely manner. The foreign investors or foreign-invested enterprises shall
report the investment information by submitting reports including initial reports, change reports, deregistration reports and annual
reports.
Furthermore, the Foreign
Investment Law provides that foreign-invested enterprises established according to the previous laws regulating foreign investment prior
to the implementation of the Foreign Investment Law may maintain their structure and corporate governance within five years after the
implementation of the Foreign Investment Law. The Implementing Rules further clarify that such foreign-invested enterprises established
prior to the implementation of the Foreign Investment Law may either adjust their organizational forms or organizational structures pursuant
to the Company Law or the Partnership Law, or maintain their current structure and corporate governance within five years upon the implementation
of the Foreign Investment Law. Since January 1, 2025, if a foreign-invested enterprise fails to adjust its organizational form or organizational
structure in accordance with the laws and go through the applicable registrations for changes, the relevant administration for market
regulation shall not handle other registrations for such foreign-invested enterprise and shall publicize the relevant circumstances.
However, after the organizational forms or organizational structures of a foreign-invested enterprise have been adjusted, the original
parties to the Sino-foreign equity or cooperative joint ventures may continue to process such matters as the equity interest transfer,
the distribution of income or surplus assets as agreed by the parties in the relevant contracts.
In addition, the Foreign
Investment Law and the Implementing Rules also specify other protective rules and principles for foreign investors and their investments
in the PRC, including, among others, that local governments shall abide by their commitments to the foreign investors; except for special
circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner,
expropriation or requisition of the investment of foreign investors is prohibited; mandatory technology transfer is prohibited, etc.
Shanghai Mufeng, our wholly
foreign owned subsidiary, as a foreign invested entity, and Muliang HK, as a foreign investor, are required to comply with the information
reporting requirements under the Foreign Investment Law the Implementing Rules and the Information Reporting Measures for Foreign Investment
and are in full compliance.
Regulations
Relating to Taxation
PRC
In
January 2008, the PRC Enterprise Income Tax Law (The “EIT” Law) took effect. The EIT applies a uniform 25% enterprise income
tax rate to both foreign-invested enterprises and domestic enterprises, unless where tax incentives are granted to special industries
and projects. Under the EIT Law and its implementation regulations, dividends generated from the business of a PRC subsidiary after January
1, 2008 and payable to its foreign investor may be subject to a withholding tax rate of 10% if the PRC tax authorities determine that
the foreign investor is a non-resident enterprise, unless there is a tax treaty with China that provides for a preferential withholding
tax rate. Distributions of earnings generated before January 1, 2008 are exempt from PRC withholding tax.
Under
the EIT Law, an enterprise established outside China with “de facto management bodies” within China is considered a “resident
enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its
worldwide income. A circular issued by the State Administration of Taxation in April 2009 regarding the standards used to classify certain
Chinese-invested enterprises controlled by Chinese enterprises or Chinese enterprise groups and established outside of China as “resident
enterprises” clarified that dividends and other income paid by such PRC “resident enterprises” will be considered PRC-source
income and subject to PRC withholding tax, currently at a rate of 10%, when paid to non-PRC enterprise shareholders. This circular also
subjects such PRC “resident enterprises” to various reporting requirements with the PRC tax authorities.
Under
the implementation regulations to the EIT Law, a “de facto management body” is defined as a body that has material and overall
management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise.
In addition, the tax circular mentioned above specifies that certain PRC-invested overseas enterprises controlled by a Chinese enterprise
or a Chinese enterprise group in the PRC will be classified as PRC resident enterprises if the following are located or residence in
the PRC: senior management personnel and departments that are responsible for daily production, operation and management; financial and
personnel decision making bodies; key properties, accounting books, the company seal and minutes of board meetings and shareholders’
meetings; and half or more of the senior management or directors having voting rights.
Regulations
Relating to Foreign Exchange
Pursuant
to the Regulations on the Administration of Foreign Exchange issued by the State Council and effective in 1996, as amended in January
1997 and August 2008, current account transactions, such as sale or purchase of goods, are not subject to PRC governmental control or
restrictions. Certain organizations in the PRC, including foreign-invested enterprises, may purchase, sell, and/or remit foreign currencies
at certain banks authorized to conduct foreign exchange business upon providing valid commercial documents. Approval of the PRC State
Administration of Foreign Exchange (“SAFE”), however, is required for capital account transactions.
In
August 2008, SAFE issued a circular on the conversion of foreign currency into Renminbi by a foreign-invested company that regulates
how the converted Renminbi may be used. The circular requires that the registered capital of a foreign-invested enterprise converted
into Renminbi from foreign currencies may only be utilized for purposes within its business scope. For example, such converted amounts
may not be used for investments in or acquisitions of other PRC companies, unless specifically provided otherwise, which can inhibit
the ability of companies to consummate such transactions. In addition, SAFE strengthened its oversight of the flow and use of the Renminbi
registered capital of foreign-invested enterprises converted from foreign currencies. The use of such Renminbi capital may not be changed
without SAFE’s approval, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been utilized.
Violations may result in severe penalties, such as heavy fines.
Regulations
Relating to Labor
Pursuant
to the PRC Labor Law effective in 1995 and the PRC Labor Contract Law effective in 2008, a written labor contract is required when an
employment relationship is established between an employer and an employee. Other labor-related regulations and rules of the PRC stipulate
the maximum number of working hours per day and per week as well as the minimum wages. An employer is required to set up occupational
safety and sanitation systems, implement the national occupational safety and sanitation rules and standards, educate employees on occupational
safety and sanitation, prevent accidents at work and reduce occupational hazards.
In
the PRC, workers dispatched by an employment agency are normally engaged in temporary, auxiliary or substitute work. Pursuant to the
PRC Labor Contract Law, an employment agency is the employer for workers dispatched by it, and it must perform an employer’s obligations
toward them. The employment contract between the employment agency and the dispatched workers, and the placement agreement between the
employment agency and the company that receives the dispatched workers must be in writing. Also, the company that accepts the dispatched
workers must bear joint and several liabilities for any violation of the Labor Contract Law by the employment agencies arising from their
contracts with dispatched workers. An employer is obligated to sign an indefinite term labor contract with an employee if the employer
continues to employ the employee after two consecutive fixed-term labor contracts. The employer also has to pay compensation to the employee
if the employer terminates an indefinite term labor contract. Except where the employer proposes to renew a labor contract by maintaining
or raising the conditions of the labor contract and the employee is not agreeable to the renewal, an employer is required to compensate
the employee when a definite term labor contract expires. Furthermore, under the Regulations on Paid Annual Leave for Employees issued
by the State Council in December 2007 and effective as of January 2008, employees who have served an employer for more than one (1) year
and less than ten years are entitled to a 5-day paid vacation, those whose service period ranges from 10 to 20 years are entitled to
a 10-day paid vacation, and those who have served for more than 20 years are entitled to a 15-day paid vacation. An employee who does
not use such vacation time at the request of the employer shall be compensated at three times their normal salaries for each waived vacation
day.
Pursuant
to the Regulations on Occupational Injury Insurance effective in 2004 and the Interim Measures concerning the Maternity Insurance for
Enterprise Employees effective in 1995, PRC companies must pay occupational injury insurance premiums and maternity insurance premiums
for their employees. Pursuant to the Interim Regulations on the Collection and Payment of Social Insurance Premiums effective in 1999
and the Interim Measures concerning the Administration of the Registration of Social Insurance effective in 1999, basic pension insurance,
medical insurance, and unemployment insurance are collectively referred to as social insurance. Both PRC companies and their employees
are required to contribute to the social insurance plans. Pursuant to the Regulations on the Administration of Housing Fund effective
in 1999, as amended in 2002, PRC companies must register with applicable housing fund management centers and establish a special housing
fund account in an entrusted bank. Both PRC companies and their employees are required to contribute to the housing funds.
Regulations
on Dividend Distribution
Wholly
foreign-owned companies in the PRC may pay dividends only out of their accumulated profits after tax as determined in accordance with
PRC accounting standards. Remittance of dividends by a wholly foreign-owned enterprise out of China is subject to examination by the
banks designated by SAFE. Wholly foreign-owned companies may not pay dividends unless they set aside at least 10% of their respective
accumulated profits after tax each year, if any, to fund certain reserve funds, until such time as the accumulative amount of such fund
reaches 50% of the wholly foreign-owned company’s registered capital. In addition, these companies also may allocate a portion
of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds at their discretion. These reserve funds
and staff welfare and bonus funds are not distributable as cash dividends.
Safe
Regulations on Offshore Special Purpose Companies Held by PRC Residents or Citizens
Pursuant
to the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment
via Overseas Special Purpose Vehicles, or Circular No. 75, issued in October 2005 by SAFE and its supplemental notices, PRC citizens
or residents are required to register with SAFE or its local branch in connection with their establishment or control of an offshore
entity established for the purpose of overseas equity financing involving a roundtrip investment whereby the offshore entity acquires
or controls onshore assets or equity interests held by the PRC citizens or residents. In addition, such PRC citizens or residents must
update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to increases or decreases
in investment amount, transfers or exchanges of shares, mergers or divisions, long-term equity or debt investments, external guarantees
or other material events that do not involve roundtrip investments. Subsequent regulations further clarified that PRC subsidiaries of
an offshore company governed by the SAFE regulations are required to coordinate and supervise the filing of SAFE registrations in a timely
manner by the offshore holding company’s shareholders who are PRC citizens or residents. If these shareholders fail to comply,
the PRC subsidiaries are required to report to the local SAFE branches. If the shareholders of the offshore holding company who are PRC
citizens or residents do not complete their registration with the local SAFE branches, the PRC subsidiaries may be prohibited from distributing
their profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore company, and the offshore company
may be restricted in its ability to contribute additional capital to its PRC subsidiaries. Moreover, failure to comply with the SAFE
registration and amendment requirements described above could result in liability under PRC law for evasion of applicable foreign exchange
restrictions.
M&A
Rules
On
August 8, 2006, six PRC regulatory agencies, including China Securities Regulatory Commission (“CSRC”), promulgated a rule
entitled Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (“the M&A Rules”)
to regulate foreign investment in PRC domestic enterprises. The M&A rules, among other things, requires an overseas special purpose
vehicle (“SPV”), formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies
or individuals, to obtain the approval of CSRC prior to publicly listing their securities on an overseas stock exchange. There remains
some uncertainty as to how this regulation will be interpreted or implemented in the context of an overseas offering. If the CSRC or
another PRC regulatory agency subsequently determines that approval is required for this offering, we may face sanctions by the CSRC
or another PRC regulatory agency.
The
M&A Rules also establish procedures and requirements that could make some acquisitions of Chinese companies by foreign investors
more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any
change-of-control transaction in which a foreign investor takes control of a Chinese domestic enterprise.
SAFE
Regulations on Employee Share Options
On
March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating
in Employee Share Holding Plan or Share Option Plan of Overseas Listed Company, or the Share Option Rule. Pursuant to the Share Option
Rule, Chinese citizens who are granted share options by an overseas publicly listed company are required to register with SAFE through
a Chinese agent or Chinese subsidiary of the overseas publicly listed company and complete certain other procedures. Our PRC employees
who have been granted share options will be subject to these regulations. Failure of our PRC share option holders to complete their SAFE
registrations may subject these PRC employees to fines and legal sanctions and may also limit our ability to contribute additional capital
into our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us.
INDEX TO FINANCIAL STATEMENTS
MULIANG VIAGOO TECHNOLOGY,
INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31,
2021
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
(Unaudited) | | |
| |
| ASSETS | |
| | |
| |
| Current Assets: | |
| | |
| |
| Cash and cash equivalents | |
$ | 240,801 | | |
$ | 38,013 | |
| Accounts receivable, net | |
| 10,672,737 | | |
| 11,433,504 | |
| Due from related party | |
| - | | |
| 716,721 | |
| Inventories | |
| 1,459,271 | | |
| 133,913 | |
| Prepayment | |
| 2,696,624 | | |
| 6,805,039 | |
| Other receivables, net | |
| 1,482,488 | | |
| 46,640 | |
| Total Current Assets | |
| 16,551,921 | | |
| 19,173,830 | |
| | |
| | | |
| | |
| Long term investment | |
| 28,253 | | |
| 21,273 | |
| Property, plant and equipment, net | |
| 5,950,541 | | |
| 7,194,262 | |
| Right of use assets | |
| 1,245,690 | | |
| 1,284,319 | |
| Operating lease right of use asset, net | |
| 149,282 | | |
| 224,463 | |
| Intangible assets, net | |
| 9,930 | | |
| 12,831 | |
| Goodwill | |
| 654,076 | | |
| 695,175 | |
| Other assets and deposits | |
| 19,239 | | |
| 31,496 | |
| Deferred tax asset | |
| 235,035 | | |
| 262,798 | |
| | |
| | | |
| | |
| Total Assets | |
$ | 24,843,967 | | |
$ | 28,900,447 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’
EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| Current Liabilities: | |
| | | |
| | |
| Current portion of long-term debt | |
$ | 1,044,318 | | |
$ | 1,174,756 | |
| Accounts payable and accrued payables | |
| 4,569,882 | | |
| 8,291,572 | |
| Advances from customers | |
| 283,415 | | |
| 501,720 | |
| Operating lease liabilities - current | |
| 51,709 | | |
| 67,484 | |
| Income tax payable | |
| 901,717 | | |
| 543,477 | |
| Other payables | |
| 2,387,793 | | |
| 3,029,672 | |
| Due to related party | |
| 687,019 | | |
| 161,429 | |
| Total Current Liabilities | |
| 9,925,853 | | |
| 13,770,110 | |
| | |
| | | |
| | |
| Long-term loans | |
| 48,998 | | |
| 283,860 | |
| Operating lease liabilities - noncurrent | |
| 93,351 | | |
| 138,620 | |
| Deferred tax liabilities | |
| - | | |
| - | |
| Total Liabilities | |
| 10,068,202 | | |
| 14,192,590 | |
| | |
| | | |
| | |
| Stockholders’ Equity: | |
| | | |
| | |
| Series A Preferred Stock，$0.0001 par value, 30,000,000 shares authorized, 19,000,000 shares issued and outstanding as of September 30, 2022 and December 31, 2021. | |
| 1,900 | | |
| 1,900 | |
| Common stock, $0.0001 par value, 500,000,000 shares authorized, 38,502,954 shares issued and outstanding as of September 30, 2022 and December 31, 2021. | |
| 3,850 | | |
| 3,850 | |
| Additional paid in capital | |
| 19,933,793 | | |
| 19,933,793 | |
| Accumulated deficit | |
| (5,487,155 | ) | |
| (6,876,227 | ) |
| Accumulated other comprehensive
loss | |
| 180,345 | | |
| 1,500,727 | |
| Stockholders’ Equity) -
Muliang Viagoo Technology Inc. and Subsidiaries | |
| 14,632,733 | | |
| 14,564,043 | |
| Noncontrolling interest | |
| 143,032 | | |
| 143,814 | |
| Total Stockholders’ Equity | |
| 14,775,765 | | |
| 14,707,857 | |
| Total Liabilities and Stockholders’
Equity | |
$ | 24,843,967 | | |
$ | 28,900,447 | |
See accompanying notes to condensed consolidated
financial statements.
MULIANG VIAGOO TECHNOLOGY,
INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE (INCOME
FOR THE THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 2022 AND 2021
(Unaudited)
| | |
For Three Months Ended
September 30, | | |
For Nine Months Ended
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
| | |
| | |
| | |
| |
| Revenues | |
$ | 3,594,146 | | |
| 3,341,530 | | |
$ | 7,083,647 | | |
| 7,473,169 | |
| Cost of goods sold | |
| 2,077,995 | | |
| 2,154,786 | | |
| 4,017,623 | | |
| 4,562,831 | |
| Gross profit (loss) | |
| 1,516,151 | | |
| 1,186,744 | | |
| 3,066,024 | | |
| 2,910,338 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| General and administrative expenses | |
| 362,562 | | |
| 348,288 | | |
| 708,796 | | |
| 1,057,544 | |
| Selling expenses | |
| 97,798 | | |
| 122,274 | | |
| 218,395 | | |
| 331,678 | |
| Total operating
expenses | |
| 460,360 | | |
| 470,562 | | |
| 927,191 | | |
| 1,389,222 | |
| | |
| | | |
| | | |
| | | |
| | |
| Income (Loss)
from operations | |
| 1,055,791 | | |
| 716,182 | | |
| 2,138,833 | | |
| 1,521,116 | |
| | |
| | | |
| | | |
| | | |
| | |
| Other income (expense): | |
| | | |
| | | |
| | | |
| | |
| Interest income (expense) | |
| 13,419 | | |
| (25,884 | ) | |
| (64,147 | ) | |
| (91,529 | ) |
| Asset impairment loss | |
| (241,730 | ) | |
| - | | |
| (241,730 | ) | |
| - | |
| Other income (expense), net | |
| 6,771 | | |
| 43,773 | | |
| 8,313 | | |
| 103,513 | |
| Total other income (expense) | |
| (221,540 | ) | |
| 17,889 | | |
| (297,564 | ) | |
| 11,984 | |
| | |
| | | |
| | | |
| | | |
| | |
| Income (Loss)
before income taxes | |
| 834,251 | | |
| 734,071 | | |
| 1,841,269 | | |
| 1,533,100 | |
| | |
| | | |
| | | |
| | | |
| | |
| Income taxes | |
| 441,266 | | |
| 7,469 | | |
| 447,672 | | |
| 7,469 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net income | |
| 392,985 | | |
| 726,602 | | |
| 1,393,597 | | |
| 1,525,631 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) attributable
to noncontrolling interest | |
| 4,636 | | |
| 4,351 | | |
| 4,524 | | |
| 1,900 | |
| Net income
(loss) attributable to Muliang Viagoo Technology Inc. common stockholders | |
| 388,349 | | |
| 722,251 | | |
| 1,389,073 | | |
| 1,523,731 | |
| | |
| | | |
| | | |
| | | |
| | |
| Other comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | |
| Unrealized foreign currency translation adjustment | |
| (903,392 | ) | |
| (300,048 | ) | |
| (1,315,075 | ) | |
| (128,750 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Total
Comprehensive (loss) income | |
| (510,407 | ) | |
| 426,554 | | |
| 78,522 | | |
| 1,396,881 | |
| Total comprehensive (loss) income
attributable to noncontrolling interests | |
| (2,167 | ) | |
| 4,682 | | |
| (783 | ) | |
| 2,322 | |
| Total comprehensive (loss) income attributable to Muliang Viagoo Technology Inc. common stockholders | |
$ | (508,240 | ) | |
| 421,872 | | |
$ | 79,305 | | |
| 1,394,559 | |
| | |
| | | |
| | | |
| | | |
| | |
| Earnings per common share | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 0.01 | | |
| 0.02 | | |
| 0.04 | | |
| 0.04 | |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average common shares outstanding | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 38,502,954 | | |
| 38,502,954 | | |
| 38,502,954 | | |
| 38,502,954 | |
| Diluted | |
| 38,502,954 | | |
| 38,502,954 | | |
| 38,502,954 | | |
| 38,502,954 | |
See accompanying notes to condensed consolidated
financial statements.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2022 AND 2021
(Unaudited)
| | |
Series A Preferred Stock | | |
Common Stock | | |
Additional Paid-in | | |
Accumulated | | |
Accumulated Other Comprehensive | | |
Non-controlling | | |
| |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Income (Loss) | | |
Interest | | |
Total | |
| |
| | |
| | |
| | |
| | |
| |
| For nine months ended September 30, 2021 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, December 31, 2020 | |
| 19,000,000 | | |
$ | 1,900 | | |
| 38,502,954 | | |
$ | 3,850 | | |
| 19,933,793 | | |
| -8,596,332 | | |
| 1,128,351 | | |
| 129,841 | | |
| 12,601,403 | |
| Net income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,519,380 | | |
| | | |
| 6,251 | | |
| 1,525,631 | |
| Foreign currency translation adjustment | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| -127,997 | | |
| -753 | | |
| -128,750 | |
| Balance, September 30, 2021 | |
| 19,000,000 | | |
$ | 1,900 | | |
| 38,502,954 | | |
$ | 3,850 | | |
| 19,933,793 | | |
| -7,076,952 | | |
| 1,000,354 | | |
| 135,339 | | |
| 13,998,284 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| For nine months ended September 30, 2022 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, December 31, 2021 | |
| 19,000,000 | | |
$ | 1,900 | | |
| 38,502,954 | | |
$ | 3,850 | | |
| 19,933,793 | | |
| -6,876,227 | | |
| 1,500,727 | | |
| 143,814 | | |
| 14,707,857 | |
| Net income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,389,073 | | |
| | | |
| 4,524 | | |
| 1,393,597 | |
| Foreign currency translation adjustment | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| -1,320,382 | | |
| -5,307 | | |
| -1,325,689 | |
| Balance, September 30, 2022 | |
| 19,000,000 | | |
$ | 1,900 | | |
| 38,502,954 | | |
$ | 3,850 | | |
| 19,933,793 | | |
| -5,487,154 | | |
| 180,345 | | |
| 143,031 | | |
| 14,775,765 | |
See accompanying notes to condensed consolidated
financial statements.
MULIANG VIAGOO TECHNOLOGY,
INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2022 AND 2021
(Unaudited)
| | |
For Nine Months Ended
September 30, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| |
| Net income (loss) | |
$ | 1,393,597 | | |
$ | 1,525,631 | |
| Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 524,121 | | |
| 532,346 | |
| Asset impairment loss | |
| 241,730 | | |
| - | |
| Amortization of right of use assets | |
| 79,517 | | |
| 18,432 | |
| Deferred tax assets | |
| - | | |
| - | |
| Employment cost settled by issuing common stock | |
| - | | |
| | |
| Changes in assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| (703,821 | ) | |
| 4,660,950 | |
| Inventories | |
| (1,442,971 | ) | |
| (114,159 | ) |
| Prepayment | |
| 3,653,412 | | |
| (979,020 | ) |
| Other receivables | |
| (1,629,424 | ) | |
| 10,746,267 | |
| Accounts payable and accrued payables | |
| (3,115,395 | ) | |
| (9,107,812 | ) |
| Advances from customers | |
| (185,579 | ) | |
| 205,507 | |
| Lease liability | |
| (42,303 | ) | |
| (31,151 | ) |
| Other payables | |
| (353,255 | ) | |
| (3,068,139 | ) |
| Net cash provided
by operating activities | |
| (1,135,389 | ) | |
| 4,388,257 | |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
| Purchase of Property, plant
and equipment, net | |
| (128,623 | ) | |
| (1,221,133 | ) |
| Net cash used
in investing activities | |
| (128,623 | ) | |
| (1,221,133 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
| Proceeds from (repayment to) related party | |
| 1,435,411 | | |
| 1,023,389 | |
| Repayment of short-term loans | |
| (262,875 | ) | |
| (4,617,637 | ) |
| Net cash used
in financing activities | |
| 1,172,536 | | |
| (3,594,247 | ) |
| | |
| | | |
| | |
| EFFECT OF EXCHANGE RATE CHANGES
ON CASH | |
| 294,264 | | |
| 156,869 | |
| | |
| | | |
| | |
| NET INCREASE (DECREASE) IN CASH | |
| 202,788 | | |
| (270,255 | ) |
| CASH, BEGINNING OF PERIOD | |
| 38,013 | | |
| 348,834 | |
| CASH, END OF PERIOD | |
$ | 240,801 | | |
$ | 78,579 | |
| | |
| | | |
| | |
| SUPPLEMENTAL DISCLOSURES: | |
| | | |
| | |
| Cash paid during the period for: | |
| | | |
| | |
| Cash paid for interest expense, net of capitalized interest | |
$ | 98,836 | | |
$ | (1,220,446 | ) |
| Cash paid for income tax | |
$ | - | | |
$ | - | |
| | |
| | | |
| | |
| NON-CASH TRANSACTIONS OF INVESTING
AND FINANCING ACTIVITIES | |
| | | |
| | |
| Long term investment without paying cash | |
$ | - | | |
$ | 10,812 | |
| Recognition of operating lease right of use asset | |
$ | - | | |
$ | 190,029 | |
See accompanying notes to condensed consolidated
financial statements.
MULIANG VIAGOO TECHNOLOGY,
INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF
OPERATIONS
Muliang Viagoo Technology, Inc (“Muliang
Viagoo”), formerly known as M & A Holding Corporation., Mullan Agritech Inc., and Muliang Agritech Inc. was incorporated under
the laws of the State of Nevada on November 5, 2014. Muliang Viagoo’s core business activities of developing, manufacturing, and
selling organic fertilizers and bio-organic fertilizers for use in the agricultural industry are conducted through several indirectly
owned subsidiaries in China.
On June 9, 2016, M & A Holding Corporation
filed a Certificate of Amendment to its Articles of Incorporation (the “Amendment”) with the Secretary of State of the State
of Nevada, changing its name from “M & A Holding Corporation,” to “Mullan Agritech, Inc.”
On July 11, 2016, the Financial Industry Regulatory
Authority (FINRA) effected in the marketplace the change of the corporate name from “M & A Holding Corporation” to “Mullan
Agritech, Inc.” and effective on such date.
On April 4, 2019, the Company changed its corporate
name from “Mullan Agritech Inc.” to “Muliang Agritech Inc.” The name change took effect on May 7, 2019. In connection
with the name change, our stock symbol changed to “MULG”.
On June 26, 2020, Muliang Agritech, Inc. filed
a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada, changing its name from “Muliang
Agritech, Inc.” to “Muliang Viagoo Technology, Inc.”. The Company will trade under the new name upon approval by FINRA.
History
Shanghai Muliang Industry Co., Ltd. (referred
to herein as “Muliang Industry”) was incorporated in PRC on December 7, 2006 as a limited liability company, owned 95% by
Lirong Wang and 5% by Zongfang Wang. Muliang Industry through its own operations and subsidiaries is engaged in developing, manufacturing,
and selling organic fertilizers and bio-organic fertilizers for use in the agricultural industry.
On May 27, 2013, Muliang Industry entered into
and consummated an equity purchase agreement whereby it acquired 99% of the outstanding equity of Weihai Fukang Bio-Fertilizer Co., Ltd.
(“Fukang”), a corporation organized under the laws of the People’s Republic of China. Fukang was incorporated in Weihai
City, Shandong Province on January 6, 2009. Fukang is focused on the distribution of organic fertilizers and the development of new bio-organic
fertilizers. As a result of the completion of the transaction, Fukang became a 99% owned subsidiary of Muliang Industry, with the remaining
1% equity interest owned by Mr. Hui Song.
On July 11, 2013, Muliang Industry established
a wholly-owned subsidiary, Shanghai Muliang Agritech Development Co., Ltd. (“Agritech Development”) in Shanghai, China. On
November 6, 2013, Muliang Industry sold 40% of the outstanding equity of Agritech Development to Mr. Jianping Zhang for consideration
of approximately $65,000 or RMB 400,000. Agritech Development does not currently conduct any operations.
On July 17, 2013, Muliang Industry entered into
an equity purchase agreement to acquire 100% of the outstanding equity of Shanghai Zongbao Environmental Construction Co., Ltd. (“Shanghai
Zongbao”) with consideration of approximately $3.2 million or RMB 20 million, effectively becoming the wholly-owned subsidiary
of Muliang Industry. Shanghai Zongbao was incorporated in Shanghai on January 25, 2008. Shanghai Zongbao processes and distributes organic
fertilizers. Shanghai Zongbao wholly owns Shanghai Zongbao Environmental Construction Co., Ltd. Cangzhou Branch (“Zongbao Cangzhou”).
On August 21, 2014, Muliang Agricultural Limited
(“Muliang HK”) was incorporated in Hong Kong as an investment holding company.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF
OPERATIONS (CONTINUED)
January 27, 2015, Muliang HK incorporated a wholly
foreign-owned enterprise, Shanghai Mufeng Investment Consulting Co., Ltd (“Shanghai Mufeng”), in the People’s Republic
of China (“PRC”).
On July 8, 2015, Muliang Viagoo entered into
certain stock purchase agreement with Muliang HK, pursuant to which Muliang Viagoo, for a consideration of $5,000, acquired 100% interest
in Muliang HK and its wholly-owned subsidiary Shanghai Mufeng. Both Muliang HK and Shanghai Mufeng are controlled by the Company’s
sole officer and director, Lirong Wang.
On July 23, 2015, Muliang Industry established
a wholly-owned subsidiary, Shanghai Muliang Agricultural Sales Co., Ltd. (“Muliang Sales”) in Shanghai, China.
On September 3, 2015, Muliang Viagoo effected
a split of its outstanding common stock resulting in an aggregate of 150,525,000 shares outstanding, of which 120,000,000 were owned
by Chenxi Shi, the founder of Muliang Viagoo and its sole officer and director. The remaining 30,525,000 were held by a total of 39 investors.
On January 11, 2016, Muliang Viagoo issued 129,475,000
shares of its common stock to Lirong Wang for an aggregate consideration of $64,737.50. On the same date, Chenxi Shi, the sole officer
and director of Muliang Viagoo, transferred 120,000,000 shares of common stock of the Company held by him to Lirong Wang for $800 pursuant
to a transfer agreement.
On February 10, 2016, Shanghai Mufeng entered
into a set of contractual agreements known as Variable Interest Entity (“VIE”) Agreements, including (1) Exclusive Technical
Consulting and Service Agreement, (2) Equity Pledge Agreement, and (3) Call Option Cooperation Agreement, with Muliang Industry, and
its Principal Shareholders. As a result of the Stock Purchase Agreement and the set of VIE Agreements, Shanghai Muliang Industry Co.,
Ltd. and its consolidated subsidiaries became entities controlled by Muliang Viagoo, whereby Muliang Viagoo would derive all substantial
economic benefits generated by Muliang Industry and its subsidiaries.
As a result, Muliang Viagoo has a direct wholly-owned
subsidiary, Muliang HK, and an indirect wholly-owned subsidiary Shanghai Mufeng. In addition, through its VIE Agreements, Muliang Viagoo
exercises control over Muliang Industry. Muliang Industry has two wholly-owned subsidiaries (Shanghai Zongbao and Muliang Sales), one
99% owned subsidiary (Fukang), one 60% owned subsidiary (Agritech Development), and one indirectly wholly-owned subsidiary Zongbao Cangzhou.
On June 6, 2016, Muliang Industry established
a wholly-owned subsidiary, namely, Muliang (Ningling) Bio-chemical Fertilizer Co. Ltd (“Ningling Fertilizer”) in Henan Province.
Ningling Fertilizer is set up for a new production line of bio-chemical fertilizer and has not begun any operation yet.
On July 7, 2016, Muliang Industry established a subsidiary, namely, Zhonglian Huinong (Beijing) Technology Co., Ltd (“Zhonglian”) in Beijing City, China. Muliang Industry owns 65% shares of Zhonglian, and a third-party company, Zhongrui Huilian (Beijing) Technology Co., Ltd, owns the other 35% shares. Zhonglian is to develop and operate an online agricultural products trading platform.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF
OPERATIONS (CONTINUED)
On October 27, 2016, Muliang Industry established
a subsidiary, Yunnan Muliang Animal Husbandry Development Co., Ltd (“Yunnan Muliang”) in Yunnan Province, China. Muliang
Industry owns 55% shares of Yunnan Muliang, and a third-party company, Shuangbai County Development Investment Co., Ltd., owns the other
45% shares. Yunnan Muliang was set up for the sales development of West China.
On October 12, 2017, the Company canceled the
registration of Ningling with the administrative authorities for Industry and Commerce. Ningling has historically been reported as a
component of our operations and incurred $33,323 to loss before income taxes provisions for the year ended December 31, 2017. The termination
does not constitute a strategic shift that will have a major effect on our operations or financial results. As such, the termination
is not classified as discontinued operations in our consolidated financial statements.
On June 19, 2020, the Company entered into a Share
Exchange Agreement with Viagoo Pte Ltd. and all the shareholders of Viagoo for the acquisition of 100% equity interest of Viagoo.
Pursuant to the SEA, Muliang shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest in and
to the Viagoo’s capital stock. The aggregate purchase price for the Shares was US$2,830,800, paid in 1,011,000 shares of the Company’s
restricted common stock, valued at $2.80 per share.
Muliang HK, Shanghai Mufeng, Muliang Industry,
Shanghai Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development, Yunnan Muliang, Zhonglian, and Viagoo are referred to
as subsidiaries. The Company and its consolidated subsidiaries are collectively referred to herein as the “Company”, “we”
and “us”, unless specific reference is made to an entity.
On April 4, 2019, the Company’s Board of
Directors and majority shareholder approved a 5 to 1 reverse stock split of all of the issued and outstanding shares of the Company’s
common stock, the change of corporate name from “Mullan Agritech Inc.” to “Muliang Agritech Inc.”, and the creation
of one hundred million (100,000,000) shares of Blank Check Preferred Stock.
On April 5, 2019, we filed a Certificate of Amendment
to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the Name Change and to authorize the creation
of Blank Check Preferred Stock. As a result, the Company’s capital stock consists of 500,000,000 shares of common stock, $0.0001
par value, and 100,000,000 shares of blank check preferred stock, $0.0001 par value. To the fullest extent permitted by the laws of the
State of Nevada, as the same now exists or may hereafter be amended or supplemented, the Board of Directors may fix and determine the
designations, rights, preferences, or other variations of each class or series within each class of preferred stock of the Company. The
Company may issue the shares of stock for such consideration as may be fixed by the Board of Directors.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF
OPERATIONS (CONTINUED)
On April 16, 2019, we filed a Certificate of
Change to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the reverse stock split. Any fractional
shares are to be rounded up to whole shares. The reverse stock split does not affect the par value or the number of authorized shares
of common stock of the Company.
The reverse stock split and the name change took
effect on May 7, 2019. In connection with the name change, our stock symbol changed to “MULG.”
On June 19, 2020, Muliang Agritech Inc. entered
into a Share Exchange Agreement with Viagoo Pte Ltd. (“Viagoo”) and all the shareholders of Viagoo for the acquisition of
100% equity interest of Viagoo.
On June 26, 2020, the Company filed a Certificate
of Amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada, changing its name from “Muliang
Agritech, Inc.” to “Muliang Viagoo Technology, Inc.”
Viagoo is a Singapore-based logistics sharing
platform that enables shippers and carriers to share and optimize resources to lower costs and increase efficiency. From last-mile delivery
to cross-border transportation, the platform provides digital transaction contracts for customers to source for service providers to
deliver goods and services conveniently. Viagoo partners with various Singapore agencies to promote the platform to support urban logistics
need in Singapore, such as Enterprise Singapore, a government agency to support Singapore small and medium businesses, and Singapore
Logistics Association.
Pursuant to the SEA, Muliang shall purchase from
Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest in and to the Viagoo’s capital stock. The aggregate
purchase price for the Shares was US$2,830,800, paid in 1,011,000 shares of the Company’s restricted common stock, valued at $2.80
per share. The Company recognized $673,278 in goodwill as a result of this transaction.
Management determined that the results of operations
of Viagoo from June 19, 2020, to June 30, 2020, were not material to the Company’s consolidated results of operations, and as a
result, has excluded them from the Company’s consolidated results of operations and cash flows for the six months ended June 30,
2020.
Muliang Viagoo Technology Inc, Muliang HK, Shanghai
Mufeng, Muliang Industry, Shanghai Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development, Yunnan Muliang, Zhonglian,
and Viagoo are referred to as subsidiaries. The Company and its consolidated subsidiaries are collectively referred to herein as the
“Company”, “we” and “us”, unless specific reference is made to an entity.
The consolidated financial statements were prepared
assuming that the Company has controlled Muliang HK and its intermediary holding companies, operating subsidiaries, and variable interest
entities: Shanghai Mufeng, Muliang Industry, Shanghai Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Heilongjiang, and Agritech Development,
from the first period presented. The transactions detailed above have been accounted for as reverse takeover transactions and a recapitalization
of the Company; accordingly, the Company (the legal acquirer) is considered the accounting acquiree, and Muliang HK (the legal acquiree)
is considered the accounting acquirer. No goodwill has been recorded for these transactions. As a result of this transaction, the Company
is deemed to be a continuation of the business of Muliang HK, Shanghai Mufeng, and Muliang Industry.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
Liquidity and Going Concern
As reflected in the accompanying consolidated
financial statements, we had a net income of $1,393,597 and $1,525,631 for the nine months ended September 30, 2022, and 2021, respectively.
Our cash balances as of September 30, 2022, and December 31, 2021, were $240,801 and $38,013, respectively. We had current liabilities
of $9,925,853 and $13,770,110 on September 30, 2022, and December 31, 2021, which would be due within the next 12 months. In addition,
we had a net current assets (working capital) of $6,626,068 and $5,403,720 at September 30, 2022 and December 31, 2021, respectively.
According to the normal operation, the company
does not have problems with business sustainability. But the new covid-19 pandemic from the beginning of 2020 greatly impacts the company’s
operation. In 2021, the company’s sales had declined, and the recovery of accounts receivable was slow. As a result, the Company
has taken the following measures :(1) while actively opening up new markets and new customers, the Company have increased the collection
of accounts receivable and strive to control the turnover days of accounts receivable to be within 90 days at the end of 2022;(2) In
2021, the company has completed the disposal of Shanghai industrial land transfer transaction and paid off all loans.
Because the company is gradually recovering the
accounts receivables affected by the Covid-19, and the sales are gradually returning to the normal level, the company’s current
cash revenue and expenditure are normal, which did not affect the normal operation. Now, after Covid-19, the company has no problems
with business sustainability. IPO financing will be used for new investments to expand the operating scale and does not affect the existing
operating scale.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying consolidated financial statements
have been prepared in conformity with US GAAP. However, the basis of accounting differs from that used in the statutory accounts of the
Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). Therefore, the differences
between US GAAP and PRC GAAP have been adjusted in these consolidated financial statements. The Company’s functional currency is
the Chinese Renminbi (“RMB”); however, the accompanying consolidated financial statements have been translated and presented
in United States Dollars (“USD”).
Interim Financial Statements
The accompanying unaudited financial statements
have been prepared in accordance with generally accepted accounting principles (GAAP) applicable to interim financial information and
the requirements of Form 10-Q and Rule 8-03 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include
all of the information and disclosure required by accounting principles generally accepted in the United States of America for complete
financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments
considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods
have been included. These interim financial statements should be read in conjunction with the audited financial statements for the year
ended December 31, 2021. Not all disclosures required by generally accepted accounting principles for annual financial statements are
presented. The interim financial statements follow the same accounting policies and methods of computations as the audited financial
statements for the year ended December 31, 2021.
Use of Estimates
The preparation of these financial statements
in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements
and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience
and various other assumptions that are reasonable under the circumstances. Accordingly, actual results may differ from these estimates.
Significant estimates include the useful lives of property and equipment, land use rights, assumptions used in assessing the collectability
of receivables, and impairment for long-term assets.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Basis of Consolidation
The consolidated financial statements include
the financial statements of the Company, its subsidiaries and consolidated VIEs, including the VIEs’ subsidiaries, for which Muliang
Viagoo is the primary beneficiary.
All transactions and balances among the Company,
its subsidiaries, the VIEs and the VIEs’ subsidiaries have been eliminated upon consolidation.
As PRC laws and regulations welcome to invest
in organic fertilizer industry businesses, Muliang Viagoo operates its fertilizer business in the PRC through Muliang Industry and its
subsidiaries, which are collectively referred as the “WFOEs”.
By entering into a series of agreements (the
“VIE Agreements”), Muliang Viagoo, through WFOEs, obtained control over Muliang Industry and its subsidiaries (collectively
referred as “VIEs”). The VIE Agreements enable Muliang Viagoo to (1) have power to direct the activities that most significantly
affect the economic performance of the VIEs, and (2) receive the economic benefits of the VIEs that could be significant to the
VIEs. Accordingly, Muliang Viagoo is considered the primary beneficiary of the VIEs and has consolidated the VIEs’ financial results
of operations, assets and liabilities in Muliang Viagoo’s consolidated financial statements. In making the conclusion that Muliang
Viagoo is the primary beneficiary of the VIEs, Muliang Viagoo’s rights under the Power of Attorney also provide Muliang Viagoo’s
abilities to direct the activities that most significantly impact the VIEs’ economic performance. Muliang Viagoo also believes
that this ability to exercise control ensures that the VIEs will continue to execute and renew the Master Exclusive Service Agreement
and pay service fees to Muliang Viagoo. By charging service fees to be determined and adjusted at the sole discretion of Muliang Viagoo,
and by ensuring that the Master Exclusive Service Agreement is executed and remains effective, Muliang Viagoo has the rights to receive
substantially all of the economic benefits from the VIEs.
Comparative VIE financials, are set forth below:
| | |
As of
September 30,
2022 | | |
As of
December 31,
2021 | |
| | |
| | |
| |
| Current assets | |
$ | 15,700,547 | | |
$ | 18,972,383 | |
| Non-current assets | |
| 7,616,546 | | |
| 8,995,363 | |
| Total Assets | |
| 23,317,093 | | |
| 27,967,746 | |
| Current liabilities | |
| 8,516,935 | | |
| 12,788,253 | |
| Non-current liabilities | |
| 109,526 | | |
| 422,480 | |
| Total liabilities | |
| 8,626,461 | | |
| 20,745,846 | |
| Total shareholders’ equity (deficit) | |
$ | 14,690,632 | | |
$ | 7,221,900 | |
| | |
For nine months ended
September
30, | |
| | |
2022 | | |
2021 | |
| Net income | |
$ | 1,650,353 | | |
$ | 1,826,067 | |
| Net cash provided by (used in) operating activities | |
| (1,038,837 | ) | |
| 4,814,649 | |
| Net cash provided by (used in) investment activities | |
| (128,623 | ) | |
| (1,221,133 | ) |
| Net cash provided by (used in) financing activities | |
$ | 1,172,536 | | |
$ | (3,593,475 | ) |
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Quantitative Metrics of the VIE, Shanghai Muliang Industry Co., Ltd.
are set forth below:
For the nine months ended September 30,
2022
| | |
Parent
company | | |
| | |
WFOE
(Shanghai
Mufeng) -
Note 3 | | |
Shanghai
Muliang
Industry
Co., Ltd.
and its
subsidiaries
(the VIEs) | | |
| | |
Subsidiaries | | |
Elimination of intercompany
balances | | |
Consolidated
Financials | | |
% of the
Consolidated
Financials |
| | |
A | | |
| | |
B | | |
C | | |
| | |
D | | |
E | | |
F=A+B+C+D+E | | |
G=C/F |
| Cash and cash equivalence | |
$ | - | | |
| | | |
| - | | |
| 10,280 | | |
| | | |
| 230,521 | | |
| - | | |
| 240,801 | | |
4% |
| Current assets | |
| - | | |
| | | |
| - | | |
| 15,700,547 | | |
| | | |
| 851,374 | | |
| - | | |
| 16,551,921 | | |
95% |
| Intercompany receivable from VIE | |
| - | | |
| Note 3 | | |
| 9,135,651 | | |
| - | | |
| | | |
| - | | |
| (9,135,651 | ) | |
| - | | |
N/A |
| Investment in Subsidiaries | |
| 1,994,535 | | |
| Note 1 | | |
| - | | |
| - | | |
| | | |
| - | | |
| (1,994,535 | ) | |
| - | | |
N/A |
| Total Assets | |
$ | 1,994,535 | | |
| | | |
| 9,135,651 | | |
| 23,317,093 | | |
| | | |
| 1,526,874 | | |
| (11,130,186 | ) | |
| 24,843,967 | | |
94% |
| Current liabilities | |
| 11,784 | | |
| | | |
| 31,081 | | |
| 8,516,935 | | |
| | | |
| 1,366,053 | | |
| | | |
| 9,925,853 | | |
86% |
| Intercompany payable to WFOE | |
| - | | |
| | | |
| - | | |
| 9,135,651 | | |
| | | |
| - | | |
| (9,135,651 | ) | |
| - | | |
N/A |
| Total liabilities | |
$ | 11,784 | | |
| | | |
| 31,081 | | |
| 8,626,461 | | |
| | | |
| 1,398,876 | | |
| | | |
| 10,068,202 | | |
86% |
| Total shareholders’ equity (deficit) | |
$ | 1,982,751 | | |
| | | |
| 9,104,570 | | |
| 14,690,632 | | |
| Note 2 | | |
| 127,998 | | |
| (11,130,186 | ) | |
| 14,775,765 | | |
99% |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Revenues | |
| - | | |
| | | |
| - | | |
| 6,474,751 | | |
| | | |
| 608,896 | | |
| - | | |
| 7,083,647 | | |
91% |
| Gross profit | |
| - | | |
| | | |
| - | | |
| 2,826,333 | | |
| | | |
| 239,691 | | |
| - | | |
| 3,066,024 | | |
92% |
| Service fee expense from VIE to WFOE | |
| - | | |
| | | |
| - | | |
| 1,600,538 | | |
| | | |
| - | | |
| (1,600,538 | ) | |
| - | | |
N/A |
| Total operating expenses | |
| - | | |
| | | |
| - | | |
| 2,083,787 | | |
| | | |
| 443,942 | | |
| (1,600,538 | ) | |
| 927,191 | | |
225% |
| Operating Income | |
| - | | |
| | | |
| 1,600,538 | | |
| 2,343,084 | | |
| | | |
| (204,251 | ) | |
| (1,600,538 | ) | |
| 2,138,833 | | |
110% |
| Income from VIE | |
| - | | |
| | | |
| 1,600,538 | | |
| - | | |
| | | |
| - | | |
| (1,600,538 | ) | |
| - | | |
N/A |
| Income (loss) from investment | |
| 1,703,660 | | |
| | | |
| - | | |
| - | | |
| | | |
| - | | |
| (1,703,660 | ) | |
| - | | |
N/A |
| Net income (loss) | |
$ | 1,703,660 | | |
| | | |
| 1,600,538 | | |
| - | | |
| | | |
| (206,941 | ) | |
| (3,304,198 | ) | |
| 1,393,597 | | |
0% |
| Total Comprehensive Income | |
| 1,703,660 | | |
| | | |
| 1,600,538 | | |
| 88,523 | | |
| | | |
| (10,001 | ) | |
| (3,304,198 | ) | |
| 78,522 | | |
113% |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| OPERATING ACTIVITIES | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| Net income | |
| 1,703,660 | | |
| | | |
| 1,600,538 | | |
| 1,650,353 | | |
| | | |
| (256,756 | ) | |
| (3,304,198 | ) | |
| 1,393,597 | | |
118% |
| Equity in earnings of subsidiaries | |
| (1,703,660 | ) | |
| | | |
| | | |
| - | | |
| | | |
| - | | |
| 1,703,660 | | |
| - | | |
N/A |
| Intercompany receivable / payable between WFOE and
VIE | |
| - | | |
| | | |
| (1,600,538 | ) | |
| 1,600,538 | | |
| | | |
| - | | |
| - | | |
| - | | |
N/A |
| Net cash provided by (used in) operating
activities | |
$ | - | | |
| | | |
| - | | |
| (1,038,837 | ) | |
| | | |
| (96,551 | ) | |
| - | | |
| (1,135,388 | ) | |
91% |
| Net cash provided by (used in) investment
activities | |
| - | | |
| | | |
| - | | |
| (128,623 | ) | |
| | | |
| - | | |
| - | | |
| (128,623 | ) | |
100% |
| Net cash provided by (used in) financing
activities | |
$ | - | | |
| | | |
| - | | |
| 1,172,536 | | |
| | | |
| - | | |
| - | | |
| 1,172,536 | | |
100% |
Note 1 The investment refers to the acquisition of 100% shares of Viagoo
Pte Ltd, paid in 1,011,000 shares on June 19, 2020, by the Company
MULIANG
VIAGOO TECHNOLOGY, INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Note 2 The Company’s shareholders would
not hold any ownership interest, direct or indirect, in the operating company in China, i.e. the VIE, and would merely have a contractual
relationship with the VIE.
Note 3 The intercompany balances of $9,135,651
between the WOFE and the VIE arising from the service fee income payable to the WOFE by the VIE; the intercompany balances do not include
any loans between the WOFE and the VIE. The amount is accumulated from the date that the VIE agreements when into effect on February
16, 2016. As the Company has disclosed, the VIE has not paid amounts in cash or other means to settle the payables balances owed
by the VIE to the WOFE.
VIE Agreements that were entered to give Muliang
Viagoo effective control over the VIEs include:
Voting Rights Proxy Agreement and Irrevocable
Power of Attorney
Under which each shareholder of the VIEs grant
to any person designated by WFOEs to act as its attorney-in-fact to exercise all shareholder rights under PRC law and the relevant articles
of association, including but not limited to, appointing directors, supervisors and officers of the VIEs as well as the right to sell,
transfer, pledge and dispose all or a portion of the equity interest held by such shareholders of the VIEs. The proxy and power of attorney
agreements will remain effective as long as WFOEs exist. The shareholders of the VIEs do not have the right to terminate the proxy agreements
or revoke the appointment of the attorney-in-fact without written consent of the WFOEs.
Exclusive Option Agreement
Under which each shareholder of the VIEs granted
9F or any third party designated by 9F the exclusive and irrevocable right to purchase from such shareholders of the VIEs, to the extent
permitted by PRC law and regulations, all or part of their respective equity interests in the VIEs for a purchase price equal to the
registered capital. The shareholders of the VIEs will then return the purchase price to 9F or any third party designated by 9F after
the option is exercised. 9F may transfer all or part of its option to a third party at its own option. The VIEs and its shareholders
agree that without prior written consent of 9F, they may not transfer or otherwise dispose the equity interests or declare any dividends.
The restated option agreement will remain effective until 9F or any third party designated by 9F acquires all equity interest of the
VIEs.
Spousal Consent
The spouse of each shareholder of the VIEs has
entered into a spousal consent letter to acknowledge that he or she consents to the disposition of the equity interests held by his or
her spouse in the VIEs in accordance with the exclusive option agreement, the power of attorney and the equity pledge agreement regarding
VIE structure described above, and any other supplemental agreement(s) may be consented by his or her spouse from time to time.
Each such spouse further agrees that he or she will not take any action or raise any claim to interfere with the arrangements contemplated
under the mentioned agreements. In addition, each such spouse further acknowledges that any right or interest in the equity interests
held by his or her spouse in the VIEs do not constitute property jointly owned with his or her spouse and each such spouse unconditionally
and irrevocably waives any right or interest in such equity interests.
Loan Agreement
Pursuant to the loan agreements between WFOEs
and each shareholder of the VIEs, WFOEs extended loans to the shareholders of the VIEs, who had contributed the loan principal to the
VIEs as registered capital. The shareholders of VIEs may repay the loans only by transferring their respective equity interests in VIEs
to 9F Inc. or its designated person(s) pursuant to the exclusive option agreements. These loan agreements will remain effective
until the date of full performance by the parties of their respective obligations thereunder.
VIE Agreements that enables Muliang Viagoo to
receive substantially all of the economic benefits from the VIEs include:
Equity Interest Pledge Agreement
Pursuant to equity interest pledge agreement,
each shareholder of the VIEs has pledged all of his or her equity interest held in the VIEs to WFOEs to secure the performance by VIEs
and their shareholders of their respective obligations under the contractual arrangements, including the payments due to WFOEs for services
provided. In the event that the VIEs breach any obligations under these agreements, WFOEs as the pledgees, will be entitled to request
immediate disposal of the pledged equity interests and have priority to be compensated by the proceeds from the disposal of the pledged
equity interests. The shareholders of the VIEs shall not transfer their equity interests or create or permit to be created any pledges
without the prior written consent of WFOEs. The equity interest pledge agreement will remain valid until the master exclusive service
agreement and the relevant exclusive option agreements and proxy and power of attorney agreements, expire or terminate.
Master Exclusive Service Agreement
Pursuant to exclusive service agreement, WFOEs
have the exclusive right to provide the VIEs with technical support, consulting services and other services. WFOEs shall exclusively
own any intellectual property arising from the performance of the agreement. During the term of this agreement, the VIEs may not accept
any services covered by this agreement provided by any third party. The VIEs agree to pay service fees to be determined and adjusted
at the sole discretion of the WFOEs. The agreement will remain effective unless WFOEs terminate the agreement in writing.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Risks in relation to the VIE structure
Muliang Viagoo believes that the contractual
arrangements with the VIEs and their current shareholders are in compliance with PRC laws and regulations and are legally enforceable.
However, uncertainties in the PRC legal system could limit Muliang Viagoo’s ability to enforce the contractual arrangements. If
the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
| |
● |
Revoke the business and
operating licenses of Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities; |
| |
|
|
| |
● |
Discontinue or restrict
the operations of any related-party transactions among Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities; |
| |
|
|
| |
● |
Impose fines or other requirements
on Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities; |
| |
|
|
| |
● |
Require Muliang Viagoo’s
PRC subsidiaries or consolidated affiliated entities to revise the relevant ownership structure or restructure operations; and/or; |
| |
● |
Restrict or prohibit Muliang
Viagoo’s use of the proceeds of the additional public offering to finance Muliang Viagoo’s business and operations in
China; |
| |
|
|
| |
● |
Shut down Muliang Viagoo’s
servers or blocking Muliang Viagoo’s online platform; |
| |
|
|
| |
● |
Discontinue or place restrictions
or onerous conditions on Muliang Viagoo’s operations; and/or |
| |
|
|
| |
● |
Require Muliang Viagoo
to undergo a costly and disruptive restructuring. |
Muliang Viagoo’s ability to conduct its
business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, Muliang Viagoo
may not be able to consolidate the VIEs in its consolidated financial statements as it may lose the ability to exert effective control
over the VIEs and its shareholders, and it may lose the ability to receive economic benefits from the VIEs. Muliang Viagoo currently
does not believe that any penalties imposed or actions taken by the PRC government would result in the liquidation of the Company, WFOEs,
or the VIEs.
The following table sets forth the assets, liabilities,
results of operations and cash flows of the VIEs and their subsidiaries, which are included in Muliang Viagoo’s consolidated financial
statements after the elimination of intercompany balances and transactions:
Under the VIE Arrangements, Muliang Viagoo has
the power to direct activities of the VIEs and can have assets transferred out of the VIEs. Therefore, Muliang Viagoo considers that
there is no asset in the VIEs that can be used only to settle obligations of the VIEs, except for assets that correspond to the amount
of the registered capital and PRC statutory reserves, if any. As the VIEs are incorporated as limited liability companies under the Company
Law of the PRC, creditors of the VIEs do not have recourse to the general credit of Muliang Viagoo for any of the liabilities of the
VIEs.
Currently there is no contractual arrangement
which requires Muliang Viagoo to provide additional financial support to the VIEs. However, as Muliang Viagoo conducts its businesses
primarily based on the licenses held by the VIEs, Muliang Viagoo has provided and will continue to provide financial support to the VIEs.
Revenue-producing assets held by the VIEs include
certain internet content provision (“ICP”) licenses and other licenses, domain names and trademarks. The ICP licenses and
other licenses are required under relevant PRC laws, rules and regulations for the operation of internet businesses in the PRC,
and therefore are integral to Muliang Viagoo’s operations. The ICP licenses require that core PRC trademark registrations and domain
names are held by the VIEs that provide the relevant services.
Muliang Viagoo consolidates the following entities,
including wholly-owned subsidiaries, Muliang HK, Shanghai Mufeng, Viagoo, and its wholly controlled variable interest entities, Muliang
Industry, and Zongbao, 60% controlled Agritech Development, 99% controlled Fukang, 65% controlled Zhonglian, 80% controlled Yunnan Muliang
and 51% controlled Heilongjiang. Accordingly, the 40% equity interest holder of Agritech Development, 1% equity interest holders in Fukang,
35% equity interest holders in Zhonglian, 20% interest in Yunnan Muliang, and 49% equity interest in Heilongjiang are accounted as non-controlling
interest in the Company’s consolidated financial statements.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The variable interest entities consolidated for
which the Company is deemed the primary beneficiary. All significant inter-company accounts and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
For purposes of the statements of cash flows,
the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be
cash equivalents. In addition, the Company maintains cash with various financial institutions.
Accounts Receivable
Accounts receivable are presented net of an allowance
for doubtful accounts. In addition, the Company maintains allowances for doubtful accounts for estimated losses. The Company reviews
the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of
individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including
the age of the balance, a customer’s historical payment history, current creditworthiness, and current economic trends. Accounts
are written off after exhaustive efforts at collection.
Inventories
Inventories, consisting of raw materials, work
in process, and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted
average method.
Property, Plant, and Equipment
Plant and equipment are carried at cost and are
depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as
incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation
are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines
the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded
value may not be recoverable.
Included in property and equipment is construction-in-progress,
which consists of factory improvements and machinery pending installation and includes the costs of construction, machinery and equipment,
and any interest charges arising from borrowings used to finance these assets during the construction period or installation of the assets.
No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for
their intended use.
Estimated useful lives of the Company’s
assets are as follows:
| | |
Useful
Life |
| Building | |
20 years |
| Operating equipment | |
5-10 years |
| Vehicle | |
3-5 years |
| Electronic equipment | |
3-20 years |
| Office equipment | |
3-20 years |
| Apple orchard | |
10 years |
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The apple orchard includes rental of an apple
farm, labor cost, fertilizers, apple seeds, apple seedlings, etc. The costs to purchase and cultivate apple trees and the expenditures
related to labor and materials to plant apple trees until they become commercially productive are capitalized, which require a two-year
period. The estimated production life for an apple tree is 10 years, and the costs are depreciated without a residual value. Expenses
incurred maintaining apple trees during the growth cycle until seedling apple trees, or grafted varieties are fruited are capitalized
into inventory and included in Work in Process—apple orchard, a component of inventories.
Depreciation expenses pertaining to apple trees
will be included in inventory costs for those apples to be sold and ultimately become a component of the cost of goods sold. Therefore,
similar to other assets, the failure of our apple trees to be serviceable over the entirety of their anticipated useful lives or to be
sold at their anticipated residual value will negatively impact our operating results.
Intangible Assets
Included in the intangible assets are land-use
rights. According to the laws of the PRC, the government owns all the land in the PRC. Therefore, companies or individuals are authorized
to possess and use the land only through land use rights granted by the Chinese government. Intangible assets are being amortized using
the straight-line method over their lease terms or estimated useful life.
Estimated useful lives of the Company’s
intangible assets are as follows:
| | |
Useful
Life |
| Land use rights | |
50 years |
| Non-patented technology | |
10 years |
The Company carries intangible assets at a cost
less accumulated amortization. In accordance with US GAAP, the Company examines the possibility of decreases in the value of intangible
assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes
amortization using the straight-line method over the estimated useful life of 50 years for the land use rights.
Impairment of Long-lived Assets
In accordance with ASC Topic 360, the Company
reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future
cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s
estimated fair value and its book value. The Company recorded no impairment charge for the nine months ended September 30, 2022, and
2021.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Advances from Customers
Advances from customers consist of prepayments
from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery
of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.
Non-controlling Interest
Non-controlling interests in the Company’s
subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s
equity. Purchase or sale of equity interests that do not result in a change of control is accounted for as equity transactions. Results
of operations attributable to the non-controlling interest are included in our consolidated results of operations. Upon loss of control,
the interest sold and interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.
Revenue Recognition
On January 1, 2018, the Company adopted ASC 606
using the modified retrospective method. Accordingly, results for the reporting period beginning after January 1, 2018, are presented
under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historic
accounting under Topic 605.
Management has determined that the adoption of
ASC 606 did not impact the Company’s previously reported financial statements in any prior period, nor did it result in a cumulative
effect adjustment to opening retained earnings.
Revenue for the sale of products is derived from
contracts with customers, which primarily include the sale of fertilizer products and environmental protection equipment. The Company’s
sales arrangements do not contain variable consideration. Instead, the Company recognizes revenue at a point in time based on management’s
evaluation of when performance obligations under the terms of a contract with the customer are satisfied, and control of the products
has been transferred to the customer. For the vast majority of the Company’s product sales, the performance obligations and control
of the products transfer to the customer when products are delivered and customer acceptance is made.
Revenue for logistics-related services is derived
from Viagoo subsidiaries. Through an online service platform, the company provides the operation management service to support customers.
For VTM service, revenue is charged to carriers based on a certain percentage of the freight charges. For VES service, revenue is recognized
based on monthly subscriptions by vehicles and by users. For system integration service, revenue is recognized over time based on the
progress of the project and annual maintenance service.
Cost of Sales
Cost of sales consists primarily of raw materials,
utility, and supply costs consumed in the manufacturing process, manufacturing labor, depreciation expense, and direct overhead expenses
necessary to manufacture finished goods as well as warehousing and distribution costs such as inbound freight charges, shipping, and
handling costs, purchasing and receiving costs.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Income Taxes
The Company accounts for income taxes under the
provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in
its financial statements or tax returns.
The Company is subject to the Enterprise Income
Tax law (“EIT”) of the People’s Republic of China. The Company’s operations in producing and selling fertilizers
are subject to the 25% enterprise income tax.
Related Parties
Parties are related to the Company if the parties,
directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company.
Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of
the Company and its management, and other parties with which the Company may deal if one party controls or can significantly influence
the management or operating policies of the other to the extent that one of the transacting parties might be prevented from fully pursuing
its separate interests. The Company discloses all related party transactions.
Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) comprised of net
income (loss) and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes
in paid-in capital, and distributions to stockholders. The Company’s comprehensive income (loss) consists of net income (loss)
and unrealized gains from foreign currency translation adjustments.
Foreign Currency Translation
The Company’s functional currency is
the Chinese Renminbi (“RMB”) and Singapore Dollar (“SGD”); however, the accompanying consolidated financial statements
have been translated and presented in United States Dollars (“USD”). Results of operations and cash flows are translated
at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period,
and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements
of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments
resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive
income/loss. The translation adjustment for the nine months ended September 30, 2022, and 2021 was a loss of $1,315,075 and a loss
of $128,750, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange
rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional
currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as
incurred.
All of the Company’s revenue transactions
are transacted in the functional currency. The Company does not enter into any material transaction in foreign currencies. Accordingly,
transaction gains or losses have not had, and are not expected to have, a material effect on the Company’s results of operations.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
For business in China, asset and liability
accounts at September 30, 2022, and December 31, 2021, were translated at 7.1099 RMB to $1 USD and 6.3588 RMB to $1 USD, respectively,
which were the exchange rates on the balance sheet dates. The average translation rates applied to the statements of income for the nine
months ended September 30, 2022, and 2021 were 6.6001 RMB and 6.4694 RMB to $1 USD, respectively.
For business in Singapore, asset and liability
accounts at September 30, 2022, and December 31, 2021, were translated at 1.4341 SGD to $1 USD and 1.3493 SGD to $1 USD, respectively.
The average translation rate applied to the statements of income for the nine months ended September 30, 2022,and 2021 was 1.3755 SGD
to $1 USD and 1.3389 SGD to $1 USD, respectively.
Earnings (Loss) per Share
Basic earnings per share are computed by dividing
net income available to common stockholders by the weighted average number of common shares outstanding during the period, excluding
the effects of any potentially dilutive securities. Diluted earnings per share give effect to all dilutive potential of shares of common
stock outstanding during the period, including stock options or warrants, using the treasury stock method (by using the average stock
price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible
debt or convertible preferred stock, using the if-converted method. Earnings per share exclude all potential dilutive shares of common
stock if their effect is anti-dilutive. There were no potential dilutive securities on September 30, 2022, and December 31, 2021, and
for the nine months ended September 30, 2022, and 2021.
Fair Value of Financial Instruments
The Company adopted the guidance of ASC Topic
820 for fair value measurements, which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes
a fair value hierarchy to classify the inputs used in measuring fair value as follows:
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 in markets
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 that reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The carrying amounts reported in the balance
sheets for cash and cash equivalents, accounts receivable, inventories, advances to suppliers, prepaid expenses, short-term loans, accounts
payable, accrued expenses, advances from customers, VAT and service taxes payable, and income taxes payable approximate their fair market
value based on the short-term maturity of these instruments.
ASC Topic 825-10 “Financial Instruments”
allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair
value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value
option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent
reporting date. Accordingly, the Company did not elect to apply the fair value option to any outstanding instruments.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The following table summarizes the carrying values
of the Company’s financial instruments:
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Current portion of long-term debt | |
$ | 1,044,318 | | |
$ | 1,174,756 | |
| Long-term loan | |
| 48,998 | | |
| 283,860 | |
| Total | |
$ | 1,093,316 | | |
$ | 1,458,616 | |
Government Contribution Plan
Pursuant to the laws applicable to PRC law, the
Company is required to participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement,
medical, and other welfare benefits are provided to employees. Chinese labor regulations require the Company to pay to the local labor
bureau a monthly contribution at a stated contribution rate based on the basic monthly compensation of qualified employees. The relevant
local labor bureau is responsible for meeting all retirement benefit obligations; the Company has no further commitments beyond its monthly
contribution.
Statutory Reserve
Pursuant to the laws applicable to the PRC, the
Company must make appropriations from after-tax profit to the non-distributable “statutory surplus reserve fund.” Subject
to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations of 10% of after-tax profit
until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted
in the PRC (“PRC GAAP”) at each year-end). For foreign-invested enterprises and joint ventures in the PRC, annual appropriations
should be made to the “reserve fund.” For foreign-invested enterprises, the annual appropriation for the “reserve fund”
cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under
PRC GAAP at each year-end). If the Company has accumulated loss from prior periods, the Company can use the current period net income
after tax to offset against the accumulated loss.
Segment Information
The standard, “Disclosures about Segments
of an Enterprise and Related Information,” codified with ASC-280, requires certain financial and supplementary information to be
disclosed on an annual and interim basis for each reportable segment of an enterprise. The Company believes that it operates in two business
segments, of which are geographically located in China and one in Singapore respectively.
Recent Accounting Pronouncement
In February 2016, the FASB issued Accounting
Standards Update No. 2016-02 (ASU 2016-02) “Leases (Topic 842)”. ASU 2016-02 requires a lessee to recognize in the statement
of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use
the underlying asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15,
2018. Early adoption is permitted. For finance leases, a lessee is required to do the following:
| |
● |
Recognize a right-of-use
asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position |
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
| |
● |
Recognize interest on the
lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income |
| |
|
|
| |
● |
Classify repayments of
the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable
lease payments within operating activities in the statement of cash flows. |
For operating leases, a lessee is required to
do the following:
| |
● |
Recognize a right-of-use
asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position |
| |
|
|
| |
● |
Recognize a single lease
cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis |
| |
|
|
| |
● |
Classify all cash payments
within operating activities in the statement of cash flows. |
In July 2018, the FASB issued Accounting Standards
Update No. 2018-11 (ASU 2018-11), which amends ASC 842 so that entities may elect not to recast their comparative periods in transition
(the “Comparatives Under 840 Option”). ASU 2018-11 allows entities to change their date of initial application to the beginning
of the period of adoption. In doing so, entities would:
| |
● |
Apply ASC 840 in the comparative
periods. |
| |
|
|
| |
● |
Provide the disclosures
required by ASC 840 for all periods that continue to be presented in accordance with ASC 840. |
| |
|
|
| |
● |
Recognize the effects of
applying ASC 842 as a cumulative-effect adjustment to retained earnings for the period of adoption. |
In addition, the FASB also issued a series of
amendments to ASU 2016-02 that address the transition methods available and clarify the guidance for lessor costs and other aspects of
the new lease standard.
The management has reviewed the accounting pronouncements
and adopted the new standard on January 1, 2019, using the modified retrospective method of adoption.
In December 2019, the FASB issued ASU 2019-12
- Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides an exception to the general methodology for
calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This update also (1)
requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account
for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of
goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and
when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws
or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The standard is effective
for the Company for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently in the process
of evaluating the impact of the adoption on its consolidated financial statements.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
In August 2018, the FASB issued ASU 2018-13, “Fair
Value Measurement (Topic 820), – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,”
which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or
hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. The amendments in this Update modify the disclosure requirements
on fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter
8: Notes to Financial Statements, including the consideration of costs and benefits. The amendments on changes in unrealized gains and
losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative
description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in
the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective
date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years, with early adoption permitted. The Company is currently evaluating the potential impacts of ASU 2018-13 on its consolidated
financial statements.
The Company believes that there were no other
accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Accounts receivable | |
$ | 11,744,147 | | |
$ | 12,710,362 | |
| Less: Allowance for credit losses | |
| (1,071,410 | ) | |
| (1,276,858 | ) |
| Total, net | |
$ | 10,672,737 | | |
$ | 11,433,504 | |
The Company reviews the accounts receivable
on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. After
evaluating the collectability of individual receivable balances, the Company did not recognize additional credit losses for the nine
months ended September 30, 2022, and 2021. The allowance balance as of September 30, 2022 was carried forward from the prior period.
The novel coronavirus epidemic that began
in the PRC at the beginning of 2020 has significantly impacted the operation of customers, resulting in delays in collecting outstanding
receivables as of September 30, 2022. As of the date of this report, a majority of the Company’s customers have resumed normal
operations.
NOTE 4 – INVENTORIES
Inventories consisted of the following:
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Raw materials | |
$ | 71,064 | | |
$ | 51,292 | |
| Finished goods | |
| 1,388,207 | | |
| 82,621 | |
| Less: Provision for impairment | |
| - | | |
| - | |
| Total, net | |
$ | 1,459,271 | | |
$ | 133,913 | |
The Company did not recognize a loss from
inventory impairment for the nine months ended September 30, 2022, and 2021.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – PREPAYMENT
The prepayment balance of $2,696,624 and $6,805,039
as of September 30, 2022 and December 31, 2021 respectively, represents the advances paid to suppliers for the purchase of raw materials
to be delivered in the next operating period.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September
30, 2022 and December 31, 2021 consisted of:
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Building | |
$ | 2,716,912 | | |
$ | 3,037,848 | |
| Operating equipment | |
| 2,661,049 | | |
| 2,981,424 | |
| Vehicle | |
| 79,717 | | |
| 89,134 | |
| Office equipment | |
| 78,124 | | |
| 100,851 | |
| Apple Orchard | |
| 898,849 | | |
| 1,110,067 | |
| Construction in progress | |
| 2,795,018 | | |
| 3,125,180 | |
| | |
| 9,229,669 | | |
| 10,444,504 | |
| Less: Accumulated depreciation | |
| (3,279,128 | ) | |
| (3,250,242 | ) |
| | |
$ | 5,950,541 | | |
$ | 7,194,262 | |
For the nine months ended September 30, 2022
and 2021, depreciation expense amounted to $524,121 and $532,346, respectively. Depreciation is not taken during the period of construction
or equipment installation. Upon completion of the installation of manufacturing equipment or any construction in progress, construction
in progress balances will be classified to their respective property and equipment category.
The construction in progress of $2,795,018
represents the investment of a black goat processing plant located in Shuangbai County, Chuxiong City, Yunnan Province, PRC.
NOTE 7 – RIGHT OF USE ASSETS
The total balance of $1,245,690 as of September
30, 2022 represents the net value of two industrial land use rights located in Weihai City, Shandong Province, and Chuxiong City, Yunnan
Province. The total cost of land use rights is $1,434,587 and the accumulated amortization is $188,897.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – DEFERRED TAX ASSETS, NET
The components of the deferred tax assets are
as follows:
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Deferred tax assets, non-current | |
| | |
| |
| Deficit carried-forward | |
$ | 78,201 | | |
$ | 87,438 | |
| Allowance | |
| 156,834 | | |
| 175,360 | |
| Deferred tax assets | |
| 235,035 | | |
| 262,798 | |
| Less: valuation allowance | |
| - | | |
| - | |
| Deferred tax assets, non-current | |
$ | 235,035 | | |
$ | 262,798 | |
Deferred taxation is calculated under the liability
method in respect of taxation effect arising from all timing differences, which are expected with reasonable probability to realize in
the foreseeable future. The Company’s subsidiary registered in the PRC is subject to income taxes within the PRC at the applicable
tax rate.
NOTE 9 – LOANS PAYABLE
Long-term loan and current portion of long-term
loan consisted of the following:
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Loan payable to Rushan City Rural Credit Union, annual interest 8.7875%, due by July 18, 2022 and expected to extended one more year. | |
$ | 1,044,318 | | |
$ | 1,174,756 | |
| Long-term loans due to individuals and
entities without interest | |
| 48,998 | | |
| 283,860 | |
| | |
| 1,093,316 | | |
| 1,458,616 | |
| Current portion of long-term loans payable | |
| 1,044,318 | | |
| 1,174,756 | |
| Total, net | |
$ | 48,998 | | |
$ | 283,860 | |
As of September 30, 2022, the Company’s
future loan obligations according to the terms of the loan agreement are as follows:
| | |
Amount | |
| within 1 year | |
$ | 1,044,318 | |
| 1-2 years | |
| 48,998 | |
| 3 years | |
| - | |
| Total | |
$ | 1,093,316 | |
The Company recognized interest expenses of
$64,147 and $91,529 for the nine months ended September 30, 2022 and 2021, respectively.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – STOCKHOLDERS EQUITY
Authorized Stock
The Company has authorized 500,000,000 common
shares with a par value of $0.0001 per share. Each common share entitles the holder to one vote, in person or proxy, on any matter on
which action of the stockholders of the corporation is sought.
On April 5, 2019, the Company filed a Certificate
of Amendment to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the creation of Blank Check
Preferred Stock. As a result, the capital stock of the Company consisted of 500,000,000 shares of common stock, $0.0001 par value, and
100,000,000 shares of blank check preferred stock after the filling.
On October 30, 2019, 30,000,000 shares were designated
to be Series A Preferred Stock out of the 100,000,000 shares of blank check preferred stock.
Common Share Issuances
On June 29, 2018, the outstanding amount of $326,348
due to Mr. Wang, CEO, and Chairman of the Company, was converted into 43,200 shares of Common Shares at $ 7.55 per share.
On June 29, 2018, the Company issued 298,518
common shares of the Company at $7.55 for proceeds of $2,255,111 to Mr. Wang, CEO, and Chairman of the Company.
On April 4, 2019, the Company’s Board of
Directors and majority shareholder approved a 5 to 1 reverse stock split of all of the issued and outstanding shares of the Company’s
common stock (the “Reverse Stock Split”). No fractional shares of Common Stock will be issued as a result of the reverse
stock split. The Stock Split does not affect the par value or the number of authorized shares of the Company’s common stock.
On April 16, 2019, the Company filed a Certificate
of Change to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the Reverse stock Split. The
reverse stock split took effect on May 7, 2019. The common shares outstanding have been retroactively restated to reflect the reverse
stock split.
On October 10, 2019, and November 1, 2019, the
Company issued a total of 19,000,000 shares of Series A Preferred Stock to Mr. Wang, the CEO and Chairman of the Company, in exchange
for 19,000,000 shares of common stock beneficially owned by him. Following the transaction, 19,000,000 shares of common stock were canceled
and returned to treasury.
On June 19, 2020, Muliang Viagoo Technology Inc.
entered into a Share Exchange Agreement with Viagoo Pte Ltd. (“Viagoo”) and all the shareholders of Viagoo for the acquisition
of 100% equity interest of Viagoo.
Pursuant to the Share Exchange Agreement, Muliang
shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest in and to the Viagoo’s capital
stock. The aggregate purchase price for the Shares was US$2,830,800, paid in 1,011,000 shares of the Company’s restricted common
stock, valued at $2.80 per share.
On June 28, 2020, the Company issued 50,000 of
restricted common stock as the compensation for Shaw Cheng “David” Chong, the new Chief Financial Officer of the Company.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – STOCKHOLDERS EQUITY (CONTINUED)
On December 29, 2020, the Company issued 100,000
restricted common stock to two investors for US$280,000, valued at $2.80 per share.
As of the date of this report, there were 38,502,954
shares of common stock outstanding.
Blank Check Preferred Stock
On April 4, 2019, the Company’s Board of
Directors and majority shareholder approved the creation of one hundred million (100,000,000) shares of Blank Check Preferred Stock,
$0.0001 par value. To the fullest extent permitted by the laws of the State of Nevada, as the same now exists or may hereafter be amended
or supplemented, the Board of Directors may fix and determine the designations, rights, preferences, or other variations of each class
or series within each class of preferred stock of the Company. The Company may issue the shares of stock for such consideration as may
be fixed by the Board of Directors.
On April 5, 2019, the Company filed a Certificate
of Amendment to the Articles of Incorporation with the Secretary of State of the State of Nevada to authorize the creation of Blank Check
Preferred Stock.
On October 30, 2019, 30,000,000 shares were designated
to be Series A Preferred Stock out of the 100,000,000 shares of blank check preferred stock.
Series A Preferred Stock
On October 30, 2019, the Company’s Board
of Directors and majority shareholder approved to designate 30,000,000 shares as Series A Preferred Stock out of the 100,000,000 shares
of blank check preferred stock, which the preferences and relative and other rights, and the qualifications, limitations or restrictions
thereof, shall be set forth in the discussion below under the “Series A Preferred Stock.” A certificate of designation for
the Series A Preferred Stock was filed with the Secretary of State of the State of Nevada on October 30, 2019.
The holders of Series A Preferred Stock shall
not be entitled to receive dividends of any kind.
The Series A Preferred Stock shall not be subject
to conversion into Common Stock or other equity authorized to be issued by the Corporation.
The holders of the issued and outstanding shares
of Series A Preferred Stock shall have voting rights equal to ten (10) shares of Common Stock for each share of Series A Preferred Stock.
On November 1, 2019, the Company issued a total
of 19,000,000 shares of Series A Preferred Stock to Mr. Wang, the CEO and Chairman of the Company, in exchange for 19,000,000 shares
of common stock beneficially owned by him. Following the transaction, 19,000,000 shares of common stock were canceled and returned to
the treasury.
As of the filing date, there were 19,000,000
shares of Series A Preferred Stock issued outstanding.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 – RELATED PARTY TRANSACTIONS
*Due from related parties
The due from related parties balance of $716,721
as of December 31, 2021, represents the receivable from Mr. Lirong Wang, the CEO and Chairman of the Company.
For
the nine months ended September 30, 2021, the Company borrowed $2,396,325 from Mr. Lirong Wang, and repaid $1,390,457.
These advances are due on demand, non-interest
bearing, and unsecured unless further disclosed.
*Due to related parties
Outstanding balance due to the related parties
below are advances to the Company as working capital. These advances are due on demand, non-interest bearing, and unsecured, unless further
disclosed.
| | |
September 30, | | |
December 31, | | |
|
| | |
2022 | | |
2021 | | |
Relationship |
| Mr. Lirong Wang | |
| 543,530 | | |
| - | | |
The CEO and Chairman / Actual controlling person |
| Ms. Xueying Sheng | |
| 96,563 | | |
| 103,390 | | |
Controller/Accounting Manager of the Company |
| Mr. Guohua Lin | |
| 46,620 | | |
| 58,039 | | |
Senior management / One of the Company’s shareholders |
| Mr. Zhongfang Wang | |
| 306 | | |
| - | | |
Father of Lirong Wang |
| Total | |
| 687,019 | | |
| 161,429 | | |
|
For the nine months ended September 30, 2022,
the Company borrowed $1,260,251 from Mr. Lirong Wang, and repaid $0.
For the nine months ended September 30, 2022,
the Company borrowed $0 from Mr. Guohua Lin, and repaid $11,419. For the nine months ended September 30, 2021, the Company
borrowed $7,435 from Mr. Guohua Lin, and repaid $6,291.
For the nine months ended September 30, 2022,
the Company borrowed $2,565 from Ms. Xueying Sheng and repaid $9,392. For the nine months ended September 30, 2021, the Company borrowed
$12,390 from Ms. Xueying Sheng and repaid $4,510.
For the nine months ended September 30, 2022,
the Company borrowed $306 from Mr. Zhongfang Wang, and repaid $0.
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – CONCENTRATIONS
Customer Concentrations
The following table sets forth information
as to each customer that accounted for 10% or more of the Company’s revenues for the nine months ended September 30, 2022, and
2021.
| | |
For the nine months ended September
30, | |
| Customer | |
2022 | | |
2021 | |
| | |
Amount | | |
% | | |
Amount | | |
% | |
| A | |
| 2,551,090 | | |
| 39 | % | |
| 2,407,951 | | |
| 32 | % |
| B | |
| 2,715,338 | | |
| 42 | % | |
| 2,308,618 | | |
| 31 | % |
Supplier Concentrations
The following table sets forth information
as to each supplier that accounted for 10% or more of the Company’s purchase for the nine months ended September 30, 2022 and 2021.
| | |
For the nine months ended September
30, | |
| Suppliers | |
2022 | | |
2021 | |
| | |
Amount | | |
% | | |
Amount | | |
% | |
| A | |
| 1,412,513 | | |
| 30 | % | |
| N/A
| | |
| N/A
| |
| B | |
| 1,689,611 | | |
| 36 | % | |
| 593,100 | | |
| 14 | % |
| C | |
| 691,015 | | |
| 15 | % | |
| 746,589 | | |
| 17 | % |
| D | |
| N/A | | |
| N/A | | |
| 621,387 | | |
| 15 | % |
| E | |
| 697,444 | | |
| 15 | % | |
| 619,532 | | |
| 14 | % |
Credit Risks
The Company’s operations are carried out
in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the PRC’s
political, economic, and legal environment and by the general state of the PRC’s economy. The Company’s operations in the
PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s
results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s
cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. As a result, the Company
has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant
portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry
economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due
to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit
risk. On September 30, 2022, and December 31, 2021, the Company’s cash balances by geographic area were as follows:
| | |
September 30,
2022 | | |
December 31,
2021 | |
| China | |
$ | 10,280 | | |
| 4 | % | |
$ | 31,787 | | |
| 84 | % |
| Singapore | |
| 230,521 | | |
| 96 | % | |
| 6,226 | | |
| 16 | % |
| Total cash and cash equivalents | |
$ | 240,801 | | |
| 100 | % | |
$ | 38,013 | | |
| 100 | % |
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 – INCOME TAXES
United States
Muliang Viagoo was established in the State of
Nevada in the United States and is subject to Nevada State and US Federal tax laws. Muliang Viagoo has approximately $97,672 of unused
net operating losses (“NOLs”) available for carrying forward to future years for U.S. federal income tax reporting purposes.
The benefit from the carry forward of such NOLs will begin expiring during the year ended December 31, 2034. Because United States tax
laws limit the time during which NOL carry forwards may be applied against future taxable income, the Company may be unable to take full
advantage of its NOLs for federal income tax purposes should the Company generate taxable income. Further, the benefit from utilization
of NOL carry forwards could be subject to limitations due to material ownership changes that could occur in the Company as it continues
to raise additional capital. Based on such limitations, the Company has significant NOLs for which realization of tax benefits is uncertain.
On December 22, 2017, the United States enacted
the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications to existing law. The Company has considered
the accounting impact of the effects of the Act during the year ended December 31, 2018 including a reduction in the corporate tax rate
from 34% to 21% among other changes.
Hong Kong
Muliang HK is established in Hong Kong, and its
income is subject to a 16.5% profit tax rate for income sourced within the Special Administrative Region. For the six months ended June
30, 2022 and 2021, Muliang HK did not earn any income derived in Hong Kong, and therefore was not subject to Hong Kong Profits Tax.
Singapore
Viagoo is incorporated in Singapore where tax
is levied on profits at rate of 17.0%. Singapore uses a territorial tax system. Post-tax profit distributions (i.e., dividends) to shareholders
are tax-free. Singapore does not tax on capital gains.
China, PRC
Shanghai Mufeng and its subsidiaries Muliang
Industry, Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development, Zhongliang, Heilongjiang and Yunnan Muliang are established
in China and its income is subject to income tax rate of 25%.
The reconciliation of effective income tax rate as follows:
| | |
For the Nine Months Ended | |
| | |
September 30, | | |
September 30, | |
| | |
2022 | | |
2021 | |
| US Statutory income tax rate | |
| 21 | % | |
| 21 | % |
| Valuation allowance | |
| (21 | )% | |
| (21 | )% |
| Total | |
| - | | |
| - | |
MULIANG VIAGOO TECHNOLOGY, INC., SUBSIDIARIES,
AND VARIABLE INTEREST ENTITIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 – INCOME TAXES (CONTINUED)
Accounting for Uncertainty in Income Taxes
The tax authority of the PRC government conducts
periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises complete their relevant tax
filings. Therefore, the Company’s PRC entities’ tax filings results are subject to change. Therefore, it is uncertain whether
the PRC tax authority may take different views about the Company’s PRC entities’ tax filings, which may lead to additional
tax liabilities.
ASC 740 requires recognition and measurement
of uncertain income tax positions using a “more-likely-than-not” approach. Accordingly, the management evaluated the Company’s
tax positions and concluded that no provision for uncertainty in income taxes was necessary as of September 30, 2022, and December 31,
2021.
The provision for income taxes consists of the
following:
| | |
For the Nine Months Ended
September 30, | |
| | |
2022 | | |
2021 | |
| Current | |
$ | 447,672 | | |
$ | 7,469 | |
| Deferred | |
| - | | |
| - | |
| Total | |
$ | 447,672 | | |
$ | 7,469 | |
NOTE 14 – BUSINESS SEGMENTS
The revenues and cost of goods sold from operation consist of the
following:
| | |
Revenues | | |
Cost of Sales | |
| | |
For the Nine Months Ended | | |
For the Nine Months Ended | |
| | |
September 30, | | |
September 30, | | |
September 30, | | |
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Fertilizer sales | |
$ | 6,474,751 | | |
$ | 6,856,190 | | |
$ | 3,648,418 | | |
$ | 4,234,896 | |
| Logistic | |
| 608,896 | | |
| 616,859 | | |
| 369,205 | | |
| 327,845 | |
| Others | |
| - | | |
| 120 | | |
| - | | |
| 90 | |
| Total | |
$ | 7,083,647 | | |
$ | 7,473,169 | | |
$ | 4,017,623 | | |
$ | 4,562,831 | |
NOTE 15 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events
that have occurred after the balance sheet date but before the financial statements are issued. Based on this evaluation, the Company
concluded that subsequent to September 30, 2022, but prior to November 21, 2022, the date the financial statements were available to
be issued, there was no subsequent event that would require disclosure to or adjustment to the financial statements other than the ones
disclosed above.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| To:
|
The
Board of Directors and Stockholders of |
| |
Muliang
Viagoo Technology, Inc. |
Opinion
on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Muliang Viagoo Technology, Inc., its subsidiaries and its variable interest entities (collectively the “Company”)
as of December 31, 2021 and 2020, and the related consolidated statements of income and comprehensive income, stockholders’ equity,
and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to
as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year
period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
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 the applicable 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 audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, 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 an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control 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, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
/s/
WWC, P.C.
WWC,
P.C.
Certified
Public Accountants
PCAOB
ID: 1171
We
have served as the Company’s auditor since March 15, 2016.
San
Mateo, CA
March
31, 2022
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONSOLIDATED
BALANCE SHEETS
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| ASSETS | |
| | |
| |
| Current Assets: | |
| | |
| |
| Cash and cash equivalents | |
$ | 38,013 | | |
$ | 348,834 | |
| Accounts receivable, net | |
| 11,433,504 | | |
| 13,455,551 | |
| Due from related party | |
| 716,721 | | |
| 1,155,429 | |
| Inventories | |
| 133,913 | | |
| 147,271 | |
| Prepayment | |
| 6,805,039 | | |
| 513,491 | |
| Other receivables, net | |
| 46,640 | | |
| 10,686,077 | |
| Total Current Assets | |
| 19,173,830 | | |
| 26,306,653 | |
| | |
| | | |
| | |
| Long term investment | |
| 21,273 | | |
| - | |
| Property, plant and equipment, net | |
| 7,194,262 | | |
| 6,266,743 | |
| Right of use assets | |
| 1,284,319 | | |
| 1,413,598 | |
| Operating lease right of use asset, net | |
| 224,463 | | |
| - | |
| Intangible assets, net | |
| 12,831 | | |
| 16,198 | |
| Goodwill | |
| 695,175 | | |
| 709,705 | |
| Other assets and deposits | |
| 31,496 | | |
| 20,955 | |
| Deferred tax asset | |
| 262,798 | | |
| 454,848 | |
| | |
| | | |
| | |
| Total Assets | |
$ | 28,900,447 | | |
$ | 35,188,700 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’
EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| Current Liabilities: | |
| | | |
| | |
| Current portion of long-term debt | |
$ | 1,174,756 | | |
$ | 4,571,452 | |
| Accounts payable and accrued payables | |
| 8,291,572 | | |
| 10,025,369 | |
| Advances from customers | |
| 501,720 | | |
| 297,003 | |
| Operating lease liabilities - current | |
| 67,484 | | |
| - | |
| Income tax payable | |
| 543,477 | | |
| 529,416 | |
| Other payables | |
| 3,029,672 | | |
| 5,584,607 | |
| Due to related party | |
| 161,429 | | |
| 153,370 | |
| Total Current Liabilities | |
| 13,770,110 | | |
| 21,161,217 | |
| | |
| | | |
| | |
| Long-term loans | |
| 283,860 | | |
| 1,425,475 | |
| Operating lease liabilities - noncurrent | |
| 138,620 | | |
| - | |
| Deferred tax liabilities | |
| - | | |
| 605 | |
| Total Liabilities | |
| 14,192,590 | | |
| 22,587,297 | |
| | |
| | | |
| | |
| Stockholders’ Equity: | |
| | | |
| | |
| Series A Preferred Stock，$0.0001 par value, 30,000,000 shares authorized, 19,000,000 shares issued and outstanding as of December 31, 2021 and 2020. | |
| 1,900 | | |
| 1,900 | |
| Common stock, $0.0001 par value, 500,000,000 shares authorized, 38,502,954 shares issued and outstanding as of December 31, 2021 and 2020. | |
| 3,850 | | |
| 3,850 | |
| Additional paid in capital | |
| 19,933,793 | | |
| 19,933,793 | |
| Accumulated deficit | |
| (6,876,227 | ) | |
| (8,596,332 | ) |
| Accumulated other comprehensive
income | |
| 1,500,727 | | |
| 1,128,351 | |
| Stockholders’ Equity - Muliang
Viagoo Technology Inc., Subsidiaries, and Variable Interest Entities | |
| 14,564,043 | | |
| 12,471,562 | |
| Noncontrolling interest | |
| 143,814 | | |
| 129,841 | |
| Total Stockholders’ Equity | |
| 14,707,857 | | |
| 12,601,403 | |
| Total Liabilities and Stockholders’
Equity | |
$ | 28,900,447 | | |
$ | 35,188,700 | |
See
accompanying notes to consolidated financial statements
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
| | |
For the Years Ended
December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| Revenues | |
$ | 10,635,402 | | |
$ | 11,008,532 | |
| Cost of goods sold | |
| 6,388,771 | | |
| 6,248,757 | |
| Gross profit | |
| 4,246,631 | | |
| 4,759,775 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| General and administrative expenses | |
| 2,033,234 | | |
| 2,677,054 | |
| Selling expenses | |
| 467,859 | | |
| 464,942 | |
| Total operating expenses | |
| 2,501,093 | | |
| 3,141,996 | |
| | |
| | | |
| | |
| Income from operations | |
| 1,745,538 | | |
| 1,617,779 | |
| | |
| | | |
| | |
| Other income (expense): | |
| | | |
| | |
| Interest expense | |
| (151,720 | ) | |
| (700,030 | ) |
| Rental income, net | |
| - | | |
| 6,276 | |
| Other income (expense), net | |
| 352,340 | | |
| (339,097 | ) |
| Total other income (expense) | |
| 200,620 | | |
| (1,032,851 | ) |
| | |
| | | |
| | |
| Income before income taxes | |
| 1,946,158 | | |
| 584,928 | |
| | |
| | | |
| | |
| Income taxes | |
| 214,981 | | |
| (394,979 | ) |
| | |
| | | |
| | |
| Net income | |
| 1,731,177 | | |
| 979,907 | |
| | |
| | | |
| | |
| Net income attributable to noncontrolling interest | |
| 11,072 | | |
| 4,403 | |
| Net income attributable to Muliang Viagoo Technology Inc.
common stockholders | |
| 1,720,105 | | |
| 975,504 | |
| | |
| | | |
| | |
| Other comprehensive income: | |
| | | |
| | |
| Unrealized foreign currency translation adjustment | |
| 375,277 | | |
| 896,587 | |
| | |
| | | |
| | |
| Total Comprehensive income | |
| 2,106,454 | | |
| 1,876,494 | |
| Total comprehensive income attributable to noncontrolling interests | |
| 13,973 | | |
| 5,927 | |
| Total comprehensive income attributable to Muliang Viagoo Technology
Inc. common stockholders | |
$ | 2,092,481 | | |
$ | 1,870,567 | |
| | |
| | | |
| | |
| Earnings per common share | |
| | | |
| | |
Basic and diluted | |
| 0.04 | | |
| 0.03 | |
| | |
| | | |
| | |
| Weighted average common shares outstanding | |
| | | |
| | |
| Basic | |
| 38,502,954 | | |
| 37,908,242 | |
| Diluted | |
| 38,502,954 | | |
| 37,908,242 | |
See
accompanying notes to consolidated financial statements
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
| | |
Series A Preferred Stock | | |
Common Stock | | |
Additional Paid-in | | |
Accumulated | | |
Accumulated Other Comprehensive | | |
Non-controlling | | |
| |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Income | | |
Interest | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| For the year ended December 31, 2020 |
| Balance, December 31, 2019 | |
| 19,000,000 | | |
$ | 1,900 | | |
| 37,341,954 | | |
$ | 3,734 | | |
| 19,398,854 | | |
| (9,571,836 | ) | |
| 233,288 | | |
| 123,914 | | |
| 10,189,854 | |
| Issuance of common stock in acquisition | |
| | | |
| | | |
| 1,161,000 | | |
| 116 | | |
| 534,939 | | |
| | | |
| | | |
| | | |
| 535,055 | |
| Net income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 975,504 | | |
| | | |
| 4,403 | | |
| 979,907 | |
| Foreign currency translation adjustment | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 895,063 | | |
| 1,524 | | |
| 896,587 | |
| Balance, December 31, 2020 | |
| 19,000,000 | | |
$ | 1,900 | | |
| 38,502,954 | | |
$ | 3,850 | | |
| 19,933,793 | | |
| (8,596,332 | ) | |
| 1,128,351 | | |
| 129,841 | | |
| 12,601,403 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| For the year ended December 31, 2021 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, December 31, 2020 | |
| 19,000,000 | | |
| 1,900 | | |
| 38,502,954 | | |
| 3,850 | | |
| 19,933,793 | | |
| (8,596,332 | ) | |
| 1,128,351 | | |
| 129,841 | | |
| 12,601,403 | |
| Net income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,720,105 | | |
| | | |
| 11,072 | | |
| 1,731,177 | |
| Foreign currency translation adjustment | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 372,376 | | |
| 2,901 | | |
| 375,277 | |
| Balance, December 31, 2021 | |
| 19,000,000 | | |
| 1,900 | | |
| 38,502,954 | | |
| 3,850 | | |
| 19,933,793 | | |
| (6,876,227 | ) | |
| 1,500,727 | | |
| 143,814 | | |
| 14,707,857 | |
See
accompanying notes to consolidated financial statements
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| | |
For the Years Ended
December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| |
| Net income | |
$ | 1,731,177 | | |
$ | 979,907 | |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 513,563 | | |
| 965,296 | |
| Bad debt expense | |
| 352,740 | | |
| 1,175,424 | |
| Amortization of right of use assets | |
| 164,464 | | |
| - | |
| Deferred income tax assets | |
| 201,245 | | |
| 429,232 | |
| Employment cost settled by issuing common stock | |
| - | | |
| 140,000 | |
| Changes in assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| 1,978,747 | | |
| (6,013,323 | ) |
| Inventories | |
| 17,025 | | |
| 125,255 | |
| Prepayment | |
| (6,292,144 | ) | |
| (27,893 | ) |
| Other receivables | |
| 10,758,708 | | |
| 18,885 | |
| Accounts payable and accrued payables | |
| (2,393,158 | ) | |
| 4,193,548 | |
| Advances from customers | |
| 196,950 | | |
| 29,008 | |
| Lease liability | |
| (18,099 | ) | |
| - | |
| Other payables | |
| (2,280,387 | ) | |
| (207,549 | ) |
| Net cash provided by operating activities | |
| 4,930,236 | | |
| 1,807,790 | |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
| Investment in construction in progress | |
| (1,158,773 | ) | |
| (75,346 | ) |
| Net cash used in investing activities | |
| (1,158,773 | ) | |
| (75,346 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
| Proceeds from issuing common stock | |
| | | |
| 280,000 | |
| Proceeds from (repayment to) related party | |
| 302,617 | | |
| (845,807 | ) |
| Repayment of short-term loans | |
| (4,666,185 | ) | |
| (802,440 | ) |
| Net cash used in financing activities | |
| (4,363,568 | ) | |
| (1,368,247 | ) |
| | |
| | | |
| | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | |
| 281,284 | | |
| (119,231 | ) |
| | |
| | | |
| | |
| NET INCREASE (DECREASE) IN CASH | |
| (310,821 | ) | |
| 244,966 | |
| CASH, BEGINNING OF PERIOD | |
| 348,834 | | |
| 103,868 | |
| CASH, END OF PERIOD | |
$ | 38,013 | | |
$ | 348,834 | |
| | |
| | | |
| | |
| SUPPLEMENTAL DISCLOSURES: | |
| | | |
| | |
| Cash paid during the period for: | |
| | | |
| | |
| Cash paid for interest expense, net of capitalized interest | |
$ | (859,201 | ) | |
$ | (85,181 | ) |
| Cash paid for income tax | |
$ | - | | |
$ | - | |
| | |
| | | |
| | |
| NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES | |
| | | |
| | |
| Debt transferred to related party from third parties | |
$ | - | | |
$ | 2,318,796 | |
| Disposal of Fixed assets for debt settlement without cash flow | |
| | | |
| 12,087,691 | |
| Long term loan transfer to current portion of long-term debt | |
| | | |
| 1,082,588 | |
| Long term investment without paying cash | |
| 10,894 | | |
| - | |
| Recognition of operating lease right of use asset | |
| 221,290 | | |
| - | |
| Acquisition of subsidiary by issuing common stock | |
$ | - | | |
$ | 2,830,800 | |
See
accompanying notes to consolidated financial statements
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS
Muliang
Viagoo Technology, Inc (“Muliang Viagoo”), formerly known as M & A Holding Corporation., Mullan Agritech Inc. and Muliang
Agritech Inc. was incorporated under the laws of the State of Nevada on November 5, 2014. Muliang Viagoo’s core business activities
of developing, manufacturing, and selling organic fertilizers and bio-organic fertilizers for use in agricultural industry are conducted
through several indirectly owned subsidiaries in China.
On
June 9, 2016, M & A Holding Corporation filed a Certificate of Amendment to its Articles of Incorporation (the “Amendment”)
with the Secretary of State of the State of Nevada, changing its name from “M & A Holding Corporation,” to “Mullan
Agritech, Inc.”
On
July 11, 2016, the Financial Industry Regulatory Authority (FINRA) effected in the marketplace the change of the corporate name from
“M & A Holding Corporation,” to “Mullan Agritech, Inc.”, and effective on such date.
On
April 4, 2019, the Company changed its corporate name from “Mullan Agritech Inc.” to “Muliang Agritech Inc.”
The name change took effect on May 7, 2019. In connection with the name change, our stock symbol changed to “MULG”.
On
June 26, 2020, Muliang Agritech, Inc. filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of the State
of the State of Nevada, changing its name from “Muliang Agritech, Inc.” to “Muliang Viagoo Technology, Inc.”.
The Company will trade under the new name upon approval by FINRA.
History
Shanghai
Muliang Industry Co., Ltd. (referred to herein as “Muliang Industry”) was incorporated in PRC on December 7, 2006 as a limited
liability company, owned 95% by Lirong Wang and 5% by Zongfang Wang. Muliang Industry through its own operations and its subsidiaries
is engaged in the business of developing, manufacturing and selling organic fertilizers and bio-organic fertilizers for use in the agricultural
industry.
On
May 27, 2013, Muliang Industry entered into and consummated an equity purchase agreement whereby it acquired 99% of the outstanding equity
of Weihai Fukang Bio-Fertilizer Co., Ltd. (“Fukang”), a corporation organized under the laws of the People’s Republic
of China. Fukang was incorporated in Weihai City, Shandong Province on January 6, 2009. Fukang is focused on the distribution of organic
fertilizers and the development of new bio-organic fertilizers. As a result of the completion of the transaction, Fukang became a 99%
owned subsidiary of Muliang Industry, with the remaining 1% equity interest owned by Mr. Hui Song.
On
July 11, 2013, Muliang Industry established a wholly owned subsidiary, Shanghai Muliang Viagoo Development Co., Ltd. (“Agritech
Development”) in Shanghai, China. On November 6, 2013, Muliang Industry sold 40% of the outstanding equity of Agritech Development
to Mr. Jianping Zhang for consideration of approximately $65,000 or RMB 400,000. Agritech Development does not currently conduct any
operations.
On
July 17, 2013, Muliang Industry entered into an equity purchase agreement to acquire 100% of the outstanding equity of Shanghai Zongbao
Environmental Construction Co., Ltd. (“Shanghai Zongbao”) with consideration of approximately $3.2 million or RMB 20 million,
effectively becoming the wholly-owned subsidiary of Muliang Industry. Shanghai Zongbao was incorporated in Shanghai on January 25, 2008.
Shanghai Zongbao processes and distributes organic fertilizers. Shanghai Zongbao wholly owns Shanghai Zongbao Environmental Construction
Co., Ltd. Cangzhou Branch (“Zongbao Cangzhou”).
On
August 21, 2014, Muliang Agricultural Limited (“Muliang HK”) was incorporated in Hong Kong as an investment holding company.
January
27, 2015, Muliang HK incorporated a wholly foreign-owned enterprise, Shanghai Mufeng Investment Consulting Co., Ltd (“Shanghai
Mufeng”), in China
On
July 8, 2015, Muliang Viagoo entered into certain stock purchase agreement with Muliang HK, pursuant to which Muliang Viagoo, for a consideration
of $5,000, acquired 100% interest in Muliang HK and its wholly-owned subsidiary Shanghai Mufeng. Both Muliang HK and Shanghai Mufeng
are controlled by the Company’s sole officer and director, Lirong Wang.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
On
July 23, 2015, Muliang Industry established a wholly owned subsidiary, Shanghai Muliang Agricultural Sales Co., Ltd. (“Muliang
Sales”) in Shanghai, China.
On
September 3, 2015, Muliang Viagoo effected a split of its outstanding common stock resulting in an aggregate of 150,525,000 shares outstanding
of which 120,000,000 were owned by Chenxi Shi, the founder of Muliang Viagoo and its sole officer and director. The remaining 30,525,000
were held by a total of 39 investors.
On
January 11, 2016, Muliang Viagoo issued 129,475,000 shares of its common stock to Lirong Wang for an aggregate consideration of $64,737.50.
On the same date, Chenxi Shi, the sole officer and director of Muliang Viagoo on that date, transferred 120,000,000 shares of common
stock of the Company held by him to Lirong Wang for $800 pursuant to a transfer agreement.
On
February 10, 2016, Shanghai Mufeng entered into a set of contractual agreements known as Variable Interest Entity (“VIE”)
Agreements, including (1) Exclusive Technical Consulting and Service Agreement, (2) Equity Pledge Agreement, and (3) Call Option Cooperation
Agreement, with Muliang Industry, and its Principal Shareholders. As a result of the Stock Purchase Agreement and the set of VIE Agreements,
Shanghai Muliang Industry Co., Ltd., along with its consolidated subsidiaries, became entities controlled by Muliang Viagoo, whereby
Muliang Viagoo would derive all substantial economic benefit generated by Muliang Industry and its subsidiaries.
As
a result, Muliang Viagoo has a direct wholly-owned subsidiary, Muliang HK and an indirectly wholly owned subsidiary Shanghai Mufeng.
Through its VIE Agreements, Muliang Viagoo exercises control over Muliang Industry. As a result, Muliang Industry has two wholly-owned
subsidiaries (Shanghai Zongbao and Muliang Sales), one 99% owned subsidiary (Fukang), one 60% owned subsidiary (Agritech Development),
and one indirectly wholly owned subsidiary Zongbao Cangzhou.
On
June 6, 2016, Muliang Industry established a wholly-owned subsidiary, namely, Muliang (Ningling) Bio-chemical Fertilizer Co. Ltd (“Ningling
Fertilizer”) in Henan Province. Ningling Fertilizer is setup for a new production line of bio-chemical fertilizer and has not begun
any operation yet.
On
July 7, 2016, Muliang Industry established a subsidiary, namely, Zhonglian Huinong (Beijing) Technology Co., Ltd (“Zhonglian”)
in Beijing City, China. Muliang Industry owns 65% shares of Zhonglian, and a third-party company, Zhongrui Huilian (Beijing) Technology
Co., Ltd owns the other 35% shares. Zhonglian is to develop and operate an online agricultural products trading platform.
On
October 27, 2016, Muliang Industry established a subsidiary, namely, Yunnan Muliang Animal Husbandry Development Co., Ltd (“Yunnan
Muliang”) in Yunnan Province, China. Muliang Industry owns 55% shares of Yunnan Muliang, and a third-party company, Shuangbai County
Development Investment Co., Ltd. owns the other 45% shares. Yunnan Muliang was setup for the sales development of West China.
On
October 12, 2017, the Company canceled the registration of Ningling with the administration authorities for Industry and Commerce. Ningling
has historically been reported as a component of our operations and incurred $33,323 to loss before income taxes provisions for the year
ended December 31, 2017. The termination does not constitute a strategic shift that will have a major effect on our operations or financial
results and as such, the termination is not classified as discontinued operations in our consolidated financial statements.
On
June 19, 2020, the Company entered into a Share Exchange Agreement with Viagoo Pte Ltd. and all the shareholders of Viagoo
for the acquisition of 100% equity interest of Viagoo. Pursuant to the SEA, Muliang shall purchase from Viagoo Shareholders all of Viagoo
Shareholder’s right, title and interest in and to the Viagoo’s capital stock. The aggregate purchase price for the Shares
was US$2,830,800, paid in 1,011,000 shares of the Company’s restricted common stock, valued at $2.80 per share.
Muliang
HK, Shanghai Mufeng, Muliang Industry, Shanghai Zongbao, Zongbao Cangzhou, Muliang Sales,
Fukang, Agritech Development, Yunnan Muliang, Zhonglian, and Viagoo are referred to as subsidiaries.
The Company and its consolidated subsidiaries are collectively referred to herein as the
“Company”, “we” and “us”, unless specific reference is
made to an entity.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
On
April 4, 2019, the Company’s Board of Directors and majority shareholder approved a 5 to 1 reverse stock split of all of the issued
and outstanding shares of the Company’s common stock, the change of corporate name from “Mullan Agritech Inc.” to “Muliang
Viagoo Inc.”, and the creation of one hundred million (100,000,000) shares of Blank Check Preferred Stock.
On
April 5, 2019, we filed a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the State of Nevada
to reflect the Name Change and to authorize the creation of Blank Check Preferred Stock. As a result, the capital stock of the Company
consists of 500,000,000 shares of common stock, $0.0001 par value, and 100,000,000 shares of blank check preferred stock, $0.0001 par
value. To the fullest extent permitted by the laws of the State of Nevada, as the same now exists or may hereafter be amended or supplemented,
the Board of Directors may fix and determine the designations, rights, preferences or other variations of each class or series within
each class of preferred stock of the Company. The Company may issue the shares of stock for such consideration as may be fixed by the
Board of Directors.
On
April 16, 2019, we filed a Certificate of Change to our Articles of Incorporation with the Secretary of State of the State of Nevada
to reflect the reverse stock split. Any fractional shares are to be rounded up to whole shares. The reverse stock split does not affect
the par value or the number of authorized shares of common stock of the Company.
The
reverse stock split and the name change took effect on May 7, 2019. In connection with the name change, our stock symbol changed to “MULG.”
On
June 19, 2020, Muliang Agritech Inc. entered into a Share Exchange Agreement with Viagoo Pte Ltd. (“Viagoo”) and all the
shareholders of Viagoo for the acquisition of 100% equity interest of Viagoo.
On
June 26, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of the State of the State
of Nevada, changing its name from “Muliang Agritech, Inc.” to “Muliang Viagoo Technology, Inc.”.
Viagoo
is a Singapore-based logistics sharing platform that enables shippers and carriers to share and optimize resources to lower cost and
increase efficiency. From last mile delivery to cross border transportation, the platform provides digital transaction contracts for
customers to source for service providers to deliver goods and services in a convenient manner. Viagoo partners with various Singapore
agencies to promote the platform to support urban logistics need in Singapore, such as Enterprise Singapore, a government agency to support
Singapore small and medium businesses, and Singapore Logistics Association.
Pursuant
to the SEA, Muliang shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest in and to the
Viagoo’s capital stock. The aggregate purchase price for the Shares was US$2,830,800, paid in 1,011,000 shares of the Company’s
restricted common stock, valued at $2.80 per share. The Company recognized $673,278 in goodwill as result of this transaction.
Management
determined that the results of operations of Viagoo from June 19, 2020, to June 30, 2020, were not material to the Company’s consolidated
results of operations, and as a result, has excluded them from the Company’s consolidated results of operations and cash flows
for the six months ended June 30, 2020.
Muliang
Agritech, Muliang HK, Shanghai Mufeng, Muliang Industry, Shanghai Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development,
Yunnan Muliang, Zhonglian, and Viagoo are referred to as subsidiaries. The Company and its consolidated subsidiaries are collectively
referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.
The
consolidated financial statements were prepared assuming that the Company has controlled
Muliang HK and its intermediary holding companies, operating subsidiaries, and variable interest
entities: Shanghai Mufeng, Muliang Industry, Shanghai Zongbao, Zongbao Cangzhou, Muliang
Sales, Fukang, Heilongjiang, and Agritech Development, from the first period presented. The
transactions detailed above have been accounted for as reverse takeover transaction and a
recapitalization of the Company; accordingly, the Company (the legal acquirer) is considered
the accounting acquiree and Muliang HK (the legal acquiree) is considered the accounting
acquirer. No goodwill has been recorded for these transactions. As a result of this transaction,
the Company is deemed to be a continuation of the business of Muliang HK, Shanghai Mufeng,
and Muliang Industry.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
Liquidity
As reflected in the accompanying consolidated
financial statements, we had net accumulated deficit of $6,876,227 and $8,596,332 as of December 31, 2021 and December 31, 2020, respectively.
Our cash balances as of December 31, 2021 and December 31, 2020 were $38,013 and $348,834, respectively. We had current liability of
$13,770,110 at December 31, 2021 which would be due within the next 12 months. In addition, we had net working capital of $5,403,720
and $5,145,436 at December 31, 2021 and 2020, respectively.
According
to the normal operation, the company does not have problems with business sustainability. But the new covid-19 pandemic from the beginning
of 2020 greatly impacts the company’s operation. In 2020 and 2021, the company’s sales had declined, and the recovery of
accounts receivable was slow. As a result, the Company has taken the following measures :(1) while actively opening up new markets and
new customers, the Company have increased the collection of accounts receivable and strive to control the turnover days of accounts receivable
to be within 90 days at the end of 2021;(2) As of the period end, the company has completed the disposal of Shanghai industrial land
transfer transaction and paid off all loans.
Because
the company is gradually recovering the accounts receivables affected by the Covid-19, and the sales are gradually returning to the normal
level, the company’s current cash revenue and expenditure are normal, which did not affect the normal operation. Now, after Covid-19,
the company has no problems with business sustainability. IPO financing will be used for new investments to expand the operating scale
and does not affect the existing operating scale.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that
used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC
GAAP”). The differences between US GAAP and PRC GAAP have been adjusted in these consolidated financial statements. The Company’s
functional currency is the Chinese Renminbi (“RMB”) and Singapore dollar(“SGD”); however, the accompanying consolidated
financial statements have been translated and presented in United States Dollars (“USD”).
Use
of Estimates
The
preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities
at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. The Company
bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.
Accordingly, actual results may differ from these estimates. Significant estimates include the useful lives of property and equipment,
land use rights, assumptions used in assessing collectability of receivables and impairment for long-term assets.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles
of Consolidation
The
consolidated financial statements include the financial statements of the Company, its subsidiaries and consolidated VIE, including the
VIE’ subsidiaries, for which the Muliang Viagoo is the primary beneficiary.
All
transactions and balances among the Company, its subsidiaries, the VIE and the VIE’ subsidiaries have been eliminated upon consolidation.
As
PRC laws and regulations welcome to invest in organic fertilizer industry businesses, the Muliang Viagoo operates its fertilizer business
in the PRC through Muliang Industry and its subsidiaries, which are collectively referred as the “WFOEs”.
By
entering into a series of agreements (the “VIE Agreements”), the Muliang Viagoo, through WFOEs, obtained control over Muliang
Industry and its subsidiaries (collectively referred as “VIE”). The VIE Agreements enable the Muliang Viagoo to (1) have
power to direct the activities that most significantly affect the economic performance of the VIE, and (2) receive the economic
benefits of the VIE that could be significant to the VIE. Accordingly, the Muliang Viagoo is considered the primary beneficiary of the
VIE and has consolidated the VIE’ financial results of operations, assets and liabilities in the Muliang Viagoo’s consolidated
financial statements. In making the conclusion that the Muliang Viagoo is the primary beneficiary of the VIE, the Muliang Viagoo’s
rights under the Power of Attorney also provide the Muliang Viagoo’s abilities to direct the activities that most significantly
impact the VIE’ economic performance. The Muliang Viagoo also believes that this ability to exercise control ensures that the VIE
will continue to execute and renew the Master Exclusive Service Agreement and pay service fees to Muliang Viagoo. By charging service
fees to be determined and adjusted at the sole discretion of Muliang Viagoo, and by ensuring that the Master Exclusive Service Agreement
is executed and remains effective, Muliang Viagoo has the rights to receive substantially all of the economic benefits from the VIE.
Details
of the VIE Agreements, are set forth below:
| |
|
As of
December 31,
2021 |
|
|
As of
December 31,
2020 |
|
| |
|
|
|
|
|
|
| Current assets |
|
$ |
18,972,383 |
|
|
$ |
25,878,427 |
|
| Non-current assets |
|
|
8,995,363 |
|
|
|
8,863,429 |
|
| Total Assets |
|
|
27,967,746 |
|
|
|
34,741,856 |
|
| Current liabilities |
|
|
12,788,253 |
|
|
|
20,471,148 |
|
| Non-current liabilities |
|
|
7,535,113 |
|
|
|
5,280,211 |
|
| Total liabilities |
|
|
20,745,846 |
|
|
|
27,180,981 |
|
| Total shareholders’ equity |
|
$ |
7,221,900 |
|
|
$ |
7,560,875 |
|
| |
|
For the year ended
December 31, |
|
| |
|
2021 |
|
|
2020 |
|
| Net income |
|
$ |
- |
|
|
$ |
- |
|
| Net cash provided by (used in) operating activities |
|
|
5,486,592 |
|
|
|
1,414,110 |
|
| Net cash provided by (used in) investment activities |
|
|
(1,158,773 |
) |
|
|
- |
|
| Net cash provided by (used in) financing activities |
|
$ |
(4,328,560 |
) |
|
$ |
(1,648,247 |
) |
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VIE Agreements that were
entered to give the Muliang Viagoo effective control over the VIE include:
Voting
Rights Proxy Agreement and Irrevocable Power of Attorney
Under
which each shareholder of the VIE grant to any person designated by WFOEs to act as its attorney-in-fact to exercise all shareholder
rights under PRC law and the relevant articles of association, including but not limited to, appointing directors, supervisors and officers
of the VIE as well as the right to sell, transfer, pledge and dispose all or a portion of the equity interest held by such shareholders
of the VIE. The proxy and power of attorney agreements will remain effective as long as WFOEs exist. The shareholders of the VIE do not
have the right to terminate the proxy agreements or revoke the appointment of the attorney-in-fact without written consent of the WFOEs.
Exclusive
Option Agreement
Under
which each shareholder of the VIE granted 9F or any third party designated by 9F the exclusive and irrevocable right to purchase from
such shareholders of the VIE, to the extent permitted by PRC law and regulations, all or part of their respective equity interests in
the VIE for a purchase price equal to the registered capital. The shareholders of the VIE will then return the purchase price to 9F or
any third party designated by 9F after the option is exercised. 9F may transfer all or part of its option to a third party at its own
option. The VIE and its shareholders agree that without prior written consent of 9F, they may not transfer or otherwise dispose the equity
interests or declare any dividends. The restated option agreement will remain effective until 9F or any third party designated by 9F
acquires all equity interest of the VIE.
Spousal
Consent
The
spouse of each shareholder of the VIE has entered into a spousal consent letter to acknowledge that he or she consents to the disposition
of the equity interests held by his or her spouse in the VIE in accordance with the exclusive option agreement, the power of attorney
and the equity pledge agreement regarding VIE structure described above, and any other supplemental agreement(s) may be consented
by his or her spouse from time to time. Each such spouse further agrees that he or she will not take any action or raise any claim to
interfere with the arrangements contemplated under the mentioned agreements. In addition, each such spouse further acknowledges that
any right or interest in the equity interests held by his or her spouse in the VIE do not constitute property jointly owned with his
or her spouse and each such spouse unconditionally and irrevocably waives any right or interest in such equity interests.
Loan
Agreement
Pursuant
to the loan agreements between WFOEs and each shareholder of the VIE, WFOEs extended loans to the shareholders of the VIE, who had contributed
the loan principal to the VIE as registered capital. The shareholders of VIE may repay the loans only by transferring their respective
equity interests in VIE to 9F Inc. or its designated person(s) pursuant to the exclusive option agreements. These loan agreements
will remain effective until the date of full performance by the parties of their respective obligations thereunder.
VIE
Agreements that enables Muliang Viagoo to receive substantially all of the economic benefits from the VIE include:
Equity
Interest Pledge Agreement
Pursuant
to equity interest pledge agreement, each shareholder of the VIE has pledged all of his or her equity interest held in the VIE to WFOEs
to secure the performance by VIE and their shareholders of their respective obligations under the contractual arrangements, including
the payments due to WFOEs for services provided. In the event that the VIE breach any obligations under these agreements, WFOEs as the
pledgees, will be entitled to request immediate disposal of the pledged equity interests and have priority to be compensated by the proceeds
from the disposal of the pledged equity interests. The shareholders of the VIE shall not transfer their equity interests or create or
permit to be created any pledges without the prior written consent of WFOEs. The equity interest pledge agreement will remain valid until
the master exclusive service agreement and the relevant exclusive option agreements and proxy and power of attorney agreements, expire
or terminate.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Master
Exclusive Service Agreement
Pursuant
to exclusive service agreement, WFOEs have the exclusive right to provide the VIE with technical support, consulting services and other
services. WFOEs shall exclusively own any intellectual property arising from the performance of the agreement. During the term of this
agreement, the VIE may not accept any services covered by this agreement provided by any third party. The VIE agree to pay service fees
to be determined and adjusted at the sole discretion of the WFOEs. The agreement will remain effective unless WFOEs terminate the agreement
in writing.
Risks
in relation to the VIE structure
Muliang
Viagoo believes that the contractual arrangements with the VIE and their current shareholders are in compliance with PRC laws and regulations
and are legally enforceable. However, uncertainties in the PRC legal system could limit the Muliang Viagoo’s ability to enforce
the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations,
the PRC government could:
| ● | Revoke
the business and operating licenses of the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities; |
| ● | Discontinue
or restrict the operations of any related-party transactions among the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated
entities; |
| ● | Impose
fines or other requirements on the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities; |
| |
● |
Require
the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities to revise the relevant ownership structure or restructure
operations; and/or; |
| ● | Restrict
or prohibit the Muliang Viagoo’s use of the proceeds of the additional public offering to finance the Muliang Viagoo’s business
and operations in China; |
| |
● |
Shut
down the Muliang Viagoo’s servers or blocking the Muliang Viagoo’s online platform; |
| ● | Discontinue
or place restrictions or onerous conditions on the Muliang Viagoo’s operations; and/or |
| ● | Require
the Muliang Viagoo to undergo a costly and disruptive restructuring. |
Muliang
Viagoo’s ability to conduct its business may be negatively affected if the PRC government were to carry out any of the aforementioned
actions. As a result, Muliang Viagoo may not be able to consolidate the VIE in its consolidated financial statements as it may lose the
ability to exert effective control over the VIE and its shareholders, and it may lose the ability to receive economic benefits from the
VIE. Muliang Viagoo currently does not believe that any penalties imposed or actions taken by the PRC government would result in the
liquidation of the Company, WFOEs, or the VIE.
The
following table sets forth the assets, liabilities, results of operations and cash flows of the VIE and their subsidiaries, which are
included in Muliang Viagoo’s consolidated financial statements after the elimination of intercompany balances and transactions:
Under
the VIE Arrangements, Muliang Viagoo has the power to direct activities of the VIE and can
have assets transferred out of the VIE. Therefore, Muliang Viagoo considers that there is
no asset in the VIE that can be used only to settle obligations of the VIE, except for assets
that correspond to the amount of the registered capital and PRC statutory reserves, if any.
As the VIE are incorporated as limited liability companies under the Company Law of the PRC,
creditors of the VIE do not have recourse to the general credit of Muliang Viagoo for any
of the liabilities of the VIE.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Currently
there is no contractual arrangement which requires Muliang Viagoo to provide additional financial support to the VIE. However, as Muliang
Viagoo conducts its businesses primarily based on the licenses held by the VIE, Muliang Viagoo has provided and will continue to provide
financial support to the VIE.
Revenue-producing
assets held by the VIE include certain internet content provision (“ICP”) licenses and other licenses, domain names and trademarks.
The ICP licenses and other licenses are required under relevant PRC laws, rules and regulations for the operation of internet businesses
in the PRC, and therefore are integral to Muliang Viagoo’s operations. The ICP licenses require that core PRC trademark registrations
and domain names are held by the VIE that provide the relevant services.
Muliang Viagoo consolidates the following entities,
including wholly-owned subsidiaries, Muliang HK, Shanghai Mufeng, Viagoo, and its wholly controlled variable interest entities, Muliang
Industry, and Zongbao, 60% controlled Agritech Development, 99% controlled Fukang, 65% controlled Zhonglian, 80% controlled Yunnan Muliang
and 51% controlled Heilongjiang. Accordingly, the 40% equity interest holder of Agritech Development, 1% equity interest holders in Fukang,
35% equity interest holders in Zhonglian, 20% interest in Yunnan Muliang, and 49% equity interest in Heilongjiang are accounted as non-controlling
interest in the Company’s consolidated financial statements.
Cash
and Cash Equivalents
For
purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months
or less and money market accounts to be cash equivalents. In addition, the Company maintains cash with various financial institutions.
Accounts
Receivable
Accounts
receivable are presented net of an allowance for doubtful accounts. In addition, the Company maintains allowances for doubtful accounts
for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when
there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the
Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness
and current economic trends. Accounts are written off after exhaustive efforts at collection.
Inventories
Inventories,
consisting of raw materials, work in process, and finished goods related to the Company’s products are stated at the lower of cost
or market utilizing the weighted average method.
Property,
Plant and Equipment
Plant
and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost
of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed
of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in
the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances
reflect the fact that their recorded value may not be recoverable.
Included
in property and equipment is construction-in-progress which consisted of factory improvements
and machinery pending installation and includes the costs of construction, machinery and
equipment, and any interest charges arising from borrowings used to finance these assets
during the period of construction or installation of the assets. No provision for depreciation
is made on construction-in-progress until such time as the relevant assets are completed
and ready for their intended use.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Estimated
useful lives of the Company’s assets are as follows:
| | |
Useful
Life |
|
| Building | |
20 years |
|
| Operating
equipment | |
5-10 years |
|
| Vehicle | |
3-5 years |
|
| Electronic
equipment | |
3-20 years |
|
| Office
equipment | |
3-20 years |
|
| Apple
orchard | |
10 years |
|
The
apple orchard includes rental for an apple farm, labor cost, fertilizers, apple seeds, apple seedlings and others. The costs to purchase
and cultivate apple trees and the expenditures related to labor and materials to plant apple trees until they become commercially productive
are capitalized, which require a two-year period. The estimated production life for apple tree is ten years, and the costs are depreciated
without a residual value. Expenses incurred maintaining apple trees during the growth cycle until seedling apple trees or grafted varieties
are fruited are capitalized into inventory and included in Work In Process—apple orchard, a component of inventories.
Depreciation
expenses pertaining to apple trees will be included in inventory costs for those apples to be sold and ultimately become a component
of cost of goods sold. Similar to other assets, the failure of our apple trees to be serviceable over the entirety of their anticipated
useful lives or to be sold at their anticipated residual value will negatively impact our operating results.
Intangible
Assets
Included
in the intangible assets are land use rights and non-patented technology. According to the laws of the PRC, the government owns all the
land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese
government. Useful life for non-patented technology refers to the period during which economic benefits can be generated. Intangible
assets are being amortized using the straight-line method over their lease terms or estimated useful life.
Estimated
useful lives of the Company’s intangible assets are as follows:
| | |
Useful
Life |
|
| Land
use rights | |
50 years |
|
| Non-patented
technology | |
10 years |
|
The
Company carries intangible assets at cost less accumulated amortization. In accordance with US GAAP, the Company examines the possibility
of decreases in the value of intangible assets when events or changes in circumstances reflect the fact that their recorded value may
not be recoverable. The Company computes amortization using the straight-line method over estimated useful life of 50 years for the land
use rights.
Impairment
of Long-lived Assets
In
accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss
when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured
as the difference between the asset’s estimated fair value and its book value. The Company recorded no impairment charge for the
years ended December 31, 2021 and 2020.
Advances
from Customers
Advances
from customers consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits
as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s
revenue recognition policy.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Non-controlling
Interest
Non-controlling
interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component
of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are
accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated
results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value
with any gain or loss recognized in earnings.
Revenue
Recognition
On
January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. Accordingly, results for the reporting period beginning
after January 1, 2018, are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in
accordance with the Company’s historic accounting under Topic 605.
Management
has determined that the adoption of ASC 606 did not impact the Company’s previously reported financial statements in any prior
period, nor did it result in a cumulative effect adjustment to opening retained earnings.
Revenue
for the sale of products is derived from contracts with customers, which primarily include the sale of fertilizer products and environmental
protection equipment. The Company’s sales arrangements do not contain variable consideration. Instead, the Company recognizes revenue
at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer
are satisfied, and control of the products has been transferred to the customer. For the vast majority of the Company’s product
sales, the performance obligations and control of the products transfer to the customer when products are delivered and customer acceptance
is made.
Revenue
for logistics-related services is derived from Viagoo subsidiaries. Through an online service platform, the company provides the operation
management service to support customers. For VTM service, revenue is charged to carriers based on a certain percentage of the freight
charges. For VES service, revenue is recognized based on monthly subscriptions by vehicles and by users. For system integration service,
revenue is recognized over time based on the progress of the project and annual maintenance service.
Cost
of Sales
Cost
of goods sold consists primarily of raw materials, utility and supply costs consumed in the manufacturing process, manufacturing labor,
depreciation expense and direct overhead expenses necessary to manufacture finished goods as well as warehousing and distribution costs
such as inbound freight charges, shipping and handling costs, purchasing and receiving costs.
Income
Taxes
The
Company accounts for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an
asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in its financial statements or tax returns.
The
Company is subject to the Enterprise Income Tax law (“EIT”) of the People’s Republic of China. The Company’s
operations in producing and selling fertilizers are subject to the 25% enterprise income tax.
Related
Parties
Parties
are related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or
are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the
immediate families of principal owners of the Company and its management, and other parties with which the Company may deal if one party
controls or can significantly influence the management or operating policies of the other to the extent that one of the transacting parties
might be prevented from fully pursuing its separate interests. The Company discloses all related party transactions.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accumulated
Other Comprehensive Income
Comprehensive income comprised of net income
and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in
capital and distributions to stockholders. The Company’s comprehensive income consist of net income and unrealized gains from foreign
currency translation adjustments.
Foreign
Currency Translation
The Company’s functional currency is the
Chinese Renminbi (“RMB”); however, the accompanying consolidated financial statements have been translated and presented
in United States Dollars (“USD”). Results of operations and cash flows are translated at average exchange rates during the
period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical
exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily
agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating
the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss. The translation adjustment
for the years ended December 31, 2021 and 2020 was gain of $375,277 and $896,587, respectively. Transactions denominated in foreign
currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities
denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date
with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than
the functional currency are included in the results of operations as incurred.
All
of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter into any material transaction
in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations
of the Company.
For
business in China, asset and liability accounts at December 31, 2021 and 2020 were translated at 6.3588 RMB to $1 USD and 6.5277 RMB
to $1 USD, respectively, which were the exchange rates on the balance sheet dates. The average translation rates applied to the statements
of income for the years ended December 31, 2021 and 2020 were 6.4499 RMB and 6.9001 RMB to $1 USD, respectively.
For
business in Singapore, asset and liability accounts at December 31, 2021 and 2020 was translated at 1.3493 SGD to $1 USD and 1.3217 SGD
to $1 USD respectively. The average translation rates applied to the statements of income for the years ended December 31, 2021 and 2020
was 1.3435 SGD to $1 USD and 1.3792 SGD to $1 USD respectively.
Earnings per Share
Basic
earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares
outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted earnings per share gives effect
to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury
stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise
of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Earnings per share
excludes all potential dilutive shares of common stock if their effect is anti-dilutive. There were no potential dilutive securities
at December 31, 2021 and 2020.
Fair
Value of Financial Instruments
The
Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods
for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
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 in markets 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 the market participants
would use in pricing the asset or liability based on the best available information.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The
carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, inventories, advances to suppliers,
prepaid expenses, short-term loans, accounts payable, accrued expenses, advances from customers, VAT and service taxes payable and income
taxes payable approximate their fair market value based on the short-term maturity of these instruments.
ASC
Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and
liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable,
unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument
should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding
instruments.
The
following table summarizes the carrying values of the Company’s financial instruments:
| | |
December 31,
2021 | | |
December 31,
2020 | |
| Current
portion of long-term loan | |
$ | 1,174,756 | | |
$ | 4,571,452 | |
| Long-term
loan | |
| 283,860 | | |
| 1,425,475 | |
| | |
$ | 1,458,616 | | |
$ | 5,996,927 | |
Government
Contribution Plan
Pursuant
to the laws applicable to PRC law, the Company is required to participate in a government-mandated multi-employer defined contribution
plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require
the Company to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation
of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company has
no further commitments beyond its monthly contribution.
Statutory
Reserve
Pursuant
to the laws applicable to the PRC, the Company must make appropriations from after-tax profit to the non-distributable “statutory
surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations
of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles
generally accepted in the PRC (“PRC GAAP”) at each year-end). For foreign invested enterprises and joint ventures in the
PRC, annual appropriations should be made to the “reserve fund”. For foreign invested enterprises, the annual appropriation
for the “reserve fund” cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the
registered capital (as determined under PRC GAAP at each year-end). If the Company has accumulated loss from prior periods, the Company
is able to use the current period net income after tax to offset against the accumulate loss.
Recent
Accounting Pronouncement
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) “Leases (Topic 842)”. ASU 2016-02 requires
a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use
asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for interim and annual reporting
periods beginning after December 15, 2018. Early adoption is permitted. For finance leases, a lessee is required to do the following:
| |
● |
Recognize
a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial
position |
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| |
● |
Recognize
interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income |
| |
|
|
| |
● |
Classify
repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability
and variable lease payments within operating activities in the statement of cash flows. |
For
operating leases, a lessee is required to do the following:
| |
● |
Recognize
a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial
position |
| |
|
|
| |
● |
Recognize
a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis |
| |
|
|
| |
● |
Classify
all cash payments within operating activities in the statement of cash flows. |
In
July 2018, the FASB issued Accounting Standards Update No. 2018-11 (ASU 2018-11), which amends ASC 842 so that entities may elect not
to recast their comparative periods in transition (the “Comparatives Under 840 Option”). ASU 2018-11 allows entities to change
their date of initial application to the beginning of the period of adoption. In doing so, entities would:
| |
● |
Apply
ASC 840 in the comparative periods. |
| |
|
|
| |
● |
Provide
the disclosures required by ASC 840 for all periods that continue to be presented in accordance with ASC 840. |
| |
|
|
| |
● |
Recognize
the effects of applying ASC 842 as a cumulative-effect adjustment to retained earnings for the period of adoption. |
In
addition, the FASB also issued a series of amendments to ASU 2016-02 that address the transition methods available and clarify the guidance
for lessor costs and other aspects of the new lease standard.
The
management has reviewed the accounting pronouncements and adopted the new standard on January 1, 2019 using the modified retrospective
method of adoption.
In
December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides
an exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated
loss for the year. This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income
as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate
when a step-up in the tax basis of goodwill should be considered part of the business combination in which goodwill was originally recognized
for accounting purposes and when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of
an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment
date. The standard is effective for the Company for fiscal years beginning after December 15, 2020, with early adoption permitted. The
Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), – Disclosure Framework – Changes
to the Disclosure Requirements for Fair Value Measurement,” which makes a number of changes meant to add, modify or remove
certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value
measurements. The amendments in this Update modify the disclosure requirements on fair value measurements based on the concepts in FASB
Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration
of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively
for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning
after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating
the potential impacts of ASU 2018-13 on its consolidated financial statements.
The
Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact on
our financial position or results of operations.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – ACCOUNTS RECEIVABLE
Accounts
receivable consisted of the following:
| | |
December 31,
2021 | | |
December 31,
2020 | |
| | |
| | |
| |
| Accounts receivable | |
$ | 12,710,362 | | |
$ | 14,763,516 | |
| Less: Allowance for doubtful accounts | |
| (1,276,858 | ) | |
| (1,307,965 | ) |
| Total, net | |
$ | 11,433,504 | | |
$ | 13,455,551 | |
The
Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability
of individual balances. After evaluating the collectability of individual receivable balances, the Company recognized bad debt allowance
of $1,276,858 and $1,307,965 for the years ended December 31, 2021 and 2020.
The
novel coronavirus epidemic that began in the PRC at the beginning of 2020 has significantly impacted the operation of customers, resulting
in delays in collecting outstanding receivables as of December 31, 2021. As of the date of this report, a majority of the Company’s
customers have resumed normal operations.
As
of the filing date, a balance of $3,585,710 account receivable out of the total balance as of December 31, 2021 has been collected
NOTE
4 – INVENTORIES
Inventories
consisted of the following:
| | |
December 31,
2021 | | |
December 31,
2020 | |
| Raw
materials | |
$ | 51,292 | | |
$ | 48,524 | |
| Finished
goods | |
| 82,621 | | |
| 111,547 | |
| Impairment | |
| - | | |
| (12,800 | ) |
| Total,
net | |
$ | 133,913 | | |
$ | 147,271 | |
NOTE
5 – PREPAYMENT
The prepayment balance of $6,805,039 as of December
31, 2021 represents the advances paid to suppliers for the purchase of raw materials to be delivered in the next operating period.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment at December 31, 2021 and 2020 consisted of:
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| Building | |
$ | 3,037,848 | | |
$ | 2,949,493 | |
| Operating
equipment | |
| 2,981,424 | | |
| 2,758,704 | |
| Vehicle | |
| 89,134 | | |
| 86,828 | |
| Office
equipment | |
| 100,851 | | |
| 26,783 | |
| Apple
Orchard | |
| 1,110,067 | | |
| 1,041,377 | |
| Construction
in progress | |
| 3,125,180 | | |
| 1,829,057 | |
| | |
| 10,444,504 | | |
| 8,692,242 | |
| Less:
Accumulated depreciation | |
| (3,250,242 | ) | |
| (2,425,499 | ) |
| | |
$ | 7,194,262 | | |
$ | 6,266,743 | |
For
the years ended December 31, 2021 and 2020, depreciation expense amounted to $510,498 and $785,893, respectively. Depreciation is not
taken during the period of construction or equipment installation. Upon completion of the installation of manufacturing equipment or
any construction in progress, construction in progress balances will be classified to their respective property and equipment category.
The
construction in progress of $3,125,180 represents the investment of a black goat processing plant located in Shuangbai County, Chuxiong
City, Yunnan Province, PRC.
NOTE
7 – RIGHT OF USE ASSETS
The
total balance of $1,284,319 as of December 31, 2021 represents the net value of two industrial land use rights located in Weihai City,
Shandong Province, and Chuxiong City, Yunnan Province. The total cost of land use rights is $1,448,783 and the accumulated amortization
is $164,464.
NOTE
8 – DEFERRED TAX ASSETS, NET
The
components of the deferred tax assets are as follows:
| | |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| Deferred tax assets,
non-current | |
| | | |
| | |
| Deficit
carried-forward | |
$ | 87,438 | | |
$ | 20,600 | |
| Allowance | |
| 175,360 | | |
| 434,248 | |
| Deferred
tax assets | |
| 262,798 | | |
| 454,848 | |
| Less:
valuation allowance | |
| - | | |
| - | |
| Deferred
tax assets, non-current | |
$ | 262,798 | | |
$ | 454,848 | |
Deferred
taxation is calculated under the liability method in respect of taxation effect arising from all timing differences, which are expected
with reasonable probability to realize in the foreseeable future. The Company’s subsidiary registered in the PRC is subject to
income taxes within the PRC at the applicable tax rate.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – LOANS
As
of December 31, 2020, current portion of long-term loans refers to $4,571,452 due to Agricultural Bank of China (“ABC”),
which is collateralized with land use rights and guaranteed by Mr. Lirong Wang, the CEO and fully settled as of December 31, 2021.
The
Company has been in “default” with the loan payable to ABC. The bank has taken legal action against the Company and on April
26, 2020, the bank has been awarded a judgment by the PRC courts for $5,609,770 (RMB 36,683,409). This amount has been settled in April
2021 upon completion of the auction sale of the collateralized land use right and related building in Shanghai city.
The loan agreement was entered into between Agricultural
Bank of China (“ABC”) and Shanghai Zongbao Environment Company Engineering Co., Ltd. (“Zongbao”), a subsidiary
of the VIE, on October 29, 2014 (the “Loan Agreement”) for a total loan amount of RMB 45 Million (approximately US$6.43 million)
at a floating interest rate of 20% premium to the base rate published by the People’s Bank of China for loans of the same tenure
and same loan grade per annum (the “Loan”). The loan was given as part of a project financing for the construction of production
facility and the development of our fertilizer business. Pursuant to the Loan Agreement, Zongbao was obligated to make repayments based
on the following schedule:
| | ● | RMB 2 million on August 25, 2016, |
| | ● | RMB 3 million on February 25, 2017, |
| | ● | RMB 5 million on August 25, 2017, |
| | ● | RMB 5 million on February 25, 2018, |
| | ● | RMB 8 million on August 25, 2018, |
| | ● | RMB 10 million on February 25, 2019, |
| | ● | RMB 12 million on September 25, 2019. |
Zongbao
repaid the loan as scheduled through September 30, 2017 (total RMB 10 Million). However, a local government policy was later implemented
in the Industrial Park where the Company’s then newly-built facility is located. Because the Industrial Park shifted its focus
to concentrate on businesses relating to food production, machinery and renewable energy, Company’s organic fertilizer business
was not permitted. It is very common for China and large cities such as Shanghai to implement such sudden policy change to promote the
development of industrial park characteristics. Because of this regulatory change and Company’s inability to satisfy the use of
proceeds based on the new policy, Agricultural Bank of China initiated on the “default” of the Loan Agreement and commenced
legal action against Zongbao and its guarantors on January 18, 2018 to demand early repayment of the remaining RMB 35 Million. In addition,
as a condition of the loan, if the borrower fails to repay the principal of the loan within the time limit specified in the contract,
the interest on the overdue loan will rise by 50%. If the borrower’s default causes the creditor to resort to litigation and other
methods to realize the creditor’s rights, the lender’s attorney fees, travel expenses, and other enforcement fees shall be
borne by the borrower.
The land and production facility of Zongbao was
collateralized to secure the loan. In addition, the Loan Agreement was guaranteed personally by Mr. Lirong Wang (as the legal representative)
and affiliated entities, Shanghai Muliang Industrial Co., Ltd., and Weihai Fukang Biological Fertilizer Co., Ltd. (“Weihai Fukang”).
It is a common practice in China for the banks to demand a personal guarantee for these types of financing.
As
of December 31, 2021, the amount of $283,860 represents the long-term loan owed to Ms. Hui Song. The amount owed to Ms. Hui Song is non-interest
bearing, unsecured, and is expected to be due more than one year afterward.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – LOANS (CONTINUED)
Long-term
loan and current portion of long-term loan consisted of the following:
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| Loan payable to Agricultural Bank of China, annual interest rate ranges from 6% to 7.2% | |
$ | - | | |
$ | 4,571,452 | |
| Loan payable to Rushan City Rural Credit Union, annual interest 8.7875%, due by July 18, 2022. | |
| 1,174,756 | | |
| 1,144,363 | |
| Long-term
loans due to individuals and entities without interest | |
| 283,860 | | |
| 281,112 | |
| | |
| 1,458,616 | | |
| 5,996,927 | |
| Current
portion of long-term loans payable | |
| 1,174,756 | | |
| 4,571,452 | |
| Total,
net | |
$ | 283,860 | | |
$ | 1,425,475 | |
As
of December 31, 2021, the Company’s future loan obligations according to the terms of the loan agreement are as follows:
| Year
1 | |
$ | 1,174,756 | |
| Year
2 | |
| 283,860 | |
| Total | |
$ | 1,458,616 | |
The
Company recognized interest expenses of $164,450 and $700,030 for the years ended December 31, 2021 and 2020, respectively.
NOTE
10 – STOCKHOLDERS EQUITY
Authorized
Stock
The
Company has authorized 500,000,000 common shares with a par value of $0.0001 per share. Each common share entitles the holder to one
vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
On
April 5, 2019, the Company filed a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the State
of Nevada to reflect the creation of Blank Check Preferred Stock. As a result, the capital stock of the Company consisted of 500,000,000
shares of common stock, $0.0001 par value, and 100,000,000 shares of blank check preferred stock after the filling.
On
October 30, 2019, 30,000,000 shares were designated to be Series A Preferred Stock out of the 100,000,000 shares of blank check preferred
stock.
Common
Share Issuances
On
June 29, 2018, the outstanding amount $326,348 due to Mr. Wang, CEO and Chairman of the Company, were converted into 43,200 shares of
Common Shares at $ 7.55 per share.
On
June 29, 2018 the Company issued 298,518 common shares of the Company at $7.55 for proceeds of $2,255,111 to Mr. Wang, CEO and Chairman
of the Company.
On
April 4, 2019, the Company’s Board of Directors and majority shareholder approved a 5 to 1 reverse stock split of all of the issued
and outstanding shares of the Company’s common stock (the “Reverse Stock Split”). No fractional shares of Common Stock
will be issued as a result of the reverse stock split. The Stock Split does not affect the par value or the number of authorized shares
of the Company’s common stock.
On
April 16, 2019, the Company filed a Certificate of Change to our Articles of Incorporation with the Secretary of State of the State of
Nevada to reflect the Reverse stock Split. The reverse stock split took effect on May 7, 2019 The common shares outstanding have been
retroactively restated to reflect the reverse stock split.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – STOCKHOLDERS EQUITY (CONTINUED)
On
October 10, 2019 and November 1, 2019, the Company issued a total of 19,000,000 shares of Series A Preferred Stock to Mr. Wang, the CEO
and Chairman of the Company, in exchange for 19,000,000 shares of common stock beneficially owned by him. Following the transaction,
19,000,000 shares of common stock were cancelled and returned to treasury.
On
June 19, 2020, Muliang Viagoo Technology Inc. entered into a Share Exchange Agreement with Viagoo Pte Ltd. (“Viagoo”) and
all the shareholders of Viagoo for the acquisition of 100% equity interest of Viagoo.
Pursuant
to the Share Exchange Agreement, Muliang shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest
in and to the Viagoo’s capital stock. The aggregate purchase price for the Shares was US$2,830,800, paid in 1,011,000 shares of
the Company’s restricted common stock, valued at $2.80 per share.
On
June 28, 2020, the Company issued 50,000 of restricted common stock as the compensation for Shaw Cheng “David” Chong, the
new Chief Financial Officer of the Company.
On
December 29, 2020, the Company issued 100,000 of restricted common stock to two investors for US$280,000 valued at $2.80 per share.
As
of the date of this report, there were 38,502,954 shares of common stock outstanding.
Blank
Check Preferred Stock
On
April 4, 2019, the Company’s Board of Directors and majority shareholder approved creation of one hundred million (100,000,000)
shares of Blank Check Preferred Stock, $0.0001 par value. To the fullest extent permitted by the laws of the State of Nevada, as the
same now exists or may hereafter be amended or supplemented, the Board of Directors may fix and determine the designations, rights, preferences
or other variations of each class or series within each class of preferred stock of the Company. The Company may issue the shares of
stock for such consideration as may be fixed by the Board of Directors.
On
April 5, 2019, the Company filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of the State
of Nevada to authorize the creation of Blank Check Preferred Stock.
On
October 30, 2019, 30,000,000 shares were designated to be Series A Preferred Stock out of the 100,000,000 shares of blank check preferred
stock.
Series
A Preferred Stock
On
October 30, 2019, the Company’s Board of Directors and majority shareholder approved to designate 30,000,000 shares as Series A
Preferred Stock out of the 100,000,000 shares of blank check preferred stock, which the preferences and relative and other rights, and
the qualifications, limitations or restrictions thereof, shall be set forth in the discussion below under the “Series A Preferred
Stock”. A certificate of designation for the Series A Preferred Stock was filed with the Secretary of the State of the State of
Nevada on October 30, 2019.
The
holders of Series A Preferred Stock shall not be entitled to receive dividends of any kind.
The
Series A Preferred Stock shall not be subject to conversion into Common Stock or other equity authorized to be issued by the Corporation.
The
holders of the issued and outstanding shares of Series A Preferred Stock shall have voting rights equal to ten (10) shares of Common
Stock for each share of Series A Preferred Stock.
On
November 1, 2019, the Company issued a total of 19,000,000 shares of Series A Preferred Stock to Mr. Wang, the CEO and Chairman of the
Company, in exchange for 19,000,000 shares of common stock beneficially owned by him. Following the transaction, 19,000,000 shares of
common stock were cancelled and returned to treasury.
As
of the filling date, there were 19,000,000 shares of Series A Preferred Stock issued outstanding.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 – RELATED PARTY TRANSACTIONS
*Due
from related parties
The due from related parties balance of $716,721 represents the receivable from Mr. Lirong Wang, the CEO and Chairman of the Company.
For the year ended December 31, 2021, the Company
borrowed $4,909,854 from Mr. Lirong Wang, and repaid $3,037,704.
For the year ended December 31, 2020, the Company
borrowed $2,748,129 from Mr. Lirong Wang, and repaid $3,164,170.
These advances are due on demand, non-interest
bearing, and unsecured unless further disclosed.
*Due
to related parties
Outstanding
balance due to Ms. Xueying Sheng and Mr. Guohua Lin below are advances to the Company as working capital. These advances are due on demand,
non-interest bearing, and unsecured, unless further disclosed.
| |
|
December 31, |
|
|
December 31, |
|
|
|
| |
|
2021 |
|
|
2020 |
|
Relationship |
|
| Ms. Xueying Sheng |
|
|
103,390 |
|
|
|
97,587 |
|
Controller/Accounting Manager of the Company |
|
| Mr. Guohua Lin |
|
|
58,039 |
|
|
|
55,783 |
|
Senior management / One of the Company’s shareholders |
|
| Total |
|
|
161,429 |
|
|
|
153,370 |
|
|
|
For the year ended December
31, 2021, the Company borrowed $11,663 from Mr. Guohua Lin, and repaid $9,406. For the year ended December 31, 2020, the Company borrowed
$53,694 from Mr. Guohua Lin, and repaid $29,581.
For
the year ended December 31, 2021, the Company borrowed $18,605 from Ms. Xueying Sheng and repaid $12,803. For the year ended December
31, 2020, the Company borrowed $71,158 from Ms. Xueying Sheng and repaid $89,524.
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – CONCENTRATIONS
Customers
Concentrations
The
following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the years
ended December 31, 2021 and 2020.
| | |
For
the year ended December 31, | |
| |
2021 | | |
2020 | |
| Customer | |
Amount | | |
% | | |
Amount | | |
% | |
| Guangzhou
Lvxing Organic Agricultural Products Co., Ltd | |
| 3,521,542 | | |
| 36 | % | |
| 2,597,402 | | |
| 36 | % |
| Guangzhou
Xianshangge Trading Co., Ltd | |
| 3,414,994 | | |
| 35 | % | |
| 3,011,449 | | |
| 42 | % |
Suppliers
Concentrations
The
following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchase for the years
ended December 31, 2021 and 2020.
| | |
For
the year ended December 31, | |
| |
2021 | | |
2020 | |
| Suppliers | |
Amount | | |
% | | |
Amount | | |
% | |
| A | |
| 977,168 | | |
| 19 | % | |
| N/A
| | |
| N/A | |
| B | |
| 913,496 | | |
| 18 | % | |
| 2,618,036 | | |
| 35 | % |
| C | |
| 837,216 | | |
| 16 | % | |
| N/A | | |
| N/A | |
| D | |
| 623,261 | | |
| 12 | % | |
| 725,566 | | |
| 10 | % |
| E | |
| 621,401 | | |
| 12 | % | |
| N/A | | |
| N/A | |
Credit Risks
The
Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of
operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s
economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated
with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect
to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among
other things.
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable.
Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered
by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in
bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to
pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade
accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers
to help further reduce credit risk. At December 31, 2021 and 2020, the Company’s cash balances by geographic area were as follows:
| |
|
December
31, |
|
|
December
31, |
|
| |
|
2021 |
|
|
2020 |
|
| United States |
|
$ |
- |
|
|
|
- |
% |
|
$ |
- |
|
|
|
- |
% |
| China |
|
|
31,787 |
|
|
|
84 |
% |
|
|
340,381 |
|
|
|
98 |
% |
| Singapore |
|
|
6,226 |
|
|
|
16 |
% |
|
|
8,453 |
|
|
|
2 |
% |
| Total cash and cash equivalents |
|
$ |
38,013 |
|
|
|
100 |
% |
|
$ |
348,834 |
|
|
|
100 |
% |
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – INCOME TAXES
United
States
Muliang
Viagoo is established in the State of Nevada in the United States and is subject to Nevada State and US Federal tax laws. Muliang Viagoo
has approximately $948,348 of unused net operating losses (“NOLs”) available for carrying forward to future years for U.S.
federal income tax reporting purposes. The benefit from the carry forward of such NOLs will begin expiring during the year ended December
31, 2034. Because United States tax laws limit the time during which NOL carry forwards may be applied against future taxable income,
the Company may be unable to take full advantage of its NOLs for federal income tax purposes should the Company generate taxable income.
Further, the benefit from utilization of NOL carry forwards could be subject to limitations due to material ownership changes that could
occur in the Company as it continues to raise additional capital. Based on such limitations, the Company has significant NOLs for which
realization of tax benefits is uncertain.
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications
to existing law. The Company has considered the accounting impact of the effects of the Act during the year ended December 31, 2018 including
a reduction in the corporate tax rate from 34% to 21% among other changes.
Hong
Kong
Muliang
HK is established in Hong Kong and its income is subject to a 16.5% profit tax rate for income sourced within the Special Administrative
Region. For the years ended December 31, 2021 and 2020, Muliang HK did not earn any income derived in Hong Kong, and therefore was not
subject to Hong Kong Profits Tax.
Singapore
Viagoo
is incorporated in Singapore where tax is levied on profits at rate of 17.0%. Singapore uses a territorial tax system. Post-tax profit
distributions (i.e. dividends) to shareholders are tax-free. Singapore does not tax on capital gains.
China,
PRC
Shanghai
Mufeng and its subsidiaries Muliang Industry, Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development, Zhonglian, Heilongjiang
and Yunnan Muliang are established in China and its income is subject to income tax rate of 25%.
The
reconciliation of effective income tax rate as follows:
| | |
For
the Years Ended | |
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| US
Statutory income tax rate | |
| 21.00 | % | |
| 21.00 | % |
| PRC
income tax adjustment | |
| 4.00 | % | |
| 4.00 | % |
| Valuation
allowance | |
| (28.03 | )% | |
| (73.38 | )% |
| Effect
of expenses not deductible for tax purpose | |
| 0.00 | % | |
| 0.00 | % |
| Effect
of income tax exemptions and reliefs | |
| 0.00 | % | |
| 0.00 | % |
| Others | |
| (5.40 | )% | |
| (19.14 | )% |
| Total | |
| (8.43 | )% | |
| (67.53 | )% |
MULIANG
VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES
OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – INCOME TAXES (CONTINUED)
The
provision for income taxes consists of the following:
| | |
For the Years Ended
December 31, | |
| | |
2021 | | |
2020 | |
| Current | |
$ | 22,931 | | |
$ | 34,253 | |
| Deferred | |
| 192,050 | | |
| (429,232 | ) |
| Total | |
$ | 214,981 | | |
$ | (394,979 | ) |
Accounting
for Uncertainty in Income Taxes
The
tax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after
those enterprises complete their relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results are subject
to change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s PRC entities’
tax filings, which may lead to additional tax liabilities.
ASC
740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management
evaluated the Company’s tax positions and concluded that no provision for uncertainty in income taxes was necessary as of December 31,
2021 and 2020.
NOTE
14 – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events that have occurred after the balance sheet date but before the financial statements are issued.
Based on this evaluation, the Company concluded that subsequent to December 31, 2021 but prior to March 31, 2022, the date the financial
statements were available to be issued, there was no subsequent event that would require disclosure to or adjustment to the financial
statements other than the ones disclosed above.
11,500,000 Shares of
Common Stock
Muliang
Viagoo Technology, Inc.
PROSPECTUS
,
2023
Through and including ,
2023 (the 25th day after the date of this offering), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver
a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
PART II — INFORMATION NOT REQUIRED IN
THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is an itemization of the total
expenses, excluding underwriter’ discounts and commissions, that we expect to incur in connection with this offering. With the
exception of the SEC registration fee, the FINRA filing fee and the Nasdaq listing fee, all amounts are estimates.
| Securities and Exchange Commission Registration
Fee | |
$ | 8,000 | |
| Nasdaq Listing Fee | |
$ | 50,000 | |
| FINRA | |
$ | 4,000 | |
| Legal Fees and Expenses | |
$ | 150,000 | |
| Accounting Fees and Expenses | |
$ | 200,000 | |
| Printing and Engraving Expenses | |
$ | 30,000 | |
| Miscellaneous Expenses | |
$ | 10,000 | |
| Total | |
$ | 577,000 | |
All amounts are estimates other than the SEC’s
registration fee. We are paying all expenses of the offering listed above.
Item 14. Indemnification of Directors and Officers.
To the fullest extent permitted by the laws of
the State of Nevada, our Articles of Incorporation and Bylaws, we may indemnify an officer or director who is made a party to any proceeding,
including a lawsuit, because of his/her position, if he/she acted in good faith and in a manner he/she reasonably believed to be in our
best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on
the merits in a proceeding as to which he/she is to be indemnified, we must indemnify him/her against all expenses incurred, including
attorney’s fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred
in defending the proceeding, and if the officer or director is judged liable, only by a court order.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have
been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is
theretofore unenforceable.
Item 15. Recent Sales of Unregistered Securities.
For the past three years, we have issued and
sold the securities described below without registering the securities under the Securities Act. None of these transactions involved
any underwriters’ underwriting discounts or commissions, or any public offering. We believe that each of the following issuances
was exempt from registration under the Securities Act in reliance on Regulation S promulgated under the Securities Act regarding
sales by an issuer in offshore transactions, Regulation D under the Securities Act, Rule 701 under the Securities Act or pursuant
to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.
We completed a 5-for-1 reverse stock split on
May 7, 2019. All share and per share information in this Item 15 has been adjusted to reflect this reverse stock split.
On June 29, 2018, the outstanding amount $326,348
due to Mr. Wang, CEO and Chairman of the Company, were converted into 43,200 shares of common stock at $7.55 per share. The transaction
was not registered under the Securities Act in reliance on an exemption from registration set forth in Section 4(2) of the Securities
Act promulgated thereunder.
On June 29, 2018, the Company issued 298,518
shares of common stock of the Company at $7.55 per share, to Mr. Wang, CEO and Chairman of the Company, for aggregate proceeds of
$2,255,111. The transaction was not registered under the Securities Act in reliance on an exemption from registration set forth in
Section 4(2) of the Securities Act promulgated thereunder.
On October 10, 2019 and November 11, 2019, the
Company issued 19,000,000 shares of Series A Preferred Stock to Mr. Wang, the CEO and Chairman of the Company, in exchange for 19,000,000
shares of common stock beneficially owned by him. Following the transaction, 19,000,000 shares of common stock were cancelled and returned
to treasury.
On June 19, 2020, Muliang Agritech Inc. entered
into a Share Exchange Agreement with Viagoo Pte Ltd. (“Viagoo”) and all the shareholders of Viagoo for the acquisition
of 100% equity interest of Viagoo. The transaction was not registered under the Securities Act in reliance on an exemption from registration
set forth in Section 4(2) of the Securities Act promulgated thereunder.
Pursuant to the Share Exchange Agreement, Muliang
shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest in and to the Viagoo’s capital
stock. The aggregate purchase price for the Shares shall be US$2,830,800, payable in 1,011,000 shares of the Company’s restricted
common stock, valued at $2.80 per share.
On June 28, 2020, the Company issued 50,000 of
restricted common stock as the compensation for Shaw Cheng “David” Chong, the new Chief Financial Officer of the Company.
The transaction was not registered under the Securities Act in reliance on an exemption from registration set forth in Section 4(2)
of the Securities Act promulgated thereunder.
On December 29, 2020, we sold through a Regulation
S offering a total of 100,000 shares of common stock to two non-U.S. investors, at a price of $2.80 per share for an aggregate purchase
price of $280,000. The transaction was not registered under the Securities Act in reliance on an exemption from registration set forth
in Regulation S promulgated hereunder as a transaction by the Company not involving any public offering. The securities were sold in
an offshore transaction by a foreign issuer, to foreign investors, not using any directed selling efforts in the United States. These
securities may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the
registration requirements under the Securities Act.
On February 16, 2021, we sold to a non-U.S. investor
a $14,960 convertible note that may be converted into 5,342 shares of our common stock at a price of $2.80 per share. In conjunction
with the convertible note, we issued to the investor 1,336 warrants that can be exercised for three years to our common stock at an exercise
price of $4.80. The transaction was not registered under the Securities Act in reliance on an exemption from registration set forth
in Regulation S promulgated hereunder as a transaction by the Company not involving any public offering. The securities were sold in
an offshore transaction by a foreign issuer, to foreign investors, not using any directed selling efforts in the United States. These
securities may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the
registration requirements under the Securities Act.
On May 20, 2021, we sold to a non-U.S. investor
a $231,839 (or RMB 1,5000,000) convertible note that may be converted into 68,188 shares of our common stock at a price of $3.40 per
share. In conjunction with the convertible note, we issued to the investor 17,047 warrants that can be exercised for three years to our
common stock at an exercise price of $4.80. The transaction was not registered under the Securities Act in reliance on an exemption
from registration set forth in Regulation S promulgated hereunder as a transaction by the Company not involving any public offering.
The securities were sold in an offshore transaction by a foreign issuer, to foreign investors, not using any directed selling efforts
in the United States. These securities may not be offered or sold in the United States in the absence of an effective registration statement
or exemption from the registration requirements under the Securities Act.
On June 24, 2021, we sold to a non-U.S. investor
a $204,000 (or SGD 271,320) convertible note that may be converted into 60,000 shares of our common stock at a price of $3.40 per share.
In conjunction with the convertible note, we issued to the investor 15,000 warrants that can be exercised for three years to our common
stock at an exercise price of $4.80. The transaction was not registered under the Securities Act in reliance on an exemption from
registration set forth in Regulation S promulgated hereunder as a transaction by the Company not involving any public offering. The securities
were sold in an offshore transaction by a foreign issuer, to foreign investors, not using any directed selling efforts in the United
States. These securities may not be offered or sold in the United States in the absence of an effective registration statement or exemption
from the registration requirements under the Securities Act.
Item 16. Exhibits.
Exhibit
Number | |
Description |
| 1.1 (12) | |
Underwriting
Agreement |
| 3.1 (2) | |
Certificate
of Incorporation |
| 3.2 (3) | |
Certificate
of Amendment filed with the Secretary of the State of Nevada on April 5, 2019 |
| 3.3 (3) | |
Certificate
of Change filed with the Secretary of the State of Nevada on April 16, 2019 |
| 3.3 (4) | |
Certificate
of Designation filed with the Secretary of the State of Nevada on October 30, 2019 |
| 3.4 (5) | |
Certificate
of Amendment filed with the Secretary of the State of Nevada on June 26, 2020 |
| 3.5 (2) | |
Bylaws |
| 4.1 (1) | |
Specimen
Common Stock Certificate |
| 4.2 (12) | |
Form
of Warrant (included in the Exhibit 1.1 Underwriting Agreement) |
| 5.1 (1) | |
Opinion
of Ortoli Rosenstadt LLP, as to the validity of the common stock |
| 5.2 (12) | |
Opinion
of Ortoli Rosenstadt LLP, as to the enforceability of the Underwriter’s warrant |
| 8.1 (12) | |
Opinion
of Grandall Law Firm (Nanjing Office) regarding certain PRC tax matters (included in Exhibit 99.4) |
| 10.1 (4) | |
Exchange
Agreement, dated October 10, 2019 |
| 10.2 (4) | |
Amended
and Restated Preferred Stock Exchange Agreement, dated November 11, 2019 |
| 10.3 (9) | |
Call Option Agreement, dated February 10, 2016 |
| 10.4 (9) | |
Equity Pledge Agreement, dated February 10, 2016 |
| 10.5 (9) | |
Exclusive Technical Consulting and Service Agreement, dated February 10, 2016 |
| 10.6
(6) |
|
Director
Offer Letter between the Company and Vick Bathija dated March 19, 2020 |
| 10.7
(6) |
|
Director
Offer Letter between the Company and Scott Silverman dated March 19, 2020 |
| 10.8
(6) |
|
Director
Offer Letter between the Company and Guofu Zhang dated March 19, 2020 |
| 10.9
(7) |
|
Share
Exchange Agreement between the Company and Viagoo Pte Ltd. dated June 19, 2020 |
| 10.10
(8) |
|
Earnout
Agreement among the Company, Viagoo Pte Ltd. and Shareholders of Viagoo Pte Ltd. dated June 19, 2020 |
| 10.11
(8) |
|
Employment
Agreement between the Company and David Chong Shaw Cheng dated June 19, 2020 |
10.12 (1) |
|
Employment
Agreement between the Company and Lirong Wang dated September 25, 2020 |
| 10.13 (11) |
|
Exclusive
Technical Consulting and Service Agreement between Shanghai Mufeng and Shanghai Muliang, dated February 10, 2016 |
| 10.14 (11) |
|
Call
Option and Cooperation Agreement among Lirong Wang & Zhongfang Wang and Shanghai Mufeng and Shanghai Muliang, dated February
10, 2016 |
| 10.15 (11) |
|
Equity
Pledge Agreement between Lirong Wang and Zhongfang Wang and Shanghai Mufeng |
| 10.16 (13) |
|
Share Exchange Agreement between the Company and Viagoo, Inc. Dated December 16, 2022 |
| 14.1 (6) | |
Code
of Business Conduct and Ethics of the Company |
| 21.1 (7) | |
List
of Subsidiaries |
| 23.1
† | |
Consent of WWC, PC |
| 23.2 (1) | |
Consent
of Ortoli Rosenstadt LLP (included in Exhibit 5.1). |
| 23.3 (12) | |
Consent
of Grandall Law Firm (Nanjing Office) (included in Exhibit 99.4) |
| 99.1 (6) | |
Audit
Committee Charter |
| 99.2 (6) | |
Compensation
Committee Charter |
| 99.3 (6) | |
Nominating
Committee Charter |
| 99.4 (12) | |
Opinion
of Grandall Law Firm (Nanjing Office), regarding certain PRC law matters and the validity of the VIE Agreements |
| 101.INS |
|
Inline XBRL Instance Document. |
| 101.SCH |
|
Inline XBRL Taxonomy Extension
Schema Document. |
| 101.CAL |
|
Inline XBRL Taxonomy Extension
Calculation Linkbase Document. |
| 101.DEF |
|
Inline XBRL Taxonomy Extension
Definition Linkbase Document. |
| 101.LAB |
|
Inline XBRL Taxonomy Extension
Label Linkbase Document. |
| 101.PRE |
|
Inline XBRL Taxonomy Extension
Presentation Linkbase Document. |
| 104 |
|
Cover Page Interactive
Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| 107 (10) |
|
Filing
Fee Table |
| (1) |
Incorporated by reference to the Amendment 3 to Registration Statement
on Form S-1/A filed with the SEC on July 1, 2021. |
| (2) |
Incorporated by reference to the Registration Statement on Form S-1
filed with the SEC on January 5, 2015. |
| (3) |
Incorporated by reference to the Annual Report on Form 8-K filed with
the SEC on May 10, 2019. |
| (4) |
Incorporated by reference to the Quarterly Report on Form 10-Q filed
with the SEC on November 14, 2019. |
| (5) |
Incorporated by reference to the Current Report on Form 8-K filed with
the SEC on July 7, 2020. |
| (6) |
Incorporated by reference to the Current Report on Form 8-K filed with
the SEC on March 27, 2020. |
| (7) |
Incorporated by reference to the Registration Statement on Form S-1
filed with the SEC on December 9, 2020. |
| (8) |
Incorporated by reference to the Current Report on Form 8-K filed with
the SEC on June 25, 2020. |
| (9) |
Incorporated by reference to the Current Report on Form 8-K filed with
the SEC on February 11, 2016. |
| (10) |
Incorporated by reference to Amendment No. 9 of the Registration Statement
on Form S-1 filed with the SEC on June 10, 2022. |
| (11) |
Incorporated by reference to Amendment No. 10 of the Registration Statement
on Form S-1 filed with the SEC on June 21, 2022. |
| (12) |
Incorporated by reference to Amendment No. 11 of the
Registration Statement on Form S-1 filed with the SEC on July 26, 2022. |
| (13) |
Incorporated by reference to the Current Report on Form 8-K filed with the SEC
on December 22, 2022. |
Item 17. Undertakings.
The undersigned Registrant hereby undertakes
to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
| |
(1) |
To file, during any period
in which offers or sales are being made, a post-effective amendment to this registration statement: |
| |
(i) |
To include any prospectus
required by Section 10(a)(3) of the Securities Act of 1933; |
| |
(ii) |
To reflect in the prospectus
any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation
of Registration Fee” table in the effective registration statement; |
| |
(iii) |
To include any material
information with respect to the plan of distribution not previously disclosed in the registration statement or any material change
to such information in the registration statement; |
| |
(2) |
That for the purpose of
determining any liability under the Securities Act of 1933 each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof. |
| |
(3) |
To remove from registration
by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| |
(4) |
That, for the purpose of
determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of
a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first
use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of first use. |
| |
(5) |
That, for the purpose of
determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: |
The undersigned registrant undertakes
that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
| |
(i) |
Any preliminary prospectus
or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| |
(ii) |
Any free writing prospectus
relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| |
(iii) |
The portion of any other
free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities
provided by or on behalf of the undersigned registrant; and |
| |
(iv) |
Any other communication
that is an offer in the offering made by the undersigned registrant to the purchaser. |
| |
(6) |
The undersigned Registrant
hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. |
| |
(7) |
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue. |
| |
(8) |
The undersigned Registrant
hereby undertakes: |
| |
(1) |
That for purposes of determining
any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
| |
(2) |
That for the purpose of
determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof. |