As filed with the U.S. Securities and Exchange Commission on June 21, 2022

Registration No. 333-232378

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

AMENDMENT NO. 10

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

MULIANG VIAGOO TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   2870   90-1137640
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

  

2498 Wanfeng Highway, Lane 181

Fengjing Town, Jinshan District

Shanghai, China 201501

(86) 21-67355092

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) 

Vcorp Services, LLC

25 Robert Pitt Drive, Suite 204
Phone: (845) 425-0077

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

William S. Rosenstadt, Esq.

Mengyi “Jason” Ye, Esq.

Ortoli Rosenstadt LLP

366 Madison Avenue, 3rd Floor

New York, NY 10017

+1-212-588-0022 - telephone

+1-212-826-9307 - facsimile

 

 

Fang Liu Esq.

VCL Law LLP

1945 Old Gallows Road, Suite 630

Vienna, VA 22182

+1-703-919-7285 — telephone

 

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

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: ☒

 

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

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer   Smaller reporting company
    Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐ 

 

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

 

 

 

 

 

 

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

 

PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION, DATED JUNE 21, 2022

 

  

MULIANG VIAGOO TECHNOLOGY, INC.

 

11,500,000 Shares of Common Stock

 

Muliang Viagoo Technology, Inc. (“Muliang Viagoo” or the “Company”), a holding company incorporated in Nevada, is offering up to an aggregate of 11,500,000 shares of our common stock. The offering is being made on a “firm commitment” basis by the underwriter. See “Underwriting.” Prior to this offering, our stock is currently quoted on the OTC Markets (“OTC”) under the symbol “MULG”, however, there has been no established public trading market for the Company’s common stock. The Company expect the offering price of its common stock to be $4.00 per share. We have applied to list our common stock on the Nasdaq Capital Market under the symbol “MULG”. We cannot assure you that our application will be approved.

 

   Per Common
Stock
   Total
Without
Over-Allotment
Option(1)
   Total
With Full
Over-Allotment
Option
 
Assumed public offering price(2)  $4.00   $40,000,000   $46,000,000 
Underwriter fees and commissions(2)(3)  $0.28   $2,800,000   $3,220,000 
Proceeds to us, before expenses(4)  $3.72   $37,200,000   $42,780,000 

 

(1) Assumes that the Underwriter does not exercise any portion of their over-allotment option.  
(2) The public offering price and underwriting discount in respect of each warrant corresponds to a public offering price per share of US $4.00.  
(3) Under the underwriting agreement, upon the closing of the IPO, we will pay Boustead Securities, LLC (the “Underwriter”) a commission equal to six and a half percent (6.5%) of the gross amount to be disbursed to the Company from Offering as well as warrants equal to five percent (5%) of the gross amount to be disbursed to the Company from the Offering (“Underwriter Warrants”). The Underwriter Warrants shall be exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days from the effective date of the offering, which period shall not extend further than five years from the commencement of sales of the offering in compliance with FINRA Rule 5110(g)(8)(A). The Underwriter Warrants are exercisable at a per share price of $5.00, which is 125% of the offering price. The Underwriter shall also be entitled to a corporate finance fee equal to a half percent (0.5%) of the gross proceeds of the Offering (including proceeds from the sale of the Over-allotment shares) (the “Non-accountable Expense Allowance”). In addition to the Non-accountable Expense Allowance, the Underwriter will also receive an accountable expense of up to $95,000, including but not limited to (a) reasonable fees of legal counsel incurred by the Underwriter in connection with the offering; (b) due diligence and other expenses incurred prior to completion of the IPO (the “Due Diligence Fee”), (c) road show, travel, platform on-boarding fees, and other reasonable out-of-pocket accountable expenses (“Out-Of-Pocket Expenses”), and (d) background checks on the Company’s officers, directors and major shareholders (“Background Check Fees”). See “underwriting” in this prospectus for more information regarding our arrangements with the underwriter. The table sets out the maximum possible underwriting fees and commissions. 
(4) The total estimated expenses related to this offering are set forth in the section entitled “Expenses Relating to This Offering”.

 

Muliang Viagoo expects its total cash expenses for this offering to be approximately $577,000, including cash expenses payable to the Underwriter for its reasonable out-of-pocket expenses, exclusive of the above commissions. The underwriter has agreed to purchase the common stocks from us on a firm commitment basis. The underwriter has an option exercisable within 45 days after the closing of the offering, to acquire up to an additional 15% of the total number of securities to be offered by us in the offering, solely for the purpose of covering over-allotments. The offering will be coordinated with and conditioned upon (i) completion of satisfactory due diligence by the Underwriter; (ii) an effective registration statement; and (iii) an underwriting agreement and any other ancillary documents completed by the forgoing or deemed necessary for the underwriter. One of the conditions to our obligation to sell any securities through the Underwriter is that, upon the closing of the offering, the common stocks would qualify for listing on the Nasdaq Capital Market.

 

If Muliang Viagoo completes this offering, net proceeds will be delivered to it on the closing date. If the Company complete this offering, then on the closing date, we will issue to the Underwriter warrant to purchase the number of common stocks in the aggregate equal to 5% of the common shares sold at the Closing. The warrants shall carry a term of five (5) years from the commencement of sales of the offering, shall not be exercisable for a period of six months from the closing of the offering and shall be exercisable on a cash-less basis at a price equal to the offering price in compliance with FINRA Rule 5110(e)(1)(A). The warrants are exercisable at a per share price equal to 125% of the public offering price per share in the offering and may also be exercisable on a cashless basis. See “Underwriting” on page 114.

 

 

 

 

Muliang Viagoo is a holding company incorporated in Nevada. As a holding company with no material operations of its own, Muliang Viagoo conducts a substantial majority of its operations through a subsidiary established in the People’s Republic of China, (“PRC” or “China,”) and a variable interest entity, (“VIE”) that is based in China. 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. The common shares offered in this offering are shares of Muliang Viagoo, the U.S. holding company, not shares of the VIE in China. As a result of the VIE structure, investors will not hold any ownership interest, direct or indirect, in the Chinese operating companies. Investors would only have a contractual relationship with the Chinese operating companies. The VIE structure is used to provide contractual exposure to foreign investment in Chinese-based companies where Chinese law prohibits direct foreign investment in the operating companies. It is likely that investors in this offering will never hold ownership interests, direct or indirect, in the entity that conducts the business operations reflected in our financial statements and would merely have a contractual relationship with that entity. While the VIE, Shanghai Muliang, is not currently engaging in businesses where direct foreign investment is prohibited, Shanghai Muliang may engage in such business in the future and therefore the VIE structure was implemented to allow for flexibility prior to the company’s listing on the OTC Markets in 2016. Because of Muliang Viagoo’s corporate structure, it is subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to the limitation on foreign ownership of internet technology companies, and regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard. The VIE Agreements may not be effective in deriving benefits from the VIE and we may be subject to sanctions imposed by PRC regulatory agencies if Muliang Viagoo fails to comply with their rules and regulations. If the Chinse regulatory authorities disallow the VIE structure in the future, it will likely result in a material change in Muliang Viagoo’s financial performance and its results of operations and/or the value of the company’s common stock, which could cause the value of such securities to significantly decline or become worthless. For a description of the VIE Agreements, see “Corporation History and Structure” on page 80. For details on the risks associated with the VIE structure, see “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” on page 46 and “Risks Relating to Our Corporate Structure – We rely on contractual arrangements with the VIE and their shareholders for a large portion of our business operations. These arrangements may not be 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” on page 49.

 

As a holding company, we may rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements. If any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to us. However, neither any of our subsidiaries nor the VIE has made any dividends or other distributions to our holding company or any U.S. investors as of the date of this prospectus. In the future, cash proceeds raised from overseas financing activities, including this offering, may be transferred by us to our PRC subsidiaries via capital contribution or shareholder loans, as the case may be. Cash is transferred through our organization in the manner as follows: (i) we may transfer funds to Shanghai Mufeng, through our Hong Kong subsidiary, by additional capital contributions or shareholder loans, as the case may be; (ii) Shanghai Mufeng may provide loans to the VIE, subject to statutory limits and restrictions; (iii) funds from the VIE to Shanghai Mufeng are remitted as services fees; (iv) Shanghai Mufeng may make dividends or other distributions to us through our Hong Kong subsidiary. As a holding company, we may rely on dividends and other distributions on equity paid by Shanghai Mufeng for our cash and financing requirements. If Shanghai Mufeng incurs debt on its behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to us. In the future, cash proceeds raised from overseas financing activities, including this offering, may be transferred by us to Shanghai Mufeng via capital contribution or shareholder loans. As of the date of this prospectus, there have not been any such dividends or other distributions from Shanghai Mufeng to our Hong Kong subsidiary. In addition, none of our subsidiaries have ever issued any dividends or distributions to us or their respective shareholders outside of China. As of the date of this prospectus, no transfers have been made between the holding company, its subsidiaries, and consolidated VIEs or to investors. However, should transfers be made in the future, restrictions on currency exchanges in China may limit our ability to freely convert such RMB to fund any future business activities outside China or other payments in U.S. dollars, and capital control measures imposed by the Chinese government may limit our ability to use capital from our PRC subsidiary for business purposes outside of China. For more information see “Prospectus Summary – Transfers Between Our Company, Our Subsidiaries, and the VIE ” on page 10 and “Prospectus Summary – Restrictions on Foreign Exchange and the Ability to Transfer Cash Between Entities, Across Borders and to U.S. Investors” on page 11.

 

Our subsidiaries in the PRC generate and retain cash generated from operating activities and re-invest it in our business. For more information, see “Summary Financial Information” on page 16 and “Financial Statements and Supplementary Data” starting on page F-1. Furthermore, uncertainties in the PRC legal system could limit our ability to enforce the VIE Agreements, and these contractual arrangements have not been tested in a court of law. If the PRC government finds that the agreements that establish the structure for operating our business in China do not comply with PRC laws and regulations, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we and the VIE could be subject to severe penalties or be forced to relinquish our interests in those operations. This would result in the VIE being deconsolidated. The majority of our assets, including the necessary licenses to conduct business in China, are held by the VIE. A significant part of our revenues is generated by the VIE. An event that results in the deconsolidation of the VIE would have a material adverse effect on our operations and result in the value of the securities diminishing substantially or even becoming worthless. Our holding company, our PRC subsidiaries, the VIE, and investors of Muliang face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our company as a whole.

 

 

 

 

In the future, cash proceeds raised from overseas financing activities, including this offering, may be transferred by us through our Hong Kong subsidiary, Muliang HK to our PRC subsidiary Shanghai Mufeng via capital contribution and shareholder loans, as the case may be. Shanghai Mufeng then will transfer funds to the VIE and its subsidiaries to meet the capital needs of the VIE’s business operations.  As of the date of this prospectus, we have not made any transfers, dividends or distributions for amounts owed under the VIE Agreements. We currently have no plans to distribute earnings or settle amounts owed under the VIE Agreements and do not have any plans to distribute earnings or settle amounts owed under the VIE agreements in the foreseeable future. For details about the applicable PRC rules that limit transfer of funds from overseas to our PRC subsidiaries, see “Use of Proceeds,” “Risk Factors - Risks Relating to Doing Business in the PRC” starting on page 20.

 

Cash is transferred among the Company, our WFOE, and the VIE, in the following manners: (i) funds are transferred to Shanghai Mufeng, our WFOE, from the Company as needed through Muliang HK, our Hong Kong subsidiary in the form of capital contributions or shareholder loans, as the case may be; (ii) funds may be paid by Shanghai Muliang, the VIE, to our WFOE, as service fees according to the VIE agreements; (iii) dividends or other distributions may be paid by our WFOE, to the Company through our Hong Kong subsidiary; and (iv) our WFOE, and the VIE, lend to and borrow from each other from time to time for business operation purpose.” We have no plan to distribute earnings or settle amounts owed under the VIE agreements. As of the date of this prospectus, there were no cash flows between the Company and our WFOE, and the Company the VIE, haven’t paid any dividends or made any distributions to their respective shareholders either. We currently have not maintained any cash management policies that dictate the purpose, amount and procedure of cash transfers between the Company, our WFOE, the VIE Entity, or investors. Rather, the funds can be transferred in accordance with the applicable PRC laws and regulations. For more details, see “Prospectus Summary — Restrictions on Foreign Exchange and the Ability to Transfer Cash Between Entities, Across Borders and to U.S. Investors.”

 

We are subject to certain legal and operational risks associated with being based in China and having a majority of our operations in through the contractual arrangements with the VIE. PRC laws and regulations governing the VIE’s current business operations are sometimes vague and uncertain, and therefore, these risks may result in a material change in the VIE’s operations, significant depreciation of the value of our common stock,  or a complete hindrance of our ability to offer or continue to offer our securities to investors and cause the value of such securities to significantly decline or be worthless. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. exchange. Any such sudden action with little advance notice, once taken by the PRC government, could significantly cause the value of such securities to significantly decline or in extreme cases, become worthless. 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. See “Risks Relating to Doing Business in the PRC - 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” on page 29.

 

 

 

 

For a detailed description of all risks relating to doing business in the PRC, see “Risk Factors - Risks relating to Doing Business in the PRC.” Starting on page 20.

  

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING ON PAGE 20 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN SHARES OF OUR COMMON STOCK.

 

IN PARTICULAR, AS A SUBSTANTIAL MAJORITY OF OUR OPERATIONS ARE CONDUCTED THROUGH THE VIE  BASED IN CHINA, WE ARE SUBJECT TO CERTAIN LEGAL AND OPERATIONAL RISKS ASSOCIATED WITH THE VIE’S OPERATIONS IN CHINA, INCLUDING THAT CHANGES IN THE LEGAL, POLITICAL, AND ECONOMIC POLICIES OF THE CHINESE GOVERNMENT, THE RELATIONS BETWEEN CHINA AND THE UNITED STATES, OR CHINESE OR UNITED STATES REGULATIONS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS. PRC LAWS AND REGULATIONS GOVERNING THE VIE’S CURRENT BUSINESS OPERATIONS ARE SOMETIMES VAGUE AND UNCERTAIN, AND THEREFORE, THESE RISKS MAY RESULT IN A MATERIAL CHANGE IN OUR OPERATIONS AND THE VALUE OF OUR ORDINARY SHARES, OR COULD SIGNIFICANTLY LIMIT OR COMPLETELY HINDER OUR ABILITY TO OFFER OR CONTINUE TO OFFER OUR SECURITIES TO INVESTORS AND CAUSE THE VALUE OF SUCH SECURITIES TO SIGNIFICANTLY DECLINE OR BE WORTHLESS. RECENTLY, THE PRC GOVERNMENT INITIATED A SERIES OF REGULATORY ACTIONS AND STATEMENTS TO REGULATE BUSINESS OPERATIONS IN CHINA WITH LITTLE ADVANCE NOTICE, INCLUDING CRACKING DOWN ON ILLEGAL ACTIVITIES IN THE SECURITIES MARKET, ENHANCING SUPERVISION OVER CHINA-BASED COMPANIES LISTED OVERSEAS USING A VIE STRUCTURE, ADOPTING NEW MEASURES TO EXTEND THE SCOPE OF CYBERSECURITY REVIEWS, AND EXPANDING THE EFFORTS IN ANTI-MONOPOLY ENFORCEMENT. WE DO NOT BELIEVE THAT OUR SUBSIDIARIES OR VIES ARE DIRECTLY SUBJECT TO THESE REGULATORY ACTIONS OR STATEMENTS, AS WE HAVE NOT IMPLEMENTED ANY MONOPOLISTIC BEHAVIOR AND OUR BUSINESS DOES NOT INVOLVE THE COLLECTION OF USER DATA OR IMPLICATE CYBERSECURITY. AS OF THE DATE OF THIS PROSPECTUS, NO RELEVANT LAWS OR REGULATIONS IN THE PRC EXPLICITLY REQUIRE US TO SEEK APPROVAL FROM THE CHINA SECURITIES REGULATORY COMMISSION, OR THE CSRC, OR ANY OTHER PRC GOVERNMENTAL AUTHORITIES FOR OUR OVERSEAS LISTING PLAN, NOR HAS OUR BVI HOLDING COMPANY, ANY OF OUR SUBSIDIARIES OR THE VIE  RECEIVED ANY INQUIRY, NOTICE, WARNING OR SANCTIONS REGARDING OUR PLANNED OVERSEAS LISTING FROM THE CSRC OR ANY OTHER PRC GOVERNMENTAL AUTHORITIES. HOWEVER, SINCE THESE STATEMENTS AND REGULATORY ACTIONS BY THE PRC GOVERNMENT ARE NEWLY PUBLISHED AND OFFICIAL GUIDANCE AND RELATED IMPLEMENTATION RULES HAVE NOT BEEN ISSUED, IT IS HIGHLY UNCERTAIN HOW SOON LEGISLATIVE OR ADMINISTRATIVE REGULATION MAKING BODIES WILL RESPOND AND WHAT EXISTING OR NEW LAWS OR REGULATIONS OR DETAILED IMPLEMENTATIONS AND INTERPRETATIONS WILL BE MODIFIED OR PROMULGATED, IF ANY, AND THE POTENTIAL IMPACT SUCH MODIFIED OR NEW LAWS AND REGULATIONS WILL HAVE ON OUR DAILY BUSINESS OPERATION, THE ABILITY TO ACCEPT FOREIGN INVESTMENTS AND LIST ON AN U.S. OR OTHER FOREIGN EXCHANGE. THE STANDING COMMITTEE OF THE NATIONAL PEOPLE’S CONGRESS, OR THE SCNPC, OR OTHER PRC REGULATORY AUTHORITIES MAY IN THE FUTURE PROMULGATE LAWS, REGULATIONS OR IMPLEMENTING RULES THAT REQUIRES OUR COMPANY OR ANY OF OUR SUBSIDIARIES OR VIE TO OBTAIN REGULATORY APPROVAL FROM CHINESE AUTHORITIES BEFORE LISTING IN THE U.S. SEE “RISK FACTORS” BEGINNING ON PAGE 20 OF THIS PROSPECTUS FOR A DISCUSSION OF THESE LEGAL AND OPERATIONAL RISKS AND INFORMATION THAT SHOULD BE CONSIDERED BEFORE MAKING A DECISION TO PURCHASE OUR ORDINARY SHARES.

 

NEITHER THE SECURITIES AND EXCHANGE COMMITTEE NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

In  addition, our ordinary shares may be prohibited from trading on a national exchange or over-the-counter under the HFCAA if the Public Company Accounting Oversight Board (the “PCAOB”) is unable to inspect our auditors for three consecutive years beginning in 2021. Our auditor is subject to inspection by the PCAOB on a regular basis with the last inspection in October 2019 and it is not subject to the determinations announced by the PCAOB on December 16, 2021. If trading in our ordinary shares is prohibited under the HFCAA in the future because the PCAOB determines that it cannot inspect or fully investigate our auditor at such future time, Nasdaq may determine to delist our ordinary shares. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if passed by the U.S. House of Representatives and signed into law, would reduce the period of time for foreign companies to comply with PCAOB audits to two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. See “Risk Factors — Risks Related to Doing Business in the PRC – 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 page 32.

 

 

The date of this prospectus is          , 2022

 

 

 

 

TABLE OF CONTENTS

 

  Page
Prospectus Summary 1
Risk Factors 20
Special Note Regarding Forward-Looking Statements 61
Enforceability of Civil Liabilities 61
Use of Proceeds 62
Dividend Policy 63
Capitalization 63
Dilution 64
Management’s Discussion and Analysis of Financial Condition and Results of Operations 65
Business 79
Management 102
Executive Compensation 106
Principal Shareholders 107
Related Party Transactions 108
Description of Securities 109
Market Price and Dividend on Our Common Stock and Related Stockholder Matters 111
Shares Eligible for Future Sale 112
Underwriting 114
Legal Matters 118
Experts 118
Interests of Named Experts and Counsel 118
Where You Can Find Additional Information 119
Index to Financial Statements F-1

 

You should rely only on the information contained in this prospectus or in any related free-writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or in any related free-writing prospectus. We are offering to sell, and seeking offers to buy, the shares of common stock offered hereby, but only under circumstances and in jurisdictions where offers and sales are permitted and lawful to do so. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the shares of common stock.

 

Neither we nor the underwriter have taken any action that would permit a public offering of the shares of common stock outside the United States or permit the possession or distribution of this prospectus or any related free-writing prospectus outside the United States. Persons outside the United States who come into possession of this prospectus or any related free-writing prospectus must inform themselves about and observe any restrictions relating to the offering of the shares of common stock and the distribution of the prospectus outside the United States.

  

Until             , 2021 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade the shares of common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriter and with respect to their unsold allotments or subscriptions.

 

i

 

 

PROSPECTUS SUMMARY

 

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

 

Prospectus Conventions

 

Except in instances when we are referring to the VIE and where the context otherwise requires, for purposes of this prospectus only, “we”, “us”, “our company”, “the company,” “Company”, “our” and “Muliang Viagoo” refer to:

 

Muliang Viagoo Technology, Inc., or formerly known as Muliang Agritech, Inc. (“Muliang Viagoo” when individually referenced), a Nevada company;

 

Viagoo Pte Ltd. (“Viagoo” when individually referenced), a Singapore company;

 

Muliang Agricultural Limited (“Muliang HK” when individually referenced), a Hong Kong company that is a wholly-owned subsidiary of Muliang Viagoo;

 

Shanghai Mufeng Investment Consulting Co., Ltd (“Shanghai Mufeng” when individually referenced), (also referred to as 上海牧枫投资咨询有限公司), a wholly-owned subsidiary of Muliang HK and a wholly foreign-owned enterprise (“WFOE”) formed under the laws of the People’s Republic of China (the “PRC”);

 

For purposes of this prospectus only, “VIE” refer to:

 

Shanghai Muliang Industry Co., Ltd. (“Shanghai Muliang” when individually referenced), (also referred to as 上海牧粮实业有限公司), a variable interest entity (“VIE”) and a PRC company that is a wholly-owned subsidiary of Shanghai Mufeng;

 

Shanghai Zongbao Environmental Construction Co., Ltd. (“Shanghai Zongbao” when individually referenced), (also referred to as 上海综宝环境工程有限公司), a PRC company that is a wholly-owned subsidiary of Shanghai Muliang;

 

Shanghai Muliang Agritech Development Co., Ltd. (“Agritech Development” when individually referenced), (also referred to as 上海牧粮农业科技发展有限公司), a PRC Company that is a 60%-owned subsidiary of Shanghai Muliang;

 

Weihai Fukang Bio-Fertilizer Co., Ltd. (“Fukang” when individually referenced), (also referred to as 威海富康生物肥料有限公司), a PRC Company that is a 99.9%-owned subsidiary of Shanghai Muliang;

 

Shanghai Muliang Agricultural Sales Co., Ltd. (“Muliang Sales” when individually referenced), (also referred to as 上海牧粮农资销售有限公司), a PRC company that is a wholly-owned subsidiary of Shanghai Muliang;

 

Zhonglian Huinong (Beijing) Technology Co., Ltd. (“Zhonglian” when individually referenced), (also referred to as 中联慧农(北京)科技有限公司), a PRC company that is a 65%-owned subsidiary of Shanghai Muliang;

 

Yunnan Muliang Animal Husbandry Development Co., Ltd. (“Yunnan Muliang” when individually referenced), (also referred to as 云南牧粮畜牧发展有限公司), a PRC company that is an 80%-owned subsidiary of Shanghai Muliang; and

 

Shanghai Zongbao Environmental Construction Co., Ltd. Cangzhou Branch (“Zongbao Cangzhou” when individually referenced), (also referred to as 上海综宝环境工程有限公司沧州分公司), a PRC company that is a wholly-owned subsidiary of Shanghai Zongbao.

 

For the sake of clarity, this prospectus follows the English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English. For example, the name of our Chief Executive Officer will be presented as “Lirong Wang,” even though, in Chinese, Mr. Wang’s name is presented as “Wang Lirong.”

 

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

 

Cautionary Statement Regarding the Variable Interest Entity Structure

 

Muliang Viagoo is a holding company incorporated in Nevada. As a holding company with no material operations of its own, Muliang Viagoo conducts a substantial majority of its operations through Shanghai Mufeng, a subsidiary established in the People’s Republic of China, (“PRC” or “China,”) and a variable interest entity, (“VIE”) that is based in China. 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 this, 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, we and our subsidiaries have zero equity ownership in Shanghai Muliang, and 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. Additionally, Shanghai Mufeng’s economic benefits are limited by the terms of the VIE Agreements. 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.

 

The VIE Agreements that were entered with the VIE include: (i) Voting Rights Proxy Agreement and Irrevocable Power of Attorney (ii) Exclusive Option Agreement (iii) Spousal Consent; and (iv) Loan Agreement. VIE Agreements that enables Muliang Viagoo to receive substantially all of the economic benefits from the VIE include (i) Equity Interest Pledge Agreement; and (ii) Master Exclusive Service Agreement.  We are subject to certain legal and operational risks associated with being based in China and having a majority of our operations through the contractual arrangements with the VIE (collectively the “VIE Agreements”). All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. However, the validity and enforcement of the VIE Agreements because they have not been tested in a court of law. The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States, and  PRC laws and regulations governing the VIE’s current business operations are sometimes vague and uncertain, and therefore, these risks may result in a material change in the VIE’s operations, significant depreciation of the value of our common stock, or a complete hindrance of our ability to offer or continue to offer our securities to investors and cause the value of such securities to significantly decline or be worthless.

 

As a result of the WFOE and the VIE Agreements, we are regarded as the primary beneficiary of the VIE. 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 therefore we may have to incur substantial costs and expend additional resources to enforce such arrangements. The VIE structure is used to provide contractual exposure to foreign investment in Chinese-based companies where Chinese law prohibits direct foreign investment in the operating companies. We and our subsidiaries have zero equity ownership in Shanghai Muliang, the VIE. 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.. While the VIE, Shanghai Muliang, is not currently engaging in businesses where direct foreign investment is prohibited, the VIE may engage in such business in the future and therefore the VIE structure was implemented to allow flexibility prior our listing on the OTC Markets in 2016. For a detailed description of the VIE Agreements, see “Corporation History and Structure” on page 5.

 

Our corporate structure is subject to risks associated with our contractual arrangements with the VIE. The company and its investors may never have a direct nor indirect ownership interest in the businesses that are conducted by the VIE. These arrangements may not be as effective as direct ownership in providing operational control over the VIE.  Uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements, and these contractual arrangements have not been tested in a court of law. If the PRC government finds that the agreements that establish the structure for operating our business in China do not comply with PRC laws and regulations, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we and the VIE could be subject to severe penalties or be forced to relinquish our interests in those operations. This would result in the VIE being deconsolidated. The majority of our assets, including the necessary licenses to conduct business in China, are held by the VIE. A significant part of our revenues is generated by the VIE. An event that results in the deconsolidation of the VIE would have an adverse material effect on our operations and may result in the value of the securities diminishing substantially or even becoming worthless. Our holding company, our PRC subsidiaries and VIE, and investors of Muliang face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our company as a whole.

 

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Additionally, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of internet technology companies, and regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard. The VIE Agreements may not be effective in deriving benefits from Shanghai Muliang as a direct foreign investment or control through ownership. We may also be subject to sanctions imposed by PRC regulatory agencies including Chinese Securities Regulatory Commission if we fail to comply with their rules and regulations. If the Chinse regulatory authorities disallow this VIE structure in the future, it will likely result in a material change in our financial performance and our results of operations and/or the value of our common stock, which could cause the value of such securities to significantly decline or become worthless. Additionally, as more stringent criteria have been imposed by the SEC and the Public Company Accounting Oversight Board recently, our securities may be prohibited from trading if our auditor cannot be fully inspected. For a detailed description of the risks relating to the VIE structure, doing business in the PRC, and the offering as a result of the structure, see “Risk Factors - Risks Relating to Our Corporate Structure,” “Risk Factors - Risks Relating to Doing Business in the PRC” and “Risk Factors – Risks Relating to this Offering,” beginning on pages 46, 20 and 58.

 

Additionally, we are subject to certain legal and operational risks associated with the VIE’s operations in China. PRC laws and regulations governing the VIE’s current business operations are sometimes vague and uncertain, and therefore, these risks may result in a material change in the VIE’s operations, significant depreciation of the value of our common stock, or a complete hindrance of our ability to offer or continue to offer our securities to investors. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. or other foreign exchange.

 

As used in this prospectus, “we,” “us,” “our company,” “our,” or “Muliang” refers to Muliang Viagoo Technology, Inc. and its subsidiaries,. The “VIE” refers to Shanghai Muliang Industry Co., the VIE and its subsidiaries.

 

Cautionary Statement Regarding Doing Business in China

 

We are subject to certain legal and operational risks associated with being based in China. PRC laws and regulations governing the VIE’s current business operations are sometimes vague and uncertain, and as a result these risks may result in material changes in the operations of the VIE and its subsidiaries, completely hinder of our ability to offer or continue to offer our securities to investors and cause the value of our securities to significantly decline or become worthless. 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. The PRC government also initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. exchange.  On July 10, 2021, the State Internet Information Office issued the Measures of Cybersecurity Review (Revised Draft for Comments, not yet effective), 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. As of the date of this prospectus, our Company, the VIE and its subsidiaries have not been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor has any of them received any inquiry, notice or sanction. We do not believe that our existing business will require such regulatory review. As of the date of this prospectus, our Company, the VIE and its subsidiaries have not received any inquiry, notice, warning or sanctions regarding our planned overseas listing from the China Securities Regulatory Commission or any other PRC governmental authorities. For more details, see “Risks Relating to Our Corporate Structure - 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 our securities on U.S exchanges. We are currently not required to obtain approval from Chinese authorities to offer our securities to foreign investors. 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” on page 54.

 

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The VIE, Shanghai Muliang, holds an Internet Content Provider License or ICP. Ownership of internet technology 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, and other applicable laws and regulations. If we control the VIE, Shanghai Muliang, through direct ownership, it will have more than 50% foreign-sourced capital contribution and will not be qualified for an ICP license. As of the date of this prospectus, our Company, the VIE and its subsidiaries have not received any inquiry, notice, warning or sanctions relating to the ownership of internet technology businesses. As of the date of this prospectus, the VIE and its subsidiaries have not received any inquiry, notice, warning or sanctions relating to our ICP or website.

 

However, all of the statements and regulatory actions referenced are newly published, official guidance and related implementation rules have not been issued. It is highly uncertain what the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. exchange. PRC regulatory authorities may in the future promulgate laws, regulations or implementing rules that require us, our subsidiaries, the VIE or its subsidiaries to obtain regulatory approval from Chinese authorities before listing in the U.S.

 

Cautionary Statement Regarding Holding Foreign Companies Accountable Act

 

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 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. 

 

The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements. 

 

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. 

 

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. 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.

 

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. For a detailed description of the risks relating to the Holding Foreign Companies Accountable Act, see “Risk Factors - Risks Relating to Doing Business in the PRC” starting on page 20.

 

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Overview

 

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.

 

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 remains after grains are harvested, 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 95.82% and 94.5% of our total revenue for the years ended December 31, 2020 and 2019, 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 integrated factories 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.

 

With the focus of producing organic fertilizers, we also engage in the business of selling agriculture food products including apples, and as a sales agent for other large agriculture companies in the PRC. In 2014, we rented 350 mu (about 57.66 acres) of mountainous land as an apple orchard. The sales of apples generated less than 1% of our total revenue for the years ended December 31, 2020 and 2019. We expect to generate more revenues from the sales of apples as the apple orchards become more mature in the next few years.

 

In addition, we plan to engage in the processing and distribution of black goat products, with business commencing at the end of 2021. 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 including goat rib lets, goat loin roast, goat loin chops, goat rack, goat leg, goat shoulder, goat leg shanks, ground goat, goat stew meat, whole goat, half goat, lamb viscera, etc. We expect to start generating revenue from the black goat products in 2021.

 

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. 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 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.

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The following diagram illustrates and assumes the completion of the Reorganization, including consolidation of our subsidiaries and VIE:

 

 

(1)Entities below the dotted line consists of Shanghai Muliang Industry Co., Ltd., the VIE, and its subsidiaries. We derive the economic benefits of the VIE and its subsidiaries’ business operations through certain contractual arrangements and not through equity ownership.

 

Foreign Investment Classification and Variable Interest Entity Arrangements 

 

In the PRC, investment activities by foreign investors are principally governed by the Guidance Catalog of Industries for Foreign Investment, which was promulgated and is amended from time to time by the PRC Ministry of Commerce, or MOFCOM, and the PRC National Development and Reform Commission, or NDRC. In June 2018, the Guidance Catalog of Industries for Foreign Investment was replaced by the Special Administrative Measures (Negative List) for Foreign Investment Access (2018 Version) which was amended by the Special Administrative Measures (Negative List) for Foreign Investment Access (2019 Version) in June 2019. In June, 2020, the MOFCOM and the NDRC promulgated the Special Administrative Measures (Negative List) for Foreign Investment Access (2020 Version), or the Negative List, which became effective on July 23, 2020. The Negative List divides industries into two categories: restricted and prohibited. Industries not listed in the Negative List are generally open to foreign investment unless specifically restricted by other PRC regulations. For more details, see “PRC Regulations - Corporate Laws and Industry Catalogue Relating to Foreign Investment” on page 98. 

 

Our Company and Muliang HK are considered as foreign investors or foreign invested enterprises under PRC law. The business of the VIE, Shanghai Muliang, and its subsidiaries currently engages in the production and sale of organic fertilizer, which is listed under the Catalogue of Encouraged Industries for Foreign investment (2020 Edition). The operations of Shanghai Muliang and its subsidiaries are not restricted or forbidden under the Negative List.

 

Although our business is not restricted by the PRC for foreign investment, we nevertheless adopt the use of a variable interest entity, or VIE, structure. We conduct our business through contractual arrangements with the VIE rather than direct ownership because the VIE planned to launch an online marketplace to sell agricultural products prior to our listing on the OTC Markets in 2016. While this online marketplace has not been established, we still plan to engage in such business, through the VIE Shanghai Muliang, following the completion of our public offering as part of our global expansion plan. According to Catalogue of Industries for Guiding Foreign Investment (Revision 2020) effected since January 27, 2021, e-commerce is a restricted Foreign Investment Industry. In addition, the Telecommunications Regulations and its related implementation rules promulgated by the State Council and, including the Catalogue of Classification of Telecommunications Business issued by the Minister of Industry and Information Technology (the “MIIT”), categorize various types of telecommunications and telecommunications-related activities into basic or value-added telecommunications services, and classify internet information services, or ICP services, as value-added telecommunications businesses. Under the Telecommunications Regulations, commercial operators of value-added telecommunications services must first obtain an ICP License from the MIIT or its provincial level counterparts. The Administrative Measures on Internet-based Information Services released by the State Council in 2000, as amended in 2011, requires that a commercial ICP service operator shall obtain an ICP License from the relevant government authorities before engaging in any commercial ICP service in China. The Administrative Provisions on Foreign-funded Telecommunications Enterprises released by State Council in 2001, as amended in 2016, further requires that for foreign-funded telecommunications enterprises to operate value-added telecommunications services, capital contribution from foreign investors shall not exceed 50% of all capital contribution. The VIE, Shanghai Muliang, holds our ICP license. As a result, the VIE structure has been put in place to allow the flexibility of engaging in e-commerce business and maintaining an ICP license. If we control Shanghai Muliang through direct ownership, it will have more than 50% foreign-sourced capital contribution and will not be qualified for an ICP license. Therefore, the company decided to conduct operation through a VIE structure and contractual arrangements.

 

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We are centralizing our management and operation in the PRC without being restricted to conducting certain business activities which are important for our current or future business but are restricted or might be restricted in the future. As such, we believe the agreements between Muliang HK and the variable interest entity are necessary and essential to our business operations. 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.

 

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. Investors in this offering  are purchasing an interest in Muliang Viagoo Technology, Inc., the Nevada holding company, and not the VIE. It is likely that investors will never hold ownership interests, direct or indirect, in the VIE and would merely have a contractual relationship.

 

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. 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.

 

Industry and Market Background

 

The straw supply in China is in large quantity, having a 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 amount in fertilizer use and equivalent to 300 million tons of standard coal. However, nearly 100 million tons of straw 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 initiative 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.

 

The acquisition of Viagoo Pte Ltd, a Singapore based online logistic platform, will enable the Muliang group of companies to optimize the transport logistics to lower the cost of delivery and increase the efficiency. The platform will connect the truck drivers to Muliang, provide end to end tracking of the delivery status. With this platform, it is expected to reduce 30% of the delivery cost.

 

The Viagoo platform will be opened to the China market where other companies and merchants can book the delivery services and the transporters can sign on to list and provide their services.

 

Competitive Advantages

  

  Quality Advantage: compared with the traditional compost manure fermented fertilizer, our product has a high concentration of organic matter and small molecular organic nutrients, rich in fulvic acid, polysaccharides and monosaccharides that can be directly absorbed by crops. The effectiveness of our product is 50% higher than the same amount of conventional organic fertilizer. Our powder form fertilizer maximizes the survival rate of microorganisms, ensures faster nutrient absorption and increases soil improvement seed and processing productivity.

 

  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. Our product is widely accepted by local farmers and have been distributed by local governments.  

  

Acquisition of Viagoo Pte Ltd.

 

On June 19, 2020, we entered into a Share Exchange Agreement (“SEA”) with Viagoo Pte Ltd. (“Viagoo”) and all the shareholders of Viagoo (“Viagoo Shareholders”) for the acquisition of 100% equity interest of Viagoo. 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, we purchased from Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest in and to the Viagoo’s capital stock (“Shares”) for an aggregate purchase price of US$2,830,800, payable in 1,011,000 shares (the “Compensation Shares”) of the Company’s restricted common stock, valued at $2.80 per share.

 

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Summary of Risk Factors

 

Investing in our common stock involves a high degree of risk. Below is a summary of material factors that make an investment in our common stock speculative or risky. Importantly, this summary does not address all of the risks that we face. Please refer to the information contained in and incorporated by reference under the heading “Risk Factors” on page 20 of this prospectus and under similar headings in the other documents that are filed with the SEC, and incorporated by reference into this prospectus for additional discussion of the risks summarized in this risk factor summary as well as other risks that we face. These risks include, but are not limited to, the following:

 

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. See more detailed discussion of this risk factor on page 20 of this prospectus.

 

  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. See more detailed discussion of this risk factor on page 21 of this prospectus.

 

PRC laws and regulations governing our 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. See more detailed discussion of this risk factor on page 23 of this prospectus.

 

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. See more detailed discussion of this risk factor on page 22 of this prospectus.

 

PRC laws and regulations governing our 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. See more detailed discussion of this risk factor on page 23 of this prospectus.

 

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. See more detailed discussion of this risk factor on page 23 of this prospectus.

 

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. See more detailed discussion of this risk factor on page 24 of this prospectus.

 

U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China. See more detailed discussion of this risk factor on page 25 of this prospectus.

 

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. See more detailed discussion of this risk factor on page 25 of this prospectus.

 

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. See more detailed discussion of this risk factor on page 30 of this prospectus.

 

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. See more detailed discussion of this risk factor on page 32 of this prospectus.

 

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. See more details of this risk factor on page 34.

 

  Competition in fertilizer and agricultural industrial products is intense and requires continuous technological development. See more detailed discussion of this risk factor on page 34

 

  The loss of any of our key suppliers and/or customers could have a materially adverse effect on our results of operations. See more detailed discussion of this risk factor on page 36.

 

  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. See more detailed discussion of this risk factor on page 36.

 

8

 

  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.. See more detailed discussion of this risk factor on page 37.

 

  We have a limited operating history in our market, which makes it difficult to evaluate our future prospects. See more detailed discussion of this risk factor on page 38.

 

  We may have difficulty managing the risk associated with doing business in the Chinese fertilizer and agricultural products industry.  See more detailed discussion of this risk factor on page 39.

 

  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. See more detailed discussion of this risk factor on page 40.

 

  We may be liable for improper use or appropriation of personal information provided by our customers.. See more detailed discussion of this risk factor on page 44.

 

Risks Relating to Our Corporate Structure

 

  We are 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 do not have direct ownership of the VIE. We receive the economic benefits of the VIE’s business operations through certain contractual arrangements. Our common stock offered in this offering are shares of our offshore holding company instead of shares of the VIE in China. See more detailed discussion of this risk factor on page 44.

 

  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. See more detailed discussion of this risk factor on page 46.

 

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. See more detailed discussion of this risk factor on page 49

 

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. See more detailed discussion of this risk factor on page 50.

 

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. See more detailed discussion of this risk factor on page 23

 

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. See more detailed discussion of this risk factor on page 54.

 

Risks Associated with Doing Business in Southeast Asia

 

Our operations and assets in Southeast Asia are subject to significant political and economic uncertainties over which we have little or no control and may be unable to alter our business practice in time to avoid the possibility of reduced revenues. See more detailed discussion of this risk factor on page 58.

 

We derive sales in Southeast Asia and a slowdown or other adverse developments in the Southeast Asian economy may materially and adversely affect our business. See more detailed discussion of this risk factor on page 58

 

Risks Relating to this Offering

 

Our common stock has a limited public trading market. See more detailed discussion of this risk factor on page 58.

 

You will experience immediate and substantial dilution in the net tangible book value of our shares of common stock purchased. See more detailed discussion of this risk factor on page 59.

 

We do not intend to pay dividends for the foreseeable future. See more detailed discussion of this risk factor on page 59.

 

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. See more detailed discussion of this risk factor on page 60.

 

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. See more detailed discussion of this risk factor on page 60.

 

9

 

Holding Company Structure

 

Muliang Viagoo Technology Inc. is a holding company with no operations of its own. We conduct our operations in China primarily through Shanghai Mufeng, our subsidiary, Shanghai Muliang, the VIE, and Shanghai Muliang’s subsidiaries. As a result, although other means are available for us to obtain financing at the holding company level, Muliang Viagoo’s ability to pay dividends to its shareholders and to service any debt it may incur may depend upon dividends paid by Shanghai Mufeng and license and service fees paid by Shanghai Muliang and its subsidiaries. If any of our subsidiaries incurs debt on its own in the future, the instruments governing such debt may restrict its ability to pay dividends to Muliang Viagoo Technology Inc. In addition, Shanghai Mufeng, Shanghai Muliang and its subsidiaries are required to make appropriations to certain statutory reserve funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies.

 

Transfers Between Our Company, Our Subsidiaries, and the VIE

 

Cash is transferred through our organization in the manner as follows: (i) we may transfer funds to Shanghai Mufeng, through our Hong Kong subsidiary, by additional capital contributions or shareholder loans, as the case may be; (ii) Shanghai Mufeng may provide loans to the VIE, subject to statutory limits and restrictions; (iii) funds from the VIE to Shanghai Mufeng are remitted as services fees; and (iv) Shanghai Mufeng may make dividends or other distributions to us through our Hong Kong subsidiary. As a holding company, we may rely on dividends and other distributions on equity paid by Shanghai Mufeng for our cash and financing requirements. If Shanghai Mufeng incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to us. In the future, cash proceeds raised from overseas financing activities, including this offering, may be transferred by us to Shanghai Mufeng via capital contribution or shareholder loans. As of the date of this prospectus, there have not been any such dividends or other distributions from Shanghai Mufeng to our Hong Kong subsidiary. In addition, none of our subsidiaries have ever issued any dividends or distributions to us or their respective shareholders outside of China. As of the date of this prospectus, the VIE has not remitted any services fees to Shanghai Mufeng. As of the date of this prospectus, none of the VIE and its subsidiaries have issued any dividends or distributions to respective holding companies, or to any investors as of the date of this prospectus. As of the date of this prospectus, no transfers have been made between the holding company, its subsidiaries, and consolidated VIEs or to investors. We intend to keep any future earnings to re-invest in and finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.

 

In order for us to pay dividends to our shareholders, we will rely on payments made from Shanghai Muliang to Shanghai Mufeng, pursuant to VIE Agreements between them, and the distribution of such payments to Muliang HK as dividends from Shanghai Mufeng. Certain payments from Shanghai Muliang to Shanghai Mufeng are subject to PRC taxes, including business taxes and VAT. During the three months ended March 31, 2022 and the fiscal year ended December 31, 2021, Shanghai Muliang did not make any payments to Shanghai Mufeng.

 

10

 

Additionally, pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC project. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the 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 and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC subsidiary to its immediate holding company, Muliang HK. As of the date of this prospectus, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. Muliang HK intends to apply for the tax resident certificate when WFOE plans to declare and pay dividends to Muliang HK. See “Risk Factors - Risks Relating to Our Corporate Structure - 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” on page 50.

 

Restrictions on Foreign Exchange and the Ability to Transfer Cash Between Entities, Across Borders and to U.S. Investors

 

We currently have not maintained any cash management policies that dictate the purpose, amount and procedure of cash transfers between the Company, our WFOE, the VIE, or investors. Rather, the funds can be transferred in accordance with the applicable PRC laws and regulations 

 

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

 

The PRC government also imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. The majority of our and the VIE’s income is received in RMB and shortages in foreign currencies may restrict our ability to pay dividends or other payments, or otherwise satisfy our foreign currency denominated obligations, if any. Additionally, Restrictions on currency exchanges in China may limit our ability to freely convert RMB to fund any future business activities outside China or other payments in U.S. dollars. Furthermore, capital controls the Chinese government imposes may limit our ability to use capital from our subsidiary located in China for business purposes outside of China.

 

Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from SAFE as long as certain procedural requirements are met. Approval from appropriate government authorities is required if Renminbi is converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may, at its discretion, impose restrictions on access to foreign currencies for current account transactions and if this occurs in the future, we may not be able to pay dividends in foreign currencies to our shareholders.

 

Cash dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10.0%. As of the date of this prospectus, we have not made any dividends nor distributions to any U.S. investors.

 

Relevant PRC laws and regulations permit the PRC companies to pay dividends only out of their retained earnings if any, as determined in accordance with PRC accounting standards and regulations. Additionally, the Company’s PRC subsidiary and the VIE can only distribute dividends upon approval of the shareholders after they have met the PRC requirements for appropriation to the statutory reserves. As a result of these and other restrictions under the PRC laws and regulations, our PRC subsidiary and the VIE are restricted to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances. Even though the Company currently does not require any such dividends, loans or advances from the PRC subsidiary and the VIE for working capital and other funding purposes, the Company may in the future require additional cash resources from its PRC subsidiary and the VIE due to changes in business conditions, to fund future acquisitions and developments, or merely declare and pay dividends to or distributions to the Company’s shareholders.

 

For a condensed consolidation schedule and consolidated financial statements depicting the results of operations, financial position, and cash flows for Muliang and the VIE, see “Summary Consolidated Financial Data.” 

 

11

 

Permission or Approval Required from the PRC Authorities  

 

To operate our general business activities currently conducted in the PRC, the VIE and its subsidiaries have obtained their business licenses which allow them to conduct specific business within the government’s geographical jurisdiction. All of our fertilizer products currently have valid five-year fertilizer licenses that are renewable upon the expiration date in the year of 2022. As of the date of this prospectus, the business license and fertilizer license are the only permissions that the VIE and its subsidiaries are required to obtain for their operations and thus we have received all requisite permissions or approvals. The VIE and the VIE’s subsidiaries in China are not covered by permissions requirements from the China Securities Regulatory Commission (“CSRC”) or CAC.

 

However, applicable laws and regulations may be tightened, and new laws or regulations may be introduced to impose additional government approval, license and permit requirements. If we inadvertently conclude that such approval is not required, fail to obtain and maintain such approvals, licenses or permits required for our business or respond to changes in the regulatory environment, we could be subject to liabilities, penalties and operational disruption, which may materially and adversely affect our business, operating results, financial condition and the value of our securities, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless.

 

As of the date of this prospectus, none of our Company, our subsidiaries, the VIE, or the VIE’s subsidiaries has applied for, received or been denied approval from any PRC authorities to list on the Nasdaq Stock Market, nor received any inquiry, notice, warning or sanctions regarding our planned overseas listing from the CSRC, the CAC, or any other PRC governmental authorities. As advised by our PRC counsel, Gaopeng & Partners PRC Lawyers, we, our subsidiaries and the VIE and the VIE’s subsidiaries are not required to obtain permission from the CSRC, the CAC, or any other Chinese authorities to issue these securities to foreign investors based on the PRC laws, regulations and rules currently in effect. However, if we are subsequently advised by any Chinese authorities that permission for this offering and/or listing on the Nasdaq Stock Market was required, we may not be able to obtain such permission in a timely manner, if at all. If this risk occurs, our ability to offer securities to investors could be significantly limited or completely hindered and the securities currently being offered may substantially decline in value and be worthless.

 

We are aware, however, recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. 

 

PRC Limitation on Oversea Listing

 

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.

 

Gaopeng & Partners PRC Lawyers, our PRC counsel  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 has further advised us that there remain 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.

 

For more detailed information, see “Risk Factors – Risks Relating to Doing Business in the PRCThe 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” on page 33. 

 

12

 

Recent Regulatory Development in PRC

 

On December 24, 2021, the China Securities Regulatory Commission, or the CSRC, issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Administration Provisions”), and the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Measures”), which are now open for public comments. The Administration Provisions and Measures for overseas listings lay out specific requirements for filing documents and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. Domestic companies seeking to list abroad must carry out relevant security screening procedures if their businesses involve such supervision. Companies endangering national security are among those off-limits for overseas listings. According to Relevant Officials of the CSRC Answered Reporter Questions (“CSRC Answers”), after the Administration Provisions and Measures are implemented upon completion of public consultation and due legislative procedures, the CSRC will formulate and issue guidance for filing procedures to further specify the details of filing administration and ensure that market entities could refer to clear guidelines for filing, which means it still takes time to make the Administration Provisions and Measures into effect. As the Administration Provisions and Measures have not yet come into effect, we are currently unaffected. However, according to CSRC Answers, new initial public offerings and refinancing by existent overseas listed Chinese companies will be required to go through the filing process; other existent overseas listed companies will be allowed sufficient transition period to complete their filing procedure, which means we will certainly go through the filing process in the future.

 

Pursuant to the PRC Cybersecurity Law, which was promulgated by the Standing Committee of the National People’s Congress on November 7, 2016 and took effect on June 1, 2017, personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affects or may affect national security, it should be subject to cybersecurity review by the CAC. Due to the lack of further interpretations, the exact scope of “critical information infrastructure operator” remains unclear. On December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated the new Cybersecurity Review Measures to replace the original Cybersecurity Review Measures. The new Cybersecurity Review Measures took effect on February 15, 2022. Pursuant to the new Cybersecurity Review Measures, if critical information infrastructure operators purchase network products and services, or network platform operators conduct data processing activities that affect or may affect national security, they will be subject to cybersecurity review. On November 14, 2021, CAC published the Administration Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires cyberspace 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 cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or a large amount of personal information being influenced, controlled or maliciously used by foreign governments and risk of network data security after going public overseas. As advised by our PRC counsel, Gaopeng & Partners PRC Lawyers, we do not expect to be subject to cybersecurity review, because: (i) our products are offered not directly to individual consumers but through our distributors; (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. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. exchange. If applicable laws, regulations, or interpretations change, and we are required to obtain permission or approval from the PRC authority for the offering of our Class A Ordinary Shares in the U.S. in the future, and if any of such permission or approval were not received maintained, or subsequently rescinded, it may significantly limit or completely hinder our ability to complete this offering or cause the value of our Ordinary Shares to significantly decline or become worthless. See “Risk Factors – Risks Relating to Doing Business in the PRC” starting on page 20 of this prospectus and “Risk Factors – Risks Relating to Our Corporate Structure” starting on page 46 of this prospectus for more information.

 

13

 

Implications of Being a Smaller Reporting Company

 

We qualify as an “smaller reporting company” as defined in Rule 405 of the Securities Act and Item 10 of Regulation S-K. A smaller reporting company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

  the ability to include only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations disclosure;
     
  the reduced disclosure obligation regarding executive compensation under Item 402 of Regulation S-K;
     
  an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.

 

We may take advantage of these provisions for so long as we remain a smaller reporting company. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million.

 

Corporate Information

 

Our principal executive office is located at 2498 Wanfeng Highway, Lane 181, Fengjing Town, Jinshan District, Shanghai, China. The telephone number of our principal executive offices 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. Our registered agent in the United States is Vcorp Services, LLC, located at 25 Robert Pitt Drive, Suite 204 and its phone is (845) 425-0077.

 

Offering Summary 

 

Following completion of this offering, our ownership will be as follows, assuming completion of the firm commitment offerings, respectively. To the extent we complete an offering of firm commitment offerings, the percentage ownership of participants in this offering will be between the below amounts:

  

14

The Offering

 

Shares Offered by us: 10,000,000 shares of common stock (excluding the over-allotment option)
   
Shares Outstanding Prior to Completion of Offering: 38,502,954 shares of common stock
   
Shares to be Outstanding after Offering*: 48,502,954 shares of common stock, assuming no exercise of the underwriter’s over-allotment option and excluding shares of common stock underlying the Underwriter Warrants.
   
Assumed Offering Price per Share: $4.00 per share of common stock
   
Gross Proceeds to Us Before Expenses: approximately $36,800,000

 

Proposed Nasdaq Capital Market Symbol: “MULG”
   
Transfer Agent:

West Coast Stock Transfer Inc.

Transfer Agent

721 N. Vulcan Ave.

Suite 205

Encinitas, CA 92024

   
Risk Factors: Investing in these securities involves a high degree of risk. As an investor, you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section of this prospectus before deciding to invest in our shares of common stock.
   
Use of Proceeds: We intend to use the proceeds from this offering for advertising and marketing, working capital and general corporate purposes, including the expansion of our business. To the extent that we are unable to raise the maximum proceeds in this offering, we may not be able to achieve all of our business objectives in a timely manner. See “Use of Proceeds” for more information.
   
Dividend Policy: We have no present plans to declare dividends and plan to retain our earnings to continue to grow our business.

 

15

Summary Financial Information

 

In the table below, we provide you with historical selected financial data, as well as the quantitative metrics of the U.S. holding company and the VIE (Shanghai Muliang Industry Co., Ltd.), for the fiscal years ended December, 31, 2021 and December 31, 2020 and for the three months ended March 31, 2022 and 2021. This information is derived from our consolidated financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of the results that may be expected for any future period. When you read this historically selected financial data, it is important that you read it along with the historical financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

  

For the Fiscal

Years Ended

December 31,

 
   2021   2020 
   US$   US$ 
Statement of operation data:        
Revenues  $10,635,402   $11,008,532 
Operating expenses  $2,501,093   $3,141,996 
Income/(Loss) from operations  $1,745,538   $1,617,779 
Provision for income taxes  $214,981   $(394,979)
Net income/(Loss)  $1,731,177   $979,907 
Earnings per share, basic and diluted(1)  $0.04   $0.03 
Weighted average common stocks outstanding(1)   38,502,954    37,908,242 

 

   As of
December 31,
2021
   As of
December 31,
2020
 
Balance sheet data        
Current assets  $19,173,830   $26,306,653 
Total assets  $28,900,447   $35,188,700 
Current liabilities  $13,770,110   $21,161,217 
Total liabilities  $14,192,590   $22,587,297 
Total equity  $14,707,857   $12,601,403 

 

  

For the Three

Months Ended

March 31,

 
   2022   2021 
   US$   US$ 
Statement of operation data:        
Revenues  $2,300,075   $1,569,087 
Operating expenses  $727,179   $400,212 
Income/(Loss) from operations  $382,624   $268,034 
Provision for income taxes  $(5,466)  $- 
Net income/(Loss)  $357,649   $260,504 
Earnings per share, basic and diluted(1)  $0.01   $0.01 
Weighted average common stocks outstanding(1)   38,502,954    38,502,954 

 

16

 

  

As of

March 31,

2022

  

As of

December 31,

2021

 
Balance sheet data        
Current assets  $18,944,915   $19,173,830 
Total assets  $28,520,208   $28,900,447 
Current liabilities  $12,937,283   $13,770,110 
Total liabilities  $13,090,104   $14,192,590 
Total equity  $15,430,104   $14,707,857 

 

Quantitative Metrics of the VIE, Shanghai Muliang Industry Co., Ltd.

 

For the three months ended March 31, 2022

 

   Parent company      WFOE (Shanghai Mufeng)   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  $-       -    2,947       32,741    -    35,688    8 %
Current assets   -       235,453    18,739,702       450,774    (481,014)   18,944,915   99 %
Investment in Subsidiaries   2,149,333   Note 1   -    -       -    (2,149,333)   -   N/A  
Total Assets  $2,149,333       235,453    27,586,314       1,179,455    (2,630,347)   28,520,208   97 %
Current liabilities   26,318       241,276    12,224,249       926,454    (481,014)   12,937,283   94 %
Total liabilities  $26,318       241,276    12,377,070       926,454    (481,014)   13,090,104   95 %
Total shareholders’ equity (deficit)  $2,123,015       5,823    15,197,598   Note 2   253,001    (2,149,333)   15,430,104   98 %
                                     
Revenues   -       -    1,545,208       754,867    -    2,300,075   67 %
Gross profit   -       -    673,518       289,014    -    1,109,803   61 %
Income (loss) from equity method investment   (52,143)      -    -       -    52,143    -   N/A  
Net income (loss)  $(52,143)      -    412,526       (54,877)   52,143    357,649   115 %
Net cash provided by (used in) operating activities  $-       -    261,920       (172,071)   (61,055)   28,794   910 %
Net cash provided by (used in) investment activities   -       -    -       -    -    -   N/A  
Net cash provided by (used in) financing activities  $-       -    (265,213)      -    -    (265,213)  100 %

 

17

 

For the year ended December 31, 2021

 

   Parent company      WFOE (Shanghai Mufeng)   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  $-       -    6,226       31,787    -    38,013   16 %
Current assets   -       234,825    18,972,383       385,953    (419,331)   19,173,830   99 %
Investment in Subsidiaries   2,201,476    Note 1   -    -       -    (2,201,476)   -   N/A  
Total Assets  $2,201,476       234,825    27,967,746       1,117,207    (2,620,807)   28,900,447   97 %
Current liabilities   26,318       240,648    12,788,253       1,134,222    (419,331)   13,770,110   93 %
Total liabilities  $26,318       240,648    13,210,733       1,134,222    (419,331)   14,192,590   93 %
Total shareholders’ equity (deficit)  $2,175,158       5,823    14,745,367    Note 2   (17,015)   (2,201,476)   14,707,857   100 %
                                     
Revenues   -       (1,676)   9,732,758       904,320    -    10,635,402   92 %
Gross profit   -       (1,676)   3,821,965       426,342    -    4,246,631   90 %
Income (loss) from equity method investment   (520,019)      -    -       -    520,019    -   N/A  
Net income (loss)  $(520,019)      (1,676)   2,256,578       (523,725)   520,019    1,731,177   130 %
Net cash provided by (used in) operating activities  $-       (1,676)   5,486,592       (370,174)   (184,506)   4,930,236   111 %
Net cash provided by (used in) investment activities   -       -    (1,158,773)      -    -    (1,158,773)  100 %
Net cash provided by (used in) financing activities  $-       -    (4,328,560)      (35,008)   -    (4,363,568)  99 %

 

For the year ended December 31, 2020

 

   Parent company   WFOE (Shanghai Mufeng)   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  $-    -    8,453    340,381    -    348,834    2%
Current assets   -    -    25,878,427    428,226    -    26,306,653    98%
Investment in Subsidiaries   2,721,495    -    -    -    (2,721,495)   -    N/A 
Total Assets  $2,721,495    -    34,741,856    446,844    (2,721,495)   35,188,700    99%
Current liabilities   11,784    4,147    20,471,148    674,138         21,161,217    97%
Total liabilities  $11,784    4,147    21,896,623    674,743         22,587,297    97%
Total shareholders’ equity (deficit)  $2,709,711    3,618    12,837,468    (227,899)   (2,721,495)   12,601,403    102%
                                    
Revenues   -    (529)   10,635,138    373,923    -    11,008,532    97%
Gross profit   -    (529)   4,518,474    241,830    -    4,759,775    95%
Income (loss) from equity method investment   (109,305)   -    -    -    109,305    -    N/A 
Net income(loss)  $(109,305)   (529)   1,199,046    (218,610)   109,305    979,907    122%
Net cash provided by (used in) operating activities  $-    (529)   1,414,110    394,209    -    1,807,790    78%
Net cash provided by (used in) financing activities  $-    -    (1,648,247)   280,000    -    (1,368,247)   120%

 

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.

 

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.

 

18

  

Roll-forward of the Parent company’s investment in subsidiaries:

 

   Parent's investment in Subsidiary: Viagoo Pte Ltd. 
   USD 
Balance @December 31, 2019   - 
Acquired 100% shares of Viagoo Pte Ltd, paid in 1,011,000 shares on June 19, 2020.   2,830,800 
Loss from equity method investment   (109,305)
Balance @December 31, 2020   2,721,495 
Loss from equity method investment   (520,019)
Balance @December 31, 2021   2,201,476 
Loss from equity method investment   (52,143)
Balance @March 31, 2022   2,149,333 

  

19

 

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.

 

20

 

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.

 

21

 

To remit the proceeds of the offering, we must take the following steps:

 

  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.

 

  Second, we will remit the offering proceeds into this special foreign exchange account.

 

  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. 

 

22

 

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 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. 

 

23

 

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.

 

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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.

 

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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:

 

  fluctuations in consumer demand, which reflect the prevailing economic and demographic conditions;

 

  low levels of consumer and business confidence associated with recessionary environments which may in turn reduce consumer spending.

  

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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. 

 

The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

 

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.

 

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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 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 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.

 

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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.

 

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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.

 

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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, 2020 and 2019, 45% and 90% of our supplies came from two and three key suppliers, respectively. For the six months ended June 30, 2021, 85% of our supplies came from four key suppliers. 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, 2020 and 2019, two key customers accounted for 78% and 41% of our revenues, respectively. For the six months ended June 30, 2021, two key customers accounted for 76% of our revenues. 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, 2020, we borrowed $2,748,129, $53,694, and $71,158, respectively, from Mr. Lirong Wang, Mr. Guohua Lin, and Ms. Xueying Sheng, related parties of the Company. And for the six months ended June 30, 2021, we borrowed $2,395,252, $6,939 and $9,518 respectively, from Mr. Lirong Wang, Mr. Guohua Lin, and Ms. Xueying Sheng. See “Related Party Transactions” on page 108. 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;

 

  our products may have adverse effects on consumers;

 

  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;

 

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  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.

 

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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:

 

  navigate an evolving regulatory environment;

 

  expand the base of borrowers and lenders;

 

  broaden our loan product offerings;

 

  enhance our risk management capabilities;

 

  improve our operational efficiency;

 

  cultivate a vibrant consumer finance ecosystem;

 

  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, 2020 and 2019, revenue from two customers represented 78% and 41% of our revenue, respectively. For the six months ended June 30, 2021 and 2020, revenue from two customers represented 76% and 95% 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, 2020 and 2019, two and three suppliers accounted for 45% and 90% of our purchases, respectively. For the six months ended June 30, 2021, four suppliers accounted for 85% 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.

 

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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. 

 

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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, 2020 and 2019. 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, 2020.

 

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.

 

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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.

 

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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.

  

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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 December 31, 2020 and June 30, 2021, our long-term loan payable balances were $1,425,475 and $1,441, 897 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 108.

 

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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.

 

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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.

 

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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 85.

 

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The VIE contributed 100% of the Company’s consolidated results of operations and cash flows for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020 and 2019, the VIE accounted for 100% of the consolidated total assets and total liabilities of the Company.

 

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.

 

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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:

 

  revoking the business license and/or operating licenses of our WFOE or the VIE;
     
  discontinuing or placing restrictions or onerous conditions on our operations through any transactions among our WFOE, the VIE and its subsidiaries;
     
  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;
     
  placing restrictions on our right to collect revenues;
     
  shutting down our servers or blocking our app/websites;
     
  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
     
  restricting or prohibiting our use of the proceeds of this offering to finance our business and operations in China.
     
  taking other regulatory or enforcement actions against us that could be harmful to our business.

 

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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 2019 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.

 

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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 26. 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.

 

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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.

 

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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.

 

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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.

 

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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.  

 

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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.

 

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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.

 

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.

 

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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.

 

Additionally, on July 6, 2021, 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 Strictly Cracking Down on Illegal Securities Activities, or the Opinions, which emphasized the need to strengthen administration over illegal securities activities and supervision of overseas listings by China-based companies. The Opinions proposed promoting regulatory systems to deal with risks facing China-based overseas-listed companies, and provided that the State Council will revise provisions regarding the overseas issuance and listing of shares by companies limited by shares and will clarify the duties of domestic regulatory authorities. However, the Opinions did not provide detailed rules and regulations. As a result, uncertainties remain regarding the interpretation and implementation of the Opinions.

 

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.

 

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.

 

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Risks Associated with Doing Business in Southeast Asia

 

Our operations and assets in Southeast Asia are subject to significant political and economic uncertainties over which we have little or no control and may be unable to alter our business practice in time to avoid the possibility of reduced revenues.

 

Doing business in Southeast Asia subjects us to various risks including changing economic and political conditions, major work stoppages, exchange controls, currency fluctuations, armed conflicts and unexpected changes in United States and foreign laws relating to tariffs, trade restrictions, transportation regulations, foreign investments and taxation. Changes in the laws and regulations in the countries in Southeast Asia, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition.

 

We derive sales in Southeast Asia and a slowdown or other adverse developments in the Southeast Asian economy may materially and adversely affect our business.

 

Currently, our subsidiary Viagoo is based in Singapore and its revenue is derived from our operations in Singapore. We anticipate that our revenues generated in Singapore will continue to increase in the near future, as well as other regions in Southeast Asia. Accordingly, our results of operations and prospects are subject, to a significant extent, on the economic and political developments in Southeast Asia. We are subject to the risks associated with an economic slowdown or other adverse developments in such countries. Any such event could particularly harm our company if discretionary spending on health and beauty services and products in adversely impacted.

  

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.

 

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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;

 

  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

 

  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.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward looking statements that involve risks and uncertainties, principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this prospectus, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this prospectus, which may cause our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.

 

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this prospectus. Before you invest in our securities, you should be aware that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this prospectus could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this prospectus to conform our statements to actual results or changed expectations.

 

ENFORCEABILITY OF CIVIL LIABILITIES 

 

We were incorporated under the laws of Nevada on November 5, 2014. 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. 

 

Lirong Wang, our Chief Executive Officer and Chairman of the Board, and Guofu Zhang, our Independent Director Nominee, reside in China and are Chinese citizens. Their residence in China makes it difficult to enforce any judgments obtained from foreign courts against such persons compared to other non-U.S. jurisdictions.

 

Most of our assets are located in China, and substantially all of our assets are located outside of the United States. In addition, a majority of our senior management reside within China for a significant portion of the time and 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 investors to bring an action against us or against these individuals in the United States in the event that investors believe that their rights have been infringed under the U.S. federal securities laws or otherwise. Even if investors are successful in bringing an action of this kind, the laws of the U.S. and of China may render them unable to enforce a judgment against our assets or the assets of our directors and officers.   

 

We have appointed as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

 

Gaopeng & Partners PRC Lawyers, our counsel with respect to PRC law, have advised us that there is uncertainty as to whether the courts of the PRC would (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or (ii) entertain original actions brought in the PRC against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

 

Gaopeng & Partners PRC Lawyers has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. Gaopeng & Partners PRC Lawyers has advised us further that there are no treaties or other forms of reciprocity between China and the United States for the mutual recognition and enforcement of court judgments, thus making the recognition and enforcement of a U.S. court judgment in China difficult.

 

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USE OF PROCEEDS 

 

After deducting the estimated placement discount and offering expenses payable by us, we expect to receive net proceeds of approximately $36,223,000 from this offering. The net proceeds from this offering must be remitted to China before we will be able to use the funds to grow our business.

 

We plan to use the net proceeds of this offering for working capital needs, including devoting further resources to the below use of proceeds, which may include investment in product development, sales and marketing activities, acquisition of other companies, technology infrastructure, team development, capital expenditures, improvement of corporate facilities and other general and administrative matters. The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.

 

We intend to use the net proceeds of this offering as follows after we complete the remittance process, and we have ordered the specific uses of proceeds in order of priority.

 

Description of Use  Estimated
Amount of
Net
Proceeds
 
Construction of organic fertilizer plant  $15,300,000 
Construction of black goat food processing plant   6,000,000 
SOX compliance expenses   500,000 
New production equipment purchase   1,500,000 
Talent acquisition and training   500,000 
Technology, research and development & ecommerce platform   6,286,600 
General working capital   6,136,400 
Total  $36,223,000 

 

Pending other uses, we intend to invest the proceeds to us in investment-grade, interest-bearing securities such as money market funds, certificates of deposit, or direct or guaranteed obligations of the U.S. government, or hold as cash. We cannot predict whether the proceeds invested will yield a favorable return. Our management will have broad discretion in the application of the net proceeds we receive from this offering, and investors will be relying on the judgment of our management regarding the application of the net proceeds.

 

In using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our wholly foreign-owned subsidiary in China only through loans or capital contributions and to the consolidated variable interest entity only through loans, subject to the filings with government authorities and limit on the amount of capital contributions and loans. Subject to completion of applicable government filing and registration requirements, we may extend inter-company loans to our wholly foreign-owned subsidiary in China or make additional capital contributions to our wholly-foreign-owned subsidiary to fund its capital expenditures or working capital. If we provide funding to our wholly foreign-owned subsidiary through loans, the total amount of such loans may not exceed the difference between the entity’s total investment as approved by the foreign investment authorities and its registered capital. Such loans must be registered with SAFE or its local branches, which usually takes up to 20 working days to complete. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all.

 

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DIVIDEND POLICY

 

We plan to retain any earnings for the foreseeable future for our operations. We have never paid any dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will depend on our financial condition, operating results, capital requirements and such other factors as our Board of Directors deems relevant.

  

CAPITALIZATION

 

The following tables set forth our capitalization as of March 31, 2022 on a pro forma as adjusted basis giving effect to the completion of the firm commitment offering at an assumed public offering price of $4.00 per share and to reflect the application of the proceeds after deducting the estimated placement fees. You should read this table in conjunction with our financial statements and related notes appearing elsewhere in this prospectus and “Use of Proceeds” and “Description of Securities.”

 

  On an actual basis;

 

  On a pro forma basis to give effect to the sale of the offering at an assumed public offering price of $ 4.00 per share

 

Offering (10.000,000 shares of common stock)  

U.S. Dollars

 

   As of 
   March 31, 2022 
   Actual   Pro forma  (1) 
Assets:        
Current Assets   18,944,915    47,087,377 
Long term investment   21,265    19,021 
Right of use assets   1,279,404    1,400,422 
Operating lease right of use asset, net   196,482    203,147 
Intangible assets   12,788    17,586 
Property   692,852    7,156,140 
Goodwill   31,520    689,917 
Deferred tax asset   263,501    459,846 
Other Assets    7,077,481    29,878 
Total Assets   28,520,208    57,063,334 
           
Liabilities:          
Current Liabilities   12,937,283    6,394,655 
Other Liabilities   152,821    447,395 
Total Liabilities   13,090,104    6,842,050 
           
Shareholder’s Equity:          
Series A Preferred Stock, $0.0001 par value, 30,000,000 shares authorized, 19,000,000 shares issued and outstanding as of March 31, 2022 and  December 31, 2021.   1,900    1,900 
Common stock, $0.0001 par value, 500,000,000 shares authorized, 38,502,954 and shares issued and outstanding as of March 31, 2022 and  December 31, 2021.   3,850    4,850 
Additional paid-in capital(2)   19,933,793    56,155,793 
Accumulated deficit   (6,518,466)   (7,076,952)
Accumulated other comprehensive income (loss)   1,863,829    1,000,354 
Noncontrolling interest   145,198    135,339 
Total shareholders’ equity   15,430,104    50,221,284 
Total Liabilities and Shareholders’ Equity   28,520,208    57,063,334 

  

(1) Gives effect to the completion of the firm commitment offering at an assumed public offering price of $4.00 per share and reflects the application of the proceeds after deducting the estimated underwriting discounts and our estimated offering expenses.
   
(2) Pro forma adjusted for IPO additional paid in capital reflects the net proceeds we expect to receive, after deducting underwriting discount, underwriter expense allowance and approximately $577,000 in other expenses. In the firm commitment offering, we expect to receive net proceeds of approximately $36,223,000 ($40,000,000 offering, less underwriting discount of $2,600,000, non-accountable expense allowance of $600,000 and offering expenses of $577,000).

 

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DILUTION

 

If you invest in our shares of common stock, your interest will be diluted to the extent of the difference between the offering price per share and the pro forma net tangible book value per share after the offering. Dilution results from the fact that the per share offering price is substantially in excess of the book value per share attributable to the existing shareholders for our presently outstanding shares of common stock. Our net tangible book value attributable to shareholders at September 30, 2021 was $13,290,781 or approximately $0.35 per share. Net tangible book value per share as of September 30, 2021 represents the amount of total assets less intangible assets (but includes land use right) and total liabilities, divided by the number of shares outstanding.

 

Upon the firm commitment offering is completed, we will have 48,502,954  shares of common stock outstanding upon completion of the offering. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after September 30, 2021, will be approximately $49,513,781 or approximately $1.02  per share. This would result in dilution to investors in this offering of approximately $2.98 per share or approximately 74.5% from the assumed offering price of $4.00 per share. Net tangible book value per share would increase to the benefit of present shareholders by $0.68 per share attributable to the purchase of the shares by investors in this offering.

 

The following table sets forth the estimated net tangible book value per share after the offering and the dilution to persons purchasing shares.

 

  

Firm Commitment

Offering

 
Assumed offering price per share  $4.00 
Net tangible book value per share as of June 30, 2021  $0.35 
Increase in net tangible book value per share after this offering  $0.68 
Net tangible book value per share after the offering  $1.02 
Dilution per share to new investors  $2.98 

  

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

 

The information set forth in this section contains certain “forward-looking statements”, including, among others (i) expected changes in our revenue and profitability, (ii) prospective business opportunities and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, liquidity, ability to complete financing and purchase capital expenditures, growth of our business including entering into future agreements with companies, and plans to successfully develop and obtain approval to market our product. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this prospectus should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements. Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of our company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting our products and businesses.

 

You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this prospectus.

 

US Dollars are denoted herein by “USD”, “$” and “dollars”.

 

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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 remains after harvesting the 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 67.2% and 88.3% of our total revenue for the three months ended March 31, 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 integrated factories 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.

 

With the focus of producing organic fertilizers, we also engage in the business of selling agriculture food products including apples, and as a sales agent for other large agriculture companies in the PRC. In 2014, we rented 350 mu (about 57.66 acres) of mountainous land as an apple orchard. The sales of apples generated less than 1% of our total revenue for the three months ended March 31, 2022, and 2021. We expect to generate more revenues from the sales of apples as the apple orchards become more mature in the next few years.

 

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 including goat rib lets, goat loin roast, goat loin chops, goat rack, goat leg, goat shoulder, goat leg shanks, ground goat, goat stew meat, whole goat, half-goat, lamb viscera, etc. We expect to start generating revenue from the black goat products in 2022.

 

Viagoo Solutions

 

Viagoo logistic platform aims to provide a solution for shippers to easily optimize the logistics resources by either listing their assets in the platform for other shippers to book or request the logistic services via the platform. The flexible sharing model ensures shippers and carriers to be able to get the best deals so as to reduce the cost by maximizing utilization of the unused resources.

 

Viagoo platform provides full online tracking, route optimization and capacity planning options to help the carriers efficiently manage their operations. Using Internet of Things (IOT), GPS, mobile integration, document and data integration services, Viagoo platform is able to empower shippers and carriers with an up to date digital platform to support their digital transformations. With a ready Application Programming Interface (API) to various eCommerce platforms, shippers and carriers are able to plan their digital strategies and grow their businesses.

 

The Viagoo platform is built on a secured cloud environment that has been tested and approved by some key corporate users in healthcare as well as logistics sectors. With advanced technology in plan, Viagoo is seeking investments to expand the digital capability particularly in the area of Artificial Intelligence, machine learning, blockchain in transaction handling, data analytics in resource distribution and cold chain management. Also, using document automation and data integration technologies, Viagoo platform will offer value added services such as insurance on the go, vehicle lease financing, link up to rest stop, fuel, vehicle workshop services.

 

The acquisition of Viagoo Pte Ltd, a Singapore based online logistic platform, will enable the Muliang group of companies to optimize the transport logistics to lower the cost of delivery and increase the efficiency. The platform will connect truck drivers to Muliang and provide end to end tracking of delivery status. With this platform, it is expected to reduce delivery costs by 30%.

 

Viagoo platform is expected to be opened to the China market where other companies and merchants can book delivery services and transporters can sign on to list and provide their services. Development work has begun in August 2020 to provide localization and support for map and address services in China. During development, the Company decided to shift the focus of the Viagoo platform to Indonesia, and channeled additional resources to develop the platform for Indonesian market. The development and testing are expected to be completed in June 2022 and ready for launch in July 2022.

 

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Viagoo Business Model

 

Viagoo business model has 3 main revenue streams.

 

Viagoo Transport Marketplace (VTM) – This is the transaction platform for shippers and carriers to list and accept delivery jobs. The platform provides sharing functions where a group of shippers can share the transport fleet to some common places (e.g. shopping malls in the city). This service will reduce the waiting time and fuels and resulting in huge cost savings.

 

  VTM provides single job and bulk orders or API connection for job posting. The fees are pre-calculated based on distance, areas, volume matric weight, type of goods, delivery options and time.

 

  Task tracking – Shippers can track the delivery status if the option for tracking is required.

 

  eWallet option – eWallet will be used for the service purpose and payment will be deducted from the eWallet stored value.

 

  Reports – Delivery reports are available for shippers to track the performance and status of the delivery operation.

 

VTM is charged to carriers based on certain percentage of the freight charges. Other add-on services like online insurance, rest stop services will be a percentage charged to the service providers.

 

Viagoo Enterprise Services (VES) - is a cloud base service that provides the operation management to support the Transport and Logistics team. With the use of the various modules, carrier’s transport management is able to greatly optimized the resources and achieve higher efficiency.

 

  Automatic Scheduling – Delivery / Invoice data will be pushed to the VES for automatic schedule to the driver via VES mobile app. The criteria of automatic scheduling are based on location, time preference, and route zoning. These criteria can be configured and fine-tuned as the business progresses.

 

 

Route Optimization – The system is able to automatically calculate the best routes based on various delivery points and constraints such as “time window”. With the route optimization, the transport planner is able to handle new delivery addresses dynamically. Also if there is a change in delivery plans due to various unforeseen circumstances such as vehicle breakdown, customer last minute cancellation, the system is able to re-optimize quickly by pushing a button.

 

  VES Driver app - Task tracking – Once the tasks are started, they will be tracked till the jobs are completed. If e-sign is accepted, customers can sign and acknowledge the acceptance of goods using VES’ mobile sign feature built into the app or by taking a photo of the signed invoices or deliver orders (usually the last page of the document).

 

  Customer Notification – Customers will be notified via email upon the completion of the delivery. A copy of the invoice / delivery order along with the signed copies will be sent to customers (customer email list to be maintained in the system) via email.

 

  Reports – Delivery reports are available for operations managers to track the performance and status of the delivery operations.

 

  VES Temperature Sensor Tracking Services – This is an additional module for real-time tracking of temperature control (via a GPS temperature tracking device installed in the truck) trucks for the purpose of preventing food waste and ensuring food safety.

 

VES is charged based on a monthly subscription by vehicles and by users. It is integrated with VTM and jobs received via VTM can be assigned and tracked automatically by VES.

 

Enterprise Systems – This is a project-based system integration. The enterprise system is charged based on project price and annual maintenance service fees. As Viagoo smart logistics platform gains acceptance in local markets, we expect business opportunities to arise for us to custom build enterprise solutions in the healthcare as well as logistics sectors. For example, Parkway Pantai Singapore is using us to custom build the online logistic job assignment and tracking of lab sample collection / delivery between clinics / hospitals and lab. This is to facilitate efficient deployment of the delivery resources and to ensure compliance is achieved in a tightly controlled fashion.

 

On January 11, 2021, Viagoo Pte Ltd entered into a joint venture to form a new legal entity Runnerzzz Pte Ltd together with a well-established incumbent logistics company, Big Foot Logistics Pte Ltd. Big Foot holds 51% of equity stakes while Viagoo Pte Ltd holds 49% equity stakes of Runnerzzz Pte Ltd. We believe that the strategic joint venture will pave way for Viagoo to create more business opportunities in the logistics space, leveraging on the stronghold of Big Foot Logistics Pte Ltd.  

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Recent Development

 

Impact of COVID-19

 

Started in December 2019, the outbreak of COVID-19 caused by a novel strain of the coronavirus has become widespread in China and in the rest of the world, including in each of the areas in which the Company, its suppliers and its customers operate. In order to avoid the risk of the virus spreading, the Chinese government enacted various restrictive measures, including suspending business operations and quarantines, starting from the end of January 2020. We followed the requirements of local health authorities to suspend operation and production and have employees work remotely in February and March 2020. Since April 2020, we gradually resumed production and are now operating at full capacity.

 

As a result of the COVID-19 outbreak in December 2019 and continuing in the first quarter of 2020, the Company’s businesses, results of operations, financial position and cash flows were adversely affected in 2020 with potential continuing impacts on subsequent periods, including but not limited to the material adverse impact on the Company’s revenues as result of the suspension of operations and decline in demand by the Company’s customers.

 

We are monitoring the global outbreak and spread of the novel strain of coronavirus (COVID-19) and taking steps in an effort to identify and mitigate the adverse impacts on, and risks to, our business (including but not limited to our employees, customers, other business partners, our manufacturing capabilities and capacity and our distribution channels) posed by its spread and the governmental and community reactions thereto. We continue to assess and update our business continuity plans in the context of this pandemic, including taking steps in an effort to help keep our workforces healthy and safe. The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations in certain cases, and cancellation of physical participation in certain meetings, events and conferences), and we expect to take further actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees, customers and other business partners. We are also working with our suppliers to understand the existing and future negative impacts to our supply chain and take actions in an effort to mitigate such impacts. Due to the speed with which the COVID-19 situation is developing, the global breadth of its spread and the range of governmental and community reactions thereto, there is uncertainty around its duration and ultimate impact; therefore, any negative impact on our overall financial and operating results (including without limitation our liquidity) cannot be reasonably estimated at this time, but the pandemic could lead to extended disruption of economic activity and the impact on our financial and operating results could be material. 

 

Disposal of land use right and production facility for repayment of debt

 

The Company completed its sale of industrial land and production facility in Shanghai through an administratively organized private sale on June 16, 2021. Through the sale, the Company’s subsidiary Shanghai Zongbao is able to satisfy its debt obligations due to Agricultural Bank of China and Shanghai Zhongta Construction and Engineering Co., Ltd. and improve its cash position. As a result of the sale, Agricultural Bank of China received RMB 35,632,193.36, Shanghai Zhongta Construction and Engineering Co., Ltd. received RMB 26,000,000 and Shanghai Zongbao received the remaining RMB 7,921,902.28.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate, on an on-going basis, our estimates for reasonableness as changes occur in our business environment. We base our estimates on experience, the use of independent third-party specialists, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Critical accounting policies are defined as those that are reflective of significant judgments, estimates and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe the following are our critical 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”); however, the accompanying consolidated financial statements have been translated and presented in United States Dollars (“USD”).

 

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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
March 31,
2022
   As of
December 31,
2021
 
         
Current assets  $18,739,702   $18,972,383 
Non-current assets   8,846,612    8,995,363 
Total Assets   27,586,314    27,967,746 
Current liabilities   12,230,072    12,794,076 
Non-current liabilities   152,821    422,480 
Total liabilities   12,382,893    13,216,556 
Total shareholders’ equity (deficit)  $15,203,421   $14,751,190 

 

   For three months ended
March 31,
 
   2022   2021 
Net income  $412,526   $359,484 
Net cash provided by (used in) operating activities   261,920    1,007,986 
Net cash provided by (used in) investing activities   -    - 
Net cash provided by (used in) financing activities  $(265,213)  $14,251 

 

VIE Agreements that were entered between Muliang Viagoo effective and 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.

 

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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.

 

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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.

 

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Liquidity and Going Concern 

 

As reflected in the accompanying consolidated financial statements, we had a net income of $1,525,631 and $1,101,798 for the nine months ended September 30, 2021, and 2020, respectively. Our cash balances as of September 30, 2021, and December 31, 2020, were $78,579 and $348,834, respectively. We had current liabilities of $6,394,755 and $21,161,217 on September 30, 2021, and December 31, 2020, which would be due within the next 12 months. In addition, we had a net current assets (working capital) of $4,469,722 and $5,145,436 at September 30, 2021 and December 31, 2020, 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.

   

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Pursuant to the guidance of ASC Topic 840, rent shall be reported as income by lessors over the lease term as it becomes receivable. The Company leased part of the building of the Shanghai new plant to third parties as a warehouse. The Company recognizes building leasing revenue over the beneficial period described by the agreement, as the revenue is realized or realizable and earned. 

 

The Company recognized rental income from leasing a portion of its manufacturing facility located in Shanghai to third parties. For the years ended December 31, 2020 and 2019, rental income was $54,277 and $194,663. There is no rental income occurred for the six months ended June 30, 2021.

 

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:

 

  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 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.

 

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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.

 

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Results of Operations

 

We are principally engaged in the organic fertilizer manufacture and distribution business in the PRC, which account for 67.2% of our total revenue for the nine months ended March 31, 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 three months ended March 31, 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 March 31, 2022 and 2021

 

   Three Months Ended
March 31,
         
   2022   2021   Fluctuation     
   $   $   $   % 
Revenues-fertilizer   1,545,208    1,384,814    160,394    11.6%
Revenues-logistic   754,867    184,154    570,713    309.9%
Revenues-others   -    119    (119)   -100.0%
Subtotal of revenue   2,300,075    1,569,087    730,988    46.6%
Cost-fertilizer   871,690    803,229    68,461    8.5%
Cost- logistic   318,582    97,523    221,059    226.7%
Cost- others   -    89    (89)   -100.0%
Subtotal of cost   1,190,272    900,841    289,431    32.1%
Gross profit   1,109,803    668,246    441,557    66.1%
Gross margin   48.25%   42.59%            
Operating expenses:                    
General and administrative expenses   689,571    328,692    360,879    109.8%
Selling expenses   37,608    71,520    (33,912)   -47.4%
Total operating expenses   727,179    400,212    326,967    81.7%
Income(loss) from operations   382,624    268,034    114,590    42.8%
Other income (expense):                       
Interest expense   (43,267)   (16,838)   (26,429)   157.0%
Other income (expense), net   23,758    9,308    14,450    155.2%
Total other income (expense)   (19,509)   (7,530)   (11,979)   159.1%
Income before income taxes   363,115    260,504    102,611    39.4%
Income taxes   5,466    -    5,466    N/A 
Net income (loss)   357,649    260,504    97,145    37.3%

 

Revenue

 

Total revenue for fertilizer increased from $1,384,814 for the three months ended March 31, 2021, to $1,545,208 for the three months ended March 31, 2021, which represented an increase of $160,394, or approximately 11.6%. The increase in revenue was mainly due to the restoring confidence in the future economic growth for most of our customers. Traditionally, we experience some seasonality in our sales. We tend to sell more fertilizer products in the second half 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 epidemic moves further into the past.

 

Our revenue for logistic also increased from $184,154 for the three months ended March 31, 2021, to $754,867 for the three months ended March 31, 2021, which represented an increase of $570,713, or approximately 309.9%.

 

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Cost of sales

 

Cost of sales for fertilizer increased from $803,229 for the three months ended March 31, 2021, to $871,690 for the three months ended March 31, 2022, which represented an increase of approximately $68,461, or 8.5%. The increase in the cost of revenue for fertilizer was in line with the increase in revenue.

 

Cost of sales for logistic increased from $97,523 for the three months ended March 31, 2021, to $318,582 for the three months ended March 31, 2022, which represented an increase of approximately $221,059, or 226.7%. The increase in the cost of revenue for logistic was in line with the increase in revenue.

 

Gross profit

 

The gross profit for fertilizer increased from $581,585 for the three months ended March 31, 2021, to a gross profit of $673,518 for the three months ended March 31, 2022. And the gross margin for fertilizer slightly increased from 42.0% for the three months ended March 31, 2021, to 43.6% for the three months ended March 31, 2022.

 

The gross profit for logistic significantly increased from $86,631 for the three months ended March 31, 2021, to a gross profit of $436,285 for the three months ended March 31, 2022. And the gross margin for logistic increased from 47.0% for the three months ended March 31, 2021, to 57.8% for the three months ended March 31, 2022.

 

Expenses

 

We incurred $37,608 in selling expenses for the three months ended March 31, 2022, compared to $71,520 for the three months ended March 31, 2021. We incurred $689,571 in general and administrative expenses for the three months ended March 31, 2022, compared to $328,692 for the three months ended March 31, 2021. Total selling, general and administrative expenses increased by $326,967, or 81.7% for the three months ended March 31, 2022, as compared to the same period in 2021. Our selling expenses decreased by $33,912, and our general and administrative expenses increased by $360,879. 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 $43,267 in interest expense during the three months ended March 31, 2022, compared with interest expense of $16,838 for the three months ended March 31, 2021.

 

Net income

 

Our net income was $357,649 for the three months ended March 31, 2022, compared with a net income of $260,504 for the three months ended March 31, 2021, representing an increase of $97,145.

 

 

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 March 31, 2022 and December 31, 2021 our net current assets (working capital) were $6,007,632 and $5,403,720, respectively.

 

We have financed our operations over the three months ended March 31, 2022 and 2021 primarily through proceeds from net cash inflow from operations.

 

The components of cash flows are discussed below:

 

   Three Months Ended 
   March 31, 
   2022   2021 
Net cash provided by (used in) operating activities  $28,794   $904,657 
Net cash provided by (used in) investing activities   -    - 
Net cash used in financing activities   (265,213)   (19,879)
Exchange rate effect on cash   234,094    (25,158)
Net cash inflow (outflow)  $(2,325)  $859,620 

 

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Cash Provided by Operating Activities

 

Net cash provided by operating activities was $28,794 for the three months ended March 31, 2022. The net cash inflow consisted primarily of net income of $357,649, depreciation and amortization of $164,556, a decrease of $1,770,405 in account receivable, a bad debt provision of $358,551, which were offset by an increase of $1,675,200 in prepayment, a decrease of $483,260 in accounts payable and accrued payables, and a decrease of $362,096 in other payable.

 

Net cash provided by operating activities was $904,657 for the three months ended March 31, 2021. The net cash inflow consisted primarily of net income of $260,504, depreciation and amortization of $132,737, a decrease of $4,404,317 in account receivable, an increase of $354,191 in other payable, a decrease of $187,446 in prepayment, which were offset by a decrease of $4,290,253 in Accounts payable and accrued payables, an increase of $18,521 in inventory.

 

Cash used in Investing Activities

 

There is no cash flow in investing activities for the three months ended March 31, 2021 and 2020.

 

Cash Used in Financing Activities

 

Net cash used in financing activities was $265,213 for the three months ended March 31, 2022. During the period, cash used in financing activities mainly consisted of the repayment to related parties of $273,426 and offset by proceeds from short-term loan of $ 8,213.

 

Net cash used in financing activities was $19,879 for the three months ended March 31, 2021. During the period, cash used in financing activities mainly consisted of the proceeds from related parties of $16,547, and repayment of short-term loan of $36,426.

 

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 March 31, 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 March 31, 2022 
   Total   Less than
1 Year
   2 – 3
Years
   4 – 5
Years
   Over
5 Years
 
Contractual obligations                         
Loans  $1,188,937   $1,170,803    $ 18,134,   $          -   $         - 
Others   -    -    -    -    - 
   $1,188,937   $1,170,803   $18,134   $-   $- 

 

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Commitments for Capital Expenditure 

 

There were no non-cancelable commitments for capital expenditure as of March 31, 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 covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective as of March 31, 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 March 31, 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.

 

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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 95.82% and 94.5% of our total revenue for the years ended December 31, 2020 and 2019, 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 integrated factories 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.

 

With the focus of producing organic fertilizers, we also engage in the business of selling agriculture food products including apples, and as a sales agent for other large agriculture companies in the PRC. In 2014, we rented 350 mu (about 57.66 acres) of mountainous land as an apple orchard. The sales of apples generated less than 1% of our total revenue for the years ended December 31, 2020 and 2019. We expect to generate more revenues from the sales of apples as the apple orchards become more mature in the next few years.

 

In addition, we plan to engage in the processing and distribution of black goat products, with business commencing at the end of 2021. 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 2021.

 

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.

 

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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:

 

 

 

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 Viagoo 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.

 

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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.

 

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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, 2021 and for the fiscal years ended December 31, 2020 and 2019. 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.

 

For the nine months ended September 30, 2021

 

   Shanghai
Muliang
Industry Co., Ltd. (VIE)
   Consolidated Financials   % of the
Consolidated Financials
 
             
Current assets  $11,161,396   $10,864,377    103%
Non-current assets   9,250,062    9,975,957    93%
Total Assets   20,411,458    20,840,334    98%
Current liabilities   5,845,368    6,394,655    91%
Non-current liabilities   447,395    447,395    100%
Total liabilities   6,292,763    6,842,050    92%
Total shareholders’ equity (deficit)   14,118,695    13,998,284    101%
Revenues   6,856,310    7,473,169    92%
Cost of goods sold   4,234,986    4,562,831    93%
Gross profit   2,621,324    2,910,338    90%
Total operating expenses   767,728    1,389,222    55%
Income before taxes   1,842,174    1,533,100    120%
Net income   1,834,705    1,525,631    120%
Net cash provided by (used in) operating activities   4,814,649    4,388,257    110%
Net cash provided by (used in) investing activities   (1,221,133)   (1,221,133)   100%
Net cash provided by (used in) financing activities  $(3,593,475)  $(3,594,247)   100%

 

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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  $20,475,295   $21,161,217    97%
Non-current liabilities  $1,425,475   $1,426,080    100%
Total liabilities  $21,900,770   $22,587,297    97%
Total shareholders’ equity (deficit)  $12,841,086   $12,601,403    102%
Revenues  $10,634,609   $11,008,532    97%
Cost of goods sold  $6,116,664   $6,248,757    98%
Gross profit  $4,517,945   $4,759,775    95%
Total operating expenses  $2,645,495   $3,141,996    84%
Income before taxes  $803,538   $584,928    137%
Net income  $1,198,517   $979,907    122%
Net cash provided by (used in) operating activities  $1,413,581   $1,807,790    78%
Net cash provided by (used in) investing activities  $(75,346)  $(75,346)   100%
Net cash provided by (used in) financing activities  $(1,648,247)  $(1,368,247)   120%

 

For the year ended December 31, 2019

 

  

Shanghai Muliang Industry Co., Ltd. (VIE)

   Consolidated Financials   % of the Consolidated Financials 
Current assets  $8,475,278   $8,475,278    100%
Non-current assets  $18,258,288   $18,258,288    100%
Total Assets  $26,733,566   $26,733,566    100%
Current liabilities  $14,673,884   $14,688,418    100%
Non-current liabilities  $1,855,294   $1,855,294    100%
Total liabilities  $16,529,178   $16,543,712    100%
Total shareholders’ equity (deficit)  $10,204,388   $10,189,854    100%
Revenues  $12,882,250   $12,882,250    100%
Cost of goods sold  $7,546,180   $7,546,180    100%
Gross profit  $5,336,070   $5,336,070    100%
Total operating expenses  $2,255,977   $2,255,977    100%
Income before taxes  $2,710,835   $2,710,835    100%
Net income  $2,205,379   $2,205,379    100%
Net cash provided by (used in) operating activities  $3,759,100   $3,759,100    100%
Net cash provided by (used in) investing activities  $(1,319,129)  $(1,318,129)   100%
Net cash provided by (used in) financing activities  $(2,277,001)  $(2,2277,001)   100%

 

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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.

 

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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 94.5% and 91.3% of our total revenue for the fiscal years ended December 31, 2020 and 2019, respectively. The sales of apples generated less than 1% of our total revenue for the fiscal years ended December 31, 2020 and 2019, respectively. In addition, we engage in the processing and distribution of black goat products, with business commencing at the end of 2021. 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 2021. 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.

 

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Agricultural Products (Food)

 

While concentrating on the development of organic fertilizers, we are actively developing the agricultural food business.

 

Apple Orchard

 

In 2014, we leased 350 mu (about 57.66 acres) of mountainous land as an apple farm and, for the purpose of using our own fertilizer to demonstrate the advantages of our straw organic fertilizer. The selling of apples generated less than 1% of our total revenue for the fiscal years ended December 31, 2020 and 2019, respectively. As the apple trees become more mature, we expect to generate more revenues from the sales of apples in the future.

 

Other Agricultural products

 

We are also acting as intermediate sales agent for the agricultural products from large agricultural products companies, such as Bright Dairy & Food Co., Ltd., Mengniu Dairy industry Limited, Haitian Flavoring & Food Co., Ltd. and Hangzhou Wahaha Group, etc.

 

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 2021. 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 2021.

 

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.

 

Integration with Viagoo

 

The Viagoo business model includes the following main revenue streams. Viagoo Transport Marketplace (VTM) – This is the transaction platform for shippers and carriers to list and accept delivery jobs. The platform provides sharing functions where a group of shippers can share the transport fleet to some common places (e.g. shopping malls in the city). This service will reduce the waiting time and fuels, resulting in huge cost savings.

 

VTM provides single job and bulk orders or API connection for job posting. The fees are pre-calculated based on distance, areas, volume matric weight, types of goods, delivery options and time.

 

Task tracking – Shippers can track the delivery status if the option for tracking is required.

 

eWallet option – eWallet will be used for the service purpose and payment will be deducted from the eWallet stored value.

 

Reports – Delivery reports are available for shippers to track the performance and status of the delivery operation.

 

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VTM is charged to carriers based on certain percentage of the freight charges. Other add-on services like online insurance, rest stop services will be a percentage charged to the service providers.

 

Viagoo Enterprise Services (VES) - is a cloud based service that provides operations management to support the Transport and Logistics team. With the use of the various modules, the carrier’s transport management is able to greatly optimise its resources and achieve higher efficiency.

 

Automatic Scheduling – Delivery / Invoice data will be pushed to the VES for automatic schedule to the driver via VES mobile app. The criteria of automatic scheduling are based on location, time preference, route zoning. These criteria can be configured and fine-tuned as the business progresses.

 

  Route Optimisation – The system is able to automatically calculate the best routes based on various delivery points and constraints such as “time window”. With route optimisation, the transport planner is able to handle new delivery addresses dynamically. Also if there is a change in delivery plan due to various unforeseen circumstances such as vehicle breakdown, customer last minute cancellation, the system is able to re-optimise quickly by pushing a button.

 

  VES Driver app - Task tracking – Once the tasks are started, they will be tracked till the jobs are completed. If e-sign is accepted, customers can sign and acknowledge the acceptance of goods using VES mobile sign feature built into the app or by taking a photo of the signed invoices or deliver orders (usually the last page of the document).

 

Customer Notification – Customers will be notified via email upon the completion of the delivery. A copy of the invoice / delivery order along with the signed copies will be sent to customers (customer email list to be maintained in the system) via email.

 

  Reports – Delivery reports are available for operations managers to track the performance and status of the delivery operations.

 

  VES Temperature Sensor Tracking Services – This is an additional module for real-time tracking of temperature control (via a GPS temperature tracking device installed in the truck) trucks for the purpose of preventing food waste and ensuring food safety.

 

VES is charged based on a monthly subscription by vehicles and by users. It is integrated with VTM and jobs received via VTM can be assigned and tracked automatically by VES.

 

Enterprise Systems – This is a project based system integration. The Enterprise system is charged based on project price and annual maintenance service fees. As Viagoo smart logistics platform gains acceptance in local markets, we expect business opportunities to arise for us to custom build enterprise solutions in the healthcare as well as logistic sectors. For example, Parkway Pantai Singapore is using us to custom build the online logistic job assignment and tracking of lab sample collection / delivery between clinics / hospitals and lab. This is to facilitate efficient deployment of the delivery resources and to ensure compliance is achieved in a tightly controlled fashion.

 

Viagoo’s 1st tier technology platform, codename VES (Viagoo Enterprise System) enables onboarding customers to seamlessly embark on a digital transformation path to reduce costs and increase efficiencies with quick ROI (return of investments) and total cost of ownership (TCO). Customers using VES effectively transformed their operations digitally instantly by having full visibility and full control of operations, underpinned by logistical movements, traceability, status reporting, communications, operations planning and data analytics for key business decisions.

 

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Viagoo platform (VES) is currently used by ST Synthesis, Horme Hardware, Strategic Marketing, Parkway Pantai, Bridgestone, Skyfast, Impetus, KL Enviro, PN-I, P5, Servtouch and many others. Canon Singapore, Canon Malaysia, Ibiz (Navision ERP Vendor), Konica Minolta Singapore are new partners onboarded as resellers of Viagoo VES.

 

Viagoo has recently completed the development of the 2nd tier technology platform primarily for the “Transport Market Place Community.” Coined as VTM (Viagoo Transportation Marketplace), the purpose is to allow “trading collaboration, transportation crowd sourcing and resource sharing”. It creates a transport crowdsourcing eco-system between vested partners, stakeholders, fleet owners, retailers, online shops, transport owners in which they can co-share resources to resolve transport inadequacies and achieve a demand to supply equilibrium.

 

Transport inadequacies are caused by various reasons such as surges in delivery demand because of seasonal or festivities or simply sudden business growth. Another key pain point is where delivery trips in large countries often result in empty return trips. For long geographical distances, some one-way delivery trips can log up to hundreds of kilometers but with empty return trips resulting in wastage of time, fuel and money. Empty trips can be filled up through a robust job sourcing system, by way of “jobs versus transports sourcing” via intelligent matching, an effective booking system and a payment gateway system, which now is a reality made possible through the technology cornerstone of VTM.

 

Viagoo has also just recently marked its roadmap milestone with the 3rd tier technology through the launch of “Viamove”. Soft-launched in May 2020, Viamove is the “Last mile on-demand delivery service” in Singapore using the VTM technology. This platform was a testbed amidst the impact of the COVID-19 pandemic hard hitting local economy and businesses. On the contrary, Viamove has attested to the growth potential by remaining relatively unscathed despite COVID-19’s relentless hit on many businesses.

 

Over 200 merchants and an overwhelming 300 freelance delivery agents have signed up since its launch. The testbed yielded promising results and hence Viagoo is looking at expanding into “next day and international delivery” through our delivery partners to broaden the business horizon. To enhance the business model, the team is working on two hour same day island wide delivery which is suitable for food, medical, and perishable products.

 

To solidify its partnership and brand building objectives, Viagoo is actively working with Enterprise Singapore, a local government agency, to support the efficient use of transport resources. In addition, Viagoo is partnering with the Singapore Logistics Association to support her members in promoting the online integration with local eCommerce portals to enable them to fulfil the services via Viagoo’s digital platform.

 

The strong growth of e-Commerce in the South East Asia market could exceed USD 200 billion by 2025 (https://www.temasek.com.sg/en/news-and-views/stories/future/Southeast-Asia-accelerating-internet-economy). With a population of 630 million in Association of Southeast Asia Nations (ASEAN) alone, 163 million households are expected to have income capacity for discretionary spending (https://www.iseas.edu.sg/images/pdf/TRS1_18.pdf). As such the need for logistics services will push for the demand for efficiency in this sector.

 

The opportunities to improve performance to better serve customers using digital platforms remain elusive to small and medium enterprises (SMEs) despite vast support from local government agencies. This is seen particularly in logistics operations in many SMEs. The shippers are finding difficulties in efficiently managing delivery and storage resources and as a result they are incurring heavy costs in maintaining these resources. Customers now expect to get shipments faster, have more flexibility, and more transparency at a lower price. B2B customers are facing far faster expectations around efficiency and performance than ever before.

 

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An inefficient delivery also results in high wastage of fuels and contributes to avoidable environmental pollution. Carriers and logistic service providers are facing similar problems in adopting digital technology as the high costs of implementing and maintaining such systems has proven to be a big challenge for stakeholders. Defining a clear digital strategy that’s integrated into business strategy is critical. Digital is still a challenge in logistics space, and there are vast opportunities to improve performance and serve customers better. In addition, logistics sectors have substantial benefits in having more consolidation. However, fragmentation, accountability, and a lack of consistency make collaboration more difficult.

 

Viagoo logistic platform aims to provide a solution for shippers to easily optimize the logistics resources by either listing their assets in the platform for other shippers to book or request the logistic services via the platform. The flexible sharing model ensures shippers and carriers are able to get the best deals so as to reduce the cost by maximizing utilization of the unused resources.

 

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.

 

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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 2021.

 

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 years ended December 31, 2021 and 2020.

 

   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 

 

 

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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 years ended December 31, 2021 and 2020.

 

   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 2021. 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 2021. 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