UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 10, 2016
| M & A HOLDING CORP |
| (Exact name of registrant as specified in its charter) |
| Nevada | 333-201360 | N/A | ||
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
|
1958 Qianming East Road, Fengjingzhen Jinshanqu Shanghai, China | ||
| (Address of principal executive offices) | ||
| (86) 21-67356573 | ||
| (Registrant’s telephone number, including area code) | ||
Incorporation by Reference: The information contained in the Company’s Registration Statement on Form S-1, including the Risk Factors contained therein, filed January 5, 2015 (file number 333-201360) and amended April 9, 2015, May 21, 2015, and May 28, 2015 and declared effective June 3, 2015 and the information contained in the Company’s Form 10-Q for the period ended September 30, 2015 filed November 9, 2015 and the Form 8-K filed January 13, 2016, are hereby incorporated by reference.
Note: Certain individual and corporate names may be written slightly differently due to translation into English from the original language of Chinese. In particular, the name Shanghai Muliang Industrial Corp. may be translated as Muliang Industry Co., Ltd.
ITEM 2.01 Completion of Acquisition or Disposition of Assets
On February 10, 2016, M & A Holding Corp. (the “Company”), a Nevada corporation, effected a series of transactions that resulted in the Company’s wholly-owned subsidiary, Shanghai Mufeng Investment Consulting Corp. (“Consulting Corp.”) controlling and receiving the economic benefits of Shanghai Muliang Industrial Corp. (“ Industrial Corp”), a Chinese company, utilizing the VIE structure, as described herein.
The VIE structure is widely used to provide venture capital financing and to complete stock trading listings outside China. In lieu of a company acquiring a Chinese company’s equity interest from its resident Chinese founders, in a VIE structure the holding company forms a new wholly owned subsidiary (“WFOE”) in China which will control and receive the economic benefits of the Chinese company (the “VIE”) through a series of contractual arrangements. The Company created its wholly-owned subsidiary, Consulting Corp, to serve as the WFOE in the VIE transaction with Industrial Corp.
On September 3, 2015, the Company effected a forward 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 the Company and its sole officer and director. The remaining 30,525,000 were held by a total of 39 investors. On June 30, 2015, a registration statement on Form S-1 was declared effective for the offer and sale of 2,035,000 shares (pre-split shares or 30,525,000 post-split shares) by 39 shareholders.
Prior to effecting the VIE transaction the Company effected a change in control by execution of the following transactions as reported in the Form 8-K filed with the Securities and Exchange Commission January 13, 2016.
VIE Transaction:
Shanghai Mufeng Investment Consulting Corp. (“Consulting Corp.”) is a newly formed People’s Republic of China company, without assets or liability, and is a wholly owned subsidiary of Muliang Agriculture Ltd., a subsidiary of the Company. Consulting Corp was created to serve in the VIE transaction as the company to effect the transactions with the operating Chinese company, Shanghai Muliang Industrial Corp. (“Industrial Corp.”). Industrial Corp is owned 95% by Lirong Wang and 5% by Zhongfang Wang (hereinafter referred to as the “Existing Shareholders”). Such VIE transactions functionally result in the WFOE company, Consulting Corp in this transaction, obtaining control with all the economic benefits of the VIE operating Chinese company, Industrial Corp in this transaction. As a result, Consulting Corp will absorb 100% of the expected gains or losses of Industrial Corp and Consulting Corp is the primary beneficiary of Industrial Corp.
On February 1, 2016, Lirong Wang executed the documents as described below to effect the VIE transaction copies of which are filed herewith as exhibits.
Call Option Agreement: Agreement among Lirong Wang and Zhongfang Wang, Consulting Corp. and Industrial Corp. Pursuant to the terms of the agreement, the Existing Shareholders grant an option to for Consulting Corp to purchase all of their equity interest in Industrial Corp through a series of transactions at the lowest price allowed by Chinese law.
Equity Pledge Agreement: Agreement between Existing Shareholders and Consulting Corp. Pursuant to the terms of the agreement, the Existing Shareholders pledge their equity interest in Industrial Corp to Consulting Corp as a guarantee of the performance of their and Industrial Corp.’s obligations under all other VIE agreements. As part of the pledge agreement, each of Lirong Wang and Zhongfang Wang has executed a power of attorney authorizing Consulting Corp.’s designee to handle the transfer of pledged equity.
Voting Rights Agreement: Agreement among Consulting Corp., Industrial Corp., and the Existing Shareholders. Pursuant to the terms of the agreement, the Existing Shareholders delegate their shareholder rights, including voting rights, inspection/information rights, signing rights and election rights to the designee of Consulting Corp.
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Exclusive Technical Consulting and Service Agreement: Agreement between Consulting Corp. and Industrial Corp. Pursuant to the terms of the agreement, Consulting Corp will utilize its experts and professional teams and extensive experience to provide assistance and consulting services to Industrial in the areas of Agriculture technology, market research in relation to agriculture technology and market promotion services.
Relationship with Shanghai Muliang Industrial Corp (“Industrial Corp”)
The Company’s current major shareholder and sole officer and director is the 95% owner of Industrial Corp and his father is the owner of the remaining 5%.
Shanghai Muliang Industrial Corp. (“Industrial Corp”) Business
Shanghai Muliang Industrial Corp (“Industrial Corp.”) is an existing operating company incorporated in the People’s Republic of China in 2006 principally engaged in the business of developing, manufacturing, and selling organic fertilizers and bio-organic fertilizers for use in agricultural industry.
Industrial Corp currently has two fertilizer processing plants: one located in Shanghai with a maximum production capacity of 30,000 metric tons a year and another located in Weihai City, Shandong Province, which was completed in 2015, with annual production capacity of 50,000 metric tons. Industrial Corp is constructing another new plant located in Shanghai which will be put in operation in June 2016 with an anticipated annual production capacity of 100,000 metric tons.
The new Shanghai factory is expected to replace the old Shanghai factory which has 30,000 metric ton capacity. Both factories are expected to satisfy the fertilizer demands from the South and North of China, respectively. The Weihai plant will be mainly used to satisfy the demands from the apple farms in Shandong Province and the Shanghai plant will be mainly used in the farms planting rice, corn, and melons in Jiangsu and Zhejiang Province.
In 2013, Industrial Corp established a wholly owned subsidiary, Shanghai Muliang Agritech Development Co., Ltd. (“Muliang Agritech”) in Shanghai, China. On November 6, 2013, Industrial Corp sold 40% of the outstanding equity of Muliang Agritech to Mr. Jianping Zhang for consideration of approximately $65,000 or RMB 400,000. Muliang Agritech does not own any assets or conduct any operations.
In 2013, Industrial Corp acquired 100% of the outstanding equity of Shanghai Zongbao Environment Engineering Co., Ltd. (“Zhongbao”) from its former shareholders with consideration of approximately $3.2 million or RMB 20 million. Zhongbao is engaged in the business of processing and distributing organic fertilizers. Zhongbao effectively became the wholly-owned subsidiary of Industrial Corp.
Also in 2013, Industrial Corp 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 Chinese corporation, which became a 99% owned subsidiary of Industrial Corp with the remaining 1% equity interest owned by Mr. Hui Song.
Fukang is focused on distributing organic fertilizers and developing new bio-organic fertilizers.
Industrial Corp’s products are sold under the “Zongbao” brand name and its customers are mainly located in provinces of Jiangsu, Zhejiang and Shandong.
Pursuant to the VIE transaction, hereinbelow, the term “Company” refers to M & A Holding Corp and subsidiaries and Shanghai Muliang Industrial Corp and subsidiaries.
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Subsidiaries
All of the Company’s operations are conducted by Industrial Corp, Zhongbao and Fukang.
The Company has two direct wholly-owned subsidiaries: Muliang Agriculture Limited and Shanghai Mufeng Investment Consulting Corp. Through its VIE transaction, the Company has control of Shanghai Muliang Industrial Corp. Industrial Corp has one wholly-owned subsidiary (Shanghai Zhongbao Environment Engineering Co., Ltd.), one 99% owned subsidiary (Weihai Fukang Bio-fertilizer Co., Ltd.) and one 60% owned subsidiary (Muliang Agritech).
Financial Discussion
The Company’s ability to continue as a going concern depends upon the liquidation of current assets. In an effort to improve its financial position, the Company is working to obtain new loans from banks and related parties, renew its current loans, and to improve its operations upon its new fertilizer factories start to operate.
During the nine months ended September 30, 2015, the Company obtained capital contribution of approximately $16 million from its shareholders which successfully improved the Company’s financial position as of September 30, 2015. Additionally, one of the new fertilizer factories was completed and put in operations in August 2015 and another factory was expected to put in operation in June 2016. Management believes that if successfully executed, the foregoing actions would enable the Company to continue as a going-concern.
Discussion of 2014 and 2013 and Periods Ended September 30, 2015 and September 30, 2014
For the nine months ended September 30, 2015 and 2014, the Company reported net losses of $2,661,262 and $2,454,321, respectively.
The Company had working capital deficit of approximately $5.0 million and $16.1 million as of September 30, 2015 and December 31, 2014. In addition, the Company had cash outflows of $2,228,102 and $230,557 from its operating activities during the nine months ended September 30, 2015 and 2014. These conditions raise a substantial doubt as to whether the Company may continue as a going concern.
The Company has financed its operations over the years ended December 31, 2014 and 2013 and for the nine months ended September 30, 2015 and September 30, 2014 primarily through cash from borrowings under its lines of credit with various lenders in China.
As of December 31, 2014 and 2013, the Company had invested approximately $5.5 million and $0.4 million, respectively, in constructing the two new fertilizer plants.
During the nine months ended September 30, 2015, it further invested $6.3 million in the fertilizer plants and one of the plants was completed and operating thereafter.
The Weihai fertilizer plant was completed in May 2015 and put in operation in August 2015 with the total investment of approximately $4 million or RMB 25 million. The Shanghai fertilizer plant was anticipated to require approximately $11 million or RMB 67.7 million to complete the construction.
Both factories are expected to satisfy the fertilizer demands from the South and North of China. The Weihai plant will be mainly used to satisfy the demands from the apple farms in Shandong Province and the Shanghai plant will be mainly used in the farms planting rice, corn, and melons in Jiangsu and Zhejiang Province.
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During the year ended December 31, 2014, the Company obtained an aggregate financial support of approximately $17,878,000 from related parties for the Company’s working capital purpose. The Company repaid approximately $15,061,000 during the year. The balance of those payables was $7,815,637 as of December 31, 2014. These loans were due upon demand and no interest was charged
During the nine months ended September 30, 2015, the Company obtained financial supports of $33,525,618 from related parties and made repayments of $34,473,631 to such related parties. The balance of those payables was $3,043,152 as of September 30, 2015. These loans were due upon demand and no interest was charged.
During the year ended December 31, 2014, the Company loaned an aggregate of approximately $12,061,000 to related parties and collected approximately $8,209,000 thereon during the same period. The ending balance of due from related parties was $3,785,377 as of December 31, 2014. These loans were due upon demand and no interest was charged.
During the nine months ended September 30, 2015, the Company did not make new loans to any related parties nor make any collections during the same period. The ending balance of due from related parties was $81,147 as of September 30, 2015. These loans were due upon demand and no interest was charged.
In an effort to improve its financial position, the Company is working to obtain new loans from banks and related parties, renew its current loans, and to improve its operations upon its new fertilizer factories start to operate. During the nine months ended September 30, 2015, the Company obtained capital contribution of approximately $16 million from its shareholders which successfully improved the Company’s financial position as of September 30, 2015. Additionally, one of the new fertilizer factories was completed and put in operations in August 2015 and another factory is expected to put in operation in June 2016. Management believes that if successfully executed, the foregoing actions would enable the Company to continue as a going-concern.
Revenue. Total revenue decreased from $1.2 million for the nine months ended September 30, 2014 to $1.0 million for the same period in 2015, which represented a decrease of $0.3 million, or approximately 20.2%. The decrease in revenues was primarily due to the shift of marketing policy.
With the new Weihai plant coming into operation with modern equipment and better production capacity, the Company put more marketing efforts in Shandong Province where the new Weihai plant is located and gradually slowed down its Shanghai plant. This shift caused the revenues to reduce $0.3 million, comparing the operating results during the nine months ended September 30, 2015 and 2014. The Company believes that upon completion of the new Shanghai factory in 2016, it should be able to provide more competitive fertilizer products in the Shanghai area market, including farmers in Jiangsu and Zhejiang Province.
During the nine months ended September 30, 2015, revenue from fertilizer sales in Shanghai area was $0.2 million, which represented a flat trend as compared to the same period in 2014. Additionally, during the nine months ended September 30, 2015 and 2014, revenue from environmental protection equipment sales in Shanghai area was $0 and $0.9 million, respectively, which represented a decrease of $0.9 million with comparison of our 2015 and 2014 performances. During the nine months ended September 30, 2015, revenues from fertilizer sales in Shandong increased to $0.8 million, which represented an increase of $0.7 million, or approximately 407.8%, as compared to the same period in 2014. As stated above, the Company was shifting its marketing efforts from Shanghai area to Shandong area in light of construction of the new plant.
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Cash
The Company maintains cash with various financial institutions in the PRC. As of September 30, 2015 and December 31, 2014, balances in banks in the PRC of $77,937 and $179,472, respectively, which amounts are uninsured.
Cost of sales. Cost of sales decreased from $1.3 million for the nine months ended September 30, 2014 to $0.6 million for the nine months ended September 30, 2015, which represented a decrease of approximately $0.7 million, or 52.6%. The decrease in cost of sales was in line with the decrease in revenue from environmental protection equipment sales for the same period and cost benefits from using the new Weihai plant to produce fertilizer products with lower inputs.
Gross Profit (loss). The gross profit (loss) margin was increased from (5%) to 38% during the nine months ended September 30, 2015 and 2014. The main reason for the increase was from the cost benefits from using the new Weihai fertilizer plant to effectively control production costs. The fertilizer products were facing strong competition from competitors with lower selling prices. With the old Shanghai plant, the Company may not be able to compete with other competitors with the similar products. However, upon completion of the new plants located in Weihai City, Shandong Province, the Company will able to reduce our production costs and re-position its products in the market.
Expenses. Selling, general and administrative expenses increased by $102,107 in the nine months ended September 30, 2015 as compared to the same period in 2014. The selling expenses increased $12,672 and the general and administrative expenses increased $89,435. The major decrease in selling expenses was from shipping cost. The increase in general and administrative expenses was mainly due to additional inputs in hiring more professional personnel to operate the new Weihai plant.
The following table summarizes our contractual obligations at September 30, 2015 and December 31, 2014 and the effect those obligations are expected to have on our liquidity and cash flow in future periods.
| Total | Less than One year | 1-3 years | ||||||||||||
| Loans | $ | 7,617,489 | $ | 849,885 | $ | 6,767,604 | ||||||||
MANAGEMENT
The following table sets forth information regarding the members of the Company’s board of directors and its executive officers:
| Name | Position | Year Commenced | ||
| Lirong Wang | Director, President, Secretary, Treasurer | 2016 | ||
Lirong Wang serves as the sole officer and director of M & A Holding Corp, the parent Company. Mr. Wang is a resident of China. Since 2006 to the present, Mr. Wang has worked as general manager of Shanghai Muliang Industrial Co., Ltd. From 2000 to 2006, Mr. Wang served as the general manager of Shanghai Aoke Chemicals Co., Ltd. Mr. Wang graduated from Heilongjiang Business College and received his degree from Nankai University in 2010. Mr. Want was recognized as one of the Ten Outstanding Youth of Jinshan District of Shanghai, was a member of the 10th Committee of Shanghai Youth Federation, Vice Chairman of Federation of Shanghai Jinshan Youth Entrepreneurs. Mr. Wang is a Director of China Agricultural Science and Technology Innovation Committee Shanghai Branch.
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Director Independence
Pursuant to Rule 4200 of The NASDAQ Stock Market one of the definitions of an independent director is a person other than an executive officer or employee of a company. The Company's board of directors has reviewed the materiality of any relationship that each of the directors has with the Company, either directly or indirectly. Based on this review, the board has determined that there are no independent directors.
Committees and Terms
The Board of Directors (the “Board”) has not established any committees.
Legal Proceedings
There are currently no pending, threatened or actual legal proceedings of a material nature in which the Company is a party.
Anticipated Officer and Director Remuneration
The Company has not to date paid any compensation to any officer or director. The Company intends to pay annual salaries to all its officers and will pay an annual stipend to its directors when, and if, it completes a primary public offering for the sale of securities and/or the Company reaches profitability, experiences positive cash flow and/or obtains additional funding.
Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth information as of the date of this prospectus regarding the beneficial ownership of the M & A Holding Corp’s common stock by each of its executive officers and directors, individually and as a group and by each person who beneficially owns in excess of five percent of the common stock after giving effect to any exercise of warrants or options held by that person.
| Number of | Percent of | |||||
| Shares of | Class Before | |||||
| Name | Position | Common Stock | Offering (1) | |||
| Lirong Wang | Sole Director | 249,475,000 | 89% | |||
| Sole Officer |
| (1) | Based on 280,000,000 shares of M& A Holding Corp outstanding |
Compensation Table for Officers/Directors of Shanghai Muliang Industrial Corp.
| Name | Position | 2014 Salary (RMB) | 2014 Salary (RMB) | |||
| Lirong Wang | President | 360,000 (est. US$55,000) | 360,000 (est. US$55,000) | |||
| Xueying Sheng | CFO | 96,000 (est. US$14,600)(1) | 96,000 (est. US$14,600)(1) | |||
| Zongmin Wang | COO | 96,000 (est. US$14,600)(1) | 96,000 (est. US$14,600)(1) | |||
| Guohua Lin | Fukan General Manager | 36,000 (est. US$5,500)(1) | 36,000 (est. US$5,500)(1) | |||
| Yongxin Tian | HR Manager | 96,000 (est. $US14,600)(1) | 96,000 (est. US$14,600)(1) |
| (1) | Based upon conversion estimated at conversion rates at time of preparation of this document. |
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RISK FACTORS
Insufficient cash to fund operations
The Company anticipate that its current cash reserves plus cash from operating activities will not be sufficient to meet ongoing obligations and fund operations for the next twelve months. The Company anticipates that it will require additional financial from borrowings or from equity or debt investment. Specifically, as of September 30, 2015, the Company had approximately cash of $0.1 million with an approximate $5.0 million working capital deficit. During the nine months ended September 30, 2015 and 2014, cash flows from operating activities were outflow of $2.2 million and $0.2 million, respectively. If the Company’s operating activities present similar cash flow result as 2015, the Company anticipates that its cash of $0.1 million at September 30, 2015 will be insufficient to satisfy capital requirements from operations and it will need to obtain additional funding to meet ongoing obligations and fund operations during the following twelve months period.
Independent Auditors have issued going concern note
The Company’s independent auditors have issued a report raising a substantial doubt of the Company’s ability to continue as a going concern. In their audited financial report, the Company’s independent auditors have issued a comment that unless the Company is able to generate sufficient cash flows from operations and/or obtain additional financing, there is a substantial doubt as to its ability to continue as a going concern. The Company’s ability to continue as a going concern depends upon the liquidation of current assets. For the nine months ended September 30, 2015 and 2014, the Company reported net losses of $2,661,262 and $2,454,321, respectively. The Company had working capital deficit of approximately $5.0 million and $16.1 million as of September 30, 2015 and December 31, 2014. In addition, the Company had cash outflows of $2,228,102 and $230,557 from its operating activities during the nine months ended September 30, 2015 and 2014. These conditions raise a substantial doubt as to whether the Company may continue as a going concern.
Use of VIE structure may have some negative impacts
Notwithstanding the widespread use of the VIE structure including by many high-profile companies, there are a number of significant negative effects of adopting a VIE structure. The principally include the risk that the structure will be declared invalid by the Chinese regulators or that the contractual arrangements will be unenforceable or otherwise insufficient to retain control over Industrial Corp. In addition, the arrangements for transferring the Industrial Corp’s profit to Consulting Corp may be insufficient for from a tax perspective. The profit transfers may be subject to business tax, thereby resulting in double taxation of that revenue (once when received by Industrial Corp and once when transferred to Consulting Corp), and may face transfer pricing challenges from the Chinese tax authorities.
No private ownership of land in China may jeopardize the ownership and use of the fertilizer plants
There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. The Company’s land use rights have a term of 50 years. The Company amortizes the land use rights over the term of the respective land use right. Since the Company does not own the land on which it has built its plants, there is no absolute assurance that some future unforeseen event may result in the Company losing such land and the ability to operate its plants. The Company does not perceive such an event.
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Loan to director will be prohibited
The loan by the Company to its sole director may be in violation of the Sarbanes-Oxley Act of 2002, including Section 402’s prohibition against personal loans to directors and executive officers, either directly or indirectly, had such loans occurred after Muliang Industry Corp became a variable interest entity of the Company. Management is aware of the ramifications, and has committed to avoiding it by implementing controls that will prevent this type of violation from happening in the future.
Government regulation could negatively impact the business.
The Company’s business segments may be subject to various government regulations in the jurisdictions in which they operate. Due to the potential wide scope of the Company’s operations, 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 Company’s operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry.
ITEM 3.02 Unregistered Sales of Equity Securities
On November 18, 2014 the company issued 8,000,000 pre-split shares of common shares of its common stock for proceeds of $800 to the Company’s founder.
On November 18, 2014 the Company issued 2,035,000 pre-split shares of common stock pursuant to subscription agreements for proceeds of $20,350.
On September 3, 2015, the Board of Directors affected a forward split of the outstanding common stock such that each one share of outstanding common stock be converted into fifteen shares of common stock as of September 3, 2015, the record date. Number of shares of issuer's common stock outstanding as of November 3, 2015 was 150,525,000.
On January 16, 2016, the Company issued 129,475,000 shares of its common stock to Lirong Wang at $.0005 per share. On that same date, the then majority shareholder of the Company, Chenxi Shi, transferred all his 120,000,000 shares to Lirong Wang. Mr. Wang owns an aggregate of 249,475,000 shares of the Company’s common stock of the 280,000,000 shares outstanding.
ITEM 5.02 Departure of Directors or Principal Officers; Election of Directors
On January 11, 2016, Chenxi Shi resigned as the Company’s sole officer and director and Lirong Wang was appointed the sole director and President and Secretary (the sole officer).
ITEM 5.06 Change in Shell Company Status
The Company has effected a VIE structure transaction giving it the control over the assets, operations and revenues of a company organized under the laws of the People’s Republic of China, namely Shanghai Muliang Industrial Corp. The Company is principally engaged in the business of developing, manufacturing, and selling organic fertilizers and bio-organic fertilizers for use in agricultural industry and accordingly, the Company has commenced operations.
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ITEM 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
Shanghai Muliang Industrial Corp. and Subsidiaries
Consolidated Financial Statements
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Shanghai Muliang Industrial Corp. and Subsidiaries
| September 30, | December 31, | |||||||
| 2015 | 2014 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 93,549 | $ | 183,536 | ||||
| Accounts receivable, net | 674,458 | 91,353 | ||||||
| Accounts receivable - related party | 101,103 | 372,102 | ||||||
| Inventories | 545,193 | 460,979 | ||||||
| Advances to suppliers | 35,014 | 1,263,252 | ||||||
| Advances to suppliers - related party | 11,913 | 12,330 | ||||||
| Prepaid expenses | — | 3,462 | ||||||
| Other receivables, net | 465,795 | 82,615 | ||||||
| Due from related party | 81,147 | 3,785,377 | ||||||
| Total Current Assets | 2,008,172 | 6,255,006 | ||||||
| Plant and equipment, net | 4,596,576 | 1,261,640 | ||||||
| Construction in progress | 7,464,197 | 5,535,611 | ||||||
| Biological assets, net | 461,521 | 53,686 | ||||||
| Intangible assets, net | 2,704,517 | 2,848,561 | ||||||
| Total Assets | $ | 17,234,983 | $ | 15,954,504 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Short-term loans | $ | 849,885 | $ | 10,707,476 | ||||
| Accounts payable and accrued payables | 2,632,333 | 2,213,357 | ||||||
| Accounts payable - related party | 199,212 | 1,336,435 | ||||||
| Advances from customers | 37,377 | 16,993 | ||||||
| Other payables | 266,622 | 281,510 | ||||||
| Due to related party | 3,043,152 | 7,815,637 | ||||||
| Total Current Liabilities | 7,028,581 | 22,371,408 | ||||||
| Long-term loans | 6,767,604 | 3,406,044 | ||||||
| Total Liabilities | 13,796,185 | 25,777,452 | ||||||
| Stockholders’ Equity: | ||||||||
| Paid in capital | 2,416,731 | 793,512 | ||||||
| Additional paid in capital | 14,375,625 | 19,298 | ||||||
| Accumulated deficit | (13,162,563 | ) | (10,519,167 | ) | ||||
| Accumulated other comprehensive loss | (182,619 | ) | (121,239 | ) | ||||
| Stockholders’ Equity (Deficit) - Shanghai Muliang Industrial Corp. and Subsidiaries | 3,447,174 | (9,827,596 | ) | |||||
| Noncontrolling interest | (8,376 | ) | 4,648 | |||||
| Total Stockholders’ Equity (Deficit) | 3,438,798 | (9,822,948 | ) | |||||
| Total Liabilities and Stockholders’ Equity | $ | 17,234,983 | $ | 15,954,504 | ||||
See accompanying notes to consolidated financial statements
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Shanghai Muliang Industrial Corp. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Incomes
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| Revenues | $ | 961,676 | $ | 358,005 | ||||
| Revenues - related party | 33,088 | 888,611 | ||||||
| 994,764 | 1,246,616 | |||||||
| Cost of goods sold | 619,080 | 1,305,610 | ||||||
| Gross profit (loss) | 375,684 | (58,994 | ) | |||||
| Operating expenses: | ||||||||
| General and administrative expenses | 899,168 | 809,733 | ||||||
| Selling expenses | 140,249 | 127,577 | ||||||
| Total operating expenses | 1,039,417 | 937,310 | ||||||
| Loss from operations | (663,733 | ) | (996,304 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (1,657,362 | ) | (1,460,592 | ) | ||||
| Subsidy income | 168,174 | — | ||||||
| Loss from disposal of equipment | (490,423 | ) | — | |||||
| Other income (expense), net | (17,918 | ) | 2,624 | |||||
| Total other expenses | (1,997,529 | ) | (1,457,968 | ) | ||||
| Loss before income taxes | (2,661,262 | ) | (2,454,272 | ) | ||||
| Income taxes | — | 49 | ||||||
| Net loss | (2,661,262 | ) | (2,454,321 | ) | ||||
| Net loss attributable to noncontrolling interest | 17,866 | 29,587 | ||||||
| Net loss attributable to Shanghai Muliang Industrial Corp. common stockholders | (2,643,396 | ) | (2,424,734 | ) | ||||
| Other comprehensive income (loss): | ||||||||
| Unrealized foreign currency translation adjustment | (61,380 | ) | 44,518 | |||||
| Comprehensive loss | $ | (2,704,776 | ) | $ | (2,380,216 | ) | ||
See accompanying notes to consolidated financial statements
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Shanghai Muliang Industrial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (2,661,262 | ) | $ | (2,454,321 | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| used in operating activities: | ||||||||
| Depreciation and amortization | 172,110 | 216,477 | ||||||
| Bad debt expense | 23,459 | 13,302 | ||||||
| Loss (gain) on physical inventory | 10,262 | (75,411 | ) | |||||
| Loss from disposal of fixed assets | 490,423 | — | ||||||
| Accounts receivable | (613,223 | ) | 466,084 | |||||
| Accounts receivable - related party | 266,493 | 217,950 | ||||||
| Inventories | (113,228 | ) | 179,258 | |||||
| Advances to suppliers | 1,206,931 | (230,717 | ) | |||||
| Advances to suppliers - related party | — | 1,309,208 | ||||||
| Prepaid expenses | 3,449 | (10,412 | ) | |||||
| Other receivables | (412,903 | ) | (12,670 | ) | ||||
| Accounts payable and accrued payables | 509,468 | 974,778 | ||||||
| Accounts payable - related party | (1,126,182 | ) | (819,102 | ) | ||||
| Advances from customers | 21,618 | (13,591 | ) | |||||
| Other payables | (5,517 | ) | 8,610 | |||||
| Total adjustments | 433,160 | 2,223,764 | ||||||
| Net cash used in operating activities | (2,228,102 | ) | (230,557 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from disposal of fixed assets | 41,853 | — | ||||||
| Purchase in intangible assets | — | (16,269 | ) | |||||
| Purchase of biological assets | (422,502 | ) | (51,744 | ) | ||||
| Investment in construction in progress | (6,276,880 | ) | (1,834,651 | ) | ||||
| Purchase of plant and equipment | (44,634 | ) | (41,786 | ) | ||||
| Net cash used in investing activities | (6,702,163 | ) | (1,944,450 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repayment of long-term loans | (5,434,453 | ) | (3,927,536 | ) | ||||
| Proceeds from long-term loans | 9,897,006 | 6,205,499 | ||||||
| Due to (from) related party | (960,908 | ) | (4,336,322 | ) | ||||
| Repayment of short-term loans | (18,732,370 | ) | (4,615,547 | ) | ||||
| Proceeds from short-term loans | 8,063,306 | 8,810,930 | ||||||
| Capital contribution from shareholders | 15,979,546 | — | ||||||
| Net cash provided by financing activities | 8,812,127 | 2,137,024 | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | 28,151 | 48,584 | ||||||
| NET INCREASE (DECREASE) IN CASH | (89,987 | ) | 10,601 | |||||
| CASH, BEGINNING OF PERIOD | 183,536 | 30,203 | ||||||
| CASH, END OF PERIOD | $ | 93,549 | $ | 40,804 | ||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Cash paid during the period for: | ||||||||
| Cash paid for interest expense, net of capitalized interest | $ | 1,657,929 | $ | 1,460,807 | ||||
| Cash paid for income tax | $ | — | $ | 49 | ||||
| NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES | ||||||||
| Reclassification of long-term loans to short-term loans | $ | 876,538 | $ | 130,155 | ||||
See accompanying notes to consolidated financial statements
| -12- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
The consolidated financial statements include the financial statements of Shanghai Muliang Industrial Corp. (referred to herein as “Industrial Corp.”); its wholly-owned subsidiaries which are limited liability companies in People’s Republic of China (“PRC”), Shanghai Zongbao Environment Engineering Co., Ltd. (“Zongbao”) and Shanghai Muliang Agritech Development Co., Ltd. (“Muliang Agritech”); its 99% owned subsidiary, Weihai Fukang Bio-Fertilizer Co., Ltd. (“Fukang”), a PRC limited liability company.
On July 11, 2013, Industrial Corp. established a wholly owned subsidiary, Muliang Agritech in Shanghai, China. On November 6, 2013, Industrial Corp. sold 40% of the outstanding equity of Muliang Agritech to Mr. Jianping Zhang for consideration of approximately $65,000 or RMB 400,000. Muliang Agritech does not own any assets or conduct any operations. On July 17, 2013, Industrial Corp. acquired 100% of the outstanding equity of Zongbao from Zhongbao’s former shareholders with consideration of approximately $3.2 million or RMB 20 million. Zhongbao is engaged in the business of processing and distributing organic fertilizers. On May 27, 2013, Industrial Corp. entered into and consummated an equity purchase agreement whereby it acquired 99% of the outstanding equity of Fukang, a corporation organized under the laws of the People’s Republic of China. As a result of the completion of the transaction, Fukang became a 99% owned subsidiary of Industrial Corp., with the remaining 1% equity interest owned by Mr. Hui Song. Fukang is focused on distribute organic fertilizers and develop new bio-organic fertilizers. All of Industrial Corp.’s operations are conducted by Industrial Corp., Zhongbao and Fukang. Zhongbao and Fukang’s results of operations are consolidated into those of Industrial Corp., Zhongbao, Muliang Agritech, and Fukang are sometimes referred to as the “subsidiaries”. Industrial Corp. and its consolidated subsidiaries are collectively referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.
Industrial Corp. was incorporated in PRC on December 7, 2006 as a limited liability company. The Company is engaged in the business of developing, manufacturing, and selling organic fertilizers and bio-organic fertilizers for use in agricultural industry. The Company operates a fertilizer production factory around Shanghai through one of its subsidiaries, Zongbao.
Zhongbao was incorporated in Shanghai on January 25, 2008. On July 17, 2013, Industrial Corp. entered into an equity purchase agreement with Zhongbao’s former shareholders whereby Industrial Corp. acquired 100% of the equity interest of Zhongbao. Industrial Corp. acquired Zhongbao and became the sole holder of 100% of the equity interest of Zhongbao, and Zhongbao effectively became the wholly-owned subsidiary of Industrial Corp.
On May 27, 2013, Industrial Corp. entered into a share purchase agreement with Fukang’s principal shareholder whereby Industrial Corp. would acquire 99% of the equity interest of Fukang. Fukang was incorporated in Weihai City, Shandong Province on January 6, 2009.
| -13- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS (continued)
Liquidity and going concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going-concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the financial statements. The Company’s ability to continue as a going concern depends upon the liquidation of current assets. For the nine months ended September 30, 2015 and 2014, the Company reported net losses of $2,661,262 and $2,454,321, respectively. The Company had working capital deficit of approximately $5.0 million and $16.1 million as of September 30, 2015 and December 31, 2014. In addition, the Company had cash outflows of $2,228,102 and $230,557 from its operating activities during the nine months ended September 30, 2015 and 2014. These conditions raise a substantial doubt as to whether the Company may continue as a going concern.
In an effort to improve its financial position, the Company is working to obtain new loans from banks and related parties, renew its current loans, and to improve its operations upon its new fertilizer factories start to operate. During the nine months ended September 30, 2015, the Company obtained capital contribution of approximately $16 million from its shareholders which successfully improved the Company’s financial position as of September 30, 2015. Additionally, one of the new fertilizer factories was completed and put in operations in August 2015 and another factory was expected to put in operation in June 2016. Management believes that if successfully executed, the foregoing actions would enable the Company to continue as a going-concern.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). The 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”). All significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include the useful lives of property and equipment, land use rights, assumptions used in assessing collectability of receivables and impairment for long-term assets.
| -14- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Principles of Consolidation
We consolidate the following entities, including wholly-owned subsidiaries, Zhongbao and Muliang Agritech, and 99% owned subsidiary, Fukang. All material intercompany accounts and transactions have been eliminated in consolidation. The 1% equity interest holders in Fukang and the 40% equity interest holder of Muliang Agritech will be accounted as noncontrolling interest in the Company’s consolidated financial statements.
Restrictions of Transfer of Assets Out of the PRC
Dividend payments by Industrial Corp. and its subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by the Company without first receiving prior approval from the Foreign Currency Exchange Management Bureau. Dividend payments are restricted to 90% of profits, after tax.
Control by Principal Stockholders
Our directors and executive officers and their affiliates or related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding shares of our common stock. Accordingly, if our directors and executive officers and their affiliates or related parties vote their shares uniformly, they would have the ability to control the approval of most corporate actions, including increasing our authorized capital stock and the dissolution or merger of our company or the sale of our assets.
Cash
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash with various financial institutions in the PRC. As of September 30, 2015 and December 31, 2014, balances in banks in the PRC of $77,937 and $179,472, respectively, are uninsured.
Accounts Receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30, 2015 and December 31, 2014, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $69,797 and $63,575, respectively.
| -15- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded inventory reserves of $91,975 and $95,201 at September 30, 2015 and December 31, 2014.
Advances to Suppliers
Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $35,014 and $1,263,252 as of September 30, 2015 and December 31, 2014, respectively.
Plant and Equipment
Plant and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Included in property and equipment is construction-in-progress which consisted of factory improvements and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation of the assets. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.
Estimated useful lives of the Company’s assets are as follows:
| Useful Life | |
| Building | 20 years |
| Operating equipment | 5-10 years |
| Vehicle | 3-5 years |
| Electronic equipment | 3-20 years |
| Office equipment | 3-20 years |
| -16- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Biological Assets
Biological assets consist primarily of rental for an apple farm, labor cost, fertilizers, apple seeds, apple seedlings and others. The costs to purchase and cultivate apple trees and the expenditures related to labor and materials to plant apple trees until they become commercially productive are capitalized, which require a 2 year period. The estimated production life for apple tree is 10 years, and the costs are amortized without a residual value. Expenses incurred maintaining apple trees during the growth cycle until seedling apple trees or grafted varieties are fruited are capitalized into inventory and included in Work in process—biological assets, a component of inventories.
Amortized expenses pertaining to biological assets are included in inventory costs for those apples to be sold and ultimately become a component of cost of goods sold. Similar to other assets, the failure of our biological assets to be serviceable over the entirety of their anticipated useful lives or to be sold at their anticipated residual value will negatively impact our operating results.
Intangible Assets
Included in the intangible assets are land use rights. According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Intangible assets are being amortized using the straight-line method over their lease terms or estimated useful life.
The Company carries intangible assets at cost less accumulated amortization. In accordance with US GAAP, the Company examines the possibility of decreases in the value of intangible assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes amortization using the straight-line method over the 50 year life of the land use rights.
Impairment of Long-lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded no impairment charge for the nine months ended September 30, 2015 and 2014.
Advances from Customers
Advances from customers at September 30, 2015 and December 31, 2014 amounted to $37,377 and $16,993, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.
| -17- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Non-controlling Interest
Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.
Revenue Recognition
Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. The Company recognizes revenues from the sale of its fertilizer products upon shipment and transfer of title.
Income Taxes
The Company accounts for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The Company did not have any deferred tax assets or liabilities as of September 30, 2015 and December 31, 2014.
The Company is subject to the Enterprise Income Tax law (“EIT”) of the People’s Republic of China. The Company’s operations in producing and selling fertilizers are subject to the 25% enterprise income tax. In addition the Company’s sales are subject to the 13% or 17% PRC’s VAT tax or the 5% business tax levied on incomes from services rendered.
Shipping and Handling Costs
Shipping costs are included in selling expenses and totaled $104,741 and $24,440 for the nine months ended September 30, 2015 and 2014, respectively.
Advertising Costs
Advertising is expensed as incurred and is included in selling, general and administrative expenses on the accompanying statements of income and comprehensive income and totaled $85,394 and $9,588 for the nine months ended September 30, 2015 and 2014, respectively.
| -18- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.
Accumulated Other Comprehensive Income
Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive income for the nine months ended September 30, 2015 and 2014 included net income and unrealized gains from foreign currency translation adjustments.
Foreign Currency Translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the Chinese Renminbi (“RMB”). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. The cumulative translation adjustment and effect of exchange rate changes on cash for the nine months ended September 30, 2015 and 2014 was 28,151 and $48,584, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
| -19- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Asset and liability accounts at September 30, 2015 and December 31, 2014 were translated at 6.3538 RMB to $1 and 6.1385 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of income for the nine months ended September 30, 2015 and 2014 were 6.1606 RMB and 6.1432 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
Fair Value of Financial Instruments
The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, inventories, advances to suppliers, prepaid expenses, short-term loans, accounts payable, accrued expenses, advances from customers, VAT and service taxes payable and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.
ASC Topic 825-10 "Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
| -20- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations of Credit Risks
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
At September 30, 2015 and December 31, 2014, the Company’s cash balances by geographic area were as follows:
| September 30, 2015 | December 31, 2014 | |||||||||||||||
| (Unaudited) | ||||||||||||||||
| Country: | ||||||||||||||||
| United States | $ | — | — | $ | — | — | ||||||||||
| China | 93,549 | 100 | % | 183,536 | 100 | % | ||||||||||
| Total cash and cash equivalents | $ | 93,549 | 100 | % | $ | 183,536 | 100 | % | ||||||||
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessments inherently involve an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
| -21- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
Accrual of Environmental Obligations
ASC Section 410-30-25 “Recognition” of environmental obligations requires the accrual of a liability if both of the following conditions are met:
| a) | Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements. |
| b) | The amount of the loss can be reasonably estimated. |
As of September 30, 2015 and December 31, 2014, the Company did not have any environmental remediation obligations, nor did it have any asset retirement obligations under ASC 410. Furthermore, the Company did not have any environmental remediation loss contingencies requiring recognition or disclosure in its financial statements.
Recent Accounting Pronouncement
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, “Revenue from Contracts with Customers” (“ASU 2014-9"). ASU 2014-9 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries through the application of the following five-step process:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
| -22- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The updated guidance related to revenue recognition which affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for the Company starting on January 1, 2017. The Company is currently evaluating the impact this guidance will have on its combined financial position, results of operations and cash flows.
In April 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard that raises the threshold for disposals to qualify as discontinued operations and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard revised the definition of a discontinued operation to cover only asset disposals that are considered to be a strategic shift with a major impact on an entity’s operations and finances, such as the disposal of a major geographic area or a significant line of business. Application of the standard, which is to be applied prospectively, is required for fiscal years beginning on or after December 15, 2014, and for interim periods within that year.
Based on the Company’s initial assessment of the standard, the Company expects that any potential future disposals of any one of its hog farms will not be reported as discontinued operations and that the results of operations of any such disposed hog farms, including revenues, costs and any gains or losses on disposal, will be classified as continuing operations within the Consolidated Statements of Operations and Comprehensive Income for all periods presented through the date of disposition.
NOTE 3 – ACCOUNTS RECEIVABLE
The Company accrues an allowance for bad debts related to our receivables. The receivable and allowance balances at September 30, 2015 and December 31, 2014 were as follows:
| September 30, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Accounts receivable | $ | 744,255 | $ | 154,928 | ||||
| Less: allowance for doubtful accounts | (69,797 | ) | (63,575 | ) | ||||
| $ | 674,458 | $ | 91,353 | |||||
The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. After evaluating the collectability of individual receivable balances, the Company increased the allowance for doubtful accounts in the amount of $8,639 and $12,489 for the nine months ended September 30, 2015 and 2014, respectively.
| -23- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 4 – INVENTORIES
At September 30, 2015 and December 31, 2014, inventories consisted of the following:
| September 30, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Raw materials | $ | 271,384 | $ | 191,210 | ||||
| Finished goods | 365,784 | 364,970 | ||||||
| 637,168 | 556,180 | |||||||
| Less: reserve for obsolete inventory | (91,975 | ) | (95,201 | ) | ||||
| $ | 545,193 | $ | 460,979 | |||||
For the nine months ended September 30, 2015 and 2014, the Company reported ($10,262) and $75,411 as gain (loss) on its physical inventory, respectively.
NOTE 5 – OTHER RECEIVABLES
At September 30, 2015 and December 31, 2014, the Company reported other receivables of $465,795 and $82,615, respectively, including an allowance for doubtful receivables of $129,214 and $118,873.
The balances of other receivables as of September 30, 2015 and December 31, 2014 included the following:
| September 30, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Construction deposit | $ | 40,168 | $ | 24,436 | ||||
| Subsidy receivable | 46,893 | 48,538 | ||||||
| Loan receivables | 94,432 | 97,744 | ||||||
| Deposit for equipment purchase | 314,772 | — | ||||||
| Others | 98,744 | 30,770 | ||||||
| 595,009 | 201,488 | |||||||
| Less: allowance for doubtful accounts | (129,214 | ) | (118,873 | ) | ||||
| $ | 465,795 | $ | 82,615 | |||||
The Company reviews the other receivables on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. After evaluating the collectability of individual receivable balances, the Company increased the allowance for doubtful accounts in the amount of $14,820 and $0 for the nine months ended September 30, 2015 and 2014.
| -24- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 6 – LONG-TERM INVESTMENT
As of September 30, 2015 and December 31, 2014, the Company did not have any long-term investment. No gain or loss recognized from the investment during the nine months ended September 30, 2015 and 2014.
At September 16, 2013, the Company entered into an investment agreement to establish a PRC limited liability company, Yantai Zongbao Tele-Agriculture Service Co., Ltd. (“Yantai Zongbao”), located in Yantai City, Shandong Province. Yantai Zongbao was engaged in providing agricultural planting consulting services to farm owners. The Company invested in approximately $0.5 million or RMB 3 million for 30% of the equity of Yantai Zongbao. On August 26, 2014, the Company sold the 30% equity of interest of Yantai Zongbao to Ms. Hui Song, a member of the Company’s management team, for consideration of approximately $0.5 million or RMB 3 million. Until August 26, 2014 (the disposal date), Yantai Zongbao did not have any operating activities.
NOTE 7 – PLANT AND EQUIPMENT
Plant and equipment at September 30, 2015 and December 31, 2014 consisted of:
| Useful Life | September 30, 2015 | December 31, 2014 | ||||||||
| (Unaudited) | ||||||||||
| Building | 20 years | $ | 2,871,695 | $ | 389,031 | |||||
| Operating equipment | 5-10 years | 2,005,815 | 1,704,971 | |||||||
| Vehicle | 3-5 years | 43,992 | 41,706 | |||||||
| Office equipment | 3-20 years | 67,791 | 63,516 | |||||||
| 4,989,293 | 2,199,224 | |||||||||
| Less: accumulated depreciation | (392,717 | ) | (937,584 | ) | ||||||
| $ | 4,596,576 | $ | 1,261,640 | |||||||
For the nine months ended September 30, 2015 and 2014, depreciation expense amounted to $123,099 and $168,981, respectively. Depreciation is not taken during the period of construction or equipment installation. Upon completion of the installation of manufacturing equipment or any construction in progress, construction in progress balances will be classified to their respective property and equipment category.
| -25- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 8 – CONSTRUCTION IN PROGRESS
Construction in progress consists of amounts expended for the constructions of two new fertilizer factories. Once construction is completed and the facilities are approved to be used, the construction in progress assets are placed into production and transferred into plant and equipment, whereupon they are depreciated over their estimated useful lives. As of September 30, 2015 and December 31, 2014, the construction in progress was $7,464,197 and $5,535,611, respectively. Included in this amount were:
| - | $7,464,197 and $3,435,914 as of September 30, 2015 and December 31, 2014 for building an organic fertilizer processing facility, located in Shanghai, with the annual production capacity of 100,000 tons organic fertilizers. The facility was designed with 4 production lines, with total contractual payment of approximately $11 million or RMB 67.7 million, and was scheduled to be completed on June 2016; and |
| - | $0 and $2,099,697 as of September 30, 2015 and December 31, 2014, respectively, for building an organic fertilizer processing facility, located in Weihai City, Shandong Province, with the annual production capacity of 50,000 tons organic fertilizers. The facility was designed with 2 production lines, with total contractual payment of approximately $4.6 million or RMB 28 million, and had been completed on August 2015. |
NOTE 9 – BIOLOGICAL ASSETS
Biological assets at September 30, 2015 and December 31, 2014 consisted of:
| Useful Life | September 30, 2015 | December 31, 2014 | ||||||||
| (Unaudited) | ||||||||||
| Apple trees | 10 years | $ | 461,521 | $ | 53,686 | |||||
| Less: accumulated amortization | — | — | ||||||||
| $ | 461,521 | $ | 53,686 | |||||||
For the nine months ended September 30, 2015 and 2014, no amortization expense was reported.
NOTE 10 – INTANGIBLE ASSETS
There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. The Company’s land use rights have a term of 50 years. The Company amortizes the land use rights over the term of the respective land use right. For the nine months ended September 30, 2015 and 2014, amortization of intangible assets amounted to $49,011 and $47,496, respectively. At September 30, 2015 and December 31, 2014, intangible assets consisted of the following:
| Useful Life | September 30, 2015 | December 31, 2014 | ||||||||
| (Unaudited) | ||||||||||
| Land use rights | 50 years | $ | 2,941,389 | $ | 3,044,555 | |||||
| Others | 10 years | 15,739 | 16,290 | |||||||
| 2,957,128 | 3,060,845 | |||||||||
| Less: accumulated depreciation | (252,611 | ) | (212,284 | ) | ||||||
| $ | 2,704,517 | $ | 2,848,561 | |||||||
The estimated amortization expense of intangible assets over each of the next five years and thereafter will be $65,348.
| -26- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 11 – LOAN PAYABLES
Short-term Loans
Short-term loans represent amounts due to lenders that is due within one year. The loans can be renewed with the lenders upon maturity. At September 30, 2015 and December 31, 2014, short-term loans consisted of the following:
| September 30, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Loan payable to Shanghai Jinshan Limin Micro Credit Co. Ltd., annual interest rate of 20%, due and fully repaid by February 25, 2015. | $ | — | $ | 814,531 | ||||
| Loan payable to Nanjing Julong Equity Investment Fund Management Co., Ltd, annual interest rate of 20.2%, due and repaid by September 2, 2015. | — | 5,827,375 | ||||||
| Loan payable to Beijing Andexun Investment Advisory Co., Ltd., no interest charge, due by September 30, 2015 and early repaid by September 18, 2015. | — | 795,471 | ||||||
| Loan payable to Shanghai Siding Equity Investment Fund Management LLP, annual interest rate of 16.32%, due by November 27, 2015 and early repaid by September 2, 2015. | — | 550,216 | ||||||
| Loan payable to Wuhan Siding Equity Investment Fund Management LLP, annual interest rate of 16.32%, due by November 22, 2015 and early repaid by September 6, 2015. | — | 2,517,879 | ||||||
| Loan payable to Beijing Changlong Yuntong Equity Investment Fund Management Co., Ltd., annual interest rate of 16.32%, due by December 31, 2015 and early repaid by August 27, 2015. | — | 5,702 | ||||||
| Loan payable to Shanghai Luojin Construction Co. Ltd., no interest charge and due by January 8, 2015. | — | 130,325 | ||||||
| Loan payable to Shanghai Lumeila Solid Waste Recycle Engineering Co. Ltd., no interest charge and due by December 31, 2014. This loan was extended to December 31, 2015 and early repaid by September 14, 2015. | — | 65,977 | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 6%, due by August 25, 2016 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 314,773 | — | ||||||
| Loan payable to Rushan City Rural Credit Union, annual interest rate of 8.97%, due by June 18, 2016. | 535,112 | — | ||||||
| $ | 849,885 | $ | 10,707,476 | |||||
| -27- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 11 – LOAN PAYABLES (continued)
Long-term Loans
Long-term loans represent amounts due to lenders that are due more than one year. At September 30, 2015 and December 31, 2014, long-term loans consisted of the following:
| September 30, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 6%, due by August 25, 2016 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | $ | — | $ | 325,813 | ||||
| Loan payable to Agricultural Bank of China, annual interest rate of 6%, due by February 25, 2017 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 472,158 | 488,719 | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 6%, due by August 25, 2017 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 786,931 | 814,531 | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 6%, due by February 25, 2018 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 786,931 | 814,531 | ||||||
| Loan payable to Shanghai Balunzhi Equity Investment Fund Management Co., Ltd., annual interest rate of 20.65%, due by July 17, 2016 and early repaid by September 25, 2015. | — | 408,569 | ||||||
| Loan payable to Rushan City Rural Credit Union, annual interest rate of 8.97%, due by June 18, 2016. | — | 553,881 | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 6%, due by August 25, 2018 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 1,259,089 | — | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 6%, due by February 25, 2019 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 1,101,703 | — | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 5.75%, due by February 25, 2019 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 472,158 | — | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 5.75%, due by September 25, 2019 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 314,772 | — | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 5.75%, due by September 25, 2019 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 629,545 | — | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 5.55%, due by September 25, 2019 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 692,499 | — | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 5.55%, due by September 25, 2019 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 94,432 | — | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 5%, due by September 25, 2019 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 157,386 | — | ||||||
| $ | 6,767,604 | $ | 3,406,044 | |||||
| -28- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS
Loans from Related Parties
During the year ended December 31, 2014, we obtained an aggregate financial supports of approximately $17,878,000 from our related parties for the Company’s working capital purpose. We had repaid approximately $15,061,000 during the year. The balance of those payables was $7,815,637 as of December 31, 2014. These loans were due upon demand and no interest was charged. The detail of these loans from related parties was as follow:
| During the Year Ended December 31, 2014 | ||||||||||||||
| Name | Aggregate financial supports received | Aggregate amount Repaid | As of December 31, 2014 | Relationship | ||||||||||
| Shanghai Huhuili Environmental Engineering Co., Ltd. | $ | 4,940,751 | $ | 2,102,165 | $ | 3,210,780 | Major shareholder is the CEO’s relative | |||||||
| Jilin Jiliang Zongbao Biological Technology Co., Ltd. | 1,584,045 | 8,139 | 1,322,979 | One of management team members had actual control over this entity | ||||||||||
| Shanghai Zhongneng Bio-fertilizer Co., Ltd. | — | 651,126 | — | The CEO is one of the shareholders | ||||||||||
| Mr. Lijun Wang | 7,937,231 | 8,344,185 | 1,881,567 | The CEO’s relative | ||||||||||
| Ms. Hui Song | 3,406,209 | 3,906,596 | 1,351,005 | One of management team members | ||||||||||
| Ms. Zhiying Yang | — | — | 47,243 | The CEO’s wife | ||||||||||
| Ms. Xueying Sheng | — | 32,556 | — | The CFO | ||||||||||
| Mr. Yaohui Sheng | — | 8,139 | — | The CFO’s relative | ||||||||||
| Mr. Guohua Lin | 9,767 | 7,706 | 2,063 | One of the Company’s shareholders | ||||||||||
| $ | 17,878,003 | $ | 15,060,612 | $ | 7,815,637 | |||||||||
During the nine months ended September 30, 2015, we obtained financial supports of $33,525,618 from our related parties and repayments of $34,473,631 made to our related parties which were recorded in the loans from related party account. The balance of those payables was $3,043,152 as of September 30, 2015. These loans were due upon demand and no interest was charged. The detail of these loans from related parties was as follow:
| -29- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS (continued)
| During the Nine Months Ended September 30, 2015 | ||||||||||||||
| Name | Aggregate financial supports received | Aggregate amount Repaid | As of September 30, 2015 | Relationship | ||||||||||
| Jilin Jiliang Zongbao Biological Technology Co., Ltd. | $ | 8,116 | $ | 763,382 | $ | 545,849 | One of management team members had actual control over this entity | |||||||
| Shanghai Huhuili Environmental Engineering Co., Ltd. | 105,509 | 3,304,771 | — | Major shareholder is the CEO’s relative | ||||||||||
| Shanghai Aoke Chemicals Co., Ltd. | 12,321,512 | 9,655,712 | 26,504 | The Company’s CEO is one of Aoke’s shareholders | ||||||||||
| Mr. Lirong Wang | 20,721,607 | 17,840,773 | 1,814,791 | The CEO and Chairman of the Company | ||||||||||
| Mr. Lijun Wang | — | 1,874,817 | — | The CEO’s brother | ||||||||||
| Ms. Hui Song | 1,237 | 744,608 | 584,459 | One of management team members | ||||||||||
| Ms. Zhiying Yang | — | 47,073 | — | The CEO’s wife | ||||||||||
| Ms. Xueying Sheng | 305,652 | 234,230 | 69,250 | The CFO | ||||||||||
| Mr. Jianping Zhang | 53,404 | — | — | One of the Company’s shareholders | ||||||||||
| Mr. Guohua Lin | 8,581 | 8,265 | 2,299 | One of the Company’s shareholders | ||||||||||
| $ | 33,525,618 | $ | 34,473,631 | $ | 3,043,152 | |||||||||
Loans to Related Parties
During the year ended December 31, 2014, we loaned an aggregate of approximately $12,061,000 to our related parties and collected approximately $8,209,000 during the same period. The ending balance of due from related parties was $3,785,377 as of December 31, 2014. These loans were due upon demand and no interest was charged. The detail of our loans to related parties was as follow:
| -30- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS (continued)
| During the Year Ended December 31, 2014 | ||||||||||||||
| Name | Aggregate amount of loan granted | Aggregate amount collected | As of December 31, 2014 | Relationship | ||||||||||
| Shanghai Aoke Chemicals Co., Ltd. | $ | 6,416,374 | $ | 3,112,152 | $ | 2,635,013 | The Company’s CEO is one of Aoke’s shareholders | |||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | 6,115 | — | 83,994 | One of management team had indirect investment relationship with this entity | ||||||||||
| Mr. Lirong Wang | 5,617,751 | 5,082,438 | 1,012,763 | The CEO and Chairman of the Company | ||||||||||
| Mr. Jianping Zhang | 20,497 | 14,191 | 53,607 | One of the Company’s shareholders | ||||||||||
| $ | 12,060,737 | $ | 8,208,781 | $ | 3,785,377 | |||||||||
During the nine months ended September 30, 2015, we did not neither make a new loan to our related parties nor make collections during the same period. The ending balance of due from related parties was $81,147 as of September 30, 2015. These loans were due upon demand and no interest was charged. The detail of our loans to related parties was as follow:
| During the Nine Months Ended September 30, 2015 | ||||||||||||||
| Name | Aggregate amount of loan granted | Aggregate amount collected | As of September 30, 2015 | Relationship | ||||||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | $ | — | $ | — | $ | 81,147 | One of management team had indirect investment relationship with this entity | |||||||
| $ | — | $ | — | $ | 81,147 | |||||||||
The above loans would be in violation of the Sarbanes-Oxley Act of 2002, including Section 402’s prohibition against personal loans to directors and executive officers, either directly or indirectly, had they occurred after Industrial Corp. became a variable interest entity of our Company. Management is aware of the ramifications, and has committed to avoiding it by implementing controls that will prevent this type of violation from happening in the future. Please see “Policies and Procedures for Review, Approval or Ratification of Transactions with Related Persons.”
| -31- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS (continued)
Sales to Related Parties
In the year ended December 31, 2014, the Company made sales of fertilizer products to Jilin Jiliang Zongbao Biological Technology Co., Ltd. and Yantai Shangying Taimeng Advertising Co., Ltd. The detail of sale transactions with its related parties was as follow:
| During the Year Ended December 31, 2014 | ||||||||||||||
| Name | Aggregate amount of sales, including VAT | Aggregate amount of receivables collected | As of December 31, 2014 | Relationship | ||||||||||
| Jilin Jiliang Zongbao Biological Technology Co., Ltd. | $ | 1,293,930 | $ | 2,439,924 | $ | 288,242 | One of management team members had actual control over this entity | |||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | 41,561 | 41,561 | 83,860 | One of management team had indirect investment relationship with this entity | ||||||||||
| $ | 1,335,491 | $ | 2,481,485 | $ | 372,102 | |||||||||
In the nine months ended September 30, 2015, the Company made sales of fertilizer products to Yantai Zongbao Tele-Agriculture Service Co., Ltd. and Yantai Shangying Taimeng Advertising Co., Ltd. The detail of sale transactions with our related parties was as follow:
| During the Nine Months Ended September 30, 2015 | ||||||||||||||
| Name | Aggregate amount of sales, including VAT | Aggregate amount of receivables collected | As of September 30, 2015 | Relationship | ||||||||||
| Jilin Jiliang Zongbao Biological Technology Co., Ltd. | $ | — | $ | 287,208 | $ | — | One of management team members had actual control over this entity | |||||||
| Yantai Zongbao Tele-Agriculture Service Co., Ltd. | 6,813 | 17,999 | 70,173 | One of management team members had actual control over this entity | ||||||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | 31,900 | — | 30,930 | One of management team had indirect investment relationship with this entity | ||||||||||
| $ | 38,713 | $ | 305,207 | $ | 101,103 | |||||||||
| -32- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS (continued)
Advances to Related Party Supplier
In the year ended December 31, 2014, the Company prepaid certain amount of prepayments to its related parties for undelivered goods and services. The detail of prepayment transactions with its related parties was as follow:
| During the Year Ended December 31, 2014 | ||||||||||||||
| Name | Aggregate amount of prepayments | Aggregate amount of goods or services delivered | As of December 31, 2014 | Relationship | ||||||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | $ | — | $ | 6,115 | $ | — | One of management team had indirect investment relationship with this entity | |||||||
| Cangzhou Zongbao Fertilizer Co., Ltd. | 16,644 | 342 | 12,330 | One of management team members had direct investment in this entity | ||||||||||
| $ | 16,644 | $ | 6,457 | $ | 12,330 | |||||||||
In the nine months ended September 30, 2015, the Company prepaid $6,493 to Cangzhou Zongbao Fertilizer Co., Ltd. for the inventory purchase. One of management team members had direct investment in this entity. As of September 30, 2015, the Company reported prepayments of $11,913 to Cangzhou Zongbao Fertilizer Co., Ltd.
Inventories and Services Purchased from Related Parties
In the year ended December 31, 2014, the Company purchased raw materials and marketing services from its related parties, Shanghai Aoke Chemicals Co., Ltd. and Yantai Shangying Taimeng Advertising Co., Ltd. The detail of inventory and service purchase transactions with the related parties was as follow:
| During the Year Ended December 31, 2014 | ||||||||||||||
| Name | Aggregate amount of purchase | Aggregate amount of payables paid | As of December 31, 2014 | Relationship | ||||||||||
| Shanghai Aoke Chemicals Co., Ltd. | $ | 5,095 | $ | 5,095 | $ | — | The Company’s CEO is one of Aoke’s shareholders | |||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | 1,284,413 | 2,093,017 | 1,336,435 | One of management team had indirect investment relationship with this entity | ||||||||||
| $ | 1,289,509 | $ | 2,098,112 | $ | 1,336,435 | |||||||||
| -33- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS (continued)
In the nine months ended September 30, 2015, the Company purchased raw materials from its related parties, Aoke. The detail of inventory purchase transactions with the related party was as follow:
| During the Nine Months Ended September 30, 2015 | ||||||||||||||
| Name | Aggregate amount of purchase | Aggregate amount of payables paid | As of September 30, 2015 | Relationship | ||||||||||
| Shanghai Aoke Chemicals Co., Ltd. | $ | 6,541 | $ | — | $ | 199,212 | The Company’s CEO is one of Aoke’s shareholders | |||||||
| $ | 6,541 | $ | — | $ | 199,212 | |||||||||
NOTE 13 – CONCENTRATIONS
Customers
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the nine months ended September 30, 2015 and 2014.
| For the Nine Months Ended September 30, | ||||||||||
| Customers | 2015 | 2014 | ||||||||
| A | -% | 68% | ||||||||
Suppliers
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchase for the nine months ended September 30, 2015 and 2014.
| For the Nine Months Ended September 30, | ||||||||||
| Supplier | 2015 | 2014 | ||||||||
| B | -% | 85% | ||||||||
| -34- |
NOTE 14 – SUBSEQUENT EVENTS
On February 10, 2016, Shanghai Muliang Industrial Corp. (“Industrial Corp.”) entered into an entrusted management agreement with Muliang Agriculture Ltd.’s wholly owned subsidiary, Shanghai Mufeng Investment Consulting Co., Ltd. (“Consulting Corp.”), which provides that Consulting Corp. will be entitled to the full guarantee for the performance of such entrusted management agreement entered into by the Company. Muliang Agriculture Ltd. (“Agriculture”) was incorporated in Hong Kong, PRC on August 21, 2014. Other than the equity interest in Consulting Corp., Agriculture does not own any assets or conduct any operations. Consulting Corp. is also entitled to receive the residual return of the Company. As a result of the agreement, Consulting Corp. will absorb 100% of the expected gains or losses of the Company, which results in Consulting Corp. being the primary beneficiary of the Company.
Consulting Corp. also entered into a pledge of equity agreement with the principal shareholders of the Company (the “Principal Shareholders”), who pledged all their equity interest in the entity to Consulting Corp. The pledge of equity agreement, which were entered into by each Principal Shareholder, pledged each of the Principal Shareholders’ equity interest in the Company as a guarantee for the entrustment payment under the Entrusted Management Agreements. In addition, Consulting Corp. entered into an option agreement to acquire the Principal Shareholders’ equity interest in these entities if or when permitted by the PRC laws.
| -35- |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Shanghai Muliang Industrial Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Shanghai Muliang Industrial Corp. and Subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income and comprehensive income, cash flows and equity for the years then ended. Shanghai Muliang Industrial Corp.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Shanghai Muliang Industrial Corp. and Subsidiaries as of December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has cash outflow from its operating activities and insufficient cash balance to cover its short-term loans which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding this matter are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ HHC
Forest Hills, New York
February 10, 2016
| -36- |
Shanghai Muliang Industrial Corp. and Subsidiaries
| December 31, | ||||||||
| 2014 | 2013 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 183,536 | $ | 30,203 | ||||
| Accounts receivable, net | 91,353 | 639,589 | ||||||
| Accounts receivable - related party | 372,102 | 1,525,958 | ||||||
| Inventories | 460,979 | 859,607 | ||||||
| Advances to suppliers | 1,263,252 | 3,052,216 | ||||||
| Advances to suppliers - related party | 12,330 | 1,329,330 | ||||||
| Prepaid expenses | 3,462 | — | ||||||
| Other receivables, net | 82,615 | 76,184 | ||||||
| Due from related party | 3,785,377 | 860,281 | ||||||
| Total Current Assets | 6,255,006 | 8,373,368 | ||||||
| Long-term investment | — | 490,966 | ||||||
| Plant and equipment, net | 1,261,640 | 1,614,171 | ||||||
| Construction in progress | 5,535,611 | 399,960 | ||||||
| Biological assets, net | 53,686 | — | ||||||
| Intangible assets, net | 2,848,561 | 2,909,544 | ||||||
| Total Assets | $ | 15,954,504 | $ | 13,788,009 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Short-term loans | $ | 10,707,476 | $ | 5,474,313 | ||||
| Accounts payable and accrued payables | 2,213,357 | 772,616 | ||||||
| Accounts payable - related party | 1,336,435 | 2,159,528 | ||||||
| Advances from customers | 16,993 | 40,933 | ||||||
| Other payables | 281,510 | 278,732 | ||||||
| Due to related party | 7,815,637 | 8,698,607 | ||||||
| Total Current Liabilities | 22,371,408 | 17,424,729 | ||||||
| Long-term loans | 3,406,044 | 2,446,076 | ||||||
| Total Liabilities | 25,777,452 | 19,870,805 | ||||||
| Stockholders’ Equity: | ||||||||
| Paid in capital | 793,512 | 793,512 | ||||||
| Additional paid in capital | 19,298 | 19,298 | ||||||
| Accumulated deficit | (10,519,167 | ) | (6,799,179 | ) | ||||
| Accumulated other comprehensive loss | (121,239 | ) | (145,766 | ) | ||||
| Stockholders’ Deficit - Shanghai Muliang Industrial Corp. and Subsidiaries | (9,827,596 | ) | (6,132,135 | ) | ||||
| Noncontrolling interest | 4,648 | 49,339 | ||||||
| Total Stockholders’ Deficit | (9,822,948 | ) | (6,082,796 | ) | ||||
| Total Liabilities and Stockholders’ Equity | $ | 15,954,504 | $ | 13,788,009 | ||||
See accompanying notes to consolidated financial statements
| -37- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Incomes (Losses)
| For the Year Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| Revenues | $ | 391,395 | $ | 1,661,944 | ||||
| Revenues - related party | 1,141,446 | 1,544,130 | ||||||
| 1,532,841 | 3,206,074 | |||||||
| Cost of goods sold | 1,781,253 | 3,236,456 | ||||||
| Gross loss | (248,412 | ) | (30,382 | ) | ||||
| Operating expenses: | ||||||||
| General and administrative expenses | 1,048,576 | 616,021 | ||||||
| Selling expenses | 148,524 | 423,045 | ||||||
| Total operating expenses | 1,197,100 | 1,039,066 | ||||||
| Loss from operations | (1,445,512 | ) | (1,069,448 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (2,136,078 | ) | (1,146,129 | ) | ||||
| Loss from disposal of equipment | (157,696 | ) | — | |||||
| Other income, net | (25,782 | ) | (932 | ) | ||||
| Total other expenses | (2,319,556 | ) | (1,147,061 | ) | ||||
| Loss before income taxes | (3,765,068 | ) | (2,216,509 | ) | ||||
| Income taxes | 49 | 135 | ||||||
| Net income (loss) | (3,765,117 | ) | (2,216,644 | ) | ||||
| Net loss attributable to noncontrolling interest | 45,129 | 8,183 | ||||||
| Net loss attributable to Shanghai Muliang Industrial Corp.’s common stockholders | (3,719,988 | ) | (2,208,461 | ) | ||||
| Other comprehensive loss: | ||||||||
| Unrealized foreign currency translation adjustment | 24,527 | (145,766 | ) | |||||
| Comprehensive loss | $ | (3,695,461 | ) | $ | (2,354,227 | ) | ||
See accompanying notes to consolidated financial statements
| -38- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
| For the Year Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (3,765,117 | ) | $ | (2,216,644 | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 287,017 | 262,181 | ||||||
| Bad debt expense | 48,453 | 8,419 | ||||||
| Permanent loss from inventory valuation | 18,090 | — | ||||||
| Loss (gain) on physical inventory | 135,797 | 66,735 | ||||||
| Impairment loss at inventory LCM | 17,254 | 7,731 | ||||||
| Loss from disposal of fixed assets | 157,696 | — | ||||||
| Accounts receivable | 517,551 | (98,128 | ) | |||||
| Accounts receivable - related party | 1,145,994 | (1,506,214 | ) | |||||
| Inventories | 223,251 | 13,996 | ||||||
| Advances to suppliers | 1,770,926 | (2,608,265 | ) | |||||
| Advances to suppliers - related party | 1,309,912 | (1,211,534 | ) | |||||
| Prepaid expenses | (3,459 | ) | — | |||||
| Other receivables | (27,888 | ) | (55,936 | ) | ||||
| Accounts payable and accrued payables | 1,443,172 | 577,584 | ||||||
| Accounts payable - related party | (812,585 | ) | 2,091,201 | |||||
| Advances from customers | (23,734 | ) | (34,193 | ) | ||||
| Other payables | 4,051 | 273,650 | ||||||
| Total adjustments | 6,211,498 | (2,212,773 | ) | |||||
| Net cash provided by (used in) operating activities | 2,446,381 | (4,429,417 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for equity investments | — | (484,614 | ) | |||||
| Proceeds from disposal of fixed assets | 6,186 | — | ||||||
| Purchase in intangible assets | (16,278 | ) | (639,690 | ) | ||||
| Purchase of biological assets | (53,645 | ) | — | |||||
| Investment in construction in progress | (5,133,551 | ) | (214,831 | ) | ||||
| Purchase of plant and equipment | (42,116 | ) | (398,400 | ) | ||||
| Net cash used in investing activities | (5,239,404 | ) | (1,737,535 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repayment of long-term loans | (16,278 | ) | (32,308 | ) | ||||
| Proceeds from long-term loans | 2,849,980 | 2,285,195 | ||||||
| Due to (from) related party | (3,280,953 | ) | 3,841,360 | |||||
| Repayment of short-term loans | (14,130,271 | ) | (5,346,902 | ) | ||||
| Proceeds from short-term loans | 17,602,582 | 5,338,057 | ||||||
| Net cash provided by financing activities | 3,025,060 | 6,085,402 | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (78,704 | ) | 77,309 | |||||
| NET INCREASE (DECREASE) IN CASH | 153,333 | (4,241 | ) | |||||
| CASH, BEGINNING OF PERIOD | 30,203 | 34,444 | ||||||
| CASH, END OF PERIOD | $ | 183,536 | $ | 30,203 | ||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Cash paid during the period for: | ||||||||
| Cash paid for interest expense, net of capitalized interest | $ | 2,136,597 | $ | 1,146,312 | ||||
| Cash paid for income tax | $ | 49 | $ | 135 | ||||
| NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES | ||||||||
| Disposal of long-term investment with collections made through due to related party | $ | 488,345 | $ | — | ||||
| Reclassification of long-term loans to short-term loans | $ | 1,863,280 | $ | — | ||||
| Uncollected receivable from disposal of 40% equity interest to a non-controlling interest shareholder of one of Chinese subsidiaries | $ | — | $ | 64,615 | ||||
See accompanying notes to consolidated financial statements
| -39- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Consolidated Statements of the Stockholders’ Deficit
| Common Stock | Paid-in | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Noncontrolling | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Capital | Deficit | Loss | Interest | Total | |||||||||||||||||||||||||
| Balance, December 31, 2012 | — | $ | — | $ | 793,512 | $ | 19,298 | $ | (4,590,718 | ) | $ | — | $ | (6,535 | ) | $ | (3,784,443 | ) | ||||||||||||||
| Disposal of 40% equity interest of one of Chinese subsidiaries to a non-controlling interest shareholder | — | — | — | — | — | — | 64,615 | 64,615 | ||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (2,208,461 | ) | — | (8,183 | ) | (2,216,644 | ) | |||||||||||||||||||||
| Unrealized foreign currency translation adjustment | — | — | — | — | — | (145,766 | ) | (558 | ) | (146,324 | ) | |||||||||||||||||||||
| Balance, December 31, 2013 | — | — | 793,512 | 19,298 | (6,799,179 | ) | (145,766 | ) | 49,339 | (6,082,796 | ) | |||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (3,719,988 | ) | — | (45,129 | ) | (3,765,117 | ) | |||||||||||||||||||||
| Unrealized foreign currency translation adjustment | — | — | — | — | — | 24,527 | 438 | 24,965 | ||||||||||||||||||||||||
| Balance, December 31, 2014 | — | $ | — | $ | 793,512 | $ | 19,298 | $ | (10,519,167 | ) | $ | (121,239 | ) | $ | 4,648 | $ | (9,822,948 | ) | ||||||||||||||
See accompanying notes to consolidated financial statements
| -40- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
The consolidated financial statements include the financial statements of Shanghai Muliang Industrial Corp. (referred to herein as “Industrial Corp.”); its wholly-owned subsidiaries which are limited liability companies in People’s Republic of China (“PRC”), Shanghai Zongbao Environment Engineering Co., Ltd. (“Zongbao”) and Shanghai Muliang Agritech Development Co., Ltd. (“Muliang Agritech”); its 99% owned subsidiary, Weihai Fukang Bio-Fertilizer Co., Ltd. (“Fukang”), a PRC limited liability company.
On July 11, 2013, Industrial Corp. established a wholly owned subsidiary, Muliang Agritech in Shanghai, China. On November 6, 2013, Industrial Corp. sold 40% of the outstanding equity of Muliang Agritech to Mr. Jianping Zhang for consideration of approximately $65,000 or RMB 400,000. Muliang Agritech does not own any assets or conduct any operations. On July 17, 2013, Industrial Corp. acquired 100% of the outstanding equity of Zongbao from Zhongbao’s former shareholders with consideration of approximately $3.2 million or RMB 20 million. Zhongbao is engaged in the business of processing and distributing organic fertilizers. On May 27, 2013, Industrial Corp. entered into and consummated an equity purchase agreement whereby it acquired 99% of the outstanding equity of Fukang, a corporation organized under the laws of the People’s Republic of China. As a result of the completion of the transaction, Fukang became a 99% owned subsidiary of Industrial Corp., with the remaining 1% equity interest owned by Mr. Hui Song. Fukang is focused on distribute organic fertilizers and develop new bio-organic fertilizers. All of Industrial Corp.’s operations are conducted by Industrial Corp., Zhongbao and Fukang. Zhongbao and Fukang’s results of operations are consolidated into those of Industrial Corp. Zhongbao, Muliang Agritech, and Fukang are sometimes referred to as the “subsidiaries”. Industrial Corp. and its consolidated subsidiaries are collectively referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.
Industrial Corp. was incorporated in PRC on December 7, 2006 as a limited liability company. The Company is engaged in the business of developing, manufacturing, and selling organic fertilizers and bio-organic fertilizers for use in agricultural industry. The Company operates a fertilizer production factory around Shanghai through one of its subsidiaries, Zongbao.
Zhongbao was incorporated in Shanghai on January 25, 2008. On July 17, 2013, Industrial Corp. entered into an equity purchase agreement with Zhongbao’s former shareholders whereby Industrial Corp. acquired 100% of the equity interest of Zhongbao. Industrial Corp. acquired Zhongbao and became the sole holder of 100% of the equity interest of Zhongbao, and Zhongbao effectively became the wholly-owned subsidiary of Industrial Corp.
On May 27, 2013, Industrial Corp. entered into a share purchase agreement with Fukang’s principal shareholder whereby Industrial Corp. would acquire 99% of the equity interest of Fukang. Fukang was incorporated in Weihai City, Shandong Province on January 6, 2009.
| -41- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS (continued)
Liquidity and going concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going-concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the financial statements. The Company’s ability to continue as a going concern depends upon the liquidation of current assets. As of December 31, 2014, the Company reported the cash balance at $183,536 and the outstanding loans which would be due in the next 12 months were $10,707,476. For the years ended December 31, 2014 and 2013, the Company reported net losses of $3,765,117 and $2,216,644, respectively. Additionally, the Company had working capital deficit of approximately $16.1 million and $9.1 million as of December 31, 2014 and 2013. These conditions raise a substantial doubt as to whether the Company may continue as a going concern.
In an effort to improve its financial position, the Company is working to obtain new loans from banks and related parties, renew its current loans, and to improve its operations upon its new fertilizer factories start to operate. One of the new fertilizer factories was completed and put in operations in August 2015 and another factory was expected to put in operation in June 2016. Management believes that if successfully executed, the foregoing actions would enable the Company to continue as a going-concern.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). The 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”). All significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include the useful lives of property and equipment, land use rights, assumptions used in assessing collectability of receivables and impairment for long-term assets.
| -42- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Principles of Consolidation
We consolidate the following entities, including wholly-owned subsidiaries, Zhongbao and Muliang Agritech, and 99% owned subsidiary, Fukang. All material intercompany accounts and transactions have been eliminated in consolidation. The 1% equity interest holders in Fukang and the 40% equity interest holder of Muliang Agritech will be accounted as noncontrolling interest in the Company’s consolidated financial statements.
Restrictions of Transfer of Assets Out of the PRC
Dividend payments by Industrial Corp. and its subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by the Company without first receiving prior approval from the Foreign Currency Exchange Management Bureau. Dividend payments are restricted to 90% of profits, after tax.
Control by Principal Stockholders
Our directors and executive officers and their affiliates or related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding shares of our common stock. Accordingly, if our directors and executive officers and their affiliates or related parties vote their shares uniformly, they would have the ability to control the approval of most corporate actions, including increasing our authorized capital stock and the dissolution or merger of our company or the sale of our assets.
Cash
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash with various financial institutions in the PRC. As of December 31, 2014 and 2013, balances in banks in the PRC of $179,472 and $27,163, respectively, are uninsured.
Accounts Receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At December 31, 2014 and 2013, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $63,575 and $36,381, respectively.
| -43- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded inventory reserves of $95,201 and $485,715 at December 31, 2014 and 2013.
Advances to Suppliers
Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $1,263,252 and $3,052,216 as of December 31, 2014 and 2013, respectively.
Plant and Equipment
Plant and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Included in property and equipment is construction-in-progress which consisted of factory improvements and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation of the assets. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.
Estimated useful lives of the Company’s assets are as follows:
| Useful Life | |
| Building | 20 years |
| Operating equipment | 5-10 years |
| Vehicle | 3-5 years |
| Electronic equipment | 3-20 years |
| Office equipment | 3-20 years |
| -44- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Biological Assets
Biological assets consist primarily of rental for an apple farm, labor cost, fertilizers, apple seeds, apple seedlings and others. The costs to purchase and cultivate apple trees and the expenditures related to labor and materials to plant apple trees until they become commercially productive are capitalized, which require a 2 year period. The estimated production life for apple tree is 10 years, and the costs are amortized without a residual value. Expenses incurred maintaining apple trees during the growth cycle until seedling apple trees or grafted varieties are fruited are capitalized into inventory and included in Work in process—biological assets, a component of inventories.
Amortized expenses pertaining to biological assets are included in inventory costs for those apples to be sold and ultimately become a component of cost of goods sold. Similar to other assets, the failure of our biological assets to be serviceable over the entirety of their anticipated useful lives or to be sold at their anticipated residual value will negatively impact our operating results.
Intangible Assets
Included in the intangible assets are land use rights. According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Intangible assets are being amortized using the straight-line method over their lease terms or estimated useful life.
The Company carries intangible assets at cost less accumulated amortization. In accordance with US GAAP, the Company examines the possibility of decreases in the value of intangible assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes amortization using the straight-line method over the 50 year life of the land use rights.
Impairment of Long-lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment charge of $448,278 and $0 for the years ended December 31, 2014 and 2013.
| -45- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advances from Customers
Advances from customers at December 31, 2014 and 2013 amounted to $16,993 and $40,933, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.
Non-controlling Interest
Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.
Revenue Recognition
Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. The Company recognizes revenues from the sale of its fertilizer products upon shipment and transfer of title.
Income Taxes
The Company accounts for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The Company did not have any deferred tax assets or liabilities as of December 31, 2014 and 2013.
The Company is subject to the Enterprise Income Tax law (“EIT”) of the People’s Republic of China. The Company’s operations in producing and selling fertilizers are subject to the 25% enterprise income tax. In addition the Company’s sales are subject to the 13% or 17% PRC’s VAT tax or the 5% business tax levied on incomes from services rendered.
Shipping and Handling Costs
Shipping costs are included in selling expenses and totaled $30,411 and $184,198 for the years ended December 31, 2014 and 2013, respectively.
| -46- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising Costs
Advertising is expensed as incurred and is included in selling, general and administrative expenses on the accompanying statements of income and comprehensive income and totaled $12,836 and $77,320 for the years ended December 31, 2014 and 2013, respectively.
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.
Accumulated Other Comprehensive Income
Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive income for the years ended December 31, 2014 and 2013 included net income and unrealized gains from foreign currency translation adjustments.
Foreign Currency Translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the Chinese Renminbi (“RMB”). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. The cumulative translation adjustment and effect of exchange rate changes on cash for the years ended December 31, 2014 and 2013 was ($78,704) and $77,309, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
| -47- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
Asset and liability accounts at December 31, 2014 and 2013 were translated at 6.1385 RMB to $1.00 and at 6.1104 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of income for the years ended December 31, 2014 and 2013 were 6.1432 RMB and 6.1905 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
Fair Value of Financial Instruments
The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, inventories, advances to suppliers, prepaid expenses, short-term loans, accounts payable, accrued expenses, advances from customers, VAT and service taxes payable and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.
ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
| -48- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations of Credit Risks
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
At December 31, 2014 and 2013, the Company’s cash balances by geographic area were as follows:
| December 31, | ||||||||||||||||
| 2014 | 2013 | |||||||||||||||
| Country: | ||||||||||||||||
| United States | $ | — | — | $ | — | — | ||||||||||
| China | 183,536 | 100 | % | 30,203 | 100 | % | ||||||||||
| Total cash and cash equivalents | $ | 183,536 | 100 | % | $ | 30,203 | 100 | % | ||||||||
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessments inherently involve an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
| -49- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
Accrual of Environmental Obligations
ASC Section 410-30-25 “Recognition” of environmental obligations requires the accrual of a liability if both of the following conditions are met:
| a) | Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements. |
| b) | The amount of the loss can be reasonably estimated. |
As of December 31, 2014 and 2013, the Company did not have any environmental remediation obligations, nor did it have any asset retirement obligations under ASC 410. Furthermore, the Company did not have any environmental remediation loss contingencies requiring recognition or disclosure in its financial statements.
Recent Accounting Pronouncement
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, “Revenue from Contracts with Customers” (“ASU 2014-9”). ASU 2014-9 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries through the application of the following five-step process:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
| -50- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The updated guidance related to revenue recognition which affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for the Company starting on January 1, 2017. The Company is currently evaluating the impact this guidance will have on its combined financial position, results of operations and cash flows.
In April 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard that raises the threshold for disposals to qualify as discontinued operations and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard revised the definition of a discontinued operation to cover only asset disposals that are considered to be a strategic shift with a major impact on an entity's operations and finances, such as the disposal of a major geographic area or a significant line of business. Application of the standard, which is to be applied prospectively, is required for fiscal years beginning on or after December 15, 2014, and for interim periods within that year.
Based on the Company’s initial assessment of the standard, the Company expects that any potential future disposals of any one of its hog farms will not be reported as discontinued operations and that the results of operations of any such disposed hog farms, including revenues, costs and any gains or losses on disposal, will be classified as continuing operations within the Consolidated Statements of Operations and Comprehensive Income for all periods presented through the date of disposition.
NOTE 3 – ACCOUNTS RECEIVABLE
The Company accrues an allowance for bad debts related to our receivables. The receivable and allowance balances at December 31, 2014 and 2013 were as follows:
| December 31, | ||||||||
| 2014 | 2013 | |||||||
| Accounts receivable | $ | 154,928 | $ | 675,970 | ||||
| Less: allowance for doubtful accounts | (63,575 | ) | (36,381 | ) | ||||
| $ | 91,353 | $ | 639,589 | |||||
The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. After evaluating the collectability of individual receivable balances, the Company increased the allowance for doubtful accounts in the amount of $27,340 and $8,419 for the years ended December 31, 2014 and 2013, respectively.
| -51- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 4 – INVENTORIES
At December 31, 2014 and 2013, inventories consisted of the following:
| December 31, | ||||||||
| 2014 | 2013 | |||||||
| Raw materials | $ | 191,210 | $ | 213,226 | ||||
| Finished goods | 364,970 | 1,132,096 | ||||||
| 556,180 | 1,345,322 | |||||||
| Less: reserve for obsolete inventory | (95,201 | ) | (485,715 | ) | ||||
| $ | 460,979 | $ | 859,607 | |||||
For the years ended December 31, 2014, the Company reported loss of $135,797 on physical inventory, a temporary loss of $17,254 and a permanent loss of 18,090 on inventory valuation. For the years ended December 31, 2013, the Company reported loss of $66,735 on physical inventory and a temporary loss of $7,731 on inventory valuation.
NOTE 5 – OTHER RECEIVABLES
At December 31, 2014 and 2013, the Company reported other receivables of $82,615 and $76,184, respectively, including an allowance for doubtful receivables of $118,873 and $98,193.
The balances of other receivables as of December 31, 2014 and 2013 included the following:
| December 31, | ||||||||
| 2014 | 2013 | |||||||
| Construction deposit | $ | 24,436 | $ | 8,183 | ||||
| Subsidy receivable | 48,538 | 48,761 | ||||||
| Loan receivables | 97,744 | 114,559 | ||||||
| Others | 30,770 | 2,874 | ||||||
| 201,488 | 174,377 | |||||||
| Less: allowance for doubtful accounts | (118,873 | ) | (98,193 | ) | ||||
| $ | 82,615 | $ | 76,184 | |||||
The Company reviews the other receivables on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. After evaluating the collectability of individual receivable balances, the Company increased the allowance for doubtful accounts in the amount of $21,113 and $0 for the years ended December 31, 2014 and 2013.
| -52- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 6 – LONG-TERM INVESTMENT
As of December 31, 2014 and 2013, the Company reported $0 and $490,966, respectively. No gain or loss recognized from the investment during the years ended December 31, 2014 and 2013.
At September 16, 2013, the Company entered into an investment agreement to establish a PRC limited liability company, Yantai Zongbao Tele-Agriculture Service Co., Ltd. (“Yantai Zongbao”), located in Yantai City, Shandong Province. Yantai Zongbao was engaged in providing agricultural planting consulting services to farm owners. The Company invested in approximately $0.5 million or RMB 3 million for 30% of the equity of Yantai Zongbao. On August 26, 2014, the Company sold the 30% equity of interest of Yantai Zongbao to Ms. Hui Song, a member of the Company’s management team, for consideration of approximately $0.5 million or RMB 3 million. Until August 26, 2014 (the disposal date), Yantai Zongbao did not have any operating activities.
NOTE 7 – PLANT AND EQUIPMENT
Plant and equipment at December 31, 2014 and 2013 consisted of:
| December 31, | ||||||||||
| Useful Life | 2014 | 2013 | ||||||||
| Building | 20 years | $ | 389,031 | $ | 390,820 | |||||
| Operating equipment | 5-10 years | 1,704,971 | 2,010,931 | |||||||
| Vehicle | 3-5 years | 41,706 | 41,898 | |||||||
| Office equipment | 3-20 years | 63,516 | 57,265 | |||||||
| 2,199,224 | 2,500,914 | |||||||||
| Less: accumulated depreciation | (937,584 | ) | (886,743 | ) | ||||||
| $ | 1,261,640 | $ | 1,614,171 | |||||||
For the years ended December 31, 2014 and 2013, depreciation expense amounted to $223,112 and $206,303, respectively. Depreciation is not taken during the period of construction or equipment installation. Upon completion of the installation of manufacturing equipment or any construction in progress, construction in progress balances will be classified to their respective property and equipment category.
| -53- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 8 – CONSTRUCTION IN PROGRESS
Construction in progress consists of amounts expended for the constructions of two new fertilizer factories. Once construction is completed and the facilities are approved to be used, the construction in progress assets are placed into production and transferred into plant and equipment, whereupon they are depreciated over their estimated useful lives. As of December 31, 2014 and 2013, the construction in progress was $5,535,611 and $399,960, respectively. Included in this amount were:
| - | $3,435,914 and $123,502 as of December 31, 2014 and 2013 for building an organic fertilizer processing facility, located in Shanghai, with the annual production capacity of 100,000 tons organic fertilizers. The facility was designed with 4 production lines, with total contractual payment of approximately $11 million or RMB 67.7 million, and was scheduled to be completed on June 2016; and |
| - | $2,099,697 and $276,458 as of December 31, 2014 and 2013, respectively, for building an organic fertilizer processing facility, located in Weihai City, Shandong Province, with the annual production capacity of 50,000 tons organic fertilizers. The facility was designed with 2 production lines, with total contractual payment of approximately $4.6 million or RMB 28 million, and had been completed on August 2015. |
NOTE 9 – BIOLOGICAL ASSETS
Biological assets at December 31, 2014 and 2013 consisted of:
| December 31, | ||||||||||
| Useful Life | 2014 | 2013 | ||||||||
| Apple trees | 10 years | $ | 53,686 | $ | — | |||||
| Less: accumulated amortization | — | — | ||||||||
| $ | 53,686 | $ | — | |||||||
For the years ended December 31, 2014 and 2013, no amortization expense was reported.
NOTE 10 – INTANGIBLE ASSETS
There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. The Company’s land use rights have a term of 50 years. The Company amortizes the land use rights over the term of the respective land use right. For the years ended December 31, 2014 and 2013, amortization of land use rights amounted to $63,905 and $55,878, respectively. At December 31, 2014 and 2013, intangible assets consisted of the following:
| December 31, | ||||||||||
| Useful Life | 2014 | 2013 | ||||||||
| Land use rights | 50 years | $ | 3,044,555 | $ | 3,058,556 | |||||
| Others | 10 years | 16,290 | — | |||||||
| 3,060,845 | 3,058,556 | |||||||||
| Less: accumulated depreciation | (212,284 | ) | (149,012 | ) | ||||||
| $ | 2,848,561 | $ | 2,909,544 | |||||||
The estimated amortization expense of intangible assets over each of the next five years and thereafter will be $63,905.
| -54- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 11 – LOAN PAYABLES
Short-term Loans
Short-term loans represent amounts due to lenders that is due within one year. The loans can be renewed with the lenders upon maturity. At December 31, 2014 and 2013, short-term loans consisted of the following:
| December 31, | ||||||||
| 2014 | 2013 | |||||||
| Loan payable to Shanghai Jinshan Limin Micro Credit Co. Ltd., annual interest rate of 20%, due and fully repaid by February 25, 2015. | $ | 814,531 | $ | — | ||||
| Loan payable to Nanjing Julong Equity Investment Fund Management Co., Ltd, annual interest rate of 20.2%, due and repaid by September 2, 2015. | 5,827,375 | — | ||||||
| Loan payable to Beijing Andexun Investment Advisory Co., Ltd., no interest charge, due by September 30, 2015 and early repaid by September 18, 2015. | 795,471 | — | ||||||
| Loan payable to Shanghai Siding Equity Investment Fund Management LLP, annual interest rate of 16.32%, due by November 27, 2015 and early repaid by September 2, 2015. | 550,216 | — | ||||||
| Loan payable to Wuhan Siding Equity Investment Fund Management LLP, annual interest rate of 16.32%, due by November 22, 2015 and early repaid by September 6, 2015. | 2,517,879 | — | ||||||
| Loan payable to Beijing Changlong Yuntong Equity Investment Fund Management Co., Ltd., annual interest rate of 16.32%, due by December 31, 2015 and early repaid by August 27, 2015. | 5,702 | — | ||||||
| Loan payable to Shanghai Luojin Construction Co. Ltd., no interest charge and due by January 8, 2015. | 130,325 | — | ||||||
| Loan payable to Shanghai Lumeila Solid Waste Recycle Engineering Co. Ltd., no interest charge and due by December 31, 2014. This loan was extended to December 31, 2015 and early repaid by September 14, 2015. | 65,977 | 66,280 | ||||||
| Loan payable to Shanghai Jinshan Limin Micro Credit Co. Ltd., annual interest rate of 20%, due and repaid by December 31, 2014. | — | 4,664,179 | ||||||
| Loan payable to Shanghai Jinshan Limin Micro Credit Co. Ltd., annual interest rate of 20%, due by April 27, 2014 and repaid in April 2014. | — | 57,279 | ||||||
| Loan payable to a third party individual, Mr. Yajun Peng with no interest charge and due on demand. | — | 31,950 | ||||||
| Loan payable to a third party individual, Mr. Dongwei Wang, with no interest charge and due on demand. | — | 490,969 | ||||||
| Loan payable to Beijing Anderson Investment Advisory Co., Ltd. with no interest charge and due on demand. | — | 163,656 | ||||||
| $ | 10,707,476 | $ | 5,474,313 | |||||
| -55- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 11 – LOAN PAYABLES (continued)
Long-term Loans
Long-term loans represent amounts due to lenders that are due more than one year. At December 31, 2014 and 2013, long-term loans consisted of the following:
| December 31, | ||||||||
| 2014 | 2013 | |||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 6%, due by August 25, 2016 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | $ | 325,813 | $ | — | ||||
| Loan payable to Agricultural Bank of China, annual interest rate of 6%, due by February 25, 2017 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 488,719 | — | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 6%, due by August 25, 2017 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 814,531 | — | ||||||
| Loan payable to Agricultural Bank of China, annual interest rate of 6%, due by February 25, 2018 with land use rights as collateral and guaranteed by Mr. Lirong Wang, the CEO. | 814,531 | — | ||||||
| Loan payable to Shanghai Balunzhi Equity Investment Fund Management Co., Ltd., annual interest rate of 20.65%, due by July 17, 2016 and early repaid by September 25, 2015. | 408,569 | — | ||||||
| Loan payable to Rushan City Rural Credit Union, annual interest rate of 8.97%, due by June 18, 2016. | 553,881 | 572,794 | ||||||
| Loan payable to Beijing Andexun Investment Advisory Co., Ltd., no interest charge, due and fully repaid by September 30, 2015. | — | 782,682 | ||||||
| Loan payable to Nanjing Julong Equity Investment Fund Management Co., Ltd, annual interest rate of 20.2%, due and fully repaid by September 2, 2015. | — | 610,271 | ||||||
| Loan payable to Shanghai Siding Equity Investment Fund Management LLP, annual interest rate of 16.32%, due by November 27, 2015. | — | 91,647 | ||||||
| Loan payable to Wuhan Siding Equity Investment Fund Management LLP, annual interest rate of 16.32%, due by November 22, 2015. | — | 252,029 | ||||||
| Loan payable to Beijing Changlong Yuntong Equity Investment Fund Management Co., Ltd., annual interest rate of 16.32%, due by December 31, 2015. | — | 5,728 | ||||||
| Loan payable to Shanghai Luojin Construction Co. Ltd., no interest charge and due January 8, 2015. | — | 130,925 | ||||||
| $ | 3,406,044 | $ | 2,446,076 | |||||
| -56- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS
Loans from Related Parties
During 2013, we obtained an aggregate financial supports of approximately $11,857,000 from our related parties for the Company’s working capital purpose. We had repaid approximately $2,116,000 during the year. The balance of those payables was $8,698,607 as of December 31, 2013. These loans were due upon demand and no interest was charged. The detail of these loans from related parties was as follow:
| During the Year Ended December 31, 2013 | ||||||||||||||
| Name | Aggregate financial supports received | Aggregate amount Repaid | As of December 31, 2013 | Relationship | ||||||||||
| Shanghai Huhuili Environmental Engineering Co., Ltd. | $ | 435,401 | $ | 432,860 | $ | 371,722 | Major shareholder is the CEO’s relative | |||||||
| Shanghai Aoke Chemicals Co., Ltd. | 4,882,798 | 1,356,194 | 723,925 | The CEO is one of the shareholders | ||||||||||
| Shanghai Zhongneng Bio-fertilizer Co., Ltd. | — | — | 654,622 | The CEO is one of the shareholders | ||||||||||
| Mr. Lijun Wang | 4,179,872 | 44,504 | 4,189,578 | The CEO’s relative | ||||||||||
| Ms. Hui Song | 2,155,823 | 101,769 | 2,670,386 | One of management team members | ||||||||||
| Ms. Zhiying Yang | — | — | 47,460 | The CEO’s wife | ||||||||||
| Ms. Xueying Sheng | 146,192 | 113,884 | 32,731 | The CFO | ||||||||||
| Mr. Guohua Lin | — | 18,673 | — | One of the Company’s shareholders | ||||||||||
| Mr. Yaohui Sheng | — | 48,461 | — | The CFO’s relative | ||||||||||
| $ | 11,856,624 | $ | 2,116,345 | $ | 8,698,607 | |||||||||
During 2014, we obtained an aggregate financial supports of approximately $17,878,000 from our related parties for the Company’s working capital purpose. We had repaid approximately $15,061,000 during the year. The balance of those payables was $7,815,637 as of December 31, 2014. These loans were due upon demand and no interest was charged. The detail of these loans from related parties was as follow:
| -57- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS (continued)
| During the Year Ended December 31, 2014 | ||||||||||||||
| Name | Aggregate financial supports received | Aggregate amount Repaid | As of December 31, 2014 | Relationship | ||||||||||
| Shanghai Huhuili Environmental Engineering Co., Ltd. | $ | 4,940,751 | $ | 2,102,165 | $ | 3,210,780 | Major shareholder is the CEO’s relative | |||||||
| Jilin Jiliang Zongbao Biological Technology Co., Ltd. | 1,584,045 | 8,139 | 1,322,979 | One of management team members had actual control over this entity | ||||||||||
| Shanghai Zhongneng Bio-fertilizer Co., Ltd. | — | 651,126 | — | The CEO is one of the shareholders | ||||||||||
| Mr. Lijun Wang | 7,937,231 | 8,344,185 | 1,881,567 | The CEO’s relative | ||||||||||
| Ms. Hui Song | 3,406,209 | 3,906,596 | 1,351,005 | One of management team members | ||||||||||
| Ms. Zhiying Yang | — | — | 47,243 | The CEO’s wife | ||||||||||
| Ms. Xueying Sheng | — | 32,556 | — | The CFO | ||||||||||
| Mr. Yaohui Sheng | — | 8,139 | — | The CFO’s relative | ||||||||||
| Mr. Guohua Lin | 9,767 | 7,706 | 2,063 | One of the Company’s shareholders | ||||||||||
| $ | 17,878,003 | $ | 15,060,612 | $ | 7,815,637 | |||||||||
| -58- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS (continued)
Loans to Related Parties
During 2013, we loaned an aggregate of approximately $4,914,000 to our related parties and collected approximately $2,262,000 during the same period. The ending balance of due from related parties was $860,281 as of December 31, 2013. These loans were due upon demand and no interest was charged. The detail of our loans to related parties was as follow:
| During the Year Ended December 31, 2013 | ||||||||||||||
| Name | Aggregate amount of loan granted | Aggregate amount collected | As of December 31, 2013 | Relationship | ||||||||||
| Jilin Jiliang Zongbao Biological Technology Co., Ltd. | $ | 25,846 | $ | — | $ | 255,302 | One of management team members had actual control over this entity | |||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | 328 | (89 | ) | 78,232 | One of management team had indirect investment relationship with this entity | |||||||||
| Mr. Lirong Wang | 4,823,290 | 2,244,280 | 479,234 | The CEO and Chairman of the Company | ||||||||||
| Mr. Jianping Zhang | 64,615 | 17,727 | 47,513 | One of the Company’s shareholders | ||||||||||
| $ | 4,914,079 | $ | 2,261,918 | $ | 860,281 | |||||||||
| -59- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS (continued)
During 2014, we loaned an aggregate of approximately $12,061,000 to our related parties and collected approximately $8,209,000 during the same period. The ending balance of due from related parties was $3,785,377 as of December 31, 2014. These loans were due upon demand and no interest was charged. The detail of our loans to related parties was as follow:
| During the Year Ended December 31, 2014 | ||||||||||||||
| Name | Aggregate amount of loan granted | Aggregate amount collected | As of December 31, 2014 | Relationship | ||||||||||
| Shanghai Aoke Chemicals Co., Ltd. | $ | 6,416,374 | $ | 3,112,152 | $ | 2,635,013 | The Company’s CEO is one of Aoke’s shareholders | |||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | 6,115 | — | 83,994 | One of management team had indirect investment relationship with this entity | ||||||||||
| Mr. Lirong Wang | 5,617,751 | 5,082,438 | 1,012,763 | The CEO and Chairman of the Company | ||||||||||
| Mr. Jianping Zhang | 20,497 | 14,191 | 53,607 | One of the Company’s shareholders | ||||||||||
| $ | 12,060,737 | $ | 8,208,781 | $ | 3,785,377 | |||||||||
The above loans would be in violation of the Sarbanes-Oxley Act of 2002, including Section 402’s prohibition against personal loans to directors and executive officers, either directly or indirectly, had they occurred after Industrial Corp. became a variable interest entity of our Company. Management is aware of the ramifications, and has committed to avoiding it by implementing controls that will prevent this type of violation from happening in the future. Please see “Policies and Procedures for Review, Approval or Ratification of Transactions with Related Persons.”
Sales to Related Parties
In 2013, the Company made sales of fertilizer products to Jilin Jiliang Zongbao Biological Technology Co., Ltd. and Yantai Zongbao Tele-Agriculture Service Co., Ltd. The detail of sale transactions with our related parties was as follow:
| -60- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS (continued)
| During the Year Ended December 31, 2013 | ||||||||||||||
| Name | Aggregate amount of sales, including VAT | Aggregate amount of receivables collected | As of December 31, 2013 | Relationship | ||||||||||
| Jilin Jiliang Zongbao Biological Technology Co., Ltd. | $ | 1,681,519 | $ | 258,461 | $ | 1,441,713 | One of management team members had actual control over this entity | |||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | 125,114 | 41,958 | 84,245 | One of management team had indirect investment relationship with this entity | ||||||||||
| $ | 1,806,633 | $ | 300,419 | $ | 1,525,958 | |||||||||
In 2014, the Company made sales of fertilizer products to Jilin Jiliang Zongbao Biological Technology Co., Ltd. and Yantai Zongbao Tele-Agriculture Service Co., Ltd. The detail of sale transactions with its related parties was as follow:
| During the Year Ended December 31, 2014 | ||||||||||||||
| Name | Aggregate amount of sales, including VAT | Aggregate amount of receivables collected | As of December 31, 2014 | Relationship | ||||||||||
| Jilin Jiliang Zongbao Biological Technology Co., Ltd. | $ | 1,293,930 | $ | 2,439,924 | $ | 288,242 | One of management team members had actual control over this entity | |||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | 41,561 | 41,561 | 83,860 | One of management team had indirect investment relationship with this entity | ||||||||||
| $ | 1,335,491 | $ | 2,481,485 | $ | 372,102 | |||||||||
| -61- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS (continued)
Advances to Related Party Supplier
In 2013, the Company prepaid $1,211,534 to Shanghai Aoke Chemicals Co., Ltd. (“Aoke”) for the equipment purchase for its new Weihai fertilizer plant construction. The Company’s CEO is one of Aoke’s shareholders. As of December 31, 2013, the Company reported prepayments of $1,329,330 to Aoke for its equipment.
In 2014, the Company prepaid certain amount of prepayments to its related parties for undelivered goods and services. The detail of prepayment transactions with its related parties was as follow:
| During the Year Ended December 31, 2014 | ||||||||||||||
| Name | Aggregate amount of prepayments | Aggregate amount of goods or services delivered | As of December 31, 2014 | Relationship | ||||||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | $ | — | $ | 6,115 | $ | — | One of management team had indirect investment relationship with this entity | |||||||
| Cangzhou Zongbao Fertilizer Co., Ltd. | 16,644 | 342 | 12,330 | One of management team members had direct investment in this entity | ||||||||||
| $ | 16,644 | $ | 6,457 | $ | 12,330 | |||||||||
Inventories and Services Purchased from Related Parties
In 2013, the Company purchased raw materials from its related parties, Aoke and Cangzhou Zongbao Fertilizer Co., Ltd. The detail of inventory purchase transactions with our related parties was as follow:
| During the Year Ended December 31, 2013 | ||||||||||||||
| Name | Aggregate amount of purchase | Aggregate amount of payables paid | As of December 31, 2013 | Relationship | ||||||||||
| Shanghai Aoke Chemicals Co., Ltd. | $ | 2,734,372 | $ | 600,882 | $ | 2,155,525 | The Company’s CEO is one of Aoke’s shareholders | |||||||
| Cangzhou Zongbao Fertilizer Co., Ltd. | 154,343 | 150,392 | 4,003 | One of management team members had direct investment in this entity | ||||||||||
| $ | 2,888,715 | $ | 751,274 | $ | 2,159,528 | |||||||||
| -62- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS (continued)
In 2014, the Company purchased raw materials and marketing services from its related parties, Shanghai Aoke Chemicals Co., Ltd. and Yantai Shangying Taimeng Advertising Co., Ltd. The detail of inventory and service purchase transactions with our related parties was as follow:
| During the Year Ended December 31, 2014 | ||||||||||||||
| Name | Aggregate amount of purchase | Aggregate amount of payables paid | As of December 31, 2014 | Relationship | ||||||||||
| Shanghai Aoke Chemicals Co., Ltd. | $ | 5,095 | $ | 5,095 | $ | — | The Company’s CEO is one of Aoke’s shareholders | |||||||
| Yantai Shangying Taimeng Advertising Co., Ltd. | 1,284,413 | 2,093,017 | 1,336,435 | One of management team had indirect investment relationship with this entity | ||||||||||
| $ | 1,289,509 | $ | 2,098,112 | $ | 1,336,435 | |||||||||
NOTE 13 – CONCENTRATIONS
Customers
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, 2014 and 2013.
| Years Ended December 31, | ||||||||||
| Customers | 2014 | 2013 | ||||||||
| A | 56 | % | 45 | % | ||||||
Suppliers
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, 2014 and 2013.
| Years Ended December 31, | ||||||||||
| Supplier | 2014 | 2013 | ||||||||
| B | 85 | % | 82 | % | ||||||
| -63- |
Shanghai Muliang Industrial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 14 – SUBSEQUENT EVENTS
On February 10, 2016, Shanghai Muliang Industrial Corp. (“Industrial Corp.”) entered into an entrusted management agreement with Muliang Agriculture Ltd.’s wholly owned subsidiary, Shanghai Mufeng Investment Consulting Co., Ltd. (“Consulting Corp.”), which provides that Consulting Corp. will be entitled to the full guarantee for the performance of such entrusted management agreement entered into by the Company. Muliang Agriculture Ltd. (“Agriculture”) was incorporated in Hong Kong, PRC on August 21, 2014. Other than the equity interest in Consulting Corp., Agriculture does not own any assets or conduct any operations. Consulting Corp. is also entitled to receive the residual return of the Company. As a result of the agreement, Consulting Corp. will absorb 100% of the expected gains or losses of the Company, which results in Consulting Corp. being the primary beneficiary of the Company.
Consulting Corp. also entered into a pledge of equity agreement with the principal shareholders of the Company (the “Principal Shareholders”), who pledged all their equity interest in the entity to Consulting Corp. The pledge of equity agreement, which were entered into by each Principal Shareholder, pledged each of the Principal Shareholders’ equity interest in the Company as a guarantee for the entrustment payment under the Entrusted Management Agreements. In addition, Consulting Corp. entered into an option agreement to acquire the Principal Shareholders’ equity interest in these entities if or when permitted by the PRC laws.
| -64- |
(d) Pro Forma Financial Information
Shanghai Muliang Industrial Corp. and Subsidiaries.
Pro Forma Combined Financial Statements
(Unaudited)
INDEX TO FINANCIAL STATEMENTS
Pro Forma Consolidated Financial Statements:
| -65- |
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statement is provided for illustrative purposes only to aid in the analysis of the operations of the combined company. The historical financial information has been adjusted to give effect to pro forma events that are directly attributable to the business combination, are factually supportable and are expected to have a continuing impact on the combined results.
The following unaudited pro forma combined balance sheet information has been prepared assuming that the acquisition, through a series of contractual arrangements, between Shanghai Mufeng Investment Consulting Corp. (“Consulting Corp.”), a wholly owned subsidiary of Muliang Agriculture Limited (the “Agriculture”) and Shanghai Muliang Industrial Corp. (“Industrial Corp”) a Chinese company, which became effective as of February 10, 2016, had occurred at September 30, 2015. Agriculture is a wholly owned subsidiary, located in Hong Kong, of M & A Holding Corp. (the “Company”), a Nevada corporation.
The unaudited pro forma combined balance sheet gives effect to the following events:
| - | On February 10, 2016, Consulting Corp. through a series of contractual arrangements has the ability to substantially influence the daily operations and financial affairs of Industrial Corp., in addition to being able to appoint Industrial Corp.'s senior executives and approve all matters requiring stockholder approval. The structure of the contractual arrangements is such that Industrial Corp. is effectively a variable interest entity (“VIE”) of Consulting Corp. Accordingly, M & A Holding through its wholly owned subsidiary Agriculture and Agriculture’s wholly owned subsidiary, Consulting Corp., consolidates Industrial Corp.'s results of operations, assets and liabilities in its financial statements. |
| - | On January 11, 2016, pursuant to a Stock Purchase Agreement, the Company issued 129,475,000 shares of its common stock to Lirong Wang for an aggregate consideration of $64,737.5. On the same date, Chenxi Shi, the sole officer and director of the Company, transferred 120,000,000 shares of the common stock of the Company held by him to Lirong Wang for $800 pursuant to a Transfer Agreement |
| - | By execution of those transactions Lirong Wang owns 249,475,000 (89%) shares of the 280,000,000 shares of the Company’s outstanding common stock. |
| - | Simultaneously on January 11, 2016, Chenxi Shi resigned as the Company’s officer and director and Lirong Wang was appointed the sole director and President and Secretary (the sole officer). |
| - | The effect of a series of contractual arrangements is such that effectively a reorganization of the entities has occurred for accounting purposes and is deemed to be a reverse acquisition. Subsequent to a series of contractual arrangements, the financial statements presented are those of a combined M & A Holding Corp. and its subsidiaries, as if the Stock Purchase Agreement and a series of contractual arrangements had been in effect retroactively for all periods presented. Agriculture operates through its wholly owned subsidiary, Consulting Corp., a limited liability company incorporated in Shanghai, PRC. Other than the equity interest in Consulting Corp., Agriculture does not own any assets or conduct any operations. |
| -66- |
Shanghai Muliang Industrial Corp. (“Industrial Corp.”) is an existing operating company incorporated in the People’s Republic of China in 2006 principally engaged in the business of developing, manufacturing, and selling organic fertilizers and bio-organic fertilizers for use in agricultural industry. Shanghai Mufeng Investment Consulting Corp. (“Consulting Corp.”) through a series of contractual arrangements has the ability to substantially influence the daily operations and financial affairs of Industrial Corp., in addition to being able to appoint Industrial Corp.'s senior executives and approve all matters requiring stockholder approval. The structure of the contractual arrangements is such that Industrial Corp. is effectively a variable interest entity (“VIE”) of Consulting Corp. Accordingly, Agriculture through its wholly owned subsidiary Consulting Corp consolidates Industrial Corp.'s results of operations, assets and liabilities in its financial statements.
Chinese laws and regulations currently do not prohibit or restrict foreign ownership in fertilizer processing businesses. However, Chinese laws and regulations do prevent direct foreign investment in certain industries. On February 10, 2016, to protect the Company’s shareholders from possible future foreign ownership restrictions, Industrial Corp. entered into an Exclusive Technical Consulting and Service Agreement with Consulting Corp., which provides that Consulting Corp. will be entitled to the full guarantee for the performance of such entrusted management agreement entered into by Industrial Corp. Consulting Corp. is also entitled to receive the residual return of Industrial Corp. As a result of the agreement, Consulting Corp. will absorb 100% of the expected gains or losses of Industrial Corp., which results in Consulting Corp. being the primary beneficiary of Industrial Corp.
Consulting Corp. also entered into an Equity Pledge Agreement with the principal shareholders of Industrial Corp. (the “Principal Shareholders”), who pledged all their equity interest in the entity to Consulting Corp. The Equity Pledge Agreement, which were entered into by each Principal Shareholder, pledged each of the Principal Shareholders’ equity interest in Industrial Corp. as a guarantee for the entrustment payment under the Exclusive Technical Consulting and Service Agreement.
In addition, Consulting Corp. entered into a Call Option Cooperation Agreement to acquire the Principal Shareholders’ equity interest in these entities if or when permitted by the PRC laws.
Based on these exclusive agreements, the Company consolidates the variable interest entity (“VIE”), Industrial Corp., as required by generally accepted accounting principles in the United States (“US GAAP”), because the Company is the primary beneficiary of the VIE. The profits and losses of the Company are allocated based upon the Entrusted Management Agreement.
The acquisition through the Stock Purchase Agreement and the series of contractual arrangements mentioned above will be accounted for as a “reverse acquisition” since, immediately following completion of the transaction, the shareholders of Industrial Corp. immediately after to the acquisition will have effective control of M & A Holding Corp. For accounting purposes, Industrial Corp. will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of M & A Holding Corp. Accordingly, the combined assets, liabilities and results of operations of M & A Holding Corp., and its subsidiaries and VIEs, became the historical financial statements of M & A Holding Corp. at the closing of the series of contractual arrangements, and M & A Holding Corp.’s assets, liabilities and results of operations will be consolidated with those of Industrial Corp. beginning on February 10, 2016. No step-up in basis or intangible assets or goodwill will be recorded in this transaction. As this transaction is being accounted for as a reverse acquisition, all direct costs of the transaction will be charged to additional paid-in capital. All professional fees and other costs associated with transaction will be charged to additional paid-in-capital.
The pro forma combined balance sheet may not be indicative of the actual results of the Share Exchange and there can be no assurance that the foregoing results would have been obtained. In particular, the pro forma combined balance sheet is based on management's current estimates of the Share Exchange. In addition, future results of the combined entity, the Company, may not be similar to the results presented. Actual results could differ from the pro forma information presented. Such results might be dissimilar based on future events and conditions.
The accompanying pro forma combined financial statements should be read in conjunction with the historical financial statements of M & A Holding Corp. as filed in its quarterly report on Form 10-Q and the financial statements of Shanghai Muliang Industrial Corp., the VIE, such financial statements appear elsewhere in this current report on Form 8-K.
| -67- |
Shanghai Muliang Industrial Corp. and Subsidiaries.
Pro Forma Combined Balance Sheets
As of September 30, 2015
(Unaudited)
| Shanghai Muliang | M & A | Shanghai Mufeng Investment Consulting Corp. | |||||||||||||||||||
| Industrial | Holding | and Muliang | Pro Forma | Pro Forma | |||||||||||||||||
| Corp. | Corp. | Agriculture Ltd. | Adjustments | Combined | |||||||||||||||||
| ASSETS | (*) | ||||||||||||||||||||
| Current Assets: | |||||||||||||||||||||
| Cash and cash equivalents | $ | 93,549 | $ | 20,982 | $ | — | (a) | (20,982 | ) | $ | 158,287 | ||||||||||
| (b) | 64,738 | ||||||||||||||||||||
| Notes receivable | — | — | — | — | — | ||||||||||||||||
| Accounts receivable, net | 674,458 | 674,458 | |||||||||||||||||||
| Accounts receivable - related party | 101,103 | 101,103 | |||||||||||||||||||
| Inventories | 545,193 | — | — | — | 545,193 | ||||||||||||||||
| Advances to suppliers | 35,014 | — | — | — | 35,014 | ||||||||||||||||
| Advances to suppliers - related party | 11,913 | — | — | — | 11,913 | ||||||||||||||||
| Prepaid expenses | — | — | — | — | — | ||||||||||||||||
| Other receivables, net | 465,795 | — | — | — | 465,795 | ||||||||||||||||
| Loan receivable - related party | — | — | — | — | — | ||||||||||||||||
| Due from related party | 81,147 | — | — | — | 81,147 | ||||||||||||||||
| Total Current Assets | 2,008,172 | 20,982 | — | 43,756 | 2,072,910 | ||||||||||||||||
| Plant and equipment, net | 4,596,576 | — | — | — | 4,596,576 | ||||||||||||||||
| Construction in progress | 7,464,197 | 7,464,197 | |||||||||||||||||||
| Biological assets, net | 461,521 | — | — | — | 461,521 | ||||||||||||||||
| Intangible assets, net | 2,704,517 | — | — | — | 2,704,517 | ||||||||||||||||
| Total Assets | $ | 17,234,983 | $ | 20,982 | $ | — | $ | 43,756 | $ | 17,299,721 | |||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||||||||
| Current Liabilities: | |||||||||||||||||||||
| Short-term loans | $ | 849,885 | $ | — | $ | — | $ | — | $ | 849,885 | |||||||||||
| Accounts payable and accrued payables | 2,632,333 | — | — | — | 2,632,333 | ||||||||||||||||
| Accounts payable - related party | 199,212 | — | — | — | 199,212 | ||||||||||||||||
| Advances from customers | 37,377 | — | — | — | 37,377 | ||||||||||||||||
| Other payables | 266,622 | 266,622 | |||||||||||||||||||
| Accrued expense | 11,932 | — | (a) | (11,932 | ) | — | |||||||||||||||
| Due to related party | 3,043,152 | 15,941 | — | (a) | (15,941 | ) | 3,043,152 | ||||||||||||||
| Total Current Liabilities | 7,028,581 | 27,873 | — | (27,873 | ) | 7,028,581 | |||||||||||||||
| Long-term loans | 6,767,604 | — | — | — | 6,767,604 | ||||||||||||||||
| Total Liabilities | 13,796,185 | 27,873 | — | (27,873 | ) | 13,796,185 | |||||||||||||||
| Stockholders' Equity: | |||||||||||||||||||||
| Preferred stock | — | — | — | — | — | ||||||||||||||||
| Common stock, $0.0001 par value, 500,000,000 shares authorized,150,525,000 shares issued and outstanding | — | 15,053 | — | (b) | 12,947 | 28,000 | |||||||||||||||
| Paid in capital | 2,416,731 | — | — | (c) | (2,416,731 | ) | — | ||||||||||||||
| Additional paid-in capital | 14,375,625 | 6,097 | — | (a), (b), (c) | 2,447,372 | 16,829,094 | |||||||||||||||
| Subscription receivable | — | — | — | — | — | ||||||||||||||||
| Acumulated deficits | (13,162,563 | ) | (28,041 | ) | — | (c) | 28,041 | (13,162,563 | ) | ||||||||||||
| Accumulated other comprehensive income | (182,619 | ) | — | — | — | (182,619 | ) | ||||||||||||||
| Stockholders' Equity - Shanghai Muliang Industry Co. Ltd. and Subsidiaries | 3,447,174 | (6,891 | ) | — | 92,611 | 3,511,912 | |||||||||||||||
| Noncontrolling interest | (8,376 | ) | — | — | — | (8,376 | ) | ||||||||||||||
| Total Stockholders' Equity | 3,438,798 | (6,891 | ) | — | 92,611 | 3,503,536 | |||||||||||||||
| Total Liabilities and Stockholders' Equity | $ | 17,234,983 | $ | 20,982 | $ | — | $ | 64,738 | $ | 17,299,721 | |||||||||||
| (*): | The balance sheets of Shanghai Mufeng Investment Consulting Corp. and Muliang Agriculture Ltd. are presented as one combined entity for pro forma purposes as these are essentially non-operating holding companies with minimal assets, liabilities and equity. |
See notes to combined pro forma financial statements
| -68- |
Shanghai Muliang Industrial Corp. and Subsidiaries.
Pro Forma Combined Statements of Operations and Comprehensive Income
For the Nine Months Ended September 30, 2015
(Unaudited)
| Shanghai Muliang | M & A | Shanghai Mufeng Investment Consulting Corp. | |||||||||||||||||
| Industrial | Holding | and Muliang | Pro Forma | Pro Forma | |||||||||||||||
| Corp. | Corp. | Agriculture Ltd. | Adjustments | Combined | |||||||||||||||
| (*) | |||||||||||||||||||
| Revenues | $ | 961,676 | $ | — | $ | — | $ | — | $961,676 | ||||||||||
| Revenues - related party | 33,088 | — | — | — | 33,088 | ||||||||||||||
| 994,764 | — | — | — | 994,764 | |||||||||||||||
| Cost of goods sold | 619,080 | — | — | — | 619,080 | ||||||||||||||
| Gross profit (loss) | 375,684 | — | — | — | 375,684 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||
| General and administrative expenses | 899,168 | 10,564 | — | — | 909,732 | ||||||||||||||
| Selling expenses | 140,249 | — | — | — | 140,249 | ||||||||||||||
| Total operating expenses | 1,039,417 | 10,564 | — | — | 1,049,981 | ||||||||||||||
| Loss from operations | (663,733 | ) | (10,564 | ) | — | — | (674,297) | ||||||||||||
| Other income (expense): | |||||||||||||||||||
| Interest expense | (1,657,362 | ) | — | — | — | (1,657,362) | |||||||||||||
| Subsidy income | 168,174 | — | — | — | 168,174 | ||||||||||||||
| Loss from disposal of equipment | (490,423 | ) | (490,423) | ||||||||||||||||
| Other income (expense) | (17,918 | ) | — | — | — | (17,918) | |||||||||||||
| Total other income (expense) | (1,997,529 | ) | — | — | — | (1,997,529) | |||||||||||||
| Income (loss) before income taxes | (2,661,262 | ) | (10,564 | ) | — | — | (2,671,826) | ||||||||||||
| Income taxes | — | — | — | — | - | ||||||||||||||
| Net income (loss) | (2,661,262 | ) | (10,564 | ) | — | — | (2,671,826) | ||||||||||||
| Discontinued operations: | |||||||||||||||||||
| Gain from operations of discontinued component, net of taxes | — | — | — | — | - | ||||||||||||||
| Net loss | (2,661,262 | ) | (10,564 | ) | — | — | (2,671,826) | ||||||||||||
| Net loss attributable to noncontrolling interest | 17,866 | — | — | — | 17,866 | ||||||||||||||
| Net loss attributable to Shanghai Muliang Industry Co., Ltd. common stockholders | (2,643,396 | ) | (10,564 | ) | — | — | (2,653,960) | ||||||||||||
| Other comprehensive income: | |||||||||||||||||||
| Unrealized foreign currency translation adjustment | (61,380 | ) | — | — | — | (61,380) | |||||||||||||
| Comprehensive (loss) | $ | (2,704,776 | ) | $ | (10,564 | ) | $ | — | $ | — | $(2,715,340) | ||||||||
| Net income (loss) per common share: | |||||||||||||||||||
| Basic | $ | (0.00 | ) | $(0.01) | |||||||||||||||
| Diluted | $ | (0.00 | ) | $(0.01) | |||||||||||||||
| Weighted average number of shares outstanding | |||||||||||||||||||
| Basic | 150,525,000 | (d) | 129,475,000 | 280,000,000 | |||||||||||||||
| Diluted | 150,525,000 | (d) | 129,475,000 | 280,000,000 | |||||||||||||||
See notes to combined pro forma financial statements
| -69- |
Shanghai Muliang Industrial Corp. and Subsidiaries.
Notes to Pro Forma Financial Statements
NOTE 1 - Basis for Pro Forma Presentation
The unaudited pro forma combined financial information as of September 30, 2015 has been derived from Shanghai Muliang Industrial Corp. unaudited financial statements as of September 30, 2015, and the unaudited financial statements of M & A Holding Corp. as of September 30, 2015. This unaudited pro forma combined financial information should be read in conjunction with these unaudited financial statements and notes related to those financial statements.
The pro forma adjustments are based on the best information available and assumptions that management believes are reasonable given the information available; however, such adjustments are subject to change based upon the costs incurred in connections with the Share Exchange and related transactions and any other material information. The unaudited pro forma financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what the Company’s financial position would have been had the transactions contemplated by the serious contractual arrangements occurred on September 30, 2015.
On January 11, 2016, the Company issued 129,475,000 shares of its common stock to Lirong Wang for an aggregate consideration of $64,737.5. On the same date, Chenxi Shi, the sole officer and director of the Company on that date, transferred 120,000,000 shares of the common stock of the Company held by him to Lirong Wang for $800 pursuant to a transfer agreement. On February 10, 2016,, Consulting Corp. entered into a series contractual arrangement, including (1) Exclusive Technical Consulting and Service Agreement, (2) Equity Pledge Agreement, and (3) Call Option Cooperation Agreement, with Industrial Corp. and its Principal Shareholders. As a result of the Stock Purchase Agreement and a series contractual arrangement, Shanghai Muliang Industrial Corp., along with its consolidated subsidiaries, became a VIE and controlled entity of M & A Holding Corp. The controlling shareholders of Shanghai Muliang Industrial Corp. are the same as those of M & A Holding Corp.
NOTE 2 - Pro Forma Adjustments
Certain adjustments have been made to the historical financial statements in order to prepare the pro forma financial information as if the transaction had occurred at September 30, 2015.
The adjustments are as follows:
| Dr. | Cr. | |||||
| (a) | To eliminate the asset and liabilities of M & A Holding Corp. which were not assumed by Shanghai Muliang Industrial Corp. | |||||
| Accrued expense | $ | 11,932 | ||||
| Due to related party | $ | 15,941 | ||||
| Cash and cash equivalents | $ | 20,982 | ||||
| Additional paid-in capital | $ | 6,891 | ||||
| (b) | Stock issuance in reverse merger | |||||
| Cash and cash equivalents | $ | 64,738 | ||||
| Common stock | $ | 12,947 | ||||
| Additional paid-in capital | $ | 51,791 | ||||
| (c) | To eliminated accumulated deficit of M & A Holding Corp. and paid in capital of Shanghai Muliang Industrial Corp. | |||||
| Paid in capital | $ | 2,416,731 | ||||
| Accumulated deficit | $ | 28,041 | ||||
| Additional paid-in capital | $ | 2,388,690 | ||||
| (d) | To give effect to 129,475,000 common shares issued with Exchange Agreement | |||||
| -70- |
(d) Exhibits:
| Exhibit Number | Description | |
| 2.3 | Call Option Agreement | |
| 2.4 | Equity Pledge Agreement | |
| 2.5 | Exclusive Technical Consulting and Service Agreement | |
| 2.6 | Power of Attorney - Lirong Wang | |
| 2.7 | Power of Attorney - Zhongfang Wang |
| -71- |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunder duly authorized.
| /s/ Lirong Wang | |
| Lirong Wang, Chief Executive Officer |
Date: February 11, 2016
| -72- |
CALL OPTION AND COOPERATION
AGREEMENT
Regarding
Shanghai Muliang Industrial Corp.
among
Lirong Wang & Zhongfang Wang
and
Shanghai Mufeng Investment Consulting Corp.
and
Shanghai Muliang Industrial Corp.
February 10, 2016
| -1- |
Call Option and Cooperation Agreement
This Call Option and Cooperation Agreement (the “Agreement”) is entered into in Shanghai, the People’s Republic of China (the “PRC”) as of this February 10, 2016 by and between the following parties:
I. Lirong Wang, a PRC citizen with ID Card number [310228197206153013] owns 95% shares of Shanghai Muliang Industrial Corp.;
Zhongfang Wang, a PRC citizen with ID Card number [310228194611043017] owns 5% shares of Shanghai Muliang Industrial Corp.;
(hereinafter referred to as the “Existing Shareholders”)
II. Shanghai Mufeng Investment Consulting Corp. (hereinafter referred to as “WFOE”)
Registered address: 中国(上海)自由贸易试验区富特北路379号二层203室; and
III. Shanghai Muliang Industrial Corp. (hereinafter referred to as “SMI”)
Registered address: 上海市金山区枫泾镇一号桥北堍2号14号厅18室.
(In this Agreement, the above-mentioned parties are collectively referred to as the “Parties” and individually as a “Party”)
Whereas:
I. The Existing Shareholders are the enrolled shareholders of SMI and lawfully holds all equities of SMI.
II. WFOE is a limited liability company duly incorporated and validly existing in PRC, and it is an important partner of SMI providing technical support, consultancy and other relevant service for it.
III. The Existing Shareholders agree to exclusively grant the WFOE with an irrevocable call option (the “Call Option”), pursuant to which and to the extent permitted by PRC laws, the Existing Shareholders shall, at the request of WFOE, transfer the Option Equity (as defined below) to WFOE and/or any other entity or individual designated by WFOE in accordance with this Agreement.
IV. SMI agrees that the Existing Shareholders may grant to WFOE the Call Option in accordance with this Agreement.
V. WFOE agrees to cooperate with the Existing Shareholders and SMI according to this Agreement.
THEREFORE, the Parties have reached the following agreement upon mutual consultation:
Section 1. Definition
1.1 Unless otherwise required by the context, the following terms in this Agreement shall have the following meanings:
“PRC Law” means the laws, administrative regulations, administrative rules, local regulations, judicial interpretations and other binding regulatory documents of the People’s Republic of China then in effect.
“Option Equity” shall mean, in respect of the Existing Shareholders, all their equity shares in the registered capital of SMI, which is 100% of the registered capital of SMI.
“Transferred Equity” shall mean the equity of SMI which the WFOE has the right to require the Existing Shareholders to transfer to it or its designated entity or individual when the WFOE exercises its Call Option (the “Exercise of Option”) in accordance with Section 3.2 herein, and the amount thereof may be whole or part of the Option Equity and the specific amount thereof may be determined by the WFOE according to the PRC Laws then in effect and the its own business condition.
| -2- |
“Transferring Price” shall mean all consideration to be paid by the WFOE or its designated entity or individual to the Existing Shareholders in order to obtain the Transferred Equity upon each Exercise of Option.
“SMI Assets” shall mean all tangible or intangible assets which SMI owns or has the right to use during the term of this Agreement, including but not limited to any immovable or moveable assets, and trademarks, copyrights, patents, know-how, domain names, software use right and other such intellectual properties.
“Material Agreements” means those agreements signed by SMI as a party thereto, and having material influence on the business or assets of SMI (including but not limited to the Exclusive Technical Support and Service Agreement and other agreements in relation to SMI’s business).
1.2 Reference to any PRC Law herein shall be construed as including references to:
(i) the revise, amendment, supplement and reenactment of such law, irrespective of whether they come into force prior or after the formation of this Agreement; and
(ii) other decisions, notices or regulations enacted in accordance therewith or effective as a result thereof.
1.3 Unless otherwise stated in the context herein, references to any clause, item or paragraph shall refer to the relevant part of this Agreement.
Section 2. Grant of Call Option
2.1 The Existing Shareholders hereby agree to irrevocably and unconditionally grant the WFOE an exclusive call option, pursuant to which the WFOE shall be entitled (to the extent permitted by PRC laws) to request the Existing Shareholders to transfer the Option Equity to the WFOE and/or its designated entity or individual in accordance with the terms and conditions hereunder. WFOE also agrees to accept such Call Option.
2.2 SMI hereby agrees that the Existing Shareholders may grant WFOE with such Call Option in accordance with Section 2.1 and other provisions of this Agreement
Section 3- Method for Exercise of Option
3.1 To the extent permitted by PRC Law, WFOE shall have the absolute discretion on determining the specific time, method and times of its Exercise of Option.
3.2 If the PRC Law then in effect permits the WFOE and/or other entity or individual designated by it to hold all equities of SMI, the WFOE shall have the right to exercise all of its Call Option by a single Exercise of Option, and the WFOE and/or its designated entity or individual will accept all Option Equity from the Existing Shareholders on a one-time basis. If the PRC Law then in effect only permits the WFOE and/or other entity or individual designated by it to hold part of SMI’s equities, the WFOE shall have the right to determine the amount of Transferred Equity within the upper limit of shareholding ratio set out by the PRC Law (the “Shareholder Limit”), and the WFOE and/or its designated entity or individual will accept such amount of the Transferred Equity from the Existing Shareholders. In the latter case, the WFOE shall be entitled to exercise its Call Option at multiple times in line with the gradual raise by the PRC Law in the Shareholding Limit, so as to eventually obtain all Option Equity.
3.3 At each Exercise of Option, the WFOE shall have the right to determine the amount of Transferred Equity to be transferred by the Existing Shareholders to the WFOE and/or any other entity or individual designated by it in such Exercise of Option, and the Existing Shareholders shall transfer the such amount of Transferred Equity as required by the WFOE to the WFOE and/or its designated entity or individual. WFOE and/or its designated entity or individual shall pay Transferring Price to the Existing Shareholders in respect of the Transferred Option accepted by it in each Exercise of Option.
| -3- |
3.4 In each Exercise of Option, the WFOE may accept the Transferred Option by itself, or designate any third party to accept all or part of the Transferred Equity.
3.5 After the WFOE has made its decision on each Exercise of Option, it shall serve a notice to the Existing Shareholders stating its intention of exercising Call Option (the “Exercise Notice”, the form of which is set out in Appendix 2 hereto). The Existing Shareholders shall, upon receipt of the Exercise Notice, forthwith transfer the Transferred Equity in accordance with the Exercise Notice to the WFOE and/or its designated entity or individual in such method as specified in Section 3.3 herein.
3.6 The Existing Shareholders undertakes and guarantees that, once the WFOE issued the Exercise Notice, it shall:
(i) immediately enter into an equity transfer agreement with the WFOE and/or other entity or individual designated by WFOE for transfer of all the Transferred Equity to the WFOE and/or such designated entity or individual;
(ii) offer necessary support to the WFOE (including providing and signing all relevant legal documents, processing all formalities for governmental approval and/or registration, and bearing all relevant obligations) in accordance with the requirements of laws and regulations, so as to enable the WFOE and/or its designated entity or individual to obtain all Transferred Equity free from any legal defect; and
(iii) immediately take all necessary actions (including but not limited to, delivering the official seal, business license, books of accounts and originals of other certificates and licenses of SMI to the WFOE and/or its designated entity or individual) to enable the WFOE and/or its designated entity or individual to obtain the actual control over SMI.
3.7 At the same time of executing this Agreement, the Existing Shareholders shall sign a power of attorney (the form of which is set out in Appendix 2 hereto, hereinafter referred to as the “Power of Attorney”) to authorize any person appointed by the WFOE to sign on behalf of the Existing Shareholders any and all legal documents, so as to ensure that the WFOE and/or its designated entity or individual may obtain all Transferred Equity free from any legal defect. Such Power of Attorney shall be delivered to and kept by the WFOE, and, if necessary, the WFOE may request the Existing Shareholders to execute multiple copies of the Power of Attorney at any time and submit such Power of Attorney to relevant governmental authorities.
Section 4. Transferring Price
At each Exercise of Option by the WFOE, all the Transferring Price to be paid by the WFOE or its designated entity or individual to the Existing Shareholders shall be the amount of the net assets value of SMI in correspondent to the Transferred Equity as of the date of transfer (the “Correspondent Amount”). If the PRC Law provides any compulsory requirements on the Transferring Price then, which causes that the Transferring Price must be higher than the Correspondent Amount mentioned in the preceding sentence, the WFOE and/or its designated entity or individual shall be entitled, according to PRC Laws, to choose the lowest price permitted by the PRC Laws as the Transferring Price. Subject to all applicable laws and regulations, differences (if any) between the Transferring Price and the Correspondent Amount shall be given to SMI.
Section 5- Representations and Warranties
5.1 The Existing Shareholders hereby represent and warrant as follows, and such representations and warranties shall be continually effective as if made at the time of transferring the Transferred Equity:
5.1.1 The Existing Shareholders are PRC citizen with full capacity. The Existing Shareholders have full and independent legal status and legal capacity to execute, deliver and perform this Agreement, and may act independently as a litigant party.
5.1.2 The Existing Shareholders have full power and authorization to execute and deliver this Agreement as well as other documents relating to the transaction contemplated hereunder and to be executed by him.
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5.1.3 This Agreement is duly executed and delivered by the Existing Shareholders and constitutes legal and binding obligations on the part of the Existing Shareholders. It is enforceable against him in accordance with its terms and conditions.
5.1.4 When this Agreement comes into force, the Existing Shareholders are the lawful owner of the Option Equity, and the Option Equity is free of any lien, pledge, claim and other encumbrance or third-party rights other than those rights created by this Agreement, the Equity Pledge Agreement and the Exclusive Technical Consulting and Service Agreement between the Existing Shareholders and the WFOE. Pursuant to this Agreement, the WFOE and/or its designated entity or individual may, upon Exercise of Option, obtain the proper title to the Transferred Equity free from any lien, pledge, claim and other encumbrances or third party rights.
5.2 SMI hereby represents and warrant as follows:
5.2.1 SMI is a limited liability company duly incorporated and validly existing under the PRC Law and has an independent status as a legal person. SMI has full and independent legal status and legal capacity to execute, deliver and perform this Agreement, and may act independently as a litigant party.
5.2.2 SMI has the full power and authorization to execute and deliver this Agreement as well as other documents to be signed by it in relation to the transaction contemplated herein, and it has full power and authorization to complete the transaction hereunder.
5.2.3 This Agreement is duly executed and delivered by SMI and constitutes legal and binding obligations on it.
5.2.4 The Existing Shareholders are the only enrolled lawful shareholders of SMI as of the effective date hereof. Pursuant to this Agreement, the WFOE and/or its designated entity or individual may, upon Exercise of Option, obtain the proper title to the Transferred Equity free from any lien, pledge, claim and other encumbrances or third-party rights.
Section 6. Undertakings by the Existing Shareholders
The Existing Shareholders hereby undertake as follows:
6.1 Within the term of this Agreement, the Existing Shareholders shall not (unless and until it has informed the WFOE thereof and obtained the prior written consent from WFOE, or it is subject to a compulsory requirement provided by law):
6.1.1 transfer or otherwise dispose of any Option Equity or create any encumbrance or other third-party rights on any Option Equity;
6.1.2 increase or decrease the registered capital of SMI;
6.1.3 declare the distribution of or actually distribute any distributable profits, dividends or bonus shares;
6.1.4 agree or causes the merger or division of SMI;
6.1.5 directly or indirectly hold any equity in, or become the director or employee of, or provide any services (save for services in the ordinary business course of SMI) for entities engaging in any business that is similar to or competing with SMI;
6.1.6 cause SMI to be terminated, liquidated or dissolved; and
6.1.7 amend the articles of association of SMI.
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6.2 Within the term of this Agreement, the Existing Shareholders must ensure that SMI is in compliance with its undertakings specified in Section 7.1 below.
6.3 During the term of this Agreement, the Existing Shareholders shall make his best efforts to develop SMI’s business and ensure that the business operation of SMI is legal and consistent to the regulations. The Existing Shareholders shall not engage in any actions or inactions which may (i) harm SMI Assets or reputation of SMI, or (ii) affect the validity of those certificates, licenses or qualifications necessary for SMI’s various businesses. When the Existing Shareholders cease to be shareholders of SMI, it shall cause its successor to accept in writing the rights and obligations hereunder with equal validity.
Section 7- Undertakings by SMI
7.1 SMI hereby undertakes that, within the term of this Agreement, it shall not (unless it has obtained the prior written consent of WFOE or is subject to any compulsory provisions of laws):
7.1.1 dispose of any SMI Assets (other than in the ordinary business course);
7.1.2 dispose of in any way its operation rights and/or profit-sharing rights in connection with any of its business other than in the ordinary course of business;
7.1.3 terminate any Material Agreements signed by it or enter into any other agreements in conflict with the existing Material Agreements;
7.1.4 lend or borrow any loan, or provide any guarantee or any other forms of security, or bear any substantial obligations other than in the ordinary business activity;
7.1.5 purchase or invest in any entity;
7.1.6 deposit or permit any capitals of SMI to be deposited in the account of any other entities or individuals (save for the temporary situation arising out of the ordinary business course); and
7.1.7 incur any liabilities or contracts with an amount exceeding RMB500,000 (other than in the ordinary business course).
7.2 If any consent, permission, waiver or authorization by any third party, or any governmental approval, license, exemption or filing procedures with any governmental agency (if required by laws) are required by the execution and performance of this Agreement as well as the grant of Call Option hereunder, SMI shall make its best efforts to fulfill above conditions.
7.3 Without the prior written consent of the WFOE, SMI shall not assist or permit the Existing Shareholders to transfer or otherwise dispose of any Option Equity, or create any encumbrance or other third-party rights on any Option Equity.
7.4 SMI shall not conduct or permit any behavior or activity that may adversely affect the interest of WFOE under this Agreement.
Section 8. Undertakings by WFOE
With respect to any losses or capital requirements of SMI that may occur in its ordinary operation or business development courses, WFOE undertakes that, notwithstanding the provisions in other agreements entered into between WFOE and SMI, it shall offer necessary support to SMI to the extent permitted by law; provided that the Existing Shareholders and SMI shall respectively perform their obligations and undertakings hereunder, and the representations and warranties made by them hereunder shall remain true and effective.
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Section 9. Obligation of Confidentiality
9.1 Notwithstanding the termination of this Agreement, the Existing Shareholders shall be obliged to keep the following information in confidential:
(i) the execution, performance and the contents of this Agreement;
(ii) trade secret, proprietary information and customer information in relation to the WFOE known to or received by it as a result of execution and performance of this Agreement; and
(iii) trade secret, proprietary information and customer information in relation to SMI known to or received by it as SMI’s shareholders (collectively referred to as the “Confidential Information”).
The Existing Shareholders may use such Confidential information only for the purpose of this Agreement. Without the written consent of the WFOE, the Existing Shareholders shall not disclose above Confidential Information to any third party, otherwise it shall be liable for breach of the agreement and compensate for relevant losses.
9.2 Upon termination of this Agreement, the Existing Shareholders shall, at request of the WFOE, return, destroy or otherwise dispose of all documents, materials or software containing the Confidential Information, and stop using such Confidential Information.
9.3 Notwithstanding any other provisions herein, this Section shall not be affected by the suspension or termination of this Agreement.
Section 10 – Term of Agreement
This Agreement shall come into force upon formal signatures of the Parties, and shall be valid until all Option Equity has been transferred to the WFOE and/or its designated entity or individual in accordance with this Agreement.
Section 11 – Notice
11.1 Any notice, request, requirement or other communications hereunder shall be made in writing and delivered to the relevant receiving Party.
11.2 Above notices or other communications shall be deemed to have been given when (i) it is sent out if sent by facsimile or email, or (ii) when it is delivered if deliver by person, or (iii) five (5) days following post if posted by mail.
Sectioin 12 – Liability for Breach of Contract
12.1 The Parties agree and acknowledge that, if either Party (the “Defaulting Party”) substantially breaches any terms hereunder, or substantially fails to perform any of the obligations hereunder, it shall constitute a default under this Agreement (the “Default”). The non-defaulting Party shall have the right to require the Defaulting Party to make corrections or remedies within a reasonable period. If the Defaulting Party fails to make correction or remedy within ten (10) days following receipt of the written notice from the non-defaulting Party, the non-defaulting shall have the right to (at its/his own discretion):
(i) terminate this Agreement, and to request the Defaulting Party to make full compensation for losses and damages; or
(ii) enforce the Defaulting Party to perform its/his obligations hereunder, and to request the Defaulting Party to compensate for all losses and damages.
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12.2 The Parties agree and acknowledge that, in any circumstances, the Existing Shareholders and SMI shall not request the termination of this Agreement for any reason.
12.3 The rights and remedies provided herein are accumulative and shall not preclude any other rights or remedies under the laws.
12.4 Notwithstanding any other provision of this Agreement, the validity of this Section shall not be affected by the suspension or termination of this Agreement.
Section 13 – Miscellaneous
13.1 This Agreement is prepared in Chinese and shall be executed in three (3) originals. Each Party hereto shall hold one (1) original hereof.
13.2 This Agreement shall be governed by and construed in accordance with the PRC Laws.
13.3 Any dispute arising out of or in connection with this Agreement shall be settled by the Parties through friendly consultation. If no agreement has been reached within thirty (30) days following the occurrence of such dispute, it shall be submitted to the competent court for resolution.
13.4 Any right, power or remedy granted to any Party under any provisions herein shall not preclude any other rights, powers or remedies that a Party may be entitled to in accordance with laws or other provisions hereof. A Party’s exercise of its rights, powers or remedies shall not preclude it from exercising other rights, powers or remedies granted to such Party.
13.5 Any failure or delay by a Party in exercising any of its rights, powers and remedies hereunder or in accordance with laws (the “Party’s Rights”) shall not be deemed as a waiver thereof, and any single or partial exercise of the Party’s Rights shall not preclude (i) such Party’s further exercise of such rights and (ii) exercise of other Party’s Rights.
13.6 The headings of this Agreement are for easy reference only and shall not be used for or affect the interpretation hereof in any circumstances.
13.7 Each provision hereunder shall be severable and independent from each other, and, if any provision(s) hereunder has been held invalid, illegal or unenforceable at any time, the validity, legality and enforceability of the remaining provision shall not be affected thereby.
13.8 Upon execution, this Agreement shall supersede any other legal documents previously executed by the Parties in respect of the same subject. Any amendment or supplement to this Agreement shall be made in writing, and no amendment or supplement to this Agreement shall be effective without being duly signed by the Parties
13.9 Without the prior written consent of the WFOE, neither the Existing Shareholders nor SMI may transfer its rights and/or obligations hereunder to any third party. WFOE shall have the right to transfer its rights and/or obligations to any of its designated third party upon notice to the Existing Shareholders and SMI.
13.10 This Agreement shall be binding upon the lawful successor of each Party.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the following Parties have caused this Equity Pledge Agreement to be executed as of the date and in the place first written above.
EXISTING SHAREHOLDERS:
/s/ Lirong Wang
Signed by : __________________________
Name: Lirong Wang
/s/ Lirong Wang
Signed by : __________________________
Name: Zhongfang Wang
Shanghai Mufeng Investment Consulting Corp.
/s/ Lirong Wang
Authorized Representative : _________________
Name: Lirong Wang
Title: President
Shanghai Muliang Industrial Corp.
/s/ Lirong Wang
Authorized Representative : _________________
Name: Lirong Wang
Title: President
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Appendix 1
Basic Information of SMI
| Company name | : Shanghai Muliang Indrustrial Corp. | |||||||
| Registered address | : 上海市金山区枫泾镇一号桥北堍2号14号厅18室 | |||||||
| Registered capital | : RMB50,000,000 | |||||||
| Equity structure | : | |||||||
| Name of Shareholders | Capital Contribution | Equity Share | ||||||
| Lirong Wang | 47,500,000 | 95 | % | |||||
| Zhongfang Wang | 2,500,000 | 5 | % | |||||
|
Fiscal year |
:
from January 1 to December 31 (calendar date) |
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Appendix 2
Option Exercise Notice
To: Lirong Wang and Zhongfang Wang
Given that we have entered into the Call Option and Cooperation Agreement with you and Shanghai Muliang Industrial Corp. (“SMI”), as of this February 10, 2016 (the “Option Agreement”) and reached an agreement that, to the extent permitted by PRC laws and regulations, you shall transfer your equity interest in SMI to our company or any third party designated by us based on our demand.
Therefore, we hereby notify you as follows:
We hereby request to exercise the Call Option under the Option Agreement, and we/Shanghai Mufeng Investment Consulting Corp. designated by us will accept 100% equity interest held by you in SMI (the “Proposed Equity”). Upon receipt of this Notice, please immediately transfer all the Proposed Equity to us/ Shanghai Mufeng Investment Consulting Corp. designated by us in accordance with the agreed terms in the Option Agreement.
Best regards,
Shanghai Mufeng Investment Consulting Corp.
/s/ Lirong Wang
Authorized Representative: ______________
Date: February 10, 2016
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Appendix 3
Power of Attorney
I, Lirong Wang, with ID Card number: [310228197206153013],owns 95% shares of Shanghai Muliang Industrial Corp. hereby irrevocably appoints any person designated by Shanghai Mufeng Investment Consulting Corp. as my authorized representative to sign on my behalf all legal documents necessary for or in connection with enabling Shanghai Mufeng Investment Consulting Corp. to exercise its rights under the Call Option and Cooperation Agreement entered into by and between it, Shanghai Muliang Industrial Corp and myself.
/s/ Lirong Wang
Signature: _________________
Date: February 10, 2016
Power of Attorney
I, Zhongfang Wang, with ID Card number: [310228194611043017],owns 5% shares of Shanghai Muliang Industrial Corp. hereby irrevocably appoints any person designated by Shanghai Mufeng Investment Consulting Corp. as my authorized representative to sign on my behalf all legal documents necessary for or in connection with enabling Shanghai Mufeng Investment Consulting Corp. to exercise its rights under the Call Option and Cooperation Agreement entered into by and between it, Shanghai Muliang Industrial Corp and myself.
/s/ Zhongfang Wang
Signature: _________________
Date: February 10, 2016
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__________________________________________________________
EQUITY PLEDGE AGREEMENT
Regarding
Shanghai Muliang Industrial Corp.(Company)
__________________________________________________________
between
Lirong Wang & Zhongfang Wang (Shareholders of Company)
and
Shanghai Mufeng Investment Consulting Corp. (WFOE)
February 10, 2016
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Equity Pledge Agreement
This Equity Pledge Agreement (the “Agreement”) is entered into in Shanghai, the People’s Republic of China (the “PRC”) as of this February 10, 2016 by and between the following parties:
[Shareholders of Company] (hereinafter referred to as the “Pledgor”)
Lirong Wang with ID Card Number: [310228197206153013]
Zhongfang Wang with ID Card Number: [310228194611043017]; and
[WFOE]. (hereinafter referred to as the “Pledgee”)
Legal Address: 中国(上海)自由贸易试验区富特北路379号二层203室
(In this Agreement, the Pledgor and Pledgee are collectively referred to as the “Parties” and individually as a “Party”)
Whereas:
I. The Pledgor is the enrolled shareholder of Shanghai Muliang Industrial Corp. (its business licence number is 310000400758185, and hereinafter referred to as the “Company”), lawfully holding the equities of the Company, and, as of the date hereof, the Pledgor holds all shares of the Company (the “Company Equity”).
II. The Pledgor and the Pledgee entered into the Call Option and Cooperation Agreement as of February 10, 2016.
III. The Pledgee and the Company entered into the Exclusive Technical Support and Service Agreement as of February 10, 2016.
IV. As the guarantee by the Pledgor and the Company for their performance of the Contract Obligation (as defined below) and repayment of the Guaranteed Liabilities (as defined below), the Pledgor agrees to pledge all of its Company Equity to the Pledgee, and grant herewith to the Pledgee the right of first priority.
Therefore, the Parties hereby agreed as follows:
Section 1 - Definition
1.1 Unless otherwise required by the context, the following terms in this Agreement shall have the following meanings:
“Contract Obligations” shall mean all contractual obligations of the Pledgor under the Call Option and Cooperation Agreement and this Agreement; and all contractual obligations of the Company under the Exclusive Technical Support and Service Agreement.
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“Guaranteed Liabilities” shall mean (i) all monetary payment obligations of the Pledgor and/or the Company under any transaction agreement, (ii) all direct, indirect and derivative losses and loss of foreseeable profits suffered by the Pledgee due to any Breaching Event (as defined below) of the Pledgor and/or the Company, and (iii) all fees incurred by the Pledgee for its enforcement of the Contractual Obligations of Pledgor and/or the Company.
“Transaction Agreement” means the Call Option and Cooperation Agreement and the Exclusive Technical Support and Service Agreement.
“Breaching Event” means any breach by the Pledgor and/or the Company of any Contract Obligations.
“Pledged Property” shall mean (i) all Company Equity to be pledged to the Pledgee according to this Agreement as a guarantee for (a) the performance of Contract Obligations and (b) the repayment of Guaranteed Liabilities, which is lawfully owned by the Pledgor as of the date hereof; and (ii) the increased contribution amounts and interests specified in Sections 2.6 and 2.7 hereof.
“PRC Law” means the laws, administrative regulations, administrative rules, local regulations, judicial interpretations and other binding regulatory documents of the People’s Republic of China then in effect.
“Equity Pledge” shall have the meaning set out in Section 2.2 hereof.
“Party’s Right” shall have the meaning set out in Section 12.7 hereof.
“Power of Attorney” shall have the meaning set out in Section 12.13 hereof.
1.2 Reference to any PRC Law herein shall be construed as including references to:
(i) the revise, amendment, supplement and reenactment of such law, irrespective of whether they come into force prior or after the formation of this Agreement; and
(ii) other decisions, notices or regulations enacted in accordance therewith or effective as a result thereof.
1.3 Unless otherwise stated in the context herein, references to any clause, item or paragraph shall refer to the relevant part of this Agreement.
Section 2 - Equity Pledge
2.1 The Pledgor hereby agrees to pledge the Pledged Property (that it lawfully owns and is entitled to dispose of) to the Pledgee in accordance with this Agreement as the guarantee for the performance of the Contract Obligations and the repayment of the Guaranteed Liabilities.
2.2 The Company shall record the arrangement of equity pledge hereunder on the shareholder register of the Company.
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2.3 With the term of this Agreement, except for the willful misconduct or gross negligence (which is directly related as cause/result to the consequence) of the Pledgee, the Pledgee shall not be liable in any way to, nor shall the Pledgor have any right to claim in any way or propose any demands on the Pledgee, in respect of the reduction in value of the Pledged Property.
2.4 Subject to above Section 2.3, in case of any possibility of obvious reduction in value of the Pledged Property which is sufficient to jeopardize Pledgee’s rights, the Pledgee may at any time auction or sell off the Pledged Property on behalf of the Pledgor to use the proceeds from such auction or sale-off as pre-repayment of the Guaranteed Liabilities, or may submit such proceeds to the local notary institution where the Pledgee is registered (any fees arising therefrom shall be borne by the Pledgor).
2.5 In case of any breaching Event, the Pledgee shall be entitled to dispose of the Pledged Property in the manner set out in Section 4 hereof.
2.6 Without the prior consent of the Pledgee, the Pledgor shall not increase its capital contribution to the Company. The increase contribution amount of the Pledgor in the Company as a result of the foresaid capital increase shall also be a part of the Pledged Property.
2.7 Under the precondition that the prior consent of the Pledgee has been obtained, the Pledgor may receive dividends or share profits from the Pledged Property. Such dividends or share profits received by the Pledgor from the Pledged Property shall be deposited into the account designated by the Pledgee and be under the supervision of the Pledged. Such dividends or share profits shall be used as the Pledged Property to repay in priority the Guaranteed Liabilities.
2.8 The Pledgee shall have the right to dispose of any Pledged Property of the Pledgor in accordance with this Agreement in case of a Breaching Event.
Section 3 - Release of Pledge
3.1 After the Pledgor and the Company has fully and completed performed all Contractual Obligations and repaid all Guaranteed Liabilities, the Pledgee shall, at request of the Pledgor, release the pledge hereunder and cooperate with the Pledgor to remove the record of Equity Pledge in the shareholder register of the Company. Reasonable fees arising out of the release of the pledge shall be borne by the Pledgee.
Section 4 - Disposition of Pledged Property
4.1 The Pledgor and the Pledgee hereby agree that, in case of any Breaching Event, the Pledgee shall have the right to exercise, upon giving written notice to the Pledgor, all of its remedies and powers granted to it by the PRC Law, Transaction Agreements and this Agreement, which includes but not limited to, repayment in priority with proceeds from auctions or sale-offs of the Pledged Property. The Pledgee shall not be liable for any loss arising out of its reasonable exercise of such rights and powers.
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4.2 The Pledgee has the right to designate in writing its legal counsel or other agents to exercise any and all rights and powers set out above on its behalf, and the Pledgor shall not make any object thereto.
4.3 Reasonable costs incurred by the Pledgee in connection with its exercise of any and all rights and powers set out in Sections 4.1 and 4.2 shall be borne by the Pledgor, and the Pledgee shall have the right to deduct such costs from the proceeds it acquires from the exercise of such rights and powers.
4.4 The proceeds obtained by the Pledgee from exercise of its rights and powers shall be used in the following orders:
4.4.1 to pay any cost incurred in connection with the disposition of Pledged Property and to exercise of the Pledgee’s rights and powers (including fees paid to its lawyer and agent);
4.4.2 to pay any taxes payable for the disposition of the Pledged Property; and
4.4.3 to repay the Guaranteed Liabilities to the Pledgee.
In case of any balance remained after payment of above sums, the Pledgee shall return the same to the Pledgor or other persons entitled thereto according to relevant laws and rules, or submit the same to the local notary public where the Pledgee is located.
4.5 The Pledgee shall have the option to exercise, simultaneously or in certain sequence, any remedies for breaching of the contract entitled to it. The Pledgee is not obliged to exercise other remedies for breaching of the contract before it exercises its right to auction or sell off the Pledged Property hereunder.
Section 5 - Fees and Costs
5.1 All actual costs in connection with the creation of the Equity Pledge hereunder (including but not limited to stamp duty, any other taxes, all legal costs, etc.) shall be borne by the Pledgee.
Section 6 - Continuity and No Waiver
6.1 The Equity Pledge created hereunder is a continuous guarantee and shall be valid until the full performance of Contract Obligations or the full repayment of Guaranteed Liabilities. If the Pledgee waives or gives grace period for any breach of the agreement by Pledgor, or if the Pledgee delays in exercising any of its rights under the Transaction Agreements or this Agreement, the Pledgee’s rights to require the Pledgor and/or the Company to strictly perform the Transaction Agreement and this Agreement in accordance with this Agreement, the Transaction Agreements and the relevant PRC Law and regulations shall not be affected.
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Section 7 - Representations and Warranties
The Pledgor hereby represents and warrants to the Pledgee as follows:
7.1 The Pledgor is a PRC citizen with full capacity of disposition. He has full and independent legal status and capacity and has obtained due authorization to execute, deliver and perform this Agreement, and can be a litigant party independently.
7.2 The Pledgor has full power and authorization to execute and deliver this Agreement as well as other documents relating to the transaction contemplated hereunder and to be executed by him. The Pledgor also has full power and authorization to complete the transaction contemplated herein.
7.3 All reports, documents and information in relation to (i) the Pledgor and (ii) all matters required by this Agreement that have been provided by the Pledgor to the Pledgee before this Agreement comes into effect are true and correct in all material aspects.
7.4 All reports, documents and information in relation to (i) the Pledgor and (ii) all matters required by this Agreement to be provided by the Pledgor to the Pledgee after this Agreement has come into effect are true and correct in all material aspects.
7.5 When this Agreement comes into force, the Pledgor is the sole lawful owner of the Pledged Property free of any existing dispute in the ownership of the Pledge Property. The Pledgor has the right to dispose of the Pledged Property or any part thereof.
7.6 Other than the encumbrance created on the Pledged Property hereunder and the rights under the Transaction Agreements, the Pledged Property is free of any other encumbrance or third party interest.
7.7 At the time of effectiveness of this Agreement, the Pledged Property can be pledged or transferred in accordance with laws, and the Pledgor has sufficient rights and powers to pledge the Pledged Property to the Pledgee pursuant to this Agreement.
7.8 By executing this Agreement, this Agreement shall constitute the legal, valid and binding obligations on the Pledgor.
7.9 Any consent, permission, waiver, authorization, or any governmental approval, license, exemption or filing procedures with any governmental agency (if required by laws) which are necessary for the execution and performance of this Agreement as well as the Equity Pledge hereunder have been duly obtained or processed and will remain effective during the valid term of this Agreement.
7.10 The Pledgor’s execution and performance of this Agreement are not in violation of or conflict with any (i) laws applicable to it, (ii) any agreements to which it is a party, or which have binding force upon its assets, or (iii) any court judgment, arbitration award, or decisions made by administrative authorities.
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7.11 The pledge contemplated hereunder shall constitute the encumbrance of the first order in priority on the Pledged Property.
7.12 All taxes and fees payable in connection with the acquisition of the Pledged Property have already been paid by the Pledgor in full.
7.13 There is no pending or, to the knowledge of the Pledgor, threatened litigation, legal proceeding or request by any court or any arbitral tribunal against the Pledgor, its assets or the Pledged Property that may cause material or adverse effect on the financial condition of the Pledgor or its capability to perform the obligations hereunder and Guaranteed Liabilities.
7.14 The Pledgor hereby warrants to the Pledgee that above representations and warranties shall remain true and correct at any time and under any circumstances before the Contract Obligations are fully performed or the Guaranteed Liabilities are fully repaid, and will be complied with to the fullest extent.
Section 8 - Undertakings
8.1 Undertakings by the Pledgor
The Pledgor hereby undertakes to the Pledgee as follows:
8.1.1 Without the prior written consent of the Pledgee, the Pledgor shall not create or permit to create any new pledge or other encumbrances on the Pledged Property. Any Pledge or other encumbrances created in respect of the whole or part of the Pledged Property without prior written consent of the Pledgee shall be null and void.
8.1.2 Without prior written consent of the Pledgee, the Pledgor shall not transfer the Pledged Property (whether a consideration is obtained therefrom or not), and any proposed transfer of the Pledge Property by the Pledgor shall be null and void. The prices obtained by the Pledgor from transferring the Pledged Property shall be used to repay the Guaranteed Liabilities in first priority.
8.1.3 In case of any litigation, arbitration or other demand that may adversely affect the Pledged Property or the interests of the Pledgor or the Pledgee under the Transaction Agreements as well as this Agreement, the Pledgor shall assure that it will notify the Pledgee thereof in writing as soon as practicable and, at the request of the Pledgee, take all necessary measures to ensure the interests of the Pledgee in/on the Pledged Property.
8.1.4 The Pledgor shall not conduct or permit any act or action that may affect detrimentally the Pledged Property or the Pledgee’s interest under the Transaction Agreements and hereunder.
8.1.5 The Pledgor undertakes that, upon the reasonable request of the Pledgee, it shall take all necessary actions and execute all required documents (including but not limited to any supplementary agreement hereof) to ensure the pledge interest of the Pledgee over the Pledged Property and the exercise and realization of such rights.
8.1.6 In case an assignment of the Pledge Property is required for exercising the pledge right hereunder, the Pledgor undertakes that it shall take all actions to realize such assignment.
| -7- |
Section 9 - Change of Circumstances
9.1 As a supplement hereof, and subject to the terms and conditions set out in this Agreement and the Transaction Agreements, if, at any time, the Pledgee believes that it becomes illegal or conflict with the following laws, regulations or rules to maintain the effectiveness hereof and/or to dispose of the Pledged Property in accordance with this Agreement due to (i) promulgation or change of any PRC Law, regulations or rules, (ii) change in the interpretation or application of such laws, regulations and rules, (iii) change of the relevant registration procedures, the Pledgor shall immediately take any action and / or execute any agreement or other documents according to the written instruction and reasonable requirement of the Pledgee, in order to:
(a) keep this Agreement effective;
(b) facilitate the disposition of Pledged Property in the way provided herein; and/or
(c) maintain or realize the intention of this Agreement.
Section 10 - Effectiveness and Term
10.1 This Agreement shall come into force upon the satisfaction of all following conditions:
(i) This Agreement has been duly executed by the Parties; and
(ii) The Equity Pledge hereunder has been legally recorded in the shareholders’ register of the Company.
The Pledgor shall cooperate with the Pledgee to register the Equity Pledge hereunder with competent equity-pledge registration authority within thirty (30) days following the execute date hereof, and shall provide the relevant registration certificate of the Equity Pledge to the Pledgee in the way satisfactory to the Pledgee.
10.2 This Agreement shall be valid until the complete performance of Contract Obligation and the full repayment of Guaranteed Liabilities.
Section 11 - Notice
11.1 Any notice, request, requirement or other communications hereunder shall be made in writing and delivered to the relevant receiving Party.
11.2 Above notices or other communications shall be deemed to have been given when (i) it is sent out if sent by facsimile or email, or (ii) when it is delivered if deliver by person, or (iii) five (5) days following post if posted by mail.
Section 12 - Miscellaneous
12.1 The Pledgee may transfer its rights and/or obligations hereunder to any third party by notifying the Pledgor without the Pledgor’s consent, however, without the Pledgee’s prior written consent, the Pledgor shall not transfer any of its rights, obligations or liabilities hereunder to any third party.
| -8- |
12.2 The successor or permitted transferee (if any) of the Pledgor shall continue to perform all obligations of the Pledgor hereunder.
12.3 The amount of the Guaranteed Liabilities determined by the Pledgee at the time of exercising its pledge right to the Pledged Property according to this Agreement shall be the conclusive evidence of Guaranteed Liabilities hereunder.
12.4 This Agreement is prepared in Chinese and shall be executed in four (4) originals. Each Party hereto shall hold one (1) original hereof. The number of originals hereof may be increased accordingly for the purpose of registration or filing (if necessary).
12.5 This Agreement shall be governed by and construed in accordance with the PRC Laws.
12.6 Any dispute arising out of or in connection with this Agreement shall be settled by the Parties through friendly consultation. If no agreement has been reached within thirty (30) days following the occurrence of such dispute, it shall be submitted to the competent court for resolution.
12.7 Any right, power or remedy granted to either Party under any provisions herein shall not preclude any other rights, powers or remedies that a Party may be entitled to in accordance with laws or other provisions hereof. A Party’s exercise of its rights, powers or remedies shall not preclude it from exercising other rights, powers or remedies granted to such Party.
12.8 Any failure or delay by a Party in exercising any of its rights, powers and remedies hereunder or in accordance with laws (the “Party’s Rights”) shall not be deemed as a waiver thereof, and any single or partial exercise of the Party’s Rights shall not preclude such Party from (i) further exercise of such rights and (ii) exercise of other Party’s Rights.
12.9 The headings of this Agreement are for easy reference only and shall not be used for or affect the interpretation hereof in any circumstances.
12.10 Each provision hereunder shall be severable and independent from each other, and, if any provision(s) hereunder has been held invalid, illegal or unenforceable at any time, the validity, legality and enforceability of the remaining provision shall not be affected thereby.
12.11 Any amendment or supplement to this Agreement shall be made in writing. No amendment or supplement to this Agreement shall be effective without duly signed by the Parties, save for the Pledgee’s transfer of its rights hereunder according to Section 12.1.
12.12 Subject to above Section 12.1, this Agreement shall be binding upon the lawful successor of each Party.
12.13 At the same time of the execution hereof, the Pledgor shall sign a power of attorney (the sample of which is set out in Appendix 2 hereto, hereinafter referred to as the “Power of Attorney”) to authorize any person appointed by the Pledgee to sign on behalf of the Pledgor any and all legal documents necessary for enabling the Pledgee to exercise its rights hereunder. Such Power of Attorney shall be delivered to and be kept by the Pledgee, and, when necessary, the Pledgee may submit such Power of Attorney to relevant governmental authorities at any time.
[SIGNATURE PAGE FOLLOWS]
| -9- |
IN WITNESS WHEREOF, the following Parties have caused this Equity Pledge Agreement to be executed as of the date and in the place first written above.
[Pledgor]
/s/Lirong Wang
Signed by : ____________________________
Name: Lirong Wang
/s/Zhongfang Wang
Signed by : ____________________________
Name: Zhongfang Wang
Shanghai Mufeng Investment Consulting Corp.
/s/Lirong Wang
Signed by : ____________________________
Name: Lirong Wang
Title: President
| -10- |
Appendix 1
Basic Information of the Company
| Company name | :Shanghai Muliang Industrial Corp. | |||||||
| Registered address | : 上海市金山区枫泾镇一号桥北堍2号14号厅18室 | |||||||
| Registered capital | : RMB50,000,000 | |||||||
| Equity structure | : | |||||||
| Name of Shareholder | Capital Contribution | Equity Share | ||||||
| Lirong Wang | RMB 47,500,000 | 95 | % | |||||
| Zhongfang Wang | RMB 2,500,000 | 5 | % | |||||
| -11- |
Appendix 2
Power of Attorney
I, Lirong Wang (ID Card Number: [310228197206153013]), hereby irrevocably appoint any person designated by Shanghai Mufeng Investment Consulting Corp. as my authorized representative to sign on my behalf all legal documents necessary for or in connection with enabling Shanghai Mufeng Investment Consulting Corp. to exercise its rights under the Equity Pledge Agreement Concerning Shanghai Muliang Industrial Corp. between it and myself.
/s/Lirong Wang
Signature: _________________
Date: February 10, 2016
Power of Attorney
I, Zhongfang Wang (ID Card Number: [310228194611043017]), hereby irrevocably appoint any person designated by Shanghai Mufeng Investment Consulting Corp. as my authorized representative to sign on my behalf all legal documents necessary for or in connection with enabling Shanghai Mufeng Investment Consulting Corp. to exercise its rights under the Equity Pledge Agreement Concerning Shanghai Muliang Industrial Corp. between it and myself.
/s/Zhongfang Wang
Signature: _________________
Date: February 10, 2016
| -12- |
Exclusive Technical Consulting
and Service Agreement
between
SHANGHAI MUFENG INVESTMENT CONSULTING CORP.
and
SHANGHAI MULIANG INDUSTRIAL CORP.
February 10, 2016
Exclusive Technical Consulting and Service Agreement
This Exclusive Technical Consulting and Service Agreement (the “Agreement”) is entered into in Shanghai, the People’s Republic of China (the “PRC”) as of February 10, 2016 by and between the following two parties:
Party A: SHANGHAI MUFENG INVESTMENT CONSULTING CORP.
Address: 中国(上海)自由贸易试验区富特北路379号二层203室
Legal representative: Lirong Wang; and
Party B: SHANGHAI MULIANG INDUSTRIAL CORP.
Address: 上海市金山区枫泾镇一号桥北堍2号14号厅18室
Legal representative: Lirong Wang.
(In this Agreement, Party A and Party B are collectively referred to as the “Parties” and individually as a “Party”)
WHEREAS:
1. Party A is a wholly foreign invested enterprise duly incorporated and validly existing in the PRC with experts and professional teams and it has extensive experiences in the following areas: (i) agriculture technology; (ii) providing relevant technical consultancy and technical support; and (iii) market research in relation to the agriculture technology within or out of territory of the PRC, and providing relevant market promotion services;
2. Party B is a limited liability company duly incorporated and validly existing in the PRC, engaging in such business as agriculture technology;
3. Party B intends to obtain technical support and backup service in relation to the consultancy and development of market strategy from Party A, and Party A is willing to provide the foresaid services.
THEREFORE, the Parties have reached the following agreement after friendly consultation:
1. Service Scope
The Parties agree that, during the term of this Agreement, Party A shall provide Party B with support and consulting services concerning the technologies and market development set forth in Appendix 1 hereto (the “Technical Support”) in accordance with this Agreement.
In order to ensure the confidentiality of relevant know-how as well as the effect and efficiency of the Technical Support, Party B agrees that, without Party A’s prior written consent, it shall not:
(i) appoint any third party to provide any technical support which is the same as or similar to the items specified in Appendix 1 hereto to Party B, unless otherwise agreed by Party B; or
(ii) conduct or allow any third party to conduct any activity which may affect the confidentiality of relevant know-how as well as the effect and efficiency of the Technical Support during the term of this Agreement.
Any intellectual property (including but without limitation: copyright, patent, know-how, trade secret and otherwise whatsoever) shall be solely owned by Party A, no matter such intellectual property is developed by Party A itself, or developed by Party B on the basis of Party A’s intellectual property, or by Party A based on Party B’s intellectual property development. Party B is only granted with a right to use the foresaid intellectual property free of charge and without time limit. Such use right of Party B shall not be sub-licensed.
| -2- |
2. Service Fee and Payment
The Parties agree that the service fee for Party A’s provision of technical support specified under Appendix 1 hereto to Party B (the “Service Fee”) shall be calculated and paid as per the methods set out in Appendix 2.
3. Representations and Warranties
3.1 Party A hereby represents and warrants as follows:
3.1.1 Party A has the qualification required by the PRC laws to provide the Technical Support, and has obtained all relevant certificates, licenses, permissions and/or any other governmental approvals, and will maintain the effectiveness of such certificates, licenses, permissions and/or any other governmental approvals during the term of this Agreement;
3.1.2 Party A has necessary equipment, devices and experienced professionals to provide the Technical Support; and
3.1.3 The execution and performance of this Agreement by Party A will not violate any PRC laws or contracts which are binding upon it.
3.2 Party B hereby represents and warrants as follows:
3.2.1 Party B has the qualifications necessary for its engagement of such business as agriculture technology under relevant PRC laws, and has obtained all relevant certificates, licenses, permissions and/or any other governmental approvals, and will maintain the effectiveness of such certificates, licenses, permissions and/or any other governmental approvals during the term of this Agreement;
3.2.2 Party B is engaged no any illegal transaction or activity in the business operation of; and
3.2.3 The execution and performance of this Agreement by Party B will not violate any provision of PRC laws or terms of contracts which are binding upon it.
4. Confidentiality
Each Party agrees to make its best effort and to take all reasonable measures to keep all information which it may receive from the other Party or have access to it during the term of this Agreement (the “Confidential Information”) in strict confidential manner. When this Agreement is terminated, the receiving Party of the Confidential Information shall return all documents, materials or software containing the Confidential Information to their original owner or the disclosing party, or, as requested by the original owner or disclosing party, to destroy (including delete any Confidential Information from relevant memory devices) such documents, materials or software by the Receiving Party itself and shall no longer use such Confidential Information. The Parties shall take necessary actions to disclose the Confidential Information only to those employees, agent or professional advisors of the other Party who have real needs to know such information, and shall cause such employees, agent or professional advisors to bear the confidentiality obligations hereunder.
| -3- |
Above limitation and restriction shall not apply to the following information that:
(i) becomes part of the public knowledge prior to the time of disclosure;
(ii) becomes part of the public knowledge after the time of disclosure which is not caused by either Party’s fault;
(iii) is in the possession of Party A or Party B (as may be proved by such Party) and is not directly or indirectly obtained from a third party who bears confidentiality obligations to the other Party; and
(iv) is disclosed pursuant to the requirement or request of relevant governmental agency or stock exchange; or is disclosed to either Party’s legal counsel or financial advisor due to the requirement of such Party’s normal business.
The Parties agreement of this Section 4 in relation to confidentiality obligation shall remain effective in case of the amendment, discharge or termination of this Agreement.
5. Compensation
Unless otherwise provided by this Agreement, the following shall constitute a breach of this Agreement: (i) either Party fails to fully perform or suspends the performance of its obligations hereunder, and such failure or suspension is not cured within thirty days following receipt of the other Party’s notice thereof, or (ii) any representation and warranty made by either Party hereunder is not true.
If either Party breaches this Agreement or any representations or warranties made by it hereunder, the non-breaching Party may notify the breaching Party in writing to request such Party to, within 10 days upon receipt of such notice, (i) make relevant correction, (ii) take corresponding actions to effectively and timely avoid any losses or damages, and (iii) continue to perform this Agreement. In case of any losses or damage, the breaching Party shall make compensation to the extent that the non-breaching Party can obtain all interests it should have obtained from the performance of this Agreement.
If either Party incurs or suffers any expenses, liabilities or losses (including but without limitation, the loss of profits) due to the other Party’s breach of this Agreement, the breaching Party shall compensate the non-breaching Party for the foresaid expense, liability or loss (including but not limited to interests or legal fees which is paid or lost as a result of such breach). The total amount of compensation paid by the breaching Party shall equal to the losses arising out of such breach. The compensation mentioned above shall include interests that the non-breaching Party should obtain from the performance of this Agreement, provided that such compensation shall not exceed the reasonable expectation of the Parties.
If both Parties breach this Agreement, the compensation amount shall be determined as per the extent of their respective breach.
| -4- |
6. Effectiveness, Performance and Term
This Agreement shall be signed as of the date set forth above and come into force upon such execution.
7. Termination
The rights and obligations of the Parties under Section 4 and Section 5 shall survive the termination of this Agreement.
8. Dispute Resolution
8.1 Any dispute between the Parties arising out of the interpretation and performance of this Agreement shall be settled by the Parties through friendly consultation. If no agreement can be reached through such consultation, either Party may submit such dispute to China International Economic and Trade Arbitration Commission (Shanghai Branch) for arbitration in accordance with its arbitration rules then in effect. The place of arbitration shall be in Shanghai, and the arbitration proceedings shall be conducted in Chinese. The arbitration award shall be final and binding upon the Parties. This Clause shall not be affected by the termination or discharge of the Agreement.
8.2 Other than those items in dispute, the Parties shall continue to perform their respective obligation in good faith according to this Agreement.
9. Force Majeure
9.1 “Force Majeure Event” means any event that is beyond the reasonable control of a Party and cannot be avoided even if the affected Party has taken reasonable precautions. A Force Majeure Event includes, but not limited to, governmental activity, Act of God, fire, explosion, storm, flood, earthquake, tide, lightening or war. However, the insufficiency of credit, capital or financing shall not be deemed as a matter that is beyond the control of a Party. A Party which is affected by a Force Majeure Event and seeks for a exemption of certain liability hereunder shall notify the other Party thereof as soon as practicable.
| -5- |
9.2 In the event that this Agreement is required to be delayed in its performance or is unable to perform as a result of a Force Majeure Event, the Party affected by such Force Majeure Event shall not be liable to the extent affected by the Force Majeure Event. The affected Party shall take reasonable measures to reduce or eliminate the impact caused by the Force Majeure Event, and to make every effort to recover the performance of such obligations as delayed or blocked due to the Force Majeure Event. After the Force Majeure Event is over or removed, the Parties agree to make their best efforts to recover the performance of this Agreement.
10. Assignment
Without the prior written consent of Party A, Party B shall not transfer its rights and obligations hereunder to any third Party. Party A may transfer its rights and obligations hereunder to a third party without Party B’s consent, provided that Party A shall notify Party B of such transfer.
11. Severability
If any provision under this Agreement is inconsistent with relevant laws, or becomes invalid or unenforceable, such provision shall only be invalid or unenforceable within the jurisdiction of relevant laws, and the validity of other provisions of this Agreement shall not be affected.
12. Amendment
Any amendment to or supplementary of this Agreement shall be made in writing. The amendment to or supplementary of this Agreement duly executed by the Parties shall be an integral part hereof and have the same legal effect as this Agreement.
13. Governing Law
This Agreement shall be governed by and construed in accordance with the PRC laws.
14. Counterpart
This Agreement shall be executed in two originals, and each Party shall hold one original hereof.
[SIGNATURE PAGE FOLLOWS]
| -6- |
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives.
Party A: SHANGHAI MUFENG INVESTMENT CONSULTING CORP.
Authorized representative: Lirong Wang
/s/ Lirong Wang
Signature: __________________________
Party B: SHANGHAI MULIANG INDUSTRIAL CORP.
Authorized representative: Lirong Wang
/s/ Lirong Wang
Signature: __________________________
| -7- |
Appendix 1
Contents of Technical Support
To the extent permitted by law, the Technical Support to be provided by Party A to Party B includes the following (the Parties may amend this Appendix from time to time according to the business and operation requirements of Party B as well as the provisions of laws):
1. Technical Consultancy and Service
| (i) | to make research on foreign technologies in relation to agriculture technology, and to offer relevant technology information and technical guidance to Party B; |
| (ii) | to provide experts to help Party B in resolving technical problems arising out of agriculture technology; |
| (iii) | to establish a standard procedure for agriculture technology for Party B; and |
| (iv) | to train professional technicians for Party B. |
2. Market Promotion and Market Planning
| (i) | to expand the market shares as well as to develop sales channels of agriculture technology; |
| (ii) | to plan and organize activities and events to promote the company image of Party B; and |
| (iii) | to offer services in relation to public relationship. |
3. to conduct other consulting services in relation to the company strategy and market development of Party B.
| -7- |
Appendix 2
Service Fee and Payment Method
The Parties agree that the service fee to be paid by Party B as consideration to the services provided by Party A hereunder shall be 100% of Party B’s net income after taxes. In principle, such Service Fee shall be paid monthly according to the business condition of Party B, but Party A shall have the right to delay, reduce the amount of or waive the payment of any such service fee.
| -8- |
POWER OF ATTORNEY
I, Lirong Wang, a citizen of PRC with ID Card number [310228197206153013], owns 95% shares of Shanghai Muliang Industrial Corp. (“SMI”) hereby irrevocably agree and entrust any person designated by Shanghai Mufeng Investment Consulting Corp. (the “WFOE Representative”) as my authorized proxy to exercise the following authority within the term of this Power of Attorney:
The WFOE Representative is hereby authorized to exercise all shareholder’s decision rights in Shanghai Muliang Industrial Corp, which are entitled to me under the laws and the articles of association of SMI, including but not limited to sell or transfer of all or part of the shares of SMI owned by me and, act as the authorized representative, to appoint and elect legal representative, director, general manager and other senior officers of SMI on behalf of me.
The precondition for above entrustment and authorization is that the authorized person shall be a citizen of the People’s Republic of China, and that Shanghai Mufeng Investment Consulting Corp. has consented such entrustment and authorization. In the event Shanghai Mufeng Investment Consulting Corp. issues a written notice of dismissal or replacement WFOE Representative, I will immediately withdraw my entrustment and authorization to the former WFOE Representation, and make the same entrustment and authorization as provided herein to another PRC citizen designated by Shanghai Mufeng Investment Consulting Corp.
This Power of Attorney shall be come into effect from the execution date hereof.
/s/ Lirong Wang
Signed by:______________________________
Name: Lirong Wang
Date: February 10, 2016
| 1 |
POWER OF ATTORNEY
I, Zhongfang Wang, a citizen of PRC with ID Card number [310228194611043017], owns 5% shares of Shanghai Muliang Industrial Corp. (“SMI”) hereby irrevocably agree and entrust any person designated by Shanghai Mufeng Investment Consulting Corp. (the “WFOE Representative”) as my authorized proxy to exercise the following authority within the term of this Power of Attorney:
The WFOE Representative is hereby authorized to exercise all shareholder’s decision rights in Shanghai Muliang Industrial Corp, which are entitled to me under the laws and the articles of association of SMI, including but not limited to sell or transfer of all or part of the shares of SMI owned by me and, act as the authorized representative, to appoint and elect legal representative, director, general manager and other senior officers of SMI on behalf of me.
The precondition for above entrustment and authorization is that the authorized person shall be a citizen of the People’s Republic of China, and that Shanghai Mufeng Investment Consulting Corp. has consented such entrustment and authorization. In the event Shanghai Mufeng Investment Consulting Corp. issues a written notice of dismissal or replacement WFOE Representative, I will immediately withdraw my entrustment and authorization to the former WFOE Representation, and make the same entrustment and authorization as provided herein to another PRC citizen designated by Shanghai Mufeng Investment Consulting Corp..
This Power of Attorney shall be come into effect from the execution date hereof.
/s/ Zhongfang Wang
Signed by:______________________________
Name: Zhongfang Wang
Date: February 10, 2016
Document and Entity Information |
9 Months Ended |
|---|---|
Sep. 30, 2015 | |
| Document And Entity Information | |
| Entity Registrant Name | M & A Holding Corp. |
| Entity Central Index Key | 0001629665 |
| Document Type | 8-K |
| Document Period End Date | Sep. 30, 2015 |
| Amendment Flag | false |
| Current Fiscal Year End Date | --12-31 |
| Is Entity a Well-known Seasoned Issuer? | No |
| Is Entity a Voluntary Filer? | No |
| Is Entity's Reporting Status Current? | Yes |
| Entity Filer Category | Smaller Reporting Company |
| Document Fiscal Year Focus | 2015 |
Consolidated Statements of the Stockholders' Deficit - Shanghai Muliang Industrial Corp. [Member] - USD ($) |
Common Stock |
Paid-in Capital |
Additional Paid-In Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Loss |
Noncontrolling Interest |
Total |
|---|---|---|---|---|---|---|---|
| Beginning Balance at Dec. 31, 2012 | $ 793,512 | $ 19,298 | $ (4,590,718) | $ (6,535) | $ (3,784,443) | ||
| Beginning Balance, Shares at Dec. 31, 2012 | |||||||
| Disposal of Fourty Percent equity interest of one of Chinese subsidiaries to a non-controlling interest shareholder | 64,615 | 64,615 | |||||
| Net loss | $ (2,208,461) | (8,183) | (2,216,644) | ||||
| Unrealized foreign currency translation adjustment | $ (145,766) | (558) | (146,324) | ||||
| Ending Balance at Dec. 31, 2013 | $ 793,512 | $ 19,298 | $ (6,799,179) | $ (145,766) | 49,339 | (6,082,796) | |
| Ending Balance, Shares at Dec. 31, 2013 | |||||||
| Net loss | $ (3,719,988) | (45,129) | (3,765,117) | ||||
| Unrealized foreign currency translation adjustment | $ 24,527 | 438 | 24,965 | ||||
| Ending Balance at Dec. 31, 2014 | $ 793,512 | $ 19,298 | $ (10,519,167) | $ (121,239) | $ 4,648 | (9,822,948) | |
| Ending Balance, Shares at Dec. 31, 2014 | |||||||
| Net loss | (2,661,262) | ||||||
| Unrealized foreign currency translation adjustment | (61,380) | ||||||
| Ending Balance at Sep. 30, 2015 | $ 3,438,798 |
Pro Forma Combined Balance Sheets (Unaudited) |
Sep. 30, 2015
USD ($)
|
|||
|---|---|---|---|---|
| M & A Holding Corp. [Member] | ||||
| Current Assets: | ||||
| Cash and cash equivalents | $ 20,982 | |||
| Notes receivable | ||||
| Inventories | ||||
| Advances to suppliers | ||||
| Advances to suppliers - related party | ||||
| Prepaid expenses | ||||
| Other receivables, net | ||||
| Loan receivable - related party | ||||
| Due from related party | ||||
| Total Current Assets | $ 20,982 | |||
| Plant and equipment, net | ||||
| Biological assets, net | ||||
| Intangible assets, net | ||||
| Total Assets | $ 20,982 | |||
| Current Liabilities: | ||||
| Short-term loans | ||||
| Accounts payable and accrued payables | ||||
| Accounts payable - related party | ||||
| Advances from customers | ||||
| Accrued expense | $ 11,932 | |||
| Due to related party | 15,941 | |||
| Total Current Liabilities | $ 27,873 | |||
| Long-term loans | ||||
| Total Liabilities | $ 27,873 | |||
| Stockholders' Equity: | ||||
| Common stock, $0.0001 par value, 500,000,000 shares authorized,150,525,000 shares issued and outstanding | $ 15,053 | |||
| Paid in capital | ||||
| Additional paid in capital | $ 6,097 | |||
| Subscription receivable | ||||
| Accumulated deficit | $ (28,041) | |||
| Accumulated other comprehensive loss | ||||
| Stockholders' Equity (Deficit) - Shanghai Muliang Industrial Corp. and Subsidiaries | $ (6,891) | |||
| Noncontrolling interest | ||||
| Total Stockholders' Equity (Deficit) | $ (6,891) | |||
| Total Liabilities and Stockholders' Equity | 20,982 | |||
| Shanghai Muliang Industrial Corp. [Member] | ||||
| Current Assets: | ||||
| Cash and cash equivalents | $ 93,549 | |||
| Notes receivable | ||||
| Accounts receivable, net | $ 674,458 | |||
| Accounts receivable - related party | 101,103 | |||
| Inventories | 545,193 | |||
| Advances to suppliers | 35,014 | |||
| Advances to suppliers - related party | $ 11,913 | |||
| Prepaid expenses | ||||
| Other receivables, net | $ 465,795 | |||
| Loan receivable - related party | ||||
| Due from related party | $ 81,147 | |||
| Total Current Assets | 2,008,172 | |||
| Plant and equipment, net | 4,596,576 | |||
| Construction in progress | 7,464,197 | |||
| Biological assets, net | 461,521 | |||
| Intangible assets, net | 2,704,517 | |||
| Total Assets | 17,234,983 | |||
| Current Liabilities: | ||||
| Short-term loans | 849,885 | |||
| Accounts payable and accrued payables | 2,632,333 | |||
| Accounts payable - related party | 199,212 | |||
| Advances from customers | 37,377 | |||
| Other payables | 266,622 | |||
| Due to related party | 3,043,152 | |||
| Total Current Liabilities | 7,028,581 | |||
| Long-term loans | 6,767,604 | |||
| Total Liabilities | 13,796,185 | |||
| Stockholders' Equity: | ||||
| Paid in capital | 2,416,731 | |||
| Additional paid in capital | $ 14,375,625 | |||
| Subscription receivable | ||||
| Accumulated deficit | $ (13,162,563) | |||
| Accumulated other comprehensive loss | (182,619) | |||
| Stockholders' Equity (Deficit) - Shanghai Muliang Industrial Corp. and Subsidiaries | 3,447,174 | |||
| Noncontrolling interest | (8,376) | |||
| Total Stockholders' Equity (Deficit) | 3,438,798 | |||
| Total Liabilities and Stockholders' Equity | 17,234,983 | |||
| Pro Forma Combined [Member] | ||||
| Current Assets: | ||||
| Cash and cash equivalents | $ 158,287 | |||
| Notes receivable | ||||
| Accounts receivable, net | $ 674,458 | |||
| Accounts receivable - related party | 101,103 | |||
| Inventories | 545,193 | |||
| Advances to suppliers | 35,014 | |||
| Advances to suppliers - related party | $ 11,913 | |||
| Prepaid expenses | ||||
| Other receivables, net | $ 465,795 | |||
| Loan receivable - related party | ||||
| Due from related party | $ 81,147 | |||
| Total Current Assets | 2,072,910 | |||
| Plant and equipment, net | 4,596,576 | |||
| Construction in progress | 7,464,197 | |||
| Biological assets, net | 461,521 | |||
| Intangible assets, net | 2,704,517 | |||
| Total Assets | 17,299,721 | |||
| Current Liabilities: | ||||
| Short-term loans | 849,885 | |||
| Accounts payable and accrued payables | 2,632,333 | |||
| Accounts payable - related party | 199,212 | |||
| Advances from customers | 37,377 | |||
| Other payables | $ 266,622 | |||
| Accrued expense | ||||
| Due to related party | $ 3,043,152 | |||
| Total Current Liabilities | 7,028,581 | |||
| Long-term loans | 6,767,604 | |||
| Total Liabilities | 13,796,185 | |||
| Stockholders' Equity: | ||||
| Common stock, $0.0001 par value, 500,000,000 shares authorized,150,525,000 shares issued and outstanding | $ 28,000 | |||
| Paid in capital | ||||
| Additional paid in capital | $ 16,829,094 | |||
| Subscription receivable | ||||
| Accumulated deficit | $ (13,162,563) | |||
| Accumulated other comprehensive loss | (182,619) | |||
| Stockholders' Equity (Deficit) - Shanghai Muliang Industrial Corp. and Subsidiaries | 3,511,912 | |||
| Noncontrolling interest | (8,376) | |||
| Total Stockholders' Equity (Deficit) | 3,503,536 | |||
| Total Liabilities and Stockholders' Equity | 17,299,721 | |||
| Pro Forma Adjustments [Member] | ||||
| Current Assets: | ||||
| Cash and cash equivalents | $ (20,982) | |||
| Notes receivable | ||||
| Inventories | ||||
| Advances to suppliers | ||||
| Advances to suppliers - related party | ||||
| Prepaid expenses | ||||
| Other receivables, net | ||||
| Loan receivable - related party | ||||
| Due from related party | ||||
| Total Current Assets | $ 43,756 | |||
| Plant and equipment, net | ||||
| Biological assets, net | ||||
| Intangible assets, net | ||||
| Total Assets | $ 43,756 | |||
| Current Liabilities: | ||||
| Short-term loans | ||||
| Accounts payable and accrued payables | ||||
| Accounts payable - related party | ||||
| Advances from customers | ||||
| Accrued expense | $ (11,932) | |||
| Due to related party | (15,941) | |||
| Total Current Liabilities | $ (27,873) | |||
| Long-term loans | ||||
| Total Liabilities | $ (27,873) | |||
| Stockholders' Equity: | ||||
| Common stock, $0.0001 par value, 500,000,000 shares authorized,150,525,000 shares issued and outstanding | 12,947 | |||
| Paid in capital | (2,416,731) | |||
| Additional paid in capital | $ 2,447,372 | |||
| Subscription receivable | ||||
| Accumulated deficit | $ 28,041 | |||
| Accumulated other comprehensive loss | ||||
| Stockholders' Equity (Deficit) - Shanghai Muliang Industrial Corp. and Subsidiaries | $ 92,611 | |||
| Noncontrolling interest | ||||
| Total Stockholders' Equity (Deficit) | $ 92,611 | |||
| Total Liabilities and Stockholders' Equity | $ 64,738 | |||
| Shanghai Mufeng Investment Consulting Corp. and Muliang Agriculture Ltd.[Member] | ||||
| Current Assets: | ||||
| Cash and cash equivalents | [1] | |||
| Notes receivable | [1] | |||
| Inventories | [1] | |||
| Advances to suppliers | [1] | |||
| Advances to suppliers - related party | [1] | |||
| Prepaid expenses | [1] | |||
| Other receivables, net | [1] | |||
| Loan receivable - related party | [1] | |||
| Due from related party | [1] | |||
| Total Current Assets | [1] | |||
| Plant and equipment, net | [1] | |||
| Biological assets, net | [1] | |||
| Intangible assets, net | [1] | |||
| Current Liabilities: | ||||
| Short-term loans | [1] | |||
| Accounts payable and accrued payables | [1] | |||
| Accounts payable - related party | [1] | |||
| Advances from customers | [1] | |||
| Accrued expense | [1] | |||
| Due to related party | [1] | |||
| Total Current Liabilities | [1] | |||
| Long-term loans | [1] | |||
| Total Liabilities | [1] | |||
| Stockholders' Equity: | ||||
| Preferred stock | [1] | |||
| Common stock, $0.0001 par value, 500,000,000 shares authorized,150,525,000 shares issued and outstanding | [1] | |||
| Paid in capital | [1] | |||
| Additional paid in capital | [1] | |||
| Subscription receivable | [1] | |||
| Accumulated deficit | [1] | |||
| Accumulated other comprehensive loss | [1] | |||
| Stockholders' Equity (Deficit) - Shanghai Muliang Industrial Corp. and Subsidiaries | [1] | |||
| Noncontrolling interest | [1] | |||
| Total Stockholders' Equity (Deficit) | [1] | |||
| ProFormaAdjustments1Member | ||||
| Current Assets: | ||||
| Cash and cash equivalents | $ 64,738 | |||
| ||||
Pro Forma Combined Balance Sheets (Unaudited) (Parenthetical) - M & A Holding Corp. [Member] |
Sep. 30, 2015
$ / shares
shares
|
|---|---|
| Common Stock, Par Value | $ / shares | $ 0.0001 |
| Common Stock, Shares Authorized | 500,000,000 |
| Common Stock, Shares Issued | 150,525,000 |
| Common Stock, Shares Outstanding | 150,525,000 |
Pro Forma Combined Statements of Operations and Comprehensive Income (Unaudited) |
9 Months Ended |
|---|---|
|
Sep. 30, 2015
USD ($)
$ / shares
shares
| |
| Pro Forma Adjustments [Member] | |
| Revenues | |
| Revenues - related party | |
| Revenues, net | |
| Cost of goods sold | |
| Gross profit (loss) | |
| Operating expenses: | |
| General and administrative expenses | |
| Selling expenses | |
| Total operating expenses | |
| Loss from operations | |
| Other income (expense): | |
| Interest expense | |
| Subsidy income | |
| Other income (expense), net | |
| Total other expenses | |
| Loss before income taxes | |
| Income taxes | |
| Net loss | |
| Discontinued operations: | |
| Gain from operations of discontinued component, net of taxes | |
| Net loss | |
| Net loss attributable to noncontrolling interest | |
| Net loss attributable to Shanghai Muliang Industrial Corp. common stockholders | |
| Other comprehensive income (loss): | |
| Unrealized foreign currency translation adjustment | |
| Comprehensive loss | |
| Weighted average number of shares outstanding | |
| Basic | shares | 129,475,000 |
| Diluted | shares | 129,475,000 |
| Pro Forma Combined [Member] | |
| Revenues | $ 961,676 |
| Revenues - related party | 33,088 |
| Revenues, net | 994,764 |
| Cost of goods sold | 619,080 |
| Gross profit (loss) | 375,684 |
| Operating expenses: | |
| General and administrative expenses | 909,732 |
| Selling expenses | 140,249 |
| Total operating expenses | 1,049,981 |
| Loss from operations | (674,297) |
| Other income (expense): | |
| Interest expense | (1,657,362) |
| Subsidy income | 168,174 |
| Loss from disposal of equipment | (490,423) |
| Other income (expense), net | (17,918) |
| Total other expenses | (1,997,529) |
| Loss before income taxes | $ (2,671,826) |
| Income taxes | |
| Net loss | $ (2,671,826) |
| Discontinued operations: | |
| Gain from operations of discontinued component, net of taxes | |
| Net loss | $ (2,671,826) |
| Net loss attributable to noncontrolling interest | 17,866 |
| Net loss attributable to Shanghai Muliang Industrial Corp. common stockholders | (2,653,960) |
| Other comprehensive income (loss): | |
| Unrealized foreign currency translation adjustment | (61,380) |
| Comprehensive loss | $ (2,715,340) |
| Net income (loss) per common share: | |
| Basic | $ / shares | $ (.01) |
| Diluted | $ / shares | $ (.01) |
| Weighted average number of shares outstanding | |
| Basic | shares | 280,000,000 |
| Diluted | shares | 280,000,000 |
| Shanghai Muliang Industrial Corp. [Member] | |
| Revenues | $ 961,676 |
| Revenues - related party | 33,088 |
| Revenues, net | 994,764 |
| Cost of goods sold | 619,080 |
| Gross profit (loss) | 375,684 |
| Operating expenses: | |
| General and administrative expenses | 899,168 |
| Selling expenses | 140,249 |
| Total operating expenses | 1,039,417 |
| Loss from operations | (663,733) |
| Other income (expense): | |
| Interest expense | (1,657,362) |
| Subsidy income | 168,174 |
| Loss from disposal of equipment | (490,423) |
| Other income (expense), net | (17,918) |
| Total other expenses | (1,997,529) |
| Loss before income taxes | $ (2,661,262) |
| Income taxes | |
| Net loss | $ (2,661,262) |
| Discontinued operations: | |
| Gain from operations of discontinued component, net of taxes | |
| Net loss | $ (2,661,262) |
| Net loss attributable to noncontrolling interest | 17,866 |
| Net loss attributable to Shanghai Muliang Industrial Corp. common stockholders | (2,643,396) |
| Other comprehensive income (loss): | |
| Unrealized foreign currency translation adjustment | (61,380) |
| Comprehensive loss | $ (2,704,776) |
| M & A Holding Corp. [Member] | |
| Revenues | |
| Revenues - related party | |
| Revenues, net | |
| Cost of goods sold | |
| Gross profit (loss) | |
| Operating expenses: | |
| General and administrative expenses | $ 10,564 |
| Selling expenses | |
| Total operating expenses | $ 10,564 |
| Loss from operations | $ (10,564) |
| Other income (expense): | |
| Interest expense | |
| Subsidy income | |
| Other income (expense), net | |
| Total other expenses | |
| Loss before income taxes | $ (10,564) |
| Income taxes | |
| Net loss | $ (10,564) |
| Discontinued operations: | |
| Gain from operations of discontinued component, net of taxes | |
| Net loss | $ (10,564) |
| Net loss attributable to noncontrolling interest | |
| Net loss attributable to Shanghai Muliang Industrial Corp. common stockholders | $ (10,564) |
| Other comprehensive income (loss): | |
| Unrealized foreign currency translation adjustment | |
| Comprehensive loss | $ (10,564) |
| Net income (loss) per common share: | |
| Basic | $ / shares | $ .00 |
| Diluted | $ / shares | $ .00 |
| Weighted average number of shares outstanding | |
| Basic | shares | 150,525,000 |
| Diluted | shares | 150,525,000 |
| Shanghai Mufeng Investment Consulting Corp. and Muliang Agriculture Ltd.[Member] | |
| Revenues | |
| Revenues - related party | |
| Revenues, net | |
| Cost of goods sold | |
| Gross profit (loss) | |
| Operating expenses: | |
| General and administrative expenses | |
| Selling expenses | |
| Total operating expenses | |
| Loss from operations | |
| Other income (expense): | |
| Interest expense | |
| Subsidy income | |
| Other income (expense), net | |
| Total other expenses | |
| Loss before income taxes | |
| Income taxes | |
| Net loss | |
| Discontinued operations: | |
| Gain from operations of discontinued component, net of taxes | |
| Net loss | |
| Net loss attributable to noncontrolling interest | |
| Net loss attributable to Shanghai Muliang Industrial Corp. common stockholders | |
| Other comprehensive income (loss): | |
| Unrealized foreign currency translation adjustment | |
| Comprehensive loss |
ORGANIZATION AND NATURE OF OPERATIONS |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2015 |
Dec. 31, 2014 |
|
| Shanghai Muliang Industrial Corp. [Member] | ||
| ORGANIZATION AND NATURE OF OPERATIONS | NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
The consolidated financial statements include the financial statements of Shanghai Muliang Industrial Corp. (referred to herein as “Industrial Corp.”); its wholly-owned subsidiaries which are limited liability companies in People’s Republic of China (“PRC”), Shanghai Zongbao Environment Engineering Co., Ltd. (“Zongbao”) and Shanghai Muliang Agritech Development Co., Ltd. (“Muliang Agritech”); its 99% owned subsidiary, Weihai Fukang Bio-Fertilizer Co., Ltd. (“Fukang”), a PRC limited liability company.
On July 11, 2013, Industrial Corp. established a wholly owned subsidiary, Muliang Agritech in Shanghai, China. On November 6, 2013, Industrial Corp. sold 40% of the outstanding equity of Muliang Agritech to Mr. Jianping Zhang for consideration of approximately $65,000 or RMB 400,000. Muliang Agritech does not own any assets or conduct any operations. On July 17, 2013, Industrial Corp. acquired 100% of the outstanding equity of Zongbao from Zhongbao’s former shareholders with consideration of approximately $3.2 million or RMB 20 million. Zhongbao is engaged in the business of processing and distributing organic fertilizers. On May 27, 2013, Industrial Corp. entered into and consummated an equity purchase agreement whereby it acquired 99% of the outstanding equity of Fukang, a corporation organized under the laws of the People’s Republic of China. As a result of the completion of the transaction, Fukang became a 99% owned subsidiary of Industrial Corp., with the remaining 1% equity interest owned by Mr. Hui Song. Fukang is focused on distribute organic fertilizers and develop new bio-organic fertilizers. All of Industrial Corp.’s operations are conducted by Industrial Corp., Zhongbao and Fukang. Zhongbao and Fukang’s results of operations are consolidated into those of Industrial Corp., Zhongbao, Muliang Agritech, and Fukang are sometimes referred to as the “subsidiaries”. Industrial Corp. and its consolidated subsidiaries are collectively referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.
Industrial Corp. was incorporated in PRC on December 7, 2006 as a limited liability company. The Company is engaged in the business of developing, manufacturing, and selling organic fertilizers and bio-organic fertilizers for use in agricultural industry. The Company operates a fertilizer production factory around Shanghai through one of its subsidiaries, Zongbao.
Zhongbao was incorporated in Shanghai on January 25, 2008. On July 17, 2013, Industrial Corp. entered into an equity purchase agreement with Zhongbao’s former shareholders whereby Industrial Corp. acquired 100% of the equity interest of Zhongbao. Industrial Corp. acquired Zhongbao and became the sole holder of 100% of the equity interest of Zhongbao, and Zhongbao effectively became the wholly-owned subsidiary of Industrial Corp.
On May 27, 2013, Industrial Corp. entered into a share purchase agreement with Fukang’s principal shareholder whereby Industrial Corp. would acquire 99% of the equity interest of Fukang. Fukang was incorporated in Weihai City, Shandong Province on January 6, 2009.
Liquidity and going concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going-concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the financial statements. The Company’s ability to continue as a going concern depends upon the liquidation of current assets. For the nine months ended September 30, 2015 and 2014, the Company reported net losses of $2,661,262 and $2,454,321, respectively. The Company had working capital deficit of approximately $5.0 million and $16.1 million as of September 30, 2015 and December 31, 2014. In addition, the Company had cash outflows of $2,228,102 and $230,557 from its operating activities during the nine months ended September 30, 2015 and 2014. These conditions raise a substantial doubt as to whether the Company may continue as a going concern.
In an effort to improve its financial position, the Company is working to obtain new loans from banks and related parties, renew its current loans, and to improve its operations upon its new fertilizer factories start to operate. During the nine months ended September 30, 2015, the Company obtained capital contribution of approximately $16 million from its shareholders which successfully improved the Company’s financial position as of September 30, 2015. Additionally, one of the new fertilizer factories was completed and put in operations in August 2015 and another factory was expected to put in operation in June 2016. Management believes that if successfully executed, the foregoing actions would enable the Company to continue as a going-concern. |
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
The consolidated financial statements include the financial statements of Shanghai Muliang Industrial Corp. (referred to herein as “Industrial Corp.”); its wholly-owned subsidiaries which are limited liability companies in People’s Republic of China (“PRC”), Shanghai Zongbao Environment Engineering Co., Ltd. (“Zongbao”) and Shanghai Muliang Agritech Development Co., Ltd. (“Muliang Agritech”); its 99% owned subsidiary, Weihai Fukang Bio-Fertilizer Co., Ltd. (“Fukang”), a PRC limited liability company.
On July 11, 2013, Industrial Corp. established a wholly owned subsidiary, Muliang Agritech in Shanghai, China. On November 6, 2013, Industrial Corp. sold 40% of the outstanding equity of Muliang Agritech to Mr. Jianping Zhang for consideration of approximately $65,000 or RMB 400,000. Muliang Agritech does not own any assets or conduct any operations. On July 17, 2013, Industrial Corp. acquired 100% of the outstanding equity of Zongbao from Zhongbao’s former shareholders with consideration of approximately $3.2 million or RMB 20 million. Zhongbao is engaged in the business of processing and distributing organic fertilizers. On May 27, 2013, Industrial Corp. entered into and consummated an equity purchase agreement whereby it acquired 99% of the outstanding equity of Fukang, a corporation organized under the laws of the People’s Republic of China. As a result of the completion of the transaction, Fukang became a 99% owned subsidiary of Industrial Corp., with the remaining 1% equity interest owned by Mr. Hui Song. Fukang is focused on distribute organic fertilizers and develop new bio-organic fertilizers. All of Industrial Corp.’s operations are conducted by Industrial Corp., Zhongbao and Fukang. Zhongbao and Fukang’s results of operations are consolidated into those of Industrial Corp. Zhongbao, Muliang Agritech, and Fukang are sometimes referred to as the “subsidiaries”. Industrial Corp. and its consolidated subsidiaries are collectively referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.
Industrial Corp. was incorporated in PRC on December 7, 2006 as a limited liability company. The Company is engaged in the business of developing, manufacturing, and selling organic fertilizers and bio-organic fertilizers for use in agricultural industry. The Company operates a fertilizer production factory around Shanghai through one of its subsidiaries, Zongbao.
Zhongbao was incorporated in Shanghai on January 25, 2008. On July 17, 2013, Industrial Corp. entered into an equity purchase agreement with Zhongbao’s former shareholders whereby Industrial Corp. acquired 100% of the equity interest of Zhongbao. Industrial Corp. acquired Zhongbao and became the sole holder of 100% of the equity interest of Zhongbao, and Zhongbao effectively became the wholly-owned subsidiary of Industrial Corp.
On May 27, 2013, Industrial Corp. entered into a share purchase agreement with Fukang’s principal shareholder whereby Industrial Corp. would acquire 99% of the equity interest of Fukang. Fukang was incorporated in Weihai City, Shandong Province on January 6, 2009.
Liquidity and going concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going-concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the financial statements. The Company’s ability to continue as a going concern depends upon the liquidation of current assets. As of December 31, 2014, the Company reported the cash balance at $183,536 and the outstanding loans which would be due in the next 12 months were $10,707,476. For the years ended December 31, 2014 and 2013, the Company reported net losses of $3,765,117 and $2,216,644, respectively. Additionally, the Company had working capital deficit of approximately $16.1 million and $9.1 million as of December 31, 2014 and 2013. These conditions raise a substantial doubt as to whether the Company may continue as a going concern.
In an effort to improve its financial position, the Company is working to obtain new loans from banks and related parties, renew its current loans, and to improve its operations upon its new fertilizer factories start to operate. One of the new fertilizer factories was completed and put in operations in August 2015 and another factory was expected to put in operation in June 2016. Management believes that if successfully executed, the foregoing actions would enable the Company to continue as a going-concern. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Shanghai Muliang Industrial Corp. [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). The 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”). All significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include the useful lives of property and equipment, land use rights, assumptions used in assessing collectability of receivables and impairment for long-term assets.
Principles of Consolidation
We consolidate the following entities, including wholly-owned subsidiaries, Zhongbao and Muliang Agritech, and 99% owned subsidiary, Fukang. All material intercompany accounts and transactions have been eliminated in consolidation. The 1% equity interest holders in Fukang and the 40% equity interest holder of Muliang Agritech will be accounted as noncontrolling interest in the Company’s consolidated financial statements.
Restrictions of Transfer of Assets Out of the PRC
Dividend payments by Industrial Corp. and its subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by the Company without first receiving prior approval from the Foreign Currency Exchange Management Bureau. Dividend payments are restricted to 90% of profits, after tax.
Control by Principal Stockholders
Our directors and executive officers and their affiliates or related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding shares of our common stock. Accordingly, if our directors and executive officers and their affiliates or related parties vote their shares uniformly, they would have the ability to control the approval of most corporate actions, including increasing our authorized capital stock and the dissolution or merger of our company or the sale of our assets.
Cash
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash with various financial institutions in the PRC. As of September 30, 2015 and December 31, 2014, balances in banks in the PRC of $77,937 and $179,472, respectively, are uninsured.
Accounts Receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30, 2015 and December 31, 2014, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $69,797 and $63,575, respectively.
Inventories
Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded inventory reserves of $91,975 and $95,201 at September 30, 2015 and December 31, 2014.
Advances to Suppliers
Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $35,014 and $1,263,252 as of September 30, 2015 and December 31, 2014, respectively.
Plant and Equipment
Plant and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Included in property and equipment is construction-in-progress which consisted of factory improvements and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation of the assets. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.
Estimated useful lives of the Company’s assets are as follows:
Biological Assets
Biological assets consist primarily of rental for an apple farm, labor cost, fertilizers, apple seeds, apple seedlings and others. The costs to purchase and cultivate apple trees and the expenditures related to labor and materials to plant apple trees until they become commercially productive are capitalized, which require a 2 year period. The estimated production life for apple tree is 10 years, and the costs are amortized without a residual value. Expenses incurred maintaining apple trees during the growth cycle until seedling apple trees or grafted varieties are fruited are capitalized into inventory and included in Work in process—biological assets, a component of inventories.
Amortized expenses pertaining to biological assets are included in inventory costs for those apples to be sold and ultimately become a component of cost of goods sold. Similar to other assets, the failure of our biological assets to be serviceable over the entirety of their anticipated useful lives or to be sold at their anticipated residual value will negatively impact our operating results.
Intangible Assets
Included in the intangible assets are land use rights. According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Intangible assets are being amortized using the straight-line method over their lease terms or estimated useful life.
The Company carries intangible assets at cost less accumulated amortization. In accordance with US GAAP, the Company examines the possibility of decreases in the value of intangible assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes amortization using the straight-line method over the 50 year life of the land use rights.
Impairment of Long-lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded no impairment charge for the nine months ended September 30, 2015 and 2014.
Advances from Customers
Advances from customers at September 30, 2015 and December 31, 2014 amounted to $37,377 and $16,993, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.
Non-controlling Interest
Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.
Revenue Recognition
Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. The Company recognizes revenues from the sale of its fertilizer products upon shipment and transfer of title.
Income Taxes
The Company accounts for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The Company did not have any deferred tax assets or liabilities as of September 30, 2015 and December 31, 2014.
The Company is subject to the Enterprise Income Tax law (“EIT”) of the People’s Republic of China. The Company’s operations in producing and selling fertilizers are subject to the 25% enterprise income tax. In addition the Company’s sales are subject to the 13% or 17% PRC’s VAT tax or the 5% business tax levied on incomes from services rendered.
Shipping and Handling Costs
Shipping costs are included in selling expenses and totaled $104,741 and $24,440 for the nine months ended September 30, 2015 and 2014, respectively.
Advertising Costs
Advertising is expensed as incurred and is included in selling, general and administrative expenses on the accompanying statements of income and comprehensive income and totaled $85,394 and $9,588 for the nine months ended September 30, 2015 and 2014, respectively.
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.
Accumulated Other Comprehensive Income
Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive income for the nine months ended September 30, 2015 and 2014 included net income and unrealized gains from foreign currency translation adjustments.
Foreign Currency Translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the Chinese Renminbi (“RMB”). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. The cumulative translation adjustment and effect of exchange rate changes on cash for the nine months ended September 30, 2015 and 2014 was 28,151 and $48,584, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
Asset and liability accounts at September 30, 2015 and December 31, 2014 were translated at 6.3538 RMB to $1 and 6.1385 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of income for the nine months ended September 30, 2015 and 2014 were 6.1606 RMB and 6.1432 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
Fair Value of Financial Instruments
The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, inventories, advances to suppliers, prepaid expenses, short-term loans, accounts payable, accrued expenses, advances from customers, VAT and service taxes payable and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.
ASC Topic 825-10 "Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Concentrations of Credit Risks
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk. At September 30, 2015 and December 31, 2014, the Company’s cash balances by geographic area were as follows:
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessments inherently involve an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
Accrual of Environmental Obligations
ASC Section 410-30-25 “Recognition” of environmental obligations requires the accrual of a liability if both of the following conditions are met:
As of September 30, 2015 and December 31, 2014, the Company did not have any environmental remediation obligations, nor did it have any asset retirement obligations under ASC 410. Furthermore, the Company did not have any environmental remediation loss contingencies requiring recognition or disclosure in its financial statements.
Recent Accounting Pronouncement
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, “Revenue from Contracts with Customers” (“ASU 2014-9"). ASU 2014-9 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries through the application of the following five-step process:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The updated guidance related to revenue recognition which affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for the Company starting on January 1, 2017. The Company is currently evaluating the impact this guidance will have on its combined financial position, results of operations and cash flows.
In April 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard that raises the threshold for disposals to qualify as discontinued operations and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard revised the definition of a discontinued operation to cover only asset disposals that are considered to be a strategic shift with a major impact on an entity’s operations and finances, such as the disposal of a major geographic area or a significant line of business. Application of the standard, which is to be applied prospectively, is required for fiscal years beginning on or after December 15, 2014, and for interim periods within that year.
Based on the Company’s initial assessment of the standard, the Company expects that any potential future disposals of any one of its hog farms will not be reported as discontinued operations and that the results of operations of any such disposed hog farms, including revenues, costs and any gains or losses on disposal, will be classified as continuing operations within the Consolidated Statements of Operations and Comprehensive Income for all periods presented through the date of disposition. |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). The 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”). All significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include the useful lives of property and equipment, land use rights, assumptions used in assessing collectability of receivables and impairment for long-term assets.
Principles of Consolidation
We consolidate the following entities, including wholly-owned subsidiaries, Zhongbao and Muliang Agritech, and 99% owned subsidiary, Fukang. All material intercompany accounts and transactions have been eliminated in consolidation. The 1% equity interest holders in Fukang and the 40% equity interest holder of Muliang Agritech will be accounted as noncontrolling interest in the Company’s consolidated financial statements.
Restrictions of Transfer of Assets Out of the PRC
Dividend payments by Industrial Corp. and its subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by the Company without first receiving prior approval from the Foreign Currency Exchange Management Bureau. Dividend payments are restricted to 90% of profits, after tax.
Control by Principal Stockholders
Our directors and executive officers and their affiliates or related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding shares of our common stock. Accordingly, if our directors and executive officers and their affiliates or related parties vote their shares uniformly, they would have the ability to control the approval of most corporate actions, including increasing our authorized capital stock and the dissolution or merger of our company or the sale of our assets.
Cash
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash with various financial institutions in the PRC. As of December 31, 2014 and 2013, balances in banks in the PRC of $179,472 and $27,163, respectively, are uninsured.
Accounts Receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At December 31, 2014 and 2013, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $63,575 and $36,381, respectively.
Inventories
Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded inventory reserves of $95,201 and $485,715 at December 31, 2014 and 2013.
Advances to Suppliers
Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $1,263,252 and $3,052,216 as of December 31, 2014 and 2013, respectively.
Plant and Equipment
Plant and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Included in property and equipment is construction-in-progress which consisted of factory improvements and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation of the assets. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.
Estimated useful lives of the Company’s assets are as follows:
Biological Assets
Biological assets consist primarily of rental for an apple farm, labor cost, fertilizers, apple seeds, apple seedlings and others. The costs to purchase and cultivate apple trees and the expenditures related to labor and materials to plant apple trees until they become commercially productive are capitalized, which require a 2 year period. The estimated production life for apple tree is 10 years, and the costs are amortized without a residual value. Expenses incurred maintaining apple trees during the growth cycle until seedling apple trees or grafted varieties are fruited are capitalized into inventory and included in Work in process—biological assets, a component of inventories.
Amortized expenses pertaining to biological assets are included in inventory costs for those apples to be sold and ultimately become a component of cost of goods sold. Similar to other assets, the failure of our biological assets to be serviceable over the entirety of their anticipated useful lives or to be sold at their anticipated residual value will negatively impact our operating results.
Intangible Assets
Included in the intangible assets are land use rights. According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Intangible assets are being amortized using the straight-line method over their lease terms or estimated useful life.
The Company carries intangible assets at cost less accumulated amortization. In accordance with US GAAP, the Company examines the possibility of decreases in the value of intangible assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes amortization using the straight-line method over the 50 year life of the land use rights.
Impairment of Long-lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment charge of $448,278 and $0 for the years ended December 31, 2014 and 2013.
Advances from Customers
Advances from customers at December 31, 2014 and 2013 amounted to $16,993 and $40,933, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.
Non-controlling Interest
Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.
Revenue Recognition
Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. The Company recognizes revenues from the sale of its fertilizer products upon shipment and transfer of title.
Income Taxes
The Company accounts for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The Company did not have any deferred tax assets or liabilities as of December 31, 2014 and 2013.
The Company is subject to the Enterprise Income Tax law (“EIT”) of the People’s Republic of China. The Company’s operations in producing and selling fertilizers are subject to the 25% enterprise income tax. In addition the Company’s sales are subject to the 13% or 17% PRC’s VAT tax or the 5% business tax levied on incomes from services rendered.
Shipping and Handling Costs
Shipping costs are included in selling expenses and totaled $30,411 and $184,198 for the years ended December 31, 2014 and 2013, respectively.
Advertising Costs
Advertising is expensed as incurred and is included in selling, general and administrative expenses on the accompanying statements of income and comprehensive income and totaled $12,836 and $77,320 for the years ended December 31, 2014 and 2013, respectively.
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.
Accumulated Other Comprehensive Income
Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive income for the years ended December 31, 2014 and 2013 included net income and unrealized gains from foreign currency translation adjustments.
Foreign Currency Translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the Chinese Renminbi (“RMB”). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. The cumulative translation adjustment and effect of exchange rate changes on cash for the years ended December 31, 2014 and 2013 was ($78,704) and $77,309, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
Asset and liability accounts at December 31, 2014 and 2013 were translated at 6.1385 RMB to $1.00 and at 6.1104 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of income for the years ended December 31, 2014 and 2013 were 6.1432 RMB and 6.1905 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
Fair Value of Financial Instruments
The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, inventories, advances to suppliers, prepaid expenses, short-term loans, accounts payable, accrued expenses, advances from customers, VAT and service taxes payable and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.
ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Concentrations of Credit Risks
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
At December 31, 2014 and 2013, the Company’s cash balances by geographic area were as follows:
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessments inherently involve an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
Accrual of Environmental Obligations
ASC Section 410-30-25 “Recognition” of environmental obligations requires the accrual of a liability if both of the following conditions are met:
As of December 31, 2014 and 2013, the Company did not have any environmental remediation obligations, nor did it have any asset retirement obligations under ASC 410. Furthermore, the Company did not have any environmental remediation loss contingencies requiring recognition or disclosure in its financial statements.
Recent Accounting Pronouncement
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, “Revenue from Contracts with Customers” (“ASU 2014-9”). ASU 2014-9 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries through the application of the following five-step process:
Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The updated guidance related to revenue recognition which affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for the Company starting on January 1, 2017. The Company is currently evaluating the impact this guidance will have on its combined financial position, results of operations and cash flows.
In April 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard that raises the threshold for disposals to qualify as discontinued operations and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard revised the definition of a discontinued operation to cover only asset disposals that are considered to be a strategic shift with a major impact on an entity's operations and finances, such as the disposal of a major geographic area or a significant line of business. Application of the standard, which is to be applied prospectively, is required for fiscal years beginning on or after December 15, 2014, and for interim periods within that year.
Based on the Company’s initial assessment of the standard, the Company expects that any potential future disposals of any one of its hog farms will not be reported as discontinued operations and that the results of operations of any such disposed hog farms, including revenues, costs and any gains or losses on disposal, will be classified as continuing operations within the Consolidated Statements of Operations and Comprehensive Income for all periods presented through the date of disposition. |
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ACCOUNTS RECEIVABLE |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Shanghai Muliang Industrial Corp. [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCOUNTS RECEIVABLE | NOTE 3 – ACCOUNTS RECEIVABLE
The Company accrues an allowance for bad debts related to our receivables. The receivable and allowance balances at September 30, 2015 and December 31, 2014 were as follows:
The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. After evaluating the collectability of individual receivable balances, the Company increased the allowance for doubtful accounts in the amount of $8,639 and $12,489 for the nine months ended September 30, 2015 and 2014, respectively. |
NOTE 3 – ACCOUNTS RECEIVABLE
The Company accrues an allowance for bad debts related to our receivables. The receivable and allowance balances at December 31, 2014 and 2013 were as follows:
The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. After evaluating the collectability of individual receivable balances, the Company increased the allowance for doubtful accounts in the amount of $27,340 and $8,419 for the years ended December 31, 2014 and 2013, respectively. |
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INVENTORIES |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Shanghai Muliang Industrial Corp. [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORIES | NOTE 4 – INVENTORIES
At September 30, 2015 and December 31, 2014, inventories consisted of the following:
For the nine months ended September 30, 2015 and 2014, the Company reported ($10,262) and $75,411 as gain (loss) on its physical inventory, respectively. |
NOTE 4 – INVENTORIES
At December 31, 2014 and 2013, inventories consisted of the following:
For the years ended December 31, 2014, the Company reported loss of $135,797 on physical inventory, a temporary loss of $17,254 and a permanent loss of 18,090 on inventory valuation. For the years ended December 31, 2013, the Company reported loss of $66,735 on physical inventory and a temporary loss of $7,731 on inventory valuation. |
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OTHER RECEIVABLES |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Shanghai Muliang Industrial Corp. [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTHER RECEIVABLES | NOTE 5 – OTHER RECEIVABLES
At September 30, 2015 and December 31, 2014, the Company reported other receivables of $465,795 and $82,615, respectively, including an allowance for doubtful receivables of $129,214 and $118,873.
The balances of other receivables as of September 30, 2015 and December 31, 2014 included the following:
The Company reviews the other receivables on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. After evaluating the collectability of individual receivable balances, the Company increased the allowance for doubtful accounts in the amount of $14,820 and $0 for the nine months ended September 30, 2015 and 2014. |
NOTE 5 – OTHER RECEIVABLES
At December 31, 2014 and 2013, the Company reported other receivables of $82,615 and $76,184, respectively, including an allowance for doubtful receivables of $118,873 and $98,193.
The balances of other receivables as of December 31, 2014 and 2013 included the following:
The Company reviews the other receivables on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. After evaluating the collectability of individual receivable balances, the Company increased the allowance for doubtful accounts in the amount of $21,113 and $0 for the years ended December 31, 2014 and 2013. |
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LONG-TERM INVESTMENT |
9 Months Ended | 12 Months Ended |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Shanghai Muliang Industrial Corp. [Member] | ||
| LONG-TERM INVESTMENT | NOTE 6 – LONG-TERM INVESTMENT
As of September 30, 2015 and December 31, 2014, the Company did not have any long-term investment. No gain or loss recognized from the investment during the nine months ended September 30, 2015 and 2014.
At September 16, 2013, the Company entered into an investment agreement to establish a PRC limited liability company, Yantai Zongbao Tele-Agriculture Service Co., Ltd. (“Yantai Zongbao”), located in Yantai City, Shandong Province. Yantai Zongbao was engaged in providing agricultural planting consulting services to farm owners. The Company invested in approximately $0.5 million or RMB 3 million for 30% of the equity of Yantai Zongbao. On August 26, 2014, the Company sold the 30% equity of interest of Yantai Zongbao to Ms. Hui Song, a member of the Company’s management team, for consideration of approximately $0.5 million or RMB 3 million. Until August 26, 2014 (the disposal date), Yantai Zongbao did not have any operating activities. |
NOTE 6 – LONG-TERM INVESTMENT
As of December 31, 2014 and 2013, the Company reported $0 and $490,966, respectively. No gain or loss recognized from the investment during the years ended December 31, 2014 and 2013.
At September 16, 2013, the Company entered into an investment agreement to establish a PRC limited liability company, Yantai Zongbao Tele-Agriculture Service Co., Ltd. (“Yantai Zongbao”), located in Yantai City, Shandong Province. Yantai Zongbao was engaged in providing agricultural planting consulting services to farm owners. The Company invested in approximately $0.5 million or RMB 3 million for 30% of the equity of Yantai Zongbao. On August 26, 2014, the Company sold the 30% equity of interest of Yantai Zongbao to Ms. Hui Song, a member of the Company’s management team, for consideration of approximately $0.5 million or RMB 3 million. Until August 26, 2014 (the disposal date), Yantai Zongbao did not have any operating activities. |
PLANT AND EQUIPMENT |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| PLANT AND EQUIPMENT | NOTE 7 – PLANT AND EQUIPMENT
Plant and equipment at September 30, 2015 and December 31, 2014 consisted of:
For the nine months ended September 30, 2015 and 2014, depreciation expense amounted to $123,099 and $168,981, respectively. Depreciation is not taken during the period of construction or equipment installation. Upon completion of the installation of manufacturing equipment or any construction in progress, construction in progress balances will be classified to their respective property and equipment category. |
NOTE 7 – PLANT AND EQUIPMENT
Plant and equipment at December 31, 2014 and 2013 consisted of:
For the years ended December 31, 2014 and 2013, depreciation expense amounted to $223,112 and $206,303, respectively. Depreciation is not taken during the period of construction or equipment installation. Upon completion of the installation of manufacturing equipment or any construction in progress, construction in progress balances will be classified to their respective property and equipment category. |
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CONSTRUCTION IN PROGRESS |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Shanghai Muliang Industrial Corp. [Member] | ||||||||||||||
| CONSTRUCTION IN PROGRESS | NOTE 8 – CONSTRUCTION IN PROGRESS
Construction in progress consists of amounts expended for the constructions of two new fertilizer factories. Once construction is completed and the facilities are approved to be used, the construction in progress assets are placed into production and transferred into plant and equipment, whereupon they are depreciated over their estimated useful lives. As of September 30, 2015 and December 31, 2014, the construction in progress was $7,464,197 and $5,535,611, respectively. Included in this amount were:
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NOTE 8 – CONSTRUCTION IN PROGRESS
Construction in progress consists of amounts expended for the constructions of two new fertilizer factories. Once construction is completed and the facilities are approved to be used, the construction in progress assets are placed into production and transferred into plant and equipment, whereupon they are depreciated over their estimated useful lives. As of December 31, 2014 and 2013, the construction in progress was $5,535,611 and $399,960, respectively. Included in this amount were:
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BIOLOGICAL ASSETS |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| BIOLOGICAL ASSETS | NOTE 9 – BIOLOGICAL ASSETS
Biological assets at September 30, 2015 and December 31, 2014 consisted of:
For the nine months ended September 30, 2015 and 2014, no amortization expense was reported. |
NOTE 9 – BIOLOGICAL ASSETS
Biological assets at December 31, 2014 and 2013 consisted of:
For the years ended December 31, 2014 and 2013, no amortization expense was reported. |
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INTANGIBLE ASSETS |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| INTANGIBLE ASSETS | NOTE 10 – INTANGIBLE ASSETS
There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. The Company’s land use rights have a term of 50 years. The Company amortizes the land use rights over the term of the respective land use right. For the nine months ended September 30, 2015 and 2014, amortization of intangible assets amounted to $49,011 and $47,496, respectively. At September 30, 2015 and December 31, 2014, intangible assets consisted of the following:
The estimated amortization expense of intangible assets over each of the next five years and thereafter will be $65,348. |
NOTE 10 – INTANGIBLE ASSETS
There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. The Company’s land use rights have a term of 50 years. The Company amortizes the land use rights over the term of the respective land use right. For the years ended December 31, 2014 and 2013, amortization of land use rights amounted to $63,905 and $55,878, respectively. At December 31, 2014 and 2013, intangible assets consisted of the following:
The estimated amortization expense of intangible assets over each of the next five years and thereafter will be $63,905. |
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LOAN PAYABLES |
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Dec. 31, 2014 |
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| LOAN PAYABLES | NOTE 11 – LOAN PAYABLES
Short-term Loans
Short-term loans represent amounts due to lenders that is due within one year. The loans can be renewed with the lenders upon maturity. At September 30, 2015 and December 31, 2014, short-term loans consisted of the following:
Long-term Loans
Long-term loans represent amounts due to lenders that are due more than one year. At September 30, 2015 and December 31, 2014, long-term loans consisted of the following:
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NOTE 11 – LOAN PAYABLES
Short-term Loans
Short-term loans represent amounts due to lenders that is due within one year. The loans can be renewed with the lenders upon maturity. At December 31, 2014 and 2013, short-term loans consisted of the following:
Long-term Loans
Long-term loans represent amounts due to lenders that are due more than one year. At December 31, 2014 and 2013, long-term loans consisted of the following:
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RELATED PARTY TRANSACTIONS |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Shanghai Muliang Industrial Corp. [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RELATED PARTY TRANSACTIONS | NOTE 12 – RELATED PARTY TRANSACTIONS
Loans from Related Parties
During the year ended December 31, 2014, we obtained an aggregate financial supports of approximately $17,878,000 from our related parties for the Company’s working capital purpose. We had repaid approximately $15,061,000 during the year. The balance of those payables was $7,815,637 as of December 31, 2014. These loans were due upon demand and no interest was charged. The detail of these loans from related parties was as follow:
During the nine months ended September 30, 2015, we obtained financial supports of $33,525,618 from our related parties and repayments of $34,473,631 made to our related parties which were recorded in the loans from related party account. The balance of those payables was $3,043,152 as of September 30, 2015. These loans were due upon demand and no interest was charged. The detail of these loans from related parties was as follow:
Loans to Related Parties
During the year ended December 31, 2014, we loaned an aggregate of approximately $12,061,000 to our related parties and collected approximately $8,209,000 during the same period. The ending balance of due from related parties was $3,785,377 as of December 31, 2014. These loans were due upon demand and no interest was charged. The detail of our loans to related parties was as follow:
During the nine months ended September 30, 2015, we did not neither make a new loan to our related parties nor make collections during the same period. The ending balance of due from related parties was $81,147 as of September 30, 2015. These loans were due upon demand and no interest was charged. The detail of our loans to related parties was as follow:
The above loans would be in violation of the Sarbanes-Oxley Act of 2002, including Section 402’s prohibition against personal loans to directors and executive officers, either directly or indirectly, had they occurred after Industrial Corp. became a variable interest entity of our Company. Management is aware of the ramifications, and has committed to avoiding it by implementing controls that will prevent this type of violation from happening in the future. Please see “Policies and Procedures for Review, Approval or Ratification of Transactions with Related Persons.”
Sales to Related Parties
In the year ended December 31, 2014, the Company made sales of fertilizer products to Jilin Jiliang Zongbao Biological Technology Co., Ltd. and Yantai Shangying Taimeng Advertising Co., Ltd. The detail of sale transactions with its related parties was as follow:
In the nine months ended September 30, 2015, the Company made sales of fertilizer products to Yantai Zongbao Tele-Agriculture Service Co., Ltd. and Yantai Shangying Taimeng Advertising Co., Ltd. The detail of sale transactions with our related parties was as follow:
Advances to Related Party Supplier
In the year ended December 31, 2014, the Company prepaid certain amount of prepayments to its related parties for undelivered goods and services. The detail of prepayment transactions with its related parties was as follow:
In the nine months ended September 30, 2015, the Company prepaid $6,493 to Cangzhou Zongbao Fertilizer Co., Ltd. for the inventory purchase. One of management team members had direct investment in this entity. As of September 30, 2015, the Company reported prepayments of $11,913 to Cangzhou Zongbao Fertilizer Co., Ltd.
Inventories and Services Purchased from Related Parties
In the year ended December 31, 2014, the Company purchased raw materials and marketing services from its related parties, Shanghai Aoke Chemicals Co., Ltd. and Yantai Shangying Taimeng Advertising Co., Ltd. The detail of inventory and service purchase transactions with the related parties was as follow:
In the nine months ended September 30, 2015, the Company purchased raw materials from its related parties, Aoke. The detail of inventory purchase transactions with the related party was as follow:
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NOTE 12 – RELATED PARTY TRANSACTIONS
Loans from Related Parties
During 2013, we obtained an aggregate financial supports of approximately $11,857,000 from our related parties for the Company’s working capital purpose. We had repaid approximately $2,116,000 during the year. The balance of those payables was $8,698,607 as of December 31, 2013. These loans were due upon demand and no interest was charged. The detail of these loans from related parties was as follow:
During 2014, we obtained an aggregate financial supports of approximately $17,878,000 from our related parties for the Company’s working capital purpose. We had repaid approximately $15,061,000 during the year. The balance of those payables was $7,815,637 as of December 31, 2014. These loans were due upon demand and no interest was charged. The detail of these loans from related parties was as follow:
Loans to Related Parties
During 2013, we loaned an aggregate of approximately $4,914,000 to our related parties and collected approximately $2,262,000 during the same period. The ending balance of due from related parties was $860,281 as of December 31, 2013. These loans were due upon demand and no interest was charged. The detail of our loans to related parties was as follow:
During 2014, we loaned an aggregate of approximately $12,061,000 to our related parties and collected approximately $8,209,000 during the same period. The ending balance of due from related parties was $3,785,377 as of December 31, 2014. These loans were due upon demand and no interest was charged. The detail of our loans to related parties was as follow:
The above loans would be in violation of the Sarbanes-Oxley Act of 2002, including Section 402’s prohibition against personal loans to directors and executive officers, either directly or indirectly, had they occurred after Industrial Corp. became a variable interest entity of our Company. Management is aware of the ramifications, and has committed to avoiding it by implementing controls that will prevent this type of violation from happening in the future. Please see “Policies and Procedures for Review, Approval or Ratification of Transactions with Related Persons.”
Sales to Related Parties
In 2013, the Company made sales of fertilizer products to Jilin Jiliang Zongbao Biological Technology Co., Ltd. and Yantai Zongbao Tele-Agriculture Service Co., Ltd. The detail of sale transactions with our related parties was as follow:
In 2014, the Company made sales of fertilizer products to Jilin Jiliang Zongbao Biological Technology Co., Ltd. and Yantai Zongbao Tele-Agriculture Service Co., Ltd. The detail of sale transactions with its related parties was as follow:
Advances to Related Party Supplier
In 2013, the Company prepaid $1,211,534 to Shanghai Aoke Chemicals Co., Ltd. (“Aoke”) for the equipment purchase for its new Weihai fertilizer plant construction. The Company’s CEO is one of Aoke’s shareholders. As of December 31, 2013, the Company reported prepayments of $1,329,330 to Aoke for its equipment.
In 2014, the Company prepaid certain amount of prepayments to its related parties for undelivered goods and services. The detail of prepayment transactions with its related parties was as follow:
Inventories and Services Purchased from Related Parties
In 2013, the Company purchased raw materials from its related parties, Aoke and Cangzhou Zongbao Fertilizer Co., Ltd. The detail of inventory purchase transactions with our related parties was as follow:
In 2014, the Company purchased raw materials and marketing services from its related parties, Shanghai Aoke Chemicals Co., Ltd. and Yantai Shangying Taimeng Advertising Co., Ltd. The detail of inventory and service purchase transactions with our related parties was as follow:
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CONCENTRATIONS |
9 Months Ended | 12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Shanghai Muliang Industrial Corp. [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CONCENTRATIONS | NOTE 13 – CONCENTRATIONS
Customers
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the nine months ended September 30, 2015 and 2014.
Suppliers
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchase for the nine months ended September 30, 2015 and 2014.
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NOTE 13 – CONCENTRATIONS
Customers
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, 2014 and 2013.
Suppliers
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, 2014 and 2013.
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SUBSEQUENT EVENTS |
9 Months Ended | 12 Months Ended |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Shanghai Muliang Industrial Corp. [Member] | ||
| SUBSEQUENT EVENTS | NOTE 14 – SUBSEQUENT EVENTS
On February 10, 2016, Shanghai Muliang Industrial Corp. (“Industrial Corp.”) entered into an entrusted management agreement with Muliang Agriculture Ltd.’s wholly owned subsidiary, Shanghai Mufeng Investment Consulting Co., Ltd. (“Consulting Corp.”), which provides that Consulting Corp. will be entitled to the full guarantee for the performance of such entrusted management agreement entered into by the Company. Muliang Agriculture Ltd. (“Agriculture”) was incorporated in Hong Kong, PRC on August 21, 2014. Other than the equity interest in Consulting Corp., Agriculture does not own any assets or conduct any operations. Consulting Corp. is also entitled to receive the residual return of the Company. As a result of the agreement, Consulting Corp. will absorb 100% of the expected gains or losses of the Company, which results in Consulting Corp. being the primary beneficiary of the Company.
Consulting Corp. also entered into a pledge of equity agreement with the principal shareholders of the Company (the “Principal Shareholders”), who pledged all their equity interest in the entity to Consulting Corp. The pledge of equity agreement, which were entered into by each Principal Shareholder, pledged each of the Principal Shareholders’ equity interest in the Company as a guarantee for the entrustment payment under the Entrusted Management Agreements. In addition, Consulting Corp. entered into an option agreement to acquire the Principal Shareholders’ equity interest in these entities if or when permitted by the PRC laws. |
NOTE 14 – SUBSEQUENT EVENTS
On February 10, 2016, Shanghai Muliang Industrial Corp. (“Industrial Corp.”) entered into an entrusted management agreement with Muliang Agriculture Ltd.’s wholly owned subsidiary, Shanghai Mufeng Investment Consulting Co., Ltd. (“Consulting Corp.”), which provides that Consulting Corp. will be entitled to the full guarantee for the performance of such entrusted management agreement entered into by the Company. Muliang Agriculture Ltd. (“Agriculture”) was incorporated in Hong Kong, PRC on August 21, 2014. Other than the equity interest in Consulting Corp., Agriculture does not own any assets or conduct any operations. Consulting Corp. is also entitled to receive the residual return of the Company. As a result of the agreement, Consulting Corp. will absorb 100% of the expected gains or losses of the Company, which results in Consulting Corp. being the primary beneficiary of the Company.
Consulting Corp. also entered into a pledge of equity agreement with the principal shareholders of the Company (the “Principal Shareholders”), who pledged all their equity interest in the entity to Consulting Corp. The pledge of equity agreement, which were entered into by each Principal Shareholder, pledged each of the Principal Shareholders’ equity interest in the Company as a guarantee for the entrustment payment under the Entrusted Management Agreements. In addition, Consulting Corp. entered into an option agreement to acquire the Principal Shareholders’ equity interest in these entities if or when permitted by the PRC laws. |
BASIS FOR PRO FORMA PRESENTATION |
9 Months Ended |
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Sep. 30, 2015 | |
| Notes to Financial Statements | |
| BASIS FOR PRO FORMA PRESENTATION | NOTE 1 - Basis for Pro Forma Presentation
The unaudited pro forma combined financial information as of September 30, 2015 has been derived from Shanghai Muliang Industrial Corp. unaudited financial statements as of September 30, 2015, and the unaudited financial statements of M & A Holding Corp. as of September 30, 2015. This unaudited pro forma combined financial information should be read in conjunction with these unaudited financial statements and notes related to those financial statements.
The pro forma adjustments are based on the best information available and assumptions that management believes are reasonable given the information available; however, such adjustments are subject to change based upon the costs incurred in connections with the Share Exchange and related transactions and any other material information. The unaudited pro forma financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what the Company’s financial position would have been had the transactions contemplated by the serious contractual arrangements occurred on September 30, 2015.
On January 11, 2016, the Company issued 129,475,000 shares of its common stock to Lirong Wang for an aggregate consideration of $64,737.5. On the same date, Chenxi Shi, the sole officer and director of the Company on that date, transferred 120,000,000 shares of the common stock of the Company held by him to Lirong Wang for $800 pursuant to a transfer agreement. On February 10, 2016,, Consulting Corp. entered into a series contractual arrangement, including (1) Exclusive Technical Consulting and Service Agreement, (2) Equity Pledge Agreement, and (3) Call Option Cooperation Agreement, with Industrial Corp. and its Principal Shareholders. As a result of the Stock Purchase Agreement and a series contractual arrangement, Shanghai Muliang Industrial Corp., along with its consolidated subsidiaries, became a VIE and controlled entity of M & A Holding Corp. The controlling shareholders of Shanghai Muliang Industrial Corp. are the same as those of M & A Holding Corp. |
PRO FORMA ADJUSTMENTS |
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PRO FORMA ADJUSTMENTS | NOTE 2 - Pro Forma Adjustments
Certain adjustments have been made to the historical financial statements in order to prepare the pro forma financial information as if the transaction had occurred at September 30, 2015.
The adjustments are as follows:
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) - Shanghai Muliang Industrial Corp. [Member] |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Basis of Presentation | 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 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”). All significant intercompany transactions and balances have been eliminated. |
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 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”). All significant intercompany transactions and balances have been eliminated. |
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| Use of Estimates | Use of Estimates
The preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include the useful lives of property and equipment, land use rights, assumptions used in assessing collectability of receivables and impairment for long-term assets. |
Use of Estimates
The preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include the useful lives of property and equipment, land use rights, assumptions used in assessing collectability of receivables and impairment for long-term assets. |
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| Principles of Consolidation | Principles of Consolidation
We consolidate the following entities, including wholly-owned subsidiaries, Zhongbao and Muliang Agritech, and 99% owned subsidiary, Fukang. All material intercompany accounts and transactions have been eliminated in consolidation. The 1% equity interest holders in Fukang and the 40% equity interest holder of Muliang Agritech will be accounted as noncontrolling interest in the Company’s consolidated financial statements. |
Principles of Consolidation
We consolidate the following entities, including wholly-owned subsidiaries, Zhongbao and Muliang Agritech, and 99% owned subsidiary, Fukang. All material intercompany accounts and transactions have been eliminated in consolidation. The 1% equity interest holders in Fukang and the 40% equity interest holder of Muliang Agritech will be accounted as noncontrolling interest in the Company’s consolidated financial statements. |
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| Restrictions of Transfer of Assets Out of the PRC | Restrictions of Transfer of Assets Out of the PRC
Dividend payments by Industrial Corp. and its subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by the Company without first receiving prior approval from the Foreign Currency Exchange Management Bureau. Dividend payments are restricted to 90% of profits, after tax. |
Restrictions of Transfer of Assets Out of the PRC
Dividend payments by Industrial Corp. and its subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by the Company without first receiving prior approval from the Foreign Currency Exchange Management Bureau. Dividend payments are restricted to 90% of profits, after tax. |
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| Control by Principal Stockholders | Control by Principal Stockholders
Our directors and executive officers and their affiliates or related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding shares of our common stock. Accordingly, if our directors and executive officers and their affiliates or related parties vote their shares uniformly, they would have the ability to control the approval of most corporate actions, including increasing our authorized capital stock and the dissolution or merger of our company or the sale of our assets. |
Control by Principal Stockholders
Our directors and executive officers and their affiliates or related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding shares of our common stock. Accordingly, if our directors and executive officers and their affiliates or related parties vote their shares uniformly, they would have the ability to control the approval of most corporate actions, including increasing our authorized capital stock and the dissolution or merger of our company or the sale of our assets. |
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| Cash | Cash
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash with various financial institutions in the PRC. As of September 30, 2015 and December 31, 2014, balances in banks in the PRC of $77,937 and $179,472, respectively, are uninsured. |
Cash
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash with various financial institutions in the PRC. As of December 31, 2014 and 2013, balances in banks in the PRC of $179,472 and $27,163, respectively, are uninsured. |
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| Accounts Receivable | Accounts Receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30, 2015 and December 31, 2014, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $69,797 and $63,575, respectively. |
Accounts Receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At December 31, 2014 and 2013, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $63,575 and $36,381, respectively. |
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| Inventories | Inventories
Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded inventory reserves of $91,975 and $95,201 at September 30, 2015 and December 31, 2014. |
Inventories
Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded inventory reserves of $95,201 and $485,715 at December 31, 2014 and 2013. |
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| Advances to Suppliers | Advances to Suppliers
Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $35,014 and $1,263,252 as of September 30, 2015 and December 31, 2014, respectively. |
Advances to Suppliers
Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $1,263,252 and $3,052,216 as of December 31, 2014 and 2013, respectively. |
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| Plant and Equipment | Plant and Equipment
Plant and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Included in property and equipment is construction-in-progress which consisted of factory improvements and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation of the assets. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.
Estimated useful lives of the Company’s assets are as follows:
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Plant and Equipment
Plant and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Included in property and equipment is construction-in-progress which consisted of factory improvements and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation of the assets. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.
Estimated useful lives of the Company’s assets are as follows:
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| Biological Assets | Biological Assets
Biological assets consist primarily of rental for an apple farm, labor cost, fertilizers, apple seeds, apple seedlings and others. The costs to purchase and cultivate apple trees and the expenditures related to labor and materials to plant apple trees until they become commercially productive are capitalized, which require a 2 year period. The estimated production life for apple tree is 10 years, and the costs are amortized without a residual value. Expenses incurred maintaining apple trees during the growth cycle until seedling apple trees or grafted varieties are fruited are capitalized into inventory and included in Work in process—biological assets, a component of inventories.
Amortized expenses pertaining to biological assets are included in inventory costs for those apples to be sold and ultimately become a component of cost of goods sold. Similar to other assets, the failure of our biological assets to be serviceable over the entirety of their anticipated useful lives or to be sold at their anticipated residual value will negatively impact our operating results. |
Biological Assets
Biological assets consist primarily of rental for an apple farm, labor cost, fertilizers, apple seeds, apple seedlings and others. The costs to purchase and cultivate apple trees and the expenditures related to labor and materials to plant apple trees until they become commercially productive are capitalized, which require a 2 year period. The estimated production life for apple tree is 10 years, and the costs are amortized without a residual value. Expenses incurred maintaining apple trees during the growth cycle until seedling apple trees or grafted varieties are fruited are capitalized into inventory and included in Work in process—biological assets, a component of inventories.
Amortized expenses pertaining to biological assets are included in inventory costs for those apples to be sold and ultimately become a component of cost of goods sold. Similar to other assets, the failure of our biological assets to be serviceable over the entirety of their anticipated useful lives or to be sold at their anticipated residual value will negatively impact our operating results. |
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| Intangible Assets | Intangible Assets
Included in the intangible assets are land use rights. According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Intangible assets are being amortized using the straight-line method over their lease terms or estimated useful life.
The Company carries intangible assets at cost less accumulated amortization. In accordance with US GAAP, the Company examines the possibility of decreases in the value of intangible assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes amortization using the straight-line method over the 50 year life of the land use rights. |
Intangible Assets
Included in the intangible assets are land use rights. According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Intangible assets are being amortized using the straight-line method over their lease terms or estimated useful life.
The Company carries intangible assets at cost less accumulated amortization. In accordance with US GAAP, the Company examines the possibility of decreases in the value of intangible assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes amortization using the straight-line method over the 50 year life of the land use rights. |
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| Impairment of Long-lived Assets | Impairment of Long-lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded no impairment charge for the nine months ended September 30, 2015 and 2014. |
Impairment of Long-lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment charge of $448,278 and $0 for the years ended December 31, 2014 and 2013. |
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| Advances from Customers | Advances from Customers
Advances from customers at September 30, 2015 and December 31, 2014 amounted to $37,377 and $16,993, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy. |
Advances from Customers
Advances from customers at December 31, 2014 and 2013 amounted to $16,993 and $40,933, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy. |
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| Non-controlling Interest | Non-controlling Interest
Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings. |
Non-controlling Interest
Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings. |
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| Revenue Recognition | Revenue Recognition
Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. The Company recognizes revenues from the sale of its fertilizer products upon shipment and transfer of title. |
Revenue Recognition
Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. The Company recognizes revenues from the sale of its fertilizer products upon shipment and transfer of title. |
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| Income Taxes | Income Taxes
The Company accounts for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The Company did not have any deferred tax assets or liabilities as of September 30, 2015 and December 31, 2014.
The Company is subject to the Enterprise Income Tax law (“EIT”) of the People’s Republic of China. The Company’s operations in producing and selling fertilizers are subject to the 25% enterprise income tax. In addition the Company’s sales are subject to the 13% or 17% PRC’s VAT tax or the 5% business tax levied on incomes from services rendered. |
Income Taxes
The Company accounts for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The Company did not have any deferred tax assets or liabilities as of December 31, 2014 and 2013.
The Company is subject to the Enterprise Income Tax law (“EIT”) of the People’s Republic of China. The Company’s operations in producing and selling fertilizers are subject to the 25% enterprise income tax. In addition the Company’s sales are subject to the 13% or 17% PRC’s VAT tax or the 5% business tax levied on incomes from services rendered. |
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| Shipping and Handling Costs | Shipping and Handling Costs
Shipping costs are included in selling expenses and totaled $104,741 and $24,440 for the nine months ended September 30, 2015 and 2014, respectively. |
Shipping and Handling Costs
Shipping costs are included in selling expenses and totaled $30,411 and $184,198 for the years ended December 31, 2014 and 2013, respectively. |
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| Advertising Costs | Advertising Costs
Advertising is expensed as incurred and is included in selling, general and administrative expenses on the accompanying statements of income and comprehensive income and totaled $85,394 and $9,588 for the nine months ended September 30, 2015 and 2014, respectively. |
Advertising Costs
Advertising is expensed as incurred and is included in selling, general and administrative expenses on the accompanying statements of income and comprehensive income and totaled $12,836 and $77,320 for the years ended December 31, 2014 and 2013, respectively. |
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| Related Parties | Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged. |
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged. |
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| Accumulated Other Comprehensive Income | Accumulated Other Comprehensive Income
Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive income for the nine months ended September 30, 2015 and 2014 included net income and unrealized gains from foreign currency translation adjustments. |
Accumulated Other Comprehensive Income
Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive income for the years ended December 31, 2014 and 2013 included net income and unrealized gains from foreign currency translation adjustments. |
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| Foreign Currency Translation | Foreign Currency Translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the Chinese Renminbi (“RMB”). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. The cumulative translation adjustment and effect of exchange rate changes on cash for the nine months ended September 30, 2015 and 2014 was 28,151 and $48,584, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
Asset and liability accounts at September 30, 2015 and December 31, 2014 were translated at 6.3538 RMB to $1 and 6.1385 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of income for the nine months ended September 30, 2015 and 2014 were 6.1606 RMB and 6.1432 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. |
Foreign Currency Translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the Chinese Renminbi (“RMB”). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. The cumulative translation adjustment and effect of exchange rate changes on cash for the years ended December 31, 2014 and 2013 was ($78,704) and $77,309, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
Asset and liability accounts at December 31, 2014 and 2013 were translated at 6.1385 RMB to $1.00 and at 6.1104 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of income for the years ended December 31, 2014 and 2013 were 6.1432 RMB and 6.1905 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. |
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| Fair Value of Financial Instruments | Fair Value of Financial Instruments
The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, inventories, advances to suppliers, prepaid expenses, short-term loans, accounts payable, accrued expenses, advances from customers, VAT and service taxes payable and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.
ASC Topic 825-10 "Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments. |
Fair Value of Financial Instruments
The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, inventories, advances to suppliers, prepaid expenses, short-term loans, accounts payable, accrued expenses, advances from customers, VAT and service taxes payable and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.
ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments. |
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| Concentrations of Credit Risks | Concentrations of Credit Risks
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk. At September 30, 2015 and December 31, 2014, the Company’s cash balances by geographic area were as follows:
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Concentrations of Credit Risks
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
At December 31, 2014 and 2013, the Company’s cash balances by geographic area were as follows:
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| Contingencies | Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessments inherently involve an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed. |
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessments inherently involve an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed. |
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| Accrual of Environmental Obligations | Accrual of Environmental Obligations
ASC Section 410-30-25 “Recognition” of environmental obligations requires the accrual of a liability if both of the following conditions are met:
As of September 30, 2015 and December 31, 2014, the Company did not have any environmental remediation obligations, nor did it have any asset retirement obligations under ASC 410. Furthermore, the Company did not have any environmental remediation loss contingencies requiring recognition or disclosure in its financial statements. |
Accrual of Environmental Obligations
ASC Section 410-30-25 “Recognition” of environmental obligations requires the accrual of a liability if both of the following conditions are met:
As of December 31, 2014 and 2013, the Company did not have any environmental remediation obligations, nor did it have any asset retirement obligations under ASC 410. Furthermore, the Company did not have any environmental remediation loss contingencies requiring recognition or disclosure in its financial statements. |
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| Recent Accounting Pronouncement | Recent Accounting Pronouncement
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, “Revenue from Contracts with Customers” (“ASU 2014-9"). ASU 2014-9 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries through the application of the following five-step process:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The updated guidance related to revenue recognition which affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for the Company starting on January 1, 2017. The Company is currently evaluating the impact this guidance will have on its combined financial position, results of operations and cash flows.
In April 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard that raises the threshold for disposals to qualify as discontinued operations and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard revised the definition of a discontinued operation to cover only asset disposals that are considered to be a strategic shift with a major impact on an entity’s operations and finances, such as the disposal of a major geographic area or a significant line of business. Application of the standard, which is to be applied prospectively, is required for fiscal years beginning on or after December 15, 2014, and for interim periods within that year.
Based on the Company’s initial assessment of the standard, the Company expects that any potential future disposals of any one of its hog farms will not be reported as discontinued operations and that the results of operations of any such disposed hog farms, including revenues, costs and any gains or losses on disposal, will be classified as continuing operations within the Consolidated Statements of Operations and Comprehensive Income for all periods presented through the date of disposition. |
Recent Accounting Pronouncement
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, “Revenue from Contracts with Customers” (“ASU 2014-9”). ASU 2014-9 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries through the application of the following five-step process:
Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The updated guidance related to revenue recognition which affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for the Company starting on January 1, 2017. The Company is currently evaluating the impact this guidance will have on its combined financial position, results of operations and cash flows.
In April 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard that raises the threshold for disposals to qualify as discontinued operations and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard revised the definition of a discontinued operation to cover only asset disposals that are considered to be a strategic shift with a major impact on an entity's operations and finances, such as the disposal of a major geographic area or a significant line of business. Application of the standard, which is to be applied prospectively, is required for fiscal years beginning on or after December 15, 2014, and for interim periods within that year.
Based on the Company’s initial assessment of the standard, the Company expects that any potential future disposals of any one of its hog farms will not be reported as discontinued operations and that the results of operations of any such disposed hog farms, including revenues, costs and any gains or losses on disposal, will be classified as continuing operations within the Consolidated Statements of Operations and Comprehensive Income for all periods presented through the date of disposition. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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| Schedule of Cash balances by geographic area |
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ACCOUNTS RECEIVABLE (Tables) |
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| Schedule of Accounts Receivable [Table Text Block] |
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INVENTORIES (Tables) |
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| Schedule of Inventory [Table Text Block] |
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OTHER RECEIVABLES (Tables) |
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| Schedule of Other Receivable [Table TextBlock] |
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PLANT AND EQUIPMENT (Tables) |
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| Schedule of Property Plant and Equipment [Table Text Block] |
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BIOLOGICAL ASSETS (Tables) |
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| Schedule of Biological assets |
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INTANGIBLE ASSETS (Tables) |
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LOAN PAYABLES (Tables) |
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Shanghai Muliang Industrial Corp. [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Loans payables [Table Text Block] | Short-term loans represent amounts due to lenders that is due within one year. The loans can be renewed with the lenders upon maturity. At September 30, 2015 and December 31, 2014, short-term loans consisted of the following:
Long-term Loans
Long-term loans represent amounts due to lenders that are due more than one year. At September 30, 2015 and December 31, 2014, long-term loans consisted of the following:
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Long-term loans represent amounts due to lenders that are due more than one year. At December 31, 2014 and 2013, long-term loans consisted of the following:
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RELATED PARTY TRANSACTIONS (Tables) |
9 Months Ended | 12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2015 |
Dec. 31, 2014 |
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| Shanghai Muliang Industrial Corp. [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Related Party Transactions [Table Text Block] | Loans from Related Parties
Loans to Related Parties
Sales to Related Parties
Advances to Related Party Supplier
Inventories and Services Purchased from Related Parties
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Loans from Related Parties
Loans to Related Parties
Sales to Related Parties
Advances to Related Party Supplier
Inventories and Services Purchased from Related Parties
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PRO FORMA ADJUSTMENTS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pro Forma Adjustments Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Adjustments made to the Historical Financial Statements [Table Text Block] |
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ORGANIZATION AND NATURE OF OPERATIONS (Details Narrative) - USD ($) |
9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
| Pro Forma Adjustments [Member] | ||||
| Net loss | ||||
| Pro Forma Combined [Member] | ||||
| Net loss | $ 2,671,826 | |||
| Shanghai Muliang Industrial Corp. [Member] | ||||
| Net loss | 2,661,262 | $ 2,454,321 | $ 3,765,117 | $ 2,216,644 |
| Net cash outflow | 2,228,102 | $ 230,557 | $ (2,446,381) | $ 4,429,417 |
| M & A Holding Corp. [Member] | ||||
| Net loss | $ 10,564 | |||
| Shanghai Mufeng Investment Consulting Corp. and Muliang Agriculture Ltd.[Member] | ||||
| Net loss | ||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
9 Months Ended | 12 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
Dec. 31, 2014 |
Dec. 31, 2013 |
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| Shanghai Muliang Industrial Corp. [Member] | |||||||
| Uninsured Cash in PRC | $ 77,937 | $ 179,472 | $ 27,163 | ||||
| Allowance for doubtful debt | 69,797 | 63,575 | 36,381 | ||||
| Inventory Reserve | 91,975 | 95,201 | 485,715 | ||||
| Advances to suppliers | 35,014 | 1,263,252 | 3,052,216 | ||||
| Advances from customers | 37,377 | 16,993 | 40,933 | ||||
| Shipping Cost | 104,741 | $ 24,440 | 30,411 | 184,198 | |||
| Advertising Cost | 85,394 | 9,588 | 12,836 | 77,320 | |||
| Cumulative translation adjustment and effect of exchange rate changes on cash | $ 28,151 | $ 48,584 | (78,704) | 77,309 | |||
| Impairment of Long-Lived Assets | $ 448,278 | $ 0 | |||||
| Pro Forma Adjustments [Member] | |||||||
| Advances to suppliers | |||||||
| Advances from customers | |||||||
| Shanghai Mufeng Investment Consulting Corp. and Muliang Agriculture Ltd.[Member] | |||||||
| Advances to suppliers | [1] | ||||||
| Advances from customers | [1] | ||||||
| M & A Holding Corp. [Member] | |||||||
| Advances to suppliers | |||||||
| Advances from customers | |||||||
| Pro Forma Combined [Member] | |||||||
| Advances to suppliers | $ 35,014 | ||||||
| Advances from customers | $ 37,377 | ||||||
| |||||||
ACCOUNTS RECEIVABLE (Details) - USD ($) |
9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
| Shanghai Muliang Industrial Corp. [Member] | ||||
| Accounts receivable, gross | $ 744,255 | $ 154,928 | $ 675,970 | |
| Less: allowance for doubtful accounts | (69,797) | (63,575) | (36,381) | |
| Accounts receivable, net | 674,458 | 91,353 | 639,589 | |
| Increase in allowance for doubtful accounts | 8,639 | $ 12,489 | $ 27,340 | $ 8,419 |
| Pro Forma Combined [Member] | ||||
| Accounts receivable, net | $ 674,458 | |||
INVENTORIES (Details) - USD ($) |
9 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|||
| Shanghai Muliang Industrial Corp. [Member] | ||||||
| Raw materials | $ 271,384 | $ 191,210 | $ 213,226 | |||
| Finished goods | 365,784 | 364,970 | 1,132,096 | |||
| Inventory, Gross | 637,168 | 556,180 | 1,345,322 | |||
| Less: reserve for obsolete inventory | (91,975) | (95,201) | (485,715) | |||
| Inventory, Net | 545,193 | 460,979 | 859,607 | |||
| Loss (gain) on physical inventory | $ 10,262 | $ (75,411) | 135,797 | $ 66,735 | ||
| Permanent loss from inventory valuation | $ 18,090 | |||||
| Pro Forma Adjustments [Member] | ||||||
| Inventory, Net | ||||||
| Shanghai Mufeng Investment Consulting Corp. and Muliang Agriculture Ltd.[Member] | ||||||
| Inventory, Net | [1] | |||||
| M & A Holding Corp. [Member] | ||||||
| Inventory, Net | ||||||
| Pro Forma Combined [Member] | ||||||
| Inventory, Net | $ 545,193 | |||||
| ||||||
OTHER RECEIVABLES (Details) - USD ($) |
9 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|||
| Shanghai Muliang Industrial Corp. [Member] | ||||||
| Construction deposit | $ 40,168 | $ 24,436 | $ 8,183 | |||
| Subsidy receivable | 46,893 | 48,538 | 48,761 | |||
| Loan receivables | 94,432 | $ 97,744 | 114,559 | |||
| Deposit for equipment purchase | 314,772 | |||||
| Others | 98,744 | $ 30,770 | 2,874 | |||
| Other receivables, gross | 595,009 | 201,488 | 174,377 | |||
| Less: allowance for doubtful accounts | (129,214) | (118,873) | (98,193) | |||
| Other receivables, net | 465,795 | 82,615 | 76,184 | |||
| Increase in allowance for doubtful accounts | $ 14,820 | $ 0 | $ 21,113 | $ 0 | ||
| Pro Forma Adjustments [Member] | ||||||
| Other receivables, net | ||||||
| Shanghai Mufeng Investment Consulting Corp. and Muliang Agriculture Ltd.[Member] | ||||||
| Other receivables, net | [1] | |||||
| M & A Holding Corp. [Member] | ||||||
| Other receivables, net | ||||||
| Pro Forma Combined [Member] | ||||||
| Other receivables, net | $ 465,795 | |||||
| ||||||
PLANT AND EQUIPMENT (Details) - USD ($) |
9 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|||
| Shanghai Muliang Industrial Corp. [Member] | ||||||
| Plant and equipment, gross | $ 4,989,293 | $ 2,199,224 | $ 2,500,914 | |||
| Less: accumulated depreciation | (392,717) | (937,584) | (886,743) | |||
| Plant and equipment, net | 4,596,576 | 1,261,640 | 1,614,171 | |||
| Depreciation expense | $ 123,099 | $ 168,981 | 223,112 | 206,303 | ||
| Pro Forma Adjustments [Member] | ||||||
| Plant and equipment, net | ||||||
| Shanghai Mufeng Investment Consulting Corp. and Muliang Agriculture Ltd.[Member] | ||||||
| Plant and equipment, net | [1] | |||||
| M & A Holding Corp. [Member] | ||||||
| Plant and equipment, net | ||||||
| Pro Forma Combined [Member] | ||||||
| Plant and equipment, net | $ 4,596,576 | |||||
| Operating equipment | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Plant and equipment, gross | $ 2,005,815 | $ 1,704,971 | $ 2,010,931 | |||
| Operating equipment | Minimum [Member] | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Estimated Useful Life (in years) | 5 years | 5 years | 5 years | |||
| Operating equipment | Maximum [Member] | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Estimated Useful Life (in years) | 10 years | 10 years | 10 years | |||
| Vehicle | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Plant and equipment, gross | $ 43,992 | $ 41,706 | $ 41,898 | |||
| Vehicle | Minimum [Member] | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Estimated Useful Life (in years) | 3 years | 3 years | 3 years | |||
| Vehicle | Maximum [Member] | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Estimated Useful Life (in years) | 5 years | 5 years | 5 years | |||
| Office equipment | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Plant and equipment, gross | $ 67,791 | $ 63,516 | $ 57,265 | |||
| Office equipment | Minimum [Member] | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Estimated Useful Life (in years) | 3 years | 3 years | 3 years | |||
| Office equipment | Maximum [Member] | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Estimated Useful Life (in years) | 20 years | 20 years | 20 years | |||
| Building | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Plant and equipment, gross | $ 2,871,695 | $ 389,031 | $ 390,820 | |||
| Estimated Useful Life (in years) | 20 years | 20 years | 20 years | |||
| Apple trees | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Less: accumulated depreciation | ||||||
| Estimated Useful Life (in years) | 10 years | 10 years | 10 years | |||
| ||||||
BIOLOGICAL ASSETS (Details) - USD ($) |
9 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|||
| Shanghai Muliang Industrial Corp. [Member] | |||||
| Less: accumulated depreciation | $ (392,717) | $ (937,584) | $ (886,743) | ||
| Biological assets, net | $ 461,521 | 53,686 | |||
| Pro Forma Adjustments [Member] | |||||
| Biological assets, net | |||||
| Pro Forma Combined [Member] | |||||
| Biological assets, net | $ 461,521 | ||||
| Shanghai Mufeng Investment Consulting Corp. and Muliang Agriculture Ltd.[Member] | |||||
| Biological assets, net | [1] | ||||
| M & A Holding Corp. [Member] | |||||
| Biological assets, net | |||||
| Apple trees | Shanghai Muliang Industrial Corp. [Member] | |||||
| Apple Trees | $ 461,521 | $ 53,686 | |||
| Less: accumulated depreciation | |||||
| Biological assets, net | $ 461,521 | $ 53,686 | |||
| Estimated Useful Life (in years) | 10 years | 10 years | 10 years | ||
| Building | Shanghai Muliang Industrial Corp. [Member] | |||||
| Estimated Useful Life (in years) | 20 years | 20 years | 20 years | ||
| |||||
INTANGIBLE ASSETS (Details) - USD ($) |
9 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|||
| Shanghai Muliang Industrial Corp. [Member] | ||||||
| Intangible Asset, Gross | $ 2,957,128 | $ 3,060,845 | $ 3,058,556 | |||
| Less: accumulated depreciation | (252,611) | (212,284) | (149,012) | |||
| Intangible Assets, Net | 2,704,517 | 2,848,561 | 2,909,544 | |||
| Amortization of Intangible Assets | $ 49,011 | $ 47,496 | 63,905 | 55,878 | ||
| Pro Forma Adjustments [Member] | ||||||
| Intangible Assets, Net | ||||||
| Shanghai Mufeng Investment Consulting Corp. and Muliang Agriculture Ltd.[Member] | ||||||
| Intangible Assets, Net | [1] | |||||
| M & A Holding Corp. [Member] | ||||||
| Intangible Assets, Net | ||||||
| Pro Forma Combined [Member] | ||||||
| Intangible Assets, Net | $ 2,704,517 | |||||
| Land use rights [Member] | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Intangible Asset, Gross | $ 2,941,389 | $ 3,044,555 | $ 3,058,556 | |||
| Useful Life (in years) | 50 years | 50 years | 50 years | |||
| Others [Member] | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Intangible Asset, Gross | $ 15,739 | $ 16,290 | ||||
| Useful Life (in years) | 10 years | 10 years | 10 years | |||
| ||||||
LOAN PAYABLES (Details) - USD ($) |
Sep. 30, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|||
|---|---|---|---|---|---|---|
| Shanghai Mufeng Investment Consulting Corp. and Muliang Agriculture Ltd.[Member] | ||||||
| Short-term loans | [1] | |||||
| Long-term loans | [1] | |||||
| Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 849,885 | $ 10,707,476 | $ 5,474,313 | |||
| Long-term loans | 6,767,604 | 3,406,044 | $ 2,446,076 | |||
| Pro Forma Combined [Member] | ||||||
| Short-term loans | 849,885 | |||||
| Long-term loans | $ 6,767,604 | |||||
| Pro Forma Adjustments [Member] | ||||||
| Short-term loans | ||||||
| Long-term loans | ||||||
| M & A Holding Corp. [Member] | ||||||
| Short-term loans | ||||||
| Long-term loans | ||||||
| LoanPayableToAgriculturalBankofChina4Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 786,931 | $ 814,531 | ||||
| Interest Rate on Loan payable | 6.00% | 6.00% | ||||
| Loan payable to Shanghai Jinshan Limin Micro Credit Co. Ltd | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 814,531 | |||||
| Interest Rate on Loan payable | 20.00% | |||||
| LoanPayableToRushanCityRuralCreditUnion1Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 553,881 | $ 572,794 | ||||
| Interest Rate on Loan payable | 8.97% | 8.97% | ||||
| LoanPayableToAgriculturalBankofChina12Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 157,386 | |||||
| Interest Rate on Loan payable | 5.00% | |||||
| Loan payable to Nanjing Julong Equity Investment Fund Management Co., Ltd | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 5,827,375 | |||||
| Interest Rate on Loan payable | 20.20% | |||||
| LoanPayableToAgriculturalBankofChina3Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 786,931 | $ 814,531 | ||||
| Interest Rate on Loan payable | 6.00% | 6.00% | ||||
| LoanPayableToAgriculturalBankofChina2Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 472,158 | $ 488,719 | ||||
| Interest Rate on Loan payable | 6.00% | 6.00% | ||||
| Loan payable to Beijing Andexun Investment Advisory Co., Ltd., | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 795,471 | |||||
| LoanPayableToAgriculturalBankofChina5Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 1,259,089 | |||||
| Interest Rate on Loan payable | 6.00% | |||||
| LoanPayableToAgriculturalBankofChina11Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 94,432 | |||||
| Interest Rate on Loan payable | 5.55% | |||||
| Loan payable to Shanghai Siding Equity Investment Fund Management LLP | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 550,216 | |||||
| Interest Rate on Loan payable | 16.32% | |||||
| LoanPayableToAgriculturalBankofChina1Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 325,813 | |||||
| Interest Rate on Loan payable | 6.00% | |||||
| LoanPayableToWuhanSidingEquityInvestmentFundManagementLLPLoan payable to Wuhan Siding Equity Investment Fund Management LLP | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 2,517,879 | |||||
| Interest Rate on Loan payable | 16.32% | |||||
| LoanPayableToAgriculturalBankofChina10Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 692,499 | |||||
| Interest Rate on Loan payable | 5.55% | |||||
| Loan payable to Beijing Changlong Yuntong Equity Investment Fund Management Co., Ltd., | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 5,702 | |||||
| Interest Rate on Loan payable | 16.32% | |||||
| Loan payable to Rushan City Rural Credit Union | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 535,112 | |||||
| Interest Rate on Loan payable | 8.97% | |||||
| Loan payable to Shanghai Luojin Construction Co. Ltd. | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 130,325 | |||||
| Loan payable to Agricultural Bank of China | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 314,773 | |||||
| Interest Rate on Loan payable | 6.00% | |||||
| LoanPayableToAgriculturalBankofChina9Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 629,545 | |||||
| Interest Rate on Loan payable | 5.75% | |||||
| Loan payable to Shanghai Lumeila Solid Waste Recycle Engineering Co. Ltd | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 65,977 | $ 66,280 | ||||
| LoanPayableToAgriculturalBankofChina6Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 1,101,703 | |||||
| Interest Rate on Loan payable | 6.00% | |||||
| LoanPayableToAgriculturalBankofChina8Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 314,772 | |||||
| Interest Rate on Loan payable | 5.75% | |||||
| LoanPayableToAgriculturalBankofChina7Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 472,158 | |||||
| Interest Rate on Loan payable | 5.75% | |||||
| Loan payable to Shanghai Balunzhi Equity Investment Fund Management Co., Ltd | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 408,569 | |||||
| Interest Rate on Loan payable | 20.65% | |||||
| Loan payable to Shanghai Jinshan Limin Micro Credit Co. Ltd. | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 4,664,179 | |||||
| Interest Rate on Loan payable | 20.00% | |||||
| Loan payable to a third party individual, Mr. Yajun Peng | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 31,950 | |||||
| Loan payable to a third party individual, Mr. Dongwei Wang | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | 490,969 | |||||
| Loan payable to Beijing Anderson Investment Advisory Co., Ltd | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | 163,656 | |||||
| LoanPayableToShanghaiJinshanLiminMicroCreditCoLtd2Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Short-term loans | $ 57,279 | |||||
| Interest Rate on Loan payable | 20.00% | |||||
| LoanPayableToBeijingAndexunInvestmentAdvisoryCoLtd1Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 782,682 | |||||
| LoanPayableToNanjingJulongEquityInvestmentFundManagementCoLtd2Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 610,271 | |||||
| Interest Rate on Loan payable | 20.20% | |||||
| LoanPayableToShanghaiSidingEquityInvestmentFundManagementLLP2Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 91,647 | |||||
| Interest Rate on Loan payable | 16.32% | |||||
| Loan payable to Wuhan Siding Equity Investment Fund Management LLP | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 252,029 | |||||
| Interest Rate on Loan payable | 16.32% | |||||
| LoanPayableToBeijingChanglongYuntongEquityInvestmentFundManagementCoLtd2Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 5,728 | |||||
| Interest Rate on Loan payable | 16.32% | |||||
| LoanPayableToShanghaiLuojinConstructionCoLtd1Member | Shanghai Muliang Industrial Corp. [Member] | ||||||
| Long-term loans | $ 130,925 | |||||
| ||||||
CONCENTRATIONS (Details) - Shanghai Muliang Industrial Corp. [Member] |
9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
| Customer Revenue [Member] | ||||
| Concentration | 68.00% | 56.00% | 45.00% | |
| Suppliers Purchase [Member] | ||||
| Concentration | 85.00% | 85.00% | 82.00% | |
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