EDGAR 10-K Filing

Company CIK: 1629665
Filing Year: 2024
Filename: 1629665_10-K_2024_0001213900-24-100552.json

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ITEM 1. BUSINESS
Item 1. Business
Shanghai Muliang and its operating subsidiaries primarily engage in the manufacturing and distribution of organic fertilizer and the sales of agricultural products in the PRC. Organic fertilizer products are sold under the VIE and its subsidiaries’ brand names “Zongbao,” “Fukang,” and “Muliang.”
Through patented technology, the operating subsidiaries are able to process crop straw (including corn, rice, wheat, cotton, and other crops) into high quality organic nutritious fertilizers that are easily absorbed by crops in three hours. Straw is a common agricultural by-product. In the PRC, farmers usually remove the straw stubble that remains after harvesting grains by burning them in order to continue farming on the same land season to season. These activities have resulted in significant air pollution, and damage the surface structure of the soil by causing a loss of nutrients. The operating subsidiaries turn waste into treasure by transforming the straws into organic fertilizer, which also effectively reduces air pollution. The straw-based organic fertilizer we produce does not contain the heavy metals, antibiotics, or harmful bacteria that are common in traditional manure fertilizers. The VIE and its subsidiaries’ fertilizers also provide optimum levels of primary plant nutrients, including multi-minerals, proteins and carbohydrates that promotes healthy soil capable of growing excellent crops and vegetables. It effectively reduces the use of chemical fertilizers and pesticides as well as reduce the penetration of large chemical fertilizers and pesticides into the soil, thus avoiding water pollution. Therefore, the fertilizer can effectively improve the fertility of soil and the quality and safety of agricultural products.
The VIE generates revenue mainly from organic fertilizers, which accounted for approximately 100.0% and 91.5% of total revenue for the fiscal years ended December 31, 2023 and 2022, respectively. The VIE and its subsidiaries currently have one integrated factories in Weihai City, Shandong Province, PRC to produce the organic fertilizers, which have been in operations since August 2015 and plans to improve the technology for the existing organic straw fertilizer production lines in the following aspects: (i) adopt more advanced automatic control technology for raw material feed to shorten the processing time of raw material, and (ii) manufacture powdered organic fertilizer instead of granular organic fertilizer in order to avoid the drying and cooling process, as such will increase the production capacity.
Besides focusing on producing organic fertilizers, the VIE and its subsidiaries also engage in the business of selling agriculture food products including apples, and as a sales agent for other large agriculture companies in the PRC. In 2014, the VIE rented 350 mu (about 57.66 acres) of mountainous land as an apple orchard. We expect to generate more revenues from the sales of apples as the apple orchards become more mature in the next few years.
In addition, the VIE began the processing and distribution of black goat products business in June 2023 and is currently constructing a deep-processing slaughterhouse and processing plant which is expected to have the capacity of slaughtering 200,000 black goats per year in Chuxiong City, Yunnan Province, in China. The black goat processing products including goat rib lets, goat loin roast, goat loin chops, goat rack, goat leg, goat shoulder, goat leg shanks, ground goat, goat stew meat, whole goat, half goat, lamb viscera, etc. Revenue from the black goat products is expected to begin in 2024.
The 42,895 square meters of industrial land and 28,549 square meters of factory and office space located in Jinshan District, Shanghai were sold for RMB 74.52 million (US$11.42 million), and the transaction has been settled as of December 31, 2021. The assets mainly include (i) 22,511 square meters of industrial land and 10,373 square meters of plant area and organic straw fertilizer production line in Weihai City, Shandong Province, and (ii) over $2 million investment of land use rights and the black goat slaughtering and processing plant located in Shuangbai County, Chuxiong City, Yunnan Province, in China.
History
The following diagram illustrates and assumes the completion of the Reorganization, including consolidation of the subsidiaries and VIEs:
Shanghai Muliang Industry Co., Ltd. (“Shanghai Muliang”) was incorporated in PRC on December 7, 2006 as a limited liability company, owned 95% by Lirong Wang and 5% by Zongfang Wang. Shanghai Muliang through its own operations and its subsidiaries is engaged in the business of developing, manufacturing and selling organic fertilizers for use in the agricultural industry.
On May 27, 2013, Shanghai Muliang entered into and consummated an equity purchase agreement whereby it acquired 99% of the outstanding equity of Weihai Fukang Bio-Fertilizer Co., Ltd. (“Fukang”), a corporation organized under the laws of the People’s Republic of China. Fukang was incorporated in Weihai City, Shandong Province on January 6, 2009. Fukang is focused on the distribution of organic fertilizers and the development of new bio-organic fertilizers. As a result of the completion of the transaction, Fukang became a 99% owned subsidiary of Shanghai Muliang, with the remaining 1% equity interest owned by Mr. Hui Song.
On July 11, 2013, Shanghai Muliang established a wholly owned subsidiary, Shanghai Muliang Development Co., Ltd. (“Agritech Development”) in Shanghai, China. On November 6, 2013, Shanghai Muliang sold 40% of the outstanding equity of Agritech Development to Mr. Jianping Zhang for consideration of approximately $65,000 or RMB 400,000. Agritech Development does not currently conduct any operations.
On July 17, 2013, Shanghai Muliang entered into an equity purchase agreement to acquire 100% of the outstanding equity of Shanghai Zongbao Environmental Construction Co., Ltd. (“Shanghai Zongbao”) with consideration of approximately $3.2 million or RMB 20 million, effectively becoming the wholly-owned subsidiary of Shanghai Muliang. Shanghai Zongbao was incorporated in Shanghai on January 25, 2008. Shanghai Zongbao processes and distributes organic fertilizers. Shanghai Zongbao wholly owns Shanghai Zongbao Environmental Construction Co., Ltd. Cangzhou Branch (“Zongbao Cangzhou”).
On August 21, 2014, Muliang Agricultural Limited (“Muliang HK”) was incorporated in Hong Kong as an investment holding company.
January 27, 2015, Muliang HK incorporated a wholly foreign-owned enterprise, Shanghai Mufeng Investment Consulting Co., Ltd (“Shanghai Mufeng”), in China
On July 8, 2015, Mullan Agritech entered into certain stock purchase agreement with Muliang Agriculture, Inc., pursuant to which Mullan Agritech, for a consideration of $5,000, acquired 100% interest in Muliang HK and its wholly-owned subsidiary Shanghai Mufeng. Both Muliang HK and Shanghai Mufeng are controlled by the Company’s officer and director, Lirong Wang.
On July 23, 2015, Shanghai Muliang established a wholly owned subsidiary, Shanghai Muliang Agricultural Sales Co., Ltd. (“Muliang Sales”) in Shanghai, China.
On September 3, 2015, Mullan Agritech effected a split of its outstanding common stock resulting in an aggregate of 75,262,500 shares outstanding of which 60,000,000 were owned by Chenxi Shi, the founder of Mullan Agritech and its then sole officer and director. The remaining 15,262,500 were held by a total of 39 investors.
On January 11, 2016, Mullan Agritech issued 64,737,500 shares of its common stock to Lirong Wang for an aggregate consideration of $64,737.50. On the same date, Chenxi Shi, the then sole officer and director of Mullan Agritech on that date, transferred 60,000,000 shares of common stock of the Company held by him to Lirong Wang for $800 pursuant to a transfer agreement.
On February 10, 2016, Shanghai Mufeng entered into a set of contractual agreements known as Variable Interest Entity (“VIE”) Agreements, including (1) Exclusive Technical Consulting and Service Agreement, (2) Equity Pledge Agreement, and (3) Call Option Cooperation Agreement, with Shanghai Muliang, and its Principal Shareholders. As a result of the Stock Purchase Agreement and the set of VIE Agreements, Shanghai Muliang Industry Co., Ltd., along with its consolidated subsidiaries, became entities controlled by Mullan Agritech, whereby Mullan Agritech would derive all substantial economic benefit generated by Shanghai Muliang and its subsidiaries.
As a result, Mullan Agritech has a direct wholly-owned subsidiary, Muliang HK and an indirectly wholly owned subsidiary Shanghai Mufeng. Through its VIE Agreements, Mullan Agritech exercises control over Shanghai Muliang. Shanghai Muliang has two wholly-owned subsidiaries (Shanghai Zongbao and Muliang Sales), one 99% owned subsidiary (Fukang), one 60% owned subsidiary (Agritech Development), and one indirectly wholly owned subsidiary Zongbao Cangzhou.
On June 6, 2016, Shanghai Muliang established a wholly-owned subsidiary, namely, Muliang (Ningling) Bio-chemical Fertilizer Co. Ltd (“Ningling Fertilizer”) in Henan Province, the central plain of China. Ningling Fertilizer is setup for a new production line of bio-chemical fertilizer and has not begun any operation yet.
On July 7, 2016, Shanghai Muliang established a subsidiary, namely, Zhonglian Huinong (Beijing) Technology Co., Ltd (“Zhonglian”) in Beijing City, China. Shanghai Muliang owns 65% shares of Zhonglian, and a third-party company, Zhongrui Huilian (Beijing) Technology Co., Ltd owns the other 35% shares. Zhonglian is to develop and operate an online agricultural products trading platform.
On October 27, 2016, Shanghai Muliang established a subsidiary, namely, Yunnan Muliang Animal Husbandry Development Co., Ltd (“Yunnan Muliang”) in Yunnan Province, China. Shanghai Muliang owns 55% shares of Yunnan Muliang, and a third-party company, Shuangbai County Development Investment Co., Ltd. owns the other 45% shares. Yunnan Muliang was setup for the sales development of West China.
On October 12, 2017, the Company canceled the registration of Ningling with the administration authorities for Industry and Commerce. Ningling has historically been reported as a component of operations and incurred $33,323 to loss before income taxes provisions for the year ended December 31, 2017. The termination does not constitute a strategic shift that will have a major effect on operations or financial results and as such, the termination is not classified as discontinued operations in our consolidated financial statements.
On February 22, 2016 and June 8, 2017, Shanghai Muliang established a 65% owned subsidiary of Maguan Jiamu Agricultural Development Co., Ltd (Maguan), and a 100% owned subsidiary of Anhui Muliang Agricultural Biotechnology Co., Ltd (Anhui Muliang) respectively. Since its establishment, both of the Companies have no operation.
On June 19, 2020, the Company entered into a Share Exchange Agreement with Viagoo Pte Ltd. and all the shareholders of Viagoo for the acquisition of 100% equity interest of Viagoo. Pursuant to the SEA, Muliang shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest in and to the Viagoo’s capital stock. The aggregate purchase price for the Shares was US$2,830,800, paid in 505,500 shares of the Company’s restricted common stock, valued at $5.60 per share.
On December 16, 2022, the Company entered into a Share Purchase Agreement with Viagoo Inc. (the “Buyer”), pursuant to which the Buyer purchased 100% of the issued and outstanding ordinary shares of Viagoo Pte Ltd., a Singapore private limited liability company and a 100% parent company of NexG Pte. Ltd., and TPS Solutions Hong Kong Limited, from the Company in exchange for a consideration of US$ 5,254,001.20 to be paid to the Company. The Company decided that the transfer of control over Viagoo Pte Ltd. essentially occurred on January 1st, 2023. As a result, Viagoo's historical operating performance are reported as discontinued operations under the guidance of ASC 205, marking the company's exit from the logistics sector to focus on its fertilizer business.
Muliang HK, Shanghai Mufeng, Shanghai Muliang, Shanghai Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development, Yunnan Muliang, Zhonglia, Anhui Muliang, Maguan, and Viagoo are referred to as subsidiaries. The Company and its consolidated subsidiaries are collectively referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.
On April 4, 2019, the Company’s Board of Directors and majority shareholder approved a 5 to 1 reverse stock split of all of the issued and outstanding shares of the Company’s common stock, the change of corporate name from “Mullan Agritech Inc.” to “Muliang Agritech Inc.”, and the creation of 100,000,000 shares of Blank Check Preferred Stock.
On April 5, 2019, we filed a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the Name Change and to authorize the creation of Blank Check Preferred Stock. As a result, the capital stock of the Company consists of 500,000,000 shares of common stock, $0.0001 par value, and 100,000,000 shares of blank check preferred stock, $0.0001 par value. To the fullest extent permitted by the laws of the State of Nevada, as the same now exists or may hereafter be amended or supplemented, the Board of Directors may fix and determine the designations, rights, preferences or other variations of each class or series within each class of preferred stock of the Company. The Company may issue the shares of stock for such consideration as may be fixed by the Board of Directors.
On April 16, 2019, we filed a Certificate of Change to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the reverse stock split. Any fractional shares are to be rounded up to whole shares. The reverse stock split does not affect the par value or the number of authorized shares of common stock of the Company.
The reverse stock split and the name change took effect on May 7, 2019. In connection with the name change, our stock symbol changed to “MULG.”
On October 30, 2019, we filed a Certificate of Designation for Nevada Profit Corporation with the Secretary of State of the State of Nevada to authorize the creation of Series A Preferred Stock. As a result, 30,000,000 shares were designated to be Series A Preferred Stock out of the 100,000,000 shares of blank check preferred stock.
On June 26, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of the State of the State of Nevada, changing its name from “Muliang Agritech, Inc.” to “Muliang Viagoo Technology, Inc.”.
On December 16, 2022, the Company entered into a share purchase agreement (the “Agreement”) with Viagoo Inc. (the “Buyer”), pursuant to which the Buyer purchased 100% of the issued and outstanding ordinary shares of Viagoo Pte Ltd., a Singapore private limited liability company and a 100% parent company of NexG Pte. Ltd., and TPS Solutions Hong Kong Limited, from the Company in exchange for a consideration of US$ 5,254,001.20. The Company decided that the transfer of control over Viagoo Pte Ltd. essentially occurred on January 1st, 2023. As a result, Viagoo's historical operating performance are reported as discontinued operations under the guidance of ASC 205, marking the company's exit from the logistics sector to focus on its fertilizer business.
On February 24, 2023, our Board of Directors declared a two-for-one reverse stock split of our common stock and Series A Preferred Stock. There was no effect on total stockholders’ equity, and the par value per share of our both common stock and Series A Preferred Stock remains unchanged at $0.0001 per share after the reverse stock split. All references made to share or per share amounts in the accompanying condensed consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the reverse stock split.
As of December 31, 2023, there were 19,251,657 shares of common stock of the Company issued and outstanding, and 9,500,000 Series A preferred stock issued and outstanding.
Contractual Arrangements
As a holding company with no material operations, Muliang Viagoo conducts a substantial majority of its operations through Shanghai Mufeng and Shanghai Muliang, a variable interest entity, or the VIE, based in China. We are not a Chinese operating company. Muliang Viagoo receives economic benefits from Shanghai Muliang’s business operations in China through certain contractual arrangements (the “VIE Agreements”), and because of this, we are regarded as the primary beneficiary of Shanghai Muliang for accounting purposes, and, therefore, we are able to consolidate the financial results of Shanghai Muliang in our consolidated financial statements in accordance with U.S. GAAP. However, we and our subsidiaries have zero equity ownership in Shanghai Muliang, and it is likely that investors in our future offerings will never hold ownership interests, direct or indirect, in the VIE and would merely have a contractual relationship. Additionally, Shanghai Mufeng’s economic benefits are limited by the terms of the VIE Agreements. The VIE structure cannot completely replicate a foreign investment in China-based companies. Instead, the VIE structure provides contractual exposure to foreign investment the Chinese operations.
The VIE Agreements that were entered include: (i) Voting Rights Proxy Agreement and Irrevocable Power of Attorney, (ii) Exclusive Option Agreement (iii) Spousal Consent; and (iv) Loan Agreement. VIE Agreements that enable Muliang Viagoo to receive substantially all of the economic benefits from the VIE include (i) Equity Interest Pledge Agreement; and (ii) Master Exclusive Service Agreement. We are subject to certain legal and operational risks associated with being based in China and having a majority of operations through the contractual arrangements with the VIE (collectively the “VIE Agreements”).
Each of the VIE Agreements is described in detail below:
Voting Rights Proxy Agreement and Irrevocable Power of Attorney
Under which each shareholder of the VIEs grant to any person designated by WFOEs to act as its attorney-in-fact to exercise all shareholder rights under PRC law and the relevant articles of association, including but not limited to, appointing directors, supervisors and officers of the VIEs as well as the right to sell, transfer, pledge and dispose all or a portion of the equity interest held by such shareholders of the VIEs. The proxy and power of attorney agreements will remain effective as long as WFOEs exist. The shareholders of the VIEs do not have the right to terminate the proxy agreements or revoke the appointment of the attorney-in-fact without written consent of the WFOEs.
Exclusive Option Agreement
Under which each shareholder of the VIEs granted 9F or any third party designated by 9F the exclusive and irrevocable right to purchase from such shareholders of the VIEs, to the extent permitted by PRC law and regulations, all or part of their respective equity interests in the VIEs for a purchase price equal to the registered capital. The shareholders of the VIEs will then return the purchase price to 9F or any third party designated by 9F after the option is exercised. 9F may transfer all or part of its option to a third party at its own option. The VIEs and its shareholders agree that without prior written consent of 9F, they may not transfer or otherwise dispose the equity interests or declare any dividends. The restated option agreement will remain effective until 9F or any third party designated by 9F acquires all equity interest of the VIEs.
Spousal Consent
The spouse of each shareholder of the VIEs has entered into a spousal consent letter to acknowledge that he or she consents to the disposition of the equity interests held by his or her spouse in the VIEs in accordance with the exclusive option agreement, the power of attorney and the equity pledge agreement regarding VIE structure described above, and any other supplemental agreement(s) may be consented by his or her spouse from time to time. Each such spouse further agrees that he or she will not take any action or raise any claim to interfere with the arrangements contemplated under the mentioned agreements. In addition, each such spouse further acknowledges that any right or interest in the equity interests held by his or her spouse in the VIEs do not constitute property jointly owned with his or her spouse and each such spouse unconditionally and irrevocably waives any right or interest in such equity interests.
Loan Agreement
Pursuant to the loan agreements between WFOEs and each shareholder of the VIEs, WFOEs extended loans to the shareholders of the VIEs, who had contributed the loan principal to the VIEs as registered capital. The shareholders of VIEs may repay the loans only by transferring their respective equity interests in VIEs to 9F Inc. or its designated person(s) pursuant to the exclusive option agreements. These loan agreements will remain effective until the date of full performance by the parties of their respective obligations thereunder.
Equity Interest Pledge Agreement
Pursuant to equity interest pledge agreement, each shareholder of the VIEs has pledged all of his or her equity interest held in the VIEs to WFOEs to secure the performance by VIEs and their shareholders of their respective obligations under the contractual arrangements, including the payments due to WFOEs for services provided. In the event that the VIEs breach any obligations under these agreements, WFOEs as the pledgees, will be entitled to request immediate disposal of the pledged equity interests and have priority to be compensated by the proceeds from the disposal of the pledged equity interests. The shareholders of the VIEs shall not transfer their equity interests or create or permit to be created any pledges without the prior written consent of WFOEs. The equity interest pledge agreement will remain valid until the master exclusive service agreement and the relevant exclusive option agreements and proxy and power of attorney agreements, expire or terminate.
Master Exclusive Service Agreement
Pursuant to exclusive service agreement, WFOEs have the exclusive right to provide the VIEs with technical support, consulting services and other services. WFOEs shall exclusively own any intellectual property arising from the performance of the agreement. During the term of this agreement, the VIEs may not accept any services covered by this agreement provided by any third party. The VIEs agree to pay service fees to be determined and adjusted at the sole discretion of the WFOEs. The agreement will remain effective unless WFOEs terminate the agreement in writing.
All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. However, the validity and enforcement of the VIE Agreements because they have not been tested in a court of law. The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States, and PRC laws and regulations governing the VIE’s current business operations are sometimes vague and uncertain, and therefore, these risks may result in a material change in the VIE’s operations, significant depreciation of the value of our common stock, or a complete hindrance of our ability to offer or continue to offer our securities to investors and cause the value of such securities to significantly decline or be worthless.
As a result of the WFOE and the VIE Agreements, we are regarded as the primary beneficiary of the VIE. If Shanghai Muliang and its subsidiary or the Shanghai Muliang Shareholders fail to perform their respective obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements with Shanghai Muliang and its subsidiary and therefore we may have to incur substantial costs and expend additional resources to enforce such arrangements. The VIE structure is used to provide contractual exposure to foreign investment in Chinese-based companies where Chinese law prohibits direct foreign investment in the operating companies. We and our subsidiaries have zero equity ownership in Shanghai Muliang, the VIE. It is likely that investors in our future offerings will never hold ownership interests, direct or indirect, in the VIE and would merely have a contractual relationship. While the VIE, Shanghai Muliang, is not currently engaging in businesses where direct foreign investment is prohibited, the VIE may engage in such business in the future and therefore the VIE structure was implemented to allow flexibility prior our listing on the OTC Markets in 2016.
Our corporate structure is subject to risks associated with our contractual arrangements with the VIE. The company and its investors may never have a direct nor indirect ownership interest in the businesses that are conducted by the VIE. These arrangements may not be as effective as direct ownership in providing operational control over the VIE. Uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements, and these contractual arrangements have not been tested in a court of law. If the PRC government finds that the agreements that establish the structure for operating our business in China do not comply with PRC laws and regulations, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we and the VIE could be subject to severe penalties or be forced to relinquish our interests in those operations. This would result in the VIE being deconsolidated. The majority of our assets, including the necessary licenses to conduct business in China, are held by the VIE. A significant part of our revenues is generated by the VIE. An event that results in the deconsolidation of the VIE would have an adverse material effect on operations and may result in the value of the securities diminishing substantially or even becoming worthless. Our holding company, our PRC subsidiaries and VIE, and investors of Muliang face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our company as a whole.
Additionally, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to, the limitation on foreign ownership of internet technology companies, and regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard. The VIE Agreements may not be effective in deriving benefits from Shanghai Muliang as a direct foreign investment or control through ownership. We may also be subject to sanctions imposed by PRC regulatory agencies, including the Chinese Securities Regulatory Commission if we fail to comply with their rules and regulations. If the Chinse regulatory authorities disallow this VIE structure in the future, it will likely result in a material change in our financial performance and our results of operations and/or the value of our common stock, which could cause the value of such securities to significantly decline or become worthless. Additionally, as more stringent criteria have been imposed by the SEC and the Public Company Accounting Oversight Board recently, our securities may be prohibited from trading if our auditor cannot be fully inspected.
Additionally, we are subject to certain legal and operational risks associated with the VIE’s operations in China. PRC laws and regulations governing the VIE’s current business operations are sometimes vague and uncertain, and therefore, these risks may result in a material change in the VIE’s operations, significant depreciation of the value of our common stock, or a complete hindrance of our ability to offer or continue to offer our securities to investors. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. or other foreign exchange.
The tables below demonstrate the quantitative metrics of the U.S. holding company and the VIE (Shanghai Muliang Industry Co., Ltd.), for the fiscal years ended December 31, 2023 and 2022. Please read this data together with our consolidated financial statements and related notes included in the registration statement of which this report is a part.
As of and for the year ended December 31, 2023
Shanghai
Muliang
Industry Co.,
Ltd.(VIEs) Consolidated
Financials % of the
Consolidated
Financials
Current assets $ 14,548,442 $ 14,548,460 100 %
Non-current assets 7,596,743 7,596,743 100 %
Total Assets 22,145,185 22,145,203 100 %
Current liabilities 4,823,664 4,842,594 100 %
Non-current liabilities 23,112 23,112 100 %
Total liabilities 4,846,776 4,865,706 100 %
Total shareholders’ equity 17,298,409 17,279,497 100 %
Revenues 8,656,862 8,656,862 100 %
Cost of goods sold 5,353,549 5,353,549 100 %
Gross profit 3,303,313 3,303,313 100 %
Total operating expenses 2,836,012 2,836,012 100 %
Income before taxes 823,628 823,628 100 %
Net income from continuing operations 849,427 849,427 100 %
Net income from discontinued operations - 988,854 0 %
Net income 849,427 1,,838,281 46 %
Net cash used in operating activities (934,408 ) (934,408 ) 100 %
Net cash used in investing activities (178,527 ) (178,527 ) 100 %
Net cash provided by financing activities $ 375,866 $ 375,866 100 %
As of and for the year ended December 31, 2022
Shanghai
Muliang
Industry Co.,
Ltd.(VIEs) Consolidated
Financials % of the
Consolidated
Financials
Current assets $ 17,174,560 $ 17,334,522 99 %
Non-current assets 7,698,044 7,756,931 99 %
Total Assets 24,872,604 25,091,453 99 %
Current liabilities 8,203,734 9,221,958 87 %
Non-current liabilities 67,573 76,126 89 %
Total liabilities 8,271,307 9,298,084 87 %
Total shareholders’ equity 16,907,446 15,793,369 107 %
Revenues 11,049,883 11,049,883 100 %
Cost of goods sold 6,358,418 6,358,418 100 %
Gross profit 4,691,465 4,691,465 100 %
Total operating expenses 954,446 954,446 100 %
Income before taxes 3,622,824 3,622,824 100 %
Net income from continuing operations 3,190,198 3,190,198 100 %
Net Loss from discontinued operations - (270,662 ) 0 %
Net income 3,190,198 2,919,536 109 %
Net cash used in operating activities (1,316,756 ) (1,302,022 ) 101 %
Net cash used in investing activities (126,208 ) (126,208 ) 100 %
Net cash provided by financing activities $ 1,444,460 $ 1,444,460 100 %
Quantitative Metrics of the VIE, Shanghai Muliang Industry Co., Ltd.
Parent
company
WFOE
(Shanghai
Mufeng) -
Note 2 Shanghai Muliang Industry Co., Ltd. and its subsidiaries (the VIEs)
Subsidiaries Elimination
of intercompany
balances Consolidated
Financials % of the
Consolidated
Financials
A
B C
D E F=A+B+C+D+E G=C/F
Cash and cash equivalence $ -
1,389
- - 1,389 %
Current assets -
14,548,442
- - 14,548,460 %
Intercompany receivable from VIE - Note 2 11,574,738 -
- (11,574,738 ) - N/A
Investment in Subsidiaries
- -
- - - N/A
Total Assets $ -
11,574,756 22,145,185
- (11,574,738 ) 22,145,203 %
Current liabilities 14,534
4,396 4,823,664
-
4,842,594 %
Intercompany payable to WFOE -
- 11,574,738
- (11,574,738 ) - N/A
Total liabilities $ 14,534
4,396 16,421,514
- (11,574,738 ) 4,865,706 %
Total shareholders’ equity (deficit) $ (14,534 )
11,570,360 5,723,671 Note 1 -
17,279,497 %
Revenues -
- 8,656,862
- - 8,656,862 %
Gross profit -
- 3,303,313
- - 3,303,313 %
Service fee expense from VIE to WFOE -
849,427 -
- (849,427 ) - N/A
Total operating expenses -
- 2,834,012
-
2,834,012 %
Operating Income -
849,427 467,301
- (849,427 ) 467,301 %
Income from VIE -
849,427 -
- (849,427 ) - N/A
Income from discontinued operations 988,854
- -
- 988,854 -
Net income $ 988,854
849,427 849,427
- (849,427 ) 1,838,281 %
Total Comprehensive Income 988,854
849,427 497,274
- (849,427 ) 1,838,281 %
OPERATING ACTIVITIES
Net income 988,854
849,427 497,274
- (849,427 ) 1,838,281 %
Equity in earnings of subsidiaries -
-
- - - N/A
Intercompany receivable / payable between WFOE and VIE -
(849,427 ) 849,427
- - - N/A
Net cash used in operating activities $ -
- (934,408 )
- - (934,408 ) %
Net cash used in investment activities -
- (178,527 )
- - (178,527 ) %
Net cash provided by financing activities $ -
- 375,866
- - 375,866 %
Note The Company’s shareholders would not hold any ownership interest, direct or indirect, in the operating company in China, i.e. the VIE, and would merely have a contractual relationship with the VIE.
Note The intercompany balances of $11,574,738 between the WOFE and the VIE arising from the service fee income payable to the WOFE by the VIE; the intercompany balances do not include any loans between the WOFE and the VIE. The amount is accumulated from the date that the VIE agreements when into effect on February 16, 2016. As the Company has disclosed, the VIE has not paid amounts in cash or other means to settle the payables balances owed by the VIE to the WOFE.
Industry Overview
The Status and Market Demand of the Organic Straw Fertilizer Industry in China
In China, straw exists in a large quantity and has a wide variety of uses and broad distribution. The annual output of straw is more than 700 million tons, according to the China Industry Information Network’s report on “2017 China Straw Resource Reserves and Utilization Market Overview.” Straw contains more than 3 million tons of nitrogen, more than 700,000 tons of phosphorus and nearly 7 million tons of potassium; this is equivalent to more than a quarter of the amount of fertilizer China’s currently uses and equivalent to 300 million tons of standard coal. Unfortunately, nearly 100 million tons of straw chaff are burned directly in the fields every year, which not only seriously damages the beneficial bacteria in the soil surface but directly leads to severe air pollution and increases the greenhouse effect. With such a significant amount of straw production in China, if even a part of the straw can be recycled each year, it will bring huge, sustainable recycling resources to the fertilizer industry. On November 25, 2015, the National Development and Reform Commission, the Ministry of Finance, the Ministry of Agriculture and the Ministry of Environmental Protection jointly issued a notice, requiring the utilization rate of straw to exceed 85% by 2020.
The market demand in China for organic fertilizer is significant. According to the National Bureau of Statistics in 2019, the China national sales volume of organic fertilizers in 2018 was 133.42 million tons. According to the current policy of encouraging less use of chemical fertilizer, improving the quality of agricultural products and restoring land, it is estimated that the demand of organic fertilizers will increase to 180 million tons by 2020. At the same time, according to a governmental advocate of increasing proportion of organic fertilizer to 50% of the total use of fertilizer, the demand in China for organic fertilizer will reach more than 500 million tons by 2030.
The Environmental Benefits of Promoting Organic Straw Fertilizer
Lower Air Pollution- If each county area builds straw disposal factories that can handle even 100,000 tons of waste, 100 counties can offset the damage from destructive burning equivalent to approximately 10 million tons of straw. This would reduce carbon dioxide emissions by 15 million tons and reduce a huge amount of carbon monoxide, volatile organic particles (PM), nitrogen oxides, benzene, polycyclic aromatic hydrocarbons and other harmful gases released into the atmosphere.
Lower soil pollution and greater environment restoration- Straw is a circulating agricultural resource and the best organic fertilizer resource, according to Baidu. Organic straw fertilizer is also the main agricultural tool used to convert wasteland, tidal flats, and saline-alkali land into arable land. It is also the primary tool in transforming barren land into medium-low yield fields and to upgrade medium-low yield fields to high-quality fertile fields.
Lower water pollution- The utilization rate of traditional chemical fertilizers is generally below 30%, and 70% of dissolved chemical fertilizers directly enter underground water bodies and flow into rivers, resulting in eutrophication of water bodies. Increasing the application of organic fertilizer is one of the important methods to reduce water pollution.
The Products
The Company and the VIE are committed to ensuring the quality of its agricultural products. We aim to provide high-quality and environmentally friendly organic straw fertilizer for the VIE and its subsidiaries’ customers. The organic fertilizers are the products of natural decomposition and are easy for plants to absorb and digest. The powder form fertilizer maximizes the survival rate of microorganisms, ensures faster nutrient absorption, and increases soil improvement seed and processing productivity. While the operations are primarily engaged in producing organic fertilizers, the VIE and its subsidiaries also sell agriculture food products such as apples. Revenues are mainly generated from organic fertilizers, which constituted approximately 100.0% and 93.2% of the VIE and its subsidiaries’ total revenue for the fiscal years ended December 31, 2023 and 2022, respectively. In addition, we invested in the construction of a deep-processing slaughterhouse which is expected to have the capacity of slaughtering 200,000 black goats per year in Chuxiong City, Yunnan Province, China. We expect to complete the construction in June 2024 and start generating revenues from the black goat processing products in the third quarter of 2024.
Organic Fertilizer
The fertilizer products are sold under the VIE and its subsidiaries’ brand names “Zongbao,” “Fukang,” and “Muliang.” There are seven lines of the organic fertilizers including:
● Soil improvement and preparation fertilizer, which includes compound microbes, probiotics that can supplement microorganisms and trace elements of soil. It can be used as both starter fertilizer and regular fertilizer;
● Root protection fertilizer, which is an organic nutrient water-soluble fertilizer that can help the growth of crops’ roots;
● Foliar nutrition fertilizer, which is a biological growth promoter to help customers take care of the foliar of their plants;
● Lower pesticide residue fertilizer, which can help the customers reduce the usage of pesticide and enhance the resistance ability for plants;
● Fruit special fertilizer which contains enhanced nutrient availability to increase plant performance;
● Fruit tree fertilizer that promotes healthy roots and fruit growth and are ideal for all fruit trees and berries; and
● Corn and peanuts fertilizer that are specially used for corns and peanuts.
The organic fertilizer contains all-purpose nutrition that can be used in the different stages of plant growth. It aims to increase soil fertility, improve soil aggregate structure, provide nutrient absorption ability for crop, improve water retention capacity and improve fertilizer utilization, thus creating a sustainable environment and healthy soil.
Future Products
Black Goat Processing Products
Currently we invested in a goat slaughtering and processing factory located in Shuangbai County, Chuxiong City, Yunnan Province, PRC starting in 2018. This factory is expected to be completed in June 2024 with a capacity of deep processing of 200,000 black goats per year. The products will include goat riblets, goat loin roast, goat loin chops, goat rack, goat leg, goat shoulder, goat leg shanks, ground goat, goat stew meat, whole goat, half goat, and lamb viscera, etc. We expect to commence sales of black goat processing products and start generating revenue in the third quarter of 2024.
Forage Grass
We are exploring the options to use forage grass as an alternative for traditional feed for live-stocks. We currently have several research and development projects with schools and institutions. See “Research and Development” below.
Technology and Manufacturing Process
We utilize the patented technologies to process crop straws into organic fertilizer.
Crop straws include the stems, roots, leaves, pods and vines of crops. The main ingredients are cellulose, hemicellulose and lignin, as well as a small amount of minerals. Straw is a crude fiber material that is waxy and lignified. The fermentation cycle is long for the straw to be processed into organic fertilizer, as it takes 15 days to 60 days for microbial action. This is a common challenge for the large-scale and timely manufacturing of straw fertilizer.
The crop straws will be processed into a nutrient-rich organic fertilizer in a closed container by low-pressure, medium-temperature acid hydrolysis technology (with 9-to-13-kg pressure and at 150-to-180-degree temperature). The basic principle is as follows:
We utilize cellulose hydrolysis, hemicellulose hydrolysis and lignin hydrolysis methods to process cellulose, hemicellulose and lignin into short-chain cellulose, polysaccharide, monosaccharide, oligomer, etc. Based on the demand for the organic fertilizers and the controlled processing conditions, on average the VIE and its subsidiaries’ methods produce a mix with a majority of short-chain cellulose, some polysaccharides and a small amount of monosaccharides.
The straws are stored in the warehouse after compacting them in a briquetting machine. The straw compacts are easy to transfer and occupy less storage space. The straw compacts will be first crushed to 3 cm to 5 cm in length. The straws are then processed in the hydrothermal degradation tank for 2 to 3 hours. We pump steam generated by a boiler into the hydrothermal degradation tank, so that the temperature in the hydrothermal degradation tank is maintained between 150°C and 180°C and the pressure is maintained at 0.9-1.3MPa. After 2-3 hours of thermal degradation, we release the pressure to 0.2~0.4MPa. By releasing the pressure, the straws explode to the storage tank, resulting in a mechanical treatment of the explosion impinging stream, breaking the cellulose, hemicellulose and lignin in the straw, breaking the hydrogen bonds, degrading fiber crystallization regions into an amorphous stage and degrading macromolecules into micro-molecules. After that, we add different auxiliary materials through an automatic batching system to make different organic fertilizers suitable for different crops. We then repeat a process of crushing, granulating, cooling and screening before packaging the fertilizers into products.
Sales and Marketing
We believe that VIE and its subsidiaries’ sales services, combined with the quality and reputation of the products will help us retain and attract new customers.
We distribute and sell VIE and its subsidiaries’ products to the end-customers through several different channels, including professional markets and the sales department of the company and distributors:
● Professional Market: we built a long-term cooperation relationship with private agricultural companies and agricultural cooperative associations for sales;
● Sales Department: we have sixteen sales representatives with the sales department that are professionally trained to efficiently promote and deliver products to the customers;
● Third-party Agent and Distributors: we utilize various third-party agents and distributors to sell and distribute the products; and
By using various channels to sell and distribute the products to customers, we can directly serve the customers and end-customers by providing customer service and support.
Suppliers and Customers
Suppliers
Most of the VIE and its subsidiaries’ suppliers are local suppliers from Qingdao city, Shandong province. The main raw materials for organic feeds include: (i) hydrolysed crop straw, which are chemically decayed wheat straw, corn straw and other kinds of crop straw, accounting for about 54% of the total raw materials; (ii) plant ash (Potassium carbonate, K2CO3), accounting for estimated 4% of the total raw materials; and (iii) Humic acid, accounting for about 3% of the total raw materials. Other auxiliary materials include monoammonium phosphate, urea, etc.
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchase for the years ended December 31, 2023 and 2022.
For the years ended December 31,
Suppliers Amount % Amount %
Supplier A 1,471,441 33 % 3,735,133 64 %
Supplier B N/A N/A 678,040 12 %
Supplier C 919,032 20 % N/A N/A
Supplier D 873,366 19 % N/A N/A
Supplier E 827,129 18 % N/A N/A
Customers
The VIE and its subsidiaries’
customers are mainly located in provinces of Guangdong, Jilin and Shandong.
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the years ended December 31, 2023 and 2022.
For the years ended December 31,
Customer Amount % Amount %
Customer A 3,332,699 38 % 4,774,456 40 %
Customer B 3,313,441 38 % 4,503,761 38 %
The Growth Strategy
We intend to build upon the VIE and its subsidiaries’ proven ability to produce high-quality organic fertilizer and increase the presence and market share in the agriculture industry. We have begun to implement the growth strategies described below and expect to continue to do so over the several years following this report. Although the net proceeds of our future offerings may be available to assist us to implement the growth strategies, we cannot estimate the ultimate amount of capital needed to achieve the expected growth. We may need additional capital to implement these strategies, particularly in the event we pursue acquisitions of complementary businesses or technologies.
Scale Up Production of Organic Fertilizer and Accelerate Penetration in Local and Regional Markets
We plan to construct a new organic fertilizer factory in Heilongjiang Province, China. We have entered into a strategic cooperation agreement with Suihua City of Heilongjiang Province to produce a total of 1 million tons of organic fertilizer. We expect to produce 107,000 tons of organic fertilizer in 2024 and the remaining within the next 10 years. In addition, we will establish warehouse and distribution center in Heilongjiang Province, which is expected to accelerate penetration in the local and regional market.
Increase Sources of Revenue by Expanding the VIE and its subsidiaries’ Current Business
We have a slaughtering and processing plant for black goats under construction in Yunnan Province, China. We expect the plant to begin operations in June 2024 and start generating revenue in the third quarter of 2024. Demand for lamb in China as an alternative to pork is increasing due to growing concern on swine disease and pork quality. We plan to offer lamb and lamb products to consumers via a subscription program available on the VIE and its subsidiaries’ website and mobile app in the future.
Continue to Invest in Research and Development and Expand the VIE and its subsidiaries’ Product Portfolio
We have invested significant capital in the development and improvement of the VIE and its subsidiaries’ products. One of the R&D results introduced us to a type of forage grass that contains 30% more protein than other crops. We plan to work with the forage grass farmers in Xinjiang Province and to produce plant protein powder from the forage grass to be used in food and beverages in 2024.
Competitive Advantages
Competitive Advantages of the VIE and its subsidiaries’ Technology
● Quick disposal: straw can be broken down into powder in three hours.
● Continuous operation: the production line is formed with connecting hydrolysis tanks, which allows the full use of steam heat and continuous charging, hydrolysis and discharge.
● Environmental protection: all the disposal devices are closed containers and pipelines to avoid gas and material leakage.
● High fertilizer efficiency: the organic fertilizer matrix after straw disposal has a higher content of organic matter than the compost products of livestock and poultry manure, and it has a comprehensive organic nutritional composition. It also avoids pesticide, insect pest returning to the field, excessive loose soil and the hidden trouble of fermenting and burning seedlings in the field.
● Less space: a plant capable of handling the disposal of 80,000 tons of straw only requires 6.6 - 8.2 acres of land.
● Strong replicability: the technology and production line can be replicated in different countries.
Competitive Advantage of the VIE and its subsidiaries’ Products
● Quality Advantage. Compared with the traditional compost manure fermented fertilizer, the product has a high concentration of organic matter and small molecular organic nutrients that can be directly absorbed by crops rich in fulvic acid, polysaccharides and monosaccharides. The effectiveness of the VIE and its subsidiaries’ product is 50% higher than the same amount of conventional organic fertilizer.
● Safety advantage. Compared with traditional livestock and poultry manure composting fermented fertilizer, the VIE and its subsidiaries’ product generates less residue of heavy metals, antibiotics, toxic and harmful bacteria, avoids the pollution of soil, and ensures the quality and safety of agricultural products.
Intellectual Property
We rely on certain intellectual property to protect the VIE and its’ subsidiaries’ domestic business interests and ensure a competitive position in the industry.
We have 12 patents and 5 registered trademarks in China on sludge and straw technology, and we are a pilot company of technology in Jinshan District, Shanghai. Among the patents we now own, “microwave induced catalytic hydrolysis treatment sludge” was reviewed by Chinese Academy of Sciences Shanghai Technology Chaxin Consulting Centre (the “Centre”) (report no. 200921C0703709, 200821C0701507). According to the review by the Centre, there is no public report of the same kind of research, and therefore, the project is innovative and is advanced at the international level.
Patents
We own the following patents through our subsidiaries and/or VIE entities:
No.
Patent Name
Patent Number
Certificate Number
Pressure relief material discharge and storage device
ZL2009200705204
Chemical catalytic hydrolysis tank
ZL2009200705219
Material storage bin with crusher
ZL2009200706156
Pneumatic check valve type tank cap
ZL2009200706160
Regenerative heat exchanger
ZL2009200705223
Method for preparing novel material by catalyzing and hydrolyzing mud through microwave inducing
ZL2008100346358
Method for removing heavy metals from activated sludge
ZL2009100494481
Method for comprehensively treating grating garbage and activated sludge in sewage plant
ZL2009100494462
Method for preparing water soluble quick-acting organic fertilizer from activated sludge
ZL2009100494458
Mechanical force chemical treating method for organic solid wastes
ZL2009100494477
Method for preparing fuel oil by activated sludge in pipe bundle cracking furnace
ZL2011100405076
Method for directly flashing treated water into superheated steam and application
ZL2011100405127
The validity of utility model patent is ten years. It was noticed that five of the utility model patents owned by the Company were expired in April 2019 and were not extendable. The Company has noticed the situation and is planning to submit patent applications in another country to protect their intellectual property.
However, the expired patents have little impact on the company. And the Company also improved some patents although there is no further successful patent extension so far.
Trademarks
We own several trademarks through our subsidiaries and/or VIE entities, including Muliang, Zongbao, Xiutubao, Vijifeng, Jingletu, and Huangdicao. Muliang and Zongbao are our company’s brand names.
The Employees
As of the date hereof, the VIE and its subsidiaries have 110 full-time employees. The following table sets forth the number of employees by function:
Functional Area Number of
Employees
Senior management
Sales, Technical and Procurement
IT Development & Solutions
Accounting
Human resources and administrative personnel
Warehouse
Factory
Total
The VIE and its subsidiaries provide social insurance for each employee in accordance with Chinese law, including pension insurance, medical insurance, unemployment insurance, work injury insurance and maternity insurance and housing provident fund.
Holding Foreign Companies Accountable Act
U.S. laws and regulations, including the Holding Foreign Companies Accountable Act, or HFCAA, may restrict or eliminate our ability to complete a business combination with certain companies, particularly those acquisition candidates with substantial operations in China.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the Holding Foreign Company Accountable Act, or the HFCAA. An identified issuer will be required to comply with these rules if the SEC identifies it as having a “non-inspection” year under a process to be subsequently established by the SEC. In June 2021, the Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if signed into law, would reduce the time period for the delisting of foreign companies under the HFCAA to two consecutive years instead of three years. If our auditor cannot be inspected by the Public Company Accounting Oversight Board, or the PCAOB, for two consecutive years, the trading of our securities on any U.S. national securities exchanges, as well as any over-the-counter trading in the U.S., will be prohibited. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA, which became effective on January 10, 2022. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in Mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions. The PCAOB made its determinations pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the HFCA Act. The report further listed in its Appendix A and Appendix B, Registered Public Accounting Firms Subject to the Mainland China Determination and Registered Public Accounting Firms Subject to the Hong Kong Determination, respectively.
On August 26, 2022, the PCAOB signed a SOP with the CSRC and the MOF of the PRC regarding cooperation in the oversight of PCAOB-registered public accounting firms in the PRC and Hong Kong which establishes a method for the PCAOB to conduct inspections of PCAOB-registered public accounting firms in the PRC and Hong Kong, as contemplated by the Sarbanes-Oxley Act. Under the agreement, (a) the PCAOB has sole discretion to select the firms, audit engagements and potential violations it inspects and investigates without consultation with, or input from, PRC authorities; (b) procedures are in place for PCAOB inspectors and investigators to view complete audit work papers with all information included and for the PCAOB to retain information as needed; (c) the PCAOB has direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates; and (d) the PCAOB shall have the unfettered ability to transfer information to the SEC in accordance with the Sarbanes-Oxley Act, and the SEC can use the information for all regulatory purposes, including administrative or civil enforcement actions. The PCAOB was required to reassess its determinations as to whether it is able to carry out inspections and investigations completely and without obstruction by the end of 2022. On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and vacated its previous determinations. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB will consider the need to issue a new determination.
Congress passed fiscal year 2023 Omnibus spending legislation in December 2022, which contained provisions to accelerate the HFCAA timeline for implementation of trading prohibitions from three years to two years. As a result, the SEC is required to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections or complete investigations for two consecutive years.
Our auditor, WWC, P.C., the independent registered public accounting firm that issues the audit report included elsewhere in this annual statement, is headquartered in San Mateo, California subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards with the last inspection in November 2021, and as of the date of this report, our auditor is not subject to the determinations as to the inability to inspect or investigate registered firms completely announced by the PCAOB on December 16, 2021. However, as more stringent criteria have been imposed by the SEC and the PCAOB recently, which would add uncertainties to our offering, and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. In the event it is later determined that the PCAOB is unable to inspect or investigate completely the Company’s auditor because of a position taken by an authority in a foreign jurisdiction, then such lack of inspection could cause trading in the Company’s securities to be prohibited under the HFCAA, and ultimately result in a determination by a securities exchange to delist the Company’s securities.
The recent developments would add uncertainties to our future offerings, and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements.
Transfers of Cash to and from Our Subsidiaries
Muliang is a holding company with no operations of its own. We conduct operations in China primarily through our subsidiary and VIE in China. As a result, although other means are available for us to obtain financing at the holding company level, Muliang’s ability to pay dividends to its shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries and license and service fees paid by our PRC consolidated affiliated entities. If any of our subsidiaries incurs debt on its own in the future, the instruments governing such debt may restrict its ability to pay dividends to Muliang. In addition, our PRC subsidiary and VIE are required to make appropriations to certain statutory reserve funds, which are not distributable as cash dividends except in the event of a liquidation of the companies.
Current PRC regulations permit our indirect PRC subsidiaries to pay dividends to Shanghai Mufeng only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from operations through the current VIE Agreements, we may be unable to pay dividends on our common stock.
Cash dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10.0%.
In order for us to pay dividends to our shareholders, we will be dependent on payments made from Shanghai Muliang to Shanghai Mufeng, pursuant to VIE Agreements between them, and the distribution of such payments to Muliang HK as dividends from Shanghai Mufeng. Certain payments from Shanghai Muliang to Shanghai Mufeng are subject to PRC taxes, including business taxes and VAT. During the years ended December 31, 2023 and 2022, Shanghai Muliang made no payments to Shanghai Mufeng. For the years ended December 31, 2023 and 2022, there was no cash transferred between the Company and Shanghai Muliang (the VIEs).
For the years ended December 31, 2023 and 2022, none of the VIE and its subsidiaries have issued any dividends or distributions to respective holding companies, or to any investors as of the date of this report. Our subsidiaries in the PRC generate and retain cash generated from operating activities and re-invest it in the business.
Muliang is permitted under the laws of the state of Nevada to provide funding to Muliang HK through loans or capital contributions without restrictions on the amount of the funds. Muliang HK is permitted under the respective laws of Hong Kong to provide funding to Shanghai Mufeng through dividend distribution without restrictions on the amount of the funds.
To transfer cash from Muliang HK to Shanghai Mufeng, Muliang HK can increase its registered capital in WFOE, which requires a filing with the local commerce department, or through a shareholder loan, which requires a filing with the State Administration of Foreign Exchange or its local bureau. Aside from the declaration to the State Administration of Foreign Exchange, there is no restriction or limitations on such cash transfer or earnings distribution.
To transfer cash from Shanghai Mufeng to Shanghai Muliang, Shanghai Mufeng can increase its registered capital in Shanghai Muliang, which requires a filing with the local commerce department, or through a shareholder loan to Shanghai Muliang, which requires a filing with the State Administration of Foreign Exchange or its local bureau. Aside from the declaration to the State Administration of Foreign Exchange, there is no restriction or limitations on such cash transfer or earnings distribution. However, our PRC subsidiaries may not procure loans which exceed the difference between their respective registered capital and total investment amount as recorded in the Foreign Investment Comprehensive Management Information System.
To make loans to Muliang HK, Shanghai Mufeng or Shanghai Muliang, according to Matters relating to the Macro-prudential Management of Comprehensive Cross-border Financing, or PBOC Circular 9 promulgated by the People’s Bank of China, the total cross-border financing of a company shall be calculated using a risk-weighted approach and shall not exceed an upper limit. The upper limit shall be calculated as capital or assets (for enterprises, net assets shall apply) multiplied by a cross-border financing leverage ratio and multiplied by a macro-prudential regulation parameter. The macro-prudential regulation parameter is currently 1, which may be adjusted by the People’s Bank of China and the State Administration of Foreign Exchange in the future, and the cross-border financing leverage ratio is 2 for enterprises. Therefore, the upper limit of the loans that a PRC company can borrow from foreign companies shall be calculated at 2 times the borrower’s net assets. When Shanghai Mufeng and Shanghai Muliang jointly apply for borrowing foreign debt, the upper limit of borrowing shall be 2 times of the net assets in the consolidated financial statement, and Shanghai Muliang shall make a commitment to refrain from borrowing foreign debt in their own respective names.
For the years ended December 31, 2023 and 2022, Muliang and its subsidiaries have not distributed any earnings or settled any amounts owed under the previous VIE Agreements. nor does Muliang and its subsidiaries have any plan to distribute earnings or settle amounts in the foreseeable future.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Summary of Risk Factors
Below please find a summary of the significant risks we face, organized under relevant headings. These risks are discussed more fully in the section titled “Risk factors” on page 20.
● Uncertainties regarding the legality of the VIE structure in the future. Muliang Viagoo is a holding company incorporated in Nevada. As a holding company with no material operations of our own, we conduct a substantial majority of operations in the PRC though the variable interest entity, Shanghai Muliang and its subsidiaries. We receive the economic benefits of the VIE’s business operations through certain contractual arrangements. Investors in our common shares offered in our future offerings are purchasing shares of the U.S. holding company and not shares of the VIE and its subsidiaries in China that are conducting the business operations. The legality of the VIE structure has not been tested in the courts of the PRC. Furthermore, it is uncertain whether any new PRC laws, rules or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. See “Risk Factors - Risks Relating to Doing Business in the PRC - If the PRC government deems that any of our contractual arrangements do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations on page 22; and Risk Factors - Risks Relating to Our Corporate Structure - If the PRC government deems that the contractual arrangements in relation to Shanghai Muliang, our consolidated variable interest entity, do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations on page 52.
● Risk of new regulations, significant new government oversight in China. As a business with a majority of its operations in China, we are subject to the laws and regulations of the PRC, which can change quickly with little advance notice. The PRC government has the power to exercise significant oversight and discretion over the conduct of the VIE and its subsidiaries’ business, and the regulations to which we are subject may change rapidly and with little notice to us or the shareholders. New regulations and policies, which may be adopted with little notice, could result in a material change in operations and/or the value of our ordinary shares. See “Risk Factors - Risks Relating to Doing Business in the PRC - PRC laws and regulations governing the VIE and its subsidiaries’ current business operations are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including those regarding the enforcement of laws, and sudden or unexpected changes, with little advance notice, in laws and regulations in China could adversely affect us and limit the legal protections available to you and us” on page 30.
● Risk of additional future government oversight and control over foreign offerings of China-based companies. Recent statements by the Chinese government have indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investments in China based issuers. Although the VIE and its subsidiaries’ business is not of the type currently subject to government review in China prior to a foreign securities offering, any future action by the PRC government expanding the categories of industries and companies whose foreign securities offerings are subject to review by the PRC government could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and could cause the value of such securities to significantly decline or be worthless. See “Risk Factors - Risks Relating to Doing Business in the PRC - Uncertainties with respect to the PRC legal system, including those regarding the enforcement of laws, and sudden or unexpected changes, with little advance notice, in laws and regulations in China could adversely affect us and limit the legal protections available to you and us” on page 30.
● Uncertainties with respect to the PRC legal system. The PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. See “Risk Factors - Risks Relating to Doing Business in the PRC - PRC laws and regulations governing the VIE and its subsidiaries’ current business operations are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including those regarding the enforcement of laws, and sudden or unexpected changes, with little advance notice, in laws and regulations in China could adversely affect us and limit the legal protections available to you and us” on page 30.
● Risks related to a future determination that the Public Company Accounting Oversight Board (the “PCAOB”) is unable to inspect or investigate our auditor completely. Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this report, as an auditor of companies that audits publicly traded companies in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards. Our auditor is headquartered in San Mateo, California, and is subject to inspection by the PCAOB on a regular basis with the last inspection in October 2021, and our auditor is not subject to the determinations announced by the PCAOB on December 16, 2021. Despite that we have a U.S. based auditor that is registered with the PCAOB and subject to PCAOB inspection, there are still risks to the company and investors if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction. Such risks include but not limited to that trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act and as a result an exchange may determine to delist our securities. See “Risk Factors - Risks Relating to Doing Business in the PRC - The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering” on page 33.
● Risks related to the seasonality of the VIE and its subsidiaries’ business. The sale of the products is partially dependent upon planting and growing seasons, which vary from year to year, and are expected to result in both seasonal patterns and substantial fluctuations in quarterly sales and profitability. See Risk Factors - Risks Relating to the VIE and its subsidiaries’ Business and Industry - the VIE and its subsidiaries’ fertilizer business is seasonal and affected by factors beyond their control, which may cause the sales and operating results to fluctuate significantly on page 38.
● Risks related to potential competition. We encounter intense competition in each of the VIE and its subsidiaries’ business segments on a national, regional and local level. Competition in the industry is primarily based on quality of services, brand name recognition, geographic coverage and range of services. New and existing competitors may offer competitive rates, greater convenience or superior services, which could attract customers away from us, resulting in lower revenues for operations. See “Risk Factors - Risks Relating to the VIE and its subsidiaries’ Business and Industry - If we are unable to compete successfully with the VIE and its subsidiaries’ competitors, the financial condition and results of operations may be harmed” on page 40.
● Risks related to the dependence on key suppliers, customers and personnel. Although we believe that we can locate replacement suppliers readily on the market any difficulty in replacing one of the VIE and its subsidiaries’ major suppliers could adversely affect the company’s performance Additionally, the VIE and its subsidiaries’ business is dependent on the ability to recruit and maintain highly skilled and qualified individuals through direct employment or collaboration arrangements. See “Risk Factors - Risks Relating to the VIE and its subsidiaries’ Business and Industry - The loss of any of the VIE and its subsidiaries’ key suppliers and/or customers could have a materially adverse effect on the results of operations on page 41; and We depend on the VIE and its subsidiaries’ key personnel and research employees, and we may be adversely affected if we are unable to attract and retain qualified scientific and business personnel on page 42; and Any failure by Shanghai Muliang, our consolidated variable interest entity, or its shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business” on page 54.
● Risks related to our use of the VIE structure. We have relied and expect to continue relying on contractual arrangements with the VIE and their shareholders to operate our business in China. If the VIE, or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. See “Risk Factors - Risks Relating to Our Corporate Structure - We rely on contractual arrangements with the VIE and their shareholders for a large portion of our business operations. These arrangements may not be as effective as direct ownership in providing operational control. Any failure by the VIE or their shareholders to perform their obligations under such contractual arrangements would have a material and adverse effect on our business” on page 54.
Risks Relating to Doing Business in the PRC
If the PRC government deems that any of our contractual arrangements do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
Foreign ownership of internet-based businesses, such as distribution of online information, is subject to restrictions under current PRC laws and regulations. For example, foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider (except e-commerce) and any such foreign investor must have experience in providing value-added telecommunications services overseas and maintain a good track record in accordance with the Guidance Catalog of Industries for Foreign Investment promulgated in 2007, as amended in 2011 and in 2015, respectively, and other applicable laws and regulations.
Muliang Viagoo is a holding company incorporated in Nevada. As a holding company with no material operations of our own, we conduct a substantial majority of operations in the People’s Republic of China, or “PRC” or “China,” though the variable interest entity, Shanghai Muliang and its subsidiaries. We receive the economic benefits of the VIE’s business operations through certain contractual arrangements. Investors in our common shares offered in our future offerings are purchasing shares of the U.S. holding company and not shares of the VIE and its subsidiaries in China that are conducting the business operations.
It is uncertain whether any new PRC laws, rules or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. In particular, in January 2015, the Ministry of Commerce, or MOC, published a discussion draft of the proposed Foreign Investment Law for public review and comments. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise, or an FIE. Under the draft Foreign Investment Law, variable interest entities would also be deemed as FIEs, if they are ultimately “controlled” by foreign investors, and would be subject to restrictions on foreign investments. However, the draft law has not taken a position on what actions will be taken with respect to the existing companies with the “variable interest entity” structure, whether or not these companies are controlled by Chinese parties. It is uncertain when the draft will be signed into law and whether the final version will have any substantial changes from the draft. Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations” below. If the ownership structure, contractual arrangements and business of our company are found to be in violation of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the required permits or approvals, the relevant governmental authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income, shutting down our servers, discontinuing or placing restrictions or onerous conditions on operations, requiring us to undergo a costly and disruptive restructuring, restricting or prohibiting our use of proceeds from future offerings to finance our business and operations in China and taking other regulatory or enforcement actions that could be harmful to our business. Any of these actions could cause significant disruption to our business operations and could severely damage our reputation, which would in turn materially and adversely affect our business, financial condition and results of operations.
PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaces the previous SAFE Circular 75. SAFE Circular 37 requires PRC residents, including PRC individuals and PRC corporate entities, to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we may make in the future.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, are required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE to reflect any material change. If any PRC resident shareholder of such SPV fails to make the required registration or to update the registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiaries in China. In February 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations under the supervision of SAFE. We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all other shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, as these foreign exchange and outbound investment related regulations are relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border investments and transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. We cannot assure you that we have complied or will be able to comply with all applicable foreign exchange and outbound investment related regulations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
As a holding company with PRC subsidiaries, we may transfer funds to our Affiliate Entities or finance the operating entity by means of loans or capital contributions. Any capital contributions or loans that we, as an offshore entity, make to our Company’s PRC subsidiaries, including from the proceeds of our future offerings, are subject to the above PRC regulations. We may not be able to obtain necessary government registrations or approvals on a timely basis, if at all. If we fail to obtain such approvals or make such registration, our ability to make equity contributions or provide loans to our Company’s PRC subsidiaries or to fund their operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations and commitments. As a result, our liquidity and our ability to fund and expand our business may be negatively affected.
We must remit the offering proceeds to China before they may be used to benefit the VIE and its subsidiaries’ business in China, and this process may take several months to complete.
The process for sending the proceeds from future offerings back to China may take as long as six months after the closing of those offerings. In utilizing the proceeds of future offerings, as an offshore holding company of our PRC operating subsidiaries, we may make loans to our Affiliated Entities, or we may make additional capital contributions to our Affiliate Entities. Any loans to our Affiliated Entities are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are foreign-invested enterprises, to finance their activities cannot exceed statutory limits and must be registered with SAFE.
To remit the proceeds of the offering, we must take the following steps:
● First, we will open a special foreign exchange account for capital account transactions. To open this account, we must submit to SAFE certain application forms, identity documents, transaction documents, form of foreign exchange registration of overseas investments of the domestic residents, and foreign exchange registration certificate of the invested company. As of the date of this report, we have already opened a special foreign exchange account for capital account transactions.
● Second, we will remit the offering proceeds into this special foreign exchange account.
● Third, we will apply for settlement of the foreign exchange. In order to do so, we must submit to SAFE certain application forms, identity documents, payment order to a designated person, and a tax certificate.
The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary significantly. Ordinarily the process takes several months but is required by law to be accomplished within 180 days of application.
We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by MOFCOM or its local counterpart. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of future offerings and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business. If we fail to receive such approvals, our ability to use the proceeds of future offerings and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand the VIE and its subsidiaries’ business.
Changes in the policies of the PRC government could have a significant impact upon the VIE and its subsidiaries’ ability to operate profitably in the PRC.
We conduct all of operations and all of our revenue is generated in the PRC. Accordingly, economic, political and legal developments in the PRC will significantly affect the VIE and its subsidiaries’ business, financial condition, results of operations and prospects. Policies of the PRC government can have significant effects on economic conditions in the PRC and the ability of businesses to operate profitably. The VIE and its subsidiaries’ ability to operate profitably in the PRC may be adversely affected by changes in policies by the PRC government, including changes in laws, regulations or their interpretation, particularly those dealing with the Internet, including censorship and other restriction on material which can be transmitted over the Internet, security, intellectual property, money laundering, taxation and other laws that affect the VIE and its subsidiaries’ ability to operate the website.
Because the VIE and its subsidiaries’ business is dependent upon government policies that encourage a market-based economy, change in the political or economic climate in the PRC may impair the VIE and its subsidiaries’ ability to operate profitably, if at all.
Although the PRC government has been pursuing a number of economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in the PRC. Because of the nature of our business, we are dependent upon the PRC government pursuing policies that encourage private ownership of businesses. Restrictions on private ownership of businesses would affect the securities business in general and businesses using real estate service in particular. We cannot assure you that the PRC government will pursue policies favoring a market-oriented economy or that existing policies will not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the PRC.
PRC laws and regulations governing the VIE and its subsidiaries’ current business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair their ability to operate profitable.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing the VIE and its subsidiaries’ business and the enforcement and performance of the VIE and its subsidiaries’ arrangements with customers in certain circumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and the VIE and its subsidiaries’ business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from the understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on the VIE and its subsidiaries’ business.
There are uncertainties under the PRC laws relating to the procedures for U.S. regulators to investigate and collect evidence from companies located in the PRC.
According to Article 177 of the newly amended PRC Securities Law which became effective in March 2020 (the “Article 177”), the securities regulatory authority of the PRC State Council may collaborate with securities regulatory authorities of other countries or regions in order to monitor and oversee cross border securities activities. Article 177 further provides that overseas securities regulatory authorities are not allowed to carry out investigation and evidence collection directly within the territory of the PRC, and that any Chinese entities and individuals are not allowed to provide documents or materials related to securities business activities to overseas agencies without prior consent of the securities regulatory authority of the PRC State Council and the competent departments of the PRC State Council.
Our PRC counsel has advised us of their understanding that (i) the Article 177 is applicable in the limited circumstances related to direct investigation or evidence collection conducted by overseas authorities within the territory of the PRC (in such case, the foregoing activities are required to be conducted through collaboration with or by obtaining prior consent of competent Chinese authorities); (ii) the Article 177 does not limit or prohibit the Company, as a company duly incorporated in Nevada and to be listed on Nasdaq, from providing the required documents or information to Nasdaq or the SEC pursuant to applicable Listing Rules and U.S. securities laws; and (iii) as the Article 177 is relatively new and there is no implementing rules or regulations which have been published regarding application of the Article 177, it remains unclear how the law will be interpreted, implemented or applied by the Chinese Securities Regulatory Commission or other relevant government authorities. As of the date hereof, we are not aware of any implementing rules or regulations which have been published regarding application of Article 177. However, we cannot assure you that relevant PRC government agencies, including the securities regulatory authority of the PRC State Council, would reach the same conclusion as we do. As such, there are uncertainties as to the procedures and time requirement for the U.S. regulators to bring about investigations and evidence collection within the territory of the PRC.
The VIE and its subsidiaries’ principal business operation is conducted in the PRC. In the event that the U.S. regulators carry out investigation on us and there is a need to conduct investigation or collect evidence within the territory of the PRC, the U.S. regulators may not be able to carry out such investigation or evidence collection directly in the PRC under the PRC laws. The U.S. regulators may consider cross-border cooperation with securities regulatory authority of the PRC by way of judicial assistance, diplomatic channels or regulatory cooperation mechanism established with the securities regulatory authority of the PRC.
Because the VIE and its subsidiaries’ business is conducted in RMB and the price of our shares of common stock is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments.
The VIE and its subsidiaries’ business is conducted in the PRC, the books and records are maintained in RMB, which is the currency of the PRC, and the financial statements that we file with the SEC and provide to our shareholders are presented in United States dollars. Changes in the exchange rate between the RMB and dollar affect the value of the VIE and its subsidiaries’ assets and the results of operations in United States dollars. The value of the RMB against the United States dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the United States. Any significant revaluation of the RMB may materially and adversely affect the VIE and its subsidiaries’ cash flows, revenue and financial condition. Further, our future offerings will be offered in United States dollars, and we will need to convert the net proceeds we receive into RMB in order to use the funds for the VIE and its subsidiaries’ business. Changes in the conversion rate between the United States dollar and the RMB will affect that amount of proceeds we will have available for the VIE and its subsidiaries’ business.
Under the PRC Enterprise Income Tax Law, or the EIT Law, we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.
The EIT Law and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws. The implementing rules promulgated under the EIT Law define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. In April 2009, the State Administration of Taxation, or SAT, issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management bodies” of a PRC-controlled enterprise that is incorporated offshore is located in China. However, there are no further detailed rules or precedents governing the procedures and specific criteria for determining “de facto management body.” Although our board of directors and management are located in the PRC, it is unclear if the PRC tax authorities would determine that we should be classified as a PRC “resident enterprise.”
If we are deemed as a PRC “resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiary and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient” status. This could have a material and adverse effect on our overall effective tax rate, our income tax expenses and our net income. Furthermore, dividends, if any, paid to our shareholders may be decreased as a result of the decrease in distributable profits. In addition, if we were considered a PRC “resident enterprise”, any dividends we pay to our non-PRC investors and the gains realized from the transfer of our shares of common stock may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty). It is unclear whether holders of our shares of common stock would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. This could have a material and adverse effect on the value of your investment in us and on the price of our shares of common stock.
There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.
Under the PRC EIT Law and its implementation rules, the profits of a foreign invested enterprise generated through operations, which are distributed to its immediate holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and the PRC, such rate may be reduced to 5% if a Hong Kong resident enterprise owns more than 25% of the equity interest in the PRC company. Our PRC subsidiary is wholly-owned by our Hong Kong subsidiary. Moreover, under the Notice of the State Administration of Taxation on Issues regarding the Administration of the Dividend Provision in Tax Treaties promulgated on February 20, 2009, the tax payer needs to satisfy certain conditions to enjoy the benefits under a tax treaty. These beneficial owner of the relevant dividends, and (2) the corporate shareholder to receive dividends from the PRC subsidiary must have continuously met the direct ownership thresholds during the 12 consecutive months preceding the receipt of the dividends. Further, the State Administration of Taxation promulgated the Notice on How to Understand and Recognize the “Beneficial Owner” in Tax Treaties on October 27, 2009, which limits the “beneficial owner” to individuals, projects or other organizations normally engaged in substantive operations, and sets forth certain detailed factors in determining the “beneficial owner” status. In current practice, a Hong Kong enterprise must obtain a tax resident certificate from the relevant Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority. As of the date of this report, we have not commenced the application process for a Hong Kong tax resident certificate from the relevant Hong Kong tax authority, and there is no assurance that we will be granted such a Hong Kong tax resident certificate.
Even after we obtain the Hong Kong tax resident certificate, we are required by applicable tax laws and regulations to file required forms and materials with relevant PRC tax authorities to prove that we can enjoy 5% lower PRC withholding tax rate. We intend to obtain the required materials and file with the relevant tax authorities when it plans to declare and pay dividends, but there is no assurance that the PRC tax authorities will approve the 5% withholding tax rate.
U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of operations in China.
Any disclosure of documents or information located in China by foreign agencies may be subject to jurisdiction constraints and must comply with China’s state secrecy laws, which broadly define the scope of “state secrets” to include matters involving economic interests and technologies. There is no guarantee that requests from U.S. federal or state regulators or agencies to investigate or inspect operations will be honored by us, by entities who provide services to us or with whom we associate, without violating PRC legal requirements, especially as those entities are located in China. Furthermore, under the current PRC laws, an on-site inspection of the VIE and its subsidiaries’ facilities by any of these regulators may be limited or prohibited.
The PRC Securities Law was promulgated in December 1998 and was subsequently revised in October 2005, June 2013, August 2014 and December 2019. According to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While there is no detailed interpretation regarding the rule implementation under Article 177, it will be difficult for an overseas securities regulator to conduct investigation or evidence collection activities in China.
If we become directly subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation.
U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on us, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from developing our growth. If such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our stock.
The disclosures in our reports, other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.
We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any review of us, our SEC reports, other filings or any of our other public pronouncements.
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on the VIE and its subsidiaries’ business and results of operations.
The VIE and its subsidiaries’ organic fertilizer and agricultural products operations are located in China. Accordingly, the business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.
The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy but may have a negative effect on us. For example, the VIE and its subsidiaries’ financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, and since 2012, China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for the VIE and its subsidiaries’ products and services and materially and adversely affect the VIE and its subsidiaries’ business and results of operations.
Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us.
The PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties.
Although we have taken measures to comply with the laws and regulations that are applicable to the VIE and its subsidiaries’ business operations, including the regulatory principles raised by the CBRC, and avoiding conducting any activities that may be deemed as illegal fund-raising, forming capital pool or providing guarantee to investors under the current applicable laws and regulations, the PRC government authority may promulgate new laws and regulations regulating the direct lending service industry in the future. We cannot assure you that the VIE and its subsidiaries’ practices would not be deemed to violate any PRC laws or regulations relating to illegal fund-raising, forming capital pools or the provision of credit enhancement services. Moreover, we cannot rule out the possibility that the PRC government will institute a license requirement covering our industry at some point in the future. If such a licensing regime were introduced, we cannot assure you that we would be able to obtain any newly required license in a timely manner, or at all, which could materially and adversely affect the VIE and its subsidiaries’ business and impede the VIE and its subsidiaries’ ability to continue operations.
From time to time, we may have to resort to administrative and court proceedings to enforce the VIE and its subsidiaries’ legal rights. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy, than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have a retroactive effect. As a result, we may not be aware of any violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect the VIE and its subsidiaries’ business and impede the VIE and its subsidiaries’ ability to continue operation.
The relevant business currently carried out by our PRC subsidiaries and our investment in the PRC subsidiaries currently are not subject to the national security review under applicable PRC laws and regulations. However, if our future business operations or potential mergers and acquisitions we enter into in the PRC are related to material infrastructure or other national security sensitive areas or industries involving certain key technologies, national security review requirements will likely apply and the review result that is in compliance with PRC laws should be definitive. It remains unclear when the specific implementation measures of the Foreign Investment Law will be issued by the State Council. Given the uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law, its application may require further rules to be issued by Chinese government, which may incur and increase our compliance costs and expenses and accordingly our financial condition and operation will be adversely affected.
In the extreme case-scenario, we may be required to unwind the contractual arrangement and/or dispose of the VIE or their subsidiaries, which could have a material and adverse effect on our business, financial conditions and result of operations.
Market, economic and other conditions in China may adversely affect the demand for the VIE and its subsidiaries’ products and services.
Our industry depends upon the overall level of economic conditions and consumer spending in China. A sustained deterioration in the general economic conditions in China, including any turmoil in the economy, distresses in financial markets, or reduced market liquidity, as well as increased government intervention, may reduce the number of our customers. Small-to-medium size business owners, in particular, are more susceptible to adverse changes in market, economic and regulatory conditions and the level of consumption in China. As a result, the demand for the VIE and its subsidiaries’ existing and new products and services could decrease, and the VIE and its subsidiaries’ financial performance could be adversely affected.
Adverse market trends may affect the VIE and its subsidiaries’ financial performance. Such trends may include, but are not limited to, the followings:
● fluctuations in consumer demand, which reflect the prevailing economic and demographic conditions;
● low levels of consumer and business confidence associated with recessionary environments which may in turn reduce consumer spending.
We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses or permits applicable to the VIE and its subsidiaries’ business may have a material adverse effect on the VIE and its subsidiaries’ business and results of operations.
The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations.
The evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. For example, in May 2011, the State Council announced the establishment of a new department, the State Internet Information Office (with the involvement of the State Council Information Office, the MITT, and the Ministry of Public Security). The primary role of this new agency is to facilitate the policy-making and legislative development in this field, to direct and coordinate with the relevant departments in connection with online content administration and to deal with cross-ministry regulatory matters in relation to the internet industry.
The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, issued by the MITT in July 2006, prohibits domestic telecommunication service providers from leasing, transferring or selling telecommunications business operating licenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of a telecommunications business in China. According to this circular, either the holder of a value-added telecommunication services operation permit or its shareholders must directly own the domain names and trademarks used by such license holders in their provision of value-added telecommunication services. The circular also requires each license holder to have the necessary facilities, including servers, for its approved business operations and to maintain such facilities in the regions covered by its license. If an ICP License holder fails to comply with the requirements and also fails to remedy such non-compliance within a specified period of time, the MITT or its local counterparts have the discretion to take administrative measures against such license holder, including revoking its ICP License.
The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including the VIE and its subsidiaries’ business. We cannot assure you that we have obtained all the permits or licenses required for conducting the VIE and its subsidiaries’ business in China or will be able to maintain the VIE and its subsidiaries’ existing licenses or obtain new ones. If the PRC government considers that we were operating without the proper approvals, licenses or permits or promulgates new laws and regulations that require additional approvals or licenses or imposes additional restrictions on the operation of any part of the VIE and its subsidiaries’ business, it has the power, among other things, to levy fines, confiscate the VIE and its subsidiaries’ income, revoke the VIE and its subsidiaries’ business licenses, and require us to discontinue the VIE and its subsidiaries’ relevant business or impose restrictions on the affected portion of the VIE and its subsidiaries’ business. Any of these actions by the PRC government may have a material adverse effect on the VIE and its subsidiaries’ business and results of operations.
PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaces the previous SAFE Circular 75. SAFE Circular 37 requires PRC residents, including PRC individuals and PRC corporate entities, to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we may make in the future.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, are required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE to reflect any material change. If any PRC resident shareholder of such SPV fails to make the required registration or to update the registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiaries in China. In February, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations under the supervision of SAFE. We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our Nevada holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all other shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, and limit our PRC subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, as these foreign exchange and outbound investment related regulations are relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border investments and transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. We cannot assure you that we have complied or will be able to comply with all applicable foreign exchange and outbound investment related regulations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
As an offshore holding company of our PRC subsidiary, we may make loans to our PRC subsidiary, the VIE and the VIE’s subsidiaries, or may make additional capital contributions to our PRC subsidiary, subject to satisfaction of applicable governmental registration and approval requirements.
We may also decide to finance our PRC subsidiary by means of capital contributions. According to the relevant PRC regulations on foreign-invested enterprises in China, these capital contributions are subject to registration with or approval by the MOFCOM or its local counterparts. In addition, the PRC government also restricts the convertibility of foreign currencies into Renminbi and use of the proceeds. On March 30, 2015, SAFE promulgated Circular 19, which took effect and replaced certain previous SAFE regulations from June 1, 2015. SAFE further promulgated Circular 16, effective on June 9, 2016, which, among other things, amend certain provisions of Circular 19. According to SAFE Circular 19 and SAFE Circular 16, the flow and use of the Renminbi capital converted from foreign currency denominated registered capital of a foreign-invested company is regulated such that Renminbi capital may not be used for business beyond its business scope or to provide loans to persons other than affiliates unless otherwise permitted under its business scope. Violations of the applicable circulars and rules may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Regulations. If the VIE requires financial support from us or our wholly-owned subsidiary in the future and we find it necessary to use foreign currency-denominated capital to provide such financial support, our ability to fund the VIE’s operations will be subject to statutory limits and restrictions, including those described above. These circulars may limit our ability to transfer the net proceeds from future offerings to the VIE and our PRC subsidiary, and we may not be able to convert the net proceeds from future offerings into Renminbi to invest in or acquire any other PRC companies in China. Despite the restrictions under these SAFE circulars, our PRC subsidiary may use its income in Renminbi generated from their operations to finance the VIE through entrustment loans to the VIE or loans to the VIE’s shareholders for the purpose of making capital contributions to the VIE. In addition, our PRC subsidiary can use Renminbi funds converted from foreign currency registered capital to carry out any activities within their normal course of business and business scope, including to purchase or lease servers and other relevant equipment and fund other operational needs in connection with their provision of services to the relevant VIE under the applicable exclusive technical support agreements.
In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiary or the VIE or future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from future offerings and to fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
PRC laws and regulations governing the VIE and its subsidiaries’ current business operations are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including those regarding the enforcement of laws, and sudden or unexpected changes, with little advance notice, in laws and regulations in China could adversely affect us and limit the legal protections available to you and us.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing the VIE and its subsidiaries’ business and the enforcement and performance of the VIE and its subsidiaries’ arrangements with customers in certain circumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement could be unpredictable, with little advance notice. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and the VIE and its subsidiaries’ business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from the understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on the VIE and its subsidiaries’ business.
Our WFOE, Shanghai Mufeng, VIE and its subsidiaries are formed under and governed by the laws of the PRC. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference, but have limited precedential value. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and the enforcement of these laws, regulations and rules involves uncertainties.
In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general, such as foreign investment, corporate organization and governance, commerce, taxation and trade. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties and sudden changes, sometimes with little advance notice. As a significant part of the VIE and its subsidiaries’ business is conducted in China, operations are principally governed by PRC laws and regulations, which may limit legal protections available to us. Uncertainties due to evolving laws and regulations could also impede the ability of a China-based company, such as our company, to obtain or maintain permits or licenses required to conduct business in China. In the absence of required permits or licenses, governmental authorities could impose material sanctions or penalties on us. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently applied by other PRC government authorities (including local government authorities), thus making strict compliance with all regulatory requirements impractical, or in some circumstances impossible. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since PRC administrative and court authorities have discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effect. As a result, we may not be aware of any violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.
The PRC government has significant oversight and discretion over the conduct of the VIE and its subsidiaries’ business and may intervene or influence operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding the industry that could adversely affect the VIE and its subsidiaries’ business, financial condition and results of operations. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.
Furthermore, if China adopts more stringent standards with respect to certain areas such as environmental protection or corporate social responsibilities, we may incur increased compliance costs or become subject to additional restrictions in operations. Certain areas of the law, including intellectual property rights and confidentiality protections in China may also not be as effective as in the United States or other countries. In addition, we cannot predict the effects of future developments in the PRC legal system on the VIE and its subsidiaries’ business operations, including the promulgation of new laws, or changes to existing laws or the interpretation or enforcement thereof. These uncertainties could limit the legal protections available to us and our investors, including you.
We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by the VIE and its subsidiaries’ customers.
We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data. Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.
We expect to obtain information about various aspects of operations as well as regarding the VIE and its subsidiaries’ employees and third parties. We also maintain information about various aspects of operations as well as regarding the VIE and its subsidiaries’ employees. The integrity and protection of the VIE and its subsidiaries’ customer, employee and company data is critical to the VIE and its subsidiaries’ business. The VIE and its subsidiaries’ customers and employees expect that we will adequately protect their personal information. We are required by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to safeguard such information.
The PRC Criminal Law, as amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained during the course of performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which became effective on June 1, 2017.
Pursuant to the Cyber Security Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.
The Civil Code of the PRC (issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration of China, MIIT, and the Ministry of Public Security have been increasingly focused on regulation in the areas of data security and data protection.
The PRC regulatory requirements regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China, the Ministry of Public Security and the SAMR, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security.
In November 2016, the Standing Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became effective in June 2017. The CSL is the first PRC law that systematically lays out the regulatory requirements on cybersecurity and data protection, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny. The legal consequences of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for rectification, shutting down the websites, and revocation of business license or relevant permits. In April 2020, the Cyberspace Administration of China and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective in June 2020. Pursuant to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments (“Draft Measures”), which required that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has said that under the proposed rules companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments,” The cybersecurity review will also investigate the potential national security risks from overseas IPOs. We do not know what regulations will be adopted or how such regulations will affect us and our listing on Nasdaq. In the event that the Cyberspace Administration of China determines that we are subject to these regulations, we may be required to delist from Nasdaq and we may be subject to fines and penalties. On June 10, 2021, the Standing Committee of the NPC promulgated the PRC Data Security Law, which will take effect on September 1, 2021. The Data Security Law also sets forth the data security protection obligations for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing or other illegal means, and the collection and use of such data should not exceed the necessary limits The costs of compliance with, and other burdens imposed by, CSL and any other cybersecurity and related laws may limit the use and adoption of the VIE and its subsidiaries’ products and services and could have an adverse impact on the VIE and its subsidiaries’ business. Further, if the enacted version of the Measures for Cybersecurity Review mandates clearance of cybersecurity review and other specific actions to be completed by companies like us, we face uncertainties as to whether such clearance can be timely obtained, or at all.
If the new PRC Data Security Law is enacted in September, we will not be subject to the cybersecurity review by the CAC, given that: (i) the VIE and its subsidiaries’ products and services are offered not directly to individual users but through the VIE and its subsidiaries’ institutional customers; (ii) we do not possess a large amount of personal information in the VIE and its subsidiaries’ business operations; and (iii) data processed in the VIE and its subsidiaries’ business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. However, there remains uncertainty as to how the Draft Measures will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Draft Measures. If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us.
We cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that we can fully or timely comply with such laws. In the event that we are subject to any mandatory cybersecurity review and other specific actions required by the CAC, we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty, we may be further required to suspend the VIE and its subsidiaries’ relevant business, shut down the VIE and its subsidiaries’ website, or face other penalties, which could materially and adversely affect the VIE and its subsidiaries’ business, financial condition, and results of operations.
Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.
We are required under PRC laws and regulations to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of the VIE and its subsidiaries’ employees up to a maximum amount specified by the local government from time to time at locations where we operate the VIE and its subsidiaries’ businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. We have not made adequate employee benefit payments. We may be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, the VIE and its subsidiaries’ financial condition and results of operations may be adversely affected.
The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.
On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national securities exchange or in the over the counter trading market in the U.S. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable Act. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law.
On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant.
On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, and thus, would reduce the time before our securities may be prohibited from trading or delisted.
On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.
On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions.
On February 4, 2022, the U.S. House of Representatives passed the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (COMPETES) Act of 2022 (the “America COMPETES Act”). If the America COMPETES Act is enacted into law, it would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three.
Our auditor, WWC, P.C., the independent registered public accounting firm that issues the audit report included elsewhere in this report, as a firm headquartered in California and registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards with the last inspection in November 2021, and as of the date of this report, our auditor is not subject to the PCAOB determinations. However, in the event it is later determined that the PCAOB is unable to inspect or investigate completely the auditor because of a position taken by an authority in a foreign jurisdiction, then such lack of inspection could cause trading in the Company’s securities to be prohibited under the HFCAA, and ultimately result in a determination by a securities exchange to delist the Company’s securities.
On August 26, 2022, the PCAOB signed the SOP Agreements with the CSRC and China’s Ministry of Finance. The SOP Agreements established a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in Mainland China and Hong Kong, as required under U.S. law. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed.
In addition, the recent developments would add uncertainties to our offering and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. It remains unclear what the SEC’s implementation process related to the above rules will entail or what further actions the SEC, the PCAOB or Nasdaq will take to address these issues and what impact those actions will have on U.S. companies that have significant operations in Hong Kong and have securities listed on a U.S. stock exchange (including a national securities exchange or over-the-counter stock market). In addition, the above amendments and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could create some uncertainty for investors, the market price of our ordinary share could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement or being required to engage a new audit firm, which would require significant expense and management time.
Trading in our securities may be prohibited under the HFCAA and as a result an exchange may determine to delist our securities if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction.
The HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit such shares from being traded on a national securities exchange or in the over-the-counter trading market in the U.S.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. A company will be required to comply with these rules if the SEC identifies it as having a “non-inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCAA, including the listing and trading prohibition requirements described above.
Despite that we have a U.S.-based auditor that is registered with the PCAOB and subject to PCAOB inspection, there are still risks to the company and investors if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction. Such risks include, but are not limited to that trading in our securities may be prohibited under the HFCAA and as a result an exchange may determine to delist our securities.
The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We, our executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who have been granted options or other awards are subject to these regulations. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary and limit our PRC subsidiary’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law.
Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of operations in China.
From time to time, the Company may receive requests from certain U.S. agencies to investigate or inspect the Company’s operations or to otherwise provide information. While the Company will be compliant with these requests from these regulators, there is no guarantee that such requests will be honored by those entities who provide services to us or with whom we associate, especially as those entities are located in China. Furthermore, an on-site inspection of the VIE and its subsidiaries’ facilities by any of these regulators may be limited or entirely prohibited. Such inspections, though permitted by the Company and its affiliates, are subject to the capricious nature of Chinese enforcers and may therefore be impossible to facilitate.
The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.
On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the Company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a U.S. stock exchange. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable Act. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law.
On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant.
On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the Holding Foreign Companies Accountable Act from three years to two.
On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the Holding Foreign Companies Accountable Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.
On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions.
On August 26, 2022, the PCAOB signed a Statement of Protocol (SOP) Agreement with the CSRC and the MOF of the PRC regarding cooperation in the oversight of PCAOB-registered public accounting firms in the PRC and Hong Kong. The SOP remains unpublished and is subject to further interpretation and implementation. Pursuant to the fact sheet with respect to the SOP disclosed by the SEC, the SOP seeks to establish a method for the PCAOB to conduct inspections of PCAOB-registered public accounting firms in the PRC and Hong Kong, as contemplated by the Sarbanes-Oxley Act. Under the agreement, (a) the PCAOB has sole discretion to select the firms, audit engagements and potential violations it inspects and investigates without consultation with, or input from, PRC authorities; (b) procedures are in place for PCAOB inspectors and investigators to view complete audit work papers with all information included and for the PCAOB to retain information as needed; (c) the PCAOB has direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates; and (d) the PCAOB shall have the unfettered ability to transfer information to the SEC in accordance with the Sarbanes-Oxley Act, and the SEC can use the information for all regulatory purposes, including administrative or civil enforcement actions. The PCAOB is required to reassess its determinations as to whether it is able to carry out inspections and investigations completely and without obstruction by the end of 2022.
On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB will consider the need to issue a new determination.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards. Our auditor is headquartered in San Mateo, California, and is subject to inspection by the PCAOB on a regular basis with the last inspection in November 2021, and our auditor is not subject to the determinations announced by the PCAOB on December 16, 2021. Despite that we have a U.S. based auditor that is registered with the PCAOB and subject to PCAOB inspection, there are still risks to the company and investors if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction. Such risks include but not limited to that trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act and as a result an exchange may determine to delist our securities.
These recent developments would add uncertainties to our offering and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. It remains unclear what the SEC’s implementation process related to the March 2021 interim final amendments will entail or what further actions the SEC, the PCAOB or Nasdaq will take to address these issues and what impact those actions will have on U.S. companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange (including a national securities exchange or over-the-counter stock market). In addition, the March 2021 interim final amendments and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could create some uncertainty for investors, the market price of our common stock could be adversely affected, trading in our securities may be prohibited and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement or being required to engage a new audit firm, which would require significant expense and management time.
The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the Anti-Monopoly Law promulgated by the SCNPC effective in 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds (i.e., during the previous fiscal year, (i) the total global turnover of all operators participating in the transaction exceeds RMB10 billion and at least two of these operators each had a turnover of more than RMB400 million within China, or (ii) the total turnover within China of all the operators participating in the concentration exceeded RMB 2 billion, and at least two of these operators each had a turnover of more than RMB 400 million within China) must be cleared by MOFCOM before they can be completed.
Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
We are required to fulfill the Trial Measures filing procedures and report relevant information to the CSRC; and, since the interpretation and implementation of the new regulations are still evolving, we cannot assure you that we will be able to complete the filings for any future offerings, and fully comply with the relevant new rules on a timely basis, if at all.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in accordance with the Law, which emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. This opinions and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. As of the date hereof, no official guidance or related implementation rules have been issued. As a result, the opinions remain unclear on how they will be interpreted, amended and implemented by the relevant PRC governmental authorities. We cannot assure that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all.
On December 24, 2021, the CSRC published the Draft Administrative Provisions and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comment) (the “Draft Filing Measures”). The Draft Administrative Provisions and the Draft Filing Measures lay out requirements for filing and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation.
On February 17, 2023, the CSRC released a set of new regulations which consists of the Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. On the same date, the CSRC also released the Notice. The Trial Measures refine the regulatory system by subjecting both direct and indirect overseas offering and listing activities to the CSRC filing-based administration. Requirements for filing entities, time points and procedures are specified. A PRC domestic company that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC per the requirements of the Trial Measures. Where a PRC domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. The Trial Measures also lay out requirements for the reporting of material events. Breaches of the Trial Measures, such as offering and listing securities overseas without fulfilling the filing procedures, shall bear legal liabilities, including a fine between RMB 1.0 million (approximately $150,000) and RMB 10.0 million (approximately $1.5 million), and the Trial Measures heighten the cost for offenders by enforcing accountability with administrative penalties and incorporating the compliance status of relevant market participants into the Securities Market Integrity Archives.
According to the Notice, since the date of effectiveness of the Trial Measures on March 31, 2023, PRC domestic enterprises falling within the scope of filing that have been listed overseas or met certain circumstances are “existing enterprises.” Existing enterprises are not required to file with the CSRC immediately, and filings with the CSRC should be made as required if they involve refinancing and other filing matters. As confirmed by our PRC counsel, Grandall Law Firm, since we have submitted uplisting documents to the SEC and Nasdaq before March 31, 2023, we are required to file with the CSRC pursuant to the Trial Measures before completing the uplisting and offering on Nasdaq.
However, if we fail to obtain the CSRC approval of the filing procedure in a timely manner under PRC laws and regulations, we may be subject to investigations by competent regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging in a relevant business or conducting any offering, and these risks could result in a material adverse change in our operating entities’ operations, limit our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. The Trial Measures and Notice were newly published and are subject to change from time to time. Any failure or perceived failure of us to fully comply with such new regulatory requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, cause significant disruption to our business operations, and severely damage our reputation, which could materially and adversely affect our financial condition and results of operations and could cause the value of our securities to significantly decline or become worthless.
Risks Relating to the VIE and its subsidiaries’ Business and Industry
The VIE and its subsidiaries’ fertilizer business is seasonal and affected by factors beyond the VIE and its subsidiaries’ control, which may cause the VIE and its subsidiaries’ sales and operating results to fluctuate significantly.
The sale of products from the VIE and its subsidiaries’ fertilizer-related segments is partially dependent upon planting and growing seasons, which vary from year to year, and are expected to result in both seasonal patterns and substantial fluctuations in quarterly sales and profitability. Different from the traditional organic fertilizer that mostly be only used as starter fertilizer, the VIE and its subsidiaries’ products can be used as both the starter fertilizer and regular fertilizer, which can be applied during all the periods through the crops’ growth. Weather conditions and natural disasters, such as heavy rains, hail, floods, freezing conditions, windstorms or fire, also affect decisions by the VIE and its subsidiaries’ distributors, direct customers and end users about the types and amounts of products to use and the timing of harvesting and planting. As we increase the VIE and its subsidiaries’ sales in the VIE and its subsidiaries’ current markets and expand into new markets in different geographies, it is possible that we may experience different seasonality patterns in the VIE and its subsidiaries’ business.
Disruptions may lead to delays in harvesting or planting by growers which can result in pushing orders to a future quarter, which could negatively affect results for the quarter in question and cause fluctuations in operating results. Seasonal variations may be especially pronounced because the VIE and its subsidiaries’ product lines are mainly sold in China. Planting and growing seasons, climatic conditions and other variables on which sales of the VIE and its subsidiaries’ products are dependent vary from year to year and quarter to quarter. As a result, we may experience substantial fluctuations in quarterly sales.
The overall level of seasonality in the VIE and its subsidiaries’ business is difficult to evaluate as a result of the VIE and its subsidiaries’ relatively early stage of development, the VIE and its subsidiaries’ limited number of commercialized products, the VIE and its subsidiaries’ expansion into new geographical territories, the introduction of new products and the timing of introductions of new products. Even though we have implemented safety measures, the Company had insufficient inventory in April, May, October and November. It is possible that the VIE and its subsidiaries’ business may be more seasonal or experience seasonality in different periods than anticipated. Other factors may also contribute to the unpredictability of the operating results, including the size and timing of significant distributor transactions, the delay or deferral of use of the VIE and its subsidiaries’ commercial technology or products and the fiscal or quarterly budget cycles of the VIE and its subsidiaries’ direct customers, distributors, licensees and end users. Customers may purchase large quantities of the VIE and its subsidiaries’ products in a particular quarter to store and use over long periods of time or time their purchases to manage their inventories, which may cause significant fluctuations in the operating results for a particular quarter or year.
Unavoidable Insufficient Inventory during busy seasons may cause us to lose some portion of the VIE and its subsidiaries’ sales.
Traditional organic fertilizers do have seasonal sales because their use can only be applied as starter fertilizers before the crops are planted. The VIE and its subsidiaries’ organic fertilizers can be used as a starter fertilizer or as regular fertilizers which can be applied during the entire growing period of the crops to supplement the nutrients needed for growth. The Company’s inventory during the peak seasons (such as April to May, and October to November) is insufficient. The Company’s fertilizer production capacity has been upgraded from the original 50,000 tons to 70,000 tons, however, and the seasonal inventory supply gap is still unavoidable. The inevitable inventory shortage may cause us to lose some portion of the VIE and its subsidiaries’ sales.
Competition in fertilizer and agricultural industrial products is intense and requires continuous technological development.
We currently face significant direct and indirect competition in the markets in which we operate. The markets for fertilizers are intensely competitive and rapidly changing. Many companies engage in the development of fertilizers, and speed in commercializing a new product can be a significant competitive advantage.
In most segments of the fertilizer markets, the number of products available to end customers is steadily increasing as new products are introduced. We may be unable to compete successfully against the VIE and its subsidiaries’ current and future competitors, which may result in price reductions, reduced margins and the inability to achieve market acceptance for products containing the VIE and its subsidiaries’ seed traits and technology. In addition, many of the VIE and its subsidiaries’ competitors have substantially greater financial, marketing, sales, distribution and technical resources than us, and some of the VIE and its subsidiaries’ competitors have more experience in R&D, regulatory matters, manufacturing and marketing. We anticipate increased competition in the future as new companies enter the market and new technologies become available. Programs to improve genetics and crop protection chemicals are generally concentrated within a relatively small number of large companies, while non-genetic approaches are underway with a broader set of companies. Mergers and acquisitions in the plant science, specialty food ingredient and agricultural biotechnology seed and chemical industries may result in even more resources being concentrated among a smaller number of the VIE and its subsidiaries’ competitors.
The VIE and its subsidiaries’ technology may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of the VIE and its subsidiaries’ competitors, which will prevent or limit the VIE and its subsidiaries’ ability to generate revenues from the commercialization of the VIE and its subsidiaries’ seed traits and technology. At the same time, the expiration of patents covering existing products reduces the barriers to entry for competitors. The VIE and its subsidiaries’ ability to compete effectively and to achieve commercial success depends, in part, on the VIE and its subsidiaries’ ability to control manufacturing and marketing costs; effectively price and market the VIE and its subsidiaries’ products, successfully develop an effective marketing program and an efficient supply chain, develop new products with properties attractive to food manufacturers or growers and commercialize the VIE and its subsidiaries’ products quickly without incurring major regulatory costs. We may not be successful in achieving these factors and any such failure may adversely affect the VIE and its subsidiaries’ business, results of operations and financial condition.
We may not be successful in developing marketable or commercial technologies.
Through the VIE and its subsidiaries’ patented technology, we process crop straw in three hours (including corn, rice, wheat, cotton, and other crops) into high quality organic nutritious fertilizer rich in small molecules, easily absorbed by crops. The VIE and its subsidiaries’ success depends in part on the VIE and its subsidiaries’ ability to identify and develop high value fertilizer and agriculture industrial technologies for use in commercial products. Through the VIE and its subsidiaries’ technology sourcing and product development collaborations we commit substantial efforts and other resources to accomplish this. It may take several years, if at all, before many of the VIE and its subsidiaries’ products complete the development process and become available for production and commercialization.
As of the date of this registration statement, many of the VIE and its subsidiaries’ products have been commercialized by the VIE and its subsidiaries’ patented technology. There can be no assurance that the VIE and its subsidiaries’ future fertilizer productivity and agriculture industrial technologies will be viable for commercial use, or that we will be able to generate revenues from those technologies, in a significant manner or at all. If seeds or other products that utilize the VIE and its subsidiaries’ fertilizer or technology are unsuccessful in achieving their desired effect or otherwise fail to be commercialized, we will not receive revenues from the VIE and its subsidiaries’ customers or royalty payments from the commercialization of the fertilizer and technologies we develop, which could materially and adversely affect the VIE and its subsidiaries’ business, financial condition, results of operations and growth strategy.
Fertilizers containing the following traits or biological treatments that we develop may be unsuccessful or fail to achieve commercialization for any of the following reasons:
● the VIE and its subsidiaries’ fertilizers may not be successfully validated in the target crops;
● the VIE and its subsidiaries’ fertilizers may not have the desired effect on the relevant crop sought by the end market;
● We, the VIE and its subsidiaries’ joint ventures or collaborators may be unable to obtain the requisite regulatory approvals for the fertilizers;
● the VIE and its subsidiaries’ competitors may launch competing or more effective fertilizers;
● we may be unable to patent and/or obtain breeders’ rights or any other intellectual property rights on the VIE and its subsidiaries’ traits and technologies in the necessary jurisdictions;
● even if we obtain patent and/or breeders’ rights or any other intellectual property rights on the VIE and its subsidiaries’ fertilizers or processing technologies, such rights may be later challenged by competitors or other parties; and
● even if we obtain patent and/or breeders’ rights or any other intellectual property rights on the VIE and its subsidiaries’ fertilizers, competitors may design competing products that do not infringe these intellectual property rights.
If we are unable to compete successfully with the VIE and its subsidiaries’ competitors, the VIE and its subsidiaries’ financial condition and results of operations may be harmed.
We encounter intense competition in each of the VIE and its subsidiaries’ business segments on a national, regional and local level. Competition in the industry is primarily based on quality of services, brand name recognition, geographic coverage and range of services. New and existing competitors may offer competitive rates, greater convenience or superior services, which could attract customers away from us, resulting in lower revenues for operations. Competition among fertilizer companies may cause a decrease in price of sales to attract or retain talented employees.
The VIE and its subsidiaries’ major competitors are Shijiazhuang Xixing Fertilizer Science and Technology Limited, Nanjing Ningliang Bio-chemistry Engineering Limited, Shijiazhuang Jintaiyang Biology Organic Fertilizer Limited, Beijing Wotu Tiandi Biological Science Limited, Zhenzhou Yongfeng Biology Fertilizer Limited, Shandong Jianong Biological Engineering Limited, Beijing Aeronautics Hengfeng Technology Limited, Beijing Century Armstrong Biological Technology Limited, GengLiduo Biological Technology Limited.
We do not have multinational competitors. Due to the high price of organic fertilizers from other countries, China has few organic fertilizer imports. The fertilizers produced by international fertilizer companies entering the Chinese organic fertilizer market are mainly special functional fertilizers such as foliar fertilizers. These functional fertilizers are not selling well in the domestic market due to high price.
Some of the VIE and its subsidiaries’ competitors may have a broader national presence than us, a more established branding recognition than us in major markets and more financial or other resources than us. Others may have smaller aggregate businesses than us but may be more established and have greater market presence and brand name recognition on a local or regional basis. We are also subject to competition from other large national and international companies. These companies may have more financial or other resources than us. If we fail to compete effectively, the VIE and its subsidiaries’ business operations and financial condition will suffer.
The loss of any of the VIE and its subsidiaries’ key suppliers and/or customers could have a materially adverse effect on the VIE and its subsidiaries’ results of operations.
We consider the VIE and its subsidiaries’ major suppliers in each period to be those suppliers that accounted for more than 10% of overall purchases in such period. For the years ended December 31, 2022 and 2021, 76% and 77% of our supplies came from two and five key suppliers, respectively. For the year ended December 31, 2023, 91% of our supplies came from four key suppliers. Although we believe that we can locate replacement suppliers readily on the market for prevailing prices and that we may not have significant difficulty replacing a given supplier, any difficulty in replacing such a supplier could adversely affect the VIE and its subsidiaries’ company’s performance to the extent it results in higher prices, slower supply chain and ultimately less desirable results of operations.
In addition, for the years ended December 31, 2023 and 2022, two key customers accounted for 77% and 78% of our revenues, respectively. As the majority of the VIE and its subsidiaries’ revenues are driven by individual orders for organic fertilizers, there can be no assurance that we will maintain or improve the relationships with customers who do not have long-term contracts with us. The VIE and its subsidiaries’ major customers often change each period based on when a given order is placed. If we cannot maintain long-term relationships with major customers or replace major customers from period to period with equivalent customers, the loss of such sales could have an adverse effect on the VIE and its subsidiaries’ business, financial condition and results of operations.
We have engaged in transactions with related parties, and such transactions present possible conflicts of interest that could have an adverse effect on our business and results of operations.
We have entered into a number of transactions with related parties, including our shareholders, directors and executive officers. For example, for fiscal year ended December 31, 2023, we have due to related parties balance of $197,196, $96,092, and $42,199, respectively, from Mr. Lirong Wang, Ms. Xueying Sheng, and Mr. Guohua Lin. See “Related Party Transactions.” We may in the future enter into additional transactions with entities in which members of our board of directors and other related parties hold ownership interests.
Transactions with the entities in which related parties hold ownership interests present potential for conflicts of interest, as the interests of these entities and their shareholders may not align with the interests of the Company and our unaffiliated shareholders with respect to the negotiation of, and certain other matters related to, our purchases from and other transactions with such entities. Conflicts of interest may also arise in connection with the exercise of contractual remedies under these transactions, such as the treatment of events of default.
Currently, our Board of Directors has authorized the Audit Committee upon its formation to review and approve all material related party transaction. We rely on the laws of the State of Nevada, which provide that directors owe a duty of care and a duty of loyalty to our company. Nevertheless, we may have achieved more favorable terms if such transactions had not been entered into with related parties and these transactions, individually or in the aggregate, may have an adverse effect on our business and results of operations or may result in government enforcement actions or other litigation.
The VIE and its subsidiaries’ product development cycle is lengthy and uncertain and we may never generate revenues or earn revenues on the sale of the VIE and its subsidiaries’ products currently in development.
The research and development in the crop productivity and agriculture biotech industries is expensive, complex, prolonged and uncertain. We may spend many years and dedicate significant financial and other resources developing products that may never generate revenues or come to market. The VIE and its subsidiaries’ process of developing and commercializing technologies involves several phases and can take several years from discovery to commercialization of a product.
Development of new or improved agricultural products involves risks of failure inherent in the development of products based on innovative and complex technologies. These risks include the possibility that:
● the VIE and its subsidiaries’ products will fail to perform as expected in the field;
● the VIE and its subsidiaries’ products will not receive necessary regulatory permits and governmental clearances in the markets in which we intend to sell them;
● the VIE and its subsidiaries’ products may have adverse effects on consumers;
● consumer preferences, which are unpredictable and can vary greatly, may change quickly, making the VIE and its subsidiaries’ products no longer desirable;
● the VIE and its subsidiaries’ competitors develop new products that have other more appealing characteristics than the VIE and its subsidiaries’ products;
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the VIE and its subsidiaries’ products will be viewed as too expensive by food companies or growers as compared to competitive products;
● the VIE and its subsidiaries’ products will be difficult to produce on a large scale or will not be economical to grow;
● intellectual property and other proprietary rights of third parties will prevent us, the VIE and its subsidiaries’ research and development partners or the VIE and its subsidiaries’ licensees from marketing and selling the VIE and its subsidiaries’ products;
● we may be unable to patent or otherwise obtain intellectual property protection for the VIE and its subsidiaries’ discoveries in the necessary jurisdictions;
● we or the customers that we sell the VIE and its subsidiaries’ products to may be unable to fully develop or commercialize the VIE and its subsidiaries’ products in a timely manner or at all; and
● third parties may develop superior or equivalent products.
We intend to continue to invest in research and development including additional and expanded field testing to validate potential products in real world conditions. Because of the long product development cycle and the complexities and uncertainties associated with biotech and agricultural industrial technologies, there can be no assurance that we will ever generate significant revenues from the technologies or products that we are currently developing without significant delay, without the incurrence of unanticipated costs or at all.
We depend on the VIE and its subsidiaries’ key personnel and research employees, and we may be adversely affected if we are unable to attract and retain qualified scientific and business personnel.
The VIE and its subsidiaries’ business is dependent on the VIE and its subsidiaries’ ability to recruit and maintain highly skilled and qualified individuals through direct employment or collaboration arrangements, with expertise in a range of disciplines, including biology, chemistry, plant genetics, agronomics, mathematics programming and other subjects relevant to the VIE and its subsidiaries’ business. The VIE and its subsidiaries’ ability to recruit such a work force depends in part on the VIE and its subsidiaries’ ability to maintain the VIE and its subsidiaries’ market leadership in agricultural biotech industry in China. Maintaining the VIE and its subsidiaries’ ability to attract highly-skilled workers and leading scientific institutions depends in part on the VIE and its subsidiaries’ ability to maintain a strong technology platform and state-of-the-art facilities, as well as the VIE and its subsidiaries’ ability to consistently and successfully commercialize the VIE and its subsidiaries’ technology. There can be no assurance that we will be able to maintain leading scientific capabilities or continue to successfully maintain advanced technology in the market.
We do not enter into non-compete agreements with the VIE and its subsidiaries’ employees, and therefore we may be unable to prevent the VIE and its subsidiaries’ competitors from benefiting from the expertise of the VIE and its subsidiaries’ former employees.
We do not enter into non-compete agreements with the VIE and its subsidiaries’ employees, which prevents us from limiting the VIE and its subsidiaries’ key employees from joining the VIE and its subsidiaries’ competitors or competing directly against us. As a result, we may be unable to prevent the VIE and its subsidiaries’ competitors from benefiting from the expertise of such employees. Direct competition by a former employee could materially adversely affect the VIE and its subsidiaries’ business, results of operations and ability to capitalize on the VIE and its subsidiaries’ proprietary information.
We have a limited operating history in the VIE and its subsidiaries’ market, which makes it difficult to evaluate the VIE and its subsidiaries’ future prospects.
We started engaging in the VIE and its subsidiaries’ business in the last few years and have limited revenues to date. As the VIE and its subsidiaries’ business develops or responds to competition, we may continue to introduce new products and services or make adjustments to the VIE and its subsidiaries’ existing offerings and business model. In connection with the introduction of new products or in response to general economic conditions, we may impose more stringent borrower qualifications to ensure the quality of loans facilitated by the VIE and its subsidiaries’ companies, which may negatively affect the growth of the VIE and its subsidiaries’ business. Any significant change to the VIE and its subsidiaries’ business model may not achieve expected results and may have a material and adverse impact on the VIE and its subsidiaries’ financial conditions and results of operations. It is therefore difficult to effectively assess the VIE and its subsidiaries’ future prospects. The risks and challenges we encounter or may encounter in this developing and rapidly evolving market may have impacts on the VIE and its subsidiaries’ business and prospects. These risks and challenges include the VIE and its subsidiaries’ ability to, among other things:
● navigate an evolving regulatory environment;
● expand the base of borrowers and lenders;
● broaden the VIE and its subsidiaries’ loan product offerings;
● enhance the VIE and its subsidiaries’ risk management capabilities;
● improve the VIE and its subsidiaries’ operational efficiency;
● cultivate a vibrant consumer finance ecosystem;
● maintain the security of the VIE and its subsidiaries’ IT infrastructure and the confidentiality of the information provided and utilized across the VIE and its subsidiaries’ platform;
● attract, retain and motivate talented employees; and
● defend ourselves against litigation, regulatory, intellectual property, privacy or other claims.
If we fail to educate potential borrowers and lenders about the value of the VIE and its subsidiaries’ services, if the market for the VIE and its subsidiaries’ services does not develop as we expect, or if we fail to address the needs of the VIE and its subsidiaries’ target market, or other risks and challenges, the VIE and its subsidiaries’ business and results of operations will be harmed.
The loss of any of the VIE and its subsidiaries’ key customers could reduce the VIE and its subsidiaries’ revenues and the profitability.
For the years ended December 31, 2023 and 2022, revenue from two customers represented 77% and 78% of the VIE and its subsidiaries’ revenue, respectively. As the majority of the VIE and its subsidiaries’ revenues are driven by individual orders for fertilizer products, there can be no assurance that we will maintain or improve the relationships with customers who do not have long-term contracts with us. The VIE and its subsidiaries’ major customers often change each period based on when a given order is placed. If we cannot maintain long-term relationships with major customers or replace major customers from period to period with equivalent customers, the loss of such sales could have an adverse effect on the VIE and its subsidiaries’ business, financial condition and results of operations.
Any failure of any of the VIE and its subsidiaries’ key suppliers to deliver necessary materials could result in delays in the VIE and its subsidiaries’ products development or marketing schedules.
For the years ended December 31, 2022 and 2021, two suppliers accounted for 76% and 77% of the VIE and its subsidiaries’ purchases, respectively. For the year ended December 31, 2023, four suppliers accounted for 91% of the VIE and its subsidiaries’ purchases, respectively. We are dependent on the VIE and its subsidiaries’ suppliers for our products. Our suppliers may fail to meet timelines or contractual obligations or provide us with sufficient products, which may adversely affect our business. Certain of the VIE and its subsidiaries’ contracts with key suppliers can be terminated by the supplier upon giving notice within a certain period and restrict us from using other suppliers. Failure to appropriately structure or adequately manage our agreements with third parties may adversely affect our supply of products. We are also subject to credit risk with respect to the VIE and its subsidiaries’ third-party suppliers. If any such suppliers become insolvent, an appointed trustee could potentially ignore the service contracts we have in place with such party, resulting in increased charges or the termination of the service contracts. We may not be able to replace a service provider within a reasonable period of time, on as favorable terms or without disruption to our operations. Any adverse changes to our relationships with third-party suppliers could have a material adverse effect on the VIE and its subsidiaries’ image, brand and reputation, as well as on the VIE and its subsidiaries’ business, financial condition and results of operations.
In addition, to the extent that the VIE and its subsidiaries’ creditworthiness might be impaired, or general economic conditions decline, certain of the VIE and its subsidiaries’ key suppliers may demand onerous payment terms that could materially adversely affect the VIE and its subsidiaries’ working capital position, or such suppliers may refuse to continue to supply to us. A number of the VIE and its subsidiaries’ key suppliers have taken out trade credit insurance on our ability to pay them. To the extent that such trade credit insurance becomes unobtainable or more expensive due to market conditions, we may face adverse changes to payment terms by the VIE and its subsidiaries’ key suppliers, or they may refuse to continue to supply us.
We may have difficulty managing the risk associated with doing business in the Chinese fertilizer and agricultural products industry.
In general, the fertilizer and agricultural products industry in China is affected by a series of factors, including, but not limited to, natural, economic and social such as climate, market, technology, regulation, and globalization, which makes risk management difficult. Fertilizer and agricultural products operations in China face similar risks as present in other countries, however, in the PRC these can either be mitigated or exacerbated due to governmental intervention through policy promulgation and implementation either in the fertilizer and agricultural products or sectors which provide critical inputs to fertilizer and agricultural products such as energy or outputs such as transportation. While not an exhaustive list, the following factors could significantly affect our ability to do business:
● food, feed, and energy demand;
● agricultural, financial, energy and renewable energy and trade policies;
● input and output pricing due to market factors and regulatory policies;
● production and crop progress due to adverse weather conditions, equipment deliveries, and water and irrigation conditions; and
● infrastructure conditions and policies.
Currently, we do not hold and do not intend to purchase insurance policies to protect revenue in the case that the above conditions cause losses of revenue.
If we do not compete effectively, the VIE and its subsidiaries’ results of operations could be harmed.
The VIE and its subsidiaries’ industry in China is intensely competitive and evolving. The VIE and its subsidiaries’ competitors operate with different business models, have different cost structures or participate selectively in different market segments. They may ultimately prove more successful or more adaptable to new regulatory, technological and other developments. Some of the VIE and its subsidiaries’ current and potential competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their services. the VIE and its subsidiaries’ competitors may also have longer operating histories, more extensive borrower or lender bases, greater brand recognition and brand loyalty and broader partner relationships than us. Additionally, a current or potential competitor may acquire one or more of the VIE and its subsidiaries’ existing competitors or form a strategic alliance with one or more of the VIE and its subsidiaries’ competitors. If we are unable to compete with such companies and meet the need for innovation in the VIE and its subsidiaries’ industry, the demand for the VIE and its subsidiaries’ services could stagnate or substantially decline, we could experience reduced revenues or the VIE and its subsidiaries’ services could fail to achieve or maintain more widespread market acceptance, any of which could harm the VIE and its subsidiaries’ business and results of operations.
If we fail to promote and maintain the VIE and its subsidiaries’ brand in an effective and cost-efficient way, the VIE and its subsidiaries’ business and results of operations may be harmed.
The continued development and success of the VIE and its subsidiaries’ business relies on the recognition of the VIE and its subsidiaries’ brands. We believe that developing and maintaining awareness of the VIE and its subsidiaries’ brand effectively is critical to attracting new and retaining existing borrowers and lenders to the VIE and its subsidiaries’ services. Successful promotion of the VIE and its subsidiaries’ brand and the VIE and its subsidiaries’ ability to attract qualified borrowers and sufficient lenders depend largely on the effectiveness of the VIE and its subsidiaries’ marketing efforts and the success of the channels we use to promote the VIE and its subsidiaries’ services. The VIE and its subsidiaries’ efforts to build the VIE and its subsidiaries’ brand have caused us to incur significant expenses, and it is likely that the VIE and its subsidiaries’ future marketing efforts will require us to incur significant additional expenses. These efforts may not result in increased revenues in the immediate future or at all and, even if they do, any increases in revenues may not offset the expenses incurred. If we fail to successfully promote and maintain the VIE and its subsidiaries’ brand while incurring substantial expenses, the VIE and its subsidiaries’ results of operations and financial condition would be adversely affected, which may impair the VIE and its subsidiaries’ ability to grow the business.
If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.
Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. We also have a history of not filing our periodic reports on time due to uncontrollable reasons. As defined in the standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
One material weakness that has been identified related to our lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to properly address complex U.S. GAAP accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfil U.S. GAAP and SEC financial reporting requirements. The other material weakness that has been identified related to our lack of comprehensive accounting policies and procedures manual in accordance with U.S. GAAP.
We have implemented a number of measures to address the material weaknesses that have been identified in connection with the audits of our consolidated financial statements as of and for the two years ended December 31, 2023 and 2022. However, there is no assurance that we will not have any material weakness in the future. Failure to discover and address any control deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud. Ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results.
If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common shares.
Pursuant to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, we are required to prepare assessments regarding internal controls over financial reporting. In connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover “material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB defines “significant deficiency” as a deficiency that results in more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected. We determined that our disclosure controls and procedures over financial reporting are not effective and were not effective as of December 31, 2023.
The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that we will implement and maintain adequate controls over our financial process and reporting in the future or that the measures we will take will remediate any material weaknesses that we may identify in the future.
Our business depends on the continued efforts of our senior management. If one or more of our key executives were unable or unwilling to continue in their present positions, our business may be severely disrupted.
Our business operations depend on the continued services of our senior management, particularly the executive officers named in this report. While we have provided different incentives to our management, we cannot assure you that we can continue to retain their services. We currently do not carry a “key man” life insurance on the officers. Therefore, if one or more of our key executives are unable or unwilling to continue in their present positions, we may incur substantial cost or may not be able to replace them at all. Consequently, our future growth may be constrained, our business may be severely disrupted, and our financial condition and results of operations may be materially and adversely affected. If that is the case, we may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that any member of our management team will not join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all.
Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business.
We believe our success depends on the efforts and talent of our employees, including risk management, software engineering, financial and marketing personnel. Our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for highly skilled technical, risk management and financial personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
In addition, we invest significant time and expenses in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our services and our ability to serve borrowers and lenders could diminish, resulting in a material adverse effect to our business.
Increases in labor costs in the PRC may adversely affect the VIE and its subsidiaries’ business and results of operations.
The economy in China has experienced increases in inflation and labor costs in recent years. As a result, average wages in the PRC are expected to continue to increase. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pension, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of the VIE and its subsidiaries’ employees. The relevant government agencies may examine whether an employer has made adequate payments to the statutory employee benefits, and those employers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. We expect that the VIE and its subsidiaries’ labor costs, including wages and employee benefits, will continue to increase. Unless we are able to control the VIE and its subsidiaries’ labor costs or pass on these increased labor costs to the VIE and its subsidiaries’ users by increasing the fees of the VIE and its subsidiaries’ services, the VIE and its subsidiaries’ financial condition and results of operations may be adversely affected.
We do not have any business insurance coverage.
Insurance companies in China currently do not offer as extensive of an array of insurance products as insurance companies in more developed economies do. Currently, we do not have any business liability or disruption insurance to cover the VIE and its subsidiaries’ operations. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in the VIE and its subsidiaries’ incurring substantial costs and the diversion of resources, which could have an adverse effect on the VIE and its subsidiaries’ results of operations and financial condition.
We face Risks Relating to natural disasters, health epidemics and other outbreaks, which could significantly disrupt operations.
We are vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures, technology service failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware, as well as adversely affect the VIE and its subsidiaries’ ability to provide products and services on the VIE and its subsidiaries’ service.
The VIE and its subsidiaries’ business could also be adversely affected by the effects of virus, flu and other diseases. The VIE and its subsidiaries’ business operations could be disrupted if any of the VIE and its subsidiaries’ employees is suspected of having virus, flu and other diseases, since it could require the VIE and its subsidiaries’ employees to be quarantined and/or the VIE and its subsidiaries’ offices to be disinfected. In addition, the VIE and its subsidiaries’ results of operations could be adversely affected to the extent that any of these epidemics harms the Chinese economy in general.
We may be subject to the general risks underlying the agriculture industry in PRC market.
The agriculture industry in the PRC market has been mature. Particularly, we are principally engaged in the fertilizer processing and distribution business in the People’s Republic of China. Therefore, we need to be cautious in selecting the VIE and its subsidiaries’ business focus and expansion strategy, and we should be constantly aware of the innovation risk, technology risk and market risk in the industries. If we fail to make an accurate judgment of the current market, the VIE and its subsidiaries’ performance can be severely impacted.
We may be adversely affected by global economic conditions.
The VIE and its subsidiaries’ ability to continue to develop and grow the VIE and its subsidiaries’ business, build proprietary distribution channels and generate revenues from product sales and royalty payments may be adversely affected by global economic conditions in the future, including instability in credit markets, declining consumer and business confidence, fluctuating commodity prices and interest rates, volatile exchange rates and other challenges that could affect the global economy such as the changing financial regulatory environment. For example, the VIE and its subsidiaries’ customers and licensees may experience deterioration of their businesses, cash flow shortages or difficulties obtaining financing, which could adversely affect the demand for the VIE and its subsidiaries’ technologies, products and services. In addition, the VIE and its subsidiaries’ earnings may be adversely affected by fluctuations in the price of certain commodities, such as grains, milk, meat, biofuels and biomaterials. If commodity prices are negatively impacted, the value of the VIE and its subsidiaries’ products could be directly and negatively impacted. Additionally, growers’ incomes have historically been negatively affected by commodity prices. As a result, fluctuations in commodity prices could have an impact on growers’ purchasing decisions and negatively affect their ability and decisions to purchase the VIE and its subsidiaries’ seeds or products that incorporate the VIE and its subsidiaries’ proprietary technology. We cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact the VIE and its subsidiaries’ business.
Changes in laws and regulations to which we are subject, or to which we may become subject in the future, may materially increase the VIE and its subsidiaries’ costs of operation, decrease operating revenues and disrupt business.
Laws and regulatory standards and procedures that impact the VIE and its subsidiaries’ business are continuously changing. Responding to these changes and meeting existing and new requirements may be costly and burdensome. Changes in laws and regulations may occur that could:
● impair or eliminate the VIE and its subsidiaries’ ability to source technology and develop the VIE and its subsidiaries’ products, including validating the VIE and its subsidiaries’ products through field trials and passing biosafety evaluations;
● increase the VIE and its subsidiaries’ compliance and other costs of doing business through increases in the cost to protect the VIE and its subsidiaries’ intellectual property, including know-how, trade secrets and regulatory data, or increases in the cost to obtain the necessary regulatory approvals to commercialize and market the products we develop directly or jointly;
● require significant product redesign or redevelopment;
● render the VIE and its subsidiaries’ seed traits and technology and products that incorporate them less profitable or less attractive compared to competing products;
● reduce the amount of revenues we receive from government grants, licenses or other royalties; and
● discourage us and other collaborators from offering, and end markets from purchasing, products that incorporate the VIE and its subsidiaries’ seed traits and technology.
Any of these events could have a material adverse effect on the VIE and its subsidiaries’ business, results of operations and financial condition. Legislation and jurisprudence on intellectual property in the key markets where we seek protection, primarily in China, is evolving and changes in laws could affect the VIE and its subsidiaries’ ability to obtain or maintain intellectual property protection for the VIE and its subsidiaries’ products. Any changes to these existing laws and regulations may materially increase the VIE and its subsidiaries’ costs, decrease the VIE and its subsidiaries’ revenues and disrupt the VIE and its subsidiaries’ business.
The overall agricultural industry is susceptible to commodity price changes and we, along with the VIE and its subsidiaries’ food manufacturing customers and grower customers, are exposed to market risks from changes in commodity prices.
Changes in the prices of certain commodity products could result in higher overall cost along the agricultural supply chain, which may negatively affect the VIE and its subsidiaries’ ability to commercialize the VIE and its subsidiaries’ products We will be susceptible to changes in costs in the agricultural industry as a result of factors beyond the VIE and its subsidiaries’ control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, product recalls and government regulations. As a result, we may not be able to anticipate or react to changing costs by adjusting the VIE and its subsidiaries’ practices, which could cause operating results to deteriorate.
The VIE and its subsidiaries’ operations are subject to various health and environmental risks associated with the VIE and its subsidiaries’ use, handling and disposal of potentially toxic materials.
We are subject to numerous federal, state, local and foreign environmental, health and safety laws and regulations, including those governing laboratory procedures, the handling, use, storage, treatment, manufacture and disposal of wastes, discharge of pollutants into the environment and human health and safety matters.
Although there are no hazardous substances in the raw materials used by us that will affect and damage the company’s employees, factory, other property and the environment. The safety of raw materials is also one of the requirements when applying for the fertilizer registration certificate. We cannot completely eliminate the risk of contamination or discharge and any resultant injury from these materials. If these risks were to materialize, we could be subject to fines, liability, reputational harm or otherwise adverse effects on the VIE and its subsidiaries’ business. We may be sued for any injury or contamination that results from the VIE and its subsidiaries’ use or the use by third parties of these materials, or may otherwise be required to remedy the contamination, and the VIE and its subsidiaries’ liability may exceed any insurance coverage and the VIE and its subsidiaries’ total assets. Furthermore, compliance with environmental, health and safety laws and regulations may be expensive and may impair the VIE and its subsidiaries’ Research & Development efforts. If we fail to comply with these requirements, we could incur substantial costs and liabilities, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance. In addition, we cannot predict the impact on the VIE and its subsidiaries’ business of new or amended environmental, health and safety laws or regulations or any changes in the way existing and future laws and regulations are interpreted and enforced. These current or future laws and regulations may impair the VIE and its subsidiaries’ research, development or production efforts.
Failure to maintain or enhance the VIE and its subsidiaries’ brands or image could have a material and adverse effect on the business and results of operations.
We believe the VIE and its subsidiaries’ brands are associated with a well-recognized, integrated fertilizers company in the local markets in which it operates, with consistent high-quality products for end customers in China. the VIE and its subsidiaries’ brands are integral to the VIE and its subsidiaries’ sales and marketing efforts. The VIE and its subsidiaries’ continued success in maintaining and enhancing the VIE and its subsidiaries’ brand and image depends to a large extent on the VIE and its subsidiaries’ ability to satisfy customer needs by further developing and maintaining quality of services across the VIE and its subsidiaries’ operations, as well as the VIE and its subsidiaries’ ability to respond to competitive pressures. If we are unable to satisfy customer needs or if our public image or reputation are otherwise diminished, the VIE and its subsidiaries’ business transactions with the VIE and its subsidiaries’ customers may decline, which could, in turn, adversely affect the VIE and its subsidiaries’ results of operations.
Any failure to protect the VIE and its subsidiaries’ trademarks and other intellectual property rights could have a negative impact on the VIE and its subsidiaries’ business.
We believe the VIE and its subsidiaries’ intellectual property rights are critical to the VIE and its subsidiaries’ success. Any unauthorized use of the VIE and its subsidiaries’ intellectual property rights could harm the VIE and its subsidiaries’ competitive advantages and business. Implementation of Chinese intellectual property-related laws have historically been lacking, primarily because of ambiguities in Chinese laws and enforcement difficulties. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other western countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of the VIE and its subsidiaries’ proprietary rights or those of others. Such litigation and an adverse determination in any such litigation, if any, could result in substantial costs and diversion of resources and management attention, which could harm the VIE and its subsidiaries’ business and competitive position. If we are unable to adequately protect the VIE and its subsidiaries’ brand, trademarks and other intellectual property rights, we may lose these rights and the VIE and its subsidiaries’ business may suffer materially.
Our outstanding long-term loan and other financing arrangement payable may adversely affect our available cash flow and our ability to operate our business.
As of December 31, 2023 and 2022, our current portion of long-term debt were $773,039 and $1,039,243 respectively. We also have advances from related parties (Mr. Lirong Wang, Ms. Xueying Sheng and Mr. Guohua Lin) for working capital of the Company which are due on demand, non-interest bearing, and unsecured. For further information, see “Related Party Transactions.”
Our outstanding and future loans, combined with our other financial obligations and contractual commitments, could have negative consequences on our business and financial condition. We believe that our cash, cash equivalents on hand will be sufficient to meet our current and anticipated needs for general corporate purposes for at least the next 12 months. However, we need to make continued investment for our expansion in facilities and to retain talents to remain competitive. There can be no assurance that we will be able to raise additional capital on terms favorable to us, or at all, if and when required, especially if we experience disappointing operating results. If adequate capital is not available to us as required, our ability to fund operations, take advantage of unanticipated opportunities, develop or enhance our facilities or respond to competitive pressures could be significantly limited.
Increases in labor costs in the PRC may adversely affect the VIE and its subsidiaries’ business and the VIE and its subsidiaries’ profitability.
China’s economy has experienced increases in labor costs in recent years. China’s overall economy and the average wage in China is expected to continue to grow. The average wage level for the VIE and its subsidiaries’ employees has also increased in recent years. We expect that the VIE and its subsidiaries’ labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to the VIE and its subsidiaries’ customers by increasing prices for the VIE and its subsidiaries’ products or services, the VIE and its subsidiaries’ profitability and results of operations may be materially and adversely affected.
In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with the VIE and its subsidiaries’ employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government agencies for the benefit of the VIE and its subsidiaries’ employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract Law, that became effective in January 2008 and its implementing rules that became effective in September 2008 and its amendments that became effective in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of the VIE and its subsidiaries’ employees or otherwise change the VIE and its subsidiaries’ employment or labor practices, the Labor Contract Law and its implementation rules may limit the VIE and its subsidiaries’ ability to effect those changes in a desirable or cost-effective manner, which could adversely affect the VIE and its subsidiaries’ business and results of operations. Besides, pursuant to the Labor Contract Law and its amendments, dispatched employees are intended to be a supplementary form of employment and the fundamental form should be direct employment by enterprises and organizations that require employees. Further, it is expressly stated in the Interim Provisions on Labor Dispatch that became effective on March 1, 2014 that the number of seconded employees an employer uses may not exceed 10% of its total labor force and the employer has a two-year transition period to comply with such requirement. The VIE and its consolidated subsidiaries and consolidated branch offices used seconded employees for their principal business activities. The transition period ended on February 29, 2016, and those PRC subsidiaries have taken steps to decrease the number of seconded employees. If the relevant PRC subsidiaries are deemed to have violated the limitation on the use of seconded employees under the relevant labor laws and regulations, we may be subject to fines and incur other costs to make required changes to the VIE and its subsidiaries’ current employment practices.
As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that the VIE and its subsidiaries’ employment practice does not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to the VIE and its subsidiaries’ employees and the VIE and its subsidiaries’ business, and the VIE and its subsidiaries’ financial condition and results of operations could be materially and adversely affected.
We may be liable for improper use or appropriation of personal information provided by the VIE and its subsidiaries’ customers.
We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data. Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.
We expect to obtain information about various aspects of operations as well as regarding the VIE and its subsidiaries’ employees and third parties. We also maintain information about various aspects of operations as well as regarding the VIE and its subsidiaries’ employees. The integrity and protection of the VIE and its subsidiaries’ customer, employee and company data is critical to the VIE and its subsidiaries’ business. The VIE and its subsidiaries’ customers and employees expect that we will adequately protect their personal information. We are required by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to safeguard such information.
The PRC Criminal Law, as amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained during the course of performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which became effective on June 1, 2017.
Pursuant to the Cyber Security Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.
The Civil Code of the PRC (issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration of China, MIIT, and the Ministry of Public Security have been increasingly focused on regulation in the areas of data security and data protection.
The PRC regulatory requirements regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China, the Ministry of Public Security and the SAMR, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security.
In November 2016, the Standing Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became effective in June 2017. The CSL is the first PRC law that systematically lays out the regulatory requirements on cybersecurity and data protection, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny. The legal consequences of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for rectification, shutting down the websites, and revocation of business license or relevant permits. In April 2020, the Cyberspace Administration of China and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective in June 2020. Pursuant to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments (“Draft Measures”), which required that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has said that under the proposed rules companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments,” The cybersecurity review will also investigate the potential national security risks from overseas IPOs. We do not know what regulations will be adopted or how such regulations will affect us and our listing on Nasdaq. In the event that the Cyberspace Administration of China determines that we are subject to these regulations, we may be required to delist from Nasdaq and we may be subject to fines and penalties.
On June 10, 2021, the Standing Committee of the National People’s Congress enacted the PRC Data Security Law, which took effect on September 1, 2021. The law requires data collection to be conducted in a legitimate and proper manner, and stipulates that, for the purpose of data protection, data processing activities must be conducted based on data classification and hierarchical protection system for data security.
On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over Mainland China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws.
On August 20, 2021, the 30th meeting of the Standing Committee of the 13th National People’s Congress voted and passed the “Personal Information Protection Law of the People’s Republic of China”, or “PRC Personal Information Protection Law”, which became effective on November 1, 2021. The PRC Personal Information Protection Law applies to the processing of personal information of natural persons within the territory of Mainland China that is carried out outside of Mainland China where (1) such processing is for the purpose of providing products or services for natural persons within Mainland China, (2) such processing is to analyze or evaluate the behavior of natural persons within Mainland China, or (3) there are any other circumstances stipulated by related laws and administrative regulations.
On December 24, 2021, the China Securities Regulatory Commission (“CSRC”), together with other relevant government authorities in Mainland China issued the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), and the Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (“Draft Overseas Listing Regulations”). The Draft Overseas Listing Regulations require that a Mainland China domestic enterprise seeking to issue and list its shares overseas (“Overseas Issuance and Listing”) shall complete the filing procedures of and submit the relevant information to CSRC. The Overseas Issuance and Listing includes direct and indirect issuance and listing. Where an enterprise whose principal business activities are conducted in Mainland China seeks to issue and list its shares in the name of an overseas enterprise (“Overseas Issuer”) on the basis of the equity, assets, income or other similar rights and interests of the relevant Mainland China domestic enterprise, such activities shall be deemed an indirect overseas issuance and listing (“Indirect Overseas Issuance and Listing”) under the Draft Overseas Listing Regulations.
On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines, effective on March 31, 2023. Pursuant to the Trial Measures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevant information to the CSRC. Since these statements and regulatory actions by the PRC government are newly published, their interpretation, application and enforcement of unclear and there also remains significant uncertainty as to the enactment, interpretation and implementation of other regulatory requirements related to overseas securities offerings and other capital markets activities,; our ability to offer, or continue to offer, securities to investors would be potentially hindered and the value of our securities might significantly decline or be worthless, by existing or future laws and regulations relating to its business or industry or by intervene or interruption by PRC governmental authorities, if we or our subsidiaries (i) do not receive or maintain such filings, permissions or approvals required by the PRC government, (ii) inadvertently conclude that such filings, permissions or approvals are not required, (iii) applicable laws, regulations, or interpretations change and we are required to obtain such filings, permissions or approvals in the future, or (iv) any intervention or interruption by PRC governmental with little advance notice.
In the event that we are subject to any mandatory cybersecurity review and other specific actions required by the CAC or any other PRC governmental authorities, we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty, we may be further required to suspend our relevant business, shut down our website, or face other penalties, which could materially and adversely affect our business, financial condition, and results of operations.
A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our business and our financial condition.
The Chinese economy has slowed down since 2012 and such slowdown may continue. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets, and over the conflicts involving Ukraine and Syria. There have also been concerns on the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition. In addition, continued turbulence in the international markets may adversely affect our ability to access capital markets to meet liquidity needs.
Risks Relating to Our Corporate Structure
If the PRC government deems that the contractual arrangements in relation to Shanghai Muliang, our consolidated variable interest entity, do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
The PRC government regulates telecommunications-related businesses through strict business licensing requirements and other government regulations. These laws and regulations also include limitations on foreign ownership of PRC companies that engage in telecommunications-related businesses. Specifically, foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunications service provider (except for e-commerce, domestic multi-party communication, storage and forwarding classes and call centers) under the Special Administrative Measures for Access of Foreign Investment (Negative List) (Edition 2020), which was promulgated on June 23, 2020 and implemented on July 23, 2020, and such major foreign investor in a Foreign-Invested Telecommunications Enterprise must have experience in providing value-added telecommunications services, or VATS, and maintain a good track record in accordance with the Administrative Provisions on Foreign-Invested Telecommunications Enterprises (revised in 2016), and other applicable laws and regulations.
Muliang Viagoo is a holding company incorporated in Nevada. As a holding company with no material operations of our own, we conduct a substantial majority of operations in the People’s Republic of China, or “PRC” or “China,” though the variable interest entity, Shanghai Muliang and its subsidiaries. We receive the economic benefits of the VIE and its subsidiaries’ business operations through certain contractual arrangements. Investors in our common shares offered in our future offerings are purchasing shares of the U.S. holding company and not shares of the VIE and its subsidiaries in China that are conducting the business operations. For a description of the VIE contractual arrangements, see “Corporation History and Structure-Contractual Arrangements.”
The VIE contributed 100% of the Company’s revenue for the years ended December 31, 2023. As of December 31, 2023 and 2022, the VIE accounted for 100% and 99% of the consolidated total assets and total liabilities of the Company respectively.
We rely on and expect to continue to rely on our wholly owned PRC subsidiary’s contractual arrangements with Shanghai Muliang and its shareholders to operate our business. These contractual arrangements may not be as effective in providing us with control over Shanghai Muliang as ownership of controlling equity interests would be in providing us with control over, or enabling us to derive economic benefits from the operations of Shanghai Muliang. Under the current contractual arrangements, as a legal matter, if Shanghai Muliang or any of its shareholders executing the VIE Agreements fails to perform its, his or her respective obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if shareholders of a variable interest entity were to refuse to transfer their equity interests in such variable interest entity to us or our designated persons when we exercise the purchase option pursuant to these contractual arrangements, we may have to take a legal action to compel them to fulfill their contractual obligations.
If (i) the applicable PRC authorities invalidate these contractual arrangements for violation of PRC laws, rules and regulations, (ii) any variable interest entity or its shareholders terminate the contractual arrangements (iii) any variable interest entity or its shareholders fail to perform its/his/her obligations under these contractual arrangements, or (iv) if these regulations change or are interpreted differently in the future, our business operations in China would be materially and adversely affected, and the value of your shares would substantially decrease or even become worthless. Further, if we fail to renew these contractual arrangements upon their expiration, we would not be able to continue our business operations unless the then current PRC law allows us to directly operate businesses in China.
In addition, if any variable interest entity or all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If any of the variable interest entities undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business and our ability to generate revenues.
All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over operating entities and we may be precluded from operating our business, which would have a material adverse effect on our financial condition and results of operations.
These contractual arrangements may not be as effective as direct ownership in providing us with control over the VIE. For example, the VIE and their shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. If we had direct ownership of the VIE, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIE, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by the VIE and their shareholders of their obligations under the contracts to exercise control over the VIE. The shareholders of our consolidated VIE may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portions of our business through the contractual arrangements with the VIE.
If the VIE or their shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. For example, if the shareholders of the VIE refuse to transfer their equity interest in the VIE to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they otherwise act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations. In addition, if any third parties claim any interest in such shareholders’ equity interests in the VIE, our ability to exercise shareholders’ rights or foreclose the share pledge according to the contractual arrangements may be impaired. If these or other disputes between the shareholders of the VIE and third parties were to impair our control over the VIE, our ability to consolidate the financial results of the VIE would be affected, which would in turn result in a material adverse effect on our business, operations and financial condition.
In the opinion our PRC legal counsel, each of the contractual arrangements among our WFOE, the VIE and its shareholders governed by PRC laws are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may ultimately take a view that is contrary to the opinion of our PRC legal counsel. In addition, it is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. PRC government authorities may deem that foreign ownership is directly or indirectly involved in the VIE’s shareholding structure. If our corporate structure and contractual arrangements are deemed by the MIIT or the MOFCOM or other regulators having competent authority to be illegal, either in whole or in part, we may lose control of our consolidated VIE and have to modify such structure to comply with regulatory requirements. However, there can be no assurance that we can achieve this without material disruption to our VATS business. Furthermore, if we or the VIE is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including, without limitation:
● revoking the business license and/or operating licenses of our WFOE or the VIE;
● discontinuing or placing restrictions or onerous conditions on operations through any transactions among our WFOE, the VIE and its subsidiaries;
● imposing fines, confiscating the income from our WFOE, the VIE or its subsidiaries, or imposing other requirements with which we or the VIE may not be able to comply;
● placing restrictions on our right to collect revenues;
● shutting down our servers or blocking our app/websites;
● requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with the VIE and deregistering the equity pledges of the VIE, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control over the VIE; or
● restricting or prohibiting our use of the proceeds of any future offerings to finance our business and operations in China.
● taking other regulatory or enforcement actions against us that could be harmful to our business.
The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of the VIE in our consolidated financial statements, if the PRC government authorities were to find our corporate structure and contractual arrangements to be in violation of PRC laws and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of the VIE or our right to receive substantially all the economic benefits and residual returns from the VIE and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of the VIE in our consolidated financial statements. Either of these results, or any other significant penalties that might be imposed on us in this event, would have a material adverse effect on our financial condition and results of operations.
We rely on contractual arrangements with the VIE and their shareholders for a large portion of our business operations. These arrangements may not be as effective as direct ownership in providing operational control. Any failure by the VIE or their shareholders to perform their obligations under such contractual arrangements would have a material and adverse effect on our business.
We have relied and expect to continue relying on contractual arrangements with the VIE and their shareholders to operate our business in China. The revenues contributed by the VIE and their subsidiaries constituted substantially 100% of our net revenue for the year of 2023.
These contractual arrangements may not be as effective as direct ownership in providing us with control over the VIE. For example, the VIE and their shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. If we had direct ownership of the VIE, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIE, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by the VIE and their shareholders of their obligations under the contracts to exercise control over the VIE. The shareholders of our consolidated VIE may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portions of our business through the contractual arrangements with the VIE.
If the VIE or their shareholders fail to perform their respective obligations under the contractual arrangements, we may have difficulty in enforcing any rights the Company may have under the VIE Agreements in PRC and have to incur substantial costs and expend additional resources to enforce such arrangements. For example, if the shareholders of the VIE refuse to transfer their equity interest in the VIE to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they otherwise act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations. In addition, if any third parties claim any interest in such shareholders’ equity interests in the VIE, our ability to exercise shareholders’ rights or foreclose the share pledge according to the contractual arrangements may be impaired. If these or other disputes between the shareholders of the VIE and third parties were to impair our control over the VIE, our ability to consolidate the financial results of the VIE would be affected, which would in turn result in a material adverse effect on our business, operations and financial condition.
Any failure by Shanghai Muliang, our consolidated variable interest entity, or its shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business.
We refer to the shareholders of the VIE as its nominee shareholders because although they remain the holders of equity interests on record in the VIE, pursuant to the terms of the relevant power of attorney, such shareholders have irrevocably authorized the individual appointed by Shanghai Mufeng to exercise their rights as a shareholder of the relevant VIE. If the VIE, or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of Shanghai Muliang were to refuse to transfer their equity interest in Shanghai Muliang to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.
All the agreements under our contractual arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. See “Risks Relating to Doing Business in China-Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us.” Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are final and parties cannot appeal arbitration results in court unless such rulings are revoked or determined unenforceable by a competent court. If the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our consolidated variable interest entity, and our ability to conduct our business may be negatively affected.
We are a holding company and will rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our common stock.
We are a holding company and conduct substantially all of our business through Shanghai Muliang, which is a limited liability company established in China and its subsidiaries. We may rely on dividends to be paid by our PRC subsidiary to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay operating expenses. If our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.
Under PRC laws and regulations, our PRC subsidiary, which is a wholly foreign-owned enterprise in China, may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital.
Our PRC subsidiary generates primarily all of its revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiary to use its Renminbi revenues to pay dividends to us. The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by State Administration of Foreign Exchange (the “SAFE”) for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiary to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated. Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
The shareholders of the VIE may have actual or potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
As of the date of this report, we are not aware any conflicts between the shareholders of the VIE and us. However, the shareholders of the VIE may have actual or potential conflicts of interest with us in the future. These shareholders may refuse to sign or breach, or cause the VIE to breach, or refuse to renew, the existing contractual arrangements we have with them and the VIE, which would have a material and adverse effect on our ability to effectively control the VIE and receive economic benefits from it. For example, the shareholders may be able to cause our agreements with the VIE to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor, particularly given the relatively large number of shareholders that Shanghai Muliang Industry Co., Ltd. and Shanghai Zongbao and Shanghai Zongbao Environmental Construction Co., Ltd., two of the VIE, has. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company. If we cannot resolve any conflict of interest or dispute between us and these shareholders, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
Our contractual arrangements are governed by PRC law. Accordingly, these contracts would be interpreted in accordance with PRC law, and any disputes would be resolved in accordance with PRC legal procedures.
Investors in our shares of common stock should be aware that they are purchasing equity in Muliang Viagoo Technology Inc., our Nevada holding company, which does not directly own substantially all of our business in China conducted by the VIE. Although we have been advised by our PRC legal counsel that our contractual arrangements constitute valid and binding obligations enforceable against each party of such agreements in accordance with their terms, they may not be as effective in providing control over Shanghai Muliang Industry Co., Ltd., the operating entities, as direct ownership. If the PRC operating entities or the registered shareholders fail to perform their respective obligations under the contractual arrangements, we may incur substantial costs and expend substantial resources to enforce our rights. All of these contractual arrangements are governed by and interpreted in accordance with PRC laws, and disputes arising from these contractual arrangements will be resolved through arbitration or litigation in the PRC. However, the legal system in the PRC is not as developed as in other jurisdictions, such as the United States. There are very few precedents and little official guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the outcome of arbitration or litigation. These uncertainties could limit our ability to enforce these Contractual Arrangements. In the event we are unable to enforce these contractual arrangements or we experience significant delays or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our affiliated entities and may lose control over the assets owned by Shanghai Muliang Industry Co., Ltd. Our financial performance may be adversely and materially affected as a result and we may not be eligible to consolidate the financial results of the PRC Operating Entities into our financial results.
Contractual arrangements in relation to the VIE may be subject to scrutiny by the PRC tax authorities and they may determine that we or the VIE owe additional taxes, which could negatively affect our financial condition and the value of your investment.
Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year when the transactions are conducted. The PRC enterprise income tax law requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm’s length principles. We may face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between Shanghai Mufeng, the variable interest entity Shanghai Muliang and the shareholders of Shanghai Muliang were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust Shanghai Muliang income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Shanghai Muliang for PRC tax purposes, which could, in turn, increase their tax liabilities without reducing Shanghai Mufeng tax expenses. In addition, if Shanghai Mufeng requests the Shanghai Muliang Shareholders to transfer their equity interests in Shanghai Muliang at nominal or no value pursuant to these contractual arrangements, such transfer could be viewed as a gift and subject Shanghai Mufeng to PRC income tax. Furthermore, the PRC tax authorities may impose late payment fees and other penalties on Shanghai Muliang for the adjusted but unpaid taxes according to the applicable regulations. Our results of operations could be materially and adversely affected if Shanghai Muliang’s tax liabilities increase or if they are required to pay late payment fees and other penalties.
We may lose the ability to use, or otherwise benefit from, the licenses, approvals and assets held by the VIE, which could severely disrupt our business, render us unable to conduct some or all of our business operations and constrain our growth.
We rely on contractual arrangements with the VIE to use, or otherwise benefit from, certain foreign restricted licenses and permits that we need or may need in the future as our business continues to expand, such as the internet content provider license, or the ICP license held by Shanghai Muliang, the VIE.
The contractual arrangements contain terms that specifically obligate the VIE’ shareholders to ensure the valid existence of the VIE and restrict the disposal of material assets of the VIE. However, in the event the VIE’ shareholders breach the terms of these contractual arrangements and voluntarily liquidate the VIE, or the VIE declare bankruptcy and all or part of their assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to conduct some or all of our business operations or otherwise benefit from the assets held by the VIE, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, if the VIE undergo a voluntary or involuntary liquidation proceeding, their shareholders or unrelated third-party creditors may claim rights to some or all of the assets of the VIE, thereby hindering our ability to operate our business as well as constrain our growth.
If the custodians or authorized users of our controlling non-tangible assets, including chops and seals, fail to fulfill their responsibilities, or misappropriate or misuse these assets, our business and operations may be materially and adversely affected.
Under PRC law, legal documents for corporate transactions, including agreements and contracts that our business relies on, are executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with the relevant local branch of the State Administration for Market Regulation, (“SMAR”) formerly known as the State Administration for Industry and Commerce (“SAIC”). We generally execute legal documents by affixing chops or seals, rather than having the designated legal representatives sign the documents.
We use two major types of chops: corporate chops and finance chops. Chops are seals or stamps used by a PRC company to legally authorize documents, often in place of a signature. We use corporate chops generally for documents to be submitted to government agencies, such as applications for changing business scope, directors or company name, and for legal letters. We use finance chops generally for making and collecting payments, including issuing invoices. Use of corporate chops must be approved by our legal department and administrative department, and use of finance chops must be approved by our finance department. The chops of our subsidiary and consolidated VIE are generally held by the relevant entities so that documents can be executed locally. Although we usually utilize chops to execute contracts, the registered legal representatives of our subsidiary and consolidated VIE have the apparent authority to enter into contracts on behalf of such entities without chops, unless such contracts set forth otherwise.
In order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to the designated key employees of our legal, administrative or finance departments. Our designated legal representatives generally do not have access to the chops. Although we have approval procedures in place and monitor our key employees, including the designated legal representatives of our subsidiary and consolidated VIE, the procedures may not be sufficient to prevent all instances of abuse or negligence. In addition, we also separate the authorized user of chops from the keeper of keys to the storage room and install security camera for the storage room. There is a risk that our key employees or designated legal representatives could abuse their authority, for example, by binding our subsidiary and consolidated VIE with contracts against our interests, as we would be obligated to honor these contracts if the other contracting party acts in good faith in reliance on the apparent authority of our chops or signatures of our legal representatives. If any designated legal representative obtains control of the chop in an effort to obtain control over the relevant entity, we would need to have a shareholder or board resolution to designate a new legal representative to take legal action to seek the return of the chop, apply for a new chop with the relevant authorities, or otherwise seek legal remedies for the legal representative’s misconduct. If any of the designated legal representatives obtains and misuses or misappropriates our chops and seals or other controlling intangible assets for whatever reason, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve the matter, while distracting management from operations, and our business operations may be materially and adversely affected.
Substantial uncertainties exist with respect to the interpretation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015, or the 2015 FIL Draft, which expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise, or an FIE. Under the 2015 FIL Draft, VIE that are controlled via contractual arrangement would also be deemed as foreign invested enterprises, if they are ultimately “controlled” by foreign investors.
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law of the PRC, or the FIL, which will come into effect on January 1, 2020, repealing simultaneously the Law of the PRC on Sino-foreign Equity Joint Ventures, the Law of the PRC on Wholly Foreign-owned Enterprises and the Law of the PRC on Sino-foreign Cooperative Joint Ventures, together with their implementation rules and ancillary regulations. Pursuant to the FIL, foreign investment refers to any investment activity directly or indirectly carried out by foreign natural persons, enterprises, or other organizations, including investment in new construction project, establishment of foreign funded enterprise or increase of investment, merger and acquisition, and investment in any other way stipulated under laws, administrative regulations, or provisions of the State Council. Although the FIL has deleted the particular reference to the concept of “actual control” and contractual arrangements compared to the 2015 FIL Draft, there is still uncertainty regarding whether the VIE would be identified as a FIE in the future.
Even if the VIE were to be identified as a FIE in the future, we believe that our current business would not be adversely affected. However, if we were to engage in any business conduct involving third parties identified as prohibited or restricted on the Negative List, the VIE as well as its subsidiary may be subject to laws and regulations on foreign investment. In addition, our shareholders would also be prohibited or restricted to invest in certain sectors on the Negative List. However, even if the VIE were to be identified as a FIE, the validity of our contractual arrangements with Shanghai Muliang and its shareholders as well as our corporate structure would not be adversely affected. We would still be able to receive benefits from the VIE in accordance with the contractual agreements. In addition, as the Chinese government has been updating the Negative List in recent years and reducing the sectors prohibited or restricted for foreign investment, it is probable in the future that, even if the VIE is identified as a FIE, it is still allowed to acquire or hold equity of enterprises in sectors currently prohibited or restricted for foreign investment.
Furthermore, the PRC Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within five years after the implementing of the PRC Foreign Investment Law.
In addition, the PRC Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions, profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign investors; governments at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto FIEs, set market access restrictions and exit conditions, or intervene with the normal production and operation activities of FIEs; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited.
Notwithstanding the above, the PRC Foreign Investment Law stipulates that foreign investment includes “foreign investors invest through any other methods under laws, administrative regulations or provisions prescribed by the State Council”. Therefore, there are possibilities that future laws, administrative regulations or provisions prescribed by the State Council may regard contractual arrangements as a form of foreign investment, and then whether our contractual arrangement will be recognized as foreign investment, whether our contractual arrangement will be deemed to be in violation of the foreign investment access requirements and how the above-mentioned contractual arrangement will be handled are uncertain.
The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if the VIE or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
For example, the Chinese cybersecurity regulator announced on July 2 that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s app be removed from smartphone app stores.
As such, the Company’s business segments may be subject to various government and regulatory interference in the provinces in which they operate. The Company could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. The Chinese government may intervene or influence operations at any time with little advance notice, which could result in a material change in operations and in the value of our common stock. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.
Furthermore, it is uncertain when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S. exchange, operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry. As a result, our common stock may decline in value dramatically or even become worthless should we become subject to new requirement to obtain permission from the PRC government to list on U.S. exchange in the future.
Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severe and Lawful Crackdown on Illegal Securities Activities, which was available to the public on July 6, 2021. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. Moreover, the State Internet Information Office issued the Measures of Cybersecurity Review (Revised Draft for Comments, not yet effective) on July 10, 2021, which requires operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. While we believe that operations are not affected by this, as these opinions were recently issued, official guidance and interpretation of the opinions remain unclear in several respects at this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all.
Certain judgments obtained against us by our shareholders may not be enforceable.
We conduct most operations in China and substantially all operations outside of the United States. Most of our assets are located in China, and substantially all of our assets are located outside of the United States. In addition, all our senior executive officers reside within China for a significant portion of the time and most are PRC nationals. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the U.S. and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
Substantial uncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which took effect on January 1, 2020 and replaced three existing laws on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic invested enterprises in China. The Foreign Investment Law establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view of investment protection and fair competition.
According to the Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted by one or more natural persons, business entities, or otherwise organizations of a foreign country (collectively referred to as “foreign investor”) within China, and the investment activities include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other like rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with other investors, invests in a new project within China; and (iv) investments in other means as provided by laws, administrative regulations, or the State Council.
According to the Foreign Investment Law, the State Council will publish or approve to publish the “negative list” for special administrative measures concerning foreign investment. The Foreign Investment Law grants national treatment to foreign-invested entities, or FIEs, except for those FIEs that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list”. Because the “negative list” has yet to be published, it is unclear whether it will differ from the current Special Administrative Measures for Market Access of Foreign Investment (Negative List). The Foreign Investment Law provides that FIEs operating in foreign restricted or prohibited industries will require market entry clearance and other approvals from relevant PRC governmental authorities. If a foreign investor is found to invest in any prohibited industry in the “negative list”, such foreign investor may be required to, among other aspects, cease its investment activities, dispose of its equity interests or assets within a prescribed time limit and have its income confiscated. If the investment activity of a foreign investor is in breach of any special administrative measure for restrictive access provided for in the “negative list”, the relevant competent department shall order the foreign investor to make corrections and take necessary measures to meet the requirements of the special administrative measure for restrictive access.
The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China. Under the Foreign Investment Law, variable interest entities that are controlled via contractual arrangement would also be deemed as FIEs, if they are ultimately “controlled” by foreign investors. Therefore, for any companies with a VIE structure in an industry category that is included in the “negative list” as restricted industry, the VIE structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the variable interest entities will be treated as FIEs and any operation in the industry category on the “negative list” without market entry clearance may be considered as illegal.
The PRC government will establish a foreign investment information reporting system, according to which foreign investors or foreign-invested enterprises shall submit investment information to the competent department for commerce concerned through the enterprise registration system and the enterprise credit information publicity system, and a security review system under which the security review shall be conducted for foreign investment affecting or likely affecting the state security.
Furthermore, the Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law.
In addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions, profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign investors; governments at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto FIEs, set market access restrictions and exit conditions, or intervene with the normal production and operation activities of FIEs; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited.
Notwithstanding the above, the Foreign Investment Law stipulates that foreign investment includes “foreign investors invest through any other methods under laws, administrative regulations or provisions prescribed by the State Council”. Therefore, there are possibilities that future laws, administrative regulations or provisions prescribed by the State Council may regard contractual arrangements as a form of foreign investment, and then whether our contractual arrangement will be recognized as foreign investment, whether our contractual arrangement will be deemed to be in violation of the foreign investment access requirements and how the above-mentioned contractual arrangement will be handled are uncertain.
The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if the VIE or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
For example, the Chinese cybersecurity regulator announced on July 2 that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s app be removed from smartphone app stores.
Additionally, on July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Strictly Cracking Down on Illegal Securities Activities, or the Opinions, which emphasized the need to strengthen administration over illegal securities activities and supervision of overseas listings by China-based companies. The Opinions proposed promoting regulatory systems to deal with risks facing China-based overseas-listed companies, and provided that the State Council will revise provisions regarding the overseas issuance and listing of shares by companies limited by shares and will clarify the duties of domestic regulatory authorities. However, the Opinions did not provide detailed rules and regulations. As a result, uncertainties remain regarding the interpretation and implementation of the Opinions.
As such, the Company’s business segments may be subject to various government and regulatory interference in the provinces in which they operate. The Company could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply.
Furthermore, it is uncertain when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S. exchange, operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
Smaller reporting companies are not required to provide the information required by this item.

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ITEM 2. PROPERTIES
Item 2. Properties.
Our principal executive office is located at 2498 Wanfeng Highway, Lane 181, Fengjing Town, Jinshan District, Shanghai, China, and our telephone number is (86) 21-67355092. The office space belongs to our President and Chief Executive Officer, Mr. Lirong Wang, who allows us to use the space for free.
Property, plant and equipment as of December 31, 2023 and 2022 consisted of:
December 31, December 31,
Building $ 2,732,322 $ 2,795,874
Operating equipment 2,670,949 2,740,527
Vehicle 80,169 82,034
Office equipment 20,410 78,714
Construction in progress 2,989,470 2,876,250
8,493,320 8,573,399
Less: Accumulated depreciation (3,208,603 ) (2,951,802 )
$ 5,284,717 $ 5,621,597

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
There are no actions, suits, proceedings, inquiries or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company that are outside the ordinary course of business or in which an adverse decision could have a material adverse effect.
However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise.
PRC Regulations
The operation in China is subject to a number of PRC laws and regulations. This section summarizes all material PRC laws and regulations relevant to the VIE and its subsidiaries’ business and operations in China and the key provisions of such regulations.
Fertilizer License
The examination and approval of fertilizer license is based on Article 25 of the Agricultural Law of the People’s Republic of China, the Management for the Administration of Fertilizer Registration (Order No. 32 and No. 38 by the Ministry of Agriculture), and the Requirements for Fertilizer Registration Materials (Publication No. 161 from the Ministry of Agriculture). Organic fertilizers are required to be registered with provincial agricultural department.
There are four examination and approval requirements for obtaining a fertilizer license (1) A valid business license issued by Administration for Industry and Commerce, whose business scope shall cover the industry of fertilizer; (2) Products must comply with the relevant requirements of laws, regulations and relevant national policies (such as safety and environmental protection); (3) The product quality must comply with national standards, industry standards, local standards or enterprise standards approved by the quality supervision department; and (4) The application materials must be true, legal, complete and effective.
All of the VIE and its subsidiaries’ fertilizer products currently have valid five-year fertilizer licenses that are renewable upon the expiration date in the year of 2022 and 2025.
Regulations on Intellectual Property Rights
Regulations on Copyright
The Copyright Law of the PRC, or the Copyright Law, which took effect on June 1, 1991 and was amended in 2001, 2010 and 2020 (the current effective revision became effective on April 1, 2010 while the latest revision has not yet come into effect until June 1, 2021), provides that Chinese citizens, legal persons, or other organizations shall, whether published or not, own copyright in their copyrightable works, which include, among others, works of literature, art, natural science, social science, engineering technology and computer software. Copyright owners enjoy certain legal rights, including right of publication, right of authorship and right of reproduction. The Copyright Law as revised in 2001 extends copyright protection to Internet activities and products disseminated over the Internet. In addition, PRC laws and regulations provide for a voluntary registration system administered by the Copyright Protection Center of China, or the CPCC. According to the Copyright Law, an infringer of the copyrights shall be subject to various civil liabilities, which include ceasing infringement activities, apologizing to the copyright owners and compensating the loss of copyright owner. Infringers of copyright may also subject to fines and/or administrative or criminal liabilities in severe situations.
The Computer Software Copyright Registration Measures, or the Software Copyright Measures, promulgated by the National Copyright Administration, or the NCA on April 6, 1992 and latest amended on February 20, 2002, regulates registrations of software copyright, exclusive licensing contracts for software copyright and assignment agreements. The NCA administers software copyright registration and the CPCC, is designated as the software registration authority. The CPCC shall grant registration certificates to the Computer Software Copyrights applicants which meet the requirements of both the Software Copyright Measures and the Computer Software Protection Regulations (Revised in 2013).
The Provisions of the Supreme People’s Court on Certain Issues Related to the Application of Law in the Trial of Civil Cases Involving Disputes on Infringement of the Information Network Dissemination Rights specifies that disseminating works, performances or audio-video products by the internet users or the internet service providers via the internet without the permission of the copyright owners shall be deemed to have infringed the right of dissemination of the copyright owner.
The Measures for Administrative Protection of Copyright Related to Internet, which was jointly promulgated by the NCA and the MII on April 29, 2005 and became effective on May 30, 2005, provides that upon receipt of an infringement notice from a legitimate copyright holder, an ICP operator must take remedial actions immediately by removing or disabling access to the infringing content. If an ICP operator knowingly transmits infringing content or fails to take remedial actions after receipt of a notice of infringement that harms public interest, the ICP operator could be subject to administrative penalties, including an order to cease infringing activities, confiscation by the authorities of all income derived from the infringement activities, or payment of fines.
On May 18, 2006, the State Council promulgated the Regulations on the Protection of the Right to Network Dissemination of Information (as amended in 2013). Under these regulations, an owner of the network dissemination rights with respect to written works, performance or audio or video recordings who believes that information storage, search or link services provided by an Internet service provider infringe his or her rights may require that the Internet service provider delete, or disconnect the links to, such works or recordings.
Patent Law
According to the Patent Law of the PRC (Revised in 2008), the State Intellectual Property Office is responsible for administering patent law in the PRC. The patent administration departments of provincial, autonomous region or municipal governments are responsible for administering patent law within their respective jurisdictions. The Chinese patent system adopts a first-to-file principle, which means that when more than one person file different patent applications for the same invention, only the person who files the application first is entitled to obtain a patent of the invention. To be patentable, an invention or a utility model must meet three criteria: novelty, inventiveness and practicability. A patent is valid for twenty years in the case of an invention and ten years in the case of utility models and designs.
Trademark Law
Trademarks are protected by the Trademark Law of the PRC which was adopted in 1982 and subsequently amended in 1993, 2001, 2013 and 2019 respectively as well as by the Implementation Regulations of the PRC Trademark Law adopted by the State Council in 2002 and as most recently amended on April 29, 2014. The Trademark Office of the State Administration for Market Regulation of the PRC handles trademark registrations. The Trademark Office grants a ten-year term to registered trademarks and the term may be renewed for another ten-year period upon request by the trademark owner. A trademark registrant may license its registered trademarks to another party by entering into trademark license agreements, which must be filed with the Trademark Office for its record. As with patents, the Trademark Law has adopted a first-to-file principle with respect to trademark registration. If a trademark applied for is identical or similar to another trademark which has already been registered or subject to a preliminary examination and approval for use on the same or similar kinds of products or services, such trademark application may be rejected. Any person applying for the registration of a trademark may not injure existing trademark rights first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such party’s use.
Regulations on Domain Names
The MIIT promulgated the Measures on Administration of Internet Domain Names, or the Domain Name Measures on August 24, 2017, which took effect on November 1, 2017 and replaced the Administrative Measures on China Internet Domain Names promulgated by MII on November 5, 2004. According to the Domain Name Measures, the MIIT is in charge of the administration of PRC internet domain names. The domain name registration follows a first-to-file principle. Applicants for registration of domain names shall provide the true, accurate and complete information of their identities to domain name registration service institutions. The applicants will become the holder of such domain names upon the completion of the registration procedure.
Corporate Laws and Industry Catalogue Relating to Foreign Investment
The establishment, operation and management of companies in China are mainly governed by the PRC Company Law, as most recently amended in 2018, which applies to both PRC domestic companies and foreign-invested companies. On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, and on December 26, 2019, the State Council promulgated the Implementing Rules of the PRC Foreign Investment Law, or the Implementing Rules, to further clarify and elaborate the relevant provisions of the Foreign Investment Law. The Foreign Investment Law and the Implementing Rules both took effect on January 1, 2020 and replaced three major previous laws on foreign investments in China, namely, the Sino-foreign Equity Joint Venture Law, the Sino-foreign Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their respective implementing rules. Pursuant to the Foreign Investment Law, “foreign investments” refer to investment activities conducted by foreign investors (including foreign natural persons, foreign enterprises or other foreign organizations) directly or indirectly in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in the PRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified in laws, administrative regulations, or as stipulated by the State Council. The Implementing Rules introduce a see-through principle and further provide that foreign-invested enterprises that invest in the PRC shall also be governed by the Foreign Investment Law and the Implementing Rules.
The Foreign Investment Law and the Implementing Rules provide that a system of pre-entry national treatment and negative list shall be applied for the administration of foreign investment, where “pre-entry national treatment” means that the treatment given to foreign investors and their investments at market access stage is no less favorable than that given to domestic investors and their investments, and “negative list” means the special administrative measures for foreign investment’s access to specific fields or industries, which will be proposed by the competent investment department of the State Council in conjunction with the competent commerce department of the State Council and other relevant departments, and be reported to the State Council for promulgation, or be promulgated by the competent investment department or competent commerce department of the State Council after being reported to the State Council for approval. Foreign investment beyond the negative list will be granted national treatment. Foreign investors shall not invest in the prohibited fields as specified in the negative list, and foreign investors who invest in the restricted fields shall comply with the special requirements on the shareholding, senior management personnel, etc. In the meantime, relevant competent government departments will formulate a catalogue of industries for which foreign investments are encouraged according to the needs for national economic and social development, to list the specific industries, fields and regions in which foreign investors are encouraged and guided to invest. The current industry entry clearance requirements governing investment activities in the PRC by foreign investors are set out in two categories, namely the Special Entry Management Measures (Negative List) for the Access of Foreign Investment (2020 version), or the 2020 Negative List, promulgated by the National Development and Reform Commission and the Ministry of Commerce, or the MOFCOM, on June 24, 2020 and took effect on July 23, 2020, and the Encouraged Industry Catalogue for Foreign Investment (2020 version), or the 2020 Encouraged Industry Catalogue, promulgated by the MOFCOM on December 27, 2020 and took effect on January 27, 2021. Industries not listed in these two categories are generally deemed “permitted” for foreign investment unless specifically restricted by other PRC laws. The flat panel display industry is not on the Negative List and therefore we are not subject to any restriction or limitation on foreign ownership.
According to the Implementing Rules, the registration of foreign-invested enterprises shall be handled by the SAMR or its authorized local counterparts. Where a foreign investor invests in an industry or field subject to licensing in accordance with laws, the relevant competent government department responsible for granting such license shall review the license application of the foreign investor in accordance with the same conditions and procedures applicable to PRC domestic investors unless it is stipulated otherwise by the laws and administrative regulations, and the competent government department shall not impose discriminatory requirements on the foreign investor in terms of licensing conditions, application materials, reviewing steps and deadlines, etc. However, the relevant competent government departments shall not grant the license or permit enterprise registration if the foreign investor intends to invest in the industries or fields as specified in the negative list without satisfying the relevant requirements. In the event that a foreign investor invests in a prohibited field or industry as specified in the negative list, the relevant competent government department shall order the foreign investor to stop the investment activities, dispose of the shares or assets or take other necessary measures within a specified time limit, and restore to the status prior to the occurrence of the aforesaid investment, and the illegal gains, if any, shall be confiscated. If the investment activities of a foreign investor violate the special administration measures for access restrictions on foreign investments as stipulated in the negative list, the relevant competent government department shall order the investor to make corrections within the specified time limit and take necessary measures to meet the relevant requirements. If the foreign investor fails to make corrections within the specified time limit, the aforesaid provisions regarding the circumstance that a foreign investor invests in the prohibited field or industry shall apply.
Pursuant to the Foreign Investment Law and the Implementing Rules, and the Information Reporting Measures for Foreign Investment jointly promulgated by the MOFCOM and the SAMR, which took effect on January 1, 2020, a foreign investment information reporting system shall be established and foreign investors or foreign-invested enterprises shall report investment information to competent commerce departments of the government through the enterprise registration system and the enterprise credit information publicity system, and the administration for market regulation shall forward the above investment information to the competent commerce departments in a timely manner. In addition, the MOFCOM shall set up a foreign investment information reporting system to receive and handle the investment information and inter-departmentally shared information forwarded by the administration for market regulation in a timely manner. The foreign investors or foreign-invested enterprises shall report the investment information by submitting reports including initial reports, change reports, deregistration reports and annual reports.
Furthermore, the Foreign Investment Law provides that foreign-invested enterprises established according to the previous laws regulating foreign investment prior to the implementation of the Foreign Investment Law may maintain their structure and corporate governance within five years after the implementation of the Foreign Investment Law. The Implementing Rules further clarify that such foreign-invested enterprises established prior to the implementation of the Foreign Investment Law may either adjust their organizational forms or organizational structures pursuant to the Company Law or the Partnership Law, or maintain their current structure and corporate governance within five years upon the implementation of the Foreign Investment Law. Since January 1, 2025, if a foreign-invested enterprise fails to adjust its organizational form or organizational structure in accordance with the laws and go through the applicable registrations for changes, the relevant administration for market regulation shall not handle other registrations for such foreign-invested enterprise and shall publicize the relevant circumstances. However, after the organizational forms or organizational structures of a foreign-invested enterprise have been adjusted, the original parties to the Sino-foreign equity or cooperative joint ventures may continue to process such matters as the equity interest transfer, the distribution of income or surplus assets as agreed by the parties in the relevant contracts.
In addition, the Foreign Investment Law and the Implementing Rules also specify other protective rules and principles for foreign investors and their investments in the PRC, including, among others, that local governments shall abide by their commitments to the foreign investors; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; mandatory technology transfer is prohibited, etc.
Shanghai Mufeng, our wholly foreign owned subsidiary, as a foreign invested entity, and Muliang HK, as a foreign investor, are required to comply with the information reporting requirements under the Foreign Investment Law the Implementing Rules and the Information Reporting Measures for Foreign Investment and are in full compliance.
Regulations Relating to Taxation
PRC
In January 2008, the PRC Enterprise Income Tax Law (The “EIT” Law) took effect. The EIT applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, unless where tax incentives are granted to special industries and projects. Under the EIT Law and its implementation regulations, dividends generated from the business of a PRC subsidiary after January 1, 2008 and payable to its foreign investor may be subject to a withholding tax rate of 10% if the PRC tax authorities determine that the foreign investor is a non-resident enterprise, unless there is a tax treaty with China that provides for a preferential withholding tax rate. Distributions of earnings generated before January 1, 2008 are exempt from PRC withholding tax.
Under the EIT Law, an enterprise established outside China with “de facto management bodies” within China is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. A circular issued by the State Administration of Taxation in April 2009 regarding the standards used to classify certain Chinese-invested enterprises controlled by Chinese enterprises or Chinese enterprise groups and established outside of China as “resident enterprises” clarified that dividends and other income paid by such PRC “resident enterprises” will be considered PRC-source income and subject to PRC withholding tax, currently at a rate of 10%, when paid to non-PRC enterprise shareholders. This circular also subjects such PRC “resident enterprises” to various reporting requirements with the PRC tax authorities.
Under the implementation regulations to the EIT Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, the tax circular mentioned above specifies that certain PRC-invested overseas enterprises controlled by a Chinese enterprise or a Chinese enterprise group in the PRC will be classified as PRC resident enterprises if the following are located or residence in the PRC: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, the company seal and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights.
In November 2011, the MOF and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. In May and December 2013 and April 2014, the MOF and the State Administration of Taxation promulgated Circular 37, Circular 106 and Circular 43 to further expand the scope of services which are to be subject to Value-Added Tax, or VAT, instead of business tax. Pursuant to these tax rules, from August 1, 2013, VAT will be imposed to replace the business tax in certain service industries, including technology services and advertising services, on a nationwide basis. The VAT rate shall be 17% for sale or importation of goods by a taxpayer. But, unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the revenue from services provided.
Singapore
Individual Income Tax
An individual is a tax resident in Singapore in a year of assessment if, in the preceding year, he was physically present in Singapore or exercised an employment in Singapore (other than as a director of a company) for 183 days or more, or if he resides in Singapore.
Individual taxpayers who are Singapore tax residents are subject to Singapore income tax on income accruing in or derived from Singapore. All foreign-sourced income received in Singapore on or after January 1, 2004 by a Singapore tax resident individual (except for income received through a partnership in Singapore) is exempt from Singapore income tax if the Comptroller of Income Tax in Singapore (“Comptroller”) is satisfied that the tax exemption would be beneficial to the individual. A Singapore tax resident individual is taxed at progressive rates ranging from 0% to 22%.
Non-resident individuals, subject to certain exceptions and conditions, are subject to Singapore income tax on income accruing in or derived from Singapore at the rate of 22%.
Corporate Income Tax
A corporate taxpayer is regarded as resident in Singapore for Singapore tax purposes if the control and management of its business is exercised in Singapore.
Corporate taxpayers who are Singapore tax residents are subject to Singapore income tax on income accruing in or derived from Singapore and, subject to certain exceptions, on foreign-sourced income received or deemed to be received in Singapore. Foreign-sourced income in the form of dividends, branch profits and service income received or deemed to be received in Singapore by Singapore tax resident companies on or after June 1, 2003 are exempt from tax if certain prescribed conditions are met, including the following:
(i) such income is subject to tax of a similar character to income tax under the law of the jurisdiction from which such income is received; and
(ii) at the time the income is received in Singapore, the highest rate of tax of a similar character to income tax (by whatever name called) levied under the law of the territory from which the income is received on any gains or profits from any trade or business carried on by any company in that territory at that time is not less than 15%.
Certain concessions and clarifications have also been announced by the Inland Revenue Authority of Singapore (“IRAS”) with respect to such conditions.
A non-resident corporate taxpayer is subject to income tax on income that is accrued in or derived from Singapore, and on foreign-sourced income received or deemed received in Singapore, subject to certain exceptions.
The corporate tax rate in Singapore is currently 17%. In addition, three-quarters of up to the first S$10,000 of a company’s annual normal chargeable income, and one-half of up to the next S$190,000, is exempt from corporate tax from the year of assessment (“YA”) 2020 onwards. The remaining chargeable income (after the tax exemption) will be fully taxable at the prevailing corporate tax rate.
New companies will also, subject to certain conditions and exceptions, be eligible for tax exemption on three-quarters of up to the first S$100,000 of a company’s annual normal chargeable income, and one-half of up to the next S$100,000, a year for each of the company’s first three YAs from YA 2020 onwards. The remaining chargeable income (after the tax exemption) will be taxed at the applicable corporate tax rate.
Regulations Relating to Foreign Exchange
Pursuant to the Regulations on the Administration of Foreign Exchange issued by the State Council and effective in 1996, as amended in January 1997 and August 2008, current account transactions, such as sale or purchase of goods, are not subject to PRC governmental control or restrictions. Certain organizations in the PRC, including foreign-invested enterprises, may purchase, sell, and/or remit foreign currencies at certain banks authorized to conduct foreign exchange business upon providing valid commercial documents. Approval of the PRC State Administration of Foreign Exchange (“SAFE”), however, is required for capital account transactions.
In August 2008, SAFE issued a circular on the conversion of foreign currency into Renminbi by a foreign-invested company that regulates how the converted Renminbi may be used. The circular requires that the registered capital of a foreign-invested enterprise converted into Renminbi from foreign currencies may only be utilized for purposes within its business scope. For example, such converted amounts may not be used for investments in or acquisitions of other PRC companies, unless specifically provided otherwise, which can inhibit the ability of companies to consummate such transactions. In addition, SAFE strengthened its oversight of the flow and use of the Renminbi registered capital of foreign-invested enterprises converted from foreign currencies. The use of such Renminbi capital may not be changed without SAFE’s approval, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been utilized. Violations may result in severe penalties, such as heavy fines.
Regulations Relating to Labor
Pursuant to the PRC Labor Law effective in 1995 and the PRC Labor Contract Law effective in 2008, a written labor contract is required when an employment relationship is established between an employer and an employee. Other labor-related regulations and rules of the PRC stipulate the maximum number of working hours per day and per week as well as the minimum wages. An employer is required to set up occupational safety and sanitation systems, implement the national occupational safety and sanitation rules and standards, educate employees on occupational safety and sanitation, prevent accidents at work and reduce occupational hazards.
In the PRC, workers dispatched by an employment agency are normally engaged in temporary, auxiliary or substitute work. Pursuant to the PRC Labor Contract Law, an employment agency is the employer for workers dispatched by it, and it must perform an employer’s obligations toward them. The employment contract between the employment agency and the dispatched workers, and the placement agreement between the employment agency and the company that receives the dispatched workers must be in writing. Also, the company that accepts the dispatched workers must bear joint and several liabilities for any violation of the Labor Contract Law by the employment agencies arising from their contracts with dispatched workers. An employer is obligated to sign an indefinite term labor contract with an employee if the employer continues to employ the employee after two consecutive fixed-term labor contracts. The employer also has to pay compensation to the employee if the employer terminates an indefinite term labor contract. Except where the employer proposes to renew a labor contract by maintaining or raising the conditions of the labor contract and the employee is not agreeable to the renewal, an employer is required to compensate the employee when a definite term labor contract expires. Furthermore, under the Regulations on Paid Annual Leave for Employees issued by the State Council in December 2007 and effective as of January 2008, employees who have served an employer for more than one (1) year and less than ten years are entitled to a 5-day paid vacation, those whose service period ranges from 10 to 20 years are entitled to a 10-day paid vacation, and those who have served for more than 20 years are entitled to a 15-day paid vacation. An employee who does not use such vacation time at the request of the employer shall be compensated at three times their normal salaries for each waived vacation day.
Pursuant to the Regulations on Occupational Injury Insurance effective in 2004 and the Interim Measures concerning the Maternity Insurance for Enterprise Employees effective in 1995, PRC companies must pay occupational injury insurance premiums and maternity insurance premiums for their employees. Pursuant to the Interim Regulations on the Collection and Payment of Social Insurance Premiums effective in 1999 and the Interim Measures concerning the Administration of the Registration of Social Insurance effective in 1999, basic pension insurance, medical insurance, and unemployment insurance are collectively referred to as social insurance. Both PRC companies and their employees are required to contribute to the social insurance plans. Pursuant to the Regulations on the Administration of Housing Fund effective in 1999, as amended in 2002, PRC companies must register with applicable housing fund management centers and establish a special housing fund account in an entrusted bank. Both PRC companies and their employees are required to contribute to the housing funds.
Regulations on Dividend Distribution
Wholly foreign-owned companies in the PRC may pay dividends only out of their accumulated profits after tax as determined in accordance with PRC accounting standards. Remittance of dividends by a wholly foreign-owned enterprise out of China is subject to examination by the banks designated by SAFE. Wholly foreign-owned companies may not pay dividends unless they set aside at least 10% of their respective accumulated profits after tax each year, if any, to fund certain reserve funds, until such time as the accumulative amount of such fund reaches 50% of the wholly foreign-owned company’s registered capital. In addition, these companies also may allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds at their discretion. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
Safe Regulations on Offshore Special Purpose Companies Held by PRC Residents or Citizens
Pursuant to the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Overseas Special Purpose Vehicles, or Circular No. 75, issued in October 2005 by SAFE and its supplemental notices, PRC citizens or residents are required to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas equity financing involving a roundtrip investment whereby the offshore entity acquires or controls onshore assets or equity interests held by the PRC citizens or residents. In addition, such PRC citizens or residents must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to increases or decreases in investment amount, transfers or exchanges of shares, mergers or divisions, long-term equity or debt investments, external guarantees or other material events that do not involve roundtrip investments. Subsequent regulations further clarified that PRC subsidiaries of an offshore company governed by the SAFE regulations are required to coordinate and supervise the filing of SAFE registrations in a timely manner by the offshore holding company’s shareholders who are PRC citizens or residents. If these shareholders fail to comply, the PRC subsidiaries are required to report to the local SAFE branches. If the shareholders of the offshore holding company who are PRC citizens or residents do not complete their registration with the local SAFE branches, the PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to its PRC subsidiaries. Moreover, failure to comply with the SAFE registration and amendment requirements described above could result in liability under PRC law for evasion of applicable foreign exchange restrictions.
SAFE Regulations on Employee Share Options
On March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Share Holding Plan or Share Option Plan of Overseas Listed Company, or the Share Option Rule. Pursuant to the Share Option Rule, Chinese citizens who are granted share options by an overseas publicly listed company are required to register with SAFE through a Chinese agent or Chinese subsidiary of the overseas publicly listed company and complete certain other procedures. Our PRC employees who have been granted share options will be subject to these regulations. Failure of our PRC share option holders to complete their SAFE registrations may subject these PRC employees to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us.
Cybersecurity
The PRC Criminal Law, as amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained in performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing Committee of the PRC National People’s Congress, or the SCNPC, issued the Cyber Security Law of the PRC, or Cyber Security Law, which became effective on June 1, 2017.
Pursuant to the Cyber Security Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.
The Civil Code of the PRC (issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration of China, the Ministry of Industry and Information Technology, and the Ministry of Public Security, have been increasingly focused on regulation in data security and data protection.
PRC regulatory requirements regarding cybersecurity are evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China, the Ministry of Public Security and the State Administration for Market Regulation, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security.
In July 2021, the Cyberspace Administration of China and other related authorities released the draft amendment to the Cybersecurity Review Measures for public comments through July 25, 2021. The draft amendment proposes the following key changes:
● companies who are engaged in data processing are also subject to the regulatory scope;
● the China Securities Regulatory Commission, or CSRC, is included as one of the regulatory authorities for purposes of jointly establishing the state cybersecurity review working mechanism;
● the operators (including both operators of critical information infrastructure and relevant parties who are engaged in data processing) holding more than one million users/users’ (which to be further specified) individual information and seeking a listing outside China shall file for cybersecurity review with the Cybersecurity Review Office; and
● the risks of core data, material data or large amounts of personal information being stolen, leaked, destroyed, damaged, illegally used or transmitted to overseas parties and the risks of critical information infrastructure, core data, material data or large amounts of personal information being influenced, controlled or used maliciously shall be collectively taken into consideration during the cybersecurity review process.
If the draft amendment is adopted into law in the future, we may become subject to enhanced cybersecurity review. In addition, certain internet platforms in China have been reportedly subject to heightened regulatory scrutiny in relation to cybersecurity matters. As of the date of this Annual Report on Form 10-K, we have not been informed by any PRC governmental authority of any requirement that we file for a cybersecurity review. However, we are deemed to be a critical information infrastructure operator or a company that is engaged in data processing and holds personal information of more than one million users, we could be subject to PRC cybersecurity review.
As there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we could be subject to cybersecurity review, and if so, we may not be able to pass such review. In addition, we could become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in fines or other penalties, including suspension of business, website closure, and revocation of prerequisite licenses, as well as reputational damage or legal proceedings or actions, which may have a material adverse effect on the VIE and its subsidiaries’ business, financial condition or results of operations.
On June 10, 2021, the SCNPC promulgated the PRC Data Security Law, which became effective in September 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities. It introduces a data classification and hierarchical protection system based on the importance of data in economic and social development. The degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC Data Security Law also provides a national security review procedure for data activities that may affect national security and impose export restrictions on certain data and information. On August 20, 2021, the SCNPC adopted the Personal Information Property Law, which shall come into force as of November 1, 2021. The Personal Information Protection Law includes the basic rules for personal information processing, the rules for cross-border provision of personal information, the rights of individuals in personal information processing activities, the obligations of personal information processors, and the legal responsibilities for illegal collection, processing, and use of personal information.
As uncertainties remain regarding the interpretation and implementation of these laws and regulations, we cannot assure you that we can comply with such regulations in all respects and we may be ordered to rectify or terminate any actions that are deemed illegal by regulatory authorities. We may also become subject to fines and/or other sanctions which may have material adverse effect on the VIE and its subsidiaries’ business, operations and financial condition.
While we take various measures to comply with all applicable data privacy and protection laws and regulations, the VIE and its subsidiaries’ current security measures and those of the VIE and its subsidiaries’ third-party service providers may not always be adequate for the protection of the VIE and its subsidiaries’ company, employee or third party data. We may be a target for computer hackers, foreign governments or cyber terrorists in the future.
Unauthorized access to v proprietary internal and third party data may be obtained through break-ins, sabotage, breach of the VIE and its subsidiaries’ secure network by an unauthorized party, computer viruses, computer denial-of-service attacks, employee theft or misuse, breach of the security of the networks of the VIE and its subsidiaries’ third party service providers, or other misconduct. Because the techniques used by computer programmers who may attempt to penetrate and sabotage the VIE and its subsidiaries’ proprietary internal and third party data change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques.
Unauthorized access to the VIE and its subsidiaries’ proprietary internal and third party data may also be obtained through inadequate use of security controls. Any of such incidents may harm the VIE and its subsidiaries’ reputation and adversely affect the VIE and its subsidiaries’ business and results of operations. In addition, we may be subject to negative publicity about the VIE and its subsidiaries’ security and privacy policies, systems, or measurements. Any failure to prevent or mitigate security breaches, cyber-attacks or other unauthorized access to the VIE and its subsidiaries’ systems or disclosure of third party data, including their personal information, could result in loss or misuse of such data, interruptions to the VIE and its subsidiaries’ service system, loss of confidence and trust in the VIE and its subsidiaries’ company, impairment of the VIE and its subsidiaries’ technology infrastructure, and harm the VIE and its subsidiaries’ reputation and business, resulting in significant legal and financial exposure and potential lawsuits.
Permission Required from PRC Authorities
We and our PRC subsidiaries currently have received all material permissions and approvals required for the operations in compliance with the relevant PRC laws and regulations in the PRC. The business license is the only permission that is required for the operations. The business license is a permit issued by Market Supervision and Administration that allows the company to conduct specific business within the government’s geographical jurisdiction. Each of our PRC subsidiaries has received its business license.
As of the date of this Annual Report on Form 10-K, Muliang Viagoo, WFOE, the VIE and its subsidiaries are not required to obtain any other permissions or approvals from any Chinese authorities to operate its business. However, applicable laws and regulations may be tightened, and new laws or regulations may be introduced to impose additional government approval, license and permit requirements. If we or our subsidiaries fail to obtain and maintain such approvals, licenses, or permits required for the VIE and its subsidiaries’ business, inadvertently conclude that such approval is not required, or respond to changes in the regulatory environment, we or our subsidiaries could be subject to liabilities, penalties and operational disruption, which may materially and adversely affect the VIE and its subsidiaries’ business, operating results, financial condition and the value of our ordinary shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless.
On August 8, 2006, six PRC regulatory agencies, including the CSRC promulgated the M&A Rules, which took effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules, among other things, require offshore special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC domestic enterprises or individuals to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. In September 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC. Although (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours are subject to the M&A Rules; and (ii) when we set up our offshore holding structure, Muliang Viagoo was a then-existing foreign-invested entity and not a PRC domestic company as defined under the M&A Rules; the interpretation and application of the regulations are subject to change, and our future offerings may ultimately require approval from the CSRC. If CSRC approval is required, it is uncertain whether it would be possible for us to obtain the approval and any failure to obtain or delay in obtaining CSRC approval for any future offerings would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies.
The M&A Rules, and other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. For example, the M&A Rules require that MOFCOM shall be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand.
In addition, according to the Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors issued by the General Office of the State Council on February 3, 2011 and which took effect 30 days thereafter, the Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors issued by the MOFCOM on August 25, 2011 and which took effect on September 1, 2011, mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the regulations prohibit any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control arrangement.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in accordance with the Law, which emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.
On February 17, 2023, the CSRC promulgated the Trial Measures along with its five supporting guidelines, which became effective on March 31, 2023. According to the Trial Measures, among other requirements, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfil the filing procedures with the CSRC; if a domestic company fails to complete the filing procedure, such domestic company may be subject to administrative penalties; (2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating subsidiaries of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited combined financial statements for the same period; (ii) its major operational activities are carried out in China or its main places of business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled in China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and such filings shall be submitted to the CSRC within three business days after the submission of the overseas offering and listing application.
On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which clarifies that (1) on or prior to the effective date of the Trial Measures, domestic companies that have already submitted valid applications for overseas offering and listing but have not obtained approval from overseas regulatory authorities or stock exchanges may reasonably arrange the timing for submitting their filing applications with the CSRC, and must complete the filing before the completion of their overseas offering and listing; and (2) a six-month transition period will be granted to domestic companies which, prior to the effective date of the Trial Measures, have already obtained the approval from overseas regulatory authorities or stock exchanges, but have not completed the indirect overseas listing; if domestic companies fail to complete the overseas listing within such six-month transition period, they shall file with the CSRC according to the requirements.
On February 24, 2023, the CSRC, MOF, National Administration of State Secrets Protection and National Archives Administration of China promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Archives Rules, which took effect on March 31, 2023. Pursuant to the Archives Rules, domestic companies that seek for overseas offering and listing shall strictly abide by applicable laws and regulations of the PRC and the Archives Rules, enhance legal awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality and archives administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. Such domestic companies shall not leak any state secret and working secret of government agencies, or harm national security and public interest. Furthermore, a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any document and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level. Moreover, a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. The Archives Rules also stipulate that a domestic company that provides accounting archives or copies of accounting archives to any entities including securities companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in compliance with applicable national regulations.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not Applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is currently quoted on the OTC Markets under the symbol “MULG,” however, there is no active public trading market for our common stock. We had 19,251,657 shares of common stock issued and outstanding as of December 31, 2023.
The following table sets forth, for the periods indicated, the high and low bid prices of our common stock.
High Low
Fiscal Year Ended December 31, 2023
First Quarter $ 14.00 $ 14.00
Second Quarter 14.00 10.00
Third Quarter 10.00 10.00
Fourth Quarter 10.00 2.55
Fiscal Year Ended December 31, 2022
First Quarter $ 14.00 $ 14.00
Second Quarter $ 14.00 $ 14.00
Third Quarter $ 14.00 $ 14.00
Fourth Quarter $ 14.00 $ 14.00
Fiscal Year Ended December 31, 2021
First Quarter $ 14.00 $ 14.00
Second Quarter $ 14.00 $ 14.00
Third Quarter $ 14.00 $ 14.00
Fourth Quarter $ 14.00 $ 14.00
Holders of Capital Stock
As of December 31, 2023, we had 1,033 holders of our common stock and 1 holder of our Series A Preferred Stock.
Stock Option Grants
We do not have a stock option plan in place and have not granted any stock options at this time.
Dividends
To date, we have not declared or paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors has the discretion to declare and pay dividends in the future.
Payment of dividends in the future will depend upon our earnings, capital requirements, and any other factors that our Board of Directors deems relevant.
Recent Sales of Unregistered Securities
Except as set forth below and those previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K, there were no equity securities of the registrant sold by the registrant during the period covered by this annual report that were not registered under the Securities Act.
On February 16, 2021, we sold to a non-U.S. investor a $14,960 convertible note that may be converted into 2,671 shares of our common stock at a price of $5.60 per share. In conjunction with the convertible note, we issued to the investor 1,336 warrants that can be exercised for three years to our common stock at an exercise price of $4.80. The transaction was not registered under the Securities Act in reliance on an exemption from registration set forth in Regulation S promulgated hereunder as a transaction by the Company not involving any public offering. The securities were sold in an offshore transaction by a foreign issuer, to foreign investors, not using any directed selling efforts in the United States. These securities may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements under the Securities Act.
On May 20, 2021, we sold to a non-U.S. investor a $231,839 (or RMB 1,5000,000) convertible note that may be converted into 34,094 shares of our common stock at a price of $6.80 per share. In conjunction with the convertible note, we issued to the investor 17,047 warrants that can be exercised for three years to our common stock at an exercise price of $4.80. The transaction was not registered under the Securities Act in reliance on an exemption from registration set forth in Regulation S promulgated hereunder as a transaction by the Company not involving any public offering. The securities were sold in an offshore transaction by a foreign issuer, to foreign investors, not using any directed selling efforts in the United States. These securities may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements under the Securities Act.
On June 24, 2021, we sold to a non-U.S. investor a $204,000 (or SGD 271,320) convertible note that may be converted into 30,000 shares of our common stock at a price of $6.80 per share. In conjunction with the convertible note, we issued to the investor 15,000 warrants that can be exercised for three years to our common stock at an exercise price of $4.80. The transaction was not registered under the Securities Act in reliance on an exemption from registration set forth in Regulation S promulgated hereunder as a transaction by the Company not involving any public offering. The securities were sold in an offshore transaction by a foreign issuer, to foreign investors, not using any directed selling efforts in the United States. These securities may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements under the Securities Act.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]
Smaller reporting companies are not required to provide the information required by this item.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
The information set forth in this section contains certain “forward-looking statements”, including, among others (i) expected changes in our revenue and profitability, (ii) prospective business opportunities and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, liquidity, ability to complete financing and purchase capital expenditures, growth of our business including entering into future agreements with companies, and plans to successfully develop and obtain approval to market our product. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Annual Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.
We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.
Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of the our company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting our products and businesses.
You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Annual Report.
US Dollars are denoted herein by “USD”, “$” and “dollars”.
Overview
We primarily engage in the manufacturing and distribution of organic fertilizer and the sales of agricultural products in the PRC. The VIE and its subsidiaries’ organic fertilizer products are sold under the VIE and its subsidiaries’ brand names “Zongbao,” “Fukang,” and “Muliang.”
Through patented technology, the operation processes crop straw (including corn, rice, wheat, cotton, and other crops) into high quality organic nutritious fertilizers that are easily absorbed by crops in three hours. Straws are common agricultural by-products. In PRC, farmers usually remove the straw stubble that remains after grains, by burning them in order to continue farming on the same land. These activities have resulted in significant air pollution, and they damage the surface structure of the soil with loss of nutrients. We turn waste into treasure by transforming the straws into organic fertilizer, which also effectively reduces air pollution. The organic straw fertilizer we produce does not contain the heavy metals, antibiotics and harmful bacteria that are common in the traditional manure fertilizer. The VIE and its subsidiaries’ fertilizers also provide optimum levels of primary plant nutrients, including multi-minerals, proteins, and carbohydrates that promote the healthiest soils capable of growing healthy crops and vegetables. It can effectively reduce the use of chemical fertilizers and pesticides as well as reduce the penetration of large chemical fertilizers and pesticides into the soil, thus avoiding water pollution. Therefore, the VIE and its subsidiaries’ fertilizer can effectively improve the fertility of soil, and the quality and safety of agricultural products.
We generated the VIE and its subsidiaries’ revenue mainly from the VIE and its subsidiaries’ organic fertilizers, which accounted for approximately 100.0% and 93.2% of the VIE and its subsidiaries’ total revenue for the years ended December 31, 2023 and 2022, respectively. We currently have one integrated factories in Weihai City, Shandong Province, PRC to produce the VIE and its subsidiaries’ organic fertilizers, which have been in operations since August 2015. We plan to improve the technology for the VIE and its subsidiaries’ existing organic straw fertilizer production lines in the following aspects: (i) adopt more advanced automatic control technology for raw material feed to shorten the processing time of raw material, and (ii) manufacture powdered organic fertilizer instead of granular organic fertilizer production in order to avoid the drying and cooling process, as such will increase the VIE and its subsidiaries’ production capacity.
In addition, there are plans to engage in the processing and distribution of black goat products, with business commencing in June 2024. We are currently constructing a deep-processing slaughterhouse and processing plant which is expected to have the capacity of slaughtering 200,000 black goats per year in Chuxiong City, Yunnan Province, in China. The VIE and its subsidiaries’ black goat processing products including goat rib lets, goat loin roast, goat loin chops, goat rack, goat leg, goat shoulder, goat leg shanks, ground goat, goat stew meat, whole goat, half goat, lamb viscera, etc. We expect to start generating revenue from the black goat products in 2024.
Recent Development
Impact of COVID-19
Started in December 2019, the outbreak of COVID-19 caused by a novel strain of the coronavirus has become widespread in China and in the rest of the world, including in each of the areas in which the Company, its suppliers and its customers operate. In order to avoid the risk of the virus spreading, the Chinese government enacted various restrictive measures, including suspending business operations and quarantines, starting from the end of January 2020. We followed the requirements of local health authorities to suspend operation and production and have employees work remotely in February and March 2020. Since April 2020, we gradually resumed production and are now operating at full capacity.
As a result of the COVID-19 outbreak in December 2019 and continuing through 2020, 2021 and 2022, the Company’s businesses, results of operations, financial position and cash flows were adversely affected in 2022 with potential continuing impacts in 2023, including but not limited to the material adverse impact on the Company’s revenues as result of the suspension of operations and decline in demand by the Company’s customers.
Though the global outbreak and spread of the novel strain of coronavirus (COVID-19) came to an end in November 2022, we are still taking steps in an effort to identify and mitigate the adverse impacts on, and risks to, the VIE and its subsidiaries’ business (including but not limited to the VIE and its subsidiaries’ employees, customers, other business partners, the VIE and its subsidiaries’ manufacturing capabilities and capacity and the VIE and its subsidiaries’ distribution channels) posed by its spread and the governmental and community reactions thereto.
Disposal of land use right and production facility for repayment of debt
The Company completed its sale of industrial land and production facility in Shanghai through an administratively organized private sale on June 16, 2021. Through the sale, the Company’s subsidiary Shanghai Zongbao is able to satisfy its debt obligations due to Agricultural Bank of China and Shanghai Zhongta Construction and Engineering Co., Ltd. and improve its cash position. As a result of the sale, Agricultural Bank of China received RMB 35,632,193.36, Shanghai Zhongta Construction and Engineering Co., Ltd. received RMB 26,000,000 and Shanghai Zongbao received the remaining RMB 7,921,902.28.
Sale of Viagoo
On December 16, 2022, Muliang Viagoo Technology Inc. (the “Company”) entered into a share purchase agreement (the “Agreement”) with Viagoo Inc. (the “Buyer”), pursuant to which the Buyer purchased 100% of the issued and outstanding ordinary shares of Viagoo Pte Ltd., a Singapore private limited liability company and a 100% parent company of NexG Pte. Ltd., and TPS Solutions Hong Kong Limited, from the Company in exchange for a consideration of US$ 5,254,001.20 to be paid to the Company as follows:
(i) The Buyer agrees to issue a convertible note to a certain convertible noteholder of the Company in exchange for the cancellation of certain debt of the Company held by certain noteholder;
(ii) US$1,000,000 in a promissory note issued by the Buyer (the “Promissory Note”), which must be paid off by the Buyer within three (3) business days of the closing date of the next financing transaction by the Buyer (the “Closing Date”);
(iii) 625,715 ordinary shares of the Buyer, valued at US$5.60 per share, or an aggregate of US$3,504,001.20, within seven (7) business days of the Closing Date.
(iv) US$750,000 within five (5) business days of a Liquidity Event by the Buyer in any combination of cash or stock. Each share of stock shall be valued at the fair market value price at the time of the Liquidity Event. “Liquidity Event” shall mean any event that allows the Buyer to raise capital or shareholders of the Buyer to sell or dispose for consideration part or all of their ownership shares and list on a national stock exchange in the United States, including but not limited to acquisition, merger, initial public offering, SPAC merger and listing, direct listing or other such events.
Should the Buyer fail to perform a financing transaction after the effective date of the Agreement, shall result in the cancellation of the transaction. The Agreement also includes customary representations, warranties, and covenants by the parties.
The disposition was finalized on January 1, 2023, marking the company's exit from the logistics sector to concentrate on its fertilizer business.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate, on an on-going basis, our estimates for reasonableness as changes occur in our business environment. We base our estimates on experience, the use of independent third-party specialists and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are reflective of significant judgments, estimates and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe the following are our critical accounting policies:
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). The differences between US GAAP and PRC GAAP have been adjusted in these consolidated financial statements. The Company’s functional currency is the Chinese Renminbi (“RMB”) and Singapore dollar(“SGD”); however, the accompanying consolidated financial statements have been translated and presented in United States Dollars (“USD”).
Liquidity and Going Concern
As reflected in the accompanying consolidated financial statements, we had net accumulated deficit of $1,744,135 and $3,965,137 as of December 31, 2023 and 2022, respectively. Our cash balances as of December 31, 2023 and December 31, 2022 were $1,389 and $8,122, respectively. We had current liability of $4,842,594 at December 31, 2023 which would be due within the next 12 months. In addition, we had working capital of $9,705,866 and $8,112,564 at December 31, 2023 and 2022, respectively.
Because the company is gradually recovering the accounts receivables affected by the Covid-19, and the sales are gradually returning to the normal level, the company’s current cash revenue and expenditure are normal, which did not affect the normal operation. Now, after Covid-19, the company has no problems with business sustainability. IPO financing will be used for new investments to expand the operating scale and does not affect the existing operating scale.
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and consolidated VIE, including the VIE’ subsidiaries, for which the Muliang Viagoo is the primary beneficiary.
All transactions and balances among the Company, its subsidiaries, the VIE and the VIE’ subsidiaries have been eliminated upon consolidation.
As PRC laws and regulations welcome to invest in organic fertilizer industry businesses, the Muliang Viagoo operates its fertilizer business in the PRC through Shanghai Muliang and its subsidiaries, which are collectively referred as the “WFOEs”.
By entering into a series of agreements (the “VIE Agreements”), the Muliang Viagoo, through WFOEs, obtained control over Shanghai Muliang and its subsidiaries (collectively referred as “VIE”). The VIE Agreements enable the Muliang Viagoo to (1) have power to direct the activities that most significantly affect the economic performance of the VIE, and (2) receive the economic benefits of the VIE that could be significant to the VIE. Accordingly, the Muliang Viagoo is considered the primary beneficiary of the VIE and has consolidated the VIE’ financial results of operations, assets and liabilities in the Muliang Viagoo’s consolidated financial statements. In making the conclusion that the Muliang Viagoo is the primary beneficiary of the VIE, the Muliang Viagoo’s rights under the Power of Attorney also provide the Muliang Viagoo’s abilities to direct the activities that most significantly impact the VIE’ economic performance. The Muliang Viagoo also believes that this ability to exercise control ensures that the VIE will continue to execute and renew the Master Exclusive Service Agreement and pay service fees to Muliang Viagoo. By charging service fees to be determined and adjusted at the sole discretion of Muliang Viagoo, and by ensuring that the Master Exclusive Service Agreement is executed and remains effective, Muliang Viagoo has the rights to receive substantially all of the economic benefits from the VIE.
Details financial information of the VIE Entities, are set forth below:
As of
December 31,
As of
December 31,
Current assets $ 14,548,442 $ 17,355,485
Non-current assets 7,596,743 7,698,043
Total Assets 22,145,185 25,053,528
Current liabilities 4,823,664 8,203,733
Non-current liabilities 23,112 67,573
Total liabilities 4,846,776 8,271,306
Total shareholders’ equity $ 17,298,409 $ 16,782,222
For the years ended
December 31,
Net income $ 849,427 $ 3,190,198
Net cash used in operating activities (934,408 ) (1,316,756 )
Net cash used in investment activities (178,527 ) (126,208 )
Net cash provided by financing activities $ 375,866 $ 1,444,460
VIE Agreements that were entered to give the Muliang Viagoo effective control over the VIE include:
Voting Rights Proxy Agreement and Irrevocable Power of Attorney
Under which each shareholder of the VIE grant to any person designated by WFOEs to act as its attorney-in-fact to exercise all shareholder rights under PRC law and the relevant articles of association, including but not limited to, appointing directors, supervisors and officers of the VIE as well as the right to sell, transfer, pledge and dispose all or a portion of the equity interest held by such shareholders of the VIE. The proxy and power of attorney agreements will remain effective as long as WFOEs exist. The shareholders of the VIE do not have the right to terminate the proxy agreements or revoke the appointment of the attorney-in-fact without written consent of the WFOEs.
Exclusive Option Agreement
Under which each shareholder of the VIE granted 9F or any third party designated by 9F the exclusive and irrevocable right to purchase from such shareholders of the VIE, to the extent permitted by PRC law and regulations, all or part of their respective equity interests in the VIE for a purchase price equal to the registered capital. The shareholders of the VIE will then return the purchase price to 9F or any third party designated by 9F after the option is exercised. 9F may transfer all or part of its option to a third party at its own option. The VIE and its shareholders agree that without prior written consent of 9F, they may not transfer or otherwise dispose the equity interests or declare any dividends. The restated option agreement will remain effective until 9F or any third party designated by 9F acquires all equity interest of the VIE.
Spousal Consent
The spouse of each shareholder of the VIE has entered into a spousal consent letter to acknowledge that he or she consents to the disposition of the equity interests held by his or her spouse in the VIE in accordance with the exclusive option agreement, the power of attorney and the equity pledge agreement regarding VIE structure described above, and any other supplemental agreement(s) may be consented by his or her spouse from time to time. Each such spouse further agrees that he or she will not take any action or raise any claim to interfere with the arrangements contemplated under the mentioned agreements. In addition, each such spouse further acknowledges that any right or interest in the equity interests held by his or her spouse in the VIE do not constitute property jointly owned with his or her spouse and each such spouse unconditionally and irrevocably waives any right or interest in such equity interests.
Loan Agreement
Pursuant to the loan agreements between WFOEs and each shareholder of the VIE, WFOEs extended loans to the shareholders of the VIE, who had contributed the loan principal to the VIE as registered capital. The shareholders of VIE may repay the loans only by transferring their respective equity interests in VIE to 9F Inc. or its designated person(s) pursuant to the exclusive option agreements. These loan agreements will remain effective until the date of full performance by the parties of their respective obligations thereunder.
VIE Agreements that enables Muliang Viagoo to receive substantially all of the economic benefits from the VIE include:
Equity Interest Pledge Agreement
Pursuant to equity interest pledge agreement, each shareholder of the VIE has pledged all of his or her equity interest held in the VIE to WFOEs to secure the performance by VIE and their shareholders of their respective obligations under the contractual arrangements, including the payments due to WFOEs for services provided. In the event that the VIE breach any obligations under these agreements, WFOEs as the pledgees, will be entitled to request immediate disposal of the pledged equity interests and have priority to be compensated by the proceeds from the disposal of the pledged equity interests. The shareholders of the VIE shall not transfer their equity interests or create or permit to be created any pledges without the prior written consent of WFOEs. The equity interest pledge agreement will remain valid until the master exclusive service agreement and the relevant exclusive option agreements and proxy and power of attorney agreements, expire or terminate.
Master Exclusive Service Agreement
Pursuant to exclusive service agreement, WFOEs have the exclusive right to provide the VIE with technical support, consulting services and other services. WFOEs shall exclusively own any intellectual property arising from the performance of the agreement. During the term of this agreement, the VIE may not accept any services covered by this agreement provided by any third party. The VIE agree to pay service fees to be determined and adjusted at the sole discretion of the WFOEs. The agreement will remain effective unless WFOEs terminate the agreement in writing.
Risks in relation to the VIE structure
Muliang Viagoo believes that the contractual arrangements with the VIE and their current shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Muliang Viagoo’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
● Revoke the business and operating licenses of the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities;
● Discontinue or restrict the operations of any related-party transactions among the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities;
● Impose fines or other requirements on the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities;
● Require the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities to revise the relevant ownership structure or restructure operations; and/or;
● Restrict or prohibit the Muliang Viagoo’s use of the proceeds of the additional public offering to finance the Muliang Viagoo’s business and operations in China;
● Shut down the Muliang Viagoo’s servers or blocking the Muliang Viagoo’s online platform;
● Discontinue or place restrictions or onerous conditions on the Muliang Viagoo’s operations; and/or
● Require the Muliang Viagoo to undergo a costly and disruptive restructuring.
Muliang Viagoo’s ability to conduct its business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, Muliang Viagoo may not be able to consolidate the VIE in its consolidated financial statements as it may lose the ability to exert effective control over the VIE and its shareholders, and it may lose the ability to receive economic benefits from the VIE. Muliang Viagoo currently does not believe that any penalties imposed or actions taken by the PRC government would result in the liquidation of the Company, WFOEs, or the VIE.
The following table sets forth the assets, liabilities, results of operations and cash flows of the VIE and their subsidiaries, which are included in Muliang Viagoo’s consolidated financial statements after the elimination of intercompany balances and transactions:
Under the VIE Arrangements, Muliang Viagoo has the power to direct activities of the VIE and can have assets transferred out of the VIE. Therefore, Muliang Viagoo considers that there is no asset in the VIE that can be used only to settle obligations of the VIE, except for assets that correspond to the amount of the registered capital and PRC statutory reserves, if any. As the VIE are incorporated as limited liability companies under the Company Law of the PRC, creditors of the VIE do not have recourse to the general credit of Muliang Viagoo for any of the liabilities of the VIE.
Currently there is no contractual arrangement which requires Muliang Viagoo to provide additional financial support to the VIE. However, as Muliang Viagoo conducts its businesses primarily based on the licenses held by the VIE, Muliang Viagoo has provided and will continue to provide financial support to the VIE.
Revenue-producing assets held by the VIE include certain internet content provision (“ICP”) licenses and other licenses, domain names and trademarks. The ICP licenses and other licenses are required under relevant PRC laws, rules and regulations for the operation of internet businesses in the PRC, and therefore are integral to Muliang Viagoo’s operations. The ICP licenses require that core PRC trademark registrations and domain names are held by the VIE that provide the relevant services.
Muliang Viagoo consolidates the following entities, including wholly-owned subsidiaries, Muliang HK, Shanghai Mufeng, Viagoo, and its wholly controlled variable interest entities, Shanghai Muliang, and Zhongbao, 60% controlled Agritech Development, 99% controlled Fukang, 65% controlled Zhonglian, 80% controlled Yunnan Muliang, 100% controlled Anhui Muliang, 65% controlled Maguan, and 51% controlled Heilongjiang. Accordingly, the 40% equity interest holder of Agritech Development, 1% equity interest holders in Fukang, 35% equity interest holders in Zhonglian, 20% interest in Yunnan Muliang, 35% equity interest in Maguan, and 49% equity interest in Heilongjiang are accounted as non-controlling interest in the Company’s consolidated financial statements.
Discontinued operation
In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meet the criteria in paragraph 205-20-45-1E to be classified as discontinued operations. When all of the criteria to be classified as discontinued operations are met, including management having the authority to approve the action and committing to a plan to sell the entity or the components, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from the balances of the continuing operations. At the same time, the results of discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.
As of December 31, 2023, Viagoo is no longer consolidated scope due to the dispose in January 2023. For financial information related to the discontinued operations.
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.
Accounts Receivable
Accounts receivable are stated at the historical carrying amount net of allowance for expected credit losses. The Company adopted ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” on January 1, 2021 using a modified retrospective approach. The Company also adopted this guidance to other receivables. To estimate expected credit losses, the Company has identified the relevant risk characteristics of its customers and the related receivables. The Company considers the past collection experience, current economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Company’s customer collection trends. The allowance for credit losses and corresponding receivables were written off when they are determined to be uncollectible.
Inventory Valuation
We value the VIE and its subsidiaries’ fertilizer inventories at the lower of cost, determined on a weighted average basis, and net realizable value (the estimated market price). Substantially all inventory expenses, packaging and supplies are valued by the weighted average method.
Revenue Recognition
On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. Results for the reporting period beginning after January 1, 2018 are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605.
Management has determined that the adoption of ASC 606 did not impact the Company’s previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment to opening retained earnings.
Revenue for sale of products is derived from contracts with customers, which primarily include the sale of fertilizer products and environmental protection equipment. The Company’s sales arrangements do not contain variable consideration. The Company recognizes revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied and control of the products has been transferred to the customer. For vast majority of the Company’s product sales, the performance obligations and control of the products transfer to the customer when products are delivered, and customer acceptance is made.
Income Taxes
The Company accounts for income taxes under the provision of FASB ASC 740-10, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Recent Accounting Pronouncement
In June 2022, the FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The update clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The update also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The update also requires certain additional disclosures for equity securities subject to contractual sale restrictions. The amendments in this update are effective for the Group beginning January 1, 2024 on a prospective basis. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations and cash flows.
In March 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-01, "Lease (Topic 842): Common Control Arrangements". This update provides guidance on the accounting for lease arrangements between entities under common control. The Company has adopted this standard effective January 1, 2023, and has evaluated its existing lease arrangements to ensure compliance with the new guidance. The adoption of ASU 2023-01 is expected to enhance the transparency and consistency of lease accounting within the Company's financial statements, providing stakeholders with clearer insights into the implications of common control lease arrangements.
The Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.
Results of Operations
We are principally engaged in the organic fertilizer manufacture and distribution business in the PRC, which account for 100% of our total revenue for the year ended December 31, 2023.
As a result of the COVID-19 outbreak in December 2019 and continuing in the year of 2020, 2021, and 2022, the Company’s businesses, results of operations, financial position and cash flows were adversely affected in 2022. However, the COVID-19 came to an end in November 2022 in China. And we expected to make progress in revenue for the coming years.
Operating Results for the Years Ended December 31, 2023 and 2022
Years Ended December 31,
Variance
$
$
$
%
Revenues-fertilizer
8,656,862
11,049,883
(2,393,021 )
-21.7 %
Subtoal of revenue
8,656,862
11,049,883
(2,393,021 )
-21.7 %
Cost-fertilizer
5,353,549
6,358,418
(1,004,869 )
-15.8 %
Subtotal of cost
5,353,549
6,358,418
(1,004,869 )
-15.8 %
Gross profit
3,303,313
4,691,465
(1,388,152 )
-29.6 %
Gross margin
38.2 %
42.5 %
Operating expenses:
General and administrative expenses
421,570
399,167
22,403 )
5.6 %
Selling expenses
11,941
318,087
(306,146 )
-96.2 %
Provision for expected credit losses
2,402,501
237,191
2,165,310
912.9 %
Total operating expenses
2,836,012
954,446
1,881,566
197.1 %
Income from operations
467,301
3,737,019
(3,269,718 )
-87.5 %
Other income (expense):
Interest Income
-
N/A
Interest expense
(77,209 )
(124,730 )
47,521
-38.1 %
Other income (expense), net
433,524
10,534
422,990
4015.4 %
Total other income(expense)
356,327
(114,196 )
470,523
-412.0 %
Income before income taxes
823,628
3,622,824
(2,799,196 )
-77.3 %
Income taxes expense (benefit)
(25,799 )
432,626
(458,425 )
-106.0 %
Net income from continuing operations
849,427
3,190,198
(2,340,771 )
-73.4 %
Revenue.
Revenue for fertilizer decreased from $11,049,883 for the year ended December 31, 2022 to $8,656,862 for the year ended December 31, 2023, which represented a decrease of $2,393,021, or approximately 21.7%. The sluggish economic situation and consumer market have also reduced the demand for organic fertilizers.
Cost of sales
Cost of sales for fertilizer decreased from $6,358,418 for the year ended December 31, 2022 to $5,353,549 for the year ended December 31, 2023, which represented a decrease of approximately $1,004,869, or 15.8%. The decrease in cost of revenue was in line with the decrease in revenue.
The cost of sales represents the manufacturing costs and transportation costs incurred during the production process.
Gross profit
The gross profit for fertilizer decreased from $4,691,465 for the year ended December 31, 2022 to gross profit of $3,303,313 for the year ended December 31, 2023. The gross margin decreased from 42.5% for the year ended December 31, 2022 to 38.2% for the year ended December 31, 2023. The reduced gross margin was due to the weak demand for organic fertilizer after the COVID-19, which also reduced the selling price of our products.
Expenses.
We incurred $11,941 in selling expenses for the year ended December 31, 2023, compared to $318,087 for the year ended December 31, 2022. We incurred $421,570 in general and administrative expenses for the year ended December 31, 2023, compared to $399,167 for the year ended December 31, 2022. Total selling, general and administrative expenses decreased by $283,744, or 39.6% for the year ended December 31, 2023 as compared to the same period in 2022. Our selling expenses decreased by $306,146 and our general and administrative expenses increased by $22,403. The decrease in general and administrative expenses was due to the sale of Viagoo on January 1, 2023. We expect our general and administrative expense to increase for the next year, if we successfully complete our public offering.
Interest expense
We incurred $77,209 in interest expense during the year ended December 31, 2023, compared with interest expense of $124,730 for the year ended December 31, 2022. The decreased interest expense reflects the decreased loan balance as of December 31, 2023.
Net Income from continuing operations
Our net income from continuing operations was $849,427 for the year ended December 31, 2023, compared with net income from continuing operations of $3,190,198 for the year ended December 31, 2022, representing a decrease of $2,340,771, or 73.4%. The significant decrease in net income from continuing operations was mainly due to the provision for expected credit losses of $2,402,501 taken for account receivable for the year ended December 31, 2023.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At December 31, 2023 and December 31, 2022 our working capital was $9,705,866 and $8,112,564, respectively. The improvement in our working capital deficit was reflecting faster decrease in our current liability, especially the significant decrease in account payable and accrued liability balance.
We have financed operations over the years ended December 31, 2023 and 2022 primarily through proceeds from stock issuance and advances from related parties, and net cash inflow from operations.
The components of cash flows are discussed below:
For the Years Ended
December 31,
Net cash used in operating activities $ (934,408 ) $ (1,302,022 )
Net cash used in investing activities (178,527 ) (126,208 )
Net cash provided by financing activities 375,866 1,444,460
Exchange rate effect on cash 730,336 19,070
Net cash inflow (outflow) $ (6,733 ) $ 35,300
Cash used in Operating Activities
Net cash used in operating activities was $934,408 for the year ended December 31, 2023. Cash used in operating activities for the year ended December 31, 2023 consisted primarily of a decrease of $2,237,495 in other payable, an increase of $1,926,608 in account receivable, and a decrease of $963,371 in account payable, which was offset by the net income of $1,838,281, depreciation and amortization of $795,232, provision for expected credit losses of $2,402,501, and amortization of right of use assets of $56,270.
Net cash used in operating activities was $1,302,022 for the year ended December 31, 2022. Cash used in operating activities for the year ended December 31, 2022 consisted primarily of an increase of $1,589,257 in account receivable, an increase of $1,592,071 in other receivable, and a decrease of $5,303,952 in account payable and accrued liability, which was offset by net income of $2,919,536, depreciation and amortization of $527,193, and a decrease of $2,663,209 in prepayment, and the provision for expected credit losses of $237,191.
Cash used in Investing Activities
Net cash used in investing activities was $178,527 for the year ended December 31, 2023. The investment activity was payments made for construction in progress.
Net cash used in investing activities was $126,208 for the year ended December 31, 2022. The investment activity was payments made for intangible assets.
Cash provided by (used in) Financing Activities
Net cash provided by financing activities was $375,866 for the year ended December 31, 2023. During the year, cash provided by financing activities included proceeds from related parties of $602,090, which were partly offset by repayment of short-term loans of $226,224.
Net cash provided by financing activities was $1,444,460 for the year ended December 31, 2022. During the period, cash provided by financing activities consisted of borrowing of $1,755,885 from related party, offset by short term loan repayment of $311,425.
We anticipate that our current cash reserves plus cash from operating activities will not be sufficient to meet our ongoing obligations and fund operations for the next twelve months. As a result, we will need to seek additional funding in the near future. We are looking to obtain additional funding through equity financing in the secondary market, and/or renewing our current obligations with loaners. We may also seek to obtain short-term loans from our directors or unrelated parties. Additional funding may not be available, or at acceptable terms, to us at this time. If we are unable to obtain additional financing, we may be required to reduce the scope of our business development activities, which could harm our business plans, financial condition and operating results.
Contractual Commitments and Commitments for Capital Expenditure
Contractual Commitments
The following table summarizes our contractual obligations as of December 31, 2023 and the effect those obligations are expected to have on our liquidity and cash flow in future periods.
Payments Due by Period as of December 31, 2023
Total Less than
1 Year 1 - 3
Years 3 - 5
Years Over
5 Years
Contractual obligations
Loans $ 789,305 $ 773,039 $ 16,266 $ - $ -
Others 20,070 13,224 6,846 - -
$ 809,375 $ 786,263 $ 23,112 $ - $ -
Commitments for Capital Expenditure
There is no commitment for capital expenditure as of December 31, 2023.
Off-Balance Sheet Items
We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Smaller reporting companies are not required to provide the information required by this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
PAGE
Report of Independent Registered Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To:
The Board of Directors and Stockholders of
Muliang Viagoo Technology, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Muliang Viagoo Technology, Inc., its subsidiaries and its variable interest entities (collectively the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accounts receivable
We assessed the carrying value of accounts receivable as a critical audit matter. As of December 31, 2023, the Company’s accounts receivable balance was quantitatively material to the financial statements as a whole, and the account required challenging, subjective and complex judgment and assumptions regarding the estimation of the net carrying value.
The Company’s accounts receivable is stated at gross receivables less an allowance for expected credit losses based on management assessment of collectability of those balances.
Our principal audit procedures performed to address the net carrying value of the accounts receivables and related provision for expected credit losses included the following:
● Independently sending confirmation to the Company’s customers and checking for subsequent payment from customers.
● Inquired with Company personnel to understand management’s assessment on the credit worthiness of the Company’s customers and the recoverability of the receivables.
●
Performed quantitative and qualitative analysis on accounts receivable aging and past collections from customers, and researched if there are any historical, geographical or industry trends that would influence collectability.
The accounts relevant to this critical audit matter include the accounts receivable, allowance for expected credit losses, and provision for expected credit losses, and the related disclosure in the accompanying note 4 to the financial statements.
/s/ WWC, P.C.
WWC, P.C.
Certified Public Accountants
PCAOB ID: 1171
We have served as the Company’s auditor since March 15, 2016.
San Mateo, CA
November 20, 2024
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
ASSETS
Current Assets:
Cash and cash equivalents $ 1,389 $ 8,122
Accounts receivable, net 11,114,319 11,745,426
Inventories 75,408 194,226
Prepayments 3,316,015 3,719,342
Other receivables, net 41,329 1,507,443
Current assets of discontinued operations -
159,962
Total Current Assets 14,548,460 17,334,522
Long term investment -
18,526
Property, plant and equipment, net 5,284,717 5,620,528
Land use right assets 1,215,297 1,227,342
Operating lease right of use asset, net 24,799 140,120
Intangible assets, net -
46,885
Productive biological asset 106,131 382,978
Other assets and deposits 19,348 19,798
Deferred tax asset 946,451 241,866
Other assets of discontinued operations -
58,887
Total Assets $ 22,145,203 $ 25,091,453
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt $ 773,039 $ 1,039,243
Accounts payable and accrued liability 1,440,741 2,420,204
Advances from customers 223,928 282,978
Operating lease liabilities - current 13,224 56,165
Income tax payable 1,609,873 921,374
Other payables 445,994 2,438,546
Due to related party 335,795 1,045,224
Current liabilities of discontinued operations -
1,018,224
Total Current Liabilities 4,842,594 9,221,958
Long-term loans 16,266 -
Operating lease liabilities - noncurrent 6,846 67,573
Other liabilities of discontinued operations -
8,553
Total Liabilities 4,865,706 9,298,084
Commitments and contingencies -
-
Stockholders’ Equity:
Series A Preferred Stock，$0.0001 par value, 50,000,000 shares authorized (of which 15,000,000 shares are designated as Series A Preferred Stock), 9,500,000 shares issued and outstanding as of December 31, 2023 and 2022.*
Common stock, $0.0001 par value, 250,000,000 shares authorized, 19,251,657 shares issued and outstanding as of December 31, 2023 and 2022.* 1,925 1,925
Statutory Reserve 40,724 -
Additional paid in capital 18,804,295 19,936,668
Accumulated deficit (1,744,135 ) (3,965,137 )
Accumulated other comprehensive income(loss) 63,396 (328,151 )
Stockholders’ Equity - Muliang Viagoo Technology Inc. and Subsidiaries 17,167,155 15,646,255
Noncontrolling interest 112,342 147,114
Total Stockholders’ Equity 17,279,497 15,793,369
Total Liabilities and Stockholders’ Equity $ 22,145,203 $ 25,091,453
* Retroactively restated to reflect the Company’s 1-for-2 reverse share split effective on February 24, 2023.
See accompanying notes to consolidated financial statements
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Years Ended
December 31,
Revenues $ 8,656,862 $ 11,049,883
Cost of goods sold 5,353,549 6,358,418
Gross profit 3,303,313 4,691,465
38.16 % 42.46 %
Operating expenses:
General and administrative expenses 421,570 399,167
Selling expenses 11,941 318,087
Provision for expected credit losses 2,402,501 237,191
Total operating expenses 2,836,012 954,446
Income from operations 467,301 3,737,019
Other income (expense):
Interest Income
Interest expense (77,209 ) (124,730 )
Other income (expense), net 433,524 10,534
Total other expense 356,327 (114,196 )
Income before income taxes 823,628 3,622,824
Income taxe (benefit)expense (25,799 ) 432,626
Net income from continuing operations 849,427 3,190,198
Income from operations of a discontinued component
Loss from discontinued operations, net of applicable income taxes
(270,662 )
Gain from disposal of a discontinued component 988,854
Net income (loss) from discontinued operations 988,854 (270,662 )
Net Income 1,838,281 2,919,536
Net (loss)income attributable to noncontrolling interest (761 ) 8,445
Net income attributable to Muliang Viagoo Technology Inc. common stockholders 1,839,042 2,911,091
Other comprehensive income :
Foreign currency translation adjustment (352,153 ) (1,834,024 )
Total Comprehensive income 1,486,128 1,085,512
Total comprehensive (loss)income attributable to noncontrolling interests (34,772 ) 3,299
Total comprehensive income attributable to Muliang Viagoo Technology Inc. common stockholders $ 1,520,900 $ 1,082,213
Earnings per common share Basic and diluted*
Continuing operations 0.04 0.17
Discontinued operations 0.05 (0.02 )
Weighted average common shares outstanding*
Basic 19,251,657 19,251,657
Diluted 19,251,657 19,251,657
* Retroactively restated to reflect the Company’s 1-for-2 reverse share split effective on February 24, 2023.
See accompanying notes to consolidated financial statements
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the years ended December 31, 2023 and 2022
Series A
Preferred Stock Common Stock Statutory Reserve Additional Paid-in Accumulated Accumulated
Other
Comprehensive Non-controlling
Shares Amount Shares Amount Amount Capital Deficit Income (Loss) Interest Total
Balance, December 31, 2021 9,500,000 19,251,657 $ 1,925 -
19,936,668 (6,876,227 ) 1,500,727 143,814 14,707,857
Net income
2,911,090
8,446 2,919,536
Foreign currency translation adjustment
(1,828,878 ) (5,146 ) (1,834,024 )
Balance, December 31, 2022 9,500,000 19,251,657 $ 1,925 -
19,936,668 (3,965,137 ) (328,151 ) 147,114 15,793,369
Net income
1,839,042
(761 ) 1,838,281
Deconsolidation of discontinued operations
(1,132,373 ) 422,684 709,689
-
Statutory Reserve Allocation
40,724
(40,724 )
-
Foreign currency translation adjustment
(318,142 ) (34,011 ) (352,153 )
Balance, December 31, 2023 9,500,000 19,251,657 $ 1,925 40,724 18,804,295 (1,744,135 ) 63,396 112,342 17,279,497
* Retroactively restated to reflect the Company’s 1-for-2 reverse share split effective on February 24, 2023.
See accompanying notes to consolidated financial statements
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,838,281 $ 2,919,536
Net profit(loss) from discontinued operations 988,854 (270,662 )
Net income from continuing operations 849,427 3,190,198
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 795,232 527,193
Provision for expected credit losses 2,402,501 237,191
Amortization of land use right assets 29,954 31,496
Deferred income tax assets (709,796 ) -
Amortization of Operating lease right of use assets 56,270 68,270
Changes in assets and liabilities:
Accounts receivable (1,926,608 ) (1,589,257 )
Inventories 114,357 (72,908 )
Prepayment 250,901 2,663,209
Other receivables (1,959 ) (1,592,071 )
Accounts payable and accrued payables (963,371 ) (5,303,952 )
Advances from customers (257,982 ) 10,526
Income tax payable 709,156 432,626
Lease liability (44,995 ) (67,742 )
Other payables (2,237,495 ) 148,465
Net cash used in operating activities from continuing operations (934,408 ) (1,316,756 )
Net cash provided by operating activities from discontinued operations -
14,734
Net cash used in operating activities (934,408 ) (1,302,022 )
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Intangible assets -
(126,208 )
Purchase of Property, plant and equipment, net (178,527 ) -
Net cash used in investing activities from discontinued operations
Net cash used in investing activities (178,527 ) (126,208 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment to) related party 602,090 1,755,885
Repayment of short-term loans (226,224 ) (311,425 )
Net cash used in financing activities from discontinued operations
Net cash provided by financing activities 375,866 1,444,460
EFFECT OF EXCHANGE RATE CHANGES ON CASH 730,336 19,070
NET (DECREASE)INCREASE IN CASH (6,733 ) 35,300
CASH, BEGINNING OF YEAR 73,313 38,013
CASH, END OF YEAR $ 66,580 $ 73,313
LESS: CASH, CASH EQUIVALENTS AND RESTRICTED CASH FROM DISCONTINUED OPERATIONS 65,191 65,191
CASH, CASH EQUIVALENTS AND RESTRICTED CASH FROM CONTINUING OPERATIONS 1,389 8,122
-
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Cash paid for interest expense, net of capitalized interest $ 6,175 $ 160,254
Cash paid for income tax $ -
$ -
NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES
Long term investment without paying cash $ -
$ -
Initial recognition of operating lease right of use asset $ 25,875 $ -
See accompanying notes to consolidated financial statements
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Muliang Viagoo Technology, Inc (“Muliang Viagoo”), formerly known as M & A Holding Corporation., Mullan Agritech Inc. and Muliang Agritech Inc. was incorporated under the laws of the State of Nevada on November 5, 2014. Muliang Viagoo’s core business activities of developing, manufacturing, and selling organic fertilizers and bio-organic fertilizers for use in agricultural industry are conducted through several indirectly owned subsidiaries in China.
On June 9, 2016, M & A Holding Corporation filed a Certificate of Amendment to its Articles of Incorporation (the “Amendment”) with the Secretary of State of the State of Nevada, changing its name from “M & A Holding Corporation,” to “Mullan Agritech, Inc.”
On July 11, 2016, the Financial Industry Regulatory Authority (FINRA) effected in the marketplace the change of the corporate name from “M & A Holding Corporation,” to “Mullan Agritech, Inc.”, and effective on such date.
On April 4, 2019, the Company changed its corporate name from “Mullan Agritech Inc.” to “Muliang Agritech Inc.” The name change took effect on May 7, 2019. In connection with the name change, our stock symbol changed to “MULG”.
On June 26, 2020, Muliang Agritech, Inc. filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of the State of the State of Nevada, changing its name from “Muliang Agritech, Inc.” to “Muliang Viagoo Technology, Inc.”. The Company will trade under the new name upon approval by FINRA.
History
Shanghai Muliang Industry Co., Ltd. was incorporated in PRC on December 7, 2006 as a limited liability company, owned 95% by Lirong Wang and 5% by Zongfang Wang. Shanghai Muliang through its own operations and its subsidiaries is engaged in the business of developing, manufacturing and selling organic fertilizers and bio-organic fertilizers for use in the agricultural industry.
On May 27, 2013, Shanghai Muliang entered into and consummated an equity purchase agreement whereby it acquired 99% of the outstanding equity of Weihai Fukang Bio-Fertilizer Co., Ltd. (“Fukang”), a corporation organized under the laws of the People’s Republic of China. Fukang was incorporated in Weihai City, Shandong Province on January 6, 2009. Fukang is focused on the distribution of organic fertilizers and the development of new bio-organic fertilizers. As a result of the completion of the transaction, Fukang became a 99% owned subsidiary of Shanghai Muliang, with the remaining 1% equity interest owned by Mr. Hui Song.
On July 11, 2013, Shanghai Muliang established a wholly owned subsidiary, Shanghai Muliang Viagoo Development Co., Ltd. (“Agritech Development”) in Shanghai, China. On November 6, 2013, Shanghai Muliang sold 40% of the outstanding equity of Agritech Development to Mr. Jianping Zhang for consideration of approximately $65,000 or RMB 400,000. Agritech Development does not currently conduct any operations.
On July 17, 2013, Shanghai Muliang entered into an equity purchase agreement to acquire 100% of the outstanding equity of Shanghai Zongbao Environmental Construction Co., Ltd. (“Shanghai Zongbao”) with consideration of approximately $3.2 million or RMB 20 million, effectively becoming the wholly-owned subsidiary of Shanghai Muliang. Shanghai Zongbao was incorporated in Shanghai on January 25, 2008. Shanghai Zongbao processes and distributes organic fertilizers. Shanghai Zongbao wholly owns Shanghai Zongbao Environmental Construction Co., Ltd. Cangzhou Branch (“Zongbao Cangzhou”).
On August 21, 2014, Muliang Agricultural Limited (“Muliang HK”) was incorporated in Hong Kong as an investment holding company.
January 27, 2015, Muliang HK incorporated a wholly foreign-owned enterprise, Shanghai Mufeng Investment Consulting Co., Ltd (“Shanghai Mufeng”), in China.
On July 8, 2015, Muliang Viagoo entered into certain stock purchase agreement with Muliang HK, pursuant to which Muliang Viagoo, for a consideration of $5,000, acquired 100% interest in Muliang HK and its wholly-owned subsidiary Shanghai Mufeng. Both Muliang HK and Shanghai Mufeng are controlled by the Company’s sole officer and director, Lirong Wang.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
On July 23, 2015, Shanghai Muliang established a wholly owned subsidiary, Shanghai Muliang Agricultural Sales Co., Ltd. (“Muliang Sales”) in Shanghai, China.
On September 3, 2015, Muliang Viagoo effected a split of its outstanding common stock resulting in an aggregate of 75,262,500 shares outstanding of which 60,000,000 were owned by Chenxi Shi, the founder of Muliang Viagoo and its sole officer and director. The remaining 15,262,500 were held by a total of 39 investors.
On January 11, 2016, Muliang Viagoo issued 64,737,500 shares of its common stock to Lirong Wang for an aggregate consideration of $64,737.50. On the same date, Chenxi Shi, the sole officer and director of Muliang Viagoo on that date, transferred 60,000,000 shares of common stock of the Company held by him to Lirong Wang for $800 pursuant to a transfer agreement.
On February 10, 2016, Shanghai Mufeng entered into a set of contractual agreements known as Variable Interest Entity (“VIE”) Agreements, including (1) Exclusive Technical Consulting and Service Agreement, (2) Equity Pledge Agreement, and (3) Call Option Cooperation Agreement, with Shanghai Muliang, and its Principal Shareholders. As a result of the Stock Purchase Agreement and the set of VIE Agreements, Shanghai Muliang Industry Co., Ltd., along with its consolidated subsidiaries, became entities controlled by Muliang Viagoo, whereby Muliang Viagoo would derive all substantial economic benefit generated by Shanghai Muliang and its subsidiaries.
As a result, Muliang Viagoo has a direct wholly-owned subsidiary, Muliang HK and an indirectly wholly owned subsidiary Shanghai Mufeng. Through its VIE Agreements, Muliang Viagoo exercises control over Shanghai Muliang. As a result, Shanghai Muliang has two wholly-owned subsidiaries (Shanghai Zongbao and Muliang Sales), one 99% owned subsidiary (Fukang), one 60% owned subsidiary (Agritech Development), and one indirectly wholly owned subsidiary Zongbao Cangzhou.
On June 6, 2016, Shanghai Muliang established a wholly-owned subsidiary, namely, Muliang (Ningling) Bio-chemical Fertilizer Co. Ltd (“Ningling Fertilizer”) in Henan Province. Ningling Fertilizer is setup for a new production line of bio-chemical fertilizer and has not begun any operation yet.
On July 7, 2016, Shanghai Muliang established a subsidiary, namely, Zhonglian Huinong (Beijing) Technology Co., Ltd (“Zhonglian”) in Beijing City, China. Shanghai Muliang owns 65% shares of Zhonglian, and a third-party company, Zhongrui Huilian (Beijing) Technology Co., Ltd owns the other 35% shares.
On October 27, 2016, Shanghai Muliang established a subsidiary, namely, Yunnan Muliang Animal Husbandry Development Co., Ltd (“Yunnan Muliang”) in Yunnan Province, China. Shanghai Muliang owns 55% shares of Yunnan Muliang, and a third-party company, Shuangbai County Development Investment Co., Ltd. owns the other 45% shares. Yunnan Muliang was setup for the sales development of West China.
On October 12, 2017, the Company canceled the registration of Ningling with the administration authorities for Industry and Commerce. Ningling has historically been reported as a component of operations and incurred $33,323 to loss before income taxes provisions for the year ended December 31, 2017. The termination does not constitute a strategic shift that will have a major effect on operations or financial results and as such, the termination is not classified as discontinued operations in our consolidated financial statements.
On February 22, 2016 and June 8, 2017, Shanghai Muliang established a 65% owned subsidiary of Maguan Jiamu Agricultural Development Co., Ltd (Maguan), and a 100% owned subsidiary of Anhui Muliang Agricultural Biotechnology Co., Ltd (Anhui Muliang) respectively. Since its establishment, both of the Companies have no operation.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
On April 4, 2019, the Company’s Board of Directors and majority shareholder approved a 5 to 1 reverse stock split of all of the issued and outstanding shares of the Company’s common stock, the change of corporate name from “Mullan Agritech Inc.” to “Muliang Viagoo Inc.”, and the creation of a hundred million (100,000,000) shares of Blank Check Preferred Stock.
On April 5, 2019, we filed a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the Name Change and to authorize the creation of Blank Check Preferred Stock. As a result, the capital stock of the Company consists of 500,000,000 shares of common stock, $0.0001 par value, and 100,000,000 shares of blank check preferred stock, $0.0001 par value. To the fullest extent permitted by the laws of the State of Nevada, as the same now exists or may hereafter be amended or supplemented, the Board of Directors may fix and determine the designations, rights, preferences or other variations of each class or series within each class of preferred stock of the Company. The Company may issue the shares of stock for such consideration as may be fixed by the Board of Directors.
On April 16, 2019, we filed a Certificate of Change to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the reverse stock split. Any fractional shares are to be rounded up to whole shares. The reverse stock split does not affect the par value or the number of authorized shares of common stock of the Company.
The reverse stock split and the name change took effect on May 7, 2019. In connection with the name change, our stock symbol changed to “MULG.”
On October 30, 2019, we filed a Certificate of Designation for Nevada Profit Corporation with the Secretary of State of the State of Nevada to authorize the creation of Series A Preferred Stock. As a result, 30,000,000 shares were designated to be Series A Preferred Stock out of the 100,000,000 shares of blank check preferred stock.
On June 26, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of the State of the State of Nevada, changing its name from “Muliang Agritech, Inc.” to “Muliang Viagoo Technology, Inc.”.
On June 19, 2020, the Company entered into a Share Exchange Agreement with Viagoo Pte Ltd. and all the shareholders of Viagoo for the acquisition of 100% equity interest of Viagoo. Pursuant to the SEA, Muliang shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest in and to the Viagoo’s capital stock. The aggregate purchase price for the Shares was US$2,830,800, paid in 505,500 shares of the Company’s restricted common stock, valued at $5.60 per share.
Viagoo is a Singapore-based logistics sharing platform that enables shippers and carriers to share and optimize resources to lower cost and increase efficiency. From last mile delivery to cross border transportation, the platform provides digital transaction contracts for customers to source for service providers to deliver goods and services in a convenient manner. Viagoo partners with various Singapore agencies to promote the platform to support urban logistics need in Singapore, such as Enterprise Singapore, a government agency to support Singapore small and medium businesses, and Singapore Logistics Association.
Pursuant to the SEA, Muliang shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest in and to the Viagoo’s capital stock. The aggregate purchase price for the Shares was US$2,830,800, paid in 505,500 shares of the Company’s restricted common stock, valued at $5.60 per share. The Company recognized $673,278 in goodwill as result of this transaction.
On December 16, 2022, the Company entered into a Share Purchase Agreement with Viagoo Inc. (the “Buyer”), pursuant to which the Buyer purchased 100% of the issued and outstanding ordinary shares of Viagoo Pte Ltd., a Singapore private limited liability company and a 100% parent company of NexG Pte. Ltd., and TPS Solutions Hong Kong Limited, from the Company in exchange for a consideration of US$ 5,254,001.20 to be paid to the Company. The Company decided that the transfer of control over Viagoo Pte Ltd. essentially occurred on January 1st, 2023 (See Note 3). As a result, Viagoo's historical operating performance are reported as discontinued operations under the guidance of ASC 205.
Muliang Agritech, Muliang HK, Shanghai Mufeng, Shanghai Muliang, Shanghai Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development, Yunnan Muliang, Zhonglian, Anhui Muliang, and Maguan are referred to as subsidiaries. The Company and its consolidated subsidiaries are collectively referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.
The consolidated financial statements were prepared assuming that the Company has controlled Muliang HK and its intermediary holding companies, operating subsidiaries, and variable interest entities: Shanghai Mufeng, Shanghai Muliang, Shanghai Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Heilongjiang, Anhui Muliang, Maguan, and Agritech Development, from the first period presented. The transactions detailed above have been accounted for as reverse takeover transaction and a recapitalization of the Company; accordingly, the Company (the legal acquirer) is considered the accounting acquiree and Muliang HK (the legal acquiree) is considered the accounting acquirer. No goodwill has been recorded for these transactions. As a result of this transaction, the Company is deemed to be a continuation of the business of Muliang HK, Shanghai Mufeng, and Shanghai Muliang.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
Liquidity
As reflected in the accompanying consolidated financial statements, we had net accumulated deficit of $1,744,135 and $3,965,137 as of December 31, 2023 and December 31, 2022, respectively. Our cash balances as of December 31, 2023 and December 31, 2022 were $1,389 and $8,122, respectively. We had current liability of $4,842,594 at December 31, 2023 which would be due within the next 12 months. In addition, we had net working capital of $9,705,866 and $8,112,564 at December 31, 2023 and 2022, respectively.
Because the company is gradually recovering the accounts receivables affected by the Covid-19, and the sales are gradually returning to the normal level, the company’s current cash revenue and expenditure are normal, which did not affect the normal operation. Now, after Covid-19, the company has no problems with business sustainability.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). The differences between US GAAP and PRC GAAP have been adjusted in these consolidated financial statements. The Company’s functional currency is the Chinese Renminbi (“RMB”) and Singapore dollar(“SGD”); however, the accompanying consolidated financial statements have been translated and presented in United States Dollars (“USD”).
Use of Estimates
The preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include the useful lives of property and equipment, land use rights, assumptions used in assessing collectability of receivables and impairment for long-term assets.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and consolidated VIE, including the VIE’ subsidiaries, for which the Muliang Viagoo is the primary beneficiary.
All transactions and balances among the Company, its subsidiaries, the VIE and the VIE’ subsidiaries have been eliminated upon consolidation.
As PRC laws and regulations welcome to invest in organic fertilizer industry businesses, the Muliang Viagoo operates its fertilizer business in the PRC through Shanghai Muliang and its subsidiaries, which are collectively referred as the “WFOEs”.
By entering into a series of agreements (the “VIE Agreements”), the Muliang Viagoo, through WFOEs, obtained control over Shanghai Muliang and its subsidiaries (collectively referred as “VIE”). The VIE Agreements enable the Muliang Viagoo to (1) have power to direct the activities that most significantly affect the economic performance of the VIE, and (2) receive the economic benefits of the VIE that could be significant to the VIE. Accordingly, the Muliang Viagoo is considered the primary beneficiary of the VIE and has consolidated the VIE’ financial results of operations, assets and liabilities in the Muliang Viagoo’s consolidated financial statements. In making the conclusion that the Muliang Viagoo is the primary beneficiary of the VIE, the Muliang Viagoo’s rights under the Power of Attorney also provide the Muliang Viagoo’s abilities to direct the activities that most significantly impact the VIE’ economic performance. The Muliang Viagoo also believes that this ability to exercise control ensures that the VIE will continue to execute and renew the Master Exclusive Service Agreement and pay service fees to Muliang Viagoo. By charging service fees to be determined and adjusted at the sole discretion of Muliang Viagoo, and by ensuring that the Master Exclusive Service Agreement is executed and remains effective, Muliang Viagoo has the rights to receive substantially all of the economic benefits from the VIE.
Details financial information of the VIE Entities, are set forth below:
As of
December 31,
As of
December 31,
Current assets $ 14,548,442 $ 17,244,572
Non-current assets 7,596,743 7,698,043
Total Assets 22,145,185 24,942,615
Current liabilities 4,823,664 7,967,596
Non-current liabilities 23,112 67,573
Total liabilities 4,846,776 8,035,169
Total shareholders’ equity $ 17,298,409 $ 16,907,446
For the years ended
December 31,
Net income from continuing operations $ 849,427 $ 3,190,198
Net cash used in operating activities (934,408 ) (1,316,756 )
Net cash used in investment activities (178,527 ) (126,208 )
Net cash provided by financing activities $ 375,866 $ 1,444,460
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VIE Agreements that were entered to give the Muliang Viagoo effective control over the VIE include:
Voting Rights Proxy Agreement and Irrevocable Power of Attorney
Under which each shareholder of the VIE grant to any person designated by WFOEs to act as its attorney-in-fact to exercise all shareholder rights under PRC law and the relevant articles of association, including but not limited to, appointing directors, supervisors and officers of the VIE as well as the right to sell, transfer, pledge and dispose all or a portion of the equity interest held by such shareholders of the VIE. The proxy and power of attorney agreements will remain effective as long as WFOEs exist. The shareholders of the VIE do not have the right to terminate the proxy agreements or revoke the appointment of the attorney-in-fact without written consent of the WFOEs.
Exclusive Option Agreement
Under which each shareholder of the VIE granted 9F or any third party designated by 9F the exclusive and irrevocable right to purchase from such shareholders of the VIE, to the extent permitted by PRC law and regulations, all or part of their respective equity interests in the VIE for a purchase price equal to the registered capital. The shareholders of the VIE will then return the purchase price to 9F or any third party designated by 9F after the option is exercised. 9F may transfer all or part of its option to a third party at its own option. The VIE and its shareholders agree that without prior written consent of 9F, they may not transfer or otherwise dispose the equity interests or declare any dividends. The restated option agreement will remain effective until 9F or any third party designated by 9F acquires all equity interest of the VIE.
Spousal Consent
The spouse of each shareholder of the VIE has entered into a spousal consent letter to acknowledge that he or she consents to the disposition of the equity interests held by his or her spouse in the VIE in accordance with the exclusive option agreement, the power of attorney and the equity pledge agreement regarding VIE structure described above, and any other supplemental agreement(s) may be consented by his or her spouse from time to time. Each such spouse further agrees that he or she will not take any action or raise any claim to interfere with the arrangements contemplated under the mentioned agreements. In addition, each such spouse further acknowledges that any right or interest in the equity interests held by his or her spouse in the VIE do not constitute property jointly owned with his or her spouse and each such spouse unconditionally and irrevocably waives any right or interest in such equity interests.
Loan Agreement
Pursuant to the loan agreements between WFOEs and each shareholder of the VIE, WFOEs extended loans to the shareholders of the VIE, who had contributed the loan principal to the VIE as registered capital. The shareholders of VIE may repay the loans only by transferring their respective equity interests in VIE to 9F Inc. or its designated person(s) pursuant to the exclusive option agreements. These loan agreements will remain effective until the date of full performance by the parties of their respective obligations thereunder.
VIE Agreements that enables Muliang Viagoo to receive substantially all of the economic benefits from the VIE include:
Equity Interest Pledge Agreement
Pursuant to equity interest pledge agreement, each shareholder of the VIE has pledged all of his or her equity interest held in the VIE to WFOEs to secure the performance by VIE and their shareholders of their respective obligations under the contractual arrangements, including the payments due to WFOEs for services provided. In the event that the VIE breach any obligations under these agreements, WFOEs as the pledgees, will be entitled to request immediate disposal of the pledged equity interests and have priority to be compensated by the proceeds from the disposal of the pledged equity interests. The shareholders of the VIE shall not transfer their equity interests or create or permit to be created any pledges without the prior written consent of WFOEs. The equity interest pledge agreement will remain valid until the master exclusive service agreement and the relevant exclusive option agreements and proxy and power of attorney agreements, expire or terminate.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Master Exclusive Service Agreement
Pursuant to exclusive service agreement, WFOEs have the exclusive right to provide the VIE with technical support, consulting services and other services. WFOEs shall exclusively own any intellectual property arising from the performance of the agreement. During the term of this agreement, the VIE may not accept any services covered by this agreement provided by any third party. The VIE agree to pay service fees to be determined and adjusted at the sole discretion of the WFOEs. The agreement will remain effective unless WFOEs terminate the agreement in writing.
Risks in relation to the VIE structure
Muliang Viagoo believes that the contractual arrangements with the VIE and their current shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Muliang Viagoo’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
● Revoke the business and operating licenses of the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities;
● Discontinue or restrict the operations of any related-party transactions among the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities;
● Impose fines or other requirements on the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities;
● Require the Muliang Viagoo’s PRC subsidiaries or consolidated affiliated entities to revise the relevant ownership structure or restructure operations; and/or;
● Restrict or prohibit the Muliang Viagoo’s use of the proceeds of the additional public offering to finance the Muliang Viagoo’s business and operations in China;
● Shut down the Muliang Viagoo’s servers or blocking the Muliang Viagoo’s online platform;
● Discontinue or place restrictions or onerous conditions on the Muliang Viagoo’s operations; and/or
● Require the Muliang Viagoo to undergo a costly and disruptive restructuring.
Muliang Viagoo’s ability to conduct its business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, Muliang Viagoo may not be able to consolidate the VIE in its consolidated financial statements as it may lose the ability to exert effective control over the VIE and its shareholders, and it may lose the ability to receive economic benefits from the VIE. Muliang Viagoo currently does not believe that any penalties imposed or actions taken by the PRC government would result in the liquidation of the Company, WFOEs, or the VIE.
The following table sets forth the assets, liabilities, results of operations and cash flows of the VIE and their subsidiaries, which are included in Muliang Viagoo’s consolidated financial statements after the elimination of intercompany balances and transactions:
Under the VIE Arrangements, Muliang Viagoo has the power to direct activities of the VIE and can have assets transferred out of the VIE. Therefore, Muliang Viagoo considers that there is no asset in the VIE that can be used only to settle obligations of the VIE, except for assets that correspond to the amount of the registered capital and PRC statutory reserves, if any. As the VIE are incorporated as limited liability companies under the Company Law of the PRC, creditors of the VIE do not have recourse to the general credit of Muliang Viagoo for any of the liabilities of the VIE.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Currently there is no contractual arrangement which requires Muliang Viagoo to provide additional financial support to the VIE. However, as Muliang Viagoo conducts its businesses primarily based on the licenses held by the VIE, Muliang Viagoo has provided and will continue to provide financial support to the VIE.
Revenue-producing assets held by the VIE include certain internet content provision (“ICP”) licenses and other licenses, domain names and trademarks. The ICP licenses and other licenses are required under relevant PRC laws, rules and regulations for the operation of internet businesses in the PRC, and therefore are integral to Muliang Viagoo’s operations. The ICP licenses require that core PRC trademark registrations and domain names are held by the VIE that provide the relevant services.
Muliang Viagoo consolidates the following entities, including wholly-owned subsidiaries, Muliang HK, Shanghai Mufeng, Viagoo, and its wholly controlled variable interest entities, Shanghai Muliang, and Zhongbao, 60% controlled Agritech Development, 99% controlled Fukang, 65% controlled Zhonglian, 80% controlled Yunnan Muliang, 100% controlled Anhui Muliang, 65% controlled Maguan, and 51% controlled Heilongjiang. Accordingly, the 40% equity interest holder of Agritech Development, 1% equity interest holders in Fukang, 35% equity interest holders in Zhonglian, 35% interest in Maguan, 20% interest in Yunnan Muliang, and 49% equity interest in Heilongjiang are accounted as non-controlling interest in the Company’s consolidated financial statements.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. In addition, the Company maintains cash with various financial institutions.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are stated at the historical carrying amount net of allowance for expected credit losses. The Company adopted ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” on January 1, 2021 using a modified retrospective approach. The Company also adopted this guidance to other receivables. To estimate expected credit losses, the Company has identified the relevant risk characteristics of its customers and the related receivables. The Company considers the past collection experience, current economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Company’s customer collection trends. The allowance for credit losses and corresponding receivables were written off when they are determined to be uncollectible.
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 net realizable value. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. Cost of inventory are determined using the weighted average method. The Company records inventory reserves for obsolete and slow-moving inventory. Inventory reserves are based on inventory obsolescence trends, historical experience and application of the specific identification method.
Prepayments
Prepayments are mainly funds deposited for future raw material purchases. The Company’s certain vendors require deposits as a guarantee that the Company will complete its purchases on a timely basis as well as securing the current agreed upon purchase price. Prepayments are short-term in nature. Advance to suppliers is reviewed periodically to determine whether its carrying value has become impaired. Management reviews its prepayments on a regular basis to determine if the allowance is adequate and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation and impairment loss, if any, and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Included in property and equipment is construction-in-progress which consisted of factory improvements and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation of the assets. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Estimated useful lives of the Company’s assets are as follows:
Useful Life
Building 20 years
Operating equipment 5-10 years
Vehicle 3-5 years
Office equipment 3-20 years
Land Use Right Assets
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. Land use rights are initially measured at cost, which includes the purchase price and any directly attributable costs necessary to prepare the asset for its intended use. The land use rights have a finite useful life and are amortized on a straight-line basis over their estimated useful life, which is typically determined by the statutory duration based on the land's intended use.
Estimated useful lives of land use right assets are as follows:
Useful Life
Land use rights 50 years
Intangible Assets
Included in the intangible assets is non-patented technology. Useful life for non-patented technology refers to the period during which economic benefits can be generated. Intangible assets are being amortized using the straight-line method over their lease terms or estimated useful life.
Estimated useful lives of the Company’s intangible assets are as follows:
Useful Life
Non-patented technology 10 years
The Company carries intangible assets at cost less accumulated amortization and impairment, if any. 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.
Productive Biological Asset
Biological assets of the Company consist of apple tree saplings and associated plantation costs. These assets are cultivated by the Company and include costs incurred from the planting of seedlings until they reach maturity, typically within 3 years. Biological assets are measured at average cost and recorded at the lower of cost or net realizable value. Any impairment losses are recognized when the net realizable value falls below the recorded cost. Upon commencement of commercial production, accumulated costs will be depreciated over the estimated useful life of the farmland. The estimated production life for apple tree is ten years, and the costs are depreciated without a residual value. Expenses incurred maintaining apple trees during the growth cycle until seedling apple trees or grafted varieties are fruited are capitalized into inventory and included in Work In Process-apple orchard, a component of inventories.
Depreciation expenses pertaining to apple trees will be included in inventory costs for those apples to be sold and ultimately become a component of cost of goods sold. Similar to other assets, the failure of the VIE and its subsidiaries’ apple trees to be serviceable over the entirety of their anticipated useful lives or to be sold at their anticipated residual value will negatively impact operating results.
Estimated useful lives of apple trees is as follows:
Useful Life
Apple orchard 10 years
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 of long-lived assets for the years ended December 31, 2023 and 2022.
Advances from Customers
Advances from customers consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.
Non-controlling Interest
Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.
Revenue Recognition
On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. Accordingly, results for the reporting period beginning after January 1, 2018, are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605.
Management has determined that the adoption of ASC 606 did not impact the Company’s previously reported financial statements in any prior period, nor did it result in a cumulative effect adjustment to opening retained earnings.
Revenue for the sale of products is derived from contracts with customers, which primarily include the sale of fertilizer products. The Company’s sales arrangements do not contain variable consideration. Instead, the Company recognizes revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied, and control of the products has been transferred to the customer. For the vast majority of the Company’s product sales, the performance obligations and control of the products transfer to the customer when products are delivered and customer acceptance is made.
Cost of Goods Sold
Cost of goods sold consists primarily of raw materials, utility and supply costs consumed in the manufacturing process, manufacturing labor, depreciation expense and direct overhead expenses necessary to manufacture finished goods as well as warehousing and distribution costs such as inbound freight charges, shipping and handling costs, purchasing and receiving costs.
Income Taxes
The Company accounts for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns.
The Company is subject to the Enterprise Income Tax law (“EIT”) of the People’s Republic of China. The Company’s operations in producing and selling fertilizers are subject to the 25% enterprise income tax.
Related Parties
Parties are related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management, and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to the extent that one of the transacting parties might be prevented from fully pursuing its separate interests. The Company discloses all related party transactions.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accumulated Other Comprehensive Income
Comprehensive income comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. The Company’s comprehensive income consist of net income and gain(loss) from foreign currency translation adjustments.
Foreign Currency Translation
The Company’s functional currency is the Chinese Renminbi (“RMB”); however, the accompanying consolidated financial statements have been translated and presented in United States Dollars (“USD”). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss. The translation adjustment for the years ended December 31, 2023 and 2022 was loss of $352,153 and $1,823,732, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
For business in China, asset and liability accounts at December 31, 2023 and 2022 were translated at 7.0698 RMB to $1 USD and 6.9091 RMB to $1 USD, respectively, which were the exchange rates on the balance sheet dates. The average translation rates applied to the statements of income and cash flow for the years ended December 31, 2023 and 2022 were 7.0727 RMB and 6.7264 RMB to $1 USD, respectively.
For business in Singapore, asset and liability accounts at December 31, 2022 was translated at 1.3446 SGD to $1 USD. The average translation rates applied to the statements of income and cash flow for the years ended December 31, 2022 was 1.3792 SGD to $1 USD.
Earnings per Share
Basic earnings per share is computed by dividing net income from continuing operations available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted earnings per share gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Earnings per share excludes all potential dilutive shares of common stock if their effect is anti-dilutive. There were no potential dilutive securities at December 31, 2023 and 2022.
Fair Value of Financial Instruments
The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liability, other payable and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.
ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments. The Company choose to measure the long-term loan at amortized cost over the life of the loan.
The following table summarizes the carrying values of the Company’s financial instruments:
December 31,
December 31,
Current portion of long-term loan $ 773,039 $ 1,039,243
Long-term loan 16,266 -
$ 789,305 $ 1,039,243
Government Contribution Plan
Pursuant to the laws applicable to PRC law, the Company is required to participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company has no further commitments beyond its monthly contribution.
Statutory Reserve
Pursuant to the laws applicable to the PRC, the Company must make appropriations from after-tax profit to the non-distributable “statutory surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC (“PRC GAAP”) at each year-end). For foreign invested enterprises and joint ventures in the PRC, annual appropriations should be made to the “reserve fund”. For foreign invested enterprises, the annual appropriation for the “reserve fund” cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under PRC GAAP at each year-end). If the Company has accumulated loss from prior periods, the Company is able to use the current period net income after tax to offset against the accumulate loss.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncement
In June 2022, the FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The update clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The update also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The update also requires certain additional disclosures for equity securities subject to contractual sale restrictions. The amendments in this update are effective for the Group beginning January 1, 2024 on a prospective basis. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations and cash flows.
In March 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-01, "Lease (Topic 842): Common Control Arrangements". This update provides guidance on the accounting for lease arrangements between entities under common control. The Company has adopted this standard effective January 1, 2023, and has evaluated its existing lease arrangements to ensure compliance with the new guidance. The adoption of ASU 2023-01 is expected to enhance the transparency and consistency of lease accounting within the Company's financial statements, providing stakeholders with clearer insights into the implications of common control lease arrangements.
The Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - DISCONTINUED OPERATIONS
In December 2022, in light of the continued losses of the logistics business, the Board of Directors of the Company approved to withdraw from the logistics business, which only operates in Viagoo Pte Ltd. In December 2022, the Company entered into a Share Purchase Agreement with Viagoo Inc., pursuant to which, the Company agreed to sell all the issued shares of Viagoo Pte Ltd. The disposal transaction was closed on January 1, 2023 and the Company does not expect to have any continuing involvement in the logistics business subsequent to the closing. The disposition of the logistics business represented a strategic shift that has or will have a major effect on the Company’s operations and financial results. As a result, the result of operations for Viagoo Pte Ltd are reported as discontinued operations under the guidance of ASC 205.
Reconciliation of the carrying amounts of major classes of assets and liabilities from discontinued operations in the consolidated balance sheets as of December 31, 2022 is as follow:
December 31, 2022
CURRENT ASSETS:
Cash and cash equivalents $ 65,191
Accounts receivable, net 11,184
Other receivables, net 83,588
Total current assets of discontinued operations 159,962
OTHER ASSETS:
Long term investment 10,933
Property, plant and equipment, net 1,069
Land use right assets 46,885
Total other assets of discontinued operations 58,887
Total assets of discontinued operations $ 218,849
CURRENT LIABILITIES:
Accounts payable and accrued liability $ 1,010,493
Due to Intercompany 180,926
Income tax payable 7,731
Total current liabilities of discontinued operations 1,199,150
OTHER LIABILITIES:
Deferred tax liabilities 8,553
Total other liabilities of discontinued operations 8,553
Total liabilities of discontinued operations $ 1,207,703
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED)
Reconciliation of the amounts of major classes of income and losses from discontinued operations in the consolidated statements of income and comprehensive income for the years ended December 31, 2023 and 2022.
For the Years Ended
December 31,
Revenues $ $ 803,369
Cost of goods sold
565,299
Gross profit -
238,070
Operating expenses:
General and administrative expenses
498,655
Selling expenses
5,702
Provision for expected credit losses
Total operating expenses -
504,356
Loss from operations -
(266,286 )
Other income:
-
Interest Income
-
Interest expense
-
Other income, net
1,884
Total other income -
1,884
Loss from discontinued operations before income taxes -
(264,403 )
Gain on the sale of discontinued operations before income taxes 988,854
Total income (loss) from discontinued operations before income taxes 988,854 (264,403 )
Income taxes expense
6,259
Income (loss) from discontinued operations, net of tax $ 988,854 $ (270,662 )
US GAAP (ASC 810-10-40) provides guidance on “Derecognition” of a previously consolidated entity or entities. Under this guidance, the Company shall account for the deconsolidation of a subsidiary or derecognition of a group of assets specified in ASC 810-10-40-3A by recognizing a gain or loss in net income attributable to the parent, measured as the difference between the combination of:
a) The fair value of:
● any consideration received. In this case, the Company received no consideration.
● any retained non-controlling investment in the former subsidiary or group of assets at the date the subsidiary is deconsolidated, or the group of assets is derecognized.
b) The carrying amount of the former subsidiaries assets and liabilities or the carrying amount of the group of assets.
With the above guidance the Company determined that the effect of the deconsolidation of Muliang produced a gain of $988,854, which is a non-cash adjustment.
In addition, the company's receipt of the transaction price is contingent upon Viagoo Inc. completing its next financing transaction. Given the uncertainty surrounding the timing of this transaction , the company has recognized a 100% allowance for the receivable.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACCOUNTS RECEIVABLE,NET
Accounts receivable consisted of the following:
December 31,
December 31,
Accounts receivable $ 15,098,122 $ 12,838,306
Less: Allowance for expected credit losses (3,983,803 ) (1,092,880 )
Total, net $ 11,114,319 $ 11,745,426
The following table present the movement of the allowance for credit losses.
Allowance for credit losses
At December. 31,2021 (Audited) $ 1,276,858
Additions 237,191
Effects of currency translation (421,169 )
At December. 31,2022 (Audited) 1,092,880
Additions 2,402,501
Effects of currency translation 488,422
At December. 31,2023 (Audited) $ 3,983,803
NOTE 5 - INVENTORIES
Inventories consisted of the following:
December 31,
December 31,
Raw materials $ 22,010 $ 47,326
Finished goods 53,398 146,900
Total, net $ 75,408 $ 194,226
NOTE 6 - PREPAYMENTS
The prepayments balance of $3,316,015 and 3,719,342 as of December 31, 2023 and 2022 represents the advances paid to suppliers for the purchase of raw materials to be delivered in the next operating period.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2023 and 2022 consisted of:
December 31, December 31,
Building $ 2,732,322 $ 2,795,874
Operating equipment 2,670,949 2,740,527
Vehicle 80,169 82,034
Office equipment 20,410 77,645
Construction in progress 2,989,470 2,876,250
8,493,320 8,572,330
Less: Accumulated depreciation (3,208,603 ) (2,951,802 )
$ 5,284,717 $ 5,620,528
For the years ended December 31, 2023 and 2022, depreciation expense amounted to $391,969 and $392,654, respectively. Depreciation is not taken during the period of construction or equipment installation. Upon completion of the installation of manufacturing equipment or any construction in progress, construction in progress balances will be classified to their respective property and equipment category.
The construction in progress of $2,989,470 represents the investment of a black goat processing plant located in Shuangbai County, Chuxiong City, Yunnan Province, PRC.
NOTE 8 - LAND USE RIGHT ASSTES
Land use rights, net consist of the following:
December 31, December 31,
Land use rights $ 1,437,501 $ 1,437,501
Less: accumulated amortization (222,204 ) (210,159 )
$ 1,215,297 $ 1,227,342
No impairment charge was recorded for the years ended December 31, 2023 and 2022, respectively.
For the years ended December 31,
2027 2029 and
thereafter
US$ US$ US$ US$ US$ US$
Amortization expenses 29,966 29,966 29,966 29,966 29,966 1,065,464
NOTE 9 - DEFERRED TAX ASSETS, NET
The components of the deferred tax assets are as follows:
December 31, December 31,
Deferred tax assets, non-current
Deficit carried-forward $ -
$ 80,474
Allowance for expected credit losses 946,451 161,392
Deferred tax assets 946,451 241,866
Less: valuation allowance -
-
Deferred tax assets, non-current $ 946,451 $ 241,866
Deferred taxation is calculated under the liability method in respect of taxation effect arising from all timing differences, which are expected with reasonable probability to realize in the foreseeable future. The Company’s subsidiary registered in the PRC is subject to income taxes within the PRC at the applicable tax rate.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - OPERATING LEASES
The total balance of $24,799 as of December 31, 2023 represents the net value of the office located in Shanghai. The total cost of the operating right-of-use assets is $25,875 and the accumulated amortization is $1,076.
On November 26, 2023, The Company signed a lease agreement for office premises with a lease term from December 1, 2023 to November 30, 2025. The Company has elected to not recognize lease assets and liabilities for leases with a term less than twelve months.
The Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is incremental borrowing rate or, if available, the rate implicit in the lease. The Company determines the incremental borrowing rates for these leases based primarily on lease terms were 4.75%.
The components of lease costs, lease term and discount rate with respect of corporate offices and employees’ accommodation leases with an initial term of more than 12 months are as follows:
For the year ended
December 31,
Operating lease cost $ 56,270 $ 68,270
December 31,
2023 December 31,
Weighted Average Remaining Lease Term - Operating leases 1.92 2.92
Weighted Average Discount Rate - Operating leases 4.75 % 4.75 %
As of December 31, 2023, the future maturity of lease liabilities is as follows:
For the years ended December 31, Amount
14,796
6,194
Thereafter -
Total lease payments $ 20,990
Less: imputed interest (920 )
Total $ 20,070
NOTE 11 - LOANS
Long-term loan and current portion of long-term loan consisted of the following:
December 31, December 31,
2023 2022
Loan payable to Rushan City Rural Credit Union, annual interest 8.7875%, due by September 18 2024. $ 789,305 $ 1,039,243
Current portion of long-term loans payable 773,039 1,039,243
Long term loans - non-current portion $ 16,266 $ -
As of December 31, 2023, the Company’s future loan obligations according to the terms of the loan agreement are as follows:
Year 1 $ 773,039
Year 2 16,266
Total $ 789,305
The Company recognized interest expenses of $77,209 and $124,730 for the years ended December 31, 2023 and 2022, respectively.
The loan agreement between Weihai Fukang and Rushan City Rural Credit Union specifies that Mr. Lirong Wang and Mr. Zhongfang Wang serve as guarantors for the loan. Additionally, all properties owned by Weihai Fukang, along with the associated land use rights, have been pledged as collateral.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS EQUITY
Authorized Stock
According to the Certificate of Change filed pursuant to NBS78.209 for Neveda Profit Corporations dated April 16, 2019, the Company authorized 500,000,000 common shares with a par value of $0.0001 per share. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
On April 4, 2019, the Company’s Board of Directors and majority shareholder approved creation of a hundred million (100,000,000) shares of Blank Check Preferred Stock, $0.0001 par value.
On April 5, 2019, the Company filed a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the creation of Blank Check Preferred Stock. As a result, the capital stock of the Company consisted of 500,000,000 shares of common stock, $0.0001 par value, and 100,000,000 shares of blank check preferred stock after the filling.
On February 24, 2023, our Board of Directors declared a 2 to 1 reverse stock split of our authorized common stock and Series A Preferred Stock. There was no effect on total stockholders’ equity, and the par value per share of our both common stock and Series A Preferred Stock remains unchanged at $0.0001 per share after the reverse stock split. All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the reverse stock split.
As of December 31, 2023, there were 250,000,000 common shares of the Company authorized, and 50,000,000 preferred shares authorized.
Common Share Issuances
On June 29, 2018, the outstanding amount $326,348 due to Mr. Wang, CEO and Chairman of the Company, were converted into 21,600 shares of Common Shares at $15.10 per share.
On June 29, 2018 the Company issued 149,259 common shares of the Company at $15.10 for proceeds of $2,255,111 to Mr. Wang, CEO and Chairman of the Company.
On April 4, 2019, the Company’s Board of Directors and majority shareholder approved a 5 to 1 reverse stock split of all of the issued and outstanding shares of the Company’s common stock (the “Reverse Stock Split”). No fractional shares of Common Stock will be issued as a result of the reverse stock split. The Stock Split does not affect the par value or the number of authorized shares of the Company’s common stock.
On April 16, 2019, the Company filed a Certificate of Change to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the Reverse stock Split. The reverse stock split took effect on May 7, 2019 The common shares outstanding have been retroactively restated to reflect the reverse stock split.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS EQUITY (CONTINUED)
On October 10, 2019 and November 1, 2019, the Company issued a total of 19,000,000 shares of Series A Preferred Stock to Mr. Wang, the CEO and Chairman of the Company, in exchange for 19,000,000 shares of common stock beneficially owned by him. Following the transaction, 19,000,000 shares of common stock were cancelled and returned to treasury.
On June 19, 2020, Muliang Viagoo Technology Inc. entered into a Share Exchange Agreement with Viagoo Pte Ltd. (“Viagoo”) and all the shareholders of Viagoo for the acquisition of 100% equity interest of Viagoo.
Pursuant to the Share Exchange Agreement, Muliang shall purchase from Viagoo Shareholders all of Viagoo Shareholder’s right, title and interest in and to the Viagoo’s capital stock. The aggregate purchase price for the Shares was US$2,830,800, paid in 505,500 shares of the Company’s restricted common stock, valued at $5.60 per share.
On June 28, 2020, the Company issued 25,000 of restricted common stock as the compensation for Shaw Cheng “David” Chong, the new Chief Financial Officer of the Company.
On December 29, 2020, the Company issued 50,000 of restricted common stock to two investors for US$280,000 valued at $5.60 per share.
On February 24, 2023, the Company’s Board of Directors and majority shareholder approved a 2 to 1 reverse stock split of all of the issued and outstanding shares of the Company’s common stock and preferred stock. There was no effect on total stockholders’ equity, and the par value per share of our both common stock and Series A Preferred Stock remains unchanged at $0.0001 per share after the reverse stock split. All references made to share or per share amounts in the accompanying condensed consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the reverse stock split.
As of December 31, 2023, there were 19,251,657 shares of common stock issued and outstanding.
Blank Check Preferred Stock
On April 4, 2019, the Company’s Board of Directors and majority shareholder approved creation of a hundred million (100,000,000) shares of Blank Check Preferred Stock, $0.0001 par value. To the fullest extent permitted by the laws of the State of Nevada, as the same now exists or may hereafter be amended or supplemented, the Board of Directors may fix and determine the designations, rights, preferences or other variations of each class or series within each class of preferred stock of the Company. The Company may issue the shares of stock for such consideration as may be fixed by the Board of Directors.
On April 5, 2019, the Company filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of the State of Nevada to authorize the creation of Blank Check Preferred Stock.
On October 30, 2019, 30,000,000 shares were designated to be Series A Preferred Stock out of the 100,000,000 shares of blank check preferred stock.
On February 24, 2023, the Company’s Board of Directors and majority shareholder approved a 2 to 1 reverse stock split of all of the issued and outstanding shares of the Company’s common stock and preferred stock. As a result, 15,000,000 shares were designated to be Series A Preferred Stock out of the 50,000,000 shares of blank check preferred stock.
Series A Preferred Stock
On October 30, 2019, the Company’s Board of Directors and majority shareholder approved to designate 30,000,000 shares as Series A Preferred Stock out of the 100,000,000 shares of blank check preferred stock, which the preferences and relative and other rights, and the qualifications, limitations or restrictions thereof, shall be set forth in the discussion below under the “Series A Preferred Stock”. A certificate of designation for the Series A Preferred Stock was filed with the Secretary of the State of the State of Nevada on October 30, 2019.
On February 24, 2023, the Company’s Board of Directors and majority shareholder approved a 2 to 1 reverse stock split of all of the issued and outstanding shares of the Company’s common stock and preferred stock. As a result, 15,000,000 shares were designated to be Series A Preferred Stock out of the 50,000,000 shares of blank check preferred stock.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS EQUITY (CONTINUED)
The holders of Series A Preferred Stock shall not be entitled to receive dividends of any kind.
The Series A Preferred Stock shall not be subject to conversion into Common Stock or other equity authorized to be issued by the Corporation.
The holders of the issued and outstanding shares of Series A Preferred Stock shall have voting rights equal to ten (10) shares of Common Stock for each share of Series A Preferred Stock.
On November 1, 2019, the Company issued a total of 19,000,000 shares of Series A Preferred Stock to Mr. Wang, the CEO and Chairman of the Company, in exchange for 19,000,000 shares of common stock beneficially owned by him. Following the transaction, 19,000,000 shares of common stock were cancelled and returned to treasury.
On February 24, 2023, the Company’s Board of Directors and majority shareholder approved a 2 to 1 reverse stock split of all of the issued and outstanding shares of the Company’s common stock and preferred stock. There was no effect on total stockholders’ equity, and the par value per share of our both common stock and Series A Preferred Stock remains unchanged at $0.0001 per share after the reverse stock split. All references made to share or per share amounts in the accompanying condensed consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the reverse stock split.
As of the filing date, there were 9,500,000 shares of Series A Preferred Stock issued outstanding.
NOTE 13 - RELATED PARTY TRANSACTIONS
Due to related parties
Outstanding balance due to Mr. Lirong Wang, Ms. Xueying Sheng and Mr. Guohua Lin below are advances to the Company as working capital. These advances are due on demand, non-interest bearing, and unsecured, unless further disclosed.
December 31, December 31,
2023 2022 Relationship
Mr. Lirong Wang 197,196 897,821 The CEO and Chairman / Actual controlling person
Ms. Xueying Sheng 96,092 102,007 Controller/Accounting Manager of the Company
Mr. Guohua Lin 42,199 45,080 Senior management / One of the Company’s shareholders
Mr. Zhongfang Wang 308 316 Father of Lirong Wang
Total 335,795 1,045,224
For the year ended December 31, 2023, the Company borrowed $815,484 from Mr. Lirong Wang, and repaid $1,516,109.
For the year ended December 31, 2023, the Company borrowed $0 from Mr. Guohua Lin, and repaid $2,881. For the year ended December 31, 2022, the Company borrowed $60,166 from Mr. Guohua Lin, and repaid $73,125.
For the year ended December 31, 2023, the Company borrowed $12,131 from Ms. Xueying Sheng and repaid $5,915.For the year ended December 31, 2022, the Company borrowed $16,530 from Ms. Xueying Sheng and repaid $17,913.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - CONCENTRATIONS
Customers Concentrations
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the years ended December 31, 2023 and 2022.
For the years ended December 31,
Customer Amount % Amount %
Customer A 3,332,699 38 % 4,774,456 40 %
Customer B 3,313,441 38 % 4,503,761 38 %
The following table sets forth a summary of single customers who represented 10% or more of the Company’s total accounts receivable:
As of December 31,
Customer Amount % Amount %
Customer A 5,762,712 38 % 5,225,661 41 %
Customer B 5,532,313 37 % 5,412,049 42 %
Suppliers Concentrations
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchase for the years ended December 31, 2023 and 2022.
For the years ended December 31,
Suppliers Amount % Amount %
Supplier A 1,471,441 33 % 3,735,133 64 %
Supplier B N/A N/A 678,040 12 %
Supplier C 919,032 20 % N/A N/A
Supplier D 873,366 19 % N/A N/A
Supplier E 827,129 18 % N/A N/A
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - CONCENTRATIONS (CONTINUED)
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, 2023 and 2022, the Company’s cash balances by geographic area were as follows:
December 31, December 31,
United States $ -
-
% $ -
-
%
China 1,389 100 % 8,122 100 %
Singapore -
-
% -
- %
Total cash and cash equivalents $ 1,389 100 % $ 8,122 100 %
NOTE 15 - TAXES
(a) Corporate Income Taxs (“CIT”)
United States
Muliang Viagoo is established in the State of Nevada in the United States and is subject to Nevada State and US Federal tax laws. Muliang Viagoo has approximately $948,348 of unused net operating losses (“NOLs”) available for carrying forward to future years for U.S. federal income tax reporting purposes. Because United States tax laws limit the time during which NOL carry forwards may be applied against future taxable income, the Company may be unable to take full advantage of its NOLs for federal income tax purposes should the Company generate taxable income. Further, the benefit from utilization of NOL carry forwards could be subject to limitations due to material ownership changes that could occur in the Company as it continues to raise additional capital. Based on such limitations, the Company has significant NOLs for which realization of tax benefits is uncertain.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications to existing law. The Company has considered the accounting impact of the effects of the Act during the year ended December 31, 2018 including a reduction in the corporate tax rate from 34% to 21% among other changes.
Hong Kong
Muliang HK is established in Hong Kong and its income is subject to a 16.5% profit tax rate for income sourced within the Special Administrative Region. For the years ended December 31, 2023 and 2022 Muliang HK did not earn any income derived in Hong Kong, and therefore was not subject to Hong Kong Profits Tax.
China, PRC
Shanghai Mufeng and its subsidiaries Shanghai Muliang, Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development, Zhonglian, Anhui Muliang, Maguan, and Yunnan Muliang are established in China and its income is subject to income tax rate of 25%.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - TAXES (CONTINUED)
The components of the income tax provision from United States, Hong Kong, and China are as follows:
For the Years Ended
December 31, December 31,
United States $
$
Hong Kong
China (25,799 ) 432,626
$ (25,799 ) $ 432,626
The reconciliation of effective income tax rate as follows:
For the Years Ended
December 31, December 31,
US Statutory income tax rate 21.00 % 21.00 %
PRC income tax effect 4.00 % 4.00 %
Change in valuation allowance -
-
Nontaxable or nondeductible items (28.13 )% (11.93 )%
Effect of income tax exemptions and reliefs -
-
Less: Effect of discontinued operations 0.00 % 1.13 %
Total (3.13 )% 11.94 %
The provision for income taxes consists of the following:
For the Years Ended
December 31,
Current $ 683,997 $ 432,626
Deferred (709,796 ) -
Total $ (25,799 ) $ 432,626
Accounting for Uncertainty in Income Taxes
The tax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises complete their relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results are subject to change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s PRC entities’ tax filings, which may lead to additional tax liabilities.
ASC 740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and concluded that no provision for uncertainty in income taxes was necessary as of December 31, 2023 and 2022.
(b) Deferred Tax Assets
The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect the Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes and other relevant factors.
MULIANG VIAGOO TECHNOLOGY INC., SUBSIDIARIES, AND VARIABLE INTEREST ENTITIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENCIES
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for 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 assesses such contingent liabilities, and such assessment inherently involves 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 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 therein.
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, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
As of the date of this report, Mr. Wang Lirong is involved in multiple legal proceedings related to equity transfer and loan agreements. The subsidiaries Shanghai Muliang, Shanghai Zongbao, and Weihai Fukang have provided joint and several guarantees for obligations incurred by Mr. Wang Lirong. If Mr. Wang is unable to resolve these disputes, the Company may face potential financial losses arising from these guarantees. Company management is of the opinion that the ultimate resolution of these legal proceedings should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.
NOTE 17 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events that have occurred after the balance sheet date but before the consolidated financial statements are issued. Based on this evaluation, the Company concluded that subsequent to December 31, 2023 but prior to November 20, 2024, the date the financial statements were available to be issued, there was no subsequent event that would require disclosure to or consolidated adjustment to the consolidated financial statements other than the ones disclosed above.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There have been no changes in or disagreements with accountants on accounting or financial disclosure matters.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (the Company’s principal executive officer and interim principal accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, and because of the material weaknesses described below, our CEO and CFO have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2023.
Management’s Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. The framework used by management in making that assessment was the criteria set forth in the document entitled “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO - 2013 Framework). Based on that assessment, based on that evaluation, our management concluded that our internal control over financial reporting was not effective, as of December 31, 2023. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that amounted to material weaknesses.
The matters involving internal control over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives of having segregation of the initiation of transactions, the recording of transactions and the custody of assets; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer in connection with the review of our financial statements as of December 31, 2023.
To address the material weaknesses set forth in items (2) and (3) discussed above, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we plan to initiate, the following series of measures:
We plan to increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. First, we plan to create a position to segregate duties consistent with control objectives of having separate individuals perform (i) the initiation of transactions, (ii) the recording of transactions and (iii) the custody of assets. Second, we will create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information. Third, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.
Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board. We did not implement the said remedial measures during the period ended December 31, 2023.
On March 17, 2020, the Board of Directors approved the nomination of Vick Bathija, Guofu Zhang and Scott Silverman as independent directors, as defined under Nasdaq Marketplace Rule 4200(a)(15), appointment of whom shall be effective upon approval of Company’s application to list on the Nasdaq Stock Market. In addition, the Board approved the adoption of the audit, compensation and nomination committees. Mr. Bathija, Mr. Silverman and Mr. Zhang shall serve as the Chairman of the Audit Committee, Nomination Committee and Compensation Committee, respectively. All appointment will be effective upon the Company’s listing on Nasdaq.
Changes in Internal Controls over financial reporting
No change in our internal control over financial reporting occurred during the fiscal year ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth certain information with respect to our directors, executive officers and significant employees:
Name
Age
Position
Lirong Wang
Chief Executive Officer and Chairman of the Board
Shaw Cheng “David” Chong
Chief Financial Officer
Suisheng “Jacky” Hu
Director
Scott Silverman*(1)(2)(3)
Independent Director Nominee; Chair of Audit Committee
Vick Bathija*(1)(2)(3)
Independent Director Nominee; Chair of Compensation Committee
Guofu Zhang*(1)(2)(3)
Independent Director Nominee; Chair of Nomination Committee
* The individual consents to be in such position upon Company’s listing on the Nasdaq Stock Market.
(1) Member nominees of the Audit Committee
(2) Member nominees of the Compensation Committee
(3) Member nominees of the Nominating Committee
Lirong Wang has been the Chief Executive Officer and Chairman of the Board since January 11, 2016. Mr. Wang has also been the Chairman and CEO of Shanghai Muliang Industries Co., Ltd. since December 2006. From November 2002 to November 2006, Mr. Wang was general manager of Shanghai Aoke Chemical Products Co., Ltd. Mr. Wang received his bachelor’s degree in storage management from Harbin University of Commerce in 1996.
Shaw Cheng “David” Chong has over 30 years working experience in medium and large private and publicly listed manufacturing companies. Familiar with navigating China, US, Europe, Singapore and other capital markets, his expertise includes international financial management, operations, auditing, funding, business development, internal control maintenance, corporate governance and investor relations. He has qualifications in professional accountancy studies from ACCA (the Association of Chartered Certified Accountants). Mr. Chong was China Financial Controller for Amtek Engineering Ltd (SGX: Amtek Engineering) from 1991 to 2006. From 2007 to 2010 he was Strategic Advisor to both Yan Zhi Hong Shoe Manufacturer Ltd as well as China Recycling Energy Corporation (Nasdaq: CREG), and later in 2010 he became CREG’s Investor Relationship Director prior to assuming the role of Chief Financial Officer from 2011 to 2015, and reverting to Strategic Advisor until May 2016. From May 2015 to March 2019, Mr. Chong served as the Managing Director (Asia) of Hover Energy LLC, and concurrently from March 2016 to December 2016, he acted as Treasurer and Interim President of Nutrastar International. Mr. Chong became board advisor to NexG Pte Ltd. in November 2016 and was subsequently appointed as Chief Financial Officer of NexG in January 2017 until April 2018, and Chief Financial Officer of Qourier from April 2018 to December 2019.
Suisheng “Jacky” Hu has over 20 years of auditing and accounting working experience in Chinese NASDAQ and OTC publicly listed companies. His expertise includes international financial management, operations, auditing, funding, internal control maintenance, and corporate governance. He has qualifications in professional accountancy and internal control studies from the CMA (Certified Management Accountants), CIA (Certified Internal Auditor), and CICPA(Chinese Institute of Certified Public Accountants). Mr. Hu earned his bachelor’s and master’s degrees in economics from Shantou University of China. Mr. Hu served as an auditor in Ernst & Young’s Guangzhou Branch from July 2001 to September 2005 after his master’s. He then served as the Financial Manager at Taiwan Horwath Consulting Group’s Guangzhou Branch from October 2005 to September 2010. Mr. Hu is currently focused on financial consulting for Chinese companies who are planning to IPO on the U.S. securities market since October 2010. He was the financial consultant of the Company before his appointment as director.
Scott Silverman has over 25 years of business success on national and international levels, with a highly diverse knowledge of financial, legal and operations management; public company management, accounting and SEC regulations. Mr. Silverman specializes in establishing and streamlining back-office policies and procedures and implementing sound financial management and internal controls necessary for enterprise growth and scalability. Mr. Silverman is currently a partner and CFO of VC Capital Holdings, a diversified PE firm with portfolio investments in hospitality, healthcare and construction and engineering. Mr. Silverman has orchestrated investor exits for multiple companies, including direct participation in taking 7 companies public. He has also assisted in raising over $35 million for client companies, both public and private. He has a bachelor’s degree in finance from George Washington University and a Master’s degree in accounting from NOVA Southeastern University. We believe Mr. Silverman would be a qualified independent director due to his public company experience.
Vick Bathija has worked on many complex engagements ranging from audits, tax and consulting. He began his career at Holtz Rubenstein, now known as Baker Tilly. He was in the audit/tax department where he grew into a senior role overseeing mid cap companies from an audit and tax standpoint. After over 2 years at Ernst & Young, he started his own practice, Commerce CPA, LLC. He has advised and service several hundred clients ranging from startups to established companies. He has consulted and conducted audits for companies looking to raise money in accordance with SEC regulations. He received a BBA in Accounting and a Masters in Taxation from Hofstra University. We believe Mr. Bathija would be a qualified independent director due to his accounting and GAAP reporting expertise.
Guofu Zhang has served as Chief Financial Officer of AGM Group Holdings Inc. (Nasdaq: AGMH) since the inception of the company. He was a senior accounting consultant at China Customer Relations Centers, Inc. (Nasdaq: CCRC) from 2013 to 2015. Mr. Zhang earned his bachelor degree in accounting from Renmin University of China. He is experienced in financial analysis, auditing, and accounting internal control. He also has experience with IPOs when he helped both AGMH and CCRC list on NASDAQ in April 2018 and December 2015, respectively. We believe Mr. Zhang would be a qualified independent director due to his public company accounting experience.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Board Committees
We plan to establish three committees under the board of directors: an audit committee, a compensation committee and a nominating committee. We have adopted a charter for each of the three committees. Copy of our committee charters are to be posted on our corporate investor relations website prior to our listing on the Nasdaq Capital Market.
Each committee’s members and functions are described below.
Audit Committee. Our Audit Committee will consist of Vick Bathija, Scott Silverman and Guofu Zhang. Mr. Bathija will be the chairman of our audit committee. We have determined that these directors satisfy the “independence” requirements of NASDAQ Rule 5605 and Rule 10A-3 under the Securities Exchange Act of 1934. Our board of directors has determined that Mr. Bathija qualifies as an audit committee financial expert and has the accounting or financial management expertise as required under Item 407(d)(5)(ii) and (iii) of Regulation S-K. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:
● appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;
● reviewing with the independent auditors any audit problems or difficulties and management’s response;
● discussing the annual audited financial statements with management and the independent auditors;
● reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures;
● reviewing and approving all proposed related party transactions;
● meeting separately and periodically with management and the independent auditors; and
● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
Compensation Committee. Our Compensation Committee will consist of Vick Bathija, Scott Silverman and Guofu Zhang. Mr. Zhang will be the chairman of our compensation committee. The compensation committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee will be responsible for, among other things:
● reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers;
● reviewing and recommending to the shareholders for determination with respect to the compensation of our directors;
● reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and
● selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management.
Nomination Committee. Our Nomination Committee will consist of Vick Bathija, Scott Silverman and Guofu Zhang. Mr. Silverman will be the chairman of our nomination committee. The nomination committee will assist the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nomination committee will be responsible for, among other things:
● selecting and recommending to the board nominees for election by the shareholders or appointment by the board;
● reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity;
● making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and
● advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken.
Family Relationships
There are no family relationships between any of our directors or executive officers.
Certain Legal Proceedings
To our knowledge, no director, nominee for director, or executive officer of the Company has been a party in any legal proceeding material to an evaluation of his ability or integrity during the past ten years.
Code of Ethics
On March 17, 2020, the Company adopted a Code of Ethics applicable to its directors, officers, and employees.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The following summary compensation table sets forth the compensation earned by our named executive officers for the years ended December 31, 2023 and 2022.
Summary Compensation Table
Fiscal Salary Bonus Stock Awards All Other Compensation Total
Name and Principal Position Year ($) ($) ($) ($) ($)
Lirong Wang 16,967 16,967
Chief Executive Officer and Chairman of the Board 17,840 17,840
Shaw Cheng “David” Chong*
Chief Financial Officer -
Suisheng “Jacky” Hu(2) 8,483
Director - - - - -
Nunissait Tjandra*(1) - - - - -
Director 48,547 48,547
Vick Bathija* 0
Independent Director Nominee 0
Scott Silverman* 0
Independent Director Nominee 0
Guofu Zhang* 0
Independent Director Nominee 0
* Appointed during fiscal year 2020
(1) Resigned during fiscal year 2023
(2) Appointed during fiscal year 2023
Compensation of Directors
We have entered into director offer letters with each of our independent director nominees. Upon Company’s listing on the Nasdaq Stock Market, we plan to pay our independent director nominee Vick Bathija with an annual cash compensation of $40,000, our independent director nominee Scott Silverman with an annual cash compensation of $30,000 and our independent director nominee Guofu Zhang with an annual cash compensation of $20,000. In addition, for each year of service upon our listing on Nasdaq Capital Market, we will issue to Mr. Bathija, Mr. Silverman and Mr. Zhang stock option for up to 20,000, 15,000 and 10,000 shares, respectively, exercisable at an exercise price of $4.00 for three years from the date of issuance. We will also reimburse all directors for any out-of-pocket expenses incurred by them in connection with their services provided in such capacity. For the years ended December 31, 2023 and 2022, we did not have any non-employee directors.
Employment Agreements
We have entered into employment agreements with each of our executive officers. Each of them is employed for a specified time period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer. We may also terminate an executive officer’s employment without cause upon advance written notice. The executive officer and employee director may resign at any time with an advance written notice.
The Company has entered into an employment agreement with our Chief Executive Officer, Lirong Wang. Mr. Wang is entitled to an annual base salary of USD 16,967 (RMB10,000) for each calendar year on a pro-rated basis, payable on the twenty-fifth day of each month.
The Company has entered into an employment agreement with our Chief Financial Officer, Shaw Cheng “David” Chong. Mr. Chong is entitled to an annual base salary of USD 10,000 for each calendar year, payable commencing on the date of Company’s listing on a national exchange. In addition, (a) the Company shall issue 25,000 of restricted common stock upon the commencement of his employment, with an annual compensation in cash of $100,000, payable monthly upon Company’s listing on a national exchange; (b) additional 25,000 common stock upon Company’s successful listing on a national exchange; and (c) during the executive’s term, the Company will reimburse for all reasonable out-of-pocket travel expenses incurred by the executive in attending any in-person meetings, provided that the executive complies with the generally applicable policies, practices and procedures of the Company for submission of expense reports, receipts or similar documentation of such expenses.
Option Grants
We had no outstanding equity awards as of the end of fiscal years ended December 31, 2023 and 2022.
Option Exercises and Fiscal Year-End Option Value Table
There were no stock options exercised during fiscal years ended December 31, 2023 and 2022 by the executive officers.
Outstanding Equity Awards at Fiscal Year-End Table
We had no outstanding equity awards as of the end of fiscal years ended December 31, 2023 and 2022.
Long-Term Incentive Plans and Awards
There were no awards made to a named executive officer in fiscal 2023 and 2022 under any long-term incentive plan.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table provides information as to shares of common stock beneficially owned as of the date of this report, by:
● each director;
● each named executive officer;
● each person known by us to beneficially own at least 5% of our common stock; and
● all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned (subject to community property laws where applicable). Unless otherwise indicated, the address of each beneficial owner listed below is 2498 Wanfeng Highway, Lane 181, Fengjing Town, Jinshan District, Shanghai, China.
Name of Beneficial Owners # of
Common
Stock %(1) # of
Preferred
Stock (2)(3) % % of
Total
Voting
Power
Lirong Wang 5,779,281 30.16 % 9,500,000 100 % 88.03 %
Shaw Cheng “David” Chong 86,849 * *
Suisheng “Jacky” Hu * *
All officers and directors as a group (1 person) 5,893,305 30.47 % 9,500,000 100 % 88.30 %
Other 5% shareholders:
Huinuo Wang 1,000,000 5.19 % *
* less than 1%.
(1) Applicable percentages are based on 19,251,657 shares of common stock issued and outstanding as of December 31, 2023.
(2) Excluding the 9,500,000 shares of common stock, beneficially owned by Lirong Wang, being exchanging into 9,500,000 shares of Series A Preferred Stock.
(3) Each share of Series A Preferred Stock is entitled to voting power equal to ten shares of common stock.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Independence of the Board of Directors
For a director to be “independent” under these standards, the Board must affirmatively determine that the director has no material relationship with us, either directly or as a partner, shareholder, or officer of an organization that has a relationship with us. Applying corporate governance standards, and all other applicable laws, rules and regulations, the Board of Directors has determined that none of our directors are independent. This does not constitute an independent board of directors.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-K or 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings was $107,000 and $121,000 for the fiscal year ended December 31, 2023 and 2022, respectively.
Audit Related Fees
There were no fees for audit related services for the years ended December 31, 2023 and 2022.
Tax Fees
For the Company’s fiscal years ended December 31, 2023 and 2022, we were not billed for professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees
The Company understood fees related to services rendered by our financial consultant for the fiscal years ended December 31, 2023 and 2022.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
● approved by our audit committee; or
● entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management.
We do not have an audit committee. Our sole director preapproves all services provided by our independent registered public accounting firm. However, all of the above services and fees were reviewed and approved by the sole board member for the respective services were rendered.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
The audited balance sheets of the Company as of December 31, 2023, the related statements of operations and comprehensive income, changes in stockholders’ equity and cash flows for the year then ended, the footnotes thereto, and the report of WWC, P.C., independent auditors, are filed herewith.
(2) Financial Schedules:
None
Financial statement schedules have been omitted because they are either not applicable or the required information is included in the financial statements or notes hereto.
(3) Exhibits:
The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.
(b) The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included.
Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:
● may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;
● may apply standards of materiality that differ from those of a reasonable investor; and
● were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.
Exhibit
Number
Description
3.1(1)
Certificate of Incorporation
3.2(3)
Certificate of Amendment filed with the Secretary of the State of Nevada on April 5, 2019
3.3(3)
Certificate of Change filed with the Secretary of the State of Nevada on April 16, 2019
3.3(4)
Certificate of Designation filed with the Secretary of the State of Nevada on October 30, 2019
3.4(2)
Bylaws
3.5(7)
Certificate of Amendment filed with the Secretary of the State of Nevada on June 26, 2020
4.1*
Description of Securities
10.1(4)
Preferred Stock Exchange Agreement between Mr. Lirong Wang and the Company dated on October 10, 2019.
10.2(4)
Amended and Restated Preferred Stock Exchange Agreement between Mr. Lirong Wang and the Company dated November 11, 2019
10.3(5)
Director Offer Letter between the Company and Vick Bathija dated March 19, 2020
10.4(5)
Director Offer Letter between the Company and Scott Silverman dated March 19, 2020
10.5(5)
Director Offer Letter between the Company and Guofu Zhang dated March 19, 2020
10.6(6)
Share Exchange Agreement between the Company and Viagoo Pte Ltd. dated June 19, 2020
10.7(6)
Earnout Agreement among the Company, Viagoo Pte Ltd. and Shareholders of Viagoo Pte Ltd. dated June 19, 2020
10.8(6)
Employment Agreement between the Company and David Chong Shaw Cheng dated June 19, 2020
10.9(8)
Share Purchase Agreement dated December 16, 2022 by and between Muliang Viagoo Technology Inc. and Viagoo Inc.
10.10(8)
Promissory Note by and between Muliang Viagoo Technology Inc. and Viagoo Inc. Ltd.
14.1(5)
Code of Conduct and Ethics
19.1*
Insider Trading Policies
21.1(9)
List of Subsidiaries
31.1*
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1(5)
Audit Committee Charter
99.2(5)
Compensation Committee Charter
99.3(5)
Nomination Committee Charter
97.1*
Executive Compensation Recovery Policy
101. INS
Inline XBRL Instance Document.
101. SCH
Inline XBRL Taxonomy Extension Schema Document.
101. CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101. DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101. LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101. PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
(1) Incorporated by reference to the Registration Statement on Form S-1 filed with the SEC on January 5, 2015.
(2) Incorporated by reference to the Amendment No.1 to the Registration Statement on Form S-1 filed with the SEC on March 19, 2015.
(3) Incorporated by reference to the Current Report on Form 8-K filed with the SEC on May 10, 2019.
(4) Incorporated by reference to the Quarterly Report on Form 10-Q filed with the SEC on November 14, 2019.
(5) Incorporated by reference to the Current Report on Form 8-K filed with the SEC on March 27, 2020.
(6) Incorporated by reference to the Current Report on Form 8-K filed with the SEC on June 25, 2020.
(7) Incorporated by reference to the Current Report on Form 8-K filed with the SEC on July 6, 2020.
(8)
Incorporated by reference to the Current Report on Form 8-K filed with the SEC on December 22, 2022.
(9) Incorporated by reference to the Registration Statement on Form S-1 filed with the SEC on December 9, 2020.
* Filed herewith.
+ In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.