As confidentially submitted to the U.S. Securities and Exchange Commission on May 20, 2019.
This draft registration statement has not been publicly filed with the U.S. Securities and
Exchange Commission and all information herein remains strictly confidential.

Registration No.  333-     

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Green Grass Ecological Technology Development Co., Ltd.

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

Room 1602 Tower B Shang Dong Linghai

Yuan Wu Wei Road, Ruyi Development District

Huhe Haote City, Inner Mongolia 010000

Tel: + (86) 471-3290663

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

Mr. Jian Sun

Room 1602 Tower B Shang Dong Linghai

Yuan Wu Wei Road, Ruyi Development District

Huhe Haote City, Inner Mongolia 010000

Tel: + (86) 471-3290663

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

Copies to:

Approximate date of commencement of proposed sale to the public: as soon as practicable after the effective date of this registration statement.

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

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

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

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company ☒

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

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. 

Calculation of Registration Fee

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

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

__ Ordinary Shares

Green Grass Ecological Technology Development Co., Ltd.

This is the initial public offering of our ordinary shares. We are offering __ ordinary shares.  We expect the initial public offering price of the shares to be between $__ and $__ per share.  Currently, no public market exists for our ordinary shares.  We have applied to have our ordinary shares listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “QQCY.”

We are an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act of 2012, and will be subject to reduced public company reporting requirements.

Investing in our ordinary shares is highly speculative and involves a significant degree of risk.  See “Risk Factors” beginning on page 11 of this prospectus for a discussion of information that should be considered before making a decision to purchase our ordinary shares.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

We have granted the placement agent a 45-day option to purchase up to an additional __________ ordinary shares at the public offering price, less the placement discount, to cover any over-allotments.

The underwriter expects to deliver the ordinary shares against payment as set forth under “Underwriting”, on or about ●, 2019.

UNDERWRITER LOGO

The date of this prospectus is ●, 2019

RISK FACTORS

An investment in our ordinary shares involves significant risks. You should carefully consider all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ordinary shares. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ordinary shares could decline, and you may lose all or part of your investment.

Risks Related to Our Business

The loss of any of our key customers could reduce our revenues and our profitability.

Five customers accounted for 21.6% of our net revenue in the six months ended December 31, 2018, and five customers accounted for 20.3% in the year ended June 30, 2018. There can be no assurance that we will maintain or improve the relationships with these customers, or that we will be able to continue to supply these customers at current levels or at all. Any failure to pay by these customers could have a material negative effect on our company’s business. In addition, having a relatively small number of customers may cause our quarterly results to be inconsistent, depending upon when these customers pay for outstanding invoices. If we cannot maintain long-term relationships with these major customers, the loss of our sales to them could have an adverse effect on our business, financial condition and results of operations.

We rely on a limited number of vendors, and the loss of any significant vendor could harm our business, and the loss of any one of such vendors could have a material adverse effect on our business.

We consider our major vendors to be those vendors that accounted for more than 10% of overall purchases in any given fiscal period. For the six months ended December 31, 2018 and for the year ended June 30, 2018, the Company purchased approximately 73.5% and 91.0%, of its raw materials from three and five major suppliers, respectively. We have not entered into long-term contracts with our significant vendors and instead rely on individual contracts with such vendors. Although we believe that we can locate replacement vendors readily on the market for prevailing prices, any difficulty in replacing a vendor on terms acceptable to us could negatively affect our company’s performance to the extent it results in higher prices or a slower supply chain.

We lack product and business diversification. Accordingly, our future revenues and earnings are more susceptible to fluctuations than a more diversified company.

Our current primary business activities focus on agricultural products and biomass recycling. Because our focus is limited in this way, any risk affecting the agricultural or biomass recycling industries could disproportionately affect our business. Our lack of product and business diversification could inhibit the opportunities for growth of our business, revenues and profits.

Governmental support to the agriculture industry and/or our business may decrease or disappear.

Currently the Chinese government is supporting agriculture businesses with tax exemptions and our alfalfa farming is exempted from valued tax and enterprise income tax. In addition, our local government has been supporting our company by providing subsidies from time to time. These beneficial policies may change, so the support we receive from the government may decrease or disappear, which may impact our development.

Beneficial tax incentives may disappear.

We operate our business through our Chinese subsidiaries and VIEs. Currently the agriculture industry is highly supported by the Chinese government. For example, to further strengthen and standardize the support of comprehensive agricultural development to the characteristic industries with agricultural advantages, the Chinese National Office of Comprehensive Agricultural Development has decided to carry out the compilation of The Plan for Comprehensive Agricultural Development to Support the Agricultural Advantage and Characteristic Industries (2019-2021) (the “New Plan”). However, the New Plan was recently adopted in 2018 and the final result remains to be further observed.

As an agricultural production enterprise, we are enjoying certain tax benefits, including income tax exemption. If the tax policies change in a way that some or all of the tax benefits we presently receive are cancelled, we may need to pay much higher taxes which will reduce or eliminate our profit margin.

The alfalfa cultivated by us may be subject to risks related to diseases, pests, abnormal temperature change and extreme weather events.

Agricultural products are exposed to diseases and pests. Pests and plant diseases during the cultivation process may significantly decrease the quantity of the qualified agricultural products provided to us, which may force us to breach our contracts with our clients by not being able to supply enough products to them timely, and further impact our revenues.

The extreme weather and other natural disasters such as drought, flood, snowstorm and earthquake may damage our production. The quality, cost and volume of our products could be materially adversely affected by extreme weather conditions or natural disasters; similarly, the end users of our products could also be adversely affected and as a result harming our sales and profitability. Man-made disasters, such as arson or other acts that may adversely affect our inventory in the winter storage season, may also damage our products or our facilities. Although we are using more and more carefully managed environments for cultivation, extreme weather events may still impact our cultivation process. We do not have insurance to protect against such risks. Also, extreme weather conditions and other natural disasters may affect our customers’ demand for our products, which would adversely affect our business prospects and results of operations.

The quality of the straw and biomass waste purchased from third party farmers may not be consistent and might be harmful to the systems of the biomass power plant and paper mills which we supply.

The quality of the straw and biomass waste purchased from third party farmers may not be consistent. The impurities and dust of certain biomass waste raw materials might be excessive, which could be harmful to power generation systems and paper mill facilities and seriously affect the stable production of the plants/mills. If we are unable to inspect and rule out any affected agricultural raw materials and sell them to our clients, our reputation will be harmed, our clients may cease purchasing products from us and ask for damages. Even if we are able to inspect the affected products, we will need to spend extra time and costs.

Our plans to increase production capacity and expand into new markets may not be successful, which will adversely affect our operating results.

Our plan to further develop our biomass business and its production capacity has placed and will continue to place, substantial demands on our managerial, operational, technological and other resources. As we plan to supply our biomass products to biomass power generation plants of all major electricity companies in China, these represent great opportunities for the company, but also represent a potential risk in losing focus and diluting management attention. If we fail to establish and manage the growth of our product offerings, operations and distribution channels effectively and efficiently in such business, we could suffer a material and adverse effect on our operations and our ability to capitalize on new business opportunities, either of which could materially and adversely affect our operating results.

Business expansion may present operating and marketing challenges. If we are unable to anticipate the changing demand that expanding operations will impose on our production systems and distribution channels, or if we fail to develop our production systems and distribution channels to meet the demand, we could experience an increase in expenses and our results of operations could be adversely affected.

Failure to accurately forecast customer demand could lead to excess supplies or supply shortages, which could result in decreased operating margins, reduced cash flows and harm to our business.

We may fail to correctly anticipate product supply requirements or suffer delays in production resulting from issues with our suppliers. Our suppliers may not supply us with a sufficient amount of materials of adequate quality, or they may provide them at significantly increased prices. We may in the future, experience delays or reductions in supply shipments, which could reduce our revenue and profitability. We may experience delays in production if we fail to identify alternative suppliers, or if supply is interrupted, each of which could materially adversely affect our business and operations.

If we fail to anticipate customer demand properly, an oversupply could result in excess or obsolete inventories, which could adversely affect our business. Additionally, if we fail to correctly anticipate our internal supply requirements, an undersupply could limit our production capacity. The difficulty in forecasting demand also makes it difficult to estimate our future results of operations, financial condition and cash flows from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance.

The biomass recycling industry is an industry that is changing rapidly which can result in unexpected developments that could negatively impact our operations and the value of our units.

The biomass recycling industry has grown significantly in the last decade. This rapid growth has resulted in significant shifts in supply and demand of biomass recycling over a very short period of time. As a result, our past performance or the biomass recycling industry generally might not be indicative of future performance.

Our growth prospects may be materially and adversely affected if we are unable to produce our products in sufficient quantities for our customer or if our competitors develop products that are favored by our customers.

We believe our future growth will depend on the value of our grass business for biofuel, power plant, or animal feed purposes. The ability to develop orders from customers, if at all, is uncertain due to several factors, many of which are beyond our control. If we are unable to produce sufficient alfalfa or collect sufficient straws to meet the initial demands of our customers, or if our competitors develop products that are favored by our customers, our growth will be adversely affected. If we are unable to generate our existing products in sufficient quantities - our growth prospects may be materially and adversely affected and our revenues and profitability may decline.

Our products are not nationally well known.

Our product visibility in general is not high in China. Although we plan to participate in more industry events to improve recognition and drive revenues, we have no guarantee that we will be able to materially increase the market recognition of all our edible fungi products. To the extent we are unable to increase our product visibility, we may face challenges in increasing revenues or increasing the profit margin for such products.

We may need additional capital, and financing may not be available on terms acceptable to us, or at all.

Although we believe that our current cash and cash equivalents, anticipated cash flows from operating activities and the proceeds from this offering will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for at least 12 months following this offering, we may need additional cash resources in the future if we experience changes in business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

We may incur substantial debt in the future, which may adversely affect our financial condition and negatively impact our operations.

We may decide in the future to finance our company through incurring debt. The incurrence of debt could have a variety of negative effects, including:

The occurrence of any of these risks could adversely affect our operations or financial condition.

Our financial results may fluctuate significantly and may not fully reflect the underlying performance of our business.

Our financial results of operations, including the levels of our net revenues, expenses, net (loss)/income and other key metrics, may vary significantly in the future due to a variety of factors, some of which are outside of our control, and period-to-period comparisons of our operating results may not be meaningful, especially given our limited operating history. Accordingly, the results for any one period are not necessarily an indication of future performance. Fluctuations in financial results may adversely affect the market price of our ordinary shares. Factors that may cause fluctuations in our financial results include:

Despite our marketing efforts, we may not be able to promote and maintain our brand in an effective and cost-efficient way and our business and results of operations may be harmed accordingly.

We believe that developing and maintaining awareness of our brand effectively is critical to attracting new and retaining existing clients. Successful promotion of our brand and our ability to attract quality clients depends largely on the effectiveness of our marketing efforts and the success of the channels we use to promote our services. Despite our marketing efforts, it is likely that our future marketing efforts will require us to incur significant additional expenses. These efforts may not result in increased revenues in the immediate future or at all and, even if they do, any increases in revenues may not offset the expenses incurred. If we fail to successfully promote and maintain our brand while incurring substantial expenses, our results of operations and financial condition would be adversely affected, which may impair our ability to grow our business.

We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.

We regard our trademarks, domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality and non-compete agreements with our employees and others to protect our proprietary rights. See “Business—Intellectual Property” and “Regulation—Regulation on Intellectual Property Rights.” Thus, we cannot assure you that any of our intellectual property rights would not be challenged, invalidated, circumvented or misappropriated, or that such intellectual property will be sufficient to provide us with competitive advantages. In addition, because of the rapid pace of technological change in our industry, parts of our business rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms, or at all.

It is often difficult to register, maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. To the extent that our employees or consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related know-how and inventions. Any failure in protecting or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.

We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. We may be from time to time in the future subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights, know-how or other intellectual property rights that are infringed by our products, services or other aspects of our business without our awareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against us in China, the United States or other jurisdictions. If any third-party infringement claims are brought against us, we may be forced to divert management’s time and other resources from our business and operations to defend against these claims, regardless of their merits.

Additionally, the application and interpretation of China’s intellectual property right laws and the procedures and standards for granting trademarks, patents, copyrights, know-how or other intellectual property rights in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we were found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. As a result, our business and results of operations may be materially and adversely affected.

From time to time we may evaluate and potentially consummate strategic investments or acquisitions, which could require significant management attention, disrupt our business and adversely affect our financial results.

We may evaluate and consider strategic investments, combinations, acquisitions or alliances to further increase the value of our marketplace and better serve our customers. These transactions could be material to our financial condition and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction.

Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including:

We may not make any investments or acquisitions, or any future investments or acquisitions may not be successful, may not benefit our business strategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits. In addition, we cannot assure you that any future investment in or acquisition of new businesses or technology will lead to the successful development of new or enhanced our products and services or that any new or enhanced products and services, if developed, will achieve market acceptance or prove to be profitable.

Our business depends on the continued efforts of our senior management. If one or more of our key executives were unable or unwilling to continue in their present positions, our business may be severely disrupted.

Our business operations depend on the continued services of our senior management, particularly the executive officers named in this prospectus. While we have the ability to provide different incentives to our management, we cannot assure you that we can continue to retain their services. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, 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, and 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.

If the basic salary of certain employees fails to meet the local minimum salary standard, we may be faced with labor dispute or compensation.

The remuneration we pay to our employee in general consists of basic salary, subsidy and performance bonus subject to different department. For marketing staff, a great proportion of their remuneration is the performance bonus. As such, the basic salary of certain marketing staff of Shanghai Branch failed to meet the current local minimum salary standard. In accordance with the Labor Contract Law of People’s Republic of China, if the salary paid by the employer to its employee is below the local minimum salary standard, the labor administrative authorities shall order the employer to pay the shortfall; where payment is not made within the stipulated period, the employer shall be ordered to pay compensation to the employee based on 50% to 100% of the amount payable. In principle, each province has its own local minimum standard and the local minimum salary standard is subject to change each year. We will try our best to meet each local minimum salary standard. However, we cannot assure you that we can adjust the employees’ basic salary in time to meet the changing minimum standard. In such case, we may be faced with labor dispute or compensation.

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 banking, risk management, software engineering, information technology, 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 marketing, 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 our customers could diminish, resulting in a material adverse effect to our business.

Increases in labor costs in the PRC may adversely affect our business and results of operations.

The economy in China has experienced increases in inflation and labor costs in recent years. As a result, average wages in the PRC are expected to continue to increase. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pension, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. The relevant government agencies may examine whether an employer has made adequate payments to the statutory employee benefits, and those employers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to control our labor costs or pass on these increased labor costs to our users by increasing the fees of our services, our financial condition and results of operations may be adversely affected.

If we cannot maintain our corporate culture as we grow, we could lose the innovation, collaboration and focus that contribute to our business.

We believe that a critical component of our success is our corporate culture, which we believe fosters innovation, encourages teamwork and cultivates creativity. As we develop the infrastructure of a public company and continue to grow, we may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives.

Our property insurance coverage might not be sufficient to fully cover our losses and we do not have any insurance coverage for damage due to natural disasters or business liability or disruption insurance to cover our operations.

Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. Currently, we have property insurance coverage for our machines, equipment, buildings and inventories, however, we do not have any business liability or disruption insurance to cover our operations or any insurance to cover losses due to natural disasters such as storms or hurricanes. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.

We may have exposure to greater than anticipated tax liabilities.

We are subject to enterprise income tax and value-added tax. Our tax structure is subject to review by various local tax authorities. The determination of our provision for income tax and other tax liabilities requires significant judgment. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, the ultimate decisions by the relevant tax authorities may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.

Risks Related to Our Corporate Structure

If the PRC government deems that the contractual arrangements in relation to our consolidated variable interest entities 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 agriculture businesses, such as growing and selling agriculture products and livestock feed, is subject to restrictions under current PRC laws and regulations. For example, it is prohibited for foreign investors to invest in R&D, breeding, planting, and the production of related reproductive materials (including excellent genes in crop farming, animal husbandry, and aquaculture) of China’s rare, unique and precious varieties and to invest in the selection and breeding of transgenic crops, breeding livestock and poultry, and aquatic seedlings, as well as the production of genetically modified seeds (seedlings) thereof in accordance with the Special Administrative Measures (Negative List) for Foreign Investment Access (2018 Version), or the Negative List promulgated in June 2018, and other applicable laws and regulations. To improve our production, we might introduce rare, unique and precious varieties.

We are a Cayman Islands exempted company and our PRC subsidiary is considered a foreign invested enterprise. To comply with PRC laws and regulations, we conduct our operations in China through a series of contractual arrangements entered into among WFOE, our VIEs and the shareholders of our VIEs. As a result of these contractual arrangements, we exert control over our VIEs and consolidate their operating results in our financial statements under U.S. GAAP. For a detailed description of these contractual arrangements, see “Corporate History and Structure.”

In the opinion of our PRC counsel, Allbright Law Offices, our ownership structure, the ownership structure of our PRC subsidiary and our consolidated VIEs, and the contractual arrangements among WFOE, our VIEs and the shareholders of our VIEs are not in violation of existing PRC laws, rules and regulations; and these contractual arrangements are valid, binding and enforceable in accordance with their terms and applicable PRC laws and regulations currently in effect. However, Allbright Law Offices has also advised us that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations and there can be no assurance that the PRC government will ultimately take a view that is consistent with the opinion of our PRC counsel.

In January 2015, the Ministry of Commerce, or MOFCOM, published a discussion draft of the proposed Foreign Investment Law for public review and comment. 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.

In December 2018, the Standing Committee of the National People’s Congress published a discussion draft of a new proposed Foreign Investment Law, aiming to replace the major existing laws governing foreign direct investment in China. On January 29, 2019, the discussion draft with slight revisions, or the New Draft Foreign Investment Law, was submitted for review. Pursuant to the New Draft Foreign Investment Law, foreign investments shall be subject to the negative list management system. However, the New Draft Foreign Investment Law does not mention “actual control” as regulated in the previous draft and the position to be taken with respect to the existing or future companies with the “variable interest entity” structure. On March 15, 2019, the Foreign Investment Law of the People’s Republic of China, or the Final Foreign Investment Law, with slight revision, is finally issued and will become effective on January 1, 2020. See “Regulation—Regulations Relating to Foreign Investment—The Draft PRC Foreign Investment Law” and “Risk Factors—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.”

Although variable interest entity structures are not included in the Final Foreign Investment Law, it is uncertain whether any interpretation and implementation of the Final Foreign Investment Law or new PRC laws, rules or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If the ownership structure, contractual arrangements and business of our company, our PRC subsidiary or our consolidated variable interest entities 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 or the income of our PRC subsidiary or consolidated variable interest entity, revoking the business licenses or operating licenses of our PRC subsidiary or consolidated variable interest entity, shutting down our servers or blocking our online platform, discontinuing or placing restrictions or onerous conditions on our operations, requiring us to undergo a costly and disruptive restructuring, restricting or prohibiting our use of proceeds from this offering to finance our business and operations in China, and taking other regulatory or enforcement actions that could be harmful to our business. Any of these actions could cause significant disruption to our business operations and severely damage our reputation, which would in turn materially and adversely affect our business, financial condition and results of operations. If any of these occurrences results in our inability to direct the activities of our consolidated variable interest entities, and/or our failure to receive economic benefits from our consolidated variable interest entities, we may not be able to consolidate its results into our consolidated financial statements in accordance with U.S. GAAP.

We rely on contractual arrangements with our VIEs and the shareholders of our VIEs for our business operations, which may not be as effective as direct ownership in providing operational control.

We have relied and expect to continue to rely on contractual arrangements with VIEs to operate our businesses. For a description of these contractual arrangements, see “Corporate History and Structure.” These contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated variable interest entities. For example, our consolidated variable interest entities and their shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations, including maintaining our website and using the domain names and trademarks, in an acceptable manner or taking other actions that are detrimental to our interests.

If we had direct ownership of our VIEs, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of our VIEs, 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 our consolidated variable interest entities and their shareholders of their obligations under the contracts to exercise control over our consolidated variable interest entities. The shareholders of our consolidated variable interest entities 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 our business through the contractual arrangements with our consolidated variable interest entities. Although we have the right to replace any shareholder of our consolidated variable interest entities under the contractual arrangement, if any shareholder of our consolidated variable interest entities is uncooperative or any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC laws and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system. See “Risk Factors—Any failure by our consolidated variable interest entities or its shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business.” Therefore, our contractual arrangements with our consolidated variable interest entities may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.

Any failure by our consolidated VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business.

If our consolidated VIEs 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. 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 our VIEs were to refuse to transfer their equity interest in the VIEs 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 action 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 in the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. 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 entities, and our ability to conduct our business may be negatively affected. See “—Risks Related to Doing Business in China—Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to you and us.”

The shareholders of our consolidated VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

The equity interests of our VIEs IMGG and BRE are held by 12 PRC shareholders. Their interests in IMGG and BRE may differ from the interests of our company as a whole. These shareholders may breach, or cause our consolidated variable interest entities to breach, the existing contractual arrangements we have with them and our consolidated variable interest entities, which would have a material adverse effect on our ability to effectively control our consolidated variable interest entities and receive economic benefits from them. For example, the shareholders may be able to cause our agreements with IMGG and BRE 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.

Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that we could exercise our purchase option under the exclusive option agreements with these shareholders to request them to transfer all of their equity interests in IMGG and BRE to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot resolve any conflict of interest or dispute between us and the shareholders of IMGG and BRE, we would have to rely on legal proceedings, which could result in the disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

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 (“SAMR”), formerly known as the State Administration for Industry and Commerce. 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 department manager and the president, 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 the office of the president 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. There is a risk that our key employees or designated legal representatives could abuse their authority, for example, by binding our subsidiary and consolidated VIE with contracts against our interests, as we would be obligated to honor these contracts if the other contracting party acts in good faith in reliance on the apparent authority of our chops or signatures of our legal representatives. If any designated legal representative obtains control of the chop in an effort to obtain control over the relevant entity, we would need to have a shareholder or board resolution to designate a new legal representative to take legal action to seek the return of the chop, apply for a new chop with the relevant authorities, or otherwise seek legal remedies for the legal representative’s misconduct. If any of the designated legal representatives obtains and misuses or misappropriates our chops and seals or other controlling intangible assets for whatever reason, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve the matter, while distracting management from our operations, and our business operations may be materially and adversely affected.

Contractual arrangements in relation to our consolidated variable interest entities may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC consolidated variable interest entities 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 WFOE, our wholly-owned subsidiary in China, our consolidated VIEs in China, and the shareholders of our VIEs 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 our VIEs’ 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 our VIEs for PRC tax purposes, which could in turn increase its tax liabilities without reducing WFOEs’ tax expenses. In addition, if WFOE requests the shareholders of our VIEs to transfer their equity interests in the VIEs at nominal or no value pursuant to these contractual arrangements, such transfer could be viewed as a gift and subject our VIEs to PRC income tax. Furthermore, the PRC tax authorities may impose late payment fees and other penalties on our VIEs for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if our consolidated variable interest entities’ tax liabilities increase or if it is required to pay late payment fees and other penalties.

We may lose the ability to use and enjoy assets held by our consolidated VIEs that are material to the operation of our business if the entities go bankrupt or become subject to a dissolution or liquidation proceeding.

Our consolidated VIEs hold certain assets that are material to the operation of our business, including domain names and the online agricultural harvesting business. Under the contractual arrangements, our consolidated VIEs may not and their shareholders may not cause them to, in any manner, sell, transfer, mortgage or dispose of their assets or their legal or beneficial interests in the business without our prior consent. However, in the event our consolidated VIEs’ shareholders breach the these contractual arrangements and voluntarily liquidate our consolidated VIEs or our consolidated VIEs 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 continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If our consolidated VIEs undergo a voluntary or involuntary liquidation proceeding, independent 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, financial condition and results of operations.

Risks Related to Doing Business in China

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations.

All of our operations are located in China. Accordingly, our business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.

The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.

While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, and since 2012, China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations.

Uncertainties with respect to the PRC legal system could adversely affect us.

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value.

In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protection afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve 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. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us.

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. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.

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.

In particular, PRC laws and regulations concerning the agriculture service business and biomass products are developing and evolving. Although we have taken measures to comply with the laws and regulations that are applicable to our business operations, including the regulatory principles raised by the CBRC, the PRC government authority may promulgate new laws and regulations regulating the agriculture service and biomass industry in the future. Furthermore, we cannot rule out the possibility that the PRC government will institute a licensing regime covering the biomass and/or online agriculture harvesting business 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 our business development and our operations.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.

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.

MOFCOM published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.

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. The draft Foreign Investment Law specifically provides that entities established in China but “controlled” by foreign investors will be treated as FIEs. Once an entity is considered to be an FIE, it may be subject to the foreign investment restrictions or prohibitions set forth in a “negative list” to be separately issued by the State Council later. If an FIE proposes to conduct business in an industry subject to foreign investment “restrictions” in the “negative list,” the FIE must go through a market entry clearance by MOFCOM before being established. If an FIE proposes to conduct business in an industry subject to foreign investment “prohibitions” in the “negative list,” it must not engage in the business. However, an FIE that is subject to foreign investment “restrictions,” upon market entry clearance, may apply in writing for being treated as a PRC domestic investment if it is ultimately “controlled” by PRC government authorities and its affiliates and/or PRC citizens. In this connection, “control” is broadly defined in the draft law to cover the following summarized categories: (i) holding 50% or more of the voting rights of the subject entity; (ii) holding less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to exert material influence on the board, the shareholders’ meeting or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters or other key aspects of business operations. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a “negative list,” to be separately issued by the State Council at a later date, if the FIE is engaged in an industry listed in the negative list. Unless the underlying business of the FIE falls within the negative list, which calls for market entry clearance by MOFCOM, prior approval from the government authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE. 

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. See “— Risks Related to Our Corporate Structure” and “Our Corporate History and Structure.” Under the draft 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 illegal.

In December 2018, the Standing Committee of the National People’s Congress published a discussion draft of a new proposed Foreign Investment Law, aiming to replace the major existing laws governing foreign direct investment in China. On January 29, 2019, the discussion draft with slight revisions, or the New Draft Foreign Investment Law, was submitted for review. Pursuant to the New Draft Foreign Investment Law, foreign investment shall be subject to the negative list management system. The “negative list”, which is issued or approved by the State Council, specifies the special management measures for the access of foreign investments in specific areas. 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, suspend its investment activities, dispose of its equity interests or assets in the target companies, and forfeit its income. In addition, if a foreign investor is found to invest in any restricted industry in the “negative list”, the relevant competent department shall require the foreign investor to take the measures to correct itself.

However, the New Draft Foreign Investment Law does not mention “actual control” as regulated in the previous draft and the position to be taken with respect to existing or future companies with the “variable interest entity” structure. On March 15, 2019, the Foreign Investment Law of the People’s Republic of China, or the Final Foreign Investment Law, with slight revision, is finally issued and will become effective on January 1, 2020. Although variable interest entity structures are not included in the Final Foreign Investment Law, it is uncertain whether any interpretation and implementation of the Final Foreign Investment Law or new PRC laws, rules or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If any laws or regulations relating to variable interest entity structures are issued and an updated “negative list” mandate further actions, such as MOFCOM market entry clearance or certain restructuring of our corporate structure and operations, to be completed by companies with existing VIE structure like us, there may be substantial uncertainties as to whether we can complete these actions in a timely manner, or at all, and our business and financial condition may be materially and adversely affected.

We rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material adverse effect on our ability to conduct our business.

We are a holding company, and we rely on dividends and other distributions on equity paid by our PRC subsidiary for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. 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. In addition, the PRC tax authorities may require our WFOE to adjust its taxable income under the contractual arrangements it currently has in place with our consolidated variable interest entities in a manner that would materially and adversely affect its ability to pay dividends and other distributions to us. See “Risk Factors—Risks Related to Our Corporate Structure—Contractual arrangements in relation to our consolidated variable interest entities may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC consolidated variable interest entity owe additional taxes, which could negatively affect our financial condition and the value of your investment.”

Under PRC laws and regulations, our PRC subsidiary, as a wholly foreign-owned enterprise in China, may pay dividends only out of its accumulated after-tax 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 certain statutory reserve funds, until the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

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. See also “—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.”

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans to or make additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

Under PRC laws and regulations, we are permitted to utilize the proceeds from this offering to fund our PRC subsidiary by making loans to or additional capital contributions to our PRC subsidiary, subject to applicable government registration and approval requirements.

Any loans to our PRC subsidiary, which are treated as foreign-invested enterprises under PRC laws, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to our PRC subsidiary to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of the State Administration of Foreign Exchange, or SAFE. The statutory limit for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment or its local counterpart and the amount of registered capital of such foreign-invested company.

We may also decide to finance our PRC subsidiary by means of capital contributions. These capital contributions must be approved by MOFCOM or its local counterpart. In addition, SAFE issued a circular in September 2008, SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142 provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and unless otherwise provided by law, may not be used for equity investments within the PRC. Although on July 4, 2014, the SAFE issued the Circular of the SAFE on Relevant Issues Concerning the Pilot Reform in Certain Areas of the Administrative Method of the Conversion of Foreign Exchange Funds by Foreign-invested Enterprises, or SAFE Circular 36, which launched a pilot reform of the administration of the settlement of the foreign exchange capital of foreign-invested enterprises in certain designated areas from August 4, 2014 and some of the restrictions under SAFE Circular 142 will not apply to the settlement of the foreign exchange capital of the foreign-invested enterprises established within the designated areas and such enterprises mainly engaging in investment are allowed to use RMB capital converted from foreign exchange capital to make equity investments, our PRC subsidiary is not established within the designated areas. On March 30, 2015, SAFE promulgated Circular 19, to expand the reform nationwide. Circular 19 came into force and replaced both Circular 142 and Circular 36 on June 1, 2015. Circular 19 allows foreign-invested enterprises to make equity investments by using RMB funds converted from foreign exchange capital. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using RMB funds converted from foreign exchange capital for expenditure beyond their business scope, providing entrusted loans or repaying loans between non-financial enterprises. In addition, SAFE strengthened its oversight of the flow and use of RMB capital converted from foreign currency registered capital of a foreign-invested company. The use of such RMB capital may not be altered without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations of these Circulars could result in severe monetary or other penalties. These circulars may significantly limit our ability to use RMB converted from the net proceeds of this offering to fund the establishment of new entities in China by our PRC subsidiary, to invest in or acquire any other PRC companies through our PRC subsidiary, or to establish new variable interest entities in the PRC.

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 future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from this offering to capitalize or otherwise 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.

Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.

Substantially all of our revenues and expenditures are denominated in RMB, whereas our reporting currency is the U.S. dollar. As a result, fluctuations in the exchange rate between the U.S. dollar and RMB will affect the relative purchasing power in RMB terms of our U.S. dollar assets and the proceeds from this offering. Our reporting currency is the U.S. dollar while the functional currency for our PRC subsidiary and consolidated variable interest entity is RMB. Gains and losses from the remeasurement of assets and liabilities that are receivable or payable in RMB are included in our consolidated statements of operations. The remeasurement has caused the U.S. dollar value of our results of operations to vary with exchange rate fluctuations, and the U.S. dollar value of our results of operations will continue to vary with exchange rate fluctuations. A fluctuation in the value of RMB relative to the U.S. dollar could reduce our profits from operations and the translated value of our net assets when reported in U.S. dollars in our financial statements. This could have a negative impact on our business, financial condition or results of operations as reported in U.S. dollars. If we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations in currencies relative to the periods in which the earnings are generated may make it more difficult to perform period-to-period comparisons of our reported results of operations.

There remains significant international pressure on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our ordinary shares in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive from this initial public offering into RMB to pay our operating expenses, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the market price of our ordinary shares.

Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.

Governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value of your investment.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our net revenues in RMB. Under our current corporate structure, our company in the Cayman Islands relies on dividend payments from our PRC subsidiary to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. Therefore, our PRC subsidiary is able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such as the overseas investment registrations by the beneficial owners of our company who are PRC residents. But approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders.

Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.

We are required under PRC laws and regulations to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. As of the date of this prospectus, we believe that we have made adequate employee benefit payments. If we fail to make adequate payments in the future, we may be required to make up the contributions for these plans in the amount of 110% of the amount in the preceding month. If we fail to make or supplement contributions of social security premiums within the stipulated period, the social security premiums collection agency may enquire into the deposit accounts of the employer with banks and other financial institutions. In an extreme situation, where we failed to contribute social security premiums in full amount and do not provide guarantee, the social security premiums collection agency may apply to a Chinese court for seizure, foreclosure or auction of our properties of value equivalent to the amount of social security premiums payable, and the proceeds from auction shall be used for contribution of social security premiums.  If we are subject to deposit, seizure, foreclosure or auction in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

The approval of the China Securities Regulatory Commission may be required in connection with this offering under a regulation adopted in August 2006, as amended, and, if required, we cannot predict whether we will be able to obtain such approval.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. In September 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it by a special purpose vehicle seeking CSRC approval of its overseas listings. The application of the M&A Rules remains unclear.

Our PRC counsel, Allbright Law Offices, has advised us based on their understanding of the current PRC laws, rules and regulations that the CSRC’s approval is not required for the listing and trading of our ordinary shares on the NASDAQ in the context of this offering, given that:

However, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and the CSRC’s opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as we do. If the CSRC or any other PRC regulatory agencies subsequently determines that we need to obtain the CSRC’s approval for this offering or if the CSRC or any other PRC government agencies promulgates any interpretation or implements rules before our listing that would require us to obtain CSRC or other governmental approvals for this offering, we may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies. Sanctions may include fines and penalties on our operations in the PRC, limitations on our operating privileges in the PRC, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiary, or other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ordinary shares. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of ordinary shares that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of ordinary shares we are offering, you would be doing so at the risk that the settlement and delivery may not occur. In addition, if the CSRC or other PRC regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such approval requirement could have a material adverse effect on the trading price of ordinary shares.

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 M&A Rules discussed in the preceding risk factor 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 MOFCOM 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 MOFCOM be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by MOFCOM 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 MOFCOM, 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 MOFCOM 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.

PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiary’s ability to increase its registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.

SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities 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 investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name, and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 is issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.

If our shareholders who are PRC residents or entities do not complete their registration as required, our PRC subsidiary may be prohibited from distributing its profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiary. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

The shareholders who holds shares in our company that are known to us as being PRC residents, are in the processing to complete the foreign exchange registrations required in connection with our recent corporate restructuring.

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. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain 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 subsidiary, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiary’s ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.

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 and 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 will be subject to these regulations when our company becomes an overseas listed company upon the completion of this offering. 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’s 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. See “Regulation—Regulations on Stock Incentive Plans.”

If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners like us, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. See “Taxation—People’s Republic of China Taxation.” However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” As all of our management members are based in China, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that we or any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then we or such subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or other disposition of our ordinary shares may 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), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC shareholders of our company 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. Any such tax may reduce the returns on your investment in our ordinary shares.

Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China.

From time to time, the Company may receive requests from certain U.S. agencies to investigate or inspect the Company’s operations, or to otherwise provide information. While the Company will be compliant with these requests from these regulators, there is no guarantee that such requests will be honored by those entities who provide services to us or with whom we associate, especially as those entities are located in China. Furthermore, an on-site inspection of our facilities by any of these regulators may be limited or entirely prohibited. Such inspections, though permitted by the Company and its affiliates, are subject to the unpredictability of the Chinese enforcers, and may therefore be impossible to facilitate.

We face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of our operating company’s equity interests. Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular 59 and Circular 698, which became effective in January 2008, and a Circular 7 in replacement of some of the existing rules in Circular 698, which became effective in February 2015.

Under Circular 698, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise” indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.

In February 2015, the SAT issued Circular 7 to replace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced a new tax regime that is significantly different from that under Circular 698. Circular 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.

On October 17, 2017, the SAT promulgated the Bulletin of SAT on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source (“Bulletin 37”), which became effective on December 1, 2017, and Circular 698 was then replaced effective December 1, 2017. Bulletin 37, among other things, simplified procedures of withholding and payment of income tax levied on non-resident enterprises.

We face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed, under Circular 59 or Circular 7 and Bulletin 37, and may be required to expend valuable resources to comply with Circular 59, Circular 7 and Bulletin 37 or to establish that we and our non-resident enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

The PRC tax authorities have the discretion under SAT Circular 59, Circular 7 and Bulletin 37 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. Although we currently have no plans to pursue any acquisitions in China or elsewhere in the world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make adjustments to the taxable income of the transactions under SAT Circular 59 or Circular 7 and Bulletin 37, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.

In addition, in accordance with the Individual Income Tax Law promulgated by the Standing Committee of NPC, later amended on August 31, 2018 and effective January 1, 2019, where an individual carries out other arrangements without reasonable business purpose and obtains improper tax gains, the tax authorities shall have the right to make tax adjustments based on a reasonable method, and levy additional tax and collect interest if there is a need to levy additional tax after making tax adjustments. As a result, our beneficial owners, who are PRC residents, may be deemed to have carried out other arrangements without reasonable business purpose and obtained improper tax gains for such indirect transfer, and thus be levied tax.

Risks Related to Our Ordinary Shares and This Offering

There has been no public market for our shares prior to this offering, and if an active trading market does not develop you may not be able to resell our shares at or above the price you paid, or at all. 

Prior to this public offering, there has been no public market for our ordinary shares. We have applied to have our ordinary shares listed on NASDAQ.  If an active trading market for our ordinary shares does not develop after this offering, the market price and liquidity of our ordinary shares will be materially adversely affected. The public offering price for our ordinary shares will be determined by negotiations between us and the underwriter and may bear little or no relationship to the market price for our ordinary shares after the public offering. You may not be able to sell any ordinary shares that you purchase in the offering at or above the public offering price.  Accordingly, investors should be prepared to face a complete loss of their investment. 

Our ordinary shares may be thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares. 

Assuming our ordinary shares begin trading on NASDAQ, our ordinary shares may be “thinly-traded”, meaning that the number of persons interested in purchasing our ordinary shares at or near bid prices at any given time may be relatively small or non-existent. This situation may be attributable to a number of factors, including the fact that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned.  As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price.  A broad or active public trading market for our ordinary shares may not develop or be sustained. 

The market price for our ordinary shares may be volatile. 

The trading price of our ordinary shares may be volatile and could fluctuate widely due to factors beyond our control. This may happen because of the broad market and industry factors, like the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. A number of Chinese companies have listed or are in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading performances of these Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our ordinary shares, regardless of our actual operating performance.

The market price for our ordinary shares may be volatile and subject to wide fluctuations due to factors such as: 

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies.  These market fluctuations may also materially and adversely affect the market price of our ordinary shares. 

Volatility in our ordinary share price may subject us to securities litigation.

The market for our ordinary shares may have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources. 

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively. 

Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business.

In order to raise sufficient funds to enhance operations, we may have to issue additional securities at prices which may result in substantial dilution to our shareholders.

If we raise additional funds through the sale of equity or convertible debt, our current shareholders’ percentage ownership will be reduced. In addition, these transactions may dilute the value of ordinary shares outstanding. We may have to issue securities that may have rights, preferences and privileges senior to our ordinary shares. We cannot provide assurance that we will be able to raise additional funds on terms acceptable to us, if at all. If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business plans, prospects, results of operations and financial condition.

We are not likely to pay cash dividends in the foreseeable future.

We currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any cash dividends in the foreseeable future, but will review this policy as circumstances dictate. Should we determine to pay dividends in the future, our ability to do so will depend upon the receipt of dividends or other payments from WFOE. WFOE may, from time to time, be subject to restrictions on its ability to make distributions to us, including restrictions on the conversion of RMB into U.S. dollars or other hard currency, and other regulatory restrictions.  

You may face difficulties in protecting your interests as a shareholder, as Cayman Islands law provides substantially less protection when compared to the laws of the United States and it may be difficult for a shareholder of ours to effect service of process or to enforce judgements obtained in United States courts.

Our corporate affairs are governed by our memorandum and articles of association and by the Companies Law (2016 Revision) and common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law. Decisions of the Privy Council (which is the final court of appeal for British overseas territories such as the Cayman Islands) are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court of the United Kingdom and the Court of Appeal are generally of persuasive authority but are not binding on the courts of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and provide significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the United States federal courts. The Cayman Islands courts are also unlikely to impose liabilities against us in original actions brought in the Cayman Islands, based on certain civil liability provisions of United States securities laws.

Currently, all of our operations are conducted outside the United States, and substantially all of our assets are located outside the United States. All of our directors and officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

As a result of all of the above, our shareholders may have more difficulty in protecting their interests through actions against us or our officers, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States. 

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies. 

We are a foreign private issuer within the meaning of the rules under the Exchange Act. As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:

We currently intend to file annual reports on Form 20-F and reports on Form 6-K as a foreign private issuer. Accordingly, our shareholders may not have access to certain information they may deem important. 

We are an “emerging growth company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make it more difficult to compare our performance with other public companies.

We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.

As an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our ordinary shares less attractive to investors.

For as long as we remain an “emerging growth company”, as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.  Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile. 

If we are classified as a passive foreign investment company, United States taxpayers who own our ordinary shares may have adverse United States federal income tax consequences.

A non-U.S. corporation such as ourselves will be classified as a passive foreign investment company, which is known as a PFIC, for any taxable year if, for such year, either

Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.

If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our ordinary shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.

Depending on the amount of cash we raise in this offering, together with any other assets held for the production of passive income, it is possible that, for our 2019 taxable year or for any subsequent year, more than 50% of our assets may be assets which produce passive income. We will make this determination following the end of any particular tax year. Although the law in this regard is unclear, we treat our consolidated affiliated entities as being owned by us for United States federal income tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements. For purposes of the PFIC analysis, in general, a non-U.S. corporation is deemed to own its pro rata share of the gross income and assets of any entity in which it is considered to own at least 25% of the equity by value.

For a more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. taxpayers if we were determined to be a PFIC, see “Taxation — United States Federal Income Taxation — Passive Foreign Investment Company.”

We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”

Upon consummation of this offering, we will incur significant legal, accounting and other expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and NASDAQ Capital Market, impose various requirements on the corporate governance practices of public companies. We are an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.  An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.

Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” or until five years following the completion of our initial public offering, whichever is earlier, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

If we fail to implement and maintain an effective system of internal controls or fail to remediate the material weaknesses in our internal control over financial reporting that have been identified, we may be unable to accurately report our results of operations or prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price of our ordinary shares may be materially and adversely affected.

Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in preparing our consolidated financial statements as of and for the years ended June 30, 2018 and 2017, we and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB, and other control deficiencies. The material weaknesses identified related to (i) a lack of accounting staff and resources with appropriate knowledge of generally accepted accounting principles in the United States (“U.S. GAAP”) and SEC reporting and compliance requirements and (ii) a lack of an audit committee. Following the identification of the material weaknesses and control deficiencies, we have taken and plan to continue to take remedial measures including (i) we have engaged an outside CPA with U.S. GAAP knowledge and experience to supplement our current internal accounting personnel and assist us in the preparation of our financial statements to ensure that our financial statements are prepared in accordance with U.S. GAAP and (ii) establishing an audit committee and strengthening corporate governance. However, the implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting. Our failure to correct the material weaknesses or our failure to discover and address any other material weaknesses or control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our ordinary shares, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud.

Upon completion of this offering, we will become a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of this Act will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2019. In addition, once we cease to be an “emerging growth company,” as such term is defined in the JOBS Act, our independent registered public accounting firm may attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to complete our evaluation testing and any required remediation in a timely manner.

One member of our management team will have substantial influence over our company and his interests may not be aligned with the interests of our other shareholders.

Mr. Jian Sun, our Chief Executive Officer and Chairman , a member of our Board of Directors currently owns 40% of our outstanding ordinary shares, and will beneficially own __% of our outstanding ordinary shares upon completion of our initial public offering. As a result of their significant shareholding, Mr. Sun has, and will continue to have, substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. They may take actions that are not in the best interests of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the market price of our ordinary shares. These actions may be taken even if they are opposed by our other shareholders. For more information regarding our principal shareholders and their affiliated entities, see “Principal Shareholders.”

If a limited number of participants in this offering purchase a significant percentage of the offering, the effective public float may be smaller than anticipated and the price of our ordinary shares may be volatile which could subject us to securities litigation and make it more difficult for you to sell your shares.

As a company conducting a relatively small public offering, we are subject to the risk that a small number of investors will purchase a high percentage of the offering. While the underwriters are required to sell shares in this offering to at least 300 round lot shareholders (a round lot shareholder is a shareholder who purchases at least 100 shares) in order to ensure that we meet the Nasdaq initial listing standards, we have not otherwise imposed any obligations on the underwriters as to the maximum number of shares they may place with individual investors. If, in the course of marketing the offering, the underwriters were to determine that demand for our shares was concentrated in a limited number of investors and such investors determined to hold their shares after the offering rather than trade them in the market, other shareholders could find the trading and price of our shares affected (positively or negatively) by the limited availability of our shares. If this were to happen, investors could find our shares to be more volatile than they might otherwise anticipate. Companies that experience such volatility in their stock price may be more likely to be the subject of securities litigation. In addition, if a large portion of our public float were to be held by a few investors, smaller investors may find it more difficult to sell their shares.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Regulation” and other sections in this prospectus. You should thoroughly read this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

This prospectus contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. Our industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of our ordinary shares. In addition, the rapidly changing nature of the agriculture industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $__ million after deducting estimated underwriting discounts and commissions and the estimated offering expenses payable by us and based upon an assumed initial offering price of $__ per ordinary share (the mid-point of the estimated public offering price range shown on the cover page of this prospectus) (excluding any exercise of the underwriters’ over-allotment option). A $1.00 increase (decrease) in the assumed initial public offering price of $__ per share would increase (decrease) the net proceeds to us from this offering by approximately $__ million, after deducting the estimated underwriting discounts and commissions and estimated aggregate offering expenses payable by us and assuming no change to the number of ordinary share offered by us as set forth on the cover page of this prospectus, provided, however, that in no case would we decrease the initial public offering price to less than $__ per share.

We plan to use approximately $__ million of the net proceeds we will receive from this offering to increase our production and storage capacity of biomass straw business, and approximately $__ million for general corporate purposes.

The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. See “Risk Factors—Risks Related to This Offering and our Ordinary Shares—You must rely on the judgment of our management as to the use of the net proceeds from this offering, and such use may not produce income or increase the price of our ordinary shares.”

We plan to use approximately $__ million out of the proceeds to pay the costs and expenses associated with being a public company. This portion of the offering proceeds will be immediately available to us following the closing of the offering as it will not be remitted to China.

Approximately $__ of the proceeds will be immediately remitted to China following the completion of this offering to fund the registered capital of the WFOE. Except that, in using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our wholly foreign-owned subsidiary in China only through loans or capital contributions and to our consolidated variable interest entities only through loans, subject to the approval of government authorities and limit on the amount of capital contributions and loans. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our wholly foreign-owned subsidiary in China or make additional capital contributions to our wholly-foreign-owned subsidiary to fund its capital expenditures or working capital. For an increase of registered capital of our wholly foreign-owned subsidiary, we need to file at Foreign Investment General Management Information System within 30 days after the occurrence of such increase. If we provide funding to our wholly foreign-owned subsidiary through loans, the total amount of such loans may not exceed the difference between the entity’s total investment and its registered capital. Such loans must be registered with SAFE or its local branches, which usually takes up to 20 working days to complete. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See “Risk Factors—Risks Related to Our Corporate Structure—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans to or make additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

CAPITALIZATION

The following tables set forth our capitalization as of December 31, 2018:

The adjustments reflected below are subject to change and are based upon available information and certain assumptions that we believe are reasonable. Total shareholders’ equity and total capitalization following the completion of this offering are subject to adjustment based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

DILUTION

If you invest in our ordinary shares, you will incur immediate dilution since the public offering price per share you will pay in this offering is more than the net tangible book value per ordinary share immediately after this offering.

The net tangible book value of our ordinary shares as of December 31, 2018 was approximately $26.9 million, or $0.90 per share based upon 30,000,000 ordinary shares outstanding.  Net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities, divided by the total number of ordinary shares outstanding. Tangible assets equal our total assets less goodwill and intangible assets.

The dilution in net tangible book value per share to new investors, represents the difference between the amount per share paid by purchasers of shares in this offering and the pro forma net tangible book value per share immediately after completion of this offering.  After giving effect to the sale of the __ shares being sold pursuant to this offering at $__ per share (the mid-point of the estimated public offering price range shown on the cover page of this prospectus) and after deducting underwriting discount and commission payable by us in the amount of $__, and estimated offering expenses in the amount of approximately $__ million, our pro forma net tangible book value would be approximately $__ million or $__ per share of ordinary shares. This represents an immediate increase in net tangible book value of $__ per share to existing shareholders and an immediate decrease in net tangible book value of $__ per share to new investors purchasing the shares in this offering.

The following table illustrates this per share dilution:

A $1.00 increase (decrease) in the assumed public offering price would increase (decrease) our pro forma net tangible book value per share after this offering by approximately $__ million, and increase the value per share to new investors by approximately $__, after deducting the underwriting discount and estimated offering expenses payable by us.

The following table sets forth, on an as adjusted basis as of December 31, 2018, the difference between the number of ordinary shares purchased from us, the total cash consideration paid, and the average price per share paid by our existing shareholders and by new public investors before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, using an assumed public offering price of $__ per ordinary share: (the mid-point of the estimated public offering price range shown on the cover page of this prospectus):

EXCHANGE RATE INFORMATION

Our business is primarily conducted in China and all of our revenues are received and denominated in RMB. Capital accounts of our condensed financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred.  Assets and liabilities are translated at the exchange rates as of the balance sheet date.  Income and expenditures are translated at the average exchange rate of the period.  RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.  No representation is made that the RMB amounts could have been, or could be, converted into United States dollars at the rates used in translation.

The following table sets forth information concerning exchange rates between the RMB and the United States dollar for the periods indicated.

As of __, 2019, the exchange rate is RMB __ to $1.00.

ENFORCEABILITY OF CIVIL LIABILITIES

We were incorporated in the Cayman Islands in order to enjoy the following benefits:

However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include, but are not limited to, the following:

The Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors; and

Cayman Islands companies may not have standing to sue before the federal courts of the United States.

Our constitutional documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated. Currently, all of our operations are conducted outside the United States, and substantially all of our assets are located outside the United States. All of our officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

There is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would:

[Name of Cayman Islands COUNSEL] has informed us that it is uncertain whether the courts of the Cayman Islands will allow shareholders of our company to originate actions in the Cayman Islands based upon securities laws of the United States. In addition, there is uncertainty with regard to Cayman Islands law related to whether a judgment obtained from the U.S. courts under civil liability provisions of U.S. securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company, such as our company. As the courts of the Cayman Islands have yet to rule on making such a determination in relation to judgments obtained from U.S. courts under civil liability provisions of U.S. securities laws, it is uncertain whether such judgments would be enforceable in the Cayman Islands. The courts of the Cayman Islands would recognize as a valid judgment a final and conclusive judgment in personam obtained in the federal or state courts in the United States under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) or, in certain circumstances, an in personam judgment for non-monetary relief, and would give a judgment based thereon provided that: (a) such courts had proper jurisdiction over the parties subject to such judgment; (b) such courts did not contravene the rules of natural justice of the Cayman Islands; (c) such judgment was not obtained by fraud; (d) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (f) there is due compliance with the correct procedures under the laws of the Cayman Islands.

Allbright Law Offices has further advised us that the recognition and enforcement of foreign judgments are subject to compliance with the PRC Civil Procedures Law and relevant civil procedure requirements in the PRC. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands.

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following summary consolidated financial data for the years ended June 30, 2018 and 2017 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated financial data for the six months ended December 31, 2018 and 2017 are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.

Our historical results for any period are not necessarily indicative of results to be expected for any future period. You should read the following summary financial information in conjunction with the consolidated financial statements and related notes and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

The following table presents our summary consolidated statement of comprehensive income for the periods as indicated below:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following management’s discussion and analysis of financial condition and results of operations contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. We assume no obligation to update forward-looking statements or the risk factors. You should read the following discussion in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus.

Overview

We are currently engaged in the businesses of specialty agriculture farming of alfalfa, wasteland transformation, agriculture harvesting services and biomass raw materials (straw and agriculture residue) collection and processing for power plants and paper mills.

We signed contracts with the local counties of Feng Zhen City in the Inner Mongolian Autonomous Region for use rights to mostly abandoned and waste-lands comprising 74,220 mu or 12,228 acres (approximately 50 square kilometers) in August 2013. We grow and farm alfalfa on these lands that lack water resources or are far from the villages and cannot be farmed without modern technologies and machinery. We obtain the contractual rights for the use of these abandoned and waste lands from the local government through a land use rights transfer process at a much lower cost than normal market prices. We then use biological and engineering measures to construct desertification protection systems for these waste lands, and use drip technologies to efficiently utilize the available water resources to grow alfalfa.

Alfalfa is a perennial herb and its strong and deep roots could bind organic substances to the soil. It absorbs calcium and breaks down phosphates and deposits them in the soil to decompose into organic colloids, which may stabilize the soil and improve its chemical and physical conditions. Alfalfa roots can retain the nitrogen from surrounding air to increase soil fertility. Once the seeds are sown, Alfalfa can be harvested 3 times annually.

Alfalfa is a preferred feed for livestock and fresh alfalfa is a top choice for cattle. It can also be processed as hay, hay meal or with a mixture of other animal feeds. High-quality alfalfa is essential for the production of organic milk and for the livestock farming, including cattle, sheep and pigs. More than 50 percent of China’s supply of alfalfa comes from the United States. Inner Mongolia is the province with the highest consumption of high-quality alfalfa in China, and its milk output accounts for about one fifth of China’s total. High quality alfalfa products are in short supply in Inner Mongolia and China, and there is a large market for our alfalfa products as a substitute for imports. Under good management, our alfalfa in Feng County can have three harvests a year (early June, mid July and early October) with hay production between 3,642 and 6,070 kg per acre. We sell our alfalfa hay in two ways: (i) on-site sales at our fields and (ii) finished products sales, shipping out of our warehouse. Customers can review the color of alfalfa hay and test the moisture content of the products to select the product they would like to buy. The quality of our alfalfa products has reached the quality level of imported products, and our sales price is 15% to 20% lower than that of comparable imported products. Currently our alfalfa products are in short supply.

We own large agricultural machinery and equipment and are well-equipped to operate on a modern agriculture production scale, compared to most farmers in China. The degree of our mechanization and automation operations has reached the level of similar farming companies in the United States. We own John Deere (USA) tractors and CLAAS (Germany) tractors, KUHN (France) precision seed drillers, KUHN field mowers, KUHN rake machines, KUHN large square balers, a KUHN wind wrap machine, KUHN fertilizer spreaders, KUHN hydraulic turnover plows, KUHN power driven harrows, KUHN subsoilers, and KUHN fertilizer application machines. We also own other ancillary machines, such as hydraulic folding press machines; graders; grass grabbers; folding joint preparation machines; loaders; holding clamp machines; spray machines; movable generators; soil preparation machines; fertilizer application machines; rotary tillers; trenching machines; and planer graders.

Our agricultural machinery and equipment cover the full range from initial land preparation and planting to harvesting and transportation, and meet the requirements of modern agricultural machinery operation and efficiency. Our agricultural machinery and equipment not only ensure the consistency of our yield and quality control for our own products, but also can be used to provide harvesting services to other famers in China. Also, we have a fleet of transportation vehicles such as large flat transport vehicles, fuel trucks, a 55-ton large oil storage tank, and a pickup truck for both passenger and cargo, which can effectively serve our logistical needs.

Our service team provides inter-state services for an operating radius of more than 2,000 kilometers. We have 50 experienced professional operators of our large imported machinery, who each have 5 to 10 years of machine operation experience and long distance cross-provincial operation experience. Our agriculture harvesting services have served farmers in Shandong Province, Heilongjiang Province, the Xinjiang Autonomous Region, Liaoning Province, Jilin Province, Anhui Province, Henan Province, Ningxia Autonomous Region and Shanxi Province, as well as in our own home state, the Inner Mongolian Autonomous Region.

Another main business of ours is to process and sell biomass waste and residues to power generation plants and paper mills, such as wheat straw and corn straw. The straw is the waste and residue from the agriculture industry. It is expensive and time consuming for farmers to collect and process these straws. Traditionally, Chinese farmers pile such agricultural waste up in their fields and burn it, which has been a main cause of the air pollution in China, and also increases the risk of forest fires.

With the strong air pollution control laws and regulations currently in China, burning agricultural waste and residue is strictly prohibited and there is 24/7 satellite monitoring and enforcement. Farmers are fined for violations, or criminally penalized if the violation is serious. Also, local government officials can be held accountable for any such violations in their jurisdiction by the central government.

Straw is a renewable energy source. The caloric value of every two tons of straw is equivalent to one ton of standard coal, and its average sulfur content is only 0.38%, while the average sulfur content of coal is about 1%.

We own full sets of highly efficient machinery and equipment to collect, process and dispose of agricultural waste and residue. We sell such biomass products to biomass power generation plants to generate electricity, as well as to the paper mills as alternative raw material in place of wood and wood pulp.

Currently, we conduct combined harvesting, processing, packaging, storage and transportation of straw, mainly of corn straw in three provinces in northeast China (Heilongjiang, Liaoning and Jilin provinces) and wheat straw in four provinces (Anhui, Henan, Shandong and Hebei provinces).

In November 2017, we entered into a supply contract with one of the biomass power plants of Guoneng Biomass Power Generation Group Co. Ltd.(“Guoneng”), a subsidiary of the State Grid. In April 2019, we entered into three more supply contracts with three additional biomass power plants of Guoneng. The four biomass power plants have agreed to purchase all the straw we can supply for its power generation plants all year long. Guoneng owns 41 biomass power plants that are in operation and the total demand of 41 power plants is approximately 13.5 million tons per year. We currently can only supply approximately 400,000 tons per year, leaving substantial room for growth.

We also process straw and agricultural residue and sell biomass products to paper mills as raw material. According to China’s National Bureau of Statistics, from early September 2016 to mid October 2017, pulp prices increased by 56.77% to RMB 6,550.6 ($1,008) per ton, and corrugated paper prices increased by 126.21% to RMB 5,730 ($882) per ton.

In 2017, the paper production volume in China was 9.2 million tons and consumption in China was 8.54 million tons.

The paper mills have been using a new process of straw paper manufacturing, in which no chemicals are used in the production process. The biomass wastes are fermented and decomposed using bacterial liquid, such that the paper products manufactured in this way meet the safety and health requirements for food contact packing paper.

Key Factors Affecting Our Results

We believe the key factors affecting our financial condition and results of operations include the following:

PRC Alfalfa Industry

Alfalfa has a good taste and high nutritive value as it has more digestible crude fiber and protein than other forage, so it has been widely used to feed cows, sheep, hogs and other poultry in developed countries. With the development of farming and animal husbandry in China, the need for alfalfa with high quality has been largely increasing. As the domestic alfalfa supply cannot satisfy all the needs, China imported approximately 1.15 million tons of alfalfa from U.S. for a total amount of $383 million in 2018, based upon the data from Chinese Customs. Because the alfalfa we produce has a high and consistent quality, we haven’t had any problems of finding customers and we currently do not have customer concentration issue. In June 2018, the China government declared to add 25% tariff on U.S. alfalfa, which also increased the need for domestic alfalfa and the market selling price.

If we are unable to sustain the production of our high qualify of alfalfa, or if there are severe and adverse weather conditions during the harvest seasons, or if the China government changes its tariff policy on imported alfalfa, it may materially affect the demand and price for our products which will have a materially adverse effect on our business.

Our ability to supply our products in good quality with a competitive price

Our results of operations are affected by whether we can grow and supply our alfalfa hay efficiently to our customers. We are providing the same quality alfalfa products as imported products, at a lower price, while we will continue to expand our alfalfa farming areas and increase our brand name recognition and reputation as the major alternatives for imported alfalfa in China.

Our ability to collect more raw materials for biomass power generation plants

A key advantage of our agricultural biomass waste business is that we have signed agreements with biomass power generation plants under the State Grid and they have large demands beyond our current supply capacity. We will continue to expand into other major agriculture provinces in China to collect more straw and other agriculture biomass waste to supply to biomass power generation plants.

The Economic Environment in China

The success of our business dependents on the demand for animal feeds and new energy markets in China, which is in turn dependent upon the overall economic conditions in China. Any downturn in China’s economic growth may negatively affect incentive for the government to promote and provide subsidies to new energy and the willingness of power generation plants to use our biomass for power generation instead of traditional coal firing power generation.

The Price of Diesel in China

Our large agricultural machine and equipment consumes diesel and our cost and profit will be effected by global and Chinese oil and diesel prices.

The Tax Exemption for Agricultural Farming in China

Currently, the Chinese government supports and encourages the development of agricultural businesses. We enjoy preferential tax treatment for our current business and there is no value added tax or enterprise income tax for our alfalfa farming business. Any change of such preferential tax treatment will affect our net profits.

Weather-Related Conditions for Crops

The occurrence of severe adverse weather conditions, especially droughts, hail, floods or frost or diseases is unpredictable, may have a potentially devastating impact on agricultural production, and may otherwise adversely affect the supply and price of alfalfa and straw that we buy and sell in our business. The effects of severe adverse weather conditions may reduce yields of our agricultural activities. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of pests and insects that may adversely impact our agricultural production. Although we use drip irrigation systems with underground pipes and can transport water through the pipeline from our back-up permanent water resources during extreme drought, it will increase the cost of electricity by RMB 50-60 ($7.7 -$9.23) per mu due to water transportation needs.

Our Management and Employee Team.

The key to our operation results is the management skills, size of our business and our products. We have a high quality management team with extensive experience in agriculture which has kept our business in stable operations. We have an energetic employee group which is passionate about Inner Mongolia, grassland, environmental protection and waste control, which is important to the Company because our goal is to save and protect grasslands from desertification with our technology of alfalfa farming in tough conditions, to provide high quality hay to the cattle and livestock farmers as well as to help protect the environment by recycling agricultural biomass waste as source of new energy.

Innovation Efforts

We strive to produce the most technically and scientifically alfalfa for our customers and maintain close relationships with Inner Mongolia Agricultural University. We entered into technical service contracts with the research institute to further improve our production and products. If our research and development efforts are not sufficient to adapt to the change in technology in the industry, our products may not compete effectively.

Consolidated Results of Operations

Comparison of the six months ended December 31, 2018 and 2017

The following table sets forth key components of our results of operations for the six months ended December 31, 2018 and 2017, in US dollars:

Revenue. Our revenues consist of products revenue and services revenue. Total revenues increased by approximately $1.0 million, or 5%, to approximately $20.9 million for the six months ended December 31, 2018, compared to approximately $19.9 million for the six months ended December 31, 2017. The overall increase was primarily attributable to the increased revenue of alfalfa and was offset by the decrease of services provided.

Products revenue increased by approximately $2.2 million, or 17%, to approximately $15.2 million for the six months ended December 31, 2018, compared to approximately $13.0 million for the six months ended December 31, 2017.

Our revenues from our products revenues are summarized as follows:

Our revenues from alfalfa revenue in number of tons sold and its average selling price are summarized as follows:

The increase in alfalfa revenue was principally due to the increased selling price of alfalfa by 14% from $264.88 per ton to $301.16 per ton. In April 2018, the United States filed a request for consultation to the World Trade Organization in regard to concerns that China was violating intellectual property rights and began the trade war against China. In June, the China government fought back and declared to add a 25% tariff on U.S. alfalfa. The selling price of domestically grown alfalfa also increased as there were more pastures and forage trading companies seeking domestic supplies. The increase in revenue was also due to the increase of quantity sold. The growth cycle of our alfalfa is about five to seven years. The alfalfa seeds were planted in the middle of 2013, and the fiscal year of 2018 is the fifth year of the growth cycle. Normally, the yield decreases each year after the third year. However, we stored some alfalfa we harvested in June and sold it later, during the six months ended December 31, 2018 after the tariff policy change. Therefore, we sold 49,967 tons of alfalfa during the six months ended December 31, 2018, which is 905 tons, or 2%, more compared to 49,062 tons sold during the six months ended December 31, 2017. The increase was offset by the depreciation of Chinese Renminbi (“RMB”) against the U.S. dollar of 3.3%.

Our revenues from straw revenue numbers of tons sold and their average selling price are summarized as follows:

The increase in straw revenue was principally due to the increased volume of straw by 275% from 901 tons to 3,376 tons. Straw is a renewable energy source. The shortage of straw from electric power plants and paper mills is huge, so we spent more effort on developing suitable customers. We signed more contracts with local big electric power plants and paper mills, and we do see our future strong increase in the straw business. The average unit selling price increased from $40.48 per ton to $43.88 per ton, or 8%, as the government set an annual requirement for electric power plants on the percentage of electricity be produced from renewable energy source so the electric power plants had to increase their purchase price to collect enough straw.

Services revenue decreased by approximately $1.2 million, or 17%, to approximately $5.6 million for the six months ended December 31, 2018, compared to approximately $6.8 million for the six months ended December 31, 2017. The decrease in revenue was primarily due to fewer services we provided during the six months ended December 31, 2018. Starting from July 2018, we raised our service fees charged for each working procedure per acre to increase our gross margin. For a complete set of services from mowing, cuddling, hoisting, bulldozing to loading, we charged about $18 per acre before June 30, 2018 and raised the price to about $20.4 per acre starting from July 1, 2018. In the meantime, we lost some clients who were not willing to pay us for the higher price. The total service working area did not outpace the increase in selling price, so the total services revenue dropped. The decrease was also caused by the depreciation of Chinese Renminbi (“RMB”) against the U.S. dollar of 3.3%.

Cost of Revenue. Cost of revenue, which consists of direct labor, seeds, fertilizers, rentals, utilities, depreciation, machinery consumption supplies and other overhead costs, was approximately $12.8 million for the six months ended December 31, 2018, as compared to approximately $14.2 million for the six months ended December 31, 2017, a decrease of approximately $1.4 million, or 10%. The decrease in cost of revenue was primarily associated with fewer services we provided during the six months ended December 31, 2018.

Cost of products revenue decreased slightly from approximately $0.3 million, or 3%, to approximately $9.6 million for the six months ended December 31, 2018, compared to approximately $9.9 million for the six months ended December 31, 2017. Our cost of revenues from our products revenues are summarized as follows:

Our volume and unit cost of revenues from alfalfa revenue are summarized as follows:

As we planted alfalfa in the same areas during the two years period, the production process and all the costs spent on planting the alfalfa remained consistent in Chinese Renminbi (“RMB”) as last year with the six months ended December 31, 2018 of lower average production cost of 2.7% as compared to the same period in 2017 mainly due to fewer labor hours spent on harvesting the alfalfa as our machine operators become more efficient and fewer repair costs spent on our machines during the six months ended December 31, 2018. The decrease of average unit production cost was also caused by the depreciation of RMB against the U.S. dollar of 3.3%.

Our volume and unit cost of revenues from straw revenue are summarized as follows:

The increase in cost of straw revenue was in line with the increased volume of straw sold from 901 tons to 3,376 tons. The increase in the average production cost of straw was due to the increased labor and machine maintenance costs during the six months ended December 31, 2018 as compared to the same period in 2017, when we spent more time harvesting the straw.

Cost of services revenue decreased approximately $1.1 million, 26%, to approximately $3.2 million for the six months ended December 31, 2018, compared to approximately $4.3 million for the six months ended December 31, 2017. The decrease was in line with the decrease of services revenue, which was caused by less services we provided so we incurred less labor, utilities, machinery supplies and other overhead costs during the six months ended December 31, 2018. The change was also caused by the depreciation of RMB against the U.S. dollar of 3.3%.

Gross Profit. Our gross profit from our major revenue categories are summarized as follows:

Our gross profit increased by approximately $2.4 million, or 43%, to approximately $8.1 million during the six months ended December 31, 2018, from approximately $5.7 million for the six months ended December 31, 2017. The increase was mainly due to the significant increase of alfalfa revenue during the six months ended December 31, 2018. For the six months ended December 31, 2018 and 2017, our overall gross margin was 39% and 29%, respectively. The increase in gross margin was due to the increased gross margin of products revenue and services revenue.

Our gross margin for products revenue increased from 24% for the six months ended December 31, 2017 to 37% for the six months ended December 31, 2018 mainly due to the increased selling price of alfalfa during the six months ended December 31, 2018 as discussed above.

Our gross margin for services revenue increased from 37% for the six months ended December 31, 2017 to 44% for the six months ended December 31, 2018 mainly due to the increased fees we charged on each working procedure per acre as discussed above.

Recovery of (Provision for) Doubtful Accounts. We had a recovery of doubtful accounts of approximately $23,000 for the six months ended December 31, 2018 as compared to a provision charge of approximately $37,000 during the six months ended December 31, 2017, an increase of approximately $60,000, or 163%. The change was attributable to the fact that we had less aged accounts receivable that were over 180 days past due during the six months ended December 31, 2018, so we correspondingly resulted in a recovery of doubtful accounts in accordance with our allowance policy as compared to the same period in 2017.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist of salaries and benefits, office expense, travel, and professional fees paid to third parties. We incurred selling, general and administrative expenses of approximately $0.4 million for the six months ended December 31, 2018 as compared to approximately $0.3 million for the six months ended December 31, 2017, an increase of approximately $0.1 million. The increase was primarily due to approximately $33,000 increase in office expenses, approximately $34,000 increase in meals and entertainment, approximately $63,000 increase in depreciation, approximately $34,000 increase in repairs and maintenance paid and approximately $21,000 increase in rent expense during the six months ended December 31, 2018. The increase was offset by approximately $73,000 decrease in consulting fees paid for a feasibility research and some legal opinions during the six months ended December 31, 2018 as we incurred more fees on consulting services during the six months ended December 31, 2017.

Income from Operations. We incurred an income from operations of approximately $7.6 million and an income of approximately $5.3 million for the six months ended December 31, 2018 and 2017, respectively. The increase of approximately $2.3 million was primarily due to the reasons previously discussed.

Other Income (Expense), Net. Our other income (expense) consists of other income (expense), interest expense and finance expense. We had other income of approximately $78,000 and $82,000 during the six months ended December 31, 2018 and 2017, respectively, which were mainly from the government’s subsidies on environmental protection companies. We had interest expense of approximately $65,000 and $143,000 for the six months ended December 31, 2018 and 2017, respectively. Approximately $400 and $500 of finance expense was recorded for the six months ended December 31, 2018 and 2017, respectively.

Provision for Income Taxes. We are in the farming, forestry, animal husbandry and fishery industries and are qualified for the tax-free benefit under the Chinese Enterprise Income Tax (“EIT”) law. Therefore, no income tax was charged for the six months ended December 31, 2018 and 2017.

Net Income. We incurred net income of approximately $7.7 million for the six months ended December 31, 2018, as compared to a net income of approximately $5.3 million for the six months ended December 31, 2017. This change was the result of the combination of the changes as discussed above.

Comparison of the years ended June 30, 2018 and 2017

The following table sets forth key components of our results of operations for the years ended June 30, 2018 and 2017, in US dollars:

Revenues. Our revenues consist of products revenue and services revenue. Total revenues decreased by approximately $2.9 million, or 12%, to approximately $22.1 million for the year ended June 30, 2018, compared to approximately $25.0 million for the year ended June 30, 2017. The overall decrease was primarily attributable to the decreased yield of alfalfa and was offset by the increase of services provided.

Products revenue decreased by approximately $4.0 million, or 23%, to approximately $14.0 million for the year ended June 30, 2018, compared to approximately $18.0 million for the year ended June 30, 2017.

Our revenues from our products revenues are summarized as follows:

Our revenues from alfalfa revenue in number of tons sold and its average selling price are summarized as follows:

The decrease in revenue was principally due to the decreased production yield of alfalfa by 26% from 69,805 tons to 51,637 tons. The growth cycle of our alfalfa is about five to seven years. The alfalfa seeds were planted in the middle of 2013, and the fiscal year of 2018 is the fifth year of the growth cycle. Normally, the yield decreases each year after the third year. Therefore, our yield decreased to a lower level in the fifth year compared with the fourth year. The average unit price for the years ended June 30, 2018 and 2017 remained constant in Chinese Renminbi (“RMB”) with a decrease of 0.5% during the year ended June 30, 2018 as compared to the same period in 2017. The unit price in USD increased from $257.42 per ton to $268.25 per ton, or 4%, which was due to the appreciation of RMB against the U.S. dollar.

Our revenues from straw revenue numbers of tons sold and its average selling price are summarized as follows:

Our straw business started in December 2017, so we did not make any straw revenue during the year ended June 30, 2017. During the year ended June 30, 2018, we sold 1,769 tons of straw at an average unit price of $40.41.

Services revenue increased by approximately $1.2 million, or 17%, to approximately $8.2 million for the year ended June 30, 2018, compared to approximately $7.0 million for the year ended June 30, 2017. The increase in revenue was primarily due to more services we provided in 2018. During the year ended June 30, 2018, we purchased more harvesting machines and better planned our outsourced harvesting services schedule. Our heavy-duty harvesting machines have to be truck transported to destinations. Since our service clients located at different places in China, we rented third-party warehouses to temporarily store our machines during gap time. Usually a series of machines with functions of mowing, cuddling, hoisting, bulldozing and loading need be sent out together to provide services in an area near the warehouse and then be transported to another warehouse after services completed. As we had more experience and better knowledge of the industry needs, we made a better schedule to provide more services by making full use of our equipment in 2018. The increase was also due to the appreciation of RMB against the U.S. dollar of 4.7%.

Cost of Revenue. Cost of revenue, which consists of direct labor, seeds, fertilizers, rentals, utilities, depreciation, machinery consumption supplies and other overhead, was approximately $16.0 million for the year ended June 30, 2018, as compared to approximately $14.7 million for the year ended June 30, 2017, an increase of approximately $1.3 million, or 9%. The increase in cost of revenue was primarily associated with the more services we provided during the year ended June 30, 2018.

Cost of products revenue increased slightly for approximately $85,000, or 1%, to approximately $10.8 million for the year ended June 30, 2018, compared to approximately $10.7 million for the year ended June 30, 2017. The increase was primarily due to the appreciation of RMB against the U.S. dollar of 4.7% and the increase of cost of products revenue per unit. As we planted alfalfa in the same areas during the two years, the production process and all the costs spent on planting the alfalfa remained almost the same. Due the decreased production yield of alfalfa by 26% from 69,805 tons to 51,637 tons, each unit cost of alfalfa being allocated are higher in the fiscal year ended June 30, 2018 as compared to the same period in 2017. As a result, our cost of products revenue increased slightly even though our revenues decreased significantly.

Cost of services revenue increased approximately $1.2 million, 31%, to approximately $5.3 million for the year ended June 30, 2018, compared to approximately $4.1 million for the year ended June 30, 2017. The increase was in line with the increase of services revenue as we provided more services as we incurred more labor, utilities, machinery supplies and other overhead costs. The increase was also due to the appreciation of RMB against the U.S. dollar of 4.7%.

Gross Profit. Our gross profit from our major revenue categories are summarized as follows:

Our gross profit decreased by approximately $4.2 million, or 28%, to approximately $6.0 million during the year ended June 30, 2018, from approximately $10.2 million for the year ended June 30, 2017. The decrease was mainly due to the significantly decreased revenue of alfalfa and the increase of cost of products revenue and services revenue during the year ended June 30, 2018. For the years ended June 30, 2018 and 2017, our overall gross margin was 27% and 57%, respectively. The decrease in overall gross margin was due to the decreased gross margin of products revenue and services revenue.

Our gross margin for products revenue decreased from 41% for the year ended June 30, 2017 to 23% for the year ended June 30, 2018 mainly due to the combined impact of the decreased yield of alfalfa and the increased cost of producing the alfalfa per unit as discussed above.

Our gross margin for services revenue decreased from 42% for the year ended June 30, 2017 to 35% for the year ended June 30, 2018 mainly due to the fact that we worked on total less area of bundling for clients. Bundling is the procedure which takes the longest time and we charge for the highest fee per acre.

Provision for Doubtful Accounts. We made a provision for doubtful accounts charge of approximately $0.4 million for the year ended June 30, 2018 as compared to a provision of approximately $0.9 million during the year ended June 30, 2017, a decrease of approximately $0.5 million, or 54%. The change was attributable to the fact that we had less aged accounts receivable that were over 180 days past due during the year ended June 30, 2018, so we correspondingly resulted in less provision for doubtful accounts in accordance with our allowance policy as compared to the same period in 2017.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist of salaries and benefits, office expense, travel, and professional fees paid to third parties. We incurred selling, general and administrative expenses of approximately $0.7 million for the year ended June 30, 2018 as compared to approximately $0.2 million for the year ended June 30, 2017, an increase of approximately $0.5 million. The increase was primarily due to approximately $68,000 increase in office expenses, approximately $0.1 million increase in depreciation, approximately $0.2 million increase in audit and consulting fees paid for potential U.S. merger services and approximately $0.1 million increase in other expenses including utilities, legal, benefit, travel and city management expense during the year ended June 30, 2018.

Income from Operations. We incurred an income from operations of approximately $4.9 million and an income of approximately $9.1 million for the years ended June 30, 2018 and 2017, respectively. The decrease of approximately $4.2 million was primarily due to the reasons previously discussed.

Other Income (Expense), Net. Our other income (expense) consists of other income (expense), interest expense and finance expense. We had other income of approximately $0.5 million and $0.6 million during the years ended June 30, 2018 and 2017, respectively, which were mainly due to sales of certain products that are out of our ordinary business. We had interest expense of approximately $0.3 million and $0.4 million for the years ended June 30, 2018 and 2017, respectively. Approximately $800 and $200 of finance expense was recorded for the years ended June 30, 2018 and 2017, respectively.

Provision for Income Taxes. We are in the farming, forestry, animal husbandry and fishery industries and are qualified for the tax-free benefit under the Chinese Enterprise Income Tax (“EIT”) law. Therefore, no income tax was charged for the years ended June 30, 2018 and 2017.

Net Income. We incurred net income of approximately $5.1 million for the year ended June 30, 2018, as compared to a net income of approximately $9.2 million for the year ended June 30, 2017. This change was the result of the combination of the changes as discussed above.

Liquidity and Capital Resources

As of December 31, 2018, we had cash and cash equivalents of approximately $0.2 million, which was held by our company located outside the U.S. We would be required to accrue and pay U.S. taxes if we were to repatriate these funds. Any company which is registered in mainland PRC must apply to the State Foreign Exchange Administration for approval in order to remit foreign currency to any foreign country. We currently do not intend to repatriate to the U.S. the cash and short-term investments held by our foreign company. However, if we were to repatriate funds to the U.S., we would assess the feasibility and plan any transfer in accordance with foreign exchange regulations, taking into account tax consequences. As we conduct all of our operations in the PRC, the restriction on the conversion of cash and short-term investments held in RMB to other currencies should not affect our liquidity.

In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations.

We engage in the production and supply of alfalfa for large-scale animal husbandry developments and provide machinery reaping services to third-party farmlands not or less mechanized. Our business is capital intensive. Debt financing in the form of long-term bank loans and loans from related parties have been utilized to finance our working capital requirements and capital expenditures. Working capital was approximately $15.3 million as of December 31, 2018, as compared to approximately $6.9 million as of June 30, 2018 and approximately $7.8 million as of June 30, 2017. As of December 31, 2018, in addition to cash on-hand, we also have other current assets mainly composed of accounts receivable. We had accounts receivable of approximately $14.2 million at December 31, 2018, most of them are short-term in nature and can be collected back within 3 to 6 months to be used to support our working capital need.

Although we believe that we can realize our current assets in the normal course of business, our ability to repay our current obligations will depend on the future realization of our current assets. Management has considered historical experience, the economic environment, trends in the construction industry, the expected collectability of accounts receivable and the realization of the prepayments on inventory, and provided for an allowance for doubtful accounts as of December 31, 2018. We expect to realize balances net of allowance within the normal operating cycle of a twelve-month period. If we are unable to realize our current assets within the normal twelve-month operating cycle, we may have to consider supplementing our available sources of funds through the following:

Based on the above considerations, management is of the opinion that we have sufficient funds to meet our working capital requirements and debt obligations as they become due. However, there is no assurance that management will be successful in their plans. There are a number of factors that could potentially arise that could undermine our plans, such as changes in the demand for our products, economic conditions, competitive pricing in the alfalfa and reaping services industry, our operating results not continuing to deteriorate and our bank and shareholders being able to provide continued financial support.

The following summarizes the key components of our cash flows for the six months ended December 31, 2018 and 2017:

Principal demands for liquidity are for working capital and general corporate purposes.

Operating Activities

Net cash used in operating activities totaled approximately $68,000 for the six months ended December 31, 2018, which was attributable to a net income of approximately $7.7 million and adjustments to reconcile the net income to net cash provided by operating activities of approximately $0.6 million, including adjustments for approximately $0.6 million of depreciation and approximately $23,000 of a recovery of doubtful accounts. Net cash from changes in operating assets and liabilities resulted in a net cash outflow, which mainly included cash outflow for increase of accounts receivable of $14.0 million as we increased our selling price and at the same time and granted them longer credit terms to repay our accounts receivable and the decrease of tax payable of approximately $24,000. Net cash outflow was primarily offset by the decrease of inventories of approximately $1.5 million as we sold more aged inventories, the decrease of prepayments and advances of approximately $0.6 million as we have already secured enough materials for production from third parties, the decrease of deferred expenses of approximately $3.3 million as a portion of prepaid land rent expense had been realized, and the increase of accounts payable of approximately $0.1 million and the increase of accrued liabilities of approximately $0.1 million.

Net cash provided by operating activities totaled approximately $4.3 million for the six months ended December 31, 2017, which was attributable to a net income of approximately $5.3 million and adjustments to reconcile the net income to net cash provided by operating activities of approximately $0.3 million, including adjustments for approximately $0.2 million of depreciation and approximately $37,000 of a provision for doubtful accounts. Net cash from changes in operating assets and liabilities resulted in a net cash outflow, which mainly included cash outflow for increase of accounts receivable of $0.2 million, the increase of prepayments and advances of approximately $2.2 million to secure enough materials for production from third parties, the decrease of accounts payable of approximately $0.5 million and the decrease of customer deposits of approximately $64,000. Net cash outflow was primarily offset by the decrease of inventories of approximately $0.6 million, the decrease of deferred expenses of approximately $1.1 million as a portion of prepaid land rent expense had been realized, and the increase of accrued liabilities of approximately $53,000.

Investing Activities

New cash used in investing activities totaled approximately $0.9 million for the six months ended December 31, 2018, which was due to approximately $66,000 used in purchases of property, plant and equipment and approximately $0.8 million advances paid on equipment purchase during the six months ended December 31, 2018.

New cash used in investing activities totaled approximately $3.0 million for the six months ended December 31, 2017, which was due to approximately $2.1 million used in purchases of property, plant and equipment and approximately $0.9 million advances paid on equipment purchase during the six months ended December 31, 2017.

Financing Activities

Net cash provided by financing activities totaled approximately $0.9 million for the six months ended December 31, 2018, which was attributable to approximately $1.7 million in repayments from a related party and approximately $36,000 borrowings from related parties and was offset by approximately $0.9 million repayments for a long-term bank loan.

Net cash used in financing activities totaled approximately $0.8 million for the six months ended December 31, 2017, which was attributable to approximately $84,000 loan to a related party and approximately $0.9 million repayments of a long-term bank loan and was offset by approximately $0.2 million borrowings from related parties.

The following summarizes the key components of our cash flows for the years ended June 30, 2018 and 2017:

Principal demands for liquidity are for working capital and general corporate purposes.

Operating Activities

Net cash provided by operating activities totaled approximately $4.3 million for the year ended June 30, 2018, which was attributable to a net income of approximately $5.1 million and adjustments to reconcile the net income to net cash provided by operating activities of approximately $1.2 million, including adjustments for approximately $0.8 million of depreciation and approximately $0.4 million of a provision for doubtful accounts. Net cash from changes in operating assets and liabilities resulted in a net cash outflow, which mainly included cash outflow for increase of prepayments and advances of $2.4 million, the increase of deferred expenses of approximately $1.2 million as we prepaid land rent expense of the next whole year to the landlord, the decrease of accounts payable of approximately $0.5 million, and the decrease of other payables and tax payable of approximately $46,000. Net cash outflow was primarily offset by the decrease of accounts receivable of approximately $1.1 million, the decrease of inventories of approximately $0.9 million, and the increase of accrued liabilities of approximately $0.1 million.

Net cash provided by operating activities totaled approximately $11.1 million for the year ended June 30, 2017, which was attributable to a net income of approximately $9.3 million and adjustments to reconcile the net income to net cash provided by operating activities of approximately $1.2 million, including adjustments for approximately $0.3 million of depreciation and approximately $0.9 million of a provision for doubtful accounts. Net cash from changes in operating assets and liabilities resulted in a net cash inflow, which mainly included cash inflow for the decrease of prepayments and advances of approximately $1.1 million as we have already secured enough materials for production from third parties, the decrease of deferred expenses of approximately $0.9 million as a portion of prepaid land rent expense had been realized, the increase of accounts payable of approximately $0.5 million, and the increase of customer deposits of approximately $73,000, the increase of other payables of approximately $44,000, and the increase of accrued liabilities of approximately $85,000 and the increase of tax payables of approximately $0.2 million. Net cash inflow was primarily offset by the increase of accounts receivable of approximately $2.3 million.

Investing Activities

New cash used in investing activities was approximately $3.2 million which was used in purchases of property, plant and equipment during the year ended June 30, 2018.

New cash used in investing activities totaled approximately $4.4 million for the year ended June 30, 2017, which was due to approximately $4.1 million used in purchases of property, plant and equipment and approximately $0.3 million advances paid on equipment purchase during the year ended June 30, 2017.

Financing Activities

Net cash used in financing activities totaled approximately $1.4 million for the year ended June 30, 2018, which was attributable to approximately $1.8 million in repayments for a long-term bank loan and approximately $59,000 in repayments to related parties, and was offset by approximately $0.5 in million repayments from a related party.

Net cash used in financing activities totaled approximately $7.9 million for the year ended June 30, 2017, which was attributable to an approximately $2.2 million loan to a related party, approximately $1.8 million in repayments of a long-term bank loan and approximately $3.9 million in repayments to related parties.

Critical Accounting Policies and Estimates

While our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis:

Use of estimates and assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The significant estimates and assumptions made in the preparation of the Company’s financial statements include allowance for doubtful accounts and fair value and useful lives of property, plant and equipment. Actual results could be materially different from those estimates.

Seasonal Nature of Operations 

The Company’s operations are seasonal based on the maturity stage of its products. Sales are concentrated during the months from July through January of the following year, corresponding to the Company’s product maturity cycle begins in the month of June when the products mature and are ready for sale.

Revenue recognition

The Company recognized its revenue primarily when all of the following performance obligation are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

The Company sells two kinds of products: alfalfa and straw. The Company recognizes revenue when risk and title to the product is transferred upon pick-up by customers or shipment to customers by the Company. No customer has a right of return.

Service revenues are recognized when the contracted services have been rendered and accepted by customers. Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits.

Accounts receivable

Accounts receivable include trade accounts due from customers. Accounts are considered overdue after 30 days. In establishing the required allowance for doubtful accounts, management considers historical experience, aging of the receivables, the economic environment, trends in the agricultural industry and the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if the bad debt 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.

Accounting for long-lived assets

The Company classifies its long-lived assets into: (i) machinery and equipment; (ii) transportation equipment; (iii) office and equipment; and (iv) buildings and improvements.

Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

If the value of an asset is determined to be impaired, the impairment to be recognized is measured in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value, less disposition costs.

Commitments and contingencies

Lease Commitments

We have a lease agreement for a total 74,220 mu of farmlands with the Fengzhen government. The lease agreement will expire on December 31, 2027 with annual payments of approximately $3.4 million. We also have a lease agreement for office space in Beijing from May 19, 2018 to May 18, 2019, and renewed to May 18, 2020 with annual payments of approximately $31,000.

Operating lease expenses are allocated between the cost of revenue and selling, general, and administrative expenses. Total operating lease expenses were approximately $1.6 million (unaudited) and $1.7 million (unaudited) for the six months ended December 31, 2018 and 2017, respectively. Total operating lease expenses were approximately $3.3 million and $3.4 million for the years ended June 30, 2018 and 2017, respectively.

Contingencies

In the normal course of business, we are subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. In accordance with ASC No. 450-20, “Loss Contingencies”, we will record accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to its shares and classified as shareholder’s equity or that are not reflected in its consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.

Recently issued accounting pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date for ASU 2014-09 by one year. For public entities, the guidance in ASU 2014-09 was effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods), which means it will be effective for the Company’s fiscal year beginning January 1, 2018. In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. In December 2016, the FASB further issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which makes minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments are intended to address implementation and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These amendments have the same effective date as the new revenue standard. In September 2017, the FASB issued ASU No. 2017-13, which to clarify effective dates that public business entities and other entities were required to adopt ASC Topic 606 for annual reporting. As an “emerging growth company,” or EGC, the Company has elected to take advantage of the extended transition period provided in the Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2018, including interim periods within annual reporting periods beginning after December 15, 2019. The Company is planning to adopt Topic 606 for annual reporting after June 30, 2019 and interim reporting in the first quarter of fiscal year ended June 30, 2020 using the modified retrospective transition method, and is continuing to evaluate the impact our pending adoption of Topic 606 will have on the consolidated financial statements. The Company is in the process of evaluating the new standard against its existing accounting policies, including the timing of revenue recognition and its contracts with customers to determine the effect the guidance will have on its consolidated financial statements and what changes to systems and controls may be warranted.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase the transparency and comparability about leases among entities. The new guidance requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and requires a modified retrospective approach to adoption assuming the Company will remain an emerging growth company at that date. Early adoption is permitted. In September 2017, the FASB issued ASU No. 2017-13, which to clarify effective dates that public business entities and other entities were required to adopt ASC Topic 842 for annual reporting. A public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC adopting ASC Topic 842 for annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. ASU No. 2017-13 also amended that all components of a leveraged lease be recalculated from inception of the lease based on the revised after tax cash flows arising from the change in the tax law, including revised tax rates. The difference between the amounts originally recorded and the recalculated amounts must be included in income of the year in which the tax law is enacted. The Company has not early adopted this update and it will become effective on July 1, 2020. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in Securitization Transactions; and Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The adoption of this ASU on July 1, 2018 would not have a material effect on the Company’s financial statements.

In October 2017, the FASB issued ASU No. 2017-17, Consolidation (Topic 810): Interests held through related parties that are under common control. The amendments in this ASU require that the reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a VIE and, on a proportionate basis, its indirect variable interests in a VIE held through related parties, including related parties that are under common control with the reporting entity. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The adoption of this ASU on July 1, 2018 would not have a material effect on the Company’s financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company does not believe the adoption of this ASU would have a material effect on the Company’s financial statements.

Except as mentioned above, we do not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our financial statements.

Interest Rate Risk

We are exposed to interest rate risk while we have a long-term bank loan outstanding. Although interest rate for a long-term loan is typically fixed for the terms of the loan, the terms and interest rates are subject to change upon renewal. Interest rate is approximately 8.32% for our RMB bank loan with a term of over a year.

Credit Risk

We are exposed to credit risk from our cash in bank and fixed deposits, accounts receivable, other receivables, and prepayments and advances on equipment purchases. The credit risk on cash in bank and fixed deposits is limited because the counterparties are recognized financial institutions. Accounts receivable, other receivables, and prepayments and advances on equipment purchases are subjected to credit evaluations. An allowance has been made for estimated unrecoverable amounts which have been determined by reference to past default experience and the current economic environment.

Foreign Exchange Risk

The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in the PRC’s political and economic conditions. The RMB does not fluctuate with the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. In August 2017, the PRC’s currency dropped by a cumulative 4.4% against the U.S. dollar on hopes of boosting the domestic economy, making PRC exports cheaper and imports into the PRC more expensive by that amount. The effect on trade can be substantial. The RMB started to appreciate during 2017 and the trend of appreciation fluctuated during the six months ended December 31, 2018. Compared with the lowest point of RMB versus U.S. dollars in 2017, the RMB has appreciated by 3.8% compared to the exchange rate as of December 31, 2018. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market. In addition, the value of RMB could be affected by the proposed tariffs regarding trade with the United States.

Because all of our earnings and cash assets are denominated in RMB, but our reporting currency is the U.S. dollar, fluctuations in the exchange rate between the U.S. dollar and the RMB will affect our balance sheet and our earnings per share in U.S. dollars. In addition, appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we might issue in the future that will be exchanged into U.S. dollars and earnings from, and the value of, any dollar-denominated investments we make in the future.

Very limited hedging transactions are available in the PRC to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, foreign currency exchange losses may be magnified by the PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

All of our transactions are settled in RMB. In the opinion of management, we are not exposed to significant foreign currency risk.

Inflation

Inflationary factors, such as increases in the cost of overhead costs, could impair our operating results. A high rate of inflation in the future may have a continued adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of sales revenue if the selling prices of our products do not increase with these increased costs.

OUR INDUSTRY

Alfalfa Industry in China

Alfalfa is a perennial flowering plant in the legume family Fabaceae. It is cultivated as an important forage crop in many countries around the world. It is used for grazing, hay, and silage, as well as a green manure and cover crop. One of the most important characteristics of alfalfa is its high nutritional quality as animal feed; it is called the “Queen of the Forages.”

Alfalfa has one of the highest feeding values of forages and has been perceived as an excellent source of protein. A ton of alfalfa hay contains as much TDN (Total Digestible Nutrients) as 25 bushels of corn (and as much protein as 2/3 of a ton of soybean meal). Beef cows are more likely to be fed rations more deficient in energy than in protein, particularly during the last trimester of pregnancy, and postpartum. A beef cow needs high energy hay to regain body weight after calving, produce milk for her calf, and for rebreeding 40 to 90 days after calving. (Source: Alfalfa For Beef Cows, by John Balliette, Eureka County Extension Educator and Ron Torell, Northeast Area Livestock Specialist, University of Nevada Reno Fact Sheet 93-23.)

Alfalfa contains between 15% to 22% crude protein as well as being an excellent source of vitamins and minerals. Specifically, alfalfa contains vitamins A, D, E, K, U, C, B1, B2, B6, B12, Niacin, Panthothanic acid, Inocitole, Biotin, and Folic acid. Alfalfa also contains the following minerals: Phosphorus, Calcium, Potassium, Sodium, Chlorine, Sulfur, Magnesium, Copper, Manganese, Iron, Cobalt, Boron, and Molybdenum and trace elements such as Nickel, Lead, Strontium and Palladium. Alfalfa hay is used primarily as animal feed for dairy cows but also for horses, beef cattle, sheep, chickens, turkeys and other farm animals.

Inner Mongolia is well known for its animal husbandry industry in China. Currently, Inner Mongolia is an important livestock products processing base in China, with its productions of milk and mutton ranking first and beef production ranking third in the nation. As of 2018, Inner Mongolia has the capacity to ship 5 million tons of milk and 1.5 million tons of meat for consumption outside of its region. According to the press release by Agriculture and Husbandry Department (AHD) of Inner Mongolia Autonomous Region on December 6, 2018, Secretary of AHD Mr. Zhenyun Sun told the report that one fourth of the total mutton and one fifth of the total milk consumed in China are produced by Inner Mongolia.

Based upon the China Alfalfa Industry Development Plan (2016-2020) issued in December 2016 by the Ministry of Agriculture of China, the Chinese domestic alfalfa industry faces three critical issues: 1) supply cannot meet the demand. In 2015, there was a 1.3 million ton shortage of high quality alfalfa for dairy cows alone. With the increased demand for milk and number of dairy cows in China, the supply and demand gap will grow bigger; 2) alfalfa quality is not high. Due to limited facilities and equipment for processing, storage, transportation, quality control and testing, domestic alfalfa has a lower protein percentage and the product quality is not stable; and 3) the industrial production level is low. Most of the alfalfa producers in China are smaller companies which lack modern equipment and management skills and there is only 50 companies with production capacity of more than 10,000 in China. Based upon the Thirteenth Five-Year Plan for the Livestock and Husbandry Industry (the “Plan”), China’s milk production will reach 41 million tons in 2020 and the number of dairy cows will reach 6 million. According to the Plan, as 70% of these cows will be raised on the scaled farms, there is a demand for high quality alfalfa to feed approximately 4.2 million dairy cows. Based upon 1.5 ton of alfalfa per each dairy cow per year, the demand for high quality alfalfa will be 6.3 million tons annually. Also, cattle, sheep and rabbit farms will need approximately 600,000 tons of alfalfa annually. It is expected the total demand for alfalfa in 2020 in China will reach 6.9 million tons.

Source: China National Alfalfa Industry Development Plan (2016-2020)

It is estimated the production of domestic high quality alfalfa will reach 3.6 million tons in 2020 and 3.3 million tons will need to be imported. It is expected the import volume will be 1.5 million tons in 2020 which will leave a total shortage of supply of 1.8 million tons. (Source: National Alfalfa Industry Development Plan (2016-2020), issued by China’s Ministry of Agriculture).

In 2018, China imported approximately 1,383,700 tons of alfalfa with a total value of $446 million, among which approximately 1,158,900 tons from the U.S., which provides 83.76% of total imports by China. Due to the trade tensions between US and China and 25% tariffs on US alfalfa, the imported alfalfa from U.S. in 2018 decreased by 8.81% compared to 2017. In 2018, China imported approximately 171,900 tons of alfalfa from Spain, which counts 12.41% of total imports and represented a 586% increase compare to 2017. (Source: China Customs Statistics, General Administration of Customs for the People’s Republic of China.)

Straw Biomass for the Power Generation Industry in China

China ranked first in the world in 2014 in grain production. The annual grain yield was approximately 607 million tons in 2014, while the straw (also known as agriculture residues or crop straw) production was 700 million tons. Since ancient times, there have been many uses of straw, e.g. fuel, fertilizer, domestic animal feed, and material for furniture, baskets, buildings, and river dams. The national straw utilization rate in China was approximately 80% in 2015. One of the challenges is different consciousness levels of farmers toward straw utilization in different regions. Another is the practicality of straw utilization in situ or removal from the field within a very short window between harvesting and planting a subsequent crop, especially in southern China, where two or three crops per year are common. Consequently, some farmers reluctantly resort to straw burning in the field as an easy option, leading to air pollution. (Source: Straw Utilization in China—Status and Recommendations by Jiqin Ren, Peixian Yu and Xiaohong Xu, Sustainability, March 23, 2019).

Biomass energy in China has been developing at a rapid pace. The installed biomass power generation capacity in China increased sharply from 1.4 GW (Gigawatt, 1 GW=1,000 Megawatt) in 2006 to 14.88 GW in 2017. While the energy share of biomass remains relatively low compared to other sources of renewable energy, China plans to increase the proportion of biomass energy to 15 percent and total installed capacity of biomass power generation to 30 GW by 2030. Agricultural residues are derived from agriculture harvesting such as maize, rice and cotton stalks, wheat straw and husks, and are mostly available in Central and northeastern China where most of the large stalk and straw potential is located. Because straw and stalks are produced as by-products of food production systems, they are perceived to be sustainable sources of biomass for energy that does not threaten food security. (Source: Biomass Energy in China, Miriam Fernandez, BioEnergy Consult, April 11, 2019.)

From 2015 to 2017, annual straw production has slightly changed each year but it has been stable over 1.1 billion tons each year. It is estimated that the total straw production was over 1.135 billion tons in 2018. (Source: 2019-2024 China Straw Power Generation Industry Market Forecast and Investment Plan Analysis Report by Yifan Li, Qianzhan Industry Research Institution, December, 2018). In China, the straw is mostly from rice, wheat and corn crops, among which rice straw is 25.1%, wheat straw is 18.3% and corn straw is 32.5%, cotton straw is 3.1%, oil-bearing crops straw (mostly canola plant and peanuts) is 4.4%. (Source: 2018-2024 China World Straw Wood Panel Industry Market Development and Investment Valuation Research Report by Zhiyan Consulting, July 2018.)

In 2018, the biomass power generation industry in China added a new installed capacity of 3.05 million Kw (1 megawatt = 1,000 Kw, Kilowatt) and the total installed capacity has reached 17.81 million Kw, which is a 20.7% increase compare to 2017. The total biomass power generated was 906 million Kw in 2018 which represents an increase of 14% compared to 2017. (Source: National Energy Administration of China, January 28, 2019).

BUSINESS

Overview

We are currently engaged in the businesses of specialty agriculture farming of alfalfa, wasteland transformation, agriculture harvesting services and biomass raw materials (straw and agriculture residue) collection and processing for power plants and paper mills.

We signed contracts with the local counties of Feng Zhen City in the Inner Mongolian Autonomous Region for use rights to mostly abandoned and waste-lands comprising 74,426 mu or 12,228 acres (approximately 50 square kilometers) in August 2013. We grow and farm alfalfa on these lands that lack water resources or are far from the villages and cannot be farmed without modern technologies and machines. We obtain the contractual rights for use of these abandoned and waste-lands from the local government, through a land use rights transfer process at a much lower cost than normal market prices. We then use biological and engineering measures to construct desertification protection systems for these waste lands, and use drip technologies to efficiently utilize the available water resources to grow alfalfa.

Alfalfa is a perennial herb and its strong and deep roots could organic substances to the soil. It absorbs calcium and breaks down phosphates and deposits them in the soil to decompose to organic colloids which will stabilize the soil and improve its chemical and physical conditions. Alfalfa roots can retain the nitrogen from air to increase soil fertility. Usually, Alfalfa can be harvested 3 times a year.

Alfalfa is a preferred feed for livestock and fresh alfalfa is a top choice for cattle. It can also be processed as hay, hay meal or with a mixture of other animal feeds. High-quality alfalfa is essential for the production of organic milk and for the livestock farming, including cattle, sheep and pigs. More than 50 percent of China’s supply of alfalfa comes from the United States. Inner Mongolia is the province with the highest consumption of high-quality alfalfa in China, and its milk output accounts for about one fifth of China’s total. High quality alfalfa products are in short supply in Inner Mongolia and China and there is a large market for our alfalfa products, as a substitute for imports. Under good management, our alfalfa in Feng County can have three harvests a year (early June, mid July and early October) with hay production between 3,642 and 6,070 kg per acre. We sell our alfalfa hay in two ways: (i) on-site sales at our fields (ii) finished products sales, shipping out of our warehouse. Customers can review the color of alfalfa hay and test the moisture content of the products to select the product they would like to buy. The quality of our alfalfa products have reached the quality level of imported products, and our sales price is 15% to 20% lower than that of comparable imported products. Currently our alfalfa products are in short supply.

We own large agricultural machines and equipment and are well-equipped to operate under modern agriculture production scale, compared to most farmers in China. The degree of our mechanization and automation operations has reached the level of similar farming companies in the United States. We own John Deere (USA) tractors and CLAAS (Germany) tractors, KUHN (France) precision seed drillers, KUHN field mowers, KUHN rake machines, KUHN large square balers, a KUHN wind wrap machine, KUHN fertilizer spreaders, KUHN hydraulic turnover plows, KUHN power driven harrows, KUHN subsoilers, and KUHN fertilizer application machines. We also own other ancillary machines, such as hydraulic folding press machines; graders; grass grabbers; folding joint preparation machines; loaders; holding clamp machines; spray machines; movable generators, soil preparation machines, fertilizer application machines, rotary tillers, trenching machines, and planer graders.

Our agricultural machinery and equipment cover the full range from initial land preparation and planting to harvesting and transportation, and meet the requirements of modern agricultural machinery operation and efficiency. Our agricultural machinery and equipment not only guarantee the consistency of our yield and quality control for our own products, but also can be used to provide harvesting services to other famers in China. Also, we have a fleet of transportation vehicles such as large flat transport vehicles, fuel trucks, a 55-ton large oil storage tank, and a pickup truck for both passenger and cargo, which can effectively ensure the supply of logistics.

Our service team provides inter-state services for an operating radius of more than 2,000 kilometers. We have approximately 50 experienced professional operators of our large imported machinery, who have 5 to 10 years of machine operation experience and long distance cross-provincial operation experience. Our agriculture harvesting services have served farmers in Shandong Province, Heilongjiang Province, the Xinjiang autonomous region, Liaoning province, Jilin Province, Anhui Province, Henan Province, Ningxia Autonomous Region and Shanxi Province, as well as in our own home state, the Inner Mongolian Autonomous Region.

Another main business of ours is to process and sell biomass waste and residues to power generation plants and paper mills, such as wheat straw and corn straw. The straw is the waste and residue from the agriculture industry. It is expensive and time consuming for farmers to collect and process these straws. Traditionally, Chinese farmers pile such agricultural waste up in their fields and burn it, which has been a main cause of the air pollution in China, and also creates the risk of forest fires.

With the strong air pollution control laws and regulations currently in China, burning agricultural waste and residue is strictly prohibited and there is 24/7 satellite monitoring and enforcement. Farmers are fined for violations, or criminally penalized if the violation is serious. Also, local government officials can be held accountable for any such violations in their jurisdiction by central government.

Straw is a renewable energy source. The caloric value of every two tons of straw is equivalent to one ton of standard coal, and its average sulfur content is only 0.38%, while the average sulfur content of coal is about 1%.

We own full sets of highly efficient machines and equipment to collect, process and dispose of agricultural waste and residue. We sell such biomass products to biomass power generation plants to generate electricity, as well as to the paper mills as alternative raw material in place of wood and wood pulp.

Currently, we conduct combined harvesting, processing, packaging, storage and transportation of straw, mainly of corn straw in three provinces in northeast China (Heilongjiang, Liaoning and Jilin provinces) and wheat straw in four provinces (Anhui, Henan, Shandong and Hebei provinces).

In November 2017, we entered into a supply contract with one of the biomass power plants of Guoneng Biomass Power Generation Group Co. Ltd.(“Guoneng”), a subsidiary of the State Grid. In April, 2019, we entered into three more supply contracts with three additional biomass power plants of Guoneng. The four biomass power plants have agreed to purchase all the straw we can supply for its power generation plants all year long. Guoneng owns 41 biomass power plants that are in operation and the total demand of 41 power plants is approximately 13.5 million tons per year. We currently can only supply approximately 400,000 tons per year. The supply gap and room for growth is great

.

We also process straw and agricultural residue and sell biomass products to paper mills as raw material. According to China’s National Bureau of Statistics, from early September 2016 to mid October 2017, pulp price increased by 56.77% to RMB 6,550.6 ($1,008) per ton, and corrugated paper price increased by 126.21% to RMB 5,730 ($882) per ton.

In 2017, the paper production volume in China was 9.2 million tons and consumption in China was 8.54 million tons.

The paper mills have been using a new process of straw paper manufacturing and no chemicals are used in the production process. The biomass wastes are fermented and decomposed using bacterial liquid, such that the paper products manufactured in this way meet the safety and health requirements for food contact packing paper.

Our Strategy

We plan to continue to expand our business in specialty alfalfa farming, waste land transformation, agricultural harvesting services, and biomass raw materials (straw and agricultural residue) collection and processing for power plants and paper mills. We will continue to market our products and services to attract more clients through referrals from existing clients and through offline marketing methods, and we also plan to build and use an online platform for various marketing campaigns, attracting and expediting order processing, increasing our reputation and influence in the industry, and building our brand recognition in China. However, there is no guarantee that our expansion plans will be successful. We plan to implement the following strategies:

Our Challenges

We face challenges and uncertainties in realizing our business objectives and executing our strategies, including the following:

1. Fire accidents. Our products, alfalfa hay and straw, are highly flammable. Although we have purchased relevant storage and shipment insurance, any fire accidents would materially affect our business.

2. The price of alfalfa hay in international markets, especially in the U.S. Currently, approximately 40% of high quality alfalfa consumed in China is imported, mostly from the U.S. We currently use alfalfa seeds imported from the U.S. Although the sale price of domestic alfalfa hay is 15-20% lower than similar imported products, any price and supply/demand change in international markets will impact our business.

3. Any changes in the livestock and cattle industry, such as the number of cattle, will affect our business.

4. Quantity and quality of agriculture biomass. There is a seriously insufficient supply of biomass straw for power plants and paper mills and we mainly purchase the straw from individual farmers. We supplement our supply with certain cooperative farmers associations, and the quality of biomass waste is not consistent. The impurities and dust of raw biomass waste materials might be excessive, which could be harmful to power generation systems and paper mill facilities and seriously affect the stable production of the plants/mills. We have invested in and installed the systems at the biomass power plants to filter out the impurities and remove the excessive dust to ensure product quality, which increases our cost.

5. Obtaining more land use rights in China is a long and laborious process, which we would need to engage in if and when we expand our alfalfa farming business.

We face additional risks and uncertainties related to our corporate structure and the regulatory environment in China. Please see “Risk Factors” and other information included in this prospectus for a discussion of these and other risks and uncertainties that we face.

Our Products and Services

We currently grow and sell fresh alfalfa and alfalfa hay grown from our own land and purchase straws and sell them to the biomass power plants and paper mills. We also provide agriculture harvesting services including plowing, seeding and sowing, harvesting, racking, baling and field management.

Competition

We primarily compete with imported high quality alfalfa from U.S. for the dairy farm market in China. For the major dairy companies in China, they import alfalfa for their dairy farms to produce their organic milk. Some of the largest dairy companies such as Meng Niu and Yi Li have small in-house alfalfa farming but only for demonstration and strategic reservation use; these do not directly compete with our product.

For agriculture waste and biomass business, there are no major specialized or professional companies currently in the field of collecting, purchasing, processing and selling agriculture biomass products for power plants and paper mills. Mostly, our competitors are individual farmers and farmers associations but they are small and scattered and lack large processing equipment.

For agriculture machine and equipment lease and services business, certain large state owned and controlled agriculture and farming companies have such agriculture machine and equipment, however, due to the nature of their ownership and management methods, they do not really provide such equipment for lease or provide external services. Rather, they use such equipment internally within their group companies and do not directly compete with us.

We compete primarily on the basis of quality and price for our products and services as well as technological innovation in these changing market conditions. There are a number of larger national companies in our industry that could potentially establish a presence in our markets and compete with us. If we are unable to compete successfully in our markets, our relative market share and profits could be reduced.

Seasonality

We harvest alfalfa from June to early October. The corn straws used for biomass power generation are collected generally from mid October through December or January of the following year after the harvest season, depending on the locations of corn fields. The wheat straws are collected in June which is after the harvest of winter wheats. The wheat straws mostly are used for paper mills and roughage for cattle and hogs. During April and May, we provide agriculture services of soil turning, harrowing and land preparation for the farmers for their spring sowing. Our alfalfa hay, processed straws and biomass products can be sold year round. Annual capacity of our production varies based on the production of the alfalfa and straws from the crops, which is ultimately contingent on weather and other climatic conditions leading up to and through the harvest seasons. As a result, our business is highly seasonal as sales of our products are generally higher during the harvest season. Sales of our products during the months from June through January of the following year generally tend to be higher, or the non-harvest season, generally tend to be lower due to a shortage of alfalfa and straws and a lower level of production activity. As a result, our sale for the first and the second quarters of our fiscal year are generally stronger than those for our third and fourth quarters.

Employees

As of March 31, 2019 and December 31, 2018, we had a total of 28 employees. The following table sets forth the breakdown of our employees as of March 31, 2019 by function:

As of March 31, 2019, all of our employees were based in Inner Mongolia, where our principal executive offices are located. In addition, we have 40 contracted machine and equipment operators whom are not included in our total formal employee numbers. During the harvest seasons, we will also hire certain numbers of temporary seasonal workers depending on actual needs at such time.

As required by PRC regulations, we participate in various government statutory employee benefit plans, including social insurance funds, namely a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. As of the date of this prospectus, we have made adequate employee benefit payments. However, if we were found by the relevant authorities that we failed to make adequate payment, we may be required to make up the contributions for these plans as well as to pay late fees and fines. See “Risk Factors—Risks Related to Doing Business in China—Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.”

We enter into standard labor and confidentiality agreements with our employees. We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor disputes.

Facilities

Our principal executive office is located at Room 1602 Tower B Shang Dong Linghai, Yuan Wu Wei Road, Ruyi, Development District, Huhe Haote City, Inner Mongolia, China, which we own and have the use rights until September, 2076. We believe that we have enough office space to accommodate our future expansion plans.

We signed contracts with the local counties of Feng Zhen City in the Inner Mongolian Autonomous Region for use rights to mostly abandoned and waste-lands comprising 74,220 mu or 12,228 acres (approximately 50 square kilometers) in August 2013. We obtain the contractual rights for the use of these abandoned and waste-lands from the local government, through a land use rights transfer process which originally have an expiration date on December 31, 2027 upon the completion of the 2^nd round of 30 year Land Contractual Operation Rights policy in China. Based on the Report on the Work of The Government Delivery on the first session of the 13^th National People’s Congress of the PRC on March 5, 2018, the government will implement the policy extending second-round rural land contracts by another 30 years upon expiration. The Law of PRC on Contractual Rights of Land in Rural Areas was amended in 2018 to reflect such policy. Our contractual term may be extended to another 30 years based on such laws and policy. We grow and farm alfalfa on these lands and we have signed letters of intent with local counties of Feng Zhen City to obtain additional 50 square kilometers abandoned and waste lands to expand our alfalfa farming business.

Intellectual Property

We regard our trademarks, domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on trademark and trade secret law and confidentiality and invention assignment with our employees and others to protect our proprietary rights.

We have five trademarks that have been approved by the Trademark Office of National Intellectual Property Administration, PRC. We have been granted one copyright by the PRC Copyright Bureau for one drawing for our logo.  Our intellectual property also includes domain names: www.nmgqqcy.net, www.青青草原.com, www.青青草原.net, www.青青草原.cn, 青青草原.公司, 青青草原.中国

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our technology. Monitoring unauthorized use of our technology is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation of our technology. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources.

In addition, third parties may initiate litigation against us alleging infringement of their proprietary rights or declaring their non-infringement of our intellectual property rights. In the event of a successful claim of infringement and our failure or inability to develop non-infringing technology or license the infringed or similar technology on a timely basis, our business could be harmed. Moreover, even if we are able to license the infringed or similar technology, license fees could be substantial and may adversely affect our results of operations.

See “Risk Factors—Risks Related to Our Business—We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.” and “—We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.”

Insurance

We provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance and medical insurance for our employees. We have property insurance coverage for our machines, equipment, buildings and inventories which will expire on August 1, 2019 and we plan to renew such insurance before it expires.

Legal Proceedings

In February 2017, the Company was sued as a co-defendant as co-guarantor of an approximately $3.0 million (RMB 20.0 million) loan for which one of the Company’s shareholders are the borrowers of this loan from Zhongcai Jiali Investment ion Co. Ltd. (“Zhongcai” or the “plaintiff”). In March 2017, the court has ordered to freeze approximately $3.8 million (RMB 25.0 million) worth of tangible property value and bank account of Mr. Jian Sun, the Company’s CEO and the co-defendant and co-guarantor of this case. In November 2018, the People’s Court of China issued a verdict for the Company to repay the plaintiff of principal balance of approximately $1.2 million (RMB 7,757,147) plus interest of approximately $0.4 million (RMB 2,540,094) incurred up to June 30, 2018. The Company does not believe this case will have any material impact on its financial position, results of operations and liquidity as Mr. Jian Sun personally took over the responsibility of guarantees, including his assets were frozen. Mr. Sun currently is in discussions with Zhongcai on the payment terms and the final amount and expects to settle the payment by the end of August, 2019.

We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.

Regulations

This section sets forth a summary of the most significant rules and regulations that affect our business activities in China.

The relevant regulations promulgated by such government authorities are described below.

Regulations Relating to Foreign Investment

The New PRC Foreign Investment Law

In January 2015, MOFCOM published a discussion draft of the proposed Foreign Investment Law for public review and comments. The draft law purports to change the existing “case-by-case” approval regime to a “filing or approval” procedure for foreign investments in China. The State Council will determine a list of industry categories that are subject to special administrative measures, which is referred to as a “negative list,” consisting of a list of industry categories where foreign investments are strictly prohibited, or the “prohibited list” and a list of industry categories where foreign investments are subject to certain restrictions, or the “restricted list.” Foreign investments in business sectors outside of the “negative list” will only be subject to a filing procedure, in contrast to the existing prior approval requirements, whereas foreign investments in any industry categories that are on the “restricted list” must apply for approval from the foreign investment administration authority.

The draft for the first time defines a foreign investor not only based on where it is incorporated or organized, but also by using the standard of “actual control.” The draft specifically provides that entities established in China, but “controlled” by foreign investors will be treated as FIEs. Once an entity is considered to be an FIE, it may be subject to the foreign investment restrictions in the “restricted list” or prohibitions set forth in the “prohibited list.” If an FIE proposes to conduct business in an industry subject to foreign investment restrictions in the “restricted list,” the FIE must go through a market entry clearance by MOFCOM before being established. If an FIE proposes to conduct business in an industry subject to foreign investment prohibitions in the “prohibited list,” it must not engage in the business. However, an FIE that conducts business in an industry that is in the “restricted list,” upon market entry clearance, may apply in writing for being treated as a PRC domestic investment if it is ultimately “controlled” by PRC government authorities and its affiliates and/or PRC citizens. In this connection, “control” is broadly defined in the draft law to cover the following summarized categories: (i) holding 50% or more of the voting rights of the subject entity; (ii) holding less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to exert material influence on the board, the shareholders’ meeting or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters or other key aspects of business operations. According to the draft, variable interest entities would also be deemed as FIEs, if they are ultimately “controlled” by foreign investors, and 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.

The draft emphasizes the security review requirements, whereby all foreign investments that jeopardize or may jeopardize national security must be reviewed and approved in accordance with the security review procedure. In addition, the draft imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Aside from the investment implementation report and investment amendment report that are required at each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with these information reporting obligations may be subject to fines and/or administrative or criminal liability, and the persons directly responsible may be subject to criminal liability.

In December 2018, the Standing Committee of the National People’s Congress published a discussion draft of a new proposed Foreign Investment Law, aiming to replace the major existing laws governing foreign direct investment in China. On January 29, 2019, the discussion draft with slight revisions, or the New Draft Foreign Investment Law, was submitted for review. Pursuant to the New Draft Foreign Investment Law, foreign investments shall be subject to the negative list management system. The “negative list”, which is issued or approved by the State Council, specifies the special management measures for the access of foreign investment in specific areas. 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, suspend its investment activities, dispose of its equity interests or assets in the target companies, and forfeit its income. In addition, if a foreign investor is found to invest in any restricted industry in the “negative list”, the relevant competent department shall require the foreign investor to take the measures to correct itself.

However, the New Draft Foreign Investment Law does not mention the “actual control” as regulated in the previous draft and the position to be taken with respect to existing or future companies with the “variable interest entity” structure. On March 15, 2019, the Foreign Investment Law of the People’s Republic of China, or the Final Foreign Investment Law, with slight revision, is finally issued and will become effective on January 1, 2020. Although variable interest entity structures are not included in the Final Foreign Investment Law, it is uncertain whether any interpretation and implementation of the Final Foreign Investment Law or new PRC laws, rules or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide.

When the Final Foreign Investment Law becomes effective, the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations, will be abolished. The FIEs established in accordance with the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law before the Final Foreign Investment Law becomes effective, may keep their original organizational forms for five years after the effectiveness of the Final Foreign Investment Law. See “Risk Factors—Risks related to Doing Business in China—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.”

Negative List Relating to Foreign Investment

Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalog of Industries for Foreign Investment promulgated and as amended from time to time by MOFCOM and National Development and Reform Commission (the “NDRC”) and MOFCOM. In June 2017, MOFCOM and the NDRC promulgated the Catalog (2017 Revision), which became effective in July 2017 and was amended in June 2018. In June 2018, the Guidance Catalog of Industries for Foreign Investment (2017 Revision) was replaced by the Special Administrative Measures (Negative List) for Foreign Investment Access (2018 Version), or the Negative List. Industries listed in the Negative List are divided into two categories: restricted and prohibited. Industries not listed in the Negative List are generally deemed as constituting a third “permitted” category. Establishment of wholly foreign-owned enterprises is generally allowed in permitted industries. Some restricted industries are limited to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. In addition, restricted category projects are subject to higher-level government approvals. Foreign investors are not allowed to invest in industries in the prohibited category. Industries not listed in the Negative List are generally open to foreign investment unless specifically restricted by other PRC regulations.

Our PRC subsidiary is mainly engaged in planting for waste land and soil improvement and biomass material, which falls into the “permitted” category. We may expand our market survey business on agriculture field or our planting and R&D to more species, rare, unique and precious varieties in PRC, which might fall into Negative List

Regulations Relating to Agriculture in China

Pursuant to the Agriculture Law of PRC, promulgated by the standing committee of NPC in July 1993 and revised in December 2002 and December 2012 (the “Agriculture Law”), the State shall adopt measures to ensure the steady development of agriculture. Governmental authorities such as finance, banking, science and technology, and material resources shall provide support to socialized service undertakings of agricultural production. The State shall encourage and support agricultural production and operation organizations or agricultural laborers to apply advanced and sophisticated agricultural machinery for the purpose of raising the level of agricultural mechanization. Furthermore, the State also encourages and guides farmers to engage in various forms of circulation activities of agricultural products, and agricultural production and operation organizations and agricultural laborers may, in accordance with the relevant provisions of the State, engage in activities of purchasing, processing, wholesaling, trafficking and retailing of agricultural products.

In addition, Law of PRC on Contractual Rights of Land in Rural Areas which was adopted on August 29, 2002 by standing committee of NPC, amended on August 27, 2009 and December 29, 2018, provides that after contracting the land, the contractor shall enjoy the right to land contractual management. It may either manage the land itself or retain the land contracting right but circulate the management right of its contracted land to be managed by others. The State protects the circulation of the right to land contractual management, which is effected according to law, on a voluntary basis and with compensation, and protects the legitimate rights and interests of the land management right holders. The term of contract for arable land is 30 years. The term of contract for grassland ranges from 30 to 50 years. The term of contract for forestland ranges from 30 to 70 years. The term of contract for arable land specified in the preceding paragraph shall be extended for another 30 years after the expiry and that for grassland and forestland shall also be appropriately extended according to the provisions of the above-mentioned terms. In addition, pursuant to Administrative Rule for Circulation of Contractual Management Rights of Rural Land issued by Ministry of Agriculture and Rural Affairs of PRC on January 19, 2005 and effective on March 1, 2005, the land in rural areas as barren mountains, gullies, hills and beaches, which are not suited to the form of household contract within the member of collective organization, may be contracted in such forms as bid invitation, auction and public consultation.

Regulations Relating to Biomass Energy and Agriculture Related Service Business in China

Pursuant to the Renewable Energy Law of PRC, promulgated by the standing committee of NPC in February 2005 and revised on December 26, 2009 (the “RE Law”), renewable energy referred in RE Law refers to non-fossil energy of wind energy, solar energy, water energy, biomass energy, geothermal energy, and ocean energy, excluding the direct burning of straw, firewood and dejecta, etc. on low-efficiency stove. RE Law requires the government lists the development of utilization of renewable energy as the preferential area for energy development and promotes the construction and development of the renewable energy market by establishing total volume for the development of renewable energy and taking corresponding measures, and encourages economic entities of all ownerships to participate in the development and utilization of renewable energy and protects legal rights and interests of the developers and users of renewable energy on the basis of law. The government encourages and supports various types of grid-connected renewable power generation. For the construction of renewable energy power generation projects, administrative permits shall be obtained or filing shall be made in accordance with the law and regulations of the State Council. Furthermore, the government encourages clean and efficient development and utilization of biological fuel and encourages the development of energy crops. If the gas and heat produced with biological resources conforms to urban fuel gas pipeline networks and heat pipeline networks, enterprises operating gas pipeline networks and heat pipeline networks shall accept them into the networks. RE Law also provides that state shall practice the full protective purchasing price system for renewable power generation. Working together with the national power supervisory institutions and the financial department of the State Council, energy authorities of the State Council shall act in accordance with national renewable energy development and utilization plan, set the proportion of renewable power generation capacity in total power generation capacity during the period of the plan, formulate specific methods for grid enterprises to give priority to the arrangement of renewable power generation and buy the grid-connected power produced with renewable energy. In addition, energy authorities of the State Council shall work together with the national power supervisory institutions to supervise the implementation of the annual plan.

Regulations Relating to Intellectual Property Rights

The PRC has adopted comprehensive legislation governing intellectual property rights, including copyrights, patents, trademarks and domain names.

Copyright. Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC promulgated in February 2010 which took effect in April 2010 (the “Copyright Law”), and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years.

Patent. The Patent Law of the PRC promulgated in December 2008, which became effective in October 2009, provides for patentable inventions, utility models and designs. An invention or utility model for which patents may be granted shall have novelty, creativity and practical applicability. The State Intellectual Property Office under the State Council is responsible for examining and approving patent applications.

Trademark. The Trademark Law of the PRC promulgated in August 2013 which took effect in May 2014 (the “Trademark Law”), and its implementation rules protect registered trademarks. The Trademark Office of National Intellectual Property Administration, PRC, formerly the PRC Trademark Office of the State Administration of Market Regulation is responsible for the registration and administration of trademarks throughout the PRC. The Trademark Law has adopted a “first-to-file” principle with respect to trademark registration.

Domain Name. Domain names are protected under the Administrative Measures for the Internet Domain Names of the PRC promulgated by the Ministry of Information and Industry of the PRC effective on December 20, 2004 and the Administrative Measures for Internet Domain Names promulgated by MIIT, effective on November 1, 2017 (the “Domain Name Measures”). MIIT is the major regulatory body responsible for the administration of the PRC internet domain names. The Domain Names Measures has adopted a “first-to-file” principle with respect to the registration of domain names.

Regulations Relating to Dividend Withholding Tax

Pursuant to the Enterprise Income Tax Law and its implementation rules, if a non-resident enterprise has not set up an organization or establishment in the PRC, or has set up an organization or establishment but the income derived has no actual connection with such organization or establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reduced withholding tax: (i) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (ii) it must have directly owned such percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations. In August 2015, the State Administration of Taxation promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or Circular 60, which became effective on November 1, 2015. Circular 60 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities.

Regulations on Enterprise Income Tax

PRC enterprise income tax is calculated based on taxable income, which is determined under (i) the PRC Enterprise Income Tax Law, or the EIT Law, promulgated by the NPC and implemented in January 2008 and amended in March 2017 and December 2018, respectively, and (ii) the implementation rules to the EIT Law promulgated by the State Council and implemented in January 2008. The EIT Law imposes a uniform enterprise income tax rate of 25% on all resident enterprises in the PRC, including foreign-invested enterprises and domestic enterprises, unless they qualify for certain exceptions.

In addition, according to the EIT Law, enterprises registered in countries or regions outside the PRC with “de facto management bodies” located within China may be considered to be PRC resident enterprises and will be subject to PRC enterprise income tax at the rate of 25% on their worldwide income. The implementation rules of the EIT Law define “de facto management bodies” as establishments that exercise full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. The only detailed guidance currently available for the definition of  “de facto management body” as well as the determination and administration of tax residency status of offshore-incorporated enterprises are set forth in the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies issued by the SAT in April 2009, or Circular 82, and the Administrative Measures for Enterprise Income Tax of Chinese-Controlled Overseas Incorporated Resident Enterprises (Trial Version) issued by the SAT in July 2011, or Bulletin No. 45, which provides guidance on the administration as well as the determination of the tax residency status of a Chinese-controlled offshore-incorporated enterprise, defined as an enterprise that is incorporated under the law of a foreign country or territory and that has a PRC company or PRC corporate group as its primary controlling shareholder.

According to Circular 82, a Chinese-controlled offshore-incorporated enterprise will be regarded as a PRC resident enterprise by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met:

Bulletin No. 45 further clarifies certain issues related to the determination of tax resident status and competent tax authorities. It also specifies that when provided with a copy of Recognition of Residential Status from a resident Chinese-controlled offshore-incorporated enterprise, a payer does not need to withhold income tax when paying certain PRC-sourced income such as dividends, interest and royalties to such Chinese-controlled offshore-incorporated enterprise.

Regulations on Income Tax for Share Transfers

According to the Announcement of the SAT on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfer by Non-Resident Enterprises, or Circular 7, promulgated by the SAT in February 2015, if a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly through transfer of the equity interests of an offshore holding company (other than a purchase and sale of shares issued by a PRC resident enterprise through or in a public securities market) without a reasonable commercial purpose, the PRC tax authorities have the power to reassess the nature of the transaction and treat the indirect equity transfer as a direct transfer. As a result, the gain derived from such transfer, which means the equity transfer price less the cost of equity, will be subject to PRC withholding tax at a rate of up to 10%. Under the terms of Circular 7, the transfer which meets all of the following circumstances shall be directly deemed as having no reasonable commercial purposes: (i) over 75% of the value of the equity interests of the offshore holding company are directly or indirectly derived from PRC taxable properties; (ii) at any time during the year before the indirect transfer, over 90% of the total properties of the offshore holding company are investments within PRC territory, or in the year before the indirect transfer, over 90% of the offshore holding company’s revenue is directly or indirectly derived from PRC territory; (iii) the function performed and risks assumed by the offshore holding company are insufficient to substantiate its corporate existence; and (iv) the foreign income tax imposed on the indirect transfer is lower than the PRC tax imposed on the direct transfer of the PRC taxable properties. In October, 2017, the SAT issued the Bulletin of SAT on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or Bulletin 37, which, among others, repeals certain rules stipulated in Circular 7. Bulletin 37 further details and clarifies the tax withholding methods in respect of income of non-resident enterprises.

Regulations on PRC Value-Added Tax

Pursuant to applicable PRC regulations promulgated by the Ministry of Finance of China and the SAT, entities or individuals conducting business in the service industry are required to pay a valued-added tax, or VAT, at a rate of 6% with respect to revenues derived from the provision of online information services. 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.

Regulations on Foreign Currency Exchange

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, which were most recently amended in August 2008. Under the Foreign Exchange Administration Regulations, payments of current account items, such as profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital account items, such as direct investments, repayment of foreign currency-denominated loans, repatriation of investments and investments in securities outside of China.

In August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises (“SAFE Circular 142”), regulating the conversion by a foreign-invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142, provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC.

In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not, in any case, be used to repay RMB loans if the proceeds of such loans have not been used. Any violation of Circular 142 may result in severe penalties, including substantial fines.

In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expense accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders, no longer require approval or verification from SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously.

In addition, SAFE promulgated another circular in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way of registration, and banks must process foreign exchange business relating to direct investment in the PRC based on the registration information provided by SAFE and its branches.

In July 2014, SAFE further reformed the foreign exchange administration system in order to satisfy and facilitate the business and capital operations of Foreign-Invested Enterprises and issued the Circular of the State Administration of Foreign Exchange on the Pilot Reform of the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals of Foreign-Invested Enterprises in Certain Areas (“Circular 36”), in July 2014. This circular suspends the application of Circular 142 in certain areas and allows a Foreign-Invested Enterprise registered in such areas to use the RMB capital converted from foreign currency registered capital for equity investments within the PRC.

On February 13, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Pursuant to SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals will be required to apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, will directly examine applications and manage registrations.

In March 30, 2015, SAFE promulgated SAFE Circular 19, to expand the reform nationwide. SAFE Circular 19 came into force and replaced both Circular 142 and Circular 36 on June 1, 2015. SAFE Circular 19 allows foreign-invested enterprises to make equity investments by using RMB funds converted from foreign exchange capital. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using RMB funds converted from foreign exchange capital for expenditure beyond the enterprise’s business scope, providing entrusted loans, or repaying loans between non-financial enterprises.

In June 9 2016, SAFE issued SAFE Circular 16, which took effect on the same day. Compared to SAFE Circular 19, SAFE Circular 16 provides that, in addition to foreign exchange capital, foreign debt funds and proceeds remitted from foreign listings should also be subject to the discretional foreign exchange settlement. In addition, it also lifted the restriction that foreign exchange capital under the capital accounts and the corresponding RMB capital obtained from foreign exchange settlement should not be used for repaying the inter-enterprise borrowings (including advances by a third party) or repaying bank loans in RMB that had been sub-lent to the third party.

In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting profits. Moreover, pursuant to Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.

Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents

SAFE issued SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, that became effective in July 2014, replacing the previous SAFE Circular 75. SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. Under SAFE Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investments, using legitimate onshore or offshore assets or interests, while “round trip investment” refers to direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to hold the ownership, control rights and management rights. SAFE Circular 37 provides that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.

PRC residents or entities who had contributed legitimate onshore or offshore interests or assets to SPVs but had not obtained registration as required before the implementation of SAFE Circular 37 must register their ownership interests or control in the SPVs with qualified banks. An amendment to the registration is required if there is a material change with respect to the SPV registered, such as any change of basic information (including change of the PRC residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure to comply with the registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentations about or failure to disclose controllers of the foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested enterprise, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations. All beneficial owners of our ordinary shares who we know are PRC residents, are under the process for the foreign exchange registrations in accordance with SAFE Circular 37.

Regulations on Stock Incentive Plans

SAFE promulgated the Stock Option Rules in February 2012, replacing the previous rules issued by SAFE in March 2007. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plans in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of the participants. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or other material changes. The PRC agent must, on behalf of the PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents.

We have not adopted any stock incentive plans as of the date of this prospectus.

Regulations on Dividend Distribution

Under our current corporate structure, we may rely on dividend payments from WFOE, which is a wholly foreign-owned enterprise incorporated in China, to fund any cash and financing requirements we may have. The principal regulations governing distribution of dividends of foreign-invested enterprises include the Foreign-Invested Enterprise Law, as amended in October 2000 and September 2016, and its implementation rules. Under these laws and regulations, wholly foreign-owned enterprises in China may pay dividends only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to allocate at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until these reserves have reached 50% of the registered capital of the enterprises. Wholly foreign-owned companies may, at their discretion, allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserves are not distributable as cash dividends.

Regulations on M&A and Overseas Listings

Six PRC regulatory agencies, including MOFCOM, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective in September 2006 and was amended in June 2009. The M&A Rules, among other things, require offshore SPVs formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of MOFCOM prior to publicly listing their securities on an overseas stock exchange.

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 MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions. The M&A Rules requires a foreign investor to obtain the approval from MOFCOM or its local counterpart only upon (i) its acquisition of a domestic enterprise’s equity interest; (ii) its subscription of the increased capital of a domestic enterprise; or (iii) establishes and operates a foreign-invested enterprise with assets acquired from a domestic enterprise and such transactions raise “national defense and security” concerns or through such transactions foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns. It is unclear whether our business would be deemed to be in an industry that raises “national defense and security” or “national security” concerns. However, MOFCOM or other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in China, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited.

See “Risk Factors—Risks Related to Doing Business in China—The approval of the China Securities Regulatory Commission may be required in connection with this offering under a regulation adopted in August 2006, as amended, and, if required, we cannot predict whether we will be able to obtain such approval.”

Regulations Relating to Employment

Pursuant to the Labor Law of PRC, promulgated by the NPC in July 1994 and revised in August 2009 and December 2018 (the “Labor Law”), and the Labor Contract Law of PRC, promulgated by the Standing Committee of the NPC in June 2007 and amended in December 2012 (the “Labor Contract Law”), employers must execute written employment contracts with full-time employees. If an employer fails to enter into a written employment contract with an employee within one year from the date on which the employment relationship is established, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee twice the employee’s salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to the day prior to the execution of the written employment contract. All employers must compensate their employees with wages equal to at least the local minimum wage standards. Violations of the PRC Labor Law and the Labor Contract Law may result in the imposition of fines and other administrative sanctions, and serious violations may result in criminal liabilities.

Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds based on local annual minimum salary standard or certain percentage of the local annual average compensations to works (“Social Insurance Payment Base”). We participate in employee benefit plans and have made contributions to such plans required by current PRC laws and regulations. If enterprises are required to contribute to the plans or funds based on a higher Social Insurance Payment Base under the new regulations or policies in the future, we may have to make more contributions to such plans for our employees. We intend to comply with the new regulations and policies applicable to employee benefit plans set forth through time. In addition, the PRC Individual Income Tax Law requires companies operating in China to withhold individual income tax on employees’ salaries based on the actual salary of each employee upon payment.

MANAGEMENT

Directors and Executive Officers

The following table sets forth information regarding our executive officers and directors as of the date of this prospectus.

Biographies

Jian Sun

Mr. Sun was appointed a member of our Board on May 10, 2019 and as our Chairman of the Board and Chief Executive Officer on May 18, 2019. Since May, 2013, Mr. Sun has served as the President of Inner Mongolia Green Grass Yuan Ecological Technology Development Co., Ltd. From 2001 to 2013, Mr. Sun was the President of Inner Mongolia Ganhe Guarantee and Investment Co., Ltd. Mr. Sun received his Bachelor Degree of finance and accounting from Inner Mongolia University of Finance and Economics in July 1996. The Board believes that Mr. Sun’s extensive experience and operational knowledge of our business and corporate management will benefit the company’s operations and business and make him an important member of the Board. 

Haiqing Wen

Mr. Wen was appointed as our Chief Financial Officer on May 18, 2019. From August 2009 to March 2019, Mr. Wen served as a director for accounting department of Inner Mongolia SK Xing Group Co., Ltd. From March 2019 to May 2019, Mr. Wen served as accounting manager for Inner Mongolia Green Grass Yuan Ecological Technology Development Co., Ltd. Mr. Wen received his secondary school diploma of transportation statistics from Inner Mongolia Transportation School in August 1988 and his junior college degree of industrial statistics from Inner Mongolia University of Finance and Economics in August 1991. Mr. Wen holds a certificate of senior CPA of China.

Jingquan Duan

Mr. Duan was appointed a member of the Board on May 10, 2019.  Since November 2011, Mr. Duan has served as the managing director and executive president of China Resources and Transportation Group Ltd. in Hong Kong and the Chairman of the Board of Inner Mongolia Zhunxing Heavy Load Highway Co., Ltd.  Mr. Duan received his Bachelor Degree of Business Economics from Dongbei University of Finance and Economics in February 1982. The Board believes that Mr. Duan’s extensive experience in business and management will benefit the Company’s operations and make him a valuable member of the Board.

John Chen

Mr. Chen was appointed a member of the Board on May 10, 2019.  Since May 2004, Mr. Chen has served as the Chief Financial Officer of General Steel Holdings, Inc. From October, 1997 to April, 2004, Mr. Chen was a Senior Accountant of Moore Stephens Frazer and Torbet, LLP. Mr. Chen obtained his Bachelor Degree of Science, Business Administration, Accounting from California State Polytechnic University in Pomona in June 1997. Mr. Chen is a California State Certified Public Accountant, a Member of American Institute of Certified Public Accountants and a Member of California Society of Accountants, Los Angeles Chapter. The Board believes that Mr. Chen’s expertise and knowledge of accounting and public company will benefit the Company’s management and operations and make him a valuable member of the Board and its committees.

Gentu Ge

Mr. Ge was appointed a member of the Board on May 10, 2019.  Since June 2016, Mr. Ge has been a professor at Inner Mongolia Agricultural University College of Grassland, Resource and Environment. From April, 1999 to June 2016, Mr. Ge was a lecturer and associate professor at Inner Mongolia Agricultural University College of Ecological Environment. Mr. Ge received his Bachelor and Master Degrees of Grass Science from Inner Mongolia Agricultural University in July 1995 and July 1998, respectively, and his Ph.D. of Agriculture Studies from Inner Mongolia Agricultural University in December 2005. Since March 2015, Mr. Ge has been the secretary general of Grass Products Processing Special Committee of China Grassland Society. The Board believes that Mr. Ge’s expertise and knowledge in grass products and grassland ecological environment will benefit the Company’s business and operations and make him a valuable member of the Board and its committees.

Qingfeng Li

Mr. Li was appointed a member of the Board on May 10, 2019.  Since October 1995, Mr. Li has been a professor teaching classes of grass seeds and English at Inner Mongolia Agricultural University College of Grassland, Resource and Environment. Mr. Li received his graduation diploma from Bell English Training Center of Beijing Forestry University in August 1984 and his doctor degree from Seed Technology Center of Massey University in New Zealand in December 1989. The Board believes that Mr. Li’s expertise and knowledge in grass seeds will benefit the Company’s business and operations and make him a valuable member of the Board and its committees.

Employment Agreements

We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for an initial term of one year and is renewable upon mutual agreement of the Company and the executive officer.

The executive officers are entitled to a fixed salary and to participate in our equity incentive plans, if any and other company benefits, each as determined by the Board from time to time.

We may terminate the executive officer’s employment for cause, at any time, without notice or remuneration, for certain acts, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or material breach of any term of any employment or other services, confidentiality, intellectual property or non-competition agreements with the Company. In such case, the executive officer will solely be entitled to accrued and unpaid salary through the effective date of such termination, and his/her right to all other benefits will terminate, except as required by any applicable law. The executive officer is not entitled to severance payments upon any termination.

The executive officer may voluntarily terminate his/her employment for any reason and such termination shall take effect 30 days after the receipt by Company of the notice of termination. Upon the effective date of such termination, the executive officer shall be entitled to (a) accrued and unpaid salary and vacation through such termination date; and (b) all other compensation and benefits that were vested through such termination date.  In the event the executive officer is terminated without notice, it shall be deemed a termination by the Company for cause.

Each of our executive officers has agreed not to use for his/her personal purposes nor divulge, furnish, or make accessible to anyone or use in any way (other than in the ordinary course of the business of the Company) any confidential or secret information or knowledge of the Company, whether developed by him/herself or by others.

In addition, each executive officer has agreed to be bound by non-competition restrictions during the term of his or her employment and for six months following the last date of employment.

Each executive officer also has agreed not to (i) solicit or induce, on his/her own behalf or on behalf of any other person or entity, any employee of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates; or (ii) solicit or induce, on his/her own behalf or on behalf of any other person or entity, any customer or prospective customer of the Company or any of their respective affiliates to reduce its business with the Company or any of its affiliates.

Compensation of Directors and Executive Officers

During the fiscal year ended June 30, 2018, we paid an aggregate of approximately $22,135  in cash to our executive officers, and we did not have non-executive directors during that period. We did not pay any other cash compensation or benefits in kind to our directors and executive officers. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. Our PRC subsidiary and our variable interest entities are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.

Board of Directors and Committees  

Our Board currently only consists of five directors. We will also establish an audit committee, a compensation committee and a Nominating and Corporate Governance Committee prior to consummation of this offering. Each of the committees of the Board shall have the composition and responsibilities described below.

Audit Committee

John Chen, Gentu Ge and Qingfeng Li will be members of our Audit Committee, where John Chen shall serve as the chairman. All proposed members of our Audit Committee will satisfy the independence standards promulgated by the SEC and by Nasdaq as such standards apply specifically to members of audit committees.

We intend to adopt and approve a charter for the Audit Committee prior to consummation of this offering. In accordance with our Audit Committee Charter, our Audit Committee shall perform several functions, including:

It is determined that John Chen possesses accounting or related financial management experience that qualifies him as an “audit committee financial expert” as defined by the rules and regulations of the SEC. 

Compensation Committee

Qingfeng Li, John Chen and Gentu Ge will be members of our Compensation Committee and Qingfeng Li shall be the chairman.  All members of our Compensation Committee will be qualified as independent under the current definition promulgated by Nasdaq. We intend to adopt a charter for the Compensation Committee prior to consummation of this offering. In accordance with the Compensation Committee’s Charter, the Compensation Committee shall be responsible for overseeing and making recommendations to the Board regarding the salaries and other compensation of our executive officers and general employees and providing assistance and recommendations with respect to our compensation policies and practices. 

Nominating and Corporate Governance Committee

Gentu Ge, Qingfeng Li and John Chen will be members of our Nominating and Corporate Governance Committee and Gentu Ge shall be the chairman.  All members of our Nominating and Corporate Governance Committee will be qualified as independent under the current definition promulgated by Nasdaq. We intend to adopt a charter for the Nominating and Corporate Governance Committee prior to consummation of this offering. In accordance with its charter, the Nominating and Corporate Governance Committee shall be responsible for identifying and proposing new potential director nominees to the board of directors for consideration and reviewing our corporate governance policies.

Director Independence

Our Board reviewed the materiality of any relationship that each of our proposed directors has with us, either directly or indirectly. Based on this review, it is determined that Gentu Ge, Qingfeng Li and John Chen will be “independent directors” as defined by Nasdaq.

Code of Ethics

Effective upon consummation of this offering, we will adopt a code of ethics that applies to all of our executive officers, directors and employees. The code of ethics codifies the business and ethical principles that govern all aspects of our business.

Family Relationships

There is no family relationship among any of our directors or executive officers.

Duties of Directors

Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association as amended and restated from time to time, and the class rights vested thereunder in the holders of the shares. Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:

Our company has the right to seek damages if a duty owed by our directors is breached. A shareholder may in certain limited exceptional circumstances have the right to seek damages in our name if a duty owed by our directors is breached. You should refer to “Description of Share Capital—Differences in Corporate Law” for additional information on our standard of corporate governance under Cayman Islands law.

Terms of Directors and Officers  

Our officers are elected by and serve at the discretion of the Board and the shareholders voting by ordinary resolution. Our directors are not subject to a set term of office and hold office until the next general meeting called for the election of directors and until their successor is duly elected or such time as they die, resign or are removed from office by a shareholders’ ordinary resolution or the unanimous written resolution of all shareholders.  A director will be removed from office automatically if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors generally or is found to be or becomes of unsound mind.

PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding the beneficial ownership of our ordinary shares as of the date of this prospectus by our officers, directors, and 5% or greater beneficial owners of ordinary shares. There is no other person or group of affiliated persons known by us to beneficially own more than 5% of our ordinary shares.

We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Unless otherwise indicated, the person identified in this table has sole voting and investment power with respect to all shares shown as beneficially owned by him, subject to applicable community property laws.

RELATED PARTY TRANSACTIONS

Other receivables - related parties

Other receivables - related parties are mostly nontrade receivables arising from transactions between the Company and certain related parties, such as advances to these related parties. These advances are unsecured, non-interest bearing and due on demand. The Company also advanced funds to related cooperatives for daily operating purposes, and those funds have been returned to the Company in 2018.

Other receivables – related parties consisted of the following:

Other payables – related parties

Other payables – related parties are those nontrade payables arising from transactions between the Company and certain related parties, such as advanced made by the related party on behalf of the Company. This advance is unsecured and non-interest bearing. Current payables are due on demand.

Other payables – related parties consisted of the following: