As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/01/22  Huake Holding Biology Co., Ltd.   F-1/A                  6:3.6M                                   EdgarAgents LLC/FA

Document/Exhibit                   Description                      Pages   Size 

 1: F-1/A       Amendment No. 11 to Form F-1                        HTML   2.16M 
 2: EX-4.1      Specimen Certificate for Class A Ordinary Shares    HTML      5K 
 3: EX-5.1      Opinion of Cayman Counsel Regarding the Validity    HTML     31K 
                of the Class A Ordinary Shares Being Registered                  
 4: EX-23.1     Consent of Prager Metis CPAs, LLC                   HTML      6K 
 5: EX-99.1     Code of Business Conduct and Ethics of the          HTML     82K 
                Registrant                                                       
 6: EX-99.2     Form of Opinion of Docvit Law Firm, People's        HTML     38K 
                Republic of China Counsel to the Registrant,                     
                Regarding Certain Prc Law Matters and the Validity               
                of the Vie Agreements                                            

 

PROSPECTUS SUMMARY

 

The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements included elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our Class A Ordinary Shares, discussed under “Risk Factors,” before deciding whether to buy our Class A Ordinary Shares.

 

Overview

 

We are incorporated in the Cayman Islands. As a holding company with no material operations of our own, we conduct our operations in China through our subsidiaries, and the consolidated variable interest entity, Aokai Fa.

 

This is an offering of the Class A Ordinary Shares of the Cayman Islands holding company. You are not directly investing in and may never hold equity interests of Aokai Fa, the VIE, in China. The VIE, WFOE, and the VIE’s shareholders entered into the VIE Agreements; as a result of which we are regarded as the primary beneficiary of Aokai Fa for accounting purpose, and, therefore, we are able to consolidate the financial results of Aokai Fa in our consolidated financial statements in accordance with U.S. GAAP. However, neither we nor our subsidiaries own any share in Aokai Fa, and the investors will not and may never directly hold equity interests in the VIE either. The VIE structure cannot completely replicate a foreign investment in China-based companies. Instead, the VIE structure provides contractual exposure to foreign investment in us.

 

We engage in the production and sales of Camellia Oil products in China through the VIE. Aokai Fa was founded in 2011 in Tangchi town, Shucheng county of the Anhui province in China. Aokai Fa is a large-scale producer of Camellia Oil in the Anhui province, and it is now one of the leading enterprises of forestry and agricultural industrialization in Anhui province. We integrate scientific research, farming, production, and sales. Our goal is to become a leading Camellia Oil producer in the PRC and to develop “Aokai Fa” into a leading brand in the Camellia Oil industry in the PRC.

 

Aokai Fa guarantees the quality of its Camellia Oil through a vertically integrated system which starts from the farms and moves all the way through production and sales. Aokai Fa has established a standard laboratory with professional laboratory personnel. In the production process, sampling and testing are carried out in accordance with the industry standards. Each batch of the finished products is tested in strict accordance with GB11765 National Standard for Camellia Seed Oil. The products are also sent to a qualified third-party testing agency for testing from time to time. Applying the multiple patents Aokai Fa holds in its production, Aokai Fa has perfected its production process. The products are produced in a sterile environment where Aokai Fa maintains strict control over its products’ quality at a much higher level than the national testing standards.

 

We maintain a strong and growing customer base through different channels of merchandising, including direct selling, sales exhibition, and franchising, etc. As of date of this prospectus, the Company has over 20 sales agents nationwide covering provinces including Beijing, Guangxi, and Fujian. We also export our goods to areas like Taiwan, Hong Kong, and Southeast Asia.

 

Over the years, we have maintained stable revenues and net income. For the years ended September 30, 2021 and 2020, the Company had revenue of $18,540,385 and $14,636,348, respectively, and had net income of $2,362,859 and $1,703,903, respectively. For the six months ended March 31, 2022 and 2021, the Company had revenue of $10,017,587 and $7,448,147, respectively, and had net income of $1,545,206 and $1,007,290, respectively.

 

Corporate History and Holding Company Structure  

 

Huake Holding Biology Co., LTD is an exempted company incorporated with limited liability under the laws of the Cayman Islands on February 15, 2019. Huake wholly owns Ruiyuan HK, a company incorporated under the laws of the Hong Kong S.A.R. of the PRC on March 19, 2019. Ruiyuan HK is the sole shareholder of Zhonguiyuan, a limited liability company formed under the laws of the PRC on May 24, 2019. Zhonguiyuan has entered into a series of VIE Agreements with Aokai Fa, a company established under the laws of the PRC on December 26, 2011, and Aokai Fa’s shareholders. Because of the VIE Agreements, we are regarded as the primary beneficiary of Aokai Fa for accounting purpose, and, therefore, we are able to consolidate the financial results of Aokai Fa in our consolidated financial statements in accordance with U.S. GAAP. However, neither we nor our subsidiaries own any share in Aokai Fa, and the investors will not and may never directly hold equity interests in the VIE either. The VIE structure cannot completely replicate a foreign investment in China-based companies. Instead, the VIE structure provides contractual exposure to foreign investment in us. Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of internet technology companies, and regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements because they have not been tested in a court of law.

 

On February 15, 2019, 20,000,000 ordinary shares were issued to our founder shareholders in connection with their entering into the VIE Agreements. On September 17, 2021, our shareholders and the Board of Directors adopted and approved an amendment to our amended and restated memorandum and articles of association, pursuant to which, among other matters, 10,122,000 ordinary shares were re-designated as Class A Ordinary Shares and 9,878,000 ordinary shares, of which 1,524,000 ordinary shares were beneficially owned by Mr. Tingyin Zhang, our former Chairman of the Board, and 8,354,000 were beneficially owned by Ms. Pingting Wang, our Chief Executive Officer and Chairperson, were re-designated as Class B Ordinary Shares on an one-for-one basis on the same date. As of the date of this prospectus, 10,122,000 Class A Ordinary Shares and 9,878,000 Class B Ordinary Shares are issued and outstanding.

 

 

VIE Agreements among WFOE, Aokai Fa and its shareholders

 

Huake Holding Biology Co., LTD is an exempted company incorporated with limited liability under the laws of the Cayman Islands on February 15, 2019. Huake wholly owns Ruiyuan HK, a company incorporated under the laws of the Hong Kong S.A.R. of the PRC on March 19, 2019. Ruiyuan HK is the sole shareholder of Zhonguiyuan, the wholly foreign owned entity, or the “WFOE”, a limited liability company formed under the laws of the PRC on May 24, 2019. The WFOE has entered into a series of VIE Agreements with Aokai Fa, a company established under the laws of the PRC on December 26, 2011, and Aokai Fa’s shareholders.

 

The Class A Ordinary Shares offered in this prospectus are those of the Cayman Islands holding company. You are not directly investing in and may never hold equity interests of Aokai Fa, the VIE in China.

 

As a holding company with no material operations of our own, we conduct our operations of the production and sales of Camellia Oil products in China through the variable interest entity, Aokai Fa. The research, farming, production and sales of Camellia Oil are categorized as “restricted” or “prohibited” from foreign investment under the “negative list” issued in 2020 by the National Development and Reform Commission and the Ministry of Commerce in China. As a result, neither we nor our subsidiaries own any equity interest in Aokai Fa. Instead, WFOE, Aokai Fa and its shareholders entered into a series of VIE Agreements, pursuant to which, we are regarded as the primary beneficiary of Aokai Fa for accounting purpose, and, therefore, we are able to consolidate the financial results of Aokai Fa in our consolidated financial statements in accordance with U.S. GAAP. However, neither we nor our subsidiaries own any share in Aokai Fa, and the investors will not and may never directly hold equity interests in the VIE either. The VIE structure cannot completely replicate a foreign investment in China-based companies. Instead, the VIE structure provides contractual exposure to foreign investment in us. Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of internet technology companies, and regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements because they have not been tested in a court of law.

 

Although we took every precaution available to effectively enforce the contractual and corporate relationship with the VIE, these VIE Agreements may still be less effective than direct ownership and that the Company may incur substantial costs to enforce the VIE Agreements. For example, the VIE and their shareholders could breach the VIE Agreements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. If we had direct ownership of the VIE, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIE, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the VIE Agreements, we rely on the performance by the VIE and their shareholders of their obligations under the contracts to exercise control over the VIE. The shareholders of our consolidated VIE may not act in the best interests of the Company or may not perform their obligations under the VIE Agreements. In addition, failure of the VIE shareholders to perform certain obligations could compel the Company to rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which may not be effective.

 

The VIE Agreements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce the VIE Agreements. In the event we are unable to enforce the VIE Agreements, we may not be able to exert effective control over our operating entities and we may be precluded from operating our business, which would have a material adverse effect on our financial condition and results of operations. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. See “Risk Factors – Risks Related to Our Corporate Structure” starting on page 47 of this prospectus for more information.

 

Because we do not directly hold equity interests in the VIE, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including, but not limited to, regulatory review of overseas listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations and the value of our Class A Ordinary Shares may depreciate significantly or become worthless. 

 

 

Each of the VIE Agreements is described in detail below:

 

Exclusive Business Cooperation Agreement

 

On August 18, 2019, WFOE and Aokai Fa executed the exclusive business cooperation agreement pursuant to which WFOE has agreed to provide Aokai Fa with technical support, consulting and other services. The parties agree that during the term of this agreement, where necessary, Aokai Fa may enter into further service agreements with WFOE or any other party designated by WFOE, which shall provide the specific contents, manner, personnel, and fees for the specific services. Aokai Fa has agreed to pay a monthly service fee to WFOE. The service fee for each month consists of a management fee and a fee for services provided, which is mutually determined by the parties based on: (i) complexity and difficulty of the services provided by WFOE; (ii) title of and time consumed by employees of WFOE providing the services; (iii) contents and value of the services provided by WFOE; (iv) market price of the same type of services; and (v) operational conditions of the Aokai Fa. In addition, if WFOE transfers technology to Aokai Fa or develops software or other technology as requested by Aokai Fa or leases equipment or properties to Aokai Fa, the technology transfer price, development fees or rent shall be determined by the parties based on the actual situation on a case by case basis.

  

On April 8, 2022, WFOE and Aokai Fa executed a supplementary agreement to the exclusive business cooperation agreement, which amended the “services fee” to be 100% of the VIE’s net income, which is the Aokai Fa’s before corporate income tax, being the monthly revenues after deduction of operating costs, expenses and other taxes.

 

If Aokai Fa materially breaches any term of this agreement or the supplementary agreement, WFOE has a right to terminate this agreement and the supplementary agreement, and/or require Aokai Fa to indemnify it for all damages. Unless otherwise required by applicable laws, Aokai Fa does not have any right to terminate the agreement or the supplementary agreement. The agreement and the supplementary agreement became effective upon execution by the parties. Unless terminated in accordance with the terms of this agreement and the supplementary agreement, the agreement and the supplementary agreement remain in full force and effect.

 

Exclusive Option Agreement

 

On May 25, 2019, the shareholders of Aokai Fa, Aokai Fa and WFOE executed the Exclusive Option Agreement pursuant to which the shareholders of Aokai Fa irrevocably granted WFOE or its designee an exclusive purchase option to acquire, at any time, in whole or in part Aokai Fa’s equity interest held by each shareholder of Aokai Fa, or any portion thereof, to the extent permitted by the PRC law. The purchase price for the shareholders’ equity interests in Aokai Fa is RMB 108,687,728, unless PRC Law requires a minimum price that is higher at the time of the exercise of the option.

 

The shareholders of Aokai Fa and Aokai Fa further agree that, without obtaining prior written consent of WFOE, they may not (1) supplement, change or amend the articles of association of Aokai Fa, increase or decrease its registered capital, or change its structure of registered capital in other manner; (2) sell, transfer, mortgage or dispose of in any manner any material assets of Aokai Fa or legal or any other beneficial interest in the material business or revenues of Aokai Fa of more than RMB 10,000,000, or allow the encumbrance thereon of any security interest; (3) incur, inherit, guarantee or suffer the existence of any debt, except for payables incurred in the ordinary course of business other than through loans, or cause Aokai Fa to provide any person with any loan or credit; (4) cause Aokai Fa to execute any major contract with a price greater than RMB 500,000, except for the contracts in the ordinary course of business; (5) cause or permit Aokai Fa to merge, consolidate with, acquire or invest in any person; (6) in any manner distribute dividends to its shareholders, provided that upon WFOE’s written request, Aokai Fa shall immediately distribute all distributable profits to its shareholders; (7) engage in any business in competition with WFOE or its affiliates; or (8) be dissolved or liquated without prior written consent by WFOE.

 

The shareholders of Aokai Fa have agreed that, without obtaining the prior written consent of WFOE, among other things, (1) they may not sell, transfer, mortgage or dispose of, in any other manner, any legal or beneficial interest in the equity interests in Aokai Fa held by them, or allow the encumbrance thereon, except for the interest placed in accordance with the shareholders’ Equity Interest Pledge Agreement and their Powers of Attorney, (2) they shall cause the shareholders and/or directors (or the executive director) of Aokai Fa not to approve any sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interests in Aokai Fa held by them as the shareholders, or allow the encumbrance thereon of any security interest, except for the interest placed in accordance with shareholders’ Equity Interest Pledge Agreement and the shareholders’ Powers of Attorney, and (3) they shall cause the shareholders and/or directors (or the executive director) of Aokai Fa not to approve the merger or consolidation with any person, or the acquisition of or investment in any person.

 

The shareholders of Aokai Fa shall (1) cause the shareholders’ and/or the directors (or the executive director) of Aokai Fa to vote their approval of the transfer of the optioned interests as set forth in this agreement and to take any and all other actions that may be requested by WFOE; (2) appoint any designee of WFOE as the director or the executive director of Aokai Fa, at the request of WFOE; (3) waive any right of first of refusal with respect to transferring of equity interest, and give consent to execution by each other shareholder of Aokai Fa with WFOE any agreements similar to the contractual arrangements and undertakes not to take any action in conflict with such agreements; and (4) promptly assign any profit, interest, dividend or proceeds of liquidation to WFOE or any other person designated by WFOE to the extent permitted under the applicable PRC laws;

 

The agreement became effective upon execution by the parties, and remains effective until all equity interests held by the shareholders of Aokai Fa have been transferred or assigned to WFOE and/or any other person designated by WFOE in accordance with the agreement.

 

 

Equity Interest Pledge Agreement

 

On May 25, 2019, the shareholders of Aokai Fa, Aokai Fa and WFOE executed the Equity Interest Pledge Agreement, pursuant to which the shareholders of Aokai Fa have agreed that without the prior written consent of WFOE, the shareholders of Aokai Fa may not directly or indirectly assign, sell, donate, pledge, encumber or otherwise dispose of, any interest in the equity interest of Aokai Fa which they hold. Pursuant to the terms of the agreement, in the event that either Aokai Fa or its shareholders are in breach of their obligations under the Exclusive Business Cooperation Agreement, Exclusive Option Agreement and/or the Powers of Attorney (the “Transaction Documents”) and/or the Equity Interest Pledge Agreement, then WFOE has a right to request the shareholders of Aokai Fa to transfer all or part of the equity interest they hold to any other person designated by WFOE at a minimum price allowed by the applicable PRC laws and regulations.

 

Upon the fulfillment of all obligations under the Transaction Documents, this agreement will be deemed completed and terminated.

 

Powers of Attorney

 

On May 25, 2019, each shareholder of Aokai Fa has executed an irrevocable power of attorney to appoint WFOE the or the authorized personnel of WFOE as its attorney-in-fact to exercise all of its rights as an equity owner of Aokai Fa, including (1) the right to attend shareholders and employees’ meetings of Aokai Fa; (2) the voting rights and any other rights that a shareholder of Aokai Fa is entitled to under the laws of China and Aokai Fa’s Articles of Association, including but not limited to the right to sell, transfer, pledge or dispose of shareholder’s equity interest in part or in whole; and (3) the designation and appointment of a legal representative, directors, supervisors, a chief executive officer and other senior management members of Aokai Fa.

 

Spousal Consent Letters

 

The spouse of each married shareholder of Aokai Fa executed a Spousal Consent Letter on May 25, 2019. Pursuant to the Spousal Consent Letter, the shareholder’s spouse has agreed to the execution of the Exclusive Option Agreement, Equity Interest Pledge Agreement, Power of Attorney and the disposal of the equity interests held by the shareholder in Aokai Fa pursuant to those agreements. The spouse of the shareholder agreed that he/she shall not assert any interests in such equity interests in Aokai Fa held by the shareholder, and if he/she obtains any such equity interests, he/she shall be bound by the Exclusive Option Agreement, Equity Interest Pledge Agreement, Power of Attorney and the Exclusive Business Cooperation Agreement. 

 

 

The following diagram illustrates our corporate structure:

 

Organizational chart

 

 

Consolidation

 

We conduct substantially all of our business in China via Aokai Fa, the VIE, due to PRC legal restrictions of foreign ownership in certain sectors. Substantially all of Huake Holding Biology Co., LTD’s revenues, costs and net income in China are directly or indirectly generated through Aokai Fa. Huake Holding Biology Co., LTD through its indirect subsidiary, Zhongruiyuan, has signed various agreements with Aokai Fa and shareholders of Aokai Fa to allow the transfer of economic benefits from Aokai Fa to Zhongruiyuan and to direct the activities of Aokai Fa. However, Zhongruiyuan does not have any direct or indirect ownership of Aokai Fa. As a result, our shareholders are not investing in Aokai Fa, but instead are investing in Huake Holding Biology Co., LTD

 

The following is a selected condensed consolidating schedule depicting the financial position as of September 30, 2021 and 2020, cash flows and results of operations for the year ended September 30, 2021 and 2020, and a selected condensed consolidating schedule depicting the financial position as of March 31, 2022, cash flows and results of operations for the six months ended March 31, 2022 and 2021 for Huake Holding Biology Co., LTD, our subsidiaries, the VIE and corresponding eliminating adjustments.

 

 

Selected Condensed Consolidation Schedule of Balance Sheet

As of September 30, 2021 (Restated)

 

		Parent and Hong Kong				WFOE				VIE				Elimination Entries and Reclassification Entries				Consolidated
		(As Restated)				(As Restated)				(As Restated)				(As Restated)				(As Restated)
Cash		$	-			$	-			$	108,383			$	-			$	108,383
Intercompany receivable from VIE			-				4,868,297				-				(4,868,297	)			-
Total Current Assets			-				4,868,297				20,243,861				(4,868,297	)			20,243,861
Investment in Subsidiaries			4,868,297				-				-				(4,868,297	)			-
Total Non-current Assets			-				-				5,450,757				-				5,450,757
Intercompany payable to WFOE			-				-				4,868,297				(4,868,297	)			-
Total Liabilities			-				-				11,611,343				(4,868,297	)			6,743,046
Total Shareholders’ Equity			4,868,297				4,868,297				14,083,275				(4,868,297	)			18,951,572

 

*

Intercompany receivable from VIE and intercompany payable to WFOE represented the service fee payable to WFOE based on Exclusive Business Cooperation Agreement and its supplementary agreement. There has been no cash transaction between VIE and other entities.

  

 

Selected Condensed Consolidation Schedule of Comprehensive Income

For the year ended September 30, 2021 (Restated)

 

		Parent and Hong Kong				WFOE				VIE				Elimination Entries				Consolidated
		(As Restated)				(As Restated)				(As Restated)				(As Restated)				(As Restated)
Revenue		$	-			$	-			$	18,540,385			$	-			$	18,540,385
Cost of Goods Sold			-				-				15,146,691				-				15,146,691
Gross Profit			-				-				3,393,694				-				3,393,694
Service fee expense from VIE to WFOE											2,603,446				(2,603,446	)			-
Total operating expenses			-				-				3,450,242				(2,603,446	)			846,796
Operating Income			-				-				(56,548	)			2,603,446				2,546,898
Income from VIE			-				2,603,446				-				(2,603,446	)			-
Income from Equity Method Investment			2,603,446				-				-				(2,603,446	)			-
Net Income			2,603,446				2,603,446				(240,587	)			(2,603,446	)			2,362,859
Total Comprehensive Income		$	2,603,446			$	2,603,446			$	627,471			$	(2,603,446	)		$	3,230,917

  

 

Selected Condensed Consolidation Schedule of Cash Flows

For the year ended September 30, 2021 (Restated)

 

		Parent and Hong Kong				WFOE				VIE				Elimination Entries				Consolidated
		(As Restated)				(As Restated)				(As Restated)				(As Restated)				(As Restated)
OPERATING ACTIVITIES
Net income		$	2,603,446			$	2,603,446			$	(240,587	)		$	(2,603,446	)		$	2,362,859
Equity in earnings of subsidiaries			(2,603,446	)							-				2,603,446				-
Intercompany receivable / payable between WFOE and VIE							(2,603,446	)			2,603,446				-				-
Net cash provided by operating activities			-				-				2,321,156				-				2,321,156
Net cash used in investing activities			-				-				(2,422,394	)			-				(2,422,394	)
Net cash provided by financing activities			-				-				53,513				-				53,513

 

 

Selected Condensed Consolidation Schedule of Balance Sheet

As of September 30, 2020

 

		Parent and Hong Kong				WFOE				VIE				Elimination Entries and Reclassification Entries				Consolidated
Cash		$	-			$	-			$	148,596			$	-			$	148,596
Intercompany receivable from VIE			-				2,264,851				-				(2,264,851	)			-
Total Current Assets							2,264,851				18,021,453				(2,264,851	)			18,021,453
Investment in subsidiaries			2,264,851				-				-				(2,264,851	)			-
Total Non-current Assets			-				-				3,225,608				-				3,225,608
Intercompany payable to WFOE											2,264,851				(2,264,851	)			-
Total Liabilities			-				-				7,791,257				(2,264,851	)			5,526,406
Total Shareholders’ Equity			2,264,851				2,264,851				13,455,804				(2,264,851	)			15,720,655

 

*

Intercompany receivable from VIE and intercompany payable to WFOE represented the service fee payable to WFOE based on Exclusive Business Cooperation Agreement and its supplementary agreement. There has been no cash transaction between VIE and other entities.

 

 

Selected Condensed Consolidation Schedule of Comprehensive Income

For the year ended September 30, 2020

 

		Parent and Hong Kong				WFOE				VIE				Elimination Entries				Consolidated
Revenue		$	-			$	-			$	14,636,348			$	-			$	14,636,348
Cost of Goods Sold			-				-				11,650,058				-				11,650,058
Gross Profit			-				-				2,986,290				-				2,986,290
Service fee expense from VIE to WFOE											2,264,851				(2,264,851	)			-
Total operating expenses			-				-				3,088,494				(2,264,851	)			823,643
Operating Income			-				-				(102,204	)			2,264,851				2,162,647
Income from VIE			-				2,264,851				-				(2,264,851	)			-
Income from Equity Method Investment			2,264,851				-				-				(2,264,851	)			-
Net Income			2,264,851				2,264,851				(560,948	)			(2,264,851	)			1,703,903
Total Comprehensive Income		$	2,264,851			$	2,264,851			$	192,782			$	(2,264,851	)		$	2,457,633

 

 

Selected Condensed Consolidation Schedule of Cash Flows

For the year ended September 30, 2020

 

		Parent and Hong Kong				WFOE				VIE				Elimination Entries				Consolidated
OPERATING ACTIVITIES
Net income		$	2,264,851			$	2,264,851			$	(560,948	)		$	(2,264,851	)		$	1,703,903
Equity in earnings of subsidiaries			(2,264,851	)			-				-				2,264,851				-
Intercompany receivable / payable between WFOE and VIE							(2,264,851	)			2,264,851				-				-
Net cash provided by operating activities			-				-				1,485,793				-				1,485,793
Net cash used in investing activities			-				-				(1,349,337	)			-				(1,349,337	)
Net cash used in financing activities			-				-				(63,758	)			-				(63,758	)

 

 

Selected Condensed Consolidation Schedule of Balance Sheet

As of March 31, 2022

 

		Parent and Hong Kong				WFOE				VIE				Elimination Entries and Reclassification Entries				Consolidated
Cash		$	-			$	-			$	149,029			$	-			$	149,029
Intercompany receivable from VIE			-				6,686,187				-				(6,686,187	)			-
Total Current Assets			-				6,686,187				22,819,312				(6,686,187	)			22,819,312
Investment in Subsidiaries			6,686,187				-				-				(6,686,187	)			-
Total Non-current Assets			-				-				5,907,389				-				5,907,389
Intercompany payable to WFOE			-				-				6,686,187				(6,686,187	)			-
Total Liabilities			-				-				14,597,563				(6,686,187	)			7,911,376
Total Shareholders’ Equity			6,686,187				6,686,187				14,129,138				(6,686,187	)			20,815,325

 

*

Intercompany receivable from VIE and intercompany payable to WFOE represented the service fee payable to WFOE based on Exclusive Business Cooperation Agreement and its supplementary agreement. There has been no cash transaction between VIE and other entities.

 

 

Selected Condensed Consolidation Schedule of Comprehensive Income

For the six months ended March 31, 2022

 

		Parent and Hong Kong				WFOE				VIE				Elimination Entries				Consolidated
Revenue		$	-			$	-			$	10,017,587			$	-			$	10,017,587
Cost of Goods Sold			-				-				7,838,994				-				7,838,994
Gross Profit			-				-				2,178,593				-				2,178,593
Service fee expense from VIE to WFOE			-				-				1,817,890				(1,817,890	)			-
Total operating expenses			-				-				2,209,993				(1,817,890	)			392,103
Operating Income			-				-				(31,400	)			1,817,890				1,786,490
Income from VIE			-				1,817,890				-				(1,817,890	)			-
Income from Equity Method Investment			1,817,890				-				-				(1,817,890	)			-
Net Income			1,817,890				1,817,890				(272,684	)			(1,817,890	)			1,545,206
Total Comprehensive Income		$	1,817,890			$	1,817,890			$	45,863			$	(1,817,890	)		$	1,863,753

 

 

Selected Condensed Consolidation Schedule of Cash Flows

For the six months ended March 31, 2022

 

		Parent and Hong Kong				WFOE				VIE				Elimination Entries				Consolidated
OPERATING ACTIVITIES
Net income		$	1,817,890			$	1,817,890			$	(272,684	)		$	(1,817,890	)		$	1,545,206
Equity in earnings of subsidiaries			(1,817,890	)			-				-				1,817,890				-
Intercompany receivable / payable between WFOE and VIE							(1,817,890	)			1,817,890				-				-
Net cash provided by operating activities			-				-				477,812				-				477,812
Net cash used in investing activities			-				-				(439,131	)			-				(439,131	)
Net cash provided by financing activities			-				-				-				-				-

 

 

Selected Condensed Consolidation Schedule of Comprehensive Income

For the six months ended March 31, 2021

 

		Parent and Hong Kong				WFOE				VIE				Elimination Entries				Consolidated
Revenue		$	-			$	-			$	7,448,147			$	-			$	7,448,147
Cost of Goods Sold			-				-				5,959,641				-				5,959,641
Gross Profit			-				-				1,488,506				-				1,488,506
Service fee expense from VIE to WFOE											1,000,456				(1,000,456	)			-
Total operating expenses			-				-				1,543,600				(1,000,456	)			543,144
Operating Income			-				-				(55,094	)			1,000,456				945,362
Income from VIE			-				1,000,456				-				(1,000,456	)			-
Income from Equity Method Investment			1,000,456				-				-				(1,000,456	)			-
Net Income			1,000,456				1,000,456				6,834				(1,000,456	)			1,007,290
Total Comprehensive Income		$	1,000,456			$	1,000,456			$	577,544			$	(1,000,456	)		$	1,578,000

  

 

Selected Condensed Consolidation Schedule of Cash Flows

For the six months ended March 31, 2021

 

		Parent and Hong Kong				WFOE				VIE				Elimination Entries				Consolidated
OPERATING ACTIVITIES
Net income		$	1,000,456			$	1,000,456			$	6,834			$	(1,000,456	)		$	1,007,290
Equity in earnings of subsidiaries			(1,000,456	)							-				1,000,456				-
Intercompany receivable / payable between WFOE and VIE							(1,000,456	)			1,000,456				-				-
Net cash provided by operating activities			-				-				2,111,172				-				2,111,172
Net cash used in investing activities			-				-				(2,255,288	)			-				(2,255,288	)
Net cash used in financing activities			-				-				(961	)			-				(961	)

 

 

Permission or Approval Required from the PRC Authorities for the VIE’s Operation and Our Offering

 

To operate our general business activities currently conducted in China, the consolidated VIE has obtained a business license from the State Administration for Market Regulation (“SAMR”), which allows it to conduct specific business within the government’s geographical jurisdiction. As of the date of this prospectus, the business license is the only permission that the VIE is required to obtain for its operations. The VIE does not need specific licenses for the Camellia Oil business nor is it covered by permissions requirements from the China Securities Regulatory Commission (“CSRC”) or CAC.

 

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

 

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

 

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

 

On December 24, 2021, the China Securities Regulatory Commission issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Administration Provisions”), and the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Measures”), both of which have a comment period that expired on January 23, 2022. The Administration Provisions and Measures for overseas listings lay out specific requirements for filing documents and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. Domestic companies seeking to list abroad must carry out relevant security screening procedures if their businesses involve such supervision. Companies endangering national security are among those off-limits for overseas listings. According to Relevant Officials of the CSRC Answered Reporter Questions (“CSRC Answers”), after the Administration Provisions and Measures are implemented upon completion of public consultation and due legislative procedures, the CSRC will formulate and issue guidance for filing procedures to further specify the details of filing administration and ensure that market entities could refer to clear guidelines for filing, which means it still takes time to make the Administration Provisions and Measures into effect. As the Administration Provisions and Measures have not yet come into effect, we are currently unaffected. However, according to CSRC Answers, new initial public offerings and refinancing by existent overseas listed Chinese companies will be required to go through the filing process; other existent overseas listed companies will be allowed sufficient transition period to complete their filing procedure, which means we will certainly go through the filing process in the future. 

 

Pursuant to the PRC Cybersecurity Law, which was promulgated by the Standing Committee of the National People’s Congress on November 7, 2016 and took effect on June 1, 2017, personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affects or may affect national security, it should be subject to cybersecurity review by the CAC. Due to the lack of further interpretations, the exact scope of “critical information infrastructure operator” remains unclear. On December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated the new Cybersecurity Review Measures to replace the original Cybersecurity Review Measures. The new Cybersecurity Review Measures took effect on February 15, 2022. Pursuant to the new Cybersecurity Review Measures, if critical information infrastructure operators purchase network products and services, or network platform operators conduct data processing activities that affect or may affect national security, they will be subject to cybersecurity review. On November 14, 2021, CAC published the Administration Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires cyberspace operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review. The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or a large amount of personal information being influenced, controlled or maliciously used by foreign governments and risk of network data security after going public overseas. As advised by our PRC counsel, Beijing Docvit Law Firm, we do not expect to be subject to cybersecurity review, because: (i) our products are offered not directly to individual consumers but through our distributors; (ii) we do not possess a large amount of personal information in our business operations; and (iii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. exchange.  If applicable laws, regulations, or interpretations change, and we are required to obtain permission or approval from the PRC authority for the offering of our Class A Ordinary Shares in the U.S. in the future, and if any of such permission or approval were not received maintained, or subsequently rescinded, it may significantly limit or completely hinder our ability to complete this offering or cause the value of our Ordinary Shares to significantly decline or become worthless.  See “Risk Factors – Risks Related to Doing Business in the PRC” starting on page 29 of this prospectus and “Risk Factors – Risks Related to Our Corporate Structure” starting on page 47 of this prospectus for more information.

 

 

Dividend Distributions or Assets Transfer among the Holding Company, its Subsidiaries and the Consolidated VIE

 

We intend to keep any future earnings to re-invest in and finance the expansion of our business, and we do not anticipate that any cash dividends will be paid or any assets will be transferred in the foreseeable future. As of the date of this prospectus, the VIE has not remitted any services fees to WFOE. However, the VIE is obligated to pay a service fee equivalent to 100% of VIE’s net income after deduction of certain tax and operational expenses. As of the date of this prospectus, none of our subsidiaries or VIE have made any dividends or distributions to us and we has not made any dividends or distributions to our shareholders.

 

Under Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts due in the ordinary course of business. If we determine to pay dividends on any of our Class A Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong subsidiary, Ruiyuan HK.

 

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

 

The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations through the current VIE Agreements, we may be unable to pay dividends on our Class A Ordinary Shares.

 

Cash dividends, if any, on our Class A Ordinary Shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10.0%.

 

In order for us to pay dividends to our shareholders, we will rely on payments made from Aokai Fa to WFOE, pursuant to VIE Agreements between them, and the distribution of such payments to Ruiyuan HK as dividends from WFOE. Certain payments from our Aokai Fa to WFOE are subject to PRC taxes, including business taxes and VAT.  

 

Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC project. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC subsidiary to its immediate holding company, Ruiyuan HK. As of the date of this prospectus, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. Ruiyuan HK intends to apply for the tax resident certificate when WFOE plans to declare and pay dividends to Ruiyuan HK. See “Risk Factors - There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits” starting on page 37 of this prospectus for more information.

 

 

Main Products

 

Our main products include Camellia Oil and camellia oil cake (“Oil Cake”). Oil Cake is the residue after Camellia Oil is extracted from camellia oleifera, and it is widely used as pond cleaning agent, weed killer, bug killer, and organic fertilizer.

 

The following chart illustrates the revenues, gross profits and gross margins generated by these two main products for the six months ended March 31, 2022 and their growth rates comparing to those for the six months ended March 31, 2021: 

 

		Revenue (RMB)				Revenue (US$)				Revenue %				Growth (1)				Gross Profit (RMB)				Gross Profit (US$)				Gross Margin %				Growth(1)
Camellia Oil			61,305,817				9,625,054				96.08	%			33.33	%			13,480,037				2,116,375				21.99	%			46.16	%
Oil Cake			2,500,202				392,533				3.92	%			(11.45	)%			396,293				62,218				15.85	%			(25.32	)%
Total			63,806,019				10,017,587				100.00	%			30.74	%			13,876,330				2,178,593				21.75	%			42.27	%

 

The following chart illustrates the revenues, gross profits and gross margins generated by these two main products for the year ended September 30, 2021 and their growth rates comparing to those for the year ended September 30, 2020: 

 

		Revenue (RMB)				Revenue (US$)				Revenue %				Growth (1)				Gross Profit (RMB)				Gross Profit (US$)				Gross Margin %				Growth(1)
		(As Restated)				(As Restated)				(As Restated)				(As Restated)				(As Restated)				(As Restated)				(As Restated)				(As Restated)
Camellia Oil			115,642,235				17,771,428				95.85	%			20.20	%			21,202,303				3,258,283				18.33	%			7.20	%
Oil Cake			5,003,761				768,957				4.15	%			(20.95	)%			881,144				135,411				17.61	%			(22.85	)%
Total			120,645,996				18,540,385				100.00	%			17.66	%			22,083,447				3,393,694				18.30	%			5.56	%

 

(1)	The growth rates are calculated based on the RMB-denominated revenues and gross margins, excluding the exchange rates’ effects.

 

Growth Strategies

 

The Company will further improve on its product development and expects growth by implementing the following three strategies:

 

(1) Further developing new markets. With Anhui province as the starting point, we intend to break into first-tier cities by developing distribution channels and promoting sales on e-commerce platforms. To further boost selling and promote branding, we plan to open a few chain stores in China. At the same time, the Company is considering collaborating with exporting companies to re-design the packaging and re-position its products, hoping to expand our reach to the overseas markets.

 

(2) Launching cosmetic and personal care products. We are planning for the launch of a personal care product line, which will include cosmetics, personal care products, and hygiene products that feature Camellia Oil. Aokai Fa, the VIE registered two trademarks “Hongzhiyu” (虹之玉) and “Shuiyiyan” (水依言) for such cosmetic and personal health products.

 

(3) Developing medical products. We expect to work with pharmaceutical companies for the production of Camellia Oil Injection oils. The Camellia Oil Injections could be used as intravenous infused oil for critically ill patients who cannot eat and/or are going through hypermetabolism, and could facilitate the absorption of drugs by human bodies.

 

Our Competitive Strengths

 

We believe the following competitive strengths have contributed to, or will contribute to, our recent and ongoing growth:

 

Superior Location

 

The farmland where our camellia seeds are planted is located in Shucheng County, Lu’An City, Anhui Province, China, which is in the middle intersection between Dabie Mountain Range, Chaohu, and Jianghuai. To the southwest of the Company’s location is the Dabie Mountain which provides a superior geographical environment for cultivating high quality tea seeds. Being also a green tea production site, Shucheng provides the Company with superior raw materials with its rich tea tree resources. Located at a convenient location for transportation, Shucheng it is connected with the 206 National Highway, 105 National Highway, Shanghai-Chengdu Expressway, and the Hejiu Railway, all of which run throughout the territory and connect with other provinces as well. The newly built Deshang Expressway will also set up the Tangchi Exit, and the waterway transportation runs through Tongchao Lake and the Yangtze River. The convenient transportation systems at this location provide cost efficiency for the transportation of the Company’s products. According to our preliminary accounting estimates, this reduces our expenses in external procurement by approximately 1.4% compared with purchasing and transporting camellia seeds in Fujian province, one of the camellia seeds producing areas in China.

 

 

Dominant Producer of Camellia Oil

 

The camellia oil seeds are only grown in large scale in a few areas in China, for example, Hunan, Jiangxi and Hubei province. However, most of them are low-efficiency forests with an average output of less than 6 kg of Camellia Oil per mu. According to the National Camellia Industry Development Plan (2009-2020) issued by the PRC’s National Development and Reform Commission, the supply of camellia oil seeds was expected to increase after transforming low-yield forests and increasing the planting area of high-yield forests in China. During the transition period, we obtained our advantage by maintaining stable raw material procurement channels.

 

In addition, compared with other regions in China, the oil-producing rate of camellia oil seeds is among the highest in the Dabie mountain area where our factory is located, and the utilization efficiency of camellia seeds is close to 100%. Aokai Fa has a close relationship with local agricultural cooperatives, and has contracted for the purchase of 90% of the raw materials of camellia seeds in the Dabie Mountain production area. We believe that we are one of the largest producers of Camellia Oil in Anhui. We also obtained a food production license for the production of edible vegetable oil from the Food and Drug Administration of Lu’an City, Anhui Province, and expect to produce blended edible oil products that contain Camellia Oil as one of the major ingredients.

 

Currently in China, most of the edible vegetable oil brands are located in Hunan and Jiangxi provinces. Our competitors include some well-known brands, Jinhao “金浩”, Jintuotian “金拓天”, Lvhai “绿海” from Hunan and Jiangxi provinces. We believe that being the dominant producer in Anhui province and having stronger vertically integrated production capabilities will provide us with advantages in pricing and distribution of our products and spur further growth.

 

Strong Relationship with Key Distributors

 

As of the date of this prospectus, Aokai Fa has entered into distribution agreement with 12 distributors, the term of which started in March 2021 and ends in March 2023. Each distributor has its designated distribution area(s). Aokai Fa agreed to provide the products at a price not more than the then market price and not more than 90% of price offered by the competitive companies of Aokai Fa. There is no minimum purchase commitments under the distributor agreements. We conduct our sales primarily through our distributors, who collectively control a direct sales force to promote and sell our Camellia Oil products. Compared to health and nutrition products that are distributed through traditional market channels, these personal marketing efforts are supported by various mediums, including our marketing flyers, websites, and events. We believe our distribution channel is an effective vehicle to distribute our products because:

 

	●	our distributors can educate consumers about our products face-to-face, which we believe is more effective for differentiating our products than using traditional mass-media advertising;
	●	our distribution channel allows for actual product demonstrations and trial by potential consumers;
	●	our distribution channel allows the representatives to provide personal testimonials of product efficacy; and
	●	as compared to other distribution methods, our distributors have the opportunity to provide consumers with higher levels of service quality and encourage repeating purchases.

 

Reputable Brand

 

Our Camellia Oil products are distributed under the recognized brand name “Aokai Fa.” In addition, we believe that we are one of the largest producers of Camellia Oil in the Anhui province, and that we are recognized by customers as one of the leaders in the Camellia Oil industry in Anhui province. We believe that our reputable brand name will benefit our future expansion and growth efforts.

 

Stable and Low-Cost Raw Materials

 

We are a vertically integrated Camellia Oil producer. We entered into an agreement with the village committee of Shucheng County for the purchase of camellia seeds produced from approximately 4,000 mu (approximately 659 acres) of farmland for fair market price during the term of the agreement. The village committee is in charge of the production, harvesting, packaging, storage and transportation of the camellia seeds in accordance with the organic products standards. The farmland is maintained by the village committee and is not supposed to be assigned or transferred to any third party for other use. The camellia sees produced from such farmland will be sold exclusively to us.

 

Experienced Management

 

Our management team is led by our CEO, Pingting Wang, an industry expert on Camellia Oil products. Pingting Wang and Shuguang Chang co-founded our company and created the “Aokai Fa” brand with the vision of building our Company into a prominent Camellia Oil company in the health and wellness industry with diverse product offerings. Other members of our senior executive team are experienced in their areas of concentration, including manufacturing, marketing and sales, operations, financial management and cross-border business development.

 

Corporate Information

 

Our principle executive offices are located at Shuhe Road, Tangchi Town, Shucheng County, Lu’an City, Anhui Province, China. Our telephone number is +86 564 8242 222. Our principal website address is http://aokaifa.ns2.mfdns.com/. The information on, or accessible through, any of our websites is not a part of this prospectus, nor is such content incorporated by reference herein, and should not be relied upon in determining whether to make an investment in our Class A Ordinary Shares.

 

 

Implications of Our Being an “Emerging Growth Company”, a “Foreign Private Issuer” and a China-based Company

 

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company, we:

 

●

may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A;

 

●

are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives, which is commonly referred to as “compensation discussion and analysis”;

 

●

are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;

 

●

are not required to obtain a non-binding advisory vote from our shareholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on frequency” and “say-on-golden-parachute” votes);

 

●

are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;

 

●

are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act; and

 

●

will not be required to conduct an evaluation of our internal control over financial reporting for two years.

 

We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.

 

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 of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers. Moreover, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. In addition, as an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NASDAQ listing standards. As such, we may rely on home country practice to be exempted from the corporate governance requirements that we have a majority of independent directors on our board of directors and the audit committee of our board of directors has a minimum of three members. These practices may afford less protection to shareholders than they would enjoy if we complied fully with the NASDAQ listing standards. However, following this offering, we will voluntarily have a majority of independent directors and our audit committee will consist of three independent directors.

 

We are incorporated in the Cayman Islands. As a holding company with no material operations of our own, we conduct our operations in China through the VIE, Aokai Fa. This is an offering of the Class A Ordinary Shares of the Cayman Islands holding company. You are not investing in Aokai Fa. Neither we nor our subsidiaries own any share in Aokai Fa. WFOE, Aokai Fa and its shareholders entered into a series of VIE Agreements, pursuant to which, we are regarded as the primary beneficiary of Aokai Fa for accounting purpose, and, therefore, we are able to consolidate the financial results of Aokai Fa in our consolidated financial statements in accordance with U.S. GAAP. However, neither we nor our subsidiaries own any share in Aokai Fa, and that the investors will not and may never directly hold equity interests in the VIE either. The VIE structure cannot completely replicate a foreign investment in China-based companies. Instead, the VIE structure provides contractual exposure to foreign investment in us. Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of internet technology companies, and regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements because they have not been tested in a court of law. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard. The VIE Agreements may not be effective in providing control over Aokai Fa. We may also subject to sanctions imposed by PRC regulatory agencies including Chinese Securities Regulatory Commission if we fail to comply with their rules and regulations.

 

 

Summary of Risk Factors

 

Investing in our Class A Ordinary Shares involves significant risks. You should carefully consider all of the information in this prospectus before making an investment in our Class A Ordinary Shares. Below please find a summary of the principal risks we face, organized under relevant headings. These risks are discussed more fully in the section titled “Risk factors” beginning on page 29 of this prospectus for more information.

 

Risks Related to Doing Business in the PRC

 

We face risks and uncertainties relating to doing business in the PRC in general, including, but not limited to, the following:

 

●

Our ordinary shares may be delisted under the HFCA Act if the PCAOB is unable to inspect our auditors. The delisting of our ordinary shares, or the threat of their being delisted, may materially and adversely affect the value of your investment. Furthermore, on June 22, 2021, the U.S. Senate passed the AHFCA Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, which would reduce the time before our securities may be prohibited from trading or be delisted. See more detailed discussion of this risk factor on page 29 of this prospectus.

  

●

Even though our auditor is based in Hackensack, New Jersey and under full inspection by the PCAOB and that it is not currently subject to the determinations announced by the PCAOB on December 16, 2021, if  any PRC law relating to the access of the PCAOB to auditor files were to apply to a company such as Aokai Fa or its auditor, the PCAOB may be unable to fully inspect our auditor, which may result in our securities being delisted or prohibited from being traded “over-the-counter” pursuant to the HFCA Act and materially and adversely affect the value and/or liquidity of your investment. See more detailed discussion of this risk factor on page 29 of this prospectus.

 

	●	The uncertainties with respect to the Chinese legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us. See more detailed discussion of this risk factor on page 31 of this prospectus.
	●	Changes in China’s economic, political, or social conditions could have a material adverse effect on our business and operations. See more detailed discussion of this risk factor on page 31 of this prospectus.

 

	●	Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment. See more detailed discussion of this risk factor on page 33 of this prospectus.
	●	The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. See more detailed discussion of this risk factor on page 49 of this prospectus.
	●	You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in the prospectus based on foreign laws. See more detailed discussion of this risk factor on page 50 of this prospectus.

 

●

PRC regulation of parent/subsidiary loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC operating subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business. See more detailed discussion of this risk factor on page 51 of this prospectus.

 

Risks Related to Our Business and Industry

 

Risks and uncertainties related to our business and industry include, but are not limited to, the following:

 

●

Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations. See more detailed discussion of this risk factor on page 39 of this prospectus.

 

●

We are significantly dependent on the revenues from our trading business of Camellia Oil and, therefore, our results of operations could be negatively impacted if we are unable to sell a sufficient amount of Camellia Oil at satisfactory margins. See more detailed discussion of this risk factor on page 40 of this prospectus.

  

●

If we fail to effectively promote our brands, particularly our brand “Aokai Fa” (“奥凯发”), our business, financial condition and results of operations may be materially and adversely affected. See more detailed discussion of this risk factor on page 40 of this prospectus.

 

 

Risks Related to Our Corporate Structure

 

We are also subject to risks and uncertainties related to our corporate structure, including, but are not limited to, the following:

 

●

We may have difficulty in enforcing any rights we may have under the VIE Agreements in PRC. See more detailed discussion of this risk factor on page 35 of this prospectus.

 

●

Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of the securities we are registering for sale. Any actions by Chinese government, including any decision to intervene or influence our operations or to exert control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, which could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or be worthless. See more detailed discussion of this risk factor on page 36 of this prospectus.

 

●

We are a holding company and will rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our ordinary shares. See more detailed discussion of this risk factor on page 36 of this prospectus.

 

●

We do not have direct ownership of the VIE in China and rely on VIE Agreements with the VIE in China for our business operations, which may not be as effective in providing operational control or enabling us to derive economic benefits as through ownership of controlling equity interests. See more detailed discussion of this risk factor on page 47 of this prospectus.

 

●

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

 

●

The approval of the CSRC and other compliance procedures may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval. As a result, both you and us face uncertainty about future actions by the PRC government that could significantly affect our financial performance and the enforceability of the VIE Agreements. See more detailed discussion of this risk factor on page 48 of this prospectus.

 

	●	The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States. See more detailed discussion of this risk factor on page 52 of this prospectus.
	●	Our dual class structure concentrates a majority of voting power in Ms. Pingitng Wang, our Chief Executive Officer and Chairperson of the Board, who is major owner of our Class B Ordinary Shares. See more detailed discussion of this risk factor on page 52 of this prospectus.

 

●

Any future issuances of Class B Ordinary Shares may be dilutive to the voting power of the holders of Class A Ordinary Shares. See more detailed discussion of this risk factor on page 53 of this prospectus.

 

Risks Relating to this Offering and the Trading Market

 

In addition to the risks described above, we are subject to general risks and uncertainties relating to this offering and the trading market, including, but not limited to, the following:

 

●

The initial public offering price for our Class A Ordinary Shares may not be indicative of prices that will prevail in the trading market and such market prices may be volatile. See more detailed discussion of this risk factor on page 53 of this prospectus.

 

●

You will experience immediate and substantial dilution in the net tangible book value of Class A Ordinary Shares purchased. See more detailed discussion of this risk factor on page 54 of this prospectus.

 

	●	We incur significantly increased costs as a result of operating as a public company, and our management has no prior experience in managing and operating a public company and required to devote substantial time to compliance initiatives and reporting requirements associated therewith. See more detailed discussion of this risk factor on page 55 of this prospectus.
	●	As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain Nasdaq Stock Exchange corporate governance standards applicable to domestic U.S. issuers. This may afford less protection to holders of our shares. See more detailed discussion of this risk factor on page 57 of this prospectus.
	●	We are and will be a “controlled company” within the meaning of the Nasdaq listing requirements upon the closing of this offering and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to shareholders of companies that are subject to such requirements. See more detailed discussion of this risk factor on page 57 of this prospectus.

 

 

THE OFFERING

 

Issuer		Huake Holding Biology Co., LTD
Class A Ordinary Shares offered by us		5,000,000 Class A Ordinary Shares
Over-allotment option		We have granted the Representative a 45-day option to purchase up to an additional 750,000 Class A Ordinary Shares from us to cover over-allotments, if any. Except as otherwise noted, all information in this prospectus reflects and assumes no exercise of the over-allotment option.
Price per Class A Ordinary Share		We currently estimate that the initial public offering price will be between $4 and $6 per Class A Ordinary Share.
Ordinary shares issued and outstanding prior to completion of this offering		10,122,000 Class A Ordinary Shares and 9,878,000 Class B Ordinary Shares

 

Ordinary shares outstanding immediately after this offering		15,122,000 Class A Ordinary Shares and 9,878,000 Class B Ordinary Shares
Listing		We have applied to list our Class A Ordinary Shares listed on Nasdaq Capital Market. There is no public market for our Class B Ordinary Shares.
Nasdaq Capital Market symbol		We have reserved the symbol “HUAK” for purposes of listing our Class A Ordinary Shares on Nasdaq Capital Market.
Transfer Agent		Vstock Transfer Agent, LLC
Lock up		Each of our executive officers and directors and 5% or more holders of all of our shares outstanding prior to the effective date of this offering, have agreed with the Underwriter not to directly or indirectly sell, offer, contract or grant any option to sell, pledge, transfer (excluding intra-family transfers, transfers to a trust for estate planning purposes or to beneficiaries of officers, directors and shareholders upon their death), or otherwise dispose of or enter into any transaction which may result in the disposition of any ordinary shares or securities convertible into, exchangeable or exercisable for any ordinary shares, without the prior written consent of the Representative, as representative of the Underwriters, for a period of 180 days from the date of this prospectus.   The Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of 180 days from the date of this prospectus (the “Lock-Up Period”) (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or caused to be filed any registration statement with the SEC relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, other than entering into a line of credit with a traditional bank or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii), (iii) or (iv) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise.
Use of proceeds		We intend to use the proceeds from this offering for research and development purpose, marketing and promotion of our brand and products, working capital and general corporate purposes. See “Use of Proceeds” starting on page 62 of this prospectus for more information.
Risk factors		The Class A Ordinary Shares offered hereby involve a high degree of risk. You should read “Risk Factors,” for a discussion of factors to consider before deciding to invest in our Class A Ordinary Shares.

 

 

Summary Financial Data

 

The following tables set forth selected historical statements of operations for the years ended September 30, 2021 and 2020, and balance sheet data as of September 30, 2021 and 2020, which have been derived from our audited financial statements for those periods. The following summary consolidated financial data for the six months ended March 31, 2022 and 2021, have been derived from our unaudited consolidated interim financial statements included elsewhere in this prospectus and have been prepared on the same basis as our audited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read this data together with our consolidated financial statements and related notes appearing elsewhere in this prospectus as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere in the prospectus.

 

Selected Statements of Operations Information: 

  

		For the Year ended September 30, 2021 (As Restated)								For the Year ended September 30, 2020								Amount				Percentage
Statement of Operations Data:		Amount				As % of Sales				Amount				As % of Sales				Increase (Decrease)				Increase (Decrease)
Revenue		$	18,540,385				100.0	%		$	14,636,348				100.0	%		$	3,904,037				26.7	%
Cost of Goods Sold			15,146,691				81.7	%			11,650,058				79.6	%			3,496,633				30.0	%
Gross Profit			3,393,694				18.3	%			2,986,290				20.4	%			407,404				13.6	%
Operating expenses
Selling expenses			171,818				0.9	%			135,601				0.9	%			36,217				26.7	%
General and administrative expenses			506,302				2.7	%			688,042				4.7	%			(181,740	)			(26.4	)%
Loss on disposal of property and equipment			168,676				0.9	%			-				-				168,676				N/A
Total operating expenses			846,796				4.6	%			823,643				5.6	%			23,153				2.8	%
Operating Income			2,546,898				13.7	%			2,162,647				14.8	%			384,251				17.8	%
Other income
Subsidy income			56,548				0.3	%			2,284				-				54,264				2,375.8	%
Collection of bad debt			-				-				99,920				0.7	%			(99,920	)			(100.0	)%
Total other income			56,548				0.3	%			102,204				0.7	%			(45,656	)			(44.7	)%
Income before provision for income taxes			2,603,446				14.0	%			2,264,851				15.5	%			338,595				14.9	%
Provision for income taxes			240,587				1.3	%			560,948				3.8	%			(320,361	)			(57.1	)%
Net Income		$	2,362,859				12.7	%		$	1,703,903				11.6	%		$	658,956				38.7	%
Earnings Per Share, basic and diluted		$	0.12							$	0.09							$	0.03
Weighted average ordinary shares outstanding			20,000,000								20,000,000

 

 

Selected Balance Sheet Information:

 

		As of September 30, 2021 (As Restated)				As of September 30, 2020				Amount Increase				Percentage Increase
Statement of Balance Sheet Data:		Amount				Amount				(Decrease)				(Decrease)
Current Assets
Cash		$	15,264			$	148,596			$	(133,332	)			(89.7	)%
Restricted cash			93,119				-				93,119				N/A
Accounts receivable, net			7,965,813				5,377,732				2,588,081				48.1	%
Due from related parties			-				58,457				(58,457	)			(100.0	)%
Inventories			1,492,422				4,639,848				(3,147,426	)			(67.8	)%
Advance to suppliers			10,287,877				7,687,914				2,599,963				33.8	%
Prepaid expenses and other current assets			389,366				108,906				280,460				257.5	%
Total Current Assets			20,243,861				18,021,453				2,222,408				12.3	%
Deferred tax assets			25,606				114,938				(89,332	)			(77.7	)%
Deposit for property purchase			3,915,324				1,391,835				2,523,489				181.3	%
Property and equipment, net			1,509,827				1,718,835				(209,008	)			(12.2	)%
Total Assets		$	25,694,618			$	21,247,061			$	4,447,557				20.9	%
Current Liabilities
Accounts payable		$	250,294			$	166,898			$	83,396				50.0	%
Advance from customers			190,971				-				190,971				N/A
Taxes payable			5,991,493				5,159,927				831,566				16.1	%
Accrued expenses and other current liabilities			310,288				192,411				117,877				61.3	%
Due to related parties			-				7,170				(7,170	)			(100.0	)%
Total Current Liabilities			6,743,046				5,526,406				1,216,640				22.0	%
Total Liabilities			6,743,046				5,526,406				1,216,640				22.0	%
Shareholders’ Equity
Preferred shares, $0.0005 par value, 10,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2021 and 2020, respectively			-				-				-				N/A
Class A Ordinary Shares, $0.0005 par value, 70,000,000 shares authorized; 10,122,000 shares issued and outstanding as of September 30, 2021 and 2020, respectively			5,061				5,061				-				0.0	%
Class B Ordinary Shares, $0.0005 par value, 20,000,000 shares authorized; 9,878,000 shares issued and outstanding as of September 30, 2021 and 2020, respectively			4,939				4,939				-				0.0	%
Additional paid in capital			6,649,038				6,649,038				-				0.0	%
Retained earnings			11,741,198				9,378,339				2,362,859				25.2	%
Accumulated other comprehensive income (loss)			551,336				(316,722	)			868,058				(274.1	)%
Total Shareholders’ Equity			18,951,572				15,720,655				3,230,917				20.6	%
Total Liabilities and Shareholders’ Equity		$	25,694,618			$	21,247,061			$	4,447,557				20.9	%

 

 

Selected Statements of Operations Information: 

  

		For the Six Months ended March 31, 2022								For the Six Months ended March 31, 2021								Amount				Percentage
Statement of Operations Data:		Amount				As % of Sales				Amount				As % of Sales				Increase (Decrease)				Increase (Decrease)
Revenue		$	10,017,587				100.0	%		$	7,448,147				100.0	%		$	2,569,440				34.5	%
Cost of Goods Sold			7,838,994				78.3	%			5,959,641				80.0	%			1,879,353				31.5	%
Gross Profit			2,178,593				21.7	%			1,488,506				20.0	%			690,087				46.4	%
Operating expenses
Selling expenses			107,688				1.1	%			81,388				1.1	%			26,300				32.3	%
General and administrative expenses			282,583				2.8	%			291,960				3.9	%			(9,377	)			(3.2	)%
Loss on disposal of property and equipment			1,832				0.0	%			169,796				2.3	%			(167,964	)			(98.9	)%
Total operating expenses			392,103				3.9	%			543,144				7.3	%			(151,041	)			(27.8	)%
Operating Income			1,786,490				17.8	%			945,362				12.7	%			841,128				89.0	%
Other income
Subsidy income			31,400				0.3	%			55,094				0.7	%			(23,694	)			(43.0	)%
Total other income			31,400				0.3	%			55,094				0.7	%			(23,694	)			(43.0	)%
Income before provision for income taxes			1,817,890				18.1	%			1,000,456				13.4	%			817,434				81.7	%
Provision for income taxes			272,684				2.7	%			(6,834	)			(0.1	)%			279,518				4,090.1	%
Net Income		$	1,545,206				15.4	%		$	1,007,290				13.5	%		$	537,916				53.4	%
Earnings Per Share, basic and diluted		$	0.08							$	0.05							$	0.03
Weighted average ordinary shares outstanding			20,000,000								20,000,000

 

 

Selected Balance Sheet Information:

 

		As of March 31, 2022				As of September 30, 2021 (As Restated)				Amount Increase				Percentage Increase
Statement of Balance Sheet Data:		Amount				Amount				(Decrease)				(Decrease)
Current Assets
Cash		$	54,381			$	15,264			$	39,117				256.3	%
Restricted cash			94,648				93,119				1,529				1.6	%
Accounts receivable, net			7,394,591				7,965,813				(571,222	)			(7.2	)%
Inventories			13,572,437				1,492,422				12,080,015				809.4	%
Advance to suppliers			1,270,210				10,287,877				(9,017,667	)			(87.7	)%
Prepaid expenses and other current assets			433,045				389,366				43,679				11.2	%
Total Current Assets			22,819,312				20,243,861				2,575,451				12.7	%
Deferred tax assets			16,350				25,606				(9,256	)			(36.1	)%
Deposit for property purchase			4,421,308				3,915,324				505,984				12.9	%
Property and equipment, net			1,469,731				1,509,827				(40,096	)			(2.7	)%
Total Assets		$	28,726,701			$	25,694,618			$	3,032,083				11.8	%
Current Liabilities
Accounts payable		$	988,879			$	250,294			$	738,585				295.1	%
Advance from customers			-				190,971				190,971				100.0	%
Taxes payable			6,554,308				5,991,493				562,815				9.4	%
Accrued expenses and other current liabilities			368,189				310,288				57,901				18.7	%
Total Current Liabilities			7,911,376				6,743,046				1,168,330				17.3	%
Total Liabilities			7,911,376				6,743,046				1,168,330				17.3	%
Shareholders’ Equity
Preferred shares, $0.0005 par value, 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively			-				-				-				N/A
Class A Ordinary Shares, $0.0005 par value, 70,000,000 shares authorized; 10,122,000 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively			5,061				5,061				-				0.0	%
Class B Ordinary Shares, $0.0005 par value, 20,000,000 shares authorized; 9,878,000 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively			4,939				4,939				-				0.0	%
Additional paid in capital			6,649,038				6,649,038				-				0.0	%
Retained earnings			13,286,404				11,741,198				1,545,206				13.2	%
Accumulated other comprehensive income			869,883				551,336				318,547				57.8	%
Total Shareholders’ Equity			20,815,325				18,951,572				1,863,753				9.8	%
Total Liabilities and Shareholders’ Equity		$	28,726,701			$	25,694,618			$	3,032,083				11.8	%