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Loha Co. Ltd. – IPO: ‘F-1/A’ on 12/23/21

On:  Thursday, 12/23/21, at 10:36am ET   ·   Accession #:  1213900-21-67191   ·   File #:  333-235426

Previous ‘F-1’:  ‘F-1/A’ on 11/26/21   ·   Latest ‘F-1’:  This Filing   ·   5 References:   To:  Loha Co. Ltd. – ‘F-1/A’ on 4/9/21 To:  Loha Co. Ltd. – ‘F-1/A’ on 12/18/20 To:  Loha Co. Ltd. – ‘F-1/A’ on 12/4/20 To:  Loha Co. Ltd. – ‘F-1/A’ on 3/27/20 To:  Loha Co. Ltd. – ‘F-1’ on 12/9/19 

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

12/23/21  Loha Co. Ltd.                     F-1/A                  2:2.9M                                   EdgarAgents LLC/FA

Document/Exhibit                   Description                      Pages   Size 

 1: F-1/A       Amendment No. 13 to Form F-1                        HTML   1.52M 
 2: EX-23.1     Consent of Marcum Bernstein & Pinchuk LLP           HTML      6K 

As filed with the Securities and Exchange Commission on December 23, 2021

Registration No. 333-235426

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 13 TO

FORM F-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

LOHA CO. LTD

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s Name into English)

Room 2212A, 22nd Floor, Xiangjiang Financial Center (Industrial Zone)

Unit 19, 3rd Street, Xinghai Avenue, Nanshan District

Shenzhen, Guangdong Province 518066

People’s Republic of China
+86 0755- 26647288

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

Cogency Global Inc.

122 East 42nd Street, 18th Floor

New York, N.Y. 10168

(800)221-0102

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

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

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

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, 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 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 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. These securities may not be sold 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 it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED DECEMBER 23, 2021

LOHA CO. LTD

2,500,000 Class A Ordinary Shares

This is the initial public offering of Loha Co. Ltd, a Cayman Islands exempted company with limited liability. Our principal place of business is in Shenzhen, China. We are offering on a firm commitment basis 2,500,000 Class A ordinary shares, par value $0.0002 per share. It is currently expected that the initial public offering price will be between $8.00 and $10.00 per Class A ordinary share.

Our issued and outstanding share capital consists of Class A ordinary shares and Class B ordinary shares. Class B ordinary shares are convertible at the option of the holder into Class A ordinary shares on a 1:1 basis and are entitled to five (5) votes per share. Prior to this offering, there has been no public market for either our Class A ordinary shares or Class B ordinary shares.

Our Class A ordinary shares have been approved for listing on the Nasdaq Capital Market under the symbol “LOHA.”

Investors are cautioned that you are not buying shares of a China-based operating company but instead are buying shares of a shell company issuer that maintains contractual arrangements with the associated operating company.

We are not a Chinese operating company but rather a holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own, we conduct our business in China through a variable interest entity, or the VIE, Lohas Agricultural, and its subsidiaries. We adopt the VIE structure, because Chinese law prohibits foreign investors from holding more than 50% of equity interests in value-added telecommunication businesses, and our indirectly wholly-owned Chinese subsidiary, Lohas World (Shenzhen) Intelligent Technology Co., Ltd., or Lohas WFOE, as a foreign invested enterprise under Chinese laws, is not eligible to operate a value-added telecommunication business in China. Instead, Lohas Agricultural and its subsidiaries are the Chinese operating companies. Lohas WFOE, Lohas Agricultural and Lohas Agricultural’s shareholders entered into a series of contractual agreements that establish the VIE structure, which we may refer to as the VIE agreements. We have evaluated the guidance in FASB ASC 810 and determined that we are the primary beneficiary of the VIE, for accounting purposes, based upon such contractual arrangements. Accordingly, under U.S. GAAP, the results of the VIE are consolidated in our financial statements. However, investors will not and may never directly hold equity interests in the Chinese operating companies. Uncertainties exist as to our ability to enforce the VIE agreements, and the VIE agreements have not been tested in a court of law. The Chinese regulatory authorities could disallow this VIE structure, which would likely result in a material change in our operations and the value of our Class A ordinary shares, including that it could cause the value of such securities to significantly decline or become worthless. See “Corporate History and Structure—Our Corporate Structure” for a summary of the contractual arrangements and “Risk Factors—Risks Related to Our Corporate Structure” for certain risks related to the contractual arrangements.

Cash is transferred through our organization in the manner as follows: (i) we may transfer funds to Lohas WFOE, through our BVI and/or Hong Kong subsidiaries, by additional capital contributions or shareholder loans, as the case may be; (ii) Lohas WFOE may provide loans to the VIE, subject to statutory limits and restrictions; (iii) funds from the VIE to Lohas WFOE are remitted as services fees; and (iv) Lohas WFOE may make dividends or other distributions to us through our Hong Kong and BVI subsidiaries. As a holding company, we may rely on dividends and other distributions on equity paid by Lohas WFOE for our cash and financing requirements. If Lohas WFOE incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to us. To date, we have not raised any capital, and thus, have not transferred funds to Lohas WFOE. In the future, however, cash proceeds raised from overseas financing activities, including this offering, may be transferred by us to Lohas WFOE via capital contribution or shareholder loans. As of the date of this prospectus, there have not been any such dividends or other distributions from Lohas WFOE to our Hong Kong or BVI subsidiaries. In addition, none of our subsidiaries have ever issued any dividends or distributions to us or their respective shareholders outside of China. As of the date of this prospectus, the VIE has not remitted any services fees to Lohas WFOE. We intend to distribute earnings or settle amounts owed under the VIE agreements. For more details, see “Summary Consolidated Financial Information—VIE Financial Information” and “Summary Consolidated Financial Information—Transfer of Cash Through our Organization.”

Investing in our Class A ordinary shares involves a high degree of risk. See “Risk Factors” beginning on page 14 of this prospectus for a discussion of information that should be considered in connection with an investment in our Class A ordinary shares. In particular, there are significant legal and operational risks associated with being based in or having the majority of operations in China, including that changes in the legal, political and economic policies of the Chinese government, the relations between China and the United States, or Chinese or United States regulations may materially and adversely affect our business, financial condition and results of operations. Any such changes could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors, and could cause the value of our securities to significantly decline or become worthless. Recent statements made and regulatory actions undertaken by Chinese government, such as the Opinions on Strictly Cracking Down on Illegal Securities Activities issued on July 6, 2021 by the Chinese government, and any other future laws and regulations could significantly limit or completely hinder our ability to conduct our business, accept foreign investments, or list on an U.S. or other foreign exchange. See “Risk Factors—Risks Related to Our Corporate Structure” and “Risk Factors—Risks Related to Doing Business in China” for a detailed discussion.

We are an “emerging growth company” as defined in the Jumpstart Our Business Act of 2012, as amended, and, as such, are eligible for reduced public company reporting requirements.

While we initially expect to be a “controlled company” under the rules of Nasdaq immediately after consummation of this offering, we do not intend to avail ourselves of the corporate governance exemptions afforded to a “controlled company” under the rules of Nasdaq.

In addition to the underwriting discounts listed above and the expense allowance described in the footnote, we have agreed to issue to the Representatives upon the closing of this offering warrants to purchase 7.5% of the total number of Class A ordinary shares being sold in this offering. The exercise price of the compensation warrants is equal to 120% of the initial public offering price of the shares offered hereby. Assuming the issuance of 2,500,000 Class A ordinary shares to the public, the exercise of the over-allotment option in full and an exercise price of $12.00 per Class A ordinary share, we would receive, in the aggregate, $2,587,500 upon exercise of the warrants, of which there can be no guarantee. The warrants are exercisable commencing six (6) months after the closing of this offering and will terminate five (5) years after the effective date of the registration statement for this offering of which this prospectus is a part. The registration statement of which this prospectus is a part also covers the Class A ordinary shares issuable upon the exercise thereof. For additional information regarding our arrangement with the underwriters, please see “Underwriting” beginning on page 145.

We have granted the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to an additional 375,000 shares on the same terms as the other shares being purchased by the underwriters from us.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the Class A ordinary shares to purchasers in this offering on or about [  ], 2021.

The date of this prospectus is [  ], 2021

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. Neither we, nor the underwriters have authorized anyone to provide you with different information. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus, or any free writing prospectus, as the case may be, or any sale of Class A ordinary shares.

For investors outside the United States: Neither we, nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the Class A ordinary shares and the distribution of this prospectus outside the United States.

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, you are cautioned not to give undue weight to this information.

COMMONLY USED DEFINED TERMS

Except as otherwise indicated by the context and for the purposes of this prospectus only, references in this prospectus to:

RISK FACTORS

The Class A ordinary shares being offered by us are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested. Before purchasing any of our shares, you should carefully consider the following factors relating to our business and prospects. You should pay particular attention to the fact that we conduct all of our operations through the VIE, or Lohas Agricultural in China which is governed by a legal and regulatory environment that in some respects differs significantly from the environment that may prevail in the U.S. and other countries. If any of the following risks actually occurs, our business, financial condition or operating results will suffer, the trading price of our shares could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

The outbreak of the coronavirus (COVID-19) worldwide has had a material adverse impact on Lohas Agricultural’s business, results of operations and financial condition.

Lohas Agricultural is vulnerable to health epidemics and natural disasters. Lohas Agricultural’s business has been and likely will be continuously adversely affected by the outbreak of the coronavirus around the world. The World Health Organization labeled the coronavirus a pandemic on March 11, 2020, after the disease spread globally. Given the high public health risks associated with the disease, governments around the globe have imposed various degrees of travel and gathering restrictions, temporary closure of facilities and other quarantine measures. The coronavirus outbreak has had a material adverse impact on the global economy.

Our operating VIE, or Lohas Agricultural, and the VIE’s subsidiaries are located in China, and also all of Lohas Agricultural’s employees and customers are located in China. So far, the outbreak has exerted the following adverse impacts on Lohas Agricultural’s operations and business. As Lohas Agricultural’s financial statements represent substantially all of our consolidated financial statements, such adverse impacts have been reflected in our consolidated financial statements:

Management and employees have been making every effort to mitigate the impacts of the epidemic on Lohas Agricultural’s business. As travel restrictions and quarantine measures were largely lifted in China as of late March 2020, Lohas Agricultural’s employees have returned to work since then. Lohas Agricultural has required its employees to wear masks at work and disinfected its offices regularly to keep its employees safe. Additionally, Lohas Agricultural has relied on its cold chain logistics system and disinfection measures to ensure the safety and freshness of its products. Lohas Agricultural also commenced live-stream shopping as a new channel to reach consumers, in an attempt to offset the adverse effect of COVID-19 on its operating results and financial condition.

The duration and intensity of disruptions resulting from the coronavirus pandemic is uncertain. It is unclear as to when the outbreak will be contained, and we also cannot predict if the impact will be short-lived or long-lasting. The extent to which the COVID-19 pandemic affects Lohas Agricultural’s operations and financial performance will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the coronavirus, such as the availability of effective vaccines or cure, among others.

Lohas Agricultural or Lohas Supply Chain is subject to debt default or guarantee obligations which may materially adversely affect their liquidity and financial condition.

As of the date of this prospectus, Lohas Agricultural, or its wholly-owned subsidiary, Lohas Supply Chain, is subject to three major debt agreements as either a borrower or a guarantor, including (i) a factoring agreement with Haier Factoring as borrower; (ii) a loan agreement with SPDB Bank as guarantor; and (iii) a credit facility agreement with WeBank as borrower. See “Risk Factors—Risks Related to Our Business and Industry—Lohas Agricultural has been involved in legal proceedings that demand it to assume guarantee obligations due to Shenzhen Lohas’s default on a bank loan in the principal amount of RMB22 million (approximately $3.08 million)” and “Risk Factors—Risks Related to Our Business and Industry—Lohas Supply Chain has defaulted on substantial amounts of indebtedness outstanding and if Lohas Supply Chain is unable to negotiate a repayment plan with the lender, its business may be harmed.”

As of March 31, 2021, Lohas Supply Chain was in default on the principal and interest of RMB43.39 million (approximately $6.61 million) borrowed from Haier Factoring. As of December 17, 2021, the balance due to Haier Factoring was RMB46.16 million (approximately $7.25 million). Shenzhen Lohas, Mr. Yanyue Zhang and Mrs. Weijun Huang guaranteed the foregoing borrowings from Haier Factoring. On December 8, 2020, Lohas Supply Chain pledged to Haier Factoring accounts receivable through December 2022 to guarantee the repayment of such borrowings from Haier Factoring. Lohas Supply Chain is currently negotiating with Haier Factoring to reach an agreement of repayment schedule, and no such agreement has been signed as of December 17, 2021. Should Shenzhen Lohas, Mr. Yanyue Zhang or Mrs. Weijun Huang assume guarantee obligations for Lohas Supply Chain’s borrowings from Haier Factoring, each of them would be entitled to recover from Lohas Supply Chain the amounts they have paid to Haier Factoring on its behalf. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

As of December 17, 2021, Shenzhen Lohas was in default on its loan borrowed from SPDB Bank in the principal of RMB22 million (approximately $3.08 million). Lohas Agricultural, Lohas Supply Chain, SME Guarantee, Mr. Yanyue Zhang, and Mrs. Weijun Huang guaranteed this loan to SPDB Bank. On March 25, 2020, SME Guarantee paid approximately RMB13.32 million (approximately $1.88 million) to SPDB Bank on behalf of Shenzhen Lohas. Lohas Agricultural, Lohas Supply Chain, Mr. Yanyue Zhang, Mrs. Weijun Huang and Mrs. Ningning Dong have provided counter-guarantees to SME Guarantee. In addition, Mr. Yanyue Zhang and Mrs. Weijun Huang have pledged their house property as collateral to SME Guarantee and Lohas Supply Chain has pledged its accounts receivable for a period of 24 months commencing December 2018 as collateral to SME Guarantee. In the opinion of management, it is not probable that Lohas Agricultural would incur losses in relation to this loan as Mr. Yanyue Zhang and Mrs. Weijun Huang have provided counter-guarantees to SME Guarantee. To the extent Lohas Agricultural is required to pay to SPDB Bank or SME Guarantee as guarantor in favor of Shenzhen Lohas, Lohas Agricultural would be entitled to recover such amounts it have paid from Shenzhen Lohas. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

As of December 17, 2021, the total outstanding principal due to WeBank from Lohas Supply Chain was RMB2.82 million (approximately $0.44 million), of which the principal of RMB1.63 million (approximately $0.26 million) borrowed from WeBank have been in default. On November 13, 2019, Lohas Supply Chain entered into a non-revolving loan facility with maximum credit limit of RMB3 million (approximately $0.42 million) with WeBank (the “WeBank Loan”), an internet bank in the PRC, with annual interest rates of 9.45%~10.08%. The WeBank Loan was guaranteed by Mr. Yanyue Zhang. As of March 31, 2021, the principal of RMB0.80 million (approximately $0.12 million) was in default. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Lohas Agricultural’s liquidity, cash flows and financial condition have been materially adversely affected by the COVID-19 pandemic. Its liquidity may be further impacted by additional factors, including the strength of its brands, impacts of seasonality and weather conditions, its ability to respond to changes in consumer preferences and tastes, the timing of capital expenditures, its ability to collect its trade accounts receivable in a timely manner and effectively manage its inventories, and its ability to respond to economic, political and legislative developments. Furthermore, Lohas Agricultural may require additional cash resources due to changes in business conditions or strategic initiatives, or other future developments, although Loha does not have any present commitments with respect to any such investments or acquisitions. Although Loha has broad discretion over the use of proceeds received from this offering, its management has decided not to use the proceeds to repay any of Lohas Agricultural’s outstanding indebtedness. If Loha’s existing sources of liquidity is insufficient to satisfy its working capital requirements, it may seek new or modified borrowing arrangements, or sell debt or equity securities. The incurrence of additional indebtedness would result in additional debt service obligations, as well as operating and financial covenants that would restrict its operations and further encumber its assets. In addition, there can be no assurance that any additional financing will be available on acceptable terms, if at all.

Lohas Agricultural has been involved in legal proceedings that demand it to assume guarantee obligations arising from Shenzhen Lohas’s default on a bank loan in the principal amount of RMB22 million (approximately $3.08 million).

Shenzhen Lohas, the majority shareholder of Lohas Agricultural, entered into a loan agreement with Shanghai Pudong Development Bank Co., Shenzhen Branch (“SPDB Bank”) on December 12, 2018, for a loan of RMB22 million (approximately $3.08 million), maturing in twelve months. On the same date, Lohas Agricultural, Lohas Supply Chain, Mr. Yanyue Zhang, Mrs. Weijun Huang and Shenzhen City Small and Medium Enterprise Financing Guarantee Co., Ltd. (“SME Guarantee”) entered into guarantee agreements with SPDB Bank to jointly guarantee Shenzhen Lohas’s repayment obligations to SPDB Bank. In addition, on the same date, each of Mr. Yanyue Zhang, Mrs. Weijun Huang, Lohas Agricultural and Lohas Supply Chain provided a counter-guarantee to SME Guarantee for its guarantee to SPDB Bank on the loan. On March 23, 2020, Mrs. Ningning Dong, an employee of Lohas Agricultural, provided an additional counter-guarantee to SME Guarantee for its guarantee on the loan. Besides personal counter-guarantees, Mr. Yanyue Zhang and Mrs. Weijun Huang also pledged their house property as collateral to SME Guarantee for its guarantee to SPDB Bank on the loan. Further, on March 23, 2020, pursuant to a counter-guarantee agreement, Lohas Supply Chain pledged its accounts receivable for a period of 24 months commencing December 2018 as collateral to SME Guarantee for its guarantee to SPDB Bank on the loan. On March 16, 2020, Mr. Yanyue Zhang and Mrs. Weijun Huang each executed a letter of commitment, pledging that they would use their own assets to compensate any contingent losses of Lohas Agricultural and Lohas Supply Chain arising from guarantee obligations in connection with the loan owed to SPDB Bank. This loan has been used by Lohas Agricultural in the form of an unsecured, non-interest-bearing loan from Shenzhen Lohas.

On March 16, 2020, SPDB Bank filed a complaint against Shenzhen Lohas, Lohas Supply Chain, Lohas Agricultural, Mr. Yanyue Zhang and Mrs. Weijun Huang with People’s Court of Futian District, Shenzhen (“Futian Court”), requesting repayment of the loan principal and interest in the amount of RMB16.59 million (approximately $2.31 million). On April 9, 2020, upon SPDB Bank’s application, Futian Court issued a written notice informing us that certain bank accounts of Shenzhen Lohas, Lohas Supply Chain and Lohas Agricultural had been frozen on March 24, 2020 and April 3, 2020, respectively, for one year, and the periods have been extended for another year until March 10, 2022 and March 23, 2022, respectively. Accordingly, SPDB reduced the amount it seeks. On November 20, 2020, Futian Court issued a judgment in the lawsuit brought by SPDB Bank ordering that Shenzhen Lohas to repay SPDB Bank RMB3.35 million (approximately $0.47 million) and interest accruing on RMB3.28 million (approximately $0.46 million) at the rate of 8.4825% per annum from May 22, 2020 until full repayment, and holding that Lohas Supply Chain, Lohas Agricultural, Mr. Yanyue Zhang and Mrs. Weijun Huang be jointly liable for repaying SPDB Bank. Lohas Supply Chain, Lohas Agricultural, Mr. Yanyue Zhang and Mrs. Weijun Huang have the right to recover the actual amount of repayment from Shenzhen Lohas after they made the repayment. On December 9, 2020, Shenzhen Lohas, Lohas Supply Chain, Lohas Agricultural, Mr. Yanyue Zhang and Mrs. Weijun Huang filed a joint appeal with Shenzhen Intermediate People’s Court asking the appellate court to reverse Futian Court’s decision and change the interest rate applicable to the outstanding loan principal of RMB3.28 million (approximately $0.46 million) due to SPDB Bank from 8.4825% to 5.655%. Based on public records available online, on November 5, 2021, SPDB applied to Futian Court for enforcement of the judgment in the amount of RMB3.34 million (approximately $0.52 million). In December 2021, RMB1.37 million (approximately $0.21 million) was collected from the frozen bank accounts of Lohas Agricultural and Lohas Supply Chain through enforcement of the judgment by SPDB Bank.

On March 25, 2020, SME Guarantee paid approximately RMB13.32 million (approximately $1.88 million) to SPDB Bank on behalf of Shenzhen Lohas. On April 2, 2020, SME Guarantee filed a complaint against Shenzhen Lohas, Lohas Supply Chain, Lohas Agricultural, Mr. Yanyue Zhang, Mrs. Weijun Huang and Mrs. Ningning Dong with Futian Court, demanding repayment of the amount it had paid to SPDB Bank on behalf of Shenzhen Lohas, interest and other costs. On December 25, 2020, Lohas Agricultural and Lohas Supply Chain received notices that upon SME Guarantee’s application, Futian Court had frozen (i) some bank accounts of Shenzhen Lohas, Lohas Supply Chain and Lohas Agricultural, on April 14, 2020 and April 16, 2020, respectively, for one year, which had an aggregate balance of RMB5.01 (approximately $0.71) as of the date of such notice, and the frozen periods have thereafter been extended until March 11, 2022 and March 17, 2022, respectively, (ii) 25% equity interests of Lohas Agricultural held by Shenzhen Lohas on May 12, 2020 for a period of three years, and (iii) accounts receivable owned by Lohas Supply Chain due from one customer since June 19, 2020 for three years subject to a maximum of RMB2.2 million (approximately $0.31 million), pursuant to the court notices dated May 26, 2020 and June 22, 2020, respectively. On July 22, 2020, Futian Court issued a judgment in the lawsuit brought by SME Guarantee ordering that Shenzhen Lohas repay SME Guarantee RMB13.32 million (approximately $1.88 million) and interest accruing thereon at the rate of 17% per annum from March 26, 2020 until full repayment, and holding that Lohas Supply Chain, Lohas Agricultural, Mr. Yanyue Zhang, Mrs. Weijun Huang and Mrs. Ningning Dong jointly liable for repaying SME Guarantee and SME Guarantee have priority in right of payment from disposing of the collaterals. Lohas Agricultural had filed an appeal with Shenzhen Intermediate People’s Court asking the appellate court to reverse Futian Court’s decision and change the interest rate applicable to the repayment amount due to SME Guarantee to the rate equal to the commercial bank loan interest rate over the same period. Based on public records available online, SME Guarantee applied to Futian Court to enforce the judgement in the amount of RMB16.47 million (approximately $2.56 million) on August 24, 2021, and upon such application, Futian Court imposed a high spending restriction on our CEO, Mr. Yanyue Zhang, our interim CFO, Ms. Weijun Huang and Lohas Agricultural on September 1, 2021. For more details, see “Business—Legal Proceedings.”

If the collaterals, including our CEO’s house property, are not sufficient to satisfy the amounts owed to SME Guarantee and SPDB Bank, Lohas Agricultural and Lohas Supply Chain may be required to assume the guarantee obligations. If Lohas Agricultural is unable to obtain additional capital on a timely basis and on acceptable terms, the satisfaction of such guarantee obligations would materially adversely affect its liquidity, which may cause it unable to implement its business plans or disrupt its operations.

Lohas Supply Chain has defaulted on substantial amounts of indebtedness outstanding and if Lohas Supply Chain is unable to negotiate a repayment plan with the lender, its business may be harmed.

On November 20, 2018 and January 25, 2019, Lohas Supply Chain and Haier Factoring executed two factoring agreements, pursuant to which Lohas Supply Chain received a loan in an aggregate amount of RMB47.22 million (approximately $6.61 million) by factoring the receivables due from customers of RMB59.04 million (approximately $8.26 million). Such borrowings were provided to Lohas Agricultural to meet its working capital requirements. From October 1, 2019 to March 31, 2021, Lohas Supply Chain repaid Haier Factoring matured borrowings of RMB6.42 million (approximately $0.94 million) and then entered into a series of new agreements to renew the residual secured borrowings. On December 8, 2020, Lohas Supply Chain pledged to Haier Factoring accounts receivable through December 2022 to guarantee the repayment of such borrowings to Haier Factoring. As of March 31, 2021, the principal and interest of RMB43.39 million (approximately $6.61 million) borrowed from Haier Factoring were in default. As of December 17, 2021, the balance of the Haier Factoring borrowings was RMB46.16 million (approximately $7.25 million). Lohas Supply Chain is currently negotiating with Haier Factoring to reach an agreement of repayment schedule, and no such agreement has been signed as of December 17, 2021. The borrowings from Haier Factoring were guaranteed by Shenzhen Lohas, Lohas Agricultural, Mr. Yanyue Zhang and Mrs. Weijun Huang.

The spread of COVID-19 has had a significant negative impact on the fresh produce import industry and Lohas Agricultural’s business has experienced a severe decrease in revenue, resulting in an adverse impact on cash flows. We cannot guarantee that a repayment schedule with Haier Factoring will be reached. If Lohas Supply Chain is unsuccessful in negotiating a repayment schedule, Haier Factoring may elect to accelerate all principal and interest payments that remain outstanding and bring lawsuits against us. Such acceleration of payments or lawsuits would have a material adverse effect on its financial condition, results of operations, cash flows and its ability to continue to operate and could significantly limit its financing alternatives and cause us to dispose of assets. 

Lohas Agricultural, Mr. Yanyue Zhang and Ms. Weijun Huang became subject to “high consumption” restrictions in China as a result of the court proceedings relating to the default of the SPDB loan described above. Although such restrictions may not affect our operations, they could negatively affect our reputation and investors’ confidence in us.

On September 1, 2021, as part of the enforcement of the judgement in the amount of RMB16.47 million (approximately $2.56 million) in the lawsuit brought by the SME Guarantee as described above, the Futian Court imposed the “high consumption” restrictions on Lohas Agricultural, Mr. Yanyue Zhang and Ms. Weijun Huang, under which Lohas Agricultural, Mr. Yanyue Zhang and Ms. Weijun Huang are prohibited from conducting certain high spending activities and spending activities that are not necessary for life or work, including (1) when taking transportation, choosing second-class or higher-class cabins on airplanes, trains, and ships; (2) high consumption in hotels, nightclubs, golf courses and other places at star level; (3) purchasing real estate or building, expanding, or luxirily decorating houses; (4) leasing high-end office buildings, hotels, apartments and other places as offices; (5) purchasing vehicles that are not necessary for business operations; (6) leisure travel and vacation; (7) children attending expensive-tuition private schools; (8) paying high premiums to purchase insurance wealth management products; and (9) other consumption behaviors that are not necessary for life and work, such as taking seats on the G-series electric multiple unit (“EMU”) trains or first-class seats on other EMU trains. While the foregoing constraints may not restrict Lohas Agricultural’s ability to conduct operations, they could have a negative impact on Lohas Agricultural’s reputation, image and brand, and adversely affect investors’ confidence in us.

Disruption of significant supplier relationships could negatively affect Lohas Agricultural’s business.

While Lohas Agricultural has 102 overseas and 5 domestic suppliers in 16 countries, its two largest suppliers of overseas fruits accounted for approximately 40.82% and 43.73% of its total purchases in fiscal years ended September 30, 2019 and 2020, respectively. For the six months ended March 31, 2020 and 2021, its largest supplier of overseas fruits accounted for approximately 44.05% and 77.88% of its total purchases, respectively. Due to such concentration of purchases from a limited number of third-party suppliers, the cancellation of its supply arrangement or the disruption, delay or inability of these suppliers to supply Lohas Agricultural with fresh produce in quantities that meet its requirements may materially and adversely affect its operating results while Lohas Agricultural establishes alternative supply chain channels, which could be difficult. Lohas Agricultural’s ability to continue to obtain products from its suppliers in a timely and cost-effective manner is subject to a number of factors, some of which are not within its control. These factors include the ability of its suppliers to provide a continued source of supply, and its ability to effectively compete and obtain competitive prices from suppliers. While Lohas Agricultural has entered into supply agreements with a five-year term with its major suppliers, we cannot assure you that Lohas Agricultural would be able to find replacement suppliers on commercially reasonable terms if these agreements expire and are not renewed promptly or terminated early, which would have a material adverse effect on Lohas Agricultural’s financial condition, results of operations and cash flows.

Lohas Agricultural depends on a limited number of customers for a large portion of its net sales.

Lohas Agricultural considers its major customers in each period to be those customers that accounted for more than 10% of overall purchases in such period. For the year ended September 30, 2020, one key customer accounted for 55.22% of the total revenue and three key customers accounted for 59.67% of total accounts receivable. For the year ended September 30, 2019, two key customers accounted for 31.87% of the total revenue and two key customers accounted for 31.90% of total accounts receivable. For the six months ended March 31, 2020, one key customer accounted for 55.32% of the total revenue and three key customers accounted for 55.96% of total accounts receivable as of March 31, 2020. For the six months ended March 31, 2021, one key customer accounted for 39.51% of the total revenue and three key customers accounted for 69.49% of total accounts receivable as of March 31, 2021. The loss of, or a substantial decrease in the volume of, purchases by any of Lohas Agricultural’s top customers could harm its sales and profitability. In addition, an adverse change in the terms of its dealings with, or in the financial wherewithal or viability of, one or more of its significant customers could harm its business, financial condition and results of operations.

Lohas Agricultural expects that a significant portion of its net sales will continue to be derived from a small number of customers and that the percentage of net sales represented by these customers may increase. As a result, changes in the strategies of its largest customers may reduce its net sales. Further, the impact of COVID-19 may result in a change in demand for or availability of its products as a result of customers modifying their restocking, fulfillment, or shipping practices in response to the global pandemic. In addition, Lohas Agricultural’s business is based primarily upon individual sales orders placed by customers rather than contracts with a fixed duration. Accordingly, most of itscustomers could reduce their purchasing levels or cease buying products from it on relatively short notice. The loss of such sales could have an adverse effect on its business, financial condition and results of operations.

Conditions beyond Lohas Agricultural’s control can interrupt its supplies and increase its product cost.

Lohas Agricultural obtains substantially all of its products from third-party suppliers. The availability of such products at competitive prices depends on many factors beyond its control, including shortages of qualified labor for its suppliers, work slowdowns, work interruptions, strikes or other job actions by employees of suppliers. Adverse weather conditions and natural disasters, such as floods, droughts, storms, frosts, wildfires, earthquakes, hurricanes, pestilences and other extreme or abnormal environmental conditions, could also impair production capabilities, disrupt its supply chain or impact demand for its products. Additionally, Lohas Agricultural procures products from suppliers located in various countries and Lohas Agricultural is subject to the risks associated with political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade, any or all of which could delay its receipt of product or increase its input costs. Lohas Agricultural’s inability to obtain adequate supplies as a result of any of the foregoing factors or otherwise could mean that Lohas Agricultural could not fulfill its obligations to customers, and customers may turn to other distributors, which could materially adversely affect its financial condition, results of operations and cash flows.

If its products become contaminated, Lohas Agricultural may be subject to product liability claims and product recalls, which could adversely affect Lohas Agricultural’s financial results and damage its reputation.

As a fresh produce distributor, Lohas Agricultural believes that many customers choose its brand because of their interest in health, nutrition and food safety. As a result, Lohas Agricultural believes that its customers holds it to a high food safety standard. However, Lohas Agricultural faces inherent risks related to the safety of the food products that Lohas Agricultural distributes and sells. Lohas Agricultural’s fresh produce products are at risk of contamination by disease-causing organisms such as Salmonella, E. coli, and others. These pathogens are generally found in nature, and as a result, there is a risk that they could be present in the products distributed or sold by us. Lohas Agricultural typically has little control over proper food handling once the product has been delivered to its wholesalers and retailers. Lohas Agricultural may need to recall products for actual or alleged contamination, adulteration, mislabeling, or other safety concerns. Recall costs can be material. A widespread product recall could result in significant losses due to the administrative costs of a recall, the disruption of supply, and lost sales. Recalls and other food safety concerns can also result in product liability claims, adverse publicity, damage to its reputation, and a loss of confidence in the safety and quality of its products. According to the Administrative Measures for Food Distribution Licensing promulgated by the National Medical Products Administration of China (formerly the China Food and Drug Administration, or CFDA), consumers or other victims suffering from personal injuries or property damages due to defects of products have the right to claim compensations either from the distributors or from the producers of products. In addition to claiming damages, a consumer may require a producer of food failing to meet the food safety standards or a trader knowingly dealing in such food to pay an indemnity of ten times the price paid or three times the loss. Lohas Agricultural’s Ping An food safety insurance with an aggregate liability limit of RMB20 million has expired recently and Lohas Agricultural has not renewed it. Even with adequate insurance and indemnification from its suppliers, any claims of non-compliance could significantly damage its reputation and consumer confidence in products Lohas Agricultural sells. Customers may avoid purchasing Lohas Agricultural’s certain products, or to seek alternative sources of supply for some or all of their food needs, even if the basis for concern is outside of its control. Therefore, real or perceived quality or food safety concerns, whether or not ultimately based on fact, and whether or not involving products that Lohas Agricultural sells or vendors that supply Lohas Agricultural with products or provide Lohas Agricultural with services, would cause negative publicity and lost confidence regarding it, brand, or products, which could in turn harm its reputation and net sales, and could have a material adverse effect on its business, results of operations, cash flows or financial condition. Any loss of confidence on the part of its customers would be difficult and costly to overcome.

If Lohas Agricultural fails to effectively control food spoilage of its inventories, its operating results could be adversely affected.

Lohas Agricultural is subject to risks affecting the fresh food industry generally, including food spoilage and food contamination. As of September 30, 2019 and 2020, fruits constituted approximately 97.09% and 98.89% of the value of its inventories, respectively. In order to deliver high-quality fresh and natural products to its customers directly from their source, Lohas Agricultural manages the entire distribution channel by eliminating the traditional layer of middlemen, which not only reduces costs but also increases the speed of delivery. In addition, its fresh produce is temperature monitored and controlled remotely at each stage of the whole delivery process. It helps maintain freshness of produce and dramatically reduces the spoilage rate. While Lohas Agricultural believes food spoilage currently does not have a significant impact on its operations, there is no guarantee that its business model and technology will always be able to effectively control food spoilage of its inventories. For instance, its temperature-controlled storage and transportation systems could fail to function properly and product spoilage and contamination could occur. Failures in its systems to ensure freshness and safety of its fresh products could negatively impact sales and accordingly have an adverse impact on its business and results of operations.

Fluctuations in procurement costs and availability of products may impact profitability.

Lohas Agricultural’s main products include fresh fruits, nuts, eggs and sea foods. Price of fresh produce fluctuates throughout the year due to the supply of and demand, which is seasonal in nature. We cannot assure you that Lohas Agricultural will be able to mitigate vendor efforts to increase its procurement costs or competitive responses to decreasing prices, either in whole or in part. In the event Lohas Agricultural is unable to continue mitigating potential increases of procurement costs or input costs, Lohas Agricultural may in turn consider raising its prices, and its customers may be deterred by any such price increases. In addition, Lohas Agricultural may lower its resale prices in response to lower procurement or input costs or competitive conditions. Its profitability may be impacted either through increased costs to us or lower prices and loss of customers due to competitive conditions, which may impact gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.

Lohas Agricultural’s ability to competitively serve its customers is a function of reliable and low cost transportation. Disruption of the supply of these services and/or significant increases in the cost of these services could impact its operating income.

Lohas Agricultural uses multiple forms of transportation to bring its products to market. They include truck, ocean, and air-cargo. Disruption to the timely supply of these services or dramatic increases in the cost of these services for any reason including availability of fuel for such services, labor disputes, governmental regulation, or governmental restrictions limiting specific forms of transportation could have an adverse effect on its ability to serve its customers and consumers and could have an adverse effect on its financial performance.

Lohas Agricultural’s ability to deploy new smart micro marts is important for its future business development, and its failure to successfully deploy them could negatively impact its business.

Lohas Agricultural’s ability to deploy new smart micro marts and to operate them successfully has significant impact on the development of its business. Lohas Agricultural plans to deploy a significant number of new units within the next two years. However, we cannot assure you that Lohas Agricultural will achieve this expected level of new growth. Successful implementation of this strategy depends upon a number of factors, including its ability to effectively achieve a level of cash flow or obtain necessary financing to support its expansion; find suitable sites for new locations; negotiate and execute leases on acceptable terms; secure and manage the inventory necessary for the launch and operation of its smart micro marts; hire, train and retain skilled team members; promote and market new smart micro marts; and address competitive merchandising, distribution and other challenges encountered in connection with expansion into new geographic areas and markets. If Lohas Agricultural is ineffective in performing these activities, then its efforts to open and operate new smart micro marts may be unsuccessful or unprofitable, and Lohas Agricultural may be unable to execute its growth strategy.

Additionally, Lohas Agricultural’s proposed expansion will place increased demands on its operational, managerial and administrative resources. These increased demands could cause it to operate its existing business less effectively, which in turn could cause deterioration in the financial performance of its business. If Lohas Agricultural experiences a decline in performance, Lohas Agricultural may slow or discontinue deploying new units, or Lohas Agricultural may decide to close smart micro marts that it is unable to operate in a profitable manner. If Lohas Agricultural fails to successfully implement its growth strategy, including by deploying new smart micro marts, its financial condition, results of operations and cash flows may be adversely affected.

Disruptions to, or security breaches involving, information technology systems of Lohas Agricultural or third parties that Lohas Agricultural relies on could harm its ability to run its business.

Lohas Agricultural relies extensively on information technology systems for point of sale processing, supply chain, financial reporting, human resources and various other processes and transactions. Its information technology systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, including breaches of its transaction processing or other systems that could result in the compromise of confidential customer or team member data, catastrophic events, and usage errors by its team members.

Lohas Agricultural’s information technology systems may also fail to perform as it anticipates, and Lohas Agricultural may encounter difficulties in implementing new systems, adapting these systems to changing technologies or expanding them to meet the future needs and growth of its business. If its systems are improperly implemented, breached, damaged or cease to function properly, Lohas Agricultural may have to make significant investments to fix or replace them; suffer interruptions in its operations; experience data loss; incur liability to its customers, employees and others; face costly litigation, enforcement actions and penalties; and its reputation with its customers may be harmed.

Various third parties, such as Lohas Agricultural’s suppliers and payment processors, also rely heavily on information technology systems, and any failure of these systems could also cause loss of sales, transactional or other data and significant interruptions to its business. Any security breach or other material interruption in the information technology systems Lohas Agricultural relies on may have a material adverse effect on its business, operating results and financial condition.

A significant part of Lohas Agricultural’s business is conducted through WeChat, a third-party social media program and if services of WeChat are limited, restricted, curtailed or degraded in any way or become unavailable to it or its customers for any reason, its business may be materially and adversely affected.

Lohas Agricultural’s smart micro marts and group purchase program work in combination with its WeChat public account and WeChat mini-program to offer convenient business experiences to its customers. Lohas Agricultural relies on the convenience and ease of use that WeChat provides to it and its customers. For instance, Lohas Agricultural offers its customers the community group purchase program under which a Lohas distributor coordinates group purchases through social media services such as WeChat by placing orders and advancing payments on its WeChat “Lohas City” mini-program. The operations of its smart micro marts also rely on the services of WeChat. Once customers scan the QR code on the unit using a mobile phone, its WeChat mini-program “Lohas City” is launched on the mobile and lead the customers to complete the purchase process. While currently there is only a small part of its revenues derived from its group purchase program, which is conducted through WeChat platform, Lohas Agricultural believes revenues generated through WeChat platform will continue to grow as it started its smart micro markets business in October 2018. If services of WeChat are limited, restricted, curtailed or degraded in any way or become unavailable to it or its customers for any reason, the attractiveness of Lohas Agricultural’s products could be materially and adversely affected.

In addition, customers often conduct transactions through Lohas Agricultural’s WeChat public account or WeChat mini-program through third-party online payment platforms, such as WeChat Pay. In these online payment transactions, secured transmission of confidential information, such as customers’ credit card numbers and expiration dates, personal information and billing addresses, over public networks are essential to maintain consumer confidence. Lohas Agricultural does not have control over the security measures of its third-party online payment platform service providers. Security breaches of the online third-party payment platforms that Lohas Agricultural uses could expose it to litigation and possible liability for failing to secure confidential user information and could, among other things, damage its reputation. As a result, its customers concerned about the security of their transactions may become reluctant to purchase its products involving third-party online payment platforms.

If Lohas Agricultural is unable to successfully identify market trends and react to changing consumer preferences in a timely manner, its sales may decrease.

Lohas Agricultural believes its success depends, in substantial part, on its ability to:

Consumer preferences often change rapidly and without warning, moving from one trend to another among many product or retail concepts. Lohas Agricultural’s performance is impacted by trends regarding healthy lifestyles, dietary preferences, convenient options, meal solutions, and ingredient transparency and sustainability, as well as new and evolving methods of engaging with and delivering its products to its customers. Consumer preferences towards fresh food products might shift as a result of, among other things, economic conditions, food safety perceptions, scientific research or findings regarding the benefits or efficacy of such products, national media attention and the cost or sustainability of these products. A change in consumer preferences away from Lohas Agricultural’s offerings would have a material adverse effect on its business. Additionally, negative publicity over the safety, efficacy or benefits of any such items may adversely affect demand for its products, and could result in lower customer traffic, sales, results of operations and cash flows.

If Lohas Agricultural is unable to anticipate and satisfy consumer preferences in the regions where it operates with respect to product offerings and customer engagement options, its sales may decrease, which could have a material adverse effect on its business, financial condition, results of operations and cash flows.

Competition in Lohas Agricultural’s industry is intense, and its failure to compete successfully may adversely affect its revenues and profitability.

Lohas Agricultural operates in the highly competitive retail food industry. Its competitors include supermarkets, natural food stores, warehouse membership clubs, online retailers and specialty stores. These businesses compete with us for products, customers and locations. Lohas Agricultural compete on a combination of factors, primarily product selection, quality, convenience, customer engagement, location, price and delivery options. Its success depends on its ability to offer products that appeal to its customers’ preferences, and its failure to offer such products could lead to a decrease in its sales. To the extent that its competitors lower prices, its ability to maintain profit margins and sales levels may be negatively impacted. In addition, some competitors are aggressively expanding their number of stores or their product offerings, increasing the space allocated to perishable, prepared and specialty foods, including fresh foods, and enhancing options of engaging with and delivering their products to customers. Some of these competitors may have been in business longer or may have greater financial or marketing resources than Lohas Agricultural does and may be able to devote greater resources to sourcing, promoting and selling their products. As competition in certain areas or platforms intensifies or competitors open stores or expand delivery options within close proximity to its smart micro marts, its results of operations and cash flows may be negatively impacted through a loss of sales, decrease in market share, reduction in margin from competitive price changes or greater operating costs.

Lohas Agricultural depends upon third-party manufacturers for the manufacture of its smart micro marts. 

Lohas Agricultural conducts no manufacturing operations and depends on an outside party to manufacture its smart micro marts. Any increase in the manufacturing costs, or its inability to lower its current manufacturing costs, could materially adversely impact its operations and financial condition.

Lohas Agricultural intends to continue to expand its installed base of smart micro marts. Such expansion may be limited by the manufacturing capacity of its third-party manufacturer. Such third-party manufacturer may not be able to meet its manufacturing needs in a satisfactory and timely manner. Any delays in manufacturing could adversely affect its results of operations. If there is an unanticipated increase in demand for its smart micro marts, or its manufacturing needs are not met in a timely and satisfactory manner, Lohas Agricultural may be unable to meet demand due to manufacturing limitations.

The loss of key management could negatively affect our business.

We are dependent upon a number of key management and other employees, such as Mr. Yanyue Zhang, our chairman and chief executive officer, Weijun Huang, our interim chief financial officer, and Jiahui Shan, our chief culture officer. If we were to lose the services of a significant number of key employees within a short period of time, this could have a material adverse effect on our operations as we may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition, any such departure could be viewed in a negative light by investors and analysts, which may cause our stock price to decline.

Lohas Agricultural is currently delinquent on its statutory obligations to make social insurance and housing provident fund contributions for its employees in China, which may subject it to fines or other penalties by government authorities.

Lohas Agricultural has not adequately paid social insurance and housing provident fund contributions for its employees. According to the Social Insurance Law of the People’s Republic of China, Lohas Agricultural may be ordered to pay the outstanding social insurance contributions within a prescribed deadline and liable for a late payment fee equal to 0.05% of the outstanding amount for each day of delay. Further, Lohas Agricultural may be liable for a fine of one to three times the amount of the outstanding contributions, provided that it still fails to pay the outstanding social insurance contributions within the prescribed deadline. In addition, according to the Regulations on the Administration of Housing Provident Fund, Lohas Agricultural may be ordered by the Housing Accumulation Fund Management Center to deposit the outstanding funds within a time limit. If Lohas Agricultural fails to deposit such amounts within the time limit, the Center may petition a people’s court to enforce the payment. As of the date of the prospectus, we are not aware of any action, claim, investigation or penalties being conducted or threatened by any government authorities. However, if Lohas Agricultural is fined or otherwise penalized by government authorities due to its failure to adequately pay social insurance and housing provident fund contributions for its employees, its financial condition may be negatively impacted.

Lohas Agricultural’s leased property interests may be defective and could result in claims, monetary penalties, increased cost of operation or otherwise harm on its business.

As of the date of the prospectus, Lohas Agricultural operates its businesses primarily through its leased facilities located at Xiangjiang Financial Center (Industrial Zone), Unit 19, 3rd Street, Xinghai Avenue, Nanshan District, Shenzhen. Lohas Agricultural and Lohas Supply Chain have not filed the respective lease agreements with the relevant governmental agencies. According to applicable PRC laws, the failure to file lease agreements will not affect their binding force between the tenant and the landlord; however, the landlord and the tenant may be subject to administrative fines for such failure to file the leases.

In addition, under the PRC laws, a company shall register its main office as its registered office. Where a company fails to undergo the relevant modification registration in accordance with relevant regulations, the competent regulatory authority may order the company to register within a prescribed time limit, and if the company fails to do so, the authority may impose a fine of not less than RMB10,000 but not more than RMB100,000. Lohas Agricultural has not changed their registered offices to reflect the change in their main offices. As of the date of the prospectus, Lohas Agricultural is not aware of any action, claim or investigation being conducted or threatened by the competent government authorities with respect to its leases. However, if Lohas Agricultural is fined or otherwise penalized by government authorities due to its failure to register its principal place of business as its registered office address, its business and financial condition may be negatively impacted.

Lohas Agricultural does not have any business insurance coverage.

Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. Currently, Lohas Agricultural does not have any business liability or disruption insurance to cover its operations. Lohas Agricultural has determined that the costs of insuring 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 substantial costs and the diversion of resources, which could have an adverse effect on its results of operations and financial condition.

Default in payment by one or more customers that have large account receivable balances could adversely impact Lohas Agricultural results of operations and financial condition.

A significant portion of Lohas Agricultural’s working capital consists of accounts receivable from customers. As of September 30, 2019 and 2020, Lohas Agricultural had an aggregate amount of $22.25 million and $11.03 million, respectively, in accounts receivable, net of allowance for doubtful accounts. On March 31, 2021, Lohas Agricultural had an aggregate amount of $9.36 million in accounts receivable, net of allowance for doubtful accounts. Lohas Agricultural has been reviewing its policies that govern credit and collections and will continue to monitor them in light of current payment status and economic conditions. In addition, Lohas Agricultural may reduce the credit exposures of its accounts receivable by credit limits for some customers. However, there can be no assurance that its efforts to identify potential credit risks will be successful. Its inability to timely identify high-risk customers could result in defaults at a time when such customers have large accounts receivable balances with us. These defaults would result in significant charges against its earnings and adversely affect its results of operations and financial condition.

Lohas Agricultural may be unable to adequately protect its intellectual property rights, which could harm its business.

Lohas Agricultural relies on a combination of trademark, software copyright and domain name law and internal procedures and nondisclosure agreements to protect its intellectual property. In particular, Lohas Agricultural believes its trademark, software copyright, and domain names, including http://www.lohas.com (e-commerce), http://www.lohas.sh/en (official website), http://www.lohas100.com, and http://www.lohas1000.com, are valuable assets. However, there can be no assurance that its intellectual property rights will be sufficient to distinguish its products from those of its competitors and to provide us with a competitive advantage. From time to time, third parties may use names and logos similar to its names or logos, may apply to register trademarks or domain names similar to its trademarks or domain names, and may infringe or otherwise violate our intellectual property rights. There can be no assurance that its intellectual property rights can be successfully asserted against such third parties or will not be invalidated, circumvented or challenged. Asserting or defending its intellectual property rights could be time consuming and costly and could distract management’s attention and resources. If Lohas Agricultural is unable to prevent its competitors from using names, logos and domain names similar to its, consumer confusion could result, the perception of its brand and products could be negatively affected, and its sales and profitability could suffer as a result.

Lohas Agricultural may be subject to intellectual property infringement claims or other allegations by third parties, which may materially and adversely affect its business, financial condition and prospects.

Some of the important trademarks that Lohas Agricultural is using, including , are owned by Shenzhen Lohas, a 99.333334% shareholder of Lohas Agricultural. Lohas Agricultural has entered into a trademark licensing agreement with Shenzhen Lohas on August 17, 2019, obtaining an exclusive license to use these trademarks during their respective valid periods. Lohas Agricultural is required to use these trademarks within their scope of services authorized by the Chinese trademark authorities. However, its use of some of these trademarks may be considered as beyond the authorized scope of use and as a result, Lohas Agricultural could be deemed as breaching the trademark licensing agreement by Shenzhen Lohas or even subject to claims that Lohas Agricultural’s activities or the products Lohas Agricultural sells infringe, misappropriate or otherwise violate the intellectual property rights of other parties. Also, we cannot assure you that the software Lohas Agricultural owns and uses in its daily operations does not and will not infringe intellectual property rights of any third party. Any of the above infringement claims can be time consuming and costly to defend and may distract management’s attention and resources, even if the claims are without merit. Such claims may also require us to enter into costly settlement or license agreements (which could, for example, prevent us from using its trademarks in certain geographies or in connection with certain products), pay costly damage awards, and face a temporary or permanent injunction prohibiting us from marketing or providing the affected products, any of which could have an adverse effect on its business.

Lohas Agricultural’s international operations subject it to additional business risks that may have a material adverse effect on its business, operating results and financial condition. 

Lohas Agricultural conducts a substantial amount of business with suppliers who are located in a total of 16 countries, such as Thailand, Australia and Chile. For additional information about its foreign sourced food products, see “Business” below. Although these suppliers are geographically dispersed, which partially mitigates the risks associated with operating in particular countries, Lohas Agricultural is subject to the usual risks and potential costs associated with international operations, which are often beyond its control. Among others, these risks and costs include:

These factors may have a material adverse effect on its ability to increase or maintain its supply of products, its financial condition or the results of its operations.

The forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which Lohas Agricultural competes achieve the forecasted growth, we cannot assure you Lohas Agricultural’s business will grow at similar rates, if at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts contained in this prospectus may prove to be inaccurate. Even if these markets experience the forecasted growth described in this prospectus, Lohas Agricultural may not grow its business at similar rates, or at all. Lohas Agricultural’s growth is subject to many factors, including its success in implementing its business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of its future growth.

In connection with the audits of our consolidated financial statements as of and for the years ended September 30, 2019 and 2020, we and our independent registered public accounting firm identified certain material weaknesses in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.

Prior to this offering, we have been a private company with limited accounting personnel and other resources with which we address our internal control over financial reporting. We have not engaged any internal control adviser with the necessary expertise to perform an internal control audit pursuant to SOX 404 in anticipation of this offering. In connection with the auditing of our consolidated financial statements as of and for the years ended September 30, 2019 and 2020, we and our independent registered public accounting firm identified the following material weaknesses in our internal control over financial reporting:

As defined in the standards established by the U.S. Public Company Accounting Oversight Board, or PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

We plan to take the following steps and measures to remediate the material weaknesses identified:

However, the implementation of these measures may not fully address these weaknesses in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. Our failure to correct these weakness and deficiencies or our failure to discover and address any other weakness and deficiencies could result in our inability to accurately report our financial results, prevent or detect fraud or provide timely and reliable financial and other information pursuant to the reporting obligations we have as a public company, which could have a material adverse effect on our business, financial condition and results of operations. Further, it could cause our investors to lose confidence in the information we report, which could adversely affect the price of our shares.

Risks Related to Our Corporate Structure

We conduct substantially all of our operations through VIE, which is established in the PRC, and we rely on contractual arrangements with the VIE and its shareholders to operate our business, due to PRC legal restrictions on foreign ownership in certain internet-related business. The Chinese government could disallow our VIE structure. If the PRC government deems that the contractual arrangements in relation to the VIE 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, and our Class A ordinary shares may decline in value or become worthless if we are unable to assert our contractual control rights over the assets of the VIE that conducts all or substantially all of our operations.

Investors are cautioned that you are not buying shares of a China-based operating company but instead are buying shares of a shell company issuer that maintains contractual arrangements with the associated operating company. Our PRC subsidiaries have nominal operations or assets. We conduct our business in China through the VIE and the VIE’s subsidiaries.

The PRC government regulates value-added telecommunication business through strict business licensing requirements and other government regulations. These laws and regulations also include limitations on foreign ownership of PRC companies that engage in value-added telecommunication business. Specifically, foreign investors are not allowed to own more than 50% equity interest in any PRC company engaging in providing value-added telecommunication business (excluding e-commerce business, domestic multi-party communications services, store and forward services and call center services) under the Special Management Measures (Negative List) for the Access of Foreign Investment (the “Negative List”) (2020 Edition), which was promulgated on June 23, 2020 and implemented on July 23, 2020, and such major foreign investor in a Foreign-Invested Telecommunications Enterprise must have experience in providing value-added telecommunications services, or VATS, and maintain a good track record in accordance with the Administrative Provisions on Foreign-Invested Telecommunications Enterprises (revised in 2016), and other applicable laws and regulations.

Because we are an exempted company incorporated with limited liability in the Cayman Islands, our wholly-owned PRC subsidiary, Lohas WFOE, is classified as a foreign-invested enterprise under PRC laws and regulations. Accordingly, Lohas WFOE is not eligible to operate a value-added telecommunication business (excluding e-commerce business, domestic multi-party communications services, store and forward services and call center services) on its own which foreign-owned companies are restricted from conducting in China. We therefore conduct our business in China through the VIE, Lohas Agricultural, and the VIE’s subsidiaries. Lohas WFOE has entered into a series of contractual arrangements with Lohas Agricultural and its shareholders. As a result of these contractual arrangements, we have control over and are considered the primary beneficiary of the VIE for accounting purposes and hence consolidate their financial results into our consolidated financial statements under U.S. GAAP. For a description of these contractual arrangements, see “Corporate History and Structure—Our Corporate Structure.”

As there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the Foreign Investment Law of the PRC and the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors and the relevant regulatory measures, there can be no assurance that the PRC government authorities would ultimately agree that our corporate structure or any of the above contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future.

If our corporate structure and contractual arrangements are deemed by the Ministry of Commerce or other regulators having competent authority to be illegal, either in whole or in part, we may lose control of Lohas Agricultural and may have to modify such structure to comply with regulatory requirements. However, there can be no assurance that we can achieve this without material disruption to our business. Further, if our corporate structure and contractual arrangements are found to be in violation of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violations, including, without limitation:

Furthermore, new PRC laws, rules and regulations may be introduced to impose additional requirements that may be applicable to our corporate structure and contractual arrangements. See “Risks Related to Our Corporate Structure—Substantial uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law of PRC.” Occurrence of any of these events could materially and adversely affect our business and financial condition and results of operations. In addition, if the imposition of any of these penalties or requirements to restructure our corporate structure causes us to lose the right to direct the activities of Lohas Agricultural or our right to receive its economic benefits, we would no longer be able to consolidate the financial results of Lohas Agricultural and its subsidiaries in our consolidated financial statements. If the PRC government determines that the contractual arrangements constituting part of our VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, our Class A ordinary shares may decline in value or become worthless if we are unable to assert our contractual control rights over the assets of the VIE that conducts all or substantially all of our operations. See “Corporate History and Structure—Our Corporate Structure.”

Our contractual arrangements with the VIE may result in adverse tax consequences to us.

Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. 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 could face material and adverse tax consequences if the PRC tax authorities determine that our contractual arrangements with Lohas Agricultural were not made on an arm’s length basis and adjust our income and expenses for PRC tax purposes by requiring a transfer pricing adjustment. A transfer pricing adjustment could adversely affect us by (i) increasing the tax liabilities of Lohas Agricultural without reducing the tax liability of our subsidiaries, which could further result in late payment fees and other penalties to Lohas Agricultural for underpaid taxes; or (ii) limiting the ability of Lohas Agricultural to obtain or maintain preferential tax treatments and other financial incentives.

We rely on contractual arrangements with the VIE and its shareholders to operate our business, which may not be as effective as direct ownership in providing operational control and may have potential conflicts of interests with us, which may have a material adverse effect on our business and financial condition.

We rely on contractual arrangements with Lohas Agricultural and its shareholders to operate our business. For a description of these contractual arrangements, see “Corporate History and Structure—Our Corporate Structure.” All of our revenue is attributed to Lohas Agricultural. These contractual arrangements may not be as effective as direct ownership in providing us with control over Lohas Agricultural. If Lohas Agricultural or its shareholders fail to perform their respective obligations under these contractual arrangements, our recourse to the assets held by Lohas Agricultural is indirect and we may have to incur substantial costs and expend significant resources to enforce such arrangements in reliance on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal system. Furthermore, in connection with litigation, arbitration or other judicial or dispute resolution proceedings, assets under the name of any of the record holders of equity interest in Lohas Agricultural, including such equity interest, may be put under court custody. As a consequence, we cannot be certain that the equity interest will be disposed pursuant to the contractual arrangement or ownership by the record holder of the equity interest.

All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a VIE should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and 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 time delays or other obstacles in the process of enforcing these contractual arrangements, it would be very difficult to exert effective control over Lohas Agricultural, and our ability to conduct our business and our financial condition and results of operations may be materially and adversely affected. See “—Risks Related to Doing Business in China— The Chinese government recently promulgated a number of laws, regulations and policies that focus on tightening oversight of data security and overseas equity fundraising and listing by Chinese companies. There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations, including those recently published or enacted. These regulatory risks could significantly limit or completely hinder our ability to conduct our business, accept foreign investments, or list on an U.S. exchange.”

In connection with our operations in China, we rely on the shareholders of Lohas Agricultural to fulfill the obligations under such contractual arrangements. The interests of these shareholders in their individual capacities as shareholders of Lohas Agricultural may differ from the interests of us, as what is in the best interests of Lohas Agricultural, including matters such as whether to distribute dividends or to make other distributions to fund our offshore requirement, may not be in the best interests of our company. There can be no assurance that when conflicts of interest arise, any or all of these individuals or entities will act in the best interests of our company or that those conflicts of interest will be resolved in our favor. In addition, these individuals and entities may breach or cause Lohas Agricultural and its subsidiaries to breach or refuse to renew the existing contractual arrangements with us.

Currently, we do not have arrangements that address potential conflicts of interest shareholders of Lohas Agricultural may encounter due to their dual roles as shareholders of Lohas Agricultural and as beneficial owners of our company. However, we could, at all times, exercise our option under the exclusive option agreement to cause them to transfer all of their equity ownership in Lohas Agricultural to a PRC entity or individual designated by us as permitted by the then applicable PRC laws. In addition, if such conflicts of interest arise, we could also, in the capacity of attorney-in-fact of the then existing shareholders of Lohas Agricultural as provided under the powers of attorney, directly appoint new executive director of Lohas Agricultural. We rely on the shareholders of Lohas Agricultural to comply with PRC laws and regulations, which protect contracts, and to provide that executive director and executive officers owe a duty of loyalty to our company and require them to avoid conflicts of interest and not to take advantage of their positions for personal gains, and with the laws of the Cayman Islands, which provide that directors have a duty of care and a duty of loyalty to act honestly in good faith with a view to our best interests. However, the legal frameworks of China and the Cayman Islands do not provide guidance on resolving conflicts in the event of a conflict with another corporate governance regime. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of Lohas Agricultural, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

Substantial uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law of PRC and its Implementation Regulations and how they may impact the viability of our current corporate structure, corporate governance, business operations and financial results.

On March 15, 2019, the Standing Committee of the National People’s Congress passed the Foreign Investment Law of PRC, which took effect on January 1, 2020. The Law of the People’s Republic of China on China-Foreign Equity Joint Ventures, the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises, and the Law of the People’s Republic of China on China-Foreign Contractual Joint Ventures and their implementation rules and ancillary regulations were replaced at the same time. On December 26, 2019, the Regulation on the Implementation of the Foreign Investment Law of the PRC, was issued by the State Council and came into force on January 1, 2020. The Foreign Investment Law defines the “foreign investment” as the investment activities in China conducted directly or indirectly by foreign investors in the following manners: (i) a foreign investor, individually or collectively with other investors establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other like rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with other investors, invests and establishes new projects within China; and (iv) a foreign investor invests through other approaches as stipulated by laws, administrative regulations, or otherwise regulated by the State Council. Since the Foreign Investment Law is relatively new, uncertainties exist in relation to its interpretation and implementation. On December 26, 2019, the State Council promulgated the Regulation on the Implementation of the Foreign Investment Law of the PRC, which came into effect on January 1, 2020. However, the Regulation on the Implementation of the Foreign Investment Law of the PRC still remains silent on whether contractual arrangements should be deemed as a form of foreign investment. Though these regulations do not explicitly classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractual arrangements would not be interpreted as a type of indirect foreign investment activities under the definition in the future. The Foreign Investment Law of PRC makes no mention of VIE structures, which means it does not explicitly classify whether variable interest entities that are controlled through contractual arrangements would be deemed as foreign invested enterprises if they are ultimately “controlled” by foreign investors. Accordingly, the Foreign Investment Law of PRC sets aside issues that still remain controversial but are relatively less urgent, such as the legality of the VIE structure and leaves those less urgent issues to legislative authorization. This means that VIE structures may in the future still be regarded as “foreign investment” under separate laws, administrative regulations formulated by the State Council, and regulatory documents according to the catch-all provision “foreign investments in other forms as provided by law, administrative regulations, or by the State Council” found in paragraph 2, Article 2 of the Foreign Investment Law of PRC.

The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified as either “restricted” or “prohibited” from foreign investment in a “negative list.” The Foreign Investment Law provides that foreign-invested entities operating in “restricted” or “prohibited” industries will require market entry clearance and other approvals from relevant PRC government authorities. On June 23, 2020, the Ministry of Commerce and the National Development and Reform Commission of China (the “NDRC”) jointly issued the latest version of Special Administrative Measures (Negative List) for Access of Foreign Investment (the “Negative List”) (2020 Edition). See “Regulations—Regulations relating to Foreign Investment.” Currently, a small portion of Lohas Agricultural’s business is related to the value-added telecommunication business (excluding e-commerce business, domestic multi-party communications services, store and forward services and call center services) and falls within the Negative List. If our control over the VIE through contractual arrangements are deemed as foreign investment in the future, and any business of the VIE is “restricted” or “prohibited” from foreign investment under the “negative list” promulgated or amended in the future, we may be deemed to be in violation of the Foreign Investment Law, the contractual arrangements that allow us to have control over the VIE may be deemed as invalid and illegal, and we may be required to unwind such contractual arrangements and/or restructure our business operations, any of which may have a material adverse effect on our business operation.

Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to address any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure and business operations.

If Lohas Agricultural fails to maintain or timely renew the ICP license, its business, financial condition and results of operations may be materially and adversely affected.

PRC regulations impose sanctions for engaging in Internet information services of a commercial nature without having obtained an Internet content provider license, or the ICP license. These sanctions include corrective orders and warnings from the PRC communication administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the mobile apps and websites may be ordered to cease operation. See “Regulation—Regulations on Value-added Telecommunication Services.”

The VIE, Lohas Agricultural, has obtained a Value-Added Telecommunications Services Operating License for providing information services via internet, or the ICP License, which will expire on September 6, 2026. Lohas Agricultural intends to timely renew the ICP License once it expires. However, Lohas Agricultural may not be able to renew its ICP License, which would subject it to the sanctions such as the imposition of fines and the discontinuation or restriction of its operations or other sanctions as stipulated in the Telecommunications Regulations of China or new regulatory rules, and materially and adversely affect its business and impede its ability to continue its operations.

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

If Lohas Agricultural or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if the shareholders of Lohas Agricultural were to refuse to transfer their equity interest to us or our designee when we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, we may have to take legal actions to compel them to perform their contractual obligations.

Lohas Agricultural and its subsidiaries conduct our business. In the event we are unable to enforce our contractual arrangements, we may not be able to exert effective control over Lohas Agricultural, and our ability to conduct our business may be negatively affected.

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

The equity interests of Lohas Agricultural are held, directly and indirectly, by numerous shareholders, including Mr. Yanyue Zhang, our Chairman and Chief Executive Officer. These shareholders may have potential conflicts of interest with us. These shareholders may breach, or cause Lohas Agricultural to breach, the existing contractual arrangements, which would have a material adverse effect on our ability to control Lohas Agricultural and receive economic benefits from it. For example, these shareholders may be able to cause our agreements with Lohas Agricultural 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 Lohas Agricultural 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 these shareholders, 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.

We may lose the ability to use and enjoy assets held by Lohas Agricultural and Lohas Supply Chain that are material to the operation of our business if Lohas Agricultural or Lohas Supply Chain goes bankrupt or becomes subject to a dissolution or liquidation proceeding.

As part of our contractual arrangements with Lohas Agricultural, Lohas Agricultural and Lohas Supply Chain hold certain assets and licenses that are material to the operation of our business, including intellectual property and premise. If Lohas Agricultural or Lohas Supply Chain goes bankrupt and all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. Under the contractual arrangements, Lohas Agricultural and Lohas Supply Chain may not, in any manner, sell, transfer, mortgage or dispose of its assets or legal or beneficial interests in the business without our prior consent. However, in the event that the shareholders of Lohas Agricultural breach this obligation and voluntarily liquidate Lohas Agricultural or Lohas Supply Chain, or Lohas Agricultural or Lohas Supply Chain declares bankruptcy, or all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our operations, which could materially and adversely affect our business, financial condition and results of operations. Furthermore, if Lohas Agricultural or Lohas Supply Chain undergoes a voluntary or involuntary liquidation proceeding, shareholders of Lohas Agricultural or unrelated third-party creditors may claim rights to some or all of its assets, hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

If the chops of our PRC subsidiary, the VIE and its subsidiary, are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.

In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiary, the VIE and its subsidiary are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safe, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so. If any of our authorized personnel obtains, misuses or misappropriates our chops for whatever reason, Lohas WFOE or Lohas Agricultural could experience disruptions in their operations. We may also have to take corporate or legal action, which could require significant time and resources to resolve while distracting management from our operations. Any of the foregoing could adversely affect our business and results of operations.

Risks Related to Doing Business in China

The rules and regulations and the enforcement thereof in China can change quickly with little advance notice. Such uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely affect us and limit the legal protections available to you and us. The 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 in the value of your Class A ordinary shares or significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. 

Substantially all of operations are conducted in the PRC and all of our revenue, which is all attributed to Lohas Agricultural, is sourced from the PRC. Accordingly, our consolidated financial condition and results of operations are affected to a significant extent by economic, political and legal developments and social condition in the PRC.

The PRC economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, and control of foreign exchange and allocation of resources. Although the PRC 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 PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies.

The PRC government has implemented various measures to encourage economic growth and to guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may also have a negative effect on us. Our financial condition and results of operations could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

On July 6, 2021, the Chinese government issued the Opinions on Strictly Cracking Down on Illegal Securities Activities which called for tightening oversight of data security and overseas listed companies as well as overseas equity fundraising and listing by Chinese companies. There are great uncertainties with respect to the interpretation and implementation thereof. In addition, on July 10, 2021, the Cyberspace Administration of China issued the Measures for Cybersecurity Review (Revision Draft for Comments) for public comments, which proposes to authorize the relevant government authorities to conduct cybersecurity review on a range of activities that affect or may affect national security, including listings in foreign countries by companies that possess the personal data of more than one million users. On November 14, 2021, the Cyberspace Administration of China issued the Regulations on Network Data Security (draft for public comments) which set forth cyber data security compliance requirements in greater detail.

The rules and regulations and the enforcement thereof in China can change quickly with little advance notice. The Chinese government may intervene or influence our operations at any time as the government deems appropriate to further regulatory, political and societal goals, 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 in the value of your Class A ordinary shares. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

We are required to obtain permission from the CSRC in connection with this offering under the 97 Circular and may be required to obtain permission from the CSRC or other Chinese authorities under M&A Rules or other laws, regulations and rules to operate and issue securities to foreign investors in this offering and/or listing on the Nasdaq Stock Market, and if we are not able to obtain such permissions in a timely manner, the securities currently being offered may substantially decline in value and become worthless.

As of the date of this prospectus, we, any of our subsidiaries or VIE have not applied for, received or been denied approval from any Chinese authorities to issue securities in this offering and/or list on the Nasdaq Stock Market, nor have we, any of our subsidiaries or VIE received any inquiry, notice, warning or sanctions regarding our planned overseas listing from the CSRC or any other PRC governmental authorities. We believe that we are required to obtain approval from the CSRC in connection with this offering under the Notice of the State Council on Further Strengthening the Administration of Share Issues and Listings Overseas, or the 97 Circular, but are not required to obtain permission from Chinese authorities to operate or issue these securities to foreign investors based on other PRC laws, regulations and rules currently in effect. We may not be able to obtain permission from the CSRC 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 become worthless.

The 97 Circular was promulgated by the State Council on June 20, 1997, which provides that an unlisted Chinese investment company or a listed company with Chinese investment holdings which is registered overseas shall not apply to issue shares and list a company overseas which involve domestic assets in the form of overseas assets which were invested in China and beneficially owned by the company for less than three (3) years. If there are special circumstances, the application must be submitted to the China Securities Supervision and Management Committee for examination and verification and then presented to the Securities Committee of the State Council for examination and approval. At the conclusion of these market listing activities, the unit which holds the domestic shareholders’ rights must notify the China Securities Supervision and Management Committee of the details of the case for the record. Based on our corporate structure and especially based on the fact that Lohas WFOE was established on March 11, 2019 and the VIE agreements were signed on August 16, 2019, our onshore assets which are controlled via VIE agreements by the offshore assets have not been controlled by the same offshore assets over three years. As a result, the approval of the China Securities Regulatory Commission is required in connection with this offering under PRC regulation. As of the date of this prospectus, we have neither applied to the China Securities Supervision and Management Committee for examination and verification nor have we presented to the Securities Committee of the State Council for examination and approval. Any party which violates the above provisions could be punished for the unauthorized issue of share certificates. The relevant department could impose an administrative penalty under the direction of the responsible department in charge. The higher-level department in charge of the unit involved may also punish the persons in charge of the unit and the persons directly responsible. Penalties will take the form of dismissal from a work post through to expulsion. A case which constitutes a crime will be transferred to a judicial organ which will pursue criminal liability in accordance with the law. In addition, the China Securities Supervision and Management Committee will impose penalties on the units involved and relevant intermediary organizations and liable persons in accordance with the Provisional Regulations on the Administration of the Issuing and Trading of Stocks and other relevant regulations.

In the opinion of Hylands Law Firm, our PRC legal counsel, (i) the ownership structure of Lohas WFOE and Lohas Agricultural, both currently and after giving effect to this offering, do not contravene any PRC laws and regulations in effect; (ii) each of the agreements under the contractual arrangements among Lohas WFOE, Lohas Agricultural and its shareholders governed by PRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. In addition, none of CSRC, CAC, or other authorities have set forth approval procedures specifically for VIEs, so we believe that we do not need to apply to Chinese authorities for approving the VIE structure. However, we have been further advised by our PRC legal counsel that that the enforceability of the VIE agreements has not been tested in a court of law, and that the PRC regulatory authorities could disallow this VIE structure.

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State-Owned Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules requires that an offshore special purpose vehicle formed for overseas listing purposes and controlled directly or indirectly by the PRC Citizens shall obtain the approval of the China Securities Regulatory Commission prior to overseas listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. The M&A rules contain certain procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise in some instances such as involving key industries, that will or may affect the security of the national economy, or results in the transfer of actual control rights of a well-known trademark or established Chinese trade name owned by a domestic enterprise, or that the approval from the Ministry of Commerce be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. We may grow our business in part by acquiring other companies operating in our industry. Compliance with the requirements of these regulations to complete such transactions could be time-consuming, and any required approval processes, including approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share. See “Business—Regulation—Regulations Relating to Overseas Listing.”

Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Strictly Cracking Down on Illegal Securities Activities, which were made available to the public on July 6, 2021. The Opinions on Strictly Cracking Down on Illegal Securities Activities emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Pursuant to the Opinions, Chinese regulators are required to accelerate rulemaking related to the overseas issuance and listing of securities, and update the existing laws and regulations related to data security, cross-border data flow, and management of confidential information. Numerous regulations, guidelines and other measures are expected to be adopted under the umbrella of or in addition to the Cybersecurity Law and Data Security Law. On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments, which required that, among others, in addition to “operator of critical information infrastructure,” any “data processor” possessing personal information of no less than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review, and further elaborated on the factors to be considered when assessing the national security risks of the relevant activities. On November 14, 2021, the Cyberspace Administration of China released the Regulations on Network Data Security (draft for public comments) and will accept public comments until December 13, 2021. The draft Regulations on Network Data Security provide that data processors refer to individuals or organizations that autonomously determine the purpose and the manner of processing data. If a data processor that processes personal data of more than one million users intends to list overseas, it shall apply for a cybersecurity review. In addition, data processors that process important data or are listed overseas shall carry out an annual data security assessment on their own or by engaging a data security services institution, and the data security assessment report for the prior year should be submitted to the local cyberspace affairs administration department before January 31 of each year. Given that Lohas Agricultural sells products through its digital platform, Lohas Agricultural may constitute a “data processor,” but the number of Lohas Agricultural’s online registered users is far less than one million. As a result, even if enacted, Lohas Agricultural would not be required to apply for a cybersecurity review under the proposed Measures for Cybersecurity Review (revised draft for public comments) or the Regulations on Network Data Security (draft for public comments). Moreover, the revised draft of the Measures for Cybersecurity Review or the Regulations on Network Data Security (draft for public comments) is in the process of being formulated and the Opinions on Strictly Cracking Down on Illegal Securities Activities remain unclear on how they will be interpreted, amended and implemented by the relevant PRC governmental authorities.

There is some uncertainty as to how PRC governmental authorities will regulate overseas listing in general. We may be unable to obtain CSRC approval pursuant to the 97 Circular in a timely manner, if at all, which could significantly limit or completely hinder our ability to conduct this offering, subject us to sanctions by the CSRC or other Chinese authorities and cause the securities being offered to substantially decline in value and become worthless. Furthermore, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain additional approvals for this offering and any follow-on offering, we may be unable to obtain such approvals which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors.

The Chinese government recently promulgated a number of laws, regulations and policies that focus on tightening oversight of data security and overseas equity fundraising and listing by Chinese companies. There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations, including those recently published or enacted. These regulatory risks could significantly limit or completely hinder our ability to conduct our business, accept foreign investments, or list on an U.S. exchange.

Substantially all of our business operations are conducted in the PRC and are governed by PRC laws, rules and regulations. Lohas WFOE, Lohas Agricultural and their subsidiaries are also subject to laws, rules and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.

The PRC government has recently announced its plans to enhance its regulatory oversight of Chinese companies listing overseas. The Opinions on Strictly Cracking Down on Illegal Securities Activities issued on July 6, 2021 called for:

As the Opinions on Strictly Cracking Down on Illegal Securities Activities were recently issued, there are great uncertainties with respect to the interpretation and implementation thereof.

China also recently enacted or proposed the PRC Cybersecurity Law, the PRC National Security Law, the Data Security Law, the Cybersecurity Review Measures (revised draft for public comments), the Personal Information Protection Law, and the Regulations on Network Data Security (draft for public comments), and may promulgate additional laws, rules and regulations that may impose extra and significant obligations and liabilities on overseas listed Chinese companies regarding data security, cross-border data flow, and compliance with China’s securities laws. See also “—Risks Related to Doing Business in China—Lohas Agricultural’s business is subject to complex and evolving laws and regulations regarding privacy and data protection. These laws and regulations can be complex and stringent, and many are subject to change and uncertain interpretation, which could result in claims, change to its data and other business practices, regulatory investigations, penalties, increased cost of operations, or declines in user growth or engagement, or otherwise affect its business. Although we believe we currently are not required to obtain clearance from the Cyberspace Administration of China before our listing in the United States under the recently enacted or proposed regulations or rules, we face uncertainties as to the interpretation or implementation of such regulations or rules, and if required, whether such clearance can be timely obtained, or at all.” It is uncertain whether or how these new laws, rules and regulations and the interpretation and implementation thereof may affect us, but among other things, our ability and the ability of our subsidiaries to obtain external financing through the issuance of equity securities overseas could be negatively affected.

Since 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies. In particular, because these laws, rules and regulations, especially those relating to the internet, are relatively new, and because of the limited number of published decisions and the nonbinding nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.

Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative authorities and courts 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. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business, financial condition and results of operations.

Lohas Agricultural’s business is subject to complex and evolving laws and regulations regarding privacy and data protection. These laws and regulations can be complex and stringent, and many are subject to change and uncertain interpretation, which could result in claims, changes to its data and other business practices, regulatory investigations, penalties, increased cost of operations, or declines in user growth or engagement, or otherwise affect its business. Although we believe we currently are not required to obtain clearance from the Cyberspace Administration of China before our listing in the United States under the recently enacted or proposed regulations or rules, we face uncertainties as to the interpretation or implementation of such regulations or rules, and if required, whether such clearance can be timely obtained, or at all.

Regulatory authorities in China have implemented and are considering further legislative and regulatory proposals concerning data protection. New laws and regulations that govern new areas of data protection or impose more stringent requirements may be introduced in China. In addition, the interpretation and application of consumer and data protection laws in China are often uncertain, in flux and complicated, including differentiated requirements for different groups of people or different types of data.

The PRC regulatory and enforcement regime with regard to privacy and data security is evolving. The PRC Cybersecurity Law provides that personal information and important data collected and generated by operators of critical information infrastructure in the course of their operations in the PRC should be stored in the PRC, and the law imposes heightened regulation and additional security obligations on operators of critical information infrastructure. According to the Cybersecurity Review Measures promulgated by the Cyberspace Administration of China and certain other PRC regulatory authorities in April 2020, which became effective in June 2020, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. As advised by our PRC counsel, we do not believe that Lohas Agricultural constitutes a critical information infrastructure operator pursuant to the Cybersecurity Review Measures that became effective in April 2020. The PRC government is increasingly focused on data security, recently launching cybersecurity review against a number of mobile apps operated by several US-listed Chinese companies and prohibiting these apps from registering new users during the review period.

On July 10, 2021, the Cyberspace Administration of China issued the Measures for Cybersecurity Review (Revision Draft for Comments) for public comments, which proposes to authorize the relevant government authorities to conduct cybersecurity review on a range of activities that affect or may affect national security, including listings in foreign countries by companies that possess the personal data of more than one million users. The PRC National Security Law defines various types of national security, including technology security and information security.

On November 14, 2021, the Cyberspace Administration of China released the Regulations on Network Data Security (draft for public comments) and will accept public comments until December 13, 2021. The draft Regulations on Network Data Security provide that data processors refer to individuals or organizations that autonomously determine the purpose and the manner of processing data. If a data processor that processes personal data of more than one million users intends to list overseas, it shall apply for a cybersecurity review. In addition, data processors that process important data or are listed overseas shall carry out an annual data security assessment on their own or by engaging a data security services institution, and the data security assessment report for the prior year should be submitted to the local cyberspace affairs administration department before January 31 of each year.

Lohas Agricultural currently has less than 160,000 registered users on its digital platform (comprised of WeChat public account, “Lohas City” mini-program, smart micro marts and website). Lohas Agricultural only requires and obtains user information after users register with it. Most of its existing users are small business owners, and over 158,000 of them have made at least one purchase from it through its digital platform. Given that Lohas Agricultural sells products through its digital platform, Lohas Agricultural may constitute a “data processor,” but the number of Lohas Agricultural’s online registered users is far less than one million. As a result, even if enacted, Lohas Agricultural would not be required to apply for a cybersecurity review under the Measures for Cybersecurity Review (Revision Draft for Comments) or the Regulations on Network Data Security (draft for public comments). If we become listed on the Nasdaq, Lohas Agricultural likely will be required to perform a data security assessment annually either by itself or retaining a third party data security service provider and submit such data security assessment report to the local agency every year under the draft Regulations on Network Data Security. Nevertheless, the Measures for Cybersecurity Review (Revision Draft for Comments) or the Regulations on Network Data Security (draft for public comments) are still being formulated and subject to further changes.

Although we believe we currently are not required to obtain clearance from the Cyberspace Administration of China before our listing in the United States under the Measures for Cybersecurity Review (Revision Draft for Comments), the Regulations on Network Data Security (draft for public comments), or the Opinions on Strictly Cracking Down on Illegal Securities Activities, we face uncertainties as to the interpretation or implementation of such regulations or rules, including the inherent uncertain in relying on an opinion of our PRC counsel with respect to such interpretation or implementation. The PRC regulators, including the CSRC or the CAC, may not reach the same conclusions as our PRC counsel.

On June 10, 2021, the Standing Committee of the National People’s Congress of China promulgated the Data Security Law which took effect on September 1, 2021. The Data Security Law provides for data security and privacy obligations of entities and individuals carrying out data activities, prohibits entities and individuals in China from providing any foreign judicial or law enforcement authority with any data stored in China without approval from competent PRC authority, and sets forth the legal liabilities of entities and individuals found to be in violation of their data protection obligations, including rectification order, warning, fines of up to RMB10 million, suspension of relevant business, and revocation of business permits or licenses.

On August 20, 2021, the Standing Committee of the National People’s Congress of China promulgated the Personal Information Protection Law which took effect on November 1, 2021. In addition to other rules and principles of personal information processing, the Personal Information Protection Law specifically provides rules for processing sensitive personal information. Sensitive personal information refers to personal information that, once leaked or illegally used, could easily lead to the infringement of human dignity or harm to the personal or property safety of an individual, including biometric recognition, religious belief, specific identity, medical and health, financial account, personal whereabouts and other information of an individual, as well as any personal information of a minor under the age of 14. Only where there is a specific purpose and sufficient necessity, and under circumstances where strict protection measures are taken, may personal information processors process sensitive personal information. A personal information processor shall inform the individual of the necessity of processing such sensitive personal information and the impact thereof on the individual’s rights and interests. As uncertainties remain regarding the interpretation and implementation of the Personal Information Protection Law, we cannot assure you that Lohas Agricultural will comply with the Personal Information Protection Law in all respects and regulatory authorities may order us to rectify or terminate our current practice of collecting and processing sensitive personal information.

Compliance with the PRC Cybersecurity Law, the PRC National Security Law, the Data Security Law, the Cybersecurity Review Measures, the Personal Information Protection Law, as well as additional laws and regulations that PRC regulatory bodies may enact in the future, may result in additional expenses to us and subject us to negative publicity, which could harm our reputation among users and negatively affect the trading price of our Class A ordinary shares in the future. PRC regulators, including the Department of Public Security, the MIIT, the SAMR and the CAC, have been increasingly focused on regulation in the areas of data security and data protection, and are enhancing the protection of privacy and data security by rule-making and enforcement actions at central and local levels. We expect that these areas will receive greater and continued attention and scrutiny from regulators and the public going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection. If Lohas Agricultural is unable to manage these risks, Lohas Agricultural could become subject to penalties, including fines, suspension of business, prohibition against new user registration (even for a short period of time) and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected.

Any failure, or perceived failure, by us to comply with the above and other regulatory requirements or privacy protection-related laws, rules and regulations could result in reputational damages or proceedings or actions against us by governmental entities, consumers or others. These proceedings or actions could subject us to significant penalties and negative publicity, require us to change our data and other business practices, increase our costs and severely disrupt our business, or negatively affect the trading price of our Class A ordinary shares.

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.

We are a company incorporated under the laws of the Cayman Islands, we conduct substantially most of our operations in China and substantially most of our assets are located in China. In addition, most of our senior executive officers reside within China for a significant portion of the time and most are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or those persons inside mainland China. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who reside and whose assets are located outside the United States. 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.

The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts 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 laws 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.

You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Companies Act (2021 Revision) of the Cayman Islands and the common law of the Cayman Islands. The rights of our shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties 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 the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands have a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our amended and restated memorandum and articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder resolution or to solicit proxies from other shareholders in connection with a proxy contest.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by our management, members of our board of directors or our controlling shareholders than they would as public shareholders of a company incorporated in the United States. For a discussion of significant differences between the provisions of the Companies Act (2021 Revision) of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders. See “Description of Share Capital—Differences in Corporate Law.”

It may be difficult for overseas regulators to conduct investigations or collect evidence within China.

Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigations or evidence collection activities within China may further increase difficulties faced by our shareholders in protecting their interests.

PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict, delay or prevent us from using the proceeds of this offering to make loans to our PRC subsidiary and VIE, or to make additional capital contributions to our PRC subsidiary.

In utilizing the proceeds of this offering, we, as an offshore holding company, are permitted under PRC laws and regulations to provide funding to Lohas WFOE, which is treated as a foreign-invested enterprise under PRC laws, through loans or capital contributions. However, loans by us to Lohas WFOE to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of the State Administration of Foreign Exchange and capital contributions to Lohas WFOE are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System, and registration with other governmental authorities in China.

The State Administration of Foreign Exchange promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of 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, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses. According to Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of bank loans that have been transferred to a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether the State Administration of Foreign Exchange will permit such capital to be used for equity investments in the PRC in actual practice. The State Administration of Foreign Exchange promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to grant loans to non-associated enterprises. Violations of Circular 19 and Circular 16 could result in administrative penalties. Circular 19 and Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from this offering, to Lohas WFOE, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.

We are not likely to finance the activities of Lohas Agricultural and its subsidiaries by means of capital contributions given the restrictions on foreign investment in the businesses that are currently conducted by Lohas Agricultural and its subsidiaries.

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 Lohas WFOE or Lohas Agricultural or future capital contributions by us to Lohas WFOE. As a result, uncertainties exist as to our ability to provide prompt financial support to Lohas WFOE or to Lohas Agricultural and its subsidiaries when needed. If we fail to complete such registrations or obtain such approvals, our ability to use foreign currency, including the proceeds we received from this offering, and 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.

The increased regulatory scrutiny focusing on U.S.-listed companies with significant operations in China in the U.S. could add uncertainties to our business operations, share price and reputation. The Company’s independent registered public accounting firm’s audit documentation related to their audit reports included in this prospectus include audit documentation located in China. Public Company Accounting Oversight Board (the “PCAOB”) may not be able to inspect audit documentation located in China and, as such, you may be deprived of the benefits of such inspection which could result in limitations or restrictions to our access to the U.S. capital markets. Furthermore, trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act or the Accelerating Holding Foreign Companies Accountable Act if the SEC subsequently determines our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as the Nasdaq, may determine to delist our securities. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable 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.

U.S. public companies that have substantially all of operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud.

The Company’s independent registered public accounting firm issued an audit opinion on the financial statements included in this prospectus filed with the SEC. As an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, the Company’s auditor is required by the laws of the United States to undergo regular inspections by the PCAOB. The Company’s auditor is headquartered in Manhattan, New York, and has been inspected by the PCAOB on a regular basis with the last inspection in 2018 and an ongoing inspection that started in November 2020. However, recent developments with respect to audits of China-based companies, such as the Company, create uncertainty about the ability of the Company’s auditor to fully cooperate with the PCAOB’s request for audit workpapers without the approval of the Chinese authorities. As a result, the Company’s investors may be deprived of the benefits of PCAOB’s oversight of the Company’s auditors through such inspections.

Inspections of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The PCAOB is currently unable to conduct inspections of audit firms located in China and Hong Kong. They are currently able to conduct inspections of U.S. audit firms where audit workpapers are located in China, but PCAOB requests for workpapers are subject to approval by Chinese authorities. The audit workpapers for the Company’s are located in China.

The PCAOB has not requested the Company’s auditor to provide the PCAOB with copies of the Company’s audit workpapers and consequently the Company’s auditor has not sought permission from PRC authorities to provide copies of these materials to the PCAOB. If the Company’s auditor is not permitted to provide requested audit workpapers located in China to the PCAOB, investors would be deprived of the benefits of PCAOB’s oversight of such auditors through such inspections.

In recent years, as part of increased regulatory focus in the United States on access to audit information, the United States enacted the Holding Foreign Companies Accountable Act, or the HFCA Act, in December 2020. The HFCA Act includes requirements for the SEC to identify issuers whose audit reports are prepared by auditors that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. The HFCA Act also requires public companies on this SEC list to certify that they are not owned or controlled by a foreign government and make certain additional disclosures in their SEC filings. In addition, if the auditor of a U.S. listed company’s financial statements is not subject to PCAOB inspections for three consecutive “non-inspection” years after the law becomes effective, the SEC is required to prohibit the securities of such issuer from being traded on a U.S. national securities exchange, such as the NYSE and the Nasdaq, or in U.S. over-the-counter markets. On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement the foregoing certification and disclosure requirements and that it was seeking public comment on the issuer identification process as well as the submission and disclosure requirements. On May 13, 2021, the PCAOB issued proposed PCAOB Rule 6100 Board Determinations Under the Holding Foreign Companies Accountable Act for public comment. The proposed rule provides a framework for making determinations as to whether PCAOB is unable to inspect an audit firm in a foreign jurisdiction, including the timing, factors, bases, publication and revocation or modification of such determinations, and such determinations will be made on a jurisdiction-wide basis in a consistent manner applicable to all firms headquartered in the jurisdiction.

On December 2, 2021, the SEC adopted amendments to finalize the interim final rules previously issued in March 2021, and established procedures to identify issuers and prohibit the trading of the securities of certain registrants as required by the HFCAA. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. The final amendments require SEC identified issuers to submit documentation to the SEC establishing that, if true, it is not owned or controlled by a governmental entity in the public accounting firm’s foreign jurisdiction. The amendments also require that an SEC-identified issuer that is a “foreign issuer,” as defined in Exchange Act Rule 3b-4, provide certain additional disclosures in its annual report for itself and any of its consolidated foreign operating entities. An SEC-identified issuer will be required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified. If a registrant is identified as an SEC identified issuer based on its annual report for the fiscal year ended December 31, 2021, the registrant will be required to comply with the submission and/or disclosure requirements in its annual report filing covering the fiscal year ended December 31, 2022. If we are determined by the SEC to be an SEC identified issuer, we will incur additional costs in complying with the submission and disclosure requirements in the annual report for each year in which we are identified. In the event that we are deemed to have had three consecutive “non-inspection” years by the SEC, our securities will be prohibited from trading on any national securities exchange or over-the-counter markets in the United States.

Accordingly, our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges if our auditor is not inspected by the PCAOB for three consecutive years, and this ultimately could result in our Class A ordinary shares being delisted. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which if enacted into law would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive “non-inspection” years instead of three. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the Board is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.

Furthermore, as part of ongoing efforts to protect U.S. investors, the U.S. President’s Working Group on Financial Markets, or the PWG, released a report in August 2020 recommending certain enhancements to listing standards on U.S. stock exchanges, including that the PCAOB have access to work papers of the principal audit firm for the audit of each company as a condition to initial and continued exchange listing. Companies unable to satisfy this standard as a result of governmental restrictions on access to audit work papers and practices in their jurisdiction may satisfy this standard by providing a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate inspection of the co-audit firm. The SEC announced that its staff have been directed to prepare and develop proposals in response to the report of the PWG. Any resulting actions, proceedings or new rules could adversely affect the listing and compliance status of China-based issuers listed in the United States, such as our company, and may have a material and adverse impact on the trading prices of the securities of such issuers, and substantially reduce or effectively terminate the trading of the securities of such issuers in the United States.

Should the PCAOB be unable to fully conduct inspections of the Company’s audit workpapers in China, it will make it more difficult to evaluate the effectiveness of the Company’s auditor’s audit procedures or quality control procedures. Investors may consequently lose confidence in the Company’s reported financial information and procedures and the quality of the Company’s financial statements, which would adversely affect the Company.

Any failure to comply with PRC regulations regarding employee share incentive plans that we intend to adopt after this offering may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

Pursuant to Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies due to their positions as director, senior management or employees of the PRC subsidiaries of the overseas companies may submit applications to the State Administration of Foreign Exchange or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees who are PRC residents and who may be granted options may follow Circular 37 to apply for the foreign exchange registration before our company becomes an overseas listed company. After our company becomes an overseas listed company upon completion of this offering, we and our directors, executive officers and other employees who are PRC residents and who have may be granted options will be subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by the State Administration of Foreign Exchange in February 2012, according to which, employees, directors, supervisors and other management members who are PRC residents participating in any stock incentive plan of an overseas publicly listed company are required to register with the State Administration of Foreign Exchange through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. We currently do not have employee share incentive plans and intend to adopt one after the completion of our initial public offering. We will make efforts to comply with these requirements if and when an employee share incentive plan is adopted in the future. However, there can be no assurance that they can successfully register with the State Administration of Foreign Exchange in full compliance with the rules. Failure to complete the registrations may subject them to fines and legal sanctions and may also limit the ability to make payment under our share incentive plans or receive dividends or sales proceeds related thereto, or our ability to contribute additional capital into our wholly-foreign owned enterprises in China and limit our wholly-foreign owned enterprises’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional share incentive plans for our directors and employees under PRC law.

We rely to a significant extent on dividends and other distributions on equity paid by the VIE to fund offshore cash and financing requirements.

We are a holding company and rely to a significant extent on dividends and other distributions on equity paid by Lohas Agricultural and its subsidiaries, and on remittances from Lohas WFOE, for our offshore cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, fund intercompany loans, service any debt we may incur outside of China, and pay our expenses. When Lohas WFOE, Lohas Agricultural or their subsidiaries incur additional debt, the instruments governing the debt may restrict their ability to pay dividends or make other distributions or remittances to us. Furthermore, the laws, rules and regulations applicable to Lohas WFOE, Lohas Agricultural and their subsidiaries permit payments of dividends only from part of their retained earnings, if any, determined in accordance with applicable PRC accounting standards and regulations.

Under PRC laws, rules and regulations, Lohas WFOE, Lohas Agricultural and their subsidiaries are required to set aside at least 10% of their net income each year to fund certain statutory reserves until the cumulative amount of such reserves reaches 50% of their registered capital. These reserves, together with the registered capital, are not included in the retained earnings distributable as cash dividends. Furthermore, under PRC law, they cannot distribute any profits until all of their losses from prior fiscal years have been offset. In accordance with the articles of association of these entities, profit distributions also need to be approved by their executive directors and shareholders before any distribution plan becomes effective. As a result, these entities are restricted in their ability to transfer a portion of their net assets to their shareholder as dividends. In addition, registered share capital and statutory reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held.

Limitations on the ability of Lohas WFOE to make remittance, and on the ability of Lohas Agricultural and its subsidiaries to pay dividends, could limit our ability to access cash generated by the operations of those entities, including to make investments or acquisitions that could be beneficial to our businesses, pay dividends to our shareholders or otherwise fund and conduct our business.

Discontinuation of any preferential tax treatment or any of the government subsidies currently available to us and accordingly the increase in the enterprise income tax or surcharges in the PRC could result in a decrease in our profits and materially and adversely affect our results of operations.

In March 2007, the National People’s Congress of China enacted the Enterprise Income Tax Law, which became effective on January 1, 2008 and amended on February 24, 2017 and December 29, 2018. Generally, Lohas WFOE, Lohas Agricultural and their subsidiaries, which are considered PRC resident enterprises under the Enterprise Income Tax Law and are subject to enterprise income tax on their worldwide taxable income as determined under PRC tax laws and accounting standards at a rate of 25% while preferential tax rates, tax holidays and even tax exemption may be granted on case-by-case basis. Lohas Agricultural was qualified as a “Software Enterprise” by Shenzhen State Tax Bureau, and therefore is entitled to a two-year exemption from the Enterprise Income Tax (“EIT”) commencing from its first profitable year and a 50% deduction of 25% EIT rate for the succeeding three years, with approval by the tax authorities. As confirmed by Lohas Agricultural, it was exempted from EIT from 2014 to 2015 and enjoyed the preferential income tax rate of 12.5% from 2016 to 2018. According to the Measures for the Handling of Matters concerning Preferential Enterprise Income Tax Policies (the “Announcement No. 23”) revised on April 25, 2018 by the State Taxation Administration, tax authorities conduct follow-up tax audits at any appropriate time after the enterprises receive the preferential tax treatment. We cannot assure you that Lohas Agricultural will be able to continue to receive such preferential tax treatment. If Lohas Agricultural fails to prove its eligibility for the preferential tax treatment due to its failure to provide materials retained for future reference as required by the tax authority or the existence of inconsistencies between the materials retained for future reference and its actual production or operation, financial accounting, relevant technology fields, among others, or the existence of committing fraud, Lohas Agricultural could be required to repay the income tax for the previous years at the applicable non-preferential tax rate and subject to other penalties in accordance with relevant tax laws.

In addition, an encouraged industrial enterprise located in Hengqin New District, Pingtan Comprehensive Experimental Zone or Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone is entitled to a reduced 15% tax rate from January 1, 2019 to December 31, 2021 according to finance and taxation [2014] No. 26 issued by the Ministry of Finance and the State Administration of Taxation. As confirmed by Lohas Supply Chain, it has enjoyed such preferential tax rate since 2015. On October 21, 2019, Shenzhen Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone Administration issued a notice confirming that the business of Lohas Supply Chain satisfies relevant modern logistic industry requirements under The Catalogue of the Preferential Enterprise Income Tax for Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone. However, according to the Announcement No. 23, tax authorities conduct follow-up tax audits at any appropriate time after the enterprises receive the preferential tax treatment. We cannot assure you that Lohas Supply Chain will be able to continue to receive such preferential tax treatment. If it is determined that Lohas Supply Chain is not entitled to receive the aforesaid preferential tax treatment, Lohas Supply Chain could be required to repay the income tax for the previous years at the applicable non-preferential tax rate and subject to additional penalties in accordance with relevant tax laws. As a result, our financial condition and results of operations could be materially and adversely affected.

Lohas Agricultural and Lohas Supply Chain have also received various financial subsidies from PRC local government authorities. The financial subsidies result from discretionary incentives and policies adopted by PRC local government authorities. Local governments may decide to change or discontinue such financial subsidies at any time. The discontinuation of such financial subsidies or imposition of any additional taxes could adversely affect our financial condition and results of operations.

We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to PRC income tax on our global income.

Under the PRC Enterprise Income Tax Law and its implementing rules, enterprises established under the laws of jurisdictions outside of China with “de facto management bodies” located in China may be considered PRC tax resident enterprises for tax purposes and may be subject to the PRC enterprise income tax at the rate of 25% on their global income. “De facto management body” refers to a managing body that exercises substantive and overall management and control over the production, personnel, accounting books and assets of an enterprise. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009, which has been revised by the Decision of the State Administration of Taxation on Issuing the Lists of Invalid and Abolished Tax Departmental Rules and Taxation Normative Documents on December 29, 2017 and by the Decision of the State Council on Cancellation and Delegation of a Batch of Administrative Examination and Approval Items on November 8, 2013. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 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 offshore enterprises, regardless of whether they are controlled by PRC enterprises. In addition, the SAT issued the Announcement of the State Administration of Taxation on Issues concerning the Determination of Resident Enterprises Based on the Standards of Actual Management Institutions in January 2014 to provide more guidance on the implementation of Circular 82. This bulletin further provides that, among other things, an entity that is classified as a “resident enterprise” in accordance with the circular shall file the application for classifying its status of residential enterprise with the local tax authorities where its main domestic investors are registered. From the year in which the entity is determined to be a “resident enterprise,” any dividend, profit and other equity investment gains from other resident enterprises within China in previous years (on or after January 1, 2008) shall be taxed in accordance with the enterprise income tax law and its implementing rules. If we were to be considered a PRC resident enterprise, we would be subject to PRC enterprise income tax at the rate of 25% on our global income. In such case, our profitability and cash flow may be materially reduced as a result of our global income being taxed under the Enterprise Income Tax Law. We believe that none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. 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.”

There are significant uncertainties under the PRC Enterprise Income Tax Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.

Under the PRC Enterprise Income Tax Law and its implementation rules, the profits of a foreign-invested enterprise generated through operations, which are distributed to its immediate holding company outside China, will be subject to a withholding tax rate of 10.0%. Pursuant to the Arrangement between the Mainland of the PRC and Hong Kong for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, which came into effect on December 8, 2006, and four conventions implemented as of June 11, 2008, December 20, 2010, December 29, 2015 and December 6, 2019, such rate may be reduced to 5.0% if a Hong Kong resident enterprise owns more than 25.0% of the equity interest in the PRC company. Lohas WFOE is wholly owned by Lohas HK. Accordingly, Lohas HK may qualify for a 5.0% tax rate in respect of distributions from Lohas WFOE. Under the Notice of the State Administration of Taxation on Issues regarding the Administration of the Dividend Provision in Tax Treaties promulgated on February 20, 2009, the taxpayer needs to satisfy certain conditions to enjoy the benefits under a tax treaty. These conditions include: (1) the taxpayer must be the beneficial owner of the relevant dividends, and (2) the corporate shareholder to receive dividends from the PRC subsidiary must have continuously met the direct ownership thresholds during the 12 consecutive months preceding the receipt of the dividends. Further, the State Administration of Taxation promulgated the Notice on How to Understand and Recognize the “Beneficial Owner” in Tax Treaties on October 27, 2009, which limits the “beneficial owner” to individuals, enterprises or other organizations normally engaged in substantive operations, and sets forth certain detailed factors in determining the “beneficial owner” status. And based on the Announcement on Certain Issues with Respect to the “Beneficial Owner” in Tax Treaties, issued on February 3, 2018 and effective on April 1, 2018, that the business activities conducted by the applicant do not constitute substantive business activities is one of the factors which are not conducive to the determination of an applicant’s status as a “beneficial owner.”

Entitlement to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of other countries or regions is subject to State Administration of Taxation Circular 60 which 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. 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. In October 2019, the State Administration of Taxation (SAT) issued the Announcement of the SAT on Issuing the Measures for the Administration of Non-resident Taxpayers’ Enjoyment of Treaty Benefits (SAT Public Notice No.35), which took effect on January 1, 2020, while SAT Circular 60 was abolished at the same time. SAT Public Notice No.35 stipulates that non-resident taxpayers can enjoy tax treaty benefits via the “self-assessment of eligibility, claiming treaty benefits, retaining documents for inspection” mechanism. There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations. As a result, we cannot assure you that we will be entitled to any preferential withholding tax rate under tax treaties for dividends received from Lohas WFOE.

We and our existing shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a Chinese establishment of a non-Chinese company, or immovable properties located in China owned by non-Chinese companies.

In October 2017, the State Administration of Taxation issued the Bulletin on Issues Concerning the Withholding of Non-PRC Resident Enterprise Income Tax at Source, or Bulletin 37, which replaced the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued by the State Administration of Taxation on December 10, 2009, and partially replaced and supplemented rules under the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Bulletin 7, issued by the State Administration of Taxation on February 3, 2015. Pursuant to Bulletin 7, an “indirect transfer” of PRC assets, including a transfer of equity interests in an unlisted non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of the underlying PRC assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. According to Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in China, immoveable properties located in China, and equity investments in PRC resident enterprises and any gains from the transfer of such asset by a direct holder, who is a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In the case of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred and may consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to immoveable properties located in China or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Pursuant to Bulletin 37, the withholding agent shall declare and pay the withheld tax to the competent tax authority in the place where such withholding agent is located within 7 days from the date of occurrence of the withholding obligation, while the transferor is required to declare and pay such tax to the competent tax authority within the statutory time limit according to Bulletin 7. Late payment of applicable tax will subject the transferor to default interest. Both Bulletin 37 and Bulletin 7 do not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange.

There is uncertainty as to the application of Bulletin 37 or previous rules under Bulletin 7. We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our company may be subject to filing obligations or taxes if our company is transferor in such transactions, and it may be subject to withholding obligations if our company is transferee in such transactions, under Bulletin 37 and Bulletin 7. For transfer of shares in our company by investors that are non-PRC resident enterprises, Lohas WFOE may be requested to assist in the filing under Bulletin 37 and Bulletin 7. As a result, we may be required to expend valuable resources to comply with Bulletin 37 and Bulletin 7 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

We are subject to restrictions on currency exchange.

All of our net income is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, including loans we may secure from Lohas WFOE, Lohas Agricultural or their subsidiaries. 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, Lohas WFOE may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the prior approval of the State Administration of Foreign Exchange by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, the State Administration of Foreign Exchange and other relevant PRC governmental authorities. Since a significant amount of our future net income and cash flow will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize cash generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders, including holders of our shares, and may limit our ability to obtain foreign currency through debt or equity financing for Lohas WFOE, Lohas Agricultural and their subsidiaries.

We are subject to the risk of a severe or prolonged downturn in the Chinese or global economy, which may materially and adversely affect our business and financial condition.

Any prolonged slowdown in the Chinese or global economy may have a negative impact on our business, results of operations and financial condition. Economic conditions in China are sensitive to global economic conditions. The global financial markets have experienced significant disruptions since 2008 as the United States, Europe and other economies have experienced periods of recession. The recovery from the lows of 2008 and 2009 has been uneven and there are new challenges, including the recent escalation of trade war between the United States and China accompanied by the slowdown of China’s economic growth since 2012, both of which may continue. International trade disputes could also result in various forms of protectionist trade legislation and other protectionist measures that could limit our ability to operate business internationally. Significant uncertainty also exists regarding the timing of UK’s anticipated withdrawal from the EU and the effects such withdrawal may have on world economy, as well as uncertainty regarding the likelihood and timing of policy changes by the Trump Administration in the U.S. and the subsequent impact on world economy. If present Chinese and global economic uncertainties persist, we may have difficulty in obtaining funding from investors. Adverse economic conditions could also reduce the number of consumers seeking our products. Should any of these situations occur, our revenue will decline, and our business and financial condition will be negatively impacted. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.

Fluctuations in exchange rates could result in foreign currency exchange losses and could materially reduce the value of your investment.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. In 2018, the value of the Renminbi depreciated by approximately 5.7% against the U.S. dollar; and in 2019, the Renminbi further depreciated by approximately 1.3% against the U.S. dollar. In 2020, the value of the Renminbi appreciated by approximately 6.3% against the U.S. dollar. It is difficult to predict how market forces or PRC or U.S. government policy, including any interest rate increases by the Federal Reserve, may impact the exchange rate between the Renminbi and the U.S. dollar in the future. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, including from the U.S. government. In August 2019, the U.S. Treasury Department announced that it labelled China a “currency manipulator,” which was officially dropped by the U.S. Treasury Department in January 2020. However, it is uncertain whether the U.S. government may issue any similar announcement in the future. As a result of such announcement, the United States may take further actions to eliminate perceived unfair competitive advantages created by alleged manipulating actions. Any actions taken by the U.S. Treasury Department in this regard as well as China’s possible responses could result in greater fluctuation of the Renminbi against the U.S. dollar. 

All of our revenue and substantially all of our costs are denominated in Renminbi. We are a holding company and we rely on dividends paid by Lohas WFOE for our cash needs. Any significant revaluation of Renminbi may materially and adversely affect our results of operations and financial position reported in Renminbi when translated into U.S. dollars, and the value of, and any dividends payable on, our ordinary shares in U.S. dollars. To the extent that we need to convert U.S. dollars we receive from this offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive. Conversely, if we decide to convert our Renminbi 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 Renminbi would have a negative effect on the U.S. dollar amount.

You may face difficulties in protecting your interests and exercising your rights as a shareholder since we conduct substantially all of our operations in China, and almost all of our officers and directors reside outside the United States.

Although we are incorporated in the Cayman Islands, we conduct most of our operations in China. A majority of our offices and directors reside outside the U.S. and substantially all of the assets of those persons are located outside of the U.S. It may be difficult for you to conduct due diligence on our company or such directors in your election of the directors and attend shareholders meetings if the meeting is held in China. We plan to have one shareholder meeting each year at a location to be determined, potentially in China. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation doing business entirely or predominantly within the U.S.

Legislation enacted in the Cayman Islands and the British Virgin Islands as to economic substance may affect our corporate structure and cause us to incur additional compliance costs.

The Cayman Islands and British Virgin Islands, together with several other non-European Union jurisdictions, have recently introduced legislation aimed at addressing concerns raised by the Council of the European Union as to offshore structures engaged in certain activities which attract profits without real economic activity.

With effect from January 1, 2019, the International Tax Co-operation (Economic Substance) Law, 2018 and issued related Regulations and Guidance Notes came into force in the Cayman Islands introducing certain economic substance requirements for “relevant entities” which are engaged in certain “relevant activities,” which in the case of exempted companies incorporated before January 1, 2019, will apply in respect of financial years commencing July 1, 2019, onwards. A “relevant entity” includes an exempted company incorporated in the Cayman Islands; however, it does not include an entity that is tax resident outside the Cayman Islands. Accordingly, for so long as our company is a tax resident outside the Cayman Islands, it is not required to satisfy the economic substance test.

Pursuant to the Economic Substance (Companies and Limited Partnerships) Act, 2018 of the British Virgin Islands that came into force on January 1, 2019, if Lohas BVI is carrying on a “relevant activity”, then it will be required to establish economic substance in the British Virgin Islands unless it is tax resident in another jurisdiction (other than a “blacklisted” jurisdiction, which does not include China).

Although it is presently anticipated that these laws will have little material impact on our company or its operations, as the legislation is new and remains subject to further clarification and interpretation it is not currently possible to ascertain the precise impact of these legislative changes on our company.

Risks Related to this Offering and the Market for Our Class A Ordinary Shares Generally

An active trading market for our Class A ordinary shares may not develop after this offering and you may not be able to resell your ordinary shares at or above the price you paid, or at all.

Prior to this offering, there has been no public market for our shares. We have received approval to list our Class A ordinary shares on the Nasdaq Capital Market under the symbol “LOHA.” However, there is no guarantee that a liquid public market for our Class A ordinary shares will develop. If an active trading market for our Class A ordinary shares does not develop after this offering, the market price and liquidity of our Class A ordinary shares will be materially and adversely affected. The initial public offering price for our Class A ordinary shares has been determined by negotiation between us and the underwriters based upon several factors, including prevailing market conditions, our historical performance, estimates of our business potential and earnings prospects, and the market valuations of similar companies. The price at which the Class A ordinary shares are traded after this offering may decline below the initial public offering price, meaning that you may experience a decrease in the value of your hares regardless of our operating performance or prospects.

The trading price of our Class A ordinary shares may be volatile, which could result in substantial losses to you.

The trading prices of our Class A ordinary shares are likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of other listed companies based in China. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading performances of other Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading performance of our Class A ordinary shares, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. Furthermore, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, such as the large decline in share prices in the United States, China and other jurisdictions in late 2008, early 2009, the second half of 2011 and in 2015, which may have a material and adverse effect on the trading price of our shares.

In addition to the above factors, the price and trading volume of our Class A ordinary shares may be highly volatile due to multiple factors, including the following:

As our initial public offering price is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution.

If you purchase Class A ordinary shares in this offering, you will pay more for your shares than the amount paid by our existing shareholders for their Class A ordinary shares on a per share basis. As a result, you will experience immediate and substantial dilution in net tangible book value per share in relation to the price that you paid for your Class A ordinary shares. We expect the dilution as a result of the offering to be $7.84 per share to new investors purchasing our Class A ordinary shares in this offering (assuming no exercise of the underwriters’ option to purchase additional shares), assuming an initial public offering price of $9.00 per share, which is the midpoint of the estimated range of the initial public offering price shown on the cover page of this prospectus. In addition, you will experience further dilution to the extent that our Class A ordinary shares are issued upon the vesting of restrictive shares or exercise of options under any share incentive plans that we may adopt. All of the Class A ordinary shares issuable under our then share incentive plans will be issued at a purchase price on a per share basis that is less than the assumed public offering price per share in this offering. See “Dilution” for a more complete description of how the value of your investment in our shares will be diluted upon completion of this offering.

Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of your Class A ordinary shares for return on your investment.

We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. See “Dividend Policy.” Therefore, you should not rely on an investment in our Class A ordinary shares as a source for any future dividend income.

Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our Class A ordinary shares will likely depend entirely upon any future price appreciation of our shares. There is no guarantee that our Class A ordinary shares will appreciate in value after this offering or even maintain the price at which you purchased your shares. You may not realize a return on your investment, and you may even lose your entire investment.

If the ownership of our ordinary shares continues to be highly concentrated, it may prevent you and other minority shareholders from influencing significant corporate decisions and may result in conflicts of interest.

Upon completion of this offering, Lohas World (Group) Co., Limited, or Lohas World, a company indirectly controlled by Mr. Yanyue Zhang, will own approximately 92.82% of our outstanding voting shares (or approximately 92.31% if the underwriters exercise its option to purchase additional shares in full). As a result, it owns shares sufficient for majority votes over all matters requiring shareholder votes, including: the election of directors; mergers, consolidations, and acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; amendments to our amended and restated memorandum and articles of association; and our winding up and dissolution. This concentration of ownership may delay, deter or prevent acts that would be favored by our other shareholders. The interests of Lohas World may not always coincide with our interests or the interests of our other shareholders. This concentration of ownership may also have the effect of delaying, preventing or deterring a change in control of our company. Also, Lohas World may seek to cause us to take courses of action that, in its judgment, could enhance its investment in us, but which might involve risks to our other shareholders or adversely affect us or our other shareholders, including investors in this offering. As a result, the market price of our shares could decline, or shareholders might not receive a premium over the then-current market price of our shares upon a change in control. In addition, this concentration of share ownership may adversely affect the trading price of our shares because investors may perceive disadvantages in owning shares in a company with significant shareholders.

We have considerable discretion as to the use of the net proceeds from this offering and we may use these proceeds in ways with which you may not agree.

We intend to the proceeds from this offering primarily to enhance and expand our business operations and for general corporate purposes. However, we have considerable discretion in the application of the proceeds. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate or other purposes with which you do not agree or that do not improve our profitability or increase our share price. The net proceeds from this offering may also be placed in investments that do not produce income or that lose value.

Certain judgments obtained against us by our shareholders may not be enforceable.

We are an exempted company incorporated under the laws of the Cayman Islands. We conduct our operations outside the United States and substantially all of our assets are located outside the United States. In addition, a majority of our directors and executive officers and the experts named in this prospectus reside outside the United States, and a significant amount of their assets are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against them in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands, China or other relevant jurisdiction may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see “Enforceability of Civil Liabilities.”

Our amended and restated memorandum and articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders’ opportunity to sell their shares at a premium.

Our amended and restated memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our Class A ordinary shares. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our Class A ordinary shares may fall and the voting and other rights of the holders of our Class A ordinary shares may be materially and adversely affected. In addition, our amended and restated memorandum and articles of association contain other provisions that could limit the ability of third parties to acquire control of our company or cause us to engage in a transaction resulting in a change of control.

General Risk Factors

We may require additional capital to fund the expansion of our business, and our inability to obtain such capital could harm our business.

To support our expanding business, we may need additional capital to continue to make significant investments in our new and existing business and marketing. We cannot assure you that cash generated by our operations will be sufficient to allow us to fund such expansion. If cash flows from operations are not sufficient, we may need additional equity or debt financing to provide the funds required to expand our business. If such financing is not available on satisfactory terms or at all, we may be unable to expand our business or to develop new business at the rate desired and our operating results may suffer. Debt financing increases expenses which may contain covenants that restrict the operation of our business, and must be repaid regardless of operating results. Equity financing, or debt financing that is convertible into equity, could result in additional dilution to our existing shareholders.

Our inability to obtain adequate capital resources, whether in the form of equity or debt, to fund our business and growth strategies may require us to delay, scale back or eliminate some or all of our operations or the expansion of our business, which may have a material adverse effect on our business, operating results, financial condition or prospects.

General economic conditions that impact consumer spending or result in competitive responses could adversely affect our business.

The wholesale and retail food business is sensitive to changes in general economic conditions. Recessionary economic cycles, increases in interest rates, higher prices for commodities, fuel and other energy, inflation, high levels of unemployment and consumer debt, depressed home values, high tax rates, tariffs and other economic factors that affect consumer spending and confidence or buying habits may materially adversely affect the demand for products Lohas Agricultural sells. In recent years, the Chinese economy has experienced volatility due to uncertainties related to energy prices, credit availability, difficulties in the banking and financial services sectors, decreases in home values and retirement accounts, instability in foreign markets, high unemployment and falling consumer confidence. As a result, consumers are more cautious and could shift their spending to lower-priced competition, such as warehouse membership clubs, supermarkets or online retailers, which could have a material and adverse effect on our operating results and financial condition.

In addition, prolonged inflation or deflation can impact our business. Food deflation across multiple categories, particularly in produce, could reduce sales growth and earnings if our competitors react by lowering their retail pricing and expanding their promotional activities, which can lead to retail deflation higher than cost deflation that could reduce our sales and gross profit margins. Food inflation, when combined with reduced consumer spending, could also reduce sales and gross profit margins. As a result, our operating results and financial condition could be materially adversely affected.

If we are unable to attract, train and retain employees, we may not be able to grow or successfully operate our business.

Our continued success is dependent upon our ability to attract and retain qualified employees who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and consumers. We face intense competition for qualified employees. Our ability to meet our labor needs, while controlling wage and labor-related costs, is subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force in the markets in which we are located, unemployment levels within those markets, prevailing wage rates, changing demographics, health and other insurance costs and changes in employment legislation. In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, causing our customer engagement to suffer, while increasing our wages could cause our earnings to decrease. If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and brand image may be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our employees or employee wages may adversely affect our business, results of operations, cash flows or financial condition.

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 completion of this offering, we will become a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission, or the SEC, imposes various requirements on the corporate governance practices of public companies. We qualify as an “emerging growth company” pursuant to the JOBS Act. 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 SOX 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.

We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of SOX 404 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will 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 securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our Class A ordinary shares and trading volume could decline.

The trading market for our Class A ordinary shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our Class A ordinary shares or publishes inaccurate or unfavorable research about our business, the market price for our Class A ordinary shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our Class A ordinary shares to decline.

Substantial future sales or perceived potential sales of shares in the public market could cause the price to decline.

Sales of Class A ordinary shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our Class A ordinary shares to decline significantly. Upon completion of this offering, we will have 20,372,273 Class A ordinary shares outstanding, including 2,500,000 Class A ordinary shares newly issued in connection with this offering, assuming the underwriters do not exercise their option to purchase additional Class A ordinary shares. All Class A ordinary shares sold in this offering will be freely transferable by persons other than our “affiliates” without restriction or additional registration under the Securities Act. All of the other Class A ordinary shares outstanding after this offering will be available for sale, upon the expiration of the lock-up periods described elsewhere in this prospectus, beginning from the date of this prospectus (if applicable to such holder), subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act. Any or all of these Class A ordinary shares may be released prior to the expiration of the applicable lock-up period at the discretion of the underwriters. To the extent shares are released before the expiration of the applicable lock-up period and sold into the market, the market price of our Class A ordinary shares could decline significantly. See “Shares Eligible for Future Sale—Lock-up Agreements.”

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 U.S. domestic public companies.

Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the Nasdaq Capital Market. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, 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. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

As a foreign private issuer, we are permitted to rely on exemptions from certain Nasdaq corporate governance standards applicable to domestic U.S. issuers. This may afford less protection to holders of our shares.

We are exempted from certain corporate governance requirements of Nasdaq by virtue of being a foreign private issuer. As a foreign private issuer, we are permitted to follow the governance practices of our home country, the Cayman Islands, in lieu of certain corporate governance requirements of Nasdaq. As result, the standards applicable to us are considerably different than the standards applied to domestic U.S. issuers. For instance, we are not required to:

Although we do not currently intend to rely these “home country” exemptions, we may rely on some of these exemptions in the future. As a result, our shareholders may not be provided with the benefits of certain corporate governance requirements of Nasdaq.

As a “controlled company” under the rules of the NASDAQ, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public shareholders.

Prior to the completion of this Offering, our directors and officers beneficially own a majority of the voting power of our outstanding Class A ordinary shares. Even if the over-allotment option is exercised in full, we may continue to be a “controlled company.” Under Rule 5615(c)(1) of the Nasdaq Marketplace Rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and is permitted to phase in its compliance with the independent committee requirements. Although we currently do not intend to rely on the “controlled company” exemption under the Nasdaq listing rules, we could elect to rely on this exemption in the future. If we elected to rely on the “controlled company” exemption, a majority of the members of our board of directors might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors. Our status as a controlled company could cause our Class A ordinary shares to look less attractive to certain investors or otherwise harm our trading price.

There is a risk that we will be a passive foreign investment company for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. investors in our shares.

In general, a non-U.S. corporation is a passive foreign investment company, or PFIC, for any taxable year in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes dividends, interest, rents, royalties and certain gains. Cash is a passive asset for these purposes.

Based on the expected composition of our income and assets and the value of our assets, including goodwill, which is based on the expected price of the shares in this offering, we do not expect to be a PFIC for our current taxable year. However, the proper application of the PFIC rules to a company with a business such as ours is not entirely clear. It is also not entirely clear how the contractual arrangements between us and Lohas Agricultural will be treated for purposes of the PFIC rules, and we may be or become a PFIC if Lohas Agricultural is not treated as owned by us for these purposes. Because the proper characterization of certain components of our income and assets, and the treatment of our contractual arrangements with Lohas Agricultural, is not entirely clear, because we will hold a substantial amount of cash following this offering, and because our PFIC status for any taxable year will depend on the composition of our income and assets and the value of our assets from time to time (which may be determined, in part, by reference to the market price of our shares, which could be volatile), there can be no assurance that we will not be a PFIC for our current taxable year or any future taxable year.

If we were a PFIC for any taxable year during which a U.S. investor holds shares, certain adverse U.S. federal income tax consequences could apply to such U.S. investor. See “Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. The forward-looking statements are contained principally in, but not limited to, the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the heading “Risk Factors” and elsewhere in this prospectus. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.

This prospectus also contains certain data and information, which we obtained from various government and private publications. Although we believe that the publications and reports are reliable, we have not independently verified the data. Statistical data in these publications includes projections that are based on a number of assumptions. If any one or more of the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions.

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. Although we will become a public company after this offering and have ongoing disclosure obligations under United States federal securities laws, we do not intend to update or otherwise revise the forward-looking statements in this prospectus, whether as a result of new information, future events or otherwise.

USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $18.91 million, or approximately $22.03 million if the underwriters exercise the over-allotment option in full, after deducting underwriting discounts and the estimated offering expenses payable by us. These estimates are based upon the assumption that we issue 2,500,000 Class A ordinary shares at the initial public offering price of $9.00 per share, the midpoint of the estimated range of the initial public offering price shown on the cover page of this prospectus. A $1.00 increase (decrease) in the assumed initial public offering price of $9.00 per share would increase (decrease) the net proceeds to us from this offering by $2.31 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

The primary purposes of this offering are to create a public market for our shares for the benefit of all shareholders, retain talented employees by providing them with equity incentives and obtain additional capital. We currently intend to use the net proceeds of this offering as follows:

The foregoing represents our current intentions to use and allocate the net proceeds of this offering based upon our present plans and business conditions. Our management, however, will have broad discretion in the way that we use the net proceeds of this offering; provided that we will not use proceeds of this offering to repay any of Lohas Agricultural’s (including Lohas Supply Chain’s) outstanding indebtedness. Pending the final application of the net proceeds of this offering, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. See “Risk Factors—Risks Related to this Offering and the Market for Our Ordinary Shares Generally—We have considerable discretion as to the use of the net proceeds from this offering and we may use these proceeds in ways with which you may not agree.”

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 PRC subsidiary in China only through loans or capital contributions and to the VIE only through loans within our business scope, subject to the approval of government authorities. According to the regulations related to foreign investment and foreign currency of the PRC, as described under “Our Business—Regulation—Regulations Relating to Foreign Investment” and “—Regulations Relating to Foreign Exchange,” any funds we transfer to our PRC subsidiary, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration with relevant governmental authorities in China. According to the relevant PRC regulations on foreign-invested enterprises in China, there are no quantity limits on our ability to make capital contributions to our PRC subsidiary. However, our PRC subsidiary, which is foreign-invested enterprise, may not procure loans which exceed the difference between its registered capital and its total investment amount as recorded in the Foreign Investment Comprehensive Management Information System. According to Circular 19, RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. According to Circular 16, using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to grant loans to associated enterprises is permitted. We intend to convert most of the proceeds to RMB through our PRC subsidiary and further develop our business within the business scope of our PRC subsidiary, VIE and other subsidiaries.

In order to use the proceeds of this offering, we intend to seek the government registration or approvals after this offering. However, 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 Doing Business in China—PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of this offering to make loans to our PRC subsidiary and the VIE, or to make additional capital contributions to our PRC subsidiary.”

DIVIDEND POLICY

The holders of our Class A ordinary shares are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiary and VIE. In addition, our operating subsidiary or VIE may, from time to time, be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our ordinary shares are entitled to receive, ratably, the net assets available to shareholders after payment of all creditors.  

Under Cayman Islands law, dividends may be declared and paid only out of funds legally available therefor, namely out of either profits or our share premium account, and provided further that a dividend may not be paid if this would result in our company being unable to pay its debts as they fall 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 subsidiaries and VIE. 

Current PRC regulations permit our indirect PRC subsidiary, Lohas WFOE, to pay dividends to Lohas HK only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, Lohas WFOE, Lohas Agricultural and its subsidiary are required to set aside at least 10% of their after-tax profits each year, if any, to fund a statutory reserve funds until the accumulative amount of such funds reaches 50% of their 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 such entity. 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, Lohas WFOE may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from its profits, if any. Furthermore, if Lohas WFOE, Lohas Agricultural and its subsidiary 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 are unable to receive all of the revenues from Lohas WFOE’s or Lohas Agricultural’s operations, we may be unable to pay dividends on our ordinary shares. 

Cash dividends, if any, on our Class A ordinary shares will be paid in U.S. dollars. Lohas HK may be considered a non-resident enterprise for tax purposes, so that any dividends Lohas WFOE pays to Lohas HK 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%. 

The PRC Government and the Hong Kong government entered into the Arrangement between the Mainland of the PRC and Hong Kong for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the “Arrangement”) on August 21, 2006. According to the Arrangement, 5% withholding tax rate shall be applied on the dividends paid by a PRC resident enterprise to a Hong Kong resident, provided that such Hong Kong resident directly holds at least 25% of the equity interest in the PRC resident enterprise, and vice versa. Otherwise, the withholding tax rate would be 10%. According to the Notice of the SAT on the Issues Concerning the Application of Dividend Clauses of Tax Agreements, which took effect on February 20, 2009, a taxpayer of the other contracting party of the tax agreements, who directly holds certain percentage (normally 25% or 10%) of equity interests in a PRC company, shall be entitled to the tax treatment specified in the tax agreements if all of the following requirements are satisfied: (i) such taxpayer obtaining dividends shall be a company; (ii) the equity interests and voting shares of a PRC company directly hold by such taxpayer shall reach the stipulated percentage; and (iii) the equity interests in a PRC resident enterprise directly owned by such taxpayer shall satisfy the stipulated percentage at any time during the 12 months prior to the obtainment of the dividends.

In current practice, a Hong Kong enterprise 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% with respect to dividends to be paid by Lohas WFOE to its immediate holding company, Lohas HK. Lohas HK intends to apply for the tax resident certificate when Lohas WFOE plans to declare and pay dividends to Lohas HK. However, we cannot assure you that Lohas HK’s application will be approved promptly.

CAPITALIZATION

As described elsewhere in this prospectus, all share amounts and per share amounts set forth below have been presented on a retroactive basis to reflect the Reverse Share Split of our outstanding ordinary shares at a ratio of one-for-two (1 for 2) which was implemented on June 16, 2020.

The following table sets forth our total capitalization as of March 31, 2021:

You should read this table together with our consolidated financial statements, 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

As described elsewhere in this prospectus, all share amounts and per share amounts set forth below have been presented on a retroactive basis to reflect the Reverse Share Split of our outstanding ordinary shares at a ratio of one-for-two (1 for 2) which was implemented on June 16, 2020.

If you invest in our Class A ordinary shares, your interest will be diluted to the extent of the difference between the initial public offering price per Class A ordinary share and our net tangible book value per Class A ordinary share after this offering. Dilution results from the fact that the assumed initial public offering price per Class A ordinary share is substantially in excess of the net tangible book value per Class A ordinary share attributable to the existing shareholders for our presently outstanding Class A ordinary shares. Because our Class A ordinary shares and Class B ordinary shares will have the same dividend and other rights, except for conversion and voting rights, the following discussion is presented on the basis of all of our ordinary shares, including Class A ordinary shares and Class B ordinary shares.

Our net tangible book value was approximately $15.60 million, or $0.57 per ordinary share, as of March 31, 2021. Our net tangible book value represents the amount of our total consolidated tangible assets (which is calculated by subtracting deferred tax assets from our total consolidated assets), less the amount of our total consolidated liabilities. Dilution is determined by subtracting net tangible book value per ordinary share after giving effect to the proceeds we will receive from this offering, at an assumed initial public offering price of $9.00 per Class A ordinary share, the midpoint of the estimated range of the initial public offering price shown on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

After giving effect to the sale of 2,500,000 Class A ordinary shares in this offering at an assumed initial public offering price of $9.00 per Class A ordinary share, which is the midpoint of the estimated range of the initial public offering price shown on the cover page of this prospectus, assuming no exercise of over-allotment option and after deducting underwriting commissions and estimated offering expenses payable by us, but without adjusting for any other change in our net tangible book value subsequent to March 31, 2021, our pro forma as adjusted net tangible book value would have been $1.16 per ordinary share. This represents an immediate increase in net tangible book value of $0.59 per ordinary share to our existing shareholders and immediate dilution of $7.84 per ordinary share to new investors purchasing Class A ordinary shares in this offering. The following table illustrates this per ordinary share dilution to the new investors purchasing Class A ordinary shares in this offering:

A $1.00 increase (decrease) in the assumed initial public offering price of $9.00 per Class A ordinary share (the midpoint of the estimated initial public offering price range on the cover page of this prospectus) would increase (decrease) our pro forma net tangible book value after giving effect to the offering by $2.31 million, the net tangible book value per ordinary share after giving effect to this offering by $0.07 per ordinary share and the dilution in net tangible book value per ordinary share to new investors in this offering by $0.93 per ordinary share, assuming no change to the number of Class A ordinary shares offered by us as set forth on the cover page of this prospectus, no exercise of over-allotment option and after deducting underwriting commissions and estimated offering expenses payable by us.

The pro forma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our Class A ordinary shares and other terms of this offering determined at pricing.

The following table summarizes the differences between our existing shareholders and the new investors with respect to the number of Class A ordinary shares purchased from us in this offering, the total consideration paid and the average price per Class A ordinary share paid at an assumed initial public offering price of $9.00 per Class A ordinary share, which is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, and before deducting estimated underwriting discounts and commissions and estimated offering expenses (assuming no exercise of over-allotment option).

The discussion and the table above exclude shares issuable upon exercise of warrants to be issued to the Representatives in this offering.

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected historical financial information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in the prospectus and the information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

The following selected consolidated financial data as of September 30, 2019 and 2020 and for the years then ended has been derived from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary consolidated financial data as of March 31, 2021 and for the six months ended March 31, 2020 and 2021 from our unaudited consolidated financial statements included elsewhere in this prospectus, which include all adjustments, consisting of normal recurring adjustments, that our management considers necessary for a fair presentation of our financial position and results of operations as of the dates and for the periods presented.

Our financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results for any period are not necessarily indicative of our future performance.

VIE Financial Information

Set forth below is selected consolidated statements of operations and cash flows for the years ended September 30, 2019 and 2020 and selected balance sheet information as of September 30, 2019 and 2020 showing financial information for the parent, non-VIE subsidiaries, the VIE and VIE’s subsidiaries, eliminating entries and consolidated information (dollars in thousands). In the tables below, the column headings correspond to the following entities in the organizational diagram on page 2.

Consolidated Statements of Operations Information