ESGH 8-K
ESG Inc. (ESGH)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
CURRENT REPORT
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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Securities registered under Section 12(g) of the Exchange Act:
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Securities registered pursuant to Section 12(b) of the Act: None
JUMPSTART OUR BUSINESS STARTUPS ACT
The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (the “JOBS Act”) as we do not have more than $1,070,000,000 in annual gross revenue and did not have such amount as of December 31, 2022 our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.
We may lose our status as an emerging growth company on the last day of our fiscal year during which (i) our annual gross revenue exceeds $2,000,000,000 or (ii) we issue more than $2,000,000,000 in non-convertible debt in a three-year period. We will lose our status as an emerging growth company if at any time we are deemed to be a large accelerated filer. We will lose our status as an emerging growth company on the last day of our fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective registration statement.
As an emerging growth company, we are exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) and Section 14A(a) and (b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such sections are provided below:
Section 404(b) of the Sarbanes-Oxley Act requires a public company’s auditor to attest to, and report on, management’s assessment of its internal controls.
Sections 14A(a) and (b) of the Exchange Act, implemented by Section 951 of the Dodd-Frank Act, require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation.
As long as we qualify as an emerging growth company, we will not be required to comply with the requirements of Section 404(b) of the Sarbanes-Oxley Act and Section 14A(a) and (b) of the Exchange Act.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K or Form 8-K and other reports filed by us from time to time with the Securities and Exchange Commission (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, our management as well as estimates and assumptions made by our management. When used in the filings the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan” or the negative of these terms and similar expressions as they relate to us or our management identify forward looking statements. Such statements reflect the current view of our management with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section of this report entitled “Risk Factors”) as they relate to our industry, our operations and results of operations, and any businesses that we may acquire. Should one or more of the events described in these risk factors materialize, or should our underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the U.S. federal securities laws, we do not intend to update any of the forward-looking statements to conform them to actual results. The following discussion should be read in conjunction with our pro forma financial statements and the related notes that will be filed herein.
Item 1.01 Entry into Material Definitive Agreement
On November 6, 2023, Plasma Innovative Inc. (“PMIN,” or the “Company”) entered into a share exchange agreement (the “Share Exchange Agreement”) with ESG Inc. (“ESG”) and the shareholders of ESG (the “ESG Shareholders”). Under the Share Exchange Agreement, One Hundred Percent (100%) of the ownership interest of ESG was exchanged for 10,432,800 shares of common stock of PMIN issued to the ESG Shareholders. The former stockholders of ESG, when added to their existing PMIN holdings, have a majority of the issued and outstanding common stock following the share exchange transaction. The transaction has been accounted for as a recapitalization of the Company, whereby ESG is the accounting acquirer.
Immediately after completion of such share exchange, the Company has a total of 25,899,468 issued and outstanding shares, with authorized share capital for common shares of 65,000,000.
Consequently, the Company continues to not fall all under the definition of shell company as define in Rule 12b-2 under the Exchange Act of 1934, as amended (the “Exchange Act”) and ESG is now a wholly owned subsidiary.
Item 2.01 Completion of Acquisition or Disposition of Assets
As described in Item 1.01 above, on November 6, 2023 we acquired all the issued and outstanding shares of ESG pursuant to the Share Exchange Agreement and ESG became our wholly owned subsidiaries. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein ESG is considered the acquirer for accounting and financial reporting purposes.
As a result of the acquisition of all the issued and outstanding shares of ESG, we have now assumed ESG’s business operations as our own.
Description of Business
Company Overview
We were incorporated on July 22, 2021. Plasma Innovative Inc., a Nevada corporation, is an emerging cold plasma application company. We intended to use our proprietary, cold plasma technology to treat crops and plant seeds for agriculture. However, we have decided that it is in the best interest of our shareholders to cease operations in the plasma application in the agriculture sector.
On November 6, 2023, Plasma Innovative Inc. (“PMIN,” or the “Company”) entered into a share exchange agreement (the “Share Exchange Agreement”) with ESG Inc. (“ESG”), a Nevada corporation, and the shareholders of ESG (the “ESG Shareholders”), whereby One Hundred Percent (100%) of the ownership interest of ESG was exchanged for 10,432,800 shares of common stock of PMIN issued to the ESG Shareholders. The transaction has been accounted for as a recapitalization of the Company, whereby ESG is the accounting acquirer.
Immediately after completion of such share exchange, the Company has a total of 25,899,468 issued and outstanding shares, with authorized share capital for common share of 65,000,000.
Business Overview
Following the Share Exchange Agreement, Plasma Innovative Inc. (“PMIN” or the “Company”) is a US public company incorporated in Nevada on July 22, 2021, entered into an agreement on November 6, 2023 to acquire all the outstanding shares of ESG, which now operates as the Company’s wholly owned subsidiaries. While the Company was formed to use our proprietary, cold plasma technology to treat crops and plant seeds for agriculture, we have ceased such operations.
ESG Inc. was incorporated in October 2022 as a Nevada holding corporation and is headquartered at Kennett Square, PA and develops and operates sustainable plant-based ingredients and food production and distribution with the substantial experience of its management team, including experience and relationships in the industry of mushroom, agriculture and food in the world and the capital markets in the States.
On September 28, 2023, ESG Inc. entered into a share exchange agreement with Funan Allied United Farmer Products Co., Ltd., a China corporation (“AUFP”), the shareholders of AUFP, (each a “Shareholder,” and collectively, the “Shareholders”), and Hainan ESG Technology Co., Ltd., a China corporation (“Hainan ESG”). Pursuant to such agreement, the Shareholders exchanged their equity of AUFP to Hainan ESG for shares of common stock of ESG, and ESG has agreed to offer the ESG shares. Following this transaction, AUFP became a 74.52% subsidiary of ESG through Hainan ESG.
Neither PMIN nor ESG are Chinese operating company. They are Nevada holding companies that operate business through Funan Allied United Farmer Products Co., Ltd., which owns Anhui Allied United Mushroom Technology Co., Ltd. and Anhui Allied United Mushroom Co., Ltd., all of whom are Chinese operating companies.
The Company exercises control over the operations of its subsidiaries. On February 17, 2023, the China Securities Regulatory Commission, or CSRC, issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, which became effective on March 31, 2023. Pursuant to the Trial Measures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevant information to the CSRC. Since there is no offering, nor listing, we have not sought CSRC approval. Instead, we have relied on the legal opinion attached hereto as Exhibit 99.1.
Our subsidiaries are formed and operating in the Peoples Republic of China (together, the “Material PRC Company”) and have been duly established and is validly existing as a company under the laws of the Peoples Republic of China (“PRC Laws”) and has received all authorizations required by the Peoples Republic of China (the “Governmental Authorizations”) for its establishment to the extent such Governmental Authorizations are required under applicable PRC Laws, and its business license is in full force and effect. The Material PRC Company has the capacity and authority to own assets, to conduct business, and to sue and be sued in its own name under PRC Laws. The articles of association, business license and other constitutional documents (if any) of the Material PRC Company complies with the requirements of applicable PRC Laws and are in full force and effect. The Material PRC Company has not taken any corporate action, nor has any legal proceedings commenced against it, for its liquidation, winding up, dissolution, or bankruptcy, for the appointment of a liquidation committee, team of receivers or similar officers in respect of its assets or for any adverse suspension, withdrawal, revocation or cancellation of its business license.
All of the equity interests of the Material PRC Company are owned by ESG, through ESG China Limited, a Hong Kong company, and Hainan ESG Technology Co., Ltd, a PRC company, and we believe the Material PRC Company has obtained all necessary Governmental Authorizations. The equity interests of the Material PRC Company are owned by ESG, through its subsidiaries, free and clear of any pledge or other encumbrance under PRC Laws, and there are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any equity interest in the Material PRC Company under PRC Laws.
All of our operations are conducted by our subsidiaries and through our wholly-foreign-owned entity (“WFOE”) based in China which involves unique risks to investors.
The legal and operational risks associated with being based in or having the majority of the Company’s operations in China could result in a material change in the value of the securities we are registering for sale or 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. Please see the Risk Factor titled “We are faced with risks and uncertainties as a foreign enterprise under PRC laws”.
Regulatory Permission
As substantially all of our operations are currently conducted by our PRC Subsidiaries in China, we are subject to the associated legal and operational risks, including risks related to the legal, political and economic policies of the Chinese government, the relations between China and the United States, or Chinese or United States regulations, which risks could result in a material change in our operations and/or cause the value of our ordinary shares to significantly decline or become worthless, and affect our ability to offer or continue to offer securities to investors. Recently, the PRC government initiated a series of regulatory actions and made a number of public statements on the regulation of business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas, and adopting new measures to extend the scope of cybersecurity reviews.
On July 6, 2021, the relevant PRC government authorities made public the Opinions on Strictly Cracking Down Illegal Securities Activities, which provided that the administration and supervision of overseas-listed China-based companies will be strengthened, and the special provisions of the State Council on overseas issuance and listing of shares by such companies will be revised, clarifying the responsibilities of domestic industry competent authorities and regulatory authorities. However, the Opinions on Strictly Cracking Down Illegal Securities Activities were only issued recently, leaving uncertainties regarding the interpretation and implementation of these opinions. It is possible that any new rules or regulations may impose additional requirements on us.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.
On December 28, 2021, the Cyberspace Administration of China (the “CAC”) jointly with the relevant authorities formally published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022 and replace the former Measures for Cybersecurity Review (2020). Measures for Cybersecurity Review (2021) stipulates that operators of critical information infrastructure purchasing network products and services, and online platform operator (together with the operators of critical information infrastructure, the “Operators”) carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, any online platform operator who controls more than one million users’ personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country.
According to the Notice by the General Office of the State Council of Comprehensively Implementing the List-based Management of Administrative Licensing Items (No. 2 [2022] of the General Office of the State Council) and its attachment, the List of Administrative Licensing Items Set by Laws, Administrative Regulations, and Decisions of the State Council (2022 Edition), as of the date hereof, our PRC subsidiaries has received from PRC authorities all requisite licenses, permissions or approvals needed to engage in the businesses currently conducted in China. As of the date hereof, neither we nor our PRC Subsidiaries (i) are required to obtain permissions from any PRC authorities to operate or issue our ordinary shares to foreign investors, (ii) are subject to permission requirements from the CSRC, the CAC or any other entity that is required to approve our PRC subsidiaries’ operations, or (iii) have received or were denied such permissions by any PRC authorities.
The only permission required for operations is the business license of the PRC subsidiaries. The business license in PRC is a permit issued by Market Supervision and Administration that allows the company to conduct specific business within the government’s geographical jurisdiction. As of the date hereof, our PRC subsidiaries have received from PRC authorities all requisite licenses, permissions or approvals needed to engage in the businesses currently conducted in China, and no permission or approval has been denied. At present, we do not believe our operations require any other approvals and or permissions of Chinese authorities.
If we were required to obtain approval from the CSRC in the future and were denied permission from Chinese authorities to list or become quoted on U.S. exchanges and/or quotation servicers, we will not be able to continue to be quoted or listed on U.S. exchanges, which would materially affect the interests of the investors. It is uncertain when and whether the Company will be required to obtain permission from the PRC government to list or become quoted on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain permission from any of the PRC central or local government to obtain such permission and has not received any denial to list or become quoted on the U.S. exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry; if we inadvertently conclude that such approvals are not required when they are, or applicable laws, regulations, or interpretations change and we are required to obtain approval in the future.
On December 24, 2021, the China Securities Regulatory Commission, or the CSRC, issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Administration Provisions”), and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (the “Measures”), which were open for public comments by January 23, 2022. The Administration Provisions and Measures for overseas listings lay out specific requirements for filing documents and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. Domestic companies seeking to list abroad must carry out relevant security screening procedures if their businesses involve supervisions such as foreign investment security and cyber security reviews. Companies endangering national security are among those off-limits for overseas listings. We believe the Company is not effected by this based upon the legal opinion attached hereto as Exhibit 99.1.
On February 17, 2023, with the approval of the State Council, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) and five supporting guidelines, which will come into effect on March 31, 2023. According to the Trial Measures, among other requirements, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedures with the CSRC; if a domestic company fails to complete the filing procedures, such domestic company may be subject to administrative penalties; and (2) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and such filings shall be submitted to the CSRC within three business days after the submission of the overseas offering and listing application. On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which clarifies that (1) on or prior to the effective date of the Trial Measures, domestic companies that have already submitted valid applications for overseas offering and listing but have not obtained approval from overseas regulatory authorities or stock exchanges may reasonably arrange the timing for submitting their filing applications with the CSRC, and must complete the filing before the completion of their overseas offering and listing; (2) a six-month transition period will be granted to domestic companies which, prior to the effective date of the Trial Measures, have already obtained the approval from overseas regulatory authorities or stock exchanges, but have not completed the indirect overseas listing; if domestic companies fail to complete the overseas listing within such six-month transition period, they shall file with the CSRC according to the requirements; and (3) the CSRC will solicit opinions from relevant regulatory authorities and complete the filing of the overseas listing of companies with contractual arrangements which duly meet the compliance requirements, and support the development and growth of these companies.
With respect to the domestic company, non-compliance with the Trial Measures or an overseas listing completed in breach of it may result in a warning or a fine ranging from RMB 1 million to RMB10 million. Furthermore, the directly responsible executives and other directly responsible personnel of the domestic company may be warned, or fined between RMB 500,000 and RMB 5 million and the controlling shareholder, actual controllers, and other legally appointed persons of the domestic company may be warned, or fined between RMB 1 million and RMB 10 million. If, during the filing process, the domestic company conceals important factors or the content is materially false, and securities are not issued, they are subject to a fine of RMB1 million to RMB10 million. With respect to the directly responsible executives and other directly responsible personnel of the domestic company, they are subject to a warning and fine between RMB 500,000 and RMB 5 million, and with respect to the controlling shareholder, actual controllers, and other legally appointed persons of the domestic company, they are subject to a warning and fine between RMB 1 million and RMB 10 million.
The Trial Measures have come into effect. After March 31, 2023, any failure or perceived failure by the domestic company or PRC subsidiaries to comply with the above confidentiality and archives administration requirements under the Trial Measures and other PRC laws and regulations may result in that the relevant entities would be held legally liable by competent authorities and referred to the judicial organization to be investigated for criminal liability if suspected of committing a crime.
According to a translated copy of the current and effective regulations promulgated by the China Securities Regulatory Commission, that is, the “Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies” Article 2 states, “Direct overseas offering and listing by domestic companies refers to such overseas offering and listing by joint-stock company incorporated domestically. Indirect overseas offering and listing by domestic companies refers to such overseas offering and listing by a company in the name of an overseas incorporated entity, whereas the company’s major business operations are located domestically, and such offering and listing is based on the underlying equity, assets, earnings or other similar rights of a domestic company”. Article 16 states, “Subsequent securities offerings of an issuer in the same overseas market where it has previously offered and listed securities shall be filed with the CSRC within 3 working days after the offering is completed.
According to a translated copy of the current and effective regulations promulgated by the China Securities Regulatory Commission, that is, the “Regulations on Strengthening the Confidentiality and Archives Management Work Related to the Overseas Issuance and Listing of Securities” Article 3 states, “A domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant entities or individuals including securities companies, securities service providers, and overseas regulators, documents and materials that contain state secrets or government work secrets, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level. Where there is ambiguity or dispute over the identification of a state secret, a request shall be submitted to the competent secrecy administrative department for determination; where there is ambiguity or dispute over the identification of a government work secret, a request shall be submitted to the competent government authority for determination.” Further, Article 4 states that, “A domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant entities or individuals including securities companies, securities service providers, and overseas regulators, other documents and materials that, if divulged, will jeopardize national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations.” Accordingly, as the Company does not believe its operations fall into the above legal provisions, the Company does not believe that it is required to seek authorizations from Chinese authorities.
On December 28, 2021, the Cyberspace Administration of China (the “CAC”) jointly with the relevant authorities formally published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022 and replace the former Measures for Cybersecurity Review (2020). Measures for Cybersecurity Review (2021) stipulates that operators of critical information infrastructure purchasing network products and services, and online platform operator (together with the operators of critical information infrastructure, the “Operators”) carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, any online platform operator who controls more than one million users’ personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country.
At present, we do not believe our operations require the approval and or permission of Chinese authorities, based upon the legal opinion attached hereto as Exhibit 99.1. This is because the Company’s business is food supply, which we were informed by counsel does not require the approval and permission of the Chinese government. Please see related legal opinion attached hereto as Exhibit 99.1. The “Special Management Measures for Foreign Investment Access (Negative List) (2021 Edition)” and “Market Access Negative List (2022 Edition)” issued by the Chinese government do not include the industry and business the Company is involved in. The Company will settle amounts owed under the WFOE structure by transferring dividends, or distributions between the holding company and its subsidiaries, or to investors, which have not yet occurred. We intend to rely primarily on dividends paid by the WFOE for our cash needs, including the funds necessary to pay dividends and other cash distributions, if any, to our shareholders, to service any debt we may incur and to pay our operating expenses. The Company has made no such distributions to date nor has it received any distributions from the WFOE to date, and the Company has no current cash management policies in place. The Company will look to implement one in the near future. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, our WFOE may experience difficulties in completing the administrative procedures necessary to pay distributions from its profits, if any. Furthermore, if our WFOE incurs debt on its own in the future, the instruments governing the debt may restrict their ability to pay distributions or make other payments. If the Company or our subsidiaries are unable to receive all of the revenues from our operations, we may be unable to pay dividends on our Shares.
Cash dividends, if any, on the Company’s Shares will be paid in U.S. dollars. If the Company is considered a PRC tax resident enterprise for tax purposes, any dividends paid to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10.0%.
There are no legal, arbitral or governmental proceedings, regulatory investigations or other governmental decisions, rulings, orders, or actions before any Governmental Agencies in progress or pending in the PRC to which the Company or the Material PRC Company is a party or to which any assets of the Material PRC Company is a subject.
All dividends declared and payable upon the equity interests in the WFOE may be converted into foreign currency and freely transferred out of the PRC free of any deductions in the PRC, provided that (i) the declaration and payment of such dividends complies with applicable PRC Laws and the constitutional documents of the WFOE, and (ii) the remittance of such dividends out of the PRC complies with the procedures required by the relevant PRC Laws relating to foreign exchange administration.
We face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
Adverse changes in economic and political policies of the PRC government could have a material and adverse effect on overall economic growth in China, which could materially and adversely affect our business. General macroeconomic conditions may materially and adversely affect our business, prospects, results of operations and financial position. The PRC government’s control over foreign currency conversion may adversely affect our business and results of operations and our ability to remit dividends.
There is no tax or duty payable by or on behalf of the Material PRC Company under applicable PRC Laws in connection with the creation, allotment and issuance Common Shares, provided that each person taking the aforementioned actions is not subject to PRC tax by reason of citizenship, permanent establishment, residence or otherwise subject to PRC tax imposed on or measured by net income or net profits.
There are no reporting obligations to any Governmental Agency under PRC Laws on those holders of Common Shares who are not deemed to be PRC residents as defined under applicable PRC Laws, to the extent that no reporting obligation is triggered by the purchase or holding of Common Shares under the PRC anti-monopoly laws, rules and regulations.
We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the board of directors deem relevant, and subject to the restrictions contained in any future financing instruments.
All of our business operations are conducted in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. Although the PRC economy has been transitioning from a planned economy to a more market-oriented economy since the late 1970s, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between the Renminbi and foreign currencies, and regulate the growth of the general or specific market. While the Chinese economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and among various sectors of the economy. As the PRC economy has become increasingly linked with the global economy, China is affected in various respects by downturns and recessions of major economies around the world. The various economic and policy measures enacted by the PRC government to forestall economic downturns or bolster China’s economic growth could materially affect our business. Any adverse change in the economic conditions in China, in policies of the PRC government or in laws and regulations in China could have a material adverse effect on the overall economic growth of China and market demand for our outsourcing services. Such developments could adversely affect our businesses, lead to reduction in demand for our services and adversely affect our competitive position.
The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since the late 1970s, the PRC government has been building a comprehensive system of laws and regulations governing economic matters in general. The overall effect has been to significantly enhance the protections afforded to various forms of foreign investments in China. We conduct our business primarily through our WFOE, and the WFOE is established in China. These companies are generally subject to laws and regulations applicable to foreign investment in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections available to us. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently applied by other government authorities (including local government authorities), thus making strict compliance with all regulatory requirements impractical, or in some circumstances impossible. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract.
ESG the Driving Force behind the Company
ESG’s core business philosophy is to develop and operate sustainable and technology-driving food businesses consistent with the principles of Environmental, Sustainable and Governance investing.
An explanation of the three domains of Environmental, Sustainable and corporate Governance -- is critical to understanding ESG’s development of its own business.
Environmental and Sustainable criteria include technology and equipment application, energy use, waste, pollution, natural resource conservation, and treatment of animals and natural resources and help us avoid a company that might pose a greater financial risk due to their environmental or other practices. The United Nations projects that the world’s population is to reach 8.5 billion by 2030, 9.7 billion by 2050 and exceed 11 billion in 2100. Food production needs to meet the projected demands in the coming years. Thus, food production should be technology-driven, environmentally friendly, sustainable and not have a negative impact on the ecosystem and natural resources. Thus the “E and S” in ESG is the first keen focus in developing and operating our business.
Corporate Governance deals with a company’s top-down leadership and how it governs itself in an ethical, transparent and manner devoid of conflicts of interest and focuses on executive pay, audits, internal controls, and shareholder rights. We see an ever-increasing consumer and investor demand for sustainable food production and distribution. We believe that many consumers will expect that food is produced under stringent scrutiny for food safety and that ethical policies underlie every part of the process. We believe they will be willing to pay a premium for food sourced through such channels. In addition, we expect governments everywhere will promulgate and enforce stricter food safety regulations, which should eliminate a large number of food producers who will be unable to comply with these respective regulations. These market conditions will require food companies to embrace new means of production and technology. We believe this will lead to consolidation in various segments of the food industry, in which only forward-thinking participants like ESG will survive and prosper.
Our Operating Subsidiary Companies
PMIN is a holding company of ESG, which, itself, is a holding company engaged in sustainable food production and distribution directly or indirectly through our subsidiaries. ESG currently owns operating subsidiaries in China. Our operating subsidiaries are involved in direct mushroom composing, growing, food production, distribution as well as import and export of food. We believe that the growing global demand for sustainable high-quality food presents a unique opportunity to operate companies engaged in this critical area that is being paid increasing attention by global investors.
Funan Allied United Farmer Product Co., Ltd. (“AUFP”) was created in 2017 in China by US mushroom industry participants with the support of strategic investors to revolutionize China’s mushroom industry and create enhanced standards for food safety, sustainability, greenness, and resulting high-quality food products to serve Chinese consumers and regional Asian export markets. AUFP engages in the research and development, composting, cultivation, processing, packaging, and distribution of high-quality white button mushrooms from Fuyang, China. As a bio-sustainable and resources-recyclable company, with wheat straw and animal manure as the major raw materials, kinds of agricultural waste, AUFP is dedicated to building Fuyang into the hub to supply high-quality mushroom, compost and organic fertilizer in Asia with the support of industrial experts and capital.
Currently, AUFP owns approximately 56 acres of industrial land use rights and built bunkers, tunnels and growing facilities, totaling approximately 300,000 square feet, with annual production of Phase III compost of 21,600 tons and fresh white button mushrooms of 7300 tons. With the completion of the expansion of bunkers and tunnels, composting facilities, AUFP anticipates increasing production capacity to 90,000 tons of Phase IIII compost, of which two-thirds are planned to be sold to third party’s farms.
As an AUFP’s subsidiary, Anhui Allied United Mushroom Technology Co., Ltd. (“AUMT”) operates a Phase III compost manufacturing facility to distribute to its own and third-party growing facilities in China and east and southeast Asia while Anhui Allied United Mushroom Co. Ltd. (“AUM”), an AUFP subsidiary, is a company engaged in growing, packing and distributing fresh white button mushrooms in China.
AUFP received the highest quality certification “Green Food” in China. Along with its subsidiaries, AUFP recorded a consolidated revenue of USD 7.25 million and USD 6.1 million for the years ended December 31, 2022 and 2021, respectively.
Anhui Allied United Mushroom Technology Co., Ltd.
Anhui Allied United Mushroom Technology Co., Ltd. (“AUMT”) was created in China in March 2018, to manufacture white button mushroom compost.
White button mushroom compost is a unique living organism. It varies according to the environment where it is produced. Making mushroom compost is a complex process that AUMT has been perfecting. AUMT uses the art of the state phase III composting process to make compost under the supervision of a team of specialists, taking raw materials from the local area, for our own farms and other mushrooms growers.
Phase III composting process is composed of:
Phase I: Bales of straw are mixed with animal manure, water and gypsum. When mixed, the material is filled into large aerated concrete vessels, called bunkers. During this phase the compost reaches temperatures of 80 degrees Celsius. After 7–13 days the Phase I process is completed, ready for the Phase II process to begin.
Phase II: The material is removed from the bunkers and filled into closed tunnels, where we monitor and control a series of temperature changes – the most important of which is pasteurization. Pasteurization helps remove any unwanted organisms from the compost. The next and most important stage of Phase II is the conditioning of the compost. This means that microbes convert ammonia and amines into protein. Phase II takes approximately 5–6 days. The climate controlled “tunnel” heats the compost to 58 degrees Celsius for pasteurization and then conditions it at 48 degrees Celsius.
Phase III: Once the Phase II process is completed, the compost is cooled and removed from the Phase 2 tunnels. Mushroom spawn is added and the compost is then refilled into Phase III tunnels. Spawn is usually made with rye or millet grain that has been sterilized and inoculated with mushroom tissue (mycelium). This Phase III incubation process takes 15-17 days. During this time mycelium grows throughout the substrate. After the 15-17 days incubation period, the Phase III compost is loaded into specially designed trucks for transport to the growing facility.
Currently AUMT owns 3 bunkers, 9 tunnels and related auxiliary facilities and equipment and produces approximately 1,800 tons of Phase III compost monthly. Under the ongoing expansion of composting facility, AUMT anticipates having 9 bunkers and 31 tunnels with the capacity of 90,000 tons annually of Phase III compost to supply gradually from January 2024.
Anhui Allied United Mushroom Co., Ltd.
Anhui Allied United Mushroom Co., Ltd. (“AUM”) was created in China in April, 2018, to grow fresh white button mushroom and provide white button mushroom growing management services. AUM produces high quality fresh white button mushrooms.
The growing process is composed of the following steps:
As the mushroom compost is filled into the growing rooms, a layer of peat is applied to the surface of the Phase III compost. The layer is called the casing layer and is essential for the formation of the mushrooms. Over a 3-4 days period, the mushroom tissue grows throughout the compost and up through the casing layer.
The environment is then altered to simulate an autumn day, which promotes the formation of mushrooms. As a result, tiny mushroom heads (pins) begin to appear. During the next two weeks the levels of moisture, temperature, humidity, carbon dioxide and air movement are carefully monitored.
The pins eventually grow into mushrooms. The mushrooms are picked by hand to maintain the highest possible quality. All our mushrooms are cooled quickly after harvesting and are packed and transported in refrigerated trucks to wholesale markets or supermarkets.
Currently, AUM owns approximately 335,000 square feet of growing area, with annual production of fresh white button mushroom of approximately 20,000,000 LBS.
Market Overview
Health Diet Trend
We believe that people are searching for vegan and plant-based options for every aspect of their lifestyle. Mushrooms are a nutritious vegetarian delicacy and contain many vitamins and minerals but are low on sugar and fat. We believe that they are becoming a preferable and quality ingredient source for plant-based food. As an innovative food company with the whole production chain of mushrooms, we are committed to innovating and providing sustainable mushroom-based food and its ingredients.
Mushrooms are popular in most of the developed countries and are becoming accepted in many developing countries. The market for mushrooms is growing rapidly because of their rich nutritional value and special taste aroma, and flavor. The global plant-based food market is expected to reach 77.8 billion U.S. dollars in 2025. The forecast projects that by 2030 the market will have more than doubled. (https://www.statista.com/statistics/1280394/global-plant-based-food-market-value/).
Quality Phase III Compost and Strong Demand
We believe that the key factor for the successful growing of white button mushrooms is composting. Composting is a delicate and difficult business, especially in large-scale and commercial indoor growing. ESG believes it is positioning itself as the compost provider in the Asian Pacific area with its management expertise and experience in composting and advantages of being near a raw material supply.
Our Competitive Strengths
Experienced Management
ESG’s management is composed of professionals in mushroom composting, growing, food processing and marketing, and the food industry, as well as in capital markets and public companies. We have experienced experts in white button mushroom production and, especially, composting, on our management team. Experienced and senior experts are the most important asset to ESG. ESG is designing and executing a comprehensive training system to continue to build up the management team for our operations and the provisions of management service.
Focusing Key Stages of Food Production
ESG is focusing on the composting business and food processing business, especially mushroom related, which is two ends of the most value added.
ESG is focusing on research and development in connection with the improvement of mushroom composting production and of the production of mushroom based food and its ingredients. We concentrate ESG’s capital and efforts on key stages.
Production Location in the raw material base
A location near the supply of excellent raw materials such as wheat straw and animal manure is very important in order to control the cost of production and the quality of mushroom. ESG’s current and planned production facilities are located in excellent places of raw materials to be collected such as Funan in China.
Employees
We currently have around 20 full-time management employees and 40 full time operating workers along with 185 part time harvesters and runners.
Intellectual Property
ESG has 1 invention Patent, 14 Utility Model Patent, registered and 17 Utility Model Patent to file with pending effectiveness. They are:
| IP number | IP name | Filing Date | Filer | Status |
| CN102318825A | process for food production of improving phlegm-damp constitution | 2011.10.14 | AUFP | Granted |
| CN201820981543.X | A bisporus compost raw material mixing equipment | 2018.06.25 | AUFP | Granted |
| CN201821015764.8 | A processing equipment for canned mushrooms | 2018.06.25 | AUFP | Granted |
| CN201821036925.1 | Nutrient feeding equipment for planting Agaricus bisporus | 2019.07.02 | AUFP | Granted |
| CN201821036736.4 | A culture bed for growing Agaricus bisporus | 2018.06.29 | AUFP | Granted |
| CN201821037117.7 | A compost laying equipment for Agaricus bisporus planting | 2019.06.25 | AUFP | Granted |
| 2.02221E+12 | An environmental monitoring device for storage of Agaricus bisporus fermented material | 2022.05.18 | AUMT | Granted |
| 2.02221E+12 | A kind of fermented material storage device for Agaricus bisporus that is easy to clean | 2022.05.25 | AUMT | Granted |
| 2.02221E+12 | Fermentation tank for bisporus fermentation material | 2022.05.31 | AUMT | Granted |
| 2.02221E+12 | Edible fungus Agaricus bisporus fermentation material production system | 2022.06.14 | AUMT | Granted |
| 2.02222E+12 | A kind of aseptic production platform for the production of Agaricus bisporus fermented material | 2022.06.30 | AUMT | Granted |
| 2.02222E+12 | A discharge mechanism for production equipment of Agaricus bisporus fermented material | 2022.07.13 | AUMT | Granted |
| 2.02222E+12 | A kind of environmental control system of Agaricus bisporus fermented material | 2022.07.20 | AUMT | Granted |
| 2.02223E+12 | A sealing component and fermentation storage device | 2022.09.30 | AUMT | Granted |
| 2.02223E+12 | An adjustment component and a bisporus fermentation chamber | 2022.11.07 | AUMT | Granted |
| 2.02321E+12 | A kind of Agaricus bisporus planting watering structure | 2023.05.26 | AUM | filed |
| 2.02321E+12 | A carbon dioxide sensor with a dust-proof structure | 2023.05.26 | AUM | filed |
| 2.02321E+12 | Ventilation structure of Agaricus bisporus planting room | 2023.05.26 | AUM | filed |
| 2.02321E+12 | A kind of multi-layer mushroom drying machine | 2023.06.05 | AUM | filed |
| 2.02321E+12 | A highly airtight fermentation storage tank | 2023.06.05 | AUM | filed |
| 2.02321E+12 | A layered fermentation bin for Agaricus bisporus | 2023.06.05 | AUM | filed |
| 202321405549X | A kind of quick cleaning equipment for mushrooms | 2023.06.05 | AUM | filed |
| 2.02322E+12 | A shaking sorting structure for Agaricus bisporus | 2023.06.19 | AUM | filed |
| 2.02322E+12 | A kind of multi-layer fermentation tank | 2023.06.19 | AUM | filed |
| 2.02322E+12 | A soil-covering device for cultivation of Agaricus bisporus fermented material in shallow baskets | 2023.07.10 | AUM | filed |
| 2.02322E+12 | A bisporus picking machine | 2023.07.10 | AUM | filed |
| 2.02322E+12 | A kind of indoor Agaricus bisporus planting frame | 2023.07.10 | AUM | filed |
| 2.02322E+12 | A spliced edible fungus cultivation frame | 2023.07.10 | AUM | filed |
| 2.02322E+12 | A kind of mushroom weighing equipment | 2023.08.03 | AUM | filed |
| 2.02322E+12 | A kind of edible fungus culture substrate mixing machine | 2023.08.03 | AUM | filed |
| 2.02322E+12 | A kind of mushroom seeding device | 2023.08.03 | AUM | filed |
| 2.02321E+12 | A mushroom planting adjustable awning | 2023.05.26 | AUM | filed |
Reports to Security Holders
You may read and copy any materials the Company files with the Commission in the Commission’s Public Reference Section, Room 1580, 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Section by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.
Risk Factors
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information contained in this report before deciding to invest in our common stock.
Risks Related to our Business
We face risks related to health epidemics that could impact our sales and operating results.
Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including COVID-19. Although the impact of COVID-19 was temporary on our business and operations in 2021 due to some shutdowns in China, any outbreak of contagious diseases in the future, and other adverse public health developments, particularly in China, could have a material and adverse effect on our business operations. These could include disruptions or restrictions on our ability to our operations, as well as temporary closures of our facilities and ports or the facilities of our customers and third-party service providers. Any disruption or delay of our customers or third-party service providers would likely impact our operating results and the ability of the Company to continue as a going concern. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of China and many other countries, resulting in an economic downturn that could affect demand for our products and significantly impact our operating results.
The COVID-19 has had a significant impact on our operations for the year ended December 31, 2021 and had a temporary impact on our operations for the year ended December 31, 2022.
Our ability to manufacture and/or sell our products may be impaired by damage or disruption to our manufacturing, warehousing or distribution capabilities and/or distributors as a result of the impact from COVID-19. This damage or disruption could result from events or factors that are impossible to predict or are beyond our control, such as raw material scarcity, pandemics, government shutdowns, disruptions in logistics, supplier capacity constraints, adverse weather conditions, natural disasters, fire, terrorism or other events. In December 2019, COVID-19 emerged. Because of the shelter-in-place orders and travel restrictions mandated by the Chinese government, the production and sales activities of the Company stopped during the end of January and February 2020, which adversely impacted the Company’s production and sales during that period. Although the production and sales resumed at the end of March 2020, the COVID-19 outbreak has had a significant adverse impact on our business and operations during the fiscal year ended December 31, 2021. The continued uncertainties associated with COVID-19 may cause the Company’s revenue and cash flows to underperform in the next 12 months. A resurgence could negatively affect the sales. The extent of the future impact of COVID-19 is still highly uncertain and cannot be predicted as of the date of this report. If COVID-19 further impacts its production and sales, the Company’s financial condition, results of operations, and cash flows could continue to be adversely affected.
The loss of any of our key customers could reduce our revenues and our profitability.
Our key customers in fiscal year 2022 were distributor in Shanghai China and processor in Fujian province China. If we cannot maintain long-term relationships with these major customers, the loss of our sales to them could have an adverse effect on our business, financial condition and results of operations. There can be no assurance that we will maintain or improve the relationships with these customers, or that we will be able to continue to supply these customers at current levels or at all. In addition, having a relatively small number of customers/distributors may cause our quarterly results to be inconsistent, depending upon these customers’ daily capacity to sell.
Our failure to comply with PRC food safety laws may require us to incur significant costs.
Manufacturers in the Chinese food industry are subject to compliance with PRC food safety laws and regulations. Such laws require manufacturers to comply with regulations with respect to food, food additives, packaging, and food production sites, facilities and equipment. Failure to comply with PRC food safety laws may result in fines, suspension of operations and, in more extreme cases, criminal proceedings against an enterprise and its management. The Chinese government may also change the existing laws or regulations or impose additional or stricter laws or regulations, compliance with which may cause us to incur significant capital expenditures, which we may be unable to pass on to our customers through higher prices for our products.
We lack product and business diversification. Accordingly, our future revenues and earnings are more susceptible to fluctuations than a more diversified company.
Our primary business activities have historically focused on fresh white button mushrooms products although we are planning to build food processing facility. Because our focus is limited in this way, any risk affecting the fresh mushrooms industry or consumers’ desire for fresh mushrooms products could disproportionately affect our business. Our current lack of product and business diversification could inhibit the opportunities for growth of our business, revenues and profits.
Governmental support to the agriculture industry and/or our business may decrease or disappear.
Currently the Chinese government is supporting agriculture with tax exemption, especially e-commerce in agriculture. In addition, our local government has been supporting our company by providing subsidies from time to time. These beneficial policies may change, so the support we receive from the government may decrease or disappear, which may impact our development.
Beneficial tax incentives may disappear.
We operate our business through our Chinese subsidiaries. Currently the agriculture industry is highly supported by the Chinese government. For example, to further strengthen and standardize the support of comprehensive agricultural development to the characteristic industries with agricultural advantages, the Chinese National Office of Comprehensive Agricultural Development has decided to carry out the compilation of The Plan for Comprehensive Agricultural Development to Support the Agricultural Advantage and Characteristic Industries (2019-2021) (the “New Plan”). Mushrooms are emphasized and classified as a “dominant and characteristic industry,” which may become the objects of policy-support issue in the future. However, the New Plan has not yet been formally approved and the final result remains to be further observed.
As an agricultural production enterprise, we are enjoying certain tax benefits, including a tax waiver of VAT and income tax. If the tax policies change in a way that some or all of the tax benefits we presently receive are cancelled, we may need to pay much higher taxes which will reduce or eliminate our profit margin.
We are subject to extensive regulations by the Chinese government.
The food industry is subject to extensive regulations by Chinese government agencies. Among other things, these regulations govern the manufacturing, importation, processing, packaging, storage, exportation, distribution and labelling of our products. New or amended statutes and regulations, increased production at our existing facilities, and our expansion into new operations and jurisdictions may require us to obtain new licenses and permits and could require us to change our methods of operations at costs that could be substantial.
Failure to make adequate contributions to Housing Provident Fund for certain employees of our PRC subsidiaries could subject us to labor disputes or complaint and adversely affect our financial condition.
Pursuant to the Regulations on Management of Housing Provident Fund (“HPF”), promulgated by the State Council on April 3, 1999 and amended on March 24, 2002, PRC enterprises must register with relevant HPF management center, open special HPF accounts at a designated bank and make timely HPF contributions for their employees. In accordance with the Regulations on Management of Housing Provident Fund and the Rules for Administrative Enforcement of Housing Provident Fund in Anhui Province, an enterprise that fails to register with HPF management center or open accounts for its employees shall be ordered to do so within the prescribed time; if a PRC company fails to comply within the prescribed time, it could be fined between RMB10,000 and RMB50,000.
Furthermore, if such enterprise fails to pay in full or in part its HPF contributions, such enterprise will be ordered by the HPF enforcement authorities to make such contributions, and may be compelled by the people’s court that has jurisdiction over the matter to make such contributions. Pursuant to the relevant HPF laws and regulations, HPF contributions are only required for employees with urban housing registration. For employees with rural housing registration, contributions are voluntary and are not required. In addition, there are discrepancies in the interpretation and enforcement of such regulations at the national and local level. Local and national enforcement practices at times vary significantly.
Our PRC subsidiaries have not opened HPF accounts for their employees (almost all of them are with rural housing registration). Regarding those employees who our PRC subsidiaries make no contribution to HPF, our PRC subsidiaries has employment contract with them to clarify salary to include contribution and employee has obligation to deal with it by themself. Although our PRC subsidiaries do this way, they may still potentially be ordered by HPF enforcement authorities to make full contribution, and face litigation by employees in relation to their failure to make full contribution. As of the date of this report, our PRC subsidiaries have not received any demand or order from the competent authorities with respect their HPF contribution. To the extent the PRC subsidiaries are required to make such payment, our financial condition will likely be adversely affected.
Mushrooms are subject to risks related to diseases, pests, and system malfunction.
Mushrooms are exposed to diseases and pests. Pests and diseases during the cultivation process may significantly decrease the quantity of quality mushrooms, which may impact our revenue.
Temperature can have a significant impact on the growth and the quality of mushrooms. Although our growing facilities are indoor under the control of AI monitor, we are still potential to encounter the malfunction of cooling, airflow, and heating system.
Our farms may fail to comply with the legal requirements and our quality standards and be negatively impacted by the quality of our raw materials.
Our farms are responsible for complying with the legal requirements. It is possible that we fail to comply with any PRC law relating to food safety during the composting and growing. If the governmental agency determines we are not eligible to continue the operation, we will need to pause. Our farms may also be negatively impacted by bad quality of raw materials so fail to comply with our quality standards.
Increases in our raw materials costs may negatively affect our operating results.
The price of the raw materials we use may be inelastic when we wish to purchase supplies. We cannot guarantee that we will be able to control our material expenses. In addition, as we are competing based upon low cost, we will risk losing customers by increasing our selling prices. To the extent our cost increase beyond the price we can charge our customers, our operating results could be harmed.
We may require additional financing in the future and our operations could be curtailed if we are unable to obtain required additional financing when needed.
While we do not anticipate seeking additional financing in the immediate future, any additional equity may result in dilution to the holders of our outstanding shares of capital stock. Additional debt financing may include conditions that would restrict our freedom to operate our business, such as conditions that:
| ● | increase our vulnerability to general adverse economic and industry conditions; | |
| ● | require us to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow to fund capital expenditures, working capital and other general corporate purposes; and | |
| ● | limit our flexibility in planning for, or reacting to, changes in our business and our industry. |
We cannot guarantee that we will be able to obtain any additional financing on terms that are acceptable to us, or at all.
We are substantially dependent upon our senior management on current stage.
We are highly dependent on our senior management to manage our business and operations. In particular, we rely substantially on our Chief Executive Officer Zhi Yang on current stage.
Failure to manage our growth could strain our management, operational and other resources, which could materially and adversely affect our business and prospects.
Our growth strategy includes building food processing facility, developing export customers of our existing fresh mushroom and Phase III compost, and increasing varieties of agricultural and food products. Pursuing these strategies has resulted in, and will continue to result in substantial demands on management resources. In particular, the management of our growth will require, among other things:
| ● | stringent cost controls and sufficient liquidity; | |
| ● | strengthening of financial and management controls; | |
| ● | increased marketing, sales and support activities; and | |
| ● | hiring and training of new personnel. |
If we are not able to manage our growth successfully, our business and prospects would be materially and adversely affected.
An insufficient amount of insurance could expose us to significant costs and business disruption.
While we have purchased insurance to cover certain events, the amounts and scope of coverage could leave our business inadequately protected from loss. If we were to incur substantial losses or liabilities due to fire, explosions, floods, other natural disasters or accidents or business interruption, our results of operations could be materially and adversely affected.
If we fail to protect our intellectual property rights, it could harm our business and competitive position.
We rely on a combination of patents, trademark, domain name laws and non-disclosure agreements and other methods to protect our intellectual property rights.
Implementation of PRC intellectual property-related laws have historically been lacking, primarily because of ambiguities in the PRC laws and enforcement difficulties. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other western countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such litigation and an adverse determination in any such litigation, if any, could result in substantial costs and diversion of resources and management attention, which could harm our business and competitive position.
We may be exposed to trademark infringement and other claims by third parties which, if successful, could disrupt our business and have a material adverse effect on our financial condition and results of operations.
If we sell our branded products internationally, and as litigation becomes more common in China, we face a higher risk of being the subject of claims for trademark infringement, invalidity or indemnification relating to other parties’ proprietary rights. The defense of trademark suits, including of trademark infringement suits, and related legal and administrative proceedings can be both costly and time consuming and may significantly divert the efforts and resources of our management personnel. Furthermore, an adverse determination in any such litigation or proceedings to which we may become a party could cause us to:
| ● | pay damage awards; | |
| ● | seek licenses from third parties; | |
| ● | pay ongoing royalties; | |
| ● | redesign our branded products; or | |
| ● | be restricted by injunctions, |
each of which could effectively prevent us from pursuing some or all of our business and result in our customers or potential customers deferring or limiting their purchase or use of our products. This could have a material adverse effect on our financial condition and results of operations.
There are implications of being an emerging growth company.
As a company with less than $2.0 billion in revenue during its last fiscal year, we qualify as an “emerging growth company” as defined in the JOBS Act. For as long as a company is deemed to be an emerging growth company, it may take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies. These provisions include:
| - | a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis included in an initial public offering registration statement; | |
| - | an exemption to provide less than five years of selected financial data in an initial public offering registration statement; | |
| - | an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting; | |
| - | an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; | |
| - | an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; and | |
| - | reduced disclosure about our executive compensation arrangements. |
An emerging growth company is also exempt from Section 404(b) of the Sarbanes Oxley Act, which requires that the registered accounting firm shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting. Similarly, as a Smaller Reporting Company we are exempt from Section 404(b) of the Sarbanes-Oxley Act and our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until such time as we cease being a Smaller Reporting Company.
As an emerging growth company, we are exempt from Section 14A (a) and (b) of the Exchange Act which require stockholder approval of executive compensation and golden parachutes.
Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We would cease to be an emerging growth company upon the earliest of:
| - | the first fiscal year following the fifth anniversary of the filing of this Form 10; | |
| - | the first fiscal year after our annual gross revenues are $2 billion or more; | |
| - | the date on which we have, during the previous three-year period, issued more than $2 billion in non-convertible debt securities; or | |
| - | as of the end of any fiscal year in which the market value of our Common Stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. |
Risks Related to Doing Business in China
Because all of our operations are in China, our business is subject to the complex and rapidly evolving laws and regulations there. The PRC government may exercise significant oversight and discretion over the conduct of our business and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of our common stock.
As a business operating in the PRC, we are subject to the laws and regulations of the PRC, which can be complex and evolve rapidly. The PRC government has the power to exercise significant oversight and discretion over the conduct of our business, and the regulations to which we are subject may change rapidly and with little notice to us or our shareholders. As a result, the application, interpretation, and enforcement of new and existing laws and regulations in the PRC are often uncertain. In addition, these laws and regulations may be interpreted and applied inconsistently by different agencies or authorities, and inconsistently with our current policies and practices. New laws, regulations, and other government directives in the PRC may also be costly to comply with, and such compliance or any associated inquiries or investigations or any other government actions may:
● Delay or impede our development,
● Result in negative publicity or increase our operating costs,
● Require significant management time and attention, and
● Subject us to remedies, administrative penalties and even criminal liabilities that may harm our business, including fines assessed for our current or historical operations, or demands or orders that we modify or even cease our business practices.
The promulgation of new laws or regulations, or the new interpretation of existing laws and regulations, in each case that restrict or otherwise unfavorably impact the ability or manner in which we conduct our business and could require us to change certain aspects of our business to ensure compliance, which could decrease demand for our products, reduce revenues, increase costs, require us to obtain more licenses, permits, approvals or certificates, or subject us to additional liabilities. To the extent any new or more stringent measures are required to be implemented, our business, financial condition and results of operations could be adversely affected as well as materially decrease the value of our common stock.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to customer rights, taxation, employment, property and other matters. The central or local governments of China may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties. Given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.
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 Severely Cracking Down on Illegal Securities Activities According to Law, or the Opinions, which was made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems, will be taken to deal with the risks and incidents of China-concept overseas listed companies. Such future administrative measure or actions may have material adverse effects on the offering of our securities to investors, our proposed listing in the U.S. or our business operation, for example in the event that it is required that we should obtain permission from the Chinese government to offer our securities to investors or list on U.S. exchanges, it is unpredictable whether such permission can be obtained by us, as the case may be, or, if permission is obtained, whether it could be later denied or rescinded. If we, including our subsidiaries, do not receive or maintain such permissions or approvals, or inadvertently conclude that such permissions or approvals are not required, it could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors, list in the U.S. and cause the value of our securities to significantly decline or become worthless. As of the date hereof, we have not received any inquiry, notice, warning, or sanctions from PRC government authorities in connection with the Opinions.
On June 10, 2021, the Standing Committee of the National People’s Congress of China (the “SCNPC”), promulgated the PRC Data Security Law, which took effect in September 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, and the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data an information.
In early July 2021, regulatory authorities in China launched cybersecurity investigations with regard to several China-based companies that are listed in the United States. In July 2021, the Chinese cybersecurity regulator launched the investigation on three Internet platforms.
On November 14, 2021, the CAC released the Regulations on the Network Data Security Management (Draft for Comments) (the “Data Security Management Regulations Draft”), to solicit public opinion and comments. Pursuant to the Data Security Management Regulations Draft, data processor holding more than one million users’ individual information shall be subject to cybersecurity review before listing abroad. Data processing activities refers to activities such as the collection, retention, use, processing, transmission, provision, disclosure, or deletion of data. According to the latest amended Cybersecurity Review Measures, which was promulgated on December 28, 2021 and became effective on February 15, 2022, and replaced the Cybersecurity Review Measures promulgated on April 13, 2020, online platform operator holding more than one million users’ individual information shall be subject to cybersecurity review before listing abroad. Since the Cybersecurity Review Measures is new, the implementation and interpretation thereof is not yet clear.
On July 30, 2021, the State Council promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure, or the Regulations, which took effect on September 1, 2021. The Regulations supplement and specify the provisions on the security of critical information infrastructure as stated in the Cybersecurity Review Measures. The Regulations provide, among others, that protection department of certain industry or sector shall notify the operator of the critical information infrastructure in time after the identification of certain critical information infrastructure. On September 20, 2021, the SCNPC promulgated the Personal Information Protection Law of the PRC, or the Personal Information Protection Law, which took effect in November 2021. As the first systematic and comprehensive law specifically for the protection of personal information in the PRC, the Personal Information Protection Law provides, among others, that (i) an individual’s consent shall be obtained to use sensitive personal information, such as biometric characteristics and individual location tracking, (ii) personal information operators using sensitive personal information shall notify individuals of the necessity of such use and impact on the individual’s rights, and (iii) where personal information operators reject an individual’s request to exercise his or her rights, the individual may file a lawsuit with a People’s Court.
On February 17, 2023, the CSRC issued the New Administrative Rules Regarding Overseas Listings, which became effective on March 31, 2023. According to the new administrative rules, among other things, a domestic company in the PRC that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC as per requirement thereof. Initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas. If an issuer offers securities in the same overseas market where it has previously offered and listed securities subsequently, filings shall be made with the CSRC within 3 working days after the offering is completed. Upon occurrence of any material event, such as change of control, investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities, change of listing status or transfer of listing segment, or voluntary or mandatory delisting, after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report thereof to CSRC within 3 working days after the occurrence and public disclosure of such event. Further, an overseas securities company that serves as a sponsor or lead underwriter for overseas securities offering and listing by domestic companies shall file with the CSRC within 10 working days after signing its first engagement agreement for such business, and submit to the CSRC, no later than January 31 each year, an annual report on its business activities in the previous year associated with overseas securities offering and listing by domestic companies. If an overseas securities company has entered into engagement agreements before the effectuation of the Trial Administrative Measures and is serving in practice as a sponsor or lead underwriter for overseas securities offering and listing by domestic companies, it shall file with the CSRC within 30 working days after the Trial Administrative Measures take effect.
On February 24, 2023, the CSRC promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which will also become effective on March 31, 2023. The Confidentiality and Archives Administration Provisions set out rules, requirements and procedures relating to provision of documents, materials and accounting archives for securities companies, securities service providers, overseas regulators and other entities and individuals in connection with overseas offering and listing, including without limitation to, domestic companies that carry out overseas offering and listing (either in direct or indirect means) and the securities companies and securities service providers (either incorporated domestically or overseas) that undertake relevant businesses shall not leak any state secret and working secret of government agencies, or harm national security and public interest, and a domestic company shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level, if it plans to, either directly or through its overseas listed entity, publicly disclose or provide any documents and materials that contain state secrets or working secrets of government agencies. Working papers produced in the Chinese mainland by securities companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese mainland, relevant approval procedures stipulated by regulations shall be followed.
Our business may be subject to a variety of PRC laws and other obligations regarding cybersecurity and data protection.
Our business may be subject to PRC laws relating to the collection, use, sharing, retention, security, and transfer of confidential and private information, such as personal information and other data. These laws continue to develop, and the PRC government may adopt other rules and restrictions in the future. Non-compliance could result in penalties or other significant legal liabilities.
Pursuant to the PRC Cybersecurity Law, which was promulgated by the Standing Committee of the National People’s Congress on November 7, 2016 and took effect on June 1, 2017, personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affects or may affect national security, it should be subject to cybersecurity review by the Cyberspace Administration of China (“CAC”). Due to the lack of further interpretations, the exact scope of “critical information infrastructure operator” remains unclear.
On April 13, 2020, twelve Chinese government agencies jointly promulgated the Measures for Cybersecurity Review, which became effective on June 1, 2020, set forth the cybersecurity review mechanism for critical information infrastructure operators, and provided that critical information infrastructure operators who intend to purchase internet products and services that affect or may affect national security shall be subject to a cybersecurity review. On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Data Security Law, which will take effect in September 2021. The Data Security Law provides for a security review procedure for the data activities that may affect national security. Moreover, the State Internet Information Office issued the Measures of Cybersecurity Review (Revised Draft for Comments, not yet effective) on July 10, 2021, which requires operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the CAC. Furthermore, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severe and Lawful Crackdown on Illegal Securities Activities, which was available to the public on July 6, 2021. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. As these laws, opinions and the draft measures were recently issued, official guidance and interpretation of these remain unclear in several respects at this time, and the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws, opinions and the draft measures. Therefore, it is uncertain whether the future regulatory changes would impose additional restrictions on our business.
The Data Security Law also sets forth the data security protection obligations for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing or other illegal means, and the collection and use of such data should not exceed the necessary limits The costs of compliance with, and other burdens imposed by, PRC Cybersecurity Law and any other cybersecurity and related laws may limit the use and adoption of our products and services and could have an adverse impact on our business. Further, if the enacted version of the Measures for Cybersecurity Review mandates clearance of cybersecurity review and other specific actions to be completed by companies like us, we face uncertainties as to whether such clearance can be timely obtained, or at all.
There remains uncertainty as to how the Draft Measures will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Draft Measures. If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us.
We cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that we can fully or timely comply with such laws. In the event that we are subject to any mandatory cybersecurity review and other specific actions required by the CAC, we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty, we may be further required to suspend our relevant business, shut down our website, or face other penalties, which could materially and adversely affect our business, financial condition, and results of operations.
PRC laws and regulations governing our current business operations are sometimes vague and uncertain. 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 with little advance notice could have a material adverse effect on us and limit the legal protections available to you and us.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with clients in certain circumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement could be unpredictable, with little advance notice. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our current understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
The PRC legal system is based on written statutes. Prior court decisions are encouraged to be used for reference but it remains unclear to what extent the prior court decisions may impact the current court ruling as the encouragement policy is new and there is limited judicial practice in this regard. We conduct our business primarily through our subsidiaries established in China.
These subsidiaries is generally subject to laws and regulations applicable to foreign investment in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections available to us. In addition, any new or changes in PRC laws and regulations related to foreign investment in China could affect the business environment and our ability to operate our business in China. 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 Severely Cracking Down on Illegal Securities Activities According to Law,” or the Opinions, which was made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems will be taken to deal with the risks and incidents of China-concept overseas listed companies, and cybersecurity and data privacy protection requirements, etc. The Opinions and any related implementing rules to be enacted may subject us to compliance requirement in the future. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently applied by other government authorities (including local government authorities), thus making strict compliance with all regulatory requirements impractical, or in some circumstances impossible. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since PRC administrative and court authorities have discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into with our business partners, clients and suppliers. In addition, such uncertainties, including any inability to enforce our contracts, together with any development or interpretation of PRC law that is adverse to us, could materially and adversely affect our business and operations. Furthermore, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other more developed countries and the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effects. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability towards our contractual, property, and procedural rights could adversely affect our business and impede our ability to continue our operations. We cannot predict the effect of future developments in the PRC legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the pre-emption of local regulations by national laws. These uncertainties could limit the legal protections available to us and other foreign investors, including you. In addition, any litigation in China may be protracted and result in substantial costs and diversion of our resources and management attention.
The PRC government has significant oversight and discretion over the conduct of our business and may intervene or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations.
Furthermore, if China adopts more stringent standards with respect to certain areas such as corporate social responsibilities, we may incur increased compliance costs or become subject to additional restrictions in our operations. We cannot predict the effects of future developments in the PRC legal system on our business operations, including the promulgation of new laws, or changes to existing laws or the interpretation or enforcement thereof. These uncertainties could limit the legal protections available to us and our investors, including you.
Changes in China’s economic, political or social conditions or government policies, which could occur quickly with little advance notice, could have a material adverse effect on our business and operations.
Substantially all of our assets and operations are located in the PRC. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in the PRC generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, development, growth rate, control of foreign exchange, monetary and tax policies, allocation of resources, and regulation of the growth of the general or specific market and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors. 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 the PRC 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 the PRC’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth over past decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes in economic conditions in the PRC, in the policies of the PRC government or in the laws and regulations in the PRC, which may occur quickly with little advance notice, could have a material adverse effect on the overall economic growth of the PRC. Such developments could adversely affect our business and operating results, lead to a reduction in demand for our services and adversely affect our competitive position. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the PRC government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in the PRC, which may adversely affect our business and operating results. In addition, although these government involvements have been instrumental in China’s significant growth, if the PRC government’s current or future policies fail to help the Chinese economy achieve further growth, our growth rate or strategy, our results of operations could also be adversely affected as a result.
Our profitability may be seriously affected by fluctuations in exchange rates between the Renminbi and the U.S. dollar.
All of our revenue is denominated in Renminbi while our financial reporting is in U.S. dollars. As a result, any significant fluctuation in exchange rates may cause us to incur currency exchange translation and harm our financial condition and results of operations.
Movements in Renminbi exchange rates are affected by, among other things, changes in political and economic conditions and China’s foreign exchange regime and policy. The Renminbi has been unpegged from the U.S. dollar since July 2005 and, although the People’s Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that the PRC authorities may lift restrictions on fluctuations in Renminbi exchange rates and lessen intervention in the foreign exchange market in the future.
To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all.
Governmental control of currency conversion may limit our ability to use our revenues effectively and the ability of our WFOE to obtain financing.
The PRC government imposes control on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive all our revenues in Renminbi, which currently is not a freely convertible currency. Restrictions on currency conversion imposed by the PRC government may limit our ability to use revenues generated in Renminbi to fund our expenditures denominated in foreign currencies or our business activities outside China. Under China’s existing foreign exchange regulations, Renminbi may be freely converted into foreign currency for payments relating to current account transactions, which include among other things dividend payments and payments for the import of goods and services, by complying with certain procedural requirements. Our WFOE is able to pay dividends in foreign currencies to us without prior approval from SAFE, by complying with certain procedural requirements Our WFOE may also retain foreign currency in its current account bank accounts for use in payment of international current account transactions. However, we cannot assure you that the PRC government will not take measures in the future to restrict access to foreign currencies for current account transactions.
Conversion of Renminbi into foreign currencies, and of foreign currencies into Renminbi, for payments relating to capital account transactions, which principally includes investments and loans, generally requires the approval of SAFE and other relevant PRC governmental authorities. Restrictions on the convertibility of the Renminbi for capital account transactions could affect the ability of WFOE to make investments overseas or to obtain foreign currency through debt or equity financing, including by means of loans or capital contributions from us. We cannot assure you that the registration process will not delay or prevent our conversion of Renminbi for use outside of China.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management.
We conduct substantially all of our operations in China, and substantially all of our assets are located in China, which is an emerging market. As a result, it may be difficult for our shareholders to effect service of process upon us.
It may also be difficult for you to enforce the U.S. courts judgments obtained in U.S. courts, including judgments based on the civil liability provisions of the U.S. federal securities laws against us with a significant part of our assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of 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. In addition, it is uncertain whether such PRC courts would entertain original actions brought in the courts of the PRC against us or such persons predicated upon the securities laws of the United States or any state.
Specifically, regarding judgment enforcement in the PRC, 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 reciprocal arrangement 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 if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest of the PRC. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the U.S.
We face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of the stock of our operating company.
Under the current PRC tax regulations, indirect transfers of equity interests and other properties of PRC tax resident enterprises by non-PRC holding companies may be subject to PRC tax. In accordance with the Announcement of the State Administration of Taxation on Several Issues concerning the Enterprise Income Tax on the Indirect Transfers of Properties by Non-Resident Enterprises (“Announcement 7”) issued by the SAT on February 3, 2015, if a non-PRC tax resident enterprise indirectly transfers equities and other properties of a PRC tax resident enterprise and such indirect transfer will produce a result identical or substantially similar to direct transfer of equity interests and other properties of the PRC tax resident enterprise, the non-PRC tax resident enterprise may be subject to PRC withholding tax at a rate up to 10%. The Announcement of the State Administration of Taxation on Matters Concerning Withholding of Income Tax of Non-resident Enterprises at Source (“Announcement 37”), which was issued by SAT on October 17, 2017 and became effective on December 1, 2017, renovates the principles and procedures concerning the indirect equity transfer tax withholding for a non-PRC tax resident enterprise. Failure to comply with the tax payment obligations by a non-PRC tax resident will result in penalties, including full payment of tax owed, fines and default interest on those tax.
According to Announcement 7, where a non-resident enterprise indirectly transfers equity interests or other properties of PRC tax resident enterprises (“PRC Taxable Property”) to avoid its tax liabilities by implementing arrangements without reasonable commercial purpose, such indirect transfer shall be recharacterized and recognized as a direct transfer of PRC Taxable Property. As a result, gains derived from such indirect transfer and attributable to PRC Taxable Property may be subject to PRC withholding tax at a rate of up to 10%. In respect of an indirect offshore transfer of property of a PRC establishment or place of business of a foreign enterprise, the resulting gain is to be included with the annual enterprise filing of the PRC establishment or place of business being transferred and would consequently be subject to PRC enterprise income tax at a rate of 25%. Announcement 7 further sets forth certain “safe harbors” which would be deemed to have a reasonable commercial purpose. As a general principle, the SAT also issued the Administration of General Anti-Tax Avoidance (Trial Implementation) (“GATA”), which became effective on February 1, 2015 and empowers the PRC tax authorities to apply special tax adjustments for “tax avoidance arrangements.”
We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC Taxable Property are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. Our Company may be subject to withholding obligations if our Company is considered as a transferee in such transactions, under Announcement 7 and Announcement 37. For transfer of shares in our Company by investors who are non-PRC resident enterprises, our PRC subsidiaries may be required to expend valuable resources to comply with Announcement 7 and Announcement 37 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 an adverse effect on our financial condition and results of operations.
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to personal liability and limit our ability to acquire PRC companies or to inject capital into WFOE, limit WFOE’s ability to distribute profits to us, or otherwise materially and adversely affect us.
Under the Circular of the State Administration of Foreign Exchange on Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or Circular 37, issued by SAFE, prior registration with the local SAFE branch is required for PRC residents to contribute domestic assets or interests to offshore companies, known as SPVs. Moreover, Circular 37 applies retroactively. As a result, PRC residents who have contributed domestic assets or interest to a SPV but failed to complete foreign exchange registration of overseas investments as required before July 4, 2014, shall send a letter to SAFE and its branches for explanation. SAFE and its branches shall, under the principle of legality and legitimacy, conduct supplementary registration, and impose administrative punishment on those in violation of the administrative provisions on the foreign exchange pursuant to the law.
We have requested our shareholders who are PRC residents to make the necessary applications, filings and amendments as required under Circular 37 and other related rules. We attempt to comply and attempt to ensure that our shareholders who are subject to these rules comply with the relevant requirements. However, we cannot provide any assurances that all of our shareholders who are PRC residents will comply with our request to make or obtain any application registrations or comply with other requirements required by Circular 37 or other related rules. The failure or inability of our PRC resident shareholders to make any required registrations or comply with other requirements may subject such shareholders to fines and legal sanctions and may also limit our ability to contribute additional capital into or provide loans to our subsidiaries, limiting the ability of our subsidiaries to pay dividends or otherwise distribute profits to us.
Failure to comply with the Individual Foreign Exchange Rules relating to the overseas direct investment or our PRC resident shareholders’ engaging in the issuance or trading of securities overseas may subject them to fines or other liabilities.
Other than Circular 37, our ability to conduct foreign exchange activities in China may be subject to interpretation and enforcement of the Implementation Rules of the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended and supplemented, the “Individual Foreign Exchange Rules”). Under the Individual Foreign Exchange Rules, any PRC individual seeking to make a direct investment overseas or engage in the issuance or trading of negotiable securities or derivatives overseas must make the appropriate registrations in accordance with SAFE provisions. PRC individuals who fail to make such registrations may be subject to warnings, fines or other liabilities.
We may not be fully informed of the identities of all our beneficial owners who are PRC residents. For example, because the investment in or trading of our shares will happen in an overseas public or secondary market where shares are often held with brokers in brokerage accounts, it is unlikely that we will know the identity of all of our beneficial owners who are PRC residents. Furthermore, we have no control over any of our future beneficial owners and we cannot assure you that such PRC residents will be able to complete the necessary approval and registration procedures required by the Individual Foreign Exchange Rules.
It is uncertain how the Individual Foreign Exchange Rules will be interpreted or enforced and whether such interpretation or enforcement will affect our ability to conduct foreign exchange transactions.
PRC regulation of loans and direct investment by offshore holding companies to or in PRC entities may delay or prevent us from making loans or additional capital contributions to WFOE, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
We may make loans to the WFOE. Any loans to either are subject to PRC regulations and approvals. For example, loans by us to our WFOE in China cannot exceed statutory limits and must be registered with SAFE or its local counterpart. We may also decide to finance our WFOE through capital contributions. These capital contributions must be approved by the Ministry of Commerce in China or its local counterpart. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all.
The SAFE’s Circular on Reforming the Administration Approach Regarding the Foreign Exchange Capital Settlement of Foreign-invested Enterprises (“Circular 19”) provides that the conversion from foreign currency registered capital of foreign-invested enterprises into the Renminbi capital may be at foreign-invested enterprises’ discretion, which means that the foreign currency registered capital of foreign-invested enterprises for which the rights and interests of monetary contribution has been confirmed by the local foreign exchange bureau (or the book-entry of monetary contribution has been registered) can be settled at the banks based on the actual operational needs of the enterprises.
Further, 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 banks 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 China, 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 SAFE will permit such capital to be used for equity investments in China in actual practice.
In July 2016, the SAFE promulgated the Circular on Reforming and Standardizing the Administrative Provisions on Capital Account Foreign Exchange (“Circular 16”), which applies to all domestic enterprises in China. Circular 16 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 issue loans to non-associated enterprises.
Circular 19 and Circular 16 may significantly limit the ability of our WFOE to transfer and use Renminbi funds from its foreign currency denominated capital, which may adversely affect our business, financial condition and results of operations.
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 by us to our PRC subsidiaries or with respect to future capital contributions by us to our PRC subsidiaries.
To the extent any funds or assets in the business is in mainland China or a mainland China entity, the funds or assets may not be available to fund operations or for other use outside of mainland China.
To the extent funds are generated in our PRC operating subsidiaries and may need to be used to fund operations outside of mainland China, such funds may not be available due to limitations placed by the PRC government. Furthermore, to the extent assets (other than cash) in our business are located in mainland China or held by a mainland China entity, the assets may not be available to fund operations or for other use outside of mainland China due to interventions in or the imposition of restrictions and limitations on the ability of us and our subsidiaries to transfer assets by the PRC government.
We may be classified as a “resident enterprise” for PRC enterprise income tax purposes; such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.
The PRC enterprise income tax law and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws. The implementing rules define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. Circular 82, issued by the State Administration of Taxation, provides that a foreign enterprise controlled by a PRC company or a group of PRC companies will be classified as a “resident enterprise” with its “de facto management body” located within China if all of the following requirements are satisfied: (1) the senior management and core management departments in charge of its daily operations function are mainly in China; (2) its financial and human resources decisions are subject to determination or approval by persons or bodies in China; (3) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in China; and (4) at least half of the enterprise’s directors with voting right or senior management reside in China. To provide more guidance on the implementation of Circular 82, the State Administration of Taxation issued Bulletin 45, which clarifies certain matters relating to resident status determination, post-determination administration and competent tax authorities.
The State Administration of Taxation since issued a bulletin 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 gain shall be taxed in accordance with the enterprise income tax law and its implementing rules.
Currently, there are no detailed rules or precedents governing the procedures and specific criteria for determining de facto management bodies which are applicable to our company or our overseas subsidiaries. If our company or any of our overseas subsidiaries is considered a PRC tax resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, our company or our overseas subsidiaries will be subject to the uniform 25% enterprise income tax rate as to our global income as well as PRC enterprise income tax reporting obligations. Second, although under the Enterprise Income Tax Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as tax-exempted income, we cannot assure you that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, dividends payable by us to our shareholders and gain on the sale of our shares may become subject to PRC withholding tax. It is possible that future guidance issued with respect to the new resident enterprise classification could result in a situation in which a withholding tax of 10% for our non-PRC enterprise shareholders or a potential withholding tax of 20% for individual investors is imposed on dividends we pay to them and with respect to gains derived by such investors from transferring our shares. In addition to the uncertainty in how the new resident enterprise classification could apply, it is also possible that the rules may change in the future, possibly with retroactive effect. If we are required under the Enterprise Income Tax law to withhold PRC income tax on our dividends payable to our foreign shareholders, or if we are required to pay PRC income tax on the transfer of our shares under the circumstances mentioned above, the value of your investment in our shares may be materially and adversely affected. It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas.
Our current employment practices may be restricted under the PRC Labor Contract Law and our labor costs may increase as a result.
The PRC Labor Contract Law and its implementing rules impose requirements concerning contracts entered into between an employer and its employees and establishes time limits for probationary periods and for how long an employee can be placed in a fixed-term labor contract. Because the Labor Contract Law and its implementing rules have not been in effect very long and because there is lack of clarity with respect to their implementation and potential penalties and fines, it is uncertain how it will impact our current employment policies and practices. We cannot assure you that our employment policies and practices do not, or will not, violate the Labor Contract Law or its implementing rules and that we will not be subject to related penalties, fines or legal fees. If we are subject to large penalties or fees related to the Labor Contract Law or its implementing rules, our business, financial condition and results of operations may be materially and adversely affected. In addition, according to the Labor Contract Law and its implementing rules, if we intend to enforce the non-compete provision with an employee in a labor contract or non-competition agreement, we have to compensate the employee on a monthly basis during the term of the restriction period after the termination or ending of the labor contract, which may cause extra expenses to us. Moreover, the Labor Contract Law and its implementation rules require certain terminations to be based upon seniority rather than merit, which significantly affects the cost of reducing workforce for employers. In the event we decide to significantly change or decrease our workforce in the PRC, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our circumstances or in a timely and cost effective manner, thus our results of operations could be adversely affected.
Furthermore, the economy in China has experienced increases in inflation and labor costs in recent years. As a result, average wages in the PRC are expected to continue to increase. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pension, housing fund, medical insurance, on-the-job injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to control our labor costs or pass on these increased labor costs to our users by increasing the fees of our services, our financial condition and results of operations may be adversely affected.
We face uncertainties with respect to our business operations and direct and indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
We face uncertainties with respect to our business operations and direct and indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies. PRC Governmental Agencies may intervene or influence the Company’s operations at any time, which could result in a material change in the Company’s operations and/or the value of the Common shares. Given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.
Adverse changes in economic and political policies of the PRC government could have a material and adverse effect on overall economic growth in China, which could materially and adversely affect our business. General macroeconomic conditions may materially and adversely affect our business, prospects, results of operations and financial position. The PRC government’s control over foreign currency conversion may adversely affect our business and results of operations and our ability to remit dividends.
The M&A Rules and certain other PRC regulations may make it more difficult for us to pursue growth through acquisitions. Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment. The M&A Rules, among other things, purport to require CSRC approval prior to the listing and trading on an overseas stock exchange of the securities of an offshore special purpose vehicle established or controlled directly or indirectly by Material PRC Companies or individuals and formed for the purpose of overseas listing through the acquisition of PRC domestic interests held by such Material PRC Companies or individuals.
Risks Related to the Market for our Stock
The OTC and share value
Our Common Stock trades over the counter, which may deprive stockholders of the full value of their shares. Our stock is quoted via the Over-The-Counter (“OTC”) Pink Sheets under the ticker symbol “PMIN”. Therefore, our Common Stock is expected to have fewer market makers, lower trading volumes, and larger spreads between bid and asked prices than securities listed on an exchange such as the New York Stock Exchange or the NASDAQ Stock Market. These factors may result in higher price volatility and less market liquidity for our Common Stock.
Low market price
A low market price would severely limit the potential market for our Common Stock. Our Common Stock is expected to trade at a price substantially below $5.00 per share, subjecting trading in the stock to certain Commission rules requiring additional disclosures by broker-dealers. These rules generally apply to any non-NASDAQ equity security that has a market price share of less than $5.00 per share, subject to certain exceptions (a “penny stock”). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and institutional or wealthy investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our Common Stock.
Lack of market and state blue sky laws
Investors may have difficulty in reselling their shares due to the lack of market or state Blue Sky laws. The holders of our shares of Common Stock and persons who desire to purchase them in any trading market that might develop in the future should be aware that there may be significant state law restrictions upon the ability of investors to resell our shares. Accordingly, even if we are successful in having the shares available for trading on the OTC, investors should consider any secondary market for our securities to be a limited one. We intend to seek coverage and publication of information regarding our Company in an accepted publication which permits a “manual exemption.” This manual exemption permits a security to be distributed in a particular state without being registered if the company issuing the security has a listing for that security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized manual. The listing entry must contain (1) the names of issuers, officers, and directors, (2) an issuer’s balance sheet, and (3) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. We may not be able to secure a listing containing all of this information. Furthermore, the manual exemption is a non-issuer exemption restricted to secondary trading transactions, making it unavailable for issuers selling newly issued securities. Most of the accepted manuals are those published in Standard and Poor’s, Moody’s Investor Service, Fitch’s Investment Service, and Best’s Insurance Reports, and many states expressly recognize these manuals. A smaller number of states declare that they “recognize securities manuals” but do not specify the recognized manuals. The following states do not have any provisions and therefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont, and Wisconsin.
Accordingly, our shares of Common Stock should be considered totally illiquid, which inhibits investors’ ability to resell their shares.
Penny stock regulations
We will be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our Common Stock. The Commission has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. We anticipate that our Common Stock will become a “penny stock”, and we will become subject to Rule 15g-9 under the Exchange Act, or the “Penny Stock Rule”. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers. For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.
For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the Commission relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
We do not anticipate that our Common Stock will qualify for exemption from the Penny Stock Rule. In any event, even if our Common Stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the Commission the authority to restrict any person from participating in a distribution of penny stock, if the Commission finds that such a restriction would be in the public interest.
Rule 144 Risks
Sales of our Common Stock under Rule 144 could reduce the price of our stock. After this Exchange, there are 28,000,000 issued and outstanding shares of our Common Stock held by affiliates that Rule 144 of the Securities Act defines as restricted securities.
These shares will be subject to the resale restrictions of Rule 144, since we are not deemed a “shell company”. In general, persons holding restricted securities, including affiliates, must hold their shares for a period of at least nine months, may not sell more than 1.0% of the total issued and outstanding shares in any 90-day period, and must resell the shares in an unsolicited brokerage transaction at the market price. The availability for sale of substantial amounts of Common Stock under Rule 144 could reduce prevailing market prices for our securities.
No audit or compensation committee
Because we do not have an audit or compensation committee, stockholders will have to rely on our entire Board of Directors, none of which are independent, to perform these functions. We do not have an audit or compensation committee comprised of independent directors. Indeed, we do not have any audit or compensation committee. These functions are performed by our Board of Directors as a whole. No members of our Board of Directors are independent directors. Thus, there is a potential conflict in that Board members who are also part of management will participate in discussions concerning management compensation and audit issues that may affect management decisions.
Security laws exposure
We are subject to compliance with securities laws, which exposes us to potential liabilities, including potential rescission rights. We may offer to sell our shares of our Common Stock to investors pursuant to certain exemptions from the registration requirements of the Securities Act, as well as those of various state securities laws. The basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting prospective investors and making the offering. We may not seek any legal opinion to the effect that any such offering would be exempt from registration under any federal or state law. Instead, we may elect to relay upon the operative facts as the basis for such exemption, including information provided by investor themselves.
If any such offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. A similar situation prevails under state law in those states where the securities may be offered without registration in reliance on the partial pre-emption from the registration or qualification provisions of such state statutes under the National Securities Markets Improvement Act of 1996. If investors were successful in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in fact qualify for the exemptions upon which we have relied, we may become subject to significant fines and penalties imposed by the Commission and state securities agencies.
No cash dividends
Because we do not intend to pay any cash dividends on our Common Stock, our stockholders will not be able to receive a return on their shares unless they sell them. We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on shares of our Common Stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares of our Common Stock when desired.
Delayed adoption of accounting standards
We have delayed the adoption of certain accounting standards through an opt-in right for emerging growth companies. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the Jobs Act, which allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
Management’s discussion and analysis of financial condition and results of operation
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new business or developments; any statements regarding future economic conditions of performance; and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
In some cases, you can identify forward looking statements by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “anticipate,” “estimate,” “predict,” “potential,” or the negative of these terms. These terms and similar expressions are intended to identify forward-looking statements. The forward-looking statements in this report are based upon management’s current expectations and belief, which management believes are reasonable. However, we cannot assess the impact of each factor on our business or the extent to which any factor or combination of factors, or factors we are aware of, may cause actual results to differ materially from those contained in any forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements. These statements represent our estimates and assumptions only as of the date of this report. Except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including:
| ● | uncertainties relating to our ability to establish and operate our business and generate revenue; |
| ● | uncertainties relating to general economic, political and business conditions in China; |
| ● | industry trends and changes in demand for our products and services; |
| ● | uncertainties relating to customer plans and commitments and the timing of orders received from customers; |
| ● | announcements or changes in our advertising model and related pricing policies or that of our competitors; |
| ● | unanticipated delays in the development, market acceptance or installation of our products and services; |
| ● | changes in Chinese government regulations; |
| ● | availability, terms and deployment of capital, relationships with third-party equipment suppliers; and |
| ● | influences of COVID-19 on China’s economy and society. |
Overview
ESG Inc. (“ESG”) was incorporated in October 2022, a Nevada corporation and headquartered at Kennett Square, Pennsylvania, USA, and is a holding company to develop and operate sustainable plant based ingredients and food production and distribution with the substantial experience of its management team, the board of directors and the advisory board, including expertise and relationships in the industry of mushroom, agriculture and food in the world and the capital markets in the States.
With the core business philosophy to develop and operate sustainable and technology driving food businesses consistent with the principles of Environmental, Sustainable and Governance investing, ESG is devoting to contribute on feeding the world by growing, processing and distributing plant-based food ingredients mainly from all kinds of mushrooms.
As a holding company with no material operations, ESG currently conducts a majority of business through the operating entities incorporated in the People’s Republic of China, or the PRC, with the plan to expand in Asia Pacific and the rest world. Through legally 100% owned by ESG Inc. (a Nevada company) of ESG China Limited (a HK company) and Hainan ESG Technology Co., Ltd. (a PRC company), ESG Inc. currently owns 74.52% of operating subsidiaries in China including Funan Allied United Farmer Products Co., Ltd., Anhui Allied United Mushroom Technology Co., Ltd. and Anhui Allied United Mushroom Co., Ltd.
The primary operational goals are to feed the world by providing quality and safe food. Specifically, ESG currently produces 21,600 tons of Phase III compost yearly and more than 7300 tons of fresh white button mushroom yearly separately by operating composting facility including 3 bunkers and 9 tunnels and growing facility of 36 rooms. After the completion of expansion on composing facility in November 2023, ESG will make 90, 000 tons of Phase III compost among which two third will be sold to third party.
Processing mushrooms including but not limited to button mushroom will be a brand-new product line by cooperating with trade houses in and out of China. The primary class of processed mushroom is canned mushroom, which is being designed and planned. The middle class of processed mushroom is instant mushroom soup, ready stirred fresh mushroom pack, and mushroom snack, which is under research and development by working with local universities. Advanced class of processed mushroom is mushroom supplement and specialty food, which is still at the early stage of discussion with related industrial players.
As a holding entity, ESG will continue to work with gourmet food experts in the United States and Europe to pick up other plant-based food and ingredients to standardize and franchise its production and distribution in Asian and Pacific area.
On November 6, 2023, Plasma Innovative Inc. (“PMIN,” a publicly reporting company) entered into a share exchange agreement (the “Share Exchange Agreement”) with ESG and the shareholders of ESG. The transaction has been accounted for as a recapitalization of the Company, whereby ESG is the accounting acquirer.
Going Concern
The accompanying audited consolidated financial statements were prepared assuming ESG will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. For the years ended December 31, 2022 and 2021, the Company had a net loss of approximately $0.98 million and $1.20 million, respectively. ESG had an accumulated deficit of approximately $0.83 million and $0.10 million as of December 31, 2022, 2021 respectively. The historical operating results indicate ESG has recurring losses from operations which raise the question related to ESG’s ability to continue as a going concern.
Historically, we have funded our operations primarily through our sale of fresh mushrooms and borrowings. Currently, all the loans are short-term borrowings. Management is working to increase long-term loans and equity investment in order to improve our capital structure. However, such additional cash resources may not be available to us on desirable terms, or at all, if and when needed by us.
To enhance our ability to continue to operate, we are dedicating resources to generate recurring revenues and sustainable operating cash flows. On one side, we improved efficiency with current facilities; on the other side, we use unrelated third-party funding to expand our facilities and business on high-profit margin products. The revenue reached $3.68 million and $2.11 million for the six months and three months ended June 30, 2023, respectively, and $0.18 million net income was generated for the three months ended June 30, 2023. On December 31, 2022, AUM, a subsidiary of ESG acquired 12 mushroom houses which will start operation on January 2024 by assuming debt. The new operations will further increase the production of mushrooms and reduce fixed cost per unit to reach the scale effect of economics. Compost has a high profit margin. Currently, we only sell to AUM, a related party because the production volume only meets the needs of AUM. We are expanding the compost facilities by 10-year debt financing. On January 5, 2022, Funan Agricultural Reclining Investment Co. Ltd signed an agreement to fund $18.09 million (RMB 115 million) for the expansion which is expected to complete in 2023, and start to sell compost to customers in January 2024 to further generate revenue.
Significant Accounting Policies
Please refer to our significant accounting policies in Note 2 to our Consolidated Financial Statement.
Results of Operations
Comparison of the years ending December 31, 2022 and 2021
The following table set forth the results of our operations for the years ended June 30, 2021 and 2020, respectively, indicated as a percentage of net sales. Certain columns may not add up due to rounding.
| Year ended December 31, | 2022 | % of sales | 2021 | % of sales | ||||||||||||
| Revenues | $ | 7,254,646 | $ | 6,100,520 | ||||||||||||
| Cost of goods sold | 7,520,563 | 103.7 | % | 6,377,060 | 104.53 | % | ||||||||||
| Gross profit | (265,917 | ) | -3.67 | % | (276,540 | ) | -4.53 | % | ||||||||
| Operating expenses | ||||||||||||||||
| Selling expense | 25,710 | 0.35 | % | 10,120 | 0.17 | % | ||||||||||
| General and administrative expense | 822,948 | 11.34 | % | 629,102 | 10.31 | % | ||||||||||
| Total operating expenses | 848,658 | 11.70 | % | 639,222 | 10.48 | % | ||||||||||
| Loss from operations | (1,114,575 | ) | -15.36 | % | (915,762 | ) | -15.01 | % | ||||||||
| Non-operating income (expense) | ||||||||||||||||
| Interest expense | (616,102 | ) | -8.49 | % | (877,461 | ) | -14.38 | % | ||||||||
| Other Income | 748,596 | 10.32 | % | 590,263 | 9.68 | % | ||||||||||
| Total non-operating income (expenses), net | 132,494 | 1.83 | % | (287,198 | ) | -4.71 | % | |||||||||
| Loss before income taxes | (982,081 | ) | -13.54 | % | (1,202,960 | ) | -19.72 | % | ||||||||
| Income taxes | - | - | ||||||||||||||
| Loss before noncontrolling interest | (982,081 | ) | -13.54 | % | (1,202,960 | ) | -19.72 | % | ||||||||
| Less: loss attributable to noncontrolling interest | (250,234 | ) | -3.45 | % | (306,514 | ) | -5.02 | % | ||||||||
| Net loss to the Company | (731,847 | ) | -10.09 | % | (896,446 | ) | -14.69 | % | ||||||||
The following table set forth the results of our operations for the six months ended June 30, 2023 and 2022, respectively, indicated as a percentage of net sales.
| Six months ended June 30, | 2023 | % of sales | 2022 | % of sales | ||||||||||||
| Revenues | $ | 3,678,725 | $ | 3,915,881 | ||||||||||||
| Cost of goods sold | 2,706,607 | 73.57 | % | 3,377,192 | 86.24 | % | ||||||||||
| Gross profit | 972,118 | 26.43 | % | 538,689 | 13.76 | % | ||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative expense | 853,448 | 23.20 | % | 1,053,375 | 26.90 | % | ||||||||||
| Loss from operations | 118,670 | 3.23 | % | (514,686 | ) | -13.14 | % | |||||||||
| Non-operating income (expense) | ||||||||||||||||
| Interest expense | (332,129 | ) | 9.03 | % | (322,274 | ) | 8.23 | % | ||||||||
| Other Income | 117,561 | 3.20 | % | 476,625 | 12.17 | % | ||||||||||
| Total non-operating income (expenses), net | (214,568 | ) | -5.83 | % | 154,351 | 3.94 | % | |||||||||
| Loss before income taxes | (95,898 | ) | -2.61 | % | (360,335 | ) | -9.20 | % | ||||||||
| Income taxes | - | - | ||||||||||||||
| Net income (loss) | (95,898 | ) | -2.61 | % | (360,335 | ) | -9.20 | % | ||||||||
| Less: income (loss) attributable to noncontrolling interest | (24,435 | ) | -0.66 | % | (91,813 | ) | -2.34 | % | ||||||||
| Net income (loss) to the Company | (71,463 | ) | -1.94 | % | (268,522 | ) | -6.86 | % | ||||||||
Revenue
Our products, white button mushrooms are mainly sold in the Yangzi River Triangle area. The Company believes that its business development is on track supported by quality products recognized by the market.
We had revenues of $7,254,646 and $6,100,520 for the years ended December 31, 2022 and 2021, respectively, which shows a $1,154,126 or 18.92% increased. The revenue was from the sale of fresh mushrooms, and the increased revenue was mainly attributable to the increased sales volume and offset by decreased sales price.
The revenues were $3,678,725 for the six months ended June 30, 2023, which show $237,156 decrease compared to $3,915,881 for the six months ended June 30, 2022. The decrease in revenue was mainly due to the drop of unit sale price.
Cost of Goods Sold
Total cost of goods sold was $7,520,563 for the year ended December 31, 2022, representing an increase of $1,143,503 or 17.93%, compared to $6,377,060 for the years ended December 31, 2021. Total cost of revenue as a percentage of revenue decrease by 1% to 104% for the year ended December 31, 2022 compared to 105% for the year ended December 31, 2021. The increase of total cost of revenue is primarily due to the increase of total raw material input.
Total cost of goods sold was $2,706,607 for the six months ended June 30, 2023, compared to $3,377,192 for the six months ended June 30, 2022. The percentage of cost of goods sold to net sales decreased by 12.73% to 73.57% for the six months ended June 30, 2023, compared to 86.24% for the six months ended June 30, 2022. The decrease of cost of goods sold was mainly due to the improvement of productions.
Gross Profit
Gross profit for the year ended December 31, 2022 was negative $265,917 compared to negative $276,540 for the year ended December 31, 2021, respectively, which shows a $10,622 or 3.84% increase.
Gross margin was negative 3.67% for the year ended December 31, 2022 compared to negative 4.53% for the year ended December 31, 2021. The increase in gross margin was mainly due to the increased production volume and lowered unit cost of goods sold in 2022.
Gross profit was $972,118 for the six months ended June 30, 2023 compared to $538,689 for the six months ended June 30, 2022, which shows $433,429 or 80.46% increase.
Gross margin was 26.43% for the six months ended June 30, 2023 compared to 13.76% for the six month ended June 30, 2022. The increase in gross margin was mainly due to the decrease of cost of goods sold and the improvement of production efficiency.
We adopted American technology and food standards and imported European equipment to produce high quality mushrooms in China. The heavy investment in property, plant and equipment caused high depreciation. Depreciation was $1,613,923 and $1,655,456 for the year ended December 31, 2022 and 2021, which increased the cost of goods sold. We acquired 12 mushroom houses to increase product volume in order to reduce unit cost on December 31, 2022. The mushroom houses acquired is expecting to start operation in January, 2024. We expect increased sales volume will reduce cost of goods sold per unit and increase revenue, gross profit and net income in 2024.
Selling and General and Administrative Expenses
Selling expenses were $25,710 and $10,120 for the years ended December 31, 2022 and 2021, respectively, representing an increase of $15,590 or 154.03%. The increase was mainly due to the increase in payroll expense of salespersons.
General administration expenses increased by $193,846 to $822,948 for the year ended December 31, 2022 from $629,102 for the year ended December 31, 2021. The increase was primarily due to the research and development cost we paid to an institution.
General administration expenses decreased by $199,927 to $853,448 for the six months ended June 30, 2023 compared to $1,053,375 for the six months ended June 30, 2022. The decrease was primarily due to the decrease of research and development cost.
Interest Expenses
Interest expenses were $616,102 and $877,461 for the year ended December 31, 2022 and 2021, respectively, representing a decrease of $261,360 or 29.79%. The decrease was mainly due to the reduction of loan balance by the repayment of loans.
Interest expenses were $332,129 for the six months ended June 30, 2023 compared to $322,274 for the six months ended June 30, 2022. The increase of $9,855 of interest expenses was mainly due to the increase of loan.
Other Income
Other income was $748,596 and $590,263 for the year ended December 31, 2022 and 2021, respectively, representing an increase of $158,333or 26.82%. The increase was mainly due to the income-based grants received.
Other income was $117,561 and $476,625 for the six months ended June 30, 2023 and 2022, respectively, representing an decrease of $359,064 or 75.33%. The decrease in other income was mainly due to the decrease of government grants.
Net loss
We generated net losses of $982,081 and $1,202,960 for the years ended December 31, 2022 and 2021, respectively, which shows a $220,879 or 18.36% decrease in loss.
The net loss decreased by $264,437 to $95,898 for the six months ended June 30, 2023 compared to $360,335 the six months ended June 30, 2022.
Liquidity and Capital Resources
We had cash of $132,273 and $199,045 as of December 31, 2022 and 2021, respectively. As of December 31, 2022, we had working capital deficit of $11,357,758 a current ratio of 0.12:1, and our current assets were $1,494,417. As of December 31, 2021, we had a working capital deficit of $12,653,904 or a current ratio of 0.10:1, and our current assets were $1,447,685. The debt-to-equity ratio is 1.06 and 0.87 as of December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the total liabilities were $14,316,389 and $14,101,589, respectively.
The high working capital deficit raised the question related to ESG’s ability to continue as a going concern. The high working capital deficit was due to the reason that we only used short-term loans to fund our operations. ESG has plans to increase long-term debt and equity investment in the future to improve our capital structure. We acquired 12 mushroom houses on December 31, 2022 by 7-year debt and expanded our compost facilities by 10-year financing. The two facilities will start operations in January 2024 and December 2023, respectively. The management believes that the operation will increase our production volume, and generate revenue, cash and profit.
We had cash of $1,044,488 and $132,273 as of June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023, the capital deficit was decreased by $1,232,947 to $10,124,811 compared to $11,357,758 as of December 31, 2022. As of June 30, 2022, the current ratio was increased by 0.09 to 0.21:1 compared to 0.12:1 as of December 31, 2022. The current assets were $2,649,682 as of June 30, 2023 compared to $1,494,417 as of December 31, 2022, representing an increase of $1,155,265. The debt-to-equity ratio was increased by 0.05 to 1.11 as of June 30, 2023 compared to 1.06 as of December 31, 2022. The total liabilities were $14,166,886 and $14,316,389 for the six months ended June 30, 2023 and the year ended December 31, 2022, respectively.
Cash flow summary
The following is a summary of cash provided by or used in each of the indicated types of activities during the years ended December 31, 2022 and 2021, respectively.
| 2022 | 2021 | |||||||
| Net cash provided by (used in) operating activities | $ | 159,285 | $ | (124,898 | ) | |||
| Net cash used in investing activities | $ | (63,198 | ) | $ | (367,623 | ) | ||
| Net cash used in (provided by) financing activities | $ | (148,443 | ) | $ | 530,769 | |||
The following is a summary of cash provided by or used in each of the indicated types of activities during the six month ended June 30, 2023 and 2022, respectively.
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | 551,056 | $ | (678,740 | ) | |||
| Net cash used in investing activities | $ | (25,581 | ) | $ | (61,055 | ) | ||
| Net cash provided by financing activities | $ | 463,037 | $ | 617,441 | ||||
Cash Flow from Operating Activities
Net cash provided by operating activities for the year ended December 31, 2022 was $159,285 which was primarily attributable to a net loss of $982,081, adjusted for depreciation and amortization of $1,686,277 and adjustments for changes in assets and liabilities of $544,911. Compared to the year ended December 31, 2021, net cash used in operating activities was negative $124,898. The increase in net cash provided by operating activities was primarily attributable to:
● The decrease of net loss of $220,879 for the year ended December 31, 2022 as compared to the year ended December 31, 2021;
● The decrease of depreciation and amortization of $44,578 for the year ended December 31, 2022 as compared the year ended December 31, 2021. The decrease in depreciation was mainly due to some property, plant and equipment was switched back to construction In progress under construction;
● Value added tax receivable decreased by $110,372 for the year ended December 31, 2022, compared to an increase of $611,585 for the year ended December 31, 2021. The decrease in value-added tax receivable was mainly due to the transfer of VAT input to cost;
● Accounts payable increased by $104,118 for the year ended December 31, 2022, compared to a decrease of $2,930 for the year ended December 31, 2021;
● Deferred revenue decreased by $64,219 for the year ended December 31, 2022, compared to an increase of $119,631 for the year ended December 31, 2021. The decrease in deferred revenue was mainly due to the amortization of asset-based grants received;
And offset by the following factors:
● Accounts receivable and other receivables increased by $70,635 for the year ended December 31, 2022, compared to an increase of $1,632 for the year ended December 31, 2021. The increase was mainly due to the increase in other receivables.
● Advance to suppliers increased by $208,812 for the year ended December 31, 2022, compared to a decrease of $453,361 for the year ended December 31, 2021.
● Inventory increased by $379,506 for the year ended December 31, 2022, compared to a decrease of $94,880 for the year ended December 31, 2021.
● Other payable decreased by $164,667 for the year ended December 31, 2022, compared to a decrease of $402,339 for the year ended December 31, 2021.
Net cash provided by operating activities for the six months ended June 30, 2023 was $551,056 which was primarily attributable to a net loss of $95,898, adjusted for depreciation and amortization of $788,676 and adjustments for changes in assets and liabilities of $141,722. Compared to the six months ended June 30, 2022, net cash used in operating activities was 678,740. The increase in net cash provided by operating activities was primarily attributable to:
● Account receivable and other receivables increased by $140,022 for the six months ended June 30, 2023, compared to an increase of $498, 586 for the six months ended June 30, 2022;
● Advance to suppliers increased by $643, 092 for the six months ended June 30, 2023, compared to an increase of $51,692 for the six months ended June 30, 2022;
● Accrued expenses and other payables decreased by $33,776 for the six months ended June 30, 2023, compared to an increase of $214, 653 for the six months ended June 30, 2022;
● Deferred revenue decreased by $59,569 for the six months ended June 30, 2023, compared to an increase of $71,410 for the six months ended June 30, 2022;
● Inventories decreased by $459, 850 for the six months ended June 30, 2023, compared to an increase of $713,099 for the six months ended June 30, 2022;
●. Account payable increased by $274,887 for the six months ended June 30, 2023, compared to a decrease of $117,303 for the six months ended June 30, 2022.
Cash Flow from Investing Activities
Net cash used in investing activities were $63,198 and $367,623 for the year ended December 31, 2022, and 2021, respectively. They were primarily attributable to the purchase of new equipment for production need during the fiscal year.
Net cash used in investing activities were $25,581 and $61,055 for the six months ended June 30, 2023 and 2022, respectively. They were primarily attributable to the purchase of new equipment for production needs during the period.
Cash Flow from Financing Activities
Net cash used in financing activities was $148,443 for the year ended December 31, 2022, which was primarily attributable to repayment for an amount of $12,914,527, offset by the proceeds from short-term borrowings for an amount of $12,766,084.
Net cash provided by financing activities was $530,769 for the year ended December 31, 2021. It was primarily attributable to the proceeds from short-term borrowings for an amount of $15,032,001, offset by the repayment to short-term borrowings for an amount of $14,501,232.
Net cash provided by financing activities was $463,037 and $617,441 for the six months ended June 30, 2023 and 2022, respectively. They were primarily attributable to the proceeds from short-term borrowings for an amount of $3,319,949 and a loan from a related party of $30,000, offset by the repayment of $2,886,912 for the six months ended 2023, and the proceeds from short-term borrowings for an amount of $12,657,544, offset by repayment for an amount of $12,040,103 for the six months ended June 30, 2022.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as of December 31, 2022 and December 31, 2021, or that in the opinion of management are likely to have, a current or future material effect on our financial condition or results of operations.
Commitment and Contingencies
Commitments
On January 5, 2022, Funan Modern Recycling Agriculture Investment Co., Ltd. (“FMRA”) signed an agreement with AUFP to fund AUFP $18.09 million (RMB 115 million) on the expansion of composting facilities including 6 bunkers and 22 tunnels. According to the agreement, AUFP transfers the land use right of 46,353 square meters which the composting facilities will be constructed on to FMRA and starts to pay rent for 10 years after AUFP uses the facilities. Once rents are paid, FMRA transfers the land use right and deed of composting facilities to AUFP. All the costs related to the transfer of land use right are paid by FMRA. The facilities were in construction at the end of December 31, 2022 and was expected to complete in November 2023.
Legal contingencies
The Company is involved in a couple of legal proceedings. Management has identified certain legal mattes where we believe an unfavorable outcome is reasonable estimated. Management believes that the total liabilities of the Company that may arise as a result of currently pending proceedings will not have a material adverse effect on the Company taken as a whole.
On November 10, 2022, Funan Yuanlangju Construction Co., Ltd. filed a lawsuit against AUFP for $60,147. The plaintiff sold construction materials to AUFP. AUFP had a dispute with the plaintiff over the amount of the sale. On July 7, 2023, the two parties reached a settlement that AUFP would pay the plaintiff $50,740. AUFP paid the plaintiff $50,740 in July, 2023.
On December 2, 2022, Liu Pengpeng filed a lawsuit against AUFP for $66,066. Liu Pengpeng signed a contract with AUFP on installation work and drainage construction. Liu Pengpeng breached the contract and failed to complete the construction work on time which caused a loss to AUFP who filed counterclaim. On July 7, 2023, the two parties reached a settlement by withdrawing the lawsuit.
On September 3, 2021, Anhui Daquan Construction Company (“Daquan”) filed a lawsuit against Funan Zhihua Mushroom Co., Ltd. (a merged company, “Zhihua”) on unpaid contractual price of $48,744. Zhihua has a dispute on floor quality which Daquan constructed did not meet the requirements specified in the contract and filed a lawsuit for $26,095 of damage. On June 6, 2023, Daquan paid $26,095 to Zhihua to settle the lawsuit.
Employees
ESG currently has around 20 full-time management employees and 40 full-time workers along with 185 part-time harvesters and runners. We anticipate hiring necessary personnel based on an as needed basis only on a per contract basis to be compensated directly from revenues.
Properties
Our mailing address and global operations are situated at 523 School House Rd, Kennett Square, PA 19035 USA. Our subsidiary Funan Allied United Farmer Products Co., Ltd. owns all material property and land use right with 9 property deeds covering 300,000 square feet of construction area and 2 deed of land use right covering 56 acres of industrial land.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the beneficial ownership of our voting securities following the completion of the Reverse Merger described in Items 1.01 of this report by (i) any person or group owning more than 5% of any class of voting securities, (ii) each director, (iii) our chief executive officer and (iv) all executive officers and directors as a group as of November 8, 2023.
| Name | Number of Shares of Common Stock | Percentage | ||||||
| Zhi Yang, Director and CEO | 14,000,000 | 54.06 | % | |||||
| DCG China Limited(1) | 7,632,800 | 29.47 | % | |||||
| (All officers and directors as a group (_1_ people) | 21,632,800 | 83.53 | % | |||||
(1) Owned by the mother of Zhi Yang, who will be acting in convert with Zhi Yang
There are no other officer or director with 5 % or more shares.
Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, each of the stockholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned. Except as set forth above, applicable percentages are based upon 25,899,468 shares of common stock to be outstanding.
Directors and Executive Officers, Promoters and Control Persons
| Name | Age | Position(s) |
| Zhi Yang | 48 | Chairman, President, CEO, CFO, Secretary, Treasurer |
Zhi Yang, CEO
Zhi Yang, founder and CEO, a New York lawyer with bar license in China, is managing director in capital market consulting firm for more than 10 years and worked as country manager and senior counsel to the Board of Directors for a Nasdaq listed agriculture company after he worked for a couple of national law firms in Philadelphia USA.
Term of Office
Our director holds his position until the next annual meeting of shareholders and until his successor is elected and qualified by our shareholders, or until earlier death, retirement, resignation or removal.
Family Relationships
There are no family relationships between the Company and any of our current and proposed directors or executive officers.
Legal Proceedings Involving Directors and Executive Officers
During the past ten years no current or incoming director, executive officer, promoter or control person of the Company has been involved in the following:
(1) A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
(2) Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) ;
(3) Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
i. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii. Engaging in any type of business practice; or
iii. Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
(4) Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
(5) Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
(6) Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(7) Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
i. Any Federal or State securities or commodities law or regulation; Or
ii. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease and desist order, or removal or prohibition order; Or
iii. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; Or
(8) Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. There are no current material proceedings.
Executive Compensation
The table below sets forth the positions and compensations for the officers and directors of ESG and PMIN, for the years ended December 31, 2022 and 2021.
Executive Compensation
The table below sets forth the positions and compensations for the officers and directors of ESG and PMIN, for the years ended December 31, 2022 and 2021.
| Position | Name of Directors | Year | Salary before tax | Bonus | All other compensation | Total |
| CEO and CFO | Zhi Yang | 2022 | 0 | 0 | 0 | 0 |
| 2021 | 0 | 0 | 0 | 0 |
We do not have an audit or compensation committee comprised of independent directors as our Company qualifies for an exemption from these requirements. Indeed, we do not have any audit or compensation committee. These functions are performed by our Board of Directors as a whole.
All directors serve 1 year terms.
Transactions with related persons, promoters and certain control persons
Related Party Transactions
Anhui Allied United Mushroom Co., Ltd. buys compost from Anhui Allied United Mushroom Technology Co., Ltd. The pricing is USD 152.78 with RMB to USD at 7.2:1. We believe these are arms-length terms.
Legal Proceeding
In September 2021, Anhui Daquan Construction Engineering Co., Ltd. sued Funan Zhihua Mushroom Co., Ltd. over a construction project contract dispute; in November2021, Funan Zhihua Mushroom Co., Ltd. sued Anhui Daquan Construction Engineering Co., Ltd. over a construction project contract dispute. In November 2021, Anhui Allied United Mushroom Technology Co., Ltd. sued Anhui Daquan Construction Engineering Co., Ltd. for a construction project contract dispute. The three cases were dealt with concurrently. On April 4, 2023, Anhui Daquan Construction Engineering Co., Ltd. and Funan Zhihua Mushroom Co., Ltd withdrew their litigation claims separately and Anhui Daquan Construction Engineering Co., Ltd. paid a one-time compensation of RMB 180,000 to Funan Zhihua Mushroom Co., Ltd, closing all cases.
Market Price of and dividends on the registrant’s common equity and related shareholder matters
Market Information
PMIN’s common stock is quoted through the over-the-counter market on the OTC Market Pink under the symbol “PMIN.” There is a limited trading of PMIN’s common stock. Since PMIN was initially quoted on July 14, 2023, the market price has been $1.00.
As of November 8, 2023, there were approximately 41 record holders of PMIN common stock, not including shares held in “street name” in brokerage accounts. As of November 8 2023, there were 25,899,468 shares of PMIN’s common stock issued and outstanding on record.
Dividends
PMIN has not declared or paid any cash dividends on its common stock.
Transfer Agent and Registrar
The transfer agent and registrar for PMIN’s common stock is West Coast Stock Transfer Inc., 721 N. Vulcan Ave., First Floor, Encinitas, CA 92024, telephone number 619-664-4780.
Repurchases of Our Securities
None of the shares of our common stock were repurchased by the Company during the fiscal year ended December 31, 2022.
Sales of Our Unregistered Securities by PMIN during 2022 Not Previously Disclosed
None
Penny Stock Regulations
Our shares of common stock are subject to the “penny stock” rules of the Securities Exchange Act of 1934 and various rules under this Act. In general terms, “penny stock” is defined as any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, issued by a registered investment company, and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer’s net tangible assets or revenues. In the last case, the issuer’s net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or $5,000,000 if in operation for less than three years.
Recent Sales of Unregistered Securities
On November 6, 2023, Plasma Innovative Inc. (“PMIN,” or the “Company”) entered into a share exchange agreement (the “Share Exchange Agreement”) with the ESG Shareholders, owner(s) of 100% of ESG Inc. Under the Share Exchange Agreement, One Hundred Percent (100%) of the ownership interest of ESG Inc. was exchanged for 10,432,800 shares of common stock of PMIN issued to the ESG Shareholders The former stockholders of ESG Inc. acquired a majority of the issued and outstanding common stock following the share exchange transaction, when combined with their previous holdings. The transaction has been accounted for as a recapitalization of the Company, whereby ESG Inc. is the accounting acquirer.
Immediately after completion of such share exchange, the Company has a total of 25,899,468 issued and outstanding shares, with authorized share capital for common share of 65,000,000.
Description of securities
The following is a summary description of our capital stock and certain provisions under the laws of the State of Nevada where the Company was incorporated. The following discussion is qualified in its entirety by reference to such exhibits.
General
We have authorized 65,000,000 shares of common stock with par value $0.001 per share. As of November 8, 2023, the Company has issued and outstanding 25,899,468 shares of common stock.
Common Stock
The holders of our common stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voting for the election of directors can elect all of the directors then up for election. The holders of our common stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor. In the event of liquidation, dissolution or winding up of our company, the holders of common stock are entitled to share rateably in all assets remaining which are available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the common stock. Holders of shares of our common stock, as such, have no conversion, pre-emptive or other subscription rights, and there are no redemption provisions applicable to the common stock.
Preferred Stock
We are also authorized to issue 10,000,000 shares of Preferred Stock. No shares of our Preferred Stock are issued and outstanding. The rights, privileges and preferences of the Preferred Stock have not been established at this time, and may be established by the majority vote of shareholders.
Indemnification of Directors and Officers
Section 78.138 of the NRS provides that a director or officer will not be individually liable unless it is proven that (i) the director’s or officer’s acts or omissions constituted a breach of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud or a knowing violation of the law.
Section 78.7502 of NRS permits a company to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with a threatened, pending or completed action, suit or proceeding if the officer or director (i) is not liable pursuant to NRS 78.138 or (ii) acted in good faith and in a manner the officer or director reasonably believed to be in or not opposed to the best interests of the corporation and, if a criminal action or proceeding, had no reasonable cause to believe the conduct of the officer or director was unlawful.
Section 78.751 of NRS permits a Nevada company to indemnify its officers and directors against expenses incurred by them in defending a civil or criminal action, suit or proceeding as they are incurred and in advance of final disposition thereof, upon receipt of an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction that such officer or director is not entitled to be indemnified by the company. Section 78.751 of NRS further permits the company to grant its directors and officers additional rights of indemnification under its articles of incorporation or bylaws or otherwise.
Section 78.752 of NRS provides that a Nevada company may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out of his status as such, whether or not the company has the authority to indemnify him against such liability and expenses. Our Bylaws provide that we may indemnify and advance litigation expenses to our directors, officers, employees and agents to the extent permitted by law, our Articles of Incorporation or our Bylaws, and shall indemnify and advance litigation expenses to our directors, officers, employees and agents to the extent required by law, our Articles of Incorporation or Bylaws. Our obligations of indemnification, if any, shall be conditioned on receiving prompt notice of the claim and the opportunity to settle and defend the claim. We may, to the extent permitted by law, purchase and maintain insurance on behalf of an individual who is or was our director, officer, employee or agent.
Indemnification against Public Policy
Insofar as indemnification by us for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling the company pursuant to provisions of our Articles of Incorporation and Bylaws, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The effect of indemnification may be to limit the rights of the Company and the shareholders (through shareholders’ derivative suits on behalf of the Company) to recover monetary damages and expenses against a director for breach of fiduciary duty.
Item 3.02 Unregistered Sales of Equity Securities.
Reference is made to the disclosure made under Item 1.01 which is incorporated herein by reference.
Item 5.03 Amendments to Articles of Incorporation or By-Laws; Change in Fiscal Year.
The Board of Directors of the Company voted to change the Company’s fiscal year end to December 31st in order to align it with ESG. The Board of Directors of the Company approved this change to the fiscal year end on August 31, 2023.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statement of Business Acquired
The audited financial statements of ESG Inc. for the years ended December 31, 2021 and 2022 were audited by Kreit & Chiu. The unaudited financial statements of ESG Inc. for the six months ended June 30, 2023 were reviewed by BF Borgers CPA PC. The audited financial statements as of December 31, 2022 and 2021, and the unaudited financial statements of ESG Inc. as of June 30, 2023 are appended to this report beginning on page 43.
ESG INC
CONSOLIDATED BALANCE SHEETS
| December 31, | 2022 | 2021 | ||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable and other receivables | ||||||||
| Advance to suppliers | ||||||||
| Inventory | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Value added tax receivable | ||||||||
| Note receivable | ||||||||
| Total non-current assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Account payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Deferred revenues | ||||||||
| Total current liabilities | ||||||||
| Long-term payable | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies1 | ||||||||
| Stockholders’ equity | ||||||||
| Common stock, $ par value, authorized, issued and outstanding as of December 31, 2022 and 2021. | ||||||||
| Additional paid in capital | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Company stockholders’ Equity | ||||||||
| Noncontrolling interest | ||||||||
| Total equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| 1 |
See accompanying notes to the consolidated financial statements.
ESG INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| Year ended December 31, | 2022 | 2021 | ||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ( | ) | ( | ) | ||||
| Operating expenses | ||||||||
| Selling expense | ||||||||
| General and administrative expense | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Non-operating income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other Income | ||||||||
| Total non-operating income (expenses), net | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income taxes | ||||||||
| Net Loss | ( | ) | ( | ) | ||||
| Less: loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Net loss to ESG Inc. | ( | ) | ( | ) | ||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation gain (loss) attributable to the Company | ( | ) | ||||||
| Foreign currency translation gain (loss) attributable to noncontrolling interest | ( | ) | ||||||
| Comprehensive loss attributable to the Company | $ | ( | ) | $ | ( | ) | ||
| Comprehensive loss attributable to noncontrolling interest | $ | ( | ) | $ | ( | ) | ||
| Net loss per share - basic | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding - basic | ||||||||
See accompanying notes to the consolidated financial statements.
ESG INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Common stock | Additional paid | Accumulated income | Accumulated other | Total Company’s | Noncontrolling | |||||||||||||||||||||||||||
| Share | Amount | aid-in capital | (deficit) | comprehensive income | equity | interest | Total | |||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation gain | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
ESG INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended December 31, | 2022 | 2021 | ||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable and other receivable | ( | ) | ( | ) | ||||
| Advance to suppliers | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Value added tax receivable | ( | ) | ||||||
| Note receivable | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Other payable | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from loans | ||||||||
| Payment of loans payable | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net (decrease) increase in cash | ( | ) | ||||||
| Cash and restricted cash, beginning of the year | ||||||||
| Cash and restricted cash, end of the year | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||
| Purchases of property, plant and equipment by assuming debt | $ | $ | ||||||
| Transfer of prepaid expenditure to property, plant and equipment | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
ESG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- ORGANIZATION AND DESCRIPTION OF BUSINESS
ESG Inc. (“ESG”) was incorporated in October 2022, a Nevada corporation and headquartered at Kennett Square, Pennsylvania, USA, and is a holding company without operations engaged in food production and distribution through our subsidiaries.
ESG incorporated ESG China Limited as ESG’s wholly owned subsidiary in Hong Kong on November 18, 2022. ESG China Limited
incorporated
Hainan ESG Technology Co., Ltd., a China corporation (“Hainan ESG”) with
On
September 28, 2023, ESG entered into a share exchange agreement with Funan Allied United Farmer Products Co., Ltd., a China corporation
incorporated in May 2017 (“AUFP”), and 74.52% of shareholders of AUFP, (each a “Shareholder,” and collectively,
the “Shareholders”), through Hainan ESG. Pursuant to such agreement, the Shareholders exchanged their equity of AUFP to Hainan
ESG for shares of common stock of ESG, and ESG has agreed to offer of ESG shares. Following this transaction, AUFP became
a
AUFP incorporated Anhui Allied United Mushroom Technology Co., Ltd. (“AUMT”) in China in March 2018, to manufacture white button mushroom compost while AUFP incorporated Anhui Allied United Mushroom Co., Ltd. (“AUM”) in China in April, 2018, to grow fresh white button mushroom and provide mushroom growing management services. AUFP, AUMT and AUM are operating entities in China.
Prior
to the share exchange, Mr. Zhi Yang owned
Since the Company is effectively controlled by the same controlling shareholders before and after the share exchange agreement, it is considered under common control. Therefore the above mentioned transactions were accounted for as a recapitalization. The reorganization has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying financial statements of the Company.
Our operating subsidiaries are involved in direct white button mushroom composting, growing, food production, distribution as well as import and export of Phase III compost and mushroom related food. With the core business philosophy to develop and operate sustainable and technology-driven food businesses consistent with the principles of Environmental, Sustainable and Governance investing, we believe that the growing global demand for sustainable high quality food presents a unique opportunity to operate companies engaged in this critical area that is being paid increasing attention by global investors.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.
The
consolidated financial statements of the Company include the financial statements of the Company and its 74.52% owned subsidiaries in
China. All inter-company transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.
The Equity attributable to minority shareholders who own 25.48% of AUFP and its subsidiaries are non controlling interest (“NCI”).
The NCI were $
Going concern
The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. For the years ended December 31, 2022 and 2021, the Company had a net loss of approximately $0.98 million and $1.20 million , respectively. The Company had an accumulated deficit of approximately $1.12 million and $0.14 million as of December 31, 2022 and 2021, respectively. The operating results indicate the Company has recurring losses from operations which raises the question related to the substantial doubt about the Company’s ability to continue as a going concern.
Historically, we have funded our operations primarily through our sale of fresh mushrooms and borrowings. Currently, all the loans are short-term borrowings. Management is working to increase long-term loans and equity investment in order to improve our capital structure. However, such additional cash resources may not be available to us on desirable terms, or at all, if and when needed by us.
To
enhance our ability to continue to operate, we are dedicating resources to generate recurring revenues and sustainable operating cash
flows. On one side, we improved efficiency with current facilities, the revenue reached $
The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Use of estimates
In preparing the consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant items subject to such estimates and assumptions include allowance for doubtful accounts, advances to suppliers, valuation of inventories, useful lives of property, plant, and equipment and intangible assets.
Cash and restricted cash
Cash includes demand deposits with financial institutions that are highly liquid in nature. Restricted cash includes any cash that is legally restricted as to withdrawal or usage.
Account receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowance when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s payment history, its current creditworthiness and current economic trends. Accounts are written off after efforts at collection prove unsuccessful. As of December 31, 2022 and 2021, allowance for doubtful accounts was nil and nil , respectively.
Advances to suppliers, net
Advances
to suppliers represent prepayments made to ensure continuous high-quality supplies and favorable purchase prices for premium quality.
These advances are settled upon suppliers delivering raw materials to the Company when the transfer of ownership occurs. The Company
review its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability
of a supplier to provide supplies to the Company or refund an advance. As of December 31, 2022 and 2021, advance to suppliers was $
Inventory
Inventory
is comprised primarily of raw materials, work-in-progress and finished goods. The value of inventory is determined using the weighted
average method. The Company periodically estimates an inventory allowance for estimated unmarketable inventories when necessary. Inventory
amounts are reported in net of allowances. As of December 31, 2022 and 2021, inventories were $
Property, plant and equipment, net
Property,
plant and equipment are stated at cost, less accumulated depreciation. Major repair and improvements that significantly extend original
useful lives or improve productivity are capitalized and depreciated over the period benefited. Repair and maintenance costs are expensed
as incurred. Depreciation is recorded principally by the straight-line method over the estimated useful lives of our property, plant
and equipment which generally have the following ranges: buildings and improvements:
Intangible assets, net
Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible assets is made to take into account events or circumstances that warrant revise estimates of useful lives or that indicate that impairment exists. All of the Company’s intangible assets are subject to amortization. No impairment of intangible assets has been identified as of the balance sheet date.
Intangible
assets consist of land use rights, patent and purchased software. Intangible assets are stated at cost less accumulated amortization.
The land purchased for industrial use has the right of use for 50 years. We amortized the right to use land in 50 years. Patent and software
amortized using the straight-line method with estimated useful lives of
Impairment of long-lived assets
In accordance with FASB ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become impaired as a result of technological or other changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset.
If
such assets are considered impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset
exceeds its present value. Present value generally is determined using the asset’s expected future undiscounted cash flows or market
value, if readily determinable. Assets to be disposed of are reported at the lower of the carrying amount or FV less cost to sell. For
the years ended December 31, 2022 and 2021, there was
Revenue Recognition
The Company follows Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606).
FASB ASC Topic 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies each performance obligation.
Revenue is generated by selling fresh mushrooms to authorized distributors and wholesalers mainly in Yangzi River Delta. Contracts were signed after the communication of the price, and quantities with customers. Our sales terms generally do not allow to sell without a deposit being made and do not allow for a right of return. Usually, the deposit from the customer equals or more than the sales amount. Control of the mushrooms is transferred upon receipt or loaded in the truck of carriers at our warehouse, as determined by the specific terms of the contract. Upon transfer of control to the customer, which completes our performance obligation, revenue is recognized.
Deferred revenue
Deferred revenue consists primarily of government grants. Government grants (sometimes referred to as subsidies, subventions, etc.) are as assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity.
Government grants received relating to depreciable assets are recorded as deferred income and recognized in over the life of the related assets. The Company recorded income when receiving a grant which constitutes compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs.
Noncontrolling Interests
The Company follows FASB ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI (previously referred to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to non-controlling interests even when such allocation might result in a deficit balance.
The net income (loss) attributed to NCI was separately designated in the accompanying statements of operations and comprehensive income (loss). Losses attributable to NCI in a subsidiary may exceed a non-controlling interest’s interests in the subsidiary’s equity. The excess attributable to NCIs is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance.
AUFP
and its subsidiaries, AUM and AUMT were 25.48% owned by noncontrolling interest and $3,438,129 and $4,121,862 of equity were attributable
to noncontrolling interest as of December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, the Company
had losses of $
Concentration of credit risk
The
Company maintains cash in accounts with state-owned banks within the PRC. Cash in state-owned banks less than $72,486 (RMB500,000) is
covered by insurance. Should any institution holding the Company’s cash become insolvent, or if the Company is unable to withdraw
funds for any reason, the Company could lose the cash on deposit with that institution. The Company has not experienced any losses in
such accounts and believes it is not exposed to any risks on its cash in these bank accounts. Cash denominated in RMB with a U.S. dollar
equivalent of $
Foreign currency translation and comprehensive income (loss)
The accounts of the Company’s Chinese entities are maintained in Chinese Yuan (“RMB”), and the accounts of the U.S. parent company are maintained in United States dollar (“USD”). The accounts of the Chinese entities were translated into USD in accordance with FASB ASC Topic 830 “Foreign Currency Matters.” All assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and the statements of operations and cash flows are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income (loss) in accordance with FASB ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from foreign currency transactions are reflected in the statements of operations.
The Company follows FASB ASC Topic 220-10, “Comprehensive Income (loss).” Comprehensive income (loss) comprises net income (loss) and all changes to the statements of changes in stockholders’ equity, except those due to investments by stockholders, changes in additional paid-in capital and distributions to stockholders.
The exchange rates used to translate amounts in RMB to USD for the purposes of preparing the CFS were as follows:
| December 31, | 2022 | 2021 | ||||||
| Period-end date USD: RMB exchange rate | ||||||||
| Average USD for the reporting period: RMB exchange rate | ||||||||
Income taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with FASB ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) tax payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior year’s net operating losses carried forward.
The Company accounts for income for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach
for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the
likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the
net effects of temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will
either expire before the Company is able to realize their benefits, or not be deductible in the future.
Contingencies
Certain conditions may exist as of the date the consolidated financial statements (“CFS”) are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. In accordance with ASC 450, the Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s CFS.
If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
NOTE 3 – CASH AND RESTRICTED CASH
The
cash was $
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
The following table summarizes our property, plant and equipment:
| December 31, | 2022 | 2021 | ||||||
| Buildings and improvements | $ | $ | ||||||
| Machinery, equipment and vehicle fleet | ||||||||
| Construction in progress | ||||||||
| Property, plant and equipment - cost | ||||||||
| Less: Accumulated depreciation | ||||||||
| Property, plant and equipment - net | $ | $ | ||||||
Construction
in progress was $
Depreciation
expense was $
NOTE 5: ACCOUNT RECEIVABLE AND OTHER RECEIVABLES
Account receivable and other receivable consisted of the following:
| December 31, | 2022 | 2021 | ||||||
| Accounts receivable | $ | $ | ||||||
| Other receivable | ||||||||
| Other receivable- related party* | ||||||||
| Total | $ | $ | ||||||
| * | |
NOTE 6: INVENTORIES
Inventories consisted of the following:
| December 31, | 2022 | 2021 | ||||||
| Raw materials | ||||||||
| Finished goods | ||||||||
| Work in progress - compost | ||||||||
| - growing mushrooms | ||||||||
| Total | ||||||||
NOTE 7: INTANGIBLE ASSETS
Intangible assets are stated at cost or acquisition-date fair value less accumulated amortization and consist of the following:
| December 31, | 2022 | 2021 | ||||||
| Land use right | $ | $ | ||||||
| Software | ||||||||
| Patent | ||||||||
| Subtotal | ||||||||
| Less: Accumulated amortization | ||||||||
| Total | $ | $ | ||||||
Estimated future amortization expense is as follows as of December 31, 2022:
| Years ending December 31, | Amortization expense | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ | |||
Amortization
expenses for the years ended December 31, 2022 and 2021 were $
NOTE 8: BANK LOANS
Short-term bank loans consisted of the following:
| December 31, | 2022 | Interest rate | Due date | 2021 | Interest rate | Due date | ||||||||||||||||||
| Agricultural Bank of China Funan Branch | % | % | ||||||||||||||||||||||
| Anhui Funan Rural Commercial Bank | % | % | ||||||||||||||||||||||
| Anhui Funan Rural Commercial Bank | % | % | ||||||||||||||||||||||
| Anhui Funan Rural Commercial Bank | % | % | ||||||||||||||||||||||
| Funan Yinghuai Rural Commercial Bank | % | % | ||||||||||||||||||||||
| Bank of China Funan Branch | % | % | ||||||||||||||||||||||
| Total | - | - | - | - | ||||||||||||||||||||
$
As
of the date of this consolidated financial statements is issued, all the outstanding loans as of December 31, 2022 have been renewed.
$
NOTE 9: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
| December 31, | 2022 | 2021 | ||||||
| Advances from customers | $ | $ | ||||||
| Salary payable | ||||||||
| Tax payable | ||||||||
| Other payable | ||||||||
| Total | $ | $ | ||||||
Other payable consisted of the following:
| December 31, | 2022 | interest rate | due date | 2021 | interest rate | due date | ||||||||||||||||||
| Funan Agricultural Investment Co. Ltd | % | % | ||||||||||||||||||||||
| Funan Small Business financing service center | % | % | ||||||||||||||||||||||
| Individual | - | - | - | |||||||||||||||||||||
| Interest accumulated and other | - | - | - | - | ||||||||||||||||||||
| Total | - | - | ||||||||||||||||||||||
Other payable was primarily comprised of loans from non-bank institutions and unrelated individuals, related interest accumulated. The loan from unrelated individual was interest free and paid in full on August 29, 2023.
NOTE 10: VALUE ADDED TAX RECEIVABLE
Selling
merchandise in China is generally subject to the value-added tax (“VAT”). The Company and its subsidiaries’ primary
operations are classified as agriculture products and its revenue is exempt from VAT and income tax. The amount of VAT liability is determined
by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant
supporting invoices (input VAT). VAT input was primarily due to purchase of property, plant and equipment. As of December 31, 2022 and
2021, VAT input was $
NOTE 11: ASSET ACQUISITION
On
May 11, 2021, Anhui Allied United Mushroom Co., Ltd. signed the Agreement (“Agreement”) with Suhua Yang and Hao Yan the owners
of Funan Zhihua Mushroom Co., Ltd. (“Target Company”). As the consideration of transferring
On
June 2, 2021, the 100% equity of Target Company was transferred to and registered under the name of AUM as a holder on behalf Shareholders
according to the Agreement.
On December 31, 2022, Shareholders and AUM signed Supplementary Agreement to remove the provision that AUM as holder on behalf of Shareholders so AUM becomes a legally real shareholder of Target Company. The payment of consideration will begin from May 1, 2023.
On April 30, 2023, Shareholders and AUM agreed that the payment of consideration will begin on the production of growing rooms, which is December 1, 2023.
Following the guidance of ASC 805, we performed the screen test to evaluate whether the acquired set is a business or a group of assets. The group of assets was buildings and equipment related to growing mushrooms and didn’t include an input and a substantive process that together significantly contribute to the ability to create outputs because the target company had no employees and no operations. The transaction was accounted for as an asset acquisition in accordance with ASC 805 -50.
As
discussed in ASC 805-20, an asset’s acquisition cost or the consideration transferred by the acquiring entity is assumed to be
equal to the fair value of the net assets acquired, unless contrary evidence exists. If the consideration given is in the form
of liabilities incurred or equity
interests issued, the liabilities incurred and equity interests issued shall be initially recognized at the date of acquisition.
The fair value of the net assets acquired which was evaluated by a third party was $
Target Company was dissolved after the asset acquisition.
NOTE 12: COMMITMENTS AND CONTINGENCIES
Commitments
On
January 5, 2022, AUFP entered into construction agreement with Funan Modern Recycling Agriculture Investment Co., Ltd. (“FMRA”)
to expand the composting facilities, including 6 bunkers and 22 tunnels. According to the agreement, the construction cost of the facilities
is estimated to $
Legal contingencies
The Company is involved in a couple of legal proceedings. Management has identified certain legal mattes where we believe an unfavorable outcome is resealable estimated. Management believes that the total liabilities of the Company that may arise as a result of currently pending proceedings will not have a material adverse effect on the Company taken as a whole. (Refer to NOTE 16)
On
November 10, 2022, Funan Yuanlangju Construction Co., Ltd. filed a lawsuit against AUFP for $
On
December 2, 2022, Liu Pengpeng filed a lawsuit against AUFP for $
On
September 3, 2021, Anhui Daquan Construction Company (“Daquan”) filed a lawsuit against Funan Zhihua Mushroom Co., Ltd. (a
merged company, “Zhihua”) on unpaid contractual price of $
NOTE 13: RELATED PARTY TRANSACTIONS
Zhi
Yang, founder of the Company and CEO, paid $
AUM
paid advances to Funan Zhihua Plant Nutrition Co., Ltd, whose legal representative was the CEO of the Company in 2021. The advance to
supplier–related party was $
AUM
paid an expense of $
NOTE 14: DEFERRED REVENUE
As
of December 31, 2022 and 2021, deferred revenue was $
NOTE 15: INCOME TAXES
The company is subject to income taxes on an entity basis on income derived from the location in which each entity is domiciled. ESG Inc, ESG China Limited and Hainan ESG Tech are holding companies without operations.
In
China the Corporate Income Tax Law generally applies an income tax rate of 25% to all enterprises. In corporate income tax article 86,
“Regulations for the Implementation of the Enterprise Income Tax Law” article 27(1) of stipulate: the income of an enterprise
engaged in agriculture, forestry, animal husbandry, and fishery projects may be exempted or reduced from income tax. Refer to: (1) Enterprises
are exempted from enterprise income tax on income derived from the following items: 1. Planting of vegetables, grains, potatoes.. Funan
Allied Untied Farmer Products, Anhui Allied United Mushroom Technology and Anhui Allied United Mushroom are engaged in agricultural production
in China, and their income tax are exempted. Net income and net loss were not offset among the operating subsidiaries. Net income of
$
There
were no uncertain tax positions as of December 31, 2022 and 2021.
As
of December 31, 2022, the Company had net operating loss (“NOL”) carryforwards of $
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended December 31, 2022 and 2021:
| 2022 | 2021 | |||||||
| US federal statutory rates | ( | %) | ( | %) | ||||
| Tax rate difference between PRC and U.S. | ( | %) | ( | %) | ||||
| Effect of income tax exemption on certain income | ( | %) | ( | %) | ||||
| Change in valuation allowance | % | % | ||||||
| Effective tax rate | $ | $ | ||||||
The provision for income tax expense (benefit) for the years ended December 31, 2022 and 2021 consisted of the following:
| 2022 | 2021 | |||||||
| Income tax expense - current | $ | $ | ||||||
| Income tax benefit -deferred | ( | ) | ( | ) | ||||
| Increase in valuation allowance | ||||||||
| Total income tax expense | $ | $ | ||||||
The Company’s net deferred tax asset as of December 31, 2022 and 2021 is as follows:
| 2022 | 2021 | |||||||
| Deferred tax asset | ||||||||
| Net operating loss | $ | ( | ) | $ | ( | ) | ||
| Less: valuation allowance | ||||||||
| Net deferred tax asset | $ | $ | ||||||
NOTE 16: SUBSEQUENT EVENTS
On February 20, 2023, land use right of 46,393 square meters was transferred to Funan Recycling Agriculture Investment Co., Ltd. (“FMRA”) according to the agreement. (Refer to NOTE 12)
On November 6, 2023, the Company entered share exchange with Plasma Innovative Inc., a Nevada corporation (“PMIN”). PMIN acquired the Company shares from the Company shareholders in exchange for the issuance by PMIN to the Company shareholders of an aggregate of newly issued shares of PMIN common stock at par value $ per share.
The Company evaluated all events and transactions that occurred after December 31, 2022 through the date of the consolidated financial statements were available to be issued and concluded that there were no other material subsequent events.
ESG INC
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | (Unaudited) | (Audited) | ||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable and other receivables | ||||||||
| Advance to suppliers | ||||||||
| Inventory | ||||||||
| Total Current Assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Value added tax receivable | ||||||||
| Note receivable | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Account payable | ||||||||
| Due to related party | ||||||||
| Accrued expenses and other payables | ||||||||
| Deferred revenues | ||||||||
| Total Current liabilities | ||||||||
| Long-term payable | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $ par value, authorized, issued and outstanding as of June 30, 2023 and December 31, 2022. | ||||||||
| Additional paid in capital | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total ESG stockholders’ Equity | ||||||||
| Noncontrolling interest | ||||||||
| Total stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
* Interim financial statements reviewed by BF Borgers CPA PC.
See accompanying notes to the condensed consolidated financial statements.
ESG INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six months ended June 30, | Three months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ||||||||||||
| Non-operating income (expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income | ||||||||||||||||
| Total non-operating income (expenses), net | ( | ) | ( | ) | ||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income taxes | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: income (loss) attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) to ESG Inc. | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive item | ||||||||||||||||
| Foreign currency translation gain (loss) attributable to the Company | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency translation gain (loss) attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Comprehensive loss attributable to noncontrolling interest | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share - basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding - basic | ||||||||||||||||
* Interim financial statements reviewed by BF Borgers CPA PC.
See accompanying notes to the condensed consolidated financial statements.
ESG INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Six and three months ended June 30, 2023 and 2022,
| Common stock | Additional paid | Accumulated income | Accumulated other | Total Company’s | Noncontrolling | |||||||||||||||||||||||||||
| Share | Amount | aid-in capital | (deficit) | comprehensive income | equity | interest | Total | |||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | - | |||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation gain | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
* Interim financial statements reviewed by BF Borgers CPA PC.
See accompanying notes to the condensed consolidated financial statements.
ESG INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For Six Months ended June 30, | 2023 | 2022 | ||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable and other receivable | ( | ) | ( | ) | ||||
| Advance to suppliers | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Value added tax receivable | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Other payable | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Acquisition of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Due to the related party | ||||||||
| Proceeds from loans | ||||||||
| Payment of loans payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash and restricted cash at beginning of the period | ||||||||
| Cash and restricted cash at end of the period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
* Interim financial statements reviewed by BF Borgers CPA PC.
See accompanying notes to the condensed consolidated financial statements.
ESG INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
ESG’s operating subsidiaries are involved in direct white button mushroom composting, growing, food production, distribution as well as import and export of Phase III compost and food to strategize.
The consolidated condensed interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s annual report for the year ended December 31, 2022. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods are not indicative of annual results.
The
accompanying consolidated financial statements include ESG Inc. and its
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The
accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. The Company’s
working capital deficit was $
Use of estimates
In preparing the consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant items subject to such estimates and assumptions include allowance for doubtful accounts and advances to suppliers, the valuation of inventories, the useful lives of property, plant, and equipment and the valuation of deferred tax assets.
Contingencies
Certain conditions may exist as of the date the consolidated financial statements (“CFS”) are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s CFS.
If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Cash and restricted cash
Cash includes demand deposits with financial institutions that are highly liquid in nature. Restricted cash includes any cash that is legally restricted as to withdrawal or usage.
Account receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowance when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s payment history, its current creditworthiness and current economic trends. Accounts are written off after efforts at collection prove unsuccessful. As of June 30, 2023 and December 31, 2022, allowance for doubtful accounts was nil and nil , respectively.
Advances to suppliers, net
Advances to suppliers represent prepayments made to ensure continuous high-quality supplies and favorable purchase prices for premium quality. These advances are settled upon suppliers delivering raw materials to the Company when the transfer of ownership occurs. The Company review its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to provide supplies to the Company or refund an advance. As of June 30, 2023 and December 31, 2022, allowance for doubtful accounts was nil and nil, respectively.
Inventory
Inventory
is comprised primarily of raw materials, work-in-progress and finished goods. The value of inventory is determined using the weighted
average method. The Company periodically estimates an inventory allowance for estimated unmarketable inventories when necessary. Inventory
amounts are reported net of allowances. As of June 30, 2023 and December 31, 2022, inventories were $
Property, plant and equipment, net
Property,
plant and equipment are stated at cost, less accumulated depreciation. Major repair and improvements that significantly extend original
useful lives or improve productivity are capitalized and depreciated over the period benefited. Repair and maintenance costs are expensed
as incurred. Depreciation is recorded principally by the straight-line method over the estimated useful lives of our property, plant
and equipment which generally have the following ranges: buildings and improvements:
Intangible assets, net
Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible assets is made to take into account events or circumstances that warrant revise estimates of useful lives or that indicate that impairment exists. All of the Company’s intangible assets are subject to amortization. No impairment of intangible assets has been identified as of the balance sheet date.
Intangible
assets consist of land use rights, patent and purchased software. Intangible assets are stated at cost less accumulated amortization.
The land purchased for industrial use has the right of use for 50 years. We amortized the right to use land in 50 years. Patent and software
amortized using the straight-line method with estimated useful lives of
Impairment of long-lived assets
In accordance with FASB ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become impaired as a result of technological or other changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset.
If
such assets are considered impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset
exceeds its present value. Present value generally is determined using the asset’s expected future undiscounted cash flows or market
value, if readily determinable. Assets to be disposed of are reported at the lower of the carrying amount or FV less cost to sell. For
the six months and three months ended June 30, 2023 and 2022, there was
Revenue Recognition
The Company follows Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606).
FASB ASC Topic 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies each performance obligation.
Revenue is generated by selling fresh mushrooms to authorized distributors and wholesalers mainly in Yangzi River Delta. Contracts were signed after the communication of the price, and quantities with customers. Our sales terms generally do not allow to sell without a deposit being made and do not allow for a right of return. Usually, the deposit from the customer equals or more than the sales amount. Control of the mushrooms is transferred upon receipt or loaded in the truck of carriers at our warehouse, as determined by the specific terms of the contract. Upon transfer of control to the customer, which completes our performance obligation, revenue is recognized.
Deferred revenue
Deferred revenue consists primarily of government grants. Government grants (sometimes referred to as subsidies, subventions, etc.) are as assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity.
Government grants received relating to depreciable assets are recorded as deferred income and recognized in P/L over the life of the related assets and in the proportions in which depreciation expense on those assets is recognized. The Company recorded income when receiving a grant which constitutes compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs.
Noncontrolling Interests
The Company follows FASB ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI (previously referred to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to non-controlling interests even when such allocation might result in a deficit balance.
The net income (loss) attributed to NCI was separately designated in the accompanying statements of operations and comprehensive income (loss). Losses attributable to NCI in a subsidiary may exceed a non-controlling interest’s interests in the subsidiary’s equity. The excess attributable to NCIs is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance.
AUFP
and its subsidiaries, AUM and AUMT were 25.48% owned by noncontrolling interest and $
Foreign currency translation and comprehensive income (loss)
The accounts of the Company’s Chinese entities are maintained in RMB and the accounts of the U.S. parent company are maintained in United States dollar (“USD”). The accounts of the Chinese entities were translated into USD in accordance with FASB ASC Topic 830 “Foreign Currency Matters.” All assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and the statements of operations and cash flows are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income (loss) in accordance with FASB ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from foreign currency transactions are reflected in the statements of operations.
The Company follows FASB ASC Topic 220-10, “Comprehensive Income (loss).” Comprehensive income (loss) comprises net income (loss) and all changes to the statements of changes in stockholders’ equity, except those due to investments by stockholders, changes in additional paid-in capital and distributions to stockholders.
The exchange rates used to translate amounts in RMB to USD for the purposes of preparing the CFS were as follows:
| June 30, 2023 | December 31, 2022 | June 30, 2022 | ||||||||||
| Period-end date USD:RMB exchange rate | ||||||||||||
| Average USD for the reporting period: RMB exchange rate | ||||||||||||
Income taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with FASB ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) tax payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior year’s net operating losses carried forward. The Company accounts for income for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net effects of temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or not be deductible in the future.
NOTE 3 – CASH AND RESTRICTED CASH
The
cash was $
NOTE 4 – PROPERTY AND EQUIPMENT
The following table summarizes our property, plant and equipment:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Buildings and improvements | ||||||||
| Machinery, equipment and vehicle fleet | ||||||||
| Construction in progress | ||||||||
| Less accumulated depreciation | ||||||||
| Property, plant and equipment - net | ||||||||
Construction
in progress was $
NOTE 5: ACCOUNT RECEIVABLE AND OTHER RECEIVABLES
Account receivable and other receivable consisted of the following:
| June 30, 2023 | December 31, 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| Other receivable | ||||||||
| Other receivable- related party* | ||||||||
| Total | $ | $ | ||||||
| * |
NOTE 6: INVENTORIES
| Inventories consisted of the following: | ||||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Work in progress - compost | ||||||||
| - growing mushrooms | ||||||||
| Total | $ | $ | ||||||
NOTE 7: INTANGIBLE ASSETS
| Intangible assets are stated at cost or acquisition-date fair value less accumulated amortization and consist of the following: | ||||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Land use right | $ | $ | ||||||
| Software | ||||||||
| Patent | ||||||||
| Subtotal | ||||||||
| Less: Accumulated amortization | ||||||||
| Total | $ | $ | ||||||
NOTE 8: BANK LOANS
Short-term bank borrowings consisted of the following:
| June 30, 2023 | interest rate | due date | December 31, 2022 | interest rate | due date | |||||||||||||||||||
| Agricultural Bank of China Funan Branch | $ | % | $ | % | ||||||||||||||||||||
| Anhui Funan Rural Commercial Bank | % | % | ||||||||||||||||||||||
| Anhui Funan Rural Commercial Bank | % | % | ||||||||||||||||||||||
| Anhui Funan Rural Commercial Bank | % | % | ||||||||||||||||||||||
| Funan Yinghuai Rural Commercial Bank | % | % | ||||||||||||||||||||||
| Bank of China Funan Branch | % | % | ||||||||||||||||||||||
| Industrial and Commercial Bank of China | % | - | - | - | ||||||||||||||||||||
| Industrial and Commercial Bank of China | % | - | - | - | ||||||||||||||||||||
| Total | $ | - | - | $ | - | - | ||||||||||||||||||
$
NOTE 9: DUE TO RELATED PARTIES
ESG
Inc. issued million shares of common stock to Mr. Zhi Yang, our founder and CEO for the sum of $
NOTE 10: ACCRUED EXPENSES AND OTHER PAYABLE
| Accrued expenses and other payable consisted of the following: | ||||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Advances from customers | $ | $ | ||||||
| Salary payable | ||||||||
| Tax payable | ||||||||
| Other payable | ||||||||
| Total | $ | $ | ||||||
Other
payable was primarily comprised of loans from non-bank institutions, unrelated individuals, and interest accumulated. $
NOTE 11: VALUE ADDED TAX RECEIVABLE
Selling
merchandise in China is generally subject to the value-added tax (“VAT”). The Company and its subsidiaries’ primary
operations are classified as agriculture products and its revenue is exempt from VAT and income tax. The amount of VAT liability is determined
by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant
supporting invoices (input VAT). The heavy investment in property and equipment produces VAT input of $
NOTE 12: OTHER INCOME (GRANTS)
Other
income was primarily government grants. The total government grants were $
NOTE 13: COMMITMENTS AND CONTINGENCIES
Commitments
On
January 5, 2022, Funan Modern Recycling Agriculture Investment Co., Ltd. (FMRA) signed an agreement with AUFP to fund AUFP $
Legal contingencies
The Company is involved in a couple of legal proceedings. Management has identified certain legal matters where we believe an unfavorable outcome is resealable estimated. Management believes that the total liabilities of the Company that may arise as a result of currently pending proceedings will not have a material adverse effect on the Company taken as a whole.
On
November 10, 2022, Funan Yuanlangju Construction Co., Ltd. filed a lawsuit against AUFP for $
On
December 2, 2022, Liu Pengpeng filed a lawsuit against AUFP for $
NOTE 14: RELATED PARTY TRANSACTIONS
AUM
paid advances to Funan Zhihua Plant Nutrition Co., Ltd, whose legal representative was the CEO of the Company in 2021. The advance to
supplier–related party was $
AUM
paid an expense of $
NOTE 15: DEFERRED REVENUE
Deferred
revenue was asset-based government grants received. Deferred revenue was $
NOTE 16: SUBSEQUENT EVENTS
On November 6, 2023, the Company entered share exchange with Plasma Innovative Inc. (“PMIN”), a Nevada corporation. PMIN acquired the Company shares from the Company shareholders in exchange for the issuance by PMIN to the Company shareholders of an aggregate of newly issued shares of PMIN common stock at par value $ per share.
The
Company evaluated all events and transactions that occurred after June 30, 2023 through the date of the consolidated financial statements
were available to be issued and concluded that there were no other material subsequent events.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PLASMA INNOVATIVE INC. | ||
| Date: November 8, 2023 | /s/ Zhi Yang | |
| By: | Zhi Yang, President & Chief Executive Officer, Director
| |
BYLAWS
OF
PLASMA INNOVATIVE INC.
* * *
ARTICLE
I
OFFICES
SECTION 1. Principal Office and Registered Office. The principal office of the corporation shall be located at 523 School House Road, Kennett. Square, PA 19348 or such other office of the Company as may be designated from time to time by the Board of Directors. The registered office in the State of Nevada shall be 1810 E. Sahara Avenue, Suite 215, Las Vegas, Nevada 89104.
SECTION 2. Other Offices. The Corporation may have other offices also at such other place or places, either within or without the State of Nevada, as may be designated from time to time by the Board of Directors, where any and all business of the Corporation may be transacted, and where meetings of the shareholders and of the Directors may be held with the same effect as though done or held at said principal office.
ARTICLE II
MEETING OF SHAREHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the shareholders, commencing with the year 2021, shall be held at the principal office of the Corporation, or at such other place as may be specified or fixed in the notice of such meetings in December of each and every year, or at such other time as the Corporation’s Board of Directors shall specify for such purpose (but in no event later than seven months after the close of the Corporation’s fiscal year), for the election of directors and for the transaction of such other business as may properly come before such meeting.
SECTION 2. Notice of Annual Meeting. Unless notice is waived by the shareholder, the Secretary shall mail, in the manner provided in Section 5 of Article II of these Bylaws, or deliver a written or printed notice of each annual meeting to each shareholder of record, entitled to vote thereat at least ten and no more than sixty days before the date of such meeting.
SECTION 3. Place of Meeting. The Board of Directors may designate any place either within or without the State of Nevada as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors, A waiver of notice signed by all shareholders may designate any place either within or without the State of Nevada, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the Corporation in the State of Nevada.
SECTION 4. Special Meetings. Special meetings of the shareholders shall be held at the principal office of the Corporation or at such other place as shall be specified or fixed in a notice thereof. Such meetings of the shareholders may be called at any time by the President or Secretary, or by a majority of the Board of Directors then in office, and shall be called by the President with or without Board approval on the written request of the holders of record of at least fifty percent (50%) of the number of shares of the Corporation then outstanding and entitled to vote, which written request shall state the object of such meeting.
SECTION 5. Notice of Meetings. Unless notice is waived by the shareholder, written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose of purposes for which the meeting is called, shall be delivered not less than ten no more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the President or the Secretary to each shareholder of record entitled to vote at meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the records of the Corporation, with postage prepaid. Any shareholder may at any time, by a duly signed statement in writing to that effect, waive any statutory or other notice of any meeting, whether such statement be signed before or after such meeting.
SECTION 6. Meeting Without Notice. If all the shareholders shall meet at any time and place, either within or without the State of Nevada. and consent to the holding of the meeting at such time and place, such meeting shall be valid without call or notice and at such meeting any corporate action may be taken.
SECTION 7. Quorum. At all stockholders’ meetings, the presence in person or by proxy of the holders of a majority of the outstanding stock entitled to vote shall be necessary to constitute a quorum for the transaction of business, but a lesser number may adjourn to some future time not less than seven nor more than twentyone days later, and the Secretary shall thereupon give at least three days notice by mail to each shareholder entitled to vote who is absent from such meeting.
SECTION 8. Mode of Voting. At all meetings of the shareholders, the voting may be voice vote, but any qualified voter may demand a stock vote whereupon such stock vote shall be taken by ballot, each of which shall state the name of the shareholder voting and the number of shares voted by such shareholder and, if such ballot be cast by proxy, it shall also state the name of such proxy; provided, however, that the mode of voting prescribed by statute for any particular case shall be in such case followed.
2
SECTION 9. Proxies. At any meeting of the shareholders, any shareholder may be represented and vote by a proxy or proxies appointed by an instrument in writing. In the event any such instrument in writing shall designate two or more persons to act as proxies, a majority of such persons present at the meeting, or, if only one shall be present, then that one shall have and may exercise all of the powers conferred by such written instrument upon all of the persons designated unless the instrument shall otherwise provide. No such proxy shall be valid after the expiration of six months from the date of its execution, unless coupled with an interest, or unless the person executing it specified therein the length of time for which it is to continue in force, which in no case shall exceed seven years from the date of execution. Subject to the above, any proxy duly executed is not revoked and continues in full force and effect until an instrument revoking it or a duly executed proxy bearing a later date is filed with the Secretary of the Corporation. At no time shall any proxy be valid which shall be filed less than ten (10) hours before the commencement of the meeting,
SECTION 10. Voting Lists. The officer or agent in charge of the transfer books for shares of the corporation shall make, at least three days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order with the number of shares held by each, which list for a period of two days prior to such meeting shall be kept on file at the registered office of the corporation and shall be subject to inspection by any shareholder at any time during the whole time of the meeting. The original share ledger or transfer book, or duplicate thereof, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of shareholder.
Shares standing in the name of a deceased person may be voted by his administrator or executor, either in person or by proxy. Shares standing in the name of a guardian, conservator or trustee may be voted by such fiduciary either in person or by proxy, but no guardian, conservator, or trustee shall be entitled, as such fiduciary to vote shares held by such person without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without tho transfer thereof into his name if authority so to do be contained in an appropriate order of the court at which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares until shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.
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Shares of its own stock belonging to the corporation shall not be voted, directly or indirectly at any meeting and shall not be counted in determining the total number of outstanding shares at any time, but shares of its own stock held by it in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares at any given time.
SECTION 11. Closing Transfer Books or Fixing of Record Date. For the purpose of determining shareholders entitled to notice or to vote at any meeting of shareholders, the Board of Directors of the Corporation may provide that the stock transfer books be closed for a stated period but not to exceed in any case sixty (60) days before such determination. If the stock transfer books be closed for the purpose of determining shareholders entitled to notice of a meeting of shareholders, such books shall be closed for at least fifteen days immediately, preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix, in advance, a date in any case to be not more than sixty (60) days, nor less than ten (10) days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for determination of shareholders entitled to notice of a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders.
SECTION 12. Voting of Shares. Subject to the provisions of Section 14 of this Article, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to vote at a meeting of shareholders.
SECTION 13. Voting of Shares by Certain Holders. Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provisions, as the Board of Directors of such corporation may determine.
Shares standing in the name of a deceased person may be voted by his administrator or executor, either in person or by proxy. Shares standing in the name of a
guardian, conservator or trustee may be voted by such fiduciary either in person or by proxy, but no guardian, conservator, or trustee shall be entitled, as such fiduciary, to vote shares held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the Control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court at which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares until shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.
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Shares of its own stock belonging to this corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any time, but shares of its own stock held by it in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares at any given time.
SECTION 14. Consent of Stockholders in Lieu of Meeting.
(a) Unless otherwise provided in the Articles of Incorporation, any action required or permitted to be taken at any Annual or Special Meeting of Stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation’s principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the stockholders are recorded, to the attention of the Secretary of the Corporation. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this Section 14 to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to the Corporation’s principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the stockholders are recorded, to the attention of the Secretary of the Corporation. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation as provided above in this Section 14.
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(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be less than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary of the Corporation, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation’s principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the stockholders are recorded, to the attention of the Secretary of the Corporation. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action.
(c) In the event of the delivery, in the manner provided by this Section 14, to the Corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the Corporation shall engage independent inspectors of elections for the purpose of performing promptly a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the Corporation that the consents delivered to the Corporation in accordance with this Section 14 represent at least a minimum number of votes that would be necessary to take the corporate action. Nothing contained in this Section 14 shall in any way be construed to suggest or imply that the board of directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution, or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
ARTICLE
III
DIRECTORS
SECTION 1. General Powers. The Board of Directors shall have the control and general management of the affairs and business of the Corporation. Such directors shall in all cases act as a Board, regularly convened, by a majority, and they may adopt such rules and regulations for the conduct of their meetings and the management of the Corporation, as they may deem proper, not inconsistent with these Bylaws, the Articles of Incorporation and the laws of the State of Nevada. The Board of Directors shall further have the right to delegate certain other powers to the Executive Committee as provided in these Bylaws.
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SECTION 2. The Number Of Directors. The affairs and business of this Corporation shall be managed by a Board of Directors consisting of at least one (1) member and no more than eight (8) members.
SECTION 3. Election. The Directors of the Corporation shall be elected at the annual meeting of the shareholders, except as hereinafter otherwise provided for the filling of vacancies. Each director shall hold office for a term of one year and until his successor shall have been duly chosen and qualified, or until his death, or until he shall resign or shall have been removed in the manner hereinafter provided.
SECTION 4. Vacancies in the Board. Any vacancy in the Board of Directors occurring during the year through death, resignation, removal or other cause, including vacancies caused by an increase in the number of Directors, shall be filled for the unexpired portion by the remaining Directors, if they constitute a quorum, at any special meeting of the Board called for that purpose, or at any regular meeting thereof; provided, however, that in the event the remaining directors do not represent a quorum of the number set forth in Section 2 hereof, a majority of such remaining Directors may elect directors to fill any vacancies then existing.
SECTION 5. Directors Meetings. The annual meeting of the Board of Directors shall be held each year immediately following the annual meeting of the shareholders. Other regular meetings of the Board of Directors shall be held from time to time as prescribed by resolution of the Board of Directors. No further notice of such annual or regular meeting of the Board of Directors need be given.
SECTION 6. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President or any Director. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Nevada, as the place for holding any special meeting of the Board of Directors called by them.
SECTION 7. Notice. Notice of any special meeting shall be given at least twenty four hours previous thereto by written notice if personally delivered, or five days previous thereto if mailed to each director at his business address, or by facsimile transmission if receipt of such notice is confirmed by such transmitting facsimile machine. If mailed, such notice shall be deemed to have been delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice is given by facsimile transmission, such notice shall be deemed to be delivered when the notice is confirmed to have been received by the facsimile number to which it is transmitted. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or, convened.
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SECTION 8. Chairman. All meetings of the Board of Directors shall be presided over by the Chairman of the Board if there is one, or if not or if the Chairman of the Board is absent, then by the President of the Corporation if he/she is a member of the Board of Directors, or if a majority of the Directors elect to do so, the Directors present shall choose by majority vote a director to preside as Chairman of the Board of Directors for such meeting.
SECTION 9. Quorum and Manner of Acting. A majority of the Directors, whose number is designated in Section 2 herein, shall constitute a quorum for the transaction of business at any meeting and the act of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, the majority of the Directors present may adjourn any meeting from time to time until a quorum be had. Notice of any adjourned meeting need not be given. The Directors shall act only as a Board and the individual directors shall have no power as such.
SECTION 10. Removal of Directors. Any one or more of the Directors may be removed either with or without cause at any time by the vote or written consent of the shareholders representing not less than two thirds of the issued and outstanding capital stock entitled to voting power.
SECTION 11. Voting. At all meetings of the Board of Directors, each Director is to have one vote, irrespective of the number of shares of the Corporation’s stock that he may hold.
SECTION 12. Compensation. By resolution of the Board of Directors, the Directors may be paid their expenses, if any, of attendance at each meeting of the Board, and may be paid a fixed sum for attendance at meetings or a stated salary of Directors. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
SECTION 13. Presumption of Assent. A Director of the Corporation who is present, at a meeting of the Board of Directors at which action on any corporate matter is taken, shall be conclusively presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by certified or registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.
SECTION 14. Action By Unanimous Written Consent. Any action required to be taken at a meeting of the Board of Directors, or any other action which may he taken at a meeting of the Board, may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors of the Corporation.
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ARTICLE
IV
OFFICERS
SECTION 1. Number. The officers of the Corporation shall be a President, Treasurer and a Secretary and such other or subordinate officers as the Board of Directors may from time to time designate and elect. One person may hold the office and perform the duties of one or more of said offices. No officer need be a member of the Board of Directors.
SECTION 2. Election, Term of Office, Qualifications. The officers of the Corporation shall be chosen by the Board of Directors and they shall be elected annually at the meeting of the Board of Directors held immediately after each annual meeting of the shareholders except as hereinafter otherwise provided for filling vacancies. Each officer shall hold office until a successor has been duly chosen and qualified, or until death, or until resignation or removal from office in the manner hereinafter provided.
SECTION 3. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors at any time whenever in its judgment the best interests of the Corporation would be served thereby, and such removal shall be without prejudice to the contract rights, if any, of the person so removed.
SECTION 4. Vacancies. All vacancies in any office shall be filled by the Board of Directors without undue delay, at any regular meeting or at a meeting specially called for that purpose.
SECTION 5. Chairman of the Board. The Chairman of the Board, if there is one, shall preside at all meetings of the stockholders and of the Board of Directors. Except where by law the signature of the President is required, the Chairman of the Board shall possess the same power as the President to sign certificates for shares of the capital stock of the Corporation; may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Directors, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation; and in general shall perform all duties incident to the duties of the President, and such other duties as from time to time may be assigned to him by the Board of Directors.
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SECTION 6. The President. The President shall be, unless the Board of Directors designates and elects a person to serve as the Corporation’s chief executive officer and specifies by special resolution the duties and responsibilities of such office, the chief executive officer of the Corporation and shall have general supervision over the business of the Corporation and over its several officers, subject, however, to the control of the Board of Directors. The President may sign, with the Chairman of the Board, Treasurer or with the Secretary or any other proper officer of the Corporation thereunto authorized by the Board of Directors, certificates for shares of the capital stock of the Corporation; may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Directors, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation; and in general shall perform all duties incident to the duties of the President, and such other duties as from time to time may be assigned to him by the Board of Directors.
SECTION 7. Vice President. In the absence of the President or in the event of his death, inability or refusal to act, the Vice President, or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign, with the Secretary or an Assistant Secretary, certificates for shares of the Corporation; and shall perform such other duties as from time to time may be assigned to him by the President or by the Board of Directors.
SECTION 8. Treasurer. The Treasurer shall have the care and custody of all the funds and securities of the Corporation and deposit the same in the name of the Corporation in such bank or trust Company as the Board of Directors may designate: the Treasurer may sign or countersign all checks, drafts and orders for the payment of money and may pay out and dispose of same under the direction of the Board of Directors, and may sign or countersign all notes or other obligations of indebtedness of the Corporation; such person may sign with the President or Vice President, certificates for shares of stock of the Corporation; such person shall at all reasonable times exhibit the books and accounts to any director of the Corporation; and such person shall, in general, perform all duties as from time to time may be assigned to such person by the President or by the Board of Directors. The Board of Directors may at its discretion require that each officer authorized to disburse the funds of the Corporation be bonded in such amount as it may deem adequate.
SECTION 9. Secretary. The Secretary shall keep all minutes of the meetings of the Board of Directors and also the minutes of the meetings of the shareholders; and such person shall attend to the giving and serving of all notices of the Corporation and shall affix the seal of the Corporation to all certificates of stock, when signed and countersigned by the duly authorized officers; such person may sign certificates for shares of stock of the Corporation; such person may sign or countersign all checks, drafts and orders for payment of money; such person shall have charge of the certificate book and such other books and papers as the Board may direct; such person shall keep a stock book containing the names alphabetically arranged of all persons who are shareholders of the Corporation, showing their places of residence, the number of shares of stock held by them respectively, the time when they respectively became the owners thereof, and the amount paid therefor, and the Secretary shall, in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to such person by the President or by the Board of Directors.
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SECTION 10. Other Officers. The Board of Directors may authorize and empower other persons or other officers appointed by it to perform the duties and functions of the officers specifically designated above by special resolution in each case.
SECTION 11. Assistant Treasurer(s) and Assistant Secretary(ies). The Assistant Treasurer(s) shall respectively, as may be required by the Board of Directors, give bonds for the faithful discharge of their duties, in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretary(ies) as thereunto authorized by the Board of Directors may sign with the President or Vice President certificates for shares of the capital stock of the Corporation, the issue of which shall have been authorized by resolution of the Board of Directors. The Assistant Treasurer(s) and Assistant Secretary(ies) shall in general, perform such duties as may be assigned to them by the Treasurer or the Secretary, respectively, or by the President or by the Board of Directors.
ARTICLE V
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Except as may be hereinabove stated otherwise, the Corporation shall indemnify all of its officers and directors, past, present and future, against any and all expenses incurred by them and each of them including but not limited to legal fees, judgment and penalties which may be incurred, rendered or levied in any legal action brought against any or all of them for or on account of any act or omission alleged to have been committed while acting within the scope of their duties as officers or directors of this Corporation.
ARTICLE VI
CONTRACTS, LOANS CHECKS AND DEPOSITS
SECTION I. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the Board of Directors or approved by a loan committee appointed by the Board of Directors and charged with the duty of supervising investments. Such committee authority may be general or confined to specific instances.
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SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolutions of the Board of Directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select.
ARTICLE
VII
CAPITAL STOCK
SECTION 1. Certificates for Shares. Certificates for shares of stock of the Corporation shall be in such form as shall be approved by the incorporators or by the Board of Directors. The certificates shall be numbered in the order of their issue, shall be signed by the President or the Vice President and by the Secretary or the Treasurer, or by such other person or officers as may be designated by the Board of Directors; and the seal of the Corporation shall be affixed thereto, with such signatures of such duly designated officers and of the seal of the Corporation. Every certificate authenticated by a facsimile of such signatures and seal must be countersigned by a transfer agent to be appointed by the Board of Directors, before issuance.
SECTION 2. Transfer of Stock. Shares of the stock (Common Stock and Preferred Stock) of the Corporation may be transferred by the delivery of the certificate accompanied either by an assignment in writing on the back of the certificate or by written power of attorney to sell, assign, and transfer the same on the books of the Corporation, signed by the person appearing by the certificate to be the owner of the shares represented thereby, together with all necessary transferable items on the books of the Corporation upon surrender thereof so signed or endorsed. When the Board of Directors in its discretion deems it to be in the Corporation’s interests to do so, the signature of the person seeking to transfer stock shall be guaranteed by a recognizable financial institution such as a bank or stock brokerage firm. The person registered on the books of the Corporation as the owner of any shares of stock shall be entitled to all the rights of ownership with respect to such shares.
SECTION 3. Regulations. The Board of Directors may make such rules and regulations as it may deem expedient not inconsistent with the Bylaws or with the Articles of Incorporation, concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. It may appoint a transfer agent or a registrar of transfers, or both, and it may require all certificates to bear the signature of either or both.
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SECTION 4. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates thereto issued by the
Corporation alleged to have been lost or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate of stock to be lost or destroyed. When authorized to issue such new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as an indemnity
against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed.
ARTICLE
VIII
DIVIDEND
SECTION 1. Holder of Record. The Corporation shall be entitled to treat the holder of any share or shares of stock as the holder in fact thereof, and accordingly, shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by the laws of Nevada.
SECTION 2. Declaration of Dividends. Dividends on the capital stock (Common Stock and Preferred Stock) of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law.
SECTION 3. Closure of Transfer Books. The Board of Directors may close the transfer books in its discretion for a period not exceeding fifteen (15) days preceding the date fixed for holding any meeting, annual, or special, of the shareholders, or the day appointed for the payment of a dividend.
SECTION 4. Allocation of Funds. Before payment of any dividend or making any distribution of profits, there may be set aside out of funds of the Corporation available for dividends, such sum or sums as the Directors may from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any such other purpose as the directors shall think conducive to the interests of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created.
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ARTICLE
IX
SEAL
The Board of Directors shall provide a Corporate Seal which shall be in the form of a Circle and shall bear the full name of the Corporation, the year of its incorporation and the words “Corporate Seal Nevada”.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the provisions of these Bylaws, or under the Laws of the State of Nevada, or under the provisions of the Articles of Incorporation, a waiver in writing signed by the person or person entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.
ARTICLE XI
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be adopted at any regular or special meeting of the shareholders by a vote of the shareholders owning a majority of the shares and entitled to vote thereat. These Bylaws may also be altered, amended or repealed and new Bylaws may be adopted at any regular or special meeting of the Board of Directors of the Corporation (if notice of such alteration or repeal be contained in the notice of such special meeting) by a majority vote of the directors present at the meeting at which a quorum is present, but any such amendment shall not be inconsistent with or contrary to the provision of any amendment adopted by the shareholders.
Whenever it shall be necessary to interpret these Bylaws, any masculine, feminine and neuter personal pronouns shall be construed interchangeably, and the singular shall include the plural and the singular.
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THE UNDERSIGNED, being the Plasma Innovative Inc., a Nevada corporation, hereby acknowledges that the above and foregoing Bylaws were duly adopted as the Bylaws of said Corporation on the 25th day of July 2021.
Zhi
Yang
Secretary
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Article of Association
Hainan ESG Technology Co., Ltd.
1. Company name and address
| (1) | Name: Hainan Yisige Technology Co., Ltd. |
| (2) | Residence: F3-A25, 6th Floor, Shenya Building, No. 47 Guomao Road, Longhua District, Haiyou City, Hainan Province |
2. Business scope: Licensed projects: Internet sales of food (projects subject to approval according to law, approved by relevant departments Business activities can only be carried out after approval) General projects: technical services, technology development, technology consultation, technology exchange, technology transfer, technology promotion; production, sales, processing, transportation, storage and other related services of agricultural products; crop cultivation services; fertilizer sales ; Primary processing of edible agricultural products; Retail sale of edible agricultural products; Wholesale of pet food and supplies; Retail sale of pet food and supplies; Aquatic plant cultivation (except for licensed businesses, items that are not prohibited or restricted by laws and regulations can be independently operated in accordance with the law)
3. (1) Registered capital of the company: RMB 1 million.
(2) Total investment of the company: RMB 1 million.
4. Shareholder’s name, capital contribution method, capital contribution amount, capital contribution ratio and capital contribution time:
Shareholder: ESG China Limited; Foreign (regional) license: 74618972-000-11-22-7, subscribed capital contribution of 1 million in currency Yuan, accounting for 100% of the registered capital, shall be paid in full from the date of company registration to January 8, 2053.
5. The company's structure, its establishment method, powers and rules of procedure: The company does not have a shareholders' meeting, but has executive directors, managers and supervisors.
| (1) | Shareholders shall exercise the following powers: |
| i. | Determine the company’s business policy and investment plan |
| ii. | Appoint and replace executive directors and supervisors, and decide on remuneration matters for executive directors and supervisors; |
| iii. | Review and approve the executive director’s report; |
| iv. | Review and approve the supervisor’s report; |
| v. | Review and approve the company’s annual financial budget plan and final accounts plan; |
| vi. | Review and approve the company’s profit distribution plan and loss compensation plan; |
| vii. | Make resolutions on increasing or reducing the company’s registered capital; |
| viii. | Make resolutions on the issuance of corporate bonds; |
| ix. | Make resolutions on company mergers, divisions, dissolutions, and liquidations Or change the company form and make a decision Discussion: |
| x. | Amend the Articles of Association; |
| xi. | Other powers stipulated in the company’s articles of association. |
When shareholders make the above decisions, they should be in writing and signed by the shareholders before being filed with the public.
(2) Executive Director
| 1. | Shareholders appoint an executive director. |
| 2. | Each term of an executive director shall not exceed three years. When the term of an executive director expires, he may be re-elected. |
| 3. | The executive director is responsible to shareholders and exercises the following powers: |
| i. | Responsible for reporting work to shareholders; |
| ii. | Implement shareholders’ decisions; |
| iii. | Determine the company’s business plan and investment plan; |
| iv. | Formulate the company’s annual financial budget plan and final accounts plan; |
| v. | Formulate the company’s profit distribution plan and loss compensation plan; |
| vi. | Formulate the company’s plan to increase or reduce its registered capital and issue corporate bonds; |
| vii. | Formulate plans for company merger, division, dissolution or change of company form; |
| viii. | Decide on the establishment of the company’s internal management organization; |
| ix. | Decide on the appointment or dismissal of the company manager and his remuneration matters, and based on the manager’s nomination, decide on the appointment or dismissal of the company’s deputy manager, financial director and their remuneration matters; |
| x. | Develop the company's basic management system. |
| xi. | Other powers stipulated in the company's articles of association. |
(3) Manager
The manager is responsible to the executive director and exercises the following powers:
| 1. | Preside over the company's production and operation management work and organize the implementation of the executive director's decisions; |
| 2. | Organize the implementation of the company's annual business plan and investment plan; |
| 3. | Formulate the company's internal management organization plan; |
| 4. | Formulate the company's basic management system; |
| 5. | Formulate the company’s specific rules; |
| 6. | Propose the appointment or dismissal of the company’s deputy manager and financial controller; |
| 7. | Decide on the appointment or dismissal of responsible persons other than those who should be appointed or dismissed by the executive director； |
| 8. | Other powers granted by the executive director. |
(4) Supervisors
| 1. | The shareholders appoint one supervisor. |
| 2. | Executive directors and senior managers may not concurrently serve as supervisors. The term of supervisors is three years and they can be re-elected. |
| 3. | Supervisors shall exercise the following powers: |
| i. | Inspect the company’s finances; |
| ii. | Supervise the performance of the company’s duties by executive directors and senior managers, and make recommendations for removal of executive directors and senior managers who violate laws, administrative regulations, the company’s articles of association or shareholder decisions; |
| iii. | When the actions of executive directors and senior managers harm the interests of the company, require the executive directors and senior managers to make corrections; |
| iv. | Propose proposals to shareholders; |
| v. | File lawsuits against executive directors and senior managers in accordance with Article 152 of the Company Law; |
| vi. | Other powers stipulated in the company's articles of association. |
6. Legal representative of the company: Appoint executive director (manager) Zhao Jinlan as the legal representative of the company.
7. Financial management system and profit distribution form.
(1) The company is established in accordance with laws, administrative regulations and the provisions of the financial department of the State Council
Financial and accounting systems;
(2) When the company distributes after-tax profits for the year, it shall withdraw 10% of the profits as company law
If the accumulated statutory provident fund is more than 50% of the company's registered capital, no further withdrawals may be made.
(3) The company shall prepare financial accounting reports at the end of each fiscal year and submit them to the Accounting firm audit.
8. Business period: long-term
9. Other matters deemed necessary by shareholders.
| (1) | The company may amend the company's charter in accordance with the law if necessary or if it involves changes in company registration matters. The revised Articles of Association shall not conflict with laws and administrative regulations. Modified company. The articles of association (or amendments to the company's articles of association) should be submitted to the original company registration authority for filing, involving change registration. If there are any matters involved, the change registration should be made to the company registration authority at the same time. |
| (2) | If this Article of Association is inconsistent with laws and regulations, the provisions of laws and regulations shall prevail. Matters not provided for in this Article of Association shall be governed by the relevant provisions of the Company Law. |
(3) This Article of Association shall be made in two copies, one copy for the shareholders and one copy for the company registration authority.
| Signature by Legal Rep: | |
| Date: January 10 2023 | |
| Shareholder signature and Seal: | |
| Date: January 10 2023 |
Articles of Association
of
Funan Allied United Farmer Products Co., Ltd.
（amended on September 28, 2023）
Chapter 1 General Provisions
Article 1 In accordance with the provisions of the Company Law of the People’s Republic of China (hereinafter “Company Law”) and other relevant laws and regulations, Funan County Agriculture Investment Co., ltd., Anhui Hongrenyuanda Agriculture Consulting Co., Ltd., Fuyang Zhihan Agriculture Information Consulting Co., Ltd., and Hainan ESG Technology Co., Ltd. commonly invest to establish Funan Allied United Farmer Products Co., Ltd., specially formulating this Articles of Association.
Article 2 If any of the provisions in this Articles of Association are inconsistent with laws, regulations and rules, the provisions of laws, regulations and rules shall prevail.
Chapter 2 Company Name and Address
Article 3 Company Name: Funan Allied United Farmer Products Co., Ltd.
Article 4 Company address: South side of Yunhe East Road, Funan County Economic Development Zone, Fuyang City, Anhui Province.
Chapter 3 Company Business Scope
Article 5 The Company’s business scope: general: mushroom growing; vegetable growing; primary processing, retail, and wholesale of agriculture produces for food; import and export of food; research and development of bio-organic fertilizer; sale of fertilizer; research and development of composting process improving; technology research and development of waste resourcing of agriculture and forest; production, sale, processing, transportation, storage and other related services of agriculture produces; packing services; online sale of food (only for pre-packing food); services of agriculture production related technology, information and facility construction etc.; technology services, developing, consulting, communication, transfer and promoting; technology import and export; sale of plastic package container and tool products (except one that need production permit certificate); manufacture and sale of food; manufacture of paper package and container product for food; manufacture of fertilizer (Projects that require approval according to law can only be carried out on business activities after approval by relevant departments).
Chapter 4 The Registered Capital of Company、the Name of the Shareholder、the Method of Investment, the Amount of Investment, and the Time of Investment
Article 6 The registered capital of the Company (subscribed): 100.1 million yuan RMB. Contributed by September 28, 2023.
Article 7 The name of the shareholder, the amount of capital contribution subscribed and the amount actually paid after the subscription, the capital contribution time and investment methods are as follows:
| Name of shareholder | Capital contribution subscribed by shareholder | ||
| Amount contributed (000) | Date contributed (year/month/day) | Method of contribution | |
| Anhui Hongrenyuanda Agriculture Consulting Co., Ltd. | 25,505 | May 18, 2020 | Currency |
| Hainan ESG Technology Co., Ltd. | 72,595 | June 13, 2023 | Currency |
(1) Shareholder is responsible to the Company with its contributed amount as limitation;
(2) Shareholder shall pay in full and on time the amount of capital contributions stipulated in the Company’s articles of association. Shareholder did not pay according to the Company’s article of association, except pay in full, it shall assume breach liability to a shareholder who paid according to the Company’s article of association.
(3) A shareholder who abuses the Company’s independent status as a legal person and the limited liability of shareholders to evade debts and seriously damages the interests of the Company’s creditors shall bear joint and several liability for the Company’s debts.
(4) The Company shall disclose the amount of capital contribution subscribed by shareholder, the method of capital contribution, the period of capital contribution and the payment status on the corporate credit information disclosure system in accordance with the law and within the prescribed time limit.
Chapter 5: The Organization of the Company, its Formation Methods, Powers, and Rules of Communication
Article 8 Shareholder committee is composed of all shareholders as power organ with the following powers:
(1) Determine the Company’s business operating policy and equity plan;
(2) Elect or replace executive director and supervisory director, and decide the compensation of executive director and supervisory director;
(3) Review and approve the executive director’s report;
(4) Review and approve the supervisory director’s report;
(5) Review and approve the Company’s annual financial budget plan and final actual execution plan;
(6 )Review and approve the Company’s profit distribution plan and loss replenishing plan;
(7) Make a resolution to increase or decrease the Company’s registered capital;
(8) Make decisions on issuing the Company’s debt coupon;
(9) Make resolutions on Company merger, division, dissolution, liquidation or change of Company formation;
(10) Modify the Company’s articles of association:
Article 9 The shareholder committee’s first meeting is called and hosted by the shareholder who contributes the largest.
Article 10 The resolution of shareholder committee is voted by shareholders with its contribution percentage according to the article of association.
Article 11 Shareholder committee meeting includes fixed date meeting and temporary meetings.
To call a shareholder committee meeting should give notice to all shareholders by 15 days ahead. Fixed date meeting should be called on time annually. Shareholders with one tenth of vote power, executive director or supervisory director proposes a temporary meeting, it should be called.
Article 12 Shareholder Committee meeting is called and hosted by executive director. When executive director cannot perform or does not perform the responsibility of calling shareholder committee meeting, supervisory director will call and host it; when supervisory director does not call or host it, shareholders representing more than one tenth of vote right may call and host it.
Article 13 For the resolution of amending article of association, increase or decrease registered capital, the merger, split, or dissolution of the Company, or the change of company formation, it must be voted for by shareholders with more than two third of vote rights.
Article 14 The Company does not set up the Board of Directors and only appoint a executive director. The executive director is the Company’s legal representative and is responsible to the shareholder committee after being elected by shareholder committee for three year term that may renewed by re-eclection. Shareholder committee may not fire executive director without reason.
Article 15 Executive director shall exercise the following powers:
| (1) | To call shareholder committee meeting and report to shareholder committee; |
| (2) | To execute the resolution of shareholder committee; |
| (3) | To review and decide the Company’s operation plan and investment proposal; |
| (4) | To decide annual financial budget plan and final actual execution plan; |
| (5) | To decide the Company’s profit distribution plan and loss replenishing plan; |
| (6) | To decide the proposal to increase or decrease the Company’s registered capital and issue the Company’s debt coupon; |
| (7) | To decide the proposal of the Company merger, division, dissolution, liquidation or change of Company formation; |
| (8) | To decide the setup of internal management organization; |
| (9) | To name the appointment or dismissal of the Company’s manager and compensation and decide the appointment or fire of deputy manager, accounting manager and compensation after the naming by the manager; |
(10) To decide the Company’s basic management policy.
Article 16 The Company shall have a manager, whose appointment or dismissal shall be decided by the executive director. The manager reports to the executive director and exercises the following powers:
(1) Preside over the Company’s production, operation and management work, and organize the implementation of shareholder committee’s decisions;
(2) Organize and implement the Company’s annual business plan and investment plan;
(3) Formulate a plan for the establishment of the Company’s internal management organization;
(4) Formulate the Company’s basic management system:
(5) Formulate the Company’s specific regulations;
(6) Propose the appointment or dismissal of the Company’s deputy manager and financial director;
(7) Decide to appoint or dismiss responsible management personnel except those who are appointed or dismissed by the executive director;
(8) Other powers granted by the executive director.
Article 17 The Company shall have one supervisory director. The term of a supervisory director shall be three years. Upon the expiration of the term, the supervisory director may be re-elected.
Article 18 Supervisory director shall exercise the following powers:
(1) Check the Company’s finances;
(2) Supervise the Corporate behavior of executive directors and senior managers; to advise on the dismissal of executive director or senior managers for their breach of law, administrative regulations, article of association, or the resolutions of shareholder committee;
(3) Require the executive directors and senior managers to make corrections when the actions of executive directors and senior managers damage the interests of the Company;
(4) Propose to call temporary shareholder committee meeting. For executive director’s failure to perform the responsibility of calling and hosting shareholder committee meeting, to call and host shareholder committee meeting;
(5) make proposal to shareholder committee meeting;
(6) Initiate lawsuits against executive directors and senior managers in accordance with Article 151 of the Company Law.
Chapter 6 Legal Representative of the Company
Article 19 The executive director is the legal representative of the Company. Term is three years. The executive director is elected by shareholder committee and may be re-elected after the expiration of term.
Chapter 7 Other Matters Deemed necessary by Shareholder Committee Meeting
Article 20 Shareholders may transfer their part or all of equity to each other. When the percentage of shareholders equity is changed, the Company should file article or association or article of association amendment with the registration organ.
Article 21 Shareholder transfers equity to a person who is not shareholder after it is approved by shareholders with more than 50% equity. Shareholder should notify other shareholders in writing for opinion on the equity transfer. Other shareholders should respond within 30 days after receiving it. Or else it is regarded as agreement. When other shareholders more than 50% do not agree on the transfer, shareholders who disagree on it should purchase the transferred equity. Or else, it is regarded as agreement. For transferred equity agreed by shareholders, other shareholders has the right of first refusal to buy it at the same condition. When two or more shareholders claim the right of first refusal, they should negotiate the percentage to buy by each; For failure to negotiation, it will follow each percentage of contributed capital.
Article 22 The Company’s business period is 20 years, calculated from the date when the Company’s “Enterprise Legal Person Business License” is issued.
Article 23 If any of the following circumstances occurs, the Company’s liquidation team shall apply to the original Company registration authority for dissolution within 30 days from the date of completion of the Company’s liquidation:
| (1) | The Company was declared bankrupt according to law |
(2) The business period stipulated in the Company’s articles of association expires or other reasons for dissolution stipulated in the Company’s articles of association occur, except where the Company continues to exist by amending the Company’s articles of association;
(3) Shareholders decide to dissolve；
(4) The business license has been revoked, ordered to close, or revoked in accordance with the law;
(5) The People’s Court shall order to be dissolved in accordance with the law;
(6) Other dissolution situations stipulated by laws and administrative regulations.
Chapter 8 Supplementary Provisions
Article 24 Company registration matters shall be subject to the approval of the Company registration authority.
Article 25 This Article of Association shall be made in triplicate and one copy shall be submitted to the Company registration authority.
Legal representative signature in person (Signaturel)
Funan Allied United Farmer Products Co., Ltd. (seal)
2023 year 9 month 28 day
Articles of Association
of
Anhui Allied United Mushroom Technology Co., Ltd.
Chapter 1 General Provisions
Article 1 In order to adapt to the requirements of the socialist market economy and develop productivity, in accordance with the provisions of the Company Law of the People’s Republic of China (hereinafter referred to as the “Company Law”) and other relevant laws and administrative regulations, Funan Allied United Farmer Products Co., Ltd. as one member established with capital investment Anhui Allied United Mushroom Technology Co., Ltd. (hereinafter referred to as the “Company”) has specially formulated this Articles of Association.
Article 2 If any of the provisions in this Articles of Association are inconsistent with laws, regulations and rules, the provisions of laws, regulations and rules shall prevail.
Chapter 2 Company Name and Address
Article 3 Company Name: Anhui Allied United Mushroom Technology Co., Ltd.
Article 4 Company address: South side of Yunhe East Road, Funan County Economic Development Zone, Fuyang City, Anhui Province.
Chapter 3 Company Business Scope
Article 5 The company’s business scope: production and sales of mushroom substrate, mushroom compost, mushroom compost block, and agricultural and side products; self-operating and agency on import and export of products and technologies. (Projects that require approval according to law can only be carried out on business activities after approval by relevant departments)
Chapter
4 The Registered Capital of Company、the Name of the Shareholder、the Method of
Investment, the Amount of Investment, and the Time of Investment
Article 6 The registered capital of the Company (subscribed): 20 million yuan RMB.
Article 7 The name of the shareholder, the amount of capital contribution subscribed and the amount
actually paid after the subscription, the capital contribution
time and investment methods are as follows:
(1) Name of shareholder: Funan Allied United Farmer Products Co., Ltd.
(2) Capital contribution subscribed by shareholder: 20 million RMB.
(3) Actual capital contribution from shareholder: 20 million RMB: The deadline for shareholders to make actual contributions is before February 22, 2038.
(4) The investment method is as follows: Currency 0 yuan, accounting for 0%; Non-monetary 20 million RMB, accounting for 100%
(5) Shareholder shall bear liability to the company to the extent of their subscribed capital contribution.
(6) Shareholder shall pay in full and on time the amount of capital contributions stipulated in the company’s articles of association.
(7) A shareholder who abuses the company’s independent status as a legal person and the limited liability of shareholders to evade debts and seriously damages the interests of the company’s creditors shall bear joint and several liability for the company’s debts.
(8) The Company shall disclose the amount of capital contribution subscribed by shareholder, the method of capital contribution, the period of capital contribution and the payment status on the corporate credit information disclosure system in accordance with the law and within the prescribed time limit.
Chapter 5: The Organization of the Company, its Formation Methods, Powers, and Rules of Communication
Article 8 The Company does not establish a shareholder committee, and shareholder shall exercise the following powers:
(1) Determine the Company’s business operating policy and equity plan
(2) Decide or replace supervisory director
(3) Determine the compensation of the Company’s senior manager and employee salary;
(4) Review and approve the company’s annual financial budget plan and final actual execution plan;
(5) Review and approve the company’s profit distribution plan and loss replenishing plan;
(6) Make a resolution to increase or decrease the company’s registered capital;
(7) Make decisions on the hiring and dismissal of accounting firms;
(8) Make resolutions on company merger, division, dissolution, liquidation or change of company formation;
(9) Modify the company’s articles of association:
(10) Other powers.
Article 9 The shareholder is the executive director of the company.
Article 10 The company shall have one supervisory director. The term of a supervisory director shall be three years. Upon the expiration of the term, the supervisory director may be re-elected.
Supervisory director shall exercise the following powers:
(1) Check the company’s finances;
(2) Supervise the behavior of executive directors and senior managers;
(3) Require the executive directors and senior managers to make corrections when the actions of executive directors and senior managers damage the interests of the company;
(4) Initiate lawsuits against executive directors and senior managers in accordance with Article 151 of the Company Law.
Article 11 The company shall have a manager, whose appointment or dismissal shall be decided by the executive director. The manager reports to the executive director and exercises the following powers:
(1) Preside over the company’s production, operation and management work, and organize the implementation of executive directors’ decisions;
(2) Organize and implement the company’s annual business plan and investment plan;
(3) Formulate a plan for the establishment of the company’s internal management organization;
(4) Formulate the company’s basic management system:
(5) Formulate the company’s specific regulations;
(6) Propose the appointment or dismissal of the company’s deputy manager and financial director;
(7) Decide to appoint or dismiss responsible management personnel except those who are appointed or dismissed by the executive director;
(8) Other powers granted by the executive director.
Article 12 Company employees shall form a trade union in accordance with the Trade Union Law of the People’s Republic of China, carry out trade union activities, and safeguard the legitimate rights and interests of employees. The company shall provide necessary activity conditions for the company’s trade union.
The company’s trade union represents employees’ labor remuneration, working hours, benefits, insurance, labor safety and health and other matters and signs a collective contract with the company in accordance with the law.
Article 13 In the company, in accordance with the provisions of the Constitution of the Communist Party of China, an organization of the Communist Party of China shall be established to carry out party activities. Companies should provide necessary conditions for the activities of party organizations.
Chapter
6 Legal Representative of the Company
Article 14 The executive director is the legal representative of the company.
Chapter 7 Other Matters Deemed necessary by Shareholder
Article 15 The company’s business period is 20 years, calculated from the date when the company’s “Enterprise Legal Person Business License” is issued.
Article 16 If any of the following circumstances occurs, the company’s liquidation team shall apply to the original company registration authority for dissolution within 30 days from the date of completion of the company’s liquidation:
(1) The company was declared bankrupt according to law
(2) The business period stipulated in the company’s articles of association expires or other reasons for dissolution stipulated in the company’s articles of association occur, except where the company continues to exist by amending the company’s articles of association;
(3) Shareholders decide to dissolve;
(4) The business license has been revoked, ordered to close, or revoked in accordance with the law;
(5) The People’s Court shall order to be dissolved in accordance with the law;
(6) Other dissolution situations stipulated by laws and administrative regulations.
Chapter 8 Supplementary Provisions
Article 17 Company registration matters shall be subject to the approval of the company registration authority
Article 18 This Article of Association shall be made in triplicate and one copy shall be submitted to the company registration authority
Shareholder signature in person (Seal)
Anhui Allied United Mushroom Technology Co., Ltd.
October 21, 2022
Articles of Association
of
Anhui Allied United Mushroom Co., Ltd.
Chapter 1 General Provisions
Article 1 In order to adapt to the requirements of the socialist market economy and develop productivity, in accordance with the provisions of the Company Law of the People’s Republic of China (hereinafter referred to as the “Company Law”) and other relevant laws and administrative regulations, Funan Allied United Farmer Products Co., Ltd. as one member established with capital investment Anhui Allied United Mushroom Co., Ltd. (hereinafter referred to as the “Company”) has specially formulated this Articles of Association.
Article 2 If any of the provisions in this Articles of Association are inconsistent with laws, regulations and rules, the provisions of laws, regulations and rules shall prevail.
Chapter 2 Company Name and Address
Article 3 Company Name: Anhui Allied United Mushroom Co., Ltd.
Article 4 Company address: South side of Yunhe East Road, Funan County Economic Development Zone, Fuyang City, Anhui Province.
Chapter 3 Company Business Scope
Article 5 The Company’s business scope: research, culture, packing and processing of mushroom (except one that need production permit certificate); manufacture of canned food, self-operating and agency on import and export of products and technologies. (Projects that require approval according to law can only be carried out on business activities after approval by relevant departments)
Chapter
4 The Registered Capital of Company、the Name of the Shareholder、the Method of
Investment, the Amount of Investment, and the Time of Investment
Article 6 The registered capital of the Company (subscribed): 20 million yuan RMB.
Article 7 The name of the shareholder, the amount of capital contribution subscribed and the amount
actually paid after the subscription, the capital contribution
time and investment methods are as follows:
(1) Name of shareholder: Funan Allied United Farmer Products Co., Ltd.
(2) Capital contribution subscribed by shareholder: 20 million RMB.
(3) Actual capital contribution from shareholder: 20 million RMB: The deadline for shareholders to make actual contributions is before February 22, 2038.
(4) The investment method is as follows: Currency 0 yuan, accounting for 0%; Non-monetary 20 million RMB, accounting for 100%
(5) Shareholder shall pay in full and on time the amount of capital contributions stipulated in the Company’s articles of association.
(6) A shareholder who abuses the Company’s independent status as a legal person and the limited liability of shareholders to evade debts and seriously damages the interests of the Company’s creditors shall bear joint and several liability for the Company’s debts.
(7) The Company shall disclose the amount of capital contribution subscribed by shareholder, the method of capital contribution, the period of capital contribution and the payment status on the corporate credit information disclosure system in accordance with the law and within the prescribed time limit.
Chapter 5: The Organization of the Company, its Formation Methods, Powers, and Rules of Communication
Article 8 The Company does not establish a shareholder committee, and shareholder shall exercise the following powers:
(1) Determine the Company’s business operating policy and equity plan
(2) Decide or replace supervisory director
(3) Determine the compensation of the Company’s senior manager and employee salary;
(4) Review and approve the Company’s annual financial budget plan and final actual execution plan;
(5) Review and approve the Company’s profit distribution plan and loss replenishing plan;
(6) Make a resolution to increase or decrease the Company’s registered capital;
(7) Make decisions on the hiring and dismissal of accounting firms;
(8) Make resolutions on Company merger, division, dissolution, liquidation or change of Company formation;
(9) Modify the Company’s articles of association:
(10) Other powers.
Article 9 The shareholder is the executive director of the Company.
Article 10 The Company shall have one supervisory director. The term of a supervisory director shall be three years. Upon the expiration of the term, the supervisory director may be re-elected.
Supervisory director shall exercise the following powers:
(1) Check the Company’s finances;
(2) Supervise the behavior of executive directors and senior managers;
(3) Require the executive directors and senior managers to make corrections when the actions of executive directors and senior managers damage the interests of the Company;
(4) Initiate lawsuits against executive directors and senior managers in accordance with Article 151 of the Company Law.
Article 11 The Company shall have a manager, whose appointment or dismissal shall be decided by the executive director. The manager reports to the executive director and exercises the following powers:
(1) Preside over the Company’s production, operation and management work, and organize the implementation of executive directors’ decisions;
(2) Organize and implement the Company’s annual business plan and investment plan;
(3) Formulate a plan for the establishment of the Company’s internal management organization;
(4) Formulate the Company’s basic management system:
(5) Formulate the Company’s specific regulations;
(6) Propose the appointment or dismissal of the Company’s deputy manager and financial director;
(7) Decide to appoint or dismiss responsible management personnel except those who are appointed or dismissed by the executive director;
(8) Other powers granted by the executive director.
Article 12 Company employees shall form a trade union in accordance with the Trade Union Law of the People’s Republic of China, carry out trade union activities, and safeguard the legitimate rights and interests of employees. The Company shall provide necessary activity conditions for the Company’s trade union.
The Company’s trade union represents employees’ labor remuneration, working hours, benefits, insurance, labor safety and health and other matters and signs a collective contract with the Company in accordance with the law.
Article 13 In the Company, in accordance with the provisions of the Constitution of the Communist Party of China, an organization of the Communist Party of China shall be established to carry out party activities. Companies should provide necessary conditions for the activities of party organizations.
Chapter
6 Legal Representative of the Company
Article 14 The executive director is the legal representative of the Company.
Chapter 7 Other Matters Deemed necessary by Shareholder
Article 15 The Company’s business period is 20 years, calculated from the date when the Company’s “Enterprise Legal Person Business License” is issued.
Article 16 If any of the following circumstances occurs, the Company’s liquidation team shall apply to the original Company registration authority for dissolution within 30 days from the date of completion of the Company’s liquidation:
(1) The Company was declared bankrupt according to law
(2) The business period stipulated in the Company’s articles of association expires or other reasons for dissolution stipulated in the Company’s articles of association occur, except where the Company continues to exist by amending the Company’s articles of association;
(3) Shareholders decide to dissolve;
(4) The business license has been revoked, ordered to close, or revoked in accordance with the law;
(5) The People’s Court shall order to be dissolved in accordance with the law;
(6) Other dissolution situations stipulated by laws and administrative regulations.
Chapter 8 Supplementary Provisions
Article 17 Company registration matters shall be subject to the approval of the Company registration authority
Article 18 This Article of Association shall be made in triplicate and one copy shall be submitted to the Company registration authority
Shareholder signature in person (Seal)
Anhui Allied United Mushroom Co., Ltd.
year month day
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT (this “Agreement”) is made and entered into as of October __, 2023 by and among Plasma Innovative Inc., a Nevada corporation (“PMIN”), ESG Inc., a Nevada corporation (the “Company”), and the shareholders of the Company listed on Schedule A hereto (collectively, the “Company Shareholders”). PMIN, the Company and the Company Shareholders are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”
WITNESSETH:
WHEREAS, PMIN is a U.S. publicly reporting company organized under the laws of the State of Nevada;
WHEREAS, the Company Shareholders collectively own 100% of the issued and outstanding equity of the Company (the “Company Shares”);
WHEREAS, the Company owns 74.52% of the issued and outstanding equity of Funan Allied United Farmer Products Co., Ltd. , a limited liability company incorporated in the People’s Republic of China (“PRC”), which owns 100% of Anhui Allied United Mushroom Co., Ltd., a limited liability company incorporated in PRC and of Anhui Allied United Mushroom Technology Co., Ltd., a limited liability company incorporated in PRC, through a series of corporate structure: the Company owns the issued and outstanding equity of ESG China Limited, a HK limited liability company, ESG China Limited owns 100% of the issued and outstanding capital stock of Hainan ESG Technology Co., Ltd., a wholly foreign owned enterprise incorporated under the laws of PRC, Hainan ESG Technology Co., Ltd. owns 74.52% of the issued and outstanding capital stock of Funan Allied United Farmer Products Co., Ltd., and Funan Allied United Farmer Products Co., Ltd. owns 100% of the issued and outstanding equity of both Anhui Allied United Mushroom Co., Ltd. and Anhui Allied United Mushroom Technology Co., Ltd. (“ESG Group”).
WHEREAS, PMIN desires to acquire, in a bona fide strategic transaction, the Company Shares from the Company Shareholders in exchange (the “Exchange”) for the issuance by PMIN to the Company Shareholders of an aggregate of 10,432,800 newly issued shares of PMIN common stock, par value $0.001 per share (together with any securities into which such shares may be reclassified, the “Common Stock”) and the Company Shareholders desire to exchange their Company Shares for such shares of Common Stock on the terms described herein;
WHEREAS, on the Closing Date, and as a result of the transactions contemplated hereby, the Company will become a wholly-owned subsidiary of PMIN;
WHEREAS, each of the board of directors of PMIN (the “PMIN Board”) and the board of directors of the Company (the “Company Board”), respectively, has approved this Agreement and each of them has determined that this Agreement, the Exchange and the other transactions contemplated hereby are advisable and in the respective best interests of each of PMIN, the Company and their respective stockholders.
NOW, THEREFORE, in consideration of the premises set forth above, which are incorporated in this Agreement as if fully set forth below, and the representations, warranties, covenants and agreements contained in this Agreement, and intending to be legally bound hereby, the Parties hereto agree as follows:
ARTICLE
I
TERMS OF THE EXCHANGE
1.1 The Exchange.
(a) Upon the terms and subject to the conditions of this Agreement, at the Closing (as hereafter defined), the Company Shareholders shall assign, transfer and deliver all of the Company Shares, free and clear of all Encumbrances (hereinafter defined), to PMIN.
(b) In consideration of the transfer of the Company Shares to PMIN by the Company Shareholders, at the Closing, subject to the terms and conditions of this Agreement, PMIN shall issue to the Company Shareholders an aggregate of 10,432,800 newly issued shares of Common Stock (the “Exchange Shares”), in the amounts set forth on Schedule A hereto.
1.2 The Closing; Closing Date; Effect.
Unless this Agreement shall have been terminated in accordance with Section 8.1, and subject to the satisfaction or waiver of the conditions set forth in Article VII, the closing of the Exchange (the “Closing”) shall take place at the offices of McMurdo Law Group, LLC, 1185 Avenue of the Americas, 3rd Floor, New York, NY 10036, at 10:00 a.m. (EST) on the date first written above, subject to the satisfaction or waiver of the closing conditions set forth in Article VII, or at such other time, date or place as is agreed upon in writing by the Parties hereto. By agreement of the Parties, the Closing may take place by delivery of documents required to be delivered hereby by facsimile or other electronic transmission. The date on which the Closing occurs is herein referred to as the “Closing Date.” The effect of the consummation of the Exchange at the Closing shall be that: (i) the Company shall become a direct, wholly-owned subsidiary of PMIN, and (ii) ESG Group shall become indirectly owned subsidiaries of PMIN.
1.3 Company Shareholder Consent.
The Company Shareholders hereby approve, authorize and consent to the Company’s execution and delivery of this Agreement and any other ancillary documents to which it is or is required to be a party or is otherwise bound, the performance by the Company of its obligations hereunder and thereunder and the consummation by the Company of the transactions contemplated hereby and thereby. The Company Shareholders acknowledge and agree that the consents set forth herein are intended and shall constitute such consent of the Company Shareholders as may be required (and shall, if applicable, operate as a written shareholder resolution of the company) pursuant to the company Charter, any other agreement in respect of the Company to which a Company Shareholder is Party and all applicable Laws.
ARTICLE
II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to PMIN as follows, on the date hereof and on the Closing Date:
2.1 Due Organization and Good Standing. Each member of the ESG Group is a corporation, limited liability company or other entity, duly incorporated, formed, or organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation, formation, or organization and has all requisite corporate, limited liability, or other organizational power and authority to own, lease and operate its respective properties and to carry on its respective business as now being conducted. Each member of the ESG Group is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary. The Company has heretofore made available to PMIN accurate and complete copies of the certificate of incorporation, by-laws or equivalent organizational document of the Company (the “Company Organization Documents”) and accurate and complete copies of the certificate of incorporation, by-laws or equivalent organizational document of each of ESG Group, each as amended to date and as currently in effect (together with the Company Organization Documents, the “ESG Group Organization Documents”). No member of the ESG Group is in violation of any ESG Group Organization Document.
2.2 Title to Securities; Capitalization.
(a) The authorized share capital of the Company consists of 65,000,000 ordinary shares of common stock and 10,000,000 preferred shares (the “Company Securities”), 10,432,800 ordinary shares of common stock of which are issued and outstanding. No other shares of capital stock or other voting securities of the Company are issued, reserved for issuance or outstanding. All of issued and outstanding Company Securities, are duly authorized, validly issued, fully paid and nonassessable, free of encumbrances and not subject to or issued in violation of any purchase option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the relevant law in the jurisdiction of incorporation, the Company Organization Documents or any contract to which the Company is a party or by which the Company is bound. There are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any of the Company Ordinary Shares or any preferred shares of the Company and there are no outstanding contractual obligations of the Company to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any other Person. None of the outstanding Company Securities have been issued in violation of any applicable securities Laws.
(b) There are no (i) outstanding options, warrants, puts, calls, convertible securities, preemptive or similar rights, (ii) bonds, debentures, notes or other Indebtedness having general voting rights or that are convertible or exchangeable into securities having such rights, or (iii) except as expressly contemplated by this Agreement, subscriptions or other rights, agreements, arrangements, contracts or commitments of any character, relating to the issued or unissued capital equity of the Company or any member of the ESG Group to issue, transfer, deliver or sell or cause to be issued, transferred, delivered, sold or repurchased any options, equity securities or securities convertible into or exchangeable for such securities, or obligating the Company or any member of ESG Group to grant, extend or enter into any option, warrant, call, subscription or other right, agreement, arrangement or commitment for such securities.
(c) There are no registration rights and there is no voting trust, proxy, rights plan, shareholder’s agreement, anti-takeover plan or other contracts or understandings to which the Company or any member of ESG Group is a party or by which the Company, any ESG Group member or any Company Shareholder is bound with respect to any of the capital stock of any member of the ESG Group. Except as set forth in this Agreement as a result of the consummation of the Exchange, no shares of capital stock, warrants, options or other securities of the Company or any ESG Group member are issuable and no rights in connection with any shares, warrants, rights, options or other securities of the Company or any ESG Group member accelerate or otherwise become triggered (whether as to vesting, exercisability, convertibility or otherwise).
(d) Except as disclosed therein, no Indebtedness of the Company or any of the ESG Group contains any restriction upon (i) the prepayment of any of such Indebtedness, or (ii) the incurrence of Indebtedness by the Company or any of the ESG Group.
(e) Since their respective dates of formation, no member of the ESG Group neither the Company has declared or paid any distribution or dividend and has not repurchased, redeemed or otherwise acquired any of its securities or equity interest, and no board of directors or other governing board of any member of the ESG Group neither the Company has authorized any of the foregoing.
2.3 ESG Group member. WHEREAS sets forth a true, complete and correct list of each ESG Group member and its respective jurisdiction of incorporation, formation or organization. All of the capital stock and other equity interests of the ESG Group member are owned, directly or indirectly, by the Company free and clear of any Encumbrance (other than any restriction under the applicable securities Laws) with respect thereto. All of the outstanding equity securities of each ESG Group member of the Company are duly authorized and validly issued, were offered, sold and delivered in compliance with all applicable Laws governing the issuance of securities. There are no contracts to which the Company or any of its Affiliates is a party or bound with respect to the voting (including voting trusts or proxies) of the equity interests of any ESG Group member of the Company other than the Organizational Documents of any such Subsidiary. There are no outstanding or authorized options, warrants, rights, agreements, subscriptions, convertible securities or commitments to which any ESG Group member of the Company is a party or which are binding upon any ESG Group member of the Company providing for the issuance or redemption of any equity interests of any ESG Group member of the Company. There are no outstanding equity appreciation, phantom equity, profit participation or similar rights granted by any ESG Group member of the Company. Except for the interests of the ESG Group member disclosed here, the Company does not own or have any rights to acquire, directly or indirectly, any capital stock or other equity interests of any Person. None of the Company or the ESG Group member is a participant in any joint venture, partnership or similar arrangement. There are no outstanding contractual obligations of the Company or the ESG Group member to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any other Person.
2.4 Authorization; Binding Agreement. The Company has all requisite corporate power and authority to execute and deliver this Agreement and each other ancillary agreement related hereto to which it is a party, and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and each other ancillary agreement related hereto to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by the Company Board, and no other corporate proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement and each other ancillary agreement related hereto to which it is a party or to consummate the transactions contemplated hereby and thereby. This Agreement has been, and each ancillary agreement to which the Company is a party shall be when delivered, duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery of this Agreement and such ancillary agreements by the other Parties hereto and thereto, constitutes, or when delivered shall constitute, the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general application affecting the enforcement of creditors’ rights generally, and the fact that equitable remedies or relief (including, but not limited to, the remedy of specific performance) are subject to the discretion of the court from which such relief may be sought (collectively, the “Enforceability Exceptions”).
2.5 Governmental Approvals. No consent, approval, waiver, authorization or permit of, or notice to or declaration or filing with (each, a “Consent”), any nation or government, any state or other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any governmental or regulatory authority, agency, department, board, commission, administration or instrumentality, any court, tribunal or arbitrator or any self-regulatory organization (each, a “Governmental Authority”), on the part of the Company or any of ESG Group is required to be obtained or made in connection with the execution, delivery or performance by the Company of this Agreement and each other ancillary agreement related hereto to which it is a party or the consummation by the Company of the transactions contemplated hereby and thereby, other than (i) such filings as may be required in any jurisdiction where the Company or any ESG Group member is qualified or authorized to do business as a foreign corporation in order to maintain such qualification or authorization, or (ii) pursuant to Antitrust Laws.
2.6 No Violations. The execution and delivery by the Company of this Agreement and each other ancillary agreement related hereto to which it is a party, the consummation by the Company of the transactions contemplated hereby and thereby, and compliance by the Company with any of the provisions hereof and thereof, will not, (i) conflict with or violate any provision of any ESG Group Organization Documents, (ii) require any Consent under or result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, amendment or acceleration) under, any ESG Material Contract (as defined below), (iii) result in the termination, withdrawal, suspension, cancellation or modification of, (iv) accelerate the performance required by any Target under, (v) result in a right of termination or acceleration under, (vi) give rise to any obligation to make payments or provide compensation under, (vii) result (immediately or with the passage of time or otherwise) in the creation or imposition of any Encumbrances (as hereafter defined) upon any of the properties, rights or assets of the Company or any of the ESG Group, or (viii) subject to obtaining the Consents from Governmental Authorities referred to in Section 2.5 hereof, and the waiting periods referred to therein having expired, and any condition precedent to such consent, approval, authorization or waiver having been satisfied, conflict with or violate any foreign, federal, state or local Order, statute, law, rule, regulation, ordinance, principle of common law, constitution, treaty enacted, or any writ, arbitration award, injunction, directive, judgment, or decree, promulgated, issued, enforced or entered by any Governmental Authority (each, a “Law” and collectively, the “Laws”).
2.7 Financial Statements.
(a) The Company has provided to PMIN the financial statements and notes of the Company, including the audited consolidated balance sheets of the Company as of December 31, 2022 and 2021 and the related audited consolidated statements of operations, stockholders’ equity and cash flows for the fiscal years ended December 31, 2022 and 2021, together with the notes to such statements and the opinion of Kreit & Chiu CPA LLP, independent certified public accountants (together, the “ESG Audited Financials”).
(b) The ESG Audited Financials have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved. The balance sheets included as part of the ESG Audited Financials are true and accurate and present fairly as of their respective dates the financial condition of the Company. As of the date of such balance sheets, except as and to the extent reflected or reserved against therein, the Company had no liabilities or obligations (absolute or contingent) which should be reflected in the balance sheets or the notes thereto prepared in accordance with generally accepted accounting principles, and all assets reflected therein are properly reported and present fairly the value of the assets of Company, in accordance with generally accepted accounting principles. The statements of operations, stockholders’ equity and cash flows included as part of the ESG Financials reflect fairly the information required to be set forth therein by generally accepted accounting principles. The ESG Audited Financials (i) accurately reflect ESG’s books and records as of the times and for the periods referred to therein, (ii) were prepared in accordance with GAAP methodologies applied on a consistent basis throughout the periods involved, (iii) fairly present in all material respects the consolidated financial position of ESG as of the respective dates thereof and the consolidated results of ESG’s operations and cash flows for the periods indicated and (iv) to the extent required for inclusion in the filings with the SEC, comply, in all material respects with the Securities Act, Regulation S-X and the published general rules and regulations of the SEC. Any ESG Audited Financials delivered pursuant to the terms of this Agreement will, when delivered, (i) accurately reflect ESG’s books and records as of the times and for the periods referred to therein, and (ii) be prepared in accordance with GAAP methodologies applied on a consistent basis throughout the periods involved, (iii) fairly present in all material respects the consolidated financial position of ESG as of the respective dates thereof and the consolidated results of ESG’s operations and cash flows for the periods indicated, and (iv) to the extent required for inclusion in the filings with the SEC, will comply as of the Closing Date in all material respects with the Securities Act, Regulation S-X and the published general rules and regulations of the SEC.
(c) Each member of the ESG Group maintains accurate books and records reflecting its assets and liabilities and maintains proper and adequate internal accounting controls that provide reasonable assurance that (i) such Person does not maintain any off-the-book accounts and that such Person’s assets are used only in accordance with such Person’s management directives, (ii) transactions are executed with management’s authorization, (iii) transactions are recorded as necessary to permit preparation of the financial statements of such Person and to maintain accountability for such Person’s assets, (iv) access to such Person’s assets is permitted only in accordance with management’s authorization, (v) the reporting of such Person’s assets is compared with existing assets at regular intervals and verified for actual amounts and (vi) accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection of accounts, notes and other receivables on a current and timely basis. No member of the ESG Group has been subject to or involved in any material fraud that involves management or other employees who have a significant role in the internal controls over financial reporting of the Company and its subsidiaries. Since the date of its formation in October 13, 2022 (its “Formation”), neither the Company nor any ESG Group member, or any of their Representatives, or any auditor or accountant of the Company or the ESG Group member has received any written complaint, allegation, assertion or claim regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any ESG Group member or their respective internal accounting controls, including any complaint, allegation, assertion or claim that the Company or any ESG Group member has engaged in questionable accounting or auditing practices. Since its Formation, no employee and no member of the Company Board nor any attorney representing the Company or any ESG Group member, whether or not employed by the Company or any ESG Group member, has received written notice from any Governmental Authority or any Person of any violation of consumer protection, insurance or securities Laws, breach of fiduciary duty or similar violation by the Company, the ESG Group member or any of their respective officers, managers, directors, employees or agents or reported written evidence of any such violation to the Company Board or any committee thereof or to any director or executive officer of any member of the ESG Group.
(d) No member of the ESG Group neither the Company has ever been subject to the reporting requirements of Sections 13(a) and 15(d) of the Exchange Act.
2.8 Absence of Certain Changes.
(a) From October 13, 2022 through the date hereof, except as expressly contemplated by this Agreement, the Company and the ESG Group have (i) conducted their respective businesses in the ordinary course of business consistent with past practice, (ii) not had any fact, change, effect, occurrence, event, development or state of circumstances that has had or would reasonably be expected to result in a ESG Material Adverse Effect, and (iii) has not taken any action or committed or agreed to take any action that would be prohibited by Section 5.1 if such action were taken on or after the date hereof without the consent of PMIN.
2.9 Absence of Undisclosed Liabilities. Neither the Company nor any ESG Group member is subject to any material liabilities or obligations that is not adequately reflected or reserved on or provided for in the ESG Audited Financials, other than (i) liabilities or obligations of the type that have been incurred in the ordinary course of business consistent with past practice and (ii) liabilities or obligations under the payment terms of ESG Material Contracts (but not including liabilities for breaches or for indemnification obligations thereunder), except, in each case, for immaterial liabilities or obligations.
2.10 Compliance with Laws. Neither the Company nor any of the ESG Group are in conflict with, or in default or violation of, nor has it received, from October 13, 2022, any written notice of any conflict with, or default or violation of, (A) any applicable Law by which it or any property or asset of the Company or any ESG Group member is bound or affected, including, without limitation, consumer protection, insurance or securities Laws, or (B) any ESG Material Contract.
2.11 Regulatory Agreements; Permits.
(a) There are no material written agreements, memoranda of understanding, commitment letters, or Orders to which the Company or any ESG Group member is a party, on the one hand, and any Governmental Authority is a party or addressee, on the other hand.
(b) Each of the Company, the ESG Group, and each employee of the Company or any ESG Group who is legally required to be licensed by a Governmental Authority in order to perform his or her duties with respect to his or her employment with the Company or such ESG Group member, hold all material permits, licenses, franchises, grants, authorizations, consents, exceptions, variances, exemptions, orders and other authorizations of Governmental Authorities, certificates, consents and approvals necessary to lawfully conduct the Company’s or the ESG Group’s respective business as presently conducted, and to own, lease and operate the Company’s or the ESG Group’s respective assets and properties, except for any such permits, licenses, franchises, grants, authorizations, consents, exceptions, variances, exemptions, certificates and approvals (collectively, the “ESG Permits”). The Company has made available to PMIN true, correct and complete copies of all material ESG Permits. All of the ESG Permits are in full force and effect, and no suspension or cancellation of any of ESG Permits is pending or, to the Company’s knowledge, threatened. None of the Company or any ESG Group member is in violation in any material respect of the terms of any ESG Permit.
2.12 Litigation. There is no material private, regulatory or governmental inquiry, action, suit, proceeding, litigation, claim, arbitration or investigation pending by or before any Governmental Authority (each, an “Action”), or, to the knowledge of the Company, threatened against the Company, any of the ESG Group member or any of their respective properties, rights or assets or any of their respective managers, officers or directors (in their capacities as such). There is no decree, directive, order, writ, judgment, stipulation, determination, decision, award, injunction, temporary restraining order, cease and desist order or other order by, or any supervisory agreement or memorandum of understanding with any Governmental Authority (each, an “Order”) binding against the Company, any of the ESG Group member or any of their respective properties, rights or assets or any of their respective managers, officers or directors (in their capacities as such) that would prohibit, prevent, enjoin, restrict or alter or delay any of the transactions contemplated by this Agreement. The Company and the ESG Group are in compliance with all Orders, except for any non-compliance which would not reasonably be expected to result in a ESG Material Adverse Effect. There is no material Action that the Company or any of the ESG Group has pending against other parties. There is no Action pending or, to the knowledge of the Company, threatened against the Company involving a claim against the Company or any ESG Group member for false advertising with respect to any of the Company’s or any ESG Group member’s products or services. Since October 13, 2022, none of the current or former officers, managers or directors of any of the Company or the ESG Group have been charged with, indicted for, arrested for, or convicted of any felony or any crime involving fraud.
2.13 Restrictions on Business Activities. There is no Order binding upon the Company or any of the ESG Group that has or would reasonably be expected to have the effect of prohibiting, preventing, restricting or impairing in any respect, any business practice of the Company or any of the ESG Group as their businesses are currently conducted, any acquisition of property by the Company or any of the ESG Group, the conduct of business by the Company or any of the ESG Group as currently conducted, or the ability of the Company to compete with other parties.
2.14 Material Contracts.
(a) The Company has made available to PMIN, true, correct and complete copies of, each material written contract, agreement, commitment, arrangement, lease, license, or plan and each other instrument in effect to which the Company or any ESG Group member is a party (each, a “ESG Material Contract”) that:
(i) contains covenants that materially limit the ability of the Company or any ESG Group member (A) to compete in any line of business or with any Person or in any geographic area or to sell, or provide any service or product or solicit any Person, including any non-competition covenants, exclusivity restrictions, rights of first refusal or most-favored pricing clauses or (B) to purchase or acquire an interest in any other Person;
(ii) involves any joint venture, partnership, limited liability company or other similar agreement or arrangement relating to the formation, creation, operation, management or control of any partnership or joint venture;
(iii) involves any exchange traded, over the counter or other swap, cap, floor, collar, futures, contract, forward contract, option or other derivative financial instrument or contract, based on any commodity, security, instrument, asset, rate or index of any kind or nature whatsoever, whether tangible or intangible, including currencies, interest rates, foreign currency and indices;
(iv) evidences Indebtedness (whether incurred, assumed, guaranteed or secured by any asset) having an outstanding principal amount in excess of $50,000;
(v) involves the acquisition or disposition (to the extent such transaction would be consummated after the date hereof), directly or indirectly (by merger or otherwise), of assets with an aggregate value in excess of $100,000 (other than in the ordinary course of business) or capital stock or other equity interests of another Person;
(vi) by its terms calls for aggregate payments by the Company or any ESG Group member under such contract of more than $100,000 per year or $350,000 in the aggregate over the length of the contract;
(vii) with respect to any acquisition or disposition of another Person, pursuant to which the Company or any ESG Group member has (A) any continuing indemnification obligations in excess of $50,000 or (B) any “earn out” or other contingent payment obligations;
(viii) relates to any merger, consolidation or other business combination with any other Person or the acquisition or disposition of any other entity or its business or material assets or the sale of any member of the ESG Group, its business or material assets;
(ix) obligates the Company or any ESG Group member to provide continuing indemnification or a guarantee of obligations of a third party after the date hereof in excess of $50,000;
(x) is between the Company or any ESG Group member and any of their respective directors, executive officers, shareholders or Affiliates, including all non-competition, severance and indemnification agreements;
(xi) is between the Company or any ESG Group member and any Top Customer or Top Supplier;
(xii) relates to a material settlement entered into within one (1) year prior to the date of this Agreement or under which any member of the ESG Group has outstanding obligations (other than customary confidentiality obligations);
(xiii) provides another Person (other than another member of the ESG Group) with a power of attorney;
(xiv) obligates the Company or any ESG Group member to make any capital commitment or expenditure in excess of $50,000 (including pursuant to any joint venture);
(xv) relates to the development, ownership, licensing or use of any Intellectual Property material to the business of the Company or any ESG Group member, other than “shrink wrap,” “click wrap,” and “off the shelf” software agreements and other agreements for software commercially available on reasonable terms to the public generally with license, maintenance, support and other fees of less than $50,000 per year (collectively, “Off-the-Shelf Software Agreements”); or
(xvi) is otherwise material to the Company or any ESG Group member or outside of the ordinary course of business of the ESG Group and not described in clauses (i) through (xv) above.
(b) With respect to each ESG Material Contract: (i) such ESG Material Contract is valid and binding and enforceable in all respects against the Company or the ESG Group member party thereto (subject to Enforceability Exceptions) and, to the Company’s knowledge, the other party thereto, and other than such contracts that have expired by their terms or terminated pursuant to the terms of this Agreement, are in full force and effect; (ii) the consummation of the transactions contemplated by this Agreement will not affect the validity or enforceability of ESG Material Contract against the Company or such ESG Group member and, to the Company’s knowledge, the other party thereto; (iii) neither the Company nor any ESG Group member is in breach or default in any respect, and no event has occurred that with the passage of time or giving of notice or both would constitute a breach or default by the Company or any ESG Group member, or permit termination or acceleration by the other party thereto, under such ESG Material Contract; (iv) to the Company’s knowledge, no other party to such ESG Material Contract is in breach or default in any respect, and no event has occurred that with the passage of time or giving of notice or both would constitute such a breach or default by such other party, or permit termination or acceleration by the Company or any of the ESG Group, under such ESG Material Contract, (v) no other party to such ESG Material Contract has notified the Company or any ESG Group member in writing that it is terminating or considering terminating the handling of its business by the Company or any ESG Group member or in respect of any particular product, project or service of the Company or any ESG Group member, or is planning to materially reduce its future business with the Company or any ESG Group member in any manner; and (vi) no member of the ESG Group has waived any rights under such ESG Material Contract.
2.15 Intellectual Property.
(a) The Company contains a list of: (i) all right, title and interest in and to all registered Intellectual Property and Intellectual Property that is the subject of a pending application for registration in each case that is, owned by the Company or any of the ESG Group member and is material to the business of the Company as currently conducted (“ESG Intellectual Property”); and (ii) all material Intellectual Property, other than as may be licensed pursuant to Off-the-Shelf Software Agreements, that is licensed to the Company or any of the ESG Group member and is material to the business of the ESG Group (“ESG Licensed Intellectual Property”). Each of the Company and the ESG Group member (x) has all right, title and interest in and to ESG Intellectual Property owned by it, free and clear of all Encumbrances, other than rights and interest licensed to any other Person and Permitted Encumbrances, and (y) has valid rights to use the ESG Licensed Intellectual Property. Neither the Company nor any of the ESG Group member has received any written notice alleging that it has infringed, diluted or misappropriated, or, by conducting its business as currently conducted, has infringed, diluted or misappropriated, the Intellectual Property rights of any Person and, to the knowledge of the Company, there is no valid basis for any such allegation. Neither the execution nor delivery of this Agreement nor the consummation of the transactions contemplated hereby will materially impair or materially alter the Company’s or any ESG Group’s rights to any ESG Intellectual Property or ESG Licensed Intellectual Property. All of the ESG Intellectual Property and the license rights to the ESG Licensed Intellectual Property are valid, enforceable and subsisting and, as of the date hereof, there is no material Action that is pending or, to the Company’s knowledge, threatened that challenges the rights of the Company or any of the ESG Group of any ESG Intellectual Property or ESG Licensed Intellectual Property or the validity, enforceability or effectiveness thereof. ESG Intellectual Property and the ESG Licensed Intellectual Property constitute all material Intellectual Property owned by or licensed to the Company or the ESG Group member and used in or necessary for the operation by the Company and the ESG Group of their respective businesses as currently conducted. Neither the Company nor any of the ESG Group is in breach or default (or would with the giving of notice or lapse of time or both be in such breach or default) under any license to use any of the ESG Licensed Intellectual Property.
(b) For purposes of this Agreement, “Intellectual Property” means (i) United States, international and foreign patents and patent applications, including divisionals, continuations, continuations-in-part, reissues, reexaminations and extensions thereof and counterparts claiming priority therefrom; utility models; invention disclosures; and statutory invention registrations and certificates; (ii) United States and foreign registered, pending and unregistered trademarks, service marks, trade dress, logos, trade names, corporate names and other source identifiers, domain names and registrations and applications for registration for any of the foregoing, together with all of the goodwill associated therewith; (iii) United States and foreign copyrights, and registrations and applications for registration thereof; and copyrightable works, including website content; (iv) all inventions and design rights (whether patentable or unpatentable) and all categories of trade secrets as defined in the Uniform Trade Secrets Act, including business, technical and financial information; and (v) confidential and proprietary information including, without limitation, know-how, recipes and formulas.
2.16 Employee Benefit Plans. The Company presently has no employee benefit plans.
2.17 Taxes and Returns.
(a) The Company has or will have timely filed, or caused to be timely filed, all material federal, state, local and foreign Tax returns and reports required to be filed by any member of the ESG Group (taking into account all available extensions) (collectively, “Tax Returns”), which Tax Returns are true, accurate, correct and complete in all material respects, and has paid, collected or withheld, or caused to be paid, collected or withheld, all material Taxes required to be paid, collected or withheld, other than such Taxes for which adequate reserves in the ESG Audited Financials have been established.
(b) The Company confirms each jurisdiction where the Company and each ESG Group member files or is required to file a Tax Return.
(c) Neither the Company nor any of the ESG Group member is being audited by any taxing authority or has been notified by any Tax authority that any such audit is contemplated or pending.
(d) There are no material claims, assessments, audits, examinations, investigations or other proceedings pending against the Company or any of the ESG Group in respect of any Tax, and neither the Company nor any of the ESG Group has been notified in writing of any proposed Tax claims or assessments against the Company or any of the ESG Group (other than, in each case, claims or assessments for which adequate reserves in the ESG Financials have been established).
(e) There are no Encumbrances with respect to any Taxes upon any of the Company’s or the ESG Group’s assets, other than (i) Taxes, the payment of which is not yet due, or (ii) Taxes or charges being contested in good faith by appropriate proceedings and for which adequate reserves in the ESG Financials have been established.
(f) Neither the Company nor any of the ESG Group has any outstanding waivers or extensions of any applicable statute of limitations to assess any material amount of Taxes. There are no outstanding requests by the Company or any of the ESG Group for any extension of time within which to file any Tax Return or within which to pay any Taxes shown to be due on any Tax Return.
(g) Neither the Company nor any of the ESG Group has made any change in accounting method or received a ruling from, or signed an agreement with, any taxing authority that would reasonably be expected to have a material impact on Taxes following the Closing.
(h) Neither the Company nor any of the ESG Group participated in, or sold, distributed or otherwise promoted, any “reportable transaction,” as defined in U.S. Treasury Regulation section 1.6011-4.
(i) Neither the Company nor any ESG Group member has any liability or potential liability for the Taxes of another Person (i) under any applicable Tax Law, (ii) as a transferee or successor, or (iii) by contract, indemnity or otherwise.
(j) Neither the Company nor any ESG Group member is a party to or bound by any Tax indemnity agreement, Tax sharing agreement or Tax allocation agreement or similar agreement, arrangement or practice with respect to material Taxes (including advance pricing agreement, closing agreement or other agreement relating to Taxes with any taxing authority) that will be binding on the Company or any ESG Group member with respect to any period following the Closing Date.
(k) Neither the Company nor any ESG Group member has requested or is the subject of or bound by any private letter ruling, technical advice memorandum, closing agreement or similar ruling, memorandum or agreement with any taxing authority with respect to any material Taxes, nor is any such request outstanding.
(l) For purposes of this Agreement, the term “Tax” or “Taxes” shall mean any tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, imposed by any Governmental Authority (including any federal, state, local, foreign or provincial income, gross receipts, property, sales, use, net worth, premium, license, excise, franchise, employment, payroll, social security, workers compensation, unemployment compensation, alternative or added minimum, ad valorem, transfer or excise tax) together with any interest, addition or penalty imposed thereon.
2.18 Finders and Investment Bankers. Neither the Company nor any ESG Group has incurred, nor will they incur, any liability for any brokerage, finder’s or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of any member of the ESG Group.
2.19 Title to Properties; Assets.
(a) The Company provides a correct and complete list, of all real property and interests in real property leased or subleased by or for the benefit of the Company or any of the ESG Group from or to any Person (collectively, the “ESG Real Property”). The list set forth contains, with respect to each of ESG Real Properties, all existing leases, subleases, licenses, guarantees or other occupancy contracts to which the Company or any of the ESG Group is a party or by which the Company or any of the ESG Group is bound, and all assignments, amendments, modifications, extensions and supplements thereto (collectively, the “ESG Leases”), the terms of which have been complied with by the Company and any ESG Group member. The ESG Real Property comprises all of the real property necessary and/or currently used in the operations of the business of the Company and the ESG Group.
(b) All items of Personal Property which is owned, used or leased by the Company or a ESG Group member with a book value or fair market value of greater than $20,000 are disclosed, along with, to the extent applicable, a list of leases, lease guarantees, agreements and documents related thereto, including all amendments, terminations and modifications thereof (“ESG Personal Property Leases”). All such items of Personal Property are in good operating condition and repair (reasonable wear and tear excepted consistent with the age of such items), and are suitable for their intended use in the business of the ESG Group. The operation of each of the Company and the ESG Group’s respective business as it is now conducted or presently proposed to be conducted is not dependent upon the right to use the Personal Property of Persons other than a member of the ESG Group, except for such Personal Property that is owned by, leased, licensed or otherwise contracted to such entity. The Company has provided to PMIN a true and complete copy of each of the ESG Personal Property Leases, and in the case of any oral ESG Personal Property Lease, a written summary of the material terms of such ESG Personal Property Lease. The ESG Personal Property Leases are valid, binding and enforceable in accordance with their terms and are in full force and effect. No event has occurred which (whether with or without notice, lapse of time or both or the happening or occurrence of any other event) would constitute a default on the part of the Company or any ESG Group member under any of the ESG Personal Property Leases. The Company has no knowledge of the occurrence of any event which (whether with or without notice, lapse of time or both or the happening or occurrence of any other event) would constitute a default by any other party under any of the ESG Personal Property Leases, and neither the Company nor any ESG Group member has received notice of any such condition. Neither the Company nor any ESG Group member has waived any rights under any ESG Personal Property Lease which would be in effect at or after the Closing. No event has occurred which either entitles, or would, on notice or lapse of time or both, entitle the other party to any ESG Personal Property Lease with either the Company or a ESG Group member to declare a default or to accelerate, or which does accelerate, the maturity of any obligations of the Company or ESG Group under any ESG Personal Property Lease.
(c) Each member of the ESG Group has good and marketable title to, or a valid leasehold interest in or right to use, all of its assets. The assets (including Intellectual Property rights and contractual rights) of the ESG Group constitute all of the assets, rights and properties that are used in the operation of the businesses of the ESG Group as it is now conducted and presently proposed to be conducted or that are used or held by the ESG Group for use in the operation of the businesses of the ESG Group, and taken together, are adequate and sufficient for the operation of the businesses of the ESG Group as currently conducted and as presently proposed to be conducted.
2.20 Employee Matters.
(a) There are no Actions pending or, to the knowledge of the Company, threatened involving the Company or any ESG Group member and any of their respective employees or former employees (with respect to their status as an employee or former employee, as applicable) including any harassment, discrimination, retaliatory act or similar claim. To the Company’s knowledge, since October 13, 2022, there has been: (i) no labor union organizing or attempting to organize any employee of the Company or any of the ESG Group into one or more collective bargaining units with respect to their employment with the Company or any of the ESG Group; and (ii) no labor dispute, strike, work slowdown, work stoppage or lock out or other collective labor action by or with respect to any employees of the Company or any of the ESG Group pending with respect to their employment with the Company or any of the ESG Group or threatened against the Company or any of the ESG Group. Neither the Company nor any of the ESG Group is a party to, or bound by, any collective bargaining agreement or other agreement with any labor organization applicable to the employees of the Company or any of the ESG Group and no such agreement is currently being negotiated.
(b) The Company and the ESG Group member (i) are in compliance in all material respects with all applicable Laws respecting employment and employment practices, terms and conditions of employment, health and safety and wages and hours, including Laws relating to discrimination, disability, labor relations, hours of work, payment of wages and overtime wages, pay equity, immigration, workers compensation, working conditions, employee scheduling, occupational safety and health, family and medical leave, and employee terminations, and have not received written notice, or any other form of notice, that there is any Action involving unfair labor practices against the Company or any of the ESG Group pending, (ii) are not liable for any material arrears of wages or any material penalty for failure to comply with any of the foregoing, and (iii) are not liable for any material payment to any trust or to any Governmental Authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees, independent contractors or consultants (other than routine payments to be made in the ordinary course of business and consistent with past practice). There are no Actions pending or, to the knowledge of the Company, threatened against the Company or any ESG Group member brought by or on behalf of any applicant for employment, any current or former employee, any Person alleging to be a current or former employee, or any Governmental Authority, relating to any such Law or regulation, or alleging breach of any express or implied contract of employment, wrongful termination of employment, or alleging any other discriminatory, wrongful or tortious conduct in connection with the employment relationship.
(c) The Company discloses a complete and accurate list of all employees of the ESG Group showing for each as of that date (i) the employee’s name, job title or description, employer, location, salary level (including any bonus, commission, deferred compensation or other remuneration payable (other than any such arrangements under which payments are at the discretion of the ESG Group)), (ii) any bonus, commission or other remuneration other than salary paid during the fiscal year ended December 31, 2022, and (iii) any wages, salary, bonus, commission or other compensation due and owing to each employee for the fiscal year ended December 31, 2022. All Company employees are party to a written employment agreement or contract with the Company or a ESG Group member, and each member of the ESG Group has paid in full to all such employees all wages, salaries, commission, bonuses and other compensation due to such employees, including overtime compensation, and there are no severance payments which are or could become payable by a member of the ESG Group to any such employees under the terms of any written or, to the Company’s knowledge, oral agreement, or commitment or any Law, custom, trade or practice. Each such employee has entered into the Company or the applicable ESG Group member’s standard form of employee non-disclosure, inventions and restrictive covenants agreement with the Company or ESG Group member, a copy of which has been provided to PMIN by the Company.
2.21 Transactions with Affiliates. Other than (i) for payment of salary and benefits for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company or any ESG Group member, (iii) for other employee benefits made generally available to all employees, (iv) with respect to any Person’s ownership of membership interests, capital stock or other securities of the Company or any ESG Group member or such Person’s employment with the Company or any ESG Group member, or (v) as stated in the ESG Audited Financials, there are no contracts or arrangements (each, a “ESG Affiliate Transaction”) that are in existence since the ESG’s Formation or as of the date of this Agreement under which there are any material existing or future liabilities or obligations between the Company or any of the ESG Group member, on the one hand, and, on the other hand, any (x) present manager, officer or director of either the Company or any of the ESG Group member or (y) record or beneficial owner of more than five percent (5%) of the outstanding the Company Ordinary Shares or more than five percent (5%) of the outstanding equity interest of any ESG Group member as of the date hereof (each of (x), (y) and (z), a “ESG Affiliate,” and collectively, the “ESG Affiliates”).
2.22 Books and Records. All of the financial books and records of the Company and the ESG Group member are complete and accurate in all material respects and, since October 13, 2022 (ESG’s date of formation), have been maintained in the ordinary course consistent with past practice and in accordance with applicable Laws.
2.23 Disclosure. No representations or warranties by the Company in this Agreement (including the disclosure Letters hereto) or the ancillary documents contemplated thereto to which it is a party, (a) contains or will contain any untrue statement of a material fact, or (b) omits or will omit to state, when read in conjunction with all of the information contained in this Agreement, the disclosure Letters and ancillary documents hereto and thereto, any fact necessary to make the statements or facts contained therein not materially misleading.
ARTICLE
III
REPRESENTATIONS AND WARRANTIES OF PMIN
PMIN hereby represents and warrants to the Company as follows:
3.1 Due Organization and Good Standing. PMIN is a corporation duly incorporated, formed or organized, validly existing and in good standing under the Laws of the State of Nevada and has all requisite corporate power and authority to own, lease and operate its respective properties and to carry on its respective business as now being conducted. PMIN is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character of the property owned, or leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not reasonably be expected to result in a PMIN Material Adverse Effect. PMIN has heretofore made available to the Company accurate and complete copies of PMIN’s certificate of incorporation and by-laws, each as amended to date and as currently in effect (the “PMIN Organization Documents”). PMIN is not in violation of any provision of the PMIN Organization Documents.
3.2 Title to Securities; Capitalization.
(a) The authorized capital stock of PMIN consists of 65,000,000 shares of PMIN Common Stock and 10,000,000 preferred shares, par value $0.001 per share. Other than shares booked from Transfer Agent’s record, there are no other shares of capital stock or other voting securities of PMIN issued, reserved for issuance or outstanding. All outstanding shares of PMIN Common Stock are duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, right of first refusal, preemptive right, subscription right or any similar right under any provision of Chapter 78 of the Nevada Revised Statutes, the PMIN Organization Documents or any contract to which PMIN is a party or by which PMIN is bound. Except as set forth in the PMIN Organization Documents, there are no outstanding contractual obligations of PMIN to repurchase, redeem or otherwise acquire any shares of PMIN Common Stock or any capital equity of any of PMIN. There are no outstanding contractual obligations of PMIN to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in any other Person.
(b) There are no (i) outstanding options, warrants, puts, calls, convertible securities, preemptive or similar rights, (ii) bonds, debentures, notes or other Indebtedness having general voting rights or that are convertible or exchangeable into securities having such rights, or (iii) except as expressly contemplated by this Agreement, subscriptions or other rights, agreements, arrangements, contracts or commitments of any character, relating to the issued or unissued capital equity of PMIN or obligating PMIN to issue, transfer, deliver or sell or cause to be issued, transferred, delivered, sold or repurchased any options, their respective capital stock or securities convertible into or exchangeable for such shares or interests, or obligating PMIN to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement, arrangement or commitment for such capital equity. All shares of PMIN Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and non assessable.
(c) There are no registration rights and there is no voting trust, proxy, rights plan, anti-takeover plan or other contracts or understandings to which PMIN is a party or by which PMIN is bound with respect to any of its capital stock. As a result of the consummation of the Exchange, no shares of capital stock (other than as set forth in Schedule A), warrants, options or other securities of PMIN are issuable and no rights in connection with any shares, warrants, rights, options or other securities of PMIN accelerate or otherwise become triggered (whether as to vesting, exercisability, convertibility or otherwise).
(d) No Indebtedness of PMIN contains any restriction upon (i) the prepayment of any of such Indebtedness, (ii) the incurrence of Indebtedness by PMIN or any of the PMIN Subsidiaries, or (iii) the ability of PMIN or any of the PMIN Subsidiaries to grant any Encumbrance on its properties or assets.
(e) Since July 22, 2021, PMIN has not declared or paid any distribution or dividend in respect of the PMIN Common Stock and has not repurchased, redeemed or otherwise acquired any securities or equity interest of PMIN, and the PMIN Board has not authorized any of the foregoing.
3.3 Subsidiaries. PMIN has no subsidiaries. PMIN does not own, directly or indirectly, any shares of capital stock or other equity or voting interests in (including any securities exercisable or exchangeable for or convertible into capital stock or other equity or voting interests in) any other Person other than publicly traded securities constituting less than ten percent (10%) of the outstanding equity of the issuing entity.
3.4 Authorization; Binding Agreement. PMIN has all requisite corporate power and authority to execute and deliver this Agreement and each other ancillary agreement related hereto to which it is a party, and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and each other ancillary agreement related hereto to which it is a party and the consummation of the transactions contemplated hereby and thereby, (i) have been duly and validly authorized by the PMIN Board and no other corporate proceedings on the part of PMIN are necessary to authorize the execution and delivery of this Agreement and each other ancillary agreement related hereto to which it is a party or to consummate the Exchange, and the other transactions contemplated hereby and thereby. This Agreement has been, and each ancillary agreement to which PMIN is a party shall be when delivered, duly and validly executed and delivered by PMIN and assuming the due authorization, execution and delivery of this Agreement and any such ancillary agreements by the other Parties hereto and thereto, constitutes, or when delivered shall constitute, the legal, valid and binding obligation of PMIN, enforceable against PMIN in accordance with its terms, subject to the Enforceability Exceptions.
3.5 Governmental Approvals. No Consent of or with any Governmental Authority on the part of PMIN is required to be obtained or made in connection with the execution, delivery or performance by PMIN of this Agreement or any ancillary agreement related hereto or the consummation by PMIN of the transactions contemplated hereby or thereby other than (i) such filings as may be required in any jurisdiction where PMIN is qualified or authorized to do business, (ii) such filings as contemplated by this Agreement, (iii) such filings as contemplated by this Agreement pursuant to the Exchange, (iv) for applicable requirements, if any, of the Securities Act of 1933, as amended (the “Securities Act”), the Exchange Act of 1934, as amended (the “Exchange Act”), the Financial Industry Regulatory Authority (“FINRA”) or any state “blue sky” securities Laws, and the rules and regulations thereunder, or (v) where the failure to obtain or make such Consents or to make such filings or notifications would not reasonably be expected to result in a PMIN Material Adverse Effect or prevent the consummation of the transactions contemplated by this Agreement.
3.6 No Violations. The execution and delivery by PMIN of this Agreement and each other ancillary agreement related hereto and the consummation by PMIN of the transactions contemplated hereby and thereby and compliance by PMIN with any of the provisions hereof or thereof will not (i) conflict with or violate any provision of the PMIN Organization Documents, (ii) require any Consent under or result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, amendment or acceleration) under, any PMIN Material Contract, (iii) result (immediately or with the passage of time or otherwise) in the creation or imposition of any Encumbrance (except for Permitted Encumbrances) upon any of the properties, rights or assets of PMIN or any of the PMIN Subsidiaries or (iv) subject to obtaining the Consents from Governmental Authorities referred to in Section 3.5 hereof, and the waiting periods referred to therein have expired, and any condition precedent to such consent, approval, authorization or waiver has been satisfied, conflict with, contravene or violate in any respect any Law to which PMIN or any of the PMIN Subsidiaries or any of their assets or properties is subject, except, in the case of clauses (ii), (iii) and (iv) above, for any deviations from the foregoing that would not reasonably be expected to result in a PMIN Material Adverse Effect.
3.7 PMIN Financial Statements.
(a) PMIN has filed with the SEC the financial statements and notes to (i) the audited balance sheets of PMIN as of August 31, 2022, and the related audited statements of operations, stockholders’ equity and cash flows for the fiscal years ended August 31, 2022 together with the notes to such statements and the opinion of Jack Shama, CPA , independent certified public accountants, and (ii) the unaudited financial statements of PMIN for the quarters ended November 30, 2022, February 28, 2023, and May 31, 2023 (the “PMIN Financial Statements”).
(b) The Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved. The PMIN balance sheets included as part of the Financial Statements are true and accurate and present fairly as of their respective dates the financial condition of PMIN. As of the date of such balance sheets, except as and to the extent reflected or reserved against therein, PMIN balance sheets or the notes thereto prepared in accordance with generally accepted accounting principles, and all assets reflected therein are properly reported and present fairly the value of the assets of PMIN, in accordance with generally accepted accounting principles. The statements of operations, stockholders’ equity and cash flows included as part of the Financial Statements reflect fairly the information required to be set forth therein by generally accepted accounting principles.
(c) Since July 22, 2021, neither PMIN, nor any director, officer or employee of PMIN or any PMIN Subsidiary, any auditor or accountant of PMIN has received any written complaint, allegation, assertion or claim regarding the accounting or auditing practices, procedures, methodologies or methods of PMIN or their respective internal accounting controls, including any material written complaint, allegation, assertion or claim that PMIN has engaged in questionable accounting or auditing practices. To PMIN’s knowledge, since July 22, 2021, no employee and no member of the PMIN Board nor any attorney representing PMIN, whether or not employed by PMIN, has received written notice from any Governmental Authority or any Person of any violation of consumer protection, insurance or securities Laws, breach of fiduciary duty or similar violation by PMIN, or any of their respective officers, directors, employees or agents or reported written evidence of any such violations to the PMIN Board or any committee thereof or to any director or executive officer of PMIN.
3.8 Litigation. There is no Action pending, or, to the knowledge of PMIN, threatened against PMIN, or any of their respective properties, rights or assets or, any of their respective officers, directors, partners, managers or members (in their capacities as such) that would reasonably be expected to result in a PMIN Material Adverse Effect. There is no Order binding against PMIN, or any of its properties, rights or assets or any of their respective managers, officers, directors or partners (in their capacities as such) that would prohibit, prevent, enjoin, restrict or alter or delay any of the transactions contemplated by this Agreement, or that would reasonably be expected to result in a PMIN Material Adverse Effect. PMIN is in compliance with all Orders, except for any non-compliance which would not reasonably be expected to result in a PMIN Material Adverse Effect. There is no material Action that PMIN has pending against other parties. There is no Action pending or, to the knowledge of PMIN, threatened against PMIN involving a claim against PMIN for false advertising with respect to any of PMIN’s or any PMIN Subsidiary’s products or services, except for any such Action(s) which would not reasonably be expected to result in a PMIN Material Adverse Effect.
3.9 Finders and Investment Bankers. PMIN has not incurred, nor will it incur, any liability for any brokerage, finder’s or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of PMIN.
3.10 Title to Properties; Assets. PMIN holds no real property or interests in real property, whether leased or subleased by or for the benefit of PMIN form or to any person.
3.11 Investment Company Act. PMIN is not an “investment company” or a person directly or indirectly “controlled” by or acting on behalf of an “investment company”, in each case within the meaning of the Investment Company Act of 1940, as amended.
3.12 Information Supplied. None of the information relating to PMIN which is supplied or to be supplied by PMIN expressly for inclusion or incorporation by reference in the filings with the SEC will, at the date of filing, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading (subject to the qualifications and limitations set forth in the materials provided by PMIN and/or any PMIN Subsidiary or that is included in the SEC filings). None of the information supplied or to be supplied by PMIN in writing expressly for inclusion or incorporation by reference in any of the Ancillary Public Disclosures will, at the time filed with the SEC, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading (subject to the qualifications and limitations set forth in the materials provided by PMIN or that is included in Ancillary Public Disclosures). Notwithstanding the foregoing, PMIN makes no representation, warranty or covenant with respect to any information supplied by the Company for inclusion in any such filings with the SEC or Ancillary Public Disclosures. PMIN has delivered or provided access to the Company all material information, documents and instruments necessary in order for the Company to conduct its due diligence with respect to the representations and warranties in this Article III.
3.13 Disclosure. No representations or warranties by PMIN in this Agreement (including the disclosure letters hereto) or the ancillary documents contemplated thereto to which it is a party, (a) contains or will contain any untrue statement of a material fact, or (b) omits or will omit to state, when read in conjunction with all of the information contained in this Agreement, the disclosure letters and ancillary documents hereto and thereto, any fact necessary to make the statements or facts contained therein not materially misleading.
3.14 Waiver of Representation. PMIN has had adequate time and opportunity to review and comment upon this Agreement, and to seek the advice of qualified legal counsel regarding the terms of this Agreement. Furthermore, PMIN knowingly and voluntarily waives its rights to any further review of this Agreement by legal counsel.
ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY SHAREHOLDERS
As an inducement to PMIN to enter into this Agreement, each Company Shareholder, severally but not jointly, hereby represents and warrants to PMIN as follows.
4.1 Company Shares.The Company Shares represent 100% of the issued and outstanding capital stock of the Company. Each of such Company Shareholder is the record and beneficial owner, and has good, valid and marketable title to, the Company Shares appearing next to such Company Shareholder’s name on Schedule A hereto. Such Company Shareholder has the right and authority to sell and deliver its Company Shares, free and clear of all Encumbrances or adverse claims of any nature whatsoever. Upon delivery of any certificate or certificates duly assigned, representing the Company Shares as herein contemplated and/or upon registering of PMIN as the new owner of the Company Shares in the share register of the Company, PMIN will receive good title to the Company Shares owned by such Company Shareholder.
4.2 Power and Authority. Such Company Shareholder has the legal power, capacity and authority to execute and deliver this Agreement, to consummate the transactions contemplated by this Agreement, and to perform his, her or its obligations under this Agreement. This Agreement constitutes a legal, valid and binding obligation of such Company Shareholder, enforceable against such Company Shareholder in accordance with the terms hereof, except as may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and subject to the qualification that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefore may be brought.
4.3 No Conflicts. The execution and delivery of this Agreement by such Company Shareholder and the performance by such Company Shareholder of its obligations hereunder in accordance with the terms hereof: (a) will not require the consent of any third party or governmental entity under any laws, (b) will not violate any laws applicable to such Company Shareholder, and (c) will not violate or breach any contractual obligation to which such Company Shareholder is a party.
4.4 Purchase Entirely for Own Account. The Exchange Shares (as defined in Section 1.1(a) herein) proposed to be acquired by such Company Shareholder pursuant to the terms hereof will be acquired for investment for such Company Shareholder’s own account, and not with a view to the resale or distribution of any part thereof.
4.5 Acquisition of Exchange Shares for Investment.
(a) Such Company Shareholder is acquiring the Exchange Shares for investment purposes and for such Company Shareholder’s own account and not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and such Company Shareholder has no present intention of selling, granting any participation in, or otherwise distributing the same. Such Company Shareholder further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Exchange Shares.
(b) Such Company Shareholder represents and warrants that it: (i) can bear the economic risk of his respective investments, and (ii) possesses such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the investment in PMIN and its securities.
(c) Such Company Shareholder is not a “U.S. Person” as defined in Rule 902(k) of Regulation S of the Securities Act (“Regulation S”) except Christopher Alonzo who is accredited investor US person and understands that the Exchange Shares are not registered under the Securities Act and that the issuance thereof to such Company Shareholder is intended to be exempt from registration under the Securities Act pursuant to Regulation S and Regulation D separately. Such Company Shareholder except Christopher Alonzo has no intention of becoming a U.S. Person. At the time of the origination of contact concerning this Agreement and the date of the execution and delivery of this Agreement, such Company Shareholder except Christopher Alonzo was outside of the United States.
(d) Such Company Shareholder acknowledges that neither the SEC, nor the securities regulatory body of any state or other jurisdiction, has received, considered or passed upon the accuracy or adequacy of the information and representations made in this Agreement.
(e) Such Company Shareholder understands that the Exchange Shares may not be sold, transferred, or otherwise disposed of without registration under the Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Exchange Shares or any available exemption from registration under the Securities Act, the Exchange Shares may have to be held indefinitely.
ARTICLE V
COVENANTS
5.1 Access and Information; Confidentiality.
(a) During the negotiation of this Agreement, each of the Company and the ESG Group warrants that it has given, and have directed its accountants and legal counsel to give, and will continue through and following the Closing to give, PMIN and its respective Representatives, at reasonable times during normal business hours and upon reasonable intervals and notice, and subject to any confidentiality agreements with third Persons (the existence and scope of which have been disclosed to PMIN), access to all offices and other facilities and to all employees, properties, contracts, agreements, commitments, books and records, financial and operating data and other information (including Tax Returns, internal working papers, client files, client contracts and director service agreements), of or pertaining to the Company or the ESG Group, as the requesting Party or its Representatives may reasonably request regarding the ESG Group’s business, assets, liabilities, employees and other aspects (including unaudited quarterly financial statements, including a consolidated quarterly balance sheet and income statement, each as they become available during the Executory Period, a copy of each material report, schedule and other document filed with or received by a Governmental Authority pursuant to the requirements of applicable securities Laws, and independent public accountant’s work papers (subject to the consent or any other conditions required by such accountant, if any)) and instruct such Party’s Representatives to reasonably cooperate with the requesting Party in its investigation; provided that the requesting Party conducted and shall conduct any such activities in such a manner so as not to unreasonably interfere with the business or operations of the Party providing such information. No information or knowledge obtained by any Party hereto pursuant to this Section 5.1(a) will affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the Parties to consummate the Exchange.
(b) During the negotiation of this Agreement, PMIN warrants that it has directed its accountants and legal counsel to give the Company, the ESG Group, and their respective Representatives, and will continue through and following the Closing to give, at reasonable times during normal business hours and upon reasonable intervals and notice, and subject to any confidentiality agreements with third Persons (the existence and scope of which have been disclosed to the Company or the Company Subsidiaries), access to all offices and other facilities and to all employees, properties, contracts, agreements, commitments, books and records, financial and operating data and other information (including Tax Returns, internal working papers, client files, client contracts and director service agreements), of or pertaining to PMIN as the requesting Party or its Representatives may reasonably request regarding PMIN’s business, assets, liabilities, employees and other aspects (including unaudited quarterly financial statements, including a consolidated quarterly balance sheet and income statement, each as they become available during the Executory Period, a copy of each material report, schedule and other document filed with or received by a Governmental Authority pursuant to the requirements of applicable securities Laws, and independent public accountant’s work papers (subject to the consent or any other conditions required by such accountant, if any)) and instruct such Party’s Representatives to reasonably cooperate with the requesting Party in its investigation; provided that the requesting Party conducted and shall conduct any such activities in such a manner so as not to unreasonably interfere with the business or operations of the Party providing such information. No information or knowledge obtained by any Party hereto will affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the Parties to consummate the Exchange.
(c) All information obtained by the Company or any ESG Group, on the one hand, and PMIN, on the other hand, pursuant to this Agreement or otherwise, shall be kept confidential. The Parties further acknowledge and agree that the existence and terms of this Agreement and the Exchange are strictly confidential and that they and their respective officers, managers, directors, employees, accountants, consultants, legal counsel, financial advisors, agents or other representatives (collectively, the “Representatives”) shall not disclose to the public or to any third Person the terms of this Agreement and the Exchange other than with the express prior written consent of the other Parties, except (i) as may be required by applicable Law or at the request of any Governmental Authority having jurisdiction over the such Party or any of its Representatives, control persons or affiliates (including, without limitation, to the extent applicable, the rules and regulations of the SEC and FINRA), (ii) as required to carry out a Party’s obligations hereunder, or (iii) as may be required to defend any action brought against such Person in connection with the Exchange, and in the case of clause (iii), in accordance with and subject the terms and conditions of this Agreement.
5.2 Intentionally Omitted.
5.3 Intentionally Omitted.
5.4 Public Announcements. PMIN and the Company agree that no public release or announcement concerning this Agreement or the Exchange shall be issued by either Party or any of their affiliates without the prior written consent of the other Party (which consent shall not be unreasonably withheld, conditioned or delayed), except as such release or announcement may be required by applicable Law or the rules or regulations of any securities exchange, in which case the applicable Party shall use commercially reasonable efforts to allow the other Party reasonable time to comment on, and arrange for any required filing with respect to, such release or announcement in advance of such issuance; provided, however, that either PMIN or the Company may make any public statement in response to specific questions by the press, analysts, investors or those attending industry conferences or financial analyst conference calls, so long as any such statements are not inconsistent with previous public releases or announcements made by PMIN or the Company in compliance with this Agreement and so long as appropriate filings are timely made with the SEC with respect to the statements.
5.5 Regulatory Matters.
(a) Super 8-K. The Company and PMIN shall cooperate to promptly prepare and file with the SEC a Super 8-K (the “Super 8-K”) announcing the Exchange and describing the ESG Group business in compliance with applicable SEC regulations. PMIN, with the Company’s cooperation, shall use its commercially reasonable efforts to respond to any SEC review of the Super 8-K under the Securities Act as promptly as practicable after such filing. PMIN shall also use its commercially reasonable efforts to obtain all necessary state securities law or “blue sky” permits and approvals as may be required to carry out the transactions contemplated by this Agreement, and the Company shall furnish all information concerning the ESG Group and the holders of the Company and the ESG Group as may be reasonably requested in connection with the foregoing actions. PMIN shall, as promptly as reasonably practicable after receipt thereof, provide the Company with copies of any written comments and advise the other party of any oral comments received from the SEC with respect to the Super 8-K. PMIN shall also advise the Company, as promptly as reasonably practicable after receipt of notice thereof, concerning the issuance of any stop order, or the suspensions of the qualification of the PMIN Common Stock issuable in connection with the Exchange for offering or sale in any jurisdiction. The parties shall cooperate and provide the other with a reasonable opportunity to review and comment with respect to any comments of the SEC and any amendment or supplement to the Super 8-K prior to filing such with the SEC and will provide each other with a copy of all such filings with the SEC to the extent not otherwise publicly available. If at any time prior to the Closing Date, PMIN or the Company has knowledge of any information relating to PMIN, the Company or any of their respective officers, directors or other affiliates, which should be set forth in an amendment or supplement to the Super 8-K so that any such document would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Party which discovers such information shall promptly notify the other Party and, to the extent required by applicable Laws, an appropriate amendment or supplement describing such information shall be promptly filed with the SEC.
(b) Each of PMIN and the Company shall, upon request, furnish to the other all information concerning itself, its Subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with preparation and filing of the Super 8-K or any other statement, filing, notice or application made by or on behalf of PMIN, the Company or the ESG Group to any Governmental Authority, including, without limitation, FINRA, in connection with the Exchange and the other transactions contemplated by this Agreement.
(c) Each of PMIN and the Company shall promptly advise the other upon receiving any communication from any Governmental Authority the consent or approval of which is required for consummation of the transactions contemplated by this Agreement, or from FINRA, that causes such party to believe that there is a reasonable likelihood that any requisite approval will not be obtained or that the receipt of any such approval may be materially delayed, and, to the extent permitted by applicable Law, shall promptly provide the other Party with a copy of such communication.
5.6 Section 16 Matters. Prior to the Closing Date, the Company Shareholders shall take all commercially reasonable steps as may be required to cause any acquisitions of PMIN Common Stock resulting from the Exchange or the other transactions contemplated hereby by each Person who is or can be reasonably expected to become as a result of the Exchange subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to PMIN, to be exempt under Rule 16b-3 promulgated under the Exchange Act, to the extent permitted by applicable Law.
5.7 Further Assurances. PMIN, the Company and the Company Shareholders shall further cooperate with each other and use their respective commercially reasonable efforts to take or cause to be taken all actions, and do or cause to be done all things, necessary, proper or advisable on their part under this Agreement and applicable Laws to consummate the Exchange and the other transactions contemplated by this Agreement as soon as practicable, including preparing and filing as soon as practicable all documentation to effect all necessary notices, reports and other filings and to obtain (in accordance with this Agreement) as soon as practicable all Requisite Regulatory Approvals (as defined below) , all the Company Requisite Consents (as defined below), all PMIN Requisite Consents (as defined below) and any other consents, registrations, approvals, permits and authorizations as may be agreed upon by the Parties.
ARTICLE
VI
SURVIVAL
6.1 Survival of Representations and Warranties. The representations and warranties of the Company and the Company Shareholders which are contained in or made pursuant to this Agreement will survive the Closing until that date which is the first anniversary of the Closing Date; provided, however, that any representation or warranty the breach or violation of which is made the basis of a claim for indemnification will survive until such time as such claim is finally resolved in accordance with this Agreement. The representations and warranties of the Parties to this Agreement other than the Company and the Company Shareholders which are contained in or made pursuant to this Agreement will expire, terminate and not survive the Closing.
6.2 Survival of Other Provisions. Section 8.2, Section 8.3 and Article IX shall survive any termination of this Agreement in accordance with Section 8.1.
ARTICLE
VII
CONDITIONS
7.1 Conditions to Each Party’s Obligations. The obligations of each Party to consummate the Exchange and any other transactions described herein shall be subject to the satisfaction or waiver (where permissible), at or prior to the earlier of the Closing Date, of the following conditions:
(a) Requisite Regulatory Approvals. All authorizations, approvals and permits required to be obtained from or made with any Governmental Authority in order to consummate the transactions contemplated by this Agreement, except for any such authorizations, approvals and/or permits the failure of which to obtain would not reasonably be expected to result in a the Company Material Adverse Affect or a PMIN Material Adverse Affect (the “Requisite Regulatory Approvals”) shall have been obtained or made.
(b) No Law. No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Law (whether temporary, preliminary or permanent) or Order that is then in effect and which has the effect of making the Exchange or the other transactions or agreements contemplated by this Agreement illegal or which otherwise prevents or prohibits consummation of the Exchange or any other transactions contemplated by this Agreement or the other ancillary agreements related to this Agreement.
7.2 Conditions to Obligations of PMIN. The obligations of PMIN to consummate the Exchange are subject to the satisfaction or waiver by PMIN, at or prior to the Closing Date, of the following additional conditions:
(a) Representations and Warranties. Each of the representations and warranties of the Company and the Company Shareholders set forth in this Agreement (without giving effect to any limitation as to “materiality” or “PMIN Material Adverse Effect”) shall be true and correct as of date of this Agreement and as of the Closing Date as though made as of the Closing Date (except to the extent that such representations and warranties refer specifically to an earlier date, in which case such representations and warranties shall have been true and correct as of such earlier date), except where the failure to be so true and correct does not have, and would not reasonably be expected to have, individually or in the aggregate with respect to all such failures, a ESG Material Adverse Effect.
(b) Agreements and Covenants. Each of the Company and the ESG Group shall have performed in all material respects all of their respective obligations and complied in all material respects with all of their respective agreements and covenants to be performed or complied with by them under this Agreement at or prior to the Closing Date.
(c) ESG Material Adverse Effect. No ESG Material Adverse Effect shall have occurred since the date of this Agreement.
(d) Legal Opinion. PMIN shall have received opinions of the Company’s PRC counsel, Anhui Waibei Law Firm in form and substance reasonably satisfactory to PMIN, addressed to PMIN and dated as of the Closing Date.
(e) Surrender of Company Certificates. The Company Shareholders shall have surrendered to PMIN or its registrar or transfer agent the certificates representing the Company Shares owned by each such Company Shareholder, duly endorsed or accompanied by stock powers duly executed in blank and otherwise in a form acceptable for transfer on the books of the Company.
(f) The Company Requisite Consents. The authorizations, approvals and permits required to be obtained from or made with any third party in order to consummate the transactions contemplated by this Agreement shall have each been obtained or made.
7.3 Conditions to Obligations of the Company and Company Shareholders. The obligations of the Company and the Company Shareholders to consummate the Exchange are subject to the satisfaction or waiver by the Company and the Company Shareholders, at or prior to the Closing Date, of the following additional conditions:
(a) Representations and Warranties. Each of the representations and warranties of PMIN set forth in this Agreement (without giving effect to any limitation as to “materiality” or “PMIN Material Adverse Effect”) shall be true and correct as of the date of this Agreement and as of the Closing Date as though made as of the Closing Date (except to the extent that such representations and warranties refer specifically to an earlier date, in which case such representations and warranties shall have been true and correct as of such earlier date), except where the failure to be so true and correct does not have, and would not reasonably be expected to have, individually or in the aggregate with respect to all such failures, a PMIN Material Adverse Effect.
(b) Agreements and Covenants. PMIN shall have performed in all material respects all of its obligations and complied in all material respects with all of its agreements and covenants to be performed or complied with by it under this Agreement at or prior to the Closing Date.
(c) Officer Certificate. PMIN shall have delivered to the Company a certificate, dated as of the Closing Date, signed by the chief executive officer of PMIN, certifying in such capacity as to the satisfaction of the conditions specified in Sections 7.3(a), 7.3(b) and 7.3(e).
(d) Secretary’s Certificate. PMIN shall have delivered to the Company: (i) true copies of PMIN’s certificate of incorporation and bylaws (or similar applicable organizational documents) as in effect as of the Closing Date, (ii) a certificate of good standing for PMIN, certified by the Secretary of State of Nevada as of a date no later than two (2) Business Days prior to the Closing Date, (iii) true copies of the resolutions of PMIN’s board of directors authorizing the execution, delivery and performance of this Agreement and each of the other ancillary documents contemplated thereto to which it is a party or by which it is bound, and the consummation of the Exchange and each of the transactions contemplated hereby and thereby, and (iv) the incumbency of officers authorized to execute this Agreement or any other ancillary documents contemplated thereto to which it is a party or by which it is be bound.
(e) PMIN Material Adverse Effect. No PMIN Material Adverse Effect shall have occurred since the date of this Agreement.
ARTICLE
VIII
TERMINATION AND ABANDONMENT
8.1 Termination. This Agreement may be terminated and the Exchange and any other transactions contemplated hereby may be abandoned at any time prior to the Closing Date, notwithstanding any approval of the matters presented in connection with the Exchange by the stockholders of PMIN or the Company (the date of any such termination, the “Termination Date”), as follows:
(a) by mutual written consent of each of the Company and PMIN, as duly authorized by the PMIN Board and the Company Board;
(b) by written notice by either PMIN or the Company, if (i) any Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Order or Law or taken any other Action that is, in each case, then in effect and is final and nonappealable and has the effect of restraining, enjoining or otherwise preventing or prohibiting the transactions contemplated by this Agreement or the agreements contemplated hereby or (ii) any Governmental Authority shall have finally, without the right to appeal, declined to grant any of the Requisite Regulatory Approvals; by written notice by PMIN, if there has been a breach by the Company and/or the Company Shareholders of any of their respective representations, warranties, covenants or agreements contained in this Agreement, or if any representation or warranty of the Company and/or the Company Shareholders shall have become untrue or inaccurate which, in either case, would result in a failure of a condition set forth in Section 7.2(a) (a “Terminating Company Breach”); provided, however, that if such Terminating Company Breach is curable by the Company and/or the Company Shareholders prior to the Closing Date, then PMIN may not terminate this Agreement under this Section 8.1(c) for fourteen (14) calendar days after delivery of written notice from PMIN to the Company of such Terminating Company Breach, provided the Company and/or the Company Shareholders continues to exercise commercially reasonable efforts to cure such breach (it being understood that PMIN may not terminate this Agreement pursuant to this Section 8.1(c) if it shall have materially breached this Agreement or if such Terminating Company Breach by the Company and/or the Company Shareholders is cured during such [fourteen (14)] calendar day period);
(c) by written notice by the Company or the Company Shareholders, if there has been a breach by PMIN of any of its representations, warranties, covenants or agreements contained in this Agreement, or if any representation or warranty of PMIN shall have become untrue or inaccurate which, in either case, would result in a failure of a condition set forth in Section 7.3 (a “Terminating PMIN Breach”); provided, however, that if such Terminating PMIN Breach is curable by PMIN prior to the Closing Date, then the Company may not terminate this Agreement under this Section 8.1(d) for fourteen (14)]calendar days after delivery of written notice from the Company to PMIN of such Terminating PMIN Breach, provided PMIN continues to exercise commercially reasonable efforts to cure such Terminating PMIN Breach (it being understood that the Company may not terminate this Agreement pursuant to this Section 8.1(d) if it shall have materially breached this Agreement or if such Terminating PMIN Breach by PMIN is cured during such fourteen (14) calendar day period);
(d) by written notice by PMIN if the Exchange shall not have been consummated on or before the Closing Date; provided, however, that the right to terminate this Agreement under this Section 8.1(e) shall not be available to PMIN if PMIN or any PMIN Subsidiary is in material breach of any representation, warranty, covenant or agreement contained in this Agreement, or materially fails to fulfill any of its respective obligations under this Agreement, which, in any such case, results in, or otherwise causes, the failure of the Exchange to be consummated on or before the Closing Date;
(e) by written notice by the Company or the Company Shareholders if the Exchange shall not have been consummated on or before the Closing Date; provided, however, that the right to terminate this Agreement under this Section 8.1(f) shall not be available to the Company if the Company or any ESG Group is in material breach of any representation, warranty, covenant or agreement contained in this Agreement, or materially fails to fulfill any of its respective obligations under this Agreement, which, in any such case, results in, or otherwise causes, the failure of the Exchange to be consummated on or before the Closing Date; or
(f) by written notice by PMIN, (i) if the PMIN Board (or any committee thereof) shall have made a PMIN Change of Board Recommendation or (ii) if the PMIN Board or any committee thereof shall have approved or recommended to the stockholders of PMIN an Acquisition Proposal (other than the Exchange).
8.2 Effect of Termination. In the event of the termination of this Agreement and the abandonment of the Exchange pursuant to Section 8.1, this Agreement shall forthwith become void, and there shall be no liability on the part of any Party hereto or any of their respective affiliates or the directors, officers, partners, employees, agents or other Representatives of any of them, and all rights and obligations of each Party hereto shall cease, except nothing herein shall relieve any Party from liability for any fraud or willful breach of any of its respective representations, warranties, covenants or agreements contained in this Agreement prior to termination.
8.3 Fees and Expenses. All Expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such expenses, whether or not the Exchange or any other related transaction is consummated.
8.4 Amendment. This Agreement may only be amended pursuant to a written agreement signed by each of the Parties hereto.
ARTICLE
IX
MISCELLANEOUS
9.1 Waiver. At any time prior to the Closing Date, subject to applicable Law, any Party hereto may in its sole discretion (i) extend the time for the performance of any obligation or other act of any other non-affiliated Party hereto, (ii) waive any inaccuracy in the representations and warranties by such other non-affiliated Party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance by such other non-affiliated Party with any agreement or condition contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the Party or Parties to be bound thereby. Notwithstanding the foregoing, no failure or delay by the Company, the Company Shareholders or PMIN in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any other right hereunder.
9.2 Notices. All notices, consents, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by facsimile or other electronic means, receipt affirmatively confirmed, or on the next Business Day when sent by reliable overnight courier to the respective Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):
523 School House Rd, Kennett Square, PA 19348 Attn: Zhi Yang
9.3 Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns. This Agreement shall not be assigned by operation of Law or otherwise without the prior written consent of the other Parties, and any assignment without such consent shall be null and void; provided that no such assignment shall relieve the assigning Party of its obligations hereunder.
9.4 Governing Law; Jurisdiction. This Agreement shall be governed by, construed and enforced in accordance with the Laws of the State of New York without regard to the conflict of laws principles thereof. All Actions arising out of or relating to this Agreement shall be heard and determined exclusively in any state or federal court located in New York County. The Parties hereto hereby (A) submit to the exclusive jurisdiction of any New York County state or federal court for the purpose of any Action arising out of or relating to this Agreement brought by any Party hereto and (B) irrevocably waive, and agree not to assert by way of motion, defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the transactions contemplated hereby may not be enforced in or by any of the above-named courts. Each of PMIN, the Company and the Company Shareholders agrees that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Each of PMIN, the Company and Company Shareholders irrevocably consents to the service of the summons and complaint and any other process in any other action or proceeding relating to the transactions contemplated by this Agreement, on behalf of itself or its property, by personal delivery of copies of such process to such Party. Nothing in this Section 9.4 shall affect the right of any Party to serve legal process in any other manner permitted by Law.
9.5 Waiver of Jury Trial. Each of the Parties hereto hereby waives to the fullest extent permitted by applicable Law any right it may have to a trial by jury with respect to any Action directly or indirectly arising out of, under or in connection with this Agreement or the transactions contemplated hereby. Each of the Parties hereto (i) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of any Action, seek to enforce that foregoing waiver and (ii) acknowledges that it and the other Parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 9.5.
9.6 Counterparts. This Agreement may be executed and delivered (including by facsimile or other electronic transmission) in one or more counterparts, and by the different Parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
9.7 Interpretation. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement. market on which the PMIN Common Stock is then traded. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The words “hereof,” “herein,” “hereby” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The Parties have participated jointly in the negotiation and drafting of this Agreement. Consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
9.8 Entire Agreement. This Agreement and the documents or instruments referred to herein, including any exhibits attached hereto and the Company Disclosure Letter and the PMIN Disclosure Letter referred to herein, which exhibits and disclosure letters are incorporated herein by reference, and the Confidentiality Agreement embody the entire agreement and understanding of the Parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein. This Agreement and such other agreements supersede all prior agreements and the understandings among the Parties with respect to such subject matter.
9.9 Severability. In case any provision in this Agreement shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the Exchange be consummated as originally contemplated to the fullest extent possible.
9.10 Specific Performance. The Parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by PMIN, the Company or the Company Shareholders in accordance with their specific terms or were otherwise breached. Accordingly, each Party shall be entitled to seek an injunction or restraining order to prevent breaches of this Agreement and to seek to enforce specifically the terms and provisions hereof, without the requirement to post any bond or other security or to prove that money damages would be inadequate, this being in addition to any other right or remedy to which such Party may be entitled under this Agreement, at law or in equity.
9.11 Third Parties. Nothing contained in this Agreement or in any instrument or document executed by any party in connection with the transactions contemplated hereby shall create any rights in, or be deemed to have been executed for the benefit of, any Person that is not a Party hereto or thereto or a successor or permitted assign of such a Party, unless otherwise specified herein, including but not limited to the terms set forth in Section 6.12.
9.12 Certain Definitions. For purposes of this Agreement, the following capitalized terms have the following meanings, unless otherwise specified herein. All other capitalized terms used herein shall have the meanings ascribed to them elsewhere in this Agreement.
(a) “Affiliate,” with respect to any Person, shall mean and include any Person, directly or indirectly, through one or more intermediaries controlling, controlled by or under common control with such Person.
(b) “Business Day” means any day on which the principal offices of the SEC in Washington, D.C. are open to accept filings, or, in the case of determining a date when any payment is due, any day on which banks in New York, New York, are not required or authorized by Law to close.
(c) “PMIN Material Adverse Effect” shall mean any change or effect that, individually or in the aggregate, has, or would reasonably be expected to have, a material adverse effect upon the financial condition or operating results of PMIN and the PMIN Subsidiaries, taken as a whole, except any changes or effects directly or indirectly attributable to, resulting from, relating to or arising out of the following (by themselves or when aggregated with any other, changes or effects) shall not be deemed to be, constitute, or be taken into account when determining whether there has or may, would, or could have occurred a PMIN Material Adverse Effect: (i) the effect of any change in the general political, economic, financial, capital market or industry-wide conditions (except to the extent that PMIN and the PMIN Subsidiaries are affected in a disproportionate manner relative to other companies in the industries in which PMIN and the PMIN Subsidiaries conduct business), (ii) the effect of any change that generally affects any industry or market in which PMIN or any of the PMIN Subsidiaries operate to the extent that it does not disproportionately affect, individually or in aggregate, PMIN and the PMIN Subsidiaries taken as a whole, relative to other participants in the industries in which PMIN and the PMIN Subsidiaries operate; (iii) the effect of any change arising in connection with any international or national calamity, commencement, continuation or escalation of a war, armed hostilities or act of terrorism which does not disproportionately affect PMIN and the PMIN Subsidiaries taken as a whole, relative to other participants in the industries in which PMIN and the PMIN Subsidiaries operate; (iv) the announcement of the execution of this Agreement, the pendency of or the consummation of the Exchange or the other transaction expressly contemplated hereby, (v) any change in applicable Law or GAAP or interpretation thereof, (vi) the execution by PMIN and performance of or compliance by PMIN with this Agreement or the taking of any action expressly contemplated or permitted by this Agreement, (vii) any shareholder litigation brought or threatened against PMIN or any member of the PMIN Board by shareholder(s) of PMIN owning less than ten percent (10%) of the issued and outstanding PMIN Common Stock in the aggregate in respect of this Agreement or the transactions contemplated hereby; (viii) any matter disclosed in the PMIN Disclosure Letter or (ix) any failure to meet any financial or other projections
(d) “Encumbrance” means any charge, claim, community or other marital property interest, condition, equitable interest, lien, license, option, pledge, security interest, mortgage, right of way, easement, encroachment, servitude, right of first offer or first refusal, buy/sell agreement and any other restrictions or covenants with respect to, or conditions governing the use, construction, voting (in the case of any security or equity interest), transfer, receipt of income or exercise of any other attribute of ownership.
(e) “Expenses” shall include all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, financing sources, experts and consultants to a Party hereto and/or any of its affiliates) incurred by a Party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution or performance of this Agreement or any ancillary agreement related hereto, the preparation, filing, mailing and printing of the Registration Statement and the Proxy Statement documents and all other matters related to the consummation of the Exchange.
(f) “Indebtedness” of any Person means (a) all indebtedness of such Person for borrowed money (including the outstanding principal and accrued but unpaid interest) or for the deferred purchase price of property or services, (b) any other indebtedness of such Person that is evidenced by a note, bond, debenture, credit agreement or similar instrument, (c) all obligations of such Person under leases that should be classified as capital leases in accordance with GAAP, (d) all obligations of such Person for the reimbursement of any obligor on any line or letter of credit, banker’s acceptance, guarantee or similar credit transaction, in each case, that has been drawn or claimed against, (e) all obligations of such Person in respect of acceptances issued or created, (f) all interest rate and currency swaps, caps, collars and similar agreements or hedging devices under which payments are obligated to be made by such Person, whether periodically or upon the happening of a contingency, (g) all obligations secured by an Lien on any property of such Person and (h) any premiums, prepayment fees or other penalties, fees, costs or expenses associated with payment of any Indebtedness of such Person and (h) all obligation described in clauses (a) through (g) above of any other Person which is directly or indirectly guaranteed by such Person or which such Person has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which it has otherwise assured a creditor against loss.
(g) “Person” shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an association, an unincorporated organization, a Governmental Authority and any other entity.
(h) “Subsidiary” of any specified Person shall mean any corporation a majority of the outstanding voting power of which, or any partnership, joint venture, limited liability company or other entity a majority of the total equity interests of which, is directly or indirectly (either alone or through or together with any other subsidiary) owned by such specified Person, or any entity which is otherwise controlled by such Person, whether through securities ownership or contractual arrangements, or as would otherwise be required to be consolidated in such Person’s financial statements in accordance with GAAP.
(i) “ESG Material Adverse Effect” shall mean, with respect to the Company or any member of the ESG Group, any event, fact, condition, change, circumstance, occurrence or effect, which, either individually or in the aggregate with all other events, facts, conditions, changes, circumstances, occurrences or effects, (a) has had, or would reasonably be expected to have, a material adverse effect on the business, properties, prospects, assets, liabilities, condition (financial or otherwise), operations, licenses or other franchises or results of operations of the ESG Group, or materially diminish the value of the Company Shares or (b) does or would reasonably be expected to materially impair or delay the ability of the Company, the Company Shareholders or the Company Representative to perform their respective obligations under this Agreement, including but not limited to all agreements and covenants to be performed or complied by such parties under the Agreement, or to consummate the transactions contemplated hereby and thereby; provided, however, that a ESG Material Adverse Effect will not include any adverse effect or change resulting from any change, circumstance or effect relating to (A) the economy in general, (B) securities markets, regulatory or political conditions in the United States (including terrorism or the escalation of any war, whether declared or undeclared or other hostilities), (C) changes in applicable Laws or GAAP or the application or interpretation thereof, (D) with respect to each Company, the industries in which such Company primarily operates and not specifically relating to such Company or (E) a natural disaster (provided, that in the cases of clauses (A) through (E), the applicable Company is not disproportionately affected by such event as compared to other similar companies and businesses in similar industries and geographic regions as such Company).
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SIGNATURE
PAGE TO
SHARE EXCHANGE AGREEMENT
IN WITNESS WHEREOF, each Party hereto has caused this Agreement to be signed and delivered by its respective duly authorized officer as of the date first above written.
| PLASMA INNOVATIVE INC. | |||
| By: | |||
| Name: Zhi Yang | |||
| Title: President | |||
| ESG INC. | |||
| By: | |||
| Name: Zhi Yang | |||
| Title: President | |||
| COMPANY SHAREHOLDERS: | |||
| By: | |||
| Name: DCG China Limited | |||
| By: | |||
| Name: Christopher Alonzo | |||
| By: | |||
| Name: Weiwei Gao | |||
| By: | |||
| Name: EVER VAST DEVELOPMENT LTD. | |||
SCHEDULE A
| Pre-transaction | Post-transaction | |||
| NAME | ESG Inc. Shares of common stock | PMIN/Exchange Shares of common stock Received | ||
| DCG China Limited | 7,632,800 | 7,632,800 | ||
| Christopher Alonzo | 1,400,000 | 1,400,000 | ||
| EVER VAST DEVELOPMENT LTD. | 420,000 | 420,000 | ||
| Weiwei Gao | 980,000 | 980,000 | ||
| Total | 10,432,800 | 10,432,800 | ||
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (this “Agreement”) is entered into as of September 28, 2023 by and among Funan Allied United Farmer Products Co., Ltd., a China corporation (“AUFP”), the shareholders of AUFP, each of whom are listed on Schedule A hereto (each a “Shareholder,” and collectively, the “Shareholders”), ESG Inc., a Nevada corporation (“ESG”), and Hainan ESG Technology Co., Ltd., a China corporation (“Hainan ESG”).
WHEREAS, each Shareholder currently owns equity of AUFP as listed on Schedule A hereto.
WHEREAS, Hainan ESG was formed as a wholly foreign owned entity (“WFOE’) solely for the purpose of reorganizing the corporate structure of AUFP.
WHEREAS, ESG owns 100% equity of ESG China Limited, a HK corporation (“ESG HK”) and ESG HK owns 100% equity of Hainan ESG.
WHEREAS, the Shareholders own 74.52% of the issued and outstanding equity of AUFP.
WHEREAS, the Shareholders desire to exchange their equity of AUFP to Hainan ESG for shares of common stock of ESG, and ESG has agreed to offer the ESG Shares (as defined below) in connection with such exchange, upon the terms and conditions set forth in this Agreement.
WHEREAS, for United States federal income tax purposes, it is intended that the Exchange (as defined below) will qualify as an exchange under the provisions of Section 351(a) of the Code.
WHEREAS, following the Exchange (as defined below), AUFP will become a 74.52% subsidiary of ESG through Hainan ESG. And
WHEREAS, the parties agree on the evaluation of AUFP with RMB 200 million before going public.
NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein, and intending to be legally bound hereby, the parties agree as follows:
| 1 | Exchange of Shares. |
| (a) | Exchange. On the terms and subject to the conditions set forth in this Agreement, at the Closing (i) Shareholders will sell, convey, transfer and assign to Hainan ESG, free and clear of all liens, pledges, encumbrances, changes, restrictions or known claims of any kind, nature or description, and ESG will purchase and accept from Shareholders, 74.52% of currently issued and outstanding equity of AUFP, in the aggregate (the “AUFP Equity”), in the individual amounts as set forth on Schedule A, and (ii) in exchange for the transfer of such securities by the Shareholders, ESG will sell, convey, transfer and assign to Shareholders or the third party Shareholders appoint, and Shareholders will purchase and accept from ESG, fourteen million (10,432,800) newly-issued shares of common stock of ESG, par value $0.001, in the aggregate (the “ESG Shares”), in the individual amounts as set forth on Schedule A (such exchange referred to herein as the “Exchange”). Upon completion of the Exchange, 74.52% of AUFP Equity shall be held by ESG through Hainan ESG. ESG Shares will be 100% of issued and outstanding shares of common stock of ESG, par value $0.001. |
| (b) | Closing. The closing of the Exchange shall occur on September 28, 2023 (the “Closing”). The Closing will take place at 10:00 a.m. Eastern Standard Time at the offices of ESG, 523 School House Rd, Kennett Square, PA 19348 USA or at such other date, time and place or manner as may be agreed upon by the parties. |
| (c) | Anti-Dilution. The ESG Shares issuable upon exchange and the AUFP Equity to be exchanged pursuant to Section 1(a) shall be appropriately adjusted to take into account any other stock split, stock dividend, reverse stock split, recapitalization, or similar change in common stock of ESG or AUFP Equity, as the case may be, which may occur between the date of execution of this Agreement and the Closing, as to the ESG Shares or AUFP Equity, as the case may be. |
| 2 | Representations and Warranties. |
| (a) | Representations and Warranties of Shareholders. Each Shareholder severally, and not jointly, hereby represents and warrants to AUFP and ESG, all of which representations and warranties are true, complete, and correct in all respects as of the date hereof and will be as of the Closing, as follows: |
| (i) | Authorization; No Restrictions, Consents or Approvals. Such Shareholder has the right, power, legal capacity and authority to enter into and perform such Shareholder’s obligations under this Agreement; and no approvals or consents are necessary in connection with it or obtained approvals or. consents if any. All of the shares of common stock of AUFP owned by such Shareholder are owned free and clear of all liens, pledges, encumbrances, changes, restrictions or known claims of any kind, nature or description. |
| (ii) | Transfer of AUFP Equity. The AUFP Equity owned by such Shareholder will, at the Closing, be validly transferred to Hainan ESG free and clear of any encumbrances and from all taxes, liens and charges with respect to the transfer thereof and such shares of common stock of AUFP shall be fully paid and non-assessable with the holder being entitled to all rights accorded to a holder of shares of AUFP common stock. |
| (iii) | Investment Representations. |
| (A) | Each such Shareholder understands that the ESG Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) or any other applicable securities laws, including those under the Blue Sky Law. Each such Shareholder also understands that the ESG Shares are being offered and issued pursuant to an exemption from the registration requirements of the Securities Act, under Section 4(2) and/or Regulation D of the Securities Act. Each such Shareholder acknowledges that ESG will rely on such Shareholder’s representations, warranties and certifications set forth below for purposes of determining such Shareholder’s suitability as an investor in the ESG Shares and for purposes of confirming the availability of the Section 4(2) and/or Regulation D exemption from the registration requirements of the Securities Act. |
| (B) | Each such Shareholder has received all the information such Shareholder considers necessary or appropriate for deciding whether to acquire the ESG Shares. Each such Shareholder understands the risks involved in an investment in the ESG Shares. Each such Shareholder further represents that such Shareholder has had an opportunity to ask questions and receive answers from ESG regarding the terms and conditions of the offering of the ESG Shares and the business, properties, prospects, and financial condition of ESG and AUFP and to obtain such additional information (to the extent ESG or AUFP possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to such Shareholder or to which such Shareholder had access. Each such Shareholder further represents that such Shareholder is an “accredited investor” within the meaning of Rule 501(a) of the Securities Act. |
| (C) | Each such Shareholder is acquiring the ESG Shares for such Shareholder’s own account for investment only and not with a view towards their resale or “distribution” (within the meaning of the Securities Act) of any part of the ESG Shares. |
| (D) | Each such Shareholder understands that the ESG Shares may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act and any other applicable securities laws or pursuant to an exemption therefrom, and in each case in compliance with the conditions set forth in this Agreement. Each such Shareholder acknowledges and is aware that the ESG Shares may not be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met and until such Shareholder has held the ESG Shares for the applicable holding period under Rule 144. |
| (E) | Each such Shareholder acknowledges and agrees that each certificate representing the ESG Shares shall bear a legend substantially in the following form: |
| “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.” |
| (iv) | No Reliance. Each such Shareholder has not relied on and is not relying on any representations, warranties or other assurances regarding ESG or AUFP other than the representations and warranties expressly set forth in this Agreement. |
| (b) | Representations and Warranties of AUFP. AUFP hereby represents and warrants to Shareholders and ESG, all of which representations and warranties are true, complete, and correct in all respects as of the date hereof and will be as of the Closing, as follows: |
| (i) | Organization and Qualification. AUFP is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. |
| (ii) | Authorization; No Restrictions, Consents or Approvals. AUFP has full power and authority to enter into and perform its obligations under this Agreement. This Agreement has been duly executed by AUFP and constitutes the legal, valid, binding and enforceable obligation of AUFP, enforceable against AUFP in accordance with its terms. The execution and delivery of this Agreement and the consummation by AUFP of the transactions contemplated herein do not and will not on the Closing (A) conflict with or violate any of the terms of the articles of incorporation and bylaws of AUFP or any applicable law relating to AUFP, (B) conflict with, or result in a breach of any of the terms of, or result in the acceleration of any indebtedness or obligations under, any material agreement, obligation or instrument by which AUFP is bound or to which any property of AUFP is subject, or constitute a default thereunder, other than those material agreements, obligations or instruments for which AUFP has obtained consent for the transactions contemplated under this Agreement, (C) result in the creation or imposition of any lien on any of the assets of AUFP, (D) constitute an event permitting termination of any material agreement or instrument to which AUFP is a party or by which any property or asset of AUFP is bound or affected, pursuant to the terms of such agreement or instrument, other than those material agreements or instruments for which AUFP has obtained consent for the transactions contemplated under this Agreement, or (E) conflict with, or result in or constitute a default under or breach or violation of or grounds for termination of, any license, permit or other governmental authorization to which AUFP is a party or by which AUFP may be bound, or result in the violation by AUFP of any laws to which AUFP may be subject, which would materially adversely affect the transactions contemplated herein. No authorization, consent or approval of, notice to, or filing with, any public body or governmental authority or any other person is necessary or required in connection with the execution and delivery by AUFP of this Agreement or the performance by AUFP of its obligations hereunder. |
| (iii) | Capitalization. The AUFP Equity constitute 74.52% of the issued and outstanding equity of AUFP. No securities of AUFP are entitled to pre-emptive or similar rights, and no person has any right of first refusal or give up if any, pre-emptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement. There are no outstanding options, warrants, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire, equity of AUFP, or contracts, commitments, understandings or arrangements by which AUFP is or may become bound to issue additional equity of AUFP, or securities or rights convertible or exchangeable into equity of AUFP. The issuance of the AUFP Equity contemplated by this Agreement will not, immediately or with the passage of time; (A) obligate AUFP to issue equity of AUFP or other securities to any person, or (B) result in a right of any holder of AUFP securities to adjust the exercise, conversion, exchange or reset price of such securities. |
| (c) | Representations and Warranties of Hainan ESG and ESG. Hainan ESG or ESG hereby represents and warrants to Shareholders and AUFP, all of which representations and warranties are true, complete, and correct in all respects as of the date hereof and will be as of the Closing, as follows: |
| (i) | Organization and Qualification. Hainan ESG or ESG is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. |
| (ii) | Authorization; No Restrictions, Consents or Approvals. Hainan ESG or ESG has full power and authority to enter into and perform its obligations under this Agreement. This Agreement has been duly executed by Hainan ESG or ESG and constitutes the legal, valid, binding and enforceable obligation of Hainan ESG or ESG, enforceable against Hainan ESG or ESG in accordance with its terms. The execution and delivery of this Agreement and the consummation by Hainan ESG or ESG of the transactions contemplated herein (including the issuance of the ESG Shares in exchange for the AUFP Shares) do not and will not on the Closing (A) conflict with or violate any of the terms of the articles of incorporation and bylaws of ESG or any applicable law relating to ESG, (B) conflict with, or result in a breach of any of the terms of, or result in the acceleration of any indebtedness or obligations under, any material agreement, obligation or instrument by which ESG is bound or to which any property of ESG is subject, or constitute a default thereunder, other than those material agreements, obligations or instruments for which ESG has obtained consent for the transactions contemplated under this Agreement, (C) result in the creation or imposition of any lien on any of the assets of ESG, (D) constitute an event permitting termination of any material agreement or instrument to which ESG is a party or by which any property or asset of ESG is bound or affected, pursuant to the terms of such agreement or instrument, other than those material agreements or instruments for which ESG has obtained consent for the transactions contemplated under this Agreement, or (E) conflict with, or result in or constitute a default under or breach or violation of or grounds for termination of, any license, permit or other governmental authorization to which ESG is a party or by which ESG may be bound, or result in the violation by ESG of any laws to which ESG may be subject, which would materially adversely affect the transactions contemplated herein. No authorization, consent or approval of, notice to, or filing with, any public body or governmental authority or any other person is necessary or required in connection with the execution and delivery by Hainan ESG or ESG of this Agreement or the performance by Hainan ESG or ESG of its obligations hereunder. |
| (iii) | Issuance of Shares. The ESG Shares have been duly authorized and, upon issuance in accordance with the terms hereof, shall be validly issued and free from all taxes, liens and charges with respect to the issue thereof, and the ESG Shares shall be fully paid and non-assessable with the holder being entitled to all rights accorded to a holder of ESG common stock. |
| (iv) | Investment Representations. |
| (A) | Hainan ESG or ESG understands that the AUFP Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) or any other applicable securities laws. Hainan ESG or ESG also understands that the AUFP Shares are being offered pursuant to an exemption from the registration requirements of the Securities Act, under Section 4(2) and/or Regulation D of the Securities Act, under Section 25012(f). Hainan ESG or ESG acknowledges that the Shareholders will rely on Hainan ESG or ESG representations, warranties and certifications set forth below for purposes of determining Hainan ESG or ESG suitability as an investor in the AUFP Shares and for purposes of confirming the availability of the Section 4(2) and/or Regulation D exemption from the registration requirements of the Securities Act. |
| (B) | Hainan ESG or ESG has received all the information it considers necessary or appropriate for deciding whether to acquire the AUFP Shares. Hainan ESG or ESG understands the risks involved in an investment in the AUFP Shares. ESG further represents that it, through its authorized representatives, has had an opportunity to ask questions and receive answers from the Shareholders regarding the terms and conditions of the offering of the AUFP Shares and the business, properties, prospects, and financial condition of AUFP and to obtain such additional information (to the extent the Shareholders or any Shareholder possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to Hainan ESG or ESG or to which ESG had access. Hainan ESG or ESG further represents that it is an “accredited investor” within the meaning of Rule 501(a) of the Securities Act. |
| (C) | Hainan ESG or ESG is acquiring the AUFP Shares for its own account for investment only and not with a view towards their resale or “distribution” (within the meaning of the Securities Act) of any part of the AUFP Shares. |
| (v) | No Reliance. Hainan ESG or ESG has not relied on and is not relying on any representations, warranties or other assurances regarding AUFP other than the representations and warranties expressly set forth in this Agreement. |
| 3 | Closing. |
| (a) | Conditions to Shareholders’ Obligations. The obligations of Shareholders under this Agreement, (including, without limitation, the obligation to transfer the AUFP Equity in exchange for the ESG Shares) shall be subject to satisfaction of the following conditions, unless waived by Shareholders: (i) AUFP and ESG shall have performed in all material respects all agreements, and satisfied in all material respects all conditions on its part to be performed or satisfied hereunder, at or prior to the Closing; (ii) all of the representations and warranties of AUFP and ESG herein shall have been true and correct in all respects when made, shall have continued to have been true and correct in all respects at all times subsequent thereto, and shall be true and correct in all material respects on and as of the Closing as though made on, as of, and with reference to such Closing; (iii) AUFP and ESG shall have executed and delivered to Shareholders all documents necessary to issue the ESG Shares to Shareholders, as contemplated by this Agreement (including those documents described in Section 3(d)); and (iv) AUFP and ESG shall have obtained or made, as applicable, all consents, authorizations and approvals from, and all declarations, filings and registrations required to consummate the transactions contemplated by this Agreement, including all items required under the incorporation document and bylaws of AUFP and ESG, respectively. |
| (b) | Conditions to ESG’ Obligations. The obligations of ESG under this Agreement, (including, without limitation, the obligation to issue the ESG Shares in exchange for the transfer by Shareholders of the AUFP Shares) shall be subject to satisfaction of the following conditions, unless waived by ESG: (i) Shareholders and AUFP shall have performed in all respects all agreements, and satisfied in all respects all conditions on their part to be performed or satisfied hereunder, at or prior to the Closing; (ii) all of the representations and warranties of Shareholders and AUFP herein shall have been true and correct in all material respects when made, shall have continued to have been true and correct in all material respects at all times subsequent thereto, and shall be true and correct in all material respects on and as of the Closing as though made on, as of, and with reference to such Closing; (iii) Shareholders and AUFP shall have executed and delivered to ESG all documents necessary to transfer the AUFP Shares to ESG, as contemplated by this Agreement (including those documents described in Section 3(d)); and (iv) Shareholders and AUFP shall have obtained or made, as applicable, all consents, authorizations and approvals from, and all declarations, filings and registrations required to consummate the transactions contemplated by this Agreement, including all items required under the incorporation document and bylaws of AUFP and ESG, respectively. |
| (c) | Closing Documents. At the Closing: |
| (i) | Shareholders shall deliver to ESG, in form and substance reasonably satisfactory to ESG, paperwork evidencing the AUFP Equity, together with stock powers duly for such paperwork to allow such paperwork to be registered in the name of Hainan ESG; |
| (ii) | AUFP shall deliver to Shareholders and Hainan ESG, in form and substance reasonably satisfactory to Shareholders and Hainan ESG, a paperwork executed on behalf of AUFP by the Secretary of AUFP certifying the truth and correctness of the representations and warranties set forth in Section 2(b); and |
| (iii) | ESG shall deliver to Shareholders, in form and substance reasonably satisfactory to Shareholders, (i) certificates or copy of book entry evidencing the ESG Shares, registered in the name of Shareholders, and (ii) copies of resolutions adopted by the board of directors of ESG and certified by the Secretary of ESG authorizing the execution and delivery of, and performance of ESG” obligations under, this Agreement. |
| 4 | Survival of Representations and Warranties. |
| (a) | None of the representations, warranties and covenants of Shareholders, AUFP, Hainan ESG or ESG hereto contained in this Agreement shall survive the Closing, except that the representations and warranties contained in Section 2(a)(i), Section 2(b)(i), Section 2(b)(ii), Section 2(b)(iii), Section 2(c)(i), and Section 2(c)(ii) shall survive until the latest date permitted by applicable law. Except as specifically set forth in the preceding sentence, no other representation, warranty or covenant of any party set forth in this Agreement will survive the Closing, and no party will have any rights or remedies after the Closing with respect to any misrepresentation of or inaccuracy in any such representation, warranty or covenant. |
| 5 | General Provisions. |
| (a) | Releases and Waivers of Shareholders. Each Shareholder on its own behalf hereby acknowledges and agrees that the number of AUFP Shares set forth on Schedule A represents the total number and type of AUFP Shares held by such Shareholder as of the date of this Agreement and as of the Closing. Each Shareholder hereby releases AUFP and ESG from all obligations, liabilities and causes of action arising before, on or after the date of this Agreement, out of or in relation to any entitlement which such Shareholder may have with respect to any AUFP Shares in excess of the number of AUFP Shares set forth on Schedule A. Each Shareholder hereby generally, irrevocably, unconditionally and completely waives any and all rights to receive any anti-dilution protection to which such Shareholder may be entitled under the articles of incorporation, bylaws or other organizational documents of AUFP or under any other agreement or instrument in connection with the Exchange. Except for the ESG Shares to be issued in connection with the Exchange, each Shareholder hereby generally, irrevocably, unconditionally and completely waives any and all rights existing as of the date hereof to receive options, depository receipts, warrants, stock appreciation or similar rights to acquire or receive securities in AUFP or ESG. |
| (b) | Certain Tax Matters. It is the intent of the parties hereto that the Exchange qualify as an exchange described in Section 351 of the Code. Each of the parties shall use their respective reasonable best efforts to cause the Exchange to qualify as an exchange within the meaning of Section 351(a) of the Code, and will not take, or will not agree to take, any action that would prevent the Exchange from qualifying as such an exchange. Unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code, each of the parties shall report the Exchange for U.S. federal income tax purposes as an exchange within the meaning of Section 351(a) of the Code. |
| (c) | Governing Law. This Agreement is to be construed in accordance with and governed by the internal laws of the State of New York without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of New York to the rights and duties of the parties. |
| (d) | Arbitration. Any claim, dispute or controversy among the parties arising out of or relating to this Agreement, including the breach thereof, which cannot be satisfactorily settled by the parties, will be finally and exclusively settled by confidential and binding arbitration (“Arbitration”) upon the written request of any party. The Arbitration shall be administered by New York based Arbitration body in accordance with its Commercial Arbitration Rules (the “Rules”). The Arbitration will be conducted by one arbitrator selected in accordance with the Rules. The place of the Arbitration shall be New York city, New York. The Arbitration will be conducted in English. The Arbitration award will be final and binding upon the parties, and judgment upon such award may be entered in any court having jurisdiction thereof. |
| (e) | Severability. If any provision of this Agreement is held by a court or other tribunal of competent jurisdiction to be invalid or unenforceable for any reason, the remaining provisions shall continue in full force and effect without being impaired or invalidated in any way, and the parties agree to replace any invalid provision with a valid provision which most closely approximates the intent and economic effect of the invalid provision. |
| (f) | Waiver. The waiver by either party of a breach of or default under any provision of this Agreement shall not be effective unless in writing and shall not be construed as a waiver of any subsequent breach of or default under the same or any other provision of this Agreement. Further, any failure or delay on the part of either party to exercise or avail itself of any right or remedy that it has or may have hereunder shall not operate as a waiver of any such right or remedy or preclude other or further exercise thereof or of any other right or remedy. |
| (g) | Notices. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party may specify in writing. Such notice shall be deemed given: (i) if delivered personally, upon delivery as evidenced by delivery records; (ii) if sent by telephone facsimile, upon confirmation of receipt; (iii) if sent by certified or registered mail, postage prepaid, five (5) days after the date of mailing; of (iv) if sent by nationally recognized express courier, two (2) business days after date of placement with such courier. |
Shareholders and AUFP
Yunhe East Rd, Funan, Anhui, PRC with attention to its name
ESG:
523 school House Rd, Kennett Square, PA 19348 USA with attention Zhi Yang
| (h) | Public Announcements. Each of the Shareholders, AUFP, Hainan ESG or ESG will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to this Agreement and the transaction contemplated hereby and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange. |
| (i) | Termination. This Agreement may be terminated upon written notice at any time prior to Closing by mutual written consent of the parties. Termination of this Agreement will terminate all rights and obligations of the parties under this Agreement and this Agreement will become void and have no force or effect. |
| (j) | Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof. |
| (k) | Counterparts. This Agreement may be executed in one or more counterparts (including fax counterparts) each of which shall be deemed an original and all of which shall be taken together and deemed to be one instrument. |
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
| Name | Signature or Seal | |
| Fuyang Zhihan Agriculture Information Consulting Co., Ltd. | ||
| Zhi Yang |  | |
| Christopher Alonzo |
| Funan Allied United Farmer Products Co., Ltd. | ||
| By: | |
|
| Zhi Yang | ||
| Legal Repsentative | ||
| ESG Inc. | ||
| By: | |
|
| Zhi Yang | ||
| President and Chief Executive Officer | ||
SCHEDULE A
| Pre-transaction | Post-transaction | ||
| Shareholder of AUFP | Equity
percent of AUFP Owned as of the Date of Execution of this Agreement |
Shareholders of ESG | Ordinary
Shares of ESG, Inc. Pursuant to the Exchange Contemplated by this Agreement |
| Fuyang Zhihan Agriculture Information Consulting Co., Ltd. on behalf of DCG China Limited | [54.52%] | DCG China Limited | [7,632,800] |
| Zhi Yang | [10%] | ||
| On behalf of EVER VAST DEVELOPMENT LTD. | [3%] | EVER VAST DEVELOPMENT LTD. | [420,000] |
| On behalf of Weiwei Gao | [7%] | Weiwei Gao | [980,000] |
| Christopher Alonzo | [10%] | Christopher Alonzo | [1,400,000] |
| Total | 74.52% | 10,432,800 | |
November 7, 2023
Kreit & Chiu CPA LLP
733 Third Avenue, Floor 16, #1014,
New York, NY 10017
Dear Kreit & Chiu CPA LLP,
We are providing this letter in connection with your audits of the consolidated balance sheets, statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows and the related notes (collectively referred to as the “financial statements”) of ESG Inc. and its subsidiaries (collectively refer to as the “Company”) as of December 31, 2022 and 2021 and for the years then ended, for the purpose of expressing an opinion as to whether the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the Company in accordance with accounting principles generally accepted in the United States of America. We confirm that we are responsible for the fair presentation in the consolidated financial statements of financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States of America and that we are responsible for establishing and maintaining controls that are sufficient to provide a reasonable basis for the preparation of reliable financial statements in accordance with accounting principles generally accepted in the United States of America.
Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.
We confirm, to the best of our knowledge and belief, as of the date of this letter, the following representations made to you during your audits.
| 1. | The financial statements referred to above are fairly presented in accordance with accounting principles generally accepted in the United States of America. |
| 2. | We have made available to you all: |
| a. | Financial records and related data, including the names of all related parties and all relationships and transactions with related parties. |
| b. | Minutes of the meetings of stockholders, directors, and committees of directors, or summaries of actions of recent meetings for which minutes have not yet been prepared. |
| 3. | There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices. |
| 4. | There are no side agreements or other arrangements (either written or oral) that have not been disclosed to you. |
| 5. | There are no material transactions that have not been properly recorded in the accounting records underlying the financial statements. |
| 6. | We believe that the effects of the following uncorrected misstatement in the financial statements as found during the current engagement are immaterial to the financial statements taken as a whole. |
| No. | Description | General Ledger Account | ||
| . | Description | Amount | ||
| 1 | During
the confirmation with one of the related parties
it refused/denied the due from balance as recorded by the Company. Therefore, the Company should recognize the allowance to its receivable
account. |
G&A Expense | 77,151.33 | |
| Receivable
Allowance |
(77,151.33) | |||
| 7. | We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud. |
| 8. | We have no knowledge of any fraud or suspected fraud affecting the entity involving (a) management, (b) employees who have significant roles in internal controls, or (c) others where the fraud could have a material effect on the financial statements. |
| 9. | We have no knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, former employees, analysts, regulators, short sellers, or others. |
| 10. | The Company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities. |
| 11. | The following have been properly recorded or disclosed in the financial statements: |
| a. | Related-party transactions, including sales, purchases, loans, transfers, leasing arrangements, and guarantees, and amounts receivable from or payable to related parties. |
| b. | Guarantees, whether written or oral, under which the Company is contingently liable. |
| c. | Significant estimates and material concentrations known to management that are required to be disclosed in accordance with FASB ASC 275, Risks and Uncertainties. Significant estimates are estimates at the balance sheet date that could change materially within the next year. Concentrations refer to volumes of business, revenues, available sources of supply, or markets or geographic areas for which events could occur that would significantly disrupt normal finances within the next year. |
| 12. | There are no: |
| a. | Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency. |
| b. | Unasserted claims or assessments that our lawyer has advised are probable of assertion and must be disclosed in accordance with FASB ASC 450 Contingencies. |
| c. | Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB ASC 450 Contingencies |
| 13. | The Company has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral. |
| 14. | We have complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. |
| 15. | We represent to you the following for the Company’s fair value measurements and disclosures: |
| a. | The underlying assumptions are reasonable and they appropriately reflect management’s intent and ability to carry out its stated courses of action. |
| b. | The measurement methods and related assumptions used in determining fair value are appropriate in the circumstances and have been consistently applied. |
| c. | The disclosures related to fair values are complete, adequate, and in accordance with the applicable financial reporting framework. |
| d. | There are no subsequent events that require adjustments to the fair value measurements and disclosures included in the consolidated financial statements. |
| 16. | We represent to you the following related to the development of the Company’s accounting estimates and related disclosures: |
| a. | The method used are appropriate and consistently applied. |
| b. | The data used is accurate and complete. |
| c. | The significant assumptions used are reasonable. |
| 17. | Other than the related parties and transactions identified during the audits that we made available to you, we are not aware of any undisclosed related parties and transactions. |
| 18. | The Company has reconciled its general ledger accounts to their related supporting information. All related reconciling items considered to be material were identified and included on the reconciliations and were appropriately adjusted in the financial statements. All intercompany accounts have been eliminated or appropriately measured and considered for disclosure in the consolidated financial statements. |
| 19. | Revenue from contracts with customers has been appropriately accounted for and disclosed in accordance with FASB ASC606, Revenue from Contracts with Customers. All contracts underlying revenue recognized in the financial statements have commercial substance and have been approved by appropriate parties. We have considered side agreements, implied promises, and unstated customary business practices in identifying performance obligations in the contracts. We have sufficient and appropriate documentation supporting all estimates and judgements underlying the amount and timing of revenue recognized in the consolidated financial statements. |
| 20. | We have reviewed long-lived assets and certain identifiable intangibles to be held and used for impairment whenever events or changes in circumstances have indicated that the carrying amount of assets might not be recoverable and have been appropriately recorded the adjustments, if any. |
| 21. | We confirm that there are no undisclosed related parties. We also confirm our understanding of the definition of related party as defined in the rules published by Financial Accounting Standards Board ASC 850, the Securities Exchange Commission and the Public Company Accounting Oversight Board. There are no payment and expense paid by related parties on behalf of the Company that have not been disclosed to you. |
| 22. | There are no assets pledged as collateral for accounts payable that have not been disclosed to you. |
| 23. | Trial balances of ESG China Limited, Hainan ESG Tech Co., Ltd, and ESG Inc. were not prepared; and we confirm there were no material transactions or off balance sheet assets or liabilities within these entities. |
| 24. | We are required to keep proper books and records under SEC rules; and we believe we have recorded all material transactions |
| 25. | Note 2 to the financial statements discloses all of the matters of which we are aware that are relevant to the entity’s ability to continue as a going concern, including significant conditions and events, management’s plans, and our ability to achieve those plans. |
To the best of our knowledge and belief, except to those disclosed in Note [16], no other events have occurred subsequent to the balance sheet date and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements.
 |
|
| Zhi Yang, Chief Executive Officer |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation in this Form 8-K relating to the reviewed financial statement of ESG, Inc for the period ended June 30, 2023 and to all references to our firm included in this Registration Statement.
Certified Public Accountants
Lakewood, CO
November 8, 2023
Anhui
Dongfan Law Firm
Lawyer’s Letter
To: Plasma Innovative Inc.
Address: 523 School House Rd, Kennett Square, PA 19348 USA
From:
Anhui Dongfan Law Firm
Hua Cao, Attorney at Law
| Date: November 6, 2023 | Page: 6 total (including current page) |
Re: Opinion on Certain PRC Legal Matters
Dear Sir/Madam,
We are lawyers qualified in the People’s Republic of China (the “PRC” or “China”, which, for purposes of this opinion only, does not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region or Taiwan) and as such are qualified to issue this opinion on the laws and regulations of the PRC effective as of the date hereof.
We are acting as PRC legal counsel to Plasma Innovative Inc. (the “Company”), a Nevada company, solely in connection with this merger transaction (the “Merger”) pursuant to the Company’s super 8-K (the “8-K”) filed by the Company with the U.S. Securities and Exchange Commission under the U.S. Securities Act of 1933, as amended.
| 1 | Documents and Assumptions |
In rendering this opinion, we have carried out due diligence and examined copies of the 8-K and other documents (collectively, the “Documents”) as we have considered necessary or advisable for the purpose of rendering this opinion. Where certain facts were not independently established and verified by us, we have relied upon certificates or statements issued or made by the relevant Governmental Authorities (as defined below) and appropriate representatives of the Company and the PRC Companies (as defined below). In giving this opinion, we have made the following assumptions (the “Assumptions”):
| (a) | all signatures, seals and chops are genuine, each signature on behalf of a party thereto is that of a person duly authorized by such party to execute the same, and all Documents submitted to us as certified or photostatic copies conform to the originals; |
| (b) | each of the parties to the Documents, other than the PRC Companies, (i) if a legal person or other entity, is duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization and/or incorporation, (ii) if an individual, has full capacity for civil conduct; each of them, other than the PRC Companies, has full power and authority to execute, deliver and perform its, her or his obligations under the Documents to which it, she or he is a party in accordance with the laws of its jurisdiction of organization and/or the laws that it, she or he is subject to; |
| (c) | the Documents presented to us remain in full force and effect on the date of this opinion and have not been revoked, amended or supplemented, and no amendments, revisions, supplements, modifications or other changes have been made, and no revocation or termination has occurred, with respect to any of the Documents after they were submitted to us for the purposes of this opinion; |
| (d) | the laws of jurisdictions other than the PRC which may be applicable to the execution, delivery, performance or enforcement of the Documents are complied with; |
| (e) | all requested Documents have been provided to us and all factual statements made to us by the Company and the PRC Companies in connection with this opinion, including but not limited to the statements set forth in the Documents, are true, correct and complete; |
| (f) | all explanations and interpretations provided by the competent government officials duly reflect the official position of the relevant Governmental Authorities and are complete, true and correct; |
| (g) | each of the Documents is legal, valid, binding and enforceable in accordance with their respective governing laws other than PRC Laws (as defined below) in any and all respects; |
| (h) | all consents, licenses, permits, approvals, exemptions or authorizations required by, and all required registrations or filings with, any governmental authority or regulatory body of any jurisdiction other than the PRC in connection with the transactions contemplated under the Registration Statement and other Documents have been obtained or made, and are in full force and effect as of the date thereof; and |
| (i) | all Governmental Authorizations (as defined below) and other official statements and documentation obtained by the Company or any PRC Company from any Governmental Authority have been obtained by lawful means in due course, and the Documents provided to us conform with those documents submitted to Governmental Authorities for such purposes. |
In addition, we have assumed and have not verified the truthfulness, accuracy and completeness as to factual matters of each Document we have reviewed.
| 2 | Definitions |
The following terms used herein shall have the meanings ascribed to them as follows:
| (a) | “Governmental Authorizations” means all approvals, consents, waivers, sanctions, certificates, authorizations, filings, registrations, exemptions, permissions, annual inspections, qualifications, permits and licenses required by any Governmental Authority pursuant to any PRC Laws. |
| (b) | “Governmental Authority” means any nation or government or any province or state or any other political subdivision thereof; any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC or any political subdivision thereof, any court, tribunal or arbitrator, regulatory body and any self-regulatory organization. |
| (c) | “PRC” means the People’s Republic of China, and for the purpose of this legal opinion, excluding Taiwan, the Hong Kong Special Administrative Region and the Macau Special Administrative Region. |
| (d) | “PRC Companies” means the WFOE, and respective subsidiaries. |
| (e) | “PRC Laws” means all laws, rules, regulations, statutes, orders, guidelines, notices, judicial interpretations of the PRC which are in effect as of the date hereof and does not include informal interpretations made by any PRC Governmental Authority. |
Based on our review of the Documents and subject to the Assumptions and the Qualifications (as defined below), we are of the opinions that on the date hereof:
| 1 | Taxation. The statements made in the 8-K under the caption “Taxation - People’s Republic of China Taxation”, with respect to the PRC tax laws and regulations or interpretations, are correct and accurate in all material respects. |
| 2 | M&A Rules and Trial Measures. On August 8, 2006, six PRC regulatory agencies, namely, the Ministry of Commerce of the PRC, the State Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission (the “CSRC”), and the State Administration of Foreign Exchange, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which became effective on September 8, 2006, as amended on June 22, 2009 (the “M&A Rules”). On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”), which will come into effect on March 31, 2023. On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies (“Note on Overseas Listing”). Under the Trial Measures and Note on Overseas Listing, the PRC domestic companies are required to file their overseas offering and listing with the CSRC under certain conditions. Based on our understanding of the provisions under the PRC Laws, the M&A Rules, the Trial Measures and Note on Overseas Listing, we are of the opinion that (1) the Company is not required to obtain any prior approval from CSRC under the M&A Rules, the Trial Measures and Note on Oversea Listing for the Merger. |
| 3 | Enforceability of Civil Procedures. There is uncertainty as to whether the PRC courts would (i) recognize or enforce judgments of United States courts obtained against the Company or its directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (ii) entertain original actions brought in each jurisdiction other than the PRC against the Company or its directors or officers predicated upon the securities laws of the United States or any state in the United States. 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 PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against a company or its 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. |
| 4 | Regulatory Permissions. Except for those licenses and permissions held by the PRC Companies set forth in the table in “Regulatory Permissions” section of the 8-K and the requisites for a domestic company in China to engage in the businesses similar to the Company, and its subsidiaries, neither the Company nor any of its subsidiaries is currently required to obtain regulatory approvals or permissions from the CSRC, the Cyberspace Administration of China (the “CAC”), or any other relevant Governmental Authority for their respective operations. |
| 5 | Cybersecurity Review. None of the Company, its subsidiaries is subject to the cybersecurity review as each of the Company and its subsidiaries as a data processor, if applicable, possesses personal information of less than one million users. However, that regulators in China may take a contrary view or may subsequently require the Company or its subsidiaries to undergo the cybersecurity review and subject such company to penalties for non-compliance. |
| 6 | PRC Laws. All statements set forth in the 8-K and under the captions “Risk Factors”, “Enforceability of Civil Liabilities”, “Corporate History and Structure”, “Our Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Regulation” and “Taxation—People’s Republic of China Taxation” in each case insofar as such statements describe or summarize matters of the PRC Laws, are correct and accurate in all material respects, and fairly present or fairly summarize in all material respects the PRC legal and regulatory matters, documents, agreements or proceedings referred to therein and nothing has come to our attention, insofar as the PRC Laws are concerned, that causes us to believe that there is any untrue statement or any omission which causes such statements misleading in any material respect. |
Our opinion expressed above is subject to the following additional qualifications:
| i. | Our opinion is subject to the restrictions of (i) an applicable bankruptcy, insolvency, reorganize moratorium or similar laws affecting creditors’ rights generally (including without limitation all laws rel to fraudulent transfers) and (ii) any judicial or administrative actions taken in accordance with PRC affecting creditors’ rights generally. |
| ii. | Our opinion is subject to the effects of (i) judicial discretion with respect to the availability of sp performance, injunctive relief, indemnifications, remedies or defenses, the calculation of damages entitlement of attorneys’ fees and other costs, the waiver of immunity from jurisdiction of any court or legal proceedings; and (ii) the discretion of any competent Governmental Authority in exercising authority in the PRC which may have retroactive effect. |
| iii. | Our opinion is limited to the PRC Laws of general application on the date hereof. We have made investigation of, and do not express or imply any views on, the laws of any jurisdiction other than the PRC. |
| iv. | February 2011, the State Council promulgated the Notice on the Establishment of the Security Review System in Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “Security Review Rules”). On August 25, 2011, the Ministry of Commerce issued the Regulations on the Establishment of Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (tog the Security Review Rules, the “Security Review Regulations”). We are of an opinion that there currently no express PRC Laws indicating that the performance of the terms thereof falls within the national security review under the Security Review Regulations. However, there is a lack of stat interpretations on the application of these rules and regulations. As a result, the Ministry of Commerce have a different view or interpretation in this regard in implementing the national security review system. |
| v. | The PRC Laws and regulations referred to herein are laws and regulations publicly available and currently in force on the date hereof and there is no guarantee that any of such laws and regulations, or the interpretation or enforcement thereof, will not be changed, amended or revoked in the future with or without retrospective effect. |
| vi. | The interpretation and implementation of the PRC Laws and their application to and effect on the legality, binding force and enforceability of contracts are subject to the further clarification and final discretion of any competent Governmental Authority. |
This opinion is delivered in our capacity as the Company’s PRC legal counsel solely for the purpose of the 8-K publicly submitted to the US Securities and Exchange Commission on the date of this opinion and may not be used for any other purpose without our prior written consent, except as required by the applicable law or by the US Securities and Exchange Commission or any regulatory agencies.
We hereby consent to the use of this opinion in, and the filing hereof as an exhibit to, the 8-K, and to the reference to our name in such 8-K. We do not thereby admit that we fall within the category of the persons whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the regulations promulgated thereunder.
Yours faithfully,
/s/ Anhui Dongfan Law Firm |
