Rubber Leaf Inc S-1/A, filed Aug 2, 2024

Rubber Leaf Inc (RLEA)

S-1/A 2024-08-02

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Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging Growth Company	☒

	●	Public Offering Prospectus. A prospectus to be used for the public offering (the “Public Offering Prospectus”) of up to 1,600,000 shares of common stock, par value $0.001 per share, of Rubber Leaf Inc (the “Company”), with such shares to be sold in a firm commitment underwritten offering through the underwriters named on the cover page of the Public Offering Prospectus.

	●	Resale Prospectus. A prospectus to be used for the resale by the selling stockholders (the “Selling Stockholders” set forth in the section of the resale prospectus (the “Resale Prospectus”) entitled “Selling Stockholders” of an aggregate of 2,400,000 shares of common stock.

	●	they contain different outside and inside front covers and back covers;

	●	they contain different “Offering” sections in the “Prospectus Summary” section beginning on page Alt-1;

	●	they contain different “Use of Proceeds” sections on page Alt-11;

	●	the “Capitalization” and “Dilution” sections from the Public Offering Prospectus are deleted from the Resale Prospectus;

	●	a “Selling Stockholders” section is included in the Resale Prospectus;

	●	the “Underwriting” section from the Public Offering Prospectus is deleted from the Resale Prospectus and a “Selling Stockholder Plan of Distribution” is inserted in its place in the Resale Prospectus; and

	●	the “Legal Matters” section in the Resale Prospectus on page Alt-13 deletes the reference to counsel for the underwriters.

		Per Share		Total⁽¹⁾
Public offering price	$		$
Underwriting discounts and commissions⁽²⁾⁽³⁾	$		$
Proceeds, before expenses, to us	$		$

(1)	The amount of offering proceeds to us presented in this table does not give effect to any exercise of the underwriter’s over-allotment option (if any) we have granted to the underwriter as described above and includes $ of the gross proceeds of this offering raised from investors that are introduced directly or indirectly by any party or entity which is not the Company (including but without limitation Prime Number Capital LLC) and $ of the gross proceeds in this offering raised from investors that are introduced by the Company.

(2)	For gross proceeds of this offering raised from investors that are introduced directly or indirectly by any party or entity which is not the Company (including but without limitation Prime Number Capital LLC), the underwriting discount is equal to $ per share and for gross proceeds in this offering raised from investors that are introduced by the Company, the underwriting discount is equal to $ per share.

(3)	Does not include a non-accountable expense allowance equal to 1.0% of the gross proceeds of this offering, payable to the Representative, or the reimbursement of certain expenses of the underwriters. See “Underwriting” beginning on page 80 of this prospectus for additional information regarding underwriting compensation.

ABOUT THIS PROSPECTUS	1
TRADEMARKS	1
MARKET DATA	1
PROSPECTUS SUMMARY	2
SUMMARY OF THE OFFERING	13
SUMMARY FINANCIAL DATA	14
RISK FACTORS	15
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	40
USE OF PROCEEDS	40
DIVIDEND POLICY	41
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	41
CAPITALIZATION	42
DILUTION	43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	44
BUSINESS	55
MANAGEMENT	64
EXECUTIVE COMPENSATION	70
PRINCIPAL STOCKHOLDERS	74
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	75
DESCRIPTION OF SECURITIES	76
Shares Eligible for Future Sale	79
UNDERWRITING	80
EXPERTS	84
LEGAL MATTERS	84
WHERE YOU CAN FIND MORE INFORMATION	84
INDEX TO FINANCIAL STATEMENTS	F-1

	●	all references to “we,” “us,” “Rubber Leaf,” “RLI,” the “Company” or “our” refer to Rubber Leaf Inc, a Nevada corporation, United States;

	●	“RLSP” is referred to our wholly owned subsidiary Rubber Leaf Sealing Products (Zhejiang) Co., Ltd., a foreign-owned company established in China;

	●	“PRC” and “China” are to the People’s Republic of China, excluding, for the purpose of this prospectus, Taiwan and the special administrative regions of Hong Kong and Macau;

	●	assumes a public offering price of $5.00 per share, which is the midpoint of the $4.00 to $6.00 range of the offering price per share;

	●	“year” or “fiscal year” means the year ending December 31;

	●	“Renminbi” and “RMB” are to the legal currency of China; and

	●	all dollar or $ references, when used in this prospectus, refer to United States dollars.

	●	no shares of common stock have been issued pursuant to the Representative’s over-allotment option; and

	●	no shares of common stock have been issued pursuant to the Representative Warrants.

	1)	RLSP purchases raw materials and subcontracts production to third-party manufacturers for WIP. Once WIP is finished and delivered to RLSP’s warehouse, RLSP performs certain manual processes, such as welding and constructing in order to meet the specification of the purchase orders. The completion of the final products is contingent upon a rigorous quality inspection conducted by RLSP, ensuring they meet the highest standards.

	2)	RLSP purchases raw materials and subcontracts third party manufacturers to produce finished products. RLSP will trace and observe each step of production undertaken by third-party manufacturers, with a primary focus on the final quality control step.

	●	Product Versatility: We have the capability to manufacture both rubber and plastic sealing components. In China, this versatility is matched only by Cooper Standard. This dual-material production capability allows us to meet a wide range of client requirements and sets us apart in a market where most competitors specialize in only one type of material.

	●	Comprehensive Production Line Advantage: Our production lines are designed for the comprehensive assembly of all rubber and plastic sealing components required for vehicles. While the majority of companies in the sector can only cater to a portion of the sealing components, we specialize in fulfilling complete vehicle sealing component orders. We believe this holistic approach not only promotes efficiency and consistency in quality but also positions us as a one-stop solution for our clients’ sealing needs.

	●	Expand our customers base and strive for additional orders;

	●	Raise funds to support our operations and expand our capacities;

	●	Recruit talent to explore high technology (e.g., advanced technology in our industry, including, among other things, environmental friendly raw materials, etc.); and

	●	Provide outstanding product quality, customer service and rigid integrity in our business dealings.

	●	if we do not have or are unable to generate sufficient cash available to repay our secured debt obligations when they become due and payable, either upon maturity or in the event of a default, we may lose our rights to our assets, which could materially and adversely affect our liquidity and financial condition;

	●	many very large and well-funded companies have or are entering into various aspects of the automobile sealing products industry market that we are serving or that they are offering products and services that indirectly or directly compete with our proposed products and services. These factors could result in declining revenue, or inability to grow our business;

	●	a decline in general economic condition could lead to reduced consumer demand and could negatively impact our business operation and financial condition, which in turn could have a material adverse effect on our business, financial condition and results of operations;

	●	we rely substantially on our founder, Chief Executive Officer, President and Chairperson of the Board, Xingxiu Hua. We may be adversely affected if we lose her services or the services of other key personnel or are unable to attract and retain additional personnel;

	●	we have a high concentration of sales with one major customer, Shanghai Xinsen, which is the related party of our founder, Chief Executive Officer, President and Chairperson of the Board, Xingxiu Hua, and contributed approximately 100% of our total revenues for the three months ended March 31, 2024 and 86% of our total revenues for the year ended December 31, 2023;

	●	we have a high concentration of raw material purchases from one major vendor, Shanghai Haozong, which is the related party of one of our directors. 100% of our total purchases for the three months ended March 31, 2024 was from Shanghai Haozong while 95% of our total purchases for the twelve months ended December 31, 2023 was from Shanghai Haozong;

	●	we have engaged, and are likely to continue to engage, in certain transactions with related parties. These transactions are not negotiated on an arms’ length basis;

	●	PRC regulations relating to investments in foreign companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary or limit our PRC subsidiary’ ability to increase their registered capital or distribute profits;

	●	the Chinese government has significant authority to exert influence on the conduct of our business and may intervene or influence our operations at any time, which may result in a material change in our operations, and may significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or be worthless;

	●	PRC laws and regulations governing our current business operations are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including those regarding the enforcement of laws, and sudden or unexpected changes, with little advance notice, in laws and regulations in China could adversely affect us and limit the legal protections available to you and us;

	●	we may be subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers;

	●	we are a holding company and will rely on dividends paid by our subsidiary for our cash needs. Any limitation on the ability of our subsidiary to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our common stock;

	●	because our business is conducted in RMB and the price of our common stock is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments;

	●	governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment;

	●	under the PRC Enterprise Income Tax Law, or the EIT Law, we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders;

	●	inflation in the PRC could adversely impact our financial condition and results of operations;

	●	any disruption in the supply chain of raw materials and our products could adversely impact our ability to produce and deliver products;

	●	the M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China;

	●	investors in this offering will experience immediate and substantial dilution in net tangible book value;

	●	we have identified material weaknesses in our internal control over financial reporting. Failure to maintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market price of our common stock. If our internal controls are not effective, we may not be able to accurately report our financial results or prevent fraud;

	●	our management will have broad discretion over the use of any net proceeds from this offering and you may not agree with how we use the proceeds, and the proceeds may not be invested successfully;

	●	we may issue preferred stock in different series with terms that could dilute the voting power or reduce the value of our common stock;

	●	the trading prices of our common stock could be volatile and could decline following this offering at a time when you want to sell your holdings;

	●	we currently do not intend to declare dividends on our common stock in the foreseeable future and, as a result, your returns on your investment may depend solely on the appreciation of our common stock; and

	●	because we initially became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not be able to attract the attention of research analysts at major brokerage firms;

	●	if listed, we may not be able to satisfy the listing requirements of Nasdaq to maintain a listing of our common stock;

	●	we are an “emerging growth company” and a “smaller reporting company” under the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies will make our common stock less attractive to investors, and make it more difficult to raise capital as and when we need it; and

	●	the elimination of personal liability against our directors and officers under Nevada law and the existence of indemnification rights held by our directors, officers and employees may result in substantial expenses.

	●	being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

	●	not being required to comply with the requirement of auditor attestation of our internal controls over financial reporting;

	●	not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

	●	reduced disclosure obligations regarding executive compensation; and

	●	not being required to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Issuer	Rubber Leaf Inc

Shares offered by us	1,600,000 shares of common stock, par value $0.001 per share

Common stock outstanding prior to the offering⁽¹⁾	41,109,458 shares

Common stock to be outstanding after the offering⁽²⁾	42,709,458 shares (42,949,458 shares if the underwriters exercise their option to purchase additional shares in full).

Over-allotment option	We have granted the underwriters a 45-day option to purchase up to an aggregate of 240,000 additional shares of common stock less underwriting discounts and commissions, on the same terms as set forth in this prospectus, solely to cover over-allotments, if any.

Use of Proceeds	As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. However, we currently intend to use the net proceeds to us from this offering to construct a factory, expand our product lines, purchase equipment and for general corporate purposes, including working capital. See “Use of Proceeds” beginning on page 40.

Proposed Listing	We have applied to have our common stock listed on The Nasdaq Capital Market under the symbol “RLEA,” which listing is a condition to this offering.

Representative Warrants	Upon the closing of this offering, we have agreed to issue to the Representative, warrants that will expire on the fifth anniversary of the commencement date of sales in this offering, entitling the Representative to purchase 5% of the number of shares of common stock sold in this offering. The registration statement of which this prospectus is a part also covers the Representative Warrants and the shares of common stock issuable upon the exercise thereof. For additional information regarding our arrangement with the underwriters, please see “Underwriting.”

Lock-up agreements	Certain of our executive officers and directors have agreed with the underwriters not to sell, transfer or dispose of any shares or similar securities for 180 days following the effective date of the registration statement for this offering without the prior written consent of the Representative. Any other holders of 5% or more of the outstanding shares of our common stock have also agreed with the underwriters not to sell, transfer or dispose of any shares or similar securities for 180 days following the effective date of the registration statement for this offering without the prior written consent of the Representative. For additional information regarding our arrangement with the underwriters, please see “Underwriting.”

Transfer Agent	West Coast Stock Transfer, Inc.

Risk Factors	You should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 15 of this prospectus before deciding whether or not to invest in shares of our common stock.

	Years Ended
	December 31,
	2023			2022
Revenues	$	9,990,150		$	10,648,175
Operating & administration expenses		797,208			985,729
Income (loss) from operations		(1,153,209	)		512,729
Other income (expense), net		(228,868	)		255,681
Net income (loss) before income taxes		(1,382,077	)		768,410
Basic and diluted income (loss) per share	$	(0.03	)	$	0.02
Weighted average shares of common stock outstanding		41,014,936			40,976,458

	As of December 31,
	2023			2021
Consolidated Balance Sheet Data
Total current assets	$	8,775,183		$	9,851,757
Total assets		19,837,769			18,754,876
Total current liabilities		20,075,328			17,931,005
Total liabilities		20,095,874			17,931,005
Total stockholders’ equity	$	(258,105	)	$	823,871

	●	dispose of or sell our assets;

	●	make material changes in our business or management;

	●	consolidate or merge with other entities;

	●	incur additional indebtedness;

	●	create liens on our assets;

	●	pay dividends;

	●	make investments;

	●	enter into transactions with affiliates; and

	●	pay off or redeem subordinated indebtedness.

	●	quarterly variations in our results of operations or those of our competitors;

	●	announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments;

	●	intellectual property infringements;

	●	our ability to develop and market new and enhanced products on a timely basis;

	●	commencement of, or our involvement in, litigation;

	●	major changes in our Board or management;

	●	changes in PRC governmental regulations and laws;

	●	changes in earnings estimates or recommendations by securities analysts;

	●	the impact of any future COVID-19 outbreak on capital markets;

	●	our failure to generate material revenues;

	●	our public disclosure of the terms of this financing and any financing which we consummate in the future;

	●	any acquisitions we may consummate;

	●	short selling activities;

	●	changes in market valuations of similar companies;

	●	changes in our capital structure, such as future issuances of securities or the incurrence of debt;

	●	changes in the prices of commodities associated with our business; and

	●	general economic conditions and slow or negative growth of end markets.

	●	our ability to effectively operate our business segments;

	●	our ability to manage our research, development, expansion, growth and operating expenses;

	●	our ability to evaluate and measure our business, prospects and performance metrics;

	●	our ability to compete, directly and indirectly, and succeed in our industry;

	●	our ability to respond and adapt to changes in technology;

	●	our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; and

	●	other factors (including the risks contained in the section of this prospectus entitled “Risk Factors”) relating to our industry, our operations and results of operations.

Description	Amount
Working capital	$	1,143,963
Construction of factory	$	1,500,000
Expansion of one rubber extrusion production line	$	1,600,000
Expansion of one plastic extrusion production line	$	1,500,000
Purchasing product testing equipment	$	1,200,000
Total	$	6,943,963

	●	on an actual basis; and

	●	on a pro forma basis to reflect our receipt of the net proceeds from our sale and issuance of 1,600,000 shares of common stock in this offering at an assumed public offering price of $5.00 per share (the midpoint of the price range set forth on the front cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

	Actual⁽¹⁾			Pro Forma⁽²⁾
Cash	$	194,438		$	7,138,401
Total Assets	$	22,994,771		$	29,938,734
Total Current Liabilities	$	24,011,862			24,011,862

Stockholders’ equity:
Common stock, $0.001 par value, 100,000,000 shares authorized, 41,109,458 shares issued and outstanding, actual; 100,000,000 shares authorized, 42,709,458 shares issued and outstanding, pro forma.		41,110			42,710
Preferred stock, $0.0001 par value, 40,000,000 shares authorized, 0 shares issued and outstanding, actual; 40,000,000 shares authorized, 0 shares issued and outstanding, pro forma.		-			-
Additional paid-in capital		2,799,035			10,797,435
Retained earnings (deficit)		(3,857,236	)		(4,913,273	)
Total stockholders’ equity		(1,017,091	)		5,926,872
Total capitalization	$	22,994,771		$	29,938,734

(1)	As of March 31, 2024.

(2)	The number of issued and outstanding shares as of March 31, 2024 on a pro forma as adjusted basis reflects our receipt of the net proceeds of approximately $6,943,963 resulting from our sale and issuance of 1,600,000 shares of common stock in this offering at an assumed public offering price of $5.00 per share of common stock (the midpoint of the price range set forth on the front cover page of this prospectus) for total gross proceeds of $8,000,000, after deducting $1,056,037 of estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Assumed public offering price per share				$	5.00
Historical net tangible book value (deficit) per share as of March 31, 2024	$	(0.07	)
Increase in net tangible book value per share after giving effect to the offering		0.16
Pro forma net tangible book value (deficit) per share as of March 31, 2024		0.09
Dilution in net tangible book value per share to new investors				$	4.91

	Shares Purchased					Total Consideration
	Number		Percent			Amount		Percent			Per Share
Existing stockholders		41,109,458		96.3	%	$	2,840,145		26.2	%	$	0.08
New Investors		1,600,000		3.7	%	$	8,000,000		73.8	%	$	5.00
		42,709,458		100	%	$	10,840,145		100	%	$	0.25

	For three months ended on March 31,
	2024			2023			Changes

Sales	$	-		$	897,432		$	(897,432	)
Sales-related parties		2,954,607			1,448,109			1,506,498
Total		2,954,607			2,345,541			609,066

Cost of sales		2,960,529			2,278,420			682,109
Loss on factory relocation		190,703			-			190,703
Total cost of sales		3,151,232			2,278,420			872,812
Gross profit		(196,625	)		67,121			(263,746	)

Operating Expenses
Selling expenses		8,710			46,867			(38,157	)
General & administrative expenses		391,649			194,912			196,737
Total operation expenses		400,359			241,779			158,580
Loss from operation		(596,984	)		(174,658	)		(422,326	)

Other income (expense):
Interest expense		(122,535	)		(40,195	)		(82,340	)
Other (expense) income, net		(5,591	)		24,588			(30,179	)
Total other expenses, net		(128,126	)		(15,607	)		(112,519	)

Net Income(loss) before income taxes		(725,110	)		(190,265	)		(534,845	)
Income tax expenses		-			9,055			(9,055	)
Net loss	$	(725,110	)	$	(199,320	)	$	(525,790	)

	For the three months ended March 31,
	2024			2023			changes
Revenue:
Direct supply model	$	-		$	897,432		$	(897,432	)
Indirect supply model		2,954,607			1,448,109			1,506,498
Total		2,954,607			2,345,541			609,066

Gross profit margin:
Direct supply model		-	%		6	%		(6	%)
Indirect supply model		0	%		1	%		(1	%)
Total		7	%		3	%		4	%

	For the year ended December 31,
	2023			2022			Changes

Sales	$	1,396,152		$	5,259,447		$	(3,863,295	)
Sales-related parties		8,593,998			5,371,728			3,222,270
Total		9,990,150			10,648,175			(658,025	)

Cost of sales-production		10,061,164			9,149,717			911,447
Loss on factory relocation		284,987			-			284,987
Total cost of sales		10,346,151			9,149,717			1,196,434
Gross profit (loss)		(356,001	)		1,498,458			(1,854,459	)

Operating Expenses
Selling expenses		86,751			68,321			18,430
General & administrative expenses		710,457			917,408			(206,951	)
Total operation expenses		797,208			985,729			(188,521	)
Income (loss) from operation		(1,153,209	)		512,729			(1,665,938	)

Other income (expense):
Interest expense		(237,581	)		(187,528	)		(50,053	)
Other expense		8,713			(19,159	)		27,872
Gain on selling of imperfections		-			462,368			(462,368	)
Total other income (expenses), net		(228,868	)		255,681			(484,549	)

Net Income(loss) before income taxes		(1,382,077	)		768,410			(2,150,487	)
Income tax expenses		16,067			11,029			5,038
Net income (loss)	$	(1,398,144	)	$	757,381		$	(2,155,525	)

	Three Months Ended March 31,
	2024			2023			$ Change			% Change
Net cash (used in) provided by:
Operating activities	$	(628,739	)	$	(1,078,129	)	$	449,390			41.7	%
Investing activities		-			(24,024	)		24,024			100.0	%
Financing activities		785,369			384,342			401,027			104.3	%
Effect of foreign currency translation on cash flow		(879	)		8,464			(7,585	)		(89.6	)%
(Decrease) Increase in cash	$	155,751		$	(709,348	)	$	865,099			122.0	%

	Years Ended December 31,
	2023			2022			$ Change			% Change
Net cash (used in) provided by:
Operating activities	$	(84,078	)	$	1,252,348		$	(1,336,426	)		(106	)%
Investing activities		(3,017,818	)		(2,580,555	)		(437,263	)		(17	)%
Financing activities		1,811,678			1,905,128			(93,450	)		(4	)%
Effect of foreign currency translation on cash flow		(31,874	)		70,325			(102,199	)		(145	)%
Net increase in cash	$	(1,322,092	)	$	647,246		$	(1,969,338	)		(304	)%

	●	A key pillar of our growth plan is to enhance product innovation and development, and expand new customers, allowing us to stay ahead in a rapidly evolving market and meet the emerging needs of our customers. We are committed to investing in research and development, which will drive the introduction of new products and improvements to existing ones.

	●	Another critical component of our strategy is geographic expansion. We aim to enter new international markets and increase our share in existing markets by leveraging our strong distribution networks and marketing strategies. This will not only diversify our customer base but also reduce our dependency on any single market.

	●	Additionally, we plan to pursue strategic partnerships and acquisitions in different countries (our first target is the U.S.), which will allow us to access new technologies, expand our product lines and enter new markets more rapidly than organic growth alone would permit.

	●	Finally, a focus on operational efficiency and cost management will ensure that we remain competitive and profitable, even as we invest in growth. By optimizing our operations and carefully managing expenses, we can reinvest savings into key growth areas.