As filed with the Securities and Exchange Commission on March 6, 2019

Registration No. 333-229777

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

JUFEEL INTERNATIONAL GROUP

(Exact name of registrant as specified in its charter)

Wyoming		2833		82-3002644
(State or other jurisdiction of incorporation or organization)		(Primary SIC Code)		(IRS Employer Identification No.)

85 Jinshui East Road19/F, Tower 3, Yabao

Zhengzhou, Henan Province, PRC 450000

Tel. +86 (371) 53626656

(Address, including zip code, and telephone number, including area code, of

registrant’s principal executive offices)

Jeffrey M. Stein, Esq.

JMS Law Group, PLLC

998C Old Country Road, #233

Plainview, NY 11803

 (Name, address, including zip code, and telephone number,

including area code, of agent for service)

The proposed date of sale will be as soon as practicable after this Registration Statement becomes effective.

 (Approximate date of commencement of proposed sale to the public)

If the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box: x

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨

CALCULATION OF REGISTRATION FEE

(1)	Estimated solely for purposes of calculating the registration fee. The proposed maximum offering price per share is based upon the expected public offering price of $6.00 per share pursuant to Rule 457(a). The common stock trades only sporadically and the Registrant makes no representation hereby as to the price at which its common stock will trade.
(2)	Filing fee previously paid.

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

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission becomes effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

SUBJECT TO COMPLETION

DATED ___, 2019

JUFEEL INTERNATIONAL GROUP

500,000 shares of common stock

The selling shareholders (“Selling Shareholders”) may offer and sell and distribute from time up to an aggregate of 500,000 shares of common stock of Jufeel International Group (“the Company”). The Company will not receive any proceeds from the sale of shares by the Selling Shareholders.

The Selling Shareholders may sell or otherwise dispose of the shares of common stock covered by this prospectus or interests therein on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions shall be at a price of $6.00 per share. Additional information about the selling shareholders, and the times and manner in which they may offer and sell shares of our common stock under this prospectus, is provided in the section entitled “Plan of Distribution” of this prospectus.

Our common stock is presently quoted on the OTC Pink Open Market tier of the OTC Markets Group, Inc. (“OTC Pink Market”) under the symbol “CNJG”. There is currently no bid or ask price for the common stock, but the last sale price recorded was $130 per share on January 18, 2017.

PURCHASE OF THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY READ AND CONSIDER THE SECTION OF THIS PROSPECTUS ENTITLED “RISK FACTORS” ON PAGES 8 THROUGH 27 BEFORE BUYING ANY SHARES OF OUR COMMON STOCK.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETED AND MAY BE CHANGED. WE WILL NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT IS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION AND HAS BEEN CLEARED OF COMMENTS AND IS DECLARED EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OF SALE IS NOT PERMITTED.

TABLE OF CONTENTS

Prospectus Summary		6
The Offering		7
Cautionary Statement Concerning Forward-Looking Statements		8
Risk Factors		8
Use of Proceeds		27
Determination of Offering Price		27
Dilution		27
Selling Security Holders		28
Plan of Distribution		28
Description of Securities		31
Interests of Named Experts and Counsel		31
Information with Respect to the Registrant		32
Legal Proceedings		49
Market Price of and Dividends on Common Stock		49
Financial Statements		F-1
Management’s Discussion and Analysis		51
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		61
Directors and Executive Officers		62
Executive Compensation		64
Security Ownership of Certain Beneficial Owners and Management		66
Certain Relationships and Related Party Transactions		67
Indemnification for Securities Act Liabilities		67
Where You Can Find More Information		68

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PROSPECTUS SUMMARY

This summary highlights selected information about Jufeel International Group and a general description of the securities that may be offered for resale or other disposition by the Selling Shareholders. This summary is not complete and does not contain all of the information that may be important to you. For a more complete understanding of us and the securities offered by the Selling Shareholders, you should carefully read this entire prospectus, including the “Risk Factors” section, any applicable prospectus supplement for these securities and the other documents we refer to and incorporate by reference. In particular, we incorporate important business and financial information into this prospectus by reference.

AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, “WE,” “US,” AND “OUR” REFERS TO JUFEEL INTERNATIONAL GROUP. THE FOLLOWING SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION TO PURCHASE OUR COMMON STOCK. ALL FINANCIAL INFORMATION IS STATED IN UNITED STATES DOLLARS UNLESS OTHERWISE SPECIFIED. OUR FINANCIAL STATEMENTS ARE PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES.

JUFEEL INTERNATIONAL GROUP

Jufeel International Group (“Jufeel” “we” or the “Company”) is a Wyoming corporation. Our wholly owned subsidiary, Jufeel Holdings Co., Ltd., wholly owns Ivan International Biology Limited, a Hong Kong corporation (“Ivan Hong Kong”) that owns 100% of the shares of a People’s Republic of China (the “PRC”)-registered wholly owned foreign entity, Kaifeng Ivan King Biotechnology Co., Ltd. (“Ivan King”). Ivan King has entered into variable interest agreements with Kaifeng Jufeel Biotechnology Co., Ltd. (“Kaifeng Jufeel”), a PRC entity engaged in the cultivation, processing, research and development, and sale of aloe vera products developed for the health, beauty, nutritional, and pharmaceutical industries. Our business is headquartered in Henan Province, PRC. On August 5, 2011, our current business began operating through Kaifeng Jufeel and its four PRC subsidiaries. We are a bio-tech company that cultivates, produces, develops, and sells raw aloe vera and aloe vera based consumer products through our distribution network in mainland China.

Our principal executive offices are located at 19/F, Building 3, Yabao, 85 Jinshui East Road, Zhengzhou, Henan Province, PRC. Our telephone number is +86 (371) 53626656.

Our business began operating in China in 2011, but due to our extensive research and development activities, we did not become profitable until 2016. Our limited history of profitability constitutes a substantial risk factor, as further explained on page 8. We anticipate that we will continue to earn revenues through cultivating, processing, manufacturing, and selling aloe vera and aloe vera based products through our network of exclusive distributors and online sales in mainland China. We expect that our business will continue to be profitable, based on our prior results; however, we cannot assure you that we will continue to be profitable, or will ultimately succeed in our business.

We will not receive any proceeds from any sales of these securities by the Selling Shareholders.

Our common stock is traded over the counter under the trading symbol “CNJG.” There is currently no bid or ask price for the common stock, but the last sale price recorded was $130 per share on January 18, 2017. As of the date of this prospectus, there is a limited market for our common stock, and no assurance that a vigorous trading market for our securities will ever develop.

EMERGING GROWTH COMPANY

We are an emerging growth company under the JOBS ACT, which was enacted in April 2012. We shall continue to be deemed an emerging growth company until the earliest of:

(a) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more;

(b) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the issuer pursuant to an effective registration statement;

(c) the date on which we have issued more than $1.07 billion in non-convertible debt, during the previous 3-year period, issued; or.

(d) the date on which we are deemed to be a large accelerated filer.

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As an emerging growth company we are subject to reduced public company reporting requirements and are exempt from Section 404(b) of Sarbanes Oxley. Section 404(a) requires issuers to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting. Section 404(b) 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.

As an emerging growth company we are also exempt from Section 14A (a) and (b) of the Securities Exchange Act of 1934 which requires shareholder approval, on an advisory basis, of executive compensation and golden parachutes.

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, that 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.

THE OFFERING

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FORWARD LOOKING STATEMENTS

Information set forth in this prospectus and the information it incorporates by reference may contain various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All information relative to future markets for our products and trends in and anticipated levels of revenue, gross margins and expenses, as well as other statements containing words such as “believe,” “project,” “may,” “will,” “anticipate,” “target,” “plan,” “estimate,” “expect” and “intend” and other similar expressions constitute forward-looking statements. These forward-looking statements are subject to business, economic and other risks and uncertainties, both known and unknown, and actual results may differ materially from those contained in the forward-looking statements. Examples of risks and uncertainties that could cause actual results to differ materially from historical performance and any forward-looking statements include, but are not limited to, the risks described under the heading “Risk Factors” beginning on page 8 of this prospectus, in our most recent Annual Report on Form 10-K, as well as any subsequent filings with the United States Securities and Exchange Commission. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date such forward-looking statements are made. You should read carefully this prospectus and any related free writing prospectuses that we have authorized for use in connection with this offering, together with the information incorporated herein or therein by reference as described under the heading “Where You Can Find More Information,” completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify all of our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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 in this prospectus before investing in our securities. If any of the following risks occur, our business, operating results, and financial condition could be seriously harmed. The trading price of our common stock, when and if we trade, could decline due to any of these risks, and you may lose all or part of your investment.

WE HAVE A LIMITED HISTORY OF PROFITABILITY AND WE MAY NOT ACHIEVE OR SUSTAIN PROFITABILITY IN THE FUTURE ON A QUARTERLY OR ANNUAL BASIS.

We began operating in 2011; however, due to our extensive research and development and marketing activities, we did not become profitable until 2016. During 2015, we incurred a net loss of $652,768. We expect to make significant expenditures related to capital commitments for the construction in progress of our new facility, and for development of our products and for expansion of our business, including research and development and sales and administrative expenses. Additionally, we may encounter unforeseen difficulties, complications, product delays, or other unknown factors that may require additional expenditures. Because of these potential expenditures, we may not generate sufficient revenues to achieve or sustain profitability in the future.

THERE MAY BE SOME OF THE COMPANY’S PRODUCTS ON THE MARKET WITH LABELS CONTAINING INCORRECT COMPANY INFORMATION

There may be Company products on the market with labels that contain incorrect/mistaken information. Some packaging of PMAS, toothpastes, and other Company products was printed with a Shanghai Stock Exchange Code. The Company is not listed on the Shanghai Stock Exchange but did list on the Shanghai Equity Exchange; therefore, such labeling information is incorrect. Although the Company has discontinued the incorrect packaging, some products containing incorrect labels may still be sold on the market.

 

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WE ARE ONLY CURRENTLY LICENSED TO PRODUCE FOOD, AND NOT HEALTH FOOD, SO IF THE CHINESE GOVERNMENT WERE TO DEEM ANY OF OUR PRODUCTS HEALTH FOOD OR IMPROPERLY LABELED, WE MAY BE FOUND IN VIOLATION OF BOTH CHINESE FOOD AND DRUG REGULATIONS AND ADVERTISING LAWS.

Article 77 of the Chinese Food Safety Laws and the relevant provisions of the Regulations on Health Food Registration and Filing (last revised in 2015) require that health food manufacturers have a business license specific to health food production and register any labeled health products with the Chinese Food and Drug Administration. We only currently only have an ordinary food license and we are in the process of obtaining a health food license in order to increase our margins on such products. However, it is possible that in the future, the Chinese FDA could interpret its recently-adopted regulations to deem our food products as health foods. In addition, our website formerly contained language stating the potential health applications of our aloe and PMAS products, including their potential efficacy for the treatment for cancer, HIV and tumors. If the government were to find any of our products were not manufactured under a valid license requirement or that our advertising is or was misleading, sales of affected products could be halted, we could be fined, and our revenues and financial conditions and operations could be adversely impacted.

IF ANY OF OUR PRODUCTS ARE FOUND TO BE IMPROPERLY LABELED OR MISSING GOVERNMENT-REQUIRED WARNINGS, WE MAY BE SUBJECT TO PERSONAL INJURY OR PRODUCT LIABILITY AND/OR OUR FINANCIAL CONDITION COULD BE ADVERSELY IMPACTED.

Some of our products may be deemed by regulators to be improperly labeled or contain directives inconsistent with the Chinese Food and Drug Administration’s published standards. Specifically, some of our aloe vera gel products, which we believe are food or beauty products, may be deemed to be health supplements and as such might not contain the appropriate warnings for maximum daily consumption for women, infants, and young children, or state as recommended that aloe vera consumption may not be suitable for those groups.

WE DO NOT HAVE ALL NECESSARY CONSTRUCTION PERMITS FOR OUR CONSTRUCTION PROJECT IN KAIFENG, HENAN PROVINCE, AND THEREFORE RISK THAT THE GOVERNMENT COULD HALT OR DELAY OUR PROJECT.

We have not obtained all required construction permits in accordance with Article 64 of the Urban and Rural Planning Law in China; therefore, the Chinese government could halt or delay the construction of our new offices and production facility in Kaifeng, Henan province. While we plan to obtain the necessary construction permit from the Planning Bureau, and we have received a waiver letter, we may not be successful in obtaining the actual permit and the waiver letter may be deemed to be ineffectual.  If the government were to halt or delay construction of our new facilities, our financial condition could be adversely impacted.

OUR CONSTRUCTION CONTRACTOR HAS THE RIGHT TO PRIORITY OF PAYMENT FOR ANY UNPAID PROJECT COSTS AND ANY DEMAND FOR IMMEDIATE PAYMENT COULD ADVERSELY IMPACT OUR FINANCIAL CONDITIONS.

Under Article 286 of the Chinese Contract Law, a construction contractor may demand immediate payment from a developer within a reasonable period, and if such developer fails to pay, the contractor has a right of priority on liquidation of the property under construction for the project funds. As of September 30, 2018, we owe our construction contractor approximately $208,936 for the construction project currently underway in Henan province. If we fail to timely pay, we could be subject to a court order to liquidate the project and pay the contractor that could negatively impact our profitability and financial conditions.

OUR RECENT HOLDING COMPANY REORGANIZATION MAY NOT HAVE ELIMINATED ALL PRIOR LIABILITIES OF BROS HOLDING COMPANY, OUR FORMER SUBSIDIARY AND PUBLIC ENTITY PREDECESSOR.

Our recent holding company reorganization in which we merged with an Oklahoma entity having several subsidiaries including Bros Holding Company, the public entity from which we inherited our trading symbol, is believed to have eliminated exposure to all prior liabilities of Bros Holdings Company and its former, non-US subsidiaries. Should any of the creditors of Bros Holding Company assert a claim for any preexisting debt or liability, we may be found legally responsible for the amount of the claim including costs of suit and interest, as well as costs of legal defense against those claims even if we believe they are not meritorious. Should any of these claims be substantial, our financial conditions could be adversely affected.

ADVERSE TRENDS IN THE HEALTH AND BEAUTY INDUSTRY, SUCH AS AN OVERALL DECLINE IN PRICE OR A SHIFT AWAY FROM ALOE VERA PRODUCTS, MAY REDUCE OUR REVENUES AND PROFITABILITY.

Our business depends on the continued vitality of the health and beauty industry, which is subject to rapid changes in consumer behaviors, short product life cycles and profit margin pressures. Economic conditions affecting the health and beauty industry in general or our major customers may adversely affect our operating results by reducing the volume of business that they give us or the price they are willing to pay for our products. If our health, beauty, pharmaceutical, and nutritional products fail to gain widespread commercial acceptance, become obsolete or otherwise suffer from low sales volume, our revenues and profitability may stagnate or decline.

 

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A SMALL NUMBER OF CUSTOMERS HAVE ACCOUNTED FOR A SIGNIFICANT PORTION OF OUR SALES, AND THE LOSS OF ANY MAJOR CUSTOMER MAY REDUCE OUR REVENUES AND PROFITS.

A significant portion of our historical revenue has been generated from a single customer, Coca Cola Beverages (Shanghai) Company Limited (“Coca Cola”). The aggregate percentage of the revenue contributed by Coca-Cola in the years ended December 31, 2015, 2016 and 2017 was 20%, 6%, and 3%, respectively. Although we expect our sales to Coca-Cola will constitute a smaller percentage of our total sales revenues for 2018, the loss of Coca-Cola, or any major customer, or a significant reduction in sales to any or all our customers, could have a material adverse effect on our business and operating results.

Three customers accounted for 20%, 15% and 11% of annual sales for the year ended December 31, 2017, respectively. Two third party customers accounted for 39% and 28% of the sales for the nine months ended September 30, 2018. The loss of this customer will result in a material adverse effect on our business and operating results.

WE DO NOT HAVE LONG-TERM PURCHASE COMMITMENTS FROM OUR DISTRIBUTORS AND MAY HAVE TO RELY ON DISTRIBUTOR FORECASTS IN MAKING PRODUCTION DECISIONS, AND ANY CANCELLATION OF PURCHASE COMMITMENTS OR ORDERS MAY RESULT IN THE WASTE OF RAW MATERIALS OR WORK IN PROCESS ASSOCIATED WITH THOSE ORDERS, REDUCING BOTH OUR REVENUES AND PROFITABILITY.

As a consumer product manufacturer, we must provide increasingly rapid product turnaround. A variety of conditions, both specific to our distributors and generally affecting the demand for these products, may cause our distributors to cancel, reduce or delay orders. Cancellations, reductions or delays by a significant distributor or number of distributors would result in a material reduction in revenue. Those distributor decisions could also result in excess and obsolete inventory and/or unabsorbed manufacturing capacity, which could reduce our profits or impair our cash flow. On occasion, distributors require rapid increases in production, which can strain our resources, leading to a reduction in our margins because of the additional costs necessary to meet those demands.

Our distributors generally do not make firm, long-term volume purchase commitments. In addition, industry trends over the past five years have led to dramatically shortened lead times on purchase orders, as rapid product cycles have become the norm. Although we sometimes enter manufacturing contracts with our customers, these contracts principally clarify order lead times, inventory risk allocation and similar matters, rather than providing for firm, long-term commitments to purchase a specified volume of products at a fixed price. As a result, distributors can generally cancel purchase commitments or reduce or delay orders at any time. The large percentage of our sales to distributors in the industry, which is subject to severe competitive pressure, rapid technological change and product obsolescence, increases our inventory and overhead risks, among others, as we must maintain inventories of raw materials, work in process and finished goods to meet customer delivery requirements, and those inventories may become obsolete if the anticipated market demand does not materialize.

We also make significant decisions, including determining the levels of business that we will seek and accept, production schedules, component procurement commitments, facility requirements, personnel need, and other resource requirements, based upon our estimates of distributor requirements. The short-term nature of our distributors’ commitments and the possibility of rapid changes in demand for these products reduce our ability to estimate accurately their future requirements. Because many of our costs and operating expenses are fixed, a reduction in customer demand can reduce our gross margins and operating results. To transact business, we assess the integrity and creditworthiness of our distributors and suppliers and we may, based on this assessment, incur design and development costs that we expect to recoup over several orders produced for the customer. Such assessments are not always accurate and expose us to potential costs, including the write off costs incurred and inventory obsolescence if the orders anticipated do not materialize. We may also occasionally place orders with suppliers based on a customer’s forecast or in anticipation of an order that is not realized. Additionally, from time to time, we may purchase quantities of supplies and materials greater than required by customer orders to secure more favorable pricing, delivery or credit terms. These purchases can expose us to losses from cancellation costs, inventory carrying costs or inventory obsolescence, and hence adversely affect our business and operating results.

 

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FAILURE TO OPTIMIZE OUR MANUFACTURING POTENTIAL AND COST STRUCTURE COULD MATERIALLY INCREASE OUR OVERHEAD, CAUSING A DECLINE IN OUR MARGINS AND PROFITABILITY.

We strive to utilize the manufacturing capacity of our facilities fully but may not do so on a consistent basis. Our factory utilization is dependent on our success in accurately forecasting demand, predicting volatility, timing volume sales to our customers, balancing our productive resources with product mix, and planning manufacturing services for new or other products that it intends to produce. Demand for contract manufacturing of these products may not be as high as we expect, and we may fail to realize the expected benefit from our investment in our manufacturing facilities. Our profitability and operating results are also dependent upon a variety of other factors, including: utilization rates of manufacturing lines, downtime due to product changeover, impurities in raw materials causing shutdowns, and maintenance of contaminant-free operations. Failure to optimize our manufacturing potential and cost structure could materially and adversely affect our business and operating results.

Moreover, our cost structure is subject to fluctuations from inflationary pressures in China and other geographic regions where we conduct business. China is currently experiencing dramatic growth in its economy. This growth may lead to continued pressure on wages and salaries that may exceed increases in productivity. In addition, these may not be compensated for and may be exacerbated by currency movements.

WE FACE INTENSE COMPETITION, AND MANY OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES THAN WE HAVE. INCREASED COMPETITION FROM THESE COMPETITORS MAY REDUCE OUR REVENUES OR DECREASE OUR MARGINS, EITHER OR BOTH OF WHICH WOULD REDUCE OUR PROFITABILITY AND COULD IMPAIR CASH FLOW.

We operate in a competitive environment that is characterized by price deflation and technological change. We compete with several other domestic companies. Our major competitors are Yunnan Evergreen Aloe Biological Co., Ltd. and Taishan AGHG Aloe Products Co., Ltd. Our competitors may have greater market recognition and substantially greater financial, technical, marketing, distribution, purchasing, manufacturing, personnel and other resources than we do. Furthermore, some of our competitors have manufacturing and sales forces that are geographically diversified, allowing them to reduce transportation expenses, tariff costs and currency fluctuations for certain customers in markets where their facilities are located. Many competitors have production lines that allow them to produce more sophisticated and complex devices than we currently do and to offer a broader range of display devices to our target customers. Other emerging companies or companies in related industries may also increase their participation in the display and display module markets, which would intensify competition in our markets. We might lose some of our current or future business to these competitors or be forced to reduce our margins to retain or acquire that business, which could decrease our revenues or slow our future revenue growth and lead to a decline in profitability.

WE DEPEND ON THE MARKET ACCEPTANCE OF OUR PRODUCTS, AND SIGNIFICANT SLOWDOWN IN DEMAND FOR THOSE PRODUCTS WOULD REDUCE OUR REVENUES AND OUR PROFITS.

Our success depends almost entirely upon the widespread market acceptance of our aloe vera products. Any significant slowdown in the demand for our products would likely reduce our revenues and profits. Therefore, we must identify sectors that have significant growth potential. Our failure to identify potential growth opportunities or manufacture products for those sectors would limit our revenue growth and profitability.

WE DO NOT HAVE SUFFICIENT INSURANCE COVERAGE.

We do not have insurance to cover potential risks and liabilities, such as property damage. Insurance companies in China offer limited business insurance products. As a result, we may not be able to acquire any insurance for certain types of risks such as business liability or service disruption insurance for our operations in China, and our coverage may not be adequate to compensate for all losses that may occur, particularly with respect to loss of business or operations. We do not maintain business interruption insurance or product liability insurance, nor do we maintain key-man life insurance. This could leave us exposed to potential claims and losses. Any business disruption, litigation, regulatory action, outbreak of epidemic disease or natural disaster could also expose us to substantial costs and diversion of resources. If we incur any loss, our business, financial condition and results of operations could be materially and adversely affected.

 

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WE EXTEND CREDIT TO OUR CUSTOMERS AND MAY NOT BE ABLE TO COLLECT ALL RECEIVABLES DUE TO US, AND OUR INABILITY TO COLLECT SUCH RECEIVABLES MAY HAVE AN ADVERSE EFFECT ON OUR IMMEDIATE AND LONG-TERM LIQUIDITY.

We extend credit to our customers based on assessments of their financial circumstances, generally without requiring collateral. As of December 31, 2015, 2016, and 2017, our accounts receivable were $17,238, $57,561 and $7,613,832, respectively, and accounts receivable were $995,255 as of September 30, 2018. We may also be unable to obtain satisfactory credit information or adequately secure the credit risk for all customers. The extension of credit presents an exposure to risk of uncollected receivables. Our inability to collect on these accounts may reduce on our immediate and long term liquidity.

THE GROWTH OF OUR BUSINESS DEPENDS ON OUR ABILITY TO FINANCE NEW PRODUCT INNOVATIONS AND THESE INCREASED COSTS MAY REDUCE OUR CASH FLOWS AND, IF THE PRODUCTS IN WHICH WE HAVE INVESTED FAIL, IT WOULD REDUCE OUR PROFITABILITY.

We operate in the consumer products industry, which is characterized by rapid change. New products appear with increasing frequency to supplant existing products. To capture increased market share, manufacturers are adopting a shorter product life cycle from a cosmetic, if not functional, standpoint, but those cosmetic changes generally have little if any direct effect on the power supply products that the new designs incorporate. Technological advances, the introduction of new products, new designs and new manufacturing techniques could render our inventory obsolete, or it could shift demand into areas where we are not currently engaged. If we fail to adapt to those changing conditions in a timely and efficient manner, our revenues and profits would likely decline. To remain competitive, we must continue to incur significant costs in product research and development, marketing, equipment and facilities and to make capital investment. These costs may increase, resulting in greater fixed costs and operating expenses. Our future operating results will depend to a significant extent on our ability to continue to provide new products that compare favorably based on time to market, cost and performance with the design and manufacturing capabilities and competing third-party suppliers and technologies. Our failure to increase our net sales sufficiently to offset these increased costs would reduce our profitability.

CONSUMER PRODUCTS WE PRODUCE MAY CONTAIN DESIGN OR MANUFACTURING DEFECTS, WHICH COULD RESULT IN REDUCED DEMAND FOR OUR PRODUCTS AND END USER CLAIMS, CAUSING US TO SUSTAIN ADDITIONAL COSTS, LOSS OF BUSINESS REPUTATION AND LEGAL LIABILITY.

We manufacture health, beauty, nutritional, and pharmaceutical products, any of which may contain defects. Any defects in the products we manufacture, whether caused by a design, manufacturing or component failure or error, may result in returns, claims, delayed shipments to customers or reduced or cancelled customer orders. If these defects occur, we will incur additional costs, and if they occur in large quantity or frequently, we may sustain additional costs, loss of business reputation and legal liability. For example, in November 2016, consumerlab.com reported that the store brands of aloe products sold by three large U.S. retailers contained no aloe vera. Any claim, even if untrue, that our products are unsafe or impure could severely and adversely affect our sales and profitability.

 

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WE COULD BECOME INVOLVED IN INTELLECTUAL PROPERTY DISPUTES, RESULTING IN SUBSTANTIAL COSTS AND DIVERSION OF OUR MANAGEMENT RESOURCES. SUCH DISPUTES COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS BY INCREASING OUR EXPENSES AND LIMITING THE RESOURCES THAT WE CAN DEVOTE TO EXPANSION OF OUR BUSINESS, EVEN IF WE ULTIMATELY PREVAIL.

Kaifeng Jufeel and its PRC subsidiaries currently possess 12 issued and 12 pending patents. If a third party infringes on any of these rights, we may need to devote significant time and financial resources to combat the infringement. We may not be successful in defending the patents involved in such a dispute. Similarly, while we do not knowingly infringe on patents, copyrights or other intellectual property rights owned by other parties, we may be required to spend a significant amount of time and financial resources to resolve any infringement claims against us. We may not be successful in defending our position or negotiating an alternative remedy. Any litigation could result in substantial costs and diversion of our management resources and could reduce our revenues and profits.

OUR DISTRIBUTORS MAY DECIDE TO DESIGN AND/OR MANUFACTURE THE PRODUCTS THAT THEY CURRENTLY PURCHASE FROM US, WHICH MAY REDUCE OUR REVENUES AND PROFITS, AS WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH THESE IN-HOUSE DEVELOPMENTS.

Our competitive position could also be adversely affected if one or more of our customers or distributors decide to manufacture their own products. We may not be able to compete successfully with these in-house developments by our customers, that would tend to favor their in-house products over ours, even in cases where price and quality may not be comparable.

WE MAY DEVELOP NEW PRODUCTS THAT MAY NOT GAIN MARKET ACCEPTANCE, AND OUR SIGNIFICANT COSTS IN DESIGNING AND MANUFACTURING FOR NEW PRODUCTS MAY NOT RESULT IN SUFFICIENT REVENUE TO OFFSET THOSE COSTS OR TO PRODUCE PROFITS.

We operate in an industry characterized by frequent and rapid changes in consumer demand, the introduction of new products and new design and manufacturing technologies. As a result, we may need to expend funds and commit resources to research and development activities, possibly requiring additional engineering and other technical personnel; purchasing new design, production, and test equipment; and continually enhancing design and manufacturing processes and techniques. We may invest in equipment employing new production techniques for existing products and new equipment in support of new technologies that fail to generate adequate returns on the investment due to insufficient productivity, functionality or market acceptance of the products for which the equipment may be used. We could, therefore, incur significant sums in design and manufacturing services for new product solutions that do not result in sufficient revenue to make those investments profitable. Furthermore, customers may change or delay product introductions or terminate existing products without notice for any number of reasons unrelated to us, including lack of market acceptance for a product. Our future operating results will depend significantly on our ability to provide timely design and manufacturing services for new products that compete favorably with design and manufacturing capabilities and third party suppliers.

OUR MATERIALS SUPPLIERS MAY FAIL TO MEET OUR NEEDS, CAUSING US TO EXPERIENCE MANUFACTURING DELAYS, WHICH MAY HARM OUR RELATIONSHIPS WITH CURRENT OR PROSPECTIVE CUSTOMERS AND REDUCE SALES.

All the ingredients for our products, except for the aloe vera cultivated by us, are sourced from third party suppliers. We purchase a portion of our aloe vera from two unrelated party cultivators in Hainan Province. We do not have long term supply contracts with our suppliers. This generally reduces our commitment risk, but also exposes us to supply risk and to price increases that we may not be able to pass to our customers. In our industry, at times, there are occasional material shortages. If we cannot obtain materials on a timely basis, we may experience manufacturing delays, which could harm our relationships with current or prospective customers and reduce sales. Moreover, some suppliers may offer preferential terms to our competitors, who may have greater buying power or leverage in negotiations. That would place us at a competitive disadvantage.

 

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OUR FINANCIAL PERFORMANCE COULD BE HARMED IF COMPLIANCE WITH NEW ENVIRONMENTAL REGULATIONS BECOMES TOO BURDENSOME.

Although we believe that we comply with applicable Chinese government environmental laws, there is no assurance that we will comply consistently, as such laws and regulations or their interpretation and implementation change. Failure to comply with environmental regulation could result in the imposition of fines, suspension or halting of production or closure of manufacturing operations.

WE MAY NOT BE ABLE TO SECURE FINANCING NEEDED FOR FUTURE OPERATING NEEDS ON ACCEPTABLE TERMS, OR ON ANY TERMS AT ALL.

From time to time, we may seek additional equity or debt financing to provide the capital required to maintain or expand our design and production facilities and equipment and/or working capital, as well as to repay outstanding loans if cash flow from operations is insufficient to do so. We cannot predict with certainty the timing or amount of any such capital requirements. If such financing is not available on satisfactory terms, we may be unable to expand our business or to develop new business at the rate desired.

A DISRUPTION IN THE SUPPLY OF UTILITIES, FIRE OR OTHER CALAMITY AT ANY OF OUR ALOE VERA CULTIVATION FACILITIES OR MANUFACTURING FACILITIES WOULD LIKELY DISRUPT PRODUCTION AND ADVERSELY IMPACT OUR SALES.

We cultivate some of the aloe vera we use in our products at a large cultivation facility in Hainan Province. Additionally, we manufacture our products at production facilities located in Hainan and Jiangsu provinces in the PRC. While we have never experienced any calamities that have disrupted production, any disruption in the utilities at a manufacturing facility, any outbreak of plant diseases, any outbreak of fire, flood or other calamity resulting in significant damage at our facilities would adversely impact our production and would likely have a material adverse effect on our business, financial condition and results of operations.

FAILURE TO MANAGE GROWTH EFFECTIVELY COULD RESULT IN INEFFICIENCIES THAT COULD INCREASE OUR COSTS, REDUCING OUR PROFITABILITY.

We have increased the number of our manufacturing and design programs and intend to expand further the number and diversity of our programs. The number of locations where we manufacture may also increase. Our ability to manage our planned growth effectively will require us to:

	·	Enhance quality control, operation, financial and management systems;
	·	Expand facilities and equipment; and
	·	Successfully hire, train and motivate additional employees, including the technical personnel necessary to operate our production facilities.

An expansion and diversification of our product range, manufacturing and sales will result in increases in our overhead and selling expenses. We may also be required to increase staffing and other expenses as well as expenditures on plant, equipment and property to meet the anticipated demand of our customers. Customers, however, generally do not commit to firm production schedules for more than a short time in advance. Any increase in expenditures in anticipation of future orders that do not materialize would adversely affect our profitability. Customers also may require rapid increases in design and production services that place an excessive short-term burden on our resources and reduce our profitability.

POTENTIAL STRATEGIC ALLIANCES MAY NOT ACHIEVE THEIR OBJECTIVES, WHICH COULD LEAD TO WASTED EFFORT OR INVOLVEMENT IN VENTURES THAT ARE NOT PROFITABLE AND COULD HARM OUR COMPANY’S REPUTATION.

We are currently exploring strategic alliances designed to enhance or complement our technology or to work in conjunction with our technology, increase our manufacturing capacity, provide additional know-how, components or supplies, and develop, introduce and distribute products and services utilizing our technology and know-how. Any strategic alliances we enter into may not achieve their strategic objectives, and parties to our strategic alliances may not perform as contemplated. As a result, the alliances themselves may run at a loss, which would reduce our profitability, and if the products or customer service provided by such alliances were of inferior quality, our reputation in the marketplace could be harmed, affecting our existing and future customer relationships.

 

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WE MAY NOT BE ABLE TO RETAIN, RECRUIT AND TRAIN ADEQUATE MANAGEMENT AND PRODUCTION PERSONNEL. WE RELY HEAVILY ON THOSE PERSONNEL TO HELP DEVELOP AND EXECUTE OUR BUSINESS PLANS AND STRATEGIES, AND IF WE LOSE SUCH PERSONNEL, IT WOULD REDUCE OUR ABILITY TO OPERATE EFFECTIVELY.

Our success is dependent, to a large extent, on our ability to retain the services of our executive management, who have contributed to our growth and expansion to date. Our founder, President, and Chairman Mr. Rongxuan Zhang (“Mr. Zhang”) plays a critical role in our operations and the development of our new products. Accordingly, the loss of his services without suitable replacements would harm on our business generally, operating results, and prospects.

In addition, our continued operations are dependent upon our ability to identify and recruit adequate management and production personnel in China. We require trained graduates of varying levels and experience and a flexible work force of semi-skilled operators. Many of our current employees come from the more remote regions of China as they are attracted by the wage differential and prospects afforded by the provinces in which we operate. With the current economic growth in China, competition for qualified personnel is substantial, and there can be no guarantee that a favorable employment climate will continue and that wage rates we must offer to attract qualified personnel will enable us to remain competitive internationally. Inability to attract such personnel may or the increased cost of doing so could reduce our competitive advantage relative to other agricultural or consumer products producers, reducing or eliminating our growth in revenues and profits.

WE HAVE IDENTIFIED MATERIAL WEAKNESSES IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING. IF WE FAIL TO DEVELOP OR MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD. AS A RESULT, CURRENT AND POTENTIAL STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING, WHICH WOULD HARM OUR BUSINESS AND THE TRADING PRICE OF OUR SECURITIES.

In connection with the audit of our consolidated financial statements for the years ended December 31, 2017 and 2016, our management concluded that the Company had material weaknesses in its internal controls because i) the Company did not have a full-time CFO that is proficient in US GAAP and SEC reporting before February 2018, which could adversely affect the Company’s ability to record, process, summarize, and report financial data in accordance with US GAAP and the SEC reporting; ii) The Company lacked of the key monitoring mechanisms such as internal audit department to oversee and monitor Company’s risk management, business strategies and financial reporting procedures, also we did not have adequately designed and documented management review controls to properly detect and prevent certain accounting errors and omitted disclosures in the footnotes to the consolidated financial statements; iii) the Company lacked of sufficient resources with US GAAP and the SEC reporting experiences in the accounting department to provide accurate information on a timely manner ; iv) the Company did not have a qualified lawyer to review all its important contracts that may result in potential dispute between the parties; v) the Company lacked of internal controls over related party transactions; vi) the Company lacks controls over communications and document retention between its accounting and business departments and between the parent company and its subsidiaries; vii) the Company lacks controls over accurately capturing payments made to vendors; and viii) the Company lacks controls over accurately capturing documenting transactions on credit facilities. As defined under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Our management is developing a plan to remediate the material weaknesses, although there can be no assurance that such plans, when enacted, will be successful. In February 2018 we addressed one of these material weaknesses as we have hired a chief financial officer that is proficient in US GAAP and SEC reporting, and in September 2017 we hired a lawyer as the Company’s Chinese legal counsel for all legal matters of the Company.

Management continues to review and assess our internal controls to ensure we have adequate internal financial and accounting controls. However, any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, and cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) with respect to annual reports that we will file. The existence of a material weakness could result in errors in our financial statements that could cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information which may lead to a decline in our stock price.

 

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RISKS RELATING TO THIS OFFERING

WE ARE AN “EMERGING GROWTH COMPANY,” AND ANY DECISION ON OUR PART TO COMPLY WITH CERTAIN REDUCED DISCLOSURE REQUIREMENTS APPLICABLE TO EMERGING GROWTH COMPANIES COULD MAKE OUR COMMON STOCK LESS ATTRACTIVE TO INVESTORS.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act enacted in April 2012, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, not being required to comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, 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, not being required to comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We could remain an emerging growth company until the earliest of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our first sale of common equity securities pursuant to an effective registration statement; (iii) the date on which we have issued more than $1.07 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer. 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, that 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. We cannot predict if investors will find our Common Stock less attractive if we choose to rely on these exemptions. If some investors find our Common Stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our Common Stock and our stock price may be more volatile. Further, as a result of these scaled regulatory requirements, our disclosure may be more limited than that of other public companies and you may not have the same protections afforded to shareholders of such companies.

OUR STOCK HAS HISTORICALLY HAD A LIMITED MARKET. IF AN ACTIVE TRADING MARKET FOR OUR COMMON STOCK DOES DEVELOP, TRADING PRICES MAY BE VOLATILE.

If an active trading market develops, the market price of the shares of Common Stock may be based on factors that may not be indicative of future market performance. Consequently, the market price of the Common Stock may vary greatly. If an active market for the Common Stock develops, there is a significant risk that the stock price may fluctuate dramatically in the future in response to any of the following factors, some of which are beyond our control:

 

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WE WILL BE SUBJECT TO THE REPORTING REQUIREMENTS OF FEDERAL SECURITIES LAWS, WHICH CAN BE EXPENSIVE.

After effectiveness of the registration statement of which this prospectus is a part, we will be subject to the information and reporting requirements under the Securities Exchange Act of 1934 and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act of 2002, subject to certain exemptions from such requirements under the JOBS Act applicable to emerging growth companies. The costs of preparing and filing annual and quarterly reports and other information with the SEC has and will continue to cause our expenses to be higher than they would be if we were a privately-held company.

SALES BY OUR PRINCIPAL SHAREHOLDER OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

A large number (18,892,943, or 67.4%) of our outstanding shares of Common Stock are held by our President, Chief Executive Officer, Director Mr. Zhang. If this shareholder were to decide to sell large number of shares of stock over a short period of time such sales could cause the market price of the Common Stock to decline.

OUR STOCK PRICE HAS BEEN VOLATILE AND SUBJECT TO VARIOUS MARKET CONDITIONS.

The trading price of the Common Stock has been subject to wide fluctuations. The price of the Common Stock may fluctuate in the future in response to quarter-to-quarter variations in operating results, material announcements by us or our competitors, governmental regulatory action, conditions in the nutritional supplement industry, negative publicity, or other events or factors, many of which are beyond our control. In addition, the stock market has historically experienced significant price and volume fluctuations, which have particularly affected the market prices of many dietary and nutritional supplement companies and which have, in certain cases, not had a strong correlation to the operating performance of these companies. Our operating results in future quarters may be below the expectations of securities analysts and investors. If that were to occur, the price of the Common Stock would likely decline, perhaps substantially.

OUR OFFICERS AND DIRECTORS MAY HAVE A CONFLICT OF INTEREST WITH THE MINORITY SHAREHOLDERS AT SOME TIME IN THE FUTURE BECAUSE THE MAJORITY OF OUR SHARES OF COMMON STOCK ARE OWNED BY OUR PRESIDENT, CHIEF EXECUTIVE OFFICER, AND DIRECTOR. THUS, THE OTHER SHAREHOLDERS MAY NOT BE ABLE TO INFLUENCE OR CONTROL THE COMPANY’S BOARD OF DIRECTORS, OR MANAGEMENT’S DECISION MAKING.

As of the date of this prospectus, Rongxuan Zhang, our President, Chief Executive Officer, and Director, beneficially owns, either directly or through entities controlled by him, a majority or approximately 67.4% of our outstanding common stock. Mr. Zhang’s interests may not always be the same as those of our minority shareholders. Mr. Zhang is not simply a passive investor, but is also our Chief Executive Officer, President, and Director, and his interests as an executive may at times be adverse to those of passive investors. Where those conflicts exist, our shareholders will be dependent upon Mr. Zhang exercising, in a manner fair to all our shareholders, his fiduciary duties as an officer and/or director. Also, Mr. Zhang can control the outcome of most corporate actions requiring shareholder approval, including the sale of all or substantially all our assets, amendments to our Articles of Incorporation and the election of directors. This concentration of ownership may also delay, defer, or prevent a change of control of the Company, that may be disadvantageous to minority shareholders.

BECAUSE WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS ON OUR COMMON STOCK, OUR SHAREHOLDERS 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 our common stock in the foreseeable future. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them. There is no assurance that shareholders will be able to sell shares when desired.

 

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RISKS RELATED TO THE MARKET FOR OUR STOCK GENERALLY

OUR COMMON STOCK IS CURRENTLY QUOTED ON THE OVER-THE-COUNTER PINK OPEN MARKET THAT MAY HAVE AN UNFAVORABLE IMPACT ON OUR STOCK PRICE AND LIQUIDITY.

Our common stock is quoted Over-the-Counter on the OTC Pink Open Market. The OTC Pink Open Market is a significantly more limited market than established trading markets such as the New York Stock Exchange or NASDAQ. The quotation of our shares on the OTC Pink Open Market may result in a less liquid market available for existing and potential shareholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future. We plan to list our common stock on the Over-the-Counter Bulletin Board, or on a senior exchange such as NASDAQ as soon as practicable. However, we cannot assure you that we could meet the initial listing standards of any stock exchange, or that we could maintain any such listing.

RISKS RELATING TO DOING BUSINESS IN CHINA

CHANGES IN THE POLITICAL AND ECONOMIC POLICIES OF THE PRC GOVERNMENT MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND MAY RESULT IN OUR INABILITY TO SUSTAIN OUR GROWTH AND EXPANSION STRATEGIES.

Most of our operations are conducted in the PRC and substantially all our revenue is sourced from the PRC. Accordingly, our financial condition and results of operations are affected to a significant extent by economic, political and legal developments in the PRC.

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

While the PRC economy has experienced significant growth in the past three decades, growth has been uneven, both geographically and among various sectors of the economy. 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 PRC economy, but may also have a negative effect on us. Our financial condition and results of operation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the PRC government has implemented in the past certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for our services and consequently have a material adverse effect on our businesses, financial condition and results of operations.

THERE ARE UNCERTAINTIES REGARDING THE INTERPRETATION AND ENFORCEMENT OF PRC LAWS, RULES AND REGULATIONS.

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

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

Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered and could materially and adversely affect our business, financial condition and results of operations.

IF THE PRC GOVERNMENT FINDS THAT THE CONTRACTUAL ARRANGEMENTS IN RELATION TO OUR VARIABLE INTEREST ENTITIES DO NOT COMPLY WITH PRC GOVERNMENTAL RESTRICTIONS ON FOREIGN INVESTMENT, OR IF THESE REGULATIONS OR THE INTERPRETATION OF EXISTING REGULATIONS CHANGES IN THE FUTURE, WE COULD BE SUBJECT TO PENALTIES OR BE FORCED TO RELINQUISH OUR INTERESTS IN THOSE OPERATIONS.

Foreign ownership of certain types of businesses is subject to restrictions under applicable PRC laws, rules and regulations. All of our revenue during 2016 and 2017, and the nine months ended September 30, 2018, was generated by Kaifeng Jufeel’s PRC incorporated variable interest entities. These variable interest entities are owned by PRC citizens who are our founders or senior employees or by PRC entities owned by such PRC citizens, or the variable interest entity equity holders, with whom we have contractual arrangements, or the contractual arrangements. The contractual arrangements give us effective control over each of the variable interest entities and enable us to obtain substantially all the economic benefits arising from the variable interest entities as well as consolidate the financial results of the variable interest entities in our results of operations. Although the structure we have adopted is consistent with longstanding industry practice, and is commonly adopted by comparable companies in China, the PRC government may not agree that these arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future.

It is uncertain whether any new PRC laws, rules or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of our variable interest entities are found to be in violation of any existing or future PRC laws, rules or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including revoking the business and operating licenses of our PRC subsidiaries or the variable interest entities, requiring us to discontinue or restrict our operations, restricting our right to collect revenue, blocking one or more of our websites, requiring us to restructure our operations or taking other regulatory or enforcement actions against us. The imposition of any of these measures could result in a material adverse effect on our ability to conduct all or any portion of our business operations. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of any of our variable interest entities in our consolidated financial statements, if the PRC government authorities were to find our legal structure and contractual arrangements to be in violation of PRC laws, rules and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of any of our material variable interest entities or otherwise separate from any of these entities and if we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of our variable interest entities in our consolidated financial statements. Any of these events would have a material adverse effect on our business, financial condition and results of operations.

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OUR CONTRACTUAL ARRANGEMENTS MAY NOT BE AS EFFECTIVE IN PROVIDING CONTROL OVER THE VARIABLE INTEREST ENTITIES AS DIRECT OWNERSHIP.

We rely on contractual arrangements with our variable interest entities to operate part of our businesses in China where foreign investment in certain businesses is restricted or prohibited. For a description of these contractual arrangements, see “INFORMATION WITH RESPECT TO OUR BUSINESS – The Business--Our History and Corporate Structure — Contractual Arrangements among Our Wholly-foreign Owned Enterprises, Variable Interest Entities and the Variable Interest Entity Equity Holders.” These contractual arrangements may not be as effective as direct ownership in providing us with control over our variable interest entities.

If we had direct ownership of the variable interest entities, we could exercise our rights as an equity holder directly to effect changes in the boards of directors of those entities, which could effect changes at the management and operational level. Under our contractual arrangements, we may not be able to directly change the members of the boards of directors of these entities and would have to rely on the variable interest entities and the variable interest entity equity holders to perform their obligations to exercise our control over the variable interest entities. The variable interest entity equity holders may have conflicts of interest with us or our shareholders, and they may not act in the best interests of our company or may not perform their obligations under these contracts. For example, our variable interest entities and their respective equity holders could breach their contractual arrangements with us by, among other things, failing to conduct their operations, including maintaining our websites and using our domain names and trademarks which the relevant variable interest entities have exclusive rights to use, in an acceptable manner or taking other actions that are detrimental to our interests. Pursuant to the call option, we may replace the equity holders of the variable interest entities at any time pursuant to the contractual arrangements. However, if any equity holder is uncooperative and any dispute relating to these contracts or the replacement of the equity holders remains unresolved, we will have to enforce our rights under the contractual arrangements through the operations of PRC law and arbitral or judicial agencies, which may be costly and time-consuming and will be subject to uncertainties in the PRC legal system. See “— Any failure by our variable interest entities or their equity holders to perform their obligations under the contractual arrangements would have a material adverse effect on our business, financial condition and results of operations.” Consequently, the contractual arrangements may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership.

ANY FAILURE BY OUR VARIABLE INTEREST ENTITIES OR THEIR EQUITY HOLDERS TO PERFORM THEIR OBLIGATIONS UNDER THE CONTRACTUAL ARRANGEMENTS WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

If our variable interest entities or their equity holders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. Although we have entered into call option agreements in relation to each variable interest entity, which provide that we may exercise an option to acquire, or nominate a person to acquire, ownership of the equity in that entity or, in some cases, its assets, to the extent permitted by applicable PRC laws, rules and regulations, the exercise of these call options is subject to the review and approval of the relevant PRC governmental authorities. We have also entered into equity pledge agreements with respect to each variable interest entity to secure certain obligations of such variable interest entity or its equity holders to us under the contractual arrangements. However, the enforcement of such agreements through arbitral or judicial agencies may be costly and time-consuming and will be subject to uncertainties in the PRC legal system. Moreover, our remedies under the equity pledge agreements are primarily intended to help us collect debts owed to us by the variable interest entities or the variable interest entity equity holders under the contractual arrangements and may not help us in acquiring the assets or equity of the variable interest entities.

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In addition, although the terms of the contractual arrangements provide that they will be binding on the successors of the variable interest entity equity holders, as those successors are not a party to the agreements, it is uncertain whether the successors in case of the death, bankruptcy or divorce of a variable interest entity equity holder will be subject to or will be willing to honor the obligations of such variable interest entity equity holder under the contractual arrangements. If the relevant variable interest entity or its equity holder (or its successor), as applicable, fails to transfer the shares of the variable interest entity according to the respective call option agreement or equity pledge agreement, we would need to enforce our rights under the call option agreement or equity pledge agreement, which may be costly and time-consuming and may not be successful.

The contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration or court proceedings in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. Moreover, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law, and as a result it may be difficult to predict how an arbitration panel or court would view such contractual arrangements. As a result, uncertainties in the PRC legal system could limit our ability to enforce the contractual arrangements. Under PRC law, if the losing parties fail to carry out the arbitration awards or court judgments within a prescribed time limit, the prevailing parties may only enforce the arbitration awards or court judgments in PRC courts, which would require additional expense and delay. If we cannot enforce the contractual arrangements, we may not be able to exert effective control over the variable interest entities, and our ability to conduct our business, as well as our financial condition and results of operations, may be materially and adversely affected.

WE MAY LOSE THE ABILITY TO USE, OR OTHERWISE BENEFIT FROM, THE LICENSES, APPROVALS AND ASSETS HELD BY OUR VARIABLE INTEREST ENTITIES, WHICH COULD SEVERELY DISRUPT OUR BUSINESS, RENDER US UNABLE TO CONDUCT SOME OR ALL OUR BUSINESS OPERATIONS AND CONSTRAIN OUR GROWTH.

Although the significant majority of our revenues are generated, and the significant majority of our operational assets are held, by our wholly-foreign owned enterprises, which are our subsidiaries, our variable interest entities hold licenses and approvals and assets that are necessary for our business operations, as well as equity interests in a series of our portfolio companies, to which foreign investments are typically restricted or prohibited under applicable PRC law. The contractual arrangements contain terms that specifically obligate variable interest entity equity holders to ensure the valid existence of the variable interest entities and restrict the disposal of material assets of the variable interest entities. However, in the event the variable interest entity equity holders breach the terms of these contractual arrangements and voluntarily liquidate our variable interest entities, or any of our variable interest entities declares bankruptcy and all or part of its assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to conduct some or all of our business operations or otherwise benefit from the assets held by the variable interest entities, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, if any of our variable interest entities undergoes a voluntary or involuntary liquidation proceeding, its equity holders or unrelated third-party creditors may claim rights to some or all the assets of such variable interest entity, thereby hindering our ability to operate our business as well as constrain our growth.

THE EQUITY HOLDERS, DIRECTORS AND EXECUTIVE OFFICERS OF THE VARIABLE INTEREST ENTITIES, AS WELL AS OUR EMPLOYEES WHO EXECUTE OTHER STRATEGIC INITIATIVES MAY HAVE POTENTIAL CONFLICTS OF INTEREST WITH OUR COMPANY.

PRC laws provide that a director and an executive officer owes a fiduciary duty to the company he or she directs or manages. The directors and executive officers of the variable interest entities, including Rongxuan Zhang, our founder and executive chairman, must act in good faith and in the best interests of the variable interest entities and must not use their respective positions for personal gain. On the other hand, as a director of our company, Mr. Zhang has a duty of care and loyalty to our company and to our shareholders under Wyoming law. We control our variable interest entities through contractual arrangements and the business and operations of our variable interest entities are closely integrated with the business and operations of our subsidiaries. Nonetheless, conflicts of interests for these individuals may arise due to dual roles both as directors and executive officers of the variable interest entities and as directors or employees of our Company, and may also arise due to dual roles both as variable interest entity equity holders and as directors or employees of our company.

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We cannot assure you that these individuals will always act in the best interests of our Company should any conflicts of interest arise, or that any conflicts of interest will always be resolved in our favor. We also cannot assure you that these individuals will ensure that the variable interest entities will not breach the existing contractual arrangements. If we cannot resolve any such conflicts of interest or any related disputes, we would have to rely on legal proceedings to resolve these disputes and/or take enforcement action under the contractual arrangements. There is substantial uncertainty as to the outcome of any such legal proceedings. See “--Any failure by our variable interest entities or their equity holders to perform their obligations under the contractual arrangements would have a material and adverse effect on our business, financial condition and results of operations.”

THE CONTRACTUAL ARRANGEMENTS WITH OUR VARIABLE INTEREST ENTITIES MAY BE SUBJECT TO SCRUTINY BY THE PRC TAX AUTHORITIES. ANY ADJUSTMENT OF RELATED PARTY TRANSACTION PRICING COULD LEAD TO ADDITIONAL TAXES, AND THEREFORE SUBSTANTIALLY REDUCE OUR CONSOLIDATED NET INCOME AND THE VALUE OF YOUR INVESTMENT.

The tax regime in China is rapidly evolving and there is significant uncertainty for taxpayers in China as PRC tax laws may be interpreted in significantly different ways. The PRC tax authorities may assert that we or our subsidiaries or the variable interest entities or their equity holders owe and/or are required to pay additional taxes on previous or future revenue or income. Under applicable PRC laws, rules and regulations, arrangements and transactions among related parties, such as the contractual arrangements with our variable interest entities, may be subject to audit or challenge by the PRC tax authorities. If the PRC tax authorities determine that any contractual arrangements were not entered into on an arm’s length basis and therefore constitute a favorable transfer pricing, the PRC tax liabilities of the relevant subsidiaries and/or variable interest entities and/or variable interest entity equity holders could be increased, which could increase our overall tax liabilities. In addition, the PRC tax authorities may impose late payment interest. Our net income may be materially reduced if our tax liabilities increase.

IF CHINA DOES NOT CONTINUE ITS POLICY OF ECONOMIC REFORMS, IT COULD, AMONG OTHER THINGS, RESULT IN AN INCREASE IN TARIFFS AND TRADE RESTRICTIONS ON PRODUCTS WE PRODUCE OR SELL FOLLOWING A BUSINESS COMBINATION, MAKING OUR PRODUCTS LESS ATTRACTIVE AND POTENTIALLY REDUCING OUR REVENUES AND PROFITS.

China’s government has been reforming its economic system since the late 1970s. The economy of China has historically been a nationalistic, “planned economy,” meaning it has functioned and produced according to governmental plans and pre-set targets or quotas.

However, in recent years, the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform and the reduction of state ownership in business enterprises. Although we believe that the changes adopted by the government of China have had a positive effect on the economic development of China, additional changes still need to be made. For example, a substantial portion of productive assets in China are still owned by the Chinese government. Additionally, the government continues to play a significant role in regulating industrial development. We cannot predict the timing or extent of any future economic reforms that may be proposed, but should they occur, they could reduce our operating flexibility or require us to divert our efforts to products or ventures that are less profitable than those we would elect to pursue on our own.

A recent positive economic change has been China’s entry into the World Trade Organization, the global international organization dealing with the rules of trade between nations. It is believed that China’s entry will ultimately result in a reduction of tariffs for industrial products, a reduction in trade restrictions and an increase in trading with the United States. However, China has not fully complied with all its WTO obligations to date, including fully opening its markets to American goods and easing the current trade imbalance between the two countries. If actions are not taken to rectify these problems, trade relations between the United States and China may be strained, and this may have a negative impact on China’s economy and our business by leading to the imposition of trade barriers on items that incorporate our products, which would reduce our revenues and profits.

 

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BECAUSE CHINESE LAW GOVERNS ALMOST ALL OUR MATERIAL AGREEMENTS, WE MAY NOT BE ABLE TO ENFORCE OUR LEGAL RIGHTS WITHIN CHINA OR ELSEWHERE THAT COULD RESULT IN A SIGNIFICANT LOSS OF BUSINESS, BUSINESS OPPORTUNITIES, OR CAPITAL.

Chinese law governs almost all our material agreements. We cannot assure you that we will be able to enforce any of our material agreements or that remedies will be available outside of China. The system of laws and the enforcement of existing laws in China may not be as certain in implementation and interpretation as in the United States. The Chinese judiciary is relatively inexperienced in enforcing corporate and commercial law, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital.

Additionally, substantially all our assets will be located outside of the United States and most of our officers and directors will reside outside of the United States. As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under Federal securities laws. Moreover, we have been advised that China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States. Further, it is unclear if extradition treaties now in effect between the United States and China would permit effective enforcement of criminal penalties of the Federal securities laws.

IT WILL BE EXTREMELY DIFFICULT TO ACQUIRE JURISDICTION AND ENFORCE LIABILITIES AGAINST OUR OFFICERS, DIRECTORS AND ASSETS BASED IN CHINA.

Because our officers and directors reside outside of the United States, it may be difficult, if not impossible, to acquire jurisdiction over those persons if a lawsuit is initiated against us and/or our officers and directors by a shareholder or group of shareholders in the United States. Also, because our officers will likely be residing in China at the time such a suit is initiated, achieving service of process against such persons would be extremely difficult. Furthermore, because most our assets are in China, it would also be extremely difficult to access those assets to satisfy an award entered against us in United States court. Moreover, we have been advised that China does not have treaties with the United States providing for the reciprocal recognition and enforcement of judgments of courts

WE MAY HAVE DIFFICULTY ESTABLISHING ADEQUATE MANAGEMENT, LEGAL AND FINANCIAL CONTROLS IN CHINA, THAT COULD IMPAIR OUR PLANNING PROCESSES AND MAKE IT DIFFICULT TO PROVIDE ACCURATE REPORTS OF OUR OPERATING RESULTS.

China historically has not followed Western style management and financial reporting concepts and practices, and its access to modern banking, computer and other control systems has been limited. We may have difficulty in hiring and retaining enough qualified employees to work in China in these areas. Because of these factors, we may have trouble in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards, making it difficult for management to forecast its needs and to present the results of our operations accurately.

IMPOSITION OF TRADE BARRIERS AND TAXES MAY REDUCE OUR ABILITY TO DO BUSINESS INTERNATIONALLY, AND THE RESULTING LOSS OF REVENUE COULD HARM OUR PROFITABILITY.

We may experience barriers to conducting business and trade in our targeted emerging markets in the form of delayed customs clearances, customs duties and tariffs. In addition, we may be subject to repatriation taxes levied upon the exchange of income from local currency into foreign currency, substantial taxes of profits, revenues, assets and payroll, as well as value-added tax. The markets in which we plan to operate may impose onerous and unpredictable duties, tariffs and taxes on our business and products, and there can be no assurance that this will not reduce the level of sales that we achieve in such markets, which would reduce our revenues and profits.

 

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THERE CAN BE NO GUARANTEE THAT CHINA WILL COMPLY WITH THE MEMBERSHIP REQUIREMENTS OF THE WORLD TRADE ORGANIZATION, WHICH COULD LEAVE US SUBJECT TO RETALIATORY ACTIONS BY OTHER GOVERNMENTS AND REDUCE OUR ABILITY TO SELL OUR PRODUCTS INTERNATIONALLY.

China has agreed that foreign companies will be allowed to import most products into any part of China. In the sensitive area of intellectual property rights, China has agreed to implement the trade-related intellectual property agreement of the Uruguay Round. There can be no assurances that China will implement any or all the requirements of its membership in the World Trade Organization in a timely manner. If China does not fulfill its obligations to the World Trade Organization, we may be subject to retaliatory actions by the governments of the countries into which we sell our products, which could render our products less attractive, thus reducing our revenues and profits.

There can be no guarantee that our management will continuously meet its obligations under Chinese law to enable distribution of profits earned in China to entities outside of China.

A circular recently promulgated by the State Administration of Foreign Exchange, or SAFE, has increased the ability of foreign holding companies to receive distributions of profits earned by Chinese operating subsidiaries. While they have agreed to meet those annual requirements, it is possible that they will fail to do so, which could limit our ability to gain access to the profits earned by Kaifeng Jufeel. The result could be the inability to pay dividends to our shareholders or to deploy capital outside of China in a manner that would be beneficial to our business.

WE MAY INCUR MATERIAL PRODUCT LIABILITY CLAIMS, THAT COULD INCREASE OUR COSTS AND HARM OUR FINANCIAL CONDITION AND OPERATING RESULTS.

It is possible that widespread product liability claims could increase our costs, and adversely affect our revenues and operating income. Moreover, liability claims arising from a serious adverse event may increase our costs through higher insurance premiums and deductibles, and may make it more difficult to secure adequate insurance coverage in the future. In addition, as we do not maintain product liability insurance, we will be responsible to cover future product liability claims, thereby requiring us to pay substantial monetary damages and adversely affecting our business. We haven’t had any incident that damages were reported and determined to be cause by our products.

Substantially all our assets are in the PRC, and substantially all our revenue comes from PRC sources. Accordingly, our results of operations, financial position and prospects are subject to a significant degree to the economic, political and legal developments of the PRC.

THE CHINESE GOVERNMENT EXERTS SUBSTANTIAL INFLUENCE OVER THE WAY WE MUST CONDUCT OUR BUSINESS ACTIVITIES.

China only recently has permitted provincial and local economic autonomy and private economic activities. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate 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 regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

 

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FUTURE INFLATION IN CHINA MAY INHIBIT OUR ABILITY TO CONDUCT BUSINESS IN CHINA.

In recent years, the Chinese economy has experienced periods of rapid expansion and highly fluctuating rates of inflation. During the past ten years, the rate of inflation in China has been as high as 20.7% and as low as -2.2%. These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and our company.

PRC REGULATIONS RELATING TO INVESTMENTS IN OFFSHORE COMPANIES BY PRC RESIDENTS MAY SUBJECT OUR PRC-RESIDENT BENEFICIAL OWNERS OR OUR PRC SUBSIDIARIES TO LIABILITY OR PENALTIES, LIMIT OUR ABILITY TO INJECT CAPITAL INTO OUR PRC SUBSIDIARIES OR LIMIT OUR PRC SUBSIDIARIES’ ABILITY TO INCREASE THEIR REGISTERED CAPITAL OR DISTRIBUTE PROFITS.

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. If a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

We have notified substantial beneficial owners of ordinary shares who we know are PRC residents of their filing obligation, and we have periodically filed SAFE Circular 75 reports prior to the promulgation of SAFE Circular 37 on behalf of certain employee shareholders who we know are PRC residents. However, we may not be aware of the identities of all our beneficial owners who are PRC residents. We do not have control over our beneficial owners and cannot assure you that all our PRC-resident beneficial owners will comply with SAFE Circular 37 and subsequent implementation rules. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Furthermore, since SAFE Circular 37 was recently promulgated and it is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, we cannot predict how these regulations will affect our business operations or future strategy. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to our company. These risks may have a material adverse effect on our business, financial condition and results of operations.

THE VALUE OF OUR SECURITIES WILL BE AFFECTED BY THE CURRENCY EXCHANGE RATE BETWEEN U.S. DOLLARS AND RMB.

The value of our common stock will be affected by the foreign exchange rate between U.S. dollars and RMB, and between those currencies and other currencies in which our sales may be denominated. For example, if we need to convert U.S. dollars into RMB for our operational needs and the RMB appreciates against the U.S. dollar at that time, our financial position, our business, and the price of our common stock may be harmed. Conversely, if we decide to convert our RMB into U.S. dollars for declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced.

 

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Our procurement strategy is to diversify our suppliers both in the PRC and overseas. And some of our processing equipment is currently imported. These transactions are often settled in U.S. dollars or other foreign currency. If the U.S. dollars or other foreign currency appreciate against RMB, our costs will increase. If we cannot pass the resulted cost increase to our customers, our profitability and operating results will suffer. In addition, because our sales to international customers are growing, we are subject to the risk of foreign currency depreciation.

WE MAY BE EXPOSED TO LIABILITIES UNDER THE FOREIGN CORRUPT PRACTICES ACT, AND ANY DETERMINATION THAT WE VIOLATED THE FOREIGN CORRUPT PRACTICES ACT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

We are subject to the Foreign Corrupt Practice Act, or the FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for obtaining or retaining business. We have operations, agreements with third parties and we make sales in China. Our activities in China create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents or distributors of our Company, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

WE MAY BE TREATED AS A RESIDENT ENTERPRISE FOR PRC TAX PURPOSES UNDER THE PRC ENTERPRISE INCOME TAX LAW, AND WE MAY THEREFORE BE SUBJECT TO PRC INCOME TAX ON OUR GLOBAL INCOME.

Under the PRC Enterprise Income Tax Law and its implementing rules, both of which came into effect on January 1, 2008, enterprises established under the laws of jurisdictions outside of China with “de facto management bodies” located in China may be considered PRC tax resident enterprises for tax purposes and may be subject to the PRC enterprise income tax at the rate of 25% on their global income. “De facto management body” refers to a managing body that exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises. Currently, we generate only a small portion of our revenues offshore. However, if this proportion were to increase and if we were to be considered a PRC resident enterprise, we would be subject to PRC enterprise income tax at the rate of 25% on our global income. In such case, our profitability and cash flow may be materially reduced as a result of our global income being taxed under the Enterprise Income Tax Law. We believe that none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”

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DIVIDENDS PAYABLE TO OUR FOREIGN INVESTORS AND GAINS ON THE SALE OF OUR COMMON STOCK BY OUR FOREIGN INVESTORS MAY BECOME SUBJECT TO PRC TAX LAW.

Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC. Similarly, any gain realized on the transfer of common stock by such investors is also subject to PRC tax at a current rate of 10%, subject to any reduction or exemption set forth in relevant tax treaties, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on our common stock, and any gain realized from the transfer of our common stock, would be treated as income derived from sources within the PRC and would as a result be subject to PRC taxation. See “Regulation — Regulations on Tax.” Furthermore, if we are deemed a PRC resident enterprise, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer of common stock by such investors may be subject to PRC tax at a current rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties. It is unclear whether if we or any of our subsidiaries established outside China are considered a PRC resident enterprise, holders of our common stock would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to our non-

PRC investors, or gains from the transfer of our common stock by such investors are subject to PRC tax, the value of your investment in our common stock may decline significantly.

USE OF PROCEEDS

We are registering these shares pursuant to the registration rights granted to the Selling Shareholders. We will not receive any proceeds from the sale or other disposition by the Selling Shareholders of the shares of our common stock covered by this prospectus.

DETERMINATION OF THE OFFERING PRICE

The offering price of the common stock has been arbitrarily determined and bears no relationship to any objective criterion of value. The price does not bear any relationship to our assets, book value, historical earnings or net worth. No valuation or appraisal has been prepared for our business. We cannot assure you that a public market for our securities will develop or continue or that the securities will ever trade at a price higher than the offering price.

DILUTION

Net tangible book value dilution per share represents the difference between the amount per share paid by purchasers of shares of common stock and the pro forma as adjusted net tangible book value per share of common stock immediately after completion of this offering. Since the Company is not offering new shares and it will not receive any proceeds from the offering, as a result there is no dilution as a result of the offering.

 

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SELLING SECURITY HOLDERS

The Selling Shareholders listed below will be offering their shares in private transactions or on the public market through registered broker dealers. All sales may be offered at a price of $6.00 per share for the duration of the offering. In the case of sales through broker dealers, sales commissions shall be limited to 5%.

(1) “Beneficial ownership” is a term broadly defined by the SEC in Rule 13d-3 under the Exchange Act and includes more than direct individual ownership. Beneficial ownership includes indirect ownership, or ownership of shares through an entity.

(2) Assumes the Selling Shareholders dispose of all the shares covered by this prospectus and do not acquire beneficial ownership of any other shares of the Company. The registration of the shares does not necessarily mean that the selling shareholders will sell all or any portion of the shares covered by this prospectus. However, if the Selling Shareholders dispose of all the shares covered by this prospectus, none will hold 1% or more of the Company’s common stock.

Material Relationships with Selling Shareholders

None of the Selling Shareholders on this prospectus have or have had in the past five years any material relationship with the Company other than as a holder of the Company’s common stock. Neither of the Selling Shareholders are associated persons of, or otherwise affiliated, with any broker-dealers. They both received their shares for their service provided to Kaifeng Jufeel from September 2016 to October 2017, and received their share certificates of the Company in September and October 2017. They paid no consideration for the shares, but the fair value of their service was evaluated at $0.42 per share.

PLAN OF DISTRIBUTION

The Selling Shareholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling shareholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions shall be at $6.00 per share for the duration of the offering. 

The Selling Shareholders may use any one or more of the following methods when disposing of shares or interests therein:

 

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The Selling Shareholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of Selling Shareholders to include the pledgee, transferee or other successors in interest as Selling Shareholders under this prospectus. The Selling Shareholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

In connection with the sale of our common stock or interests therein, the Selling Shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The Selling Shareholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The aggregate proceeds to the Selling Shareholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the Selling Shareholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.

The Selling Shareholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule.

The Selling Shareholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling Shareholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.

To the extent required, the shares of our common stock to be sold, the names of the selling shareholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

We have advised the Selling Shareholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the Selling Shareholders and their affiliates. In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling shareholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Shareholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

We have agreed with the Selling Shareholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which all of the shares may be sold without restriction pursuant to Rule 144 of the Securities Act.

 

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REGULATION M

The Selling Shareholders who will offer and sell the shares, offered hereby, are aware that they are required to comply with the provisions of Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the officers and directors, sales agents, any broker-dealer or other person who participates in the distribution of shares in this offering from bidding for or purchasing or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete.

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DESCRIPTION OF SECURITIES

COMMON STOCK

Jufeel’s Articles of Incorporation authorize the issuance of an unlimited number of shares of common stock, no par value per share, of which 28,030,010 shares were outstanding as of December 31, 2017. Holders of shares of common stock are entitled to one vote for each share on all matters entitled to a shareholder vote. Holders of common stock have no cumulative voting rights. Holders of shares of common stock are entitled to share pro rata in dividends, if any are declared. Our Board of Directors has discretion to declare dividends from time to time from any funds legally available. In a liquidation, dissolution, or winding up of the Company’s affairs, the holders of shares of common stock are entitled to share pro rata all assets remaining after payment in full of all liabilities and the liquidation preference to holders of preferred stock. Holders of common stock have no preemptive rights to purchase Jufeel’s common stock. There are no conversion rights or redemption or sinking fund provisions with respect to the common stock.

Any action required or permitted to be taken at a shareholders’ meeting may be taken without a meeting, and without prior notice, if written consent of not less than the minimum number of votes that would be required to authorize or take such action at a meeting at which all shares entitled to vote were present and voted.

PREFERRED STOCK

Jufeel’s Articles of Incorporation authorizes the issuance of an unlimited number of shares of preferred stock, no par value, of which no shares are outstanding as of September 30, 2018.

The holders of preferred stock shall have such preferences, limitations and relative rights as may be determined, prior to the issuance of such preferred stock, by the Board of Directors. Jufeel desires to have preferred stock available to provide flexibility in structuring possible future acquisitions and financings and to address corporate needs that may arise. If opportunities arise that would make desirable the issuance of preferred stock through either a public offering or private placements, the flexible preferred stock provisions in our Articles of Incorporation allow the Company to avoid the possible delay and expense of holding a shareholder meeting, except as may be required by law or regulatory authorities. Issuance of the preferred stock could result, however, in a series of securities outstanding that will have certain preferences with respect to dividends and liquidation over the common stock that would dilute the income per share and net book value of the common stock. Issuance of additional common stock pursuant to any conversion right that may be included in the terms of any series of preferred stock may also dilute the net income per share and the net book value of the common stock. The specific terms of any series of preferred stock will depend primarily on market conditions, terms of a proposed acquisition or financing, and other factors existing at the time of issuance. Therefore, it is not possible now to determine how a particular series of preferred stock would affect Jufeel’s common stock or any other series of preferred stock that Jufeel may issue. Our Board of Directors may issue additional preferred stock in future financings, but has no current plans to do so.

The issuance of preferred stock could make it more difficult for a third party to acquire a majority of the outstanding voting stock of Jufeel.

Jufeel intends to furnish holders of its common stock annual reports containing audited financial statements and to make public quarterly reports containing unaudited financial information.

STOCK TRANSFER AGENT

The transfer agent for our common stock is Globex Stock Transfer, LLC.

INTERESTS OF NAMED EXPERTS AND COUNSEL

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering nor was any such person connected with the Company as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

JMS Law Group, PLLC may render an opinion with respect to the validity of the shares of common stock covered by this prospectus. JMS Law Group, PLLC does not own any shares of the Company.

The consolidated financial statements as of December 31, 2015, 2016 and 2017 and for each of the three years in the period ended December 31, 2017 included in this prospectus, have been audited by Marcum Bernstein & Pinchuk LLP, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the Registration Statement. Such financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The office address of Marcum Bernstein & Pinchuk LLP is 7 Penn Plaza Suite 830, New York, NY 10001

 

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INFORMATION WITH RESPECT TO THE REGISTRANT

The Business

Overview

Jufeel International Group (“Jufeel,“ “we” or the “Company”) is a Wyoming corporation. The Company was established through a series of transactions more fully described under the section entitled “Reorganization” below. Our wholly owned subsidiary, Jufeel Holdings Co., Ltd., wholly owns Ivan International Biology Limited, a Hong Kong corporation that owns 100% of the shares of a PRC-registered wholly owned foreign entity Kaifeng Ivan King Biotechnology Co., Ltd. (“Ivan King”). Ivan King has entered into variable interest agreements with Kaifeng Jufeel Biotechnology Co., Ltd. (“Kaifeng Jufeel”), a PRC entity engaged in the cultivation, processing, research and development, and sale of aloe vera products developed for the health, beauty, nutritional, and pharmaceutical industries. Our business is headquartered in Henan province, PRC. On August 5, 2011, our current business began operating through Kaifeng Jufeel and its four PRC subsidiaries. We are a bio-tech company that cultivates, produces, develops, and sells raw aloe vera and aloe vera based consumer products through our distribution network in mainland China.

Corporate History

Bros Holding Company (“BHC”) incorporated in Nevada on April 28, 2010 as a holding company for a BVI subsidiary and its subsidiaries, and traded on OTC Markets under the trading symbol “BSHG.” After 2013, BHC management ceased paying Nevada franchise taxes and BHC’s transfer agent ceased providing services for non-payment, and therefore apparently BHC management abandoned the company. The corporate charter was revoked. On August 26, 2016, the Nevada district court, pursuant to Nevada Revised Statutes §78.347, appointed a non-affiliated shareholder as BHC’s custodian to preserve its corporate existence. Pursuant to that court order, the custodian issued to himself 85 million common shares as compensation for expenses incurred reviving the Company, resulting in 100,005,000 shares issued and outstanding as of January 24, 2017. On January 24, 2017, the custodian sold those shares to Rong Rao (acting as nominee for Mr. Zhang) and appointed her as the sole member of the BHC Board of Directors.

On or about January 30, 2017, BHC changed its name to Jufeel International Group (“Jufeel Nevada”). In February 2017, BHC changed its trading symbol to “CNJG,” and effected a 1-for-500 reverse split of its common stock. As a result of the reverse split, there were 200,010 common shares issued and outstanding, of which 170,000 were owned by Rong Rao (acting as nominee for Mr. Zhang, beneficially owned by Mr. Zhang) and 30,010 shares were owned by the former shareholders.

Ms. Rao transferred 170,000 shares to our President and CEO, Rongxuan Zhang on February 27, 2017 for no consideration. These 200,010 shares were outstanding prior to the establishment of the Variable Interest Entities (the “VIE”) entities and the issuance of shares of the publicly traded parent to shareholders of the PRC operating company. On March 27, 2017, Jufeel Nevada’s Board of Directors authorized the issuance of 27,830,000 additional shares to Mr. Zhang and approximately 60 employees, consultants, cooperation partners and service providers of the Company.

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Reorganization

In 2017, the Company went through a series of corporate transactions whereby ultimately Jufeel Wyoming merged with Jufeel International Group (a Nevada Corporation, formerly Bros Holding Company (as described below) hereinafter “Jufeel Nevada”).

The following chart illustrates the structure of the Company prior to reorganization:

Timeline

On January 14, 2017, Jufeel Nevada was purchased by a third party on behalf of Mr. Zhang for $120,000 and then transferred to Mr. Zhang on February 27, 2017 for no consideration. In February 2017, Jufeel Nevada effected a 1-for-500 reverse split of its common stock. As a result of the reverse split, there were 200,010 common shares issued and outstanding, of which 170,000 were beneficially owned by Mr. Zhang and 30,010 shares were owned by the former shareholders. The 30,010 shares owned by the former shareholders have been presented as outstanding as of the beginning of the earliest period presented. In July 2017, Jufeel Nevada reorganized as a holding company, incorporating three tiers of Oklahoma subsidiaries (Jufeel Interim Corporation (“Jufeel Interim”), Jufeel International Group, Inc. (“Jufeel Oklahoma”), Bros Holding Company and Jufeel Wyoming). In August 2017, Jufeel Nevada merged into Jufeel Interim, and then merged into Bros Holding Company, with Bros Holding Company as the surviving entity. Bros Holding Company was sold to a non-affiliated third party, and later dissolved on November 3, 2017. On August 22, 2017, Jufeel Oklahoma merged into Jufeel Wyoming in order to change its domicile to Wyoming, with Jufeel Wyoming as the surviving entity.

Effective on August 22, 2017, shareholders of Kaifeng Jufeel and Ivan King or WOFE entered into a series of contractual agreements (“VIE Agreements” which are described below). As a result, the Company, through its wholly owned subsidiaries Ivan King, identify Kaifeng Jufeel as a variable interest entity (or “VIE”) and has been determined to be the primary beneficiary of Kaifeng Jufeel. Accordingly, the Company consolidates Kaifeng Jufeel’s operations, assets and liabilities.

As a part of the holding company reorganization, on September 15, 2017 and October 24, 2017, Jufeel Wyoming issued 27,830,000 additional shares to Mr. Zhang and employees, service providers and cooperation partners of the Company. The issuance of these shares represented interests for each holders in Kaifeng Jufeel prior to the reorganization. Following the issuances, Mr. Zhang owns, either directly or through entities controlled by him, approximately 18,892,943 shares, or 67.4% of the Company’s common stock. On October 25, 2017, the reorganization was completed.

Immediately before and after the Reorganization, the ultimate owners’ equity interests of Kaifeng Jufeel were almost identical of those of the Company. Accordingly, the Reorganization is accounted for as a legal reorganization of the entities under common control in a manner akin to a pooling of interest as if the Company, through its wholly owned subsidiaries, had been in existence and been the primary beneficiary of the VIE throughout the periods presented in the consolidated financial statements.

 

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Current Operations

Jufeel Holdings Co., Ltd. (“Jufeel Holdings”) was established in the British Virgin Islands (“BVI”) on May 10, 2017 by a third party on behalf of Mr. Rongxuan Zhang, the founder, president, chairman and the controlling shareholder of the Company (“Mr. Zhang”). On May 16, 2017, the third party transferred all the shares to Mr. Zhang for no consideration. On August 22, 2017, Mr. Zhang has transferred all the shares to Jufeel Wyoming.

Ivan International Biology Limited. (“Ivan International”) was established as an investment holding company by a third party in Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”) on April 23, 2015. On June 7, 2017, the shares of Ivan International were transferred to Mr. Zhang for US$1,200. On the same day, Jufeel Holdings signed a shareholding entrustment agreement with Mr. Zhang to state that Mr. Zhang holds the equity interest in Ivan International on behalf of Jufeel Holding. On October 27, 2017, the official transfer of shares of Ivan International to Jufeel Holdings was completed.

Kaifeng Ivan King Biotechnology Co., Ltd. (“Ivan King” or “WFOE”) was established as a wholly foreign owned enterprise on August 09, 2017 in Kaifeng, the PRC by Ivan International. Ivan King is principally engaged in providing related technical supports and business consulting services to Kaifeng Jufeel Biotech Co, Ltd. (“Kaifeng Jufeel”).

Kaifeng Jufeel was incorporated on August 05, 2011 registered in Kaifeng, Henan Province, under the laws of the PRC with a principal office in Zhengzhou, Henan. Kaifeng Jufeel was 49% owned by Mr. Zhang and 51% owned by Henan Jufeel Technology Group Co., Ltd. (“Henan Jufeel”) an entity owned by Mr. Zhang, before September 23, 2016. From September 23, 2016 to October 24, 2017, Mr. Zhang contributed 32.5% of the equity interests of Kaifeng Jufeel to certain shareholders (See Note 17 to the financial statements for details). After the contribution, Mr. Zhang owns 67.5% of the equity interests of Kaifeng Jufeel.

Hainan Zhongchen Biological Engineering Co, Ltd. (“Hainan Zhongchen”), was incorporated on July 03, 2001 in Haikou, Hainan Province, under the laws of the PRC by former independent third parties. In 2012, the 70% ownership interest of Hainan Zhongchen was sold to Jufeel Technology and Trading Co., Ltd., a company which was controlled by Mr. Zhang, for $3,103,133 and Mr. Zhang became the ultimate controlling shareholder of Hainan Zhongchen. In October 2016, the 70% ownership interest of Hainan Zhongchen owned by Jufeel Technology and Trading Co., Ltd. was transferred to Kaifeng Jufeel. As the result, the transfer of the 70% ownership interest was accounted as business combination under common control.

Suzhou Yihuotong E-business Co, Ltd (“Suzhou Yihuotong”) was incorporated on August 10, 2016 registered in Suzhou, Jiangsu Province, under the laws of the PRC, a wholly owned subsidiary of Kaifeng Jufeel.

Wuxi Jufeel PMAS Life Technology Co, Ltd (“Wuxi Jufeel”) was incorporated on October 11, 2016 registered in Suzhou, Jiangsu Province, under the laws of the PRC. The shareholders Mrs. Zhang Yi, Henan Jufeel Technology Investment Co., Ltd. and Mr. Lu Dajie hold 70%, 10% and 20% of Wuxi Jufeel’s equity interest, respectively. On the same day, Mrs. Zhang Yi and Henan Jufeel Technology Investment Co., Ltd. signed a share entrustment agreement with Kaifeng Jufeel and agreed that they hold the equity interest in Wuxi Jufeel on behalf of Kaifeng Jufeel. In this regard, Kaifeng Jufeel owns 80% equity interest in Wuxi Jufeel. As a result, the Company consolidates Wuxi Jufeel and there is 20% non-controlling interests.

Changzhou Jufeel PMAS Aloe Biotechnology Co, Ltd. (“Changzhou Jufeel”) was incorporated on May 23, 2017 registered in Changzhou, Jiangsu Province, under the laws of the PRC. Kaifeng Jufeel owns 70%, and Wuxi Jufeel owns 30% of its equity interests.

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Contractual Arrangements among Our Wholly-foreign Owned Enterprises, Variable Interest Entities and the Variable Interest Entity Equity Holders

On August 22, 2017, Ivan King, Kaifeng Jufeel, and the shareholders of Kaifeng Jufeel have entered into a series of contractual agreements in order to enable the Company to (1) have power to direct the activities that most significantly affects the economic performance of Kaifeng Jufeel, and (2) receive the economic benefits of Kaifeng Jufeel that could be significant to Kaifeng Jufeel. The Company is fully and exclusively responsible for the management of Kaifeng Jufeel, assumes all of risk of losses of Kaifeng Jufeel and has the exclusive right to exercise all voting rights of Kai-feng Jufeel's shareholder. Therefore, in accordance with ASC 810 "Consolidation", the Company is considered the primary beneficiary of Kaifeng Jufeel and has consolidated Kaifeng Jufeel’s assets, liabilities, results of operations, and cash flows in the accompanying consolidated financial statements. The VIE Agreements are as follows:

	(1)	Business Operations Agreement: Pursuant to the terms of a Business Operations Agreement dated August 22, 2017, between Ivan King and the shareholders of Kaifeng Jufeel (the “Business Operations Agreement”), Kaifeng Jufeel and their shareholders agreed to entrust the operations and management of its business to Ivan International Biology Limited. According to the Entrusted Management Agreement, Ivan International Biology Limited possesses the full and exclusive right to manage Kaifeng Jufeel’s operations, assets and personnel, and Kaifeng Jufeel shall pledge to Ivan International all of its assets, including accounts receivable, and the latter has the obligation to guarantee all of the obligations of the former. The Business Operations Agreement has a ten-year term but may be terminated earlier if (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of Kaifeng Jufeel; or (iii) Ivan International Biology Limited acquires all the assets or equity of Kaifeng Jufeel (as more fully described below under “Exclusive Option Agreement”).
	(2)	Exclusive Consulting and Service Agreement: Pursuant to the terms of an Exclusive Consulting and Service Agreement dated August 22, 2017, between Ivan Hong Kong and Kaifeng Jufeel (the “Service Agreement”), Ivan Hong Kong is the exclusive technology consulting service provider to Kaifeng Jufeel. Kaifeng Jufeel agreed to pay Ivan Hong Kong all fees payable for technology which may be developed or owned by Ivan. The Service Agreement shall remain in effect for ten years or until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of Kaifeng Jufeel; or (iii) Ivan Hong Kong acquires Kaifeng Jufeel (as more fully described below under “Exclusive Option Agreement”).
	(3)	Shareholder’s Voting Proxy Agreement: Pursuant to the terms of certain Shareholder’s Voting Proxy Agreements dated August 22, 2017, between Ivan Hong Kong and each of the shareholders of Kaifeng Jufeel (the “Shareholder’s Voting Proxy Agreements”), the shareholders of Kaifeng Jufeel irrevocably appointed Ivan Hong Kong as their proxy to exercise on such shareholders’ behalf all of their voting rights as shareholders pursuant to PRC law and the Articles of Association of Kaifeng Jufeel, including the appointment and election of directors of Kaifeng Jufeel. The Shareholder’s Voting Proxy Agreements have a term of 10 years and will be mutually extended on each 10-year anniversary; provided that should the Business Operations Agreement terminate, the Shareholder’s Voting Proxy Agreements will automatically terminate.
	(4)	Exclusive Equity Option Agreement: Pursuant to the terms of an Exclusive Option Agreement dated August 22, 2017, between Ivan Hong Kong, Kaifeng Jufeel, and the shareholders of Kaifeng Jufeel (the “Exclusive Option Agreement”), the shareholders of Kaifeng Jufeel granted Ivan International Biology Limited (or its designee) an irrevocable and exclusive purchase option (the “Option”) to acquire Kaifeng Jufeel’s equity interests and/or remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions. The Option is exercisable at any time at Ivan International Biology Limited’s discretion so long as such exercise and subsequent acquisition of Kaifeng Jufeel does not violate PRC law. The consideration for the exercise of the Option shall be the registered capital of Kaifeng Jufeel. Ivan International Biology Limited may transfer all rights and obligations under the Exclusive Option Agreements to a third party. The Exclusive Option Agreement may be terminated by Ivan International Biology Limited if its exercise becomes prohibited by law.
	(5)	Equity Interest Pledge Agreement: Pursuant to the terms of an Equity Interest Pledge Agreement dated August 22, 2017, between Ivan Hong Kong and the shareholders of Kaifeng Jufeel (the “Pledge Agreement”), the shareholders of Kaifeng Jufeel pledged all of their equity interests in Kaifeng Jufeel to Ivan International Biology Limited, including the proceeds thereof, to guarantee all of Ivan International Biology Limited’s rights and benefits under the Business Operations Agreement, the Exclusive Option Agreements, and the Shareholder’ Voting Proxy. Prior to termination of the Pledge Agreement, the pledged equity interests cannot be transferred without Ivan Hong Kong’s prior written consent. The Pledge Agreements may be terminated only upon the written agreement of the parties, and expire two years after the last to terminate of any of the other named agreements.

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Ivan International Biology Limited acquired Kaifeng Jufeel using the VIE arrangement based on our need to further develop our business and comply with PRC regulatory requirements.

In September and October 2017, 27,830,000 shares were issued by Jufeel Wyoming. Following the issuance, Mr. Zhang owns, either directly or through entities controlled by him, approximately 18,892,943 shares, or 67.4% of the Company’s common stock shares.

Corporate Structure

The following chart illustrates our Company’s corporate structure as of the date of this prospectus:

VIE AGREEMENTS

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*Began operating in 2017

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Our Business

Our founder, Rongxuan Zhang, began researching the aloe vera industry in the United States in 1999. He believed that this plant, virtually unknown in China, could be developed and marketed for domestic production, and began a worldwide search for the best plant stock and processing practices. As a result, he organized Jufeel into a vertically integrated producer, developer and supplier of products from the aloe vera plant. We believe that Aloe vera (Aloe barbadensis miller) has a great potential in the cosmetic and health industry as there are more than 75 bioactive compounds found in the plant. Aloe vera has traditionally been used as an emollient remedy for skin conditions such as burns, sunburns, frostbite and psoriasis, but has seen wide use in cosmetics and health supplements. Aloe vera may have health benefits as a home remedy for gastrointestinal and other ailments. High purity polysaccharides including acetylated mannan may be beneficial to the human immune system and are believed to have other pharmacological applications. We produce aloe products for four major consumer market categories: health, beauty, nutritional supplements and pharmaceutical.

On December 3, 2018, the Office of the National Leading Group for the Identification and Management of High-tech Enterprises issued the Notice on Promulgation the Third Batch of Proposed High-tech Enterprises in Henan Province in 2018, and Kaifeng Jufeel Biotechnology Co., Ltd. was listed among them, becoming a high-growth enterprise supported by the state.

Raw Materials and Cultivation

Aloe vera is a tropical plant, and grows best in tropical climates with moderate rainfall and black cotton soils (heavy soils) such as those found in Hainan, China. Hainan, colloquially known as “China’s Hawaii,” is an island province in the south of China across the Gulf of Tonkin from Vietnam. The aloe vera plant is native to Africa, the Mediterranean, and the Middle East, but has been grown commercially in the U.S. in the Rio Grande Valley of Texas and in California, and worldwide in similar desert climates. The plant is primarily propagated by planting suckers, or offshoots of the parent plant. Natural propagation of aloe vera by suckers is slow, and has historically been unable to meet the increasing demand of the health and cosmetic industries. Aloe plant suckers can be harvested approximately two to three years after planting.

We use both raw materials harvested from our own cultivation facilities in Hainan and materials purchased from two unrelated party cultivators in Hainan, Jinquisong Agricultural Development Co., Ltd., which is engaged in general agricultural production and has supplied us since 2013, and an individual aloe vera cultivator, Mr. Zhou Haitao, an individual aloe leaf supplier Haikou, who has supplied us with aloe leaves since 2010. We grow our plants on our 305-acre farm located in Hainan Province, People’s Republic of China. In China, all land is owned by the state and agricultural land is generally owned by rural collectives. We lease our current aloe growing properties under leases that expire in 2019, 2031 and 2043. We are currently negotiating the lease of an additional 100 acres of land to increase our production capacity.

Production

Following harvest, the aloe vera leaves go through a state of the art production process to extract the gel and juice. Our processing and extraction facility is in Haikou City, Hainan. When current construction is complete, we will also have a production base of PMAS at our corporate headquarters in Kaifeng, Henan Province. We also purchase some of our cosmetic products from a company in Guangzhou, and outsource the production of our aloe drinks to a company in Henan.

We use state of the art, reverse osmosis cold processing technology that enables separation, purification, concentration and disinfection to be conducted at normal room temperatures, thus preserving the plant’s bioactive properties. The cleanliness of our processing facility is certified to produce food-grade product, and we process the plants without using chemicals or additives. Harvested leaf must be refrigerated if it is not immediately processed to preserve the integrity of the active ingredients.

 

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Our Products

We sell both raw aloe materials and a variety of branded aloe products sold under our Jufeel trademark. We believe PMAS, the bioactive ingredient in many of our Jufeel products, is the world’s most advanced living cell anti-aging technology and bioimmunopolysaccharide purification technology. PMAS, or “pure acetate” (phthalocyanine) is derived from the acetylated mannan (Acemannan) polysaccharide found in aloe leaves. Approximately .7 grams of PMAS can be extracted from each kilogram of aloe leaves. We have developed proprietary processing methods to produce what we believe is the purest and most efficacious PMAS product worldwide.

Our most popular products are Super ZD and PMAS aloe tablet, Jufeel PMAS aloe toothpaste, PMAS Oral Instant Membrane, and Qi Jiantao beauty products (whitening creams, sunscreen, skin care)

Our revenues by category are as follows:

		Nine months ended				Percentage				Nine months ended				Percentage
		09/30/2018				of Revenues				09/30/2017				of Revenues
Health care products and cosmetics		$	11,775,601				93.9	%		$	8,299,679				86.8	%
Aloe material sales			750,705				6.0	%			980,040				10.2	%
Related party sales of aloe material			-				-				267,162				2.8	%
Related party sales of health/cosmetics			17,636				0.1	%			16,439				0.2	%
Total sales		$	12,543,942				100.0	%		$	9,563,320				100.0	%

  

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New Products

In August 2017, we launched our own aloe based branded beverage called “IDD aloe juice.” This product is our first attempt to deploy our high-quality aloe vera raw material in the fast beverage industry. We believe our IDD aloe juice drink with its quality ingredients, ideal taste, and competitive price is poised to become a leading plant-based health drink in China’s health conscious beverage market. In addition, we expend significant resources in research and development to develop other commercial health and beauty uses for our aloe vera products.

In 2018, the Company introduced its latest product, PMAS No. 6, an aloe vera gel products which is an upgraded version of aloe vera Oral Instant Membrane using nanotechnology. We believe that the introduction of new products will substantially increase revenue and gross margins.

Product Distribution

We are constantly monitoring the market for our products and adapting our sales techniques in an effort to maximize our sales potential. Starting the second half of 2016, we sold our products through exclusive distributors who purchased local territories, generally smaller buyers. Distributors were required to advertise our branded products at the manufacturer’s suggested retail prices. Our agreements with exclusive distributors renew yearly, thus we can evaluate their efficacy at frequent intervals. During this time, substantially all of our branded product sales were also sold online or through our WeChat account opened by our PRC subsidiary Suzhou Yihuotong. Our distributors and agents provide our WeChat app account called “Yihuotong” to the end consumer or small retailer, and the distributor’s account is automatically credited. Following the order, our products ship directly to consumers from our Zhengzhou headquarters. This marketing strategy aims to allow swift market entry without the significant costs of establishing traditional regional distribution and warehousing facilities in a territory as large as China. We had licensed distributor territories throughout a significant portion of mainland China, but we still have some territories available for sale. The Company requires the distributors/agents to pay a membership fee in exchange for the exclusive right to sell our products in a defined geographic area.

In the fourth quarter of 2016 the Company launched a sales promotion on the Yihuotong system under which, in part, agents had priority buying of our new product (PMAS No. 1), which resulted in strong sales for the end of 2016. In considering the feasibility of this model, the Company decided, in the first quarter of 2017, rather than rely on smaller buyers of its products, and the agency model, to rather target larger customers (dealers).

In 2017, we had 466 distributors, compared to 404 in 2016, and 181 in 2015. However, we had higher distributor concentration in 2017. Our distributor sales account for approximately 85% of our total finished product sales. One distributor, Anhui Xunhe E-business Co., Ltd (and its affiliated company, Anhui Pupuying E-business Co., Ltd), has accounted for 5% or more in sales for two years (5% in 2016 and 15% in 2017) of our total sales revenues; another distributor, Zhengzhou Jiuxing Biotechnology Information Center, accounted for 20% in 2017, and three other distributors accounted for 8-10% each in 2017.

Our Major Customers

We earn revenues through the sale of our products through an established network of distributors who sell our products to customers throughout China, and through our online website and our WeChat account called Yihuotong.

Historically, our largest single customer has been Coca-Cola Beverages (Shanghai) Co., Ltd., (“Coca-Cola”) for which sales accounted for 20%, 6% and 3% of our total sales for fiscal years 2015, 2016 and 2017, respectively. The sales to Coca-Cola consisted of raw also materials that Coca-Cola uses as ingredients in their aloe soft drink beverages sold in China. As is typical for sales of raw aloe materials, those sales have a lower gross margin than those of our other branded consumer products. We expect our sales to Coca-Cola to decrease as a percentage of our total sales as we continue to develop and launch our own branded products. Three customers accounted for 20%, 15% and 11% of annual sales for the year ended December 31, 2017, respectively. No customer accounted for more than 10% of annual sales for the year ended December 31, 2016. One customer accounted for 20% of annual sales for the year ended December 31, 2015.

 

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Our Growth Strategy

Although China has a long tradition of herbal remedies, the aloe plant is not native to China. In the United States, according to a 2015 survey conducted by industry trade group the Council for Responsible Nutrition, over 50% of adults take herbal supplements. China has a long history of natural remedy use, but Chinese consumers are comparatively unfamiliar with the potential health uses of aloe. We believe our domestic sales will increase quickly and significantly as Chinese consumers learn more about the potential health benefits and uses for aloe.

To help increase market penetration, we have established a sales and marketing center in Kaifeng, Henan Province where we have approximately 35 employees engaged in sales and marketing activities. We plan to reach out to potential distributors in provinces where we do not currently have any distributors. Currently, our branded products are primarily sold in mainland China, but we plan to enter international markets in Europe, Asia, and the United States as we increase production. We plan to open a sales office in the United States in 2018.

Research and Development

We currently operate our research and development department located in our Kaifeng headquarters. As of October 2017, we have five research and development personnel, two of which hold advanced degrees. Our research and development department is responsible for developing advanced health and beauty technologies and new pharmacological products.

We spent approximately $596,297, $310,897, and $269,945 on research and development expenses during 2017, 2016, in 2015, respectively. These expenses included the costs of development new products like our new IDD aloe soft drink beverage, new processing and extraction methods and methods to improve our current processes. For the nine months ended September 30, 2018, we spent $703,939 on research and development expenses. We plan to continue our research and development activities in 2018 and have budgeted similar amounts for these costs.

In the past few years, we have established cooperation relationships with the School of Pharmacy of Nanjing Traditional Chinese Medicine University (one of the most well-known schools of Chinese medicine research), the School of Pharmaceutical and Life Sciences of Changzhou University (one of the most well-known schools in China in the field of food processing) and the Zhongshan Medical University of Taiwan. We have also hired scholars and academicians from the United States and Australia to help us with scientific research. We have invested heavily in the research of aloe extract technology, aloe extract on AIDS treatment, aloe extract on tumor control research, and achieved good results.

In April 2018, Mr. Zhang won the "Gold Award" of medical health field at the 46th Science and Technology Expo in Geneva on behalf of the Company; in August 2018, the Company's "Aloe PMAS Oral Instant Dissolution Film Development and Industrialization" was awarded the scientific and technological achievements of the Ministry of Science and Technology of China; in September 2018, the 20th STD-AIDS and Infectious disease international meeting was held in Thailand, Mr. Zhang was invited to attend this meeting. The chairman of the conference presented Mr. Zhang with a certificate of honor jointly awarded by the world's three prestigious universities, the University of Oxford, the University of Strasbourg, France, and the University of California; in September 2018, the Company's PMAS No. 1 product was approved by the Chinese People's Liberation Army General Hospital (one of the most authoritative hospitals in China) to conduct a study about the impact of PMAS on women's climacteric syndrome (MPS), and began phase II clinical trials. 

Competition

The market for aloe products in China has just emerged in recent years, but is still relatively undeveloped.

As with most other products, a competitive advantage in the market for aloe products is derived from a favorable combination of quality, price, and customer service. We believe that we are well-positioned to compete successfully in each of those areas. Our state of the art cold processing method allows us to extract a high percentage of the available bioactive compounds in the aloe leaves, thus making our products more potent and effective than our competitors’ products. We also believe our aloe strains are of the highest and most productive varieties available worldwide. We cultivate our aloe plants organically, do not use synthetic pesticides or fertilizers for the three years prior to harvest, and use only non-GMO rootstock. Thus, our aloe products are 100% organic as defined by USDA guidelines.

 

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In addition, we believe that our cultivation potential is higher than any of our competitors, particularly after we finalize our negotiation for the lease of an additional 100 acres of cultivation property. Due to the aloe plant’s long cultivation period and the relatively higher cost of propagation by suckers compared to seed growing, commercial aloe farming requires significant cash resources. The large cash requirement acts as a barrier to market entry. To our knowledge, our 305-acre organic aloe plant farm in Haikou City (Hainan, China) is the largest organic aloe planting base in China, and we are among the best capitalized companies in our industry.

Finally, our distribution model enables us to provide superior customer service as our products ship directly from our distribution center in Henan rather than through our regional distributors. This direct shipping model enables the customer to receive the product more quickly.

Due to the significant barriers to market entry including the requirement of significant startup capital, large tracts of arable land with soil conducive to the cultivation of aloe plants, and the equipment required to process the raw materials, there are relatively minimal competition in our industry. Currently, we believe there are very few other PRC companies cultivating, producing, and selling high-quality branded aloe products.

Currently, there are at least two companies engaged in large-scale commercial cultivation and processing of aloe in Hainan and Yunnan provinces, namely Yunnan Evergreen Aloe Biological Co., Ltd. and Taishan AGHG Aloe Products Co., Ltd. Additionally, there are other companies offering aloe juice beverages in their product lines including JiRay Food Co., Ltd.

Licenses

We are licensed as a food sales operator for sales of prepackaged food excluding chilled and frozen food. We are also licensed to conduct foreign trade, and are designated a “high-tech enterprise” by Henan Provincial Science and Technology Agency where our main offices are located. We plan to obtain a license to produce designated health food, as required by the Chinese Food and Drug Administration to sell products designated as such, but as of the date of this prospectus, we are only licensed to produce ordinary food.

Compliance with Government Regulation

Restrictions on Food and Drug Production and Labeling

In accordance with the provisions of Article 77 of China’s Food Safety Law, adopted in 2015, and the relevant provisions of the Regulations on Health Food Registration and Filing, health food can only be lawfully produced by enterprises holding a health food production license and the health food produced must be registered with the Food and Drug Administration based on different raw materials used. Whereas the Company does not hold a license to produce designated health food, it must market, advertise, and sell its products as ordinary food.

Restrictions on Advertisement

In accordance with the provisions of Article 17 of China’s Advertising Law, only medical, pharmaceutical, and medical device products may be advertised as disease treatment. This law also prohibits the use of medical terms and misleading statements to advertise or market products not registered for medical or pharmaceutical use. Also, trademarks used in product advertisements should comply with the foregoing laws. Should our products be found to violate any of these laws, we could be subject to fines and legal liability in China.

Restriction on Foreign Ownership

The Company and its subsidiaries operate in compliance with the laws and regulations of the PRC. The principal regulation governing foreign ownership of businesses in China is the Foreign Investment Industrial Guidance Catalogue, effective December 11, 2007 (the “Catalogue”). The Catalogue classifies various industries into four categories: encouraged, permitted, restricted and prohibited. The business of the Company and its subsidiaries fall within the “Encouraged” category of the Catalogue.

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Such a designation offers businesses distinct advantages. For example, businesses engaged in “encouraged” industries:

The National Development and Reform Commission and the Ministry of Commerce periodically jointly revise the Catalogue. As such, there is a possibility that our Company’s business may fall outside the scope of the definition of an encouraged industry in the future. Should this occur, we would no longer benefit from such designation.

Taxation and Subsidies

The Chinese government provides tax incentives and subsidies to domestic companies in our industry to encourage the development of agricultural and high technology businesses in China. During 2016, we received business tax exemptions or reductions, subsidies, and government incentives from the local tax administration due to being awarded numerous awards and accolades for being a high-tech company developing technologies with broad health and social benefit.

The Chinese government authorities may reduce or eliminate these high-tech industry tax incentives through new legislation or other regulatory actions at any time in the future. Should we no longer be exempt from regular taxation, our applicable tax rate would increase from 15% to up to 25%, the standard business income tax rate in China.

Regulation of Foreign Currency Exchange and Dividend Distribution

Foreign Currency Exchange. The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (1996), as amended, and the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996). Under these regulations, Renminbi are freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for most capital account items, such as direct investment, loans, repatriation of investment and investment in securities outside China, unless the prior approval of SAFE or its local counterpart is obtained. In addition, any loans to an operating subsidiary in China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its respective approved total investment amount and its respective approved registered capital amount. Furthermore, any foreign loan must be registered with SAFE or its local counterparts for the loan to be valid. Any increase in the amount of the total investment and registered capital must be approved by the PRC Ministry of Commerce or its local counterpart. We may not be able to obtain these government approvals or registrations on a timely basis, if at all, which could result in a delay in the process of making loans to our subsidiaries.

Dividend Distribution. The principal regulations governing the distribution of dividends by foreign holding companies include the Foreign Investment Enterprise Law (1986), as amended, and the Administrative Rules under the Foreign Investment Enterprise Law (2001).

Under these regulations, foreign investment enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, foreign investment enterprises in China are required to allocate at least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprise. These reserves are not distributable as cash dividends.

 

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Notice 75. On October 21, 2005, SAFE issued Notice 75, which became effective as of November 1, 2005. According to Notice 75, prior registration with the local SAFE branch is required for PRC residents to establish or to control an offshore company for the purposes of financing that offshore company with assets or equity interests in an enterprise located in the PRC. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required for the injection of equity interests or assets of an onshore enterprise in the offshore company or overseas funds raised by such offshore company, or any other material change involving a change in the capital of the offshore company.

Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to its offshore parent or affiliate and capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.

PRC residents who control our company are required to register with SAFE in connection with their investments in us. Such individuals began this registration process on March 8, 2010. If we use our stock or other equity interest to purchase the assets or equity interest of a PRC company owned by PRC residents in the future, such PRC residents will be subject to the registration procedures described in Notice 75.

New M & A Regulations and Overseas Listings. On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly issued Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006. This New M&A Rule, among other things, includes provisions that purport to require that an offshore special purpose vehicle formed for purposes of overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals obtain the approval of CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.

On September 21, 2006, CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take several months to complete the approval process. The application of this new PRC regulation remains unclear with no consensus currently existing among leading PRC law firms regarding the scope or the applicability of the CSRC approval requirement.

Regulations on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC Subsidiaries. An offshore company may invest equity in a PRC company which will become the PRC subsidiary of the offshore holding company after investment. Such equity investment is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which include the Wholly Foreign Owned Enterprise Law, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Contractual Joint Venture Enterprise Law, all as amended from time to time, and their respective implementing rules; the Tentative Provisions on the Foreign Exchange Registration Administration of Foreign-Invested Enterprise; and the Notice on Certain Matters Relating to the Change of Registered Capital of Foreign-Invested Enterprises.

Under the aforesaid laws and regulations, the increase of the registered capital of a foreign-invested enterprise is subject to the prior approval of the authority which approved the initial investment. In addition, the increase in registered capital and the total investment amount must both be registered with SAIC and SAFE.

Shareholder loans made by offshore parent holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purposes which are subject to several PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Measures on Administration on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and the Administration Rules on the Settlement, Sale and Payment of Foreign Exchange.

Under these regulations, shareholder loans made by offshore parent holding companies to their PRC subsidiaries are to be registered with SAFE. Furthermore, the total amount of foreign debts that can be incurred by such PRC subsidiaries, including any shareholder loans, shall not exceed the difference between the total investment amount and the registered capital amount of the PRC subsidiaries, both of which are subject to governmental approval.

 

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Stringent Environmental Regulations.

Our operations and properties are subject to extensive and increasingly stringent laws and regulations pertaining to, among other things, the discharge of materials into the environment and the handling and disposition of wastes (including solid and hazardous wastes) or otherwise relating to protection of the environment.

We have incurred, and we will continue to incur, capital and operating expenditures to comply with these laws and regulations. Upon expansion of our cultivation facilities, we would expect to spend at least that amount to continue to comply with environmental regulations.

Regulation of the Plant Growing Industry. The horticulture industry in the PRC is regulated by governmental agencies, including the Ministry of Agriculture, the Ministry of Commerce, the Ministry of Health, the General Administration of Quality Supervision, Inspection and Quarantine, and the State Environmental Protection Administration. If the relevant regulatory authorities set standards with which we are unable to comply or that increase our costs as to render our products non-competitive, our profitability and our ability to sell products in China may be impacted.

Each Chinese province requires horticulture operators to obtain and maintain a license for each farm owned and operated in that province. Currently, our cultivation facility is and is expected to remain located in Hainan Province. We need to maintain our license to operate our current facility, and will need to obtain a license for any additional property we may acquire to increase our cultivation.

Intellectual Property

Trademarks. China has domestic laws to protect legal rights in copyrights, patents, trademarks and trade secrets. China has also signed on to all the world’s major intellectual property conventions, including:

The PRC Trademark Law, adopted in 1982 and revised in 2001, and implementation rules adopted in 2002, protect registered trademarks. The Trademark Office of the State Administration of Industry and Commerce (“SAIC”) handles trademark registrations and grants trademark registrations for a term of ten years.

We have used the trade mark “Jufeel” and the logo  and  for various products commencing at various times since 2011. The trademarks have been registered in 22 classes with China’s SAIC Trademark Office, as follows (registrations are valid for ten-year periods expiring from 2021 to 2015, at which time each can be renewed for additional 10-year terms and 2012 until 2022):

 

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3 - Abrasives, cosmetics, beauty masks, perfume, essential oils, detergents, wrinkle creams, toothpaste, incenses

5 – Medicines for human purposes, medicine capsules, medicinal and chemical preparations, pharmaceuticals and pharmaceutical components, medicinal aloe preparations, antioxidants, injectables, air fresheners, pest control preparations, disinfecting wipes, medical health bags, dental impression materials

9 Computers, telephones, network communications equipment, video recorders, entertainment equipment connected to external displays, electronic chips, lifesaving equipment, alarms, glasses

10 – Medical apparatuses and instruments, dental equipment, medical x-ray equipment, hearing aids, medical pads, bottles, condoms, prostheses, orthopedic items, suture materials

11- Lamps, electric cookers, refrigeration, air conditioning, water supply, bathroom, disinfection and heating equipment and heating installations.

12- Luggage carts, vehicle interior decorations, antiskid devices, windshields, land vehicle power plants, wheels, automobiles, bicycles, baby carriages

16- Printed publications, periodicals, staplers, pens

18 - Fur covers, canes and harnesses.

20 – Nonmetallic containers for storage and transport, mirrors, bamboo craft, glass steel craft, non-metallic furniture parts

21- Porcelain ornaments, trash cans, drying racks

24 - Fabrics, tapestries, carpets, towels, quilt covers, quilts, bed sheets, bed covers, household plastic covers, flags

25 - Clothing, children’s garments, waterproof clothing, footwear, insoles, hats, socks, gloves, ties, belts

28 - Toys, sports car, chess, sports balls, body training and sports apparatuses, skids, plastic tracks, flak jackets, fishing tackle

30 - Chocolate drinks, candies, non-medical nutrition products, biscuits, pastries, starchy foods, ice cream

31 – Live animals, live poultry, live fish, trees, cereals, plants, fresh fruits, fresh vegetables, fodder and crustaceans.

35 - Import/export agency, auctions, business management, advertising, sales promotions, trade fairs, advertising, accounting

36 - Insurance, bank, capital investment, financial services, real estate agency, brokerage, surety

37 – Construction, interior remodeling, mechanical installation, maintenance and repair, painting services, disinfection

39 - Transportation, goods delivery, transport brokerage, car rental, parking services, warehouse rental, energy distribution, courier services, sightseeing.

41 Education, training, academic seminars, television and theatrical productions, club services, amusement parks, zoos, book publishing, providing recreational facilities

42 – Engineering, technical and scientific research, R & D for others, geological surveys, packaging design, surveys, computer programming, internet search engines, website design and maintenance

43 Catering, restaurant, bar, hotel, accommodation, camping facilities, nursing homes, daycare, animal kennels

The registration is valid from 2012 until 2022. As a registered trademark, “Jufeel” is exclusively owned by Kaifeng Jufeel Biotechnology Co. Ltd. for products within the range limited by Class No. 31; any identical or similar trademark may not be used on commodities involved in Class No. 31. Jufeel Kaifeng does not currently own any trademark on “Jufeel” outside of Class No. 31. In the event of trademark infringement, the SAIC has the authority to fine the infringer and to confiscate or destroy the infringing products. In addition to actions taken by SAIC, Jufeel Kaifeng would be entitled to sue an infringer for compensation.

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We have the following issued or applied-for patents, including 12 issued patents, and 12 patents pending:

No.	Name of Innovation and Creation	Application No. or Patent No.	Date of Application	Applicant
1	A method for preparing freeze-dried powder injection for promoting estrogen secretion by using aloe and notoginseng	ZL2013104489239	September 28, 2013	Kaifeng Jufeel Biological Technology Co., Ltd. (Patent for invention in China)
2	A method for preparing freeze-dried powder injection for the treatment of liver ascites tumor by using aloe and lucid ganoderma	ZL201310448919.2	September 28, 2013	Kaifeng Jufeel Biological Technology Co., Ltd. (Patent for invention in China)
3	A method of preparing freeze-dried powder injection for promoting estrogen secretion by using aloe and notoginseng	HK1190634	September 28, 2013	Kaifeng Jufeel Biological Technology Co., Ltd. (Patent for invention in Hong Kong)
4	A method for preparing freeze-dried powder injection for the treatment of liver ascites tumor by using aloe and lucid ganoderma	HK1190612	September 28, 2013	Kaifeng Jufeel Biological Technology Co., Ltd. (Patent for invention in Hong Kong)
5	Method of preparing lyophilized powder for injection comprising aloe and panax pseudo-ginseng	US 10,016,366 B2	January 29, 2016	Assigned to Kaifeng Jufeel Biological Technology Co., Ltd. by Rongxuan Zhang, Zhengzhou (United States Patent)
6	A method for planting high-content O-acetyl aloe	201310576251. X	November 19, 2013	Hainan Zhongchen Biologic Engineering Co., Ltd. (Patent for invention in China)
7	A processing method for high-content O-acetyl aloe raw materials aloe products	201310576104.2	November 19, 2013	Hainan Zhongchen Biologic Engineering Co., Ltd. (Patent for invention in China)
8	A kind of aloe cutting and cleaning device	ZL201620103670.0	February 2, 2016	Hainan Zhongchen Biologic Engineering Co., Ltd. (Patent for utility models)
9	A kind of aloe flesh separation canning mechanism	ZL201620112920.7	February 4, 2016	Hainan Zhongchen Biologic Engineering Co., Ltd. (Patent for utility models)
10	A kind of process technology of high-content polysaccharide and O-acetyl aloe powder products	201410036579.7	January 26, 2014	Hainan Zhongchen Biologic Engineering Co., Ltd.
11	A kind of process technology of high-content polysaccharide and O-acetyl aloe condensed juice products	201410036666.2	January 26, 2014	Hainan Zhongchen Biologic Engineering Co., Ltd.
12	A kind of process technology of high-content polysaccharide and O-acetyl aloe liquid products	201410036669.6	January 26, 2014	Hainan Zhongchen Biologic Engineering Co., Ltd.
	The following are pending patents:
1	A method for preparing aloe injection freeze-dried powder injection by using aloe powder	201310405844.X	September 9, 2013	Kaifeng Jufeel Biological Technology Co., Ltd.
2	A method for preparing aloe injection by using aloe liquid	201310405920.7	September 9, 2013	Kaifeng Jufeel Biological Technology Co., Ltd.
3	Cleaning Device for Aloe Processing	201820342315.8	March 14th, 2018	Kaifeng Jufeel Biotechnology Co., Ltd
4	Dicing Device for Aloe Juice Extracting	201820342339.3	March 14th, 2018	Kaifeng Jufeel Biotechnology Co., Ltd
5	A Quick Cleaning Device for Aloe Vera	201820342310.5	March 14th, 2018	Kaifeng Jufeel Biotechnology Co., Ltd
6	A Handy Device for Mashing and Extracting Aloe Juice	201820342317.7	March 14th, 2018	Kaifeng Jufeel Biotechnology Co., Ltd
7	Cleanable Aloe Juice Extractor	201820342327.0	March 14th, 2018	Kaifeng Jufeel Biotechnology Co., Ltd
8	A Rapid Crushing Device for Extracting Aloe PMAS	201820342321.3	March 14th, 2018	Kaifeng Jufeel Biotechnology Co.
9	A Cleanable Device for Aloe Vera Piece Mixing and Crushing	201820342328.5	March 14th, 2018	Kaifeng Jufeel Biotechnology Co.
10	Aloe Juice Extraction and Filtration Device for PMAS Extracting	201820342346.3	March 14th, 2018	Kaifeng Jufeel Biotechnology Co.
11	Natural Aloe Vera Gel Two-stage Extraction Device	201820342314.3	March 14th, 2018	Kaifeng Jufeel Biotechnology Co.
12	Portable Aloe Freeze-dried Powder Cold Closet	201820342326.6	March 14th, 2018	Kaifeng Jufeel Biotechnology Co., Ltd

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Business Trade Secrets.

We rely on Chinese business secret laws to protect our interests. All our business processes have been developed internally. We have taken several measures to maintain our formulations as a business secret under Chinese law. Notwithstanding these measures, if we are required to sue to protect our rights in the formulations, the ultimate determination of whether the formulations constitutes a business secret protected under Chinese law will be made on the facts of the case itself. We cannot guarantee that we will be found to have a business secret or that any court will protect our rights in the formulations.

Description of Property

There is no private ownership of land in China. All land is owned by the PRC government on behalf of all Chinese citizens or collectively owned by farmers. Land use rights can be granted or transferred with or without consideration upon approval by the PRC State Land Administration Bureau or its authorized branches.

Our principal executive offices are located 19/F, Building 3, Yabao Oriental International Plaza, 85 Jinshui East Road, Zhengzhou, Henan Province, PRC. Our new centralized administration offices and production facilities in the Kaifeng Jufeel Biotechnology Industrial Park are under construction and are expected to be complete by the first quarter of 2019. We are also in the process of negotiating for the long-term lease of additional cultivation acreage in Hainan.

The following table summarizes our real property interests as of the date of this prospectus:

Facility Location	Address	Operational Purpose	Area	Ownership Status and Term
Henan	19/F and 20/F, Building 3, Yabao Oriental International Plaza, 85 Jinshui East Road, Zhengzhou	Office	2,553.56 sq. meters	Lease from a related party*
Hainan	Yingtou Village Yangfeng Township, Meilan District, Hainan Province	Cultivation	250 mu	Lease until 10/1/2019
Hainan	Yangqin Village, Fushan Township, Chengmai, Hainan Province	Cultivation	800 mu**	Lease until 2/28/2031
Hainan	Duncha Village Fushan Township, Chengmai, Hainan Province	Cultivation	800 mu***	Lease until 12/08/2043
Hainan	99 Hainan Road, Haikou City, Hainan Province	Office and processing facility	1,900 sq. meters	Lease until 9/30/2021
Henan	Longhai 3rd Road, Kaifeng, Henan Province	Principal Executive Offices and Marketing Center	40,858.94 sq. meters	Owned
Henan	North of Longhai 3rd Road, Kaifeng, Henan Province	Future office, processing and warehouse****	75,334.5 sq. meters	Land grant until 9/30/2065
Jiangsu	Room 501~507, Building 1-B, 801 Changwu Zhonglu, Changzhou city, Jiangsu Province	Office	1,928.34 sq. meters	Owned
Shanghai	Room 01-04, 20/F, 89 Zhapu Road, Hongkou district, Shanghai	Office	1,260.1 sq. meters	Lease until 2/9/2021

___________

* The Company leases its administrative offices, consisting of 2,554 square meters of office space on two floors of a commercial office building owned by Mr. Zhang, its President and principal shareholder, and his spouse, Mrs. Guo Li. The lease is for a term of one year, renewable annually on each September 1.

** This land is currently not cultivated.

*** Out of the total 800mu land, 300 mu is currently cultivated with Aloe, and the remaining 500 mu is not cultivated.

**** Under construction – estimated to be completed in first quarter of 2019.

 

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Employees and Employment Agreements

We have 121 full-time employees, 63 of which are based at our corporate headquarters and marketing center in Zhengzhou, Henan Province, eight of which are based at our cultivation center and processing facility in Haikou City, Hainan Province, six of which are based at our subsidiary in Changzhou and four of which are based at Wuxi cities, Jiangsu Province. All executive officers of the Company are full time employees of the Company with the exception of the Chief Financial Officer who is part time. The employees of at least two of the Company’s PRC operating companies, Hainan ZhongChen Biologic Engineering Co., Ltd. and Kaifeng Jufeel Biological Technology Co., Ltd. have signed a typical PRC employment contract containing terms concerning government mandated health insurance, social insurance, employment injury insurance, unemployment, maternity insurance provisions and monthly compensation.

The Company entered into agreements with its Executive Officers as follows (material terms contained below, all agreements are governed by the labor contract law of the People's Republic of China):

RongXuan Zhang, President, CEO, Director: On May 6, 2018 the Company entered into an agreement with Mr, Zhang for a term three years at a monthly salary of 17,500 RMB, plus overtime pay and allowances.

Wenxing Fu, COO, Director: On October 1, 2016 the Company entered into an agreement with Mr. Fu for a term of three years at a monthly salary of 5,000 RMB plus overtime pay and allowances. He was issued 269,730 shares of common stock.

Lin Bao, CFO: On February 22, 2018 the Company entered into an agreement with Ms. Bao for a term of one year, at a monthly salary of 45,000 RMB. In the event the agreement is terminated by the Company, the Company must pay Ms. Bao the equivalent of one month’s salary for each year of service.

Lei Chen, CAO: On October 1, 2016 the Company entered into an agreement with Mr. Chen for a term of three years at a monthly salary of 3,000 RMB plus overtime pay and allowances. He was issued 3,420 shares of common stock.

Aizhen Ren, CMO, Director: On December 13, 2016 the Company entered into an agreement with Ms. Ren for a term of three years at a monthly salary of 4,000 RMB, plus overtime pay and allowances. She was issued 41,504 shares of common stock.

LEGAL PROCEEDINGS

The Company is not a party to any pending legal proceeding. In January 2016, Zhongyuan Bank filed a claim against Kaifeng Jufeel in Kaifeng People’s Court on an unpaid balance due on a loan in the amount of RMB 16 million (approximately US $2.349 million). The loan was made on September 11, 2015, and due December 10, 2015. On July 5, 2016, the court ordered Kaifeng Jufeel to repay the loan, together with penalty interest, within 10 days. Kaifeng Jufeel paid the judgment by the end of November 2016.

MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK

Our common stock is presently quoted on the OTC Pink Open Market tier of the OTC Markets Group, Inc. (“OTC Pink Market”) under the symbol “CNJG”. There is currently no bid or ask price for the common stock, but the last sale price recorded was $130 per share on January 18, 2017.

On February 24, 2017, the Company changed its trading symbol, previously “BSHG”, to “CNJG” and effected a 1- for -500 reverse stock split. From the initial quotation of the Company’s common stock on June 13, 2014, only 72 shares traded. Because trading has been sporadic and irregular, there is no established public trading market for our common equity. As of December 31, 2017, there were approximately 177 record holders of our common stock. The following table provides historical trading information as adjusted for the February 2017 reverse stock split. Prices do not reflect retail mark-downs and commissions and may not reflect actual transactions. The last sale price of the common stock was $0.26 on February 23, 2017, prior to the effective date of the Company’s reverse stock split, or $130 as adjusted to reflect such split.

* The forgoing table provides historical trading information as adjusted for the reverse stock split. In other words, the stock sale transactions referenced below were not made at the referenced prices, but at prices 1/500th thereof, or $0.55 rather than $275, $0.15 rather than $75 and $0.10 rather than $50.

 

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Dividends

We have never declared or paid a cash dividend. Any decisions regarding dividends will be made by our board of directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends, subject to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

Securities Authorized for Issuance under Equity Compensation Plans

We have not adopted any compensatory or benefit plans for the future issuance of our securities.

 

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JUFEEL INTERNATIONAL GROUP

INDEX TO FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

of Jufeel International Group

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Jufeel International Group and Subsidiaries (the “Company”) as of December 31, 2017, 2016 and 2015, and the related consolidated statements of operations and comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company, as of December 31, 2017, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

Restatement of Previously Issued Financial Statements

As discussed in Note 24, the accompanying 2016 and 2015 financial statements have been restated.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/Marcum Bernstein & Pinchuk llp

Marcum Bernstein & Pinchuk llp

We have served as the Company’s auditor since 2017.

New York, New York

November 13, 2018

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Jufeel International Group and Subsidiaries

Consolidated Balance Sheets

(Amounts in US$)

		December 31,				December 31,				December 31,
		2017				2016				2015
						(Restated)				(Restated)
Assets
Current assets
Cash and cash equivalents		$	16,391,266			$	1,902,197			$	105,455
Accounts receivable, net			7,613,832				57,561				17,238
Loan to a third party			306,510				-				-
Other receivables, net			514,369				1,153,051				1,049,739
Prepayments			2,087,131				316,053				228,719
Amounts due from related parties			-				13,680,609				1,823,372
Inventories			797,889				591,115				704,105
Deferred inventory costs			1,922,486				-				-
Total current assets			29,633,483				17,700,586				3,928,628
Non-current assets
Property, plant and equipment, net			13,158,725				3,138,418				2,218,664
Land use right, net			2,416,213				2,323,495				2,532,979
Equipment related prepayment			4,029,015				-				-
Long term prepayments and other non-current assets			3,140,944				3,120,468				3,527,168
Total non-current assets			22,744,897				8,582,381				8,278,811
Total assets		$	52,378,380			$	26,282,967			$	12,207,439
Liabilities and Equity
Current Liabilities
Income tax payable		$	3,990,404			$	2,092,861			$	1,264,631
Accounts payable			1,035,006				442,340				427,751
Advanced payments from customers			7,160,513				8,876,313				2,541,581
Deferred revenue			7,571,026				-				-
Amounts due to related parties			705,441				2,145,823				2,271,482
Short-term bank loan			-				-				667,827
Other taxes payables			4,973,474				1,534,480				324,198
Accrued expenses and other liabilities			605,974				489,803				584,405
Liability to be settled by shareholder			-				875,443				-
Total current liabilities			26,041,838				16,457,063				8,081,875
Non-current liabilities
Farmland lease payable			801,139				754,620				806,148
Total non-current liabilities			801,139				754,620				806,148
Total liabilities			26,842,977				17,211,683				8,888,023
Commitments and contingencies			-				-				-
Equity
Preferred stock (No par value, Unlimited number authorized, Issued and outstanding: none)			-				-				-
Common stock (No par value, Unlimited number authorized, 28,030,010 shares issued and outstanding as of December 31, 2017, 2016 and 2015)			-				-				-
Additional paid in capital			7,057,676				3,862,062				3,103,133
Statutory reserve			1,779,412				598,854				-
Retained earnings (accumulated deficit)			15,634,756				4,933,839				(97,878	)
Accumulated other comprehensive income (loss)			558,264				(516,019	)			(16,302	)
Total Jufeel International Group’s shareholders’ equity			25,030,108				8,878,736				2,988,953
Non-controlling interests			505,295				192,548				330,463
Total Equity			25,535,403				9,071,284				3,319,416
Total liabilities and equity		$	52,378,380			$	26,282,967			$	12,207,439

See accompanying notes to the consolidated financial statements.

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Table of Contents

Jufeel International Group and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Years Ended December 31, 2017, 2016 and 2015

(Amounts in US$)

		For the Year Ended				For the Year Ended				For the Year Ended
		December 31,				December 31,				December 31,
		2017				2016				2015
						(Restated)				(Restated)
Net revenue
Product sale to third parties		$	27,578,098			$	11,828,461			$	3,556,973
Product sale to related parties			285,874				41,735				495,369
Total net revenue			27,863,972				11,870,196				4,052,342
Cost of revenue
Cost of product sales – third parties			4,133,794				1,974,960				1,174,715
Cost of product sales – related parties			58,854				5,956				87,745
Total cost of revenue			4,192,648				1,980,916				1,262,460
Gross profit			23,671,324				9,889,280				2,789,882
Operating expenses:
Selling and marketing expenses			2,684,587				1,061,767				467,788
General and administrative expenses			5,253,734				1,685,955				1,676,970
Research and development expenses			596,297				310,897				269,945
Acquisition costs			-				-				642,221
Total operating expenses			8,534,618				3,058,619				3,056,924
Income (loss) from Operations			15,136,706				6,830,661				(267,042	)
Other (income) expenses			(68,202	)			35,974				72,370
Income (loss) before income taxes			15,204,908				6,794,687				(339,412	)
Income tax expense			3,032,253				1,286,091				313,356
Net income (loss)			12,172,655				5,508,596				(652,768	)
Net (income) loss attributable to non-controlling interests			(291,180	)			121,975				207,232
Net income (loss) attributable to Jufeel International Group		$	11,881,475			$	5,630,571			$	(445,536	)
Net income (loss)		$	12,172,655			$	5,508,596			$	(652,768	)
Other comprehensive income
Foreign currency translation gain (loss), net of nil income taxes			1,074,283				(499,717	)			(190,947	)
Comprehensive income (loss)		$	13,246,938			$	5,008,879			$	(843,715	)
Comprehensive (income) loss attributable to non-controlling interests			(312,747	)			137,915				231,167
Comprehensive income (loss) attributable to Jufeel International Group		$	12,934,191			$	5,146,794			$	(612,548	)
Earnings (loss) per share-basic and diluted		$	0.42			$	0.20			$	(0.02	)

See accompanying notes to the consolidated financial statements.

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Table of Contents

Jufeel International Group and Subsidiaries

Consolidated Statements of Changes in Equity

For the Years Ended December 31, 2017, 2016 and 2015

(Amounts in US$)

See accompanying notes to the consolidated financial statements.

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Table of Contents

Jufeel International Group and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2017, 2016 and 2015

(Amounts in US$)

		For the Year Ended				For the Year Ended				For the Year Ended
		December 31,				December 31,				December 31,
		2017				2016				2015
						(Restated)				(Restated)
Cash Flows From Operating Activities
Net income (loss)		$	12,172,655			$	5,508,596			$	(652,768	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense			125,519				115,662				107,067
Amortization expense			175,737				178,635				264,084
Loss on disposal of property and equipment			4,132				25				2,002
Shareholder contribution for employee and non-employee compensation expenses			2,320,171				875,443				-
Provision for allowance for doubtful accounts			72,216				-				-
Inventory impairment			-				25,312				-
Write off of prepayments			-				-				642,221
Deferred income tax			3,061				(3,111	)			-
Changes in operating assets and liabilities:
Accounts receivable			(7,370,262	)			(43,263	)			119,660
Other receivables			675,216				(177,970	)			(986,840	)
Prepayments			(1,695,142	)			(106,479	)			2,533
Amounts due from related parties			3,399,231				(11,327,002	)			4,215,675
Inventories			(164,845	)			45,690				270,530
Deferred inventory costs			(1,860,525	)			-				-
Accounts payable			547,175				43,792				344,794
Income taxes payable			1,711,531				949,401				(640,609	)
Deferred revenue			7,327,014				-				-
Advanced payments from customers			(2,190,045	)			6,785,483				1,515,289
Amount due to related parties			430,689				20,397				(1,426,219	)
Other taxes payable			3,236,611				1,285,628				110,724
Accrued expenses and other current liabilities			96,839				270,953				(23,447	)
Net cash provided by operating activities			19,016,978				4,447,192				3,864,696
Cash Flows From Investing Activities
Purchases of property, plant and equipment			(12,627,307	)			(1,341,091	)			(2,243,234	)
Purchases of land use right			-				-				(912,350	)
Return of acquisition deposit			-				-				160,555
Repayment from related parties			8,704,916				-				-
Loans to related parties			-				(2,711,696	)			(2,004,163	)
Loan to a third party			(296,217	)			-				-
Payment of cooperation deposit			(888,651	)			-				-
Net cash used in investing activities			(5,107,259	)			(4,052,787	)			(4,999,192	)
Cash Flows From Financing Activities
Proceeds from short-term bank loans			-				-				2,970,271
Repayment of short-term bank loans			-				(652,880	)			(2,274,007	)
Repayment of borrowings from a third party			-				(150,551	)			-
Borrowings from a third party			-				-				160,555
Borrowings from a related party			-				1,533,604				266,522
Proceeds from equity interest related to sales promotion			-				758,929				-
Net cash provided by financing activities			-				1,489,102				1,123,341
Effect of exchange rate fluctuation on cash and cash equivalents			579,350				(86,765	)			(6,657	)
Net increase (decrease) in cash and cash equivalents			14,489,069				1,796,742				(17,812	)
Cash and cash equivalents, beginning of year			1,902,197				105,455				123,267
Cash and cash equivalents, end of year		$	16,391,266			$	1,902,197			$	105,455
Supplemental disclosure information:
Cash paid for income tax expense		$	1,320,624			$	339,801			$	953,965
Cash paid for interest expense		$	-			$	106,061			$	30,066
Supplemental disclosure of non-cash investing and financing activities
Purchase of property and equipment financed by other payables		$	247,694			$	218,582			$	37,768