Organization and Principal Actitivies

3 Months Ended

Dec. 31, 2016

Organization and Principal Actitivies [Abstract]

1.	ORGANIZATION AND PRINCIPAL ACTITIVIES

Natural Destiny Inc. (“ND” or the “Company”) is a holding company incorporated in the State of Nevada on October 21, 2015. The Company is engaged in the sale of food and beverages in the People’s Republic of China (the “PRC” or “China”) through its subsidiaries and affiliated entity. The Company’s executive offices are located in Jiande city, Zhejiang province, China.

On April 13, 2016, the Company executed a share exchange agreement to acquire all of the issued and outstanding ordinary shares of Natural Destiny (BVI) Company Limited, a corporation incorporated under the laws of the British Virgin Islands (“ND BVI”), from the shareholder of ND BVI (the “ND BVI Shareholder”) in exchange for the issuance to the ND BVI Shareholder of 250,000,000 shares of its common stock, par value $0.0001 per share, representing 100% of its then issued and outstanding shares of Common Stock (the transaction, hereinafter referred to as the “Share Exchange”). Upon completion of the Share Exchange, ND BVI became the Company’s wholly owned subsidiary.

Effective April 1, 2016, pursuant to an exclusive option agreement, ND BVI Shareholder granted Mr. Jianrong Xia, the Company’s Chief Executive Officer, an irrevocable and exclusive option to purchase 250,000,000 shares of common stock of the Company owned by the ND BVI Shareholder at any time at an exercise price of $1.00. The option agreement has a term of 10 years and can be renewed at Mr. Xia’s election.

ND BVI is a holding company, which in turn, holds 100% of the capital stock of Natural Destiny (HK) Co., Limited (“ND HK”), a Hong Kong corporation which was incorporated on November 16, 2015. ND HK is the parent company of Shanghai You Yue Trading Co., Ltd. (the “WFOE”), a wholly foreign owned entity established under the laws of the PRC, which is engaged in the sale and distribution of food and beverage in the PRC through a series of contractual arrangements (the “VIE Agreements”) with Hangzhou Yezhiyuan Agriculture Development Co., Ltd. (“Hangzhou Yezhiyuan”), a PRC limited liability company which was established on November 27, 2012 with a registered capital of RMB 10,000,000 (equivalent of $1,593,755), of which RMB 9,000,000 (equivalent of $1,426,997) has been paid to date.

Neither the Company nor its subsidiaries own any equity interest in Hangzhou Yezhiyuan. Instead, the Company controls and receives the economic benefits of Hangzhou Yezhiyuan’s business operation through a series of contractual arrangements. WFOE, Hangzhou Yezhiyuan and its shareholder entered into a series of contractual arrangements, also known as the VIE Agreements, on April 13, 2016. The VIE Agreements are designed to provide WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Hangzhou Yezhiyuan (“Hangzhou Yezhiyuan Shareholder”), including absolute control rights and the rights to the assets, property and revenue of Hangzhou Yezhiyuan. Based on a legal opinion issued by Yuan Tai Law Offices to WFOE, the VIE Agreements constitute valid and binding obligations of the parties to such agreements, and are enforceable and valid in accordance with the laws of the PRC.

The transaction between ND and Hangzhou Yezhiyuan constituted a reorganization. As all of the above mentioned companies are under common control, this series of transactions has been accounted for as a reorganization of entities and the financial statements have been prepared as if the reorganization had occurred retroactively. The financial statements have been prepared as if the existing corporate structure had been in existence throughout all periods and the reorganization had occurred as of October 1, 2014, the beginning of the earliest period presented in the accompanying financial statements. The Company included the historical values of Hangzhou Yezhiyuan’s assets and liabilities in its consolidated financial statements.

VIE Agreements with Hangzhou Yezhiyuan

According to the Exclusive Business Cooperation Agreement, Hangzhou Yezhiyuan is obligated to pay service fees to WFOE approximately equal to the net income of Hangzhou Yezhiyuan. Hangzhou Yezhiyuan, a variable interest entity (“VIE”), is wholly owned by Mr. Jianrong Xia. Mr. Jianrong Xia is also the Company’s Chief Executive Officer and effectively holds 99.9% of the Company. Hangzhou Yezhiyuan’s operations are, in fact, directly controlled by the Company entirely. There are no unrecognized revenue-producing assets that are held by Hanzhou Yezhiyuan.

Each of the VIE Agreements is described in detail below:

Exclusive Business Cooperation Agreement

Pursuant to the Exclusive Business Cooperation Agreement between Hangzhou Yezhiyuan and WFOE, WFOE provides Hangzhou Yezhiyuan with technical support, consulting services and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. Additionally, Hangzhou Yezhiyuan granted an irrevocable and exclusive option to WFOE to purchase from Hangzhou Yezhiyuan, any or all of its assets, to the extent permitted under the PRC laws. WFOE may exercise, at its sole discretion, the option to purchase from Hangzhou Yezhiyuan any or all of Hangzhou Yezhiyuan’s assets at the lowest purchase price permitted by PRC laws. Should WFOE exercise such option, the parties shall enter into a separate asset transfer or similar agreement. WFOE shall own all intellectual property rights that are developed during the course of the Exclusive Business Cooperation Agreement. For services rendered to Hangzhou Yezhiyuan by WFOE under this agreement, WFOE is entitled to collect a service fee calculated based on the time of services rendered multiplied by the corresponding rate, which is approximately equal to the net income of Hangzhou Yezhiyuan.

The Exclusive Business Cooperation Agreement shall remain in effect for ten years until it is terminated by WFOE with 30-day prior notice. Hangzhou Yezhiyuan does not have the right to terminate the agreement unilaterally. WFOE may unilaterally extend the term of this agreement with prior written notice.

The legal representative of WFOE, Mr. Xia, is currently managing Hangzhou Yezhiyuan pursuant to the terms of the Exclusive Business Cooperation Agreement. WFOE has absolute authority relating to the management of Hangzhou Yezhiyuan, including but not limited to decisions with regard to expenses, salary raises and bonuses, hiring, firing and other operational functions.

Share Pledge Agreement

Under the Share Pledge Agreement between the Hangzhou Yezhiyuan Shareholder and WFOE, the Hangzhou Yezhiyuan Shareholder pledged all of his equity interests in Hangzhou Yezhiyuan to WFOE to guarantee the performance of Hangzhou Yezhiyuan’s obligations under the Exclusive Business Cooperation Agreement. Under the terms of the agreement, in the event that Hangzhou Yezhiyuan or its shareholder breach their respective contractual obligations under the Exclusive Business Cooperation Agreement, WFOE, as pledgee, will be entitled to certain rights, including, but not limited to, the right to collect dividends generated by the pledged equity interests. The Hangzhou Yezhiyuan Shareholder also agreed that upon occurrence of any event of default, as set forth in the Share Pledge Agreement, WFOE is entitled to dispose of the pledged equity interests in accordance with applicable PRC laws. The Hangzhou Yezhiyuan Shareholder further agrees not to dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interest.

The Share Pledge Agreement shall be effective until all payments due under the Exclusive Business Cooperation Agreement have been paid by Hangzhou Yezhiyuan. WFOE shall cancel or terminate the Share Pledge Agreement upon Hangzhou Yezhiyuan’s full payment of fees payable under the Exclusive Business Cooperation Agreement.

Exclusive Option Agreement

Under the Exclusive Option Agreement, the Hangzhou Yezhiyuan Shareholder irrevocably granted WFOE (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of his equity interests in Hangzhou Yezhiyuan. The option price is equal to the capital paid in by the Hangzhou Yezhiyuan Shareholder subject to any appraisal or restrictions required by applicable PRC laws and regulations. As of the date of this prospectus, if WFOE exercised such option, the total option price that would be paid to the Hangzhou Yezhiyuan Shareholder would be approximately $1.35 million (RMB 9,000,000), which is the aggregate paid in capital of Hangzhou Yezhiyuan.

The agreement remains effective for a term of ten years and may be renewed at WFOE’s election.

Power of Attorney

Under the Power of Attorney, the Hangzhou Yezhiyuan Shareholder authorizes WFOE to act on his behalf as their exclusive agent and attorney with respect to all rights as a shareholder, including but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including but not limited to the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer and other senior management members of Hangzhou Yezhiyuan.

Although it is not explicitly stipulated in the Power of Attorney, the term of the Power of Attorney shall be the same as the term of that of the Exclusive Option Agreement.

Timely Reporting Agreement

To ensure Hangzhou Yezhiyuan promptly provides all of the information that WFOE and the Company need to file various reports with the SEC, a Timely Reporting Agreement was entered between Hangzhou Yezhiyuan and the Company.

Under the Timely Reporting Agreement, Hangzhou Yezhiyuan agrees that it is obligated to make its officers and directors available to the Company and promptly provide all information required by the Company so that the Company can file all necessary SEC and other regulatory reports as required.

Although it is not explicitly stipulated in the Timely Reporting Agreement, the parties agreed its term shall be the same as that of the Exclusive Business Cooperation Agreement.

Natural Destiny Inc. 10-Q