Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
report (Date of earliest event reported): March 29,
2010
EXPEDITE
4, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
000-52866
|
N/A
|
||
|
(State
or other jurisdiction of incorporation)
|
(Commission
File Number)
|
(I.R.S.
Employer Identification No.)
|
88 Guihuayuan,
Guanjingcheng
Yujiang, Yingtan City,
Jiangxi Province
People’s Republic of
China
(Address
of principal executive offices) (Zip Code)
+86
(701) 568-0890
(Registrant’s
telephone number, including area code)
212
Carnegie Center, #206
Princeton,
NJ 08540
(Former
name or former address, if changed since last report)
––––––––––––––––
Copies
to:
Gregg E.
Jaclin, Esq.
Kristina
L. Trauger, Esq.
Yarona Y.
Liang, Esq.
Anslow +
Jaclin, LLP
195 Route
9 South, Suite 204
Manalapan,
New Jersey 07726
(732)
409-1212
––––––––––––––––
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
1
CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS
This
Current Report on Form 8-K contains forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties, principally in the sections entitled “Description of Business,”
“Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.” All statements other than statements of
historical fact contained in this Current Report on Form 8-K, including
statements regarding future events, our future financial performance, business
strategy and plans and objectives of management for future operations, are
forward-looking statements. We have attempted to identify
forward-looking statements by terminology including “anticipates,” “believes,”
“can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,”
“potential,” “predicts,” “should,” or “will” or the negative of these terms or
other comparable terminology. Although we do not make forward looking
statements unless we believe we have a reasonable basis for doing so, we cannot
guarantee their accuracy. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including the
risks outlined under “Risk Factors” or elsewhere in this Current Report on Form
8-K, which may cause our or our industry’s actual results, levels of activity,
performance or achievements expressed or implied by these forward-looking
statements. Moreover, we operate in a very competitive and rapidly
changing environment. New risks emerge from time to time and it is
not possible for us to predict all risk factors, nor can we address the impact
of all factors on our business or the extent to which any factor, or combination
of factors, may cause our actual results to differ materially from those
contained in any forward-looking statements. All forward-looking
statements included in this document are based on information available to us on
the date hereof, and we assumes no obligation to update any such forward-looking
statements
You
should not place undue reliance on any forward-looking statement, each of which
applies only as of the date of this Current Report on Form
8-K. Before you invest in our securities, you should be aware that
the occurrence of the events described in the section entitled “Risk Factors”
and elsewhere in this Current Report on Form 8-K could negatively affect our
business, operating results, financial condition and stock
price. Except as required by law, we undertake no obligation to
update or revise publicly any of the forward-looking statements after the date
of this Current Report on Form 8-K to conform our statements to actual results
or changed expectations.
2
Item 1.01Entry Into A Material Definitive
Agreement
As more
fully described in Item 2.01 below, we acquired a company that is in the
business of breeding, raising and selling live hogs in accordance with a Share
Exchange Agreement dated March 29, 2010 (the “Exchange Agreement”) by and among
Expedite 4, Inc. (“we,” “Expedite 4” or the “Company”), Southern China Livestock
International Inc., a Nevada corporation (“SCLI”), and the shareholders of SCLI
(the “SCLI Shareholders”). The closing of the transaction (the
“Closing”) took place on March 29, 2010 (the “Closing Date”). On the
Closing Date, pursuant to the terms of the Exchange Agreement, we acquired all
of the outstanding shares (the “Interests”) of SCLI from the SCLI Shareholders;
and the SCLI Shareholders transferred and contributed all of their Interests to
us. In exchange, we issued to the SCLI Shareholders, their designees or assigns,
5,623,578 shares (the “Exchange Shares”) or 99.97% of the shares of common stock
of the Company issued and outstanding after the Closing (the
“Combination”).
Pursuant
to the terms of the Exchange Agreement, Sheila Hunter, the sole shareholder of
the Company, cancelled a total of 98,500 shares of common stock of the Company.
A copy of the Exchange Agreement is included as Exhibit 2.1 to this Current
Report and is hereby incorporated by reference. All references to the Exchange
Agreement and other exhibits to this Current Report are qualified, in their
entirety, by the text of such exhibits.
Pursuant
to the Exchange Agreement, SCLI became a wholly-owned subsidiary of the Company.
The sole director of the Company has approved the Exchange Agreement and the
transactions contemplated under the Exchange Agreement. The directors of SCLI
have approved the Exchange Agreement and the transactions contemplated
thereunder.
As a
further condition of the Combination, Sheila Hunter resigned as the sole officer
and director of the Company, and Luping Pan and Shu Kaneko were appointed as the
new officers of the Company. Dengfu Xu, Luping Pan, Shu Keneko and Xin Zhao will
be appointed as directors of the Company upon effectiveness of an information
statement required by Rule 14f-1 promulgated under the Exchange Act of 1934 (the
“Exchange Act”).
The
Combination transaction is discussed more fully in Section 2.01 of this Current
Report. The information therein is hereby incorporated in this Section 1.01 by
reference.
The
Offering
On March
29, 2010, pursuant to a Subscription Agreement (the “Subscription Agreement”)
between the Company and certain investors named in the Subscription Agreement,
we completed an offering (the “Offering”) of the sale of investment units (the
“Units”) for a total of $5,090,000, each Unit consisting of two (2) shares of
common stock (the “Shares”) and four-year warrants to purchase one (1) share of
common stock of the Company, at an exercise price of $5.50 per share (the
“Investor Warrants”). The Closing of the Combination was conditioned upon all of
the conditions of the Offering being met, and the Offering was conditioned upon
the Closing of the Combination.
Additionally,
management (the “Lock-Up Shareholders”), entered into Lock-Up Agreements with us
whereby the Lock-Up Shareholders agreed they will not, offer, pledge, sell or
otherwise dispose of any common stock or any securities convertible into or
exercisable or exchangeable for common stock during the period beginning on and
including the date of the final Closing of the Offering for a period of eighteen
(18) months.
Pursuant
to a Holdback Escrow Agreement dated March 29, 2010 (the “Holdback Escrow
Agreement”), we have placed $200,000 of the offering proceeds, with our counsel
Anslow & Jaclin, LLP to be held in escrow until such time as a qualified
chief financial officer has been approved and appointed as an officer of the
Company. As a result of the appointment of Shu Kaneko as the CFO upon
the closing, such amount was distributed to the Company at the
closing. Finally, pursuant to a Going Public Escrow Agreement dated
March 29, 2010 (the “Going Public Escrow Agreement”), we have placed a total of
$300,000 from the offering proceeds with our counsel Anslow & Jaclin, LLP to
be used for the payment of fees and expenses related to becoming a public
company and listing our securities on a senior exchange.
Pursuant
to each of the Holdback Escrow Agreement and Going Public Escrow Agreement, in
the event that the proceeds of such escrow accounts have not been fully
distributed within two years from the date thereof, the balance of such escrow
proceeds shall be returned to the Company.
Registration
Rights
The
issuance of the Units to the investors was exempt from registration under the
Securities Act of 1933, as amended (the “Securities Act”) pursuant to Regulation
D and Section 4(2) and/or Regulation S thereof and such other available
exemptions. As such, the Shares, the Warrants, and the common stock underlying
the Warrants may not be offered or sold in the United States unless they are
registered under the Securities Act, or an exemption from the registration
requirements of the Securities Act is available. The registration statement
covering these securities will be filed with the SEC and with any required state
securities commission subsequent to the filing of this Form 8-K.
3
In
connection with the Offering, we agreed to file a registration statement on Form
S-1 (“Registration Statement”) within 45 days after the Closing (“Filing Date”)
and use our best efforts to have it declared effective within 180 days after the
Closing (“Effective Date”) to register (i) 100% of the Shares issued in this
Offering; and (ii) 100% of the shares of common stock underlying the Warrants
issued in this Offering (“Warrant Shares”) (collective, (the “Registrable
Securities”).
If a
Registration Statement covering the registration of the Registrable Securities
is not filed with the Commission by the Filing Date, we shall issue to each
investor a number of shares of common stock equal to one percent (1%) of the
Shares purchased by such investor in the Offering, per calendar month (pro rata
for any period less than a calendar month) until such event is cured, up to a
maximum of five percent (5%) of the Shares of the Company purchased by the
investors in the Offering.
If (i)
the Registration Statement is not declared effective by the Effective Date, (ii)
the Company fails to file with the Commission a request for acceleration within
five (5) business days of the date that the Company is notified by the
Commission that a Registration Statement will not be “reviewed,” or not subject
to further review, (iii) any Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective, or (iv)
within one (1) year from the date the Company’s common stock is initially listed
on a senior exchange, trading in the common stock is suspended or if the common
stock is no longer quoted on or is delisted from a senior exchange (or other
principal exchange on which the common stock is listed or traded) for any reason
for more than five (5) business Days in the aggregate (any such failure or
breach being referred to as an “Event”, and for purposes of clause “i” the date
on which the Event occurs, or for purposes of clause “ii” the date on which such
five (5) business day period is exceeded, or for purposes of clause “iii” after
more than fifteen (15) business days, or for purposes of clause “iv” the date on
which such five (5) business day period is exceeded, being referred to as the
“Event Date”), the Company shall pay to the investors, on a pro rata basis,
partial liquidated damages of one percent (1%) of the aggregate purchase price
paid by each investor for each calendar month (pro rata for any period less than
a calendar month) from the Event Date, until the applicable Event is cured, up
to a maximum of five percent (5%) of the purchase price paid by each such
investor.
The
securities shall only be treated as Registrable Securities if and only for so
long as they (i) have not been sold (A) pursuant to a registration statement;
(B) to or through a broker, dealer or underwriter in a public distribution or a
public securities transaction; and/or (C) in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the “Securities Act”) under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect thereto, if any, are
removed upon the consummation of such sale; (ii) are not held by a Holder or a
permitted transferee; and (iii) are not eligible for sale pursuant to Rule 144
(or any successor thereto) under the Securities Act. The term “Holder” shall
mean any person owning or having the right to acquire Registrable Securities or
any permitted transferee of a Holder.
In
connection with filing the Registration Statement, if the Securities and
Exchange Commission (the “SEC”) limits the amount of Registrable Securities to
be registered for resale pursuant to Rule 415 under the Securities Act, then the
Company shall be entitled to exclude such disallowed Registrable Securities (the
“Cut Back Shares”) on a pro rata basis among the Holders thereof with a first
priority given to the Warrant Shares. The Company shall prepare, and,
as soon as practicable but in no event later than the six months from the date
the Company’s Registration Statement was declared effective, file with the SEC
an additional Registration Statement (“Additional Registration Statement”) on
Form S-1 covering the resale of all of the disallowed Registrable Securities not
previously registered on an Additional Registration Statement
hereunder. In the event that Form S-1 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration on another appropriate form. The Company shall use its
best efforts to have each Additional Registration Statement declared effective
by the SEC as soon as practicable. No liquidated damages hereof shall
accrue on or as to any Cut Back Shares, and the required Filing Date for such
additional Registration Statement including the Cutback Shares will be tolled,
until such time as the Company is able to effect the registration of the Cut
Back Shares in accordance with any SEC comments.
Item 2.01Completion of Acquisition or
Disposition of Assets
CLOSING
OF EXCHANGE AGREEMENT
As
described in Item 1.01 above, on March 29, 2010, we acquired SCLI, which is in
the business of breeding and raising commercial hogs in the People’s Republic of
China (“China” or the “PRC”), in accordance with the Exchange
Agreement. The closing of the transaction took place on March 29,
2010. On the Closing Date, pursuant to the terms of the Exchange Agreement, we
acquired all the Interests of SCLI from the SCLI Shareholders; and the SCLI
Shareholders transferred and contributed all of their Interests to us. In
exchange, we issued a total of 5,623,578 shares of common stock to the SCLI
Shareholders, their designees or assigns, which totals 99.97% of the issued and
outstanding shares of common stock of the Company on a fully-diluted basis as of
and immediately after the Closing of Combination but prior to the
Offering.
4
Pursuant
to the terms of the Exchange Agreement, Sheila Hunter cancelled a total of
98,500 shares of common stock of the Company. Following the Combination prior to
the Offering, there are 5,625,078 shares of common stock issued and
outstanding.
SCLI was
incorporated in the State of Nevada on July 28, 2009 as the indirect US holding
company for Beijing Huaxin Tianying Livestock Technology, Ltd. (“Beijing
Huaxin”) and Beijing Huaxin’s subsidiaries, which are in the business of
breeding and raising commercial hogs in Jiangxi province of China. SCLI’s
wholly-owned subsidiary, Mayson International Services Limited (“Mayson
International”), was incorporated on July 25, 2008 under the laws of British
Virgin Islands and owns 100% of Mayson Enterprises Services Limited (“Mayson
Enterprises”), which was incorporated on July 25, 2008 under the laws of British
Virgin Islands. On August 1, 2008, Mayson Enterprises acquired Mayson Holdings
Limited, a Hong Kong limited liability company (“Mayson Holdings”). On September
9, 2008, Mayson Holdings established Beijing Huaxin, a wholly foreign owned
enterprise under the laws of the PRC. On November 3, 2008, Beijing Huaxin
entered into an Equity Interests Transfer Agreement with Mr. Dengfu Xu, Mr.
Luping Pan, Mr. Mude Pan, Mr. Genkai Zhang, Mr. Xianyue Li, Mr. Min Yang and Ms.
Jianying Xu, who are the former shareholders of Jiangxi Yingtan Huaxin Livestock
Co., Ltd. (“Jiangxi Huaxin”), pursuant to which 99% of the equity interests in
Jiangxi Huaxin was transferred to Beijing Huaxin and Mr. Dengfu Xu kept the 1%
equity interest in Jiangxi Huaxin. On January 15, 2010, Mr. Dengfu Xu
transferred the remaining 1% equity interest in Jiangxu Huaxin to Beijing
Huaxin. As a result, Beijing Huaxin holds 100% equity interests in Jiangxi
Huaxin and Jiangxi Huaxin became a wholly-owned subsidiary of Beijing Huaxin. We
operate our business mainly through Jiangxi Huaxin, our operating subsidiary in
the PRC. The Company has consolidated Jiangxi Huaxin’s operating
results, assets and liabilities within its financial statements. Pursuant to the
Exchange Agreement, SCLI became a wholly-owned subsidiary of the Company. SCLI,
Mayson International, Mayson Enterprises, Mayson Holdings, Beijing Huaxin, and
Jiangxi Huaxin are collectively referred to herein as “SCLI.”
The
Company was a “shell company” (as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) immediately
before the completion of the Combination. Accordingly, pursuant to
the requirements of Item 2.01(a)(f) of Form 8-K, set forth below is the
information that would be required if the Company were filing a general form for
registration of securities on Form 10 under the Exchange Act, reflecting the
Company’s common stock, which is the only class of its securities subject to the
reporting requirements of Section 13 or Section 15(d) of the Exchange Act upon
consummation of the Combination, with such information reflecting the Company
and its securities upon consummation of the Combination.
BUSINESS
Overview
SCLI,
through Jiangxi Huaxin, is in the business of breeding, raising and selling live
hogs in the PRC. Jiangxi Huaxin was established in 2005, as a result of a merger
of several hog farms and consequent acquisitions, each with more than ten years
of operating history. Jiangxi Huaxin currently operates 7 subsidiaries with 19
breeding farms and owns approximately 80,000 hogs in the aggregate. The
headquarters of Jiangxi Huaxin is located in southwest China in Yingtan City,
Jiangxi province. Jiangxi Huaxin’s hog breeding farms are located
throughout Jiangxi province, and Jiangxi Huaxin is the largest hog breeder in
Jiangxi province.
Our
revenue increased approximately 23.5% for the three months ending December 31,
2009 compared to the three months ending December 31, 2008, despite a decline in
hog prices, due to an increase in the number of hogs sold. We
generated over $11.3 million in sales and approximately $2.1 million in after
tax net income for the three months ended December 31, 2009.
Our
revenue decreased approximately 15.4% for the year ending September 30, 2009
comparing to the year ending September 30, 2008, mainly due to the outbreak of
H1N1 influenza which affected the hog spot price and the hog breeding industry
in general. We generated over $32.1 million in sales, and approximately $7
million in after-tax comprehensive income for the year ending September 30,
2009.
Historical
Sales & Income Summary
|
($
in USD)
|
Three
Months Ended
December
31,
|
Fiscal
Year Ended
September
30,
|
%
|
|||||||||||||||||||||
|
2009
|
2008
|
Growth
|
2009
|
2008
|
Growth
|
|||||||||||||||||||
|
Revenue
|
$ | 11,377,724 | $ | 9,208,087 | 23.6 | % | $ | 32,140,033 | $ | 38,001,599 | (15.4 | ) % | ||||||||||||
|
Gross
Profit
|
$ | 1,909,038 | $ | 1,926,902 | (0.9 | )% | $ | 6,337,017 | $ | 15,462,549 | (59.0 | )% | ||||||||||||
|
Net
Income
|
$ | 2,124,391 | $ | 1,832,471 | 15.9 | % | $ | 7,031,348 | $ | 15,121,018 | (53.5 | )% | ||||||||||||
5
Organization
& Subsidiaries
SCLI’s
organizational structure was developed to permit the infusion of foreign capital
under the laws of the PRC and to maintain an efficient tax structure, as well as
to foster internal organizational efficiencies. The Company’s organization
structure post-Combination is summarized in the figure below:
SCLI was
incorporated in the State of Nevada on July 28, 2009 as the indirect US holding
company for Beijing Huaxin and Beijing Huaxin’s subsidiaries, which are in the
business of breeding and raising commercial hogs in Jiangxi province of China.
SCLI’s wholly owned subsidiary, Mayson International acquired Mayson
Enterprises, which was incorporated on July 25, 2008 under the laws of British
Virgin Islands. On August 1, 2008, Mayson Enterprises acquired Mayson Holdings,
a Hong Kong limited liability company. On September 9, 2008, Mayson Holdings
established Beijing Huaxin, a wholly foreign-owned enterprise under the PRC
laws. On November 3, 2008, Beijing Huaxin entered into an Equity Interests
Transfer Agreement with Mr. Dengfu Xu, Mr. Luping Pan, Mr. Mude Pan, Mr. Genkai
Zhang, Mr. Xianyue Li, Mr. Min Yang and Ms. Jianying Xu, who are the former
shareholders of Jiangxi Huaxin, pursuant to which 99% of the equity interests in
Jiangxi Huaxin was transferred to Beijing Huaxin and Mr. Dengfu Xu kept the 1%
equity interest in Jiangxi Huaxin. On January 15, 2010, Mr. Dengfu Xu
transferred the remaining 1% equity interest in Jiangxu Huaxin to Beijing
Huaxin. As a result, Beijing Huaxin holds 100% equity interests in Jiangxi
Huaxin and Jiangxi Huaxin became a wholly-owned subsidiary of Beijing
Huaxin.
SCLI,
through its operating subsidiary Jiangxi Huaxin, is in the business of breeding,
raising and selling live hogs in the PRC. Jiangxi Huaxin was established in
2005, as a result of a merger of several hog farms and consequent acquisitions,
each with more than ten years of operating history. Jiangxi Huaxin currently
operates 7 subsidiaries with 19 breeding farms and owns approximately 80,000
hogs in the aggregate. The headquarters of Jiangxi Huaxin is located in
southwest China in Yingtan City, Jiangxi province. Jiangxi Huaxin’s
hog breeding farms are located throughout Jiangxi province, and Jiangxi Huaxin
is the largest hog breeder in Jiangxi province.
6
Mr.
Liqiang Song owns 9,000,000 shares of SCLI, which represent 90% of the issued
and outstanding shares of SCLI, and received 5,061,220 shares of common stock
from the Company pursuant to the Exchange Agreement. Prior to the Closing Date,
Liqiang Song entered into earn-in agreements with ten (10) individuals pursuant
to which these individuals have the right to exercise their call rights for a
total of 5,061,220 shares subject to the fulfillment of certain
conditions. Dengfu Xu and Luping Pan, who were appointed as our
officers and/or directors following the Combination, have the right to exercise
their call rights for a total of 1,801,795 shares of the Company’s common stock
subject to the following conditions: (1) 20% of the earn-in shares
subject to the call right shall vest and become exercisable on the date that the
individuals enters into an employment agreement with Beijing Huaxin for a term
of not less than 3 years (“Condition 1”), (2) 30% of the earn-in shares subject
to the call right shall vest and become exercisable on the Effective Date of the
Registration Statement (“Condition 2”), and (3) 50% of the earn-in shares
subject to the call right shall vest and become exercisable on the date of
fulfillment of the 2010 net income of SCLI of a minimum of $6,000,000
(“Condition 3”). The additional eight (8) individuals have the right to exercise
their call rights for the remaining 3,259,425 shares of the Company’s common
stock subject to the following conditions: (1) 50% of the earn-in
shares subject to the call right shall vest and become exercisable upon the
satisfaction of Condition 2, and (2) 50% of the earn-in shares subject to the
call right shall vest and become exercisable upon the satisfaction of Condition
3. The call right is exercisable at an exercise price of $0.01 per
share (par value of the shares of SCLI) for a period of five years commencing
from 180 days subsequent to the Closing of the Combination.
Market
Summary
General
China is
the world’s largest hog producer and pork consumer and dominates the global pig
meat market. According to statistics from the US Department of
Agriculture, China produces 50% of all the pig meat production in the world. For
2009, China is expected to produce close to 47.0 million metric tons of an
estimated world production of approximately 95.0 million metric
tons.
According
to a 2008 Agricultural Report published by Purdue University, China’s pork
production in 2009 is forecast to grow at 3% to 46.8 million metric tons up from
the 2008 production of approximately 45.6 million metric tons. China
had approximately 592 million heads of hogs at the end of 2008, up from 2006 and
2007. Production in those years was affected by PRRS (Blue Ear
Disease). This disease is now effectively under control and did not
have a negative effect on China’s hog production in 2009. During late
2007 and the first half of 2008, short pork supplies pushed prices up sharply.
Increased food prices were major factors in the rise of China’s consumer price
index.
China
consumes over 450 million hogs a year. In terms of meat consumption
in China, beef accounts for approximately 9%, poultry for approximately 21% and
pork for approximately 65% of total China consumption, according to the National
Statistics Bureau of China. China’s pork consumption is forecasted to
increase to 47.0 million metric tons up from 44.9 million metric tons in 2008,
an increase of about 3%. Projected pork demand by 2015 is estimated to approach
68.0 million metric tons, an increase of 45%. A comparison of pork
and total meat consumption in China from 1996 to 2008 is shown in a chart
below:
Pork
vs. Total Meat consumption in China from 1996 to 2008*
* From
China National Bureau of Statistics
** In
10,000 Ton Units
7
Urbanization
and consequent growth of the middle class (estimated 250 million people in 2008)
along with PRC policies protecting the swine industry reflect the importance of
hog production as a social, economic and security issue for the consumer market
in China. China has enacted a number of laws to induce swine
production. On January 1, 2008, the State Council announced a new regulation
exempting companies involved in hog growing from corporate income tax.
Additionally, the Food Safety Law, which became effective on June 1, 2009,
allowed the government to take affirmative action aimed at strengthening the
food safety control “from the production line to the dining table.” The PRC
Government is creating a hog futures exchange to permit hedging of
contracts. It is expected to be operational in the near
future. Further, the Government maintains a “Strategic Meat Reserve”
that is stocked predominantly with pork reserves. These policies and
programs underline the strategic value that the central PRC Government places on
hog production.
In
addition, a combination of increase in population and rise in the average
disposable income creates growth in demand for pork products. A growing middle
class increases demand for pork products and helps long term price appreciation.
While pork spot prices fluctuate, especially recently with the psychological
effect of the “swine flu”, the overall long term price trends are expected to
continue to move up in the foreseeable future. In the second quarter of 2009
when the provincial live hog spot prices reached $1.48 - $1.65 per kilogram,
China Commerce Ministry announced that it would increase its frozen pork
reserves. This measure was widely interpreted as the government’s
attempt to protect pig farms from wild price fluctuations. With the Chinese
government’s new measures, the prices recovered to about $2.06 per
kilogram.
Breeding
Hogs
According
to the Foreign Agricultural Services [FAO-UN,
http://www.99sj.com/News/182384.htm], the PRC is the world’s largest
producer of pork and pork is the most widely-consumed meat in the
PRC. There are over 40 local pig breeds in China. Chinese
farms are looking to import foreign breeds that may improve the genetic profile
of the PRC’s hog population, with the result being healthier animals and lower
production costs.
Meat hogs
production in the PRC is dominated by backyard farms (those that sell 5-10 hogs
annually) and small farms (those that sell less than 100 hogs
annually). These farms accounted for an estimated 75% of all PRC hog
production during 2008. These farms sell their products to local
rural markets. The remaining 25% of the PRC’s hog production comes
from larger farms - those that sell between 100 and 500 heads a year - 21% of
the total market, those that sell between 500 and 10,000 heads account for an
additional 3% and estimated that those that sell above 10,000 hogs account for
the remaining 2% of the annual production.
Production
We engage
in the business of breeding and raising hogs and piglets, then distributing them
to trading agencies and pork distributors in the PRC. We generate
revenue primarily from the sale of hogs. Since commencing operations
in 2005, Jiangxi Huaxin has developed into the largest breeder in Jiangxi
Province. Jiangxi Huaxin controls each phase of pre-slaughter pork
production in the following manner:
|
·
|
We
breed and raise high quality breeding sows on our own
facilities.
|
|
·
|
We
breed the sows’ piglets and raise the piglets until they are marketable as
hogs.
|
|
·
|
When
the piglets mature, we then distribute the mature hogs to trading
agencies, slaughter facilities, pork distributors, and other customers
mainly in Shenzhen, Jiangxi and Shanghai cities in
PRC.
|
Raw
materials and suppliers
Feed is
the most significant cost of operating a hog farm. Hog farms of
Jiangxi Huaxin purchase feed products and raw materials such as corn and
soybeans from several feed suppliers under short-term
contracts. Below are our top three (3) feed suppliers:
|
Name
of Suppliers
|
For
the Year Ended
September
30, 2009
(Approximately)
|
For
the Year Ended
September
30, 2008
(Approximately)
|
|||||||||||
|
Amount
($)
|
Percentage
|
Amount
($)
|
Percentage
|
||||||||||
| 1 |
Yujiang
Huangguizhen Feed Agency
|
19.1
million
|
82 | % |
19.4
million
|
87 | % | ||||||
| 2 |
Yingtan
Tongxiaojin Feed Agency
|
1.1
million
|
5 | % |
1.3
million
|
6 | % | ||||||
| 3 |
Yujiang
Qiuzhen Feed Agency
|
1.1
million
|
5 | % |
0.5
million
|
2 | % | ||||||
|
Total
|
21.3
million
|
92 | % |
21.2
million
|
95 | % | |||||||
Our
production cycle is approximately 5 months, and a breeding pig can give birth
2.2 times a year on average. A breeding pig can bear 10-12 piglets every 5
months, and breed for 4 years. The best time to sell hogs is when they grow to
115 to 125 Kg (Approximately 253 lbs – 275 lbs). We do not own or operate
slaughterhouses. Our annual production in 2009 was approximately 170,000 heads,
up from approximately 145,000 heads in 2008. We do not need to spend
on marketing since we provide a commodity product and the prices are set by the
general market. We can sell any quantity of its live hogs without any
marketing efforts.
8
The
breakdown of the cost of breeding
Pig
breeding cost includes feed, piglet, labor, epidemic prevention and fixed
depreciation. It costs us about $177 to raise a hog before selling it to the
trading agencies. This cost is comprised of approximately $129 of
feed costs, $29 of piglet costs (amortized from breeding pigs), $6 of labor, $7
of epidemic prevention (and other miscellaneous veterinarian expenses) and $6 in
depreciation.
The chart
below represents approximate breakdown of breeding expenses:
Reserve
Base Status
Our main
farm, Baita Farm, was appointed as a “State Livestock Reserve Base” by State
Ministry of Commerce in 2007 for its good quality of meat and high efficiency of
operation. We are the first enterprise to be awarded with this qualification in
Jiangxi province.
Location
and its advantage
We are
located in Jiangxi Province, which is in the mid-southern part of China. Because
of its rural location, we enjoy low costs of land, materials and labor, which
translate into lower end-product costs and thus competitive advantage. Also, our
location is very advantageous because it is surrounded by rice, vegetable and
other farms. As a part of the future growth plan for 2010 and 2011, we plan to
make and sell organic fertilizer to the local farms. This new business will
potentially solve the Company’s growing problem of manure disposal and create an
additional profit source.
Sales
and Marketing
We sell
hogs to trading agencies mainly in Shenzhen, Jiangxi and Shanghai cities in
China. We have been named an “Agriculture Production Base” by Shenzhen
Agricultural Bureau. Seventy percent of our products are sold to Shenzhen city
in China. In 2008 and 2009, the absolute majority of our hogs were sold to three
government-affiliated trading companies in Shenzhen, Jiangxi and Shanghai as
indicated in the chart below:
|
Customers
|
For
the Year ending
September
30, 2009
(Approximately)
|
For
the Year ending
September
30, 2008
(Approximately)
|
|||||
|
Amount
($)
|
Percentage
|
Amount
($)
|
Percentage
|
||||
|
1
|
Shenzhen
Dexing Food Development Co.
|
24.1
million
|
75%
|
27.0
million
|
71%
|
||
|
2
|
Jiangxi
Guohong Food Development Co.
|
4.2
million
|
13%
|
6.5
million
|
17%
|
||
|
3
|
Shanghai
Fuxing Food Development Co.
|
3.2
million
|
10%
|
4.1
million
|
11%
|
||
|
Total
|
31.5
million
|
98%
|
37.6
million
|
99%
|
|||
9
We have
established long term partnership with the three companies above to sell most of
our inventory as it becomes ready for sale. We have entered into certain sales
contract with Shenzhen Dexing Food Development Co., which committed to purchase
a total of 600,000 hogs per year commencing from March 24, 2009 for a period of
three (3) years.
One of
our main farms, Baita Farm, was appointed as “State Livestock Reserve Base” by
the Ministry of Commerce for its good quality of breeding in
2007. Therefore, the company enjoys government insurance of
approximately $9.88 per head for all the sows. In China, it is customary to
settle live hogs sales with cash and equivalents, virtually eliminating account
receivables.
Competition
The hog
production business in the PRC is highly segmented. Meat hog
production in the PRC is dominated by backyard farms (those that sell 5-10 hogs
annually) and small farms (those that sell less than 100 hogs annually). These
farms accounted for an estimated 75% of all PRC hog production during 2008.
These farms sell their products to local rural markets. The remaining 25% of the
PRC’s hog production comes from larger farms - those that sell between 100 and
500 head a year account for 21% of the production, those that sell between 500
and 10,000 head account for an additional 3% and estimated that those that sell
above 10,000 hogs account for the remaining 2% of the annual
production.
We
primarily market our products within Shenzhen and Shanghai cities. As
a result, we compete broadly with the producers in these geographic
regions. Below are our main competitors:
|
·
|
Guangdong
Wenshi Group – China’s largest pig breeding company. It produced 2 Million
hogs and 700 Million chickens, with total sales of $2,633,600,000 in
2008.
|
|
·
|
Luoniushan
Limited – China’s second largest pig breeding company. It is a public
company trading on Shenzhen Stock Exchange under symbol “SZ: 000735” since
1997. Luoniushan Limited bred 450,000 hogs with the total sales of
1,640,340,000 in 2008.
|
|
·
|
Hunan
Xinwufeng Limited – China’s third largest pig breeding company. It is a
public company trading on Shanghai Stock Exchange under symbol “SH:
600975” since 2004. Hunan Xinwufeng Limited produced 350,000 pigs in
2008.
|
Competitive
Advantages
Our
piglets are bred internally. We obtained 40% gross margin in 2008, which is
about a 10% gross margin advantage compared to the industry standard of 30%
gross margin.
We
maintain our competitive advantages by establishing long-term partnerships with
state-owned trading companies, which are our main customers, thus eliminated
marketing, selling and receivables costs. As soon as our inventory of
hogs is fully matured, they are immediately sold to these trading
companies.
Our
senior managers have over 20 years experience in hog breeding industry, and the
Company’s Chairman also chairs Jiangxi Province Pig Breeding Association.
Additionally, since our location is in a relatively rural area of the province,
we are able to obtain lower than industry’s average cost of labor. We
incur higher than industry average epidemic prevention expenses because we, as a
company believe that buying healthier feed including organic food for pigs
results in lower risk of illnesses and healthier stock. We have not
experienced any animal disease outbreak for the last 10 years.
Health
Issues and Risk Management
Our
management developed very strict guidelines to prevent disease outbreaks.
Contrary to common perception, besides H1N1, which may be contracted from live
pigs, humans are generally not susceptible to pig diseases. Pigs, however, are
very susceptible to human illnesses to the extent that a simple common human flu
could potentially kill the whole pig farm.
Understanding
these risks, the management took the following risk-management
steps:
|
-
|
Diversification: the
inventory is spread over 19 separate farms with no more than 20,000 hogs
on any single farm to prevent disease
spreading.
|
|
-
|
Control: We
established 4 levels of on-site
controls:
|
|
·
|
All
workers must get permission and accept strict disinfection to enter the
farms
|
|
·
|
Visitors
are not allowed, except in rare cases and only during off-flu
seasons
|
|
·
|
All
materials, feed and water are tested before taken to the
farm.
|
|
·
|
All
workers are required to live at the farms, and they cannot leave the farm
without permission of the management of the
Company.
|
10
|
-
|
Prevention
Costs: We exceed the industry standards in epidemic
prevention costs, but in return, we have not lost animals because of
disease epidemics over the last 10 years. We incur higher than industry
average epidemic prevention expenses by buying healthier feed including
livestock organic food for pigs.
|
|
-
|
Government
Support: Due to the precautionary measures and
recognized high standards of Jiangxi Huaxin, the government subsidizes
insurance of the Company’s inventory. Any damage caused by
epidemics is to be reimbursed from the government
funds.
|
Because
of its measures, we have not had any outbreaks over the last 10 years and all
breeding pigs are covered by government-sponsored disease
insurance.
Future
Plans
Growth
via acquisitions:
We intend
to acquire several pig farms at an average price of around $1.75 million per
farm each with an average capacity of approximately 10,000 head per year. The
pig breeding business is very fragmented. With thousands of small operators all
over the PRC, there are many acquisition opportunities. Currently, because of
the lower spot prices, many small operators cannot sustain their businesses and
are willing to sell out to prevent total loss. The Company’s Chairman, Mr.
DengFu Xu, who is the Chairman of Pig Breeding Association of Yujiang and Vice
President of the Pig Breeding Association of Yingtan City is often presented
with suitable acquisition opportunities at favorable prices.
Growth
via fertilizer business:
The
generation of organic waste is a major problem than all large animal farm
operators all over the world have to manage. Our solution is to take advantage
of its rural location and the fact that it is surrounded by rice and vegetable
farms by processing its organic waste and selling it as organic
fertilizer. Organic fertilizers made from livestock manure are
commonly used in China. It is an environmentally friendly product and
exempted from all tax with the current selling price around $117-$132 per
ton. We anticipate using the proceeds from the Offering to begin
development of the organic fertilizer line of business beginning in
2010. The company plans to spend $1.2 million to build and open up an
organic fertilizer line by or during the 3rd
quarter of 2010. Such organic fertilizer product will be primarily
made of pig waste. It will take about 2 to 3 months to build such production
line. With the increasing size of our farms, and with our
advantageous location in the southern province with many farmlands, our top
management believes that expanding into the fertilizer business is the most
profitable, inexpensive and efficient vertical integration of our
business.
Intellectual
Properties
We have
operating manuals for disease prevention, food preparation and general
management “know-how”.
Environmental
Protection
Our
breeding farms are located in rural areas where there are no specific
requirements imposed on us by China’s environmental protection agencies. Manure
is currently used for production of methane for farm’s inner cook and for the
generation of heat; however this is not the most efficient use of this commodity
product. We believe that we have never been penalized by any environmental
protection agencies. We therefore did not incur any significant environmental
law compliance costs in the past.
Government
Regulation
We obtain
license and permits from Sanitary Department of Jiangxi Province each year for
our breeder farms. We believe that we have never been penalized by any Sanitary
Agencies.
Subsidiaries,
Properties and Facilities
We have
seven (7) subsidiaries and nineteen (19) farms in total as shown on the map
below:
11
1.
Yingtan Fuxing Development Trade Limited (“Yingtan Fuxing”): Yingtan Fuxing, a
wholly-owned subsidiary of Jiangxi Huaxin, is located in Yujiang town, Yingtan
city. It operates eight (8) hog farms. Including:
|
·
|
Baita Farm. Baita
Farm’s primary facility is a breeder hog farm located in Yujiang town,
Yingtan city. The facility, which is situated on 53,280 square
meters of developed land, is leased from the Chinese government for a
period of 50 years and is scheduled to expire on 2049. Baita Farm pays
$1,466 annual rent under the terms of the
lease.
|
|
·
|
Sanba (1) Farm. Sanba
(1) Farm’s primary facility is a breeder hog farm located in Yujiang town,
Yingtan city. The facility, which is situated on 13,986 square
meters of developed land, is leased from the Chinese government for a
period of 17 years and is scheduled to expire on 2026. Sanba (1) Farm pays
$440 annual rent under the terms of the
lease.
|
|
·
|
Sanba (2) Farm. Sanba
(2) Farm’s primary facility is a breeder hog farm located in Yujiang town,
Yingtan city. The facility, which is situated on 19,980 square
meters of developed land, is leased from the Chinese government for a
period of 20 years and is scheduled to expire on 2014. Sanba (2) Farm pays
$293 annual rent under the terms of the
lease.
|
|
·
|
The Third Farm. The
Third Farm’s primary facility is a breeder hog farm located in Yujiang
town, Yingtan city. The facility, which is situated on 66,660
square meters of developed land, is leased from the Chinese government for
a period of 50 years and is scheduled to expire on 2050. The Third Farm
pays $220 annual rent under the terms of the
lease.
|
|
·
|
Four-1 Farm. Four-1
Farm’s primary facility is a breeder hog farm located in Yujiang town,
Yingtan city. The facility, which is situated on 26,640 square
meters of developed land, is leased from the Chinese government for a
period of 40 years and is scheduled to expire on 2055. Four-1 Farm pays
$147 annual rent under the terms of the
lease.
|
|
·
|
Four-2 Farm. Four-2
Farm’s primary facility is a breeder hog farm located in Yujiang town,
Yingtan city. The facility, which is situated on 23,310 square
meters of developed land, is leased from the Chinese government for a
period of 40 years and is scheduled to expire on 2040. Four-2 Farm pays
$176 annual rent under the terms of the
lease.
|
|
·
|
Four-3 Farm. Four-3
Farm’s primary facility is a breeder hog farm located in Yujiang town,
Yingtan city. The facility, which is situated on 23,310 square
meters of developed land, is leased from the Chinese government for a
period of 50 years and is scheduled to expire on 2053. Four-3 Farm pays
$161 annual rent under the terms of the
lease.
|
|
·
|
Wangjintang Farm.
Wangjintang Farm’s primary facility is a breeder hog farm located in
Yujiang town, Yingtan city. The facility, which is situated on
53,280 square meters of developed land, is leased from the Chinese
government for a period of 30 years and is scheduled to expire on 2034.
Wangjintang Farm pays $2,786 annual rent under the terms of the
lease.
|
12
2.
Yujiang Decheng Livestock Limited (“Yujiang Decheng”): Yujiang Decheng, a
wholly-owned subsidiary of Jiangxi Huaxin, is located in Yujiang town, Yingtan
city. It operates two (2) hog farms. Including:
|
·
|
The First Farm. The
First Farm’s primary facility is a breeder hog farm located in Yujiang
town, Yingtan city. The facility, which is situated on 19,980
square meters of developed land, is leased from the Chinese government for
a period of 50 years and is scheduled to expire on 2048. The First Farm
pays $440 annual rent under the terms of the
lease.
|
|
·
|
The Second Farm. The
Second Farm’s primary facility is a breeder hog farm located in Yujiang
town, Yingtan city. The facility, which is situated on 26,640
square meters of developed land, is leased from the Chinese government for
a period of 40 years and is scheduled to expire on 2044. The Second Farm
pays $323 annual rent under the terms of the
lease.
|
3.
Yingtan Livestock Feed Limited (“Yingtan Livestock”): Yingtan Livestock, a
wholly-owned subsidiary of Jiangxi Huaxin, is located in Yujiang town, Yingtan
city. It operates one (1) hog farm. It is:
|
·
|
The First Farm. The
First Farm’s primary facility is a breeder hog farm located in Yujiang
town, Yingtan city. The facility, which is situated on 51,948
square meters of developed land, is leased from the Chinese government for
a period of 30 years and is scheduled to expire on 2034. The First Farm
pays $1,144 annual rent under the terms of the
lease.
|
4.
Yujiang Xiangying Breeding Pigs Limited (“Yujiang Xiangying”): Yujiang
Xiangying, a wholly-owned subsidiary of Jiangxi Huaxin, is located in Yujiang
town, Yingtan city. It operates one (1) hog farm. It is:
|
·
|
Xiangying Farm.
Xiangying Farm’s primary facility is a breeder hog farm located in Yujiang
town, Yingtan city. The facility, which is situated on 29,970
square meters of developed land, is leased from the Chinese government for
a period of 30 years and is scheduled to expire on 2026. Xiangying Farm
pays $733 annual rent under the terms of the
lease.
|
5.
Yujiang Xianyue Livestock Feed Development Limited (“Yujiang Xianyue”): Yujiang
Xianyue, a wholly-owned subsidiary of Jiangxi Huaxin, is located in Yujiang
town, Yingtan city. It operates one (1) hog farm. It is:
|
·
|
Xianyue Farm. Xianyue
Farm’s primary facility is a breeder hog farm located in Yujiang town,
Yingtan city. The facility, which is situated on 33,300 square
meters of developed land, is leased from the Chinese government for a
period of 20 years and is scheduled to expire on 2014. Xianyue Farm pays
$733 annual rent under the terms of the
lease.
|
6.
Yingtan Zhongtong Breeding Pigs Limited (“Yingtan Zhongtong”): Yingtan
Zhongtong, a wholly-owned subsidiary of Jiangxi Huaxin, is located in Yujiang
town, Yingtan city. It operates one (1) hog farm. It is:
|
·
|
Zhongtong Farm.
Zhongtong Farm’s primary facility is a breeder hog farm located in Yujiang
town, Yingtan city. The facility, which is situated on 15,318
square meters of developed land, is leased from the Chinese government for
a period of 30 years and is scheduled to expire on 2031. Zhongtong Farm
pays $261 annual rent under the terms of the
lease.
|
7.
Yujiang Fengyuan Livestock Limited (“Yujiang Fengyuan”): Yujiang Fengyuan, a
wholly-owned subsidiary of Jiangxi Huaxin, is located in Yujiang town, Yingtan
city. It operates five (5) hog farms. Including:
|
·
|
New Farm. The New
Farm’s primary facility is a breeder hog farm located in Yujiang town,
Yingtan city. The facility, which is situated on 39,960 square
meters of developed land, is leased from the Chinese government for a
period of 50 years and is scheduled to expire on 2054. The New Farm pays
$1,100 annual rent under the terms of the
lease.
|
|
·
|
Old Farm. The Old
Farm’s primary facility is a breeder hog farm located in Yujiang town,
Yingtan city. The facility, which is situated on 39,960 square
meters of developed land, is leased from the Chinese government for a
period of 50 years and is scheduled to expire on 2046. The Old Farm pays
$1,320 annual rent under the terms of the
lease.
|
|
·
|
Three-1 Farm. The
Three-1 Farm’s primary facility is a breeder hog farm located in Yujiang
town, Yingtan city. The facility, which is situated on 29,970
square meters of developed land, is leased from the Chinese government for
a period of 50 years and is scheduled to expire on 2034. The Three-1 Farm
pays $418 annual rent under the terms of the
lease.
|
|
·
|
Three-2 Farm. The
Three-2 Farm’s primary facility is a breeder hog farm located in Yujiang
town, Yingtan city. The facility, which is situated on 39,960
square meters of developed land, is leased from the Chinese government for
a period of 50 years and is scheduled to expire on 2052. The Three-2 Farm
pays $352 annual rent under the terms of the
lease.
|
|
·
|
Three-3 Farm. The
Three-3 Farm’s primary facility is a breeder hog farm located in Yujiang
town, Yingtan city. The facility, which is situated on 26,640
square meters of developed land, is leased from the Chinese government for
a period of 50 years and is scheduled to expire on 2039. The Three-3 Farm
pays $513 annual rent under the terms of the
lease.
|
13
All
equipment in our subsidiaries and farms, which include small electricity power
and water machines and feed process machines and firedamp process plant, are
self-owned; only the farm lands are by lease from the Chinese
government.
Insurance
We have
insurance for every breeding pig that costs $8.80 per head, which is included in
G&A expenses. We undertake $2.20 while the government covers the remaining
$6.60. The insurance provides coverage equal to $147 per breeding pig
in the event of its death.
Employees
As of the
date hereof, we have approximately 398 full-time employees. The breakdown of our
employees by department is:
|
General
and Administration Department
|
68 | |||
|
Production
Department
|
290 | |||
|
Finance
Department
|
16 | |||
|
Sales
Department
|
24 |
Our
employees are not represented by any collective bargaining agreement and we
believe we have never experienced a work stoppage. We believe we have good
relations with our employees.
RISK
FACTORS
You
should carefully consider the risks described below together with all of the
other information included in this report before making an investment decision
with regard to our securities. The statements contained in or
incorporated herein that are not historic facts are forward-looking statements
that are subject to risks and uncertainties that could cause actual results to
differ materially from those set forth in or implied by forward-looking
statements. If any of the following risks actually occurs, our business,
financial condition or results of operations could be harmed. In that case, you
may lose all or part of your investment.
Risks Relating to Our
Business
Our
results of operations are cyclical and could be adversely affected by
fluctuations in the commodity prices for hogs and feeds.
We are
largely dependent on the cost and supply of hogs and feed ingredients and the
selling price of our products, which are determined by constantly changing and
volatile market forces of supply and demand as well as other factors over which
we have little or no control. These other factors include:
|
•
|
competing
demand for corn for use in the manufacture of ethanol or other alternative
fuels,
|
|
•
|
environmental
and conservation regulations,
|
|
•
|
economic
conditions,
|
|
•
|
weather,
including weather impacts on the availability and pricing of corns,
and
|
|
•
|
hog
diseases.
|
We cannot
assure you that all or part of any increased costs experienced by us from time
to time can be passed along to consumers of our products, in a timely manner or
at all. Hog prices demonstrate a cyclical nature over periods of years,
reflecting the supply of hogs on the market. Further, hog raising costs are
largely dependent on the fluctuations of commodity prices for corn and other
feed ingredients. Additionally, an occurrence of serious animal diseases, such
as foot-and-mouth disease, or any outbreak of other epidemics in the PRC
affecting animals or humans might result in material disruptions to our
operations, and a decline in the market price for hogs. For example, hog prices
in 2009 severely declined because of the outbreak of H1N1 influenza, which
caused our revenue to decrease 15.4% from 2008 to 2009.
14
Substantially
all of our business, assets and operations are located in the PRC.
Substantially
all of our business, assets and operations are located in PRC. The economy of
PRC differs from the economies of most developed countries in many respects. The
economy of PRC has been transitioning from a planned economy to a
market-oriented economy. Although in recent years 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 sound corporate governance in business enterprises, a
substantial portion of productive assets in PRC is still owned by the PRC
government. In addition, the PRC government continues to play a significant role
in regulating industry by imposing industrial policies. It also exercises
significant control over PRC’s economic growth through the allocation of
resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment to particular
industries or companies. Some of these measures benefit the overall economy of
PRC, but may have a negative effect on us.
Our
management has no experience in managing and operating a public company. Any
failure to comply or adequately comply with federal securities laws, rules or
regulations could subject us to fines or regulatory actions, which may
materially adversely affect our business, results of operations and financial
condition.
Our
current management has no experience managing and operating a public company and
relies in many instances on the professional experience and advice of third
parties including its attorneys and accountants. While we are obligated to hire
a qualified CFO to enable us to meet our ongoing reporting obligations as a
public company in the US, such individuals are oftentimes difficult to locate
and may not have all of the qualifications necessary to fulfill these legal
obligations. Failure to comply or adequately comply with any laws,
rules, or regulations applicable to our business may result in fines or
regulatory actions, which may materially adversely affect our business, results
of operation, or financial condition and could result in delays in achieving
either the effectiveness of a registration statement relating to the shares
being sold in this offering or the development of an active and liquid trading
market for our stock.
Our
plans to expand our production, to acquire additional hog farms and to improve
and upgrade our internal control and management system will require capital
expenditures in 2010.
Our plans
to expand our production, to acquire additional hog farms and to improve and
upgrade our internal control and management system will require capital
expenditures in 2010. We may also need further funding for working capital,
investments, potential acquisitions and fertilizer business and other corporate
requirements. We cannot assure you that cash generated from our operations will
be sufficient to fund these development plans, or that our actual capital
expenditures and investments will not significantly exceed our current planned
amounts. If either of these conditions arises, we may have to seek external
financing to satisfy our capital needs. Our ability to obtain external financing
at reasonable costs is subject to a variety of uncertainties. Failure to obtain
sufficient external funds for our development plans could adversely affect our
business, financial condition and operating performance.
We
depend on a concentration of customers, the loss of one or more of which could
materially adversely affect our operations and revenues.
Our
revenue is dependent in large part on significant orders from a limited number
of customers. We depend on three (3) primary customers to purchase our
product. Sales to our three largest customers accounted for
approximately 99% and 98% of our net sales during each of the years ended
September 30, 2008 and 2009, respectively. Customer demand depends on a variety
of factors including, but not limited to, our customers’ financial condition and
general economic conditions. Even though we are in a commodity business, if our
sales to any of our customers are reduced for any reason, such reduction may
have an adverse effect on our business, financial condition and results of
operations.
We
derive all of our revenues from sales in the PRC and any downturn in the Chinese
economy could have a material adverse effect on our business and financial
condition.
All of
our revenues are generated from sales in the PRC. We anticipate that revenues
from sales of our products in the PRC will continue to represent the substantial
portion of our total revenues in the near future. Our sales and earnings can
also be affected by changes in the general economy since purchases of pork
products are generally discretionary for consumers. Our success is influenced by
a number of economic factors which affect disposable consumer income, such as
employment levels, business conditions, interest rates, oil and gas prices and
taxation rates. Adverse changes in these economic factors, among others, may
restrict consumer spending, thereby negatively affecting our sales and
profitability.
15
Our
planned expansion could be delayed or adversely affected by, among other things,
difficulties in obtaining sufficient financing, technical difficulties, or human
or other resource constraints.
Our
planned expansion could be delayed or adversely affected by, among other things,
difficulties in obtaining sufficient financing, technical difficulties, or human
or other resource constraints. Moreover, the costs involved in these projects
may exceed those originally contemplated. Costs savings and other economic
benefits expected from these projects may not materialize as a result of any
such project delays, cost overruns or changes in market circumstances. Failure
to obtain intended economic benefits from these projects could adversely affect
our business, financial condition and operating performances.
We
encounter substantial competition in our business and any failure to compete
effectively could adversely affect our results of operations.
Guangdong
Wenshi Group, Luoniushan Limited and Hunan Xinwufeng Limited are our main
competitors. We anticipate that our competitors will continue to expand and seek
to obtain additional market share with competitive price and performance
characteristics. Aggressive expansion of our competitors or the entrance of new
competitors into our markets could have a material adverse effect on our
business, results of operations and financial condition.
Our
limited operating history may not serve as an adequate basis to judge our future
prospects and results of operations.
Our
limited operating history in the hog breeding industry may not provide a
meaningful basis for evaluating our business. Jiangxi Huaxin entered into its
current line of business in 2005, although the companies we have acquired have a
longer operating history. Although its revenues have grown rapidly since its
inception, we cannot guaranty that we will maintain profitability or that we
will not incur net losses in the future. We will continue to encounter risks and
difficulties that companies at a similar stage of development frequently
experience, including the potential failure to:
|
·
|
obtain
sufficient working capital to support our
expansion;
|
|
·
|
expand
our product offerings to fertilizer business and maintain the high quality
of our products;
|
|
·
|
manage
our expanding operations and continue to fill customers’ orders on
time;
|
|
·
|
maintain
adequate control of our expenses allowing us to realize anticipated income
growth;
|
|
·
|
implement
our product development, sales, and acquisition strategies and adapt and
modify them as needed;
|
|
·
|
successfully
integrate any future acquisitions;
and
|
|
·
|
anticipate
and adapt to changing conditions in the hogs product industry resulting
from changes in government regulations, mergers and acquisitions involving
our competitors, technological developments and other significant
competitive and market dynamics.
|
If we are
not successful in addressing any or all of the foregoing risks, our business may
be materially and adversely affected.
We
need to manage growth in operations to maximize our potential growth and achieve
our expected revenues and our failure to manage growth will cause a disruption
of our operations resulting in the failure to generate revenue at levels we
expect.
In order
to maximize potential growth in our current and potential markets, we believe
that we must expand our producing operations. This expansion will place a
significant strain on our management and our operational, accounting, and
information systems. We expect that we will need to continue to improve our
financial controls, operating procedures, and management information systems. We
will also need to effectively train, motivate, and manage our employees. Our
failure to manage our growth could disrupt our operations and ultimately prevent
us from generating the revenues we expect.
We
cannot assure you that our growth strategy will be successful which may result
in a negative impact on our growth, financial condition, results of operations
and cash flow.
One of
our strategies is to grow through acquisition and fertilizer business. However,
many obstacles to entering such new markets exist including, but not limited to,
established companies in such existing markets in the PRC. We cannot, therefore,
assure you that we will be able to successfully overcome such obstacles and
establish our products in any additional markets. Our inability to implement
this organic growth strategy successfully may have a negative impact on our
growth, future financial condition, results of operations or cash
flows.
16
If
we need additional capital to fund our growing operations, we may not be able to
obtain sufficient capital and may be forced to limit the scope of our
operations.
If
adequate additional financing is not available on reasonable terms, we may not
be able to undertake acquisitions of additional hog farms or enter into and grow
the fertilizer business, and we would have to modify our business plans
accordingly. There is no assurance that additional financing will be available
to us.
In
connection with our growth strategies, we may experience increased capital needs
and accordingly, we may not have sufficient capital to fund our future
operations without additional capital investments. Our capital needs will depend
on numerous factors, including (i) our profitability; (ii) the release of
competitive products by our competition; (iii) the level of our investment in
research and development; and (iv) the amount of our capital expenditures,
including acquisitions. We cannot assure you that we will be able to obtain
capital in the future to meet our needs.
In recent
years, the securities markets in the United States have experienced a high level
of price and volume volatility, and the market price of securities of many
companies have experienced wide fluctuations that have not necessarily been
related to the operations, performances, underlying asset values or prospects of
such companies. For these reasons, our securities can also be expected to be
subject to volatility resulting from purely market forces over which we will
have no control. If we need additional funding we will, most likely, seek such
funding in the United States (although we may be able to obtain funding in the
P.R.C.) and the market fluctuations affect on our stock price could limit our
ability to obtain equity financing.
If we
cannot obtain additional funding, we may be required to: (i) limit our
expansion; (ii) limit our marketing efforts; and (iii) decrease or eliminate
capital expenditures. Such reductions could materially adversely affect our
business and our ability to compete.
Even if
we do find a source of additional capital, we may not be able to negotiate terms
and conditions for receiving the additional capital that are favorable to us.
Any future capital investments could dilute or otherwise materially and
adversely affect the holdings or rights of our existing shareholders. In
addition, new equity or convertible debt securities issued by us to obtain
financing could have rights, preferences and privileges senior to the Units. We
cannot give you any assurance that any additional financing will be available to
us, or if available, will be on terms favorable to us.
Need
for additional employees.
The
Company’s future success also depends upon its continuing ability to attract and
retain highly qualified personnel. Expansion of the Company’s business and the
management and operation of the Company will require additional managers and
employees with industry experience, and the success of the Company will be
highly dependent on the Company’s ability to attract and retain skilled
management personnel and other employees. There can be no assurance that the
Company will be able to attract or retain highly qualified personnel.
Competition for skilled personnel in the construction industry is significant.
This competition may make it more difficult and expensive to attract, hire and
retain qualified managers and employees.
The
loss of the services of our key employees, particularly the services rendered by
DengFu Xu, our Chairman, Luping Pan, our Chief Executive Officer, and Shu
Kaneko, our Chief Financial Officer, could harm our business.
Our
success depends to a significant degree on the services rendered to us by our
key employees. If we fail to attract, train and retain sufficient
numbers of these qualified people, our prospects, business, financial condition
and results of operations will be materially and adversely affected. In
particular, we are heavily dependent on the continued services of Dengfu Xu, Our
Chairman, Luping Pan, our Chief Executive Officer and Shu Kaneko, our Chief
Financial Officer. The loss of any key employees, including members of our
senior management team, and our inability to attract highly skilled personnel
with sufficient experience in our industry could harm our business.
Our
failure to comply with increasingly stringent environmental regulations and
related litigation could result in significant penalties, damages and adverse
publicity for our business.
In recent
years, the government of China has become increasingly concerned with the
degradation of China’s environment that has accompanied the country’s rapid
economic growth. In the future, we expect that our operations and
properties will be 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.
Failure to comply with any laws and regulations and future changes to them may
result in significant consequences to us, including civil and criminal
penalties, liability for damages and negative publicity. We cannot
assure you that additional environmental issues will not require currently
unanticipated investigations, assessments or expenditures, or that requirements
applicable to us will not be altered in ways that will require us to incur
significant additional costs.
17
We
will incur significant costs to ensure compliance with United States corporate
governance and accounting requirements.
We will
incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the Securities and Exchange Commission. We expect all
of these applicable rules and regulations to significantly increase our legal
and financial compliance costs and to make some activities more time consuming
and costly. We also expect that these applicable rules and regulations may make
it more difficult and more expensive for us to obtain director and officer
liability insurance and we may be required to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar
coverage. As a result, it may be more difficult for us to attract and retain
qualified individuals to serve on our board of directors or as executive
officers. We are currently evaluating and monitoring developments with respect
to these newly applicable rules, and we cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs.
We
may not be able to meet the accelerated filing and internal control reporting
requirements imposed by the Securities and Exchange Commission resulting in a
possible decline in the price of our common stock and our inability to obtain
future financing.
As
directed by Section 404 of the Sarbanes-Oxley Act, as amended by SEC Release No.
33-8934 on June 26, 2008, the Securities and Exchange Commission adopted rules
requiring each public company to include a report of management on the company’s
internal controls over financial reporting in its annual reports. In
addition, the independent registered public accounting firm auditing a company’s
financial statements must also attest to and report on management’s assessment
of the effectiveness of the company’s internal controls over financial reporting
as well as the operating effectiveness of the company’s internal controls.
Commencing with its annual report for the year ending September 30, 2010, we
will be required to include a report of management on its internal control over
financial reporting. The internal control report must include a
statement
|
·
|
Of
management’s responsibility for establishing and maintaining adequate
internal control over its financial
reporting;
|
|
·
|
Of
management’s assessment of the effectiveness of its internal control over
financial reporting as of year end;
and
|
|
·
|
Of
the framework used by management to evaluate the effectiveness of our
internal control over financial
reporting.
|
Furthermore,
in the following year, our independent registered public accounting
firm is required to file its attestation report separately on our
internal control over financial reporting on whether it believes that we have
maintained, in all material respects, effective internal control over financial
reporting.
While we
expect to expend significant resources in developing the necessary documentation
and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there
is a risk that we may not be able to comply timely with all of the requirements
imposed by this rule. In the event that we are unable to receive a
positive attestation from our independent registered public accounting firm with
respect to our internal controls, investors and others may lose confidence in
the reliability of our financial statements and our stock price and ability to
obtain equity or debt financing as needed could suffer.
In
addition, in the event that our independent registered public accounting firm is
unable to rely on our internal controls in connection with its audit of our
financial statements, and in the further event that it is unable to devise
alternative procedures in order to satisfy itself as to the material accuracy of
our financial statements and related disclosures, it is possible that we would
be unable to file our Annual Report on Form 10-K with the Securities and
Exchange Commission, which could also adversely affect the market price of our
securities and our ability to secure additional financing as
needed.
The
transaction involves a reverse merger of a foreign company into a domestic shell
company, so that there is no history of compliance with United States securities
laws and accounting rules.
In order
to be able to comply with United States securities laws, SCLI prepared
its financial statements for the first time under U.S. generally accepted
accounting principles and recently had its initial audit of its financial
statements in accordance with Public Company Accounting Oversight Board
(United States). As the Company does not have a long term
familiarity with U.S. generally accepted accounting principles, it may be more
difficult for it to comply on a timely basis with SEC reporting requirements
than a comparable domestic company.
We
may be subject to liability under the income tax laws in the PRC for failing to
withhold income tax on the dividends paid to the shareholders.
Our
Subsidiaries declared dividends to its stockholders in the amount of $13,064,075
and $8,897,167 for the years ended September 30, 2009 and 2008, respectively.
According to the Income Tax Laws in the PRC, the Company is required to withhold
income tax of 20% on the dividends paid to shareholders, which the Company
failed to do. In the event that these taxes cannot be collected from the
stockholders, the Company may be liable to pay the unpaid amount of approximate
$4.4 million and late payment penalty may be levied in an amount ranging
from 50% to maximum 5 times the taxes owing. The Company believes that the
likelihood of the taxes and penalties being levied against the company is remote
as of the date hereof. However, in the event that the taxing
authorities assess the company for these taxes, we will become liable for these
taxes if we are unable to recover the amounts from the
stockholders.
18
Risks
Relating To Our Industry
The
outbreak of animal diseases could adversely affect our operations.
An
occurrence of serious animal diseases, such as foot-and-mouth disease, or any
outbreak of other epidemics in the PRC affecting animals or humans might result
in material disruptions to our operations, material disruptions to the
operations of our customers or suppliers, a decline in the supermarket or food
retail industry or slowdown in economic growth in the PRC and surrounding
regions, any of which could have a material adverse effect on our operations and
turnover. Recently, there has been an outbreak of streptococcus suis in pigs,
principally in Sichuan Province, PRC, with a large number of cases of human
infection following contact with diseased pigs. There also have been unrelated
reports of diseased pigs in Guangdong Province, PRC. Our procurement and
production facilities are located in Jiangxi Province, PRC and were not affected
by the streptococcus suis infection. However, there can be no assurance that our
facilities or products will not be affected by an outbreak of this disease or
similar ones in the future, or that the market for pork products in the PRC will
not decline as a result of fear of disease. In either case, our business,
results of operations and financial condition would be adversely and materially
affected.
Consumer
concerns regarding the safety and quality of food products or health concerns
could adversely affect sales of our products.
Our sales
performance could be adversely affected if consumers lose confidence in the
safety and quality of our products. Consumers in the PRC are increasingly
conscious of food safety and nutrition. Consumer concerns about, for example,
the safety of pork products, or about the safety of food additives used in
processed meat products, could discourage them from buying certain of our
products and cause our results of operations to suffer.
We
may be subject to substantial liability should the consumption of any of our
products cause personal injury or illness. Unlike most food processing companies
in the United States, we do not maintain product liability insurance to cover
our potential liabilities.
The sale
of food products for human consumption involves an inherent risk of injury to
consumers. Such injuries may result from tampering by unauthorized third parties
or product contamination or degeneration, including the presence of foreign
contaminants, chemical substances or other agents or residues during the various
stages of production process. We cannot assure you that consumption of our
products will not cause a health-related illness in the future, or that we will
not be subject to claims or lawsuits relating to such matters.
Even if a
product liability claim is unsuccessful or is not fully pursued, the negative
publicity surrounding any assertions that our products caused personal injury or
illness could adversely affect our reputation with customers and our corporate
and brand image. Unlike most food processing companies in the United States, but
in line with industry practice in the PRC, we do not maintain product liability
insurance. Furthermore, the products manufactured from our hogs could
potentially suffer from product tampering, contamination or degeneration or be
mislabeled or otherwise damaged. Under certain circumstances, we may be required
to recall products. Even if a situation does not necessitate a product recall,
we cannot assure you that product liability claims by our distributors will not
be asserted against us as a result. A product liability judgment against us or a
product recall could have a material adverse effect on our revenues,
profitability and business reputation.
If
the pork market in the PRC does not grow as we expect, our results of operations
and financial condition will be adversely affected.
We
believe pork products have strong growth potential in the PRC and, accordingly,
we have continuously increased our sales of breeding swine and hogs. However,
the market for pork products in the PRC has grown in recent years due to the
increased wealth of the average resident of China, which has been the result of
double-digit annual growth in the Chinese economy. Due to the
worldwide recession, the growth of the Chinese economy has slowed. If
the pork market in the PRC does not grow as we expect, our business will be
harmed, we will need to adjust our growth strategy, and our results of operation
will be adversely affected.
We
require various licenses and permits to operate our business, and the loss of or
failure to renew any or all of these licenses and permits could require us to
suspend some or all of our production or distribution operations.
In
accordance with PRC laws and regulations, we are required to maintain various
licenses and permits in order to operate our business. We are required to comply
with applicable hygiene and food safety standards in relation to our production
processes. Our premises and transportation vehicles are subject to regular
inspections by the regulatory authorities for compliance with applicable
regulations. Failure to pass these inspections, or the loss of or failure to
renew our licenses and permits, could require us to temporarily or permanently
suspend some or all of our production or distribution operations, which could
disrupt our operations and adversely affect our revenues and
profitability.
19
Risks
Relating to the People's Republic of China
Certain
political and economic considerations relating to the PRC could adversely affect
our company.
The PRC
is transitioning from a planned economy to a market economy. While the PRC
government has pursued economic reforms since its adoption of the open-door
policy in 1978, a large portion of the PRC economy is still operating under
five-year plans and annual state plans. Through these plans and other economic
measures, such as control on foreign exchange, taxation and restrictions on
foreign participation in the domestic market of various industries, the PRC
government exerts considerable direct and indirect influence on the economy.
Many of the economic reforms carried out by the PRC government are unprecedented
or experimental, and are expected to be refined and improved. Other political,
economic and social factors can also lead to further readjustment of such
reforms. This refining and readjustment process may not necessarily have a
positive effect on our operations or future business development. Our operating
results may be adversely affected by changes in the PRC’s economic and social
conditions as well as by changes in the policies of the PRC government, such as
changes in laws and regulations (or the official interpretation thereof),
measures which may be introduced to control inflation, changes in the interest
rate or method of taxation, and the imposition of restrictions on currency
conversion in addition to those described below.
The
recent nature and uncertain application of many PRC laws applicable to us create
an uncertain environment for business operations and they could have a negative
effect on us.
The PRC
legal system is a civil law system. Unlike the common law system, the civil law
system is based on written statutes in which decided legal cases have little
value as precedents. In 1979, the PRC began to promulgate a comprehensive system
of laws and has since introduced many laws and regulations to provide general
guidance on economic and business practices in the PRC and to regulate foreign
investment. Progress has been made in the promulgation of laws and regulations
dealing with economic matters such as corporate organization and governance,
foreign investment, commerce, taxation and trade. The promulgation of new laws,
changes of existing laws and the abrogation of local regulations by national
laws could have a negative impact on our business and business
prospects.
Currency
conversion could adversely affect our financial condition.
The PRC
government imposes control over the conversion of Renminbi into foreign
currencies. Under the current unified floating exchange rate system, the
People’s Bank of China publishes an exchange rate, which we refer to as the PBOC
exchange rate, based on the previous day’s dealings in the inter-bank foreign
exchange market. Financial institutions authorized to deal in foreign currency
may enter into foreign exchange transactions at exchange rates within an
authorized range above or below the PBOC exchange rate according to market
conditions.
Pursuant
to the Foreign Exchange Control Regulations of the PRC issued by the State
Council which came into effect on April 1, 1996, and the Regulations on the
Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which
came into effect on July 1, 1996, regarding foreign exchange control, conversion
of Renminbi into foreign exchange by Foreign Investment Enterprises, or FIEs,
for use on current account items, including the distribution of dividends and
profits to foreign investors, is permissible. FIEs are permitted to convert
their after-tax dividends and profits to foreign exchange and remit such foreign
exchange to their foreign exchange bank accounts in the PRC. Conversion of
Renminbi into foreign currencies for capital account items, including direct
investment, loans, and security investment, is still under certain restrictions.
On January 14, 1997, the State Council amended the Foreign Exchange Control
Regulations and added, among other things, an important provision, which
provides that the PRC government shall not impose restrictions on recurring
international payments and transfers under current account items.
Enterprises
in the PRC (including FIEs) which require foreign exchange for transactions
relating to current account items, may, without approval of the State
Administration of Foreign Exchange, or SAFE, effect payment from their foreign
exchange account or convert and pay at the designated foreign exchange banks by
providing valid receipts and proofs.
Convertibility
of foreign exchange in respect of capital account items, such as direct
investment and capital contribution, is still subject to certain restrictions,
and prior approval from the SAFE or its relevant branches must be
sought.
Furthermore,
the Renminbi is not freely convertible into foreign currencies nor can it be
freely remitted abroad. Under the PRC’s Foreign Exchange Control Regulations and
the Administration of Settlement, Sales and Payment of Foreign Exchange
Regulations, Foreign Invested Enterprises are permitted either to repatriate or
distribute its profits or dividends in foreign currencies out of its foreign
exchange accounts, or exchange Renminbi for foreign currencies through banks
authorized to conduct foreign exchange business. The conversion of Renminbi into
foreign exchange by Foreign Invested Enterprises for recurring items, including
the distribution of dividends to foreign investors, is permissible. The
conversion of Renminbi into foreign currencies for capital items, such as direct
investment, loans and security investment, is subject, however, to more
stringent controls.
20
Our
operating company is a FIE to which the Foreign Exchange Control Regulations are
applicable. Accordingly, we will have to maintain sufficient foreign exchange to
pay dividends and/or satisfy other foreign exchange requirements.
Exchange
rate volatility could adversely affect our financial condition.
Since
1994, the exchange rate for Renminbi against the United States dollar has
remained relatively stable, most of the time in the region of approximately
RMB8.28 to $1.00. However, in 2005, the Chinese government announced that it
would begin pegging the exchange rate of the Chinese Renminbi against a number
of currencies, rather than just the U.S. dollar and, the exchange rate for the
Renminbi against the U.S. dollar became RMB8.02 to $1.00. If we decide to
convert Chinese Renminbi into United States dollars for other business purposes
and the United States dollar appreciates against this currency, the United
States dollar equivalent of the Chinese Renminbi we convert would be reduced.
There can be no assurance that future movements in the exchange rate of Renminbi
and other currencies will not have an adverse effect on our financial
condition.
Since
our assets are located in the PRC, any dividends of proceeds from liquidation
are subject to the approval of the relevant Chinese government
agencies.
Our
operating assets are located inside the PRC. Under the laws governing Foreign
Invested Enterprises in the PRC, dividend distribution and liquidation are
allowed but subject to special procedures under the relevant laws and rules. Any
dividend payment will be subject to the decision of the board of directors and
subject to foreign exchange rules governing such repatriation. Any liquidation
is subject to the relevant government agency’s approval and supervision as well
as the foreign exchange control. This may generate additional risk for our
investors in case of dividend payment and liquidation.
It
may be difficult to affect service of process and enforcement of legal judgments
upon our company and our officers and directors because they reside outside the
United States.
As our
operations are presently based in the PRC and our director and officer resides
in the PRC, service of process on our company and such director and officer may
be difficult to effect within the United States. Also, our main assets are
located in the PRC and any judgment obtained in the United States against us may
not be enforceable outside the United States.
PRC
SAFE Regulations regarding offshore financing activities by PRC residents have
undertaken continuous changes which may increase the administrative burden we
face and create regulatory uncertainties that could adversely affect our
business.
Recent
regulations promulgated by SAFE, regarding offshore financing activities by PRC
residents have undergone a number of changes which may increase the
administrative burden we face. The failure by our stockholders and affiliates
who are PRC residents, including Dengfu Xu and Luping Pan, to make any required
applications and filings pursuant to such regulations may prevent us from being
able to distribute profits and could expose us and our PRC resident stockholders
to liability under PRC law.
In 2005,
SAFE promulgated regulations in the form of public notices, which require
registrations with, and approval from, SAFE on direct or indirect offshore
investment activities by PRC resident individuals. The SAFE regulations require
that if an offshore company directly or indirectly formed by or controlled by
PRC resident individuals, known as “SPC,” intends to acquire a PRC company, such
acquisition will be subject to strict examination by the SAFE. Without
registration, the PRC entity cannot remit any of its profits out of the PRC as
dividends or otherwise. This could have a material adverse effect on us given
that we expect to be a publicly listed company in the U.S.
Due
to various restrictions under PRC laws on the distribution of dividends by our
PRC Operating Companies, we may not be able to pay dividends to our
stockholders.
The
Wholly-Foreign Owned Enterprise Law (1986), as amended and The Wholly-Foreign
Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law
of the PRC (2006) contain the principal regulations governing dividend
distributions by wholly foreign owned enterprises. Under these regulations,
wholly foreign owned enterprises may pay dividends only out of their accumulated
profits, if any, determined in accordance with PRC accounting standards and
regulations. Additionally, such companies are required to set aside a certain
amount of their accumulated profits each year, if any, to fund certain reserve
funds. These reserves are not distributable as cash dividends except in the
event of liquidation and cannot be used for working capital purposes. The PRC
government also imposes controls on the conversion of RMB into foreign
currencies and the remittance of currencies out of the PRC. We may experience
difficulties in completing the administrative procedures necessary to obtain and
remit foreign currency for the payment of dividends from the Company’s
profits.
Furthermore,
if our subsidiaries in China incur debt on their own in the future, the
instruments governing the debt may restrict its ability to pay dividends or make
other payments. If we or our subsidiaries are unable to receive all of the
revenues from our operations through these contractual or dividend arrangements,
we may be unable to pay dividends on our common stock.
21
The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities.
We are
dependent on our relationship with the local government in the province in which
we operate our business. 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, 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 these jurisdictions may impose new, stricter regulations or
interpretations of existing regulations that would require additional
expenditures and efforts on our part to ensure our compliance with such
regulations or interpretations. Accordingly, government actions in the future,
including any decision not to continue to support recent economic reforms and to
return to a more centrally planned economy or regional or local variations in
the implementation of economic policies, could have a significant effect on
economic conditions in China or particular regions thereof, and could require us
to divest ourselves of any interest we then hold in Chinese
properties.
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
high rates of inflation. Rapid economic growth can lead to growth in the money
supply and rising inflation. If prices for our products rise at a rate that is
insufficient to compensate for the rise in the costs of supplies, it may have an
adverse effect on profitability. These factors have led to the adoption by
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 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.
If
our land use rights are revoked, we would have no operational
capabilities.
Under
Chinese law land is owned by the state or rural collective economic
organizations. The state issues to tenants the rights to use property. Use
rights can be revoked and the tenants forced to vacate at any time when
redevelopment of the land is in the public interest. The public interest
rationale is interpreted quite broadly and the process of land appropriation may
be less than transparent. Each of our operating subsidiaries rely on these land
use rights as the cornerstone of their operations, and the loss of such rights
would have a material adverse effect on our company.
Risks
Relating to Our Securities
In
order to raise sufficient funds to expand our operations, we may have to issue
additional securities at prices which may result in substantial dilution to our
shareholders.
If we
raise additional funds through the sale of equity or convertible debt, our
current stockholders’ percentage ownership will be reduced. In addition, these
transactions may dilute the value of our securities outstanding. We may have to
issue securities that may have rights, preferences and privileges senior to our
common stock. We cannot provide assurance that we will be able to raise
additional funds on terms acceptable to us, if at all. If future financing is
not available or is not available on acceptable terms, we may not be able to
fund our future needs, which would have a material adverse effect on our
business plans, prospects, results of operations and financial
condition.
Our
securities have not been registered under the Securities Act, and cannot be sold
without registration under the Securities Act or any exemption from
registration.
Our
securities should be considered a long-term, illiquid investment. Our securities
have not been registered under the Securities Act, and cannot be sold without
registration under the Securities Act or any exemption from registration. In
addition, our securities are not registered under any state securities laws that
would permit their transfer. Because of these restrictions and the absence of an
active trading market for the securities, a shareholder will likely be unable to
liquidate an investment even though other personal financial circumstances would
dictate such liquidation.
22
We
are not likely to pay cash dividends in the foreseeable future.
We
currently intend to retain any future earnings for use in the operation and
expansion of our business. Accordingly, we do not expect to pay any cash
dividends in the foreseeable future, but will review this policy as
circumstances dictate. Should we determine to pay dividends in the future, our
ability to do so will depend upon the receipt of dividends or other payments
from our PRC operating subsidiary may, from time to time, be subject to
restrictions on its ability to make distributions to us, including restrictions
on the conversion of RMB into U.S. dollars or other hard currency and other
regulatory restrictions.
We
may be subject to the penny stock rules which will make our securities more
difficult to sell.
If we are
able to obtain a listing of our securities on a national securities exchange, we
may be subject in the future to the SEC’s “penny stock” rules if our securities
sell below $5.00 per share. Penny stocks generally are equity securities
with a price of less than $5.00. The penny
stock rules require broker-dealers to deliver a standardized risk disclosure
document prepared by the SEC which provides information about penny stocks and
the nature and level
of risks in the penny
stock market. The broker-dealer must also provide the
customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson, and monthly account
statements
showing the market value of each penny stock held in the customer’s account. The
bid and offer quotations, and the broker-dealer and salesperson compensation
information must be given to the customer orally or in writing prior to
completing the transaction and must be given to the customer in writing before
or with the customer’s confirmation.
In
addition, the penny stock rules require that prior to a transaction, the broker
dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction.
The penny stock rules are burdensome and may
reduce purchases of any offerings and reduce the trading activity for our
securities. As long as our securities
are
subject to the penny stock rules, the holders of such securities may find it
more difficult to sell their securities.
Our
securities have not been listed for trading on the OTC Bulletin Board or on any
stock exchange and there can be no assurance that there will be a market
developed for our securities in the future.
Our
securities have not been quoted or listed for trading on the OTC Bulletin Board
or on any stock exchange. Although our management will apply to a senior
exchange for listing of our securities, there can be no assurance that a public
market for our shares will be developed. Consequently, investors may not be able
to liquidate their investment or liquidate it at a price that reflects the value
of the business. Even if a public market should develop, the price may be highly
volatile. Because there may be a low price for our securities, many brokerage
firms may not be willing to effect transactions in the securities. Even if an
investor finds a broker willing to effect a transaction in our securities, the
combination of brokerage commissions, transfer fees, taxes, if any, and any
other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of such securities as collateral for any
loans.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
following discussion and analysis of the results of operations and financial
condition for the fiscal years ended September 30, 2009 and 2008, should be read
in conjunction with the Selected Consolidated Financial Data, our financial
statements, and the notes to those financial statements that are included
elsewhere in this 8-K. References in this section to “we,” “us,” “our,” or the
“Company” are to the consolidated business of SCLI, Mayson International, Mayson
Enterprises, Mayson Holdings, Beijing Huaxin, Jiangxi Huaxin, Jiangxi Yingtan,
Yingtan Livestock, Yingtan Yujiang, Yujiang Decheng, Yujiang Fengyuan, Yujiang
Xianyue and Yujiang Xiangying.
Our
discussion includes forward-looking statements based upon current expectations
that involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of events could
differ materially from those anticipated in these forward-looking statements as
a result of a number of factors, including those set forth under the Risk
Factors, Cautionary Notice Regarding Forward-Looking Statements and Business
sections in this 8-K. We use words such as “anticipate,” “estimate,” “plan,”
“project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,”
“will,” “should,” “could,” and similar expressions to identify forward-looking
statements.
COMPANY
OVERVIEW
SCLI was
incorporated in the State of Nevada on July 28, 2009 as the indirect US holding
company for Beijing Huaxin and Beijing Huaxin’s subsidiaries, which are in the
business of breeding and raising commercial hogs in Jiangxi province of China.
Its wholly owned subsidiary, Mayson International acquired Mayson Enterprises,
which was incorporated on July 25, 2008 under the laws of British Virgin
Islands. On August 1, 2008, Mayson Enterprises acquired Mayson Holdings, a Hong
Kong limited liability company. On September 9, 2008, Mayson Holdings
established Beijing Huaxin, a wholly foreign owned enterprise under the PRC
laws. On November 3, 2008, Beijing Huaxin entered into an Equity Interests
Transfer Agreement with Mr. XU Dengfu, Mr. PAN Luping, Mr. PAN Mude, Mr. ZHANG
Genkai, Mr. LI Xianyue, Mr. YANG Min and Ms. XU Jianying, who are the former
shareholders of Jiangxi Huaxin, pursuant to which 99% of the equity interests in
Jiangxi Huaxin was transferred to Beijing Huaxin and Mr. XU Dengfu kept the 1%
equity interest in Jiangxi Huaxin. On January 15, 2010, Mr. XU Dengfu
transferred the remaining 1% equity interest in Jiangxu Huaxin to Beijing
Huaxin. As a result, Beijing Huaxin holds 100% equity interests in Jiangxi
Huaxin and Jiangxi Huaxin became a wholly-owned subsidiary of Beijing Huaxin. We
operate our business mainly through Jiangxi Huaxin, our operating subsidiary in
the PRC.
23
Current
Business of the Company
We are
engaged in the business of breeding and raising commercial hogs in the People’s
Republic of China (“PRC”). We are the largest breeder in China Jiangxi province.
We own 19 hog farms with approximately 80,000 pigs in
aggregate. These farms are located in Jiangxi provinces. We sell live
hogs in one of China’s wealthiest regions Guangdong province, which has China’s
highest hog prices as well as deep pork consuming cultures.
CRITICAL
ACCOUNTING POLICIES, ESTIMATES AND ASSUMPTIONS
Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements. These financial statements are
prepared in accordance with generally accepted accounting principles in the
United States (“U.S. GAAP”), which requires us to make estimates and assumptions
that affect the reported amounts of our assets, liabilities, revenues and
expenditures, to disclose contingent assets and liabilities on the date of the
financial statements, and to disclose the reported amounts of revenues and
expenses incurred during the financial reporting period. The most significant
estimates and assumptions include revenues recognition, valuation of inventories
and provisions for income taxes. We continue to evaluate these estimates and
assumptions that we believe to be reasonable under the circumstances. We rely on
these evaluations as the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Since
the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Some of our
accounting policies require higher degrees of judgment than others in their
application. We believe critical accounting policies as disclosed in this Report
reflect the more significant judgments and estimates used in preparation of our
financial statements. We believe there have been no material changes to our
critical accounting policies and estimates.
The
following critical accounting policies rely upon assumptions and estimates and
were used in the preparation of our consolidated financial
statements:
A.
Inventories
Inventories
are stated at the lower of cost and net realizable value. Cost is calculated on
the weighted average basis and includes all costs to acquire and other costs
incurred in bringing the inventories to their present location and condition.
The Company evaluates the net realizable value of its inventories on a regular
basis and records a provision for loss to reduce the computed weighted average
cost if it exceeds the net realizable value.
B.
Construction in Progress
Construction
in progress represents buildings under construction and plant and equipment
pending installation as of September 30, 2009 and 2008, and is stated at cost.
Cost includes construction of buildings, acquisitions and installation of
equipment, and interest charges arising from borrowings used to finance assets
during the period of construction or installation and testing. No provision for
depreciation is made on assets under construction until such time as the
relevant assets are completed and ready for their intended commercial
use.
C.
Property, Plant and Equipment
Property,
plant and equipment are carried at cost. The cost of repairs and maintenance is
expensed as incurred; major replacements and improvements are capitalized. When
assets are retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are included in
income in the year of disposition. Depreciation is calculated on a straight-line
basis over the estimated useful life of the assets. The percentages applied
are:
|
Buildings
|
|
10 – 50 years
|
|
Machinery
and equipment
|
|
10 – 30
years
|
|
Motor
vehicles
|
|
10 years
|
D.
Long-Lived Assets
The
Company applies the provisions of Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144” codified as ASC 360), which addresses financial accounting and reporting
for the impairment or disposal of long-lived assets and supersedes SFAS No. 121
codified as ASC 360, “Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of,” and the accounting and reporting
provisions of APB Opinion No. 30, “Reporting the Results of Operations for a
Disposal of a Segment of a Business.” The Company periodically evaluates the
carrying value of long-lived assets to be held and used in accordance with SFAS
144 codified as ASC 360. SFAS 144 codified as ASC 360 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. Based on its review, the Company believes
that, as of December 31, 2008 and 2007 there were no significant impairments of
its long-lived assets.
24
E.
Value Added Tax
According
to PRC tax laws and regulations, the business of agricultural breeding of
livestock is exempt from Value Added Tax (“VAT”). As a result, the Company was
not subject to VAT for the fiscal years ended September 30, 2009 and 2008,
respectively.
F.
Income Tax
The
Company utilizes SFAS No. 109 codified as ASC740, “Accounting for Income Taxes,”
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income taxes
are recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. According to PRC tax laws and
regulations, the business of agricultural breeding of livestock is exempt from
income tax. As a result, the Company was not subject to income tax for the
fiscal years ended September 30, 2009 and 2008, respectively.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, on January 1, 2007. As a result of the
implementation of FIN 48, the company made a comprehensive review of its
portfolio of tax positions in accordance with recognition standards established
by FIN 48. As a result of the implementation of Interpretation 48, the Company
recognized no material adjustments to liabilities or stockholders’ equity. When
tax returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of
tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheets along with any associated interest and penalties
that would be payable to the taxing authorities upon
examination. Interest associated with unrecognized tax benefits are
classified as interest expense and penalties are classified in selling, general
and administrative expenses in the statements of income. The adoption of FIN 48
did not have a material impact on the Company’s financial
statements.
G.
Government Subsidies
The
Company records as income government subsidies when received from local
government authority which are not subject to future return or reimbursement.
Government subsidies received a total of $149,168 and $1,189,506 for the years
ended September 30, 2008 and 2009.
H.
Foreign Currency Translation
The
Company follows SFAS No. 52 codified as 830, “Foreign Currency
Translation”, for both the translation and re-measurement of balance sheet and
income statement items into U.S. dollars. Resulting translation adjustments are
reported as a separate component of accumulated comprehensive income (loss) in
stockholders’ equity.
The
Company maintains its books and accounting records in Renminbi (“RMB”), the
PRC’s currency, being the functional currency. Transactions denominated in
foreign currencies are translated into the functional currency at the exchange
rates prevailing on the transaction dates. Assets and liabilities denominated in
foreign currencies are translated into the functional currency at the exchange
rates prevailing at the balance sheet date. Any translation gains (losses) are
recorded in exchange reserve as a component of shareholders’ equity. Income and
expenditures are translated at the average exchange rate of the year.
25
|
2009
|
2008
|
|||||||
|
Year-end
RMB : US$ exchange rate
|
6.8290 | 6.8183 | ||||||
|
Average
RMB : US$ exchange rate
|
6.8333 | 7.0987 | ||||||
On
January 1, 1994, the PRC government introduced a single rate of exchange as
quoted daily by the People’s Bank of China (the “Unified Exchange Rate”). The
quotation of the exchange rates does not imply free convertibility of RMB to
other foreign currencies. All foreign exchange transactions continue to take
place either through the Bank of China or other banks authorized to buy and sell
foreign currencies at the exchange rates quoted by the People’s Bank of China
(“PBOC). Approval of foreign currency payments by the Bank of China or other
institutions requires submitting a payment application form together with
supplier’s invoices, shipping documents and signed contracts.
Commencing
from July 21, 2005, China has adopted a managed floating exchange rate
regime based on market demand and supply with reference to a basket of
currencies. The exchange rate of the US dollar against the RMB was adjusted from
approximately RMB 8.28 per US dollar to approximately RMB 8.11 per US
dollar on July 21, 2005. Since then, the PBOC administers and regulates the
exchange rate of US dollar against RMB taking into account demand and supply of
RMB, as well as domestic and foreign economic and financial
conditions.
I.
Revenue Recognition
The
Company recognizes revenue when the live hogs ownership have been transferred to
the customer, including factors such as when persuasive evidence of an
arrangement exists, live hogs has been loaded on the transportation delivery
note has been signed, the sales price is fixed and determinable, and
collectibility is reasonably assured.
J.
Use of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Significant accounting estimates reflected in the
Company’s financial statements include collectibility of account receivable,
value of live hogs, useful lives and impairment of property and equipment.
Actual results when ultimately realized could differ from those estimates and
the differences could be material.
K.
Employees’ Benefits
Mandatory
contributions are made to the Government’s health, retirement benefit and
unemployment schemes at the statutory rates in force during the period, based on
gross salary payments. The cost of these payments is charged to the statement of
income in the same period as the related salary cost.
L.
Comprehensive Income
Comprehensive
income includes net income and foreign currency translation adjustments.
Comprehensive income is reported as a component of the consolidated statements
of shareholders’ equity.
M.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of trade accounts receivable. The Company
performs ongoing credit evaluations with respect to the financial condition of
its customers, but does not require collateral. In order to determine the value
of the Company’s accounts receivable, the Company records a provision for
doubtful accounts to cover probable credit losses. Management reviews and
adjusts this allowance periodically based on historical experience and its
evaluation of the collectability of outstanding accounts
receivable.
N.
Shipping and Handling Costs
Shipping
and handling costs are classified as cost of sales and are expensed as incurred.
For the years ended September 30, 2008 and 2009, shipping and handling cost
included in selling and marketing expenses were $7,718 and $5,582.
O.
Advertising Costs
Advertising
costs are expensed as incurred. For the years ended September 30, 2008 and 2009,
advertising costs were $6,641 and $4,945.
26
P. Segment
Report
The
Company has one operating segment as of and for the years ended September 30,
2008 and 2009. The Company’s chief operating decision maker has been identified
as the Company’s Chief Executive Officer, who reviews consolidated results when
making decisions about allocating resources and assessing performance of the
Company. The Company operates primarily in the PRC and all of the Company’s
long-lived assets are located in the PRC.
Q. Fair
Value of Financial Instruments
The
carrying value of financial instruments including cash, receivables, accounts
payable, amount due to/(from) shareholders and accrued expenses, approximates
their fair value at September 30, 2009 and 2008 due to the relatively short-term
nature of these instruments.
R.
Net Income per Common Share
Net
income per common share is computed in accordance with SFAS No. 128, which
is codified as ASC 260. “Earnings Per Share”. Basic earnings per common share is
calculated by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for each period. Diluted
earnings per common share is calculated by adjusting the weighted-average shares
outstanding assuming conversion of all potentially dilutive convertible
securities.
S.
Contingent Liability
The
Companies declared dividends to its stockholders in the amount of $13,064,075
and $8,897,167 for the years ended September 30, 2009 and 2008, respectively.
According to the Income Tax Laws in the PRC, the Company is required to withhold
income tax of 20% on the dividends paid to shareholders, which the Company
failed to do. In the event that these taxes cannot be collected from the
stockholders, the Company may be liable to pay the unpaid amount of approximate
$4.4 million and late payment penalty may be levied in an amount ranging
from 50% to maximum 5 times the taxes owing. The Company believes that the
likelihood of the taxes and penalties being levied against the company is remote
as of the date hereof. In the event that the taxing authorities assess the
company for these taxes, they will be recorded as appropriate, depending on
whether the these amounts can be recovered from the stockholders or
not.
Recent Accounting
Pronouncements
On
December 4, 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS No.
141(R)”), “Business Combinations”, which is codified as ASC 805, and SFAS No.
160, “Noncontrolling Interests in Consolidated Financial Statements”, which is
codified as ASC 810. ASC 805 improves reporting by creating greater
consistency in the accounting and financial reporting of business combinations,
resulting in more complete, comparable, and relevant information for investors
and other users of financial statements. To achieve this goal, the new standard
requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction;
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed; and requires the acquirer to disclose
to investors and other users all of the information they need to evaluate and
understand the nature and financial effect of the business
combination. ASC 805 also will reduce the complexity of existing
GAAP. The newly issued standard includes both core principles and pertinent
application guidance, eliminating the need for numerous EITF issues and other
interpretative guidance. ASC 810 improves the relevance,
comparability, and transparency of financial information provided to investors
by requiring all entities to report non-controlling (minority) interests in
subsidiaries in the same way - as equity in the consolidated financial
statements. Moreover, ASC 810 eliminates the diversity that currently exists in
accounting for transactions between an entity and non-controlling interests by
requiring they be treated as equity transactions. The two standards
will be effective for fiscal years beginning after December 15, 2008 and earlier
adoption is prohibited. The Company is currently evaluating the
impact of ASC 805 and ASC 810 on its financial position and results of
operations following adoption.
On March
8, 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133”, which is
codified as ASC 815. This Statement changes the disclosure
requirements for derivative instruments and hedging activities. Entities are
required to provide enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows. This Statement is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. This Statement encourages, but does not require,
comparative disclosures for earlier periods at initial adoption. The
Company is currently evaluating the impact of ASC 815 on its financial position
and results of operations following adoption.
In April
2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible
Assets”, which is codified as ASC 350. ASC 350 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset. ASC 350
is effective for fiscal years beginning after December 15, 2008. The
Company is currently evaluating the impact of ASC 350 on its financial position
and results of operations following adoption.
27
In June
2008, the FASB ratified EITF Issue No. 08-3, “Accounting for Lessees for
Maintenance Deposits Under Lease Arrangements” (EITF 08-3), which is codified as
ASC 840. ASC 840 provides guidance for accounting for nonrefundable
maintenance deposits. It also provides revenue recognition accounting guidance
for the lessor. ASC 840 is effective for fiscal years beginning after December
15, 2008. The Company is currently assessing the impact of ASC 840 on its
consolidated financial position and results of operations.
In
October 2008, the Company adopted SFAS No.157, “Fair Value Measurements”, which
is codified as ASC 820. ASC 820 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosure about fair value measurements. The
adoption of the provisions of ASC 820 related to financial assets and
liabilities, and other assets and liabilities that are carried at fair value on
a recurring basis do not have a significant impact on the Company’s consolidated
financial position, results of operations and cash flows. The FASB
provided for a one-year deferral of the provisions of ASC 820 for non-financial
assets and liabilities that are recognized or disclosed at fair value in the
consolidated financial statements on a non-recurring
basis. Accordingly, the Company is still evaluating the impact of the
provisions of ASC 820 for non-financial assets and liabilities and is not yet in
a position to determine such effects.
In
December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8 “Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities”, which is codified as ASC 860. ASC 860
requires public entities to provide additional disclosures about transfers of
financial assets and their involvement with variable interest
entities. ASC 860 is effective for the first reporting period ending
after December 15, 2008. The Company is currently evaluating the impact of ASC
860 on its financial position and results of operations.
In April
2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies”,
which is codified as ASC 805. ASC 805 amends and clarifies FASB
Statement No. 141 (revised 2007), “Business Combinations”, to address
application issues raised by preparers, auditors, and members of the legal
profession on initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from contingencies
in a business combination. ASC 805 shall be effective for assets or
liabilities arising from contingencies in business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company is currently
evaluating the effect of ASC 805 on its financial position and results of
operation.
In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140 (SFAS No. 166”). SFAS
No. 166 has not yet been codified in the FASB Accounting Standards
Codification. SFAS No. 166 seeks to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets. SFAS No. 166 is applicable for
annual periods after November 15, 2009 and interim periods therein and
thereafter. The Company is currently evaluating the effect of SFAS No. 166 on
its financial position and results of operation.
In June
2009, the FASB issued SFAS No.167, “Amendments to FASB Interpretation No.46(R)”,
which is codified as ASC 810. ASC 810 requires an enterprise to
perform an analysis to determine whether the enterprise’s variable interest or
interests give it a controlling financial interest in a Variable Interest Entity
(“VIE”). Under ASC 810, an enterprise has a controlling financial
interest when it has (a) the power to direct the activities of a VIE that most
significantly impact the entity’s economic performance and (b) the obligation to
absorb losses of the entity or the right to receive benefits from the entity
that could potentially be significant to the VIE. ASC 810 also
requires an enterprise to assess whether it has an implicit financial
responsibility to ensure that a VIE operates as designed when determining
whether it has power to direct the activities of the VIE that most significantly
impact the entity’s economic performance. ASC 810 also requires
ongoing assessments of whether an enterprise is the primary beneficiary of a
VIE, requires enhanced disclosures and eliminates the scope exclusion for
qualifying special-purpose entities. ASC 810 shall be effective as of
the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual
reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. ASC 810 is
effective for the Company in the first quarter of fiscal 2011. The Company is
currently evaluating the effect of ASC 810 on its financial position and results
of operation.
28
In June
2009, the FASB issued SFAS No. 168, “The ‘FASB Accounting Standards
Codification’ and the Hierarchy of Generally Accepted Accounting Principles”,
which is codified as ASC 105. ASC 105 establishes the “FASB
Accounting Standards Codification” (“Codification”), which officially launched
July 1, 2009, to become the source of authoritative U.S. generally accepted
accounting principles (“GAAP”) recognized by the FASB to be applied by non
governmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative U.S. GAAP for SEC registrants. The
subsequent issuances of new standards will be in the form of Accounting
Standards Updates that will be included in the
Codification. Generally, the Codification is not expected to change
U.S. GAAP. All other accounting literature excluded from the Codification will
be considered non authoritative. ASC 105 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The Company has adopted ASC 105 for the quarter ending September 30,
2009. The adoption of this Statement will not impact the financial
position and results of operation, as it only required disclosures.
In August
2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05,
“Measuring Liabilities at Fair Value”, which is codified as ASC 820, “Fair Value
Measurements and Disclosures”. This Update provides amendments to ASC
820-10, Fair Value Measurements and Disclosures –Overall, for the fair value
measurement of liabilities. This Update provides clarification that
in circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using a valuation technique that uses the quoted price of the identical
liability when traded as an asset, quoted prices for similar liabilities or
similar liabilities when traded as assets, or that is consistent with the
principles of ASC 820. The amendments in this Update also clarify
that when estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustment to other inputs relating to
the existence of a restriction that prevents transfer of the liability. The
amendments in this Update also clarify that both a quoted price in an active
market for the identical liability at the measurement date and the quoted price
for the identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the assets are required are Level 1 fair
value measurements. The guidance provided in this Update is effective for the
first reporting period (including interim periods) beginning after issuance. The
adoption of this Update did not have a significant impact to the Company’s
financial position and results of operation.
RESULTS
OF OPERATIONS
Results of Operations for the Three
Months Ended December 31, 2009 Compared To the Three Months Ended December 31,
2008
The
following table sets forth a summary of certain key components of our results of
operations for periods indicated in dollars and as a percentage of
revenues.
|
For The Three
Months Ended December 31,
|
||||||||||||||||||||
|
|
2009
|
2008
|
Change in %
|
|||||||||||||||||
|
Net revenue
|
$ | 11,377,724 | 100 | % | $ | 9,208,087 | 100 | % | 24 | % | ||||||||||
|
Cost
of revenue
|
$ | 9,468,686 | 83 | % | $ | 7,218,815 | 79 | % | 31 | % | ||||||||||
|
Gross
profit
|
$ | 1,909,038 | 17 | % | $ | 1,926,902 | 21 | % | (0.95 | )% | ||||||||||
|
Operating
expenses
|
$ | 108,231 | 1 | % | $ | 147,258 | 2 | % | (27 | )% | ||||||||||
|
Income
from operations
|
$ | 1,800,807 | 16 | % | $ | 1,779,644 | 19 | % | 1 | % | ||||||||||
|
Government
subsidies
|
$ | 263,627 | 2 | % | $ | - | 0 | % | N/A | |||||||||||
|
Income
before income tax (provision) benefit
|
$ | 2,124,391 | 19 | % | $ | 1,832,471 | 19 | % | 16 | % | ||||||||||
|
Income
tax provision
|
$ | - | - | $ | - | N/A | ||||||||||||||
|
Net
income
|
$ | 2,124,391 | 19 | % | $ | 1,832,471 | 19 | % | 16 | % | ||||||||||
|
Net
income attributable to Southern China Livestock International
Inc.
|
$ | 2,081,577 | 18 | % | $ | 1,795,707 | 20 | % | 16 | % | ||||||||||
Net
Revenue
For the
three months ended December 31, 2009, our net revenue increased 24% to
$11,377,724 from $9,208,087 for the three months ended December 31, 2008. During
the three months ended December 31, 2009, we sold hogs for 6,487,000 kilograms,
representing an increase of 29.15% from 5,023,000 kilograms for the comparable
period in 2008. The average unit selling price decreased 4.31% from RMB12.52 to
RMB11.98per kilogram due to higher competition in the PRC hog market in
2009.
Cost
of Revenue
As our
cost of revenue consists primarily of the fodder expense, we have limited
influence on such cost. The price of fodder is determined solely by suppliers
and the price of grain. We will continue to strengthen our relationship with
suppliers. The cost of revenue increased by 31% from $7,218,815 for the three
months ended December 31, 2008 to 9,468,686 for the three months ended December
31, 2009. The average unit cost increased 0.7% from RMB9.90 to RMB9.97 per
kilogram.
29
Operating
Expenses
Operating
expenses include overhead expenses such as rent, management and staff salaries,
general insurance, marketing and offices expenses. Operating expenses
decreased 27% from $147,258 to $108,231 primarily as a result of the Company’s
efforts in controlling costs.
Income
tax provision and government subsidies
PRC has
the world's largest and most profitable markets for hog production with
approximately 600 million hogs produced annually. More than 1.2 billion Chinese
consume pork as their primary source of meat, 65% of all meat consumed in the
PRC is pork. Chinese consumers consume more pork each year than the rest of the
world combined. Pork production in China is a key political, social and security
issue for consumers. The PRC government supports hog producers with preferred
tax status and subsidies, insurance, vaccines and land use grants. According to
PRC tax laws and regulations, the business of agricultural breeding of livestock
was exempt from Enterprise Income Tax (EIT) and Value Added Tax (“VAT”). With
the effort from the government support on hog producers during recent year, the
government subsidies increased to $263,627 from nil for the same period in
2008
Off-Balance
Sheet Arrangements
There
were no off-balance sheet arrangements during the three months ended December
31, 2009 that have, or are reasonably likely to have, a current or future effect
on our financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to our
interests
Liquidity
and Capital Resources
The
following table sets forth the summary of our cash flows for the three months
ended December 31, 2009 and 2008.
|
Three
Months Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Net
cash provided by operating activities
|
$ | 3,976,174 | $ | 2,476,428 | ||||
|
Net
cash (used in) provided by investing activities
|
$ | (117,967 | ) | $ | (248,924 | ) | ||
|
Net
cash used for financing activities
|
$ | (3,347,322 | ) | $ | (5,175,104 | ) | ||
|
Effect
of exchange rate changes on cash
|
$ | 112 | $ | (4,957 | ) | |||
|
Cash
and cash equivalents at beginning of period
|
$ | 1,201,160 | $ | 3,551,320 | ||||
|
Cash
and cash equivalents at end of period
|
$ | 1,685,157 | $ | 598,763 | ||||
Operating
Activities
During
the three months ended December 31, 2009, net cash provided by operating
activities was $3,976,174, as compared to net cash used for operating activities
of $2,476,428 in the three months ended December 31, 2008. This
increase was primarily due to a decrease of inventory for $1,896,369 during the
three months ended December 31, 2009, but only a decrease of inventory for
$322,685 in the comparable period in 2008.
Investing
Activities
During
the three months ended December 31, 2009, net cash used in investing activities
was $117,967, as compared to $248,924 of net cash used by investing activities
for the comparable period in 2008. The decrease was primarily due to an increase
in the amount of proceeds from disposal of biological assets from $69,522 to
$120,226 and purchase of biological assets from $318,446 to
$145,804.
Financing
Activities
During
the three months ended December 31, 2009, net cash used in financing activities
was $3,347,322, as compared to $5,175,104 for the comparable period in 2008. The
decrease of net cash used was primarily due to the repayments of stockholders
loan and dividend paid to stockholders during the three months ended December
31, 2009.
Our total
cash and cash equivalents decreased to $1,685,157 as of December 31, 2009, as
compared to $598,763 as of December 31, 2008.
30
Results of Operations for the Fiscal
Year Ended September 30, 2009 Compared To the Fiscal Year Ended September 30,
2008
The
following table sets forth a summary of certain key components of our results of
operations for periods indicated in dollars and as a percentage of
revenues.
|
For The Year Ended September 30,
|
||||||||||||||||||||||||
|
|
2009
|
2008
|
Change
in %
|
|||||||||||||||||||||
|
Net revenue
|
$ | 32,140,033 | 100 | % | $ | 38,001,599 | 100 | % | (15 | ) % | ||||||||||||||
|
Cost
of revenue
|
$ | 25,803,016 | 80 | % | $ | 22,539,050 | 59 | % | 14 | % | ||||||||||||||
|
Gross
profit
|
$ | 6,337,017 | 20 | % | $ | 15,462,549 | 41 | % | (59 | ) % | ||||||||||||||
|
Operating
expenses
|
$ | 458,300 | 1 | % | $ | 491,831 | 1 | % | (7 | ) % | ||||||||||||||
|
Income
from operations
|
$ | 5,878,717 | 18 | % | $ | 14,970,718 | 39 | % | (61 | ) % | ||||||||||||||
|
Government
subsidies
|
$ | 1,189,506 | 4 | % | $ | 149,168 | 0 | % | 697 | % | ||||||||||||||
|
Income
before income tax (provision) benefit
|
$ | 7,174,710 | 22 | % | $ | 15,428,911 | 40 | % | (54 | ) % | ||||||||||||||
|
Income
tax provision
|
$ | - | N/A | $ | - | N/A | N/A | |||||||||||||||||
|
Net
income
|
$ | 7,031,348 | 22 | % | $ | 15,121,018 | 40 | % | (54 | ) % | ||||||||||||||
Net
Revenue
For the
year ended September 30, 2009, our net revenue decreased 15% to $32,140,033 from
$38,001,599 for the year ended September 30, 2008. During the fiscal year 2009,
we sold hogs for 18,576,000 kilograms, representing an increase of 5.79% from
17,560,000 kilograms for the year ended September 30, 2008. The average unit
selling price decreased 23.05% from approximately $2.53 to $1.95 per kilogram
mainly due to the outbreak of H1N1 influenza, which affected the live hog spot
prices and the hog breeding industry, as well as to the increase in competition
in the PRC hog market in 2009.
Cost
of Revenue
As our
cost of revenue consists primarily of the fodder expense, we have limited
influence on such cost. The price of fodder is determined solely by suppliers
and the price of grain. We will continue to strengthen our relationship with
suppliers. The cost of revenue increased by 14% from $22,539,050 for the year
ended September 30, 2008 to $25,803,016 for 2009. The average unit cost
increased 4% from $1.50 to $1.56 per kilogram.
Operating
Expenses
Operating
expenses include overhead expenses such as rent, management and staff salaries,
general insurance, marketing and offices expenses. Operating expenses
decreased 7% from $491,831 to $458,300 primarily as a result of the Company’s
efforts in controlling costs.
Income
tax provision and government subsidies
PRC has
the world’s largest and most profitable markets for hog production with
approximately 600 million hogs produced annually. More than 1.2 billion Chinese
consume pork as their primary source of meat, 65% of all meat consumed in the
PRC is pork. Chinese consumers consume more pork each year than the rest of the
world combined. Pork production in China is a key political, social and security
issue for consumers. The PRC government supports hog producers with preferred
tax status and subsidies, insurance, vaccines and land use grants. According to
PRC tax laws and regulations, the business of agricultural breeding of livestock
was exempt from Enterprise Income Tax (EIT) and Value Added Tax (“VAT”). With
the effort from the government support on hog producers during recent year, the
government subsidies increased 696% from $149,168 to $1,189,506 year to
year.
31
LIQUIDITY
AND CAPITAL RESOURCES
The
following table sets forth the summary of our cash flows for the years ended
September 30, 2009 and September 30, 2008.
|
Year Ended September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Net
cash provided by operating activities
|
$ | 8,809,604 | $ | 15,422,012 | ||||
|
Net
cash (used in) provided by investing activities
|
(30,679 | ) | 156,381 | |||||
|
Net
cash used for financing activities
|
(11,122,113 | ) | (14,567,899 | ) | ||||
|
Effect
of exchange rate changes on cash
|
(6,972 | ) | 271,992 | |||||
|
Cash
and cash equivalents at beginning of period
|
3,551,320 | 2,268,834 | ||||||
|
Cash
and cash equivalents at end of period
|
1,201,160 | 3,551,320 | ||||||
Operating
Activities
During
the year ended September 30, 2009, net cash provided by operating activities was
$8,809,604, as compared to net cash provided by operating activities of
$15,422,012 for the year ended September 30, 2008. This decrease was
primarily due to the decrease in net income from $15,121,018 to
$7,031,348.
Investing
Activities
During
the year ended September 30, 2009, net cash used in investing activities was
$30,679, as compared to $156,381 of net cash provided by investing activities
for the comparable period in 2008. The decrease was primarily due to an increase
in the amount of proceeds from disposal of biological assets from $434,471 to
$283,541.
Financing
Activities
During
the year ended September 30, 2009, net cash used in financing activities was
$11,122,113, as compared to $14,567,899 for the comparable period in 2008. The
decrease of net cash used was primarily due to the repayments of stockholder
loans and dividends paid to stockholders during the year ended September 30,
2008.
Our total
cash and cash equivalents decreased to $1,201,160 as of September 30, 2009, as
compared to $3,551,320 as of September 30, 2008.
OFF-BALANCE
SHEET ARRANGEMENTS
There
were no off-balance sheet arrangements during the year ended September 30, 2009
that have, or are reasonably likely to have, a current or future effect on our
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to our
interests
MANAGEMENT
Appointment
of New Directors and Officers
At the
Closing Date of the Exchange Agreement, Sheila Hunter, our sole officer,
resigned from all her positions and Luping Pan and Shu Kaneko were appointed as
the officers of the Company. Upon effectiveness of an information statement
required by Rule 14f-1 promulgated under the Exchange Act, Sheila Hunter shall
resign as the sole Director of the Company, and Dengfu Xu, Shu Kaneko, Luping
Pan and Xin Zhao shall be appointed as the Directors of the Company
The
following table sets forth the names, ages, and positions of our new executive
officer and director. Executive officers are elected annually by our Board of
Directors. Each executive officer holds his office until he resigns,
is removed by the Board, or his successor is elected and
qualified. Directors are elected annually by our stockholders at the
annual meeting. Each director holds his office until his successor is
elected and qualified or his earlier resignation or removal.
|
NAME
|
AGE
|
POSITION
|
||
|
Dengfu
Xu
|
57 |
Chairman
|
||
|
Luping
Pan
|
45 |
President,
Chief Executive Officer, Secretary, and Director
|
||
|
Shu
Kaneko
|
44 |
Chief
Financial Officer and Director
|
||
|
Xin
Zhao
|
36 |
Director
|
A brief
biography of each officer and director is more fully described in Item
5.02(c). The information therein is hereby incorporated in this
section by reference.
32
Employment
Agreements
We
currently do not have employment agreement with any our directors and executive
officers.
Family
Relationships
There are
no family relationships between any of our directors or executive officers and
any other directors or executive officers.
Involvement
in Certain Legal Proceedings
To the
best of our knowledge, none of our directors or executive officers have been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws, except for matters that were dismissed without
sanction or settlement. Except as set forth in our discussion below in “Certain
Relationships and Related Transactions,” none of our directors, director
nominees or executive officers has been involved in any transactions with us or
any of our directors, executive officers, affiliates or associates which are
required to be disclosed pursuant to the rules and regulations of the
SEC.
Code
of Ethics
We have
adopted a code of ethics that applies to our officers, employees and directors,
including our Chief Executive Officer and senior executives.
EXECUTIVE
COMPENSATION
EXPEDITE
4 EXECUTIVE COMPENSATION SUMMARY
Summary
Compensation Table
The
following table sets forth all cash compensation paid by the Company, for the
year ended September 30, 2009 and 2008. The table below sets forth
the positions and compensations for each officer and director of the
Company.
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Non-Qualified
Deferred Compensation Earnings
($)
|
All
Other Compensation
($)
|
Totals
($)
|
|||||||||||||||||||||||||
| Sheila Hunter |
2009
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||
| President, CEO |
2008
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||
|
and
CFO (1)
|
||||||||||||||||||||||||||||||||||
|
(1)
|
On
the Closing Date, Sheila Hunter tendered her resignation from all offices
held in the Company, effective immediately, and from the Board of
Directors, effective upon effectiveness of an information statement
required by Rule 14f-1 promulgated under the Exchange
Act.
|
Outstanding
Equity awards at Fiscal Year End
There are
no outstanding equity awards as of the date hereof.
Director
Compensation
Our
directors will not receive a fee for attending each board of directors meeting
or meeting of a committee of the board of directors. All directors will be
reimbursed for their reasonable out-of-pocket expenses incurred in connection
with attending board of director and committee meetings.
Option
Grants
We do not
maintain any equity incentive or stock option plan. Accordingly, we
did not grant options to purchase any equity interests to any employees or
officers, and no stock options are issued or outstanding to any
officers. We do, however, anticipate adopting a non-qualified stock
option plan where we will be granting our officers options to purchase our
common stock pursuant to the terms of their employment
agreements. But, no such plan has been finalized or
adopted.
33
Certain
Relationships and Related Transactions
We will
present all possible transactions between us and our officers, directors or 5%
stockholders, and our affiliates to the Board of Directors for their
consideration and approval. Any such transaction will require approval by a
majority of the disinterested directors and such transactions will be on terms
no less favorable than those available to disinterested third
parties.
JIANGXI
HUAXIN EXECUTIVE COMPENSATION SUMMARY
The
following table sets forth all cash compensation paid by Jiangxi Huaxin, for the
year ended September 30, 2009 and 2008. The table below sets forth
the positions and compensations for each officer and director of Jiangxi
Huaxin.
|
Name
|
Title
|
09/30/2009 Fiscal Year
Annual Salary (US$)
|
09/30/2008 Fiscal Year
Annual Salary (US$)
|
|||||||
|
Dengfu
Xu (1)
|
Chairman
|
$
|
29,200
|
$
|
29,200
|
|||||
|
Luping
Pan (1)
|
CEO
|
$
|
29,200
|
$
|
29,200
|
|||||
|
(1)
|
In
connection with the Closing of the Combination, Mr. Dengfu Xu was
appointed as the Chairman, effective upon the effectiveness of a Schedule
14f-1 Information Statement, and Luping Pan was appointed as Chief
Executive Officer, President and Secretary of the Company, effective
immediately at the Closing.
|
PRINCIPAL
STOCKHOLDERS
Pre-Combination
The
following table sets forth certain information regarding our securities
beneficially owned as of the date hereof, for (i) each stockholder known to be
the beneficial owner of 5% or more of Expedite 4’s outstanding shares of commons
tock, (ii) each executive officer and director, and (iii) all executive officers
and directors as a group, on a pro forma basis prior to the Closing of the
Combination and Offering.
|
Name
and Address of
Beneficial
Owner
|
Amount
of
Beneficial
Ownership
|
Percentage
of
Class
|
||
|
Sheila
Hunter
|
100,000
|
100%
|
||
|
212
Carnegie Center, #206
|
||||
|
Princeton,
NJ 08540
|
||||
|
All
Executive Officers and
|
||||
|
Directors
as a Group (1 Person)
|
100,000
|
100%
|
Post-Combination and
Post-Offering
The
following table sets forth certain information regarding our securities
beneficially owned on the Closing Date, for (i) each stockholder known to be the
beneficial owner of 5% or more of Expedite 4’s outstanding shares of common
stock, (ii) each executive officer and director, and (iii) all executive
officers and directors as a group.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Common shares subject to options, warrants or convertible
securities exercisable or convertible within 60 days as of the date hereof are
deemed outstanding for computing the percentage of the person or entity holding
such options, warrants or convertible securities but are not deemed outstanding
for computing the percentage of any other person and is based on 7,214,112
shares of common stock issued and outstanding on a fully converted basis as of
the date hereof.
34
|
Name
of Beneficial Owner
|
Number
of Common Stock Owned
|
Percent
of Class (1)
|
||
|
Liqiang
Song (2)(3)
|
5,061,220
|
76.19%
|
||
|
Dengfu
Xu (3)
|
1,075,206
|
16.19%
|
||
|
Luping
Pan (3)
|
726,589
|
10.09%
|
||
|
Xin
Zhao
|
0
|
0.00%
|
||
|
Shu
Kaneko
|
0
|
0.00%
|
||
|
Xianyue
Li (3)
|
418,411
|
6.30%
|
||
|
Genkai
Zhang (3)
|
418,411
|
6.30%
|
||
|
Mude
Pan (3)
|
488,104
|
7.35%
|
||
|
All
Executive Officers and Directors as a group (4 persons)
|
1,801,795
|
26.28%
|
|
(1)
|
Based
on 7,214,112 shares of common stock issued and outstanding after the
Offering, assuming the exercise of the Warrants and Agent
Warrants.
|
|
(2)
|
Liqiang
Song was issued 5,061,220 shares pursuant to the Exchange Agreement at the
Closing of the Combination.
|
|
(3)
|
Prior
to the Closing Date, Liqiang Song entered into earn-in agreements with ten
(10) individuals pursuant to which these individuals have the right to
exercise their call rights for a total of 5,061,220 shares subject to the
fulfillment of certain conditions as set forth
herein.
|
DESCRIPTION
OF SECURITIES
The
Company is authorized to issue 200,000,000 shares of common stock, par value
$0.001 per share and 50,000,000 shares of preferred stock, par value $0.001 per
share. There are currently 6,643,078 shares of common stock issued and
outstanding held by 58 shareholders and no shares of preferred stock were issued
and outstanding.
(a) Common Stock. Subject
to preferences that may apply to shares of preferred stock outstanding at the
time, the holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available therefore at times and in amounts as
our board of directors may determine. Each stockholder is entitled to one vote
for each share of common stock held on all matters submitted to a vote of the
stockholders. Cumulative voting is not provided for in our amended articles of
incorporation, which means that the majority of the shares voted can elect all
of the directors then standing for election. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon the
occurrence of a liquidation, dissolution or winding-up, the holders of shares of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and satisfaction of preferential rights of any outstanding
preferred stock. There are no sinking fund provisions applicable to the common
stock. The outstanding shares of common stock are, and the shares of common
stock to be issued upon exercise of the Warrants will be, fully paid and
non-assessable.
(b) Preferred Stock. The
Board of Directors is empowered to designate and issue from time to time one or
more classes or series of preferred stock and to fix and determine the relative
rights, preferences, designations, qualifications, privileges, options,
conversion rights, limitations and other special or relative rights of each such
class or series so authorized. Such action could adversely affect the voting
power and other rights of the holders of the Company’s capital shares or could
have the effect of discouraging or making difficult any attempt by a person or
group to obtain control of the Company.
(c) Warrants. The
Warrants are issued in conjunction with a purchase of the Units. Upon Closing of
the Offering, we issued Warrants to purchase 509,000 shares of our common stock
to investors and Warrants to purchase 62,034 shares of our common stock to
placement agents. Each Warrant entitles the holder to purchase one shares
of common stock. The Warrants may be exercisable in whole or in part,
at an exercise price equal to $5.50 per share (“Exercise Price”). The
Warrants may be exercised at any time upon the election of the holder, beginning
on the date of issuance and ending of the fourth anniversary of the final
closing of this Offering. The Warrant may be exercised on a cashless
basis, provided that, if, at any time after twelve (12) months from the Closing
of the Offering, there is no effective Registration Statement, or no current
prospectus available for, the resale of the Warrant Shares by the
investor.
The
Warrants will be detachable and separately transferable only during the warrant
exercise period; upon the expiration of the warrant exercise period, the
Warrants will expire and become void.
In order
to exercise the Warrants, the Warrants must be surrendered at the office of the
warrant agent prior to the expiration of the warrant exercise period, with the
form of exercise appearing with the Warrants completed and executed as
indicated, accompanied by payment of the full exercise price for the number of
Warrants being exercised. In the case of partial exercise, the
Warrant Agent will issue a new warrant to the exercising warrant holder, or
assigns, evidencing the Warrants which remain unexercised. In our
discretion, the warrant agent may designate a location other than our office for
surrender of Warrants in the case of transfer or exercise.
The
exercise price and number of the shares of common stock to be received upon the
exercise of Warrants are subject to adjustment upon the occurrence of certain
events, such as stock splits, stock dividends or our
recapitalization. In the event of our liquidation, dissolution or
winding up, the holders of Warrants will not be entitled to participate in the
distribution of our assets.
Holders
of Warrants do not have no voting, pre-emptive, subscription or other rights of
shareholders in respect of the Warrants, nor shall the holders be entitled to
receive dividends.
35
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
securities have not been quoted or listed for trading on any stock
exchange.
Holders
As of the
date hereof, 6,643,078 shares of common stock are issued and
outstanding. There are approximately 58 shareholders of our common
stock.
Dividend
Policy
Our
Subsidiaries declared dividends to its stockholders in the amount of $13,064,075
and $8,897,167 for the years ended September 30, 2009 and 2008, respectively.
According to the Income Tax Laws in the PRC, the Company is required to withhold
income tax of 20% on the dividends paid to shareholders, which the Company
failed to do. In the event that these taxes cannot be collected from the
stockholders, the Company may be liable to pay the unpaid amount of approximate
$4.4 million and late payment penalty may be levied in an amount ranging
from 50% to maximum 5 times the taxes owing. The Company believes that the
likelihood of the taxes and penalties being levied against the company is remote
as of the date hereof. However, in the event that the taxing
authorities assess the company for these taxes, we will become liable for these
taxes if we are unable to recover the amounts from the
stockholders.
We
currently do not anticipate paying any cash dividends in the foreseeable future
on our common stock. Although we intend to retain our earnings, if any, to
finance the exploration and growth of our business, our Board of Directors will
have the discretion to declare and pay dividends in the future.
Payment
of dividends in the future will depend upon our earnings, capital requirements,
and other factors, which our Board of Directors may deem
relevant.
Equity
Compensation Plan Information
The
following table sets forth certain information as of the date hereof, with
respect to compensation plans under which our equity securities are authorized
for issuance:
|
|
(a)
|
(b)
|
(c)
|
||||
|
|
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
|
Weighted-average exercise
price of outstanding options,
warrants and rights
|
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))
|
||||
|
Equity
compensation
|
None
|
||||||
|
Plans
approved by
|
|||||||
|
Security
holders
|
|||||||
|
Equity
compensation
|
None
|
||||||
|
Plans
not approved
|
|||||||
|
By
security holders
|
|||||||
|
Total
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Expedite
4, Inc.
On
September 27, 2007, we issued 100,000 shares of common stock to Sheila Hunter
for $100, or $.001 per share, in acceptance of the incorporation expenses for
the Company.
We
formerly used the office of the management at no cost to us. We ceased using the
office space upon closing the Share Exchange.
36
Southern
China Livestock International Inc.
Reorganization Related
Transactions
Mr.
Liqiang Song currently owns 9,000,000 shares, which represent 90% of the issued
and outstanding shares of SCLI, and will receive 5,061,220 shares of common
stock from Expedite 4 pursuant to the Exchange Agreement. Prior to the Closing
Date, Liqiang Song will enter into earn-in agreements with ten (10) individuals
pursuant to which these individuals will have the right to exercise their call
rights for a total of 5,061,220 shares subject to the fulfillment of certain
conditions. Dengfu Xu and Luping Pan, who will be appointed as our
officers and/or directors following the Combination, will have the right to
exercise their call rights for a total of 1,801,795 shares of Expedite 4 common
stock subject to the following conditions: (1) 20% of the earn-in
shares subject to the call right shall vest and become exercisable on the date
that the individuals enters into an employment agreement with Beijing Huaxin for
a term of not less than 3 years (“Condition 1”), (2) 30% of the earn-in shares
subject to the call right shall vest and become exercisable on the Effective
Date of the Registration Statement (“Condition 2”), and (3) 50% of the earn-in
shares subject to the call right shall vest and become exercisable on the date
of fulfillment of the 2010 net income of SCLI of a minimum of $6,000,000
(“Condition 3”). The additional eight (8) individuals will have the right to
exercise their call rights for the remaining 3,259,425 shares of Expedite 4
common stock subject to the following conditions: (1) 50% of the
earn-in shares subject to the call right shall vest and become exercisable upon
the satisfaction of Condition 2, and (2) 50% of the earn-in shares subject to
the call right shall vest and become exercisable upon the satisfaction of
Condition 3. The call right is exercisable at an exercise price of
$0.01 per share (par value of the shares of SCLI) for a period of five years
commencing from 180 days subsequent to the closing of the share exchange
agreement.
On
November 3, 2008, Beijing Huaxin entered into an Equity Interests Transfer
Agreement with Mr. Dengfu Xu, Mr. Luping Pan, Mr. Mude Pan, Mr. Genkai Zhang,
Mr. Xianyue Li, Mr. Min Yang and Ms. Jianying Xu, who are the former
shareholders of Jiangxi Huaxin, pursuant to which 99% of the equity interests in
Jiangxi Huaxin was transferred to Beijing Huaxin and Mr. Dengfu Xu kept the 1%
equity interest in Jiangxi Huaxin. On January 15, 2010, Mr. Dengfu Xu
transferred the remaining 1% equity interest in Jiangxu Huaxin to Beijing
Huaxin. As a result, Beijing Huaxin holds 100% equity interests in Jiangxi
Huaxin and Jiangxi Huaxin became a wholly-owned subsidiary of Beijing
Huaxin.
Mr.
Dengfu Xu and other fifteen stockholders made non-interest bearing loans to the
Company from time to time to meet working capital needs of the Company. For the
years ended September 30, 2009 and 2008, Jiangxi Huaxin made aggregate
borrowings from the sixteen stockholders of $45,659 and $131,151, respectively,
and made aggregate repayments to the sixteen stockholders of $9,366,132 and
$12,582,246, respectively. As of September 30, 2009 and 2008, the
outstanding balances due from stockholders were $0 and $10,128,624,
respectively. As of September 30, 2009 and 2008, the outstanding balances due to
stockholders were $2,606,446 and $10,191,580, respectively.
In
December 2007, seven subsidiaries of Jiangxi Huaxin declared dividend in the
amount of $9,077,815 to its stockholders. Dividend in the amount of $1,941,297
was paid in cash and outstanding balance $7,136,518 were offset against the
shareholders loan.
In
December 2008, seven subsidiaries of Jiangxi Huaxin declared dividend in the
amount of $13,329,328 to its stockholders. Dividend in the amount of $1,700,979
was paid in cash and outstanding balance $11,628,349 was offset against the
shareholders loan.
Other
than the above, none of the following persons has any direct or indirect
material interest in any transaction to which we are a party since our
incorporation or in any proposed transaction to which we are proposed to be a
party:
|
(A)
|
Any
of our directors or officers;
|
|
|
(B)
|
Any
proposed nominee for election as our
director;
|
|
(C)
|
Any
person who beneficially owns, directly or indirectly, shares carrying more
than 10% of the voting rights attached to our common stock;
or
|
|
|
(D)
|
Any
relative or spouse of any of the foregoing persons, or any relative of
such spouse, who has the same house as such person or who is a director or
officer of any parent or subsidiary of our
company.
|
LEGAL
PROCEEDINGS
Currently
there are no legal proceedings pending or threatened against us. However, from
time to time, we may become involved in various lawsuits and legal proceedings
which arise in the ordinary course of business. Litigation is subject
to inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business.
37
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Section
145 of the Delaware General Corporation Law authorizes a court to award, or a
corporation’s board of directors to grant, indemnity to directors and officers
in terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act.
Our
certificate of incorporation provides that we shall indemnify our directors to
the full extent permitted by the provisions of Section 102(b)(7) and Section 145
of the Delaware General Corporation Law (the “DGCL”) as the same may be amended
and supplemented. Section 102(b)(7) of the DGCL, relating to indemnification is
hereby incorporated herein by reference. Notwithstanding the above, our
certificate of incorporation provides that a director shall be liable to the
extent provided by applicable law, (i) for breach of the director’s duty of
loyalty to us; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit.
At
present, there is no pending litigation or proceeding involving any of our
director, officer or employees in which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
CHANGES
AND DISAGREEMENTS WITH ACCOUNTANTS
Gately
& Associates, LLC (“Gately”) served as our independent auditor in connection
with the audits of the Company’s financial statements for the fiscal years ended
September 30, 2009 and 2008, and review of the subsequent interim period through
March 29, 2010. In connection with the Combination, our board of
directors recommended and approved the appointment of Schwartz Levitsky Feldman,
LLP/SRL (“SLF”) as the independent auditor for the Company and
SCLI.
During
the fiscal years ended September 30, 2009 and 2008 and through the date hereof,
neither us nor anyone acting on our behalf consulted SLF with respect to (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company’s financial statements, and neither a written report was provided to
us or oral advice was provided that SLF concluded was an important factor
considered by us in reaching a decision as to the accounting, auditing or
financial reporting issue; or (ii) any matter that was the subject of a
disagreement or reportable events set forth in Item 304(a)(1)(v) of Regulation
S-K.
For a
more detailed discussion of our change in auditor, please refer to Item 4.01
below.
Item 3.02Unregistered Sales of Equity
Securities.
Pursuant
to the Exchange Agreement, on March 29, 2010, we issued 5,623,578 shares of
common stock to individuals and entities as designated by the SCLI Shareholders
in exchange for 100% of the outstanding shares of SCLI. Such
securities were not registered under the Securities Act. These
securities qualified for exemption under Section 4(2) of the Securities Act
since the issuance securities by us did not involve a public offering. The
offering was not a “public offering” as defined in Section 4(2) due to the
insubstantial number of persons involved in the deal, size of the offering,
manner of the offering and number of securities offered. We did not undertake an
offering in which we sold a high number of securities to a high number of
investors. In addition, these shareholders had the necessary investment intent
as required by Section 4(2) since they agreed to and received share certificates
bearing a legend stating that such securities are restricted pursuant to Rule
144 of the Securities Act. This restriction ensures that these securities would
not be immediately redistributed into the market and therefore not be part of a
“public offering.” Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
for this transaction.
Pursuant
to the Subscription Agreements, on March 29, 2010, we issued to the investors a
total of 1,018,000 Shares and four-year warrants to purchase an aggregate of
509,000 shares of common stock of the Company, and additional warrants to
purchase an aggregate of 62,034 to placement agents, at an exercise price of
$5.50 per share. Such securities were not registered under the Securities Act.
The issuance of these securities was exempt from registration under Regulation
D, Regulation S and Section 4(2) of the Securities Act. We made this
determination based on the representations of investors, which included, in
pertinent part, that such shareholders were either (a) “accredited investors”
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act, or (b) not a “U.S. person” as that term is defined in Rule 902(k) of
Regulation S under the Act, and that such shareholders were acquiring our
securities, for investment purposes for their own respective accounts and not as
nominees or agents, and not with a view to the resale or distribution thereof,
and that the shareholders understood that the shares of our securities may not
be sold or otherwise disposed of without registration under the Securities Act
or an applicable exemption therefrom.
38
Item
4.01 Changes in Registrant’s Certifying Accountant.
(a)
Dismissal of Previous Independent Registered Public Accounting
Firm.
|
i
|
On
March 29, 2010, we dismissed Gately as our independent registered public
accounting firm. The Board of Directors of the Company approved such
resignation on March 29, 2010.
|
|
ii
|
The
Company’s Board of Directors participated in and approved the decision to
change our independent registered public accounting
firm.
|
|
iii
|
Gately’s
reports on the financial statements of the Company for the years ended
September 30, 2009 and 2008 did not contain an adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope, or accounting principles.
|
|
iv
|
In
connection with the audit and review of the financial statements of the
Company through March 29, 2010, there were no disagreements on any matter
of accounting principles or practices, financial statement disclosures, or
auditing scope or procedures, which disagreements if not resolved to their
satisfaction would have caused them to make reference in connection with
Gately’s opinion to the subject matter of the
disagreement.
|
|
v
|
In
connection with the audited financial statements of the Company for the
years ended September 30, 2009 and 2008 and interim unaudited financial
statement through March 29, 2010, there have been no reportable events
with the Company as set forth in Item 304(a)(1)(v) of Regulation
S-K.
|
|
vi
|
The
Company provided Gately with a copy of this Current Report on Form 8-K and
requested that Gately furnished it with a letter addressed to the SEC
stating whether or not they agree with the above statements. The
Company has received the requested letter from Gately, and a copy of such
letter is filed as Exhibit 16.1 to this Current Report Form
8-K.
|
(b)
Engagement of New Independent Registered Public Accounting
Firm.
|
i
|
On
March 29, 2010, the Board appointed Schwartz Levitsky Feldman LLP
("SLF") as the Company’s new independent registered public accounting
firm. The decision to engage SLF was approved by the Company’s Board of
Directors on March 29, 2010.
|
|
ii
|
Prior
to March 29, 2010, the Company did not consult with SLF regarding (1)
the application of accounting principles to a specified transactions, (2)
the type of audit opinion that might be rendered on the Company’s
financial statements, (3) written or oral advice was provided that would
be an important factor considered by the Company in reaching a decision as
to an accounting, auditing or financial reporting issues, or (4) any
matter that was the subject of a disagreement between the Company and its
predecessor auditor as described in Item 304(a)(1)(iv) or a reportable
event as described in Item 304(a)(1)(v) of Regulation
S-K.
|
Item 5.01Changes in Control of
Registrant.
As
explained more fully in Item 2.01, in connection with the Exchange Agreement, on
March 29, 2010, we issued 5,623,578 shares of common stock to individuals
and entities as designated by SCLI in exchange for 100% of the outstanding
shares of SCLI to us. As such, immediately following the Combination
prior to the Offering, the individuals and entities designated by SCLI hold
approximately 99.97% of the total voting power of our common stock entitled to
vote prior to the Offering.
In
connection with the Closing of the Combination, and as explained more fully in
the above Item 2.01 under the section titled “Management” and below in Item 5.02
of this Current Report on Form 8-K, Sheila Hunter resigned from all her officer
positions effective immediately, and resigned from the Board of Directors upon
effectiveness of an information statement required by Rule 14f-1 promulgated
under the Exchange Act. Further, in connection with the resignation
of Sheila Hunter, Luping Pan and Shu Kaneko were appointed as the new officers
of the Company effective immediately and Dengfu Xu, Luping Pan, Shu Keneko and
Xin Zhao were appointed as our directors upon effectiveness of an
information statement required by Rule 14f-1 promulgated under the Exchange
Act.
Item 5.02Departure of Directors or Principal
Officers; Election of Directors; Appointment of Principal
Officers.
(a) Resignation
of Director and Officer
Subject
to the effectiveness of an information statement required by Rule 14f-1
promulgated under the Exchange Act, Sheila Hunter resigned as the sole member of
our board of directors. On the Closing Date, Sheila Hunter resigned as our
President, Chief Executive Officer, Chief Financial Officer, Treasurer, and
Secretary, effective immediately. There were no disagreements between Sheila
Hunter and the Company.
39
(b) Appointment
of Directors and Officers
Luping
Pan and Shu Kaneko were appointed as our officers at closing, and upon
effectiveness of an information statement required by Rule 14f-1 promulgated
under the Exchange Act, Dengfu Xu, Luping Pan, Shu Keneko and Xin Zhao will be
appointed as our directors:
|
NAME
|
AGE
|
POSITION
|
||
|
Dengfu
Xu
|
57
|
Chairman
|
||
|
Luping
Pan
|
45
|
President,
Chief Executive Officer, Secretary, and Director
|
||
|
Shu
Kaneko
|
44
|
Chief
Financial Officer and Director
|
||
|
Xin
Zhao
|
36
|
Director
|
The
business background descriptions of the newly appointed directors and officers
are as follows:
Dengfu Xu,
Chairman
Mr. Xu
has been appointed as our Chairman of the Board of Directors. He has
served as management of our subsidiary Jiangxi Huaxin since the formation of the
company in 2005. He has over twenty years of experience in the pig breeding
industry. Mr. Xu was a recipient of “Wuyi Model Worker” government award for his
“brilliant” achievement in livestock breeding industry. He is also
the current Chairman of the Jiangxi Pig Breeding Association and a Delegate of
Political Consultative Conference of Yingtan City.
Luping
Pan, President, Chief Executive Officer, Secretary and Director
Mr. Pan
has been appointed as our Chief Executive Officer, President, Secretary and
Director. He has served as management of our subsidiary Jiangxi Huaxin since the
formation of the company in 2005. He has over twenty years of
experience in the pig breeding industry. Mr. Pan currently serves as
Vice-Chairman of Jiangxi Pig Breeding Association and a Delegate of Political
Consultative Conference of Yingtan City. From 1986 through 2001, Mr. Xu served
as a trade manager with the Yujiang Trade and Economy Bureau.
Shu
Kaneko, Chief Financial Officer and Director
Mr.
Kaneko has been appointed as our Chief Financial Officer and as a member of the
Board of Directors. Mr. Kaneko has over 16 years of experience in the
financial service industry. He has served as the chief financial
officer of Emerald Dairy Inc. since November 2007. Prior to his
position with Emerald Dairy, Mr. Kaneko worked with the financial services
advisory group with Ernst & Young from 2001 through 2007. Mr.
Kaneko received his Master of Business Administration from Georgetown
University.
Xin
Zhao, Director
Ms. Zhao
has been appointed as a member of the Board of Directors. She has served as
management of our subsidiary Jiangxi Huaxin since the formation of the company
in 2005. She has 15 years of financial experience as a Certified Public
Accountant in China. From 1996 to 2004, Ms. Zhao worked as an accountant for
Zhejiang Tianjian Accounting LLP. She worked as financial consultant for Yayi
International (OTC.BB: YYIN) in 2007 and 2008. Ms. Zhao received a
bachelor’s degree in accounting from Northeast Financing
University.
(c)
Family Relationships
There are
no family relationships between the officers or directors of the
Company.
(d)
Employment Agreements of the Executive Officers
We
currently did not enter into any employment agreement with our executive
officers.
(e)
Related Party Transactions
There are
no related party transactions reportable under Item 5.02 of Form 8-K and Item
404(a) of Regulation S-K.
40
Item 5.06Change In Shell Company
Status
As
explained more fully in Item 2.01 above, we were a “shell company” (as such term
is defined in Rule 12b-2 under the Exchange Act) immediately before the Closing
of the Combination. As a result of the Combination, SCLI became our
wholly owned subsidiary and became our main operational
business. Consequently, we believe that the Combination has caused us
to cease to be a shell company. For information about the
Combination, please see the information set forth above under Item 2.01 of this
Current Report on Form 8-K which information is incorporated herein by
reference.
Item 9.01Financial Statement and
Exhibits.
(a)
Financial Statements of Business Acquired.
The
Audited Consolidated Financial Statements of SCLI as of September 30, 2009 and
2008 are filed as Exhibit 99.1 to this current report and are incorporated
herein by reference.
The
Unaudited Consolidated Financial Statements of SCLI as of December 31, 2009 and
2008 are filed as Exhibit 99.2 to this current report and are incorporated
herein by reference.
(b)
Pro Forma Financial Information.
None.
(c)
Shell Company Transactions.
Reference
is made to Items 9.01(a) and 9.01(b) and the exhibits referred to therein
which are incorporated herein by reference.
(d)
Exhibits.
|
Exhibit
No.
|
Description
|
|
|
2.1
|
Share
Exchange Agreement by and between the Company and Southern China Livestock
International Inc., dated March 29, 2010
|
|
|
3.1
|
Certificate
of Incorporation (1)
|
|
|
3.2
|
By
Laws (1)
|
|
|
4.1
|
Form
of Warrant
|
|
|
10.1
|
Equity
Transfer Agreement, dated November 3, 2008
|
|
|
10.2
|
Equity
Transfer Agreement, dated January 13, 2010
|
|
|
10.3
|
Form
of Earn-in Agreement I, dated February 10,
2010
|
|
|
10.4
|
Form
of Earn-in Agreement II, dated February 10,
2010
|
|
|
10.5
|
Funding
Escrow Agreement, dated March 29, 2010
|
|
|
10.6
|
Holdback
Escrow Agreement, dated March 29, 2010
|
|
|
10.7
|
Escrow
Agreement for Disbursement, dated March 29, 2010
|
|
|
10.8
|
Lock-Up
Agreement, by and between the Company and Lockup Stockholders, dated March
29, 2010
|
|
|
16.1
|
Letter
from Gately & Associates, LLC, dated April 1, 2010
|
|
|
99.1
|
The
Audited Consolidated Financial Statements of SCLI as of September 30, 2009
and 2008
|
|
|
99.2
|
The
Unaudited Consolidated Financial Statements of SCLI as of December 31,
2009 and 2008
|
(1)
Incorporated herein by reference to the Form 10 Registration Statement filed on
October 22, 2007.
41
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report on Form 8-K to be signed on its behalf by the
undersigned hereunto duly authorized.
|
EXPEDITE
4, INC.
|
||
|
Date: April
1, 2010
|
By:
|
/s/
Luping Pan
|
|
Luping
Pan
President,
Chief Executive Officer, Secretary and
Director
|
||
42