Attached files
file | filename |
---|---|
EX-10.5 - Action Acquisition CORP | v204332_ex10-5.htm |
EX-10.4 - Action Acquisition CORP | v204332_ex10-4.htm |
EX-10.16 - Action Acquisition CORP | v204332_ex10-16.htm |
EX-10.14 - Action Acquisition CORP | v204332_ex10-14.htm |
EX-10.12 - Action Acquisition CORP | v204332_ex10-12.htm |
EX-10.8 - Action Acquisition CORP | v204332_ex10-8.htm |
EX-4.1 - Action Acquisition CORP | v204332_ex4-1.htm |
EX-10.11 - Action Acquisition CORP | v204332_ex10-11.htm |
EX-10.7 - Action Acquisition CORP | v204332_ex10-7.htm |
EX-10.15 - Action Acquisition CORP | v204332_ex10-15.htm |
EX-10.9 - Action Acquisition CORP | v204332_ex10-9.htm |
EX-99.1 - Action Acquisition CORP | v204332_ex99-1.htm |
EX-10.6 - Action Acquisition CORP | v204332_ex10-6.htm |
EX-10.10 - Action Acquisition CORP | v204332_ex10-10.htm |
EX-10.13 - Action Acquisition CORP | v204332_ex10-13.htm |
EX-99.2 - Action Acquisition CORP | v204332_ex99-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment No. 2 to
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of
1934
Date of
Report (Date of earliest event reported) September 10,
2010
ACTION
ACQUISITION CORPORATION
(Exact
name of registrant as specified in its charter)
Cayman Island
|
|
000-52341
|
|
N/A
|
(State
or other
jurisdiction
of
incorporation)
|
(Commission
File
Number)
|
(IRS
Employer
Identification
No.)
|
c/o Shenzhen ORB-Fortune New-Material Co., Ltd
Room O-R, Floor 23, Building A, Fortune Plaza
Shennan Road, Futian District
Shenzhen, Guangdong
People’s Republic of China
|
518040
|
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Registrant’s
telephone number, including area code: +86(755) 8204-6828
c/o
Nautilus Global Partners
700
Gemini, Suite 100
Houston,
TX 77506
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation to the registrant under any of the following
provisions:
¨
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
¨
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
¨
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
¨
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS
This
Current Report on Form 8-K contains forward looking statements that involve
risks and uncertainties, principally in the sections entitled “Description of
Business,” 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, 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. You should be
aware that the occurrence of the events described 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.
ITEM
1.01 ENTRY INTO A MATERIAL DEFINITIVE
AGREEMENT
Effective
August 31, 2010, Action Acquisition Corporation, a Cayman Islands exempted
company (“ Action ” or the
“Company ”),
accepted a subscription and offer to purchase 3,523,922 ordinary shares of the
Company’s capital stock from Skyline Investors, LLC (“Skyline”), an affiliate of
Maxim Group, LLC, a registered broker/dealer (“Maxim”), for an aggregate
purchase price of $25,000. Prior to the consummation of this transaction, the
Company had 998,275
ordinary shares issued and outstanding. As a result of the acceptance of
this subscription, the Company had 4,522,197 ordinary shares issued and
outstanding, with Skyline the beneficial owner of approximately 78% thereof.
Immediately following the acceptance of Skyline’s subscription, Mr. Joseph
Rozelle resigned as our President and Chief Financial Officer and the Board of
Directors appointed Mr. Karl Brenza to serve as President and Chief Executive
Officer, effective immediately.
Effective
September 10, 2010, Action and its controlling shareholders entered into and
consummated a share exchange with Grand Power Capital, Inc., a British Virgin
Islands business company (“ GPC ”), and the GPC
shareholders. Pursuant to the terms of a Share Exchange Agreement among the
parties (the “ Share
Exchange Agreement ”), all of the issued and outstanding shares of GPC
were exchanged for shares of Action. As a result of the share exchange, an
aggregate of 10,129,725 ordinary shares and 98,885.37 preference shares of the
Company’s capital stock were issued to the GPC shareholders and GPC became a
wholly owned subsidiary of Action.
In
addition, the following actions occurred under the terms of the Share Exchange
Agreement:
1
·
|
In
connection with the share exchange, Action issued an aggregate of
10,129,725 ordinary shares and 98,885.37 preference shares to GPC
shareholders. With the exception of the shares of GPC held by Apollo
Enterprises International, Inc., each share of GPC stock was exchanged for
approximately 1,327 ordinary share of Action. The remaining shares of GPC
held by Apollo Enterprises International, Inc. were exchanged for
98,885.37 preference shares of Action. Each preference share shall be
automatically convertible into 100 ordinary shares of Action upon receipt
of the approval by the Company shareholders of a proposed increase in the
number of authorized ordinary shares from 39,062,500 shares to 100,000,000
shares. Upon effectiveness of the share exchange, the Company had
14,651,922 ordinary shares and 98,885.37 preference shares issued and
outstanding. The Company expects to seek a shareholder vote to increase
its authorized ordinary shares to 100 million shares, consolidate its
outstanding ordinary shares on a one-for-three basis, and change its name
to “ORB Automotive Corporation” within the next 45 to 60
days.
|
·
|
As
a condition to the closing of the share exchange, Junning (Marco) Ma and
Morgan Simpson were appointed to the board of directors of the Company,
with Mr. Ma being named Chairman of the board. Mr. Rozelle previously
submitted his resignation as a director, which will be effective as of the
10th day following the date we mail an information statement to our
shareholders that complies with Rule 14f-1 promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Mr.
Simpson’s appointment will be effective on the same date as Mr. Rozelle’s
resignation. As a requirement to listing the Company's common stock on the
NASDAQ Capital Market or other exchange, the Company will seek to add
additional independent directors and increase the size of the board of
directors following the share exchange. The board's composition (and that
of its committees) will be subject to the corporate governance provisions
of its primary trading market, including the requirement for appointment
of independent directors in accordance with the Sarbanes-Oxley Act of 2002
("Sarbanes-Oxley"), and regulations adopted by the SEC and FINRA pursuant
thereto.
|
·
|
Also
as a condition to the closing of the share exchange, Mr. Brenza resigned
as the Chief Executive Officer of the Company, Mr. Ma was appointed Chief
Executive Officer and President and Mr. Guangning Xu was appointed Vice
Chief Financial Officer and
Secretary.
|
·
|
The
Share Exchange Agreement contains customary indemnification provisions.
However, the total liability of Action’s controlling shareholders for
losses incurred by GPC, its officers, directors or the GPC Shareholders
that arising out of or based on any inaccuracy appearing in or
misrepresentation made under “Article II, Covenants, Representations and
Warranties Regarding Action” has been limited to a maximum of the Fair
Market Value (as defined in the Share Exchange Agreement”) on the
Determination Date (as defined below) of the ordinary shares of Action
held by such controlling shareholders on the Closing Date , subject to
certain adjustments.
|
The Share
Exchange Agreement contained such representations, warranties, obligations and
conditions as are customary for transactions of the type governed by such
agreements.
Immediately
prior to the share exchange, Action had 39,062,500 ordinary shares, $0.000128
par value, and 781,250 preference shares, $0.000128 par value, authorized, of
which there were 4,522,197 ordinary shares and no preference shares issued and
outstanding. As a result of the consummation of the share exchange there are
currently 14,651,922 ordinary shares and 98,885.37 preference shares of the
Company's capital stock issued and outstanding. Upon consummation of the share
consolidation and automatic conversion of the 98,885.37 preference shares issued
to Apollo Enterprises International, Inc., there will be 14,772,511 ordinary
shares and no preference shares of the Company's capital stock issued and
outstanding, approximately 90% of which will be held by the former GPC
shareholders. The shareholders of the Company immediately prior to the
completion of these transactions will hold 10% of the issued and outstanding
ordinary shares of the Company.
2
As of the
date of the Share Exchange Agreement and currently, there were no material
relationships between Action and GPC, or any of their respective affiliates,
directors or officers, or any associates of their respective officers or
directors, other than in respect of the Share Exchange Agreement.
The
foregoing description of the Share Exchange Agreement does not purport to be
complete and is qualified in its entirety by reference to the complete text of
the Share Exchange Agreement which is filed as an exhibit hereto and
incorporated herein by reference.
ITEM
2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF
ASSETS
Skyline
Investment
As
described in Item 1.01 above, on August 31, 2010, Action accepted a subscription
and offer to purchase 3,523,922 ordinary shares of the Company’s capital stock
from Skyline for an aggregate purchase price of $25,000. Prior to the
consummation of this transaction, the Company had 998,275 ordinary shares issued
and outstanding. As a result of the acceptance of this subscription, the Company
had 4,522,197 ordinary shares issued and outstanding, with Skyline the
beneficial owner of approximately 78% thereof. Immediately following the
acceptance of Skyline’s subscription, Mr. Joseph Rozelle resigned as our
President and Chief Financial Officer and the Board of Directors appointed Mr.
Karl Brenza to serve as President and Chief Executive Officer, effective
immediately.
The
Share Exchange
The
Share Exchange
As
described in Item 1.01 above, on September 10, 2010, Action and its controlling
shareholders entered into the Share Exchange Agreement with GPC and the GPC
shareholders. Upon the closing of the share exchange, each of the GPC
shareholders exchanged their respective shares of GPC for shares of the
Company's capital stock. As a result, an aggregate of 10,129,725 ordinary shares
and 98,885.37 preference shares were issued to GPC shareholders and GPC became a
wholly-owned subsidiary of Action.
The
Action shareholders immediately preceding the share exchange held 4,522,197
ordinary shares of the Company's capital stock before giving effect to the stock
issuances in the share exchange. 138,900 of such shares constitute the Company's
"public float" prior to the share exchange and will continue to represent the
shares of our capital stock held for resale without further registration by the
holders thereof until such time as the applicability of Rule 144 of the
Securities Act of 1933, as amended (the "Securities Act"), or other exemption
from registration under the Securities Act permits sales of the shares issued to
the GPC shareholders, or a registration statement has been declared effective
with respect to such shares.
As a
result of the share exchange, GPC became a wholly-owned subsidiary of the
Company and, assuming the conversion of the 98,885.37 preference shares issued
to Apollo Enterprises International, Inc. in connection with the share exchange,
the GPC shareholders will hold approximately 90% of the Company's outstanding
capital stock and the shareholders of the Company immediately prior to the
consummation of the share exchange will hold 10% of the issued and outstanding
shares of the Company's capital stock.
Prior to
the closing of the share exchange, there were no options or warrants to purchase
shares of capital stock of Action or GPC outstanding and neither the Company nor
GPC had adopted an equity incentive plan or otherwise reserved shares for
issuance as incentive awards to officers, directors, employees and other
qualified persons in the future.
The
shares of the Company's capital stock issued to the GPC shareholders in
connection with the share exchange were not registered under the Securities Act
in reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act. These securities may not be offered or sold absent registration
or an applicable exemption from the registration requirements. Certificates
representing these shares contain a legend stating the same.
3
As of the
date of the Share Exchange Agreement, there were no material relationships
between the Company and GPC or between the Company and any of GPC’s respective
affiliates, directors or officers, or any associates of its respective officers
or directors, other than in respect of the Share Exchange
Agreement.
Changes
Resulting from the Share Exchange
The
Company intends to carry on the business of GPC’s operating subsidiary, Shenzhen
ORB-Fortune New-Material Co., Ltd. (“ Shenzhen ORB ”), a
wholly foreign owned enterprise incorporated under the laws of the People’s
Republic of China (“ PRC ” or “ China ”), as its sole
line of business. Shenzhen ORB is a manufacturer, producer and distributor of
high-performance polyurethane adhesive and sealant materials, primers and
cleaners for the auto industry in the PRC. The Company has relocated its
executive offices to Room O-R, Floor 23, Building A, Fortune Plaza, Shennan
Road, Futian District, Shenzhen, Guangdong, PRC 518040, and its telephone number
is +86(755) 8204-6828.
Changes
to the Board of Directors and Executive Officers
Prior
to the Closing Date, Mr. Rozelle submitted his resignation as a director, such
resignation to be effective on as of the 10th day following the date we mail an
information statement to our shareholders that complies with Rule 14f-1
promulgated under the Exchange Act. Effective as of the Closing Date, Messrs. Ma
and Simpson were appointed to the board of directors, with Mr. Ma being named
Chairman of the board. Mr. Simpson’s appointment to the board will be effective
at the same time as Mr. Rozelle’s resignation.
Further,
Mr. Brenza resigned as Chief Executive Officer of the Company and Mr. Ma was
elected to the office of Chief Executive Officer and President and Mr. Xu was
elected to serve as the Company's Vice Chief Financial Officer and
Secretary.
The
directors hold office for one-year terms until the election and qualification of
their successors. Officers are elected by the board of directors and serve at
the discretion of the board.
Accounting
Treatment; Change of Control
The share
exchange is being accounted for as a "reverse acquisition," since the GPC
shareholders own a majority of the outstanding shares of the Company's capital
stock immediately following the transaction. GPC is deemed to be the acquiror in
the reverse acquisition. As the Company, the legal acquiror, is a non-operating
shell, this "reverse acquisition" is considered to be a capital transaction in
substance rather than a business combination. Consequently, the assets and
liabilities and the historical operations that will be reflected in the
financial statements prior to the share exchange will be those of GPC and will
be recorded at the historical cost basis of GPC, and the consolidated financial
statements after completion of the share exchange will include the assets and
liabilities of the Company and GPC, historical operations of GPC and operations
of the Company from the closing date of the share exchange. Except as described
in the previous paragraphs, no arrangements or understandings exist among
present or former controlling shareholders with respect to the election of
members of the Company's board of directors and, to our knowledge, no other
arrangements exist that might result in a change of control of the Company.
Further, as a result of the issuance of the shares of the Company capital stock
pursuant to the share exchange, a change in control of the Company occurred on
the date of the consummation of the transaction. The Company will continue to be
a "smaller reporting company," as defined under the Exchange Act, following the
share exchange.
4
Information
About Our Company
We were
incorporated as a Cayman Islands exempted company on September 27, 2006 and were
formed solely for the purpose of identifying and entering into a business
combination with a privately held business or company, domiciled and operating
in an emerging market that is seeking the advantages of being a publicly held
corporation whose stock is eventually traded on a major United States stock
exchange. Prior to our acquisition of GPC, we were in the development stage and
had not yet commenced business operations.
GPC
was incorporated on October 8, 2009 as a British Virgin Islands business
company. GPC conducts its business through Shenzhen ORB, a wholly owned
subsidiary based and operating in China. As a result of the consummation of the
share exchange, we are a holding company of Shenzhen ORB headquartered in
Shenzhen, Guangdong Province, China. We are engaged in the business of providing
bonding solutions for a wide range of industrial applications including,
shipping, construction, and electronics, with a strong presence in the Chinese
automotive sector. We are currently a market leader in the windshield adhesive
business in Shenzhen, China. We also produce primers and cleaners and are in the process of developing other auto
parts such as liquid
coolants, bumpers, harnesses and lamps.
Description
of Our Business
Unless
otherwise indicated, the following information relates only to the business and
operations of GPC and its wholly owned subsidiary, Shenzhen
ORB.
GPC is
a holding company, formed in 2009 and existing under the laws of the British
Virgin Islands. Prior to its acquisition of Shenzhen ORB on May 31, 2010, GPC
did not have any operating businesses under its control. GPC currently does not
conduct any business outside its ownership of Shenzhen ORB.
Shenzhen
ORB was founded as a limited liability company primarily engaged in the development,
manufacture and sale of high-performance adhesives and sealants in the PRC in 2005. Additionally, Shenzhen ORB manufactures
and distributes a line of primers and cleaners geared to the automotive
industry. In 2008, Shenzhen
ORB deemed it more cost-effective to outsource the manufacture of its
adhesive and sealant
products to three original
equipment manufacturing (OEM) factories, concentrating its in-house efforts on
research and development of new products, production of primers and cleaners, and
the marketing and
distribution of its current and future products. These OEM factories utilize
equipment, processes and raw materials approved by Shenzhen ORB to manufacture
products that bear the trademarked “ORB” name.
Shenzhen ORB provides glass bonding
solutions to a wide range of industries, including automobile, ships and boats,
construction, and electronics, but currently focuses on the automobile
windshields area. Shenzhen ORB is a market leader in the windshield
adhesive business in Shenzhen, China. It is also in the process of developing
other auto parts such as liquid coolants, bumpers, harnesses and lamps.
Our
main products include adhesives, both polyurethane and structural, polyurethane
sealants, primers, and cleaners.
Polyurethane
Adhesive and Sealants
Polyurethane
adhesives are used for bonding steel panels and glass, metal, bricks, wood, and
ceramic. Polyurethane sealants are less strong than adhesives and are used to
seal cracks and fill spaces. We have developed several varieties of adhesives
and sealants, including:
|
·
|
P101,
a high-strength structural
adhesive;
|
|
·
|
P101FC,
a fast-cure high-strength structural
adhesive;
|
|
·
|
P101
Extra, an ultrahigh-strength structural
adhesive;
|
5
|
·
|
P102,
a high-strength structural
adhesive;
|
|
·
|
P102
PV, a high-strength, custom structural adhesive used for
vehicles;
|
|
·
|
P103,
a high performance sealant; and
|
|
·
|
P104,
a high performance sealant.
|
Our
basic polyurethane products are distributed in retail auto parts stores
throughout China and marketed for windshield replacement by the end user or
owner. Additionally, customized formulations of our polyurethane sealant
products are made and distributed on a wholesale basis as well as directly to
auto manufacturers.
SY
Series Structural Adhesives
Our SY
series of structural adhesives are high strength, tough, anti-corrosive
adhesives that are specifically geared for use in a variety of applications and
are distributed to auto manufacturers. We currently produce and market five
types of SY series structural adhesives:
|
·
|
SY-231,
aspot welding adhesive
|
|
·
|
SY-241,
a hemming adhesive
|
|
·
|
SY-221,
a damping adhesive
|
|
·
|
SY-D-1,
a sealing adhesive; and
|
|
·
|
SY-261,
an acupressure adhesive
|
Primers
Our
primers are designed to be applied on steel and glass surfaces to strengthen the
bonding effects when adhesive sealants, like ours, are used on these materials.
We have developed, and currently market, three types of primers:
|
·
|
PR162,
a general purpose primer;
|
|
·
|
PR163A,
a quick-dry colorless primer; and
|
|
·
|
PR163B,
a quick-dry black primer.
|
Cleaners
Our
cleaners have been developed to clean steel, glass and metal surfaces, in an
effort to effectively prepare them to accept our primers and adhesive sealants.
We have developed, and currently market, three different types of
cleaners:
|
·
|
CL140,
an organic solvent-based cleaner capable of removing dust and grease on
the base material and intensifying the adhesion of the
sealant;
|
|
·
|
CL141,
an organic solvent general-purpose cleaner containing active substances to
intensify the adhesion of the sealant, which is primarily applied to
aluminum, steel, glass, porcelain, and glass-porcelain composite, and is
unsuitable for porous materials;
and
|
6
|
·
|
CL143,
an organic solvent quick-dry cleaner containing active substances to
intensify the adhesion of the sealant, which is primarily applied to
aluminum, steel, glass, porcelain, and glass-porcelain composite, and is
unsuitable for porous materials.
|
Coolants
We are
currently in the development phase of producing our own line of liquid coolants
for the automotive business. Testing of our first product in this line is
beginning in the third quarter of this year and we intend to commence
manufacturing and sales before the end of 2010. Our liquid coolant is designed
to keep an automobile’s radiator fluid from freezing when it is cold and
overheating on hot days, by either lowering the freezing point or raising the
boiling point of radiator fluids. This product will also play a role in
antisepsis and scale prevention for year-round use. This product will be
produced in a new manufacturing facility we have established in Liuzhou. We
estimate that the cost of development of this new product line, including the
leasing of a new facility and equipment for its manufacture, will be
approximately $225,000.
OEM
Manufacturing
As we
discussed briefly above, beginning in 2008, Shenzhen ORB determined that it was
more cost effective to outsource the manufacturing of some of our products to
several OEM factories. In general, an original equipment manufacturer, or OEM,
manufactures products that are purchased by one or more companies and retailed
under the purchaser’s brand
name. This type of arrangement is fairly typical in China. Many large
industrial OEMs manufacture products for more than one purchaser. This allows
the OEM to efficiently and cost effectively manage the facilities, personnel and
raw materials used in production, thereby lowering the overall cost to the
purchaser. These savings can then be passed on to the purchaser’s
clients.
We
have developed all of the technology that goes into our outsourced products and,
with respect to our sealants, hold an exclusive license on the patent. Before
engaging any OEM, we fully research the business and manufacturing facility and
enter into a Non-Disclosure Agreement that protects our patent, processes and
trade secrets. On an ongoing basis, we periodically inspect the facilities and
products from a quality assurance perspective to ensure that those products that
go out to the retail and wholesale markets under the “ORB” name meet the
standards that our customers want and demand. Additionally, the OEM facilities
we are in business with meet the certification requirements of ISO/TS16949:2002
of the International Quality System and certified by the QMI International
Certification Company. ISO/TS 16949:2002 is a “Technical Specification” set
forth by the International Organization for Standardization (“ISO”) that, in
conjunction with ISO 9001:2000, defines the quality management system
requirements for the design and development, production, installation and
servicing of automotive-related products. It is applicable to sites of the
organization where customer-specified parts, for production and/or service, are
manufactured and is applied throughout the automotive supply
chain.
Currently,
we use three OEMs for the production of our adhesives and sealants. They are
Sanyou (Tianjin) Macromolecuar Technology Co., Ltd. (“Sanyou”), Dongguan Pusaida
Seal Adhesive Co., Ltd (“Pusaida”) and Shanghai Arhys Donntal Chemicals Co., Ltd
(“Donntal”). We provide each OEM under one or more purchase orders from time to
time. As these purchase orders are fulfilled, the OEM sends us an invoice for
the finished goods. We generally purchase products from our OEMs on an “as
needed” basis. During the six months ended June 30, 2010, our purchases from
Pusaida, Donntal and Sanyou, accounted for 41%, 31% and 14% of our purchases,
respectively. During the six months ended June 30, 2009, our purchases from
Pusaida, Donntal and Sanyou accounted for 63%, 12% and 8% of our total
purchases, respectively. If these OEMs were lost, it is unlikely that Shenzhen
ORB would be able to meet its ongoing production and delivery schedules, at
least in the near term.
7
In-House
Manufacturing
We
currently manufacture our primers and cleaners in our own manufacturing facility
in Shenzhen and anticipate manufacturing our coolants in a new facility we have
built out in Liuzhou. These manufacturing processes are not labor intensive and
we believe that we have sufficient capacity to keep costs down and produce these
products at our facilities. Like our OEMs, Shenzhen ORB meets the certification
requirements of ISO/TS16949:2002 of the International Quality System and
certified by the QMI International Certification Company. In March 2007,
Shenzhen ORB passed the most recent evaluation to which it was
subject.
Manufacturing
Plans
As we
continue to grow and expand our business, we will continue to assess the
strategic benefits associated with outsourcing some of our manufacturing. We may
determine that it is beneficial to our overall business to either reduce our
reliance on one or more OEM or to resume manufacturing operations for some or
all of our adhesive and sealant products.
Our Expansion and Growth
Strategy
Shenzhen
ORB’s goal is to position itself as a diversified developer, manufacture,
producer and supplier in the auto part industry in China, supplying not only
adhesives and sealants, but also primers, cleaners, liquid coolant, bumpers,
wire harnesses, and lamp products, to all the major automakers in China. In
order to meet this long-term objective, we plan to implement several growth and
expansion strategies over the next three years, as discussed in more detail
below.
First, we want to expand sales to
existing customers and enlarge our customer base in our existing product
lines. We plan to provide high quality products and services to our
existing customer base and strategically market our existing product line to new
customers to meet their future demands. Through high quality and high performing
products, we expect to increase our brand recognition, which we believe will
create ongoing loyalty with our existing customers and assist us in obtaining
new customers. We also intend to enlarge our customer base by establishing
business relationships with more auto parts purchasers in strategic locations in
China.
In order
to achieve this organic growth in our client base, we intend to target our
marketing to both top- and second-tier automakers, while increasing sales to our
existing customers. In order for our products to be purchased by top automakers,
we need to continue to increase the promotion and reputation of our brand and
cooperate with other auto parts suppliers through OEM branding (i.e, permitting,
on terms acceptable to us, our customers to market our products under their
brand name).
Second, we plan to develop new
product offerings for the auto parts market. We anticipate expanding our
business in the development and distribution of complementary auto arts
products, including, but not limited to, liquid coolants, harnesses, lamps and
bumpers, by investing increasing human resources and promotion efforts in this
sector. We believe that the diversification and expansion of our product
offerings will permit us to grow at a faster pace. With the exception of liquid
coolant development (discussed below), we are in the preliminary stages of this
phase of our strategic plan and have not yet determined the most effective
product offerings to expand into.
Finally, we intend to implement a
horizontal industry integration strategy. Except for our multi-national
customers, local bonding solution providers are medium and small-size producers
of single-line products. We believe that, with our established market position
and long-term customer relationships, horizontal industry integration will
strengthen our capacity and distribution networks, thereby, assisting us in
providing superior service to these medium and small-size producers and
strengthening our position in the Chinese market.
8
For
the remainder of 2010 through 2011, we plan to identify and, if appropriate,
acquire adhesive and sealant manufacturers to increase our production capacity
and achieve economies of scale, in order to increase our revenue and profits. We
have preliminarily identified five possible acquisition targets that we believe
will complement and enhance our core business throughout China and are
conducting initial due diligence on these businesses. We expect that strategic
acquisitions will escalate our emergence as a leader in the Chinese auto parts
industry. In addition, because there are many small size auto part suppliers in
the Chinese market, we expect there will be further integration of the market in
the coming three to five years along with the same integration trend that has
occurred in the automotive manufacture market. We expect that, by taking
advantage of our long-term relationship with these auto makers and local
governments, we can position ourself to emerge as a leader in the integration
process.
Our
ability to implement the foregoing growth strategies are subject to numerous
risks and uncertainties, including, but not limited to:
|
·
|
the
continued health of the Chinese
economy;
|
|
·
|
our
ability to raise capital and financing in the
future;
|
|
·
|
disruptions
in the credit markets which may affect us or our customers and
supplies;
|
|
·
|
our
ability to attract and retain qualified management and technical
personnel;
|
|
·
|
the
success of research and development
activities;
|
|
·
|
our
ability to maintain and grow our bottom
line;
|
|
·
|
the
loss of certain supplier or customer relationships;
and
|
|
·
|
our
success in acquiring and integrating acquisitions potential
targets.
|
Facilities and
Employees
Our
headquarters and main research and manufacturing facility are located in
Shenzhen, China, which is one of the five Chinese Special Economic Zones. As of
June 30, 2010, Shenzhen ORB maintained five branch offices throughout the PRC,
providing marketing and sales services, including technical support and
after-sales services for Shenzhen ORB in specific geographic
regions.
As of
June 30, 2010, we had 40 employees, all employed on a full time basis, providing
administrative, technical and marketing expertise. A total of eight employees
work in our headquarters, Shenzhen and Liuzhou manufacturing facilities and the
remainder cover the following regional territories:
Number
of Employees
|
Territory
|
|
9
|
Liuzhou
|
|
7
|
Southwest
China
|
|
6
|
Northeast
China
|
|
5
|
Southeast
China
|
|
5
|
North
China
|
As of
June 30, 2010, Shenzhen ORB leases all of its facilities. Relevant information
with respect to each of these locations is as follows:
9
Location
|
Size of Premises
(Sq. Meters)
|
Annual
Rent
|
||||||
Room
O-R, Floor 23, Building A, Fortune Plaza Shennan
Road, Futian District, Shenzhen, Guangdong
|
171 | $ | 24,252 | |||||
No.
5 Factory Building, Qiaotou FuQiao Industrial Zone, Anbao District, Fuyong town,
Shenzhen
|
4,100 | $ | 92,190 | |||||
Room.
2, Unit 2, Building 12, Longtun Second District, Hexi Road, Liunan,
Liuzhou, Guangxi
|
95 | $ | 1,945 | |||||
Room
3-4, Unit 3, Building 3, Guian Garden, Heyang Garden, Jiangbei,
Chongqing
|
105 | $ | 2,636 | |||||
Room
15-4-1403, West Majinrun Family Garden Second District, Fengtai,
Beijing
|
98 | $ | 3,163 | |||||
Room
208, No. 60B-3, Huguang Road, Chaoyang District, Changchun,
Jilin
|
65 | $ | 1,318 | |||||
No.1
Liutai Road, Liunan district, Liuzhou, Guangxi
|
360 | $ | 5,832 |
Our
headquarters are located in the town of Guangdong. The lease for this office
space has a two year term and expires on August 16, 2011.
Our
Shenzhen research and manufacturing facilities are located in the town of
Fuyong. The facilities include the factory space, dormitory and a dining hall.
The lease for this facility expires on December 31, 2010.
The
office space in Chongqing city is subject to a non-cancelable lease agreement
that expires on December 31, 2011. Based on the lease agreement, Shenzhen ORB
will be required to pay a penalty for early lease termination, which is the
deposit for the lease along with the remaining rents up to the original lease
termination date.
The
manufacturing facility located on Lutai Road in Liuzhou is subject to a one-year
lease that is currently set to expire on January 18, 2011. The lease is
cancelable by either party on short notice.
The
leases for our other offices are generally short term and cancelable upon notice
of either party.
Environmental
Compliance
Shenzhen
ORB is regulated by the Shanghai Center of Toxic Chemicals Information &
Consultation and has been certified as compliant with all environmental
standards for handling of toxic and hazardous substances. Currently, we have
little or no cost associated with environmental compliance for several reasons.
With respect to the production we outsource, the OEMs are responsible for
complying for all environmental rules and regulations and we routinely ensure
that they remain compliant. With respect to the products we manufacture
in-house, we have developed a contained manufacturing process that ensures that
there is very little waste. However, as we expand our business we may become
subject to greater environmental risk and the cost of ongoing environmental
compliance and additional regulation may adversely affect the Company’s
financial results. We intend to take appropriate steps to ensure that we remain
compliant with all environmental regulations for our existing and future
activities.
Customers
Shenzhen
ORB operates in a highly concentrated market. One primary customer, Shanghai
General Motors Wuling, and its affiliate Shanghai General Motors Wuling Qingdao
Branch Company (collectively, “GM-Wuling”) accounted for 78% and 76% of sales
for the six months ended June 30, 2010 and 2009, respectively. Accounts
receivable from this customer amounted to $942,518 as of June 30, 2010. As with
all of our customers, we periodically enter into a standard form of purchase
order with GM-Wuling that provides for the periodic purchase of our various
products. This is a typical method of working with customers in the Chinese auto
parts market. We have a long standing relationship with GM-Wuling that we
believe will continue to grow as we grow and expand. However, if this customer
was lost, it is unlikely that Shenzhen ORB would be able to replace the lost
revenue, at least in the near term. The successful implementation of our growth
and expansion strategy will be an important element in reducing this
concentration and diversifying our business.
10
Intellectual
Property
Shenzhen
ORB has exclusive rights to a National Invention Patent for its polyurethane
adhesive sealant technology. The patent was issued by the PRC’s State
Intellectual Property Office to our Chief Executive Officer, Mr. Ma, under
Patent No. ZL98119666.7 on November 21, 2001 and expires on November 20, 2021.
Mr. Ma has granted Shenzhen ORB an exclusive license to use the patent for the
full term of the patent.
Additionally,
the name “ORB” has been trademarked in China.
Shenzhen
ORB spent approximately $89,766 and $111,889 in research and development
expenditures for the years ended December 31, 2009 and 2008,
respectively.
Competition and
Markets
The
adhesive, sealant and auto parts markets in China are very competitive. Shenzhen
ORB competes with other companies on the basis of quality and price of its
products, as well as customer service. There are approximately 10 major
competitors in this market trying to sell similar products that Shenzhen ORB
sells to the same concentrated group of customers. Shenzhen ORB’s primary
competitors include multi-national companies, like Dow, Henkel, Yokohama,
EMS-Togo, Sika, Bostik, and Sunstar. Shenzhen ORB also faces competition from
local Chinese competitors, such as Shandong Norinc Sealant Company, Zibo Hiteman
Chemical Co., Ltd., and other small glass bonding solution
providers.
Shenzhen
ORB’s multi-national competitors have greater financial resources, larger staff,
and brand name recognition than it has in both the Chinese and international
markets. However, in comparison to local suppliers, we believe that Shenzhen ORB
has a competitive advantage as a result of lower logistic and production costs
and responsive customer service provided by its sales and service network. With
respect to our outsourced products, the OEMs are strategically located to cut
down on transportation costs and to provide our customers with timely delivery
of goods. With respect to the products that we manufacture ourselves, we are
able to control costs associated with production, including wages and salaries
and storage costs (since we tend to keep little excess inventory on hand) that
we pass along to our customers.
In
addition, we believe that Shenzhen ORB’s products compare favorably in terms of
quality to its multi-national competitors and it will be able to dominate the
Chinese domestic market because it has a significant cost advantage over its
foreign competitors since its facilities, operations, and raw materials are all
located in China. Additionally, Shenzhen ORB has lower transport costs and is
not subject to import duties.
Government
Regulation
Our
business is subject to regulation by governmental agencies in the PRC. Business
and company registrations are certified on a regular basis and must be in
compliance with the laws and regulations of the PRC and provincial and local
governments and industry agencies, which are controlled and monitored through
the issuance of licenses and certificates.
Shenzhen
ORB has received a business license from the Market Supervision Administration
of Shenzhen Municipality, the local counterpart of the State Administration for
Industry and Commerce. Our business license enables us to conduct our business
as we currently operate. The registration number for our license is
440301503375833, and it is valid from April 15, 2005 through May 24, 2030. Once
the term has expired, the license is renewable.
11
Since
2009, the PRC government has implemented several initiatives to increase
automobile consumption, which we expect will positively impact our business. On
January 1, 2009, the PRC announced fuel tax reform decreasing the gasoline and
diesel taxes and eliminating six categories of tolls for road maintenance and
management, making driving less expensive for PRC residents whose income may be
limited. In addition, the PRC reduced the sales tax on small emission cars by
50% and is providing a 3,000 RMB rebate to purchasers of low-emission cars. The
PRC government is also providing a subsidy through the end of 2010 to Chinese
rural farmers and residents purchasing fuel efficient vans and has banned
motorcycle in certain coastal cities, which will cause some drivers to shift
their vehicle of choice from motorcycles to fuel efficient
cars.
12
RISK
FACTORS
Our
business and an investment in our securities are subject to a variety of risks.
The following risk factors describe the most significant events, facts or
circumstances that we believe could have a material adverse effect upon our
business, financial condition, results of operations, ability to implement our
business plan, and the market price for our securities. Many of these events are
outside of our control. The risks described below are not the only ones facing
our Company. If any of these risks actually occur, our business, financial
condition or results of operation may be materially adversely affected. In such
case, the trading price of our securities could decline and investors in our
securities could lose all or part of their investment.
Risks Related to Our
Business
The
global economic crisis could further impair the automotive industry thereby
limiting demand for our products and affecting the overall availability and cost
of external financing for our operations.
The
continuation or intensification of the recent global economic crisis and turmoil
in the global financial markets may adversely impact our business, the
businesses of our customers and our potential sources of capital financing. Our
products are primarily sold to automakers. The recent global economic crisis was
particularly difficult on the automotive industry. Although recent economic
stimulus measures and other actions taken by the Chinese government have
positively impacted the overall Chinese economy, as well as the Chinese
automotive industry, there is no guarantee that these stimulus measures will
continue to produce results. Since virtually all of our sales are made to auto
industry participants, our sales and business operations are dependent on the
financial health of the automotive industry and could suffer if our customers
experience a downturn in their business. In addition, the lack of availability
of credit could lead to a further weakening of the Chinese and global economies
and make capital financing of our operations more expensive for us or impossible
altogether. Presently, it is unclear what the long term effects of the economic
stimulus measures and other actions taken by the Chinese government and other
governments throughout the world will be in mitigating the damage caused by the
crisis to the automotive industry and other industries that affect our business.
Furthermore, deteriorating economic conditions including business layoffs,
downsizing, industry slowdowns and other similar factors that affect our
customers could have negative consequences for the automotive industry and
result in lower sales, price reductions in our products and declining profit
margins. The economic situation also could harm our current or future lenders or
customers, causing them to fail to meet their obligations to us. No assurances
can be given that the effects of the ongoing global economic crisis will not
damage our business, financial condition and results of operations.
A
contraction in automotive sales and production could have a material adverse
affect on our results of operations and liquidity and on the viability of our
supply base.
Automotive
sales and production are highly cyclical and depend, among other things, on
general economic conditions and consumer spending and preferences (which can be
affected by a number of issues including fuel costs and the availability of
consumer financing). As the volume of automotive production fluctuates, the
demand for our products also fluctuates. Global automotive sales and production
deteriorated substantially in the second half of 2008 and, while China’s
automotive sales and production experienced growth in 2008 and throughout 2009
and the beginning of 2010, the rate of growth was down from previous years. A
contraction in automotive sales and production could harm our results of
operations and liquidity. In addition, our suppliers would be negatively
impacted by a contraction of the industry, negatively impacting their business,
financial condition and results of operations, further pressuring our bottom
line.
13
In
order to successfully implement our planned expansion and growth initiatives, we
will require additional capital. If we are unable to obtain additional capital
on satisfactory terms, we may be unable to proceed with our plans and we may be
forced to curtail our operations.
We
believe our current cash and cash flow from operations are sufficient to meet
our present cash needs. However, our working capital requirements and the cash
flow provided by future operating activities, if any, may vary greatly from
quarter to quarter, depending on the volume of business during the period. We
have identified a number of short- and long-term strategic initiatives designed
to maximize our market presence and growth as an industry leader,
including:
|
·
|
expansion
of sales to existing customers and enlarging our customer base in our
current product lines;
|
|
·
|
expansion
into new product lines in the automotive parts
market;
|
|
·
|
strategic
acquisition of complementary businesses to increase production capacity
and achieve economies of scale.
|
These
initiatives, as well as changed business conditions, potential expansion of
facilities and manufacturing operations or other investments or acquisitions we
may decide to pursue in the future, will require additional capital resources.
We may seek to sell additional equity or debt securities or obtain one or more
credit facilities. The sale of additional equity securities could result in
significant dilution to our shareholders. The incurrence of indebtedness would
result in increased debt service obligations and could require us to agree to
operating and financial covenants that would restrict our operations. Given the
current global economic crisis, financing may not be available in amounts or on
terms acceptable to us, if at all. Any failure by us to raise additional funds
on terms favorable to us, or at all, could limit our ability to expand our
business operations and could harm our overall business prospects.
It
may be difficult to find or integrate acquisitions which could have an adverse
effect on our expansion plans.
An
important component of our growth strategy is to invest in or acquire companies
that complement or are compatible with our current business line, such as other
automotive parts manufacturers and distribution companies. We may be unable to
identify suitable investment or acquisition candidates, or to make these
investments or acquisitions on a commercially reasonable basis, if at all. If we
complete an investment or acquisition, we may not realize the anticipated
benefits from the transaction.
Integrating
an acquired company is complex, distracting and time consuming, as well as a
potentially expensive process. The successful integration of an acquisition
would require us to:
|
·
|
Integrate
and retain key management, sales, research and development, and other
personnel;
|
|
·
|
incorporate
the acquired products or capabilities into our offerings both from an
engineering and sales and marketing
perspective;
|
|
·
|
Coordinate
research and development efforts;
|
|
·
|
Integrate
and support pre-existing supplier, distribution and customer
relationships; and
|
|
·
|
consolidate
duplicate facilities and functions and combine back office accounting,
order processing and support
functions.
|
The
geographic distance between the companies, the complexity of the technologies
and operations being integrated and the disparate corporate cultures being
combined may increase the difficulties of combining an acquired company.
Acquired businesses are likely to have different standards, controls, contracts,
procedures and policies, making it more difficult to implement and harmonize
company-wide financial, accounting, billing, information and other systems.
Management’s focus on integrating operations may distract attention from our
day-to-day business activities and may disrupt key research and development,
marketing or sales efforts.
14
With the adhesive
sealant and automobile parts
markets being highly competitive and many of our competitors having greater
resources than we do, we may not be able to compete
successfully.
The
adhesive sealant and automobile parts industry is a highly competitive business.
Criteria for our customers and potential customers include:
|
·
|
Quality;
|
|
·
|
price
and cost competitiveness;
|
|
·
|
product
performance;
|
|
·
|
Reliability
and timeliness of delivery;
|
|
·
|
new
product and technology development
capability;
|
|
·
|
Degree
of global and local presence;
|
|
·
|
effectiveness
of customer service; and
|
|
·
|
Overall
management capability.
|
We face
competition from multi-national corporations, many of which have substantially
greater revenues and financial resources than we do, as well as stronger brand
names, consumer recognition, business relationships with vehicle manufacturers,
and geographic presence than we have in both the Chinese and international
markets. We also face competition from local Chinese companies and no assurance
can be given that our potential customers will respond favorably to our product
quality and brand.
Internationally,
we face different market dynamics and competition. We may not be as successful
as our competitors in generating revenues in international markets due to the
lack of recognition of our brands, products or other factors. Developing product
recognition overseas is expensive and time-consuming and our international
expansion efforts may be more costly and less profitable than we expect. If we
are not able to execute our business expansion in our target markets, our sales
could decline, our margins could be negatively impacted and we could lose market
share.
The
cyclical nature of automotive production and sales could result in a reduction
in automotive sales, which could adversely affect our financial
liquidity.
Our
product sales depend on automotive production and sales by our customers, which
are highly cyclical and affected by general economic conditions and other
factors, including consumer spending and preferences. They also can be affected
by government policies, labor relations issues, regulatory requirements, and
other factors. Any action that causes a decline in the volume of vehicles being
produced will cause fluctuations in the demand for our products.
Increasing
costs for manufactured components and raw materials may adversely affect our
profitability.
We use a
broad range of manufactured components and raw materials in our products.
Because it may be difficult to pass increased prices for these items on to our
customers, a significant increase in the prices of our components and materials
could materially increase our operating costs and adversely affect our profit
margins and profitability.
15
Non-performance
by our OEMs may adversely affect our operations by delaying delivery or causing
delivery failures, which may negatively affect demand, sales and
profitability.
We
outsource production of all of our adhesives and sealants to a small number of
OEMs. During the first six months of 2010, we purchased approximately 86% of our
adhesive and sealant products from three OEMs. We would be materially and
adversely affected by the loss, or failure to perform as expected, of these
OEMs. If they were lost, became insolvent or bankrupt, or failed to perform as
expected, it is likely that we would experience delivery delays or failures
caused by production issues or delivery of non-conforming products, at least in
the short term. See “—Business—Suppliers.”
We
may be subject to product liability and warranty and recall claims, which may
increase the costs of doing business and adversely affect our financial
condition and liquidity.
We face
an inherent business risk of exposure to product liability and warranty claims
if our products actually or allegedly fail to perform as expected or the use of
our products results, or is alleged to result, in bodily injury and/or property
damage. We have not obtained product liability insurance and therefore may be
exposed to potential liability without any insurance. We cannot ensure that we
will not incur significant costs to defend these claims or that we will not
experience any product liability losses in the future. In addition, if any of
our designed products are or are alleged to be defective, we may be required to
participate in a recall of such products. We cannot ensure that the future costs
associated with providing product warranties and/or bearing the cost of repair
or replacement of our products will not have an adverse effect on our financial
condition and liquidity.
We
receive a significant portion of our revenues from one customer which may make
it difficult to negotiate attractive prices for our products and exposes us to
risks of substantial losses if we lose this customer or are unable to
sufficiently expand out customer base to minimize the impact of this
customer.
One
customer, and an affiliated entity, accounted for more than 70% of our revenues
for the year ended December 31, 2009 and we anticipate that it will account for
approximately 60% of our revenues for 2010. We have begun expanding our customer
base and currently believe that going forward the impact of this existing
customer will be lessened. However, dependence on one or a few customers could
make it difficult to negotiate attractive prices for our products and could
expose us to the risk of substantial losses if a single major customer stops
purchasing our products.
If
we are unable to attract and retain senior management and qualified technical
and sales personnel, our operations, financial condition and prospects will be
materially adversely affected.
Our
future success depends in part on the contributions of our management team and
key technical and sales personnel and our ability to attract and retain
qualified new personnel. In particular, our success depends on the continuing
employment of our Chief Executive Officer, Mr. Ma, our Chief Technology Officer,
Mr.Hai Huang, our Chief Marketing Officer, Mr. Pengcheng Zhang and our Vice
Chief Financial Officer, Mr. Guangning Xu. There is significant competition in
our industry for qualified managerial, technical and sales personnel and we
cannot ensure that we will be able to retain our key senior managerial,
technical and sales personnel or that we will be able to attract, integrate and
retain other such personnel that we may require in the future. If we are unable
to attract and retain key personnel in the future, our business, operations,
financial condition, results of operations and prospects could be materially
adversely affected.
We
rely on a combination of trade secret laws and confidentiality procedures to
protect the patents, copyrights and technological know-how that comprise our
intellectual property. We protect our technological know-how pursuant to
non-disclosure and non-competition provisions contained in our employment
agreements, and agreements with them to keep confidential all information
relating to our customers, methods, business and trade secrets during and after
their employment with us. Our employees are also required to acknowledge and
recognize that all inventions, trade secrets, works of authorship, developments
and other processes made by them during their employment are our property. We
have been granted a trademark to use the name “ORB.”
16
Failure
to adequately protect our intellectual property rights may undermine our
competitive position, and litigation to protect our intellectual property rights
may be costly.
We strive
to strengthen and differentiate our product portfolio by developing new and
innovative products and product improvements. As a result, we believe that the
protection of our intellectual property will become increasingly important to
our business. Implementation and enforcement of intellectual property-related
laws in China has historically been lacking due primarily to ambiguities in PRC
intellectual property law. Accordingly, protection of intellectual property and
proprietary rights in China may not be as effective as in the United States or
other countries. Currently, our Chief Executive Officer, Mr. Ma, holds a key
patent on one of our most successful products. We use this technology under the
terms of an exclusive license agreement with him. Additionally, we rely on a
combination of license agreements, trade secrets, and trademarks to provide
protection for our intellectual property, but this protection may be inadequate.
For example, future patent applications may not be approved or, if allowed, they
may not be of sufficient strength or scope. As a result, third parties may use
the technologies and proprietary processes that we have developed and compete
with us, which could negatively affect any competitive advantage we enjoy,
dilute our brand and harm our operating results. In addition, policing the
unauthorized use of our proprietary technology can be difficult and expensive.
Litigation may be necessary to enforce our intellectual property rights and
given the relative unpredictability of China’s legal system and potential
difficulties enforcing a court judgment in China, there is no guarantee
litigation would result in an outcome favorable to us. Furthermore, any such
litigation may be costly and may divert management attention away from our core
business. An adverse determination in any lawsuit involving our intellectual
property is likely to jeopardize our business prospects and reputation. We have
no insurance coverage against litigation costs so we would be forced to bear all
litigation costs if we cannot recover them from other parties. All of the
foregoing factors could harm our business and financial condition.
Our
commercial viability depends significantly on our ability to operate without
infringing the patents and other proprietary intellectual rights of third
parties.
In the
event that our technologies infringe or violate the patent or other proprietary
intellectual rights of third parties, we may be prevented from pursuing product
development, manufacturing or commercialization of our products that utilize
such technologies. There may be patents or other intellectual property rights
held by others of which we are unaware that contain claims that our products or
operations infringe. In addition, given the complexities and uncertainties of
China’s intellectual property laws, there may be patents or other intellectual
property rights of which we know that we may ultimately be held to infringe,
particularly if the claims are determined to be broader than we believe them to
be. As a result, avoiding intellectual property infringement may be
difficult.
If a
third party claims that we infringe its patents or other intellectual property
rights, any of the following may occur:
|
·
|
we
may become liable for substantial damages for past infringement if a court
decides that our technologies infringe upon a competitor’s intellectual
property rights;
|
|
·
|
a
court may prohibit us from selling or licensing our product without a
license from the intellectual property holder, which may not be available
on commercially acceptable terms or at all, or which may require us to pay
substantial royalties or grant cross-licenses to our intellectual
property; and
|
|
·
|
we
may have to redesign our product so that it does not infringe upon the
intellectual property rights of others, which may not be possible or could
require substantial funds or time.
|
17
In
addition, employees, consultants, contractors and others may use the trade
secret information of others in their work for us or disclose our trade secret
information to others. Either of these events could lead to disputes over the
ownership of inventions derived from that information or expose us to potential
damages or other penalties. If any of these events occurs, our business will
suffer and the market price of our securities will likely decline.
We
are subject to environmental and safety regulations, which may increase our
compliance costs and may adversely affect our results of operation.
We are
subject to the requirements of environmental and occupational safety and health
laws and regulations in China. We cannot provide assurance that we have been or
will be at all times in full compliance with all of these requirements, or that
it will not incur material costs or liabilities in connection with these
requirements. Additionally, these regulations may change in a manner that could
have a material adverse effect on our business, results of operations and
financial condition. The capital requirements and other expenditures that may be
necessary to comply with environmental requirements could increase and become a
material expense of doing business.
We
will incur costs as a result of being a public company, and the requirements of
being a public company may divert management’s attention from our business and
adversely affect our financial results.
As a
public company, we will be subject to a number of requirements, including the
reporting requirements of the Exchange Act, Sarbanes-Oxley and eventually the
listing standards of Nasdaq. These requirements will cause us to incur costs and
might place a strain on our systems and resources. The Exchange Act requires,
among other things, that we file annual, quarterly and current reports with
respect to our business and financial condition. Sarbanes-Oxley requires, among
other things, that we maintain effective disclosure controls and procedures and
internal control over financial reporting. In order to maintain and improve the
effectiveness of our disclosure controls and procedures and internal control
over financial reporting, significant resources and management oversight will be
required. As a result, our management’s attention might be diverted from other
business concerns, which could have a material adverse effect on our business,
results of operations and financial condition. Furthermore, we might not be able
to retain our independent directors or attract new independent directors for our
committees.
If
we fail to establish and maintain an effective system of internal control, we
may not be able to report our financial results accurately or to prevent fraud.
Any inability to report and file our financial results accurately and timely
could harm our business and adversely impact the trading price of our
securities.
We are
required to establish and maintain internal controls over financial reporting,
disclosure controls, and to comply with other requirements of Sarbanes-Oxley and
the rules promulgated by the SEC thereunder. Our management, including our Chief
Executive Officer, cannot guarantee that our internal controls and disclosure
controls will prevent all possible errors or all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. In
addition, the design of a control system must reflect the fact that there are
resource constraints and the benefit of controls must be relative to their
costs. Because of the inherent limitations in all control systems, no system of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Further, controls can
be circumvented by individual acts of some persons, by collusion of two or more
persons, or by management override of the controls. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time, a
control may become inadequate because of changes in conditions or the degree of
compliance with policies or procedures may deteriorate. Because of inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and may not be detected.
18
We
are a holding company that depends on cash flow from our subsidiaries to meet
our obligations.
After the
share exchange, we became a holding company with no material assets other than
the stock of our subsidiaries. Accordingly, all our operations will be conducted
by our direct and indirect subsidiaries. We currently expect that the earnings
and cash flow of our subsidiaries will primarily be retained and used by us in
its operations.
All of GPC’s and Shenzhen ORB’s
liabilities survived the share exchange and there may be undisclosed liabilities
that could have a negative impact on our financial condition.
Before
the share exchange, certain due diligence activities on the Company, GPC and
Shenzhen ORB were performed. The due diligence process may not have revealed all
liabilities (actual or contingent) of the Company, GPC or Shenzhen ORB that
existed or which may arise in the future relating to the Company's activities
before the consummation of the share exchange. Any liabilities remaining from
the Company's pre-closing activities could harm our financial condition and
results of operations.
Because GPC has become public by
means of a share exchange, we may not be able to attract the attention of major
brokerage firms.
There may
be risks associated with GPC’s becoming public through the share exchange.
Securities analysts of major brokerage firms may not provide coverage of us
since there is no incentive to brokerage firms to recommend the purchase of our
securities. No assurance can be given that brokerage firms will, in the future,
want to conduct any secondary offerings on our behalf.
New accounting standards could
result in changes to our methods of quantifying and recording accounting
transactions, and could affect our financial results and financial
position.
Changes
to generally accepted accounting principles in the United States arise from new
and revised standards, interpretations, and other guidance issued by Financial
Accounting Standards Board, the SEC, and others. In addition, the U.S.
Government may issue new or revised Cost Accounting Standards or Cost
Principles. The effects of such changes may include prescribing an accounting
method where none had been previously specified, prescribing a single acceptable
method of accounting from among several acceptable methods that currently exist,
or revoking the acceptability of a current method and replacing it with an
entirely different method, among others. Such changes could result in
unanticipated effects on our results of operations, financial position, and
other financial measures.
Risks Related to Doing
Business in China
Recent
Chinese regulations relating to the establishment of offshore special purpose
companies by Chinese residents and registration requirements for employee stock
ownership plans or share option plans may subject our Chinese resident
shareholders to personal liability and limit our ability to acquire companies in
China or to inject capital into our subsidiaries in China, limit our Chinese
subsidiaries' ability to distribute profits to us, or otherwise materially and
adversely affect us.
19
The
Chinese State Administration of Foreign Exchange ("SAFE") issued a public notice
in October 2005, requiring Chinese residents, including both legal persons and
natural persons, to register with the competent local SAFE branch before
establishing or controlling any company outside of China established for the
purpose of acquiring any assets of or equity interest in companies in China and
raising funds from overseas (referred to as an “offshore special purpose
company”). In addition, any Chinese resident that is a shareholder of an
offshore special purpose company is required to amend his or her SAFE
registration with the local SAFE branch in the event of any increase or decrease
of capital, transfer of shares, merger, division, equity investment or creation
of any security interest over any assets located in China with respect to that
offshore special purpose company. To further clarify the implementation of
Circular 75, the SAFE issued Circular 124 and Circular 106 on November 24, 2005
and May 29, 2007, respectively. Under Circular 106, PRC subsidiaries of an
offshore special purpose company are required to coordinate and supervise the
filing of SAFE registrations by the offshore holding company’s shareholders who
are Chinese residents in a timely manner. If these shareholders fail to comply,
the Chinese subsidiaries are required to report to the local SAFE authorities.
If the Chinese subsidiaries of the offshore parent company do not report to the
local SAFE authorities, they may be prohibited from distributing their profits
and proceeds from any reduction in capital, share transfer or liquidation to
their offshore parent company, and the offshore parent company may be restricted
in its ability to contribute additional capital into its Chinese subsidiaries.
Moreover, failure to comply with the above SAFE registration requirements could
result in liabilities under China law for evasion of foreign exchange
restrictions. The failure or inability of these Chinese resident beneficial
owners to comply with the applicable SAFE registration requirements may subject
these beneficial owners or us to the fines, legal sanctions and restrictions
described above.
On March
28, 2007, SAFE released detailed registration procedures for employee stock
ownership plans or share option plans to be established by overseas listed
companies and for individual plan participants. Any failure to comply with the
relevant registration procedures may affect the effectiveness of our employee
stock ownership plans or share option plans and subject the plan participants,
the companies offering the plans or the relevant intermediaries, as the case may
be, to penalties under PRC foreign exchange regime. These penalties may subject
us to fines and legal sanctions, prevent us from being able to make
distributions or pay dividends, as a result of which our business operations and
our ability to distribute profits to you could be materially and adversely
affected.
In
addition, the NDRC promulgated a rule in October 2004, or the NDRC Rule, which
requires NDRC approvals for overseas investment projects made by PRC entities.
The NDRC Rule also provides that approval procedures for overseas investment
projects of PRC individuals must be implemented with reference to this rule.
However, there exist extensive uncertainties in terms of interpretation of the
NDRC Rule with respect to its application to a PRC individual’s overseas
investment, and in practice, we are not aware of any precedents that a PRC
individual’s overseas investment has been approved by the NDRC or challenged by
the NDRC based on the absence of NDRC approval. Our current beneficial owners
who are PRC individuals did not apply for NDRC approval for investment in us. We
cannot predict how and to what extent this will affect our business operations
or future strategy. For example, the failure of our shareholders who are PRC
individuals to comply with the NDRC Rule may subject these persons or our PRC
subsidiary to certain liabilities under PRC laws, which could adversely affect
our business.
Chinese
regulation of loans and direct investment by offshore holding companies to
Chinese entities may delay or prevent us from making loans or additional capital
contributions to our operating subsidiary, which could materially and adversely
affect our liquidity and our ability to fund and expand our business.
We may
make loans to Shenzhen ORB, our operating subsidiary, or we may make additional
capital contributions to Shenzhen ORB. Any loans to Shenzhen ORB are subject to
Chinese regulations. For example, loans by us to Shenzhen ORB to finance its
activities cannot exceed statutory limits and must be registered with the
SAFE.
We may
also decide to finance Shenzhen ORB by means of capital contributions. These
capital contributions must be approved by the Ministry of Commerce or its local
counterpart. We cannot assure you that we will be able to obtain these
government approvals on a timely basis, or if at all, with respect to future
capital contributions by us to Shenzhen ORB. If we fail to receive such
approvals, our ability to capitalize our Chinese operations may be negatively
affected, which could adversely affect our liquidity and our ability to fund and
expand our business.
20
A
return to profit repatriation controls may limit the ability to expand business
and reduce the attractiveness of investing in Chinese business
opportunities.
PRC
law allows enterprises owned by foreign investors to remit their profits,
dividends and bonuses earned in the PRC to other countries, and the remittance
does not require prior approval by SAFE. SAFE regulations required extensive
documentation and reporting, some of which was burdensome and slowed payments.
If there is a return to payment restrictions and reporting, the ability of a
Chinese company to attract investors will be reduced. Also, current investors
may not be able to obtain the profits of the business in which they own for
other reasons. Relevant PRC law and regulation permit payment of dividends only
from retained earnings, if any, determined in accordance with PRC accounting
standards and regulations. It is possible that the PRC tax authorities may
require changes in the income of the company that may limit its ability to pay
dividends and other distributions to shareholders. PRC law requires companies to
set aside a portion of net income to fund certain reserves, which amounts are
not to distributable as dividends. These rules and possible changes could
restrict Shenzhen ORB from repatriating funds to us, and ultimately, the
shareholders as dividends.
The economy of China has been
experiencing unprecedented growth and this has resulted in some
inflation.
If the
Chinese government tries to control inflation by traditional means of monetary
policy or returns to planned economic techniques, our business will suffer a
reduction in sales growth and expansion opportunities. The rapid growth of the
Chinese economy has resulted in higher levels of inflation. If the government
tries to control inflation, it may have an adverse effect on the business
climate and growth of private enterprise in the PRC. An economic slow down will
have an adverse effect on our sales and may increase costs. On the other hand,
if inflation is allowed to proceed unchecked, Shenzhen ORB’s costs would likely
increase, and there can be no assurance that it would be able to increase its
prices to an extent that would offset the increase in its
expenses.
Fluctuation in the value of the RMB
may reduce the value of your investment.
The
change in value of the RMB against the U.S. Dollar, Euro and other currencies is
affected by, among other things, changes in China’s political and economic
conditions. On July 21, 2005, the PRC government changed its decade-old policy
of pegging the value of the RMB to the U.S. Dollar. Under the current policy,
the RMB is permitted to fluctuate within a narrow and managed band against a
basket of certain foreign currencies. This change in policy has resulted in a
greater fluctuation range between RMB and the U.S. Dollar. There remains
significant international pressure on China to adopt a more flexible and more
market-oriented currency policy that allows a greater fluctuation in the
exchange rate between the RMB and the U.S. Dollar. Accordingly, we expect that
there will be increasing fluctuations in the RMB exchange rate against the U.S.
Dollar in the near future. Any significant revaluation of the RMB may have a
material adverse effect on the value of, and any dividends paid on, our
securities in U.S. Dollar terms.
We are subject to international
economic and political risks over which we have little or no control and may be
unable to alter our business practice in time to avoid the possibility of
reduced revenues.
Our
business is conducted in China. Doing business outside the United States,
particularly in China, subjects us to various risks, including changing economic
and political conditions, major work stoppages, exchange controls, currency
fluctuations, armed conflicts and unexpected changes in United States and
foreign laws relating to tariffs, trade restrictions, transportation
regulations, foreign investments and taxation. We have no control over most of
these risks and may be unable to anticipate changes in international economic
and political conditions and, therefore, unable to alter our business practice
in time to avoid the possibility of reduced revenues.
21
China's economic policies could
affect our business.
Substantially
all of our assets are located in China and all of our revenue is derived from
our operations in China. Accordingly, our results of operations and prospects
are subject, to a significant extent, to the economic, political and legal
developments in China.
While
China's economy has experienced significant growth in the past twenty years,
such growth has been uneven, both geographically and among various sectors of
the economy. The Chinese government has implemented various measures to
encourage economic growth and guide the allocation of resources. Some of these
measures benefit the overall economy of China, but they may also have a negative
effect on us. For example, operating results and financial condition may be
adversely affected by government control over capital investments or changes in
tax regulations. The economy of China has been changing from a planned economy
to a more market-oriented economy. In recent years the Chinese government has
implemented measures emphasizing the utilization of market forces for economic
reform and the reduction of state ownership of productive assets, and the
establishment of corporate governance in business enterprises; however, a
substantial portion of productive assets in China are still owned by the Chinese
government. In addition, the Chinese government continues to play a significant
role in regulating industry development by imposing industrial policies. It also
exercises significant control over China's economic growth through the
allocation of resources, the control of payment of foreign currency-denominated
obligations, the setting of monetary policy and the provision of preferential
treatment to particular industries or companies.
We may have difficulty establishing
adequate management, legal and financial controls in China.
Historically,
China has not adopted a Western style of management and financial reporting
concepts and practices, as well modern banking, computer and other control
systems. We may have difficulty in hiring and retaining a sufficient number of
qualified employees to work in China. As a result of these factors, we may
experience difficulty in establishing management, legal and financial controls,
collecting financial data and preparing financial statements, books of account
and corporate records and instituting business practices that meet Western
standards.
China could change its policies
toward private enterprise or even nationalize or expropriate private
enterprises.
Our
business is subject to significant political and economic uncertainties and may
be affected by political, economic and social developments in China. Over the
past several years, the Chinese government has pursued economic reform policies
including the encouragement of private economic activity and greater economic
decentralization. The Chinese government may not continue to pursue these
policies or may significantly alter them to our detriment from time to time with
little, if any, prior notice.
Changes
in policies, laws and regulations or in their interpretation or the imposition
of confiscatory taxation, restrictions on currency conversion, restrictions or
prohibitions on dividend payments to shareholders, or devaluations of currency
could cause a decline in the price of our securities. Nationalization or
expropriation could even result in the total loss of an investment in our
securities.
The nature and application of many
laws of China create an uncertain environment for business operations and they
could have a negative effect on us.
The legal
system in China 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, China 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 China 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 cause a decline in the price of our securities. In addition, as these
laws, regulations and legal requirements are relatively recent, their
interpretation and enforcement involve significant uncertainty.
22
If certain exemptions within the PRC
regarding withholding taxes are removed, Shenzhen ORB may be required to deduct
Chinese corporate withholding taxes from any dividends that are paid to us which
will reduce the return on investment.
Under
current PRC tax laws, regulations and rulings, companies are exempt from paying
withholding taxes with respect to dividends paid to shareholders outside the
PRC. If the foregoing exemption is eliminated, in the future we may be required
to withhold such taxes which will reduce its revenues and the amount of retained
earnings that may be distributed to the shareholders.
The
PRC legal system has inherent uncertainties that could limit the legal
protections available to you.
Most of
our assets and all of our operations are in the PRC. The Chinese legal system is
based on written statutes. Prior court decisions may be cited for reference but
are not binding on subsequent cases and have limited precedential value. Since
1979, the Chinese legislative bodies have promulgated laws and regulations
dealing with such economic matters as foreign investment, corporate organization
and governance, commerce, taxation and trade. However, because these laws and
regulations are relatively new, and because of the limited volume of published
decisions and their non-binding nature, the interpretation and enforcement of
these laws and regulations involve uncertainties. The laws in the PRC differ
from the laws in the United States and may afford less protection to our
shareholders. Unlike laws in the United States, the applicable laws of China do
not specifically allow shareholders to sue the directors, supervisors, officers
or other shareholders on behalf of the company to enforce a claim against these
parties that the company has failed to enforce itself. Therefore, any action
brought against the Company or its officers and directors or its assets may be
very difficult to pursue if not impossible. It is unlikely that any suit in the
PRC would be able to be based on theories common in the United States or based
on United States securities laws.
It will be
extremely difficult to acquire jurisdiction and enforce liabilities against our
officers, directors and assets.
We are
a Cayman Islands holding company, with subsidiaries domiciled in the British
Virgin Islands and China. Our operating subsidiary and substantially all of our
assets are located outside the United States. Additionally, all of our executive
officers and our Chairman of the board of directors, are Chinese citizens living
in China. As a result, it may be difficult, if not impossible, to acquire
jurisdiction over either our business and its assets or our executive officers
and directors in the event a lawsuit is initiated against us and/or our officers
and directors by a shareholder or group of shareholders in the United States.
Also, it may be extremely difficult or impossible for you to access our assets
to enforce any judgments that may be rendered against us, our directors or
executive offices by U.S. courts. Specifically, the courts in China may not
permit the enforcement of judgments arising out of U.S. federal and state
corporate, securities or similar laws. Accordingly, U.S. investors may not be
able to enforce judgments against us for violation of U.S. securities
laws.
Risks Related to the
Shares
We may need additional capital to
execute our business plan and fund operations and may not be able to obtain such
capital on acceptable terms or at all.
Capital
requirements are difficult to plan in our rapidly changing industry. We expect
that we will need additional capital to fund our future growth. Our ability to
obtain additional capital on acceptable terms or at all is subject to a variety
of uncertainties, including:
23
|
·
|
investors'
perceptions of, and demand for, companies in our
industry;
|
|
·
|
investors'
perceptions of, and demand for, companies operating in the
PRC;
|
|
·
|
conditions
of the United States and other capital markets in which we may seek to
raise funds;
|
|
·
|
our
future results of operations, financial condition and cash
flows;
|
|
·
|
governmental
regulation of foreign investment in companies in particular
countries;
|
|
·
|
economic,
political and other conditions in the United States, the PRC, and other
countries; and
|
|
·
|
governmental
policies relating to foreign currency
borrowings.
|
We may be
required to pursue sources of additional capital through various means,
including joint venture projects and debt or equity financings. There is no
assurance that we will be successful in locating a suitable financing
transaction in a timely fashion or at all. In addition, there is no assurance
that we will be successful in obtaining the capital we require by any other
means. Future financings through equity investments are likely to be dilutive to
our existing shareholders. Also, the terms of securities we may issue in future
capital transactions may be more favorable for our new investors. Newly issued
securities may include preferences, superior voting rights, the issuance of
warrants or other derivative securities, and the issuances of incentive awards
under equity employee incentive plans, which may have additional dilutive
effects. Further, we may incur substantial costs in pursuing future capital
and/or financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities we
may issue, such as convertible notes and warrants, which will adversely impact
our financial condition.
If we
cannot raise additional funds on favorable terms or at all, we may not be able
to carry out all or parts of our strategy to maintain our growth and
competitiveness or to fund our operations. If the amount of capital we are able
to raise from financing activities, together with our revenues from operations,
is not sufficient to satisfy our capital needs, even to the extent that we
reduce our operations accordingly, we may be required to cease
operations.
The market price of our securities
may be volatile, which could cause the value of your investment to decline or
could subject us to securities class action litigation.
Many
factors could cause the market price of our securities to rise and fall,
including the following:
|
·
|
variations
in our or our competitors’ actual or anticipated operating
results;
|
|
·
|
variations
in our or our competitors’ growth
rates;
|
|
·
|
recruitment
or departure of key personnel;
|
|
·
|
changes
in the estimates of our operating performance or changes in
recommendations by any securities analyst that follows our
stock;
|
|
·
|
substantial
sales of our securities; or
|
|
·
|
changes
in accounting principles.
|
24
Market
volatility, as well as general economic, market or potential conditions, could
reduce the market price of our securities in spite of our operating performance.
In the past, following periods of volatility in the market price of a company’s
securities, securities class action litigation often has been brought against
that company. Due to the potential volatility of our stock price, we therefore
may be the target of securities litigation in the future. Securities litigation
could result in substantial costs and divert management’s attention and
resources from our business.
Shares of our securities lack a
trading market.
Since
inception none of our securities have been quoted or listed for trading on the
Over-The-Counter Bulletin Board maintained by the National Association of
Securities Dealers, Inc. (“OTC Bulletin Board”) or on any national stock
exchange. As a result, there is currently no liquid trading market for our
securities. Although we intend to apply for quotation on the OTC Bulletin Board
and anticipate that our ordinary shares will be quoted thereon, there can be no
assurance if and when an active trading market in our securities will develop,
or if such a market develops, that it will be sustained. In addition, there is a
greater chance for market volatility for securities that are quoted on the OTC
Bulletin Board as opposed to securities that trade on a national exchange. This
volatility may be caused by a variety of factors, including the lack of readily
available quotations, the absence of consistent administrative supervision of
"bid" and "ask" quotations and generally lower trading volume. As a result, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the securities, or to obtain coverage for
significant news events concerning us, and the securities would become
substantially less attractive for margin loans, for investment by financial
institutions, as consideration in future capital raising transactions or other
purposes.
Future sales of shares of our
securities by our shareholders could cause our stock price to decline.
We cannot
predict the effect, if any, that market sales of shares of our securities or the
availability of shares of securities for sale will have on the market price
prevailing from time to time. If our shareholders sell substantial amounts of
our securities in the public market upon the effectiveness of a registration
statement, or upon the expiration of any holding period under Rule 144, such
sales could create a circumstance commonly referred to as an "overhang" and in
anticipation of which the market price of our securities could fall. The
existence of an overhang, whether or not sales have occurred or are occurring,
also could make more difficult our ability to raise additional financing through
the sale of equity or equity-related securities in the future at a time and
price that we deem reasonable or appropriate. The shares of securities issued in
the share exchange will be freely tradable upon the earlier of (i) effectiveness
of a registration statement covering such shares; and (ii) the date on which
such shares may be sold without registration pursuant to Rule 144 under the
Securities Act and the sale of such shares could have a negative impact on the
price of our securities.
We may issue additional shares of
our capital stock or debt securities to raise capital or complete acquisitions,
which would reduce the equity interest of our shareholders.
Although
we have no commitments as of the date of this offering to issue our securities,
we may issue a substantial number of additional shares of our securities, to
complete a business combination or to raise capital. The issuance of additional
shares of our securities:
|
·
|
may
significantly reduce the equity interest of our existing shareholders;
and
|
|
·
|
may
adversely affect prevailing market prices for our
securities.
|
25
We currently do not intend to pay
dividends on our securities and, consequently, your only opportunity to achieve
a return on your investment is if the price of our securities
appreciates.
We do not
expect to pay dividends on shares of our securities in the foreseeable future.
In addition, because we are a holding company, our ability to pay cash dividends
on shares of our securities may be limited by restrictions on our ability to
obtain sufficient funds through dividends from our subsidiaries, which may be
restricted by PRC law. Subject to these restrictions, the payment of cash
dividends in the future, if any, will be at the discretion of our board of
directors and will depend upon such factors as earnings levels, capital
requirements, our overall financial condition and any other factors deemed
relevant by our board of directors. Consequently, your only opportunity to
achieve a return on your investment in the Company will be if the market price
of our securities appreciates. For more information, see
“—Dividends.”
26
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 of the Company should be read in conjunction with our financial
statements and the notes to those financial statements that are included
elsewhere in this Form 8-K. This discussion should not be construed to imply
that the results discussed herein will necessarily continue into the future or
that any conclusion reached herein will necessarily be indicative of actual
operating results in the future. Such discussion represents only the best
present assessment of our management.
The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We
continually evaluate our estimates, including those related to bad debts,
inventories, recovery of long-lived assets, income taxes, and the valuation of
equity transactions. We base our estimates on historical experience and on
various other assumptions that we believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Any future changes to these estimates and assumptions could cause
a material change to our reported amounts of revenues, expenses, assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions.
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 sections
entitled “Cautionary Notice Regarding Forward-Looking Statements,” “Description
of Business” and “Risk Factors” located elsewhere in this Form 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
Action
was formed in the Cayman Islands as an exempted company on September 27, 2006.
On September 10, 2010, Action entered into and closed the Share Exchange
Agreement with GPC, a privately held company formed under the laws of the
British Virgin Islands. Pursuant to the Share Exchange Agreement, Action
acquired all of the issued and outstanding capital stock of GPC in exchange for
10,129,725 ordinary shares and 98,885.37 preference shares of Action. Prior to
our acquisition of GPC, we were in the development stage and had not yet
commenced business operations. We had no interest in any property.
GPC is
a holding company, owning 100% of the issued and outstanding capital stock of
Shenzhen ORB. Shenzhen ORB provides bonding solutions for a wide range of
industrial applications including, shipping, construction, and electronics, with
a strong presence in the Chinese automotive sector.
The share
exchange is being accounted for as a "reverse acquisition," since the GPC
shareholders own a majority of the outstanding shares of the Company's capital
stock immediately following the transaction. GPC is deemed to be the acquiror in
the reverse acquisition. As the Company, the legal acquiror, is a non-operating
shell, this "reverse acquisition" is considered to be a capital transaction in
substance rather than a business combination. Consequently, the assets and
liabilities and the historical operations that will be reflected in the
financial statements prior to the share exchange will be those of GPC and will
be recorded at the historical cost basis of GPC, and the consolidated financial
statements after completion of the share exchange will include the assets and
liabilities of the Company and GPC, historical operations of GPC and operations
of the Company from the closing date of the share exchange. Except as described
in the previous paragraphs, no arrangements or understandings exist among
present or former controlling shareholders with respect to the election of
members of the Company's board of directors and, to our knowledge, no other
arrangements exist that might result in a change of control of the Company.
Further, as a result of the issuance of the shares of the Company capital stock
pursuant to the share exchange, a change in control of the Company occurred on
the date of the consummation of the transaction. The Company will continue to be
a "smaller reporting company" following the share exchange.
27
CRITICAL
ACCOUNTING POLICIES
In
presenting our financial statements in conformity with accounting principles
generally accepted in the United States, we are required to make certain
estimates and assumptions that affect the amounts reported therein. Several of
the estimates and assumptions we are required to make relate to matters that are
inherently uncertain as they pertain to future events. However, events that are
outside of our control cannot be predicted and, as such, they cannot be
contemplated in evaluating such estimates and assumptions. If there is a
significant unfavorable change to current conditions, it will likely result in a
material adverse impact to our consolidated results of operations, financial
position and liquidity. We believe that the estimates and assumptions we used
when preparing our financial statements were the most appropriate at that
time.
While our
significant accounting policies are more fully described in Note 2 to our
financial statements, we believe the following accounting policies are the most
critical to aid you in fully understanding and evaluating this management
discussion and analysis.
Basis
of Presentation
The
Company’s financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America ("US
GAAP”).
Use
of Estimates
In
preparing the financial statements in conformity with US GAAP, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting year. Significant estimates, required by
management, include the recoverability of long-lived assets and the valuation of
inventories. Actual results could differ from those estimates.
Accounts
Receivable
The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Based on management’s analysis noted
above, the bad debt allowance was determined by calculating 0.5% of the accounts
receivable amount at the balance sheet date. Based on historical collection
activity, we had allowances for bad debt of $5,750 at June 30,
2010.
Inventories
Inventories
are valued at a lower cost or net realizable value with cost determined on a
weighted average basis. Management compares the cost of inventories with the net
realizable value and allowance is made for writing down their inventories to net
realizable value, if lower.
28
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Expenditures
for maintenance and repairs are expensed as incurred and additions, renewals and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets without salvage value and estimated lives
ranging from 5 to 10 years as follows:
Plant
and Machinery
|
10
years
|
Computer
and Office Equipment
|
5
years
|
Revenue
Recognition
The
Company's revenue recognition policies are in compliance with SEC Staff
Accounting Bulletin (“SAB”) 104, (codified in ASC Topic 605). Sales
revenue is recognized when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, no other significant obligations of the
Company exist and collectability is reasonably assured. No revenue is
recognized if there are significant uncertainties regarding the recovery of the
consideration due, or the possible return of goods; generally, sales revenue is
recognized when the delivery is completed. Payments received before all of the
relevant criteria for revenue recognition are recorded as unearned
revenue.
Sales
revenue represents the invoiced value of goods, net of value-added taxes
(“VAT”). All Company products are sold in the PRC and subject to Chinese VAT of
17% of the gross sales price. This VAT may be offset by VAT paid by the Company
on raw materials and other materials included in the cost of producing the
finished product. The Company records VAT payable and VAT receivable net of
payments in the financial statements. The VAT tax return is filed offsetting the
payables against the receivables. Sales and purchases are recorded net of VAT
collected and paid as the Company acts as an agent for the PRC government to
collect this tax.
Cost
of Goods Sold
Cost of
goods sold consists primarily of material costs, labor costs, and related
overhead which are directly attributable to the manufacture and distribution of
products and other indirect costs that benefit all products. The write-down of
inventory to the lower of cost or market is also recorded in cost of goods
sold.
Research
and Development
Research
and development costs are related primarily to the Company testing its new
materials in development stage. Research and development costs are expensed as
incurred.
Foreign
Currency Translation and Transactions and Comprehensive Income
(Loss)
The
accompanying consolidated financial statements are presented in U.S. Dollars.
GPC’s functional currency is U.S. Dollars, while Shenzhen ORB’s functional
currency is the Renminbi (“RMB”). The functional currencies of the Company’s
foreign operations are translated into U.S. Dollars for balance sheet accounts
using the current exchange rates in effect as of the balance sheet date and for
revenue and expense accounts using the average exchange rate during the fiscal
year. The translation adjustments are recorded as a separate component of
shareholders’ equity, captioned accumulated other comprehensive income (loss).
Gains and losses resulting from transactions denominated in foreign currencies
are included in other income (expense) in the consolidated statements of
operations. There have been no significant fluctuations in the exchange rate for
the conversion of RMB to U.S. Dollars after the balance sheet
date.
29
Segment
Reporting
Statement
of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments
of an Enterprise and Related Information” (codified in FASB ASC Topic 280),
requires the use of the “management approach” model for segment reporting. The
management approach model is based on the way a company’s management organizes
segments within the company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure, or any other manner in which management
disaggregates a company.
SFAS
No. 131 has no effect on the Company’s financial statements as substantially all
of the Company’s operations are conducted in one industry segment. The Company
consists of one reportable business segment. All of the Company’s assets are
located in the PRC and all of the Company’s revenue is generated in the
PRC.
Recently
Adopted Accounting Pronouncements
In
January 2010, FASB issued Accounting Standard Update (“ASU”) No. 2010-06, “Fair
Value Measurements and Disclosures” (ASC Topic 820), Improving Disclosures about
Fair Value Measurements. This update provides amendments to ASC Topic 820 that
will provide more robust disclosures about (1) the different classes of assets
and liabilities measured at fair value, (2) the valuation techniques and inputs
used, (3) the activity in Level 3 fair value measurements, and (4) the transfers
between Levels 1, 2, and 3. This standard is effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. The adoption of this standard did not have a material impact
to the Company’s financial position or results of operations.
In
January 2010, the FASB issued ASU No. 2010-05, “Compensation – Stock
Compensation” (ASC Topic 718), Escrowed Share
Arrangements and the Presumption of Compensation. This update codifies Emerging
Issues Task Force D-110. This standard is not currently applicable to the
Company.
In
January 2010, the FASB issued ASU N0. 2010-01, “Equity” (ASC Topic 505),
Accounting for Distributions to Shareholders with Components of Stock and Cash.
The update clarifies that the stock portion of a distribution to shareholders
that allows them to elect to receive cash or stock with a potential limitation
on the total amount of cash that all shareholders can elect to receive in the
aggregate is considered a share issuance that is reflected prospectively in
earnings per share and is not considered a stock dividend for purposes of ASC
Topic 505, “Equity” and ASC Topic 260, “Earnings Per Share”. This standard is
effective for interim and annual periods ending on or after December 15, 2009,
and should be applied on a retrospective basis. This standard is not currently
applicable to the Company.
Recently
Issued Accounting Pronouncements Not Yet Adopted
In
October 2009, FASB issued ASU No. 2009-13 on ASC 605, Revenue Recognition –
Multiple Deliverable Revenue Arrangement – a Consensus of the FASB Emerging
Issues Task Force. ASU No. 2009-13 amended guidance related to multiple-element
arrangements which requires an entity to allocate arrangement consideration at
the inception of an arrangement to all of its deliverables based on their
relative selling prices. The consensus eliminates the use of the residual method
of allocation and requires the relative-selling-price method in all
circumstances. All entities must adopt the guidance no later than the beginning
of their first fiscal year beginning on or after June 15, 2010. Entities may
elect to adopt the guidance through either prospective application for revenue
arrangements entered into, or materially modified, after the effective date or
through retrospective application to all revenue arrangements for all periods
presented. The Company does not have multiple element
arrangements. Therefore ASU No. 2009-13 is not currently applicable
to the Company.
30
In
October 2009, FASB issued ASU No. 2009-14 on ASC 985, Certain Revenue
Arrangements That Include Software Elements. ASU No. 2009-14 amended guidance
that is expected to significantly affect how entities account for revenue
arrangements that contain both hardware and software elements. As a result, many
tangible products that rely on software will be accounted for under the revised
multiple-element arrangements revenue recognition guidance, rather than the
software revenue recognition guidance. The revised guidance must be adopted by
all entities no later than fiscal years beginning on or after June 15, 2010. An
entity must select the same transition method and same period for the adoption
of both this guidance and the revisions to the multiple-element arrangements
guidance noted above. The Company does not have revenue arrangements that
include software element. Therefore, AUS 2009-14 is not applicable to
the Company.
In
April 2010, FASB issued ASU No. 2010-13, Compensation – Stock Compensation (ASC
Topic 718), Effect of Denominating the Exercise Price of a Share-Based Payment
Award in the Currency of the Market in Which the Underlying Equity Security
Trades. ASU No. 2010-13 provides amendments to ASC Topic 718 to clarify that an
employee share-based payment award with an exercise price denominated in the
currency of a market in which a substantial portion of the entity’s
equity securities trades should not be considered to contain a condition that is
not a market, performance, or service condition. Therefore, an entity would not
classify such an award as a liability if it otherwise qualifies as equity. The
amendments in ASU No. 2010-13 are effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2010. The
amendments in ASU No. 2010-13 should be applied by recording a cumulative-effect
adjustment to the opening balance of retained earnings. The cumulative-effect
adjustment should be calculated for all awards outstanding as of the beginning
of the fiscal year in which the amendments are initially applied, as if the
amendments had been applied consistently since the inception of the award. The
cumulative-effect adjustment should be presented separately. Earlier application
is permitted. This standard is not currently applicable to the
Company.
Three
Months Ended June 30, 2010 Compared to the Three Months Ended June 30,
2009
The
following table presents the consolidated results of operations of the Company
for the three months ended June 30, 2010 as compared to the results of
operations for the three months ended June 30, 2009.
For the three
months ended
June
30, 2010
|
For the three
months ended
June
30, 2009
|
|||||||||||||||
|
$
|
% of
Sales
|
$
|
% of Sales
|
||||||||||||
Net
Revenue
|
1,438,959
|
1,528,733
|
||||||||||||||
Cost
of Goods Sold
|
764,336
|
53
|
%
|
808,361
|
53
|
%
|
||||||||||
Gross
Profit
|
674,623
|
47
|
%
|
720,372
|
47
|
%
|
||||||||||
Operating
Expenses
|
155,200
|
11
|
%
|
149,164
|
10
|
%
|
||||||||||
Income
from Operations
|
519,423
|
36
|
%
|
571,208
|
37
|
%
|
||||||||||
Other
Income (Expenses), net
|
1,422
|
0
|
%
|
(1,145
|
)
|
0
|
%
|
|||||||||
Income
tax expense
|
114,585
|
8
|
%
|
114,012
|
7
|
%
|
||||||||||
Net
Income
|
406,260
|
28
|
%
|
456,051
|
30
|
%
|
NET
REVENUE
Net
revenue for the three months ended June 30, 2010 was $1,438,959, as compared to
net revenue of $1,528,733 for the comparative period of 2009, a decrease of
$89,774, or approximately 6%. Our sales are seasonal. April to June of each year
is our low season, and September to December of each year is our high
season. Sales volume of our major product – adhesive sealant
decreased $113,000 or 9% compared to the same period of 2009 due to decreased
demand as a result of low season. This was in spite of an increase in
the average sales price of sealant of approximately 3% in second quarter of 2010
compared to 2009 which resulted in a $29,000 increase in sales. We
anticipate future revenue growth as the Chinese economy and the auto
industry recovers through the PRC’s economic stimulus
programs.
31
COST
OF GOODS SOLD
Cost
of goods sold includes material costs, labor costs, and related overhead, which
are directly attributable to the manufacture and distribution periods of our
products. For the three months ended June 30, 2010, cost of goods sold amounted
to $1.4 million, or approximately 53% of net sales, a decrease of $44,025, or
approximately 5%, as compared to the same period of 2009. The
decrease in the total cost of goods sold was directly related to the slight
decrease in production and sales in the second quarter of 2010. The decreased
production volume of our sealants and primer resulted in a $79,600 decrease in
cost of goods sold, offset by a $30,300 increase in cost associated with the
increased purchase price of raw materials for sealant and
primer. Cost of goods sold as a percentage of sales was approximately
53% in each of the three month periods ended June 30, 2010 and
2009. The stable cost of goods sold as a percentage of sales in 2010 was
due to efficient controls on labor arrangements in spite of the increased
purchase price of raw materials. We believe that our cost of goods
sold will remain relatively stable as we continue to improve our operating
efficiencies.
GROSS
PROFIT
Gross
profit for the three months ended June 30, 2010 was $674,623, a decrease of
$45,749, or approximately 6%, as compared to the same period of 2009. Our gross
profit margin was 47% for each of the three months ended June 30, 2010 and 2009.
The decrease in our gross profits was mainly due to the decrease in our revenues
as describe above, while the stable gross profit margin was primarily due to the
efficient control of production costs despite an increase in the purchase price
of raw materials.
OPERATING
EXPENSES
Operating
expenses consisted of selling, general and administrative expenses, and research
and development expenses, totaling $155,200 for the three months ended June 30,
2010, compared to $149,164 for the comparative period of 2009, an increase of
$6,036, or 4%. The increase in operating expenses was primarily due to increased
rental and administrative expense related to a recent expansion of our
headquarters, and our ongoing investment in new product research and
development.
NET
INCOME
For the
three months ended June 30, 2010, net income was $406,260 as compared to
$456,051 for the same period of 2009, a decrease of $49,791, or approximately
11%. This decrease in net income was attributable to our decreased sales
and increased operating expenses. Our management believes that net income will
continue to increase as we continue to increase our sales, offer better quality
products and control our manufacturing costs.
Six
Months Ended June 30, 2010 Compared to the Six Months Ended June 30,
2009
The
following table sets forth the results of our operations for the periods
indicated as a percentage of net sales:
32
For the six months
ended June 30, 2010
|
For the six months
ended June 30, 2009
|
|||||||||||||||
|
$
|
% of
Sales
|
$
|
% of
Sales
|
||||||||||||
Net
Revenue
|
2,362,028
|
1,913,073
|
||||||||||||||
Cost
of Goods Sold
|
1,322,124
|
56
|
%
|
1,028,089
|
54
|
%
|
||||||||||
Gross
Profit
|
1,039,904
|
44
|
%
|
884,984
|
46
|
%
|
||||||||||
Operating
Expenses
|
302,220
|
13
|
%
|
223,048
|
11
|
%
|
||||||||||
Income
from Operations
|
737,684
|
31
|
%
|
661,936
|
35
|
%
|
||||||||||
Other
Income (Expenses), net
|
1,663
|
0
|
%
|
(2,764
|
)
|
0
|
%
|
|||||||||
Income
tax expense
|
158,177
|
6
|
%
|
131,834
|
7
|
%
|
||||||||||
Net
Income
|
581,170
|
25
|
%
|
527,338
|
28
|
%
|
NET
REVENUE
Net
revenue for the six months ended June 30, 2010 was $2,362,028, as compared to
net revenue of $1,913,073 for the comparative period of 2009, an increase of
$448,955, or approximately 23%. This growth in revenue was attributed primarily
to the overall recovery of the Chinese economy, as well as the recovery of the
auto industry through the PRC’s effective economic stimulus programs. In
addition, Shenzhen ORB strengthened its sales force. Our main product is sealant
for which sales increased $401,000, or 23%, as compared to the same period of
2009. This increase was primarily due to the increased demand of approximately
21% from customers in the auto industry, which caused sales to increase
$262,000; and an increase in the average sales price of sealant of about 0.6%,
which caused sales to increase $139,000. For the primer product line, sales
increased $47,000 due to the increased demand for our products. The Company
currently anticipates continued growth as a result of the recovery of the auto
industry and other relevant industries.
COST
OF GOODS SOLD
Cost
of goods sold includes material costs, labor costs, and related overhead, which
are directly attributable to the manufacture and distribution of our products.
For the six months ended June 30, 2010, cost of goods sold amounted to $1.3
million, or approximately 56% of net sales, an increase of $294,035, or
approximately 29% of net sales, as compared to the same period of
2009. The increase in the total cost of goods sold was directly
related to the growth in production and sales in 2010. Cost of goods
sold as a percentage of sales was approximately 56% for the six months ended
June 30, 2010 and 54% for the same period of 2009. The slight
increase in the cost of goods sold as a percentage of sales in 2010 was due to
an increase in the purchase price for raw materials of primer, which caused our
cost of goods sold to increase by $68,000, and an increase in sales volume of
sealant and primer, which caused our cost of goods sold to increase by $223,000
We believe that our cost of goods sold will remain relatively stable as we
continue to improve our operating efficiencies.
GROSS
PROFIT
Gross
profit for the six months ended June 30, 2010 was $1.04 million, an increase of
$154,920, or approximately 18%, as compared to the same period of 2009. Our
gross profit margin was 44% for the six months ended June 30, 2010 and 46% for
the comparative period of 2009. The increase in our gross profits was mainly due
to the increase in our revenues period to period, while the slight decrease in
our gross profit margin was primarily due to the increase in production
costs.
OPERATING
EXPENSES
Operating
expenses consisted of selling, general and administrative expenses, and research
and development expenses, totaling $302,220 for the six months ended June 30,
2010, compared to $223,048 for the comparative period of 2009, an increase of
$79,172, or 35%. The increase in operating expenses was primarily due to
increased selling expenses as a result of increased sales and production
activities, increased rental and administrative expense related to a recent
expansion of our headquarters’ office, and our ongoing investment in new product
research and development.
33
NET
INCOME
For the
six months ended June 30, 2010, net income was $581,170 as compared to $527,338
for the same period of 2009, an increase of $53,832, or approximately 10%. This
increase in net income was attributable to economies of scale combined with
growth in revenue and efficiency of operations. Our management believes that net
income will continue to increase as we continue to increase our sales, offer
better quality products and control our manufacturing costs.
Year
Ended December 31, 2009 compared to the Year Ended December 31,
2008
The
following table presents the consolidated results of operations of the Company
for the year ended December 31, 2009 as compared to the results of operations
for the year ended December 31, 2008.
For the year ended
December 31, 2009
|
For the year ended
December 31, 2008
|
|||||||||||||||
|
$
|
% of
Sales
|
$
|
% of Sales
|
||||||||||||
Net
Revenue
|
4,306,946
|
2,686,576
|
||||||||||||||
Cost
of Goods Sold
|
2,287,228
|
53
|
%
|
1,507,773
|
56
|
%
|
||||||||||
Gross
Profit
|
2,019,718
|
47
|
%
|
1,178,803
|
44
|
%
|
||||||||||
Operating
Expenses
|
507,845
|
12
|
%
|
445,318
|
17
|
%
|
||||||||||
Income
from Operations
|
1,511,873
|
35
|
%
|
733,485
|
27
|
%
|
||||||||||
Other
Income (Expenses), net
|
(1,123
|
)
|
0
|
%
|
(3,896
|
)
|
0
|
%
|
||||||||
Income
tax expense
|
306,626
|
7
|
%
|
135,991
|
5
|
%
|
||||||||||
Net
Income
|
1,204,124
|
28
|
%
|
593,598
|
22
|
%
|
NET
REVENUE
Net
revenue for the year ended December 31, 2009 was $4.31 million, as compared to
net revenue of $2.69 million for the comparative period of 2008, an increase of
$1.62 million, or approximately 60%. This growth in revenue was attributed
primarily to the recovery of the overall Chinese economy, as well as the Chinese
auto industry, as a result of the PRC government’s economic stimulation
programs. In addition, the Company strengthened its sales force. Our main
product is sealant, which experienced an increase in sales of approximately 58%,
or $1.46 million, as compared to the prior year. Sales of primer and cleaner
also increased 65% or $136,000, despite a decrease in the average selling price
of sealant products of 0.9%, compared to the same period of 2008, resulting in a
$21,900 decrease in sales. The increase in sales was primarily due to increased
demand from customers in the auto industry. The Company expects to experience
continued sales growth as a result of the recovery of the auto industry and
other relevant industries.
34
COST
OF GOODS SOLD
Cost
of goods sold includes material costs, labor costs, and related overhead, which
are directly attributable to the manufacture and distribution of our products.
For the year ended December 31, 2009, cost of revenues amounted to $2.29, or
approximately 53% of net sales, an increase of $779,455, or approximately 52% of
net sales as compared to the year ended 2008. The increase in the
total cost of goods sold was due to increases in production and sales as a
result of increased customer demand for our products. Cost of goods sold as a
percentage of sales was approximately 53% for the year ended December 31, 2000
and 56% for the same period of 2008. The decrease in the cost of
goods sold as a percentage of sales was attributable to effective cost
control for the purchase of raw materials and reductions in overhead costs by
our management. The average purchase price of raw material for our
major product sealant decreased 4.2% in year 2009 compared to 2008, which caused
a $78,000 decrease in the cost of goods sold. However, this decrease was offset
by an increase in volume of sales of sealant, causing an increase in the cost of
goods sold of $827,000. The purchase price of raw material for primer decreased
55% in year 2009, causing a $127,000 decrease in cost of goods sold, offset by
an increase of $120,000 to the cost of goods sold as a result of increased sales
volume. In addition, we entered into long term purchase contracts with a number
of our suppliers in an effort to ensure a steady supply of raw materials at
reasonable prices. We believe that our cost of goods sold will remain
relatively stable as we continue to improve our operating
efficiencies.
GROSS
PROFIT
Gross
profit for the year ended December 31, 2009 was $2.02 million, an increase of
$840,915, or approximately 71%, as compared to the year ended 2008. Our gross
profit margin was 47% for the year 2009, and 44% for the comparative period of
2008. The increase in our gross profits was mainly due to the increase in our
revenues period to period and the increase in our gross profit margin was
primarily related to the decrease in the cost of goods sold.
OPERATING
EXPENSES
Operating
expenses consisted of selling, general and administrative expenses, and research
and development expenses, totaling $507,845 for the year ended December 31,
2009, compared to $445,318 for the comparative period of 2008, an increase of
$62,527, or 14%. The increase in operating expenses was primarily due to our
continued expansion of our sales network in both the domestic and international
markets, which result in increased employee salary expenses, marketing expenses
and delivery costs.
NET
INCOME
For the
year ended December 31, 2009, net income was $1.20 million as compared to
$593,598 for the year ended 2008, an increase of $610,526, or approximately
103%. This increase in net income was attributable to economies of scale
combined with growth in revenue and the increased efficiency of our operations.
Our management believes that net income will continue to increase as we continue
to increase our sales, offer better quality products and control our
manufacturing costs.
LIQUIDITY
AND CAPITAL RESOURCES
As of
June 30, 2010, the Company had cash and cash equivalents of $215,746, other
current assets of $3.34 million, and current liabilities of $781,869. Working
capital was $2.77 million at June 30, 2010. The ratio of current assets to
current liabilities was 4.55-to-1 as of June 30, 2010.
The
following is a summary of cash provided by or used in each of the indicated
types of activities during the six months ended June 30, 2010 and 2009,
respectively:
2010
|
2009
|
|||||||
Cash
provided by (used in):
|
||||||||
Operating
Activities
|
$
|
(64,519
|
)
|
$
|
344,987
|
|||
Investing
Activities
|
(953
|
)
|
-
|
|||||
Financing
Activities
|
(19,718
|
)
|
(145,656
|
)
|
35
Net
cash flow used by operating activities was $64,519 in the six months ended June
30, 2010, as compared to net cash flow provided by operating activities of
$344,987 in the same period of 2009. The increase in net cash flow used by
operating activities during the six months ended June 30, 2010 was mainly due to
increases in accounts receivable resulted from increased sales, increased
payment for accounts payable due to increased purchase as a result of increased
production, and increase in prepayments made for raw materials at current lower
price due to an expected price increase of primer, but the increased cash
outflow was partially offset by decreased inventory on hand resulting from our
efficient inventory control and production arrangement.
Net cash
flow used by investing activities was $953 in the six months ended June 30,
2010. The cash used in investing activities was for the purchase of fixed
assets.
Net cash
flow used in financing activities was $19,718 in the six months ended June 30,
2010 as compared to net cash used in financing activities of $145,656 in the
same period of 2009. The cash flow used in financing activities was primarily
due to an advance for taxes due by Mr. Ma’s spouse in connection with a transfer
of Shenzhen ORB’s stock. At June 30, 2010, the amount due to the
related party is $19,718. The advance was subsequently paid in full on August
27, 2010.
We
believe we have sufficient cash to continue our current business through June
30, 2011 due to expected increased sales revenue and net income from operations.
We intend to continue the expansion of our current operations by continuing
acquisition of other adhesive sealant manufacturers. We expect to finance such
expansion through bank loans, the issuance of debt or equity securities, or a
combination thereof. Failure to obtain such financing could have a material
adverse effect on our business expansion.
As of
December 31, 2009, the Company had cash and equivalents of $299,719, other
current assets of $2,468,612, and current liabilities of $616,239. Working
capital was $2,152,092 at December 31, 2009. The ratio of current assets to
current liabilities was 4.49-to-1 as of December 31, 2009.
The
following is a summary of cash provided by or used in each of the indicated
types of activities during the years ended December 31, 2009 and 2008,
respectively:
2009
|
2008
|
|||||||
Cash
provided by (used in):
|
||||||||
Operating
Activities
|
$
|
473,007
|
$
|
124,527
|
||||
Investing
Activities
|
7,621
|
-
|
||||||
Financing
Activities
|
(224,671
|
)
|
(217,416
|
)
|
Net
cash flow provided by operating activities was $473,007 in 2009, as compared to
net cash flow provided by operating activities of $124,527 in 2008. The increase
in net cash flow provided by operating activities during 2009 was mainly due to
the significant increase in net income and quick collection of other
receivables. The increased cash provided by operating activities was
partially offset by the increased accounts receivable due to the rapid growth on
sales.
Net cash
flow provided by investing activities was $7,621 in 2009. The cash used in
investing activities was for purchase of fixed assets.
Net cash
flow used in financing activities was $224,671 in 2009 as compared to net cash
used in financing activities of $217,416 in 2008. The cash flow used in
financing activities is primarily due to repayment to related parties for short
term loan. At December 31, 2009, the amount due to related party was
$0.
Our
standard payment term is 60 days. Despite some of our customers delay their
payment for almost 30 days which are allowed and normal practice as most of our
customers are prestige customers and have good credit history with the
Company.
36
For
the six months ended June 30, 2010, we had accounts receivable turnover of 3.91
on an estimated annualized basis, with days sales outstanding of 93 and
inventory turnover of 5.70 on an estimated annualized basis. For the six months
ended June 30, 2009, we had accounts receivable turnover of 4.44 on an estimated
annualized basis, with days sales outstanding of 82 and inventory turnover of
5.37 on an estimated annualized basis. The slightly lower accounts receivable
turnover and high days outstanding is due to the increased accounts receivables
balance at June 30, 2010 resulting from increased sales for the six months ended
June 30, 2010 and expected continuous increase in sales for the next half year
of 2010. The higher inventory turnover for 2010 compared to 2009 was due to our
effort on inventory control for keeping the lower inventory in
stock.
For
the year ended December 31, 2009, we had accounts receivable turnover of 4.42,
with days sales outstanding of 83 and inventory turnover of 5.48. For the year
ended December 31, 2008, we had accounts receivable turnover of 3.32, with days
sales outstanding of 110 and inventory turnover of 8.49. The higher
accounts receivable turnover for 2009 is due to increased sales with improved
collection on accounts receivables. The lower inventory turnover for 2009
compared to 2008 was due to increased inventory in stock.
We
believe we have sufficient cash to continue our current business through June
30, 2011 due to expected increased sales revenue and net income from operations.
We intend to continue the expansion of our current operations through organic
growth and strategic acquisitions. We expect to finance such expansion through
bank loans, the issuance of debt or equity securities, or a combination thereof.
Failure to obtain such financing could have a material adverse effect on our
business expansion.
OFF-BALANCE
SHEET ARRANGEMENTS
There are
no off-balance sheet arrangements between us and any other entity that have, or
are reasonably likely to have, a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to shareholders.
We have
not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
shareholder’s equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in
any unconsolidated entity that provides financing, liquidity, market risk or
credit support to us or engages in leasing, hedging or research and development
services with us.
37
DESCRIPTION
OF SECURITIES
We
currently have 39,062,500 ordinary shares, $0.000128 par value, and 781,250
preference shares, $0.000128 par value, authorized for issuance. Immediately
prior to the transaction, 4,522,197 ordinary shares and no preference shares
were issued and outstanding. In connection with the closing of the share
exchange, 10,129,725 ordinary shares and 98,885.37 preference shares were issued
to former GPC shareholders. As a result, as of the date hereof we have
14,651,922 ordinary shares and 98,885.37 preference shares issued and
outstanding. We currently anticipate seeking shareholder approval of an increase
in our authorized ordinary shares from 39,062,500 shares to 100 million shares.
Upon consummation of this proposed increase the 98,885.37 preference shares
currently outstanding shall be automatically converted into 9,888,537 ordinary
shares and we shall have 24,540,459 ordinary shares and no preference shares
issued and outstanding.
Ordinary Shares .
As of the date hereof, 14,651,922 ordinary shares are issued and outstanding and
an additional 9,888,537 are issuable upon conversion of 98,885.37 issued
outstanding preference shares. Subject to preferences that may apply to shares
of preference stock outstanding at any given time, the holders of outstanding
ordinary shares are entitled to receive dividends out of assets legally
available therefore at times and in amounts as our board of directors may
determine. Each shareholder is entitled to one vote for each ordinary share held
on all matters submitted to a vote of the shareholders. Cumulative voting is not
provided for in our Memorandum and Articles of Association, as currently in
effect, which means that the majority of the shares voted can elect all of the
directors then standing for election. Ordinary shares are 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 ordinary
shares 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 ordinary
shares.
Preference Shares .
As of the date hereof, 98,885.37 preference shares are issued and outstanding.
Each share of these preference shares have identical rights as ordinary shares
except that each preference share is convertible to 100 ordinary shares. With
respect to the remaining 682,364.63 unissued preference shares, the board of
directors is empowered to designate and issue from time to time one or more
classes or series of preference shares 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 our existing shareholders or could have the effect
of discouraging or making difficult any attempt by a person or group to obtain
control of the Company.
MARKET
FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Since
inception none of our securities have been quoted or listed for trading on the
Over-The-Counter Bulletin Board maintained by the National Association of
Securities Dealers, Inc. (“OTC Bulletin Board”) or on any stock exchange. We
expect to apply for quotation on the OTC Bulletin Board and anticipate that our
ordinary shares will be quoted thereon, but there is currently no liquid trading
market for our securities. Currently, we have 98,885.37 preference
shares outstanding that are convertible into 9,888,537 ordinary shares upon
completion of a one-for-three share consolidation. There are no other
outstanding securities, options or warrants that are convertible into shares of
our ordinary stock. Additionally, as of the date hereof, none of our
outstanding securities are eligible for resale pursuant to Rule 144 under the
Securities Act and we are under no contractual obligation, nor have we agreed,
to file a resale registration statement under the Securities Act with respect to
any of our outstanding securities.
Holders
As of the
date of September 17, 2010, we had 14,651,922 ordinary shares outstanding held
by 461 shareholders and 98, 885.37 preference shares outstanding held by one
shareholder.
38
Dividend
Policy
There are
no restrictions in our Memorandum and Articles of Association that prevent us
from declaring dividends. However, since inception we have not paid any cash
dividends nor do we currently anticipate paying any cash dividends on our
securities in the foreseeable future. Although we intend to retain our earnings,
if any, to finance the development and growth of our business, our board of
directors will have the discretion to declare and pay cash 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.
Substantially
all of our revenues are generated by Shenzhen ORB, the Company’s PRC subsidiary.
PRC regulations restrict the ability of Shenzhen ORB to make dividends and other
payments to its offshore parent company. PRC law permits payments of dividends
by Shenzhen ORB only out of its accumulated after-tax profits, if any,
determined in accordance with PRC accounting standards and regulations. Shenzhen
ORB is also required under PRC laws and regulations to allocate at least 10% of
its annual after-tax profits determined in accordance with PRC law to a
statutory general reserve fund until the amounts in the fund reaches 50% of our
registered capital. Allocations to these statutory reserve funds can only be
used for specific purposes and are not transferable to us in the form of loans,
advances, or cash dividends. Any limitations on the ability of Shenzhen ORB to
transfer funds to the Company could materially and adversely limit our ability
to grow, make investments or acquisitions that could be beneficial to our
business, pay dividends, and otherwise fund and conduct our
business.
Equity
Compensation Plan Information
As of the
date hereof, we do not have any compensation plans under which its equity
securities are authorized for issuance.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On
September 27, 2006, we issued an aggregate of 859,375 ordinary shares to the
entities set forth below for $110 in cash, at a purchase price of $0.000128 per
share. The relationship between these shareholders and embers of the management
and board of directors of the Company are as follows:
Name and Address of Shareholder
|
|
Number of
Ordinary Shares Held
|
|
Relationship to Us
|
Nautilus
Global Partners, LLC
700
Gemini, Suite 100
Houston,
TX 77058
|
781,250
|
Joseph
Rozelle, President of Nautilus Global Partners, LLC, served as our
President until consummation of the share exchange. He
currently remains a director of the Company.
|
||
Mid-Ocean
Consulting Limited
Bayside
House
Bayside
Executive Park
West
Bay Street & Blake Road
Nassau,
Bahamas
|
78,125
|
David
Richardson, President and CEO of Mid-Ocean Consulting Limited, served as
one of our directors until August 31,
2010.
|
39
On
July 13, 2010, Shenzhen ORB entered into an agreement with Maxim Group, LLC
(“Maxim), a FINRA registered broker dealer, to provide general financial
advisory and investment banking services to Shenzhen ORB and its affiliates and
subsidiaries, including assisting Shenzhen ORB in identifying a shell company
for a reverse merger acquisition and consummating such agreement. Under the
Agreement, Maxim was entitled to receive a non-refundable monthly fee of $3,500
prior to the consummation of a transaction with a shell company and is entitled
to receive a monthly fee of $7,500 for a period of no less than 6
months. In addition, if at any time during the term of the agreement
or within twelve (12) months from the effective date of the termination of the
agreement, the Company proposes to effect a public offering of its securities on
a US exchange, private placement of securities or other financing, the Company
shall offer to retain Maxim as lead book running manager of such offering, or as
its exclusive agent in connection with such financing or other matter, upon such
terms as the parties may mutually agree. The agreement
contains standard representations and warranties and indemnification provisions
for an agreement of this type.,
Effective
as of August 31, 2010, we issued 3,523,922 ordinary shares to Skyline for an
aggregate purchase price of $25,000. Skyline is affiliated with, and under
common control of, Maxim. In connection with the consummation of this
transaction Mr. Brenza, Managing Director of each of Maxim and Skyline, was
appointed Chief Executive Officer of Action.
On
September 1, 2010, Nautilus Global Partners, LLC entered into a Consulting
Agreement with Action. Under the terms of the agreement, Action paid $25,000 for
services provided in connection with the share exchange. The
Consuting Agreement is terminable at will and contains standard confidentiality
and indemnification provisions.
On
January 15, 2010, Mr. Ma entered into an exclusive Patent License Agreement with
Shenzhen ORB regarding Patent No. ZL98119666.7. Under the terms of the
agreement, Shenzhen ORB was granted an exclusive license to use the patent
granted to Mr. Ma for its polyurethane adhesive sealant technology. Shenzhen ORB
is not required to pay licensing fees, but is required to pay all taxes due on
the license and reimburse Mr. Ma for any costs he incurs in maintaining the
patent, currently estimated to be 6,000RMB (approximately $900) per year. The
patent is currently due to expire on November 21, 2021.
Our board
of directors does not currently have any policies or procedures that it follows
in connection with transactions it undertakes with related parties but intends
to adopt such policies and procedures as are necessary and appropriate for a US
publicly-traded entity quoted on the OTC Bulletin Board or listed on a national
securities exchange.
Transactions
with Related Persons, , Promoters and Certain Control Persons
We are
not currently a party to any transactions required to be disclosed pursuant to
Item 404 of Regulation S-K, including any transaction or series of transactions
between us and any officer, director or affiliates of the Company that has an
aggregate value in excess of $120,000. However, in 2007, Mr. Ma made
certain purchases and payments on fixed assets on behalf of Shenzhen ORB in the
amount of $224,553. This amount was repaid in full in
2009.
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.
40
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Prior to
the consummation of the Share Exchange Agreement, our board of directors
consisted of two members, Messrs. David Richardson and Joseph Rozelle, who were
elected to serve until their successors are duly elected and qualified. In
connection with the acquisition by Skyline of approximately 3.5 million ordinary
shares on August 31, 2010, and the consummation of the transactions contemplated
by the Share Exchange Agreement, Mr. Richardson resigned from the board of
directors effective August 31, 2010, and Mr. Rozelle submitted his resignation,
such resignation to be automatically effective as of the 10th day
following the date we mail an information statement to our shareholders that
complies with Rule 14f-1 promulgated under the Exchange Act. Mr. Rozelle also
served as our President and Chief Financial Officer from inception until August
31, 2010 when he resigned from those positions. Mr. Karl Brenza was appointed
Chief Executive Officer of the Company effective as of August 31, 2010 and, in
connection with the consummation of the transactions contemplated by the Share
Exchange Agreement, tendered his resignation effective as of September 10,
2010.
In
connection with the closing of the Share Exchange Agreement, Mr. Ma has been
appointed to serve as our Chairman, President and a Director of the Company, and
Mr. Guangning Xu has been appointed Vice Chief Financial Officer and Secretary
of the Company, in each case effective immediately. Additionally, Mr. Morgan
Simpson has been appointed to serve as an Independent Director, effective as of
the 10 th day
following the date we mail an information statement to our shareholders that
complies with Rule 14f-1 promulgated under the Exchange Act.
Directors
and Executive Officers
The names
of our current executive officers and directors, as well as certain information
about them, are set forth below
NAME
|
AGE
|
POSITION
WITH ACTION
|
||
Marco
Ma
|
44
|
Chairman,
Chief Executive Officer, President and Director
|
||
Guangning
Xu
|
35
|
Vice
Chief Financial Officer and Secretary
|
||
Joseph
Rozelle *
|
36
|
Director
|
||
Morgan
Simpson *
*
|
59
|
Independent
Director
|
|
*
|
Mr.
Rozelle has previously submitted his resignation as a director, such
resignation to be effective as of the 10th
day following the date we mail an information statement to our
shareholders that complies with Rule 14f-1 promulgated under the Exchange
Act
|
**
|
Mr.
Simpson’s appointment to the board of directors will be effective as of
the 10th
day following the date we mail an information statement to our
shareholders that complies with Rule 14f-1 promulgated under the Exchange
Act
|
Mr. Ma founded Shenzhen ORB in
2005, and since then, has acted as its Chief Executive Officer. In 1997, Mr. Ma
founded Changchun ORB Fine Chemistry Co., Ltd., where he directed the
development and promoted the application of polyurethane adhesive sealant for
car windshields. Prior to 1997, Mr. Ma was involved in hotel management and held
various executive leadership positions with several hotels. Mr. Ma holds a
master’s of management and bachelor of economics degree from Sun Yat-Sen
University.
Mr. Ma’s
qualifications to serve on our Board of Directors include his operating and
leadership experience as founder and chief executive officer of our operating
subsidiary. In that capacity he has gained significant insight into
the auto parts industry in China, has successfully negotiated business
transactions with auto industry leaders and has significantly grown our
business. He has extensive knowledge of the political landscape in
China and significant expertise in business development and mergers and
acquisitions that are beneficial to our Board of Directors as we continue to
develop and expand.
Mr. Xu has been the Chief
Financial Officer of Shenzhen ORB since 2009. From 2004 to 2008, he served as
the Senior Manager of the Auditing Department of Guangdong Da-hua De-lu
Accounting Firm. Mr. Xu is a certified public accountant in China and received
his bachelor of arts in accounting from the Hunan College of Finance and
Economics.
41
Mr. Rozelle has been one of
our directors since inception and he served as our President and Chief Financial
Officer from September 2006 until August 31, 2010. Mr. Rozelle is
currently the President of Nautilus Global Partners. Prior to joining
Nautilus in 2006, Mr. Rozelle was a consultant with Accretive Solutions,
providing Sarbanes-Oxley compliance consulting and other accounting related
consulting services. Mr. Rozelle holds a Bachelors of Business
Administration degree from the University of Houston and a Masters of Business
Administration degree from the Jesse H. Jones School of Management at Rice
University. Mr. Rozelle is also the sole director and sole executive officer of
VPGI, Inc., a public corporation.
Mr. Simpson is the founder and
Chief Executive Officer of Radnor Research & Trading Company, LLC, an
institutional broker/dealer, since 2003. He graduated with honors from the Cox
School of Business at Southern Methodist University and immediately began his
career on the trading desk of W. H. Newbolds. In 1977 he became a member of the
Philadelphia Stock Exchange as an options specialist and trader and currently is
a member of the New York Stock Exchange and other principal exchanges. He has
served as a member of the Philadelphia Board of Trade, held a Foreign Currency
Participation and was appointed a vice president overseeing foreign currency
options. His registrations include the Series 4, 7, 9, 10, 12, 24, 55, 63, 65
& single stock futures.
Mr. Simpson’s
qualifications to serve on our Board of Directors include his operating and
management experience as chief executive officer of Radnor Research &
Trading, an institutional broker/dealer with extensive experience
assessing public companies, including those located and operating in
China. Further, Mr. Simpson’s 30+ years of experience as an analyst,
researcher, trader and executive bring to our Board of Directors valuable
insight as we grow and develop as a public company. He also provides
financial expertise to the Board, including an understanding of financial
statements, corporate finance, accounting and capital markets.
Family
Relationships
There are
no family relationships among our directors or officers.
Involvement
in Certain Legal Proceedings
To the
best of our knowledge, none of our directors or executive officers has 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 ten 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
“Transactions with Related Persons,” 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.
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Exchange Act requires directors, executive officers and persons who
are the beneficial owners of more than 10% of any class of equity securities
that are registered pursuant to Section 12 of the Exchange Act, to file with the
SEC initial reports of ownership and reports of changes in ownership of those
equity securities. The reporting persons are required by SEC regulations to
furnish us with copies of all Section 16(a) reports they file.
42
Based
solely upon a review of the Forms 3, 4 and 5 (and amendments thereto) furnished
to us for the fiscal year ended June 30, 2010, we have determined that Messrs.
Rozelle and Richardson, our former officers and directors, were delinquent in
filings Section 16 reports required to be filed by them during the year and have
never filed any Section 16 reports with the SEC. The Company believes that its
current officers, directors and 10% shareholders will seek to comply timely with
all reporting requirements under Section 16(a) of the Exchange Act.
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Cayman
Islands law does not limit the extent to which a company’s articles of
association may provide for indemnification of officers and directors, except to
the extent any such provision may be held by the Cayman Islands courts to be
contrary to public policy, such as to provide indemnification against civil
fraud or the consequences of committing a crime. Our articles of association
provide for indemnification of our officers and directors for any liability
incurred in their capacities as such, except through their own willful
negligence or default. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, we have been informed that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is theretofore unenforceable.
CORPORATE
GOVERNANCE
Director
Independence
We
currently do not have any independent directors. However, our board has
determined that, upon his joining the board as herein contemplated, Mr. Simpson
shall be deemed an independent director within the meaning of applicable Nasdaq
Listing Rules and the rules promulgated by the SEC.
Board
Meetings and Annual Meeting
During
2009 fiscal year, our board of directors did not meet. We did not hold an annual
meeting in 2009.
Board
Committees
We
presently do not have an audit committee, compensation committee or nominating
committee or committees performing similar functions, as our management believes
that until this point it has been premature at the early stage of our management
and business development to form an audit, compensation or nominating committee.
However, our new management plans to form an audit, compensation and nominating
committee in the near future. The audit committee will be primarily responsible
for reviewing the services performed by our independent auditors and evaluating
our accounting policies and system of internal controls. We intend that the
audit committee will be comprised solely of independent directors and will have
an audit committee financial expert as required by the rules and regulations of
the SEC. We currently believe that Mr. Simpson is qualified to serve
as the audit committee’s financial expert for purposes of the SEC's
rules.
The
compensation committee will be primarily responsible for reviewing and approving
our salary and benefits policies (including stock options) and other
compensation of our executive officers. The nominating committee will be
primarily responsible for nominating directors and setting policies and
procedures for the nomination of directors. The nominating committee will also
be responsible for overseeing the creation and implementation of our corporate
governance policies and procedures. Until these committees are established,
these decisions will continue to be made by our board of directors. Although our
board of directors has not yet established any minimum qualifications for
director candidates, when considering potential director candidates, our board
of directors considers the candidate’s character, judgment, skills and
experience in the context of the needs of our Company and our board of
directors.
43
We do not
have a charter governing the nominating process. The members of our board of
directors, who perform the functions of a nominating committee, are not
independent because they are also our officers. There has not been any defined
policy or procedure requirements for shareholders to submit recommendations or
nominations for directors. Our board of directors does not believe that a
defined policy with regard to the consideration of candidates recommended by
shareholders is necessary at this time because, given the early stages of our
development, a specific nominating policy would be premature and of little
assistance until our business operations are at a more advanced
level.
Board
Leadership Structure
Our board
of directors recognizes that the leadership structure and combination or
separation of the Chief Executive Officer and Chairman roles is driven by the
needs of the Company at any point in time. As a result, no policy exists
requiring combination or separation of leadership roles and our governing
documents do not mandate a particular structure. This has allowed our board of
directors the flexibility to establish the most appropriate structure for the
Company at any given time.
Currently,
Mr. Ma is serving as the Chairman of our board of directors, Chief Executive
Officer, and President. Mr. Ma’s role is to oversee and manage the board of
directors and its functions, including setting meeting agendas and running board
meetings. In this regard, Mr. Ma and the board of directors in their advisory
and oversight roles are particularly focused on assisting senior management in
seeking and adopting successful business strategies and risk management
policies, and in making successful choices in management
succession.
Risk
Oversight
Each
of our directors has a responsibility to monitor and manage risks faced by the
Company. At a minimum, this requires the members of the board of
directors to be actively engaged in board discussions, review materials provided
to them, including financial statements provided to them on monthly and
quarterly basis, and know when it is appropriate to request further information
from management and/or engage the assistance of outside
advisors. Because risk oversight is a responsibility for each member
of the board of directors, the board’s responsibility for risk oversight is not
and will not be concentrated into a single
committee.
Currently,
the board of directors meets formally, as needed to discuss risks and monitor
specific areas of the Company’s performance. In addition, we strive
to provide a board infrastructure that encourages directors to ask specific
questions or raise concerns by allotting them sufficient time to do so at each
meeting and providing them with sufficient amounts of time to review materials
in advance of a meeting.
Going
forward, we anticipate that oversight will be delegated, to a large degree, to
the various board committees that we will establish with independent directors
serving as committee chairmen. Committees will then meet formally, as needed, to
discuss risks and monitor specific areas of the Company’s performance and report
their findings to the full board of directors.
Shareholder
Communications
Our
board of directors does not currently provide a process for shareholders to send
communications to our board of directors because our management believes that
until this point it has been premature to develop such processes given the
limited liquidity of our Common Stock. However, our new management will
establish a process for shareholder communications in the near
future.
44
EXECUTIVE
COMPENSATION
Background
Our named
officers are Mr. Ma, our Chief Executive Officer and President and Mr. Xu, our
Vice Chief Financial Officer. We have no employees whose compensation exceeded
$100,000.
As the
membership of our board of directors increases, our board of directors intends
to form a compensation committee charged with the oversight of our executive
compensation plans, policies and programs and the authority to determine and
approve the compensation of our chief executive officer and make recommendations
with respect to the compensation of our other executive officers.
Summary
Compensation Table —Years Ended December 31, 2009 and 2008 (1)
The
following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the named persons for services
rendered in all capacities during the noted periods. No other executive officer
received total annual salary and bonus compensation in excess of
$100,000.
Name and Position
|
Year
|
Salary
($)(2)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
All Other
Compensation
($)(3)
|
Total ($)
|
|||||||||||||||||||
Marco
Ma
|
2009
|
$
|
5,733
|
0
|
0
|
0
|
$
|
192
|
$
|
5,925
|
||||||||||||||||
Chairman,
President and
|
2008
|
$
|
5,799
|
0
|
0
|
0
|
0
|
$
|
5,799
|
|||||||||||||||||
Chief
Executive Officer
|
||||||||||||||||||||||||||
Guangning
Xu (4)
|
2009
|
$
|
1,025
|
0
|
0
|
0
|
$
|
73
|
$
|
1,098
|
||||||||||||||||
Vice
Chief Financial Officer
|
||||||||||||||||||||||||||
and
Secretary
|
||||||||||||||||||||||||||
Joseph
Rozelle (5)
|
2009
|
$
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||||||||||
Former
President, Chief
|
2008
|
$
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||||||||||
Financial
Officer and Secretary
|
||||||||||||||||||||||||||
Karl
Brenza (6)
|
2009
|
$
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||||||||||
President
and Chief
|
2008
|
$
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||||||||||
Executive
Officer
|
(1)
|
On
September 10, 2010, we acquired GPC in a reverse acquisition transaction
that was structured as a share exchange and in connection with that
transaction, Mr. Ma became our Chief Executive Officer and President and
Mr. Xu became our Chief Financial Officer. Prior to the effective date of
the reverse acquisition, Messrs. Ma and Xu held the same positions with
our operating subsidiary, Shenzhen ORB. The annual compensation shown in
this table includes the amounts Messrs. Ma and Xu received from Shenzhen
ORB prior to the consummation of the reverse
acquisition.
|
(2)
|
Messrs.
Ma and Xu are compensated in RMB. The amounts set forth in the table
above are calculated using an exchange rate of $1.00 = RMB6.8282 published
by the Bank of China on December 31,
2009.
|
(3)
|
The
reported amounts are company housing reimbursement received by Messrs. Ma
and Xu. Shenzhen ORB subsidizes a portion of the rent paid by
Messrs. Ma and Xu for their respective residences in
Shenzhen.
|
(4)
|
Mr.
Xu joined Shenzhen ORB on October 28, 2009. Shenzhen ORB has
entered into an employment agreement with Mr. Xu, pursuant to which he is
entitled to annual compensation of RMB42,000 (approximately $6,151), which
is payable monthly for the term of the agreement. The agreement
shall expire on December 31, 2010, unless extended by agreement of the
parties.
|
45
(5)
|
Mr.
Rozelle resigned from the offices of President and Chief Financial Officer
effective as of August 31, 2010 and from the office of Secretary effective
as of September 10, 2010. He received no compensation from the
Company in connection with his
resignation.
|
(6)
|
Mr.
Brenza was appointed our President and Chief Executive Officer effective
as of August 31, 2010 and resigned from both of those positions effective
as of September 10, 2010. He received no compensation from the
Company in connection with his
service.
|
Grants
of Plan-Based Awards
No
plan-based awards were granted to any of our named executive officers during the
year ended December 31, 2009.
Outstanding
Equity Awards at Fiscal Year End
No
unexercised options or warrants were held by any of our named executive officers
at December 31, 2009. No equity awards were made during the year ended December
31, 2009.
Option
Exercises and Stock Vested
No
options to purchase our capital stock were exercised by any of our named
executive officers, nor was any restricted stock held by such executive officers
vested during the year ended December 31, 2009.
Pension
Benefits
No
named executive officers received or held pension benefits during the year ended
December 31, 2009.
Nonqualified
Deferred Compensation
No
nonqualified deferred compensation was offered or issued to any named executive
officer during the year ended December 31, 2009.
Potential
Payments Upon Termination or Change in Control
Pursuant
to the terms of his employment agreement with Shenzhen ORB, upon the occurrence
of a termination event, Mr. Xu is entitled to receive severance payments from
Shenzhen ORB. In accordance with PRC governmental regulation, this
severance payment is generally the payment of one-month’s salary in a lump sum
on the termination date.
Compensation
of Directors
No
member of our board of directors received any compensation for his services as a
director during the year ended December 31, 2009.
Compensation
Committee Interlocks and Insider Participation
During
the year ended December 31, 2009 we did not have a standing compensation
committee. Our board of directors was responsible for the functions that would
otherwise be handled by the compensation committee. All directors participated
in deliberations concerning executive officer compensation, including directors
who were also executive officers, however, none of our executive officers
received any compensation during the last fiscal year. None of our executive
officers has served on the board of directors or compensation committee (or
other committee serving an equivalent function) of any other entity, any of
whose executive officers served on our board or Compensation
Committee.
46
ITEM 3.02
|
UNREGISTERED
SALES OF EQUITY SECURITIES.
|
On
August 31, 2010, we issued 3,523,923 Ordinary Shares to Skyline for an aggregate
purchase price of $25,000. Skyline is affiliated with, and under common control
of, Maxim. In connection with the consummation of this transaction Mr. Brenza,
Managing Director of each of Maxim and Skyline, was appointed Chief Executive
Officer of Action. Skyline is an accredited investor and the issuance
of the Ordinary Shares to Skyline was in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act and Rule 506
promulgated by the SEC thereunder.
Pursuant
to the transaction, on September 10, 2010, we issued an aggregate of 10,129,725
Ordinary Shares (which will be subject to a proposed 1 for 3 consolidation of
the Company’s ordinary shares) and 98,885.37 preference shares (which are
convertible into 9,888,537 ordinary shares of the Company immediately after the
consummation of certain proposed actions, including the proposed 1 for 3
consolidation of the Company’s ordinary shares) of Action to the GPC
shareholders in exchange for 100% of the outstanding shares of GPC. Such
securities were not registered under the Securities Act. These securities
qualified for exemption under Section 4(2) of the Securities Act and the rules
and regulations promulgated thereunder, including Regulation S. The offering was
not a “public offering” as defined in Section 4(2) due to the insubstantial
number of persons involved in the offering, manner of the offering and number of
securities offered. These shareholders made certain representations and
warranties, including their investment intent and that they were not U.S.
Persons as defined in Rule 902(k) of Regulation S as required by Section 4(2)
and the rules and regulations promulgated thereunder, including Regulation S.
They also agreed to and received share certificates bearing a legend stating
that such securities are restricted pursuant to Rule 144 and Regulation S of the
Securities Act. These restriction ensure that these securities will not be
immediately redistributed into the market and therefore not be part of a “public
offering.” It is Action’s position that the transaction met the requirements to
qualify for exemption under Section 4(2) and the rules and regulations
promulgated thereunder, including Regulation S of the Securities
Act.
ITEM 4.01
|
CHANGESIN
REGISTRANT’S CERTIFYING
ACCOUNTANT
|
On
September 10, 2010, we dismissed PMB Helin Donovan, LLP (“Helin Donovan”) as our
independent accountants, although we requested that Helin Donovan audit the
financial statements for the year ended June 30, 2010 in an effort to maintain
continuity for the period prior to the consummation of the share exchange. Helin
Donovan had previously been engaged as the principal accountant to audit our
financial statements. The reason for the dismissal of Helin Donovan is that,
following the consummation of the share exchange on September 10, 2010, (i) the
former shareholders of GPC own a significant amount of the outstanding shares of
our common stock and (ii) our primary business became the business previously
conducted by GPC. The independent registered public accountant of GPC for US
accounting purposes was the firm of Morison Cogen LLP (“Morison Cogen”). We
believe that it is in our best interest to have Morison Cogen continue to work
with our business, and we therefore retained Morison Cogen as our new principal
independent registered accounting firm, effective as of September 10, 2010.
Morison Cogen is located at 150 Monument Road, Suite 500, Bala Cynwyd, PA 19004.
The decision to change accountants was approved by our board of directors on
September 10, 2010.
The
report of Helin Donovan on our financial statements for the period from
September 27, 2006 (inception) through our fiscal year ended June 30, 2009 did
not contain an adverse opinion or disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope or accounting principles.
From our
inception through September 10, 2010, there were no disagreements with Helin
Donovan on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of Helin Donovan, would have caused it to make reference to the
matter in connection with its reports.
From our
inception through September 10, 2010, we did not consult Morison Cogen regarding
either: (i) the application of accounting principles to a specific completed or
contemplated transaction, or the type of audit opinion that might be rendered on
our financial statements; or (ii) any matter that was the subject of a
disagreement as described in Item 304(a)(1)(iv) of Regulation
S-K.
47
We have
made the contents of this Current Report on Form 8-K available to Helin Donovan
and requested it to furnish us a letter addressed to the SEC as to whether Helin
Donovan agrees or disagrees with, or wishes to clarify our expression of, our
views, or containing any additional information. A copy of Helin Donovan's
letter to the SEC is included as Exhibit 16.1 to this Current Report on Form
8-K.
ITEM 5.01
|
CHANGES IN CONTROL OF
REGISTRANT.
|
In
connection with the exchange transaction, and as explained more fully above in
Item 2.01 under the section titled “Management” and below in Item 5.02 of this
Current Report on Form 8-K, Mr. Brenza resigned as Chief Executive Officer and
President of the Company, and Mr. Ma was appointed Chairman of the board of
directors, Chief Executive Officer and President of Action. Mr. Rozelle
submitted his resignation as a director of Action, which shall be deemed
effective as of the 10 th day
following the date we mail an information statement to our shareholders that
complies with Rule 14f-1 promulgated under the Exchange Act, and Mr. Simpson has
been appointed an independent director of the Company, such appointment to be
effective as of the 10 th day
following the date we mail an information statement to our shareholders that
complies with Rule 14f-1 promulgated under the Exchange Act.
As
explained more fully herein, in connection with the exchange transaction, on
September 10, 2010, Action issued an aggregate of 10,129,725 ordinary shares
(which will be subject to a proposed 1 for 3 consolidation of the Company’s
ordinary shares) and 98,885.37 preference shares (which are convertible into
9,888,537 ordinary shares of the Company immediately after the consummation of
certain proposed actions, including the proposed 1 for 3 consolidation of the
Company’s ordinary shares) of Action to the GPC shareholders in exchange for
100% of the outstanding shares of GPC. Each preference share has identical
rights as our ordinary shares except that each preference share is convertible
into 100 ordinary shares. After giving effect to the conversion rights, the
former GPC shareholders will own approximately 90% of the ordinary shares of the
Company.
The
following table sets forth, as of September 14, 2010, the number of ordinary
shares and preference shares owned of record and beneficially by our current and
former executive officers, directors and persons who hold 5% or more of the
total voting power of our outstanding capital stock. As of September 14, 2010,
we had 14,651,922 ordinary shares and 98,885.37 preference shares issued and
outstanding.
48
Name and Address of Beneficial
Owner
|
Number of
Ordinary
Shares
Beneficially
Owned
(1)
|
%
Total
Voting
Power
(2)(3)
|
||||||
5%
or greater shareholders
|
||||||||
Karl
Brenza (4)
Skyline
Investors, LLC
Maxim
Group LLC
c/o
Maxim Group LLC
405
Lexington Avenue
2
nd
Floor
New
York, NY 10174
|
3,523,922 | 14.36 | % | |||||
Junning
Ma (5)
c/o
Shenzhen ORB-Fortune New-Material Co., Ltd
Room
O-R, Floor 23, Building A, Fortune Plaza
Shennan
Road, Futian District
Shenzhen,
Guangdong, PRC 518040
|
14,365,515 |
(6)
|
58.54 | % | ||||
Apollo
Enterprises International Inc.
c/o
Shenzhen ORB-Fortune New-Material Co., Ltd
Room
O-R, Floor 23, Building A, Fortune Plaza
Shennan
Road, Futian District
Shenzhen,
Guangdong, PRC 518040
|
9,888,537 |
(6)
|
40.29 | % | ||||
Aubo
Automobile Inc.
c/o
Shenzhen ORB-Fortune New-Material Co., Ltd
Room
O-R, Floor 23, Building A, Fortune Plaza
Shennan
Road, Futian District
Shenzhen,
Guangdong, PRC 518040
|
2,238,489 | 9.12 | % | |||||
Universal
Kingdom International Ltd.
c/o
Shenzhen ORB-Fortune New-Material Co., Ltd
Room
O-R, Floor 23, Building A, Fortune Plaza
Shennan
Road, Futian District
Shenzhen,
Guangdong, PRC 518040
|
2,238,489 | 9.12 | % | |||||
Sheng
Zhou (7)
c/o
Good Energy Enterprise Ltd.
1601,
South Tower
Poly
International Plaza
No.1
Pazhou Road East,
Haizhu
District, Guangzhou, PRC
|
5,652,747 | 23.03 | % | |||||
Golden
Grand Enterprises Ltd.
1601,
South Tower
Poly
International Plaza
No.1
Pazhou Road East,
Haizhu
District, Guangzhou, PRC
|
3,617,757 | 14.74 | % | |||||
Good
Energy Enterprise Ltd.
1601,
South Tower
Poly
International Plaza
No.1
Pazhou Road East,
Haizhu
District, Guangzhou, PRC
|
1,401,882 | 5.71 | % | |||||
Current
and Former Officers and Directors (other than Messrs. Brenza and Ma, whose
share ownership is referenced under the heading 5% of greater
shareholders)
|
||||||||
Guangning
Xu (8)
|
0 | N/A | ||||||
Joseph
Rozelle (9)
|
781,250 | * | ||||||
|
||||||||
David
Richardson (10)
|
0 | N/A | ||||||
Morgan
Simpson (11)
|
0 | N/A | ||||||
All
current and former officers and directors
as a group (6 persons)
|
18,670,687 |
(6)
|
49
* Less
than 1%
(1)
|
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to securities.
Each of the beneficial owners listed above has ownership of and voting
power and investment power with respect to our ordinary shares or
preference shares. For each beneficial owner above, any options
exercisable within 60 days have been included in the
denominator.
|
(2)
|
Based
on 14,651,922 ordinary shares and 98,885.37 preference shares issued and
outstanding after the closing of the transactions contemplated by the
Share Exchange Agreement (as of the Closing Date). Each
Preference Share is convertible into 100 Ordinary Shares (subject to
customary adjustments for stock splits, combinations, or equity dividends
on Ordinary Shares). Holders of Preference Shares vote with the holders of
Ordinary Shares on all matters on an “as converted”
basis.
|
(3)
|
Percentage
of Total Voting Power represents total ownership with respect to all
shares of our ordinary shares and preference shares, as a single class and
on an “as converted” basis giving effect to the 100-for-1 conversion
rights of the preference
shares.
|
(4)
|
Effective
as of August 31, 2010, in connection with the acquisition of 3,523,922
ordinary shares by Skyline, Mr. Brenza became our Chief Executive Officer
and President. Mr. Brenza resigned as our Chief Executive Officer and
President effective as of the Closing Date. Mr. Brenza does not hold any
shares in the Company directly but has sole voting and dispositive power
with respect to the shares held by Skyline. Mr. Brenza is a Managing
Director of both Skyline and Maxim, which is deemed the beneficial owner
of all of the shares held by Skyline. Mr. Brenza disclaims beneficial
ownership of these shares
|
(5)
|
Effective
as of the Closing Date, Mr. Ma became our Chairman, Chief Executive
Officer and President. Mr. Ma does not hold any shares in the Company
directly but has sole voting and dispositive power with respect to the
shares held by the following former GPC Shareholders: Apollo Enterprises
International Inc., Aubo Automobile, Inc. and Universal Kingdom
International Ltd. Mr. Ma is a Director of Apollo Enterprises
International, Inc. and the President and Chief Executive Officer of Aubo
Automobile, Inc. and Universal Kingdom International, Ltd. These shares
were all acquired in connection with the closing of the transactions
contemplated by the Share Exchange
Agreement.
|
(6)
|
As
set forth in footnote 2 above, holders of Preference Shares vote with the
holders of Ordinary Shares on all matters on an “as converted”
basis. Therefore, the Preference Shares currently outstanding
are deemed to have been converted into 9,888,537 Ordinary Shares for
purposes of this disclosure.
|
(7)
|
Mr.
Zhou does not hold any shares in the Company directly but has sole voting
and dispositive power with respect to the shares held by the following
former GPC Shareholders: Golden Grand Enterprises Ltd, Good Energy
Enterprise Ltd. and Huge Pine Development Ltd. Mr. Zhou is the Managing
Partner of each of these entities. These shares were all acquired in
connection with the closing of the transactions contemplated by the Share
Exchange Agreement.
|
(8)
|
Effective
as of the Closing Date, Mr. Xu became our Vice Chief Financial Officer and
Secretary. Mr. Xu’s address is c/o Shenzhen ORB-Fortune New-Material Co.,
Ltd, Room O-R, Floor 23, Building A, Fortune Plaza, Shennan Road, Futian
District, Shenzhen, Guangdong, PRC
518040
|
(9)
|
Effective
as of the Closing Date, Mr. Rozelle resigned as our Secretary. He has also
submitted his resignation as a director, such resignation to be effective
as of the 10 th
day following the date we mail an information statement to our
shareholders that complies with Rule 14f-1 promulgated under the Exchange
Act. Mr. Rozelle’s address is c/o Nautilus Global Business Partners, 700
Gemini, Suite 100, Houston, TX 77058. Mr. Rozelle does not hold any shares
of the Company directly but retains sole voting and dispositive power over
the shares held by Nautilus Global Business
Partners.
|
(10)
|
Mr.
Richardson resigned as a director of the Company effective as of August
31, 2010 in connection with the acquisition by Skyline of 3,523,922
ordinary shares of the Company.
|
(11)
|
Mr.
Simpson has been appointed a director of the Company, such appointment to
be deemed effective as of the 10 th
day following the date we mail an information statement to our
shareholders that complies with Rule 14f-1 promulgated under the Exchange
Act.
|
50
ITEM 5.02
|
DEPARTURE
OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF
PRINCIPAL OFFICERS.
|
(a)
Resignation of Directors
On
September 10, 2010, Mr. Rozelle submitted his resignation as a director. His
resignation will be effective as of the 10 th day
following the date we mail an information statement to our shareholders that
complies with Rule 14f-1 promulgated under the Exchange Act. There were no
disagreements between Mr. Rozelle and the Company or any officer or director of
the Company.
(b)
Resignation of Officers
On
September 10, 2010, Mr. Brenza resigned as our President and Chief Executive
Officer, and Mr. Rozelle resigned as our Secretary.
(c)
Appointment of Directors and Officers
On
September 10, 2010, the following individuals were appointed as officers and
directors of Action, until their successors are duly elected and
qualified.
NAME
|
AGE
|
POSITION
WITH ACTION
|
||
Marco
Ma
|
44
|
Chairman,
Chief Executive Officer and President
|
||
Guangning
Xu
|
35
|
Vice
Chief Financial Officer and
Secretary
|
For more
information regarding our directors and officers, please see Item 1.01
“DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS – Directors and
Executive Officers” and “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” which
are incorporated herein by reference.
ITEM 5.03
|
AMENDMENTS
TO ARTICLES OF INCORPORATION AND BYLAWS; CHANGE IN FISCAL
YEAR.
|
On
September 10, 2010, our board of directors approved a change in our fiscal year
from a fiscal year ending June 30 to a fiscal year ending on December 31. The
change in our fiscal year took effect on September 10, 2010. The
information included herein presents the financial information that would be
filed in a transition report relating to the change in fiscal year. Our 2010
fiscal year will end on December 31, 2010.
ITEM 5.06
|
CHANGE
IN SHELL COMPANY STATUS
|
As
explained more fully in Item 1.01 above, we were a “shell company” (as such term
is defined in Rule 12b-2 under the Exchange Act) immediately before the share
exchange. As a result of the share exchange, GPC became our wholly owned
subsidiary and GPC’s wholly owned subsidiary, Shenzhen ORB, became our main
operational business. Consequently, we believe that this exchange transaction
was a combination which caused us to cease to be a shell company. For
information about the combination, please see the information set forth above
under Item 1.01 of this Current Report on Form 8-K which information is
incorporated herein by reference.
51
ITEM 9.01
|
FINANCIAL STATEMENT AND
EXHIBITS.
|
(a)
|
FINANCIAL
STATEMENTS OF BUSINESS ACQUIRED.
|
The
Audited Consolidated Financial Statements of Shenzhen ORB as of December 31,
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 GPC as of June 30, 2010 and 2009
are filed as Exhibit 99.2 to this current report and are incorporated herein by
reference.
(b)
|
PRO
FORMA FINANCIAL INFORMATION.
|
On
September 10, 2010, Action Corporation acquired 100% of the outstanding
securities of GPC, which owns 100% of the stock of Shenzhen ORB, a wholly
foreign owned enterprise incorporated under the laws of the PRC. Under the rules
of the SEC, proforma financial statements of these companies should be presented
as part of this Form 8-K filing. However, the combined financial statements of
these companies are not materially different than those of Shenzhen ORB alone
which have been presented herein. Therefore, proforma financial statements have
not been presented.
(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
|
3.1
|
|
Memorandum
of and Articles of Association of Action (1)
|
4.1
|
Except
from Resolutions, filed with the Registrar of Companies of the Cayman
Islands, evidencing the rights of Preference Shares
|
|
10.1
|
|
Share
Exchange Agreement dated September 10, 2010 by and among Action and its
controlling shareholders, and GPC and GPC’s
shareholders*
|
10.2
|
English
Translation of Labor Contract between Shenzhen ORB and Guangning
Xu*
|
|
10.3
|
English
Translation of Patent License Agreement between Shenzhen ORB and Junning
Ma*
|
|
10.4
|
English
Translation of Standard Form of Material Purchasing and Selling Contract
used by Shenzhen ORB.
|
|
10.5
|
English
Translation of Form of OEM Cooperation Agreement for Polyurethane
Adhesives by and between Shenzhen ORB and Sanyou (Tianjin) Polymer
Technology Co., Ltd (an OEM for Shenzhen
ORB)
|
|
10.6
|
English
Translation of Non-Disclosure Agreement between Shenzhen ORB and Sanyou
(Tianjin) Macromolecuar Technology Co., Ltd.
|
|
10.7
|
English
Translation of Form of Annual Supply Agreement by and between Shenzhen ORB
and Dongguan
Pusaida Seal Adhesive Co., Ltd (an OEM for Shenzhen
ORB)
|
|
10.8
|
English
Translation of Non-Disclosure Agreement between Shenzhen ORB and Dongguan
Pusaida Seal Adhesive Co., Ltd
|
|
10.9
|
English
Translation of Form of Purchase and Sales Contract by and between Shenzhen
ORB and Shanghai Arhys Donntal Chemicals Co., Ltd (an OEM for Shenzhen
ORB)
|
|
10.10
|
English
Translation of Non-Disclosure Agreement between Shenzhen ORB and Shanghai
Arhys Donntal Chemicals Co., Ltd
|
|
10.11
|
English
Translation of Lease Agreement for Shenzhen ORB’s headquarters located at
Room O-R, Floor
23, Building A, Fortune Plaza, Shennan Road. Futian District,
Shenzhen
|
|
10.12
|
English
Translation of Lease Agreement for Manufacturing facility located at No. 5
Factory Building, Qiaotou FuQiao Industrial Zone, Anbao District, Fuyong
town, Shenzhen
|
|
10.13
|
Consulting
Agreement, dated as of September 1, 2010, between the Company and Nautilus
Capital Partners
|
|
10.14
|
Engagement
Letter Agreement, dated July 13, 2010, between Shenzhen ORB and Maxim
Group LLC
|
|
10.15
|
English
Translation of Lease Agreement for Manufacturing facility located at No.1
Liutai Road, Liunan district, Liuzhou, Guangxi
|
|
10.16
|
English
Translation of Lease Agreement for facility located at No. 3-4, Unit 3,
Building 3,Guian Garden, Yanghe Garden, Jiangbei District,
Chongqing
|
|
16.1
|
Letter
of PMB Helin Donovan, LLP, former independent auditor for
Action*
|
|
99.1
|
|
Audited
Consolidated Financial Statements of Shenzhen ORB as of December 31, 2009
and 2008
|
99.2
|
Unaudited
Consolidated Financial Statements of Shenzhen ORB as of June 30, 3010 and
2009
|
(1)
|
Incorporated
herein by reference to Exhibit 3. of the Company’s Quarterly Report on
Form 10-Q, filed with the SEC on May 15, 2008 (SEC File No.
000-52341).
|
*
|
Previously
filed with the original Current Report Filed on September 16,
2010.
|
52
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Amendment No. 2 to the Current Report on Form 8-K/A to be
signed on its behalf by the undersigned hereunto duly
authorized.
|
ACTION
ACQUISITION CORPORATION
|
|
|
|
|
Date: December
1, 2010
|
By:
|
/s/
Junning Ma
|
|
|
Junning
Ma
President
and Chief
Executive Officer
|
53