RENMIN TIANLI GROUP, INC. - FORM 10-K

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EX-32.1 - RENMIN TIANLI GROUP, INC.	e615863_ex32-1.htm
EX-32.2 - RENMIN TIANLI GROUP, INC.	e615863_ex32-2.htm
EX-31.2 - RENMIN TIANLI GROUP, INC.	e615863_ex31-2.htm
EX-31.1 - RENMIN TIANLI GROUP, INC.	e615863_ex31-1.htm
EX-23.1 - RENMIN TIANLI GROUP, INC.	e615863_ex23-1.htm
EX-21.1 - RENMIN TIANLI GROUP, INC.	e615863_ex21-1.htm
EX-10.1 - RENMIN TIANLI GROUP, INC.	e615863_ex10-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION FROM _______ TO ________.

COMMISSION FILE NUMBER: 001-34799

AOXIN TIANLI GROUP, INC.

(Exact name of registrant as specified in its charter)

British Virgin Islands	N/A
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Suite K, 13th Floor, Building A, Jiangjing Mansion

228 Yanjiang Ave., Jiangan District, Wuhan City

Hubei Province, China 430010

(Address of principal executive offices) (Zip code)

Issuer's telephone number, including area code: (+86) 27 8274 0726

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common shares, $0.004 par value	Nasdaq Capital Market

Securities registered pursuant to section 12(g) of the Act:

(Title of class): None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of June 30, 2016, the aggregate market value of the outstanding shares of the registrant's common stock held by non-affiliates (excluding shares held by directors, officers and others holding more than 5% of the outstanding shares of the class) was $12,572,000, based upon a closing price of $3.20 per common share on June 30, 2016.

At March 14, 2017, the registrant had outstanding 7,988,245 common shares.

Documents incorporated by reference: Not Applicable.

Form 10-K

Aoxin Tianli Group, Inc.

Index

Part I			Page
	Item 1.	Business	4
	Item 1A.	Risk Factors	15
	Item 2.	Properties	27
	Item 3.	Legal Proceedings	28
	Item 4.	Mine Safety Disclosures	29
Part II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29
	Item 6.	Selected Financial Data	30
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	30
	Item 7A.	Qualitative and Quantitative Disclosures About Market Risk	41
	Item 8.	Financial Statements and Supplementary Data	41
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	41
	Item 9A.	Controls and Procedures	42
	Item 9B.	Other Information	43
Part III
	Item 10.	Directors, Executive Officers and Corporate Governance	43
	Item 11.	Executive Compensation	48
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	49
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	50
	Item 14.	Principal Accountant Fees and Services	51
Part IV
	Item 15.	Exhibits and Financial Statement Schedules	52

Forward-Looking Statements

We have made statements in this report that constitute forward-looking statements, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements, and include, but are not limited to our ability to complete product orders, expand and grow distribution channels, political and economic factors in the People’s Republic of China, our ability to identify attractive acquisition candidates as part of our growth strategy, dependence upon a limited number of large customers and other factors identified in this report.

The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

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Except where the context otherwise requires and for purposes of this report only:

·	the terms “we,” “us,” “our company,” and “our” collectively refer to Aoxin Tianli Group, Inc. (“Aoxin Tianli” when referring solely to our British Virgin Islands company); our wholly-owned subsidiary, HC Shengyuan Limited, a Hong Kong limited liability company (“HCS”); HCS’ wholly-owned subsidiary, Wuhan Aoxin Tianli Enterprise Investment Management Co., Ltd., a Chinese limited liability company (“WFOE”); Wuhan Fengze Agricultural Science and Technology Development Co., Ltd., a Chinese limited liability company (“Fengze”) wholly-owned by WFOE; Hubei Tianzhili Breeder Hog Co., Ltd., a Chinese limited liability company wholly-owned by Fengze (“Tianzhili”), and its affiliated companies, Hubei Hang-ao Servo-valve Manufacturing Technology Co., Ltd., a Chinese limited liability company (“Hang-ao”) until the sale of our equity interest on December 23, 2016 and Wuhan Optical Valley Orange Technology Co., Ltd., a corporation organized under the laws of the People’s Republic of China (“OV Orange”) until the sale of our equity interest on December 29, 2015;
·	shares” and “common shares” refer to our common shares, $0.004 par value per share;
·	“China” and “PRC” refer to the People’s Republic of China, and for the purpose of this report only, excluding Taiwan, Hong Kong and Macau; and
·	all references to “RMB,” “Renminbi” and “¥” are to the legal currency of China and all references to “USD,” “U.S. dollars,” “dollars,” and “$” are to the legal currency of the United States.

Unless otherwise stated, we have translated balance sheet amounts with the exception of equity at December 31, 2016 at RMB 6.945 to $1.00 as compared to RMB 6.4917 to $1.00 at December 31, 2015. The equity accounts are stated at their historical rate. The average translation rates applied to income statement accounts for the years ended December 31, 2016 and 2015 were RMB 6.643 and RMB 6.2288, respectively. We make no representation that the RMB or U.S. dollar amounts referred to in this report could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

NASDAQ CORPORATE GOVERNANCE

We are a foreign private issuer, having been organized under the laws of the British Virgin Islands (“BVI”). Nasdaq Marketplace Rule 5615(a)(3) permits a foreign private issuer to follow its home country practice in lieu of most of the requirements of the 5600 Series of the NASDAQ Marketplace Rules. In order to claim such an exemption, we must disclose the significant differences between our corporate governance practices and those required to be followed by U.S. domestic issuers under NASDAQ’s corporate governance requirements.

From time to time we may consider whether it is appropriate to follow requirements of the 5600 Series of the NASDAQ Marketplace Rules. Should we determine not to follow one or more of such Rules in favor of the laws of the BVI, we will advise our shareholders before doing so. Please refer to the disclosure contained in our Annual Report for the year ended December 31, 2014, and our Quarterly Report for the quarter ended March 31, 2015, for a discussion of those home country practices we have elected to follow in lieu of the corresponding requirements of the 5600 Series of the NASDAQ Marketplace Rules.

On September 1, 2016, we effected a reverse stock split of our common stock (the “Reverse Split”). As a result of the Reverse Split, every four shares of common stock outstanding were consolidated into one share. All share and per share information in this Form 10-K has been retroactively adjusted to reflect the Reverse Split.

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Part I

Item 1. Business

Our Company

Since inception we have been engaged in the business of breeding, raising, and selling hogs in the Wuhan City area of the PRC. Commencing in 2013 we began distributing specialty processed black hog products under our self-developed trademark Xiduhei, through supermarkets and to restaurants, hotels and other outlets, and direct to consumers via the internet.

In July 2014 as part of a diversification strategy we acquired companies engaged in the manufacture and marketing of electro-hydraulic servo-valves and the development of optical fiber hardware and software solutions for the security and protection industry. However, in the fourth quarter of 2015, we decided to focus on our hog farming operations, sell our operations in electro-hydraulic servo-valves and optical fiber based security & protection and seek to grow through internal expansion and acquisitions of businesses in the agricultural industry.

We conduct our hog breeding operations through Wuhan Fengze Agricultural Science and Technology Development Co., Ltd. (“Fengze”), a wholly-owned subsidiary of Wuhan Aoxin Tianli Enterprise Investment Management Co., Ltd., our wholly foreign-owned enterprise, or WFOE, and its subsidiaries, Hubei Tianzhili Breeder Hog Co., Ltd. (“Tianzhili”), and Hefeng. Our efforts are focused on growing healthy, hearty hogs, including regular hogs and black hogs, for sale for breeding and meat purposes.

On June 6, 2014, we entered into a share purchase agreement with the principal stockholders of Fengze whereby WFOE acquired 100% of the equity of Fengze. On June 20, 2014, the Wuhan Municipal Commission of Commerce approved the ownership change and it was declared effective by the Wuhan Administrator for Industry & Commerce and WFOE became the holder of 100% of the equity interest of Fengze, and Fengze effectively became a wholly-owned subsidiary of the Company.

On June 20, 2014, WFOE, Fengze, and Fengze’s former principal stockholders entered into an agreement to terminate the Entrusted Management Agreement, Pledge of Equity Agreement, and Option Agreement made on December 1, 2009, pursuant to which WFOE previously controlled Fengze.

On July 15, 2014, we acquired 88% of the equity of Hubei Hang-ao Servo-valve Manufacturing Technology Co., Ltd. (“Hang-ao”) for consideration of $9,055,605, including RMB 42 million or approximately $6.8 million in cash and 261,750 of our common shares. On December 23, 2016, we entered into an equity transfer agreement with Zhongbicheng Holdings Co., Ltd. for the sale of our 88% equity interest in Hang-ao for a selling price of RMB 26 million ($3.9 million).

On August 26, 2014, we acquired 95% of the equity of Wuhan Optical Valley Orange Technology Co., Ltd. (“OV Orange”), a corporation organized under the laws of the People’s Republic of China focused on delivering next-generation optical fiber hardware and software solutions for the security and protection industry, from the former owners of OV Orange, for 638,000 of our common shares, valued at $4,976,400. Under the terms of the acquisition agreement, 100,750 of those shares, subject to the attainment by OV Orange of certain agreed upon net profit targets for the years ended December 31, 2014, 2015 and 2016.

OV Orange was sole shareholder of Optical Networking. On November 10, 2014, OV Orange entered into a share sale agreement with Mr. Deming Liu and Hubei Aoxin Science & Technology Group Co. Ltd. to sell 100% of the equity of Optical Networking for consideration of RMB 1,000,000 or $161,030. On November 12, 2014, the consideration of RMB 1 million or $161,030 had been collected.

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On December 29, 2015, the Company completed equity transfer agreements with the former shareholders of OV Orange, Mr. Jin Wu, Ms. Lina Deng, and Mr. Deming Liu, for the sale of its 95% equity interest in OV Orange for a purchase price of RMB 47.5 million ($7.3 million), as a condition of the sale, the 100,750 “earn-out” shares deposited in escrow and issued to Mr. Hai Liu, CEO and the former beneficial owner of OV Orange will be released to him at the end of March, 2017.

On September 1, 2016, the Company effected a reverse stock split of the Company's common stock (the “Reverse Split”). Under the laws of the British Virgin Islands and the Amended and Restated Memorandum and Articles of Association, shareholder approval of the Reverse Split was not required. As a result of the Reverse Split, every four shares of common stock outstanding were consolidated into one share. All share and per share information in these notes and the accompanying consolidated financial statements has been retroactively adjusted to reflect the Reverse Split.

As mentioned above, we had determined to sell Hang-ao and OV Orange during the fourth quarter of 2015. As a consequence of the sales of OV Orange and Hang-ao, the results of operations of Hang-ao and OV Orange have been reflected as discontinued operations in our consolidated financial statements.

Corporate Information

Our principal executive office is located at Suite K, 13th Floor, Building A, Jiangjing Mansion, 228 Yanjiang Ave., Jiangan District, Wuhan City, Hubei Province, China 430010. Our telephone number is (+86) 27 8274 0726 and our Fax number is (+86) 27 8274 1687. Our website address is www.aoxintianli-china.com.

Our Corporate Structure

Aoxin Tianli is a holding company incorporated in the British Virgin Islands in November 2009. Aoxin Tianli owns all of the outstanding capital stock of HC Shengyuan Limited (“HCS”), which was incorporated in Hong Kong in November 2009 as a limited liability company. HCS, in turn, owns all of the outstanding capital stock of Wuhan Aoxin Tianli Enterprise Investment Management Co., Ltd., or WFOE, which was incorporated in 2005 as a domestic Chinese company. Fengze was organized in 2005 as a domestic limited liability company in China. Tianzhili was incorporated in 2011 as a domestic limited liability company in China. Fengze owns 100% of the equity interests of Tianzhili and WFOE owns 100% of the equity of Fengze.

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Our current corporate structure is as follows:

Hog Farming Business

Fengze entered the hog breeding and production business in 2005 when it built its first hog farm. Fengze currently owns and operates seven commercial farms in Wuhan and surrounding areas and one farm in Enshi Prefecture of Hubei Province. Our farms, in the aggregate, have an annual production capacity of approximately 130,000 hogs. We conduct genetic, breeding and nutrition research to improve our hog production capabilities. Our animal nutrition research consists of the development of a premix we feed our hogs. In coordination with a local institute, we developed this product to improve our feed to meat conversion ratio, thus reducing our feed costs, and to improve the health of our hogs.

Beginning in the second quarter of 2013, we also started to market and distribute fresh black hog meat products through supermarkets and to hotels, restaurants and other retailers. In July 2014, we initiated sales of specialty processed black hog meat through the internet. We market our fresh black hog meat products through Hubei Tianzhili Breeder Hog Co., Ltd. (“Tianzhili”), a wholly owned subsidiary of WFOE, and use a self-developed trademark, Xiduhei.

We believe we have developed a reputation for quality in our market by investing in high quality breeding stock and in technology to improve the health of our hogs by, for example, using temperature controls to increase comfort and to speed piglet rearing, and by creating a biofeed premix that has improved our success in growing hogs while reducing costs. We believe we have a reputation for low pollution by virtue of receiving a certificate of pollution-free agricultural product from Hubei province. We believe we have a reputation for low-additive pork products as a result of the use of our biofeed premix, which allows us to reduce our reliance on antibiotics, and by efforts we have undertaken to reduce disease risks among our hogs without relying upon chemicals, such as maintaining geographic separation between our farms to prevent cross-contamination.

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In an effort to significantly increase the scale of our operations, in 2012 we concluded a series of agreements (the “Exclusivity Agreements”) with the Animal Husbandry and Veterinary Bureau of Enshi Tujia and Miao Autonomous Prefecture of Hubei Province, the Animal Husbandry and Veterinary Bureau of Xianfeng County of Hubei Province, the Xuwang Hog Farming Professional Cooperatives of Xianfeng County, and the Qiming Hog Farming Professional Cooperatives of Xianfeng County, whereby we were granted the exclusive right to breed and sell Enshi black hogs in Enshi Autonomous Prefecture in Hubei Province. The agreements call for the joint development, funding and operation of local cooperatives in the Enshi Autonomous Prefecture in Hubei Province whereby the Company, the relevant governmental agencies and the cooperatives will assist participating farmers to breed and raise Enshi black hogs which will be purchased by the Company for resale as meat hogs or retained or sold as breeders at the Company’s discretion. This program allows us to profit from the black hogs grown by the participating farmers who purchase feed, vaccines and other supplies from us and then sell us their hogs at a price which is comparable to the costs at which we currently grow our own hogs.

China’s Hog Industry

China’s hog industry is in the midst of a transition from a large number of relatively small farms, to larger, more commercial farms. Meat hog production in the PRC is currently dominated by backyard farms (those that sell 5-10 hogs annually) and small farms (those that sell less than 100 hogs annually). We believe that farms that sell less than 100 hogs per year comprise approximately 75% of the hog farms in China and account for approximately one-third of the hogs sold annually in China. Farms that sell between 100 and 500 head a year account for approximately 21% of China’s hog farms and approximately one-third of the hogs sold annually in China. Farms that sell between 500 and 3,000 hogs annually represent less than 3% of China’s hog farms but account for approximately 19% of the hogs sold in China. Those that sell more than 3,000 hogs annually account for less than one-half of one percent of all hog farms but sell more than 15% of China’s hogs annually.

According to the USDA, China’s hog industry is transitioning toward larger commercial farms partly as a result of government policies and incentives. We believe that the Company is well positioned to benefit from this trend.

Our Geographic Market

Our farms are located in Wuhan City, which is the capital of and largest city in Hubei Province. With a population of nearly 10 million, Wuhan City is one of China’s ten largest cities, and is considered an important center for economy, trade, finance, transportation, information technology and education in Central China. Wuhan City is located less than 800 miles from Shanghai, Beijing, Guangzhou, Tianjin, Chongqing and Xi’an, some of China’s largest cities. Hubei Province includes thirteen cities that range in population from approximately 300,000 to nearly 10 million residents.

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Due to its central location, Hubei is well-known in China for the adaptability of its breeder hogs. Breeder hogs from the southern part of China tend to not tolerate the cold weather in northern China; similarly, breeder hogs from the northern part of China tend not to tolerate the heat of southern China. We have found that breeder hogs raised in Hubei tend to adapt well to variations in both northern and southern of China.

Wuhan City’s government was one of the first local governments to provide economic incentives to hog farms that reached certain production levels. Farms located within the Wuhan Area that reach an annual production capacity of 10,000 hogs are eligible for a one-time grant of RMB 1.5 million (approximately $230,000). When a farm reaches an annual capacity of 20,000 hogs, it is eligible for a grant of RMB 3 million (approximately $460,000), less any grant it received when its capacity reached 10,000 hogs.

Breeder Hogs and Market Hogs

We utilize a variety of purebred hogs at our farms. The primary purebred varieties that we utilize are the Yorkshire, Landrace and Duroc. We breed both purebred and cross-bred hogs in order to attain what we feel are the most desirable traits in the hogs produced in our farms.

In 2016 and 2015, 12% and 19% of our hog revenues were derived from regular breeder hog sales, 40% and 43% were from regular market hog sales. In 2016, 40%, 2%, and 7% of our revenues were from black market hogs, black breeder hogs, and processed black pork products. In 2015, we generated 32%, 2%, and 4% of our revenues from black market hogs, black breeder hogs, and processed black pork products. Breeder hogs are sold to other hog farms throughout China for use in their reproductive programs, and used in our own farms as breeder sows. We prefer to sell hogs as breeders, as they command a higher price and are sold when they are younger and have consumed less feed and other resources, leading to a higher profit margin than market hogs. Breeder hogs weigh approximately 110 – 120 pounds at the time of sale while market hogs weigh about 220 – 240 pounds.

Male hogs are nearly always sold as market hogs as substantially fewer boars are required than sows for breeding purposes. Female hogs that do not meet breeder hog standards are also sold as market hogs.

Our Breeding Efforts

A key element of breeding hogs is to utilize sows which are most likely to give birth frequently to large, healthy litters that display the attributes that customers prefer. As a result, we genetically catalogue our sows, so that we can identify purebred and first-cross hogs to maintain our purebred nucleus herd for fidelity to breed standards and to develop the most favorable parent line sows and boars for commercial market hog production.

We screen all potential breeders for favorable qualities. We rely on a combination of performance data and visual appraisals of breeder hogs for selection purposes. We index purebred sows monthly and select the top 20% to maintain our nucleus herd. Having established the baseline herd level, we experiment with combinations of boars and sows to continue to improve the characteristics of our hogs.

In addition to selecting the most favorable breeding stock, we constantly monitor our breeding sows and replace any that have disease related problems or that display other unfavorable breeding characteristics. A quality sow can give birth for 3 to 4 years, and can give birth 6 to 8.5 times during her life typically to a litter of 10-12 piglets each time. If a sow consistently gives birth to small litters, we remove it from the breeding stock. Likewise, if a sow repeatedly fails to get pregnant during fertile periods or displays false pregnancy (a condition that can last for up to two months) we will remove it from the breeding herd and replace it with a more productive sow.

Our Premix

We believe one of the most challenging issues in the hog production industry is the growing variety and variability of swine diseases. Many hog farms manage diseases through the use of antibiotic drugs. In addition to administering antibiotics directly, many commercial hog farms also use antibiotics in premix feed, without regard to whether particular hogs require treatment. Heavy use of these drugs in China has resulted in pork with drug residues and excess levels of heavy metals and other contaminants.

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We seek to avoid the use of what we view as excessive amounts of antibiotics in our hogs. After years of research and development in cooperation with our consultant, Professor Ming Li of Central China Normal University, we have developed our own premix, which we use instead of commercially available biofeed premixes. Our premix contains no antibiotics and, according to the Hubei Province Import and Export Commodity Inspection and Quarantine Bureau, our pork products test negative for drug residues and meet the industry limits for heavy metals.

By developing our own premix, we reduced our feed costs. Our premix adds live microbes to swine feed, which we believe result in better absorption of feed and a generally healthier intestinal system. Better absorption of feed results in lower waste and we believe that we have realized a 10% to 12% reduction in feed costs as a result. In addition, because these bacteria improve the hogs’ health, we have seen savings on drug costs of approximately RMB 10 (approximately $1.50) per hog.

Our Retailing Efforts

Starting in 2013, we expanded our operations to include retail sales of our boxed fresh black hog meat through facilities we maintain at supermarkets and to hotels, restaurants and other retailers. On 2014 we initiated sales of specialty processed black hog meat direct to consumers through the internet. We sell our products under our “Xiduhei” trademark through more than 8 supermarkets in Wuhan City and in over 4 direct sale outlets. As of December 31, 2016 and 2015, our sales and marketing force consisted of approximately 37 and 38 employees, respectively, in Wuhan City. Our direct sales force is also supplemented by independent distributors, sales representatives and agents.

Our Hog Farms

Fengze built its first hog farm in 2005. At present, we, through Fengze, operate five hog farms with an annual capacity of 20,000 hogs each and three hog farms with an annual capacity of 10,000 hogs each.

Each of our hog farms is designed to raise hogs from breeding through preparation for sale as breeder or market hogs. While there are differences among our farms, they follow the same basic organizational model, with separate buildings dedicated to sow operations, nursery operations and finishing operations. In addition to these specific functional buildings, our farms also feature housing for some of our farmers for the benefit of our farm operations. To minimize the risk of contamination, access to our farms is very limited to outsiders, including Company staff. To limit the number of personnel that enter our farms, and thus the risk of contamination, we provide on-site housing to a large portion of our farm employees.

Each farm has a farm manager who is responsible for monitoring animal care, animal health and equipment. Specialized crews trained in moving hogs assist with the loading, unloading, health care and sanitation for each unit.

Our Strategies

We plan to enhance our position as one of Wuhan’s largest hog farming companies. We intend to achieve this goal by implementing the following strategies:

We plan to increase hog production quality and capacity by continuing to upgrade our genetic breeding base. We plan to purchase and import purebred hogs to improve the genetic strength and diversity of our breeding pool, increasing our ability to maintain quality purebred stock within our breeding operations. This will enable us to breed superior breeding hogs that can be used in our operations or sold to other breeder farms, resulting in improved margins.

We intend to develop our sow replacement program to continually replace less-productive sows with more productive ones. It requires significant effort to identify, track and measure the attributes of our breeder hogs. We have found that the more data we capture, the greater the rewards of our breeding program and the more successful we are in implementing sow replacement strategies, with resulting improvement in operations.

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We expect to continue to expand our operations in the PRC through acquisitions in the agricultural industry. We are currently seeking to identify and acquire additional hog farms or pork processing businesses with complementary products to those we currently produce. In addition, we are expanding our search for suitable acquisition candidates to other agricultural businesses.

Customers

Our main customers for breeder hogs consist of farmers and slaughterhouses which purchase for their own accounts and brokers who sell the hogs to other hog farms and slaughterhouses. In 2016 and 2015, none of our customers accounted for more than 10% of our total revenues or segment revenues.

Sales and Marketing

Purchasers come to our farms to purchase breeder and market hogs. The purchasers of breeder hogs consist of farmers who purchase for their own accounts and brokers who sell the hogs to other hog farms. The purchasers of market hogs include slaughterhouses and brokers who sell the hogs to slaughterhouses. Purchases are paid for at the time of the sale. Purchasers are responsible for transporting hogs from our farms. In this way, we have been able to reduce our transportation costs and risks associated with delivering hogs. Return of product is not permitted.

Because we have primarily relied upon having purchasers come to our farms, to date our expenditures on marketing and advertising have not been significant. If our capacity should grow or we should otherwise determine it is in our interests to do so, we may rely more upon advertising and marketing in the future and our expenditures for such efforts will increase.

Principal Suppliers

The following are the principal suppliers we rely upon to obtain raw materials for hog feed and veterinary supplies. We believe the materials provided by these suppliers are widely available and do not anticipate that we would be unable to obtain these materials from other suppliers in the event they are unable or unwilling to supply our needs.

Supplier		Item
Wuhan Zhu Brothers Feed Technology Co., Ltd.		Feed supplies (corn, beans, bran and other commodities)
Wuhan Maozhu Agritech Research Co., Ltd.		Feed supplies
Wuhan Jintudi Feed Co., Ltd		Feed supplies (corn, beans, bran and other commodities)
Wuhan Yukang Food Oil and Feed Co., Ltd.		Feed supplies (corn, beans, bran and other commodities)

Purchases from Wuhan Zhu Brothers Feed Technology Co., Ltd. (“Wuhan Zhu Brothers”) accounted for approximately 52% and 33% of our inventory purchases for our hog businesses in 2016 and 2015, respectively. Purchases from Wuhan Jintudi Feed Co. (“Jintudi”), Ltd. and Wuhan Yukang Food Oil and Feed Co., Ltd. (“Yukang”) in 2016 accounted for 4% and 6%, respectively, of our inventory purchases, as compared to 7% and 10%, respectively, of our 2015 inventory purchases. Purchases from Wuhan Maozhu Agritech Research Co., Ltd. accounted for approximately 17% and 36% of our inventory purchases during 2016 and 2015, respectively.

We are not subject to any long-term agreement with Wuhan Zhu Brothers, Jintudi, Yukang and Wuhan Maozhu. All purchases are on a “spot” basis and are not subject to long terms agreements.

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Research and Development

We focus our research and development efforts on improving the genetic composition of our hogs and the quality of the feed provided to the hogs. As of December 31, 2016, our research and development team consisted of 35 employees who also participate in general administrative functions. In addition, some of our operating employees regularly participate in our research and development programs.

In the fiscal years ended December 31, 2016 and 2015, we spent $68,645 and $61,552, respectively, on research and development activities.

Competition

We compete based on the price and quality of our products, especially as it pertains to breeder hogs

We believe that Wuhan has 75 farms with annual production capacities of at least 10,000 hogs and, of these, 21 farms have annual production capacities of at least 20,000 hogs. Inclusive of the farms in Wuhan, we believe that Hubei province has approximately 439 hog farms with annual production capacities of 10,000 or more hogs. We believe our annual capacity of approximately 130,000 hogs and our black hog production program makes us one of Hubei province’s largest hog farming companies.

Regulation

Restriction on Foreign Ownership

The principal regulation governing foreign ownership of businesses in the PRC is the Foreign Investment Industrial Guidance Catalogue, effective December 11, 2007 (the “Catalogue”). The Catalogue classifies various industries into four categories: encouraged, permitted, restricted and prohibited. Hog farming is an encouraged industry. Such a designation offers businesses distinct advantages. For example, businesses engaged in encouraged industries:

·	are not subject to restrictions on foreign investment, and, as such, foreigners can own a majority in Sino-foreign joint ventures or establish wholly-owned foreign enterprises in the PRC;

·	with total investment of less than $100 million, are subject to regional (not central) government examination and approval which are generally more efficient and less time-consuming; and

·	may import certain equipment while enjoying a tariff and import-stage value-added tax exemption.

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

Taxation and Subsidies

The PRC government has provided tax incentives and subsidies to domestic companies in our industry to encourage the development of agricultural and high technology businesses in China. We have received business tax exemptions or reductions, subsidies, and government incentives in connection with Fengze’s ownership of hog farms and WFOE’s management of those operations. Both Fengze and WFOE were exempted from income taxes for 2016 and prior years.

The PRC government authorities may reduce or eliminate these incentives through new legislation or other regulatory actions at any time in the future. In the event that we are no longer exempt from income taxation, our applicable tax rate would increase from 0% to up to 25%, the standard business income tax rate in the PRC.

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Regulation of Foreign Currency Exchange and Dividend Distribution

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

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

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

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

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

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

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

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

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

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

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

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

Intellectual Property Rights

Trademarks. The PRC has domestic laws for the protection of rights in copyrights, patents, trademarks and trade secrets. The PRC is also a signatory to all of the world’s major intellectual property conventions, including:

·	Convention establishing the World Intellectual Property Organization (WIPO Convention) (June 4, 1980);
·	Paris Convention for the Protection of Industrial Property (March 19, 1985);
·	Patent Cooperation Treaty (January 1, 1994); and
·	The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (November 11, 2001).

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

We, through Fengze, have used “Hanxi” for years on swine products. In 2009, Fengze applied for and registered “Hanxi” as a trademark with China’s SAIC Trademark Office, in Class No. 31, which relates to live animals, live poultry, live fish, trees, cereals, plants, fresh fruits, fresh vegetables, fodder and crustaceans. The registration is valid from April 21, 2009 to April 20, 2019. As a registered trademark “Hanxi” is exclusively owned by Fengze for products within the range limited by Class No. 31; any identical or similar trademark may not be used on commodities involved in Class No. 31. Fengze does not currently own any trademark on “Hanxi” outside of Class No. 31. In the event of trademark infringement, the SAIC has the authority to fine the infringer and to confiscate or destroy the infringing products. In addition to actions taken by SAIC, Fengze would be entitled to sue an infringer for compensation.

On June 25, 2013, we submitted the trademark registration, “Xiduhei,” for use in connection with the sale of our black hog products which had been approved on April 7, 2015.

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Business Trade Secrets. We have not applied for any patent protection for our premix; however, we rely on Chinese business secret laws to protect our interest in this premix.

Our premix was developed in conjunction with Professor Ming Li of China Central Normal University. In return for providing financial and other support to Professor Li’s research, Professor Li assigned the rights to the results of his research and development (specifically, the premix) to us. In connection with this assignment, Professor Li agreed to protect the secrecy of our premix formula and to indemnify us against any damages caused if he discloses that information to third parties.

In addition to the terms under which we obtained rights to the premix, we have taken a number of measures to maintain the premix as a business secret under Chinese law.

Notwithstanding these measures, if we are required to sue to protect our rights in the premix, the ultimate determination of whether the premix constitutes a business secret protected under Chinese law will be made on the facts of the case itself. We cannot guarantee that we will be found to have a business secret or that any court will protect our rights in the premix formula.

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

Fengze has incurred, and we will continue to incur, capital and operating expenditures to comply with these laws and regulations. We typically expend approximately $150,000 or more to construct hog waste systems at each hog farm we build and there are also ongoing expenses to comply with environmental regulations. If we were to build a farm, or purchase a farm without the necessary waste equipment, we would expect to spend $150,000 or more in connection with such farm for environmental compliance purposes in addition to ongoing maintenance.

Regulation of the Hog Farming Industry. The hog farming industry in the PRC is regulated by a number of governmental agencies, including the Ministry of Agriculture, the Ministry of Commerce, the Ministry of Health, the General Administration of Quality Supervision, Inspection and Quarantine, and the State Environmental Protection Administration. These regulatory bodies have broad discretion and authority to regulate many aspects of the hog farming industry in the PRC, including, without limitation, setting hygiene and quality standards. In addition, the regulatory framework in the PRC is evolving. If the relevant regulatory authorities set standards with which we are unable to comply or which increase our costs so as to render our products non-competitive, our profitability and our ability to sell products in the PRC may be impacted.

Each province in the PRC requires hog farmers to obtain and maintain a license for each hog farm owned and operated in that province. Currently, all of our hog farms are located in the city of Wuhan in Hubei province, and we have obtained a license to own and operate each of our hog farms. We need to maintain our licenses to operate our current hog farms. If we pursue acquisitions of other hog farms, we will need to obtain additional licenses to operate those farms.

Employees

As of March 14, 2017 we had approximately 290 employees, all of whom were based in China. Of these employees, 35 were in management and administration in our headquarters.

Hog Farming Segment

As of March 14, 2017 we had approximately 218 employees in our hog farming operations; 8 were farm managers, 12 served as deputy farm managers, 18 were in technical support (including the research and development staff, and veterinarians located on the farms), and 180 were in farming and sales.

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Retail Segment

As of March 14, 2017 we had approximately 37 employees in our black hog retail operations. Of these employees, 12 were in management and administration and 25 were in sales.

We believe that our relations with our employees are good. We have never had a work stoppage, and our employees are not subject to a collective bargaining agreement. For our employees in China, we are required to contribute a portion of their total salaries to the Chinese government’s social insurance funds, including medical insurance, unemployment insurance and job injuries insurance, as well as a housing assistance fund, in accordance with relevant regulations. We expect the amount of our contribution to the government’s social insurance funds to increase in the future as we expand our workforce and operations.

ITEM 1A. Risk Factors

The purchase of our common shares involves a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and other information and our consolidated financial statements and related notes included elsewhere in this report. If any of the following events actually occurs, our financial condition or operating results may be materially and adversely affected, our business may be severely impaired, and the price of our common stock may decline, perhaps significantly. This means you could lose all or a part of your investment.

If there are any interruptions to or a decline in the amount or quality of our breeding stock or feed components, our production or sales could be materially and adversely affected.

Swine feed components and breeding stock are the principal raw materials used in our hog farming business. We purchase all of our swine feed components from a number of third-party suppliers. We generally breed and raise our own hogs and periodically purchase new breeding stock from third parties, including stock sourced from Europe and the United States. These third-party suppliers may not continue to be able or willing to satisfy our need for breeding stock and swine feed components. The supply of breeding stock may be affected by outbreaks of diseases or epidemics. Suppliers may not be able to provide live hogs or swine feed components of sufficient quantity or quality to meet our requirements. Any interruptions to or decline in the amount or quality of live hogs or swine feed components could materially disrupt our production and adversely affect our business. We are vulnerable to increases in the price of raw materials (particularly of swine feed components and occasionally live hogs) and other operating costs, and we may not be able to entirely offset increasing costs by increasing prices. If we are unable to entirely offset cost increases by raising prices, our profit margins and financial condition could be adversely affected.

If the pork market in the PRC does not grow as we expect, our results of operations and financial condition may be adversely affected.

We believe pork products have strong growth potential in the PRC and, accordingly, we have acquired farms. If the pork market in the PRC does not grow as we expect, our business may be harmed, we may need to adjust our growth strategy, and our results of operation may be adversely affected.

We may be unable to maintain our profitability in the face of a consolidating retail environment in the PRC.

We sell substantial amounts of our hogs to slaughterhouses, which sell to smaller retailers and supermarkets and large retailers. The supermarket and food retail industry in the PRC has been and is expected to continue consolidating.

As the supermarket and food retail industry continue to consolidate and retail customers grow larger and become more sophisticated, they may demand lower prices and increased promotional programs from our slaughterhouse customers, which may demand lower prices from us. If we are forced to lower prices in response to pressure from customers, our profitability could decline.

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The hog farming industry in the PRC may face increased competition, as well as increased industry consolidation, which may affect our market share and profit margin.

The hog farming industry in the PRC is highly competitive. We believe that our ability to maintain our market share and grow our operations within this landscape of intense competition depends largely upon our ability to distinguish our hogs from our competitors’ hogs, especially as to our breeders.

We cannot assure you that our current or potential competitors will not develop hog breeding and farming technology of a quality comparable or superior to ours, or adapt more quickly than we do to evolving consumer preferences or market trends. In addition, our competitors may merge or form alliances among farms to achieve a scale of operations which would make it difficult for us to compete. Competition may also lead to price wars, which may adversely affect our market share and profit margin. We cannot assure you that we will be able to compete effectively with our current or potential competitors.

The outbreak of animal diseases could adversely affect our operations.

An occurrence of serious animal diseases or any outbreak of other animal epidemics in the PRC might result in material disruptions to our operations, to the operations of our customers or suppliers or a decline in our industry or a slowdown in economic growth in the PRC and surrounding regions, any of which could have a material adverse effect on our operations. In 2007, tens of millions of pigs were killed in China as a result of Blue Ear disease, which resulted in inflation in pork prices and affected 25 of China’s 33 provinces. While we take measures at each of our farms to prevent the outbreak of disease, there can be no assurance that our facilities or products will not be affected by an outbreak of disease in the future, or that the market for pork products in the PRC will not decline as a result of fear of disease. In either case, our business, results of operations and financial condition would be adversely and materially affected.

Outbreaks of swine flu could adversely affect our business, results of operations and financial condition.

An occurrence of a serious animal disease, such as swine influenza or H1N1 virus, a respiratory disease of pigs caused by influenza viruses, or any outbreak of other epidemics in the PRC affecting animals or humans might result in material disruptions to our operations, to the operations of our customers or suppliers or a decline in the supermarket or food retail industry or a slowdown in economic growth in the PRC and surrounding regions, any of which could have a material adverse effect on our operations and turnover.

Consumer concerns regarding the safety and quality of food products or health concerns could adversely affect sales of our products.

Our sales performance could be adversely affected if consumers lose confidence in the safety and quality of our products. Consumers in the PRC are increasingly conscious of food safety and nutrition. Consumer concerns about, for example, the safety of pork products could discourage them from buying pork products and cause our results of operations to suffer.

We may be subject to substantial liability should the consumption of pork products made from our hogs cause personal injury or illness and, unlike most food companies in the United States, we do not maintain product liability insurance to cover potential liabilities.

The sale of food products for human consumption involves an inherent risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties or product contamination or degeneration, including the presence of foreign contaminants, chemical substances or other agents or residues during the various stages of the production process. While we are subject to governmental inspections and regulations, we cannot assure you that consumption of our products will not cause a health-related illness, or that we will not be subject to claims or lawsuits relating to such matters.

Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertions that our products caused personal injury or illness could adversely affect our reputation with customers and our corporate and brand image. Furthermore, our products could potentially suffer from product tampering, contamination or degeneration or be mislabeled or otherwise damaged. Under certain circumstances, our products may be recalled. Even if a situation does not necessitate a recall, we cannot assure you that product liability claims will not be asserted against us. A product liability judgment against us or a product recall could have a material adverse effect on our revenues, profitability and business reputation.

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We purchase many commodities for raw materials and packaging, and price changes for the commodities we depend on may adversely affect our profitability.

We have not entered into long term contracts for the purchase of raw materials at fixed prices. The raw materials used in our feed are largely commodities that can experience significant price fluctuations caused by external conditions and changes in governmental agricultural programs over which we exercise no influence. We attempt to recover commodity cost increases by increasing hog prices and creating additional operating efficiencies, but cannot assure that we will always be successful in offsetting these cost increases.

Our hog farming business could be adversely affected by fluctuations in pork commodity prices.

The price at which hogs are sold is directly affected by the supply and demand for pork products and other meat products in the PRC, all of which are determined by market forces and other factors over which we have little or no control. A downward fluctuation in the demand for pork may adversely impact our results of operations.

Our operations are subject to various risks, including the risks of being expropriated, forced to shut down or modified by the local or central government.

Concepts regarding private property and the right to use land are in the development stage in China. If the national or local government were to determine that the community at large would be better served if one of our farms were to alter or even cease its operations, or that the land on which one of our farms is located should be devoted to another purpose, it is likely that we would have no choice other than to comply with any order that might be issued. In such event, if we were to receive any compensation for the loss or interruption to our business, the amount of such would likely be far less than the damages incurred.

We may require additional financing in the future and our operations could be curtailed if we are unable to obtain required additional financing when needed.

We may need to obtain additional debt or equity financing to fund future capital expenditures. Any additional equity financing may result in dilution to the holders of our shares of capital stock. Additional debt financing may include conditions that would restrict our freedom to operate our business, such as conditions that:

·	limit our ability to pay dividends or require us to seek consent for the payment of dividends;
·	increase our vulnerability to general adverse economic and industry conditions;
·	require us to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for capital expenditures, working capital and other general corporate purposes; and
·	may limit our flexibility in planning for, or reacting to, changes in our business and our industry.

We cannot guarantee that we will be able to obtain any additional financing on terms that are acceptable to us, or at all.

Potential disruptions in the capital and credit markets may adversely affect our business, including the availability and cost of short-term funds for liquidity requirements, which could adversely affect our results of operations, cash flows and financial condition.

We may need to rely on the credit markets, particularly for short-term borrowings from banks within the PRC, as well as the capital markets, to meet our financial commitments and short-term liquidity needs if internal funds are not available from operations. Disruptions in the credit and capital markets could adversely affect our ability to draw on short-term bank facilities. Further, our access to funds under any such credit facilities is dependent on the ability of banks that are parties to those facilities to meet their funding commitments, which is dependent on governmental economic policies in the PRC. Banks that choose to enter into agreements with us may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from us and other borrowers within a short period of time.

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Our operating results may fluctuate from period to period.

Our operating results have fluctuated from period to period and are likely to continue to fluctuate as a result of a wide range of factors. For example, the pricing for hogs has experienced significant fluctuations. Additionally demand for pork in general is relatively high before the Chinese New Year in January or February and lower thereafter. Our production and sales are generally lower in the summer due to a slight drop in meat consumption during the warmer summer months.

The loss of any key customer could reduce our revenues and our profitability.

For our Hog Farming segment, our key customers are principally hog brokers, hog farmers and slaughterhouses in the PRC. For our Retail segment, our key customers include supermarkets, chain restaurants, hotels, and meat shops. There can be no assurance that we will maintain or improve the relationships with these customers or other customers, or that we will be able to continue to supply these customers at current levels or at all.

If we cannot maintain long-term relationships with our larger customers, the loss of our sales to them could have an adverse effect on our business, financial condition and results of operations.

Our bank accounts are not insured or protected against loss.

We maintain cash with various banks and trust companies located in the PRC and in Hong Kong. These cash accounts are not insured or otherwise protected. Should any bank or trust company holding our cash deposits become insolvent, or if we are otherwise unable to withdraw funds, we would lose the cash on deposit with that particular bank or trust company.

We are substantially dependent upon our senior management and key research and development personnel.

We are highly dependent on our senior management to manage our business and operations. In particular, we rely substantially on our co-Chief Executive Officers, Ms. Hanying Li, and Mr. Wocheng Liu, to manage our operations.

We also depend on our key research and development personnel for the development of new breeding, nutrition and farming technologies. We do not maintain key man life insurance on any of our senior management or key personnel. The loss of the services of one of them would have a material adverse effect on our business and operations. Competition for senior management and our other key personnel is intense and the pool of suitable candidates is limited. We may be unable to locate a suitable replacement for any senior management or key personnel that we lose. In addition, if any member of our senior management or key personnel joins a competitor or forms a competing company, they may compete with us for customers, business partners and other key professionals and staff members of our company. Although each of our senior management and key personnel has signed a confidentiality and non-competition agreement in connection with his employment with us, we cannot assure you that we will be able to successfully enforce these provisions in the event of a dispute between us and any member of our senior management or key personnel.

We compete for qualified personnel with other agricultural and technology companies and research institutions. Competition for these personnel could cause our compensation costs to increase, which could have a material adverse effect on our results of operations. Our future success and ability to grow our business will depend in part on our ability to identify, hire and retain additional qualified personnel. If we are unable to attract and retain qualified employees, we may be unable to meet our business and financial goals.

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We may not be able to adequately protect and maintain our intellectual property, trade secrets, and brand names.

We rely on a combination of trademark, trade secret, nondisclosure agreement and patent laws to protect our trade secrets and other valuable intellectual property and in particular, our premix formula. Protecting our intellectual property is critical to its innovation efforts. We own a number of patents, trade names and other forms of intellectual property in its products and services. We also have exclusive and non-exclusive rights to intellectual property owned by others. Our intellectual property may be challenged or infringed upon by third parties or we may be unable to maintain, renew or enter into new license agreements with third-party owners of intellectual property on reasonable terms. In some cases, the Company’s ability to protect its intellectual property rights by legal recourse or otherwise may be limited, particularly in countries where laws or enforcement practices are inadequate or undeveloped. Unauthorized use of the Company’s intellectual property rights or the Company's inability to preserve existing intellectual property rights could adversely impact the Company’s competitive position and results of operations.

We may not pay dividends.

We have not previously paid any cash dividends, and we do not anticipate paying any dividends on our common shares. Due to the seasonality and business cycles, we cannot assure you that our operations can bring in sufficient revenues to enable us to operate profitably or to generate positive cash flows every year. Furthermore, there is no assurance our Board of Directors will declare dividends even if we are profitable. Dividend policy is subject to the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements and other factors. If we determine to pay dividends on any of our common shares in the future, we will be dependent, in large part, on receipt of funds from our operations.

We may be subject to risks arising from litigation, legal and regulatory proceedings and obligations.

From time to time, the Company is subject to litigation or other commercial disputes and other legal and regulatory proceedings relating to its business. Due to the inherent uncertainties of any litigation, commercial disputes or other legal or regulatory proceedings, the Company cannot accurately predict their ultimate outcome, including the outcome of any related appeals. An unfavorable outcome could materially adversely impact the Company’s business, financial condition or results of operations. Furthermore, as required by U.S. generally accepted accounting principles (GAAP), the Company establishes reserves based on its assessment of contingencies, including contingencies related to legal claims asserted against it. Subsequent developments in legal proceedings may affect the Company's assessment and estimates of the loss contingency recorded as a reserve and require the Company to make payments in excess of our reserves, which could have an adverse effect on the Company's results of operations.

The Company is subject to national laws and regulations in China, relating to its business and its employees. Despite the Company's policies, procedures and compliance programs, its internal controls and compliance systems may not be able to protect the Company from prohibited acts willfully committed by its employees, agents or business partners that would violate such applicable laws and regulations. Any such improper acts could damage the Company's reputation, subject it to civil or criminal judgments, fines or penalties, and could otherwise disrupt the Company's business, and as a result, could materially adversely impact the Company's business, financial condition or results of operations.

We may be subject to risks relating to organizational changes.

We regularly execute organizational changes such as acquisitions, divestitures and realignments to support our growth and cost management strategies. We also engage in initiatives aimed to increase productivity, efficiencies and cash flow and to reduce costs. If we are unable to successfully manage these and other organizational changes, the ability to complete such activities and realize anticipated synergies or cost savings as well as the results of operations and financial condition could be materially adversely affected.

We may be subject to risks relating to changes in the demand for and supply of our products.

Demand for and supply of our products may be adversely affected by numerous factors, some of which the Company cannot predict or control. Such factors include:

changes in business relationships with and purchases by or from major customers, suppliers or distributors, including delays or cancellations in shipments, disputes regarding contract terms or significant changes in financial condition, and changes in contract cost and revenue estimates for new development programs;

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·	changes in product mix;

·	changes in the market acceptance of the Company’s products;

·	increased competition in the markets the Company serves;

·	declines in the availability, or increases in the prices of raw materials.

A write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and net worth.

Intangible assets are a substantial portion of our assets. At December 31, 2016 and 2015, intangible assets were $2.4 million and $2.8 million of our total assets, respectively. Our intangible assets may increase in the future since our strategy includes growth through acquisitions. We may have to write off all or part of intangible assets if their value becomes impaired. Although this write-off would be a non-cash charge, it could reduce our earnings and net worth significantly. In 2016 and 2015, we took no impairment charge in our intangible assets.

If we fail to implement our expansion plans, our financial condition and results of operations could be materially and adversely affected.

An important part of our strategy is to grow our business by acquiring other hog farms or develop a pork processing business. In addition, the operation of our Hog Farming and Retail businesses may require a significant cash investment to finance purchases of inventories we intend to sell. We may need to raise additional financing to implement our expansion strategy to acquire other companies and finance the operations of our existing businesses. We may not have access to the funding required for these plans on acceptable terms. Our expansion plans may also suffer significant delays as a result of a variety of factors, such as legal and regulatory requirements, either of which could prevent us from completing our plans as currently expected. Any failure to successfully implement our business strategy, including for any of the above reasons, could materially and adversely affect our financial condition and results of operations. We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.

As part of our growth strategy, we have acquired assets within the PRC. If any of our acquisitions are found not to comply with applicable laws or regulations, we might be required to make filings or submissions to PRC regulators or amend the terms of such acquisitions to meet PRC regulatory requirements.

We expect to continue to expand our operations in the PRC through identifying and acquiring hog farms or pork processing businesses with complementary products and services and have in recent years completed several farm acquisitions and acquisitions of new subsidiaries. While we believe that each of these acquisitions complied with all PRC laws and regulations, the regulatory environment that governs transactions in the PRC has continued to evolve in recent years and remains subject to interpretation by the agencies that have responsibility for reviewing or approving such transactions. If any of the acquisitions we completed were reviewed by a PRC regulator, it is possible that we may be required to demonstrate how the transaction complied with applicable PRC laws. This could require us to expend resources that would otherwise be used to manage our company. Further, if regulators determine that any of our transactions did not comply with applicable regulations, we may be required to renegotiate or revise the terms of the acquisition with the counterparties to the affected transaction. If such a scenario were to occur, we cannot be sure that our efforts to meet the regulator’s requirements would be successful, or that such efforts would not have an adverse effect on our operations.

Additionally, there can be no assurance that we will be able to find suitable businesses to purchase or to acquire such businesses. In addition, there is no assurance that we will be able to avoid acquiring or assuming unexpected liabilities, that we will be able to integrate successfully any businesses that it purchases into its existing business or that any acquired businesses will be profitable. The successful integration of new businesses depends on our ability to manage these new businesses and cut excess costs. If we are unable to avoid these risks, the results of operations and financial condition could be materially adversely affected.

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Also, we will need to issue additional financing to implement our expansion strategy to acquire more businesses and finance the operations of our current operations. We may not have access to the funding required for these plans on acceptable terms. Our expansion plans may also suffer significant delays as a result of a variety of factors, such as legal and regulatory requirements, either of which could prevent us from completing our plans as currently expected. Our expansion plans may also result in other unanticipated adverse consequences, such as the diversion of management’s attention from our existing operations. Any failure to successfully implement our business strategy, including for any of the above reasons, could materially and adversely affect our financial condition and results of operations. We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.

Foreign Operational Risks

We are dependent on the state of the PRC’s economy as all of our business is conducted in the PRC.

All of our business operations are conducted in the PRC, and all of our customers are also located in the PRC. Accordingly, our results of operations, financial condition and prospects are subject to economic, political and legal developments in China. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Any material slowdown in the PRC’s economy may cause a reduction in the demand and prices for our products, which may in turn lead to a decline in the demand for our products. Any to these could have a material adverse effect on our business, financial condition and results of operations.

Our business is located in China and subject to economic, political and legal developments in China.

The authorities in China have announced a crackdown on wasteful spending and illegal activities particularly in the financial industry. The authorities in China have tremendous leeway in determining who to arrest and what actions to take as part of this crackdown. Management has no reason to believe that any of our personnel other than Mr. Wang will be arrested as part of this crackdown and that there will be any other adverse impact on our Company as a result of this crackdown and the allegedly illegal activities of Mr. Wang. Nevertheless, there can be no assurance that our Company will not be adversely impacted by the crackdown or the investigation into the activities of Mr. Wang.

Since our operations and assets are located in the PRC, shareholders may find it difficult to enforce a U.S. judgment against the assets of our company, our directors and executive officers.

Our operations and assets are located in the PRC. In addition, most of our executive officers and directors are non-residents of the U.S., and substantially all the assets of such persons are located outside the U.S. As a result, it could be difficult for investors to affect service of process in the U.S., or to enforce a judgment obtained in the U.S. against us or any of these persons.

Fluctuation of the Renminbi (RMB) may indirectly affect our financial condition by affecting the economy of the PRC and by affecting our reported US dollar results.

Although we use the United States dollar for financial reporting purposes, nearly all of the transactions affected by WFOE and Fengze are denominated in the PRC’s currency, the RMB. The value of the RMB fluctuates and is subject to changes in the PRC’s political and economic conditions. Such fluctuations could adversely impact our US dollar denominated financial reports. We do not currently engage in hedging activities to protect against foreign currency risks. Future movements in the exchange rate of the RMB could adversely affect the economy of the PRC and thus the market for our products.

If any dividend is declared in the future, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you actually receive.

If you are a United States holder, you will be subjected to taxation on the U.S. dollar value of your dividends, if any, at the time you receive them. Specifically, if a dividend is declared and paid in a currency other than US dollars, the amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

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We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.

Based upon the nature of our business activities, we may be classified as a passive foreign investment company (“PFIC”), by the U.S. Internal Revenue Service (“IRS”), for U.S. federal income tax purposes. Such characterization could result in adverse U.S. tax consequences to you if you are a U.S. investor. For example, if we are a PFIC, a U.S. investor will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for U.S. tax purposes if either:

•	75% or more of our gross income in a taxable year is passive income; or

•	the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%.

We cannot assure you that we will not be a PFIC for any taxable year.

Introduction of new laws or changes to existing laws by the PRC government may adversely affect our business.

The PRC legal system is a codified legal system made up of written laws, regulations, circulars, administrative directives and internal guidelines. Unlike common law jurisdictions like the U.S., decided cases (which may be taken as reference) do not form part of the legal structure of the PRC and thus have no binding effect. Furthermore, in line with its transformation from a centrally planned economy to a more free market-oriented economy, the PRC government is still in the process of developing a comprehensive set of laws and regulations. As the legal system in the PRC is still evolving, laws and regulations or the interpretation of the same may be subject to further changes.

We do not have business interruption, litigation or natural disaster insurance.

The insurance industry in China is still at an early stage of development. In particular PRC insurance companies offer limited business products. As a result, we do not have any business liability or disruption insurance coverage for our operations in China. Any business interruption, litigation or natural disaster may result in our business incurring substantial costs not covered by insurance.

PRC laws and regulations governing our businesses are uncertain. If we are found to be in violation of such PRC laws and regulations, we could be subject to sanctions. In addition, changes in such PRC laws and regulations may materially and adversely affect our business.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business. Aoxin Tianli and WFOE are considered foreign persons or foreign invested enterprises under PRC law. As a result, Aoxin Tianli and WFOE are subject to limitations on foreign ownership of Chinese companies. These laws and regulations are relatively new and may be subject to change, and their interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may be applied retroactively.

The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses, and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. Any of these or similar actions could disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.

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Recent PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to personal liability and limit our ability to inject capital into WFOE, limit WFOE’s ability to increase its registered capital, distribute profits to us, or otherwise adversely affect us.

On October 21, 2005, the SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which became effective as of November 1, 2005. This Notice and other regulations, which require our shareholders who are PRC residents to make various filings, may have various adverse impacts upon our company and its operations. The failure or inability of our PRC resident shareholders to make any required registrations or comply with other requirements may subject such shareholders to fines and legal sanctions and may also limit our ability to contribute additional capital into or provide loans to WFOE or Fengze, limit their ability to pay dividends or otherwise distribute profits to us, or otherwise adversely affect us.

Our business benefits from certain government incentives. Expiration, reduction or discontinuation of, or changes to, these incentives will increase our tax burden and reduce our net income.

The PRC government has provided tax incentives and subsidies to domestic companies in our industries to encourage the development of agricultural businesses in China. We have received business tax exemptions, subsidies and government incentives in connection with Fengze’s ownership of hog farms and WFOE’s management of these operations. An example is that both Fengze and WOFE were exempted from income taxes for 2016 and prior years.

The PRC government authorities may reduce or eliminate these incentives through new legislation at any time in the future. In the event that we are no longer exempt from income taxation, our applicable tax rate would increase from 0% to up to 25%, the standard business income tax rate in the PRC. Similarly, the termination of the government practice of partially subsidizing the cost of hog insurance could reduce our profits or cause such insurance to become more expensive as fewer farmers elected to purchase such insurance. The reduction or discontinuation of any of these economic incentives could negatively affect our company.

The PRC’s labor law restricts our ability to reduce our workforce in the PRC in the event of an economic downturn and may increase our production costs.

Current law provides for specific standards and procedures for the termination of an employment contract and places the burden of proof on the employer. In addition, the law requires the payment of a statutory severance pay upon the termination of an employment contract in most cases, including the case of the expiration of a fixed-term employment contract. Further, downsizing of more than 20 people or more than 10% of the workforce may occur only under specified circumstances. To date, there has been very little guidance and precedents as to how such specified circumstances for downsizing will be interpreted and enforced by the relevant PRC authorities. All of our employees working for us exclusively within the PRC are covered by the new law and thus our ability to adjust the size of our operations when necessary may be curtailed. Accordingly, if we face periods of decline in business activity or adverse economic periods specific to our business, this new law could exacerbate the adverse effect of the economic environment on our results of operations and financial condition.

If relations between the United States and China become an issue, our share price may decrease and we may have difficulty accessing U.S. capital markets.

At various times during recent years, the United States and China have had disagreements over political, economic and other issues. Controversies may arise in the future between these two countries. Any political or trade controversies between the United States and China could adversely affect the market price of our common shares and our ability to access U.S. capital markets.

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The Chinese government could change its policies toward private enterprise or even nationalize or expropriate private enterprises, which could result in the total loss of our investment in China.

Our business may be adversely affected by political, economic and social developments in China. For many years, the Chinese government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. However in the future the Chinese government may decide not to pursue these policies or may alter them to our detriment with little, if any, prior notice. Nationalization or expropriation could even result in the total loss of our investment in China and in the total loss of your investment in us.

Because our operations are located in China, information about our operations are not readily available from independent third-party sources.

Because WFOE and Fengze are based in China, our shareholders may have greater difficulty in obtaining information about them on a timely basis than would shareholders of a U.S.-based company. Information available from newspapers, trade journals, or local, regional or national regulatory agencies such as issuance of construction permits and contract awards for development projects will not be readily available to shareholders and, where available, will likely be available only in Chinese. Shareholders will be dependent upon management for reports of their progress, development, activities and expenditure of proceeds.

Our failure to obtain prior approval of the China Securities Regulatory Commission (“CSRC”) of the listing and trading of our common shares on a foreign stock exchange could have a material adverse effect upon our business, operating results, reputation and trading price of our common shares.

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Industry and Commerce, the CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “New M&A Rule”). The New M&A Rule became effective on September 8, 2006. This regulation contains provisions that purport to require that an offshore special purpose vehicle (“SPV”) formed for listing purposes and controlled directly or indirectly by PRC companies or individuals shall obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of overseas listings.

However, the application of the New M&A Rule remains unclear with no consensus currently existing among leading PRC law firms regarding the scope and applicability of the CSRC approval requirement.

If prior CSRC approval for our structure and initial public offering was required, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory authorities. These authorities may impose fines and penalties upon our operations in the PRC, limit our operating privileges in the PRC, or take other actions that could have a material adverse effect upon our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common shares.

Risks Relating to our Common Stock and our Status as a Public Company

The market price for our common shares may be volatile, which could result in substantial losses to investors.

The market price for our common shares may be volatile and subject to wide fluctuations in response to factors including the following:

•	actual or anticipated fluctuations in our quarterly operating results;

•	changes in the Chinese economy;

•	announcements by our competitors of acquisitions, strategic partnerships, joint ventures or capital commitments;

•	additions or departures of key personnel;

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•	uncertainties about PRC companies generally; or

•	potential litigation.

In addition, the securities markets have from time to time experienced price and volume fluctuations that are not related to the operating performance of particular companies. As a result, to the extent shareholders sell our shares, they may not receive a price per share that is based solely upon our business performance. We cannot guarantee that shareholders will not lose some of their entire investment in our common shares.

If our financial condition deteriorates, we may not meet continued listing standards of the NASDAQ Capital Market and our shareholders could find it difficult to sell our shares.

Our common shares are listed on the NASDAQ Capital Market. The NASDAQ Capital Market requires companies to fulfill specific requirements in order for their shares to continue to be listed. If we fail to continue to meet NASDAQ’s continued listing requirements and if our shares are delisted from the NASDAQ Capital Market at some later date, our shareholders could find it difficult to sell our shares.

Our management is generally not familiar with the United States securities laws and the customs and practices of businesses outside of China.

Our management is generally unfamiliar with the requirements of the United States securities laws and may not appreciate the need to devote the resources necessary to comply with such laws. A failure to adequately respond to the requirements of the applicable securities laws could lead to investigations by the Securities and Exchange Commission and other regulatory authorities that could be costly, divert management's attention and disrupt our business. Moreover, our management is not familiar with the customs and business practices utilized outside of China to manage businesses. Such lack of familiarity may result in decisions being made that are contrary to the expectations of investors in the United States or Europe.

We will incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance requirements.

As a public company we will incur significant legal, accounting and other expenses under the Sarbanes-Oxley Act of 2002, together with rules implemented by the Securities and Exchange Commission and applicable market regulators. These rules impose various requirements on public companies, including requiring certain corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

Ability to opt out of NASDAQ Marketplace Rules

NASDAQ Marketplace Rule 5615(a)(3) permits a foreign private issuer to follow its home country practice in lieu of most of the requirements of the 5600 Series of the NASDAQ Marketplace Rules. In order to claim such an exemption, we must disclose the significant differences between our corporate governance practices and those required to be followed by U.S. domestic issuers under NASDAQ’s corporate governance requirements. We previously determined to follow our home country rule which allowed us to sell more than 20% or more of our shares outstanding prior to the transaction for less than the greater of book or market value of the stock.

We also have opted out of NASDAQ Marketplace Rule 5635(a)(2) which requires each issuer to obtain shareholder approval prior to the issuance of its shares in connection with the acquisition of the stock or assets of another company if any director, officer or Substantial Shareholder (as defined by NASDAQ Marketplace Rule 5635(e)(3)) of the issuer has a 5% or greater interest (or such persons collectively have a 10% or greater interest) directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction or series of related transactions and the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, could result in an increase in common shares or voting power of 5% or more. The presence of this rule would preclude us from issuing shares of our common stock, or securities convertible into or exercisable for common stock, in connection with an acquisition if the issuance would result in an increase in common shares or voting power of 5% or more, and any of our directors or officers, or any shareholder owning 5% or more or group of shareholders owning 10% or more of our outstanding shares, had a 5% or greater interest in the company or assets to be acquired or the consideration to be paid.

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In the British Virgin Islands, our jurisdiction of organization or home country, shareholder approval is not required for a transaction which would require shareholder approval pursuant to Rule 5635(a)(2), unless the transaction is with an “Interested Shareholder” as that term is defined in Article 23 of our Articles of Association. We have determined that neither Ms. Li nor any of our other current directors or officers is an Interested Shareholder. Therefore, under the laws of the British Virgin Islands and our constituent documents, we would not be required to obtain shareholder approval if we engaged in a transaction in which one or more of such individuals had an interest in the company or assets to be acquired, or consideration to be paid, even if shareholder approval would be required by Rule 5635(a)(2) and, should we intend to engage in any such transaction, we intend to rely upon the exemption provided by NASDAQ Marketplace Rule 5615 from the requirements of NASDAQ Marketplace Rule 5635(a)(2) rather than put the matter to a shareholder vote.

In the future we could determine to opt out of other requirements of the 5600 Series of the NASDAQ Marketplace Rules.

Shares eligible for future sale may adversely affect the market price of our common shares, as the future sale of a substantial amount of outstanding common shares in the public marketplace could reduce the price of our common shares.

The market price of our shares could decline as a result of sales of substantial amounts of our shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds if required through future offerings of our common shares. As of March 14, 2017, we had outstanding an aggregate of 7,988,245 common shares, of those shares, 1,840,000 are restricted shares owned by non-affiliates that can be freely transferable or are tradable subject to the satisfaction of certain conditions without registration under the Securities Act, 3,638,750 are owned by our affiliates that may be sold in the future without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act. The shares held by our affiliates could also be sold in private transactions or transactions outside of the United States without the being reported in the United States.

Our former chief executive officer owns a significant percentage of our common shares, decreasing your influence on shareholder decisions.

Mr. Ping Wang, our former Chairman and Chief Executive Officer, beneficially owns approximately 30.53% of our outstanding common shares. In addition, our current Co-Chief Executive Officer, Ms. Hanying Li, as well as one of our directors, owns approximately 10.01% of our outstanding common shares. As a result, Mr. Wang and Ms. Li possess substantial ability to impact our management and affairs and the outcome of matters submitted to shareholders for approval. These shareholders, acting individually or as a group, could exert control and substantial influence over matters such as electing directors and approving mergers or other business combination transactions. This concentration of ownership and voting power may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our common shares.

We may suffer a change in control and our business could be significantly harmed if our Chief Executive Officer or other significant employees pledge their common shares to secure loans and default in the payment of those loans.

If our former Chief Executive Officer, Mr. Ping Wang, who owns approximately 30.53% of our outstanding common shares, or Ms. Li, our current Co-Chief Executive Officer and director, who owns approximately 10.01% of our outstanding common shares, was to pledge his or her shares to secure the payment of a loan, and then default in the payment of that loan, the default could result in a sale of a substantial number of our common shares resulting in a decrease in the price of our shares and a change in control of our company.

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As the rights of shareholders under British Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.

Our corporate affairs will be governed by our amended and restated memorandum and articles of association, the British Virgin Islands Business Companies Act, 2004 (the “BVI Act”), and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a large extent governed by the common law of the British Virgin Islands and by the BVI Act. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States.

As a result of all of the above, holders of our shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company.

British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect their interests.

British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.

The laws of the British Virgin Islands provide little protection for minority shareholders, so minority shareholders will have little or no recourse if the shareholders are dissatisfied with the conduct of our affairs.

Under the law of the British Virgin Islands, there is little statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of the corporation, our amended and restated memorandum and articles of association. Shareholders are entitled to have the affairs of the company conducted in accordance with the general law and the articles and memorandum.

Item 2. Properties

Hog Farming Segment

We currently operate eight hog farms within Hubei Province. We also maintain an office for our headquarters in Wuhan City. We have two farms that are less than 10 acres each. The largest hog farm currently operating contains approximately 80 acres and has an annual capacity of 20,000 hogs.

These farms are generally located on lands that we lease from farming associations. Under Chinese law, the traditional farmers, represented by local farming authorities, are able to lease this land to us to develop for agricultural purposes. The commercial leases are held for periods of between 20 and 50 years, depending on the local farming authority.

We also have an office located at 2nd Floor, No. 31, Yunlin Street, Jiangan District, Wuhan City, Hubei Province, China 430010 with space of 1,372.09 square meters, which we acquired in December 2014.

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At the conclusion of the current leases, we expect to have the ability to renew the leases.

Property	Address	Rental Term	Space
Wuhan (headquarters)	Suite K, 13th Floor Building A, Jiangjing Mansion 228 Yanjiang Ave Jiangan District, Wuhan City, Hubei Province, China 430010	1 year (December 1, 2016-November 30, 2017)	5170 square feet

Farm 1 (annual capacity 20,000 hogs)	Qigang Village, Huangpi District, Wuhan	30 years (May 30, 2005 - May 29, 2035)	42.83 acres

Farm 4 (annual capacity 20,000 hogs)	Rongjiazhai Village, Liji Town, Huangpi District, Wuhan, Hubei	30 years (December 31, 2006 - December 31, 2036)	18.12 acres

Farm 5 (annual capacity 10,000 hogs)	Hongqiang Village, Liji Town, Huangpi District, Wuhan, Hubei	30 years (March 1, 2008 - January 1, 2038)	24.71 acres

Farm 6 (annual capacity 10,000 hogs)	Sanxingyuan Village, Hanchuan City, Hubei	20 years (January 1, 2007 - December 31, 2026)	11.53 acres

Farm 7 (annual capacity 10,000 hogs)	Sanxingyuan Village, Hanchuan City, Hubei	20 years (January 1, 2007 - December 31, 2026)	13.18 acres

Farm 9 (annual capacity 20,000 hogs)	Zhulin Village, Yaoji Street, Huangpi District, Wuhan, Hubei	50 years (February 1, 2008 - January 31, 2058)	79.07 acres

Farm 10 (annual capacity 20,000 hogs)	Quanhua Village, Hengdian Street, Huangpi District, Wuhan City, Hubei	20 Years (August 1, 2010 to July 31, 2030)	11.34 acres

Farm 11 (annual capacity 20,000 hogs)	Enshi Tujia and Miao Autonomous Prefecture of Hubei	25 Years (September, 2007 to September, 2032)	23.72 acres

Retail Segment

We operate our retail business and maintain our sales team in our headquarters office in Wuhan City.

Item 3. Legal Proceedings

There are no pending legal proceedings to which we are a party or in which any of our directors, officers or affiliates, any owner of record or beneficially of more than 5% of any class of our voting securities, or any security holder is a party adverse to us or has a material interest adverse to us. Our property is not the subject of any pending legal proceedings.

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Item 4. Mine Safety Disclosures

Not applicable.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Our Common Shares

Our common stock has been listed on the Nasdaq Capital Market since August 6, 2013, and prior thereto on the Nasdaq Global Market, under the symbol “OINK.” and since July 29, 2014, under the symbol “ABAC.” The prices set forth below reflect the quarterly high and low closing prices of a share of our common shares for the periods indicated as reported by Nasdaq.

		High		Low
Quarter Ended March 31, 2015	$	7.24	$	5.48
Quarter Ended June 30, 2015	$	7.32	$	5.44
Quarter Ended September 30, 2015	$	5.56	$	2.04
Quarter Ended December 31, 2015	$	4.80	$	1.92
Quarter Ended March 31, 2016	$	3.72	$	2.24
Quarter Ended June 30, 2016	$	3.32	$	2.32
Quarter Ended September 30, 2016	$	3.52	$	1.80
Quarter Ended December 31, 2016	$	3.85	$	2.01

Holders

On December 31, 2016, there were approximately 16 stockholders of record of our common shares. The number of record holders does not include persons who held our common stock in nominee or “street name” accounts through brokers.

Dividends

We have never declared or paid any cash dividends on our common shares. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the Board of Directors may deem relevant.

If we determine to pay dividends on any of our common shares in the future, as a holding company, we will be dependent on receipt of funds from WFOE, which in turn would be dependent on the receipt of dividends from Fengze. Payments of dividends by WFOE to our Company are subject to laws and regulations in the PRC including the requirement that foreign invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business. Further, such remittances would require WFOE to provide an application for remittance that includes, in addition to the application form, a foreign registration certificate, board resolution, capital verification report, audit report on profit and stock bonuses, and a tax certificate. There are no such similar foreign exchange restrictions in the British Virgin Islands.

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Recent Sales of Unregistered Securities

Except as previously reported in the reports filed under the Exchange Act, we did not issue or sell any unregistered securities during the year ended December 31, 2016.

Purchases of Our Equity Securities

Neither we nor any of our affiliates purchased any equity securities from our stockholders during the fourth quarter of the year ended December 31, 2016.

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information about common shares available for issuance under compensatory plans and arrangements as of December 31, 2016.

			(c)
			Number of securities
	(a)		remaining available
	Number of	(b)	for future issuance
	securities to be	Weighted-average	under equity
	issued upon	exercise price of	compensation
	exercise of	outstanding options	plans (excluding
	outstanding	under equity	securities reflected in
Plan Category	options	compensation plans	column (a)

Equity compensation
plan approved by
security holders	15,750	$10.00	309,250

Equity compensation
plans not approved by
security holders	-	-	None

Total	15,750	$10.00	309,250

Item 6. Selected Financial Data

This item does not apply to smaller reporting companies.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

The following discussion and analysis of our Company’s financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements.

Overview

Our Company is in the business of breeding, raising, and selling hogs in the Wuhan City area of the PRC, and distributes specialty processed black hog products through supermarkets and other outlets and direct to consumers via the internet. In an effort to significantly increase the scale of our operations, in 2012 we concluded the Exclusivity Agreements, whereby we were granted the exclusive right to breed and sell Enshi black hogs in Enshi Autonomous Prefecture in Hubei Province. The agreements call for the joint development, funding and operation of local cooperatives in the Enshi Autonomous Prefecture in Hubei Province whereby the Company, the relevant governmental agencies and the cooperatives will assist participating farmers to breed and raise Enshi black hogs which will be purchased by the Company for resale as meat hogs or retained or sold as breeders at the Company’s discretion. This program allows us to profit from the black hogs grown by the participating farmers who purchase feed, vaccines and other supplies from us and then sell us their hogs at a price which is comparable to the costs at which we currently grow our own hogs.

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By the end of the first quarter of 2014 we had funded and completed the construction of 798 farms for local farmers. After providing the financing necessary for completion of the construction for 798 farms, we decided to stop providing capital to the program and focus on our black hog retail operations. Due to the extensive damages suffered by 172 farms as a result of July’s record rainfall in Wuhan, the cooperation agreements with 172 damaged small-scale hog farms were terminated.

In July 2014, our management determined to diversify our operations by acquiring various emerging high technology companies. In accordance with such plan, in July 2014, we acquired 88% of the equity of Hang-ao for consideration of $9,055,605, including RMB 42 million or approximately $6.8 million in cash and 261,750 of our common shares. In addition, in August 2014, we and consummated a stock purchase agreement whereby we acquired 95% of the outstanding equity of OV Orange.

However, in early 2015, due to disruptions in the Chinese economy we began to reconsider this strategy. In the fourth quarter of 2015, we determined to focus on the Agricultural industry and sell Hang-ao and OV Orange. In December 2015, we sold our 95% of the equity of OV Orange for RMB 47.5 million or approximately $7.3 million in cash, as a condition of the sale, the 100,750 “earn-out” shares deposited in escrow and issued to Mr. Hai Liu, CEO and the former beneficial owner of OV Orange will be released to him at the end of March, 2017 as previously stipulated in the acquisition agreement. On December 23, 2016, we completed equity transfer agreements with Zhongbicheng Holdings Co., Ltd. for the sale of our 88% equity interest in Hang-ao for a selling price of RMB 26 million ($3.9 million).

For the 2016 and 2015 the operating results of Hang-ao and OV Orange, were reflected in the Company’s financial statements as discontinued operations.

Principal Factors Affecting our Results of Operations

Revenues

In our hog farming segment, we derive the bulk of our revenues from the sale of hogs to other hog farms for breeding purposes, to brokers who sell our hogs both to other hog farms for breeding purposes and to slaughterhouses, and directly to slaughterhouses. We breed and raise hogs that are eventually sold as either breeder or market hogs which will be sold to slaughter houses for conversion into pork products. Some hogs are bred and raised for sale as market hogs, while others become market hogs because customers do not select them as breeder hogs. As very few boars are required for breeding purposes, and approximately half of a litter will be males, most males are sold as market hogs. The average sales price for a breeder is significantly higher than that of a market hog, and since breeder hogs are sold at a younger age than market hogs and usually weigh about 110 pounds at the date they are sold, as compared to the average weight of about 220 pounds for a market hog on sale date, the direct cost of feeding and otherwise raising a breeder hog is less than a market hog. Thus, the gross margin for breeder hogs is substantially higher than that of market hogs. Consequently, the Company has focused its operations to increase the proportion of its sales represented by breeder hogs, and its success in so doing has been a major contributor to its operating profit.

In our retail segment, we generate our revenues from selling black hog meat products through supermarkets and other direct sale outlets, and direct to consumers via the internet.

We receive subsidies from the government for operating our farms, as well as financial support from the government for some of our research projects. Some of these subsidies are non-recurring, such as the payment we receive when farms reach specified annual production capacities, for the acquisition of certain operating equipment, or for specific research projects. Others, such as subsidies for breeder hog insurance, are ongoing so long as we qualify. Of course, there is no assurance the government will continue any of its policies for granting subsidies.

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Factors Affecting Revenues and Profitability

The following factors, among others, affect the revenues and profitability that we derive from our operations.

Consumer demand for pork products. Consumer demand for pork products is closely linked to the performance of the general Chinese economy and is sensitive to business and personal discretionary spending levels.

Declines in consumer demand may occur as a result of adverse general economic conditions. Lower consumer confidence and changes in consumer preferences for pork as compared with other meats can lower the revenues and profitability of our operations. As a result, changes in consumer demand and general business cycles can subject our revenues to volatility.

Revenues resulting from the sale of breeder hogs. A significant amount of our revenues and operating margin result from the sale of young breeder hogs for use by other hog farmers. Because these breeder hogs command a price significantly higher than market hogs, and are sold at a younger age, thus incurring less feed and related finishing expenses, the profitability of the sale of a breeder hog is higher than that for the sale of a market hog. A significant reduction in the proportion of our sales that are breeder hogs would very likely significantly reduce our overall profit margin.

Government action in our industry. Because pork occupies such a central role in the Chinese diet, the government has occasionally taken action to prevent the price of pork from dropping below specified levels and has provided subsidies to companies engaged in hog farming. We benefit from this protection, and we could be harmed if the government terminated such practices. In addition, the government has taken actions to prevent the spread of diseases among livestock, including mandatory culls of affected animals. These actions have occasionally resulted in relative shortages, which tend to lead to higher prices for healthy animals, and could result in a reduction of our stock, thus reducing revenues and profit. Likewise it is possible that the government could implement some form of price controls that adversely impact our ability to price our products so as to recover increases in costs such as feed.

Competition and subsidies. While the hog farming industry in Hubei province and the Wuhan City area includes a large number of farms, many of those farms are smaller farms that sell relatively few hogs per year. We believe the incentives being given to farms that reach specified annual production capacities are likely to result in a consolidation of the industry. Our ability to increase our production capacity and thus to qualify for these incentives for our operations allows us to receive non-recurrent benefits from these subsidies, as well as to benefit from increased economies of scale in our operations.

Expansion. We believe we must further strengthen our livestock business by developing more diversified retail channels or developing our own pork processing business. If we fail to develop more diversified retail channels or create our own pork processing business, our revenue growth could slow.

Epidemic outbreaks. The outbreak of animal diseases could adversely affect our revenues. An occurrence of serious animal diseases, such as foot-and-mouth disease, or any outbreak of other epidemics in the PRC affecting animals or humans might result in material disruptions to our sales.

Taxes. We believe that the provisions of the PRC’s Enterprise Income Tax law currently provide our hog breeding operations with an exemption from PRC income taxes, VAT taxes and business service taxes. If this understanding is incorrect or if the law or interpretations of the law change, this could significantly impact the Company’s net operating results.

Costs and Expenses

We primarily incur the following costs and expenses:

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Costs of goods sold. In raising hogs for sale, we incur a number of costs that represent the costs of goods sold. We must purchase hog feed, premix components, medicines and other supplies to grow our hogs and keep them healthy. In addition to these items, cost of goods sold includes expenses such as the amortization of the sows (referred to as biological assets), farm employee wages, water, electricity, equipment depreciation expense, maintenance expense, quarantine expense, equipment costs, insurance expense, and sewage charges.

General and administrative expenses. General and administrative expenses consist primarily of compensation expense for our corporate staff, professional fees (including consulting, audit and legal fees), communication costs, research and development costs, gasoline, welfare expenses, education expenses, travel and business hospitality expenses, land rent, and other office administrative and related expenses.

Sales and marketing costs. Sales and marketing costs include salaries, wages, and promotion expenses.

Factors Affecting Expenses

Supplies and commodity prices. The largest component of our expenses relates to the price of materials required to breed and raise hogs for sale. Specifically, while we ordinarily breed our own hogs, we periodically purchase breeding stock to improve our genetic breeding pool. Similarly, the prices of corn and soybean husks in China are important to our operations, because corn and soybean husks are the primary component of the hogs’ diet. To the extent the prices of these materials vary, our cost of goods will fluctuate, and we may not be able to recover higher costs by charging higher prices for our products. For this reason, we may be affected by droughts, floods, crop diseases and the like, which tend to make feed scarcer and thus more expensive.

Number of customers. The more customers we have, the greater the likelihood that related selling expenses, travel expenses and other similar costs will increase. At present, we sell substantially all of our hogs to a relatively small number of customers. We believe this concentration of customers in our hog sales has allowed us to focus our marketing and selling efforts.

Number of farms we operate. We have acquired or constructed a number of hog farms, and may acquire additional hog farms in the future. As we operate more farms, our administrative expenses tend to increase in dollars terms.

Retail expenses. As we pursue a strategy of providing our branded product to retail outlets, we expect that we will face additional costs such as promotion and advertising expenses to establish our brand image and retail recognition.

In connection with the Enshi Black Hog program, we have agreed to incur various costs and contribute various amounts to cover the costs of different aspects of the program. Since 2011, we signed 7 joint development agreements, generally for periods of 10 years, whereby the Company, the relevant governmental agencies and the cooperatives will assist participating farmers to breed and raise Enshi black hogs which will be purchased by us for resale as meat hogs or retained or sold as breeders at our discretion. Under these agreements, we provided funding to local independent farmers to construct small-scale hog rearing facilities on which the farmers grow black hogs for sale to us. Pursuant to these joint development agreements, title to these small-scale hog rearing facilities belongs to us and the local cooperatives (and the individual farmers) have the right to use them. We have constructed or purchased $11.24 million dollars of hog rearing facilities and equipment that has been completed and is operational and included in plant and equipment. After providing the financing necessary for completion of the construction for 798 farms, we decided to temporarily stop providing capital to the program and focus on our black hog retail operations. The heavy rainfall in Wuhan in July 2016 damaged a number of these farms and as the result, the cooperation agreements with 172 damaged small-scale hog farms were terminated.

Results of Operations

The results of operations of Hang-ao and OV Orange, were reclassified as discontinued operations in the Company’s financial statements for the years ended December 31, 2016 and 2015 based on the Company’s decision to focus on the hog industry and the sale of OV Orange on December 29, 2015 and Hang-ao on December 23, 2016.

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Comparison of the Results of Operations for the Years Ended December 31, 2016 and 2015

All amounts, other than percentages, are in U.S. dollars

	For the Years Ended December 31,									Percentage of
	2016			2015			Net Change			Change
Revenues	$	33,697,680		$	37,367,956		$	(3,670,276	)		(9.82	%)
Cost of goods sold		27,290,471			28,670,968			(1,380,497	)		(4.81	%)
Gross profit		6,407,209			8,696,988			(2,289,779	)		(26.33	%)
Selling, general and administrative expenses		3,959,160			5,062,936			(1,103,776	)		(21.80	%)
Income from operations		2,448,049			3,634,052			(1,186,003	)		(32.64	%)
Interest income (expense), net		139,066			103,228			35,838			34.72	%
Subsidy income		22,524			3,532			18,992			537.71	%
Loss from disposal of hog farms		-			(779,337	)		779,337			(100	%)
Gain from disposal of construction in progress		-			4,254			(4,254	)		(100	%)
Flood damage		(1,670,820	)		-			(1,670,820	)		n/a
Other income, net		2,258			16,363			(14,105	)		(86.20	%)
Net other expense		(1,506,972	)		(651,960	)		(855,012	)		131.14	%
Income before income taxes		941,077			2,982,092			(2,041,015	)		(68.44	%)
Income taxes		-			-			-			n/a
Net income from continuing operations		941,077			2,982,092			(2,041,015	)		(68.44	%)
Loss from operations of discontinued component, net of taxes		(3,149,566	)		(690,385	)		(2,459,181	)		356.20	%
Gain from disposal of discontinued component, net of taxes		70,820			2,144,226			(2,073,406	)		(96.70	%)
Net income (loss)	$	(2,137,669	)	$	4,435,933		$	(6,573,602	)		(148.19	%)

The following table sets forth information as to the gross margin for our two business segments for the years ended December 31, 2016 and 2015 (dollars in thousands).

	Year Ended December 31, 2016
	Hog Farming			Retail			Total
Revenues	$	31,449		$	2,248		$	33,697
Cost of goods sold	$	25,630		$	1,660		$	27,290
Gross profit	$	5,819		$	588		$	6,407
Gross margin %		19	%		26	%		19	%

	Year Ended December 31, 2015
	Hog Farming			Retail			Total
Revenues	$	35,904		$	1,464		$	37,368
Cost of goods sold	$	27,588		$	1,083		$	28,671
Gross profit	$	8,316		$	381		$	8,697
Gross margin %		23	%		26	%		23	%

Revenues. For the year ended December 31, 2016, we had revenues of $33,697,680, as compared to revenues of $37,367,956 for 2015. Our revenues decreased by $3,670,276 or 9.82%. This reduction in revenues reflected the impact from the sale of 2 hog farms in the third quarter of 2015. Those hog farms contributed $4.4 million in revenues in 2015. In addition, we suffered inventory losses from the July flood damage. Although we sold fewer hogs during 2016, the adverse effect was partly offset by improved hog selling prices for regular market hogs and black market hogs.

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The tables below illustrate our sales of breeder hogs, market hogs, black hogs and specialty pork products for the years ended December 31, 2016 and 2015.

Revenues by Products

	Years Ended December 31,
	2016						2015
	No. of Hogs Sold		Average Price/Hog		Sales		No. of Hogs Sold		Average Price/Hog		Sales
Breeder Hogs – regular hogs		15,957	$	249	$	3,966,831		26,349	$	266	$	7,018,572
Market Hogs – regular hogs		60,808	$	220		13,393,781		76,683	$	209		16,048,376
Market Hogs – black hogs		50,595	$	278		14,088,641		57,819	$	222		12,836,744

Total		127,360	$	247	$	31,449,253		160,851	$	223	$	35,903,692

	Years Ended December 31,
	2016						2015
	Kilogram		Average Price/kg		Sales		Kilogram		Average Price/kg		Sales
Market Hogs – specialty black hog pork products		462,499	$	5	$	2,248,427		290,154	$	5	$	1,464,264
Total		462,499	$	5	$	2,248,427		290,154	$	5	$	1,464,264

As can be seen from the above, the number of “regular breeder hogs” and “regular market hogs” sold decreased 39% and 21% in the year over year period. As the average price per hog changed (6%) and 5%, respectively, our revenues from sales of regular hogs decreased $5,706,336 in total. As also can be seen from the above, during the year ended December 31, 2016 the number of black hogs sold decreased 12% from the number sold in 2015, primarily as a result of inventory losses from the July flood damage which was partly offset by the recovery in production by the independent farmers in our black hog program. Since the average selling price per black hog increased significantly year over year, our revenues from sales of black hogs increased 10% despite the reduction in unit sales.

During the year ended December 31, 2016, 462,499 kilograms of black hog meat were used to produce specialty pork products sold in our retail business a 59% increase compared to the comparable period of the prior year. This increase in volume, along with a consistent selling price for our specialty pork products resulted in an improvement in our revenues year over year.

Cost of goods sold. For the year ended December 31, 2016, cost of goods sold was $27,290,471 as compared to $28,670,968 for the same period of 2015, a decrease of $1,380,497, or 4.81%. The decrease in cost of goods sold primarily results from a reduction in costs in our Hog Farming segment which decreased $1,957,655, which benefited from a reduction in the purchase prices for our feeds and the sale of two of our farms. Cost of goods sold as a percentage of sales in our Retail segment was consistent year over year.

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Profit Margins. Our gross margin decreased to 19% in the year ended December 31, 2016 from 23% in 2015. Our gross profit was $6,407,209 for 2016 as compared to $8,696,988 for 2015. This decrease in our gross profit reflected the reduction in our business as a result of the disposal and closure of hog farms in prior years and the flood damage in July 2016 which both limited our hog sale force and bargain power over feed cost control with our suppliers.

Our gross margin from our Hog Farming and Retail segments were 19% and 26%, respectively, in 2016 as compared to 23% and 26% in 2015. The reduction in our gross profit from our Hog Farming segment was primarily the result of significant setbacks in sales of our higher margin products, regular breeder hogs, with decreases in unit price and volume.

Expenses. Selling, general and administrative expenses decreased by $1,103,776 in 2016 as compared to 2015. The decrease was primarily the result of a decrease of $0.5 million in stock based compensation, a decrease of $0.1 million in our bad debt expense, and a decrease of $0.2 million in our depreciation expense as a result of the disposal of two hog farms in 2015.

Net Other Expense. We had a net other expense of $1,506,972 during the year 2016, compared to a net expense of $651,960 in 2015, an increase of $855,012, which was primarily due to the extreme weather impact which caused damages at our facilities at $1,670,820.

Income Taxes. Our Hog Farming and Retail segments are exempt from the Chinese income tax and VAT.

Net Income (Loss). Our net income from continuing operations was $941,077 and $2,982,092 for the years ended December 31, 2016 and 2015, respectively. The decrease of approximately $2.0 million year over year was largely due to the flood damage caused by the extreme weather and reduced demand for our higher margin products, regular breeder hogs. Our net income (loss) for 2016 and 2015 was ($2,137,669) and $4,435,933, respectively. The net loss for 2016 was the result of the loss of $3,149,566 incurred in our discontinued operations. We sold Hang-ao on December 23, 2016, completing the divestiture of our discontinued operations.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At December 31, 2016 our working capital was $57,497,640 as compared to $63,982,835 at December 31, 2015. These funds are deposited in financial institutions located as follows:

	December 31, 2016					December 31, 2015
Country	Dollar		%			Dollar		%
United States	$	-		-		$	-		-
China		54,458,026		100	%		49,656,897		100	%
	$	54,458,026		100	%	$	49,656,897		100	%

Consolidated Statement of Cash Flows

	Year Ended December 31,
	2016			2015
Net cash provided by operating activities	$	10,047,286		$	21,246,034
Net cash provided by investing activities		(1,242,258	)		3,975,423
Net cash used in financing activities		(301,069	)		(11,979,698	)
Exchange rate effect on cash		(3,702,830	)		(2,708,731	)
Net cash inflow	$	4,801,129		$	10,533,028

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Cash Provided by Operating Activities

Net cash provided by operating activities in the year ended December 31, 2016 totaled $10,047,286. Cash flow pertaining to operating activities from continuing operations benefited from non-cash expenditures, including depreciation and amortization of $2,898,610, amortization of prepaid expenses and long-term prepaid expenses of $242,304 and $106,818, a grant of stock to key employees of $313,438, and a $2,496,892 loss from flood damage. In addition, we had a reduction in accounts receivables of $222,995 and a decrease in inventory of $3,972,673, were partially offset by an increase of $217,380 in prepaid expenses and a decrease of $1,398,591 in other payables.

Cash from operating activities in 2015 mainly consisted of our net income for the year of $2,982,092, supplemented by non-cash expenses of depreciation and amortization of $2,693,265, amortization of prepaid expenses and long-term prepaid expenses of $288,857 and $113,308, bad debt expense of $113,944, a grant of stock to key employees of $822,022, a loss of $779,337 from the disposal of hog farms, and a decrease of $7,578,664 in inventories. These were partially offset by an increase in accounts receivable of $198,705, a prepayment of $269,289 in prepaid expenses. In addition, we also reported net cash of $5,257,949 provided by operating activities from discontinued operations.

Cash Provided by (Used in) Investing Activities

Net cash used in investing activities for the year ended December 31, 2016 totaled $1,242,258 which included a repayment of $2.1 million for prior year loans from Hang-ao and capital investments of $2,960,399 in fixed asset for upgrading hog farms partially offset by cash consideration of $3,913,894 received for selling Hang-ao.

Net cash provided by investing activities for 2015 totaled $3,975,423. This included $2,769,826 of cash received from the disposal of OV Orange and $1,204,084 from the disposal of two hog farms.

Cash Used in Financing Activities

For the year ended December 31, 2016, we used net cash of $301,069 in financing activities. We received $9.0 million of previously restricted cash from banks and proceeds from renewed short-term loans of $2,709,619. These favorable factors were offset by the repayment of $12,042,752 in short-term loans.

For the year ended December 31, 2015, net cash used in financing activities was $11,979,698. This was comprised of an increase of $9,632,674 in restricted cash and repayments of short-term loans of $2,376,060. The restricted cash was collateral for the issuance of our bank acceptance notes.

Commitments for Capital Expenditures

Our anticipated capital requirements for the next twelve months relate to purchasing breeder hogs as well as additional investment in our retail segment to expand our marketing and distribution channels. We also expect to incur modest expenses in maintaining our hog farms. We believe that our cash flow from operations will be sufficient to meet our anticipated cash requirements for the next twelve months.

Contractual Obligations and Off Balance Sheet Items

Contractual Obligations

We have certain fixed contractual obligations that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows. The following tables summarize our contractual obligations as of December 31, 2016, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

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	Payments Due by Period
	Total		Less than 1 Year		1 – 3 Years		3 – 5 Years		Over 5 Years
Contractual obligations
Bank loans	$	2,591,793	$	2,591,793	$	-	$	-	$	-
Others		-		-		-		-		-
	$	2,591,793	$	2,591,793	$	-	$	-	$	-

Off Balance Sheet Items

Under SEC regulations, we are required to disclose off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

·	any obligation under certain guarantee contracts,
·	any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,
·	any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in shareholder equity in our statement of financial position, and
·	any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

Critical Accounting Policies

Our 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 our 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. While our significant accounting policies are described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial statements and our management’s discussion and analysis.

Accounts Receivable

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

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As a basis for estimating the likelihood of collection has been established, we consider a number of factors when determining reserves for uncollectable accounts. We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on at least a quarterly basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties that we have business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

Inventories, consisting principally of our hogs held for sale, are stated at the lower of cost, as determined by the weighted-average method, or market. We compare the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value if that is lower. Costs of raised animals include proportionate costs of breeding, including amortization of the breeding herd or biological assets, plus the costs of feed and other maintenance. The price of hogs could fluctuate upward or downward. If prices were to decrease below the amounts we use in determining the carrying value of our inventory, any profit we might achieve on the sale of our inventories would be less than anticipated. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we will record additional reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. We review inventory quantities on hand and on order and record, on a quarterly basis, a provision for excess and obsolete inventory, if necessary. If the results of the review determine that a write-down is necessary, we recognize a loss in the period in which the loss is identified, whether or not the inventory is retained. Our inventory reserves establish a new cost basis for inventory and are not reversed until we sell or dispose of the related inventory. Such provisions are established based on historical usage, adjusted for known changes in demands for such products, or the estimated forecast of product demand and production requirements.

Plant and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

Estimated useful lives of the Company’s assets are as follows:

		Useful Life
Buildings		20 years
Vehicles		5-10 years
Office equipment		3-5 years
Research equipment		3-20 years
Production equipment		3-20 years

The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in disposition.

We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value

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Biological Assets

Biological assets consist primarily of hogs purchased or selected from the Company’s own production for breeding and farrowing. The costs to purchase and cultivate breeding hogs and the expenditures related to labor and materials to feed breeding hogs until they become commercially productive and breedable are capitalized. When breeding hogs are entered into breeding and farrowing, amortization of the costs incurred until they became commercially productive commences. The estimated production life for breeding hogs is three years, and the costs are amortized to a residual value, currently $76 (RMB 500). After the breeding hogs have completed their production life of breeding, these breeding hogs are then transferred into inventory as the vast majority of these breeding hogs will then be sold for meat processing. Expenses incurred maintaining breeding hogs during gestation until piglets are weaned are capitalized into inventory and included in Work in process—biological assets, a component of inventories. If these breeding hogs produce piglets which are deemed appropriate for internal breeding purposes, the gestation and raising costs until weaned for these piglets are then allocated into biological assets.

Amortized expenses pertaining to biological assets are included in inventory costs for those piglets to be sold and ultimately become a component of cost of goods sold. Similar to other assets, the failure of our biological assets to be serviceable over the entirety of their anticipated useful lives or to be sold at their anticipated residual value, will negatively impact our operating results.

Intangible Assets

Included in the intangible assets are our land use rights and acquired distribution network. According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Intangible assets are being amortized using the straight-line method over their lease terms or estimated useful life.

The Company carries intangible assets at cost less accumulated amortization. In accordance with US GAAP, the Company examines the possibility of decreases in the value of intangible assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes amortization using the straight-line method over the 50 year life of the land use rights and 10 year life of acquired distribution network.

Non-controlling Interest

Non-controlling interests in our subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

Revenue Recognition

Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. The Company generates revenues from the business of breeding, raising, and selling hogs for use in Chinese pork meat production and the sale of hogs for breeding by other hog producers.

Revenues generated from the sales of breeding and meat hogs and specialty pork are recognized when these products are delivered to customers in accordance with previously agreed upon pricing and delivery arrangements, and the collectability of these sales is reasonably assured. Cash payment, which sometimes is in the form of wired cash transfers to the Company’s bank account, is usually received by the Company at the time the hogs are sold. Sold hogs and specialty pork are not returnable and accordingly, no provision has been made for returnable goods. The customers are responsible for the shipping of the hogs that they have purchased.

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Currency Exchange Rates

Our functional currency is the U.S. dollar, and the functional currency of our operating subsidiaries is the RMB. All of our sales are denominated in RMB. As a result, changes in the relative values of U.S. dollars and RMB affect our reported levels of revenues and profitability as the results of our operations are translated into U.S. dollars for reporting purposes. In particular, fluctuations in currency exchange rates could have a significant impact on our financial stability due to a mismatch among various foreign currency-denominated sales and costs. Fluctuations in exchange rates between the U.S. dollar and RMB affect our gross and net profit margins and could result in foreign exchange and operating losses.

Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiaries. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders’ equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.

Our financial statements are expressed in U.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB. To the extent we hold assets denominated in U.S. dollars, any appreciation of the RMB against the U.S. dollar could result in a charge in our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results.

Stock Based Compensation

Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the period of services or the vesting period, whichever is applicable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

Item 7A. Qualitative and Quantitative Disclosures about Market Risk.

This item does not apply to smaller reporting companies.

Item 8. Financial Statements

The consolidated financial statements of Aoxin Tianli Group, Inc. are presented following Item 15.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

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Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to the Co-Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, under the supervision and with the participation of our management, including Wocheng Liu, our Co-Chief Executive Officer, and Chun Choi Law, our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2016 and have concluded that the disclosure controls and procedures are effective to ensure that material information relating to our company is recorded, processed, summarized, and reported in a timely manner.

Management’s Report on Internal Control over Financial Reporting

Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Annual Report on Form 10-K a report on management’s assessment of the effectiveness of our internal control over financial reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of Wocheng Liu, our Co-Chief Executive Officer, and Chun Choi Law, our Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including Wocheng Liu, our Co-Chief Executive Officer, and Chun Choi Law, our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the framework in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2016.

Auditor Attestation

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

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Changes in Internal Controls over Financial Reporting.

During the last quarter of the fiscal year ended December 31, 2016, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the fiscal year covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

Part III

Item 10. Directors and Executive Officers of the Registrant.

Our executive officers and directors are:

Name	Age	Position	Since
Wocheng Liu	53	Chairman of the Board, Co-Chief Executive Officer and Director	2016
Hanying Li	66	Co-Chief Executive Officer and Director	2005
Chun Choi Law	56	Chief Financial Officer	2016
Guolan Li	58	Director	2015
Zihui Mo (1)(3)	58	Director	2012
Gang Yin (1)(2)(3)	55	Director	2015
Eliza Siu Yuk Lee (1)(2)	56	Director	2016
Jamie Tseng (2)(3)	62	Director	2016


(1)	Member of audit committee.
(2)	Member of compensation committee.
(3)	Member of nominating committee.

Wocheng Liu. Mr. Liu has been chairman and a director of the Company since May, 2016. Mr. Liu has served as Executive President of Hubei Aoxin Science & Technology Group Co., Ltd., which owns approximately 12.8% of our outstanding shares, since October 2015. Prior to joining Hubei Aoxin Science & Technology Group Co., Ltd. and commencing May 2010 Mr Liu was President of Yingi International Carbon Market Investment Group. From March 2008 to March 2010, Mr. Liu was Vice President of Pan-China Group, which was directly subordinate to the Ministry of Construction of China. In May 2006 Mr. Liu founded Hainan Shiji Xiangguang Investment Co., Ltd., where he served as Chairman. From May 2004 to April 2006, Mr. Liu was General Manager of Zhengzhou Xinlong Dapeng Power Co., Ltd. From December 2002 to May 2004, he served as a consultant to Luoyang Industry & Commerce Co., Ltd. From August 1996 to November 2002, Mr. Liu was Vice Secretary of Yiyang County Committee of the Communist Party of China. From June 1993 to July 1996, he served as Deputy County Mayor of Yiyang County, Henan Province. From March 1991 to May 1993, Mr. Liu served as Deputy Director of Mining Administration Office of Xin’an County, Henan Province, and Director General of Mining Administration Bureau of Xin’an County, Henan Province. Mr. Liu was nominated as a director for his experience in business and management.

Hanying Li. Ms. Li has been a director of the Company since January 2010 and served as our Chair and Chief Executive Officer from that date until March 27, 2014 and from September 9, 2015 to May 31, 2016. She continues to serve as our Co-Chief Executive Officer. Ms. Li founded Wuhan Fengze Agricultural Science and Technology Development Co., Ltd., our operating company in China (“Fengze”), in 2005. From 1979 through 2004, Ms. Li was deputy director of the Wuhan City Prosecutor’s Office. Ms. Li received her Bachelor’s Degree in Law from Hubei Finance & Economic University. Ms. Li was nominated as a director in January 2010 for her experience operating hog farms and leadership of our company.

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Chun Choi Law. Mr. Law has been CFO of the Company since June, 2016. Mr. Law was the principal of Tommy C.C. Law Certified Public Accountant, a public accounting firm, before he joined the Company. From April 2005 to November 2012, Mr. Law was employed by China Infrastructure Investment Limited, initially as financial controller, then as corporate secretary, and finally as Chief Financial Officer. China Infrastructure Investment Limited is primarily an investment holding company whose investment portfolio includes properties and natural gas businesses, and whose shares are listed on The Stock Exchange of Hong Kong Limited. From April 2010 to September 2012, Mr. Law served as an independent non-executive director at Karce International Holdings Company Limited, a manufacturer and distributor of calculators and other electronic products, where he served as a member of the Audit Committee and Nomination Committee and as chairman of the Remuneration Committee. Mr. Law was employed as Financial Controller at Pearl Investments (Hong Kong) Limited from September 1996 to May 2003 and at Lee Gardens International Holdings Limited from January 1997 to March 2003. From June 1993 to January 1995 he was employed as Senior Accounting Manager at Albion International Holdings Limited. From October 1991 to September 1992 he was employed as Manager (Finance Division) at Hong Kong Securities Clearing Company Limited. From August 1984 to July 1991 Mr. Law was employed as a Supervisor at Price Waterhouse. Mr. Law graduated from the Hong Kong Polytechnic University with a degree in Accountancy in 1984 and received a post-graduate degree in Corporate Administration from the Hong Kong Polytechnic University in 2000

Guolan Li. Mr. Li has been a director of the Company since August, 2015. Mr. Li has been General Manager of Hubei Aoxin Science & Technology Group Co., Ltd. and Chairman of Hubei Hang-ao Servo Technology Co., Ltd. since July 2010. From September 2000 to June 2010, he was the Manager of the Wuhan Duoluokou Grand Market Management Center. From May 1998 to August 2000, he was a director and the Deputy General Manager of Hanzheng Group, Ltd. From August 1980 to April 1998, he was employed by the Native Produce Company of Wuhan City, Qiaokou District, initially as Chief Accountant, then as Deputy Section Chief, then Section Chief, and finally as General Manager. Mr. Li is a graduate of the Hubei University of Economic Management. Mr. Li was nominated as a director because of his management experience.

Zihui Mo. Mr. Mo has been a director of the Company since October 2012. Since January 1, 2009, Mr. Mo has been CFO and COO of Watches of Switzerland, a private manufacturer of watches in Hong Kong and the United States owned by members of his family. He held the same positions from February 2004 through 2006. From January 1, 2007 through 2009, he was a marketing manager with A Field Consulting Ltd., a company that provides consulting services for small and middle sized companies seeking to go public. From November 1994 through January 2004, he was Vice General Manager of China Shipping and Vice General Manager of Rich Shipping Co., Ltd. From September 1993 through November 1994, he was Marketing Manager of Barako Shipping Co., Ltd. From February 1991 through August 1993, he was Marketing Supervisor of UDS Distribution Services Co., Ltd., Jardine Group. From October 1989 through February 1991, he was Marketing Manager of Toyota of Durata, California. Mr. Mo received a Degree in Education from Ricks College (Idaho) in 1985 and a Degree in Market Management and Academician in Accounting from Brigham Young University in 1988. Mr. Mo was nominated as a director for his experience in marketing and accounting.

Gang Yin. Mr. Yin has been a director of the Company since June, 2015. Mr. Yin has experience in banking and finance matters. He has been Deputy General Manager of AUNEW Group Holdings Pty Ltd. and General Manager of Health Sharing Group Pty Ltd since March 2010. From January 2009 to February 2009, he was General Manager (Business Development) of DC Global Mining Pty Ltd. From July 2008 to December 2008, he was Vice President (China) of Once Australia Pty Ltd. From February 2006 to June 2008, he was Deputy General Manager of Shanghai Puji Investment and Management Co., Ltd. From October 2003 to January 1, 2006, he was Executive President of Ananda Travel Service (Australia) Pty. From July 1998 to April 2003, he was employed by Bank of China Australia as Manager of Risk Management and as Head of Corporate and Individual Finance. Mr. Yin received a Master of Law degree in 1988 and Bachelor of Arts degree in 1983 from Wuhan University. Mr. Yin was nominated as a director because of his experience in finance.

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Eliza Siu Yuk Lee. Ms. Lee has been a director of the Company since July, 2016. Ms. Lee founded Equal Glory Limited, a company which since October 2014 has provided advisory and consulting services to corporations in connection with public offerings, re-organizations, mergers and acquisitions. From September 2004 to September 2014, Ms. Lee was Executive Director of China Infrastructure Investment Limited, a company listed on the Stock Exchange of Hong Kong Limited (0600.hk). From April 1986 to September 2004, Ms. Lee served in various capacities at Pearl Oriental Corporation Limited, a company listed on the Stock Exchange of Hong Kong Limited (0988.hk), initially as director of sales & marketing and then Executive Director. Ms. Lee received a Bachelor’s degree in Business Administration from the University of East Asia, Macau in August 1992 and a Master’s degree in Business Administration from Murdoch University in 1998. Ms. Lee was nominated as a director because of her experience with publicly traded corporations.

Jamie Tseng. Mr. Tseng has been a director of the Company since July, 2016. Mr. Tseng has served as Chairman of Brightening Lives Foundation since 2015. From November 2011 to February 2015, Mr. Tseng was the Executive Vice President of Pacific Energy Development Inc. (NYSE: PED). From January 2009 to August 2010, Mr. Tseng was the Executive Vice President of Camac Energy International (AMEX: CAK). From August 2005 to January 2009, Mr. Tseng was the Managing Director and Executive Vice President of Pacific Asia Petroleum Inc. (AMEX:PAP). From August 2003 to August 2005, Mr. Tseng was the Chief Financial Officer and Vice President of Histostem Inc. From February 2000 to August 2003, Mr. Tseng was the Executive Vice President of General Energy Technologies Inc. From January 1998 to August 2000, Mr. Tseng was the Vice President of Multacom Telecommunication Inc. From January 1995 to January 1998, Mr. Tseng was the President of Interjet International. Mr. Tseng received a Bachelor’s degree of Arts and graduated from Soochow University in 1976 with the specialty of Accounting. Mr. Tseng was nominated as a director because of his experience in finance and accounting.

Board of Directors

Our Board of Directors consists of seven directors. There are no family relationships between any of our executive officers and directors. There are no arrangements or understandings pursuant to which our directors are selected or nominated.

We elect our entire board of directors each year and those elected hold office for a term expiring the next succeeding meeting of shareholders.

A director may vote in respect of any contract or transaction in which he is interested; provided, however that the nature of his interest is disclosed by him at or prior to its consideration and any vote on that matter. A general notice or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof of the nature of a director’s interest shall be sufficient disclosure and after such general notice it shall not be necessary to give special notice relating to any particular transaction. A director may be counted for a quorum upon a motion in respect of any contract or arrangement which he shall make with our company, or in which he is so interested, and may vote on such motion.

Mr. Wocheng Liu currently holds both the positions of Co-Chief Executive Officer and Chairman of the Board. These two positions have not been consolidated into one position; Ms. Hanying Li is also a Co-Chief Executive Officer of the Company. Mr. Liu simply holds both positions at this time. We do not have a lead independent director because we believe our independent directors are encouraged to freely voice their opinions on a relatively small company board. We believe this leadership structure is appropriate because we are a smaller reporting company and deem it appropriate to be able to benefit from the guidance of Mr. Liu and Ms. Li as both our principal executive officers and Chairman of the Board.

Our Board of Directors plays a key role in our risk oversight. As such, it is important for us to have our Chief Executive Officers serve on the Board as they play a key role in the risk oversight of the Company. As a smaller reporting company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.

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Director Independence

The Board of Directors maintains a majority of directors who are deemed to be independent under the definition of independence provided by NASDAQ Listing Rule 5605(a)(15). Zihui Mo, Gang Yin, Eliza Siu Yuk Lee and Jamie Tseng are our independent directors.

Board Committees

The Board has established three committees: the audit committee, the compensation committee and the nominating committee.

Audit Committee

The audit committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company, including the appointment, compensation and oversight of the work of our independent auditors. The members of the audit committee are Zihui Mo (Chairman), Gang Yin and Eliza Siu Yuk Lee. Mr. Mo is the Audit Committee Financial Expert. All of the members of the audit committee are financially literate.

Compensation Committee

The compensation committee of the Board of Directors reviews and makes recommendations to the Board regarding our compensation policies for our officers, and also administers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans). The members of the compensation committee are Eliza Siu Yuk Lee (Chairman), Gang Yin and Jamie Tseng.

Nominating Committee

The nominating committee of the Board of Directors is responsible for the assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations for election of directors and other governance issues. The nominating committee considers diversity of opinion and experience when nominating directors.

The nominating committee identifies and evaluates nominees for our Board of Directors, including nominees recommended by stockholders, based on numerous factors it considers appropriate. The nominating committee is responsible for making recommendations to the Board of Directors of nominees to stand for election as directors. The members of the nominating committee are Gang Yin (Chairman), Zihui Mo and Jamie Tseng.

The Board of Directors periodically reviews the diversity of specific skills and characteristics necessary as a member of our Board. The nominating committee will assess the skill areas currently represented on the Board against the target skill areas, as well as recommendations of directors regarding skills that could improve the overall quality and ability of the Board to carry out its function.

The nominating committee will consider persons recommended by stockholders for inclusion as nominees for election to our Board of Directors if the names, biographical data, and qualifications of such persons are submitted and delivered in writing in a timely manner. The criteria that the committee and the full board will use to assess the qualifications of candidates for election to the board will include matters such as experience in the hog or agricultural industry, financial or technical expertise, strength of character, quality of judgment, concern for the interests of the Company’s shareholders, and how these skills might be best utilized by the Company. The committee will also consider the extent to which the nominee would fill a present need on our Board of Directors.

Code of Business Conduct and Ethics

Our code of business conduct and ethics provides that our directors and officers are expected to avoid any action, position or interest that conflicts with the interests of our company or gives the appearance of a conflict. Directors and officers have an obligation under our code of business conduct and ethics to advance our company’s interests when the opportunity to do so arises. A copy of our Code of Business Conduct and Ethics is available in the “Corporate Governance” section of our website (www.aoxintianli-china.com).

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16 of the Securities Exchange Act requires our directors and executive officers and persons who own more than 10% of a registered class of our equity securities to file various reports with the Securities and Exchange Commission concerning their holdings of, and transactions in, our securities. Copies of these filings must be furnished to us.

Based on a review of the copies of such forms furnished to us and representations from our executive officers and directors, all our officers, directors and greater than 10% stockholders filed all reports required to be filed during 2016 in accordance with the filing requirements of Section 16(a) of the Exchange Act.

Compensation of Directors

The directors may receive such remuneration as our Board of Directors may determine from time to time. Each director is entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our Board of Directors or committees of our Board of Directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for our directors.

All directors hold office until the next annual meeting of shareholders at which he/she is re-elected or until his/her successors have been duly elected and qualified. Officers are elected by and serve at the discretion of the Board of Directors. Employee directors do not receive any compensation for their services as directors. Non-employee directors are entitled to receive compensation per year for serving as directors and may receive option grants from our company. In addition, non-employee directors are entitled to be reimbursed for their actual travel expenses for each Board of Directors meeting attended.

The following table sets forth certain information regarding the compensation paid to our directors during the fiscal year ended December 31, 2016.

DIRECTOR COMPENSATION
Name (a)	Annual Fees Earned or Paid in Cash ($) (b)	Stock Awards ($) (c)	Option Awards ($) (d)	Non-Equity Incentive Plan Compensation ($) (e)	Non-Qualified Deferred Compensation Earnings ($) (f)	All Other Compensation ($) (g)	Total ($) (h)
Zihui Mo	$36,000	-	$8,031	-	-	-	$44,031
Jamie Tseng (1)	$15,000	-	-	-	-	-	$15,000
Eliza Siu Yuk Lee (1)	$15,000	-	-	-	-	-	$15,000
Gang Yin	$36,000	-	-	-	-	-	$36,000
Guolan Li	$36,000	-	-	-	-	-	$36,000
Yan Gong (2)	$21,000	-	-	-	-	-	$21,000

_____

(1)	Eliza Siu Yuk Lee and Jamie Tseng were appointed as a director on July 29, 2016.

(2)	Yan Gong resigned as a director on July 29, 2016.

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Item 11. Executive Compensation.

Executive Compensation

The following table sets forth information with respect to the amounts awarded to, earned by, or paid to, the individuals who served as chief executive officer of our company during the year ended December 31, 2016 for services provided in all capacities to us and our subsidiaries for the periods indicated. No other executive officer was paid or earned compensation, or had amounts accrued, for services provided in all capacities to us and our subsidiaries, in excess of $100,000 during 2016.

Summary Compensation Table

Name & Position	Year	Salary	Bonus	Stock Awards	Option Awards	Non-Equity Incentive Plan Compensation	Nonqualified Deferred Compensation Earnings ($)	All Other Compensation	Total
Hanying Li Chair and CEO (1)	2016	$92,308	-	$88,500	-	-	-	-	$180,808
Hanying Li Chair and CEO (1)	2015	$42,516	-	$106,200	-	-	-	-	$148,716
Wocheng Liu Chairman and Co-CEO (2)	2016	$52,687	-	-	-	-	-	-	$52,687
Wocheng Liu Chairman and Co-CEO (2)	2015	-	-	-	-	-	-	-	-

___

(1)

Ms. Li served as the Chairman and CEO from September 9, 2015 to May 31, 2016, and continues to serve as Co-CEO.

(2)

Mr. Wocheng Liu was appointed as the Chairman and Co-CEO effective May 31, 2016.

Employment Agreements

Hanying Li

We entered into an employment agreement with our Co-Chief Executive Officer, Ms. Hanying Li on September 9, 2015, the date Ms. Li was re-elected as our president and chief executive officer by the Board of Directors. Under the terms of her employment agreement effective September 10, 2015, Ms. Li is entitled to:

·	Base compensation of RMB 600,000 ($92,308) payable in 12 equal monthly installments of RMB 50,000 ($7,692).
·	Year-end Award paid and determined under the Incentive Plan approved by the Compensation Committee of the Board.
·	Reimbursement of reasonable expenses incurred by Ms. Li.

Ms. Li agreed during that the term of her employment agreement and for 36 months afterwards to:

·	keep confidential and not disclose our confidential information;
·	take and implement all appropriate measures to protect the confidentiality of our confidential information;
·	not disclose, transmit, exploit or otherwise use for her or her own account or for others, elements of our confidential information;

Ms. Li has agreed not to compete with our company directly or indirectly while employed by us and for a period of 24 months afterwards.

The employment agreement of Ms. Li may be terminated at any time by either party upon 30 days’ prior notice.

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Wocheng Liu

We entered into an employment agreement with our Co-Chief Executive Officer, Mr. Wocheng Liu effective June 1, 2016, initially scheduled to expire on May 31, 2018, subject to automatic renewal through May 31, 2020, unless terminated prior to renewal. Under the terms of his employment agreement, Mr. Liu is entitled to:

·	Base compensation of RMB 600,000 ($92,308) payable in 12 equal monthly installments of RMB 50,000 ($7,692).
·	Year-end bonus in accordance with the Company’s incentive plan.
·	Reimbursement of reasonable expenses incurred by Mr. Liu.

Mr. Liu agreed during the term of his employment agreement and for 36 months afterwards to:

·	keep confidential and not disclose our confidential information;
·	take and implement all appropriate measures to protect the confidentiality of our confidential information;
·	not disclose, transmit, exploit or otherwise use for her or his own account or for others, elements of our confidential information;

Mr. Liu has agreed not to compete with our company directly or indirectly while employed by us and for a period of 24 months afterwards.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth, as of March 14, 2017, the number of our common shares beneficially owned by (i) each person or entity known to us to be the beneficial owner of more than 5% of the outstanding common shares, (ii) each of our directors and each of our executive officers named in the Summary Compensation Table above (the “Named Executive Officers”), and (iii) all of our officers and directors as a group. Information relating to the beneficial ownership of our common shares by principal stockholders and management is based upon information furnished by each person using "beneficial ownership" concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to sell or direct the sale of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission’s rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Each beneficial owner's percentage ownership is determined by assuming that options or warrants that are held by such person (but not those held by any other person) and which are exercisable within 60 days after March 14, 2017 have been exercised. Except as noted below, or as required by applicable community property laws, each person has sole voting and investment power for all common shares shown as beneficially owned by them. As of March 14, 2017, we had outstanding 7,988,245 common shares. Unless otherwise indicated in the footnotes, the address for each officer and director listed below is in the care of Aoxin Tianli Group, Inc., Suite K, 13th Floor, Building A, Jiangjing Mansion, 228 Yanjiang Ave., Jiangan District, Wuhan City, Hubei Province, China 430010.

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Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percent of Common Shares
Wocheng Liu, Co-CEO and Chairman	1,018,750 (1)	12.75%
Hanying Li, Co-CEO and Director	800,000 (2)	10.01%
Eliza Siu Yuk Lee, Director	-	-
Zihui Mo , Director	3,250 (3)	*
Gang Yin, Director	-	-
Guolan Li , Director	-	-
Jamie Tseng, Director	-	-
Chun Choi Law, CFO	-	-
All directors and officers as a group	1,822,000	22.80%

Holders of More than 5% of Outstanding Common Shares Not Named Above:
Ping Wang	2,438,750(4)	30.53%
Hua Zhang	800,000 (5)	10.01%
Wei Gong	690,000	8.64%

___

*Less than one percent (1%).

(1)

Includes 1,018,750 shares owned by Hubei Aoxin, of which Mr. Wocheng Liu is the Chief Executive Officer.

(2)

Includes 112,500 shares owned by Ms. Li’s spouse, Hua Zhang.

(3)

Represents shares which he may acquire within sixty days upon exercise of stock options.

(4)

Includes 1,018,750 shares owned by Hubei Aoxin, of which Mr. Wang is Chairman and a principal shareholder.

(5)

Includes 687,500 shares owned by Mr. Zhang’s spouse, Hanying Li.

Item 13. Certain Relationships and Related Transactions

Due to related party

When we disposed of Hang-ao on December 23, 2016, we repaid to Hang-ao $2,090,379 borrowed from Hang-ao in prior years.

Revenues Recognized from Related Parties

During the year ended December 31, 2015, OV Orange sold products to Beijing Central Aoxin Technology Development Co., Ltd. (“Central Aoxin”) and Wuhan Aoxin Pike Wealth Investment Management Co., Ltd. (“Aoxin Pike”) and from which it recognized revenues of $25,306. Central Aoxin’s registered agent was Mr. Ping Wang, our former chairman and CEO. One of Aoxin Pike’s major shareholders has an indirect investment in the Company.

The related party revenues mentioned above were included in the results of discontinued operations of the Company’s consolidated statements of operations and comprehensive income.

Bank loan guaranteed by related party

Wuhan Aoxin Investment and Guarantee Services, Co., Ltd. provided a loan guarantee for the Company’s short-term bank loan of $781,950 from Wuhan Rural Commercial Bank which was repaid on August 4, 2015.

Issuance of common stock

On February 6, 2015, the Company issued 202,500 of its common shares to 7 employees, including the Company’s former CEO, former CFO, and a director, as stock awards pursuant to its 2014 Share Incentive Plan. Those shares have been registered under the Securities Act of 1933, as amended. However, 3 of the mentioned employees have resigned, including Mr. Ping Wang, and the relevant stock awards of 51,000 common shares were canceled and returned to the Company on March 8, 2016.

We believe that the terms of each transaction described above were not less favorable to us than those terms that could be obtained from an unaffiliated third party.

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Policy Concerning Related Party Transactions

We recognize that transactions between us and any of our directors or executives with a related party can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of our Company and shareholders. Therefore in accordance with our Code of Ethics, it is our preference to avoid such transactions. All potential related party transactions involving the Company and/or its employees are to be presented in advance to the Company's Audit Committee to be reviewed for a potential conflict of interest. Such transactions must be approved by the Audit Committee before they can commence.

Director Independence

Item 14. Principal Accounting Fees and Services

The following is a summary of the fees billed to us by HHC for professional services rendered for the fiscal years ended December 31, 2016 and 2015:

	Fiscal Year Ended December 31,
	2016		2015
Audit Fees	$	140,000	$	140,000
Audit Related Fees		30,000		60,000
Tax Fees		-		-
All Other Fees		-		-
	$	170,000	$	200,000

Audit Fees. Consists of fees billed for professional services rendered for the audit of our consolidated financial statements and review of interim consolidated financial statements included in quarterly reports and services that are normally provided in connection with statutory and regulatory filings or engagements.

Audit Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under "Audit Fees".

Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include preparation of federal and state income tax returns.

All Other Fees. Consists of fees for product and services other than the services reported above.

Audit Committee’s Pre-Approval Policies

Our Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit related services, tax services, and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.

Our Audit Committee has reviewed and discussed with HHC, our audited financial statements contained in this Annual Report on Form 10-K for the 2016 fiscal year. The Audit Committee also has discussed with HHC, the matters required to be discussed pursuant to SAS No. 61 (Codification of Statements on Auditing Standards, AU Section 380), which includes, among other items, matters related to the conduct of the audit of our financial statements.

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Our Audit Committee has received and reviewed the written disclosures and the letter from HHC required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with HHC its independence from our company.

Our Audit Committee has considered whether the provision of services other than audit services is compatible with maintaining auditor independence. Based on the review and discussions referred to above, the Board of Directors determined that the audited financial statements be included in our Annual Report on Form 10-K for our 2016 fiscal year for filing with the SEC.

Part IV

Item 15. Exhibits, Financial Statement Schedules.

Exhibit No.		Description

3.1		Amended and Restated Memorandum and Articles of Association (incorporated by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 8, 2016).

4.1		Specimen Share Certificate (incorporated by reference to exhibit 4.1 to Amendment No. 4 to the Company’s registration statement on Form S-1 (Registration No. 333- 165522) filed on June 30, 2010 (the "2010 Registration Statement") .

		Agreements With Directors, Officers and Affiliates

10.1		English Translation of Employment Agreement effective September 9, 2015 with Hanying Li.

10.2		Employment Agreement effective June 1, 2016 between Wuhan Aoxin Tianli Enterprise Investment Management Co, Ltd. and Wocheng Liu

10.3		Employment Agreement effective June 14, 2016 between Wuhan Aoxin Tianli Enterprise Investment Management Co, Ltd. and “Tommy” Chun Choi Law (incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 16, 2016).

10.4		Director Retainer Agreement dated October 1, 2014 with Zihui Mo, including stock option grant (incorporated by reference to exhibit 10.35 to the Company’s Annual Report on Form 10-K for the year ended December 30, 2015 filed on March 14, 2016).

10.5		Restricted Stock Award Agreement with Hanying Li dated February 3, 2015 (incorporated by reference to exhibit 10.38 to the Company’s Annual Report on Form 10-K for the year ended December 30, 2015 filed on March 14, 2016). Agreements Disposing of Equity Interests in Subsidiaries

10.6		English translation of Equity Transfer Agreement dated December 29, 2015 for the sale of OV Orange (incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 30, 2015).

10.7		English translation of Letter Agreement dated December 29, 2015 concerning release of escrow shares to sale of OV Orange (incorporated by reference to exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 30, 2015).

10.8		English translation of Agreement dated December 25, 2015 terminating Equity Transfer Agreement for the sale of Hang-ao (incorporated by reference to exhibit 10.3 to the Company’s Current Report on Form 8-K dated December 30, 2015).

10.9		Equity Transfer Agreement dated December 23, 2016 for the sale of the Company’s 88% equity interest in Hubei Hang-ao Servo-valve Manufacturing Technology Co., Ltd. to Zhong Bi Cheng (incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 27, 2016). Land Lease Contracts


10.10		English Translation of Land Lease Contract – Zhulin (incorporated by reference to exhibit 10.11 to the 2010 Registration Statement).

10.11		English Translation of Land Lease Contract – Fengze (incorporated by reference to exhibit 10.12 to the 2010 Registration Statement).

10.12		English Translation of Land Lease Contract – Mingxiang (incorporated by reference to exhibit 10.19 to the 2010 Registration Statement).

10.13		English Translation of Side Agreement Related to Land Lease Contract – Mingxiang (incorporated by reference to exhibit 10.20 to the 2010 Registration Statement).

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10.14		English Translation of Land Lease Contract – Huajian A & B (incorporated by reference to exhibit 10.21 to the 2010 Registration Statement).

10.15		English Translation of Side Agreement Related to Land Lease Contract – Huajian A & B (incorporated by reference to exhibit 10.22 to the 2010 Registration Statement).

10.16		English Translation of Feed Sale Agreements (incorporated by reference to exhibit 10.23 to the 2010 Registration Statement).

10.17		English Translation of Land Use Rights Transfer Agreement – Qingsonggang (incorporated by reference to exhibit 10.24 to the 2010 Registration Statement).

		Share Incentive Plans

10.18		Tianli Agritech, Inc. 2012 Share Incentive Plan (incorporated by reference to exhibit 10.26 to the Company’s Registration Statement on Form S-8 (Registration No. 333- 181860) filed on June 4, 2012).

10.19		Aoxin Tianli Group, Inc. 2014 Share Incentive Plan (incorporated by reference to exhibit 10.30 to the Company’s Registration Statement on Form S-8 (Registration No. 333- 201815) filed on February 2, 2015.)

16.1		Letter of RBSM LLP to the Commission (incorporated by reference to exhibit 99.1 to the Company’s Current Report on Form 8-K filed on September 30, 2013).

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21.1		Subsidiaries of the Registrant

23.1		Consent of HHC, Independent Registered Accounting Firm

31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Exchange Act

31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Exchange Act

32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation

101.DEF		XBRL Taxonomy Extension Definition

101.LAB		XBRL Taxonomy Extension Label

101.PRE		XBRL Taxonomy Extension Presentation

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AOXIN TIANLI GROUP, INC.


Dated: March 14, 2017	By:	/s/ Wocheng Liu
		Wocheng Liu Co-Chief Executive Officer

	By:	/s/ Chun Choi Law
		Chun Choi Law
		Chief Financial Officer (Principal Financial and Accounting Officer)

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated March 14, 2017.

Signature		Title

/s/ Hanying Li		Co-Chief Executive Officer and Director
Hanying Li

/s/ Wocheng Liu		Co-Chief Executive Officer (Principal Executive
Wocheng Liu		Officer) and Chairman of the Board

/s/ Chun Choi Law		Chief Financial Officer (Principal Financial and Accounting
Chun Choi Law		Officer)

/s/ Gang Yin		Director
Gang Yin

/s/ Eliza Siu Yuk Lee		Director
Eliza Siu Yuk Lee

/s/ Zihui Mo		Director
Zihui Mo

/s/ Guolan Li		Director
Guolan Li

/s/ Jamie Tseng		Director
Jamie Tseng

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Shareholders of Aoxin Tianli Group, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Aoxin Tianli Group, Inc. (formerly Tianli Agritech., Inc.) and Subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for the years ended December 31, 2016 and 2015. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015 and the results of their operations and their cash flows for the years ended December 31, 2016 and 2015, in conformity with accounting principles generally accepted in the United States of America.

/s/ HHC

Forest Hills, New York

March 14, 2017

F-1

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
	2016			2015

ASSETS
Current Assets:
Cash and cash equivalents	$	54,458,026		$	49,656,897
Accounts receivable, net		60,283			292,684
Inventories, net		5,506,085			5,656,165
Advances to suppliers, net		1,129,477			7,823,138
Prepaid expenses		112,676			816,646
Other receivables, net		293,377			312,161
Restricted cash		-			9,242,571
Assets from discontinued operations		-			7,926,437
Total Current Assets		61,559,924			81,726,699

Long-term prepaid expenses, net		1,196,989			1,389,144
Plant and equipment, net		21,113,840			23,410,803
Biological assets, net		1,901,744			1,580,847
Intangible assets, net		2,403,637			2,802,948

Total Assets	$	88,176,134		$	110,910,441

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Short-term loans	$	2,591,793		$	-
Bank acceptance notes payable		-			12,323,428
Accounts payable and accrued payables		5,327			19,655
Other payables		1,465,164			3,041,085
Liabilities from discontinued operations		-			2,359,696
Total Current Liabilities		4,062,284			17,743,864

Stockholders' Equity:
Common stock ($0.004 par value, 25,000,000 shares authorized, 7,988,245 shares and 8,295,995 shares issued and outstanding as of December 31, 2016 and 2015)		31,952			33,183
Additional paid in capital		61,395,561			61,743,410
Statutory surplus reserves		2,416,647			2,457,180
Retained earnings		26,835,585			28,595,306
Accumulated other comprehensive income		(6,565,895	)		(1,018,861	)
Stockholders' Equity - Aoxin Tianli Group Inc. and Subsidiaries		84,113,850			91,810,218
Noncontrolling interest		-			1,356,359
Total Stockholders' Equity		84,113,850			93,166,577
Total Liabilities and Stockholders' Equity	$	88,176,134		$	110,910,441

See accompanying notes to unaudited consolidated financial statements

F-2

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

	For the Years Ended December 31,
	2016			2015

Revenues	$	33,697,680		$	37,367,956
Cost of goods sold		27,290,471			28,670,968
Gross profit		6,407,209			8,696,988

Operating expenses:
General and administrative expenses		3,549,546			4,385,741
Selling expenses		409,614			677,195
Total operating expenses		3,959,160			5,062,936

Income from operations		2,448,049			3,634,052

Other income (expense):
Interest income		139,066			103,228
Subsidy income		22,524			3,532
Loss from disposal of Farm 2 and Farm 3		-			(779,337	)
Gain from disposal of construction in progress		-			4,254
Flood damage		(1,670,820	)		-
Other income, net		2,258			16,363
Total other expense		(1,506,972	)		(651,960	)

Income before income taxes		941,077			2,982,092

Income taxes		-			-
Net income from continuing operations		941,077			2,982,092

Discontinued operations:
Loss from operations of discontinued component, net of taxes		(3,149,566	)		(690,385	)
Gain from disposal of discontinued component, net of taxes		70,820			2,144,226

Net income (Loss)		(2,137,669	)		4,435,933
Net loss attributable to noncontrolling interest		377,948			53,901
Net income (loss) attributable to Aoxin Tianli Group Inc. common stockholders		(1,759,721	)		4,489,834

Other comprehensive loss:
Unrealized foreign currency translation adjustment		(6,352,105	)		(5,553,102	)

Comprehensive loss	$	(8,111,826	)	$	(1,063,268	)

Earnings (losses) per share attributable to Aoxin Tianli Group Inc. common stockholders - basic and diluted:
Weighted-average shares outstanding, basic and diluted		8,061,349			8,138,495

Continuing operations - Basic & diluted	$	0.12		$	0.37
Discontinued operations - Basic & diluted	$	(0.38	)	$	0.18

See accompanying notes to unaudited consolidated financial statements

F-3

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2016			2015

CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations	$	941,077		$	2,982,092
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		2,898,610			2,693,265
Amortization of prepaid expenses		242,304			288,857
Amortization of long-term prepaid expenses		106,818			113,308
Bad debt expense		-			113,944
Stock-based compensation		313,438			822,022
Recovery gain from inventory valuation		-			(84,279	)
Loss from farm shutdown		-			11,838
Fire damage		-			-
Flood damage		1,670,820			-
Destructed inventories from floods		662,792			-
Destructed biological assets from floods		163,280			-
Loss from disposal of farms		-			779,337
Gain from disposal of construction in progress		-			(4,254	)
Loss from disposal of biological assets		473,681			264,227
Changes in operating assets and liabilities:
Accounts receivable		222,995			(198,705	)
Inventories		3,972,673			7,578,664
Advances to suppliers		-			506,633
Prepaid expenses		(217,380	)		(269,289	)
Other receivables		(1,663	)		(195,345	)
Long-term prepaid expenses		(718	)		-
Accounts payable and accrued payables		(24,958	)		17,274
Advances from customers		-			(44,504	)
Other payables		(1,398,591	)		613,000
Total adjustments		9,106,209			13,005,993
Net cash provided by operating activities from continuing operations		10,047,286			15,988,085
Net cash provided by operating activities from discontinued operations		-			5,257,949
Net cash provided by operating activities		10,047,286			21,246,034

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of construction in progress		-			4,254
Proceeds from disposal of farms		-			1,204,084
Purchase of biological assets		(105,374	)		-
Purchase of plant and equipment		(2,960,399	)		(2,741	)
Net cash provided by (used in) investing activities from continuing operations		(3,065,773	)		1,205,597
Net cash provided by investing activities from discontinued operations		1,823,515			2,769,826
Net cash provided by (used in) investing activities		(1,242,258	)		3,975,423

CASH FLOWS FROM FINANCING ACTIVITIES
Restricted cash received from (deposited to) banks		9,032,064			(9,632,674	)
Due to (from) related party		-			29,036
Proceeds from short-term loans		2,709,619			-
Repayment of short-term loans		(12,042,752	)		(2,376,060	)
Net cash used in financing activities from continuing operations		(301,069	)		(11,979,698	)
Net cash provided by financing activities from discontinued operations		-			-
Net cash used in financing activities		(301,069	)		(11,979,698	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(3,702,830	)		(2,708,731	)

NET INCREASE IN CASH		4,801,129			10,533,028

CASH, BEGINNING OF PERIOD		49,656,897			39,123,869

CASH, END OF PERIOD	$	54,458,026		$	49,656,897

SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest paid	$	82,313		$	50,043
Income tax paid	$	-		$	-

NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES
Prepayments for raw material purchases made with bank acceptance notes	$	-		$	12,843,565
Shares issued to employees	$	-		$	1,433,700
Receivables used to offset the selling price in OV Orange disposal transaction	$	-		$	1,105,174
Inventories received from prior year prepayments	$	6,464,135		$	-
Inventories transferred to biological assets	$	1,577,504		$	-
Cancelation of shares related to Hang-ao acquisition	$	1,047		$	-
Cancelation of shares related to employees' compensation	$	361,080		$	-

See accompanying notes to unaudited consolidated financial statements

F-4

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF THE STOCKHOLDERS' EQUITY

	Common Stock						Additional			Statutory Surplus			Retained			Accumulated Other			Noncontrolling
	Shares			Amount			Paid-in Capital			Reserves			Earnings			Comprehensive Income			Interest			Total
Balance, December 31, 2014		8,093,495		$	32,373		$	63,022,184		$	2,532,813		$	24,105,472		$	4,079,896		$	1,651,972		$	95,424,710

Stock-based compensation		202,500			810			1,432,890			-			-			-			-			1,433,700
Cancelation of independent director's options		-			-			(8,432	)		-			-			-			-			(8,432	)
Disposal of a subsidiary		-			-			(2,703,232	)		(75,633	)		-			454,345			(270,139	)		(2,594,659	)
Comprehensive income:
Net income		-			-			-			-			4,489,834			-			(53,901	)		4,435,933
Unrealized foreign currency translation adjustment		-			-			-			-			-			(5,553,102	)		28,427			(5,524,675	)

Balance, December 31, 2015		8,295,995			33,183			61,743,410			2,457,180			28,595,306			(1,018,861	)		1,356,359			93,166,577

Cancelation of "earn-out" shares at Hang-ao acquisition		(261,750	)		(1,047	)		1,047			-			-			-			-			-
Cancelation of employees' compensation shares		(51,000	)		(204	)		(360,876	)		-			-			-			-			(361,080	)
2015 stock-based compensation to an investor relationship consulting firm		5,000			20			11,980			-			-			-			-			12,000
Disposal of a subsidiary		-			-			-			(40,533	)		-			805,071			(926,263	)		(161,725	)
Comprehensive income:
Net income		-			-			-			-			(1,759,721	)		-			(377,948	)		(2,137,669	)
Unrealized foreign currency translation adjustment		-			-			-			-			-			(6,352,105	)		(52,148	)		(6,404,253	)

Balance, December 31, 2016		7,988,245		$	31,952		$	61,395,561		$	2,416,647		$	26,835,585		$	(6,565,895	)	$	-		$	84,113,850

See accompanying notes to unaudited consolidated financial statements

F-5

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

NOTE 1—ORGANIZATION AND DESCRIPTION OF BUSINESS

The consolidated financial statements include the financial statements of Aoxin Tianli Group, Inc. (referred to herein as “Aoxin Tianli”); its wholly-owned subsidiary, HC Shengyuan Limited, a Hong Kong limited liability company (“HCS”); HCS’s wholly-owned subsidiary, Wuhan Aoxin Tianli Enterprise Investment Management Co., Ltd., a Chinese limited liability company and a wholly foreign owned entity (“WFOE”) formerly known as Wuhan Fengxing Agricultural Science and Technology Development Co., Ltd.; WFOE’s wholly-owned subsidiary, Wuhan Fengze Agricultural Science and Technology Development Co., Ltd., a Chinese limited liability company (“Fengze”), which had been controlled by WFOE through a series of contractual control agreements which were terminated on July 2, 2014, when WFOE acquired 100% of the equity interest of Fengze; and Fengze’s wholly-owned subsidiary, Hubei Tianzhili Breeder Hog Co., Ltd., a Chinese limited liability company (“Tianzhili”). On July 15, 2014, the Company acquired Hubei Hang-ao Servo-valve Manufacturing Technology Co., Ltd. (“Hang-ao”), a Chinese limited liability company located in Xiangyang, Hubei Province. In accordance with the acquisition agreement, Aoxin Tianli became the holder of 88% of the equity interest of Hang-ao. Hang-ao was the sole shareholder of Beijing Sanqiang Tongwei Electromechanical Hydraulic Technology Development Co., Ltd. (“Sanqiang”) and engaged in the business of manufacturing and marketing electro-hydraulic servo-valves and related servo systems and components. On August 26, 2014, the Company entered into and consummated a stock purchase agreement whereby it acquired 95% of the outstanding equity of Wuhan Optical Valley Orange Technology Co., Ltd., a corporation organized under the laws of the People’s Republic of China (“OV Orange”). As a result of the completion of the transaction, OV Orange became a 95% owned subsidiary of the Company, with the remaining 5% equity interest owned by Hubei Aoxin Science & Technology Group Co. Ltd., a company whose Chairman and principal shareholder is Mr. Ping Wang, the Company’s former Chairman and Chief Executive Officer. OV Orange is focused on delivering next-generation optical fiber hardware and software solutions for the security and protection industry and is also a sole shareholder of Wuhan Orange Optical Networking Technology Development Co., Ltd. (“Optical Networking”). During the fourth quarter of 2015, the Company determined to sell Hang-ao and OV Orange. Subsequently, on December 29, 2015, the Company entered into equity transfer agreements for the sale of its 95% equity interest in OV Orange for a selling price of RMB 47.5 million ($7.3 million). The equity transfer agreement for the sale of OV Orange was completed with the former shareholders of OV Orange, Mr. Jin Wu, Ms. Lina Deng, and Mr. Deming Liu. On December 23, 2016, the Company completed equity transfer agreements with Zhongbicheng Holdings Co., Ltd. for the sale of its 88% equity interest in Hang-ao for a selling price of RMB 26 million ($3.9 million). All of Aoxin Tianli’s operations are conducted by Fengze and Tianzhili. Fengze and Tianzhili’s results of operations are consolidated into those of Aoxin Tianli. The results of operations of Hang-ao and OV Orange are reflected in the Company’s consolidated financial statements as discontinued operations. HCS, WFOE, Fengze, Tianzhili, Hang-ao, and OV Orange are sometimes referred to as the “subsidiaries”. Aoxin Tianli and its consolidated subsidiaries are collectively referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.

F-6

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Aoxin Tianli was incorporated in the British Virgin Islands on November 9, 2009 as a limited liability company under the name Tianli Agritech, Inc. The Company is engaged in the business of breeding, raising, and selling hogs for use in China’s pork meat production and hog breeding by other hog producers. The Company also sells pork products directly to certain outlets. The Company operates eight production farms in areas around Wuhan City, within Hubei Province, People’s Republic of China (“PRC”). On July 18, 2014, Aoxin Tianli’s wholly-owned subsidiary, HCS, was incorporated in Hong Kong on November 24, 2009 as a limited liability company. Other than its equity interest in HCS, Aoxin Tianli does not own any assets or conduct any operations.

WFOE was incorporated in Wuhan City on June 2, 2005. On November 26, 2009, HCS entered into a stock purchase agreement with WFOE whereby HCS acquired 100% of the equity interest of WFOE. On January 19, 2010, the Wuhan Municipal Commission of Commerce approved the ownership change. On January 27, 2010, the ownership change was declared effective by the Wuhan Administrator for Industry & Commerce and HCS became the holder of 100% of the equity interest of WFOE, and WFOE effectively became a wholly-owned subsidiary of the Company. Other than the equity interest in WFOE, HCS does not own any assets or conduct any operations.

On June 6, 2014, WFOE changed its name from “Wuhan Fengxing Agricultural Science and Technology Development Co., Ltd.” to “Wuhan Aoxin Tianli Enterprise Investment Management Co., Ltd.” and entered into a share purchase agreement with Fengze’s Principal Stockholders whereby WFOE acquired 100% of the equity interest of Fengze. On June 20, 2014, the Wuhan Municipal Commission of Commerce approved the ownership change, it was declared effective by the Wuhan Administrator for Industry & Commerce and WFOE became the holder of 100% of the equity interest of Fengze, and Fengze effectively became a wholly-owned subsidiary of the Company.

On June 20, 2014, WFOE, Fengze, and Fengze’s former Principal Stockholders entered into a termination agreement to terminate the Entrusted Management Agreement, Pledge of Equity Agreement, and Option Agreement made on December 1, 2009.

F-7

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

On November 5, 2012, XMRJ LLP (“XMRJ”), a limited partner enterprise formed under Chinese law that engages in equity investments in China, agreed to invest RMB 10,000,000, or approximately $1,600,000, in Tianzhili. Until such investment, Tianzhili was a wholly-owned subsidiary of Fengze. Tianzhili conducts our black hog breeding operations. In consideration for its commitment to make the investment and an interest free loan, XMRJ received a 40% equity interest in Tianzhili. As of December 31, 2012, Tianzhili received $1,057,636 or RMB 6,666,700 from XMRJ. On March 22, 2014, Fengze entered into an equity purchase agreement with XMRJ to purchase the 40% minority equity interest in Tianzhili for RMB 6,666,700 or $1,083,100. As a result of this purchase, Tianzhili became the wholly owned subsidiary of the Company.

On July 15, 2014, the Company acquired Hang-ao. In accordance with the acquisition agreement, Aoxin Tianli became the holder of 88% of the equity interest of Hang-ao for consideration of $9,055,605, including RMB 42 million or approximately $6.8 million in cash and 261,750 common shares of Aoxin Tianli. On December 23, 2016, the Company entered into equity transfer agreements with Zhongbicheng Holdings Co., Ltd. for the sale of its 88% equity interest in Hang-ao for a selling price of RMB 26 million ($3.9 million).

On August 26, 2014, the Company entered into and consummated a stock purchase agreement (the “Stock Purchase Agreement”) whereby it acquired 95% of the outstanding equity of Wuhan Optical Valley Orange Technology Co., Ltd., a corporation organized under the laws of the People’s Republic of China (“OV Orange”), from certain shareholders of OV Orange in exchange for 638,000 of the Company’s common shares, of which 100,750 shares were deposited in escrow to be issued to Mr. Hai Liu, CEO of OV Orange and the former beneficial owner of 7,500,000 (representing 15% of the outstanding) OV Orange shares (the “Escrow Shares”), subject to the attainment by OV Orange of certain agreed upon net profit targets for the years ended December 31, 2014, 2015 and 2016.

On December 29, 2015, the Company entered into equity transfer agreements with the former shareholders of OV Orange, Mr. Jin Wu, Ms. Lina Deng, and Mr. Deming Liu, for the sale of its 95% equity interest in OV Orange for a purchase price of RMB 47.5 million ($7.3 million), as a condition of the sale, the 100,750 “earn-out” shares deposited in escrow and issued to Mr. Hai Liu, CEO and the former beneficial owner of OV Orange will be released to him at the end of March, 2017 as previously stipulated in the acquisition agreement.

F-8

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). The Company’s functional currency is the Chinese Renminbi (“RMB”); however the accompanying consolidated financial statements have been translated and presented in United States Dollars (“USD”). All significant intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include the useful lives of property and equipment, land use rights and biological assets, and assumptions used in assessing impairment for long-term assets.

Principles of Consolidation

We consolidate wholly-owned subsidiaries, HCS, WFOE, Fengze, Tianzhili, and for the periods prior to their sales, Hang-ao and OV Orange. All material intercompany accounts and transactions have been eliminated in consolidation.

F-9

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Cash and Cash Equivalents

Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Restricted cash is excluded from cash and cash equivalents. The Company maintained cash and cash equivalents with various financial institutions in the PRC. As of December 31, 2016 and 2015, balances in banks in the PRC were $54,458,026 and $49,656,897, respectively.

Accounts Receivable

Accounts receivable is stated at cost, net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. Management accrued no allowance for doubtful accounts at December 31, 2016 and 2015.

Inventories

Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products, are stated at the lower of cost, as determined by the weighted-average method, or market. Management compares the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value if that is lower. Costs of raised animals include proportionate costs of breeding, including amortization of the breeding herd or biological assets, plus the costs of feed and other maintenance costs through the balance sheet date. Management inspects and monitors inventory on a continual basis. The Company recorded no inventory reserve at December 31, 2016 and 2015, respectively.

Prepaid Expenses

Prepaid expenses at December 31, 2016 and 2015 totaled $112,676 and $816,646, respectively, and includes prepayments to suppliers for services that had not yet been provided to us. We recognize prepayments as an expense as suppliers provide services, in compliance with our accounting policy. For the years ended December 31, 2016 and 2015, the Company had amortized its prepaid insurance expense, warehouse leasing expense, and service expense of $242,304 and $288,857, respectively.

F-10

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Advances to Suppliers

Advances to suppliers are stated at cost, net of an allowance for doubtful accounts and include prepayments to suppliers for merchandise and raw materials that had not yet been shipped to us. We recognize prepayments as inventory or expense as suppliers make delivery of goods in compliance with our accounting policy. The Company maintains allowances for doubtful accounts for estimated losses resulting from prepayments without future economic benefits to the Company. The Company reviews the advances to suppliers on a periodic basis and makes allowances where there is doubt as to the future economic benefits of individual balances. Advances to suppliers at December 31, 2016 and 2015 totaled $1,129,477 and $7,823,138, respectively, which were prepayments to the Company’s feed suppliers. The Company accrued an allowance for doubtful accounts of $0 and $115,215 at December 31, 2016 and 2015.

Restricted Cash

Restricted cash consists of cash deposits held by a bank and a guarantee service provider to secure bank acceptance notes payable.

Plant and Equipment

The Company states plant and equipment at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to operations as incurred; additions, renewals and betterments are capitalized. When plant and equipment assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any resulting gain or loss is recorded as an operating expense. In accordance with US GAAP, the Company examines the possibility of decreases in the value of plant and equipment when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes depreciation using the straight-line method over the estimated useful lives of the assets with a residual value of 5% of plant and equipment.

Estimated useful lives of the Company’s assets are as follows:


		Useful Life
Buildings		20 years
Vehicles		5-10 years
Office equipment		3-5 years
Research equipment		3-20 years
Production equipment		3-20 years

F-11

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Biological Assets

Biological assets consist primarily of hogs purchased or selected from the Company’s own production for breeding and farrowing, which management believes will produce piglets that grow faster and have better quality breeding capabilities and carcasses with a high percentage of meat and a small quantity of fat. The costs to purchase and cultivate breeding hogs and the expenditures related to labor and materials to feed breeding hogs until they become commercially productive and breedable are capitalized. When breeding hogs are entered into breeding and farrowing production, amortization of the costs of these breeding hogs commences. The estimated production life for breeding hogs is three years, and the costs are amortized to a residual value of $76 (RMB 500). After breeding hogs have completed their production life of breeding, they are transferred into inventory as the vast majority of breeding hogs are then sold for meat processing. Expenses incurred maintaining breeding hogs during gestation until piglets are weaned are capitalized into inventory and included in Work in process—biological assets, a component of inventories. If breeding hogs produce piglets which are deemed appropriate for internal breeding purposes, the gestation and raising costs until weaned for these piglets are then allocated into biological assets.

Amortized expenses pertaining to biological assets are included in inventory costs for those piglets to be sold and ultimately become a component of cost of goods sold.

Intangible Assets

Included in the intangible assets are land use rights and distribution networks. According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Intangible assets are being amortized using the straight-line method over their lease terms or estimated useful life.

Impairment of Long-lived Assets

In accordance with US GAAP, the Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the years ended December 31, 2016 and 2015, the Company recorded $1,375,629 and $11,838 as impairment charges against its plant and equipment. The loss reported in 2016 was caused by the flood which occurred in early July of the same year.

F-12

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted ASC 820, Fair Value Measurements and Disclosure (“ASC 820”) for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

ASC 820 defines fair value as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

The Company did not identify any assets and liabilities that are required to be presented on the condensed consolidated balance sheets at fair value in accordance with the relevant accounting standards.

The carrying values of cash and cash equivalents, trade receivables and payables, and short-term bank loans and debts approximate their fair values due to the short maturities of these instruments.

Non-controlling Interest

Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

F-13

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Revenue Recognition

Revenues generated from sales of breeding and meat hogs and specialty pork are recognized when these products are delivered to customers in accordance with previously agreed upon pricing and delivery arrangements, and the collectability of these sales is reasonably assured. Cash payment, which sometimes is in the form of wired cash transfers to the Company’s bank account, is usually received by the Company at the time hogs are sold. Sold hogs and specialty pork are not returnable and accordingly, no provision has been made for returnable goods. The customers are responsible for shipping the hogs they purchase.

Segment Information

In the second quarter of 2013, the Company entered into distribution agreements with supermarkets whereby the Company is permitted to sell specialty pork products in the supermarkets’ retail facilities. Consequently, management determined that as of the end of the second quarter of 2013, the Company was engaged in the retail business. As of December 31, 2016 and 2015, the Company was operating in two segments, Hog Farming and Retail.

Income Taxes

The Company accounts for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The Company did not have any deferred tax assets or liabilities as of December 31, 2016 and 2015.

F-14

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

The Company is subject to the Enterprise Income Tax law (“EIT”) of the People’s Republic of China. However, according to the EIT, companies that are engaged in the agricultural business and primary processing of agricultural products are exempt from the 25% enterprise income tax. The Company’s operations in breeding, raising, and selling hogs for use in Chinese pork meat production and hog breeding, are exempt from the Chinese income tax. However, the Company’s operations in servo-valve products, which are conducted through Hang-ao and included in the Company’s discontinued operations, are subject to the 25% enterprise income tax. Aoxin Tianli is incorporated in the British Virgin Islands. Under the current tax laws of the British Virgin Islands, the Company is not subject to income taxes.

In addition the Company’s hog sales are not subject to the PRC’s 17% VAT tax or the 5% business tax levied on incomes from services rendered. However, the Company’s operations in servo-valve products, conducted through Hang-ao, are subject to such taxes. According to the PRC tax regulations, companies engaging in the agricultural business are exempt from these taxes. With respect to the Company’s operations in retail, the Company is engaged in breeding, processing, and distributing black hogs and black hog meats which are exempt from VAT taxes and corporate income tax as well.

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.

Basic and Diluted Earnings per Share

The Company reports earnings per share in accordance with FASB ASC 260 “Earnings per share”. The Company’s basic earnings per share are computed using the weighted average number of shares outstanding for the periods presented. Diluted earnings per share are computed based on the assumption that any dilutive options or warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, the Company’s outstanding stock warrants are assumed to be exercised, and funds thus obtained were assumed to be used to purchase common stock at the average market price during the period. There were no dilutive instruments outstanding during the years ended December 31, 2016 and 2015.

F-15

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Foreign Currency Translation

As of December 31, 2016 and 2015, the accounts of Aoxin Tianli were maintained and its financial statements were expressed in Chinese Renminbi (RMB). Such financial statements were translated into United States Dollars (USD) in accordance with US GAAP, with the RMB as the functional currency. All assets and liabilities are translated at the current exchange rates as of the balance sheet dates. These rates were RMB 6.945 per US dollar and RMB 6.4917 per US dollar as of December 31, 2016 and 2015, respectively. Stockholders’ equity is translated at the historical rates and items in the statements of operations and cash flows are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with US GAAP as a component of stockholders’ equity.

During the years ended December 31, 2016 and 2015, the transactions of Aoxin Tianli were denominated and recorded in RMB and are translated at the average rates of exchange for the period. There rates were RMB 6.643 and RMB 6.2288 per US dollar for the years ended December 31, 2016 and 2015, respectively. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Stock Based Compensation

In December 2004, the Financial Accounting Standards Board, or FASB, issued FASB ASC 718-10-55 - Compensation-Stock Compensation, or ASC 718-10-55. Under ASC 718-10-55, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. In addition, FASB ASC 825-10-50-10 – Financial Instruments – Overall – Disclosures, or ASC 825-10-50-10, expresses views of the Securities and Exchange Commission, or the SEC, staff regarding the interaction between ASC 718-10-55 and certain SEC rules and regulations and provides the staff's views regarding the valuation of share-based payment arrangements for public companies. The Company’s compensation cost is measured on the date of grant at its fair value. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant. During the years ended December 31, 2016 and 2015, the Company reported $313,438 and $822,022 as stock based compensation.

F-16

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessments inherently involve an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Accrual of Environmental Obligations

ASC Section 410-30-25 “Recognition” of environmental obligations requires the accrual of a liability if both of the following conditions are met:

Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements.

The amount of the loss can be reasonably estimated.

As of December 31, 2016 and 2015, the Company did not have any environmental remediation obligations, nor did it have any asset retirement obligations under ASC 410. Furthermore, the Company did not have any environmental remediation loss contingencies requiring recognition or disclosure in its financial statements.

F-17

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries through the application of the following five-step process:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The updated guidance related to revenue recognition affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for the Company starting on January 1, 2017. The Company is currently evaluating the impact this guidance will have on its combined financial position, results of operations and cash flows.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The standard requires several targeted changes including that equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) be measured at fair value with changes in fair value recognized in net income. The new guidance also changes certain disclosure requirements and other aspects of current US GAAP. Amendments are to be applied as a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. This standard is effective for fiscal years starting after December 15, 2017, including interim periods within those fiscal years. The standard does not permit early adoption with the exception of certain targeted provisions. The Company is currently assessing the impact and timing of adopting this guidance on its consolidated financial statements.

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. Most prominent among the amendments is the recognition of assets and liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We anticipate this standard will have a material impact on our consolidated balance sheets, and we are currently evaluating its impact.

F-18

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

In March 2016, the Financial Accounting Standards Board (“FASB”) issued a new standard that changes the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The standard also allows us to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on our cash flows statement, and provides an accounting policy election to account for forfeitures as they occur. The Company is currently assessing the impact and timing of adopting this guidance on its consolidated financial statements.

In April 2016, the FASB issued ASU 2016- 10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”. The amendments add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

In May 2016, the FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting.” The amendment rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force (EITF) meeting. Specifically, registrants should not rely on the following SEC Staff Observer comments upon adoption of Topic 606: 1) Revenue and Expense Recognition for Freight Services in Process, which is codified in paragraph 605-20-S99-2; 2) Accounting for Shipping and Handling Fees and Costs, which is codified in paragraph 605-45-S99-1; 3) Accounting for Consideration Given by a Vendor to a Customer (including Reseller of the Vendor's Products), which is codified in paragraph 605-50-S99-1; 4) Accounting for Gas-Balancing Arrangements (i.e., use of the "entitlements method"), which is codified in paragraph 932-10-S99-5, which is effective upon adoption of ASU 2014-09. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

F-19

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients". The amendments, among other things: (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The effective date of these amendments is at the same date that Topic 606 is effective. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, we will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The new standard will be effective for us beginning July 1, 2020, with early adoption permitted beginning July 1, 2019. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of this standard on our consolidated financial statements.

Reclassification

Certain prior year balances were reclassified to conform to the current year's presentation with consideration of reflecting two of the Company’s subsidiaries, Hang-ao and OV Orange, as discontinued operations. None of these reclassifications had an impact on reported financial position or cash flows for any of the periods presented.

Acquisitions

On July 15, 2014, the Company acquired Hang-ao, a Chinese limited liability company located in Xiangyang, Hubei Province. In accordance with the acquisition agreement, Aoxin Tianli became the holder of 88% of the equity interest of Hang-ao for consideration of $9,055,605, including RMB 42 million or approximately $6.8 million in cash and 261,750 common shares of Aoxin Tianli. Hang-ao, at the time of the acquisition, was the sole shareholder of Beijing Sanqiang Tongwei Electromechanical Hydraulic Technology Development Co., Ltd. and engaged in the business of manufacturing and marketing electro-hydraulic servo-valves and related servo systems and components. The acquisition agreement includes a three year “earn out payment” provision which requires Hang-ao to reach certain levels of net income for the years 2014, 2015, and 2016 for the sellers to retain the 261,750 common shares of Aoxin Tianli. The net income targets are RMB 4.5 million ($733,000), 9 million ($1.5 million), and RMB 15 million ($2.4 million) for the years 2014, 2015, and 2016.

F-20

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

The following is a reconciliation of the purchase:

	Shares		Price per Share		Amount
Fair value of the Company’s stock issued		261,750	$	8.52	$	2,230,110
Cash						6,825,495
Total purchase price					$	9,055,605
Acquired assets and liabilities:
Cash					$	215,236
Current assets						8,121,512
Fixed assets						2,036,448
Intangible assets						3,684,084
Liabilities						(3,766,820	)
						10,290,460
Percentage of acquired equity						88	%
88% of acquired assets and liabilities						9,055,605
Purchase price						9,055,605
Goodwill					$	-

	Amount
Acquired assets and liabilities, net	$	10,290,460
Percentage of equity		12	%
Noncontrolling Interest	$	1,234,855

On August 26, 2014, the Company entered into and consummated a stock purchase agreement (the “Stock Purchase Agreement”) whereby it acquired 95% of the outstanding equity of Wuhan Optical Valley Orange Technology Co., Ltd., a corporation organized under the laws of the People’s Republic of China (“OV Orange”), from certain of the former shareholders of OV Orange in exchange for 638,000 of the Company’s common shares, of which 100,750 shares were deposited in escrow to be issued to Mr. Hai Liu, CEO of OV Orange and the former beneficial owner of 7,500,000 (representing 15% of the outstanding) OV Orange shares (the “Escrow Shares”), subject to the attainment by OV Orange of certain agreed upon net profit targets for the years ended December 31, 2014, 2015 and 2016.

F-21

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

The following is a reconciliation of the purchase:

	Shares		Price per Share		Amount
Fair value of the Company’s stock issued		638,000	$	7.8	$	4,976,400
Acquired assets and liabilities:
Cash					$	690,990
Current assets						3,881,918
Fixed assets						376,075
Long-term prepaid expense						1,282,037
Intangible assets						2,699,753
Liabilities						(989,226	)
						7,941,547
Discount from bargain purchase						(2,703,232	)
						5,238,315
Percentage of acquired equity						95	%
95% of acquired assets and liabilities						4,976,400
Purchase price						4,976,400
Goodwill					$	-

	Amount
Acquired assets and liabilities, net	$	5,238,315
Percentage of equity		5	%
Noncontrolling Interest	$	261,915

Before Aoxin Tianli acquired OV Orange, 45% of OV Orange’s equity interest was held by Hubei Aoxin Science & Technology Group Co. Ltd., a company whose Chairman and principal shareholder is Mr. Ping Wang, the same as Aoxin Tianli. Therefore, the acquisition of OV Orange is a related party transaction and the discount of $2,703,232 from this bargain purchase was recorded as part of additional paid-in capital.

Deconsolidation

On December 29, 2015, the Company sold 95% of OV Orange’s equity interest for $7,317,036 in cash. Aoxin Tianli recognized a gain of $2,144,226 from this transaction.

The following is a reconciliation of the deconsolidation:

	Amount
Selling price	$	7,317,036
Disposed assets and liabilities:
Cash		65,446
Current assets		2,202,581
Long-term prepaid expenses		1,103,974
Fixed assets and construction in progress		925,524
Intangible assets		2,190,288
Liabilities		(1,315,003	)
		5,172,810
Gain from disposal of subsidiaries, net of income tax	$	2,144,226

F-22

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

On December 23, 2016, the Company sold 88% of Hang-ao’s equity interest for $3,913,894 in cash. Aoxin Tianli recognized a gain of $70,820 from this transaction.

The following is a reconciliation of the deconsolidation:

	Amount
Selling price	$	3,913,894
Disposed assets and liabilities:
Cash		17
Current assets		1,554,722
Long-term prepaid expenses		-
Fixed assets and construction in progress		4,581,775
Intangible assets		-
Liabilities		(2,293,440	)
		3,843,074
Gain from disposal of subsidiaries, net of income tax	$	70,820

NOTE 3—ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

	December 31,
	2016		2015
Accounts receivable	$	60,283	$	292,684
Less: Allowance for doubtful accounts		-		-
	$	60,283	$	292,684

The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. During the years ended December 31, 2016 and 2015, the Company reported a recovery gain of $0 and $5,652, respectively, from the allowance for doubtful accounts.

F-23

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

NOTE 4—INVENTORIES

Inventories consisted of the following:

	December 31,
	2016		2015
Raw materials—hogs	$	859,161	$	383,807
Work in process—biological assets		2,269,269		2,416,201
Infant hogs		2,377,655		2,853,727
Finished goods—specialty pork products		-		2,430
Less: inventory reserve		-		-
	$	5,506,085	$	5,656,165

Management compares the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value, if lower. As of December 31, 2016 and 2015, the Company did not write down the value of its inventories. For the years ended December 31, 2016 and 2015, the Company reported a recovery gain of $0 and $84,279, respectively, from its impairment loss reserve. The term “Work in process—biological assets” has the meaning set forth above in Note 2—Biological Assets.

NOTE 5—ADVANCES TO SUPPLIERS

The Company makes advances for materials or services the Company uses in its operations. Advances to suppliers mainly consisted of prepayments to suppliers for merchandise and raw materials which were mainly comprised of premix feeds. As of December 31, 2016 and 2015, advances to suppliers amounted to $1,129,477 and $7,823,138, respectively. Included in advances to suppliers as of December 31, 2016 and 2015, we had prepaid $1,129,477 and $7,823,138 to the Company’s feed suppliers. During the years ended December 31, 2016 and 2015, the Company reported a bad debt expense of $0 and $120,078 over its advances to suppliers, respectively, for certain prepayments which may not have future economic benefits to the Company.

NOTE 6—OTHER RECEIVABLES

At December 31, 2016 and 2015, the Company reported other receivables of $293,377 and $312,161, respectively, including no allowance for doubtful receivables. The balances as of December 31, 2016 and 2015 included a deposit of $287,977 and $308,086 to a professional loan guarantee service company for short-term bank loans and issuance of the bank acceptance notes. During the years ended December 31, 2016 and 2015, the Company reported a recovery gain of $0 and $482, respectively, from the allowance for doubtful accounts.

NOTE 7—RESTRICTED CASH

Restricted cash consists of cash deposits held by a bank to secure bank acceptance notes payable. At December 31, 2016 and 2015, the Company reported restricted cash of $0 and $9,242,571, respectively, which was collateral for its outstanding bank acceptance notes payable of $12,323,428. Restricted cash was returned from the bank when the Company repaid its bank acceptance notes payable during the second quarter of 2016.

F-24

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

NOTE 8—LONG-TERM PREPAID EXPENSES

Long-term prepaid expenses primarily consist of prepaid rental expenses for three parcels of land comprising the Company’s farm located in Enshi Prefecture. The prepaid rental expenses are being amortized using the straight-line method over the lease term of 21.33 years.

Long-term prepaid expenses at December 31, 2016 and 2015 are as follows:

	December 31,
	2016			2015
Long-term prepaid rental expenses	$	1,735,431		$	1,811,007
Less: Accumulated amortization		(538,442	)		(421,863	)
	$	1,196,989		$	1,389,144

Amortization expense for the years ended December 31, 2016 and 2015 was $106,818 and $113,308, respectively. The estimated amortization expense of long-term prepaid expenses over each of the next five years and thereafter is $106,818 per annum.

NOTE 9—PLANT AND EQUIPMENT

Plant and equipment consist of the following:

	December 31,
	2016			2015
Buildings	$	25,929,635		$	29,975,914
Vehicles		422,675			452,190
Office equipment		449,578			480,970
Production equipment		4,920,889			2,296,519
		31,722,777			33,205,593
Less: Accumulated depreciation		(10,608,937	)		(9,794,790	)
	$	21,113,840		$	23,410,803

(i)	Depreciation expense was $2,388,912 and $2,294,276 for the years ended December 31, 2016 and 2015, respectively.

(ii)	Disposal of hog farms

On August 11, 2015, the Company sold 2 hog farms located in Nanyan Village and Qunyi Village, Hubei Province to a third party, Wuhan City Tianjian Agricultural Development Co., Ltd., for $1,204,084 or RMB 7.5 million, and reported a loss of $779,337 from the transaction.

F-25

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(iii)

Impairment charge

On November 6, 2013, the Animal Husbandry and Veterinary Bureau of Caidian District, Wuhan City, directed the Company to close one of the Company's farms located in the Caidian District. During the course of the Company's strategic review of its operations and consideration of the November 6, 2013 notice from the Animal Husbandry and Veterinary Bureau of Caidian District, the Company assessed the recoverability of the carrying value of certain property, plant and equipment which resulted in an impairment loss of $11,838 reported in the year ended December 31, 2015. The impairment charge represented the excess of the carrying amounts of the Company's property, plant and equipment over the estimated fair value of the Company's hog farm in Caidian District.

(iv)	Flood damage

In early July 2016, the city of Wuhan had a record weekly rainfall of 22.6 inches. The rain collapsed more than 40,000 houses and forced the evacuation of nearly 1.5 million people in 11 regions. The Company estimated its total economic losses at $2,496,892, including $1,375,629 relating to our facilities, estimated damage compensation of $295,191 to local farmers, and $662,792 and $163,280 relating to our marketable hogs and breeder hogs, respectively, which were reported as part of cost of goods sold.

NOTE 10—BIOLOGICAL ASSETS

Biological assets consist of the following:

	December 31,
	2016			2015
Breeding hogs	$	2,777,870		$	5,481,979
Less: Accumulated amortization		(876,126	)		(3,901,132	)
	$	1,901,744		$	1,580,847

As of December 31, 2016 and 2015, $424,524 and $836,972 of breeding hogs was a breed of black hogs. Amortization of the biological assets, included as a component of inventory, for the years ended December 31, 2016 and 2015 was $602,559 and $531,647, respectively.

NOTE 11—INTANGIBLE ASSETS

Included in the intangible assets are land use rights and acquired distribution network. According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Intangible assets are being amortized using the straight-line method over their lease terms or estimated useful life.

F-26

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Intangible assets at December 31, 2016 and 2015 are as follows:

	December 31,
	2016			2015
Land use rights	$	1,526,537		$	1,633,132
Distribution network		1,707,340			1,826,560
Less: Accumulated amortization		(830,240	)		(656,744	)
	$	2,403,637		$	2,802,948

Amortization expense for the years ended December 31, 2016 and 2015 was $226,198 and $241,240, respectively. The estimated amortization expense of intangible assets for the next five years is as follow:

Year	Amount
2017	$	226,905
2018	$	226,905
2019	$	226,905
2020	$	226,905
2021	$	226,905
Thereafter	$	1,269,112

Activity related to intangible assets by business segments was as follows:

	Hog Farming			Retail			Total
Land use rights	$	1,526,537		$	-		$	1,526,537
Distribution network		-			1,707,340			1,707,340
Less: accumulated amortization		(360,722	)		(469,518	)		(830,240	)
Balance as of December 31, 2016	$	1,165,815		$	1,237,822		$	2,403,637

	Hog Farming			Retail			Total
Land use rights	$	1,633,132		$	-		$	1,633,132
Distribution network		-			1,826,560			1,826,560
Less: accumulated amortization		(337,096	)		(319,648	)		(656,744	)
Balance as of December 31, 2015	$	1,296,036		$	1,506,912		$	2,802,948

F-27

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

NOTE 12—SHORT-TERM LOANS

As of December 31, 2016 and 2015, the short-term loans are as follows:

	December 31, 2016		December 31, 2015
Loan payable to Shanghai Pudong Development Bank, annual interest rate of 5.66%, due by June 22, 2017, guaranteed by Wuhan Agriculture Guarantee Co., Ltd.	$	1,151,908	$	-
Loan payable to Shanghai Pudong Development Bank, annual interest rate of 5.66%, due by June 24, 2017, guaranteed by Wuhan Agriculture Guarantee Co., Ltd.		1,439,885		-
	$	2,591,793	$	-

In the second quarter of 2016, the Company paid $67,906 to a guarantee service provider for providing a guarantee of the loans from Shanghai Pudong Development Bank. Amounts of $82,313 and $50,043 were recorded as interest expense for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, the Company also made a cash deposit of $287,977 to Wuhan Agriculture Guarantee Co., Ltd. as collateral to secure the short-term bank loans. The deposit was reported as part of other receivables and will be returned when the Company repays the loans to Shanghai Pudong Development Bank.

NOTE 13—BANK ACCEPTANCE NOTES PAYABLE

Bank acceptance notes payable represent amounts due to banks which are collateralized. 50% of bank acceptance notes payable are secured by the Company’s restricted cash which is on deposit with the lender. At December 31, 2016 and 2015, the Company’s bank acceptance notes payables consisted of the following:

	December 31, 2016		December 31, 2015
Shanghai Pudong Development Bank, non-interest bearing, repaid by January 15, 2016, collateralized by restricted cash deposited, guaranteed by Fengze, Tianzhili, and Wuhan Agriculture Guarantee Co., Ltd.	$	-	$	1,540,429
Shanghai Pudong Development Bank, non-interest bearing, repaid by January 20, 2016, collateralized by restricted cash deposited, guaranteed by Fengze, Tianzhili, and Wuhan Agriculture Guarantee Co., Ltd.		-		1,540,429
Shanghai Pudong Development Bank, non-interest bearing, repaid by January 26, 2016, collateralized by restricted cash deposited, guaranteed by Fengze, Tianzhili, and Wuhan Agriculture Guarantee Co., Ltd.		-		1,540,429
Shanghai Pudong Development Bank, non-interest bearing, repaid by January 30, 2016, collateralized by restricted cash deposited, guaranteed by Fengze, Tianzhili, and Wuhan Agriculture Guarantee Co., Ltd.		-		1,540,429
Shanghai Pudong Development Bank, non-interest bearing, due June 21, 2016, collateralized by restricted cash deposited, guaranteed by Fengze, Tianzhili, and Wuhan Agriculture Guarantee Co., Ltd.		-		1,540,428
Shanghai Pudong Development Bank, non-interest bearing, due June 22, 2016, collateralized by restricted cash deposited, guaranteed by Fengze, Tianzhili, and Wuhan Agriculture Guarantee Co., Ltd.		-		1,540,428
Shanghai Pudong Development Bank, non-interest bearing, due June 23, 2016, collateralized by restricted cash deposited, guaranteed by Fengze, Tianzhili, and Wuhan Agriculture Guarantee Co., Ltd.		-		1,540,428
Shanghai Pudong Development Bank, non-interest bearing, due June 24, 2016, collateralized by restricted cash deposited, guaranteed by Fengze, Tianzhili, and Wuhan Agriculture Guarantee Co., Ltd.		-		1,540,428
	$	-	$	12,323,428

F-28

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

In 2015, the Company paid $124,952 to Wuhan Agriculture Guarantee Co., Ltd. for guarantees of the Company’s bank acceptance notes payable from Shanghai Pudong Development Bank. As of December 31, 2015, the Company also made a cash deposit of $308,086 to Wuhan Agriculture Guarantee Co., Ltd. as collateral to secure the bank acceptance notes payable. The deposit was reported as part of other receivables and was returned in 2016 when the Company repaid the notes payable to Shanghai Pudong Development Bank.

NOTE 14—OTHER PAYABLES

Other payables at December 31, 2016 and 2015 were $1,465,164 and $3,041,085, respectively. Included in other payables as of December 31, 2016 and 2015 were mainly deposit payables of $1,455,165 and $2,346,776 for joint development agreements with cooperatives in Enshi Autonomous Prefecture.

Since December 31, 2011, the Company signed 7 joint development agreements with 7 local cooperatives in the Enshi Autonomous Prefecture in Hubei Province. Under these agreements, the Company provides funding to local independent farmers to construct small-scale hog farms in which the farmers will grow black hogs for sale to the Company. According to the joint development agreements, each participating farmer paid a deposit of approximately one-third of the construction cost of the hog farm to the Company upon completion of the respective hog farm. The deposit is amortized against the depreciation expense over a period of 10 years. Should the farmer withdraw from the program within this period, the deposit will be refunded proportionately. As of December 31, 2016 and 2015, deposits from farmers were $1,455,165 and $2,346,776, respectively.

In early July 2016, the city of Wuhan had a record weekly rainfall of 22.6 inches. The rain collapsed more than 40,000 houses and forced the evacuation of nearly 1.5 million people in 11 regions, including the Enshi Autonomous Prefecture. The rain caused unrecoverable damage at 172 small-scale hog farms the Company had constructed for local independent farmers. The Company estimated its total economic losses at $2,496,892, including $1,375,629 relating to its facilities, damage compensation of $295,191 to local farmers, and $662,792 and $163,280 relating to its marketable hogs and breeder hogs, respectively, which were reported as part of its cost of goods sold. The cooperation agreements with the 172 damaged small-scale hog farms were terminated and the Company returned the relevant deposit payables of approximately $757,000 to the farmers.

F-29

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

In addition to the deposit payables from farmers, other payables also includes a down payment related to the Company’s terminated equity transaction. As of December 31, 2016 and 2015, the balances of the down payment were $0 and $616,171, respectively. On November 13, 2015, the Company entered into an equity transfer agreement for the sales of its 88% equity interest in Hang-ao for a purchase price of RMB 48.4 million ($7.5 million) and received $616,171 as a down payment from the buyer to secure this transaction. This transfer agreement had been terminated at December 25, 2015 and the down payment was returned in 2016.

The amortization of deposit payables for the years ended December 31, 2016 and 2015 was $319,059 and $373,898. The following table sets forth the aggregate future amortization expected for the next five years:

	Amortization
2017	$	319,059
2018	$	319,059
2019	$	319,059
2020	$	319,059
2021	$	178,929

NOTE 15—INCOME TAXES

The Company’s operations in the People’s Republic of China are subject to the Income Tax Law of the People’s Republic of China. However, according to the EIT, companies that are engaged in the agricultural business and primary processing of agricultural products are exempt from the 25% enterprise income tax. The Company’s operations in breeding, raising, and selling hogs for use in Chinese pork meat production and hog breeding, are exempt from the Chinese income tax. However, the Company’s operations in servo-valve products through Hang-ao, which are reflected in the Company’s discontinued operations, are subject to the 25% enterprise income tax. Aoxin Tianli is incorporated in the British Virgin Islands. Under the current tax laws of the British Virgin Islands, the Company is not subject to income taxes.

In addition the Company’s hog sales are not subject to the PRC’s 17% VAT tax or the 5% business tax levied on incomes from services rendered. However, the Company’s operations in servo-valve business are subject to such taxes. According to the PRC tax regulations, companies engaging in the agricultural business are exempt from these taxes. With respect to the Company’s operations in Retail segment, the Company is engaged in breeding, processing, and distributing black hogs and black hog meats which are exempt from VAT taxes and corporate income tax as well.

F-30

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

The table below summarizes the differences between the PRC statutory federal rate and the Company’s effective tax rate:

	For the Years Ended December 31,
	2016			2015
Tax computed at China statutory rates		25	%		25	%
Effect of exempt rate on Hog Farming and Retail operations		(25	%)		(25	%)
Effective rate		-			-

As of December 31, 2016 and 2015, the Company reported no deferred tax assets or liabilities. The Company’s income tax returns since inception are subject to audit by regulatory authorities. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations. FASB ASC Topic 740, Income Taxes provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. ASC Topic 740 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

We recognize tax liabilities in accordance with ASC Topic 740 and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.

NOTE 16—RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

Due to related party

In connection with the disposal of Hang-ao on December 23, 2016, the Company paid $2,090,379 to Hang-ao in satisfaction of amounts borrowed from Hang-ao in prior years.

F-31

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Revenues – related party

During the year ended December 31, 2015, OV Orange sold products to Beijing Central Aoxin Technology Development Co., Ltd. (“Central Aoxin”) and Wuhan Aoxin Pike Wealth Investment Management Co., Ltd. (“Aoxin Pike”) and recognized revenues of $25,306 in total. Central Aoxin’s registered agent was Mr. Ping Wang, our former Chairman and CEO. One of Aoxin Pike’s major shareholders has an indirect investment in the Company.

Bank loan guaranteed by related party

Wuhan Aoxin Investment and Guarantee Services, Co., Ltd. provided a loan guarantee for the Company’s short-term bank loan of $781,950 from Wuhan Rural Commercial Bank which had been repaid on August 4, 2015.

Issuance of common stock

NOTE 17—CAPITAL STOCK

The Company is authorized to issue 25,000,000 shares of common stock, $0.004 par value, and as of December 31, 2016 and 2015, it had 7,988,245 shares and 8,295,995 shares outstanding, respectively.

On December 6, 2010 the Company granted 6,500 options with an exercise price of $24.00 to a director with vesting of one-third as of the date of grant, one-third vesting in December 2011, and the final one-third vesting in December 2012, contingent on the director continuing to serve as a board member. The option can be exercised through January, 2017. The Company recognizes the compensation cost over the award’s service period based on a Black Scholes valuation of the options as of the date of the grant. The 6,500 options were given up when new options were granted on October 1, 2014.

On October 1, 2014, the Company granted 17,500 options with an exercise price of $10 to the non-employee directors with vesting of 5,750 options as of the date of grant, 6,000 options vesting in December 2015, and the final 5,750 options vesting in December 2016, contingent on the directors continuing to serve as board members. The options can be exercised through October 1, 2021. The Company recognizes the compensation cost over the recipients’ service period based on a Black Scholes valuation of the options as of the date of the grant. On July 2, 2015, one of the non-employee directors resigned. As a result, 1,750 of the 17,500 options were canceled. For the years ended December 31, 2016 and 2015, the Company reported an amortization expense of $36,138 and $26,702, respectively.

F-32

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

On February 6, 2015, the Company issued 202,500 of its common shares to 7 employees pursuant to the Company’s 2014 Share Incentive Plan. Those shares were valued at $1,433,700; 81,000 shares vested as of the date of grant, 60,750 shares vested in December 2015, and 60,750 common shares vest in December 2016. The Company will recognize the compensation cost over the employees’ service period. During the year ended December 31, 2015, 3 of the 7 employees, including the Company’s former CEO, resigned and the relevant unvested 51,000 shares were canceled on March 8, 2016. For the years ended December 31, 2016 and 2015, the Company reported an amortization expense of $277,300 and $795,320.

On September 1, 2016, the Company effected a reverse stock split of the Company's common stock (the “Reverse Split”). Under the laws of the British Virgin Islands and the Amended and Restated Memorandum and Articles of Association, shareholder approval of the Reverse Split was not required. As a result of the Reverse Split, every four shares of common stock outstanding were consolidated into one share. All share and per share information in these notes and the accompanying financial statements has been retroactively adjusted to reflect the Reverse Split.

The table below provides the estimated fair value of the director options, and the significant assumptions used to determine their values.

		Director Options
Estimated Fair Value Per Option		$4.82
Stock Price at Date of Grant		$8.00
Assumptions:
Dividend Yield		0%
Stock Price Volatility		105.24%
Risk-Free Interest Rate		1.00%

The following table summarizes the stock options outstanding as of December 31, 2016 and 2015 and the activity during the year ended December 31, 2016

	Options		Weighted Average Exercise Price
Outstanding as of December 31, 2015		15,750	$	10.00
Granted		-		-
Exercised		-		-
Forfeited		-		-
Outstanding at December 31, 2016		15,750	$	10.00
Exercisable at December 31, 2016		15,750	$	10.00

F-33

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

The fair value of the director options were estimated as of the grant date using the Black Scholes options pricing model. The determination of the fair value is affected by the price of the Company’s common shares at the grant date as well as assumptions made regarding the expected price volatility of the common stock over the terms of the grant, the risk-free interest rate and any expected dividends.

The weighted average remaining contractual life for the options is 4.75 years. The market value of the Company’s common stock was $3.62 and $3.60 as of December 31, 2016 and 2015, respectively. The intrinsic value of the outstanding options as of December 31, 2016 and 2015 was $0.

NOTE 18—STATUTORY RESERVES

As stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

•	Making up cumulative prior years’ losses, if any;

•	Allocations to the “Statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital;

•	Allocations to the discretionary surplus reserve, if approved by the stockholders;

•

The transfer to this reserve must be made before distribution of any dividend to shareholders. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

In accordance with the Chinese Company Law, the Company has allocated 10% of its net income as the statutory reserve contributions. The reserves amounted to $2,416,647 and $2,457,180 as of December 31, 2016 and 2015.

F-34

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

NOTE 19—CERTAIN RISKS AND CONCENTRATION

Credit risk and major customers

As of December 31, 2016 and 2015, 100% of the Company’s cash including cash on hand and deposits in accounts were maintained within the PRC where there is currently no rule or regulation in place for obligatory insurance to cover bank deposits in the event of a bank’s failure. However, the Company has not experienced any such losses and believes it is not exposed to any significant risks on its cash in bank accounts.

The Company’s key customers are principally hog brokers, hog farmers and slaughterhouses, all of which are located in the PRC. The Company has not entered into long-term supply contracts with any of these major customers. During the years ended December 31, 2016 and 2015, there was no customer that accounted for more than 10% of the Company’s revenue.

Risk arising from operations in foreign countries

Substantially all of the Company’s operations are conducted in China. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in China. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.

NOTE 20—GOVERNMENT SUBSIDIES

The Company received subsidies of $22,524 and $3,532 in the years ended December 31, 2016 and 2015, respectively. The subsidies were for recurring breeder hog subsidies during the years ended December 31, 2016 and 2015.

NOTE 21—COMMITMENTS AND CONTINGENCIES

General

The Company follows ASC 450, Accounting for Contingencies, in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred. The Company has not accounted for any loss contingencies as of December 31, 2016 and 2015.

F-35

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Lease obligations

The Company leases office space that has a remaining term of 11 months. Also as a condition of being the holder of the land use rights for its hog farms, the Company makes rental payments to the government over the term of the land use rights, which range from 19 years to 50 years. The Company does not have capital leases. In most cases, management expects that, in the normal course of business, leases will be renewed or replaced. Net rental expense relating to the Company’s operating leases for the years ended December 31, 2016 and 2015 was $97,866 and $81,711, respectively.

The following table sets forth the aggregate minimum future annual rental commitments at December 31, 2016 under all non-cancelable leases for years ending December 31:

	Operating Leases
2017	$	51,802
2018	$	51,802
2019	$	51,802
2020	$	51,802
2021	$	51,802
Thereafter	$	1,202,761

NOTE 22—SEGMENT INFORMATION

The Company follows FASB ASC 280-Segment Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluates their performance. As of December 31, 2016, the Company has two operating segments, “Hog Farming” and “Retail.” The Hog Farming segment consists of sales of breeder hogs and market hogs raised by the Company and participants in the black hog program. The Company’s Retail segment consists of selling specialty pork products through supermarkets and other outlets. The Company primarily evaluates performance based on income before income taxes excluding non-recurring items.

F-36

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Condensed financial information with respect to these reportable business segments for the years ended December 31, 2016 and 2015 is set forth below. The results of operations of Hang-ao and OV Orange are reflected as discontinued operations in the Company’s consolidated financial statements.

Year Ended December 31, 2016	Hog Farming		Retail		Consolidated
Segment revenues	$	31,449,253	$	2,248,427	$	33,697,680
Inter-segment revenues		-		-		-
Revenues from external customers	$	31,449,253	$	2,248,427	$	33,697,680
Segment income	$	1,645,538	$	80,841	$	1,726,379
Unallocated corporate loss						(785,302	)
Income before income taxes from continuing operations						941,077
Income taxes						-
Net income from continuing operations						941,077
Discontinued operations:
Loss from operations of discontinued component, net of income taxes						(3,149,566	)
Gain from disposal of discontinued component, net of income taxes						70,820
Net loss					$	(2,137,669	)
Other segment information:
Depreciation and amortization	$	2,667,644	$	230,966	$	2,898,610

Year Ended December 31, 2015	Hog Farming		Retail			Consolidated
Segment revenues	$	35,903,692	$	1,464,264		$	37,367,956
Inter-segment revenues		-		-			-
Revenues from external customers	$	35,903,692	$	1,464,264		$	37,367,956
Segment income (loss)	$	4,663,180	$	(389,016	)	$	4,274,164
Unallocated corporate loss							(1,292,072	)
Income before income taxes from continuing operations							2,982,092
Income taxes							-
Net income from continuing operations							2,982,092
Discontinued operations:
Loss from operations of discontinued component, net of income taxes							(690,385	)
Gain from disposal of discontinued component, net of income taxes							2,144,226
Net income						$	4,435,933
Other segment information:
Depreciation and amortization	$	2,447,266	$	245,999		$	2,693,265

F-37

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Condensed financial status with respect to these reportable business segments as of December 31, 2016 and 2015 is as follows:

As of December 31, 2016	Hog Farming		Retail		Consolidated
Total segment assets	$	86,647,382	$	1,459,273	$	88,106,655
Other unallocated corporate assets						69,479
					$	88,176,134
Other segment information:
Expenditures for segment assets	$	2,960,399	$	-	$	2,960,399

As of December 31, 2015
Total segment assets	$	100,644,120	$	1,757,852	$	102,401,972
Other unallocated corporate assets						8,508,469
					$	110,910,441
Other segment information:
Expenditures for segment assets	$	-	$	2,741	$	2,741

NOTE 23—DISCONTINUED OPERATIONS

Discontinued operations primarily included our servo-valve business and our security and protection business which were conducted via two of our disposed subsidiaries, Hang-ao and OV Orange. Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented.

During the fourth quarter of 2015, the Company determined to sell two of its subsidiaries, Hang-ao and OV Orange. Subsequently, on December 23, 2016 and December 29, 2015, the Company entered into equity transfer agreements for the sales of its 88% equity interest in Hang-ao and 95% equity interest in OV Orange for a purchase price of RMB 26 million ($3.9 million) and RMB 47.5 million ($7.3 million), respectively. The equity transfer agreement for the sale of OV Orange was completed with the former shareholders of OV Orange, Mr. Jin Wu, Ms. Lina Deng, and Mr. Deming Liu. The equity transfer agreement for the sale of Hang-ao was completed with Zhongbicheng Holdings Co., Ltd.

Financial Information for Discontinued Operations

As of December 31, 2016, the Company reported no assets and liabilities held for its discontinued operations. The assets and liabilities held for the Company's discontinued operations as of December 31, 2015 and the results of operations from the discontinued operations were listed as follow:

F-38

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

	December 31, 2015
	Hang-ao		OV Orange		Total
Accounts receivable, net	$	24,225	$	-	$	24,225
Inventories, net		1,744,024		-		1,744,024
Plant and equipment, net		6,148,541		-		6,148,541
Other		9,647		-		9,647
Assets of discontinued operations	$	7,926,437	$	-	$	7,926,437

Short-term loan	$	1,540,429	$	-	$	1,540,429
Accounts payable and accrued payables		461,992		-		461,992
Other payables		54,909		-		54,909
Due to related party		302,366		-		302,366
Liabilities of discontinued operations	$	2,359,696	$	-	$	2,359,696

	For the Year Ended December 31, 2016
	Hang-ao			OV Orange		Total
Operations
Revenues and other incomes	$	113,729		$	-	$	113,729
Costs and expenses		3,263,295			-		3,263,295
Loss before taxes		(3,149,566	)		-		(3,149,566	)
Income taxes		-			-		-
Loss from discontinued operations, net of taxes	$	(3,149,566	)	$	-	$	(3,149,566	)

Disposal
Gain on disposal before income taxes	$	70,820		$	-	$	70,820
Income taxes		-			-		-
Gain on disposal, net of income taxes	$	70,820		$	-	$	70,820

Loss from discontinued operations, net of taxes	$	(3,078,746	)	$	-	$	(3,078,746	)

F-39

AOXIN TIANLI GROUP, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

	For the Year Ended December 31, 2015
	Hang-ao			OV Orange			Total
Operations
Revenues and other incomes	$	1,894,704		$	1,010,108		$	2,904,812
Costs and expenses		2,097,873			1,410,159			3,508,032
Loss before taxes		(203,169	)		(400,051	)		(603,220	)
Income taxes		87,140			25			87,165
Loss from discontinued operations, net of taxes	$	(290,309	)	$	(400,076	)	$	(690,385	)

Disposal
Gain on disposal before income taxes	$	-		$	2,144,226		$	2,144,226
Income taxes		-			-			-
Gain on disposal, net of income taxes	$	-		$	2,144,226		$	2,144,226

Earnings (loss) from discontinued operations, net of taxes	$	(290,309	)	$	1,744,150		$	1,453,841

F-40

Attached files

RENMIN TIANLI GROUP, INC. Reports

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