Attached files
file | filename |
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EX-4.1 - Oriental Dragon Corp | v163424_ex4-1.htm |
EX-2.1 - Oriental Dragon Corp | v163424_ex2-1.htm |
EX-10.4 - Oriental Dragon Corp | v163424_ex10-4.htm |
EX-10.9 - Oriental Dragon Corp | v163424_ex10-9.htm |
EX-16.1 - Oriental Dragon Corp | v163424_ex16-1.htm |
EX-10.3 - Oriental Dragon Corp | v163424_ex10-3.htm |
EX-10.7 - Oriental Dragon Corp | v163424_ex10-7.htm |
EX-10.2 - Oriental Dragon Corp | v163424_ex10-2.htm |
EX-10.5 - Oriental Dragon Corp | v163424_ex10-5.htm |
EX-10.1 - Oriental Dragon Corp | v163424_ex10-1.htm |
EX-10.8 - Oriental Dragon Corp | v163424_ex10-8.htm |
EX-99.2 - Oriental Dragon Corp | v163424_ex99-2.htm |
EX-10.6 - Oriental Dragon Corp | v163424_ex10-6.htm |
EX-99.1 - Oriental Dragon Corp | v163424_ex99-1.htm |
EX-10.12 - Oriental Dragon Corp | v163424_ex10-12.htm |
EX-10.11 - Oriental Dragon Corp | v163424_ex10-11.htm |
EX-10.10 - Oriental Dragon Corp | v163424_ex10-10.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
report (Date of earliest event reported): October 22,
2009
EMERALD
ACQUISITION CORPORATION
(Exact
name of registrant as specified in its charter)
Cayman
Islands
|
000-52133
|
N/A
|
(State
or other jurisdiction of incorporation)
|
(Commission
File Number)
|
(I.R.S.
Employer Identification No.)
|
No. 48 South Qingshui
Road
Laiyang
City, Shandong
265200
People’s Republic of
China
|
(Address
of principal executive offices) (Zip
Code)
|
+86
(535) 729-6152
(Registrant’s
telephone number, including area code)
c/o Nautilus Global
Partners
700 Gemini, Suite 100, Houston, TX 77056
(Former
name or former address, if changed since last report)
––––––––––––––––
Copies
to:
Richard
I. Anslow, Esq.
Kristina
L. Trauger, Esq.
Yarona
Y. Liang, Esq.
Anslow
+ Jaclin, LLP
195
Route 9 South, Suite 204
Manalapan,
New Jersey 07726
(732)
409-1212
|
––––––––––––––––
|
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS
This
Current Report on Form 8-K contains forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties, principally in the sections entitled “Description of Business,”
“Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.” All statements other than statements of
historical fact contained in this Current Report on Form 8-K, including
statements regarding future events, our future financial performance, business
strategy and plans and objectives of management for future operations, are
forward-looking statements. We have attempted to identify
forward-looking statements by terminology including “anticipates,” “believes,”
“can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,”
“potential,” “predicts,” “should,” or “will” or the negative of these terms or
other comparable terminology. Although we do not make forward looking
statements unless we believe we have a reasonable basis for doing so, we cannot
guarantee their accuracy. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including the
risks outlined under “Risk Factors” or elsewhere in this Current Report on Form
8-K, which may cause our or our industry’s actual results, levels of activity,
performance or achievements expressed or implied by these forward-looking
statements. Moreover, we operate in a very competitive and rapidly
changing environment. New risks emerge from time to time and it is
not possible for us to predict all risk factors, nor can we address the impact
of all factors on our business or the extent to which any factor, or combination
of factors, may cause our actual results to differ materially from those
contained in any forward-looking statements. All forward-looking
statements included in this document are based on information available to us on
the date hereof, and we assumes no obligation to update any such forward-looking
statements
You
should not place undue reliance on any forward-looking statement, each of which
applies only as of the date of this Current Report on Form
8-K. Before you invest in our Ordinary Shares, you should be aware
that the occurrence of the events described in the section entitled “Risk
Factors” and elsewhere in this Current Report on Form 8-K could negatively
affect our business, operating results, financial condition and stock
price. Except as required by law, we undertake no obligation to
update or revise publicly any of the forward-looking statements after the date
of this Current Report on Form 8-K to conform our statements to actual results
or changed expectations.
Item 1.01 Entry Into A Material Definitive
Agreement
As more
fully described in Item 2.01 below, we acquired a producer of fruit juice
concentrate in accordance with a Share Exchange Agreement dated October 22, 2009
(“Exchange Agreement”) by and among Emerald Acquisition Corporation (“we,”
“Emerald” or the “Company”), Merit Times International Limited, a British Virgin
Islands corporation (“Merit Times”), and the shareholders of Merit Times (the
“Merit Times Shareholders”). The closing of the transaction (the
“Closing”) took place on October 22, 2009 (the “Closing Date”). On the
Closing Date, pursuant to the terms of the Exchange Agreement, we acquired all
of the outstanding shares (the “Interests”) of Merit Times from the Merit Times
Shareholders; and the Merit Time Shareholder transferred and contributed all of
their Interests to us. In exchange, we issued to the Merit Times Shareholders,
their designees or assigns, 21,333,332 shares (the “Exchange Shares”) or 97.77%
of the ordinary shares of the Company issued and outstanding after the Closing
(the “Combination”).
Pursuant
to the terms of the Exchange Agreement, Access America Fund, LP (“Access
America”), the principal shareholder of the Company, cancelled a total of
794,000 ordinary shares of the Company. A copy of the Exchange Agreement is
included as Exhibit 2.1 to this Current Report and is hereby incorporated by
reference. All references to the Exchange Agreement and other exhibits to this
Current Report are qualified, in their entirety, by the text of such
exhibits.
Pursuant
to the Exchange Agreement, Merit Times became a wholly-owned subsidiary of the
Company. The directors of the Company have approved the Exchange Agreement and
the transactions contemplated under the Exchange Agreement. The directors of
Merit Times have approved the Exchange Agreement and the transactions
contemplated thereunder.
As a
further condition of the Combination, the current officers and directors of the
Company resigned and Mr. Zhide Jiang was appointed as the new officer of the
Company and will be appointed as the sole director of the Company upon
effectiveness of an information statement required by Rule 14f-1 promulgated
under the Exchange Act of 1934 (the “Exchange Act”).
The
Combination transaction is discussed more fully in Section 2.01 of this Current
Report. The information therein is hereby incorporated in this Section 1.01 by
reference.
The
Offering
On
October 22, 2009, pursuant to a Subscription Agreement (the “Subscription
Agreement”) between the Company and certain investors (the “Investors”) named in
the Subscription Agreement, we completed an offering (the “Offering”) of the
sale of investment units (the “Units”) for a total of $15,096,011, each Unit
consisting of fifty thousand (50,000) ordinary shares, par value $0.001 per
share (the “Ordinary Shares”) and five-year warrants to purchase Twenty Five
Thousand (25,000) of the Ordinary Shares of the Company, at an exercise price of
$6.00 per share (the “Warrants”). The Closing of the Combination was
conditioned upon all of the conditions of the Offering being met, and the
Offering was conditioned upon the Closing of the Combination.
Additionally,
our majority shareholder, Proud Glory Limited, of which our sole officer and
director Mr. Zhide Jiang is the managing director (the “Lock-Up Shareholder”),
entered into a Lock-Up Agreement with us whereby the Lock-Up Shareholder agreed
it will not, offer, pledge, sell or otherwise dispose of any Ordinary Shares or
any securities convertible into or exercisable or exchangeable for Ordinary
Shares during the period beginning on and including the date of the final
Closing of the Offering for a period of eighteen (18) months.
Pursuant
to an Investor Relations Escrow Agreement, amongst the Company, Grandview
Capital, Inc. (“Grandview”), Access America and Anslow & Jaclin, LLP as
escrow agent, dated October 22, 2009 (the “Investor Relations Escrow
Agreement”), we have placed a total of $120,000 in an escrow account with our
counsel to be used for the payment of investor relation fees. Further, pursuant
to a Holdback Escrow Agreement, amongst the Company, Grandview, Access America
and Anslow & Jaclin, LLP as escrow agent, dated October 22, 2009 (the
“Holdback Escrow Agreement”), we have placed escrow funds equal to ten percent
(10%) of the Offering proceeds, with our counsel to be held in escrow until such
time as a qualified chief financial officer has been approved and appointed as
an officer of the Company. Finally, pursuant to a Going Public Escrow
Agreement, amongst the Company, Grandview, Access America and Anslow &
Jaclin, LLP as escrow agent, dated October 22, 2009 (the “Going Public Escrow
Agreement”), we have placed a total of $1,000,000 from the Offering proceeds
with our counsel to be used for the payment of fees and expenses related to
becoming a public company and listing our Ordinary Shares on a senior
exchange.
Pursuant
to each of the Investor Relations Escrow Agreement, Holdback Escrow Agreement
and Going Public Escrow Agreement, in the event that the proceeds of such escrow
accounts have not been fully distributed within two years from the date thereof,
the balance of such escrow proceeds shall be returned to the
Company.
Registration
Rights
The
issuance of the Units to the Investors was exempt from registration under the
Securities Act of 1933, as amended (the “Securities Act”) pursuant to Regulation
D and Section 4(2) and/or Regulation S thereof and such other available
exemptions. As such, the Ordinary Shares, the Warrants, and the Ordinary Shares
underlying the Warrants may not be offered or sold in the United States unless
they are registered under the Securities Act, or an exemption from the
registration requirements of the Securities Act is available. The registration
statement covering these securities will be filed with the SEC and with any
required state securities commission subsequent to the filing of this Form
8-K.
In
connection with the Offering, we agreed to file a registration statement on Form
S-1 (“Registration Statement”) within 30 days after Closing (“Required Filing
Date”) and use our best efforts to have it declared effective within 180 days
after Closing to register (i) 100% of our Ordinary Shares issued in this
Offering; (ii) 100% of the Ordinary Shares underlying the Warrants and Agent
Warrants issued in this Offering (“Warrant Shares”) (collective, (the
“Registrable Securities”).
If a
Registration Statement covering the registration of the Registrable Securities
is not filed with the Commission by the Required Filing Date, we shall issue
200,000 Ordinary Shares to the Investors, distributed pro rata, per calendar
month, or portion thereof, up to a maximum of 1,000,000 Ordinary Shares of the
Company.
The
securities shall only be treated as Registrable Securities if and only for so
long as they (i) have not been sold (A) pursuant to a registration statement;
(B) to or through a broker, dealer or underwriter in a public distribution or a
public securities transaction; and/or (C) in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect thereto, if any, are removed upon the consummation of such sale;
(ii) are held by a Holder or a permitted transferee; and (iii) are not eligible
for sale pursuant to Rule 144 (or any successor thereto) under the Securities
Act. The term “Holder” shall mean any person owning or having the right to
acquire Registrable Securities or any permitted transferee of a
Holder.
In
connection with filing the Registration Statement, if the Commission limits the
amount of Registrable Securities to be registered for resale pursuant to Rule
415 under the Securities Act, then the Company shall be entitled to exclude such
disallowed Registrable Securities (the “Cut Back Shares”) on a pro rata basis
among the Holders thereof. The Company shall prepare, and, as soon as
practicable but in no event later than the six months from the date the
Company’s Registration Statement was declared effective, file with the SEC an
additional Registration Statement (“Additional Registration Statement”) on Form
S-1 covering the resale of all of the disallowed Registrable Securities not
previously registered on an Additional Registration Statement
hereunder. In the event that Form S-1 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration on another appropriate form. The Company shall use its
best efforts to have each Additional Registration Statement declared effective
by the SEC as soon as practicable, but in no event later than the ninety (90)
days from the filing date of the Additional Registration
Statement. No liquidated damages shall accrue on or as to any Cut
Back Shares, and the required Filing Date for such additional Registration
Statement including the Cutback Shares will be tolled, until such time as the
Company is able to effect the registration of the Cut Back Shares in accordance
with any SEC comments.
Make
Good Agreement
In
connection with the Offering, the Company and Company management entered into a
Make Good Escrow Agreement, whereby management placed a total of 4,600,000 of
management’s Ordinary Shares in escrow (the “Escrow Shares”) and agreed to
transfer the Escrow Shares, in whole or in part as described below, to the
Investors on a pro rata basis in the event that the Company does not meet
certain performance targets for its fiscal years ending December 31, 2009 and
December 31, 2010.
If the
Company’s actual after tax net income under U.S. GAAP for the fiscal year 2009
is less than $14,000,000 with a 10% allowable variation, the Make Good Escrow
Agent shall transfer to the Investors, on a pro-rata basis, an amount of Escrow
Shares equal to the percentage of variation from the 2009 Make Good Net Income
times the total number of Escrow Shares. If any Escrow Shares are
distributed to Investors resulting from the Company not attaining the 2009 Make
Good Net Income, management will place an additional amount of shares into
escrow so that the Escrow Shares total 4,600,000.
Additionally,
if the Company’s actual after tax net income under U.S. GAAP for the fiscal year
2010 is less than $18,000,000 with a 10% allowable variation, the Make Good
Escrow Agent shall transfer to the Investors, on a pro-rata basis, an amount of
Escrow Shares equal to the percentage of variation from the 2010 Make Good Net
Income times the total number Escrow Shares. After any such distribution, the
remaining Escrow Shares shall be returned to management. If the
Company attains the 2010 Make Good Net Income, the remaining Escrow Shares shall
be returned to management.
For
purposes of this make good provision, “net income” shall mean net income as
defined under United States generally accepted accounting principles (“GAAP”),
consistently applied, for the Company, except that the Company’s income is
subject to tax at an assumed 25% rate and provided further that the Company’s
net income shall be increased by any non-cash charges incurred as a result of
the Offering.
Placement
Agent
Grandview,
the lead placement agent, and Rodman & Renshaw, LLC (“Rodman”), the
co-placement agent, are our placement agents (the “Placement Agents”) in
connection with the Offering.
On
February 18, 2009, we entered into an exclusive placement agent agreement (the
“Placement Agent Agreement”) with Grandview which will expire eighteen (18)
months from the completion of the Offering or upon written notice of termination
(the “Term”). For the placement agent services, we paid a cash
commission equal to 7% of the aggregate gross proceeds of the Units sold and
issued five-year warrants to purchase 503,201 Ordinary Shares, which equal 10%
of the number of Ordinary Shares sold in this Offering, exercisable at any time
at a price equal to $6.00 per share (“Agent Warrants”). We also agreed to
indemnify the Placement Agents against certain liabilities, including
liabilities under the Securities Act. The Agent Warrants will have registration
rights identical to the registration rights afforded to the Investors of the
Units.
In
addition, we paid to Grandview a consulting services fee in the amount of
$200,000 at the Closing of the Offering, and 894,293 Ordinary Shares after the
Closing of the Combination (the “Grandview Shares”). Grandview currently owns
4.193% of the total issued and outstanding shares of Merit Times and will be
issued 894,293 Ordinary Shares of the Company as part of the Exchange Share. The
Grandview Shares will have the same registration rights afforded to the
Investors of the Units.
Right of First
Refusal. If during the Term of the Placement Agent Agreement
or within eighteen (18) thereafter, the Company requires further capital
financing or refinancing, the Company will offer to engage Grandview as its
manager, private placement agent and/or financial advisor (as the case may be,
depending upon the nature of the transaction) in connection with such
transaction, subject to agreeing on mutually acceptable fee
arrangements. The terms and conditions relating to any such services
will be outlined in a separate engagement letter, and the fees for such services
will be in addition to the fees payable hereunder, will be negotiated separately
and in good faith and will be consistent with fees paid to North American
investment bankers for similar services. If Grandview does not accept
the terms and conditions contained in the Company’s offer, the Company may
engage any other financial institution as manager, private placement agent
and/or financial advisor (as the case may be, depending on the nature of the
transaction) in connection with such transaction, provided that the terms and
conditions of any such engagement shall be no more favorable to such other
financial institution as the terms and conditions offered by the Company to
Grandview.
Fee
Tail. Grandview shall be entitled to additional placement
agent’s fee and Agent Warrants, calculated in the manner provided above, with
respect to any public or private offering or other financing or capital-raising
transaction of any kind (“Tail Financing”) to the extent that such financing or
capital is provided to the Company by investors whom Grandview had introduced,
directly or indirectly, to the Company during the Term, if such Tail Financing
is consummated at any time within the 18 month period following the expiration
or termination of the Placement Agent Agreement (the “Tail
Period”).
Item 2.01 Completion of Acquisition or
Disposition of Assets
CLOSING
OF EXCHANGE AGREEMENT
As
described in Item 1.01 above, on October 22, 2009, we acquired Merit Times, a
producer of fruit juice concentrate in the PRC, in accordance with the Exchange
Agreement. The closing of the transaction took place on October 22,
2009. On the Closing Date, pursuant to the terms of the Exchange Agreement, we
acquired all the outstanding shares of Merit Times (the “Interests”) from the
Merit Times Shareholders; and the Merit Times Shareholders transferred and
contributed all of his Interests to us. In exchange, we issued a total of
21,333,332 Ordinary Shares to the Merit Times Shareholders, their designees or
assigns, which totals 97.77% of the issued and outstanding Ordinary Shares of
the Company on a fully-diluted basis as of and immediately after the Closing of
Combination but prior to the Offering.
Pursuant
to the terms of the Exchange Agreement, Access America, cancelled a total of
794,000 Ordinary Shares of the Company. Following the Combination prior to the
Offering, there are 21,820,832 Ordinary Shares issued and
outstanding.
Merit
Times, with its subsidiaries, engages in the production of fruit juice
concentrate in the People’s Republic of China (“PRC”). Merit Times is primarily
focused on processing, producing and distributing Laiyang pear fruit juice
concentrate. Merit Times owns 100% of the issued and outstanding capital stock
of Shandong MeKeFuBang Food Limited (“MeKeFuBang”), a wholly foreign owned
enterprise incorporated under the laws of the PRC. On June 10, 2009,
MeKeFuBang entered into a series of contractual agreements with Shandong
Longkang Juice Co., Ltd. (“Longkang Juice”), a company incorporated under the
laws of the PRC, and its five shareholders, in which MeKeFuBang effectively
assumed management of the business activities of Longkang Juice and has the
right to appoint all executives and senior management and the members of the
board of directors of Longkang Juice. The contractual arrangements are comprised
of a series of agreements, including a Consulting Services Agreement, Operating
Agreement, Proxy Agreement, and Option Agreement, through which MeKeFuBang has
the right to advise, consult, manage and operate Longkang Juice for an annual
fee in the amount of Longkang Juice’s yearly net profits after tax.
Additionally, Longkang Juice’s Shareholders have pledged their rights, titles
and equity interest in Longkang Juice as security for MeKeFuBang to collect
consulting and services fees provided to Longkang Juice through an Equity Pledge
Agreement. In order to further reinforce MeKeFuBang’s rights to control and
operate Longkang Juice, Longkang Juice’s shareholders have granted MeKeFuBang
the exclusive right and option to acquire all of their equity interests in
Longkang Juice through an Option Agreement. As all of the companies are under
common control, this has been accounted for as a reorganization of entities and
the financial statements have been prepared as if the reorganization had
occurred retroactively. The Company has consolidated Longkang’s operating
results, assets and liabilities within its financial statements. Pursuant to the
Exchange Agreement, Merit Times became a wholly-owned subsidiary of the Company.
Merit Times, MeKeFuBang and Longkang Juice will be collectively referred to as
“Merit Times.”
The
Company was a “shell company” (as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) immediately
before the completion of the Combination. Accordingly, pursuant to
the requirements of Item 2.01(a)(f) of Form 8-K, set forth below is the
information that would be required if the Company were filing a general form for
registration of securities on Form 10 under the Exchange Act, reflecting the
Company’s Ordinary Shares, which is the only class of its securities subject to
the reporting requirements of Section 13 or Section 15(d) of the Exchange Act
upon consummation of the Combination, with such information reflecting the
Company and its securities upon consummation of the Combination.
BUSINESS
Overview
Merit
Times, with its subsidiaries, is a producer of fruit juice concentrate in the
PRC. It specializes in processing, producing and distributing Laiyang Pear fruit
juice concentrate. The Company is the only producer of Laiyang Pear fruit juice
concentrate, which is known for its taste, nutritional and medical benefits, and
application in cosmetics, animal feed, baby food and other products. The
Company’s products are distributed in Shandong, Guangdong, Liaoning and Jiangsu
provinces.
The
Company experienced revenue growth of 14.1% in FY08 and expects to grow further
by constructing additional production facilities. Merit Times generated over
$74.2 million in sales, and over $12.3 million in after-tax comprehensive income
in FY2008.
Historical
Sales & Income Summary
(Amounts
expressed in
USD)
|
Fiscal
Year Ended
December
31,
|
%
|
6
Months
Ended
June 30,
|
%
|
||||||||||||||||||||
2007
|
2008
|
Growth
|
2008
|
2009
|
Growth
|
|||||||||||||||||||
Revenue
|
$
|
65,038,233 |
$
|
74,232,226 | 14.1 | % |
$
|
35,088,503 |
$
|
46,371,201 | 32.15 | % | ||||||||||||
Gross
Profit
|
14,966,899 | 19,099,826 | 27.6 | % | 8,704,857 | 13,671,119 | 57.05 | % | ||||||||||||||||
Net
Income
|
8,767,163 | 12,300,107 | 40.3 | % | 5,093,611 | 9,241,901 | 81.44 | % |
Business
Merit
Times is a producer of fruit juice concentrate in the PRC through its
subsidiaries. Longkang Juice was incorporated as a limited liability company on
November 22, 2004 under the laws of China. As of its incorporation, the name of
Longkang Juice was Laiyang Tianfu Juice Co., Ltd. and it changed its name to
Shandong Longkang Juice Co., Ltd. on January 14, 2008. It specializes in
processing, producing and distributing Laiyang Pear fruit juice
concentrate.
|
·
|
Only Laiyang Pear juice
concentrate producer in China – Merit Times is the only Laiyang
Pear juice concentrate producer in China – Merit Times enjoys a strong
geographic advantage due to its proximity to the Laiyang Pear growing
orchards. The use of premium quality raw materials provides the Company’s
products with a high concentration of fruit. Laiyang Pear as a trademark
has been registered by the Laiyang city government. Merit Times has been
granted by the Laiyang government as the exclusive producer of Laiyang
Pear juice concentrate beginning in January 2009 for a period of 30 years.
No other producer can use the trademark or enter into the Laiyang Pear
juice concentrate business until the exclusive right of our company has
been expired.
|
|
·
|
Fruit juice concentrate
– Merit Times currently produces three types of fruit juice
concentrate: Laiyang Pear, apple and strawberry. Laiyang Pear continues to
be the most significant source of revenue for the company. During fiscal
2008, Laiyang fruit juice concentrate represented 90.2% of revenue and
92.6% of sales volume. In comparison, apple juice concentrate contributed
6.9% of revenue in fiscal year 2008, while strawberry, contributed 2.9% of
revenue. Apple and Strawberry juices are mainly produced during the
off-season when Laiyang Pear is not being
produced.
|
|
·
|
Established raw material
procurement network – Merit Times’ headquarters and manufacturing
facilities are strategically located in close proximity to the Laiyang
Pear orchards on the Jiaodong Peninsula, providing easy access to the only
supply of Laiyang Pear in the world. The Company maintains effective costs
through cooperative agreements with local farmers of the Laiyang Pear. The
Company has also secured its supply of Laiyang Pear mainly through
contract growers, and to a lesser degree, through purchase from the open
market. In addition, the Company has exclusive land leases from the
government and has started growing its own orchards with plans to expand
in the future to develop green-certified products. These supply chain
arrangements provide Merit Times with advantages in terms of product
quality, and stability and reliability of
delivery.
|
|
·
|
Strong domestic demand in China
– According to a report on China’s fruit processing industry issued
by Beijing Business & Intelligence Consulting Co. Ltd., China’s fruit
processing industry has grown significantly in the past several years. The
total output of processed fruit products in China increased from $16.8
billion in 2005 to $27.5 billion in 2007, representing a CAGR, of 27.9%.
The sales value of fruit processed products in China increased from $17.0
billion in 2005 to $26.1 billion in 2007, representing a CAGR of 27.7%.
BBIC projected that the total sales value and net income of fruit
processed products in China will reach $37.2 billion and $2.5 billion in
2010, or a CAGR of 42.5% and 66.7%, respectively, during the four-year
period from 2007 to 2010.
|
|
·
|
Increasing fruit juice
consumption and demand – With approximately one-fifth of the
world’s population, China represents a key growth driver for the global
fruit-based products market. However, according to Beverage Marketing, the
consumption of off-trade fruit/vegetable juice per capita was only 6
liters in 2006 in China, much lower than 50 liters in the US and 18 liters
in Japan (based on data from Euromonitor) in the same year, indicating
that there is enormous potential for the marketing of fruit-based products
in China. According to the USDA Foreign Agricultural Service’s GAIN
report, the United States alone exported $6.5 million worth of
consumer-oriented fruit and vegetable juices to China in 2007, up 43% from
2006. The total Chinese market for both domestic made and imported juices
is worth about $7 billion, a testament to China’s growing affinity for
juices. Merit Times is well-positioned to benefit from the projected
growth opportunities of China’s fruit processing industry. China’s growing
middle class population has developed increased consciousness of good
health and quality of life, resulting in increased consumption of
health-oriented foods and drinks. The growth of China’s consumption of
fruit-based products is driven by the growing acceptance and affordability
of fruit-based products, increasing health awareness, and consumer demand.
In recent years, China has experienced a dramatic increase in the per
capita income, enabling more consumers to buy premium health drinks, as
evidenced by the increasing demand for Merit Times’ Laiyang Pear juice
concentrate. As China’s government is promoting domestic demand through an
establishment of policies that stimulate consumer spending and support the
rural population, companies that cater to China’s consumer goods market
are likely to be among the top performers in the global economy in
2009.
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Capacity Expansion –
Driven by increased demand from its distributors and direct sales
customers, Merit Times plans to increase its Laiyang Pear juice
concentrate production by constructing additional production facilities.
Furthermore, the Company plans to expand its product portfolio by
including more categories of fruit for production of concentrate and by
producing fruit puree and bio animal feed, which is a byproduct from pear
juice concentrate. The production capacity expansion would add production
capacity of approximately 13,000 tons of fruit juice concentrate and
puree, as well as initial production capacity of 52,000 tons of bio animal
feed. The Company anticipates that the new facility will be completed in
eight months after the Closing.
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Organization
& Subsidiaries
Merit
Times’ organizational structure was carefully developed to abide by the laws of
the PRC and maintain tax benefits as well as internal organizational
efficiencies. The Company’s organization structure is summarized in the figure
below:
Merit
Times owns 100% of the issued and outstanding capital stock of
MeKeFuBang. On June 10, 2009, MeKeFuBang entered into a series of
contractual agreements with Longkang Juice, and its five shareholders, in which
MeKeFuBang effectively assumed management of the business activities of Longkang
Juice and has the right to appoint all executives and senior management and the
members of the board of directors of Longkang Juice. The contractual
arrangements are comprised of a series of agreements, including a Consulting
Services Agreement, Operating Agreement, Proxy Agreement, and Option Agreement,
through which MeKeFuBang has the right to advise, consult, manage and operate
Longkang Juice for an annual fee in the amount of Longkang Juice’s yearly net
profits after tax. Additionally, Longkang Juice’s Shareholders have pledged
their rights, titles and equity interest in Longkang Juice as security for
MeKeFuBang to collect consulting and services fees provided to Longkang Juice
through an Equity Pledge Agreement. In order to further reinforce MeKeFuBang’s
rights to control and operate Longkang Juice, Longkang Juice’s shareholders have
granted MeKeFuBang the exclusive right and option to acquire all of their equity
interests in Longkang Juice through an Option Agreement, which is also known as
Present Incentive Option Agreement as described below.
On June
10, 2009, the Chairman and the major shareholder of Shangdong Longkang Juice
Co., Ltd, Mr. Zhide Jiang, as a PRC citizen, entered into a call option
agreement (“Original Incentive Option Agreement”) with Mr. Chee Fung Tang, a
Hong Kong passport holder (“Hong Kong Resident”) and the Merit Times
Shareholders. Under the Original Incentive Option Agreement, Mr. Jiang shall
serve as CEO, director or other officer of Merit Times for a certain period of
time; and in anticipation of Mr. Jiang’s continuance contributions to the
companies including Merit Times and Longkang Juice, if the companies meet
certain thresholds of the revenue conditions, Mr. Jiang shall have rights and
options to be transferred the shares of Merit Times at a nominal price. In
addition, Original Incentive Option Agreement also provides that Mr. Tang shall
not dispose any of the shares of Merit Times without Mr. Jiang’s
consent.
On August
5, 2009, Mr. Tang, a Hong Kong resident and the sole shareholder of Proud Glory
Limited (a BVI company, which became the major shareholder of Merit Times after
Merit Times recapitalized), entered into a new Incentive Option Agreement
(“Present Incentive Option Agreement”) with Mr. Jiang.
Pursuant
to Present Incentive Option Agreement, the Original Incentive Option Agreement
will be terminated on the effective date of Present Incentive Option Agreement.
The effective date of Present Incentive Option Agreement is the date of the
Combination.
Under the
Present Incentive Option Agreement, Mr. Jiang shall serve as managing director
or other officer of Merit Times for not less than 3 year period of time; and in
anticipation of Mr. Jiang’s continuance contributions to the group including
Merit Times, MeKeFuBang and Longkang Juice, if the group meets certain
thresholds of the revenue conditions, Mr. Jiang shall have rights and options to
be transferred up to 100% shares of Proud Glory Limited at a nominal price
within the next three years (the “Option”).
In
addition, the Present Incentive Option Agreement also provides that Mr. Tang
shall not dispose any of the shares of Proud Glory Limited without Mr. Jiang’s
consent.
Products
Longkang
Juice is the only producer of Laiyang Pear juice concentrate, which is known for
its exceptional taste, nutritional and medical benefits; and application in
health supplement, pharmaceutical, fruit juice, and other food products. The
main products of the company include concentrated fruit juice, fruit jelly,
liquid fruit, bio-animal feed, etc. The current annual production of fruit juice
concentrate is 33,000 metric tons (“MT”) with sales across China.
Our
current capacity is 35,000 tons of fruit juice concentrate with a utilization
rate of 95% during peak seasons and 70% on an annual average. The
seasonality is related to the growing season for the Laiyang pear.
We have
been provided an exclusive license for producing juice concentrate in Laiyang
City. The license is issued by Laiyang agriculture committee for producing
Laiyang Pear juice concentrate exclusively.
Current
product portfolio
Merit
Times currently produces three types of fruit concentrate: Laiyang Pear, apple
and strawberry. Laiyang Pear continues to be the most significant source of
revenue for the Company. During fiscal 2008, Laiyang fruit juice concentrate
represented 90.2% of revenue and 92.6% of sales volume. In comparison, apple
juice concentrate contributed 6.9% of revenue in fiscal year 2008, while
strawberry, contributed 2.9% of revenue. Apple and Strawberry are
primarily produced during the off-season for Laiyang Pear
production.
Laiyang
Pear juice concentrate uses Laiyang Pear as its main raw material. We use our
unique technologies combined with advanced equipments imported from America and
Europe to produce Laiyang Pear juice concentrate. The product maintains Laiyang
Pear’s nutrition and claimed medical benefits. Our products are mainly sold to
health supplement, pharmaceutical, food and beverage industry. In 2008, the
percentages of our products sold to such industries are 52%, 33%, 11% and 4%
respectively. Due to the unique climate and environmental benefits found in
Laiyang City, the Laiyang Pear only grows in Laiyang City, Shandong Province in
China and has been doing so for over 1600 years.
Laiyang
Pear has high sugar content, mainly fructose, glucose, sucrose and other soluble
sugar, and contains a variety of organic acids, vitamin B1, B2, vitamin C,
nicotinic acid, carotene and minerals such as calcium, phosphorus, and iron. The
fruit is both low in sodium and high in potassium.
Laiyang
Pear also contains Yuan er tea acid which is believed in traditional Chinese
medicine to be effective for preventing coughing, bronchitis, tuberculosis,
hepatitis and other diseases as well as esophageal cancer. Various
pharmacological studies have indicated that the Laiyang Pear lowers blood
pressure, aids in sedation, hyperactivity and liver function in hypertensive
patients.
We have
been working with colleges and institutions to study Laiyang Pear producing
technology, and we have developed applications through new technology that
reduces browning of the produce and that helps to maintain Laiyang Pear’s
nutritional and medical benefits by storing the concentrate at a low
temperature. We have also developed a filtration process through which we are
able to achieve higher quality juice concentrate by separating various sediment
substances from the crude juice. After the undesirable sediments are
removed, a clarified crude juice of increased quality and shelf-life is obtained
and turned into juice concentrate. Although our production facilities are
running at full capacity, there is an increasingly high demand for Laiyang Pear
juice extract.
Expanding
Product Mix
We intend
to maintain our leadership in the production of Laiyang Pear juice concentrate,
and at the same time, diversify into other agricultural products to mitigate
risk. Specifically, we intend to increase investment in high margin products,
for example, on average, berry concentrates’ gross margin is approximately 40%;
to expand market share of apple and strawberry products; and to expand fruit
selection such as blueberry, raspberry, blackberry, apricot and yellow peach. We
also plan to produce bio animal feed, which is a byproduct of pear juice
concentrate.
We intend
to enter into new markets as follows:
Bio Animal
Feed
We have
received increased interest for high-quality bio feed after the 2008 scandals
with tainted milk products in China. The major customers in bio animal feed are
livestock and poultry companies. If we enter into the bio animal feed industry,
no additional raw materials will be required for us as we can use the residue
from our juice concentrate processing. There is a total of 500,000 MT of fruit
and vegetable waste in Laiyang area. Comparing to 2007, the price for bio animal
feed increased 40% to 2500RMB/MT in China compared to the prior
year.
Through
our research with China Agriculture University, Laiyang pear wastes, as the main
raw materials for bio animal feed described above, are consisting of fruit pulp,
fruit seeds, and fruit stalk which account for 96.2%, 3.1% and 0.7%
respectively. They contain varies nutritional composition such as crude protein,
crude fiber, crude fat, non-extract nitrogen, calcium, digestible energy,
metabolizable energy, phosphorus, potassium, iron, manganese, sulfur and other
elements of macro minerals and trace elements, of which the iron content in
fruit waste is 4.9 times that of corn; lysine, methionine and arginine content
is 1.7 times, 1.2 times and 2.75 times of vitamin B2 and are 3.5 times that of
corn, and more than 15% total sugar in nitrogen-free extract. Other raw
materials for bio animal feed include any other fruit and vegetables waste
contain sugar, vitamin C and starch, which require fresh, clean, no debris, and
no sediment.
We will
use fomenter, inoculated cans, vacuum pumps, fermentation tanks, stainless steel
pumps, ozone machines, laboratories, and laboratory equipments to produce bio
animal feed in accordance with the quality standard “China Feedstuff Sanitation
Standard” and “Chinese Feedstuff Quality Control New Technology Standard.” The
shelf life of the bio animal feed product is 12 months.
In
connection with the technology used to produce bio animal feed, we have obtained
a patent to protect our technology. The patent number is 200910015442.2. The
patent is owned by Zhide Jiang, the Chief Executive Officer of Longkang
Juice.
Puree
Products
Puree
consumption is growing 10% per annum in China. In addition, about half of all
fruit puree consumed in Japan is imported from China. The major customers in
puree products are fruit distributors and baked goods companies. The gross
margin for pear puree, apple puree and strawberry puree are 30%, 25% and 40%
respectively.
Features of animal feed
products:
In 2007,
Longkang and China Agriculture University worked together and developed animal
feed production technology by fermenting fruit and vegetable waste.
The main
features of animal feed product:
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Low
cost: While the normal feed price is approximately 2500RMB/MT, the price
at which we estimate we can sell our bio-animal feed is approximately
1600RMB/MT. In our production, we will utilize residue from
Laiyang Pear juice concentrate production, therefore there is no
incremental raw material cost for
production.
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High
milk production. The protein content of our product will be 15% which is
5% higher than normal animal feed. Our research shows that the dairy
cattle have higher milk production after taking the bio-feed
product.
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Reduced
waste. The residue from production has historically needed to be disposed
of as waste. By utilizing the waste to produce bio-feed, waste
shall be reduced.
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Improves
dairy cattle’s immune system and disease resistance. Bio-feed can be used
as feed attractant before and after weaning calves in order to support
their immune system.
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Technology
in the Production Process
We have
recently adopted a number of new technologies for our production processes. One
example is that we have been introducing a secondary precipitation process which
gives us 10% more juice concentrate from the same input. We estimate that this
will reduce costs in the amount of approximately 416RMB/ton.
Raw
Materials and Suppliers
Our
headquarters and manufacturing facilities are strategically located in close
proximity to the Laiyang Pear orchards on the Jiaodong Peninsula, providing easy
access to the only supply of Laiyang Pear in the world. The Company mains
effective costs through cooperative agreements with local farmers and through
receiving government support. The Company has also secured its supply of Laiyang
Pear by leasing its own orchards with plans to lease additional land in the
future to develop green-certified products. These supply chain arrangements
provide us with advantages in terms of product quality, and stability and
reliability of delivery.
The
Laiyang Pear has a history of around 1,600 years of known production. The oldest
Laiyang pear tree still producing pear is more than 400 years
old. The total fields for growing Laiyang Pear are approximately
82,372 acres, and result in total production of approximately 1.5 million
tons. Longkang has contracted fields of approximately 5,272 acres.
Longkang currently uses approximately 350,000 tons, which is approximately 23%
of the total Laiyang Pear production. We are therefore confident that there will
be enough raw materials to meet the increased capacity for the Company following
its expansion.
Laiyang
Pear, barrels and coal are our major materials.
Other
main suppliers for Merit Times are Qixia Fangyuan Co., Ltd, Laiyang Lida Co.,
Ltd, Yingwei Yu, Zuwei Jiang, and Lijun Wang.
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Qixia Fangyuan Co.,
Ltd. is located at Qixia Industrial Zone. It produces 400,000
barrels every year, of which Merit Times needs 120,000 barrels. The
barrels are produced in accordance with international standards and the
Company has had no quality or supply problems with this company in the
last few years.
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Laiyang Lida Co., Ltd.
is located in Laiyang city and it supplies coal throughout the year. We
signed a long term contract with Laiyang Lida Co., Ltd. for approximately
20,000 tons of coal per year. There have been no quality problems with
this company in the last few years.
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Yingwei Li, Zuwei Jiang and
Lijun Wang have been working in the fruit buying and transportation
business for many years. They have many branch stations which allow us to
harvest a high volume of pears during harvest season. They have
specialists and equipment required to test the quality of our
pears.
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Research
& Development
Our
research and development activities are driven by changing consumer tastes and
preferences, developing high margin product segment, adapting to healthy
lifestyle demands, utilizing all components of the raw materials, and growing
demand for green products.
There are
40 skilled food specialists in our company which guarantees the product quality
as well as possibility of new product development. We work with outside
institutions to get their support. For instance, in 2005, by the
efforts of the experts from South Korea/Italy and the Chinese Research Institute
of Fruit as well as our specialists, the weakness of Laiyang pear in difficult
to store; easy to turn brow and difficult to transport were all
resolved, which made Laiyang Pear juice concentrate successfully
produced.
In recent
years, we continue to work with tertiary institutions and research institutes
for technical support and cooperation. We established long-term relationships
with the China Agricultural University; Laiyang Agricultural College; Shandong
Institute of Light Industry and China Research Institute of Fruit, so that we
can timely update and achieve better understanding in technology, information
and human resource for the China and international markets.
We also
invested in advanced laboratory equipment, including chromatography, precision
scales, spectrophotometer, high-speed centrifuges, small tube sterilization
machine, membrane filter and relevant equipment of fruit juice production
testing, as well as the sterile laboratories which can be used for precise
analysis in comprehensive study.
Below are
the summaries of our current research projects:
We
cooperate with Laiyang Agricultural College commencing from January 2005 to work
on a research project regarding Laiyang Pear juice decolorization to develop
natural honey. The project is expected to be completed in December 2009 and the
total cost of the project is $1,025,055.
In 2006,
we entered into an agreement Project of High Tech Bio Feed Stuff from Fruit and
Vegetable Waste with China Agriculture College. The research began from
September 2007 and will continue for 30 years until 2027. We use vacuum pump and
a set of straw, a set of steam warming pipe, stainless steel pump and a set of
straw, 4 of high intensity plastic, one piece of cover (the size depends on the
size of fermentation pond), ozone developer, 4 of long sensor thermometer,
fermentation tank, a set of pre-processing machinery, a set of lab facility and
conduct the research at the laboratory of China Agriculture College. All the
production of this research project will belong to our company. In connection
with the technology used to produce bio animal feed, we have obtained a patent
to protect our technology. The patent number is 200910015442.2. The patent is
owned by Zhide Jiang, the Chief Executive Officer of Longkang
Juice.
In
addition, we cooperate with Fruit Research Institute of China commencing from
January 2005 to work on a research project regarding abstract preservatives and
oil from seeds and waste from after juice concentrate production for use in
cosmetic skin care products and natural preservatives. The project is expected
to end in December 2009 and the total cost of the project is
$585,745.
Together
with Fruit Research Institute of China, we also work on a research project
regarding secondary precipitation to increase production yield of Laiyang Pear
juice concentrate commencing from January 2005 and expected to be ending in
December 2009. The total cost of the project is $585,745.
Quality
Control
We have
quality controls throughout the raw materials sourcing, production, packaging,
storage and transportation processes. We have been working with several
institutions to ensure that our products meet high quality standards. We have
ISO9001 and HACCP (Hazard Analysis & Critical Control Point)
certificates.
We also
have our own internal quality control team which monitors the production process
and tests the quality of the products. Our internal quality checks are stricter
than ISO9001 and HACCP standards.
Marketing,
Sales & Distribution
Currently,
our products are only sold in the P.R.C, and we utilize distributors for the
sale of our products. We have a total of seven (7) distributors, some of which
are also the end users of the product. Our customers pick up the products from
our factory directly using refrigerated trucks.
We
anticipate beginning to sell our products through direct sales to end users
toward the end of 2009, and we have begun direct marketing to the end
users.
In our
direct marketing efforts, we have collected information lists about potential
end users who are mainly in the pharmaceutical or healthcare industry. We have
contacted these potential end users to introduce our products, and free samples
are sent upon request. Once we negotiate purchase terms and execute the contract
with the customer, our factories will begin producing with customer
specification. We intend to visit our major customers periodically to make sure
that they are satisfied with our product and service.
Customer
Concentration
The
Company’s customers are in the health supplement, pharmaceutical, fruit juice,
and other food product industries throughout the PRC.
Diversified Geographic
Distribution
Currently
we have 7 customers. Our Top 5 customers are:
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1.
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Yantai
Jinyuan Food Co., Ltd., which uses juice concentrate as a sweetener for
their export product;
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2.
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Shandong
Zhanhua Haohua Fruit Juice Co., Ltd., which uses juice concentrate as an
ingredient in their own products
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3.
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Qingdao
Dongxu Xinshen Trading Co., which sells the juice concentrate to Chinese
medicine and fruit juice drinks
producers;
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4.
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Xintai
Hengxin Trading Co., which sells to bakery, candy, fruit juice and other
producers;
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5.
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Guangzhou
Huaqing Trading Co., Ltd., which sells to food additive, fruit juice, and
export companies.
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Our
customers and sales for 2007 & 2008 are as follows:
Customers
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2007(US) (1)
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2008(US)
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Yantai
Jinyuan Food Co., Ltd.
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$ | 12,907,013 | $ | 11,640,312 | ||||
Guangzhou
Huaqing Trading Co., Ltd.
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9,754,491 | 9,290,160 | ||||||
Shandong
Zhanhua Haohua Fruit Juice Co., Ltd.
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11,418,393 | 17,684,866 | ||||||
Dandong
Jinwang Trading Limited
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9,656,898 | 8,960,173 | ||||||
Xintai
Hengxin Trading Co.
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8,419,403 | 9,361,856 | ||||||
Dongtai
Hongda Company
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6,778,166 | 6,539,884 | ||||||
Qingdao
Dongxu Xinshen Trading Co.
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13,006,006 | 12,112,136 |
(1) Based
upon the foreign exchange rate on September 23, 2009, 1 CNY= 0.146497
USD.
Overall,
52% of our product is sold to health supplement companies, 33% to Chinese
Medicine companies, 11% to Fruit Juice Producers and 4% to food
producers.
Industry
and Market Overview
According
to a report on China’s fruit processing industry issued by Beijing Business
& Intelligence Consulting Co. Ltd. (“BBIC,” and such report is hereinafter
referred to as the “BBIC Report”), an independent market research firm, China’s
fruit processing industry has grown significantly in the past several years. The
total output of fruit processed products in China grew from $16.8 billion in
2005 to $27.5 billion in 2007, representing a compound annual growth rate
(“CAGR”) of 27.94%. The sales value of fruit processed products in
China grew from $17.0 billion in 2005 to $26.1 billion in 2007, representing a
CAGR of 27.72%. Among the fruit processed products, glazed fruits and fruit
juice and beverage experienced the highest growth rate since 2005.
Due to
low labor costs and an abundant supply of fruit, most notably apples, pears, and
kiwifruit, China is a large fruit juice concentrate producer and the largest
apple juice concentrate producer in the world. Chinese fruit juice concentrates
and juice beverage products produced by companies using high-quality equipment
are trusted by large-scale international corporations and consumed throughout
the world. In addition, marketing strategy and transportation technology
improvements have enabled Chinese companies to more effectively market and
distribute fruit juice concentrate and fruit juice beverages globally. For
example, approximately 70% of apple juice drinks produced in the United States
are based on Chinese produced apple juice concentrate.
The
global market for processed fruit products has expanded rapidly in the last few
years. The general consumption trend has begun to gradually shift from
carbonated beverages to pure fruit juice products. Increasing
disposable income combined with the health conscious nature of Chinese consumers
is a positive indicator for continued growth in the Chinese fruit juice beverage
market. China currently accounts for only 10% of total global fruit juice
consumption and the annual per capita fruit juice consumption in China is
approximately 1 kilogram. Chinese consumption shows strong growth potential when
it is considered that the average annual per capita fruit juice consumption is
approximately 40 kilograms in developed international markets.[SOURCE: Chinese
fruit juice market investment analysis and forecast report, July, 2009, by China
investment consultant co.]
Market
Opportunity
1. Health Supplement
Market
The
demand for health supplements has continued to rise, especially in nutritional
health supplement. Among the 15 categories of industries divided in accordance
with international standards, medical care is one of the world's fastest-growing
trades in one of five industries; the CAGR of health supplement is 13%.
[SOURCES: “China Juice 2008” by China Chamber of Juice, CFNA]
2. Pharmaceutical
market
Increased
air pollution, car exhaust fumes and heavy smoking in China has increased the
demand for Chinese Medicines that are claimed to prevent coughing.
3. Fruit juice
market
Demand
for concentrated fruit juice, fruit puree and fruit paste are expected to be 7
million MT by 2020 in Asia. [SOURCE: Foodnews]
4. Consumer health
confidence
Current
domestic per capita consumption of fruit juice is 1/10th of the global average
and 1/40th of other developed nations. [SOURCE: Chinese fruit juice
market investment analysis and forecast report, July 2009, by China Investment
Consultant Co.] Anecdotal evidence suggests that the growing Chinese
middle class is increasingly health and quality conscious.
Growth
Strategy
Plantation
Fields
We
currently have approximately 5,272 acres of land (6.4% of the overall field area
of the Laiyang Pear) and will continue to expand our plantation fields. We aim
to produce our own Laiyang Pear, to maintain the quality of the Laiyang Pear and
to reduce raw material costs. In addition, we plan to acquire new land leases
for development of additional plantation fields to grow and produce green and
organic products.
New
Facilities
Besides
the two existing fruit juice concentrate lines, we will use the Offering
proceeds to expand the capacity by purchasing two new lines:
1. Fruit
juice concentrates and puree production line, with production capacity of 30 MT
per hour. This production line will include raw material transfer and
fruit crushing facilities; a primary and secondary presser system; puree/juice
purification system; filtration system; concentration system; steam cleaning
system; aseptic packing system, etc.
2. Bio
feedstuff production line, with production capacity of 30 MT per hour. This
production line will include, fermentation tank; fruit waste transfer system;
bacteria developing system; dry system; dry fruit waste transfer system; fruit
waste block creator system; auto-packing system, etc. The Bio
feedstuff production line will only be implemented if the Maximum Offering is
raised.
Diversify Our
Products
We hope
to broaden our fruit product offerings in order to further diversify our product
mix. Our strategic focus will be on expanding into fruits with harvesting
seasons complementary to our current fruits. This will enable us to expand our
season, thus increasing our annual production of fruit concentrate and fruit
juice. We intend to introduce fruit juice concentrate from berries. In addition,
we will enhance our research and development activities in order to develop and
produce bio animal feed as byproduct of pear juice concentrate to further
diversify our product mix and increase our revenue.
We are
continuously evaluating new trends in the markets we serve and the potential
demand for new products. Utilizing our flexible production facilities, we can
quickly evaluate the viability of new products from a production and
profitability perspective. Continuing to strategically diversify our
product line will minimize risk by providing additional revenue and allowing us
to allocate our production resources based on seasonal trends and market
demand.
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Fruit
juice concentrate from berries
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Bio
animal feed
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Puree
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Brand
Equity
Laiyang
Pear has been registered by the Laiyang government, and has authorized Merit
Times as the exclusive producer of Laiyang Pear juice concentrate. This
exclusive Agreement is for a 30 year period commencing January 2009. In the
future, our company expects to work in cooperation with other product
manufacturers to include the “Laiyang Pear” trademark on products that include
our Laiyang Pear concentrate. This will develop market awareness for the Laiyang
Pear brand as well as creating for consumer demand for products that
include the “Laiyang Pear” trademark.
Enlarge Our Customer
Base
We will
strive to expand our customer base by strengthening current relationships with
distributors and end users in our existing markets. We also plan to expand upon
our customer base by developing new relationships with strategic distributors
and end users in markets we have not yet penetrated.
Increase Focus on the
Organic and Green Fruit Concepts
According
to the Agricultural Marketing Resource Center (www.agmrc.org/markets),
organic food production has grown at a rate of almost 20% per annum for the last
7 years and industry experts are continuing to forecast additional
growth.
Competition
We
experience competition in the juice concentrate market; however, we face little
direct competition as we are the only producer of Laiyang Pear juice concentrate
due to the following reasons:
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Laiyang
Pear only grows on both sides of Five Dragon River in Laiyang City due to
unique climate and environmental
factors
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The
Laiyang Pear trademark is a registered trademark of the Laiyang city
government.
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The
company has been granted by the Laiyang government as the exclusive
producer of Laiyang Pear juice concentrate beginning in January 2009 for a
period of 30 years. Additionally, the Company is authorized to use the
trademark and can build brand equity and market recognition as the
exclusive producer.
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Thereby
no other producer can use the trademark or enter into the Laiyang Pear
juice concentrate business until the exclusive rights held by the Company
have expired.
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Competitive
Advantages
|
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Transportation
and Resource Advantage. The Company is in a location in the temperate zone
with the ideal climate condition for fruit farming, especially apples and
Laiyang Pears. It is also ideal for transporting to other parts of China
as well as for exporting overseas. It has traditionally been a major fruit
production area and the key fruit farming and processing base for Chinese
as well as international companies. In Laiyang City alone, the current
apple plantation is about 86,580 hectare with annual production of 3
Million MT and Laiyang Pear plantation of 33,300 hectare with the annual
production of 1.5 Million MT. The Company also has its own dedicated
plantation for apple and Laiyang Pear of 11,322 hectare with annual yield
of 0.5 Million MT.
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Technology
Advantage. The Company has been certified under ISO9001 and HACCP
international certification.
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Management
Advantage. We believe that we have a strong management team, effective
incentive systems for rewarding our employees and an attractive corporate
culture to ensure the healthy growth of the
Company.
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Intellectual
Property
To date,
we do not have any trademark registration for our technologies. However, we rely
on trade secret protection and confidentiality agreements to protect our
proprietary information and know-how and have entered into non-disclosure
agreements with certain of our key employees and executives to protect our trade
secrets. In connection with the technology used to produce bio animal feed, we
have also obtained a patent to protect our technology. The patent number is
200910015442.2. The patent is owned by Zhide Jiang, the Chief Executive Officer
of Longkang Juice.
Environment
Protection
Our
manufacturing facilities are subject to various pollution control regulations
with respect to noise, water and air pollution and the disposal of waste and
hazardous materials. We are also subject to periodic inspections by local
environmental protection authorities. We have sewage treatment
equipment used for biological treatment. The Laiyang Environmental Protection
Agency samples our waste water discharge on a regular basis to make sure the
waste water satisfies all environmental requirements. To date, we have not
been advised of any violations of any environmental regulations. We are not
currently subject to any pending actions alleging any violations of applicable
PRC environmental laws.
Properties
Our
corporate office is located at No. 48 South Qingshui Road, Laiyang City,
Shandong 265200 People’s Republic of China. The Company has two production lines
with combined production capacity of 35,000 MT and occupies approximately 5,272
acres of plantation fields. There is no private ownership of land in
China. Land is owned by the government and the government grants land use rights
for specified terms. The Company’s land use rights have terms that expire in
December 2037 through December 2054.
Equipment
We
currently have two production lines. One production line has two
pressers from which provide a total capacity of 20MT per hour with capital of
10MT per hour each. The enrichment equipment is imported from APV UK with 18MT
concentration capacity per hour. The supporting facilities of plate heat
exchanger and tubular sterilization machine are from Shanghai Beverage Machinery
Factory with capacity of 20MT per hour, the company also equipped a vertical
filter from Nanjing Gaoyou filter factory.
Another
production line has 3 Flottweg belt pressers from Germany which provide a total
capacity of 60MT with capital of 20MT per hour each. The UF equipment is
imported from the United States and has a handling capacity of 50 tons per hour;
the three-effect enrichment equipment is imported from Germany with production
capacity of 50 tons per hour, while also supporting a tubular sterilization
machine and a diatomite filter, as well as the boiler room and power
distribution systems.
Employees
As of
October 23, 2009, we have approximately 170 full-time employees. Our employees
are not represented by any collective bargaining agreement, and we have never
experienced a work stoppage. We believe we have good relations with our
employees.
RISK
FACTORS
You
should carefully consider the risks described below together with all of the
other information included in this report before making an investment decision
with regard to our securities. The statements contained in or
incorporated herein that are not historic facts are forward-looking statements
that are subject to risks and uncertainties that could cause actual results to
differ materially from those set forth in or implied by forward-looking
statements. If any of the following risks actually occurs, our business,
financial condition or results of operations could be harmed. In that case, you
may lose all or part of your investment.
Risks Relating to Our
Business
SUBSTANTIALLY
ALL OF OUR BUSINESS, ASSETS AND OPERATIONS ARE LOCATED IN PRC.
Substantially
all of our business, assets and operations are located in PRC. The economy of
PRC differs from the economies of most developed countries in many respects. The
economy of PRC has been transitioning from a planned economy to a
market-oriented economy. Although in recent years the PRC government has
implemented measures emphasizing the utilization of market forces for economic
reform, the reduction of state ownership of productive assets and the
establishment of sound corporate governance in business enterprises, a
substantial portion of productive assets in PRC is still owned by the PRC
government. In addition, the PRC government continues to play a significant role
in regulating industry by imposing industrial policies. It also exercises
significant control over PRC’s economic growth through the allocation of
resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment to particular
industries or companies. Some of these measures benefit the overall economy of
PRC, but may have a negative effect on us.
OUR PLANS
TO EXPAND OUR PRODUCTION AND TO IMPROVE AND UPGRADE OUR INTERNAL CONTROL AND
MANAGEMENT SYSTEM WILL REQUIRE CAPITAL EXPENDITURES IN 2009.
Our plans
to expand our production and to improve and upgrade our internal control and
management system will require capital expenditures in 2009. We may also need
further funding for working capital, investments, potential acquisitions and
joint ventures and other corporate requirements. We cannot assure you that cash
generated from our operations will be sufficient to fund these development
plans, or that our actual capital expenditures and investments will not
significantly exceed our current planned amounts. If either of these conditions
arises, we may have to seek external financing to satisfy our capital needs. Our
ability to obtain external financing at reasonable costs is subject to a variety
of uncertainties. Failure to obtain sufficient external funds for our
development plans could adversely affect our business, financial condition and
operating performance.
BECAUSE
WE EXPERIENCE SEASONAL FLUCTUATIONS IN OUR SALES, OUR QUARTERLY RESULTS WILL
FLUCTUATE AND OUR ANNUAL PERFORMANCE WILL DEPEND LARGELY ON RESULTS FROM TWO
QUARTERS.
Our
business is highly seasonal, reflecting the harvest season of our primary source
fruits during the months from June through February of the following
year. Typically, a substantial portion of our revenues are earned
during our first, third and fourth quarters. We generally experience lower
revenues during our second quarter. If sales in these quarters are lower than
expected, our operating results would be adversely affected, and it would have a
disproportionately large impact on our annual operating results.
WEATHER
AND OTHER ENVIRONMENTAL FACTORS AFFECT OUR RAW MATERIAL SUPPLY AND A REDUCTION
IN THE QUALITY OR QUANTITY OF OUR FRESH FRUIT SUPPLIES MAY HAVE MATERIAL ADVERSE
CONSEQUENCES ON OUR FINANCIAL RESULTS.
Our
business may be adversely affected by weather and environmental factors beyond
our control, such as adverse weather conditions during the squeezing season. We
cannot assure you that the necessary raw materials will continue to be available
to us in quantities and at prices currently in effect or acceptable to us. The
prices for and availability of these raw materials have varied significantly and
may affect the quantity and profitability of our products. A
significant reduction in the quantity or quality of fresh fruits harvested
resulting from adverse weather conditions, disease or other factors could result
in increased per unit processing costs and decreased production, with adverse
financial consequences to the Company.
WE DEPEND
ON A CONCENTRATION OF CUSTOMERS, THE LOSS OF ONE OR MORE OF WHICH COULD
MATERIALLY ADVERSELY AFFECT OUR OPERATIONS AND REVENUES.
Our
revenue is dependent in large part on significant orders from a limited number
of customers. We depend on seven primary customers to purchase our
product. Sales to our five largest customers accounted for
approximately 79.46% and 78.27% of our net sales during the years ended December
31, 2008 and 2007, respectively. Customer demand depends on a variety of factors
including, but not limited to, our customers’ financial condition and general
economic conditions. If our sales to any of our customers are reduced for any
reason, such reduction may have a material adverse effect on our business,
financial condition and results of operations.
WE DERIVE
SUBSTANTIALLY ALL OF OUR REVENUES FROM SALES IN THE PRC AND ANY DOWNTURN IN THE
CHINESE ECONOMY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND
FINANCIAL CONDITION.
Substantially
all of our revenues are generated from sales in the PRC. We anticipate that
revenues from sales of our products in the PRC will continue to represent the
substantial portion of our total revenues in the near future. Our sales and
earnings can also be affected by changes in the general economy since purchases
of juice products are generally discretionary for consumers. Our success is
influenced by a number of economic factors which affect disposable consumer
income, such as employment levels, business conditions, interest rates, oil and
gas prices and taxation rates. Adverse changes in these economic factors, among
others, may restrict consumer spending, thereby negatively affecting our sales
and profitability.
CONCERNS
OVER FOOD SAFETY AND PUBLIC HEALTH MAY AFFECT OUR OPERATIONS BY INCREASING OUR
COSTS AND NEGATIVELY IMPACTING DEMAND FOR OUR PRODUCTS.
We could
be adversely affected by diminishing confidence in the safety and quality of
certain food products or ingredients, even if our practices and procedures are
not implicated. As a result, we may also elect or be required to incur
additional costs aimed at increasing consumer confidence in the safety of our
products. For example, a crisis in China over melamine-contaminated milk in 2008
has adversely impacted overall Chinese food exports since October 2008 as
reported by the Chinese General Administration of Customs, even though most
foods exported from China were not implicated in these issues. We believe that
the contaminated milk crisis also had a negative effect on sales of our
concentrated juices in fiscal year 2008. Our success depends on our
ability to maintain the product quality of our existing products and new
products. Product quality issues, real or imagined, or allegations of
product contamination, even if false or unfounded, could tarnish the image of
the affected brands and may cause consumers to choose other
products.
WE DO NOT
PRESENTLY MAINTAIN PRODUCT LIABILITY INSURANCE, AND OUR PROPERTY AND EQUIPMENT
INSURANCE DOES NOT COVER THE FULL VALUE OF OUR PROPERTY AND EQUIPMENT, WHICH
LEAVES US WITH EXPOSURE IN THE EVENT OF LOSS OR DAMAGE TO OUR PROPERTIES OR
CLAIMS FILED AGAINST US.
We
currently do not carry any product liability or other similar insurance. Unlike
the United States and many other countries, product liability claims and
lawsuits in the PRC are rare. However, we cannot guaranty that we would not face
liability in the event of the failure of any of our products. Furthermore, we
cannot guaranty that product liability exposures and litigation will not become
more commonplace in the PRC or that we will not face product liability exposure
or actual liability as we expand our sales into international markets, like the
United States, where product liability claims are more prevalent.
We may be
required from time to time to recall products entirely or from specific
co-packers, markets or batches. Product recalls could adversely affect our
profitability and our brand image. We do not maintain recall
insurance.
While we
have not experienced any credible product liability litigation to date, there is
no guaranty that we will not experience such litigation in the future. In
the event we do experience product liability claims or a product recall, our
financial condition and business operations could be materially adversely
affected.
GOVERNMENTAL
REGULATIONS AFFECTING THE IMPORT OR EXPORT OF PRODUCTS COULD NEGATIVELY AFFECT
OUR REVENUES.
The
United States and various foreign governments have imposed controls, export
license requirements, and restrictions on the export of some of our
products. We do not currently export the Company’s concentrated fruit
juice directly or indirectly out of the PRC. However, if we were to begin
exporting our products in the future, governmental regulation of exports, or our
failure to obtain required export approval for our products, could harm our
international and domestic sales and adversely affect our
revenues. In addition, failure to comply with such regulations could
result in penalties, costs, and restrictions on export privileges.
WE MAY
EXPERIENCE MAJOR ACCIDENTS IN THE COURSE OF OUR OPERATIONS, WHICH MAY CAUSE
SIGNIFICANT PROPERTY DAMAGE AND PERSONAL INJURIES.
We may
experience major accidents in the course of our operations, which may cause
significant property damage and personal injuries. Significant industry-related
accidents and natural disasters may cause interruptions to various parts of our
operations, or could result in property or environmental damage, increase in
operating expenses or loss of revenue. The occurrence of such accidents and the
resulting consequences may not be covered adequately, or at all, by the
insurance policies we carry. In accordance with customary practice in China, we
do not carry any business interruption insurance or third party liability
insurance for personal injury or environmental damage arising from accidents on
our property or relating to our operations other than our automobiles. Losses or
payments incurred may have a material adverse effect on our operating
performance if such losses or payments are not fully insured.
OUR
PLANNED EXPANSION AND TECHNICAL IMPROVEMENT PROJECTS COULD BE DELAYED OR
ADVERSELY AFFECTED BY, AMONG OTHER THINGS, DIFFICULTIES IN OBTAINING SUFFICIENT
FINANCING, TECHNICAL DIFFICULTIES, OR HUMAN OR OTHER RESOURCE
CONSTRAINTS.
Our
planned expansion and technical improvement projects could be delayed or
adversely affected by, among other things, difficulties in obtaining sufficient
financing, technical difficulties, or human or other resource constraints.
Moreover, the costs involved in these projects may exceed those originally
contemplated. Costs savings and other economic benefits expected from these
projects may not materialize as a result of any such project delays, cost
overruns or changes in market circumstances. Failure to obtain intended economic
benefits from these projects could adversely affect our business, financial
condition and operating performances.
WE WILL
ENCOUNTER SUBSTANTIAL COMPETITION IN OUR BUSINESS AND ANY FAILURE TO COMPETE
EFFECTIVELY COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Although
there are no other producers of Laiyang Pear juice concentrate, there are
currently a number of well-established companies producing other kinds of fruit
concentrate that compete directly with our product offerings, and some of those
competitors have significantly more financial and other resources than we
possess. We anticipate that our competitors will continue to improve their
products and to introduce new products with competitive price and performance
characteristics. Aggressive marketing or pricing by our competitors or the
entrance of new competitors into our markets could have a material adverse
effect on our business, results of operations and financial
condition.
OUR
LIMITED OPERATING HISTORY MAY NOT SERVE AS AN ADEQUATE BASIS TO JUDGE OUR FUTURE
PROSPECTS AND RESULTS OF OPERATIONS.
Our
limited operating history in the fruit product industry may not provide a
meaningful basis for evaluating our business. Merit Times entered into its
current line of business in November 2004. Although Merit Times’ revenues have
grown rapidly since its inception, we cannot guaranty that we will maintain
profitability or that we will not incur net losses in the future. We will
continue to encounter risks and difficulties that companies at a similar stage
of development frequently experience, including the potential failure
to:
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obtain
sufficient working capital to support our
expansion;
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maintain or protect our intellectual
property;
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maintain
our proprietary technology;
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expand
our product offerings and maintain the high quality of our
products;
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manage
our expanding operations and continue to fill customers’ orders on
time;
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maintain
adequate control of our expenses allowing us to realize anticipated
revenue growth;
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implement
our product development, marketing, sales, and acquisition strategies and
adapt and modify them as
needed;
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successfully
integrate any future acquisitions;
and
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anticipate
and adapt to changing conditions in the fruit product industry resulting
from changes in government regulations, mergers and acquisitions involving
our competitors, technological developments and other significant
competitive and market dynamics.
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If we are
not successful in addressing any or all of the foregoing risks, our business may
be materially and adversely affected.
WE NEED
TO MANAGE GROWTH IN OPERATIONS TO MAXIMIZE OUR POTENTIAL GROWTH AND ACHIEVE OUR
EXPECTED REVENUES AND OUR FAILURE TO MANAGE GROWTH WILL CAUSE A DISRUPTION OF
OUR OPERATIONS RESULTING IN THE FAILURE TO GENERATE REVENUE AT LEVELS WE
EXPECT.
In order
to maximize potential growth in our current and potential markets, we believe
that we must expand our producing and marketing operations. This expansion will
place a significant strain on our management and our operational, accounting,
and information systems. We expect that we will need to continue to improve our
financial controls, operating procedures, and management information systems. We
will also need to effectively train, motivate, and manage our employees. Our
failure to manage our growth could disrupt our operations and ultimately prevent
us from generating the revenues we expect.
WE CANNOT
ASSURE YOU THAT OUR ORGANIC GROWTH STRATEGY WILL BE SUCCESSFUL WHICH MAY RESULT
IN A NEGATIVE IMPACT ON OUR GROWTH, FINANCIAL CONDITION, RESULTS OF OPERATIONS
AND CASH FLOW.
One of
our strategies is to grow organically through constructing additional production
facilities and increasing the distribution and sales of our products by
penetrating existing markets in PRC and entering new geographic markets in PRC.
However, many obstacles to entering such new markets exist including, but not
limited to, established companies in such existing markets in the PRC. We
cannot, therefore, assure you that we will be able to successfully overcome such
obstacles and establish our products in any additional markets. Our inability to
implement this organic growth strategy successfully may have a negative impact
on our growth, future financial condition, results of operations or cash
flows.
WE MAY
NOT BE ABLE TO SUCCESSFULLY INTRODUCE NEW PRODUCTS, WHICH COULD DECREASE OUR
PROFITABILITY.
Our
future business and financial performance depends, in part, on our ability to
successfully respond to consumer preference by introducing new products and
improving existing products. We incur significant development and marketing
costs in connection with the introduction of new products. Successfully
launching and selling new products puts pressure on our sales and marketing
resources, and we may fail to invest sufficient funds in order to market and
sell a new product effectively. If we are not successful in marketing
and selling new products, our results of operations could be materially
adversely affected.
IF WE
NEED ADDITIONAL CAPITAL TO FUND OUR GROWING OPERATIONS, WE MAY NOT BE ABLE TO
OBTAIN SUFFICIENT CAPITAL AND MAY BE FORCED TO LIMIT THE SCOPE OF OUR
OPERATIONS.
If
adequate additional financing is not available on reasonable terms, we may not
be able to undertake plant expansion, purchase additional machinery and purchase
equipment for our operations and we would have to modify our business plans
accordingly. There is no assurance that additional financing will be available
to us.
In
connection with our growth strategies, we may experience increased capital needs
and accordingly, we may not have sufficient capital to fund our future
operations without additional capital investments. Our capital needs will depend
on numerous factors, including (i) our profitability; (ii) the release of
competitive products by our competition; (iii) the level of our investment in
research and development; and (iv) the amount of our capital expenditures,
including acquisitions. We cannot assure you that we will be able to obtain
capital in the future to meet our needs.
In recent
years, the securities markets in the United States have experienced a high level
of price and volume volatility, and the market price of securities of many
companies have experienced wide fluctuations that have not necessarily been
related to the operations, performances, underlying asset values or prospects of
such companies. For these reasons, our Ordinary Shares can also be expected to
be subject to volatility resulting from purely market forces over which we will
have no control. If we need additional funding we will, most likely, seek such
funding in the United States (although we may be able to obtain funding in the
P.R.C.) and the market fluctuations affect on our stock price could limit our
ability to obtain equity financing.
If we
cannot obtain additional funding, we may be required to: (i) limit our plant
expansion; (ii) limit our marketing efforts; and (iii) decrease or eliminate
capital expenditures.
Such
reductions could materially adversely affect our business and our ability to
compete.
Even if
we do find a source of additional capital, we may not be able to negotiate terms
and conditions for receiving the additional capital that are favorable to us.
Any future capital investments could dilute or otherwise materially and
adversely affect the holdings or rights of our existing shareholders. In
addition, new equity or convertible debt securities issued by us to obtain
financing could have rights, preferences and privileges senior to the Units. We
cannot give you any assurance that any additional financing will be available to
us, or if available, will be on terms favorable to us.
NEED FOR
ADDITIONAL EMPLOYEES.
The
Company’s future success also depends upon its continuing ability to attract and
retain highly qualified personnel. Expansion of the Company’s business and the
management and operation of the Company will require additional managers and
employees with industry experience, and the success of the Company will be
highly dependent on the Company’s ability to attract and retain skilled
management personnel and other employees. There can be no assurance that the
Company will be able to attract or retain highly qualified personnel.
Competition for skilled personnel in the construction industry is significant.
This competition may make it more difficult and expensive to attract, hire and
retain qualified managers and employees.
THE LOSS
OF THE SERVICES OF OUR KEY EMPLOYEES, PARTICULARLY THE SERVICES RENDERED BY
ZHIDE JIANG, OUR CHIEF EXECUTIVE OFFICER AND DIRECTOR, COULD HARM OUR
BUSINESS.
Our
success depends to a significant degree on the services rendered to us by our
key employees. If we fail to attract, train and retain sufficient
numbers of these qualified people, our prospects, business, financial condition
and results of operations will be materially and adversely affected. In
particular, we are heavily dependent on the continued services of Zhide Jiang,
our Chief Executive Officer and Director. We do not have employment agreements
with any of the members of our senior management team, each of whom may
voluntarily terminate his employment with us at any time. Following any
termination of employment, these employees would not be subject to any
non-competition covenants. The loss of any key employee, including members of
our senior management team, and our inability to attract highly skilled
personnel with sufficient experience in our industry could harm our
business.
WE MAY
INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH UNITED STATES CORPORATE
GOVERNANCE AND ACCOUNTING REQUIREMENTS.
We may
incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the Securities and Exchange Commission. We expect all
of these applicable rules and regulations to significantly increase our legal
and financial compliance costs and to make some activities more time consuming
and costly. We also expect that these applicable rules and regulations may make
it more difficult and more expensive for us to obtain director and officer
liability insurance and we may be required to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar
coverage. As a result, it may be more difficult for us to attract and retain
qualified individuals to serve on our board of directors or as executive
officers. We are currently evaluating and monitoring developments with respect
to these newly applicable rules, and we cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs.
WE MAY
NOT BE ABLE TO MEET THE ACCELERATED FILING AND INTERNAL CONTROL REPORTING
REQUIREMENTS IMPOSED BY THE SECURITIES AND EXCHANGE COMMISSION RESULTING IN A
POSSIBLE DECLINE IN THE PRICE OF OUR ORDINARY SHARES AND OUR INABILITY TO OBTAIN
FUTURE FINANCING.
As
directed by Section 404 of the Sarbanes-Oxley Act, as amended by SEC Release No.
33-8934 on June 26, 2008, the Securities and Exchange Commission adopted rules
requiring each public company to include a report of management on the company’s
internal controls over financial reporting in its annual reports. In
addition, the independent registered public accounting firm auditing a company’s
financial statements must also attest to and report on management’s assessment
of the effectiveness of the company’s internal controls over financial reporting
as well as the operating effectiveness of the company's internal controls.
Commencing with its annual report for the year ending December 31, 2011, we will
be required to include a report of management on its internal control over
financial reporting. The internal control report must include a
statement
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Of
management’s responsibility for establishing and maintaining adequate
internal control over its financial
reporting;
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Of
management’s assessment of the effectiveness of its internal control over
financial reporting as of year end;
and
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Of
the framework used by management to evaluate the effectiveness of our
internal control over financial
reporting.
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Furthermore,
in the following year, our independent registered public accounting
firm is required to file its attestation report separately on our
internal control over financial reporting on whether it believes that we have
maintained, in all material respects, effective internal control over financial
reporting.
While we
expect to expend significant resources in developing the necessary documentation
and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there
is a risk that we may not be able to comply timely with all of the requirements
imposed by this rule. In the event that we are unable to receive a
positive attestation from our independent registered public accounting firm with
respect to our internal controls, investors and others may lose confidence in
the reliability of our financial statements and our stock price and ability to
obtain equity or debt financing as needed could suffer.
In
addition, in the event that our independent registered public accounting firm is
unable to rely on our internal controls in connection with its audit of our
financial statements, and in the further event that it is unable to devise
alternative procedures in order to satisfy itself as to the material accuracy of
our financial statements and related disclosures, it is possible that we would
be unable to file our Annual Report on Form 10-K with the Securities and
Exchange Commission, which could also adversely affect the market price of our
Ordinary Shares and our ability to secure additional financing as
needed.
THE
TRANSACTION INVOLVES A REVERSE MERGER OF A FOREIGN COMPANY INTO A FOREIGN SHELL
COMPANY, SO THAT THERE IS NO HISTORY OF COMPLIANCE WITH UNITED STATES SECURITIES
LAWS AND ACCOUNTING RULES.
In order
to be able to comply with United States securities laws, the Company’s
operating subsidiary prepared its financial statements for the first time
under U.S. generally accepted accounting principles and recently had its initial
audit of its financial statements in accordance with Public Company
Accounting Oversight Board (United States). As the Company does not
have a long term familiarity with U.S. generally accepted accounting
principles, it may be more difficult for it to comply on a timely basis with SEC
reporting requirements than a comparable domestic company.
OUR
PRODUCTS ARE SOLD THROUGH A FEW DOMESTIC DEALERS. IT MAY CREATE BUSINESS RISK
DUE TO THE DEPENDENCE ON THESE CUSTOMERS.
Our
marketing model is to sell our products through domestic Chinese dealers. We
rely on a few major customers and the loss of any of these customers could
adversely affect our revenues. As we are dependent on these customers, we cannot
timely adjust our marketing strategy and maintain or expand our market share
according to the changes of customer demand. This may adversely affect our
financial condition and operation performance.
FOLLOWING
THE CLOSE OF THE COMBINATION, OUR DIRECTOR WILL HAVE CONTROL OF US.
Zhide
Jiang, our newly appointed director, will own approximately 51.82% of our issued
and outstanding Ordinary Shares following the Closing of the Combination.
Therefore, he will control us and can control the election of our directors and
officers.
Our
management has limited experience in managing and operating a public company.
Any failure to comply or adequately comply with federal securities laws, rules
or regulations could subject us to fines or regulatory actions, which may
materially adversely affect our business, results of operations and financial
condition.
Our
current management has no experience managing and operating a public company and
relies in many instances on the professional experience and advice of third
parties including its consultants, attorneys and accountants. Failure to comply
or adequately comply with any laws, rules, or regulations applicable to our
business may result in fines or regulatory actions, which may materially
adversely affect our business, results of operation, or financial
condition.
Risks
Relating to the People's Republic of China
CERTAIN
POLITICAL AND ECONOMIC CONSIDERATIONS RELATING TO THE PRC COULD ADVERSELY AFFECT
OUR COMPANY.
The PRC
is transitioning from a planned economy to a market economy. While the PRC
government has pursued economic reforms since its adoption of the open-door
policy in 1978, a large portion of the PRC economy is still operating under
five-year plans and annual state plans. Through these plans and other economic
measures, such as control on foreign exchange, taxation and restrictions on
foreign participation in the domestic market of various industries, the PRC
government exerts considerable direct and indirect influence on the economy.
Many of the economic reforms carried out by the PRC government are unprecedented
or experimental, and are expected to be refined and improved. Other political,
economic and social factors can also lead to further readjustment of such
reforms. This refining and readjustment process may not necessarily have a
positive effect on our operations or future business development. Our operating
results may be adversely affected by changes in the PRC’s economic and social
conditions as well as by changes in the policies of the PRC government, such as
changes in laws and regulations (or the official interpretation thereof),
measures which may be introduced to control inflation, changes in the interest
rate or method of taxation, and the imposition of restrictions on currency
conversion in addition to those described below.
THE
RECENT NATURE AND UNCERTAIN APPLICATION OF MANY PRC LAWS APPLICABLE TO US CREATE
AN UNCERTAIN ENVIRONMENT FOR BUSINESS OPERATIONS AND THEY COULD HAVE A NEGATIVE
EFFECT ON US.
The PRC
legal system is a civil law system. Unlike the common law system, the civil law
system is based on written statutes in which decided legal cases have little
value as precedents. In 1979, the PRC began to promulgate a comprehensive system
of laws and has since introduced many laws and regulations to provide general
guidance on economic and business practices in the PRC and to regulate foreign
investment. Progress has been made in the promulgation of laws and regulations
dealing with economic matters such as corporate organization and governance,
foreign investment, commerce, taxation and trade. The promulgation of new laws,
changes of existing laws and the abrogation of local regulations by national
laws could have a negative impact on our business and business
prospects.
CURRENCY
CONVERSION COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
The PRC
government imposes control over the conversion of Renminbi into foreign
currencies. Under the current unified floating exchange rate system, the
People’s Bank of China publishes an exchange rate, which we refer to as the PBOC
exchange rate, based on the previous day's dealings in the inter-bank foreign
exchange market. Financial institutions authorized to deal in foreign currency
may enter into foreign exchange transactions at exchange rates within an
authorized range above or below the PBOC exchange rate according to market
conditions.
Pursuant
to the Foreign Exchange Control Regulations of the PRC issued by the State
Council which came into effect on April 1, 1996, and the Regulations on the
Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which
came into effect on July 1, 1996, regarding foreign exchange control, conversion
of Renminbi into foreign exchange by Foreign Investment Enterprises, or FIEs,
for use on current account items, including the distribution of dividends and
profits to foreign investors, is permissible. FIEs are permitted to convert
their after-tax dividends and profits to foreign exchange and remit such foreign
exchange to their foreign exchange bank accounts in the PRC. Conversion of
Renminbi into foreign currencies for capital account items, including direct
investment, loans, and security investment, is still under certain restrictions.
On January 14, 1997, the State Council amended the Foreign Exchange Control
Regulations and added, among other things, an important provision, which
provides that the PRC government shall not impose restrictions on recurring
international payments and transfers under current account items.
Enterprises
in the PRC (including FIEs) which require foreign exchange for transactions
relating to current account items, may, without approval of the State
Administration of Foreign Exchange, or SAFE, effect payment from their foreign
exchange account or convert and pay at the designated foreign exchange banks by
providing valid receipts and proofs.
Convertibility
of foreign exchange in respect of capital account items, such as direct
investment and capital contribution, is still subject to certain restrictions,
and prior approval from the SAFE or its relevant branches must be
sought.
Furthermore,
the Renminbi is not freely convertible into foreign currencies nor can it be
freely remitted abroad. Under the PRC’s Foreign Exchange Control Regulations and
the Administration of Settlement, Sales and Payment of Foreign Exchange
Regulations, Foreign Invested Enterprises are permitted either to repatriate or
distribute its profits or dividends in foreign currencies out of its foreign
exchange accounts, or exchange Renminbi for foreign currencies through banks
authorized to conduct foreign exchange business. The conversion of Renminbi into
foreign exchange by Foreign Invested Enterprises for recurring items, including
the distribution of dividends to foreign investors, is permissible. The
conversion of Reminbi into foreign currencies for capital items, such as direct
investment, loans and security investment, is subject, however, to more
stringent controls.
Our
operating company is a FIE to which the Foreign Exchange Control Regulations are
applicable. Accordingly, we will have to maintain sufficient foreign exchange to
pay dividends and/or satisfy other foreign exchange requirements.
EXCHANGE
RATE VOLATILITY COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
Since
1994, the exchange rate for Renminbi against the United States dollar has
remained relatively stable, most of the time in the region of approximately
RMB8.28 to $1.00. However, in 2005, the Chinese government announced that it
would begin pegging the exchange rate of the Chinese Renminbi against a number
of currencies, rather than just the U.S. dollar and, the exchange rate for the
Renminbi against the U.S. dollar became RMB8.02 to $1.00. If we decide to
convert Chinese Renminbi into United States dollars for other business purposes
and the United States dollar appreciates against this currency, the United
States dollar equivalent of the Chinese Renminbi we convert would be reduced.
There can be no assurance that future movements in the exchange rate of Renminbi
and other currencies will not have an adverse effect on our financial
condition.
SINCE
MOST OF OUR ASSETS ARE LOCATED IN PRC, ANY DIVIDENDS OF PROCEEDS FROM
LIQUIDATION IS SUBJECT TO THE APPROVAL OF THE RELEVANT CHINESE GOVERNMENT
AGENCIES.
Our
assets are predominantly located inside PRC. Under the laws governing Foreign
Invested Enterprises in PRC, dividend distribution and liquidation are allowed
but subject to special procedures under the relevant laws and rules. Any
dividend payment will be subject to the decision of the board of directors and
subject to foreign exchange rules governing such repatriation. Any liquidation
is subject to the relevant government agency’s approval and supervision as well
as the foreign exchange control. This may generate additional risk for our
investors in case of dividend payment and liquidation.
IT MAY BE
DIFFICULT TO AFFECT SERVICE OF PROCESS AND ENFORCEMENT OF LEGAL JUDGMENTS UPON
OUR COMPANY AND OUR OFFICERS AND DIRECTORS BECAUSE THEY RESIDE OUTSIDE THE
UNITED STATES.
As our
operations are presently based in PRC and our director and officer resides in
PRC, service of process on our company and such director and officer may be
difficult to effect within the United States. Also, our main assets are located
in PRC and any judgment obtained in the United States against us may not be
enforceable outside the United States.
An
outbreak of avian influenza, the H1N1 “swine-flu” virus, a reoccurrence of
Severe Acute Respiratory Syndrome (“SARS”), or another widespread public health
problem, could adversely affect our operations.
A more
widespread outbreak of the H1N1 virus, avian influenza or a renewed outbreak of
SARS or any other widespread public health problem in the PRC, where all of our
operations are conducted, could have an adverse effect on our operations. If
such an outbreak were to occur, our operations may be impacted by a number of
health-related factors, including quarantines or closures of some of our
offices, that would adversely disrupt our operations.
PRC SAFE
REGULATIONS REGARDING OFFSHORE FINANCING ACTIVITIES BY PRC RESIDENTS HAVE
UNDERTAKEN CONTINUOUS CHANGES WHICH MAY INCREASE THE ADMINISTRATIVE BURDEN WE
FACE AND CREATE REGULATORY UNCERTAINTIES THAT COULD ADVERSELY AFFECT OUR
BUSINESS.
Recent
regulations promulgated by SAFE, regarding offshore financing activities by PRC
residents have undergone a number of changes which may increase the
administrative burden we face. The failure by our stockholders and affiliates
who are PRC residents, including Mr. Jiang, to make any required applications
and filings pursuant to such regulations may prevent us from being able to
distribute profits and could expose us and our PRC resident stockholders to
liability under PRC law.
In 2005,
SAFE promulgated regulations in the form of public notices, which require
registrations with, and approval from, SAFE on direct or indirect offshore
investment activities by PRC resident individuals. The SAFE regulations require
that if an offshore company directly or indirectly formed by or controlled by
PRC resident individuals, known as “SPC,” intends to acquire a PRC company, such
acquisition will be subject to strict examination by the SAFE. Without
registration, the PRC entity cannot remit any of its profits out of the PRC as
dividends or otherwise. This could have a material adverse effect on us given
that we expect to be a publicly listed company in the U.S.
DUE TO
VARIOUS RESTRICTIONS UNDER PRC LAWS ON THE DISTRIBUTION OF DIVIDENDS BY OUR PRC
OPERATING COMPANIES, WE MAY NOT BE ABLE TO PAY DIVIDENDS TO OUR
STOCKHOLDERS.
The
Wholly-Foreign Owned Enterprise Law (1986), as amended and The Wholly-Foreign
Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law
of the PRC (2006) contain the principal regulations governing dividend
distributions by wholly foreign owned enterprises. Under these regulations,
wholly foreign owned enterprises may pay dividends only out of their accumulated
profits, if any, determined in accordance with PRC accounting standards and
regulations. Additionally, such companies are required to set aside a certain
amount of their accumulated profits each year, if any, to fund certain reserve
funds. These reserves are not distributable as cash dividends except in the
event of liquidation and cannot be used for working capital purposes. The PRC
government also imposes controls on the conversion of RMB into foreign
currencies and the remittance of currencies out of the PRC. We may experience
difficulties in completing the administrative procedures necessary to obtain and
remit foreign currency for the payment of dividends from the Company’s
profits.
Furthermore,
if our subsidiaries in China incur debt on their own in the future, the
instruments governing the debt may restrict its ability to pay dividends or make
other payments. If we or our subsidiaries are unable to receive all of the
revenues from our operations through these contractual or dividend arrangements,
we may be unable to pay dividends on our Ordinary Shares.
THE
CHINESE GOVERNMENT EXERTS SUBSTANTIAL INFLUENCE OVER THE MANNER IN WHICH WE MUST
CONDUCT OUR BUSINESS ACTIVITIES.
We are
dependent on our relationship with the local government in the province in which
we operate our business. Chinese government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and state ownership. Our ability to operate in China may be
harmed by changes in its laws and regulations, including those relating to
taxation, environmental regulations, land use rights, property and other
matters. We believe that our operations in China are in material compliance with
all applicable legal and regulatory requirements. However, the central or local
governments of these jurisdictions may impose new, stricter regulations or
interpretations of existing regulations that would require additional
expenditures and efforts on our part to ensure our compliance with such
regulations or interpretations. Accordingly, government actions in the future,
including any decision not to continue to support recent economic reforms and to
return to a more centrally planned economy or regional or local variations in
the implementation of economic policies, could have a significant effect on
economic conditions in China or particular regions thereof, and could require us
to divest ourselves of any interest we then hold in Chinese
properties.
Future
inflation in China may inhibit our ability to conduct business in China. In
recent years, the Chinese economy has experienced periods of rapid expansion and
high rates of inflation. Rapid economic growth can lead to growth in the money
supply and rising inflation. If prices for our products rise at a rate that is
insufficient to compensate for the rise in the costs of supplies, it may have an
adverse effect on profitability. These factors have led to the adoption by
Chinese government, from time to time, of various corrective measures designed
to restrict the availability of credit or regulate growth and contain inflation.
High inflation may in the future cause Chinese government to impose controls on
credit and/or prices, or to take other action, which could inhibit economic
activity in China, and thereby harm the market for our products.
IF OUR
LAND USE RIGHTS ARE REVOKED, WE WOULD HAVE NO OPERATIONAL
CAPABILITIES.
Under
Chinese law land is owned by the state or rural collective economic
organizations. The state issues to tenants the rights to use property. Use
rights can be revoked and the tenants forced to vacate at any time when
redevelopment of the land is in the public interest. The public interest
rationale is interpreted quite broadly and the process of land appropriation may
be less than transparent. Each of our operating subsidiaries rely on these land
use rights as the cornerstone of their operations, and the loss of such rights
would have a material adverse effect on our company.
Risks
Associated with Our Securities
RESTRICTED
SECURITIES; LIMITED TRANSFERABILITY.
Our
securities should be considered a long-term, illiquid investment. Our Ordinary
Shares have not been registered under the Securities Act, and cannot be sold
without registration under the Securities Act or any exemption from
registration. In addition, our Ordinary Shares are not registered under any
state securities laws that would permit their transfer. Because of these
restrictions and the absence of an active trading market for the securities, a
shareholder will likely be unable to liquidate an investment even though other
personal financial circumstances would dictate such liquidation.
WE ARE
NOT LIKELY TO PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
We
currently intend to retain any future earnings for use in the operation and
expansion of our business. Accordingly, we do not expect to pay any cash
dividends in the foreseeable future, but will review this policy as
circumstances dictate. Should we determine to pay dividends in the future, our
ability to do so will depend upon the receipt of dividends or other payments
from Merit Times. Merit Times may, from time to time, be subject to restrictions
on its ability to make distributions to us, including restrictions on the
conversion of RMB into U.S. dollars or other hard currency and other regulatory
restrictions.
WE MAY BE
SUBJECT TO THE PENNY STOCK RULES WHICH WILL MAKE THE OUR ORDINARY SHARES MORE
DIFFICULT TO SELL.
If we are
able to obtain a listing of our Ordinary Shares on a national securities
exchange, we may be subject in the future to the SEC’s “penny stock” rules if
our Ordinary Shares sell below $5.00 per share. Penny stocks generally are
equity securities with a price of less than $5.00. The penny stock rules require
broker-dealers to deliver a standardized risk disclosure document prepared by
the SEC which provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer must also provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson, and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information must be given to the customer orally or in writing
prior to completing the transaction and must be given to the customer in writing
before or with the customer's confirmation.
In
addition, the penny stock rules require that prior to a transaction, the broker
dealer must make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. The penny stock rules are burdensome and may
reduce purchases of any offerings and reduce the trading activity for our
Ordinary Shares. As long as our Ordinary Shares are subject to the penny stock
rules, the holders of such Ordinary Shares may find it more difficult to sell
their securities.
OUR
ORDINARY SHARES HAVE NOT BEEN LISTED FOR TRADING ON THE OTC BULLETIN BOARD OR ON
ANY STOCK EXCHANGE AND THERE CAN BE NO ASSURANCE THAT THERE WILL BE A MARKET
DEVELOPED FOR OUR ORDINARY SHARES IN THE FUTURE.
Our
Ordinary Shares have not been quoted or listed for trading on the OTC Bulletin
Board or on any stock exchange. Although our management will apply to a Senior
Exchange for listing of our Ordinary Shares, there can be no assurance that a
public market for our shares will be developed. Consequently, investors may not
be able to liquidate their investment or liquidate it at a price that reflects
the value of the business. Even if a public market should develop, the price may
be highly volatile. Because there may be a low price for our Ordinary Shares,
many brokerage firms may not be willing to effect transactions in the
securities. Even if an investor finds a broker willing to effect a transaction
in our Ordinary Shares, the combination of brokerage commissions, transfer fees,
taxes, if any, and any other selling costs may exceed the selling price.
Further, many lending institutions will not permit the use of such Ordinary
Shares as collateral for any loans.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
following discussion and analysis of the results of operations and financial
condition of Merit Times for the six months ended June 30, 2009 and 2008 and for
the fiscal years ended December 31, 2008 and 2007, should be read in conjunction
with the Selected Consolidated Financial Data, Merit Times’ financial
statements, and the notes to those financial statements that are included
elsewhere in this Form 8-K. Our discussion includes forward-looking statements
based upon current expectations that involve risks and uncertainties, such as
our plans, objectives, expectations and intentions. Actual results and the
timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking
Statements and Business sections in this Form 8-K. We use words such as
“anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,”
“believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions
to identify forward-looking statements.
COMPANY
OVERVIEW
Merit
Times, with its subsidiaries, engages in the production of fruit juice
concentrate in the PRC. The Company is primarily focused on processing,
producing and distributing Laiyang Pear fruit juice concentrate. Merit Times
owns 100% of the issued and outstanding capital stock of MeKeFuBang, a wholly
foreign owned enterprise incorporated under the laws of the PRC. On
June 10, 2009, MeKeFuBang entered into a series of Contractual Arrangements with
Longkang Juice, a company incorporated under the laws of the PRC, and its five
shareholders, in which MeKeFuBang effectively assumed management of the business
activities of Longkang Juice and has the right to appoint all executives and
senior management and the members of the board of directors of Longkang Juice.
The contractual arrangements are comprised of a series of agreements, including
a Consulting Services Agreement, Operating Agreement, Proxy Agreement, and
Option Agreement, through which MeKeFuBang has the right to advise, consult,
manage and operate Longkang Juice for an annual fee in the amount of Longkang
Juice’s yearly net profits after tax. Additionally, Longkang Juice’s
Shareholders have pledged their rights, titles and equity interest in Longkang
Juice as security for MeKeFuBang to collect consulting and services fees
provided to Longkang Juice through an Equity Pledge Agreement. In order to
further reinforce MeKeFuBang’s rights to control and operate Longkang Juice,
Longkang Juice’s shareholders have granted MeKeFuBang the exclusive right and
option to acquire all of their equity interests in Longkang Juice through an
Option Agreement. As all of the companies are under common control, this has
been accounted for as a reorganization of entities and the financial statements
have been prepared as if the reorganization had occurred retroactively. The
Company has consolidated Longkang’s operating results, assets and liabilities
within its financial statements.
Through
MeKeFuBang, Merit Times operates and controls Longkang Juice through the
Contractual Arrangements. Merit Times used the Contractual Arrangements to
acquire control of Longkang Juice, instead of using a complete acquisition of
Longkang Juice’s assets or equity to make Longkang Juice a wholly-owned
subsidiary of Merit Times because (i) new PRC laws governing share exchanges
with foreign entities, which became effective on September 8, 2006, make the
consequences of such acquisitions uncertain and (ii) other than by share
exchange transactions, PRC law requires Longkang Juice to be acquired for cash
and Merit Times was not able to raise sufficient funds to pay the full appraised
value for Longkang Juice’s assets or shares as required under PRC
law.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
accompanying consolidated financial statements include the financial statements
of Merit Times and its wholly owned subsidiary, MeKeFuBang and its variable
interest entity Longkang Juice. All significant inter-company transactions and
balances have been eliminated in consolidation. Merit Times, its subsidiary and
Longkang Juice, together are referred to as the Company. In accordance with FASB
Interpretation No. 46(R), Consolidation of Variable Interest Entities (“FIN
46(R)”), variable interest entities (“VIEs”) are generally entities that lack
sufficient equity to finance their activities without additional financial
support from other parties or whose equity holders lack adequate decision making
ability. All VIEs with which the Company is involved must be evaluated to
determine the primary beneficiary of the risks and rewards of the VIE. The
primary beneficiary is required to consolidate the VIE for financial reporting
purposes. In connection with the adoption of FIN 46(R), the Company concludes
that Longkang Juice is a VIE and Merit Times is the primary beneficiary. Under
FIN 46(R) transition rules, the financial statements of Longkang Juice are then
consolidated into the Company’s consolidated financial statements.
Our
management’s discussion and analysis of our financial condition and results of
operations are based on the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported net sales and expenses
during the reporting periods. On an ongoing basis, we evaluate our estimates and
assumptions. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
While our
significant accounting policies are more fully described in Note 1 to our
consolidated financial statements for the year ended December 31, 2008, we
believe that the following accounting policies are the most critical to aid you
in fully understanding and evaluating this management discussion and
analysis:
Accounts
receivable
Accounts
receivable are presented net of an allowance for doubtful accounts. The Company
maintains allowances for doubtful accounts for estimated losses. The Company
reviews the accounts receivable on a periodic basis and makes general and
specific allowances when 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, customer’s
historical payment history, its current credit-worthiness and current economic
trends. Accounts are written off after exhaustive efforts at collection. At
December 31, 2008 and 2007, the Company has established, based on a review of
its outstanding balances, an allowance for doubtful accounts in the amount of
$41,598 and $38,982, respectively.
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 or market utilizing the
weighted average method. An allowance is established when management determines
that certain inventories may not be saleable. If inventory costs exceed expected
market value due to obsolescence or quantities in excess of expected demand, the
Company will record reserves for the difference between the cost and the market
value. These reserves are recorded based on estimates. The Company recorded an
inventory reserve of $92,390 and $57,971 at December 31, 2008 and 2007,
respectively.
Property
and equipment
Property
and equipment are carried at cost and are depreciated on a straight-line basis
over the estimated useful lives of the assets. The cost of repairs and
maintenance is expensed as incurred; major replacements and improvements are
capitalized. When assets are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting gains or losses
are included in income in the year of disposition. The Company examines 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.
Advances
from customers
Advances
from customers consist of prepayments from customers for merchandise that had
not yet been shipped. The Company recognizes the deposits as revenue as
customers take delivery of the goods, in accordance with its revenue recognition
policy. At December 31, 2008 and 2007, advances from customers were not
material.
Revenue
recognition
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
recognizes revenues from the sale of juice concentrate upon shipment and
transfer of title.
Shipping
costs
Shipping
costs are included in selling expenses and totaled $337,333 and $319,825 for the
year ended December 31, 2008 and 2007, respectively.
Employee
benefits
The
Company’s operations and employees are all located in the PRC. The Company makes
mandatory contributions to the PRC government’s health, retirement benefit and
unemployment funds in accordance with the relevant Chinese social security laws,
which is approximately 25% of salaries. For the years ended December 31, 2008
and 2007, the costs of these payments are charged to general and administrative
expenses in the same period as the related salary costs and amounted to $56,505
and $31,439, respectively.
Advertising
Advertising
is expensed as incurred and is included in selling expenses on the accompanying
statement of operations. For the years ended December 31, 2008 and 2007,
advertising expense amounted to $209,701 and $119,402,
respectively.
Research
and development
Research
and development costs are expensed as incurred. For the years ended December 31,
2008 and 2007, research and development costs amounted to $256,283 and $477,365,
respectively.
Foreign
currency translation
The
reporting currency of the Company is the U.S. dollar. The functional currency of
the Company is the local currency, the Chinese Renminbi (“RMB”). Results of
operations and cash flows are translated at average exchange rates during the
period, assets and liabilities are translated at the unified exchange rate at
the end of the period, and equity is translated at historical exchange rates.
Translation adjustments resulting from the process of translating the local
currency financial statements into U.S. dollars are included in determining
comprehensive income. The cumulative translation adjustment and effect of
exchange rate changes on cash for the year ended December 31, 2008 and 2007 was
$494,982 and $500,558, respectively. Transactions denominated in foreign
currencies are translated into the functional currency at the exchange rates
prevailing on the transaction dates. Assets and liabilities denominated in
foreign currencies are translated into the functional currency at the exchange
rates prevailing at the balance sheet date with any 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. All of the Company’s revenue transactions are transacted
in the functional currency. The Company does not enter any material transaction
in foreign currencies and accordingly, transaction gains or losses have not had,
and are not expected to have, a material effect on the results of operations of
the Company.
Asset and
liability accounts at December 31, 2008 and 2007 were translated at 6.8542 RMB
to $1.00 and at 7.3141 RMB to $1.00, respectively. Equity accounts were stated
at their historical rate. The average translation rates applied to the
statements of income for the year ended December 31, 2008 and 2007 were 6.96225
RMB and 7.6172 RMB to $1.00, respectively. In accordance with Statement of
Financial Accounting Standards No. 95, “Statement of Cash Flows,” cash flows
from the Company’s operations are calculated based upon the local currencies
using the average translation rate. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheets.
Recent Accounting
Pronouncements
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
141(R)”), which replaces SFAS No. 141. SFAS No. 141(R) establishes principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. The
Statement also establishes disclosure requirements which will enable users to
evaluate the nature and financial effects of the business combination. SFAS
141(R) is effective for fiscal years beginning after December 15, 2008, and
applies to any business combinations which occur after December 31, 2008. The
adoption of SFAS 141(R), effective January 1, 2009, may have an impact on
accounting for future business combinations.
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
non-controlling interest, changes in a parent’s ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS
160 is effective for fiscal years beginning after December 15, 2008. The Company
does not expect SFAS No. 160 to have a material impact on the preparation of its
consolidated financial statements.
In March
2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities”. The new standard is intended to improve financial reporting
about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an
entity’s financial position, financial performance, and cash flows. It is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. The
Company does not expect SFAS No. 161 to have a material impact on the
preparation of its consolidated financial statements.
In May
2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May
Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB
14-1 clarifies that convertible debt instruments that may be settled in cash
upon either mandatory or optional conversion (including partial cash settlement)
are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for
Convertible Debt and Debt issued with Stock Purchase Warrants. Additionally, FSP
APB 14-1 specifies that issuers of such instruments should separately account
for the liability and equity components in a manner that will reflect the
entity’s non-convertible debt borrowing rate when interest cost is recognized in
subsequent periods. FSP APB 14-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The Company has adopted FSP APB 14-1 beginning January 1,
2009, and this standard must be applied on a retroactive basis. The Company is
evaluating the impact the adoption of FSP APB 14-1 will have on its financial
position and results of operations.
In May
2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
162, The Hierarchy of Generally Accepted Accounting Principles. This standard is
intended to improve financial reporting by identifying a consistent framework,
or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with generally accepted
accounting principles in the United States for non-governmental entities. SFAS
No. 162 is effective 60 days following approval by the U.S. Securities and
Exchange Commission (“SEC”) of the Public Company Accounting Oversight Board’s
amendments to AU Section 411, The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles. The Company does not expect SFAS No.
162 to have a material impact on the preparation of its consolidated financial
statements.
On June
16, 2008, the FASB issued final Staff Position (FSP) No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities,” to address the question of whether instruments
granted in share-based payment transactions are participating securities prior
to vesting. The FSP determines that unvested share-based payment awards that
contain rights to dividend payments should be included in earnings per share
calculations. The guidance will be effective for fiscal years beginning after
December 15, 2008. The Company is currently evaluating the requirements of (FSP)
No. EITF 03-6-1 as well as the impact of the adoption on its consolidated
financial statements.
In June
2008, the FASB ratified Emerging Issues Task Force Issue No. 07-5, “Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”
(“EITF 07-5”). EITF 07-5 mandates a two-step process for evaluating whether an
equity-linked financial instrument or embedded feature is indexed to the
entity’s own stock. Warrants that a company issues that contain a strike price
adjustment feature, upon the adoption of EITF 07-5, are no longer being
considered indexed to the company’s own stock. Accordingly, adoption of EITF
07-5 will change the current classification (from equity to liability) and the
related accounting for such warrants outstanding at that date. EITF 07-5 is
effective for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. The Company is currently evaluating the
impact the adoption of EITF 07-5 will have on its consolidated financial
statement presentation and disclosures.
In
December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities” (“FSP FAS 140-4 and FIN 46(R)-8”). FSP FAS 140-4
and FIN 46(R)-8 amends FAS 140 and FIN 46(R) to require additional disclosures
regarding transfers of financial assets and interest in variable interest
entities. FSP FAS 140-4 and FIN 46(R)-8 is effective for interim or annual
reporting periods ending after December 15, 2008. The adoption of FSP FAS 140-4
and FIN 46(R)-8 did not have an impact on its financial position and results of
operations.
RESULTS
OF OPERATIONS
Results of Operations For
The Six Months Ended June 30, 2009 Compared to The Six Months Ended June 30,
2008
The
following tables set forth key components of our results of operations for the
periods indicated, in dollars, and key components of our revenue for the period
indicated, in dollars. The discussion following the table is based on these
unaudited results.
For the Six Months Ended
June 30,
(Unaudited)
|
||||||||
2009
|
2008
|
|||||||
NET
REVENUES
|
$ | 46,371,201 | $ | 35,088,503 | ||||
COST
OF SALES
|
32,700,082 | 26,383,646 | ||||||
GROSS
PROFIT
|
13,671,119 | 8,704,857 | ||||||
OPERATING
EXPENSES:
|
||||||||
Selling
|
343,238 | 259,408 | ||||||
Research
and development
|
71,019 | 99,465 | ||||||
General
and administrative
|
794,380 | 790,653 | ||||||
Total
Operating Expenses
|
1,208,637 | 1,149,526 | ||||||
INCOME
FROM OPERATIONS
|
12,462,482 | 7,555,331 | ||||||
OTHER
INCOME (EXPENSE):
|
||||||||
Interest
income
|
25,157 | 12,860 | ||||||
Interest
expense
|
(189,117 | ) | (559,461 | ) | ||||
Total
Other Income (Expense)
|
(163,960 | ) | (546,601 | ) | ||||
INCOME
BEFORE INCOME TAXES
|
12,298,522 | 7,008,730 | ||||||
INCOME
TAX EXPENSE
|
3,056,621 | 1,915,119 | ||||||
NET
INCOME
|
$ | 9,241,901 | $ | 5,093,611 | ||||
COMPREHENSIVE
INCOME:
|
||||||||
NET
INCOME
|
$ | 9,241,901 | $ | 5,093,611 | ||||
OTHER
COMPREHENSIVE INCOME:
|
||||||||
Unrealized
foreign currency translation gain
|
38,504 | 1,224,967 | ||||||
COMPREHENSIVE INCOME
|
$ | 9,280,405 | $ | 6,318,578 |
Revenues. For the six months
ended June 30, 2009, we had net revenues of $46,371,201, as compared to net
revenues of $35,088,503 for the six months ended June 30, 2008, an increase of
approximately 32.2%. For the three months ended June 30, 2009, we had net
revenues of $2,227,201, as compared to net revenues of $18,604,923 for the three
months ended June 30, 2008, a decrease of approximately 89.6%. The increase in
net revenue was attributable to strong demand for our pear juice concentrate
products as well an increase in as summarized below:
For the Six
months ended
June 30, 2009
|
For the Six
months ended
June 30, 2008
|
Increase
(Decrease)
|
Percentage
Change
|
|||||||||||||
Pear
juice concentrate
|
$ | 37,855425 | $ | 34,560,909 | $ | 3,294,516 | 9.5 | % | ||||||||
Apple
juice concentrate
|
6,798,227 | 504,027 | 6,294,200 | 1,248.8 | % | |||||||||||
Strawberry
juice concentrate
|
1,682,247 | - | 1,682,247 | 100.0 | % | |||||||||||
Other
|
35,302 | 23,567 | 11,735 | 49.8 | % | |||||||||||
Total
net revenues
|
$ | 46,371,201 | $ | 35,088,503 | $ | 11,282,698 | 32.2 | % |
The increase in revenues from the sale
of apple juice concentrate was due to the increase in production and sale our
apple juice concentrate on a large scale from November 2008 to February
2009.
During
the six months ended June 30, 2009, substantially all of our revenues occurred
in the first quarter. Usually, The Company completes its annual sales
planning and analysis for upcoming fiscal year in October of the prior fiscal
year. We estimated our sales would be affected by the worldwide financial crisis
in October 2008. According to our market analysis and forecast, as a sales
incentive we provided our customers a 1% sales revenue rebate, if our customers
made their orders in first quarter of 2009 and paid us within three months after
the sales were made. In order to benefit from the rebates, our customers placed
the majorities of their orders and made the majorities of their purchases in the
first quarter of 2009. Therefore, our products were sold from inventory in the
first quarter of 2009, thus causing an inventory shortage in the second quarter
of 2009.
Cost of sales. Cost of sales
for the six months ended June 30, 2009 increased $6,316,436, or 23.9%, from
$26,383,646 for the six months ended June 30, 2008 to $32,700,082 for the six
months ended June 30, 2009.
Gross profit and gross
margin. Our gross profit was $13,671,119 for the six months ended June
30, 2009 as compared to $8,704,857 for the same period in 2008, representing
gross margins of 29.5% and 24.8%, respectively. The increase in our gross margin
percentage was attributable to the increase in revenues in apple juice
concentrate which we recognize a higher gross profit margins than pear juice
concentrate. We expect gross margins to improve as we become more efficient and
begin using pears produced on our pear orchids that we have rights to use for a
period of 30 years.
Selling expenses. Selling
expense was $343,238 for the six months ended June 30, 2009 and $259,408 for the
comparable period in 2008. Selling expenses consisted of the
following:
2009
|
2008
|
|||||||
Compensation
and related benefits
|
$ | 108,126 | $ | 52,976 | ||||
Shipping
and handling
|
133,738 | 139,192 | ||||||
Advertising
|
66,927 | 18,756 | ||||||
Other
|
34,447 | 48,484 | ||||||
$ | 343,238 | $ | 259,408 |
|
·
|
Compensation
and related benefits increased by 55,150 or 104.1% due to an increase in
sales staff and an increase in commissions paid on increased
revenues.
|
|
·
|
Shipping
and handling decreased by $5,454 or 3.9% due to a decrease in our shipping
expenses which were substantially paid by our customers in fiscal 2009
but were mainly paid by us in fiscal 2008 offset by an increase
in our handling expenses incurred by the increased
revenues.
|
|
·
|
Advertising
expense increased by $48,171 or 256.8%. In order to be public company, we
intended to attend many national juice product meeting. According, our
exhibit expenses were
increased.
|
|
·
|
Other
expense has nominal increase.
|
Research and development
expenses. Research and development expenses amounted to $71,019 for the
six months ended June 30, 2009, as compared to $99,465 for the same period in
2008, a decrease of $28,446 or approximately 28.6%. The decrease was
attributable to a decrease in research and development contracts with third
parties. In future periods, we expect research and development expenses to
increase as we add future product lines and products.
General and administrative expenses.
General and administrative expenses amounted to $794,380 for the six
months ended June 30, 2009, as compared to $790,653 for the same period in 2008,
an increase of $3,727 or less than 1.0%. General and administrative expenses
consisted of the following:
2009
|
2008
|
|||||||
Compensation
and related benefits
|
$ | 52,491 | $ | 40,042 | ||||
Depreciation
|
104,730 | 101,333 | ||||||
Amortization
of land use rights
|
273,781 | 264,901 | ||||||
Other
|
363,378 | 384,377 | ||||||
$ | 794,380 | $ | 790,653 |
|
·
|
For
the six months ended June 30, 2009, compensation and related benefits
increased by $12,449 or 31.1% as compared to the six months ended June 30,
2008.
|
|
·
|
For
the six months ended June 30, 2009, depreciation expense increased by
$3,397 or 3.4% as compared to the six months ended June 30,
2008.
|
|
·
|
For
the six months ended June 30, 2009, amortization of land use rights
increased by $8,880 or 3.4% as compared to the six months ended June 30,
2008.
|
|
·
|
Other
general and administrative expenses decreased by $20,999 or 5.5% for the
six months ended June 30, 2009 as compared with the same period in
2008.
|
Income from operations. For the six
months ended June 30, 2009, income from operations was $12,462,482, as compared
to $7,555,331 for the six months ended June 30, 2008, an increase of $4,907,151
or 64.9%.
Other income (expenses). For
the six months ended June 30, 2009, other expense amounted to $163,960 as
compared to other expense of $546,601 for the same period in
2008. For the six months ended June 30, 2009 and 2008, other income
(expense) included:
|
·
|
Interest
expense decreased by $370,344 or 66.2%. During the six months
ended June 30, 2009, we repaid loans of approximately $10,040,000, which
reduced interest expense for the
period.
|
|
·
|
Interest
income increased by $12,297 or 95.6% and related to an increase in funds
in interest bearing accounts.
|
Income tax expense. Income
tax expense increased by $1,141,502, or 59.6%, for the six months ended June 30,
2009 as compared to the comparable period in 2008 primarily as a result of the
increase in taxable income generated by our operating entities.
Net income. As a result of
the factors described above, our net income for the six months ended June 30,
2009 was $9,241,901, or $0.01 per share (basic and diluted). For
the six months ended June 30, 2008, we had net income of $5,093,611 or
$0.01 per share (basic and diluted).
Foreign currency translation gain.
The functional currency of our subsidiaries operating in the PRC is the
Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries
are translated to U.S. dollars using period end rates of exchange for assets and
liabilities, and average rates of exchange (for the period) for revenues, costs,
and expenses. Net gains and losses resulting from foreign exchange transactions
are included in the consolidated statements of operations. As a result of these
translations, which are a non-cash adjustment, we reported a foreign currency
translation gain of $38,504 for the six months ended June 30, 2009 as compared
to $1,224,967 for the same period year 2008. This non-cash gain had the effect
of increasing our reported comprehensive income.
Comprehensive income. For the
six months ended June 30, 2009, comprehensive income of $9,280,405 is derived
from the sum of our net income of $9,241,901 plus foreign currency translation
gains of $38,504.
Results of Operations for
the Year ended December 31, 2008 Compared to the Year ended December 31,
2007
The
following tables set forth key components of our results of operations for the
periods indicated, in dollars, and key components of our revenue for the period
indicated, in dollars. The discussion following the table is based on these
results.
For the Years Ended
|
||||||||
December 31,
|
||||||||
2008
|
2007
|
|||||||
NET
REVENUES
|
$ | 74,232,226 | $ | 65,038,233 | ||||
COST
OF SALES
|
54,897,949 | 49,857,042 | ||||||
GROSS
PROFIT
|
19,334,277 | 15,181,191 | ||||||
OPERATING
EXPENSES:
|
||||||||
Selling
|
686,724 | 537,704 | ||||||
Research
and development
|
256,283 | 477,365 | ||||||
General
and administrative
|
1,710,215 | 815,249 | ||||||
Total
Operating Expenses
|
2,653,222 | 1,830,318 | ||||||
INCOME
FROM OPERATIONS
|
16,681,055 | 13,350,873 | ||||||
OTHER
INCOME (EXPENSE):
|
||||||||
Interest
income
|
50,251 | 37,652 | ||||||
Interest
expense
|
(976,204 | ) | (1,001,704 | ) | ||||
Other
income
|
- | 6,064 | ||||||
Total
Other Income (Expense)
|
(925,953 | ) | (957,988 | ) | ||||
INCOME
BEFORE INCOME TAXES
|
15,755,102 | 12,392,885 | ||||||
INCOME
TAXES
|
4,196,701 | 4,413,134 | ||||||
NET
INCOME
|
$ | 11,558,401 | $ | 7,979,751 | ||||
COMPREHENSIVE
INCOME:
|
||||||||
NET
INCOME
|
$ | 11,558,401 | $ | 7,979,751 | ||||
OTHER
COMPREHENSIVE INCOME:
|
||||||||
Unrealized
foreign currency translation gain
|
1,304,006 | 872,141 | ||||||
COMPREHENSIVE
INCOME
|
$ | 12,862,407 | $ | 8,851,892 |
Revenues. For the year ended
December 31, 2008, we had net revenues of $74,232,226, as compared to net
revenues of $65,038,233 for the year ended December 31, 2007, an increase of
approximately 32.2%. The increase in net revenue was attributable to strong
demand for our pear juice concentrate products as summarized below:
For the Year
ended December
31, 2008
|
For the Year ended
December 31, 2007
|
Increase
(Decrease)
|
Percentage
Change
|
|||||||||||||
Pear
juice concentrate
|
$ | 64,565,458 | $ | 56,251,561 | $ | 8,313,897 | 14.8 | % | ||||||||
Apple
juice concentrate
|
7,454,906 | 6,524,646 | 930,260 | 14.3 | % | |||||||||||
Strawberry
juice concentrate
|
2,087,970 | 2,206,769 | (118,799 | ) | 5.4 | % | ||||||||||
Other
|
123,892 | 55,257 | 68,635 | 124.2 | % | |||||||||||
Total
net revenues
|
$ | 74,232,226 | $ | 65,038,233 | $ | 9,193,993 | 14.1 | % |
The increase in revenues from the sale
of apple juice concentrate was attributable to our substantial increase in
production and sale our apple juice concentrate from November 2008 to February
2009.
Cost of sales. Cost of sales
increased by $5,040,907, or 10.1%, from $49,857,042 for the year ended December
31, 2007 to $54,897,949 for the year ended December 31, 2008.
Gross profit and gross
margin. Our gross profit was $13,671,119 for year ended December 31, 2008
as compared to $8,704,857 for the year ended December 31, 2007 representing
gross margins of 26.0% and 23.3%, respectively. The increase in our gross margin
percentage was attributable to the increase in revenues in apple juice
concentrate which we recognize a higher gross profit margins than pear juice
concentrate. We expect gross margins to improve as we become more efficient and
begin using pears produced on our pear orchids that we have rights to use for a
period of 30 years.
Selling expenses. Selling
expenses were $686,724 for the year ended December 31, 2008 and $537,704 for the
comparable year in 2007. Selling expenses consisted of the
following:
2008
|
2007
|
|||||||
Compensation
and related benefits
|
$ | 119,154 | $ | 52,976 | ||||
Shipping
and handling
|
337,333 | 139,192 | ||||||
Advertising
|
209,701 | 18,756 | ||||||
Other
|
20,536 | 48,484 | ||||||
$ | 686,724 | $ | 537,704 |
|
·
|
Compensation
and related benefits increased by $66,178 or 124.9% due to an increase in
sales staff and an increase in commissions paid on increased
revenues.
|
|
·
|
Shipping
and handling increased by $198,141or 142.4% due to the increase in our
revenues.
|
|
·
|
Advertising
expense increased by $190,945 or 1,018.0% which was attributed to the
increase in our attendance in national juice product meeting in order to
increase our visibility. According, our exhibit expense was
increased.
|
|
·
|
Other
expense has nominal decrease.
|
Research and development
expenses. Research and development expenses amounted to $256,283 for the
year ended December 31, 2008, as compared to $477,365 for the same period in
2007, a decrease of $221,082 or 46.3%. The decrease was attributable
to a decrease in research and development contracts with third parties. In
future periods, we expect research and development expenses to increase as we
add product lines and products.
General and administrative expenses.
General and administrative expenses amounted to $1,710,215 for the year
ended December 31, 2008, as compared to $815,249 for the same period in 2007, an
increase of $894,966 or less than 109.8%. General and administrative expenses
consisted of the following:
2008
|
2007
|
|||||||
Compensation
and related benefits
|
$ | 265,818 | $ | 97,427 | ||||
Depreciation
|
282,403 | 189,496 | ||||||
Amortization
of land use rights
|
538,202 | 148,186 | ||||||
Other
|
623,792 | 380,140 | ||||||
$ | 1,710,215 | $ | 815,249 |
|
·
|
For
the year ended December 31, 2008, compensation and related benefits
increased by $168,391 or 172.8% as compared to the year ended December 31,
2007.
|
|
·
|
For
the year ended December 31, 2008, depreciation expense increased by
$92,907 or 49.0% as compared to the year ended December 31,
2007.
|
|
·
|
For
the year ended December 31, 2008, amortization of land use rights
increased by $390,016 or 263.2% as compared to the year ended December 31,
2007.
|
|
·
|
Other
general and administrative expenses increased by $243,652 or 64.1% for the
year ended December 31, 2008 as compared with the same period in
2007.
|
Income from operations. For the year
ended December 31, 2008, income from operations was $16,681,055, as compared to
$13,350,873 for the year ended December 31, 2007, an increase of $3,330,182 or
24.9%.
Other income (expenses). For
the year ended December 31, 2008, other expense amounted to $925,953 as compared
to other expenses of $957,988 for the same period in 2007. For the
years ended December 31, 2008 and 2007, other income (expense)
included:
|
·
|
Interest
expense decreased by $25,500 or 2.5%. During the year ended
December 31, 2008, we repaid loans of approximately $10,040,000, which
reduced interest expense for the
period.
|
|
·
|
Interest
income increased by $12,599 or 33.5% and related to an increase in funds
in interest bearing accounts.
|
|
·
|
For
the years ended December 31, 2008 and 2007, other income amounted to $0
and $6,064, respectively.
|
Income tax expense. Income
tax expense decreased by $216,433, or 4.9%, for the year ended December 31, 2008
as compared to the comparable period in 2007 primarily as a result of the
increase in taxable income generated by our operating entities.
Net income. As a result of
the factors described above, our net income for the year ended December 31, 2008
was $11,558,401, or $0.01 per share (basic and diluted). For the
year ended December 31, 2007, we had net income of $5,093,611 or $0.01 per
share (basic and diluted).
Foreign currency translation gain.
The functional currency of our subsidiaries operating in the PRC is the
Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries
are translated to U.S. dollars using period end rates of exchange for assets and
liabilities, and average rates of exchange (for the period) for revenues, costs,
and expenses. Net gains and losses resulting from foreign exchange transactions
are included in the consolidated statements of operations. As a result of these
translations, which are a non-cash adjustment, we reported a foreign currency
translation gain of $38,504 for the year ended December 31, 2008 as compared to
$1,224,967 for the same period year 2007. This non-cash gain had the effect of
increasing our reported comprehensive income.
Comprehensive income. For the
year ended December 31, 2008, comprehensive income of $9,280,405 is derived from
the sum of our net income of $9,241,901 plus foreign currency translation gains
of $38,504.
LIQUIDITY
AND CAPITAL RESOURCES
As of
June 30, 2009, our balance of cash and cash equivalents was
$21,048,226. As of December 31, 2008, our balance of cash and cash
equivalents was $2,028,858, comparing to $9,171,445 as of December 31,
2007.
Our
primary uses of cash have been for selling and marketing expenses, employee
compensation, new product development and working capital. The main sources of
cash have been from the financing of purchase orders and the factoring of
accounts receivable. All funds received have been expended in the furtherance of
growing the business and establishing the brand portfolios. The following trends
are reasonably likely to result in a material decrease in our liquidity over the
near to long term:
·
|
An
increase in working capital requirements to finance higher level of
inventories and accounts
receivable,
|
·
|
Addition
of administrative and sales personnel as the business
grows,
|
·
|
Increases
in advertising, public relations and sales promotions for existing and new
brands as the company expands within existing markets or enters new
markets,
|
·
|
Development
of new brands to complement our celebrity portfolio,
and
|
·
|
The
cost of being a public company and the continued increase in costs due to
governmental compliance activities.
|
The
following summarizes the key components of the Company’s cash flows for the six
months ended June 30, 2009
Six
Months Ended
|
||||||||
June
30,
|
June
30,
|
|||||||
2009
|
2008
|
|||||||
Net
cash provided by operating activities
|
$ |
29,912,779
|
$ |
16,753,651
|
||||
Cash
flows used in financing activities
|
(10,891,835
|
) |
(5,097,955
|
) | ||||
Net
increase in cash and cash equivalents
|
$ |
19,019,368
|
$ |
12,583,372
|
The
Company currently generates its cash flow through operations which it believes
will be sufficient to sustain current level operations for at least the next
twelve months.
OFF-BALANCE
SHEET ARRANGEMENTS
There are
no off-balance sheet arrangements between us and any other entity that have, or
are reasonably likely to have, a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to stockholders.
CRITICAL
ACCOUNTING POLICIES
The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We
continually evaluate our estimates, including those related to bad debts,
inventories, recovery of long-lived assets, income taxes, and the valuation of
equity transactions. We base our estimates on historical experience and on
various other assumptions that we believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Any future changes to these estimates and assumptions could cause
a material change to our reported amounts of revenues, expenses, assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies
affect our more significant judgments and estimates used in the preparation of
the financial statements
A summary
of significant accounting policies is included in Note 1 to the audited
consolidated financial statements for the year ended December 31, 2008.
Management believes that the application of these policies on a consistent basis
enables us to provide useful and reliable financial information about our
Company's operating results and financial condition.
Variable
Interest Entities
Pursuant
to Financial Accounting Standards Board Interpretation No. 46 (Revised),
“Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51”
(“FIN 46R”) we are required to include in our consolidated financial statements
the financial statements of variable interest entities. FIN 46R
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss for the variable interest
entity or is entitled to receive a majority of the variable interest entity’s
residual returns. Variable interest entities are those entities in which we,
through contractual arrangements, bear the risk of, and enjoy the rewards
normally associated with ownership of the entity, and therefore we are the
primary beneficiary of the entity.
Longkang
Juice is considered a variable interest entity (“VIE”), and we are the primary
beneficiary. On June 9, 2009, we entered into agreements with Longkang Juice
pursuant to which we shall receive 100% of Longkang Juice’s net income. In
accordance with these agreements, Longkang Juice shall pay consulting fees equal
to 100% of its net income to our wholly-owned subsidiary, MeKeFuBang, and
MeKeFuBang shall supply the technology and administrative services needed to
service Longkang Juice.
The
accounts of Longkang Juice are consolidated in the accompanying financial
statements pursuant to FIN 46R. As a VIE, Longkang Juice’s sales are included in
our total sales, its income from operations is consolidated with our, and our
net income includes all of Longkang Juice’s net income. We do not have any
non-controlling interest and accordingly, did not subtract any net income in
calculating the net income attributable to us. Because of the contractual
arrangements, we have pecuniary interest in Longkang Juice that requires
consolidation of Longkang Juice’s financial statements with our financial
statements.
RECENTLY
ISSUED ACCOUNTING STANDARDS
In
March 2008, the FASB issued SFAS 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The adoption of SFAS 161 did not have a
material impact on the preparation of our consolidated financial
statements.
In May
2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement). FSP APB 14-1 clarifies that convertible debt instruments
that may be settled in cash upon either mandatory or optional conversion
(including partial cash settlement) are not addressed by paragraph 12 of APB
Opinion No. 14, “Accounting
for Convertible Debt and Debt issued with Stock Purchase
Warrants.” Additionally, FSP APB 14-1 specifies that issuers
of such instruments should separately account for the liability and equity
components in a manner that will reflect the entity’s non-convertible debt
borrowing rate when interest cost is recognized in subsequent periods. FSP APB
14-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. The
Company has adopted FSP APB 14-1 beginning January 1, 2009, and this standard
must be applied on a retroactive basis. The adoption of FSP APB 14-1 did not
have a material impact on our consolidated financial position and results of
operations.
On June
16, 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities,” to address the question of whether instruments granted in
share-based payment transactions are participating securities prior to vesting.
The FSP determines that unvested share-based payment awards that contain rights
to dividend payments should be included in earnings per share calculations. The
guidance will be effective for fiscal years beginning after December 15, 2008.
The adoption of FSP EITF 03-6-1 did not have an impact on our consolidated
financial statements.
In June
2008, the FASB ratified Emerging Issues Task Force Issue No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own
Stock.” EITF 07-5 mandates a two-step process for evaluating
whether an equity-linked financial instrument or embedded feature is indexed to
the entity’s own stock. Warrants that a company issues that contain a
strike price adjustment feature, upon the adoption of EITF 07-5, are no longer
being considered indexed to the company’s own stock. Accordingly, adoption of
EITF 07-5 will change the current classification (from equity to liability) and
the related accounting for such warrants outstanding at that date. EITF 07-5 is
effective for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. The adoption of EITF 07-5 did not have a
material impact on our consolidated financial statements.
On
October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active,” which
clarifies the application of SFAS 157 when the market for a financial asset is
inactive. Specifically, FSP 157-3 clarifies how (1) management’s internal
assumptions should be considered in measuring fair value when observable data
are not present, (2) observable market information from an inactive market
should be taken into account, and (3) the use of broker quotes or pricing
services should be considered in assessing the relevance of observable and
unobservable data to measure fair value. The Company is currently evaluating the
impact of adoption of FSP 157-3 on our consolidated financials.
In
November 2008, the FASB issued EITF Issue No. 08-7, “Accounting for
Defensive Intangible Assets,” or EITF No. 08-7. EITF No. 08-7
discusses that when an entity acquired in a business combination or an asset
acquisition an intangible asset that it did not intend to actively use,
otherwise known as a defensive asset, the entity historically allocated little
or no value to the defensive asset. However, with the issuance of SFAS
No. 141(R) and SFAS No. 157 the entity must recognize a value for the
defensive asset that reflects the asset’s highest and best use based on market
assumptions. Upon the effective date of both SFAS No. 141(R) and SFAS
No. 157, acquirers will generally assign a greater value to a defensive
asset than would typically have been assigned under SFAS No. 141. EITF
No. 08-7 will be effective for the first annual reporting period beginning
on or after December 15, 2008. EITF No. 08-7 will apply prospectively
to business combinations for which the acquisition date is after fiscal years
beginning on or after December 15, 2008. The adoption of EITF No. 08-7
did not have a material impact on our results of operations or financial
condition.
In April
2009, the FASB issued SFAS No. 141 (R), “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies.”
SFAS No. 141 (R) amends and clarifies SFAS No. 141, “Business
Combinations,” in regards to the initial recognition and measurement, subsequent
measurement and accounting, and disclosures of assets and liabilities arising
from contingencies in a business combination. FSP SFAS No. 141
(R) applies to all assets acquired and liabilities assumed in a business
combination that arise from contingencies that would be within the scope of SFAS
No. 5, “Accounting for Contingencies”, if not acquired or assumed in a
business combination, except for assets or liabilities arising from
contingencies that are subject to specific guidance in SFAS No. 141 (R).
FSP SFAS No. 141 (R) will be effective for the first annual reporting
period beginning on or after December 15, 2008. FSP SFAS No. 141(R)
will apply prospectively to business combinations for which the acquisition date
is after fiscal years beginning on or after December 15, 2008. The adoption
of SFAS No. 141 (R) did not have a material impact on our results of
operations or financial condition.
In April
2009, the FASB issued FSP FAS 157-4, which provides guidance on how to determine
the fair value of assets and liabilities when the volume and level of activity
for the asset or liability has significantly decreased when compared with normal
market activity for the asset or liability as well as guidance on identifying
circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is
effective for interim and annual periods ending after June 15, 2009. The Company
is currently evaluating the financial impact that FSP FAS. 157-4 will have, but
expects that the financial impact, if any, will not be material on its
Consolidated Financial Statements.
In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, which amends the requirements
for the recognition and measurement of other-than-temporary impairments for debt
securities by modifying the current "intent and ability" indicator. Under FSP
FAS 115-2 and FAS 124-2, an other-than-temporary impairment must be recognized
if the Company has the intent to sell the debt security or the Company is more
likely than not will be required to sell the debt security before its
anticipated recovery. In addition, FSP FAS 115-2 and FAS 124-2 requires
impairments related to credit loss, which is the difference between the present
value of the cash flows expected to be collected and the amortized cost basis
for each security, to be recognized in earnings while impairments related to all
other factors to be recognized in other comprehensive income. FSP FAS 115-2 and
FAS 124-2 is effective for interim and annual periods ending after June 15,
2009. The Company is currently evaluating the financial impact that FSP FAS
115-2 and FAS 124-2 will have, but expects that the financial impact, if any,
will not be material on our consolidated financial statements.
In April
2009, the FASB issued FSP 107-1 and 28-1. This FSP amends SFAS 107, to require
disclosures about fair value of financial instruments not measured on the
balance sheet at fair value in interim financial statements as well as in annual
financial statements. Prior to this FSP, fair values for these assets and
liabilities were only disclosed annually. This FSP applies to all financial
instruments within the scope of SFAS 107 and requires all entities to disclose
the method(s) and significant assumptions used to estimate the fair value of
financial instruments. This FSP shall be effective for interim periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. An entity may early adopt this FSP only if it also elects
to early adopt FSP 157-4 and 115-2 and 124-2. This FSP does not require
disclosures for earlier periods presented for comparative purposes at initial
adoption. In periods after initial adoption, this FSP requires comparative
disclosures only for periods ending after initial adoption. We are currently
evaluating the disclosure requirements of this new FSP.
In May
2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165).
SFAS 165 establishes general standards for accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are available to be issued (subsequent events). More specifically, SFAS 165
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition in the financial statements, identifies the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements and the disclosures that
should be made about events or transactions that occur after the balance sheet
date. SFAS 165 provides largely the same guidance on subsequent events
which previously existed only in auditing literature. The statement was adopted
by us in our second quarter and did not have an impact on our consolidated
financial statements.
In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162 (SFAS 168). SFAS 168
establishes the FASB Standards Accounting Codification (Codification) as the
source of authoritative U.S. generally accepted accounting principles
(GAAP) recognized by the FASB to be applied to nongovernmental entities and
rules and interpretive releases of the SEC as authoritative GAAP for SEC
registrants. The Codification will supersede all the existing non-SEC accounting
and reporting standards upon its effective date and subsequently, the FASB will
not issue new standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts. SFAS 168 also replaces FASB Statement
No. 162, The Hierarchy of Generally Accepted Accounting Principles, given
that once in effect, the Codification will carry the same level of authority.
SFAS 168 will be effective for financial statements issued for reporting periods
that end after September 15, 2009.
In April
2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments (FAS 107-1 and APB 28-1),
which requires publicly traded companies to include in their interim financial
reports certain disclosures about the carrying value and fair value of financial
instruments previously required only in annual financial statements and to
disclose changes in significant assumptions used to calculate the fair value of
financial instruments. FAS 107-1 and APB 28-1 is effective for all interim
reporting periods ending after June 15, 2009, with early adoption permitted
for interim reporting periods ending after March 15, 2009. The Company
adopted FAS 107-1 and APB 28-1 in the second quarter of 2009. The adoption did
not have a material impact on our consolidated financial
statements.
MANAGEMENT
Appointment
of New Directors
At the
Closing Date of the Exchange Agreement, Joseph Rozelle, our former President,
Chief Executive Officer, Chief Financial Officer, and Secretary, resigned from
and Zhide Jiang was appointed to such positions. Upon effectiveness of an
information statement required by Rule 14f-1 promulgated under the Exchange Act,
David Richardson and Joseph Rozelle shall resign as Directors of the Company,
and Zhide Jiang shall be appointed as the sole Director of the
Company
The
following table sets forth the names, ages, and positions of our new executive
officer and director. Executive officers are elected annually by our Board of
Directors. Each executive officer holds his office until he resigns,
is removed by the Board, or his successor is elected and
qualified. Directors are elected annually by our stockholders at the
annual meeting. Each director holds his office until his successor is
elected and qualified or his earlier resignation or removal.
NAME
|
AGE
|
POSITION
|
||
Zhide
Jiang
|
52
|
President,
Chief Executive Officer and Chairman of the Board of
Directors
|
A brief
biography of each officer and director is more fully described in Item
5.02(c). The information therein is hereby incorporated in this
section by reference.
Currently
there is no employment contract between the Company and its officer and
director.
Family
Relationships
There are
no family relationships between any of our directors or executive officers and
any other directors or executive officers.
Involvement
in Certain Legal Proceedings
To the
best of our knowledge, none of our directors or executive officers have been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws, except for matters that were dismissed without
sanction or settlement. Except as set forth in our discussion below in “Certain
Relationships and Related Transactions,” none of our directors, director
nominees or executive officers has been involved in any transactions with us or
any of our directors, executive officers, affiliates or associates which are
required to be disclosed pursuant to the rules and regulations of the
SEC.
Code
of Ethics
We
currently do not have a code of ethics that applies to our officers, employees
and directors, including our Chief Executive Officer and senior executives,
however, we intend to adopt one in the near future.
Conflicts
of Interest
Certain
potential conflicts of interest are inherent in the relationships between our
officers and directors, and us.
From time
to time, one or more of our affiliates may form or hold an ownership interest in
and/or manage other businesses both related and unrelated to the type of
business that we own and operate. These persons expect to continue to
form, hold an ownership interest in and/or manage additional other businesses
which may compete with ours with respect to operations, including financing and
marketing, management time and services and potential
customers. These activities may give rise to conflicts between or
among the interests of us and other businesses with which our affiliates are
associated. Our affiliates are in no way prohibited from undertaking
such activities, and neither we nor our shareholders will have any right to
require participation in such other activities.
Further,
because we intend to transact business with some of our officers, directors and
affiliates, as well as with firms in which some of our officers, directors or
affiliates have a material interest, potential conflicts may arise between the
respective interests of us and these related persons or entities. We
believe that such transactions will be effected on terms at least as favorable
to us as those available from unrelated third parties.
With
respect to transactions involving real or apparent conflicts of interest, we
have adopted policies and procedures which require that: (i) the fact of the
relationship or interest giving rise to the potential conflict be disclosed or
known to the directors who authorize or approve the transaction prior to such
authorization or approval, (ii) the transaction be approved by a majority of our
disinterested outside directors, and (iii) the transaction be fair and
reasonable to us at the time it is authorized or approved by our
directors.
EXECUTIVE
COMPENSATION
EMERALD
EXECUTIVE COMPENSATION SUMMARY
Summary
Compensation Table
The
following table sets forth all cash compensation paid by the Company, for the
year ended December 31, 2008 and 2007. The table below sets forth the
positions and compensations for each officer and director of the
Company.
Name
and Principal
Position
|
Year
|
Salary
|
Bonus
($)
|
Stock
Award
($)
|
Option
Award
($)
|
Non-Equity
Incentive
Plan
Compensation
Earnings
($)
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
All
other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||
Joseph
R. Rozelle, former CEO and Director (1)
|
2008
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
2007
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||
David
Richardson, former Director (1)
|
2008
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
2007
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
(1)
|
On
the Closing Date, Joseph R. Rozelle and David Richardson will tender their
resignation from the board of directors and from all offices held in the
Company, effective upon effectiveness of an information statement required
by Rule 14f-1 promulgated under the Exchange
Act.
|
Outstanding
Equity awards at Fiscal Year End
There are
no outstanding equity awards at December 31, 2008.
Director
Compensation
Our
directors will not receive a fee for attending each board of directors meeting
or meeting of a committee of the board of directors. All directors will be
reimbursed for their reasonable out-of-pocket expenses incurred in connection
with attending board of director and committee meetings.
Option
Grants
We do not
maintain any equity incentive or stock option plan. Accordingly, we
did not grant options to purchase any equity interests to any employees or
officers, and no stock options are issued or outstanding to any
officers. We do, however, anticipate adopting a non-qualified stock
option plan where we will be granting our officers options to purchase Ordinary
Shares pursuant to the terms of their employment agreements. But, no
such plan has been finalized or adopted.
Certain
Relationships and Related Transactions
We will
present all possible transactions between us and our officers, directors or 5%
stockholders, and our affiliates to the Board of Directors for their
consideration and approval. Any such transaction will require approval by a
majority of the disinterested directors and such transactions will be on terms
no less favorable than those available to disinterested third
parties.
MERIT
TIMES EXECUTIVE COMPENSATION SUMMARY
The
following table sets forth all cash compensation paid by Merit Times, for the
year ended December 31, 2008 and 2007. The table below sets forth the
positions and compensations for each officer and director of Merit
Times.
Name
|
Title
|
12/31/2008 Fiscal Year
Annual Salary (US$) (1)
|
12/31/2007 Fiscal Year
Annual Salary (US$)
|
|||||||
Zhide
Jiang
|
CEO
& Chairman
|
$ | 5,010 | $ | 5,010 | |||||
Yong
Jiang
|
CFO
|
$ | 2,725 | $ | 2,725 | |||||
Xueying
Ding
|
General
Manager
|
$ | 3,955 | $ | 3,955 | |||||
Lili
Jiang
|
Vice
General Manager
|
$ | 8,790 | $ | 8,790 | |||||
Huiwen
Dong
|
Vice
General Manager
|
$ | 2,900 | $ | 2,900 | |||||
Zhanwen
Gong
|
Vice
General Manager
|
$ | 3,252 | $ | 3,252 | |||||
Shichang
Chu
|
Director
|
$ | 0 | $ | 0 | |||||
Weidong
Dong
|
Director
|
$ | 0 | $ | 0 |
(1)
|
As
of September 23, 2009, 1 Chinese yuan equals 0.146497 U.S.
dollars.
|
PRINCIPAL
STOCKHOLDERS
Pre-Combination
The
following table sets forth certain information regarding our Ordinary Shares
beneficially owned on October 22, 2009, for (i) each stockholder known to be the
beneficial owner of 5% or more of the outstanding Ordinary Shares of the
Company, (ii) each executive officer and director, and (iii) all executive
officers and directors as a group, on a pro forma basis prior to the Closing of
the Combination and Offering.
Name and Address
|
Amount and Nature of
Beneficial Ownership
|
Percentage of Class (1)
|
||||||
David
Richardson
|
50,500 | (2) | 3.9 | % | ||||
Joseph
Rozelle
|
0 | (3) | 0.0 | % | ||||
Access
America Fund, LP (4)
11200
Westheimer, Suite 508
Houston,
TX 77042
|
1,000,000 | 78.0 | % | |||||
Mid-Ocean
Consulting Limited
Bayside
House
Bayside
Executive Park
West
Bay Street & Blake Road
Nassau,
Bahamas
|
50,000 | 3.9 | % | |||||
All
Officers and Directors as a group (2 individuals)
|
50,500 | 3.9 | % |
The
address of Messrs. Richardson and Rozelle is c/o Nautilus Global Business
Partners, 700 Gemini, Suite 100, Houston, Texas 77058.
(1)
|
Based
on 1,281,500 shares outstanding prior to the close of the Combination and
Offering.
|
(2)
|
Includes
50,000 shares held by Mid-Ocean Consulting Limited. Mr. Richardson
is the owner and the President and CEO of Mid-Ocean Consulting Limited and
has voting and investment control over such shares. Also includes,
500 shares held by Mr. Richardson’s wife.
|
(3)
|
Does
not include 1,000,000 shares held by Access America Fund, LP. Mr.
Rozelle is the Chief Financial Officer of Access America Investments, LLC,
the managing partner of Access America Fund LP, but does not have voting
or investment control over such
shares.
|
(4)
|
Access
America Fund, LP is the lead investor and investor representative in the
Offering, and shall retain 206,000 shares in the Company after the
Combination.
|
Post-Combination and
Post-Offering
The
following table sets forth certain information regarding our Ordinary Shares
beneficially owned on the Closing Date, for (i) each stockholder known to be the
beneficial owner of 5% or more of the outstanding Ordinary Shares of the
Company, (ii) each executive officer and director, and (iii) all executive
officers and directors as a group.
As of the
date of filing, we have 29,872,047 Ordinary Shares issued and outstanding,
including 5,032,005 shares issued in the Offering and 3,019,210 Ordinary Shares
underlying the Warrants and Agent Warrants.
Name of Beneficial Owner
|
Number of Ordinary
Shares Owned
|
Percent of Class
Before Offering (1)
|
Percent of Class After
Offering (2)
|
|||||||||
Zhide
Jiang (3)(4)
|
11,306,666 | 51.82 | % | 37.85 | % | |||||||
All
Executive Officers and Directors as a group (1)
|
11,306,666 | 51.82 | % | 37.85 | % |
(1)
|
Based
on 21,820,832 Ordinary Shares issued and outstanding prior to the Offering
but after the close of the
Combination.
|
(2)
|
Based
on 29,872,047 Ordinary Shares issued and outstanding after the Offering,
assuming the exercise of the Warrants and Agent
Warrants.
|
(3)
|
The
11,306,666 shares are held in the name of Proud Glory Limited, of which
Mr. Jiang is the managing member.
|
(4)
|
The
Company’s management have agreed that, without the prior written consent
of Investors, they will not, offer, pledge, sell or otherwise dispose of
any Ordinary Shares or any securities convertible into or exercisable or
exchangeable for Ordinary Shares during the period beginning on and
including the date of the final closing of the Offering through and
including the date that is eighteen (18) months after the final closing of
the Offering.
|
DESCRIPTION
OF SECURITIES
The
Company is authorized to issue 50,000,000 Ordinary Shares, par value $.001 and
1,000,000 shares of preferred stock, par value $.001. Immediately prior to the
Combination and the Offering, 1,281,500 Ordinary
Shares were issued and outstanding held by 465 shareholders and no shares of
preferred stock were issued and outstanding. At the Closing of the Combination
and the Offering, 26,852,837 Ordinary Shares were issued and
outstanding.
(a) Ordinary Shares.
Subject to preferences that may apply to shares of preferred stock outstanding
at the time, the holders of outstanding Ordinary Shares are entitled to receive
dividends out of assets legally available therefore at times and in amounts as
our board of directors may determine. Each stockholder is entitled to one vote
for each Ordinary Share held on all matters submitted to a vote of the
stockholders. Cumulative voting is not provided for in our amended articles of
incorporation, which means that the majority of the shares voted can elect all
of the directors then standing for election. The Ordinary Shares are not
entitled to preemptive rights and is not subject to conversion or redemption.
Upon the occurrence of a liquidation, dissolution or winding-up, the holders of
Ordinary Shares are entitled to share ratably in all assets remaining after
payment of liabilities and satisfaction of preferential rights of any
outstanding preferred stock. There are no sinking fund provisions applicable to
the Ordinary Shares. The outstanding Ordinary Shares are, and the Ordinary
Shares to be issued upon exercise of the Warrants will be, fully paid and
non-assessable.
(b) Preferred Stock. The
Board of Directors is empowered to designate and issue from time to time one or
more classes or series of Preferred Stock and to fix and determine the relative
rights, preferences, designations, qualifications, privileges, options,
conversion rights, limitations and other special or relative rights of each such
class or series so authorized. Such action could adversely affect the voting
power and other rights of the holders of the Company’s capital shares or could
have the effect of discouraging or making difficult any attempt by a person or
group to obtain control of the Company. We currently do not have any
Preferred Stock issued and outstanding.
(c) Warrants. The
Warrants to purchase Ordinary Shares are issued in conjunction with a purchase
of the Units. Upon Closing of the Offering, we are offering Warrants
to purchase 2,516,009 of our Ordinary Shares. Each Warrant entitles
the holder to purchase one Ordinary Share. The Warrants will be
exercisable in whole or in part, at an exercise price equal to $6.00 per share
(“Exercise Price”). The Warrants may be exercised at any time upon
the election of the holder, beginning on the date of issuance and ending of the
fifth anniversary of the final closing of the Offering.
The
Warrants will be detachable and separately transferable only during the Warrant
exercise period; upon the expiration of the Warrant exercise period, the
Warrants will expire and become void.
In order
to exercise the Warrants, the Warrant must be surrendered at the office of the
Warrant Agent prior to the expiration of the Warrant exercise period, with the
form of exercise appearing with the Warrant completed and executed as indicated,
accompanied by payment of the full exercise price for the number of Warrants
being exercised. In the case of partial exercise, the Warrant Agent
will issue a new warrant to the exercising warrant holder, or assigns,
evidencing the Warrants which remain unexercised. In our discretion,
the Warrant Agent may designate a location other than our office for surrender
of Warrants in the case of transfer or exercise.
The
exercise price and number of Ordinary Shares to be received upon the exercise of
Warrants are subject to adjustment upon the occurrence of certain events, such
as stock splits, stock dividends or our recapitalization. In the
event of our liquidation, dissolution or winding up, the holders of Warrants
will not be entitled to participate in the distribution of our
assets.
Holders
of Warrants have no voting, pre-emptive, subscription or other rights of
shareholders in respect of the Warrants, nor shall the Holders be entitled to
receive dividends.
We also
issue to the Placement Agents or their designees, for nominal consideration,
five-year warrants to purchase 503,201 shares of our Ordinary Shares, which
shall equal 10% of the number of Ordinary Shares sold in this Offering,
exercisable at any time at a price equal to $6.00 per share.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
Ordinary Shares have not been quoted or listed for trading on the
Over-The-Counter Bulletin Board (“OTCBB”) or on any stock exchange.
Holders
As of
October 22, 2009, after the close of the Combination and the
Offering, 26,852,837 shares of Ordinary Shares are issued and
outstanding. There are approximately 490 shareholders of our Ordinary
Shares.
Dividend
Policy
Since
inception we have not paid any dividends on our Ordinary Shares. We currently do
not anticipate paying any cash dividends in the foreseeable future on our
Ordinary Shares. Although we intend to retain our earnings, if any, to finance
the exploration and growth of our business, our Board of Directors will have the
discretion to declare and pay dividends in the future.
Payment
of dividends in the future will depend upon our earnings, capital requirements,
and other factors, which our Board of Directors may deem
relevant.
Equity
Compensation Plan Information
The
following table sets forth certain information as of October 23, 2009, with
respect to compensation plans under which our equity securities are authorized
for issuance:
|
(a)
|
(b)
|
(c)
|
||||
|
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
|
Weighted-average exercise
price of outstanding options,
warrants and rights
|
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))
|
||||
Equity
compensation
|
None
|
||||||
Plans
approved by
|
|||||||
Security
holders
|
|||||||
Equity
compensation
|
None
|
||||||
Plans
not approved
|
|||||||
By
security holders
|
|||||||
Total
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Emerald
On April
10, 2006, we issued an aggregate of 1,050,000 of our Ordinary Shares to the
individuals and entities set forth below for $1,050 in cash, at a purchase price
of $0.001 per share, as follows:
Name
|
Number of Shares
|
Relationship to Us
|
|||
Nautilus
Global Partners, LLC
700
Gemini, Suite 100
Houston,
TX 77058
|
1,000,000 |
Joseph
Rozelle, our President and Chief Financial Officer, also is the President
of Nautilus Global Partners, LLC.
|
|||
Mid-Ocean
Consulting Limited
Bayside
House
Bayside
Executive Park
West
Bay Street & Blake Road
Nassau,
Bahamas
|
50,000 |
David
Richardson, one of our directors, also is the owner, president and CEO of
Mid-Ocean
Consulting.
|
Merit
Times
Reorganization Related
Transactions
Merit
Times owns 100% of the issued and outstanding capital stock of
MeKeFuBang. On June 10, 2009, MeKeFuBang entered into a series of
contractual agreements with Longkang Juice, and its five shareholders, in which
MeKeFuBang effectively assumed management of the business activities of Longkang
Juice and has the right to appoint all executives and senior management and the
members of the board of directors of Longkang Juice. The contractual
arrangements are comprised of a series of agreements, including a Consulting
Services Agreement, Operating Agreement, Proxy Agreement, and Option Agreement,
through which MeKeFuBang has the right to advise, consult, manage and operate
Longkang Juice for an annual fee in the amount of Longkang Juice’s yearly net
profits after tax. Additionally, Longkang Juice’s Shareholders have pledged
their rights, titles and equity interest in Longkang Juice as security for
MeKeFuBang to collect consulting and services fees provided to Longkang Juice
through an Equity Pledge Agreement. In order to further reinforce MeKeFuBang’s
rights to control and operate Longkang Juice, Longkang Juice’s shareholders have
granted MeKeFuBang the exclusive right and option to acquire all of their equity
interests in Longkang Juice through an Option Agreement, which is also known as
Present Incentive Option Agreement as described below.
On June
10, 2009, the Chairman and the major shareholder of Shangdong Longkang Juice
Co., Ltd, Mr. Zhide Jiang, as a PRC citizen, entered into a call option
agreement (“Original Incentive Option Agreement”) with Mr. Chee Fung Tang, a
Hong Kong passport holder (“Hong Kong Resident”) and the Merit Times
Shareholders. Under the Original Incentive Option Agreement, Mr. Jiang shall
serve as CEO, director or other officer of Merit Times for a certain period of
time; and in anticipation of Mr. Jiang’s continuance contributions to the
companies including Merit Times and Longkang Juice, if the companies meet
certain thresholds of the revenue conditions, Mr. Jiang shall have rights and
options to be transferred the shares of Merit Times at a nominal price. In
addition, Original Incentive Option Agreement also provides that Mr. Tang shall
not dispose any of the shares of Merit Times without Mr. Jiang’s
consent.
On August
5, 2009, Mr. Tang, a Hong Kong resident and the sole shareholder of Proud Glory
Limited (a BVI company, which became the major shareholder of Merit Times after
Merit Times recapitalized), entered into a new Incentive Option Agreement
(“Present Incentive Option Agreement”) with Mr. Jiang.
Pursuant
to Present Incentive Option Agreement, the Original Incentive Option Agreement
will be terminated on the effective date of Present Incentive Option Agreement.
The effective date of Present Incentive Option Agreement is the date of the
Combination.
Under the
Present Incentive Option Agreement, Mr. Jiang shall serve as managing director
or other officer of Merit Times for not less than 3 year period of time; and in
anticipation of Mr. Jiang’s continuance contributions to the group including
Merit Times, MeKeFuBang and Longkang Juice, if the group meets certain
thresholds of the revenue conditions, Mr. Jiang shall have rights and options to
be transferred up to 100% shares of Proud Glory Limited at a nominal price
within the next three years (the “Option”).
In
addition, the Present Incentive Option Agreement also provides that Mr. Tang
shall not dispose any of the shares of Proud Glory Limited without Mr. Jiang’s
consent.
Other
than employment, none of the following persons has any direct or indirect
material interest in any transaction to which we are a party since our
incorporation or in any proposed transaction to which we are proposed to be a
party:
(A)
|
Any
of our directors or officers;
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(B)
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Any
proposed nominee for election as our
director;
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(C)
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Any
person who beneficially owns, directly or indirectly, shares carrying more
than 10% of the voting rights attached to our Ordinary Shares;
or
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(D)
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Any
relative or spouse of any of the foregoing persons, or any relative of
such spouse, who has the same house as such person or who is a director or
officer of any parent or subsidiary of our
company.
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LEGAL
PROCEEDINGS
Currently
there are no legal proceedings pending or threatened against us. However, from
time to time, we may become involved in various lawsuits and legal proceedings
which arise in the ordinary course of business. Litigation is subject
to inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business.
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Cayman
Islands law does not limit the extent to which a company’s articles of
association may provide for indemnification of officers and directors, except to
the extent any such provision may beheld by the Cayman Islands courts to be
contrary to public policy, such as to provide indemnification against
civil fraud or the consequences of committing a crime. Our articles
of association provide for indemnification of our officers and directors for any
liability incurred in their capacities as such, except through their own willful
negligence or default.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is theretofore
unenforceable.
CHANGES
AND DISAGREEMENTS WITH ACCOUNTANTS
PMB Helin
Donovan, LLP (“PMB”) has served as our independent auditor in connection with
the audits of the Company’s financial statements for the fiscal years ended
December 31, 2008 and 2007, and review of the subsequent interim period through
October 22, 2009. In connection with the Combination, our board of
directors recommended and approved the appointment of Sherb & Co., LLP
(“Sherb & Co.”) as the independent auditor for the Company and Merit
Times.
During
the fiscal years ended December 31, 2008 and 2007 and through the date hereof,
neither us nor anyone acting on our behalf consulted Sherb & Co. with
respect to (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company’s financial statements, and neither a written
report was provided to us or oral advice was provided that Sherb & Co.
concluded was an important factor considered by us in reaching a decision as to
the accounting, auditing or financial reporting issue; or (ii) any matter that
was the subject of a disagreement or reportable events set forth in Item
304(a)(1)(v) of Regulation S-K.
For a
more detailed discussion of our change in auditor, please refer to Item 4.01
below.
Item 3.02 Unregistered Sales of Equity
Securities.
Pursuant
to the Exchange Agreement, on October 22, 2009, we issued 21,333,332 Ordinary
Shares to individuals and entities as designated by the Merit Times Shareholders
in exchange for 100% of the outstanding shares of Merit Times. Such
securities were not registered under the Securities Act. These
securities qualified for exemption under Section 4(2) of the Securities Act
since the issuance securities by us did not involve a public offering. The
offering was not a “public offering” as defined in Section 4(2) due to the
insubstantial number of persons involved in the deal, size of the offering,
manner of the offering and number of securities offered. We did not undertake an
offering in which we sold a high number of securities to a high number of
investors. In addition, these shareholders had the necessary investment intent
as required by Section 4(2) since they agreed to and received share certificates
bearing a legend stating that such securities are restricted pursuant to Rule
144 of the Securities Act. This restriction ensures that these securities would
not be immediately redistributed into the market and therefore not be part of a
“public offering.” Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
for this transaction.
Pursuant
to the Subscription Agreements, on October 22, 2009, we issued to the Investors
a total of 5,032,005 Ordinary Shares and five-year warrants to purchase an
aggregate of 2,516,009 Ordinary Shares of the Company, at an exercise price of
$6.00 per share. Such securities were not registered under the Securities Act.
The issuance of these securities was exempt from registration under Regulation D
and Section 4(2) of the Securities Act. We made this determination based on
the representations of Investors, which included, in pertinent part, that such
shareholders were either (a) “accredited investors” within the meaning of Rule
501 of Regulation D promulgated under the Securities Act, or (b) not a “U.S.
person” as that term is defined in Rule 902(k) of Regulation S under the Act,
and that such shareholders were acquiring our Ordinary Shares, for investment
purposes for their own respective accounts and not as nominees or agents, and
not with a view to the resale or distribution thereof, and that the shareholders
understood that the shares of our Ordinary Shares may not be sold or otherwise
disposed of without registration under the Securities Act or an applicable
exemption therefrom.
Pursuant
to the Offering, on October 22, 2009, we issued to the Placement Agents
five-year warrants to purchase 503,201 Ordinary Shares at an exercise price of
$6.00 per share. Such securities were not registered under the Securities Act.
The issuance of these securities was exempt from registration under
Section 4(2) of the Securities Act. We made this determination based on the
representations of the Placement Agents, which included, in pertinent part, that
each of the Placement Agents were an “accredited investors” within the meaning
of Rule 501 of Regulation D promulgated under the Securities Act and that each
of the Placement Agent was acquiring our Ordinary Shares for investment purposes
for its own respective accounts and not as nominees or agents, and not with a
view to the resale or distribution thereof, and that each of the Placement Agent
understood that the our Ordinary Shares may not be sold or otherwise disposed of
without registration under the Securities Act or an applicable exemption
therefrom.
Item
4.01 Changes in Registrant’s Certifying Accountant.
(a)
Dismissal of Previous Independent Registered Public Accounting
Firm.
i
|
On
October 22, 2009, we dismissed PMB as our independent registered public
accounting firm. The Board of Directors of the Company approved such
resignation on October 22, 2009.
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ii
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The
Company’s Board of Directors participated in and approved the decision to
change our independent registered public accounting
firm.
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iii
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PMB’s
reports on the financial statements of the Company for the years ended
December 31, 2008 and 2007 did not contain an adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope, or accounting
principles.
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iv
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In
connection with the audit and review of the financial statements of the
Company through October 22, 2009, there were no disagreements on any
matter of accounting principles or practices, financial statement
disclosures, or auditing scope or procedures, which disagreements if not
resolved to their satisfaction would have caused them to make reference in
connection with PMB’s opinion to the subject matter of the
disagreement.
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v
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In
connection with the audited financial statements of the Company for the
years ended December 31, 2008 and 2007 and interim unaudited financial
statement through October 22, 2009, there have been no reportable events
with the Company as set forth in Item 304(a)(1)(v) of Regulation
S-K.
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vi
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The
Company provided PMB with a copy of this Current Report on Form 8-K and
requested that PMB furnished it with a letter addressed to the SEC stating
whether or not they agree with the above statements. The Company
has received the requested letter from PMB, and a copy of such letter is
filed as Exhibit 16.1 to this Current Report Form
8-K.
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(b)
Engagement of New Independent Registered Public Accounting
Firm.
i
|
On
October 22, 2009, the Board appointed Sherb & Co. as the Company’s new
independent registered public accounting firm. The decision to engage
Sherb & Co. was approved by the Company’s Board of Directors on
October 22, 2009.
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ii
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Prior
to October 22, 2009, the Company did not consult with Sherb &
Co. regarding (1) the application of accounting principles to a
specified transactions, (2) the type of audit opinion that might be
rendered on the Company’s financial statements, (3) written or oral advice
was provided that would be an important factor considered by the Company
in reaching a decision as to an accounting, auditing or financial
reporting issues, or (4) any matter that was the subject of a disagreement
between the Company and its predecessor auditor as described in Item
304(a)(1)(iv) or a reportable event as described in Item 304(a)(1)(v) of
Regulation S-K.
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Item 5.01 Changes in Control of
Registrant.
As
explained more fully in Item 2.01, in connection with the Exchange Agreement, on
October 22, 2009, we issued 21,333,332 Ordinary Shares to individuals and
entities as designated by Merit Times in exchange for 100% of the outstanding
shares of Merit Times to us. As such, immediately following the
Combination prior to the Offering, the individuals and entities designated by
Merit Times hold approximately 97.77% of the total voting power of our Ordinary
Shares entitled to vote.
In
connection with the Closing of the Combination, and as explained more fully in
the above Item 2.01 under the section titled “Management” and below in Item 5.02
of this Current Report on Form 8-K, David Richardson and Joseph Rozelle resigned
from their positions upon effectiveness of an information statement required by
Rule 14f-1 promulgated under the Exchange Act. Further, in connection
with the resignation of David Richardson and Joseph Rozelle, Zhide
Jiang (the “New Director”) was appointed as our sole director and officer
upon effectiveness of an information statement required by Rule 14f-1
promulgated under the Exchange Act.
Item 5.02 Departure of Directors or Principal
Officers; Election of Directors; Appointment of Principal
Officers.
(a) Resignation
of Directors
Subject
to the effectiveness of an information statement required by Rule 14f-1
promulgated under the Exchange Act, David Richardson and Joseph Rozelle resigned
as members of our board of directors. There were no disagreements between David
Richardson and Joseph Rozelle and us or any officer or director of the
Company.
(b) Resignation
of Officers
On the
Closing Date, Joseph Rozelle resigned as our President, Chief Executive Officer,
Chief Financial Officer, Treasurer, and Secretary.
(c) Appointment
of Directors and Officers
The
following person was appointed as our officer at closing, and upon effectiveness
of an information statement required by Rule 14f-1 promulgated under the
Exchange Act, will be appointed as our sole director:
NAME
|
AGE
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POSITION
|
||
Zhide
Jiang
|
52
|
President,
CEO, and Chairman of the Board of
Directors
|
The
business background descriptions of the newly appointed director and officer are
as follows:
Zhide Jiang:
President, Chief Executive Officer and Chairman. Mr. Jiang is the founder
and chairman of the board of directors of Shandong Longkang Juice Co., Ltd since
November 2004. Mr. Jiang served as Chairman for Laiyang Starch Factory, Laiyang
Second Alcohol Brewing Co., Ltd. from April 1984 to October 2004. He was an
engineer in Laiyang Agricultural Machinery Co., Ltd. from September 1976 to
March 1984. He graduated from Wuxi University in 1976.
Family
Relationships
There are
no family relationships between the officers or directors of the
Company.
(d)
Employment Agreements of the Executive Officers
We
currently did not enter into any employment agreement with our executive
officers.
Item 5.06 Change In Shell Company
Status
As
explained more fully in Item 2.01 above, we were a “shell company” (as such term
is defined in Rule 12b-2 under the Exchange Act) immediately before the Closing
of the Combination. As a result of the Combination, Merit Times
became our wholly owned subsidiary and became our main operational
business. Consequently, we believe that the Combination has caused us
to cease to be a shell company. For information about the
Combination, please see the information set forth above under Item 2.01 of this
Current Report on Form 8-K which information is incorporated herein by
reference.
Item 9.01 Financial Statement and
Exhibits.
(a)
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The
Audited Consolidated Financial Statements of Merit Times as of December 31, 2008
and 2007 are filed as Exhibit 99.1 to this current report and are incorporated
herein by reference.
The
Unaudited Consolidated Financial Statements of Merit Times as of June 30, 2009
and 2008 are filed as Exhibit 99.2 to this current report and are incorporated
herein by reference.
(b)
PRO FORMA FINANCIAL INFORMATION.
None.
(c)
SHELL COMPANY TRANSACTIONS
Reference
is made to Items 9.01(a) and 9.01(b) and the exhibits referred to therein
which are incorporated herein by reference.
(d)
EXHIBITS
Exhibit No.
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Description
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2.1
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Share
Exchange Agreement by and between the Company and Merit Times
International Limited, dated October 22, 2009
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3.1
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Memorandum
of Association (1)
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3.2
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Amended
and Restated Memorandum of Association (1)
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3.3
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Articles
of Association (1)
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4.1
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Form
of Warrant
|
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10.1
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Consulting
Services Agreement, dated June 10, 2009
|
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10.2
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Operating
Agreement, dated June 10, 2009
|
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10.3
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Proxy
Agreement, dated June 10, 2009
|
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10.4
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Option
Agreement, dated June 10, 2009
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10.5
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Option
Agreement, dated August 5, 2009
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10.6
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Equity
Pledge Agreement, dated June 10, 2009
|
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10.7
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Fund
Escrow Agreement, amongst the Company, Grandview Capital, Inc., Access
America Fund, LP and American Stock Transfer & Trust Company as escrow
agent, dated October 22, 2009
|
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10.8
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Investor
Relations Escrow Agreement, amongst the Company, Grandview Capital, Inc.,
Access America Fund, LP and Anslow & Jaclin, LLP as escrow agent,
dated October 22, 2009
|
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10.9
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Holdback
Escrow Agreement, amongst the Company, Grandview Capital, Inc., Access
America Fund, LP and Anslow & Jaclin, LLP as escrow agent, dated
October 22, 2009
|
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10.10
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Going
Public Escrow Agreement, amongst the Company, Grandview Capital, Inc.,
Access America Fund, LP and Anslow & Jaclin, LLP as escrow agent,
dated October 22, 2009
|
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10.11
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Make
Good Escrow Agreement, amongst the Company, Make Good Shareholder, Access
America Fund, LP and Anslow & Jaclin, LLP as escrow agent, dated
October 22, 2009
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10.12
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Lock-Up
Agreement, by and between the Company and Lockup Stockholder, dated
October 22, 2009
|
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16.1
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Letter
from PMB Helin Donovan, LLP
|
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99.1
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The
Audited Consolidated Financial Statements of Merit Times as of December
31, 2008 and 2007
|
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99.2
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The
Unaudited Consolidated Financial Statements of Merit Times as of June 30,
2009 and 2008
|
(1)
Incorporated herein by reference to the Form 10 Registration Statement filed on
July 14, 2006.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report on Form 8-K to be signed on its behalf by the
undersigned hereunto duly authorized.
EMERALD
ACQUISITION CORPORATION
|
||
Date: October
27, 2009
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By:
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/s/ Zhide Jiang
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Zhide
Jiang
President
and Chief
Executive Officer
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