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EX-23.1 - Luxon Holdings Inc. | v166799_ex23-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment
7
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
Luxon Holdings
Inc.
(Name of
small business issuer in our charter)
Nevada
|
3334
|
20-4350286
|
||
(State
or jurisdiction of
incorporation
or
organization)
|
(Primary
Standard
Industrial
Classification
Code
Number)
|
(I.R.S.
Employer
I.D.
Number)
|
17890 Castleton Street,
Suite 383
City of
Industry, CA 91748 Telephone: (818)965-5188
(Address
and telephone number of principal executive offices)
17890
Castleton Street, Suite 383
City of
Industry, CA 91748 Telephone: (818)965-5188
(Address
of principal place of business or intended principal place of
business)
Budget
Corp
2050
Russett Way
Carson
City, Nevada 89703 Telephone: (775)884-9380
(Name,
address and telephone number of agent for service of process)
Approximate
date of commencement of proposed sale to the public: From time to time after
this Registration Statement becomes effective.
If any of
the Securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended, check the following box: o
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act of 1933, please check the following box and list
the Securities Act of 1933 registration number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act of
1933 registration statement number of the earlier effective registration
statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act of 1933, check the following box and list the Securities Act of
1933 registration statement number of the earlier effective registration
statement for the same offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one);
o Large
accelerated filer
o Accelerated
filer
o
Non-accelerated filer
x Smaller
reporting company
CALCULATION
OF REGISTRATION FEE
Title of each class of
securities to be
registered
|
Amount to be
registered [1]
|
Proposed
maximum
offering price
per unit
|
Proposed
maximum
aggregate
offering price
|
Amount of
registration
fee [2] [3]
|
||||||||||||
Common
Stock offered by the Selling Stockholders [4]
|
1,954,000 | $ | 2.50 | $ | 4,885,000 | $ | 172.50 | |||||||||
TOTAL
|
1,954,000 | $ | 2.50 | $ | 4,885,000 | $ | 172.50 |
(1) In
accordance with Rule 416(a), the registrant is also registering hereunder an
indeterminate number of shares that may be issued and resold resulting from
stock splits, stock dividends or similar transactions.
(2) Estimated
in accordance with Rule 457(a) of the Securities Act of 1933 solely for the
purpose of computing the amount of the registration fee based on recent prices
of private transactions.
(3) Calculated
under Section 6(b) of the Securities Act of 1933 as .00003521 of the aggregate
offering price.
(4) Represents
shares of the registrant’s common stock being registered for resale that have
been issued or will be issued to the selling shareholders named in this
registration statement.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay our effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
PROSPECTUS
LUXON
HOLDINGS INC.
Selling
shareholders are offering up to 1,954,000 shares of common stock. The selling
shareholders will offer their shares at $2.50 per share until our shares are
quoted on the OTC Bulletin Board and, assuming we secure this qualification,
thereafter at prevailing market prices or privately negotiated prices. We will
not receive proceeds from the sale of shares from the selling
shareholders.
There are
no underwriting commissions involved in this offering. We have agreed to pay all
the costs of this offering. Selling shareholders will pay no offering
expenses.
Prior to
this offering, there has been no market for our securities. Our common stock is
not now listed on any national securities exchange, the NASDAQ stock market, or
the OTC Bulletin Board. There is no guarantee that our securities will ever
trade on the OTC Bulletin Board or other exchange.
This
offering is highly speculative and these securities involve a high degree of
risk and should be considered only by persons who can afford the loss of their
entire investment. See “Risk Factors” beginning on page 7.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is October 28, 2009.
3
TABLE OF
CONTENTS
Risk
Factors
|
8
|
Because
we depend upon one primary customer Jilin Midas Aluminum Industries Co.,
Ltd. to purchase a significant majority of our products, the loss of Jilin
Midas Aluminum Industries Co., Ltd. as a customer could significantly
reduce our revenues
|
8
|
Because
our primary customer, Jilin Midas Aluminum Industries Co., Ltd., is also
our primary supplier of scrap aluminum and primary aluminum, a disruption
of our relationship with Jilin Midas Aluminum Industries Co.,
Ltd. on the supply side could also disrupt our relationship with Jilin
Midas Aluminum Industries Co., Ltd. on the sales side, and vice-versa, and
reduce our profits or revenues
|
8
|
Because
our management has not had any experience in the specific business of
production, processing and trading of aluminum alloy, our ability to
implement our business plan may be more limited than if they had this
experience, which could reduce our revenues and the value of your
investment
|
9
|
Because
most of our costs are fixed and we may not be able to respond quickly to
any sudden decrease in aluminum ingots prices, any significant fluctuation
in international market prices could materially adversely affect our
business, financial condition and operating performance
|
9
|
Competition
from domestic and aluminum ingot producers could reduce our
revenues
|
9
|
Because
we rely heavily on diesel fuel as our energy and fuel source required
during our production process, any supply or price disruption in our use
of diesel fuel could reduce our revenues
|
10
|
Interruptions
of electricity supply could reduce our revenues
|
10
|
Transportation
difficulties in receiving our raw materials could reduce our
revenues
|
10
|
Potential
future expenditures on environmental protection could reduce our
revenues
|
10
|
If
we experience major accidents in our operations which are not covered by
or are in excess of our insurance coverage, our profits could be
reduced
|
11
|
Because
a portion of our business involves buying and selling and potentially
profiting from the arbitrage of raw materials within the non-ferrous metal
industry, fluctuations in the price of these assets could reduce our
profitability or adversely affect an investment in the
Shares
|
11
|
PRC
government changes in its current policies or the interpretation of those
policies that are currently beneficial to us could impact our
profitability
|
12
|
The
People's Republic of China's economic policies could affect our business
and reduce our revenues
|
12
|
Capital
outflow policies in the People's Republic of China may hamper our ability
to remit income to the United States
|
13
|
The
value of our securities will be affected by the foreign exchange rate
between U.S. dollars and Renminbi (RMB)
|
13
|
We
may have difficulty establishing adequate management, legal and financial
controls in the People's Republic of China
|
13
|
We
may be unable to enforce our rights due to policies regarding the
regulation of foreign investments in China, which could reduce our ability
to compete and our revenues
|
14
|
4
It
may be difficult for stockholders to enforce any judgment obtained in the
United States against us, which may limit the remedies otherwise available
to our stockholders.
|
14
|
The
management decisions for our operating subsidiary are made by Mr. William
Z. Wang, Executive Chairman; Stephen C. Lee, Chief Executive Officer and
Wenyu Liang, Chief Financial Officer; if we lose their services, our
revenues may be reduced
|
14
|
Because
our common stock is considered a penny stock, any investment in our common
stock is considered a high-risk investment and is subject to restrictions
on marketability; you may be unable to sell your shares
|
15
|
Due
to the lack of a trading market for our securities, our shares are
currently not liquid, and you may have difficulty selling any shares you
purchase in this offering.
|
15
|
Our
shares will be "penny stocks" as that term is generally defined in the
Securities Exchange Act of 1934 to mean equity securities with a price of
less than $5.00. Our shares thus will be subject to rules that impose
sales practice and disclosure requirements on broker-dealers who engage in
certain transactions involving a penny stock
|
15
|
Sales
of our common stock under Rule 144 could reduce the price of our
stock
|
16
|
Because
we do not have an audit or compensation committee, shareholders will have
to rely on the entire board of directors, only one of which is
independent, to perform these functions
|
16
|
Although
we believe that we currently have adequate internal control over financial
reporting, we are exposed to risks from recent legislation requiring
companies to evaluate internal control over financial
reporting
|
17
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USE
OF PROCEEDS
|
18
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DETERMINATION
OF OFFERING PRICE
|
18
|
DILUTION
|
18
|
SELLING
SHAREHOLDERS
|
18
|
PLAN
OF DISTRIBUTION
|
20
|
LEGAL
PROCEEDINGS
|
22
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
|
22
|
EXECUTIVE
COMPENSATION
|
25
|
At
the end of fiscal year 2008, based upon the “variable pay system” we have
adopted, the Board of Directors determined the annual maximum compensation
levels for each executive for fiscal year 2009 after a review of both the
Company and individual performance targets that we had set for fiscal year
2008
|
25
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
30
|
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS
|
31
|
DESCRIPTION
OF SECURITIES
|
31
|
INTEREST
OF NAMED EXPERTS
|
32
|
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
LIABILITIES
|
32
|
DESCRIPTION
OF BUSINESS
|
33
|
DESCRIPTION
OF PROPERTY
|
52
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
53
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
68
|
5
SUMMARY
INFORMATION AND RISK FACTORS
You
should carefully read all information in the prospectus, including the financial
statements and their explanatory notes, under the Financial Statements prior to
making an investment decision.
Organization
Luxon
Holdings, Inc. (Luxon) was incorporated in Nevada, USA on February 17, 2006 by
Liaoyuan Yinyuan Aluminum Alloy Company Limited, “Yinyuan”, to become the
holding company of Yinyuan.
Yinyuan
was incorporated in Jilin Province, China on July 15, 2002 and owned by Jilin
Province Tianxin Economic and Trade Ltd. (a PRC Company) and Mr. Gao Ge. On
March 6, 2006, Luxon issued 11 million shares of its common stock to Yinyuan’s
shareholder in exchange for 100% of ownership. Simultaneously, a $1.25 million
cash dividend was declared.
As a
result of this transaction, Yinyuan became a wholly-foreign owned enterprise
(“WFOE”) under PRC law during March 2006. The transaction was accounted for as a
recapitalization of Yinyuan. The accounting is identical to that resulting from
a reverse acquisition, except that no goodwill or other intangible should be
recorded. The recapitalization is considered to be a capital transaction in
substance, rather than a business combination. No assets or liability were
transferred from Luxon to Yinyuan in the recapitalization transaction, as the
recapitalization transaction was accounted for at historical cost basis, and
that the financial statements provided reflected the historical financial
statements of Yinyuan.
Our
principal executive offices are located at 17890 Castleton Street, Suite 383,
City of Industry, CA 91748. Our telephone number is 626-965-5188.
Business
We are in
the business of production, processing, and trading of non-ferrous metal cast
processing of large-section aluminum alloy ingots.
The
Offering
Securities
offered by selling shareholders:
|
1,954,000
shares of common stock.
|
Securities
outstanding prior to and after
this offering:
|
20,805,000
shares of common stock.
|
Use
of proceeds:
|
We
will not receive any proceeds from the sale of the shares offered by this
prospectus.
|
6
Financial
Summary
Because
this is only a financial summary, it does not contain all the financial
information that may be important to you. Therefore, you should carefully read
all the information in this prospectus, including the financial statements and
their explanatory notes before making an investment decision.
LUXON
HOLDINGS, INC.
Consolidated
Balance Sheets Data
(All
amounts, other than per share data are in the thousands of US
Dollars)
September 30, 2009
|
March 31, 2009
|
March 31, 2008
|
||||||||||
Working
capital
|
$ | 6,306 | $ | 5,717 | $ | 4,558 | ||||||
Current
assets
|
7,603 | 6,267 | 5,520 | |||||||||
Total
assets
|
11,153 | 9,900 | 9,128 | |||||||||
Current
liabilities
|
1,298 | 550 | 962 | |||||||||
Total
liabilities
|
1,298 | 550 | 962 | |||||||||
Stockholders’
equity
|
9,856 | 9,350 | 8,166 |
LUXON
HOLDINGS, INC.
Consolidated
Statement of Income
(All
amounts, other than per share data are in the thousands of US
Dollars)
Six
months ended
|
Year
ended
|
|||||||||||||||
September 30, 2009
|
September 30, 2008
|
March 31, 2009
|
March 31, 2008
|
|||||||||||||
Net
sales
|
$ | 13,155 | $ | 7,167 | $ | 15,467 | $ | 24,260 | ||||||||
Gross
profit
|
864 | 1,431 | 2,322 | 3,212 | ||||||||||||
Gross
margin
|
6.57 | % | 19.97 | % | 15.02 | % | 13.24 | |||||||||
Net
income
|
496 | 675 | 972 | 2,344 | ||||||||||||
Diluted
earnings per share
|
0.02 | 0.03 | 0.05 | 0.11 |
7
Risk
Factors
In
addition to the other information provided in this prospectus, you should
carefully consider the following risk factors in evaluating our business before
purchasing any of our common stock. All material risks are discussed in this
section.
Because we depend upon one
primary customer Jilin Midas Aluminum
Industries Co., Ltd. to purchase a significant
majority of our products, the loss of Jilin Midas Aluminum
Industries Co., Ltd. as a customer could
significantly reduce our revenues.
We have
derived, and believe that we will continue to derive a significant portion of
our revenue from our primary customer, Jilin Midas Aluminum Industries Co., Ltd.
Sales to Jilin Midas Aluminum Industries Co., Ltd. represents 99.70% of net
sales in the six month period ended September 30, 2009, 90.71% of net sales
in fiscal year 2009, 87.62% of net sales in fiscal year 2008. The
loss of Jilin Midas Aluminum Industries Co., Ltd. as our primary customer could
significantly reduce our revenues. We have no long-term sales
contract with Jilin Midas Aluminum Industries Co., Ltd. or our other
customers.
Because our primary
customer, Jilin Midas Aluminum Industries Co., Ltd., is also our primary
supplier of scrap aluminum and primary aluminum, a disruption of our
relationship with Jilin Midas Aluminum Industries Co., Ltd. on the supply side
could also disrupt our relationship with Jilin Midas Aluminum Industries Co.,
Ltd. on the sales side, and vice-versa, and reduce our profits or
revenues.
Jilin
Midas Aluminum Industries Co., Ltd. is our primary customer, representing 99.70%
of net sales in the six month period ended September 30, 2009,90.71% of net
sales in fiscal year 2009, 87.62% of net sales in fiscal year 2008. Scrap
aluminum and primary aluminum are the most important raw material for aluminum
ingot production. Purchasing of scrap aluminum from Jilin Midas
Aluminum Industry Co., Ltd. represented 76.23% of our total raw material
purchases for the six month period ended September 30, 2009,55.45% of
in fiscal year 2009 and 63.10% of in fiscal year 2008, respectively. If we are
unable to obtain a steady supply of key raw materials at a competitive price,
our revenues could be reduced. We have no long-term supply contracts
with Jilin Midas Aluminum Industries Co., Ltd. A disruption of our
relationship with Jilin Midas Aluminum Industries Co., Ltd. on the supply side
could also disrupt our relationship with Jilin Midas Aluminum Industries Co.,
Ltd. on the sales side, and vice-versa, and reduce our profits or
revenues.
8
Because our management has
not had any experience in the specific business of production, processing and
trading of aluminum alloy, our ability to implement our business plan may be
more limited than if they had this experience, which could reduce our revenues
and the value of your investment.
Mr.
William Z. Wang, Executive Chairman; Stephen C. Lee, Chief Executive Officer and
Wenyu Liang, Chief Financial Officer have not had any experience in the specific
business of production, sales and trading of aluminum alloy. Our
ability to implement our business plan may be more limited than if they had this
experience in that:
|
·
|
The
lack of specific industry experience means that management may lack the
ability to develop and implement business strategies in production and
marketing to increase revenues and
profits.
|
|
·
|
The
lack of specific industry experience means that management may lack the
ability to respond to production or marketing issues and problems that
arise and this inability to respond could reduce our revenues and
profits.
|
Any
reduction in revenues and profits could reduce the value of your
investment.
Because most of our costs
are fixed and we may not be able to respond quickly to any sudden decrease in
aluminum ingots prices, any significant fluctuation in international market
prices could materially adversely affect our business, financial condition and
operating performance.
We price
our aluminum ingot products by reference to international and domestic market
prices, domestic cost of scrap aluminum and primary aluminum, and changes in
supply and demand in the domestic market. Each of these factors may fluctuate
beyond our control. Historically, the domestic market prices for aluminum ingot
products have been somewhat volatile. For example, the high and low for aluminum
ingot price within China in fiscal year 2009 were $3,138 to $1,705, and for
fiscal year 2008 were $2,352 to $1,929, and for fiscal year 2007 were $2,610 to
$2,332.
Competition from domestic
and aluminum ingot producers could reduce our revenues.
We face
competition from domestic aluminum ingot producers. Our principal competitors in
the aluminum ingot business are domestic smelters, some of which are expanding
their production capacity. These smelters pose competitive challenges to our
aluminum ingot operations in production costs, product quality and price.
Intensified competition may result in reductions in our prices or sales volume
and may have a material adverse effect on our financial condition and operating
performance. If we are not successful in reducing our costs, or if we are unable
to maintain or increase our current share of China’s aluminum ingot market, our
financial condition and profitability could be impaired.
9
If we do not secure
additional capital, we may be unable to implement our growth plan by taking on
some or all of the new business which we would otherwise be able to undertake,
which may result in reduced revenue or profits.
Taking on
additional new businesses is dependent upon our ability to obtain outside
financing for the expansion of our current production capacity. There is no
assurance that we can raise the necessary capital, be approved for a loan or
obtain financing at the terms and conditions acceptable to us. If we are unable
to do so, we may not be able to carry out our growth plans, which may negatively
impact our operating results and financial conditions.
Because we rely heavily on
diesel fuel as our energy and fuel source required during our production
process, any supply or price disruption in our use of diesel fuel could reduce
our revenues.
We rely
heavily on diesel fuel as our energy and fuel source required during our
production process. As we significantly increase our production capacities,
diesel fuel required for our production substantially increases accordingly. If
our diesel fuel suppliers are not able to supply the amount of diesel fuel
required for our production due to general short supply of diesel fuel or any
other reason, we may be forced to reduce production output or suspend operation
of our production, in which case our financial condition and results of
operations may be materially adversely affected.
Interruptions
of electricity supply could reduce our revenues.
Our
smelting of scrap aluminum and primary aluminum process also rely on a
continuous supply of electricity. Interruptions of electricity supply can result
in lengthy production shutdowns, increased costs associated with restarting
production and waste of production in progress. In extreme cases, interruptions
of electricity supply can also cause damage to or destruction of the equipment
and facilities. If this occurs, our operations may be adversely
affected.
Transportation difficulties
in receiving our raw materials could reduce our revenues.
Our raw
materials - scrap aluminum and primary aluminum are mainly delivered to us by
truck. If we are unable to receive on-time delivery due to transportation
problems or weather conditions, or if the costs of transportation continue to
rise, our operating performance will be significantly affected.
Potential future
expenditures on environmental protection could reduce our
revenues.
Our
aluminum smelting production operations are subject to environmental protection
laws and regulations in China, which impose such penalties as waste discharge
fees, fines or closure of non-compliant plants. Our aluminum smelting production
plant has implemented a system to control its emissions and to oversee
compliance with PRC environmental regulations. However, the PRC government has
taken steps, and may take additional steps, towards more rigorous enforcement of
applicable laws, and/or adoption of more stringent environmental standards. If
the PRC national or local authorities enact additional regulations or enforce
existing or new regulations in a more rigorous manner, we may be required to
make additional environmental expenditures, which could have an adverse impact
on our financial condition.
10
If we experience major
accidents in our operations which are not covered by or are in excess of our
insurance coverage, our profits could be reduced.
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.
Because a portion of our
business involves buying and selling and potentially profiting from the
arbitrage of raw materials within the non-ferrous metal industry, fluctuations
in the price of these assets could reduce our profitability or adversely affect
an investment in the Shares.
Several
factors may affect the price of a commodity which is the subject of our trading
strategy, such as:
|
•
|
Large
purchases or sales of physical commodities by the official sector.
Governments and large institutions have large commodities holdings or may
establish major commodities positions. If one or more of these
institutions decides to buy or sell any commodity in which we trade in
amounts large enough to cause a change in world prices, the price of
Shares based upon a benchmark related to that commodity will be
affected.
|
|
•
|
Other
political factors. Peaceful political activity such as imposition of
regulations or entry into trade treaties, as well as political disruptions
caused by societal breakdown, insurrection and/or war may greatly
influence commodities prices.
|
|
•
|
Significant
increases or decreases in the available supply of a physical commodity due
to natural or technological factors. Natural factors would include
depletion of known cost-effective sources for a commodity or the impact of
severe weather on the ability to produce or distribute the commodity.
Technological factors, such as increases in availability created by new or
improved extraction, refining and processing equipment and methods or
decreases caused by failure or unavailability of major refining and
processing equipment (for example, shutting down or constructing a
commodity producing business), also materially influence the supply of
commodities.
|
|
•
|
Significant
increases or decreases in the demand for a physical commodity due to
natural or technological factors. Natural factors would include such
events as unusual climatological conditions impacting the demand for
energy commodities. Technological factors may include such developments as
substitutes for industrial
commodities.
|
11
|
•
|
A
significant change in the attitude of speculators and investors towards a
commodity. Should the speculative community take a negative or positive
view towards any given commodity, it could cause a change in world prices
of any given commodity.
|
Any of
these factors could reduce our profits or even cause us to incur losses on these
activities.
PRC government changes in
its current policies or the interpretation of those policies that are currently
beneficial to us could impact our profitability.
The
central and local PRC governments continue to exercise a substantial degree of
control and influence over the aluminum industry in China and shape the
structure and characteristics of the industry by means of policies in respect to
major project approvals, preferential treatments such as tax incentives,
electricity pricing, and safety, environmental and quality control. If the PRC
government changes its current policies or the interpretation of those policies
that are currently beneficial to us, we may, to some extent, face pressure on
profit margins and significant constraints on our ability to expand our business
operations or to maximize our profitability.
The People's Republic of
China's economic policies could affect our business and reduce our
revenues.
Substantially
all of our assets are located in the People's Republic of China and
substantially all of our revenue is derived from our operations in The People's
Republic of China. Accordingly, our results of operations and prospects are
subject, to a significant extent, to the economic, political and legal
developments in the People's Republic of China. Although the People's Republic
of China's economy has experienced significant growth in the past twenty plus
years, such growth has been uneven, both geographically and among various
sectors of the economy. The Chinese government has implemented various measures
to encourage economic growth and guide the allocation of resources. Some of
these measures benefit the overall economy of the People's Republic of China,
but they may also have a negative effect on us. For example, operating results
and financial condition may be adversely affected by the government control over
capital investments or changes in tax regulations.
The
economy of the People's Republic of China has been changing from a planned
economy to a more market-oriented economy. In recent years, the Chinese
government has implemented measures emphasizing the utilization of market forces
for economic reform and the reduction of state ownership of productive assets,
and the establishment of corporate governance in business enterprises; however,
a substantial portion of productive assets in the People's Republic of China is
still owned by the Chinese government. In addition, the Chinese government
continues to play a significant role in regulating industry development by
imposing industrial policies. It also exercises significant control over the
People's Republic of China's economic growth through the allocation of
resources, the control of payment of foreign currency- denominated obligations,
the setting of monetary policy and the provision of preferential treatment to
particular industries or companies.
12
Capital outflow policies in
the People's Republic of China may hamper our ability to remit income to the
United States.
The
People's Republic of China has adopted currency and capital transfer
regulations. These regulations may require us to comply with complex regulations
for the movement of capital. Although our directors believe that it is currently
in compliance with these regulations, should these regulations or the
interpretation of them by courts or regulatory agencies change; we may not be
able to remit all income earned and proceeds received in connection with our
operations or from the sale of our operating subsidiary to our
stockholders.
The value of our securities
will be affected by the foreign exchange rate between U.S. dollars and Renminbi
(RMB).
The value
of our common stock will be affected by the foreign exchange rate between U.S.
dollars and RMB, and between those currencies and other currencies in which our
sales may be denominated. Currently, RMB is stronger than U.S. Dollars. For
example, to the extent that we need to convert U.S. dollars into RMB for our
operational needs and should RMB appreciate against the U.S. dollar at that
time, our financial position, our business, and the price of our common stock
may be harmed. Conversely, if we decide to convert our RMB into U.S. dollars for
the purpose of declaring dividends on our common stock or for other business
purposes and the U.S. dollar appreciates against RMB, the U.S. dollar equivalent
of our earnings from our joint venture in China would be reduced.
We may have difficulty
establishing adequate management, legal and financial controls in the People's
Republic of China.
The
People's Republic of China historically has not adopted a Western style of
management and financial reporting concepts and practices, modern banking,
computer or other control systems. We may have difficulty in hiring and
retaining a sufficient number of qualified employees to work in the People's
Republic of China. As a result of these factors, we may experience difficulty in
establishing management, legal and financial controls, collecting financial data
and preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards.
13
We may be unable to enforce
our rights due to policies regarding the regulation of foreign investments in
China, which could reduce our ability to compete and our
revenues.
The PRC's
legal system is a civil law system based on written statutes in which decided
legal cases have little value as precedents, unlike the common law system
prevalent in the United States. The PRC does not have a well-developed,
consolidated body of laws governing foreign investment enterprises. As a result,
the administration of laws and regulations by government agencies may be subject
to considerable discretion and variation, and may be subject to influence by
external forces unrelated to the legal merits of a particular matter. China's
regulations and policies with respect to foreign investments are evolving.
Definitive regulations and policies with respect to such matters as the
permissible percentage of foreign investment and permissible rates of equity
returns have not yet been published. Statements regarding these evolving
policies have been conflicting and any such policies, as administered, are
likely to be subject to broad interpretation and discretion and to be modified,
perhaps on a case-by-case basis. The uncertainties regarding such regulations
and policies present risks which may affect our ability to achieve our business
objectives. If we are unable to enforce any legal rights we may have under our
contracts or otherwise, our ability to compete with other companies in our
industry could be materially and negatively affected and our revenues could be
reduced.
It may be difficult for
stockholders to enforce any judgment obtained in the United States against us,
which may limit the remedies otherwise available to our
stockholders.
All of
our assets are located outside the United States and all of our current
operations are conducted in Hong Kong and China. Moreover, all of our directors
and officers are nationals or residents of Hong Kong. All or a substantial
portion of the assets of these persons are located outside the United States. As
a result, it may be difficult for our stockholders to effect service of process
within the United States upon these persons. In addition, there is uncertainty
as to whether the courts of Hong Kong and China would recognize or enforce
judgments of U.S. courts obtained against us or such officers and/or directors
predicated upon the civil liability provisions of the securities law of the
United States or any state thereof, or be competent to hear original actions
brought in Hong Kong or China against us or such persons predicated upon the
securities laws of the United States or any state thereof.
The management decisions for
our operating subsidiary are made by Mr. William Z. Wang, Executive Chairman;
Stephen C. Lee, Chief Executive Officer and Wenyu Liang, Chief Financial
Officer; if we lose their services, our revenues may be
reduced.
The
success of our business is dependent upon the expertise of Dr. William Z. Wang,
Executive Chairman; Stephen C. Lee, Chief Executive Officer and Wenyu Liang,
CFO. Because Dr. William Z. Wang, Executive Chairman; Stephen C. Lee, Chief
Executive Officer and Wenyu Liang, CFO are essential to our operations, you must
rely on their management decisions. We have not obtained any key person life
insurance relating to them. If we lose their services, we may not be able to
hire and retain another Executive Chairman, Chief Executive Officer or CFO with
comparable experience. As a result, the loss of Dr. William Z. Wang, Executive
Chairman; Stephen C. Lee, Chief Executive Officer and Wenyu Liang, CFO’s
services could reduce our revenues.
14
Because our common stock is
considered a penny stock, any investment in our common stock is considered a
high-risk investment and is subject to restrictions on marketability; you may be
unable to sell your shares.
We are
subject to the penny stock rules adopted by the Securities and Exchange
Commission that require brokers to provide extensive disclosure to its customers
prior to executing trades in penny stocks. These disclosure requirements may
cause a reduction in the trading activity of our common stock, which in all
likelihood would make it difficult for our shareholders to sell their
securities.
Due to the lack of a trading
market for our securities, our shares are currently not liquid, and you may have
difficulty selling any shares you purchase in this offering.
Our
shares are not registered on any public stock exchange. There is presently no
demand for our common stock and no public market exists for the shares being
offered in this prospectus. We plan to contact a market maker immediately
following the effectiveness of our Registration Statement and apply to have the
shares quoted on the OTC Electronic Bulletin Board (OTCBB). The OTCBB is a
regulated quotation service that displays real-time quotes, last sale prices and
volume information in over-the-counter (OTC) securities. The OTCBB is not an
issuer listing service, market or exchange. Although the OTCBB does not have any
listing requirements per se, to be eligible for quotation on the OTCBB, issuers
must remain current in their filings with the SEC. Market makers are not
permitted to begin quotation of a security whose issuer does not meet this
filing requirement. Securities already quoted on the OTCBB that become
delinquent in their required filings will be removed following a 30 or 60 day
grace period if they do not make their required filing during that time. As of
the date of this filing, we have engaged in discussions with Glendale
Securities, Inc. concerning the filing of Form 211 with the FINRA to qualify our
securities for quotation on the OTCBB. We cannot guarantee that this application
will be accepted or approved and our stock listed and quoted for sale or that a
future trading market for our securities may not develop. If no market is ever
developed for our common stock, it will be difficult for you to sell any shares
you purchase in this offering. In such a case, you may find that you are unable
to achieve any benefit from your investment or liquidate your shares without
considerable delay, if at all. In addition, if we fail to have our common stock
quoted on a public trading market, your common stock will not have a
quantifiable value and it may be difficult, if not impossible, to ever resell
your shares, resulting in an inability to realize any value from your
investment. Restrictions on the sale of our stock as a Penny Stock may limit
your ability to resell or a prospective purchaser to purchase any shares you
acquire in this offering.
Our shares will be "penny
stocks" as that term is generally defined in the Securities Exchange Act of 1934
to mean equity securities with a price of less than $5.00. Our shares thus will
be subject to rules that impose sales practice and disclosure requirements on
broker-dealers who engage in certain transactions involving a penny
stock.
Under the
penny stock regulations, a broker-dealer selling a penny stock to anyone other
than an established customer or accredited investor must make a special
suitability determination regarding the purchaser and must receive the
purchaser's written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. Generally, an individual with a net worth in
excess of $1,000,000, or annual income exceeding $100,000 individually or
$300,000 together with his or her spouse, is considered an accredited investor.
In addition, under the penny stock regulations the broker-dealer is required
to:
15
|
Deliver,
prior to any transaction involving a penny stock, a disclosure schedule
prepared by the Securities and Exchange Commissions relating to the penny
stock market, unless the broker-dealer or the transaction is otherwise
exempt;
|
|
Disclose
commissions payable to the broker-dealer and our registered
representatives and current bid and offer quotations for the
securities;
|
|
Send
monthly statements disclosing recent price information pertaining to the
penny stock held in a customer's account, the account's value and
information regarding the limited market in penny stocks;
and
|
|
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, prior to conducting any penny stock transaction in the
customer's account.
|
Because
of these regulations, broker-dealers may encounter difficulties in their attempt
to sell shares of our common stock, which may affect the ability of selling
shareholders or other holders to sell their shares in the secondary market and
have the effect of reducing the level of trading activity in the secondary
market. These additional sales practice and disclosure requirements could impede
the sale of our securities, if our securities become publicly traded. In
addition, the liquidity for our securities may be decreased, with a
corresponding decrease in the price of our securities. Our shares in all
probability will be subject to such penny stock rules and our shareholders will,
in all likelihood, find it difficult to sell their securities.
Sales of our common stock
under Rule 144 could reduce the price of our stock.
There are
16,137,100 shares of our common stock held by non-affiliates and 4,667,900
shares held by affiliates, which Rule 144 of the Securities Act of 1933 defines
as restricted securities. Of our shares, 16,137,100 held by non-affiliates are
currently eligible for resale or are being registered in this offering; however,
affiliates will still be subject to the resale restrictions of Rule 144. Shares
held by affiliates must be sold in compliance with Rule 144, notwithstanding
their inclusion in this registration statement. In general, persons holding
restricted securities, including affiliates, must hold their shares for a period
of at least one year, may not sell more than one percent of the total issued and
outstanding shares in any 90-day period, and must resell the shares in an
unsolicited brokerage transaction at the market price. These restrictions do not
apply to resales under Rule 144(k). The availability for sale of substantial
amounts of common stock under Rule 144 could reduce prevailing market prices for
our securities.
Because we do not have an
audit or compensation committee, shareholders will have to rely on the entire
board of directors, only one of which is independent, to perform these
functions.
We do not
have an audit or compensation committee comprised of independent directors.
Indeed, we do not have any audit or compensation committee. These functions are
performed by the board of directors as a whole. Only one member of the board of
directors is an independent director. Thus, there is a potential conflict in
that board members who are management will participate in discussions concerning
management compensation and audit issues that may affect management
decisions.
16
Although we believe that we
currently have adequate internal control over financial reporting, we are
exposed to risks from recent legislation requiring companies to evaluate
internal control over financial reporting.
Section
404 of the Sarbanes-Oxley Act of 2002 ("Section 404") requires our
management to report on the operating effectiveness of our internal
controls over financial reporting for the year ended March 31, 2011. Child, Van
Wagoner & Bradshaw, PLLC, our independent registered public accounting firm,
will be required to attest to the effectiveness of our internal control over
financial reporting beginning with the year ended March 31, 2011. We must
establish an ongoing program to perform the system and process evaluation and
testing necessary to comply with these requirements. We expect that the cost of
this program will require us to incur expenses and to devote resources to
Section 404 compliance on an ongoing basis.
It is
difficult for us to predict how long it will take to complete Management's
assessment of the effectiveness of our internal control over financial
reporting for each year and to remediate any deficiencies in our internal
control over financial reporting. As a result, we may not be able to complete
the assessment and process on a timely basis. In the event that our Chief
Executive Officer, Chief Financial Officer or independent registered public
accounting firm determine that our internal control over financial reporting is
not effective as defined under Section 404, we cannot predict how regulators
will react or how the market prices of our shares will be affected.
Special
Information Regarding Forward-Looking Statements
Some of
the statements in this prospectus are “forward-looking statements.” These
forward-looking statements involve certain known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. These
factors include, among others, the factors set forth above under “Risk Factors.”
The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar
expressions identify forward-looking statements. We caution you not to place
undue reliance on these forward-looking statements. We undertake no obligation
to update and revise any forward-looking statements or to publicly announce the
result of any revisions to any of the forward-looking statements in this
document to reflect any future developments. However, the Private Securities
Litigation Reform Act of 1995 is not available to us as a non-reporting issuer.
Further, Section 27A(b)(2)(D) of the Securities Act and Section 21E(b)(2)(D) of
the Securities Exchange Act expressly state that the safe harbor for
forward-looking statements does not apply to statements made in connection with
an initial public offering.
17
USE
OF PROCEEDS
Not
applicable. We will not receive any proceeds from the sale of shares offered by
the selling shareholders.
DETERMINATION
OF OFFERING PRICE
Our
management has determined the offering price for the selling shareholders'
shares. The price of the shares being offered was arbitrarily determined based
upon the prior offering price in our private placement. We have no agreement,
written or oral, with our selling shareholders about this price. Based upon oral
conversations with our selling shareholders, we believe that none of our selling
shareholders disagree with this price. The offering price bears no relationship
whatsoever to our assets, earnings, book value or other criteria of value. The
factors considered were:
our
operating history
the
price we believe a purchaser is willing to pay for our stock
The
offering price does not bear any relationship to our assets, results of
operations, or book value, or to any other generally accepted criteria of
valuation. Prior to this offering, there has been no market for our
securities.
DILUTION
Not
applicable. We are not offering any shares in this registration statement. All
shares are being registered on behalf of our selling shareholders.
SELLING
SHAREHOLDERS
The
selling shareholders named below are selling the securities. The table assumes
that all of the securities will be sold in this offering. However, any or all of
the securities listed below may be retained by any of the selling shareholders,
and therefore, no accurate forecast can be made as to the number of securities
that will be held by the selling shareholders upon termination of this offering.
These selling shareholders acquired their shares by purchase exempt from
registration under section 4(2) of the Securities Act of 1933 or Regulation S
under the Securities Act of 1933. We believe that the selling shareholders
listed in the table have sole voting and investment powers with respect to the
securities indicated. We will not receive any proceeds from the sale of the
securities by the selling shareholders. No selling shareholders are
broker-dealers or affiliates of broker-dealers.
18
Selling Shareholder
|
Shares to
be offered
by the
Selling
Stock-
holders
|
Percentage
owned before
Offering
|
Shares
Amount
owned after
the offering,
assuming all
shares sold
|
Percentage
owned after
the offering,
assuming all
shares sold
|
Any
Transactions
or
Relationships
in past 3 years
|
||||||||||||
Huiling
Li
|
480,000 | 2.59 | % | 60,000 | 0.28 | % |
None
|
||||||||||
Guohua
Liu
|
50,000 | 0.24 | % | 0 | 0 |
None
|
|||||||||||
Xinrong
Liu
|
100,000 | 0.48 | % | 0 | 0 |
None
|
|||||||||||
Lianping
Dong
|
5,000 | 0.02 | % | 0 | 0 |
None
|
|||||||||||
Yi
Ma
|
120,000 | 0.58 | % | 0 | 0 |
None
|
|||||||||||
Yafei
Fan
|
10,000 | 0.05 | % | 0 | 0 |
None
|
|||||||||||
Yanjun
Liu
|
10,000 | 0.10 | % | 10,000 | 0.05 | % |
None
|
||||||||||
Qi
Wang
|
130,000 | 0.96 | % | 70,000 | 0.33 | % |
None
|
||||||||||
Jun
Hu
|
20,000 | 0.10 | % | 0 | 0 |
None
|
|||||||||||
Ou
Cui
|
8,000 | 0.10 | % | 12,000 | 0.057 | % |
None
|
||||||||||
Junhuai
Guo
|
120,000 | 0.58 | % | 0 | 0 |
None
|
|||||||||||
Jun
Xi Guan
|
5,000 | 0.02 | % | 0 | 0 |
None
|
|||||||||||
Menglan
Liu
|
6,000 | 0.03 | % | 0 | 0 |
None
|
|||||||||||
Lichen
Wang
|
5,000 | 0.02 | % | 0 | 0 |
None
|
|||||||||||
Yin
Ding
|
100,000 | 0.48 | % | 0 | 0 |
None
|
|||||||||||
Wen
Bao Qin
|
20,000 | 0.10 | % | 0 | 0 |
None
|
|||||||||||
Juan
Ren
|
180,000 | 0.87 | % | 0 | 0 |
None
|
|||||||||||
Feng
Mei Ruan
|
30,000 | 0.14 | % | 0 | 0 |
None
|
|||||||||||
Jared
D. Kaplan
|
25,000 | 0.12 | % | 0 | 0 |
None
|
|||||||||||
Jing
Wang
|
500,000 | 2.40 | % | 0 | 0 |
None
|
|||||||||||
Zhishun
Yang
|
30,000 | 0.14 | % | 0 | 0 |
None
|
|||||||||||
TOTAL:
|
1,954,000 | 10.12 | % | 152,000 | 0.717 | % |
|
Blue Sky
Thirty-eight
states and the District of Columbia have what is commonly referred to as a
“manual exemption” for secondary trading of securities such as those to be
resold by Selling Stockholders under this registration statement. In these
states, so long as we obtain and maintain a listing in Standard and Poor’s
Corporate Manual, secondary trading can occur without any filing, review or
approval by state regulatory authorities in these states. These states are:
Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, District of
Columbia, Florida, Hawaii, Idaho, Indiana, Iowa, Kansas, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New
Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma,
Oregon, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont,
Washington, West Virginia and Wyoming. We cannot secure this listing, and thus
this qualification, until after this registration statement is declared
effective. Once we secure this listing, secondary trading can occur in these
states without further action.
All our
shareholders currently reside in these states, outside the U.S. or in New York
and California. We will make the appropriate filings in New York and California
to permit sales of the securities registered in this offering.
We
currently do not intend to and may not be able to qualify securities for resale
in other states which require shares to be qualified before they can be resold
by our shareholders.
19
PLAN
OF DISTRIBUTION
Our
common stock is currently not quoted on any market. No market may ever develop
for our common stock, or if developed, may not be sustained in the future.
Accordingly, our shares should be considered totally illiquid, which inhibits
investors’ ability to resell their shares.
Selling
shareholders are offering up to 1,954,000 shares of common stock. The selling
shareholders will offer their shares at $2.50 per share until our shares are
quoted on the OTC Bulletin Board and, assuming we secure this qualification,
thereafter at prevailing market prices or privately negotiated prices. We will
not receive proceeds from the sale of shares from the selling shareholders. We
will pay all expenses of registering the securities.
The
securities offered by this prospectus will be sold by the selling shareholders
without underwriters and without commissions. The distribution of the securities
by the selling shareholders may be effected in one or more transactions that may
take place in the over-the-counter market or privately negotiated
transactions.
The
selling shareholders may pledge all or a portion of the securities owned as
collateral for margin accounts or in loan transactions, and the securities may
be resold pursuant to the terms of such pledges, margin accounts or loan
transactions. Upon default by such selling shareholders, the pledge in such loan
transactions would have the same rights of sale as the selling shareholders
under this prospectus. The selling shareholders may also enter into exchange
traded listed option transactions, which require the delivery of the securities
listed under this prospectus. After our securities are qualified for quotation
on the OTC Bulletin Board, the selling shareholders may also transfer securities
owned in other ways not involving market makers or established trading markets,
including directly by gift, distribution, or other transfer without
consideration, and upon any such transfer the transferee would have the same
rights of sale as such selling shareholders under this prospectus.
In
addition to the above, each of the selling shareholders will be affected by the
applicable provisions of the Securities Exchange Act of 1934, including, without
limitation, Regulation M, which may limit the timing of purchases and sales of
any of the securities by the selling shareholders or any such other person. We
have instructed our selling shareholders that they may not purchase any of our
securities while they are selling shares under this registration
statement.
Upon this
registration statement being declared effective, the selling shareholders may
offer and sell their shares from time to time until all of the shares registered
are sold; however, this offering may not extend beyond two years from the
initial effective date of this registration statement.
There can
be no assurances that the selling shareholders will sell any or all of the
securities. In various states, the securities may not be sold unless these
securities have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied
with.
All of
the foregoing may affect the marketability of our securities. Pursuant to oral
promises we made to the selling shareholders, we will pay all the fees and
expenses incident to the registration of the securities.
20
Should
any substantial change occur regarding the status or other matters concerning
the selling shareholders or us, we will file a post-effective amendment
disclosing such matters.
OTC Bulletin Board
Considerations
To be
quoted on the OTC Bulletin Board, a market maker must file an application on our
behalf in order to make a market for our common stock. We have engaged in
preliminary discussions with an FINRA Market Maker to file our application on
Form 211 with the FINRA, but as of the date of this prospectus, no filing has
been made. Based upon our counsel’s prior experience, we anticipate that after
this registration statement is declared effective, it will take approximately 2
- 8 weeks for the FINRA to issue a trading symbol.
The OTC
Bulletin Board is separate and distinct from the NASDAQ stock market. NASDAQ has
no business relationship with issuers of securities quoted on the OTC Bulletin
Board. The SEC’s order handling rules, which apply to NASDAQ-listed securities,
do not apply to securities quoted on the OTC Bulletin Board.
Although
the NASDAQ stock market has rigorous listing standards to ensure the high
quality of its issuers, and can delist issuers for not meeting those standards,
the OTC Bulletin Board has no listing standards. Rather, it is the market maker
who chooses to quote a security on the system, files the application, and is
obligated to comply with keeping information about the issuer in its files.
FINRA cannot deny an application by a market maker to quote the stock of a
company. The only requirement for inclusion in the bulletin board is that the
issuer be current in its reporting requirements with the SEC.
Although
we anticipate listing on the OTC Bulletin board will increase liquidity for our
stock, investors may have greater difficulty in getting orders filled because it
is anticipated that if our stock trades on a public market, it initially will
trade on the OTC Bulletin Board rather than on NASDAQ. Investors’ orders may be
filled at a price much different than expected when an order is placed. Trading
activity in general is not conducted as efficiently and effectively as with
NASDAQ-listed securities.
Investors
must contact a broker-dealer to trade OTC Bulletin Board securities. Investors
do not have direct access to the bulletin board service. For bulletin board
securities, there only has to be one market maker.
Bulletin
board transactions are conducted almost entirely manually. Because there are no
automated systems for negotiating trades on the bulletin board, they are
conducted via telephone. In times of heavy market volume, the limitations of
this process may result in a significant increase in the time it takes to
execute investor orders. Therefore, when investors place market orders - an
order to buy or sell a specific number of shares at the current market price -
it is possible for the price of a stock to go up or down significantly during
the lapse of time between placing a market order and getting
execution.
21
Because
bulletin board stocks are usually not followed by analysts, there may be lower
trading volume than for NASDAQ-listed securities.
LEGAL
PROCEEDINGS
There are
no pending or threatened lawsuits against us.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The board
of directors elects our executive officers annually. A majority vote of the
directors who are in office is required to fill vacancies. Each director and
each executive officer is elected for the term of one year, and until his
successor is elected and qualified, or until his earlier resignation or removal.
Our directors and executive officers are as follows:
Name
|
Age
|
Position
|
||
William
Z Wang
|
55
|
Chairman/Director
|
||
Stephen
C. Lee
|
43
|
CEO/Director
|
||
Wenyu
(Lucy) Liang
|
38
|
CFO
|
||
Xiaoguang
Yang
|
48
|
Director
|
The
resumes of the officers and directors are listed below:
Dr. William Z. Wang,
Chairman
He joined
us in February 2006 as C.E.O. and Director. He became Chairman and President on
January 1, 2008. From May 1994 to February 2006, he was Vice President &
Director of Tongyuan U.S.A. International, a herbal products importing/exporting
company. Dr. Wang received his Master and Ph.D. degrees from Florida State
University.
Stephen C. Lee, Chief
Executive Officer
Mr. Lee
joined us in March 2006 as Director and became Chief Executive Officer on
January 1, 2008. From August 1992 to December 2007,
he was the Founder and Chief Executive Officer of White Pacific Securities,
Inc., a Securities Brokerage firm.
Wenyu (Lucy) Liang, Chief
Financial Officer
Ms Wenyu
(Lucy) Liang has more than fifteen years of working experience in the accounting
and finance profession. She has been working with several multi-national
companies such as Jilin Larut Construction Exploration Co., Ltd - a public
company listed on the Malaysia Stock Exchange as an accountant from January 1994
to March 1999. From March 1999 – November 2001 she worked as an accounting
manager at Raffles Changchun University- a wholly-owned subsidiary of Raffles
2000 Group, which has since changed its name to Raffles Education Corporation;
it is a listed company on the Singapore Stock Exchange Mainboard. From November
2001 – April 2009, she worked for Shanxi Wanshida Plastics Engineering Co., Ltd
as its Chief Financial Officer; Wanshida is a wholly-owned subsidiary of Midas
Holdings – also a listed company on the Singapore Stock Exchange Mainboard. Ms.
Liang is a Certified Public Accountant (CPA) in China, and is a member of
National Institute of Accountants in Australia.
22
Ms. Wenyu
(Lucy) Liang became our Chief Financial Officer effective April 15, 2009, and
the Company has agreed to pay her in fiscal year 2010 an annual base salary of
Thirty-Five Thousand ($35,000) with no additional benefits or equity
compensations. There is no written employment agreement in existence,
as the nature of Ms. Liang’s employment is at-will.
Xiaoguang Yang,
Director
Mr. Yang
joined us in April 2006 as Director. From December 1999 to date, he has been
Chief Executive Officer of Shanxi Wanshida Plastics, Co. Ltd., a manufacturing
company. From July 1997 to November 1999, he was Chief Operating Officer,
Beijing Office, Raffles 2000 Group.
Code of
Ethics
It is the
policy of Luxon Holdings, Inc. (”Luxon”) that the Chief Executive Officer, each
other principal executive officer, the Chief Financial Officer, Chief Accounting
Officer, Corporate Controller and Controller of each of Luxon’s operating
divisions adhere to and advocate the following principles governing their
professional and ethical conduct in the fulfillment of their
responsibilities:
1.
|
Act
at all times in accordance with Luxon’s Code of Business Conduct and
Ethics, of which this Code of Ethics for Principal Executive Officers and
Senior Financial Officers is a part, as well as Luxon’s Policy on Insider
Trading, and all other current and future policies governing the conduct
of Luxon’s principal executive or senior financial
officers.
|
2.
|
Provide
full, fair, accurate, objective, timely and understandable disclosures in
internal reports as well as in registration statements, periodic reports
and other documents filed with or furnished to the Securities and Exchange
Commission, any other government agency or self-regulatory organization,
or otherwise used in any form of public
communication.
|
3.
|
Act
at all times with honesty, integrity and
independence.
|
4.
|
Always
act in good faith, with due care and
diligence.
|
5.
|
Avoid
actual or apparent conflicts of interest in both personal and professional
relationships, always distinguishing between personal, private interests
and those interests of Luxon, including the use of company property or the
receipt of personal benefits. Company information, company assets and
company opportunities should not be exploited for personal
gain.
|
6.
|
Comply
with all federal, state, local and foreign laws, rules and regulations
applicable to business conduct, including (but not limited to) laws
relating to securities, competition, health, safety and the
environment.
|
7.
|
Respect
the confidentiality of information acquired in the course of performing
one’s duties and responsibilities, except where disclosure is authorized
or otherwise legally required. Do not use confidential information
acquired in the course of business for personal
advantage.
|
23
8.
|
Communicate
this Code of Ethics at least annually throughout all financial
departments, and proactively promote ethical behavior and the importance
of adhering to the spirit as well as the letter to the law among
subordinates and peers.
|
9.
|
Violations,
failure to report apparent violations, covering up violations or apparent
violations, retaliating against or disciplining a person for reporting a
violation or apparent violation, or obstructing an investigation of an
alleged or apparent violation will constitute grounds for disciplinary
action, including possible termination of employment. If there are any
questions involving application of this Code of Ethics, guidance should be
sought from Luxon’s legal counsel.
|
Luxon
will waive application of this Code of Ethics, if ever, only in limited
situations where circumstances warrant, and then only in conjunction with
appropriate monitoring and controls. Changes in and waivers of this Code of
Ethics may be made only by the Board, based on full disclosure of all relevant
facts, and will be disclosed as required under applicable law and
regulations.
It is
also the Policy of Luxon that the Chief Executive Officer, each Vice President,
the Chief Financial Officer, Chief Accounting Officer, Corporate Controller and
Controller of each of Luxon’s operating divisions acknowledge receipt of and
certify their willingness to adhere to the foregoing annually and file a copy of
such certification with the Board.
The Board
shall have the power to monitor, make determinations, and recommend action to
the Board with respect to the administration of this Policy or the violation
thereof.
Family
Relationships
There are
no family relationships among our officers, directors and significant
employees.
Legal
Proceedings
No
officer, director, promoter or significant employee has been involved in the
last five years in any of the following:
¨
|
Any
bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that
time;
|
¨
|
Any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor
offenses);
|
¨
|
Being
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
and
|
24
¨
|
Being
found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not
been reversed, suspended, or
vacated.
|
EXECUTIVE
COMPENSATION
Summary Compensation
Table
The table
below summarizes all compensation awarded to, earned by, or paid to our
Principal Executive Officer, our two most highly compensated executive officers
other than our CEO who occupied such position at the end of our latest fiscal
year and up to two additional executive officers who would have been included in
the table below except for the fact that they were not executive officers at the
end of our latest fiscal year, by us, or by any third party where the purpose of
a transaction was to furnish compensation, for all services rendered in all
capacities to us or our subsidiary for the latest fiscal years ended March 31,
2009 and 2008.
Name
|
Title
|
Year
|
Salary
|
Bonus
|
Stock
awards
|
Option
awards
|
Non
equity
Incen-
tive plan
com-
pen- sation |
Non
qualified
deferred
compensa-
tion |
All
other
Compensa
-tion |
Total
|
||||||||||||||||||||||||
William
Wang
|
Chair-
man
|
2009
|
$ | 184,580 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 184,580 | ||||||||||||||||||||||
Stephen
Lee
|
CEO
|
2009
|
$ | 224,280 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 224,280 | ||||||||||||||||||||||
Tim
Chai
|
Former
CFO
|
2009
|
$ | 74,220 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 74,220 | ||||||||||||||||||||||
William
Wang
|
Chair-
man
|
2008
|
$ | 118,939 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 118,939 | ||||||||||||||||||||||
StephenLee
|
CEO
|
2008
|
$ | 62,502 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 62,502 | ||||||||||||||||||||||
Tim
Chai
|
Former
CFO
|
2008
|
$ | 64,150 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 64,150 |
Narrative disclosure to
summary compensation table
At the
end of fiscal year 2008, based upon the “variable pay system” we have adopted,
the Board of Directors determined the annual maximum compensation levels for
each executive for fiscal year 2009 after a review of both the Company and
individual performance targets that we had set for fiscal year
2008.
In
setting the base salaries for fiscal year 2009 for our top three most highly
paid executives, we evaluated the following criteria:
25
As a
starting point, we used salary surveys for zip code 91748, which is where our
headquarters are located to set the “basis” for each of the executive
positions. Specifically, we took the 50th
percentile of the base salary within zip code 91748 for the same titles held,
and then divided that figure by a factor of 10, and used the resulting number as
a starting basis from which we calculate and make salary decisions.
For
example, according to the survey, the average annual base salary for executive
officers in the 50th
percentile located within zip code 91748 was $740,581; we divided this number by
a factor of 10, and the resulting number becomes what we called the
“Position-Based Compensation (PBC).”
$740,581 divided by 10 = $74,058 in
Position-Based Compensation (PBC)
Once we
figured out the Position-Based Compensation for each executive, we would analyze
and measure six additional criteria which we deemed critical to the success of
the executive position. Specifically, the six material factors are as follows:
1) overall company performance, 2) individual performance, 3) potential of the
individual, 4) education and/or credential, 5) seniority, and 6) peer review.
Then based upon the levels of importance, we assigned a “percentage value” for
each of the criterion. The Position-Based Compensation and the six “percentage
values” in aggregate are to be used to calculate and derive the total base
salary for each of our executives. The following table summarizes our base
salary compensation structures and their respective percentage
values:
Position-Based
Compensation (PBC)
|
100%
|
|||
The
Six Criteria
|
Percentage Value
|
|||
Overall
Company Performance
|
up to100% of PBC
|
|||
Individual
Performance
|
up
to100% of PBC
|
|||
Potential
of the Individual
|
up
to 75% of PBC
|
|||
Education/Credential
|
up
to 30% of PBC
|
|||
Seniority
|
up
to 20% of PBC
|
|||
Peer
Review
|
up
to 5% of PBC
|
Position-Based
Compensation (PBC): This figure is derived from
the zip code-survey where we take the 50th
percentile of the base salary within the geographic area of our headquarters for
the same titles held, and then divide that figure by a factor of
10. This is the basis with which we use to calculate the six
criteria, and it is always reflected at 100%.
Overall Company
Performance: Our Board of
Directors sets internal company financial performance targets each year based
upon year-over-year comparison of our overall operating results as well as
forward-looking market conditions. Specifically, if the year-end
operating results are below or at parity with our previously set internal
financial performance targets, then there would be no percentage value assigned
for the “Overall Company Performance” criteria, which means the base salary
could actually drop year-over-year. However, if the operating results
achieved are at say 130% of the desired targets, the percentage over and above
the set target, in this case 30% would be reflected in the base
salary. The maximum cap for this particular category of evaluation is
currently up to 100% of the PBC. In other words, even if we had exceeded our
projected targets by say a whopping 350%; the maximum that can be rewarded is
still 100% of the PBC. The formula to calculate the above-referenced 130%
example is as follows:
26
Position-Based
Compensation X 30% = Overall Company Performance percentage value
In
setting our internal fiscal year 2008 Overall Company Performance target - which
was a critical component used to determine the fiscal year 2009 executive base
salaries, we evaluated the actual conditions which had materially affected our
results of operation in fiscal year 2007; the budgeted expenditures going
forward (for fiscal year 2008); as well as gauged the overall forward-looking
sentiments within our marketplace and of the macro-economic landscape as a
whole.
We have
also taken into the account the likelihood of increase of expenses with respect
to the filing of our Registration Statement with the Commission and the related
costs of hiring legal, audit, and possibly consulting assistance to accomplish
our objective, and the substantial increase of the Selling, General &
Administrative (SG & A) expenses, especially in relation to the hiring of
management personnel and the proportional increase in its related
costs.
In
retrospect, with regards to the somewhat uncertain macro-economic picture, and
the conditions within our particular industry, we had concerns that our markets
in fiscal year 2008 were not going to be as robust as in fiscal year 2007
whereby we had a somewhat strong “pricing power” with our customers; coupled
that with the fact that there are more competitors attempting to engage the
business we are in - both in terms of new plants or existing plants trying to
switch product offerings; we felt fiscal year 2008 was going to be a more
challenging year than in fiscal year 2007.
In light
of the unusual low downtime at the plant in fiscal year 2007; the substantial
budget increase for the SG & A expenses for fiscal year 2008; the assumption
of no increase in either funding or production capacity; and the increasingly
competitive landscape; the Company set the fiscal year 2008 Overall Company
Performance “net income” target at One Hundred and Five percent (105%) of the
fiscal year 2007’s net income of $1.49 million. This means that our
internal Overall Company Performance target of net income for fiscal year 2008
was $1.56 million.
In fiscal
year 2008 we had a net income of $2.34 million; this represented a
year-over-year increase of Fifty-Seven Percent (57%), and is approximately One
Hundred Fifty Percent (150%) of the $1.56 million Overall Company Performance
net income target for fiscal year 2008.
The
percentage over and above the intended target, in this case Fifty Percent (50%)
is then used to multiply the Position-Based Compensation to come up with
“Overall Company Performance” component of the base salary for each
executive.
Individual
Performance: The
Board of Directors together with the direct supervisor of the individual
executive under review; analyze and determine individual performance of the
executive, and has the discretion to reward up to 100% of the PBC based upon how
well the executive fulfills his or her objectives.
27
Potential of the
Individual: The Board of Directors together with the direct
supervisor of the individual executive under review; analyze and determines how
well the executive consistently demonstrate the potential to become an
exceptional producer or manager. The Board of Director has the
discretion to reward up to 75% of the PBC.
Education/Credential: A bachelor degree is worth
10% of the PBC; a master degree is worth 20% of the PBC, and a PhD degree is
worth 30% of the PBC. Each qualified professional license held is
worth 10% of the PBC, with the combined of the two elements (education and
credential) not to exceed the maximum cap of 30% of the PBC.
Seniority: Three years or more in
seniority is worth 20% of the PBC; 2-3 years of seniority is worth 10% of the
PBC, 2 years or under in seniority does not have any PBC.
Peer
Review: The individual executive under review will be evaluated by his or
her departmental peers in an anonymous format, where up to 5% of the PBC could
be rewarded collectively.
The
following table summarizes how we derived the base salaries for our top three
most highly paid executives for fiscal year 2009:
Dr.
William Wang
Chairman
|
Mr.
Stephen Lee
CEO
|
Mr.
Tim Chai
Former
CFO
|
||||||||||||||
Position-Based
Compensation (PBC)
|
$ | 74,058 | $ | 74,058 | $ | 34,531 |
100%
|
|
||||||||
The
Six Criteria
|
Percentage
Value
|
|||||||||||||||
Overall
Company Performance
|
$ | 37,029 | $ | 37,029 | $ | 17,266 |
up
to100% of PBC
|
|||||||||
Individual
Performance
|
$ | 25,920 | $ | 74,058 | $ | 7,776 |
up
to100% of PBC
|
|||||||||
Potential
of the Individual
|
$ | 18,515 | $ | 55,543 | $ | 12,086 |
up
to 75% of PBC
|
|||||||||
Education/Credential
|
$ | 22,217 | $ | 7,406 | $ | 6,906 |
up
to 30% of PBC
|
|||||||||
Seniority
|
$ | 14,812 | ---- | $ | 6,906 |
up
to 20% of PBC
|
||||||||||
Peer
Review
|
$ | 750 | $ | 1,914 | $ | 930 |
up
to 5% of PBC
|
|||||||||
Maximum
Base Salary:
|
$ | 193,301 | $ | 250,008 | $ | 86,401 |
Our
variable executive compensation system is structured to provide incentive for
superior performance; however, it could also lead to potential morale issues in
an extreme economic downturn such as the one we are currently
facing. When operating result targets are not met, base salaries for
executives could be dramatically reduced on a year-over-year basis across the
board. Although, volatility in executive base pay may not be deemed as an
incentive by some, we are of the opinion that this unique variable pay system
strikes a fine balance, as it is extremely effective and relevant in aligning
executive interests with shareholder interests, and we would continuously search
and opt for like-minds to fill our executive positions if need
be.
28
The
Company has not formulated a bonus plan, as we do not foresee making any
distribution of bonus to our executives in the near future.
The
Company has not formulated an incentive stock option plan, as we do not foresee
making any types of grants or stock options to our executives in the foreseeable
future.
The
Company does not offer 401k retirement account, and has no immediate plans to do
so.
At no
time during the last fiscal year with respect to any person listed in the Table
above was there:
|
·
|
any
outstanding option or other equity-based award repriced or otherwise
materially modified (such as by extension of exercise periods, the change
of vesting or forfeiture conditions, the change or elimination of
applicable performance criteria, or the change of the bases upon which
returns are determined;
|
|
·
|
any
waiver or modification of any specified performance target, goal or
condition to payout with respect to any amount included in non-stock
incentive plan compensation or
payouts;
|
|
·
|
any
option or equity grant;
|
|
·
|
any
non-equity incentive plan award made to a named executive
officer;
|
|
·
|
any
nonqualified deferred compensation plans including nonqualified defined
contribution plans; or
|
|
·
|
any
payment for any item to be included under All Other Compensation (column
(i)) in the Summary Compensation
Table.
|
Outstanding Equity Awards at
Fiscal Year-End
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END MARCH 31 , 2009
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity Incentive
Plan
Awards: Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
Of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market
or Payout
Value
of
Unearned
Shares,
Units
or Other
Rights
That Have
Not
Vested
($)
|
|||||||||||||||||||||||||||
William
Z.
Wang
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Stephen
C. Lee
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Tim
Chai
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
29
Director
Compensation
For
the fiscal year ended March 31, 2009
|
||||||||||||||||||||||||||||
Name
|
Fees
earned
or
paid
in
cash
($)
|
Stock
awards
($)
|
Option
awards
($)
|
Non-equity
incentive
plan
compensation
($)
|
Nonqualified
deferred
compensation
earnings
($)
|
All
other
compensation
($)
|
Total
($)
|
|||||||||||||||||||||
William
Z Wang
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Stephen
C. Lee
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Xiaoguang
Yang
|
0 | 0 | 0 | 0 | 0 | 0 | 0 |
Narrative to Director
Compensation Table
Members
of our Board of Directors do not receive compensation for their services as
Directors. We have no compensation arrangements (such as fees for
retainer, committee service, service as chairman of the board or a committee,
and meeting attendance) with directors.
No
director has a different compensation arrangement.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following tables set forth the ownership, as of the date of this prospectus, of
our common stock by each person known by us to be the beneficial owner of more
than 5% of our outstanding common stock, our directors, and our executive
officers and directors as a group. To the best of our knowledge, the persons
named have sole voting and investment power with respect to such shares, except
as otherwise noted. There are not any pending or anticipated arrangements that
may cause a change in control.
30
The
information presented below regarding beneficial ownership of our voting
securities has been presented in accordance with the rules of the Securities and
Exchange Commission and is not necessarily indicative of ownership for any other
purpose. Under these rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares the power to vote or direct the voting of
the security or the power to dispose or direct the disposition of the security.
A person is deemed to own beneficially any security as to which such person has
the right to acquire sole or shared voting or investment power within 60 days
through the conversion or exercise of any convertible security, warrant, option
or other right. More than one person may be deemed to be a beneficial owner of
the same securities. The percentage of beneficial ownership by any person as of
a particular date is calculated by dividing the number of shares beneficially
owned by such person, which includes the number of shares as to which such
person has the right to acquire voting or investment power within 60 days, by
the sum of the number of shares outstanding as of such date plus the number of
shares as to which such person has the right to acquire voting or investment
power within 60 days. Consequently, the denominator used for calculating such
percentage may be different for each beneficial owner. Except as otherwise
indicated below and under applicable community property laws, we believe that
the beneficial owners of our common stock listed below have sole voting and
investment power with respect to the shares shown. The business address of the
shareholder Lei Chen is No. 4 Nan Er Hu Tong, Building 106, Unit 2, Room 104,
Bei An Lu, Nan Guan Qu, Changchun, China.
Shareholders
|
# of Shares
|
Percentage
|
||||||
Lei
Chen
|
3,841,900 | 18.46 | % | |||||
All
directors and named executive officers as a group [4
persons]
|
826,000 | 3.97 | % | |||||
Total:
|
4,667,900 | 22.43 | % |
This
table is based upon information derived from our stock records. Unless otherwise
indicated in the footnotes to this table and subject to community property laws
where applicable, each of the shareholders named in this table has sole or
shared voting and investment power with respect to the shares indicated as
beneficially owned. Except as set forth above, applicable percentages are based
upon 20,805,000 shares of common stock outstanding as of March 31,
2009.
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
We have
not entered into any material transactions with any director, executive officer,
and promoter, beneficial owner of five percent or more of our common stock, or
family members of such persons.
DESCRIPTION
OF SECURITIES
The
following description as a summary of the material terms of the provisions of
our Articles of Incorporation and Bylaws is qualified in its entirety. The
Articles of Incorporation and Bylaws have been filed as exhibits to the
registration statement of which this prospectus is a part.
Common
Stock
We are
authorized to issue 100,000,000 shares of common stock with $.001 par value per
share. As of the date of this registration statement, there were 20,805,000
shares of common stock issued and outstanding held by 486 shareholders of
record.
31
Each
share of common stock entitles the holder to one vote, either in person or by
proxy, at meetings of shareholders. The holders are not permitted to vote their
shares cumulatively. Accordingly, the shareholders of our common stock who hold,
in the aggregate, more than fifty percent of the total voting rights can elect
all of our directors and, in such event, the holders of the remaining minority
shares will not be able to elect any of such directors. The vote of the holders
of a majority of the issued and outstanding shares of common stock entitled to
vote thereon is sufficient to authorize, affirm, ratify or consent to such act
or action, except as otherwise provided by law.
Holders
of our common stock have no preemptive rights or other subscription rights,
conversion rights, redemption or sinking fund provisions. Upon our liquidation,
dissolution or winding up, the holders of our common stock will be entitled to
share ratably in the net assets legally available for distribution to
shareholders after the payment of all of our debts and other liabilities. There
are not any provisions in our Articles of Incorporation or our Bylaws that would
prevent or delay change in our control.
INTEREST
OF NAMED EXPERTS
The
Consolidated Financial Statements for the years ended March 31, 2009 and 2008
included in this prospectus have been audited by Child, Van Wagoner &
Bradshaw, PLLC, an independent registered public accounting firm, to the extent
and for the periods set forth in its report and are incorporated herein in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
The
legality of the shares offered under this registration statement is being passed
upon by Williams Law Group, P.A., Tampa, FL. Michael T. Williams,
principal of Williams Law Group, P.A. owns 25,000 shares of our common
stock.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
LIABILITIES
Our
Bylaws, subject to the provisions of Nevada Law, contain provisions which allow
the corporation to indemnify any person against liabilities and other expenses
incurred as the result of defending or administering any pending or anticipated
legal issue in connection with service to us if it is determined that person
acted in good faith and in a manner which he reasonably believed was in the best
interest of the corporation. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to our directors, officers and
controlling persons, we have been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
32
DESCRIPTION
OF BUSINESS
Organization
Luxon
Holdings, Inc. (Luxon) was incorporated in Nevada, USA on February 17, 2006 by
Liaoyuan Yinyuan Aluminum Alloy Company Limited, “Yinyuan”, to become the
holding company of Yinyuan.
Yinyuan
was incorporated in Jilin Province, China on July 15, 2002 and owned by Jilin
Province Tianxin Economic and Trade Ltd. (a PRC Company) and Mr. Gao Ge. On
March 6, 2006, Luxon issued 11 million shares of its common stock to Yinyuan’s
shareholder in exchange for 100% of ownership. Simultaneously, a $1.25 million
cash dividend was declared.
As a
result of this transaction, Yinyuan became a wholly-foreign owned enterprise
(“WFOE”) under PRC law during March 2006. The transaction was accounted for as a
recapitalization of Yinyuan. The accounting is identical to that resulting from
a reverse acquisition, except that no goodwill or other intangible should be
recorded. The recapitalization is considered to be a capital transaction in
substance, rather than a business combination. No assets or liabilities were
transferred from Luxon to Yinyuan in the recapitalization transaction, as the
recapitalization transaction was accounted for at historical cost basis, and
that the financial statements provided reflected the historical financial
statements of Yinyuan.
Unless
otherwise indicated, references to us throughout this prospectus include the
operations of Yinyuan Aluminum. The purpose of the transaction was to establish
a U.S. corporation as a holding company for our operations in
China.
Yinyuan
was 99% owned by Jilin Province Tianxin Economic and Trade Ltd. and
1% owned by Mr. Gao Ge, who had no affiliation nor relationship with us at the
time nor since then except as a shareholder.
Our
principal executive offices are located at 17890 Castleton Street, Suite 383,
City of Industry, CA 91748. Our telephone number is 626-965-5188.
Business
We are in
the business of production, processing and trading of non-ferrous metal cast
processing of large-section aluminum alloy ingots.
Our
product lines cover a wide range of specifications of varied transformed
aluminum alloy cast ingots from category-1 to category-8, round-shaped ingots
with diameters of 300mm-550mm and square-shaped ingots with widths within
1800mm.
As a
non-ferrous metal cast processing producer, Yinyuan supplies large-section of
aluminum alloy cast ingots to manufacturers that are engaged in the business of
producing aluminum alloy. These manufacturers (our customers) then supply their
finished products, usually made-to-order, to even larger manufacturers an array
of applications, which includes but is not limited to the following uses: mass
transit rail vehicle profiles, sports and exhibition hall decorative materials,
aviation materials, and power-generation facilities.
33
Principal Products or
Services
Yinyuan
can produce up to 117 specifications of varied transformed aluminum alloy cost
ingots from category-1 to category-8.
Its major
product specifications are round-shaped ingots of diameters 300mm-550mm, and
square-shaped ingots of widths within 1800mm.
Applications
of our main products are primarily for the following uses:
Category-6 aluminum alloy
for rail vehicle profiles, sports and exhibition hall decorative
materials:
This
category covers numerous brands of aluminum alloy and their production methods
are straight forward. Category-6 aluminum alloy cast ingots are primarily used
as underground train profiles, as well as non-structural supports used in
stadiums, arenas, and exhibit halls alike. Our products ultimately have been
used in the projects of underground railway projects in the cities of Shanghai,
Guangzhou, Nanjing, Tianjin, as well as Singapore; projects of localized
high-speed trains at Shenzhen International Exhibition Center and Beijing
Capital Airport No. 3 Terminal.
Category-7 aluminum alloy of
special raw materials of high value addition:
Category-7
aluminum alloy is a kind of high-strength aluminum alloy (super-hard aluminum),
and a kind of heat treated aluminum alloy. Its main features are: good heat
resistace, convenient processing, and erosion-resistant, but it is harder to
cast.
Category-7
aluminum alloy has extensive uses, mainly in products of high value additions,
such as government procurement products, aviation materials, and structural
supports for sports facilities. Category-7 aluminum alloy’s main features are
large diameters of ingots (over 465mm) and high quality ingots.
Category-5 aluminum alloy
used in electric power systems:
This
aluminum alloy is used in electricity-generating station facilities and
equipment. This product has not been a major part of our overall business,
compared with others in our product categories.
Category –4 aluminum alloy
used in wear-resistant machinery parts:
Category-4
aluminum alloy is durable, reliable, and heat-resistant aluminum
alloy. Category-4 aluminum alloy is cast in a heat-treated environment to
enhance its strength, wear resistance and heat resistance
characteristics. Category-4 aluminum alloy ingots belong to the Al-Si
series aluminum alloy, with the composition of the silicon contents higher
than any other series of aluminum alloy. Our product series 4032 aluminum
alloy is a typical Category-4 aluminum alloy.
Some of the
main applications or usages for our Category-4 aluminum alloy include
specialized machinery, wear-resistant tools, engine cylinder materials, internal
combustion engine pistons and other wear-resistant parts.
34
Processing
We worked
on specialty orders from other aluminum makers, whereby we would melt the raw
materials - usually primary aluminum or scrap aluminum provided by our
customers, and then integrate other metal components such as Magnesium (Mg)26,
Silicone (Si)14, and Baron (B)5 into the melted aluminum, and depending what
metal components were being added, we would adjust furnace temperatures and
melting durations accordingly to control the contents of the final product,
which are then cast into ingots in the shapes and dimensions specified by our
customers. The processes described require a high degree of technical know-how
and experience, as well as a more time-consuming processing time than our own
traditional ingot productions; nevertheless, it is in our opinion, a more
predictable line of business for it not only yielded higher margins but also
eliminates some of our risk of having to purchase and stock-up on raw
materials.
Sales
Breakdown
Sales
Revenues breakdown by product line for the six months period ended September 30,
2009 and 2008:
September 30, 2009
|
September 30, 2008
|
|||||||||||||||
Category-4
Revenue
|
39,911 | 0.30 | % | 66,936 | 0.94 | % | ||||||||||
Category-5
Revenue
|
324,262 | 2.47 | % | 76,251 | 1.06 | % | ||||||||||
Category-6
Revenue
|
$ | 12,753,378 | 96.95 | % | 4,833,025 | 67.43 | % | |||||||||
Category-7
Revenue
|
- | 0.00 | % | 12,424 | 0.17 | % | ||||||||||
Processing
|
37,240 | 0.28 | % | 2,178,676 | 30.40 | % | ||||||||||
Total:
|
$ | 13,154,791 | 100.00 | % | $ | 7,167,312 | 100.00 | % |
Sales
Revenues breakdown by product line for fiscal years ended March 31, 2009 and
2008.
March 31, 2009
|
March 31, 2008
|
|||||||||||||||
Category-6
Revenue
|
$ | 11,950,524 | 77.27 | % | 19,842,246 | 81.79 | % | |||||||||
Category-7
Revenue
|
230,467 | 1.49 | % | 87,638 | 0.36 | % | ||||||||||
Category-5
Revenue
|
176,093 | 1.14 | % | 826,360 | 3.41 | % | ||||||||||
Category-4
Revenue
|
172,611 | 1.11 | % | 0.00 | 0.00 | % | ||||||||||
Processing
|
2,936,911 | 18.99 | % | 2,559,121 | 10.55 | % | ||||||||||
Trading
(Net)
|
0.00 | 0.00 | % | 944,448 | 3.89 | % | ||||||||||
Total:
|
$ | 15,466,606 | 100.00 | % | $ | 24,259,813 | 100.00 | % |
Pricing
We sell
our aluminum ingot products by way of spot sales or under contracts. Pricing for
our aluminum products is determined by the nature of the sale as described
below.
Spot Sales & Sales Contracts.
We set, and adjust as necessary, uniform sales prices for aluminum ingots
produced by our plant.
In the
fiscal year ended March 31, 2009, the highest and lowest spot price of domestic
aluminum ingot was $3,138 per ton and $1,705 per ton, respectively, with
the annual average selling price of our aluminum ingot at $2,060 per
ton, representing a decrease of 20.86% compared to the fiscal year ended March
31, 2008.
35
In the six months ended September 30, 2009, the highest and lowest spot price of domestic aluminum ingot was $2,628 per ton and $1,824 per ton, respectively, with the period average selling price of our aluminum ingot at $1,978 per ton, representing a decrease of 20.66% compared to the same six-month period ended September 30, 2008.
We set
uniform prices for all our external sales of products by reference to import
costs of primary aluminum, the market supply and demand conditions, as well as
our short-term and mid-term projections. Our pricing generally takes into
account:
Domestic
primary aluminum price;
Transportation
costs;
The
applicable standard PRC taxes;
Complexity
of the processing procedures;
Domestic
demand and supply conditions.
London
Metal Exchange (LME) primary aluminum price.
Production
Process
Distribution
We supply
our products to other manufacturers that are engaged in the aluminum alloy
processing business or trade. Our strategy for distribution and customer
development is mainly through referrals and by attending trade exhibitions and
conventions. Most of our products are made-to-order and produced in accordance
to our customer’s requirements and specifications.
36
We have
derived, and believe that we will continue to derive a significant portion of
our revenue from our primary customer, Jilin Midas Aluminum Industries Co., Ltd.
Sales to Jilin Midas Aluminum Industries Co., Ltd. represents 99.70% of net
sales in the six month period ended September 30, 2009,90.71% of net sales in in
fiscal year 2009, 87.62% of net sales in fiscal year 2008. The loss of Jilin
Midas Aluminum Industries Co., Ltd. as our primary customer could significantly
reduce our revenues. We have no written contract with Jilin
Midas Aluminum Industries Co., Ltd. or our other customers.
Regulatory
Overview
Producers
of aluminum ingots are subject to national industrial policies and relevant laws
and regulations in areas of environmental protection, import and export, land
use, foreign investment regulation and taxation. We are also subject to
regulations relating to activities such as mining.
We are
principally subject to governmental supervision and regulation by two agencies
of the PRC government:
*
|
the
NDRC (National Development and Reform Commission), which sets and
implements the major policies concerning China’s economic and social
development policies, approves investments exceeding certain capital
expenditure amounts, including approval of Sino-foreign joint venture
projects, coordinates economic development of state-owned enterprises and
oversees their reform, and formulates industrial policies and investment
guidelines for all industries including the aluminum industry;
and
|
*
|
the
Ministry of Land and Resources, which has the authority to grant land use
licenses and mining right permits.
|
The
following is a brief summary of the principal laws, regulations, policies and
administrative directives to which we are subject.
Requirements for New
Entrants and Other Capital Investments
The
construction of new primary aluminum smelters requires prior approval by the
NDRC, the important projects among which shall be approved by the State Council.
Any nonferrous metals projects and rare earth mining projects in which the
amount of total investment exceeds RMB $50 million shall be approved by the NDRC
and filed with the State Council for record. All other projects shall be filed
with the local competent investment authorities for record disregarding the
scale of such projects. All legal and regulatory requirements for new projects
and other capital investments in the aluminum industries apply equally to us.
Accordingly, we are required to obtain all necessary governmental approvals for
our capital expenditure plans. Any capital markets financing activities, for
example, to finance a capital project, are subject to approval by securities
regulatory authorities and other relevant authorities in China, regardless of
whether the funds are raised in China or on the international capital markets.
An issuer of equity securities or equity-linked securities in the PRC must
obtain prior approval from the China Securities Regulatory Commission (CSRC).
For the issuance of equity or equity-linked overseas securities, the issuer is
also required to obtain approval from the NDRC. Offerings of debt, such as
debentures, are subject to approval from the People’s Bank of China, as well as
the NDRC. For all international financing activities through bank borrowing or
issuance of debt, the issuer must obtain prior approval from the State
Administration of Foreign Exchange and register with it after the completion of
the transaction.
37
Pricing
The PRC
government does not impose any limitations with respect to the pricing of
aluminum ingot and related products. Thus, aluminum ingot producers are free to
set prices for their products. All the raw materials, supplemental materials and
other supplies that we purchase are based on market prices, except for
electricity, the price of which is described below. Freight transportation on
the national railway system is subject to government mandated
pricing.
Electricity Supply and
Price
The State
Power Supervision Commission is responsible for the supervision and
administration of the power industry in China. The NDRC and local governments
regulate electricity pricing. Electricity suppliers may not change their
electricity prices without governmental authorization.
The
Electric Power Law and related rules and regulations govern electricity supply
and distribution. Currently, China’s state-owned power companies, through their
respective local subsidiaries, operate all the regional power grids in China
from which we obtain most of our electricity requirements.
Environmental Protection
Laws and Regulations
The State
Environmental Protection Administration of China is responsible for uniform
supervision and control of environmental protection in China. It formulates
national environmental quality and discharges standards and monitors China’s
environmental system. Environmental protection bureaus at the county level or
above are responsible for environmental protection within their areas of
jurisdiction.
Environmental
regulations require companies to file an environmental impact report with the
relevant environmental bureau for approval before undertaking the construction
of a new production facility or any major expansion or renovation of an existing
production facility. New facilities built pursuant to this approval are not
permitted to operate until the relevant environmental bureau has performed an
inspection and is satisfied that the facilities are in compliance with
environmental standards.
The
Environmental Protection Law requires any facility that produces pollutants or
other hazards to incorporate environmental protection measures in its operations
and establish an environmental protection responsibility system. Such system
includes adoption of effective measures to control and properly dispose of waste
gases, waste water, waste residue, dust or other waste materials. Any entity
that discharges pollution must register with the relevant environmental
protection authority.
38
Remedial
measures for breaches of the Environmental Protection Law include a warning,
payment of damages or imposition of a fine. Any entity undertaking a
construction project that fails to install pollution prevention and control
facilities in compliance with environmental standards for a construction project
may be ordered to suspend production or operations and may be fined. Criminal
liability may be imposed for a material violation of environmental laws and
regulations that causes loss of property or personal injuries or
death.
Tax Laws and
Regulation
In March
2007, the PRC government promulgated the Corporate Income Tax Law which will be
effective from January 1, 2008. The Corporate Income Tax Law will impose a
single income tax rate of 25% for both domestic and foreign invested enterprise.
The existing Tax Law of the People’s Republic of China for Enterprises with
Foreign Investment and Foreign Enterprises (the “FIE and FE tax laws”) and
Provisional Regulations of the PRC on Enterprise Income Tax (collectively
referred to as the “existing tax laws”) will be abolished simultaneously.
Currently, the Company and its subsidiaries applied the tax rates under existing
tax laws. The Corporate Income Tax Law has provided for a 5-year transitional
period for those entities that applied FIE and FE tax laws in previous
years.
The Company,
as a WFOE is expected to qualify under the previous exemption and reduction
rules, and continue to enjoy a favorable income tax rate at a reduced rate
of 50% of the new unified EIT of 25% in effect during fiscal year 2008
through 2010 as determined by the PRC government and the regional tax
authorities.
Competition
The
competitive landscape for the aluminum alloy ingots producer could be
characterized as somewhat fragmented, as there are many small suppliers,
competing mostly on price, with varying qualities. In terms of our current
production capacity and output, we believe we have positioned ourselves within
the mid range of aluminum alloy ingot producers.
We
compete on the following factors:
|
¨
|
Specialization –
our production strength in Category-6 aluminum alloy, especially for train
profiles, is well known throughout the
industry;
|
|
¨
|
Reputation
- we have excellent business operating history within the industry, we
deliver quality products on time and within budgets contracted
for;
|
|
¨
|
Reliability
- we use only the trustworthy and reliable raw materials suppliers with
good reputation, so to minimize and/or eliminate
downtimes;
|
|
¨
|
Innovation –
we have excellent operational and technical staffs to deliver creative
solutions to meet our clients’ specific
needs.
|
39
|
¨
|
Quality –
we have high standards for quality control, production oversights, and the
delivery follow-ups. We pay attention to
details.
|
Sources and availability of
raw materials and the names of principal suppliers.
Electrolytic aluminum
suppliers:
¨
|
Jilin
Midas Aluminum Industry Co., Ltd
|
¨
|
Neimenggu
Huomeihongjun Aluminum-Electrolytic Co.,
Ltd
|
¨
|
Shennyang
Chengtong Metal Co., Ltd
|
Main intermediate alloy,
fusing agent suppliers
¨
|
Shenzhen
Pyrotek Metallurgical Material Co.,
Ltd
|
¨
|
Beijing
Yitianhui Metal Material Research
Institute
|
¨
|
Jilin
Linjiang Magnesium Industrial Co.,
Ltd
|
¨
|
Fushun
Yinjian Aluminum Industrial Alloy
Factory
|
¨
|
Shenyang
Chengtong Metal Co., Ltd
|
¨
|
Shenyang
Sanda Nonferrous Metal Co., Ltd
|
¨
|
Liaoyuan
city Xian Wanda Waste and Old Materials Purchase and Sale
Station
|
¨
|
Hebei
Province Qingyuan Country East Stonebridge Xingyuan Metal Production
Plant
|
¨
|
Qinhuangdao
Juyuan Aluminum Industry Co., Ltd
|
Diesel fuel
suppliers:
¨
|
Jilin
City Longtan District Pinxiang Service
Station
|
¨
|
Jilin
City Fengnan Chemical Industry Co.,
Ltd
|
¨
|
Jilin
City Chuangying District Norward Service
Station
|
Jilin
Midas Aluminum Industry Co., Ltd. and Neimenggu Huomeihongjun Aluminum
Electrolytic co., Ltd are two of our largest suppliers of scrap aluminum and
primary aluminum. In terms of total raw material costs for fiscal year 2009,
Jilin Midas Aluminum Industry Co., Ltd. accounted for 55.45% and Neimenggu
Huomeihongjun Aluminum-Electrolytic Co., Ltd accounted for 20.21%, respectively,
of our total cost of raw materials for fiscal year 2008. Although we do not have
written supply contracts in existence with these two suppliers, we have
excellent long-term working relationships with both companies, and in the
unlikely event of supply shortages, it is our opinion that we can reasonably
expect to obtain similar quantities and qualities of raw materials at the same
or slightly higher prices through other suppliers from the open market.
According to our analysis, in general, the spot prices for the kind of raw
materials we use in our production are quite transparent and competitive; hence,
we do not believe our cost in case of supply shortage from our existing
suppliers would be substantially increased.
Major
Customers
Major
customers and their percentage of business based on revenues in years 2009 and
2008 are as follows:
40
Customer Name
|
Product(s)
purchased
|
Percentage
of Business
(Six
months
ended September
30, 2009)
|
Percentage of
Business
(Fiscal Year
2009)
|
Percentage of
Business
(Fiscal Year
2008)
|
||||||||||
Jinlin
Midas Aluminum
Industry
Co. Ltd.
|
Aluminum
alloy ingot and processing
|
99.70 | % | 90.71 | % | 81.83 | % | |||||||
Chongqing
Dragon Aluminum Enterprise Co. Ltd.
|
Aluminum
alloy ingot and processing
|
0.00 | % | 8.07 | % | 7.38 | % | |||||||
Huatai
Alloy Wheel Co. Ltd.
|
Aluminum
alloy ingot and processing
|
0.00 | % | 0.00 | % | 4.16 | % | |||||||
Haerbin
Dongqing
Mfg.
Co. Ltd. and Others
|
Aluminum
alloy ingot, Processing & Raw Material Trading
|
0.30 | % | 1.22 | % | 6.63 | % | |||||||
Total:
|
100.00 | % | 100.00 | % | 100.00 | % |
Intellectual
Property
We have
no intellectual property material to our business.
Research and
Development
We have
not had any material research and development expenses over the past two
years.
Doing Business in the
PRC
The PRC Legal
System
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. In
addition, as these laws, regulations and legal requirements are relatively
recent, their interpretation and enforcement involve significant
uncertainty.
Political and Trade
Relations with the United States
Political
and trade relations between the U.S. and the PRC government during the past five
years have been volatile and may continue to be in the future. There can be no
assurance that the political and trade ramifications of these causes of
volatility or the emergence of new causes of volatility will not cause
difficulties in our operations in the PRC marketplace.
41
Economic Reform
Issues
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 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 interpretation of laws or regulations), measures
which may be introduced to control inflation, changes in the interest rate or
method of taxation, and the imposition of additional restrictions on currency
conversion.
There can
be no assurance that the reforms to the PRC's economic system will continue or
that we will not be adversely affected by changes in the PRC's political,
economic, and social conditions and by changes in policies of the government,
such as changes in laws and regulations, measures which may be introduced to
control inflation, changes in the rate or method of taxation, imposition of
additional restrictions on currency conversion and remittance abroad, and
reduction in tariff protection and other import restrictions.
Employees
We have
85 full-time employees, as follows:
Clerical
- 8
Operations
- 58
Administrative
- 3
Management
-9
Sales
-3
Janitorial
- 4
We
consider our relationship with our employees to be excellent.
42
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis of the financial condition and results of our
operations should be read in conjunction with our financial statements and the
notes thereto which appear elsewhere in this Prospectus. The results shown
herein are not necessarily indicative of the results to be expected for any
future periods.
Forward-Looking
Statements
This
Management’s discussion contains forward-looking statements, based on current
expectations. All statements regarding future events, our future financial
performance and operating results, our business strategy and our financing plans
are forward-looking statements and involve risks and uncertainties. In many
cases, you can identify forward-looking statements by terminology, such as
"may," "will," "should," "expects," "intends," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue," or the negative
of such terms and other comparable terminology. These statements are only
predictions. Known and unknown risks, uncertainties and other factors could
cause our actual results and the timing of events to differ materially from
those projected in any forward-looking statements. In evaluating these
statements, you should specifically consider various factors, including, but not
limited to, those set forth under "Summary Information and Risk Factors" and
elsewhere in this Prospectus.
Overview
Luxon
Holdings, Inc. (“Luxon”) was incorporated in Nevada, USA on February 17, 2006 by
Liaoyuan Yinyuan Aluminum Alloy Company Limited (“Yinyuan”), to become the
holding company of Yinyuan.
We are in
the business of production, sales and trading of non-ferrous metal cast
processing of large-section aluminum alloy ingots.
Our
product lines cover a wide range of specifications of varied transformed
aluminum alloy cast ingots from category-1 to category-8, round-shaped ingots
with diameters of 300mm-550mm and square-shaped ingots with widths within
1800mm.
As a
non-ferrous metal cast processing producer, Yinyuan supplies large-section
aluminum alloy cast ingots to manufacturers that are engaged in the business of
producing aluminum alloy by means of extruding and casting. These manufacturers
(our customers) then supply their finished products, usually made-to-order, to
larger manufacturers. The finished products have been used in an array of
applications, which includes but not limited to the following uses: mass transit
rail vehicle profiles, sports and exhibition hall decorative materials, aviation
materials, and power-generation facilities.
43
Results of
Operations
Six months ended September
30, 2009 compared to six months ended September 30,
2008
1、
|
Sales
revenue
|
The net
sales revenue of the company was $13,154,791 for six months period ended
September, 30, 2009, which was $5,987,479 higher than the net sales revenue of
$7,167,312 for the same period ended September 30, 2008 resulting in a growth
rate of 84%. The reason of such a rise in sales revenue was primarily
due to the substantial increase of self-made aluminum ingot
business.
In the
six months period ended September 30, 2009, our self-made revenues increased to
99.72% of total net sales compared with 69.60% for six months ended September
30, 2008, which represented an increase of 43.27%
period-over-period. The main reason for the increase was due to our
largest customer – Jilin Midas Aluminum having received several sizable orders
as well as intensive capital expenditure on equipments during the same period,
which we believed, placed a much greater demand on their working capital, and as
a result Jilin Midas Aluminum placed only manufacturing orders during the period
with the Company. The Company has not shifted its previous strategies of trying
to engage more processing business; however, such types of purchasing decisions
ultimate lay with the customer.
For
Six Months Ended
|
||||||||||||||||||||||||
September
30,2009
|
September
30,2008
|
|||||||||||||||||||||||
Sales
revenues
in
tons(t)
|
Sales
revenue
|
Ratio
|
Sales
revenues
in
tons(t)
|
Sales
revenue
|
Ratio
|
|||||||||||||||||||
Manufacturing
revenue
|
6,631 | 13,117,551 | 99.72 | % | 2,001 | 5,047,747 | 69.60 | % | ||||||||||||||||
Processing
revenue
|
550 | 37,240 | 0.28 | % | 7,818 | 2,204,492 | 30.40 | % | ||||||||||||||||
Total
|
7,181 | 13,154,791 | 100.00 | % | 9,819 | 7,252,239 | 100.00 | % |
As shown
in the table above, the company’s total sales amount of self-made and processing
aluminum ingots together was 7,181t for the six months period ended
September 30, 2009, which was 2,638t less than the amount of 9,819t for the six
months period ended September 30, 2008, resulting in a decline of 26.87%.
However, the sales revenue of self-made ingot business has increased by 4,630t,
which was a 231.38% increases period-over-period. In accordance with the
Company's sales revenue recognition policy, self-made ingot business has full
revenue recognition whereas the processing ingot business is only recognized by
processing fees.
2、
|
Gross
profit
|
For
Six Months Ended
|
||||||||||||||||||||||||||||||||
September
30,2009
|
September
30,2008
|
|||||||||||||||||||||||||||||||
Category
|
Sales
revenue
|
Cost
of
goods
sold
|
Gross
profit
|
gross
profit rate
|
Sales
revenue
|
Cost
of
goods
sold
|
Gross
profit
|
gross
profit rate
|
||||||||||||||||||||||||
Manufacturing
revenue
|
$ | 13,117,551 | 12,269,582 | 847,969 | 6.46 | % | $ | 4,988,636 | 4,764,007 | 224,629 | 4.50 | % | ||||||||||||||||||||
Processing
revenue
|
37,240 | 20,546 | 16,694 | 44.83 | % | 2,178,676 | 972,167 | 1,206,509 | 55.38 | % | ||||||||||||||||||||||
Total:
|
$ | 13,154,791 | $ | 12,290,128 | $ | 864,663 | 6.57 | % | $ | 7,167,312 | $ | 5,736,174 | $ | 1,431,138 | 19.97 | % |
The
company’s gross profit for this six months period ended September 30, 2009 was
$864,663, which was $566,475 less than the amount of $1,431,138 for the same
period in fiscal year 2008, resulting in a decrease of 39.58%. The primary
reason for such a decrease was the general declining gross profit of our ingot
products for the same period (as shown in the table below), and the reasons
contributing to the overall decline in gross profit are as
follows:
44
1、
|
The impacts of the global economy
crisis. There has been a relatively small effect to different aspects of
the company in the first six months of fiscal year 2009 since the global
economic crisis was still at its initial stage. As the economy gradually
deepens, the Chinese government has implemented strong control measures to
improve the economy. However, there was still a negative effect to the
price of company’s upstream raw material ingot supply. The price
fluctuations of raw materials have led to an increasing cost of sales, and
therefore a declining gross profit margin as a direct result. At the same
time, the company's management has adjusted the selling prices of our
products timely and appropriately according to the market conditions.
Although the profit margin for the first six months of fiscal year 2009
has been compromised due to the price change, there would be long-term
beneficial effect for the company’s sustainable
development.
|
2、
|
The reduced overall profit margin
due to the business restructuring in the first six months of fiscal year
2009. According to the company's historical financial operating data, the
gross profit margin for the ingot processing business is higher than the
self-made ingot business for the same amount. Therefore, the increase in
the sales of self-made ingots for the first six months of fiscal year 2009
has led to a decrease in gross profit margin for the same
period.
|
3、
|
Selling, General and
Administrative Expenses (“SG
&A”)
|
The
Company’s SG &A in the first six month of fiscal year 2009 was $285,495, a
decrease of $330,489 compared to the amount of $615,984 for the previous year in
the same period, resulting in a declining rate of 54%.
The main
reason was the reduced personnel costs of the company’s United States-based
headquarters (hereinafter referred to as the U.S. Company). Such a decrease was
due to the successful operating management reform of the U.S. Company in the
fiscal year of 2010, such as streamlining relevant agencies and greatly reducing
associated expenditures, directly resulting in a decreased SG &A for the
same period.
4、
|
Interest
income
|
The
company’s interest income for the six months ended September 30, 2009 was
$7,939, a decrease of $15,260 compared to the amount of $23,199 for the previous
year in the same period, resulting in a declining rate of 65.78%. There are two
main reasons: First, there has been a decrease in the average bank deposit
balance for the U.S. company resulting in falling interest income; Second, the
increase of the self-made ingot business for the first six months of fiscal year
2009, which required the Company to use its working capital for purchasing raw
materials, resulting a decrease in the bank deposit balances and lower interest
income.
45
5、
|
Income tax
expenses
|
The
company’s income tax in the first six months of fiscal year 2009 was $87,940, a
decrease of $76,095 compared to the amount of $164,035 for the same period in
fiscal year 2008, resulting in a declining rate of 46.39%. The income tax
accounts for 15.05% of the first six month of fiscal year 2009 pre-tax profits,
whereas for the same period in fiscal year 2008, the income-tax accounts for
19.56% of the pre-tax profits, resulting in a difference of 4.51% as expected.
Reason for the differences is influences from Chinese government enterprise
various income tax laws.
6、
|
Cash and cash
equivalents and net cash
flow
|
Overview
The
Company had a cash and cash equivalents of $4,519,718 at the end of September
30, 2009, which was a $221,691 increase compared to the amount of $4,298,027 at
March 31, 2009. The relative net cash flow is shown in the table
below:
For Six Months Ended
|
||||||||
September 30,2009
|
September 30,2008
|
|||||||
Net
cash provided (used in) operating activities
|
$ | 83,777 | $ | 846,422 | ||||
Net
cash used in investing activities
|
(2,406 | ) | (14,697 | ) | ||||
Net
cash used in financing activities
|
135,990 | - | ||||||
Effect
of exchange rate changes on cash
|
4,330 | 76,523 | ||||||
Net
cash inflow (outflow)
|
$ | 221,691 | $ | 908,248 |
Operating
activities
The
company’s net cash flow for the first six months of fiscal year 2009 was
$83,777, a decrease of $762,645 compared to the amount of $846,422 in the same
period in fiscal year 2008, resulting in a decline of 90%. due to the
following:
A、There has been a
decrease of gross profit for the first six months of fiscal year 2009 compared
to the same period in fiscal year 2008, resulting in a reduced net cash
flow;
B、There has been an
increase in the self-made ingot business for the first six months of fiscal year
2009 compared to the same period in fiscal year 2008; therefore, the procurement
of raw materials has occupied a certain degree of the company’s working
capital.
C. The
Company’s inventory for the six-month period ended September 30, 2009 was
$2,193,377, an increase of $1,644,905 compared to the amount of $548,472 for the
six-month period ended March 31, 2009, resulting in an increase of 300%. The
increases of inventory led directly in the decline of cash or cash equivalents
for the same period.
Investing
activities
All of
the company’s investments made in the first six months of fiscal year 2009 and
same period in fiscal year 2008 are fixed-asset investments.
46
Financing
activities
The net
increase in Financing activities for the six months ended Semptember 2009 was
loan from Company's CEO Stephen Lee.There was no such loan occurred for the same
period last year 2008.
Twelve months ended March
31, 2009 compared to twelve months ended March 31, 2008
1. Sales
Net sales
in the fiscal year of 2009 were $15,466,606, decreasing by $8,793,207 or by
36.25% compared with the net sales income in fiscal year 2008, which were
$24,259,813, mainly due to a combination of the absence of raw material trading
in fiscal year 2008 and changes in the sales of products and service mix in
fiscal year 2009.
We made
adjustments to our business mix in fiscal year 2009, which caused a decrease of
net sales compared with the fiscal year of 2008.
For
the year ended
|
||||||||||||||||
March
31, 2009
|
March
31, 2008
|
|||||||||||||||
Business
category
|
Sales
revenues
in
tons(t)
|
Ratio
|
Sales
revenues
in
tons(t)
|
Ratio
|
||||||||||||
Manufacturing
revenue
|
6,080.50 | t | 35 | % | 8,506.22 | t | 47 | % | ||||||||
Processing
revenue
|
11,134.76 | t | 65 | % | 9,772.51 | t | 53 | % | ||||||||
Total
|
17,215.26 | t | 100 | % | 18,278.73 | t | 100 | % |
As shown
in the above table, the Company has two business models, namely, Production of
ingot model (also referred to as “Manufacturing Revenue”) and Processing of
ingot model (also referred to as “Processing Revenue”). The Manufacturing
Revenue model recognizes income based on all the sales revenues, and the
Processing Revenue model is based on the processing fee we charge. Assuming the
same tonnage of sales, the net sales ratio between the two different business
models is almost eight-to-one (8:1). For instance, in the fiscal year 2009, for
the Manufacturing Revenue model, the price of ingots averaged at $2,060/t, while
the price of Processing Revenue averaged at $264/t. However, in the
Manufacturing Revenue model, the Company needs to procure raw materials, which
requires substantial amount of the Company’s working capital, while in the
Processing Revenue model, the principal raw materials are provided to the
Company by its customers, and hence requires significantly less working capital.
In fiscal year of 2009, given the global financial crisis, the management
adjusted the Company’s operating strategies by adopting a more conservative
operating and financial approach, whereby we shifted towards doing more
Processing business, as a result, this led to the contraction of our overall net
sales, but it preserved a lot of the Company’s working capital in a time of
potentially prolonged market uncertainty.
47
2. Gross
profit
For
the year ended
|
||||||||||||||||||||||||
March
31, 2009
|
March
31, 2008
|
|||||||||||||||||||||||
Category
|
Sales
revenue
|
Cost
of
goods
sold
|
Gross
profit
|
Sales
revenue
|
Cost
of
goods
sold
|
Gross
profit
|
||||||||||||||||||
Manufacturing
revenue
|
$ | 12,529,695 | 11,647,978 | 881,717 | $ | 20,756,243 | 19,934,211 | 822,032 | ||||||||||||||||
Processing
revenue
|
2,936,911 | 1,496,170 | 1,440,741 | 2,559,122 | 1,113,877 | 1,445,245 | ||||||||||||||||||
Trade
(net)
|
- | - | - | 944,448 | - | 944,448 | ||||||||||||||||||
Total:
|
$ | 15,466,606 | 13,144,148 | 2,322,458 | 24,259,813 | 21,048,088 | 3,211,725 |
Our
company’s gross profits in the fiscal year of 2009 were $2,322,458, decreasing
by $889,267 or by 27.69% year-over- year, compared with the gross profits in the
fiscal year of 2008, which were $3,211,725. The main cause is explained in #1A
above - the absence of raw materials trading activities led directly to the
decrease of the gross profits of $944,448. However, with this factor ignored, in
the fiscal year of 2009, our company’s gross profits had increased by $55,181
compared with the fiscal year of 2008, which showed a steady growth of gross
profits from the main business lines of the Company.
3.
|
Selling, General &
Administrative Expenses (SG &
A)
|
The SG
& A in fiscal year 2009 were $1,122,104, increasing by $297,990 or 36.16%
year on year, compared with $824,114 in fiscal year 2008. The main reason was
because of the increase of overheads in our company’s headquarters in the U.S.
(hereinafter referred to as “Luxon Holdings HQ”). In the second half of 2008, in
relation to the Company’s need for capital operations, the Company stepped up
its hiring of management personnel and implemented salary increases, which
resulted in the incremental overheads increase of $297,990 compared with fiscal
year 2008. However, in light of the global financial crisis, starting from the
first quarter of fiscal year 2010, the Company instituted measures in terms of
Luxon Holdings HQ’s management structures and expenses, whereby the Company
streamlined its organizational structures to vigorously reduce relevant
expenditures, so it is estimated that, in fiscal year 2010, the SG & A
expenses would decrease substantially as compared with fiscal year
2009.
4.
|
Interest Income and
Interest Expenses
|
Interest
income: the Company’s interest income was $34,658 in fiscal year 2009 compared
with $62,390 in fiscal year 2008, decreasing by $27,732 or 44.5%, the main
reason for the decline was due to the increase of SG & A expenses, which led
to lower average bank balances.
Interest
expense: the Company’s interest expense was $0 in fiscal year 2009, interest
expense was $4,984 in fiscal year 2008, the Company did not obtain a loan nor
incur interest expenses in fiscal year 2009.
48
5.
|
Subsidy
income
|
The
Company’s income from subsidies was $0 in fiscal year 2009 compared with
$104,422 in fiscal year 2008. The subsidy income in fiscal year 2008 was from
the tax rebates afforded by the Business Bureau of the Liaoyuan Private Economic
Development Zone to Yinyuan. However, as the pertinent preferential tax rebate
policies had expired, the Company did not receive a tax rebate in fiscal year
2009, and does not expect to receive additional tax rebates in the foreseeable
future.
6.
|
Income
Tax
|
The
income taxes for fiscal year 2009 were $263,133, compared with fiscal year 2008
of $205,891, an increase of $57,242 or 27.80% year-over- year. The income tax
expense in fiscal year 2009 accounted for 21.30% of the pre-tax profits, while
the income tax expense in fiscal year 2008 accounted for 8.07% of the pre-tax
profits, marking a discrepancy of 12.23%, mainly because pursuant to the laws
and regulations in the PRC, Yinyuan, as a wholly-foreign-owned-enterprise
(“WFOE”) in the PRC, its income taxes were exempted in the first two calendar
years (starting from March 1, 2006, at the inception of becoming a WFOE and
ending on December 31, 2007) and reduced by 50% in the next three years (in
calendar year 2008, 2009 and 2010).
7.
|
Liquidity and Capital
Resources
|
The following is a summary
of our comparative cash flows:
For the year ended
|
||||||||
March 31, 2009
|
March 31, 2008
|
|||||||
Cash
flows from (used by):
|
||||||||
Operating
activities
|
$ | 802,003 | $ | 1,716,288 | ||||
Investing
activities
|
(93,164 | ) | (26,647 | ) | ||||
Financing
activities
|
- | (69,145 | ) |
Analysis
of cash flow changes between 2009 and 2008
Analysis
of cash flow for operating activities: The Company’s cash flow for operating
activities was $802,003 in fiscal year 2009 compared with $1,716,288 in fiscal
year 2008, decreasing by $914,285 as percentage of 53.27%, the reasons are
following:
A. The SG
& A expenses of the Luxon Holdings HQ in the 2009 fiscal year increased by
$298,010 over the 2008 fiscal year;
B. The
reductions of tax exemption in fiscal year 2009 as compared to $104,421 in
fiscal year 2008;
C. The
reductions of the accounts and taxes payable in the 2009 fiscal year resulted in
net cash outflow of $434,707 over the 2008 fiscal year.
Analysis
of cash flow for investing activities: All the Company’s investing activities
are for fixed additions.
Analysis
of cash flow for financing activities: The Company has no cash flows from
financing activities in fiscal year 2009, financing activities in 2008 were a
loan payment from purchasing an automobile.
49
8.
|
Critical Accounting
Policies and
Estimates
|
Revenue Recognition - Our
revenue recognition policy dictates that certain conditions have to be met in
order to realize and record such revenue; conditions such as (1) Persuasive
evidence of an arrangement exists, this means that there is an executed sales
order agreement in existence with our customer which specifies at minimum the
parties to the agreement, the type of products and/or scope of service to be
performed, (2) The price is fixed, (3) Delivery has occurred or services have
been rendered, which means that the agreed upon products and/or services have
been delivered, and (4) Collectibility is reasonably assured, which means
regular management reviews of customer’s current financial condition and recent
successful collection efforts.
There are
two main revenue models within our organization: one; manufacturing revenue
which involves the production of aluminum alloy ingots, and two; processing
revenue which is to provide processing services of aluminum alloy
ingots.
The major
difference between these two business models is the ownership of raw
materials. In the case of manufacturing revenue, the Company uses its
capital to purchase the principal raw materials to be used in the production and
retains ownership of these raw materials until they become finished goods and
valid delivery has been made to our customer. In the case of processing revenue,
the principal raw materials used to manufacture aluminum ingots are delivered to
the Company by the customer, and are owned by the customer throughout the entire
process.
Manufacturing
revenue
Accounting
Standards Codification (“ASC”) Topic 605-45-45 indicators for gross revenue
reporting are listed as follows:
i. The
Company is the primary obligor in the arrangement.
ii. The
Company has general inventory risk.
iii. The
Company has latitude in establishing prices.
iv. The
Company is involved in the determination of product
specifications.
v. The
Company has physical loss inventory risk, after customer order or during
shipping.
vi. The
Company changes the product or performs part of the service
Primary
and scrap aluminum are the most important raw material for aluminum ingot
manufacturing. During years ended 2009 and 2008, we purchased scrap
aluminum from one of our major vendors, Jilin Midas Aluminum Co., Ltd.,
”Jilin Midas”, who is also our major
customer.
|
As
transactions with Jilin Midas, are not on a commission or fee basis, the Company
records revenue from Jilin Midas on a gross rather than net basis based on the
above indicators.
Processing
revenue
a.
|
Raw
materials utilized in service arrangements must be delivered to our
facilities by our customers before manufacturing may begin, and that there
are no circumstances under which these raw materials are sold to a
customer to whom we also provide the service of manufacturing, where the
raw materials are already in our possession prior to negotiating the
service.
|
50
b.
|
Revenues
associated with processing revenue do not reflect the value of the
principal raw materials that are owned and provided by our
customers.
|
Inventory- Inventory is
stated at the lower of cost or market, determined by the weighted average
method. Work-in-progress and finished goods inventories consist of raw
materials, direct labor and overhead associated with the manufacturing
process.
Trade accounts receivable–
Trade accounts receivable are stated at cost, net of allowance for doubtful
accounts. Based on the above assessment, during the reporting years, management
establishes the general provisioning policy to make the allowance equivalent to
100% of the gross amount of trade receivables due over 1 year. Additional
specific provision is made against trade receivables aged less than 1 year to
the extent which they are considered to be doubtful.
Property, plant and
equipment- Property, plant and equipment are stated at cost including the
cost of improvements. Maintenance and repairs are charged to expense as
incurred. Assets under construction are not depreciated until construction is
completed and the assets are ready for their intended use. Depreciation and
amortization are provided on the straight-line method based on the estimated
useful lives of the assets as follows:
Buildings
|
40 years
|
Furniture
and fixture
|
3-5 years
|
Machinery
and equipment
|
15 years
|
Computer
equipment
|
3-5 years
|
Motor
vehicles
|
5 years
|
Valuation of long-lived
assets-The Company periodically evaluates the carrying value of
long-lived assets to be held and used, including intangible assets subject to
amortization, when events and circumstances warrant such a review. The carrying
value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable and is less
than its carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair market value of the long-lived
asset. Fair market value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved. Losses on
long-lived assets to be disposed of are determined in a similar manner, except
that fair market values are reduced for the cost to dispose.
Income taxes- Income taxes are
provided on an asset and liability approach for financial accounting and
reporting of income taxes. Any tax paid by subsidiaries during the year is
recorded. Current tax is based on the profit or loss from ordinary activities
adjusted for items that are non-assessable or disallowable for income tax
purposes and is calculated using tax rates that have been enacted or
substantively enacted at the balance sheet date. Deferred income tax liabilities
or assets are recorded to reflect the tax consequences in future years of
differences between the tax basis of assets and liabilities and the financial
reporting amounts at each year end. A valuation allowance is recognized if it is
more likely than not that some portion, or all, of a deferred tax asset will not
be realized.
51
Post-retirement and post-employment
benefits-The Company’s subsidiaries contribute to a state pension scheme
in respect of its PRC employees. Other than the above, neither the Company nor
its subsidiaries provide any other post-retirement or post-employment
benefits.
Use of estimates- The
preparation of the Company’s financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The financial statements include some amounts that are based on
management’s best estimates and judgments. These accounts and estimates include,
but are not limited to, the valuation of accounts receivable, other receivables,
inventories, deferred income taxes, and the estimation on useful lives of
property, plant and equipment. These estimates may be adjusted as more current
information becomes available, and any adjustment could be
significant.
9.
|
Prospects in the Next
Fiscal Year
|
Since the
global financial crisis started last year, in order to prevent or alleviate
direct and indirect impacts of the global economic crisis on the Chinese
economy, based on the need to stimulate domestic demands, the Chinese State
Council has made and promulgated 10 big measures and planned to invest US$586
billion in the following two years (2009-2010) as stimulus to the economy. The
10 big measures have clarified that they will accelerate large infrastructure
constructions such as railways, highways, airports, etc. According to the data
released by the Chinese National Development and Reform Commission on May 21,
2009, of the investments of US$586 billion, US$220 billion will be invested in
large infrastructure constructions such as railways, highways, airports, water
conservancy projects, renovations of urban electric grids, and the building of
express railways.
The
Management believes that the build-out of the railways and production of these
trains will need large quantities of aluminum alloy ingot as the raw materials,
and given our experience tells us that for every ton of finished aluminum alloy
profile product, the quantity of aluminum alloy ingots required is approximately
1.5-1.7 tons, we are cautiously optimistic about our Category-6 rail profile
product going forward.
However,
taking on additional new businesses may be somewhat dependent upon the Company’s
ability to obtain outside financing for the expansion of our current production
capacity. There is no
assurance that we can raise the necessary capital, be approved for a loan or
obtain financing at the terms and conditions acceptable to the Company. If we
are unable to do so, we may not be able to carry out our growth plans, which may
or may not negatively impact our operating results and financial
conditions.
DESCRIPTION
OF PROPERTY
California, USA -
17890 Castleton Street #383, City of Industry, CA 91748 is our US headquarters,
which is consisted of 1,359 square feet of leased office space, the monthly rent
is $3,710 with the lease expiring on 5/31/2010.
52
Liaoyuan, China -
Fuzhen Industries Park, Liao Yuan City, Jilin Province, China 136200 is our
production facility, which is consisted of the following:
|
|
27,998
square feet of smelting plants;
|
|
22,231
square feet of office and administrative
building;
|
|
5,056
square feet of employee dormitory and cafeteria; and
|
|
|
432
square feet of guard post located at the entrance gate of the
premise.
|
We own
the afore-mentioned improvements and production facilities free and clear of
encumbrances. However, according to the laws of the PRC, the government owns all
of the land in the PRC. Companies or individuals are authorized to possess and
use the land only through land use rights granted by the PRC government. Land
use rights are amortized using the straight-line method over the lease term of
50 years. At March 31, 2009 and 2008 land use rights balance totaled $354,088
and $351,874, respectively. Amortization expense for the years ended March 31,
2009 and 2008 was $7,495 and $6,892, respectively.
The
properties are adequate for current needs.
We do not
intend to renovate, improve, or develop properties. We are not subject to
competitive conditions for property and currently have no property to insure. We
have no policy with respect to investments in real estate or interests in real
estate and no policy with respect to investments in real estate mortgages.
Further, we have no policy with respect to investments in securities of or
interests in persons primarily engaged in real estate activities.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
There is
no established public trading market for our securities and a regular trading
market may not develop, or if developed, may not be sustained. A shareholder in
all likelihood, therefore, will not be able to resell his or her securities
should he or she desire to do so when eligible for public resales. Furthermore,
it is unlikely that a lending institution will accept our securities as pledged
collateral for loans unless a regular trading market develops. We have no plans,
proposals, arrangements, or understandings with any person with regard to the
development of a trading market in any of our securities.
Options, Warrants,
Convertible Securities
There are
no options, warrants or convertible securities outstanding.
53
Penny Stock
Considerations
Our
shares will be "penny stocks" as that term is generally defined in the
Securities Exchange Act of 1934 to mean equity securities with a price of less
than $5.00. Our shares thus will be subject to rules that impose sales practice
and disclosure requirements on broker-dealers who engage in certain transactions
involving a penny stock.
Under the
penny stock regulations, a broker-dealer selling a penny stock to anyone other
than an established customer or accredited investor must make a special
suitability determination regarding the purchaser and must receive the
purchaser's written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. Generally, an individual with a net worth in
excess of $1,000,000, or annual income exceeding $100,000 individually or
$300,000 together with his or her spouse, is considered an accredited investor.
In addition, under the penny stock regulations the broker-dealer is required
to:
|
·
|
Deliver,
prior to any transaction involving a penny stock, a disclosure schedule
prepared by the Securities and Exchange Commission relating to the penny
stock market, unless the broker-dealer or the transaction is otherwise
exempt;
|
|
·
|
Disclose
commissions payable to the broker-dealer and our registered
representatives and current bid and offer quotations for the
securities;
|
|
·
|
Send
monthly statements disclosing recent price information pertaining to the
penny stock held in a customer's account, the account's value and
information regarding the limited market in penny stocks;
and
|
|
·
|
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, prior to conducting any penny stock transaction in the
customer's account.
|
Because
of these regulations, broker-dealers may encounter difficulties in their attempt
to sell shares of our common stock, which may affect the ability of selling
shareholders or other holders to sell their shares in the secondary market and
have the effect of reducing the level of trading activity in the secondary
market. These additional sales practice and disclosure requirements could impede
the sale of our securities, if our securities become publicly traded. In
addition, the liquidity for our securities may be decreased, with a
corresponding decrease in the price of our securities. Our shares in all
probability will be subject to such penny stock rules and our shareholders will,
in all likelihood, find it difficult to sell their securities.
OTC Bulletin Board
Qualification for Quotation
To have
our shares of common stock on the OTC Bulletin Board, a market maker must file
an application on our behalf in order to make a market for our common stock. We
have engaged in preliminary discussions with an FINRA Market Maker to file our
application on Form 211 with the FINRA, but as of the date of this prospectus,
no filing has been made. Based upon our counsel’s prior experience, we
anticipate that after this registration statement is declared effective, it will
take approximately 2 – 8 weeks for the FINRA to issue a trading
symbol.
54
Sales of our Common Stock
under Rule 144.
There are
16,137,100 shares of our common stock held by non- affiliates and 4,667,900
shares held by affiliates Rule 144 of the Securities Act of 1933 defines as
restricted securities.
16,137,100
of our shares held by non-affiliates are currently eligible for resale or are
being registered in this offering; however, affiliates will still be subject to
the resale restrictions of Rule 144. Shares held by affiliates must be sold in
compliance with Rule 144, notwithstanding their inclusion in this registration
statement. In general, persons holding restricted securities, including
affiliates, must hold their shares for a period of at least one year, may not
sell more than one percent of the total issued and outstanding shares in any
90-day period, and must resell the shares in an unsolicited brokerage
transaction at the market price. These restrictions do not apply to resales
under Rule 144(k). The availability for sale of substantial amounts of common
stock under Rule 144 could reduce prevailing market prices for our
securities.
Holders
As of the
date of this registration statement, we had approximately 486 shareholders of
record of our common stock.
Dividends
Prior to
the acquisition of Yinyuan, we had agreed and have since paid in fiscal year
2007, a one-time cash dividend in the aggregate amount of $705,639 to the
pre-acquisition shareholders. This left us with an outstanding balance of
$312,500 in unpaid dividend, which on February 22, 2007, after extensive
negotiations, we were able to reach an agreement whereby the pre-acquisitions
shareholders agreed to forgive the remaining outstanding balances of $312,500.
Going forward, we do not anticipate paying such dividends in the foreseeable
future. We plan to retain any future earnings for use in our business. Any
decisions as to future payments of dividends will depend on our earnings and
financial position and such other facts, as the Board of Directors deems
relevant.
Current
regulations in China would permit our operating company in China to pay
dividends to us only out of its accumulated distributable profits, if any,
determined in accordance with Chinese accounting standards and regulations. In
addition, our operating company in China will be required to set aside at least
10% (up to an aggregate amount equal to half of its registered capital) of its
accumulated profits each year. Such cash reserves may not be distributed as cash
dividends. In addition, if our operating company in China incurs debt on its own
behalf in the future, the instruments governing the debt may restrict its
ability to pay dividends or make other payments to us.
55
Reports to
Shareholders
As a
result of this offering, we will become subject to the information and reporting
requirements of the Securities Exchange Act of 1934 and will file periodic
reports, proxy statements, and other information as required by the Securities
and Exchange Commission. Thereafter, we will continue as a voluntary reporting
company and will not be subject to the proxy statement or other information
requirements of the 1934 Act. We are not required under Section 12(g) or
otherwise to become a mandatory 1934 Act filer unless we have more than 500
shareholders and total assets of more than $10 million on or after March 31,
2009. However, regardless of the amount of our assets or number of shareholders
on or after September 30, 2009, we will file a registration statement on Form
8-A on or before September 30, 2009 and thereafter will be subject to the proxy
statement and other information requirements of the 1934 Act. We will
voluntarily send an annual report to shareholders containing audited financial
statements.
Where You Can Find
Additional Information
We have
filed with the Securities and Exchange Commission a registration statement on
Form S-1. For further information about us and the shares of common stock to be
sold in the offering, please refer to the registration statement and the
exhibits and schedules thereto. The registration statement and exhibits may be
inspected, without charge, and copies may be obtained at prescribed rates, at
the SEC's Public Reference Room at 100 F St., N.E., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The registration statement and other
information filed with the SEC are also available at the web site maintained by
the SEC at http://www.sec.gov.
56
LUXON
HOLDINGS, INC.
Consolidated
Balance Sheets
(US
Dollars)
September 30,
|
March 31
|
|||||||
2009
(Unaudited)
|
2009
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 4,519,718 | $ | 4,298,027 | ||||
Accounts
receivable
|
24,915 | 1,408,466 | ||||||
Prepaid
expenses and others
|
2,440 | 5,352 | ||||||
Advances
to suppliers
|
863,019 | 6,991 | ||||||
Taxes
receivable
|
132,125 | - | ||||||
Inventories
|
2,193,377 | 548,472 | ||||||
Total
current assets
|
7,735,594 | 6,267,308 | ||||||
Property,
plant and equipment, net
|
2,558,336 | 2,638,266 | ||||||
Security
deposit
|
4,320 | 4,320 | ||||||
Investment
at cost
|
636,665 | 636,040 | ||||||
Intangible-land
use right
|
350,665 | 354,088 | ||||||
Total
assets
|
$ | 11,285,580 | $ | 9,900,022 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 1,212,131 | $ | 379,693 | ||||
Advances
from customers
|
8,482 | 268 | ||||||
Accrued
expenses and other liabilities
|
73,180 | 101,779 | ||||||
Related
Party Loan Payable
|
135,990 | — | ||||||
Taxes
payable
|
- | 68,454 | ||||||
Total
current liabilities
|
1,429,783 | 68,454 | ||||||
Total
liabilities
|
1,429,783 | 550,194 | ||||||
STOCKHOLDERS’
EQUITY
|
||||||||
Common
stock (par value
$0.001; 100,000,000 authorized; 20,805,000 shares issued and
outstanding)
|
20,805 | 20,805 | ||||||
Additional
paid in capital
|
3,562,906 | 3,562,906 | ||||||
Retained
earnings
|
5,307,003 | 4,810,522 | ||||||
Accumulated
other comprehensive income
|
965,083 | 955,595 | ||||||
Total
stockholders' equity
|
9,855,797 | 9,349,828 | ||||||
Total
liabilities and stockholders' equity
|
$ | 11,285,580 | $ | 9,900,022 |
See
accompanying notes to consolidated financial statement
57
LUXON
HOLDINGS, INC.
Consolidated
Statements of Income and Comprehensive Income(Unaudited)
(US
Dollars)
For the Six Months Ended
|
||||||||
September 30,
|
September 30,
|
|||||||
2009
|
2008
|
|||||||
Sales
revenues:
|
||||||||
Manufacturing
revenue
|
$ | 13,117,551 | $ | 4,988,636 | ||||
Processing
revenue
|
37,240 | 2,178,676 | ||||||
Total
sales revenues
|
13,154,791 | 7,167,312 | ||||||
Cost
of revenues:
|
||||||||
Manufacturing
|
12,269,582 | 4,764,007 | ||||||
Processing
|
20,546 | 972,167 | ||||||
Total
cost of revenues
|
12,290,128 | 5,736,174 | ||||||
Gross
profit
|
864,663 | 1,431,138 | ||||||
Operating
expenses :
|
||||||||
Selling,
general and administrative expenses
|
285,495 | 615,984 | ||||||
Total
operating expenses
|
285,495 | 615,984 | ||||||
Net
operating income
|
579,168 | 815,154 | ||||||
Other
income (expense)
|
||||||||
Interest
income
|
7,939 | 23,199 | ||||||
Interest
expense
|
(2,730 | ) | - | |||||
Others
|
44 | 325 | ||||||
Total
other income
|
5,253 | 23,524 | ||||||
Net
income before income taxes
|
584,421 | 838,678 | ||||||
Income
taxes
|
87,940 | 164,035 | ||||||
Net
income
|
$ | 496,481 | $ | 674,643 | ||||
Foreign
currency translation adjustments
|
9,488 | 186,937 | ||||||
Comprehensive
income
|
$ | 505,969 | $ | 861,580 | ||||
Basic
and diluted earnings per share
|
$ | 0.02 | $ | 0.03 | ||||
Basic
and diluted weighted average shares outstanding
|
20,805,000 | 20,805,000 |
See
accompanying notes to consolidated financial statement
58
LUXON
HOLDINGS, INC.
Consolidated
Statements of Cash Flows(Unaudited)
(US
Dollars)
For the Six Months Ended
|
||||||||
September 30,
|
September 30,
|
|||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 496,481 | $ | 674,643 | ||||
Adjustments to reconcile
net income to net
cash provided by (used in) operations:
|
||||||||
Depreciation
and amortization
|
88,610 | 83,603 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
1,384,163 | 39,874 | ||||||
Advances
to suppliers
|
(855,545 | ) | -67,269 | |||||
Prepaid
expenses & others
|
2,916 | 14,289 | ||||||
Tax
receivable
|
(132,125 | ) | ||||||
Inventories
|
(1,643,452 | ) | 173,110 | |||||
Accounts
payable
|
831,602 | 130,978 | ||||||
Advances
from customers
|
8,209 | (2,814 | ) | |||||
Taxes
payable
|
(66,964 | ) | (166,088 | ) | ||||
Accrued
expenses and other liabilities
|
(30,118 | ) | (33,904 | ) | ||||
Net
cash provided by operating activities
|
83,777 | 846,422 | ||||||
Cash flows from investing
activities:
|
||||||||
Fixed
asset additions
|
(2,406 | ) | (14,697 | ) | ||||
Net
cash provided by (used in) investing activities
|
(2,406 | ) | (14,697 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Loan
from related party
|
135,990 | - | ||||||
Net
cash provided by (used in) financing activities
|
135,990 | - | ||||||
Effect
of exchange rate changes on cash
|
4,330 | 76,523 | ||||||
Increase
in cash and cash equivalents
|
221,691 | 908,248 | ||||||
Cash
and cash equivalents,beginning of period
|
4,298,027 | 3,506,249 | ||||||
Cash
and cash equivalents,end of period
|
$ | 4,519,718 | $ | 4,414,497 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Interest
paid in cash
|
$ | - | $ | 21 | ||||
Income
taxes paid in cash
|
86,116 | 324,525 |
See
accompanying notes to consolidated financial statement
59
Luxon
Holdings, Inc.
Notes
to the Consolidated Fianancial Statements
1.
|
Nature
of Operations
|
Luxon
Holdings, Inc. (hereinafter referred to Luxon) was incorporated in Nevada, USA
on February 17, 2006 by Liaoyuan Yinyuan Aluminum Alloy Company Limited,
(hereinafter referred to Yinyuan) to become the holding company of
Yinyuan.
Yinyuan
was incorporated in Jilin Province, China on July 15, 2002 and owned by Jilin
Province Tianxin Economic and Trade Ltd. (a PRC Company) and Mr. Gao Ge. On
March 6, 2006, Luxon issued 11 million shares of its common stock to Yinyuan’s
shareholders in exchange for 100% of ownership. Simultaneously, a $1.25 million
cash dividend was declared.
As a
result of this transaction, Yinyuan became a wholly-foreign owned enterprise
(“WFOE”) under PRC law during March 2006. The transaction was accounted for as a
recapitalization of Yinyuan. The accounting is identical to that resulting from
a reverse acquisition, except that no goodwill or other intangible should be
recorded. The recapitalization is considered to be a capital transaction in
substance, rather than a business combination. No assets or liabilities were
transferred from Luxon to Yinyuan in the recapitalization transaction, as the
recapitalization transaction was accounted for at historical cost basis, and
that the financial statements provided reflected the historical financial
statements of Yinyuan.
The major
business of Yinyuan is production and sales of aluminum alloy products and their
value-added processing. Its business operation modes include production,
processing, sales and service.
2.
|
Basis
of Presentation
|
The
consolidated financial statements include the accounts of Luxon and Yinyuan
together “the Company”. All material intercompany accounts and transactions have
been eliminated in consolidation.
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“US GAAP”). This basis differs from that used in the statutory accounts of
Yinyuan, which were prepared in accordance with the accounting principles and
relevant financial regulations applicable to enterprises in the
PRC.
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article
210.8-03 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included. All such adjustments are of a normal recurring nature.
Operating results for the six month period ended September 30, 2009, are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 2010. For further information refer to the consolidated
financial statements and footnotes thereto included in the Company’s annual
financial report for the year ended March 31, 2009.
3.
|
Summary
of Significant Accounting Policies
|
(1)
|
Economic
and Political Ricks
|
The
Company faces a number of risks and challenges as a result of having primary
operations and markets in the PRC. Changing political climates in the PRC could
have a significant effect on the Company’s business performance.
(2)
|
Restrictions
on Transfer of Assets Out of the
PRC
|
Dividend
payments by Yinyuan are limited by certain statutory regulations in the PRC. No
dividends may be paid by Yinyuan without first receiving prior approval from the
PRC Foreign Currency Exchange Management Bureau. Dividend payments are
restricted to 90% of profits after tax. However, no such restrictions existed
with respect to loans or advances.
60
(3)
|
Cash
and Cash Equivalents
|
For the
purposes of the cash flow statements, cash and cash equivalents include cash on
hand and demand deposits held by banks. Cash deposits in PRC banks are not
insured by any government agency or entity. Cash deposits in US banks are
guaranteed by the Federal Deposit Insurance Corporation to a maximum of
$250,000. At September 30, 2009 and March 31, 2009, the Company had $12,950 and
$6,757 in two US banks.
(4)
|
Revenue
Recognition
|
Our
revenue recognition policy dictates that there are certain conditions have to be
met in order to realize and record such revenue; conditions such as (1)
Persuasive evidence of an arrangement exists, this means that there is a valid
sales order in existence with our customer which specifies at minimum the
parties to the contract, the type of products and/or scope of service to be
performed, (2) The price is fixed, (3) Delivery has occurred or services have
been rendered, which means that the agreed upon products and/or services have
been delivered, and (4) Collectibility is reasonably assured, which means
regular management reviews of customer’s current financial condition and recent
successful collection efforts.
There are
two main revenue models within our organization: one; manufacturing revenue
which involves the production of aluminum alloy ingots, and two; processing
revenue which is to provide processing services of aluminum alloy
ingots.
The major
difference between these two business models is the ownership of raw
materials. In the case of manufacturing revenue, the Company uses its
capital to purchase the principal raw materials to be used in the production and
retains ownership of these raw materials until they become finished goods and
valid delivery has been made to our customers. Whereas in the case of processing
revenue, the principal raw materials used to manufacture aluminum ingots are
delivered to the Company by the customers, and they are owned by the customers
throughout the entire process.
Manufacturing
revenue
According
to Accounting Standards Codification (“ASC”) Topic 605-45-45, indicators for
gross revenue reporting are listed as follows:
i. The
Company is the primary obligor in the arrangement.
ii. The
Company has general inventory risk.
iii. The
Company has latitude in establishing prices.
iv. The
Company is involved in the determination of product
specifications.
v. The
Company has physical loss inventory risk, after customer order or during
shipping.
vi. The
Company changes the product or performs part of the service
Processing
revenue
a.
|
Raw
materials utilized in service arrangements must be delivered to our
facilities by our customers before manufacturing may begin, and that there
are no circumstances under which these raw materials are sold to a
customer to whom we also provide the service of manufacturing, where the
raw materials are already in our possession prior to negotiating the
service.
|
b.
|
Revenues
associated with processing revenue do not reflect the value of the
principal raw materials that are owned and provided by our
customers.
|
(5)
|
Accounts
receivable
|
Trade
accounts receivable are recognized and carried at original invoice amount less
an allowance for any uncollectible amounts. Management reviews past due accounts
on a regular basis and determines collectability based on a customer’s current
financial condition and recent payment history, and the Company’s success in
recent collection efforts. An estimate for doubtful accounts is made when
collection of the full amount becomes questionable. No such amount was deemed
necessary at September 30, 2009 and March 31, 2009.
As at
September 30, 2009 and March 31, 2009, customer accounts receivable balance
exceeding 10% of the total balance is as follows:
61
September 30, 2009
|
March 31, 2009
|
|||||||||||||||
Customers
|
Amount
|
Percentage
|
Amount
|
Percentage
|
||||||||||||
Jilin
Midas Aluminium Co., Ltd.
|
$ | - | 0.00 | % | $ | 1,377,565 | 97.81 | % | ||||||||
China
Wheel Co., Ltd
|
23,478 | 94.23 | % | 23,455 | 1.67 | % | ||||||||||
Others
|
1,437 | 5.77 | % | 7,446 | 0.52 | % | ||||||||||
Total
|
$ | 24,915 | 100.00 | % | $ | 1,408,466 | 100.00 | % |
(6)
|
Property,
Plant, and Equipment
|
Property,
plant and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method over the useful lives of the assets. Amortization of leasehold
improvements is calculated on a straight-line basis over the life of the asset
or the term of the lease, whichever is shorter. Major renewals and betterments
are capitalized and depreciated; maintenance and repairs that do not extend the
life of the respective assets are charged to expense as incurred. Upon disposal
of assets, the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is included in income. Depreciation related to
property and equipment used in production is reported in cost of
sales. Property and equipment are depreciated over their estimated useful
lives as follows:
Buildings
|
40
years
|
|
Machinery
and equipment
|
15
years
|
|
Automobiles
|
5
years
|
|
Computer
equipment
|
3-5
years
|
|
Furniture
and fixtures
|
3-5
years
|
September 30, 2009
|
March 31, 2009
|
|||||||
Buildings
|
$ | 1,936,613 | $ | 1,934,714 | ||||
Machinery
and equipment
|
1,182,693 | 1,179,907 | ||||||
Automobiles
|
176,983 | 176,905 | ||||||
Computers
|
33,602 | 33,572 | ||||||
Furniture
and fixtures
|
88,467 | 87,612 | ||||||
Total
|
3,418,358 | 3,412,710 | ||||||
Accumulated
depreciation
|
(860,022 | ) | (774,444 | ) | ||||
Net
property, plant and equipment
|
$ | 2,558,336 | $ | 2,638,266 |
For the six months ended
|
||||||||
September 30, 2009
|
September 30, 2008
|
|||||||
Depreciation
expenses during the period:
|
||||||||
General
and administrative
|
$ | 23,207 | $ | 23,598 | ||||
Cost
of revenues
|
61,634 | 56,281 | ||||||
Total
|
$ | 84,841 | $ | 79,879 |
Long-term
assets of the Company are reviewed annually to assess whether the carrying value
has become impaired, according to the guidelines established in ASC Topic
360-10-5, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The
Company also evaluates the periods of amortization to determine whether
subsequent events and circumstances warrant revised estimates of useful lives.
No impairment of assets was recorded in the periods reported.
(7)
|
Intangible
Assets - Land Use Rights
|
We
adopted the provisions of ASC Topic 350-50, “Goodwill and Other Intangible
Assets”, effective January 1, 2002. According to the laws of the PRC, the
government owns all of the land in the PRC. Companies or individuals are
authorized to possess and use the land only through land use rights granted by
the PRC government. Land use right is amortized using the straight-line method
over the lease term of 50 years. At September 30, 2009 and March 31, 2009, land
use right balance totaled $350,665 and $354,088, respectively; the amortization
expense for the six months ended September 30, 2009 and
September 30, 2008 were $3,769 and $3,724, respectively.
62
(8)
|
Inventories
|
Inventories
consist of raw materials and work in process for the production of the Company’s
products, as well as finished goods. The inventories are valued at
the lower of cost or market using the weighted average
method. Impairment and changes in market value are evaluated on a per
item basis. If the cost of the inventory exceeds the market value evaluation
based on total inventory, provisions are made for the difference between the
cost and the market value. Provision for potential obsolete or slow moving
inventory is made based on analysis of inventory levels, age of inventory and
future sales forecasts. Inventories consisted of the following:
September 30, 2009
|
March 31, 2009
|
|||||||
Raw
materials
|
$ | 1,346,315 | $ | 445,910 | ||||
Work
in process
|
738,114 | 81,369 | ||||||
Finished
goods
|
108,948 | 21,193 | ||||||
Total
|
$ | 2,193,377 | $ | 548,472 |
(9)
|
Foreign
Currency and Comprehensive Income
|
On July
21, 2005, the PRC changed its foreign currency exchange policy from a fixed
RMB/USD exchange rate into a flexible rate under the control of the PRC’s
government. The accompanying financial statements are presented in US dollars.
The functional currency is the Renminbi(“RMB”) of the PRC. The financial
statements are translated into US dollars from RMB at year-end exchange rates
for assets and liabilities, and weighted average exchange rates for revenues and
expenses. Capital accounts are translated at their historical exchange rates
when the capital transactions occurred.
RMB is
not freely convertible into the currency of other nations. All such exchange
transactions must take place through authorized institutions. There is no
guarantee the RMB amounts could have been, or would be, converted into US
dollars at rates used in translation.
(10)
|
Income
Taxes
|
The
Company adopts the ASC Topic 740, “Income Taxes” regarding accounting for
uncertainty in income taxes which prescribes the recognition threshold and
measurement attributes for financial statement recognition and measurement of
tax positions taken or expected to be taken on a tax return. In addition, the
guidance requires the determination of whether the benefits of tax positions
will be more likely than not sustained upon audit based upon the technical
merits of the tax position. For tax positions that are determined to be more
likely than not sustained upon audit, a company recognizes the largest amount of
benefit that is greater than 50% likely of being realized upon ultimate
settlement in the financial statements. For tax positions that are not
determined to be more likely than not sustained upon audit, a company does not
recognize any portion of the benefit in the financial statements. The guidance
provides for de-recognition,
classification, penalties and interest, accounting in interim periods and
disclosure. As of September 30, 2009, the Company did not have any
significant unrecognized uncertain tax positions.
The
Company accounts for its income taxes in accordance with ASC Topic 740, which
requires recognition of deferred tax assets and liabilities and their respective
tax bases and any tax credit carry forwards available. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The
Company conducts major businesses in the PRC and is subject to tax in this
jurisdiction. As a result of its business activities, the Company files tax
returns that are subject to examination by the foreign tax
authority.
(11)
|
Estimates
|
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
63
(12)
|
Risks
and Uncertainties
|
The
Company’s products are subject to market pricing pressure which could impact the
Company’s gross margin and the recoverability of the recorded inventory value.
Management monitors its inventory quantities in an effort to minimize the impact
on its results of operations resulting from decreasing sales prices. No estimate
can be made of possible losses that could result from future sales price
reductions.
(13)
|
Research
and Development
|
Research
and development costs are charged to expense as incurred. Research and
development costs consist primarily of remuneration for research and development
staff, depreciation and maintenance expenses of research and development
equipment, and material and testing costs for research and development. Such
expenses have not yet occurred to the Company for the peirods ended September
30, 2009 and 2008.
(14)
|
Shipping
and Handling
|
The
Company’s shipping and handling costs for purchasing raw materials were charged
to cost of revenues. Shipping and handling amounts billed to customers in
related sales transactions are included in sales revenues.
(15)
|
Segment
Reporting
|
ASC Topic
280, “Disclosure about Segments of an Enterprise and Related Information”
requires use of the management approach model for segment reporting. The
management approach model is based on the way a company's management organizes
segments within the company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure, or any other manner in which management
disaggregates a company.
Accordingly,
the Company has reviewed its business activities and determined that multiple
segments do not exist to be reported.
(16)
|
Advertising
and Promotion Expense
|
Advertising
and promotional costs are expensed as incurred. The Company incurred no such
expenses during the six months ended September 30, 2009 and 2008,
respectively.
(17)
|
Fair
Value of Financial Instruments
|
ASC
Topic 825, “Disclosures about Fair Value of Financial Instruments”, requires
that the Company to disclose estimated fair values of financial instruments. The
carrying amounts reported in the statements of financial position for current
assets and current liabilities qualifying as financial instruments are a
reasonable estimate of fair value due to the short-term maturity of these
instruments.
The fair
values of all other assets and liabilities do not differ materially from their
carrying amounts. None of the financial instruments held are derivative
financial instruments and none were acquired or held for trading purposes in
2009 and 2008.
4.
|
Advances
to Suppliers
|
Advances
to suppliers represent the cash paid in advance for purchasing raw materials
which is to stabilize the raw material unit cost. At September 30, 2009 and
March 31, 2009, advances to suppliers balance totaled $863,019 and $6,991,
respectively
5.
|
Long-term
Investment
|
During
December 2004, Yinyuan invested $525,101 in Liaoyuan City Credit Cooperative
Corp. Ltd. for 2.7% of ownership. Dividends received are recognized as
investment income. On October 17, 2007, Liaoyuan City Credit Cooperative Corp.
Ltd., Changchun City Commercial Bank and Jilin City Commercial Bank merged as
“Bank of Jilin”. After the merger, Yinyuan owns 0.162% ownership. At
September 30, 2009 and March 31, 2009, long-term investment balance totaled
$636,665 and $636,040, respectively. The Company plans to hold this as a
long-term investment. Investment income
for the six months ended September 30, 2009 and September
30, 2008 weas $0 and $0, respectively.
64
6.
|
Related
Party Loan Payable
|
As of
September 30, 2009, Company related party payable due to Stephen Lee, CEO of
Luxon Holdings Inc., amounts to $135,990. The loan is due upon demand and
required an annual interest rate at 6%.. Interest expense for the six
months ended September 30, 2009 and 2008 is $2,730 and $0,
respectively.
7.
|
Sales,
Major Customer & Supplier
|
Major
Customer:
During
the period, sales revenue from our major customers are as follows:
For
the six months ended
|
||||||||
September 30, 2009
|
September 30, 2008
|
|||||||
Customer
A (Jilin Midas)
|
99.70 | % | 82.17 | % |
Major
Supplier:
Scrap
aluminum and primary aluminum are the most important raw materials for aluminum
ingot production. during the period raw material purchase form our
major suppliers are as follows:
For
the six months ended
|
||||||||
September 30, 2009
|
September 30, 2008
|
|||||||
Supplier
A (Jilin Midas)
|
76.23 | % | 52.83 | % |
8.
|
Employee
Benefit Plans
|
Yinyuan
has adopted a defined benefit pension plan covering all eligible employees. The
plans provide for salary reduction contributions of 1% to 8% of an eligible
employee’s compensation. Employer matching contributions are equal to a
specified percentage of the participant’s salary deductions.
9.
|
Leases
|
The
Company leases an office building under a non-cancelable forty-nine month lease
commencing in May, 2006 and ending in May, 2010. Future minimum lease payments
are as follows:
May,
2010
|
$ | 34,550 |
10.
|
Income
Taxes
|
Luxon was
incorporated in the United States of America and is subject to U.S. tax law.
Except for the minimum tax liability, no provisions for income taxes have been
made as the Company has no U.S. taxable income for the six months ended
September 30, 2009 and 2008, respectively. The applicable income tax rate for
Luxon for the six months ended September 30, 2009 and 2008 is 33%.
Pursuant
to the laws and regulations in the PRC, Yinyuan,is a
wholly-foreign-owned-enterprise (“WFOE”) in the PRC. As such, Yinyuan’s income
taxes will be exempted in the first two calendar years (starting from March 1,
2006, at the inception of becoming a WFOE and ending on December 31, 2007) and
reduced by 50% in the next three years (in calendar year 2008, 2009 and
2010).
On March
16, 2007, the National People’s Congress of China passed the new Enterprise
Income Tax Law (EIT Law), and on December 6, 2007, the State Council of China
issued the Implementation Regulations for the EIT Law which took effect on
January 1, 2008. The EIT Law and Implementation Regulations
Rules impose a unified EIT of 25% on all domestic-invested enterprises and
Foreign Invested Entities, or FIEs, unless they qualify under certain limited
exceptions.
65
The Company,
as a WFOE is expected to qualify under the previous exemption and reduction
rules, and continue to enjoy a favorable income tax rate at a reduced rate
of 50% of the new unified EIT of 25% in effect during fiscal year 2008
through 2010 as determined by the PRC government and the regional tax
authorities.
The
provision for income taxes consists of the following:
For the six months Ended
|
||||||||
Income
tax expenses:
|
September 30, 2009
|
September 30, 2008
|
||||||
Current
PRC tax
|
$ | 87,940 | $ | 163,235 | ||||
Current
US tax
|
- | 800 | ||||||
Deferred
|
- | - | ||||||
Total
|
$ | 87,940 | $ | 164,035 |
11.
|
Contingencies
|
The
Company has not, historically, carried any property or casualty insurance. No
amounts have been accrued for any liability that could arise from the lack of
insurance. Management believes the chances of such an obligation arising are
remote.
12.
|
Stock
Issuance
|
On July
7, 2006, the Company issued 9 million shares of common stock to “Ogston Group
Limited” for $1.45 million. On October 5, 2006 in conjunction with a private
placement, the Company issued 805,000 shares of common stock for $1.61
million.
13.
|
Basic
and Diluted Earnings Per Share
|
The
Company computes net earnings per share in accordance with ASC Topic 260,
"Earnings per Share". SFAS No. 128 requires presentation of both basic and
diluted earnings per share (EPS) on the face of the income statement. In
computing Diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted EPS excludes all dilutive potential shares if
their effect is anti-dilutive.
September 30, 2009
|
September 30, 2008
|
|||||||
Numerator
earnings
|
$ | 496,481 | $ | 674,643 | ||||
Denominator:
|
||||||||
Weighted-average
shares used to compute basic EPS
|
20,805,000 | 20,805,000 | ||||||
Basic
and Diluted earnings per common share
|
$ | 0.02 | $ | 0.03 |
14.
|
Recent
Accounting Pronouncements
|
The
Company has reviewed all recently issued, but not yet effective, accounting
pronouncements and does not believe the future adoption of any such
pronouncements may be expected to cause a material impact on its financial
condition or the results of its operations.
In June
2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-1, “Topic 105
— Generally Accepted Accounting Principles” which amended ASC 105, “Generally
Accepted Accounting Principles” to establish the Codification as the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On
the effective date, the Codification superseded all then-existing non-SEC
accounting and reporting standards. All previous references to the superseded
standards in our consolidated financial statements have been replaced by
references to the applicable sections of the Codification. The adoption of these
sections did not have a material impact on the Company’s condensed consolidated
financial statements.
66
In June
2009, the FASB finalized SFAS No. 167, “Amending FASB interpretation No. 46(R)”,
which was included in ASC Topic 810-10-05 “Variable Interest Entities”. The
provisions of ASC Topic 810-10-05 amend the definition of the primary
beneficiary of a variable interest entity and will require the Company to make
an assessment each reporting period of its variable interests. The provisions of
this pronouncement are effective January 1, 2010. The Company is evaluating the
impact of the statement on its consolidated financial statements.
In
October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13,
“Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a
consensus of the FASB Emerging Issues Task Force)” which amends ASC 605-25,
“Revenue Recognition: Multiple-Element Arrangements.” ASU No. 2009-13 addresses
how to determine whether an arrangement involving multiple deliverables contains
more than one unit of accounting and how to allocate consideration to each unit
of accounting in the arrangement. This ASU replaces all references to fair value
as the measurement criteria with the term selling price and establishes a
hierarchy for determining the selling price of a deliverable. ASU No. 2009-13
also eliminates the use of the residual value method for determining the
allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires
expanded disclosures. This ASU will become effective for us for revenue
arrangements entered into or materially modified on or after April 1, 2011.
Earlier application is permitted with required transition disclosures based on
the period of adoption. The Company is currently evaluating the application date
and the impact of this standard on its condensed consolidated financial
statements.
.
15.
|
Subsequent
Events
|
The
Company has evaluated subsequent events from the balance sheet date through
November 14, 2009 with the date being the date that the financial statements are
issued or are available to be issued. And there were no subsequent events which
impacted the Company’s financial position or results of operations as of
September 30, 2009 or which require disclosure.
67
Report of
Independent Registered Public Accounting Firm
To the
Board of Directors
Luxon
Holdings, Inc.
We have
audited the consolidated balance sheets of Luxon Holdings, Inc. (the Company) as
of March 31, 2009 and 2008, and the related consolidated statements of
operations and other comprehensive income, changes in stockholders’ equity, and
cash flows for the years ended March 31, 2009 and 2008. These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Luxon Holdings, Inc. as of
March 31, 2009 and 2008, and the results of its operations and its cash flows
for the years ended March 31, 2009 and 2008, in conformity with accounting
principles generally accepted in the United States of America.
/s/
Child, Van Wagoner & Bradshaw, PLLC
Child,
Van Wagoner & Bradshaw, PLLC
Salt Lake
City, Utah
June 15,
2009
LUXON
HOLDINGS, INC.
Consolidated
Balance Sheets
(US
Dollars)
March 31,
|
March 31
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 4,298,027 | $ | 3,506,249 | ||||
Accounts
receivable
|
1,408,466 | 1,316,474 | ||||||
Prepaid
expenses and others
|
5,352 | 17,672 | ||||||
Advances
to suppliers
|
6,991 | 5,231 | ||||||
Inventories
|
548,472 | 673,979 | ||||||
Total
current assets
|
$ | 6,267,308.00 | $ | 5,519,605.00 | ||||
Property,
plant and equipment, net
|
2,638,266 | 2,633,412 | ||||||
Security
deposit
|
4,320 | 4,320 | ||||||
Investment
at cost
|
636,040 | 618,895 | ||||||
Intangible-land
use right
|
354,088 | 351,874 | ||||||
Total
assets
|
$ | 9,900,022 | $ | 9,128,106 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 379,693 | $ | 599,388 | ||||
Advances
from customers
|
268 | 3,668 | ||||||
Accrued
expenses and other liabilities
|
101,779 | 75,282 | ||||||
Taxes
payable
|
68,454 | 283,467 | ||||||
Total
current liabilities
|
$ | 550,194.00 | $ | 961,805.00 | ||||
Total
liabilities
|
$ | 1,100,388.00 | $ | 1,923,610.00 | ||||
STOCKHOLDERS’
EQUITY
|
||||||||
Common
stock (par value
$0.001; 100,000,000 authorized; 20,805,000 shares issued and
outstanding)
|
20,805 | 20,805 | ||||||
Additional
paid in capital
|
3,562,906 | 3,562,906 | ||||||
Retained
earnings
|
4,810,522 | 3,838,343 | ||||||
Accumulated
other comprehensive income
|
955,595 | 744,247 | ||||||
Total
stockholders' equity
|
9,349,828 | 8,166,301 | ||||||
Total
liabilities and stockholders' equity
|
$ | 9,900,022 | $ | 9,128,106 |
See
accompanying notes to consolidated financial statement
F-1
LUXON
HOLDINGS, INC.
Consolidated
Statements of Income and Comprehensive Income
(US
Dollars)
Year ended
|
||||||||
March 31,
|
March 31,
|
|||||||
2009
|
2008
|
|||||||
Sales
revenues:
|
||||||||
Manufacturing
revenue
|
$ | 12,529,695 | $ | 20,756,244 | ||||
Processing
revenue
|
2,936,911 | 2,559,121 | ||||||
Trade
(net)
|
- | 944,448 | ||||||
Total
sales revenues
|
15,466,606 | 24,259,813 | ||||||
Cost
of revenues:
|
||||||||
Manufacturing
|
11,647,978 | 19,934,211 | ||||||
Processing
|
1,496,170 | 1,113,877 | ||||||
Total
cost of revenues
|
13,144,148 | 21,048,088 | ||||||
Gross
profit
|
2,322,458 | 3,211,725 | ||||||
Operating
expenses:
|
||||||||
Selling,
general and administrative expenses
|
1,122,104 | 824,114 | ||||||
Total
operating expenses
|
1,122,104 | 824,114 | ||||||
Net
operating income
|
1,200,354 | 2,387,611 | ||||||
Other
income (expense)
|
||||||||
Interest
income
|
34,658 | 62,390 | ||||||
Interest
expense
|
- | (4,984 | ) | |||||
Subsidy
income
|
- | 104,422 | ||||||
Others
|
300 | - | ||||||
Total
other income
|
34,958 | 161,828 | ||||||
Net
income before income taxes
|
1,235,312 | 2,549,439 | ||||||
Income
taxes
|
263,133 | 205,891 | ||||||
Net
income
|
$ | 972,179 | $ | 2,343,548 | ||||
Foreign
currency translation adjustments
|
211,348 | 576,612 | ||||||
Comprehensive
income
|
$ | 1,183,527 | $ | 2,920,160 | ||||
Basic
and diluted earnings per share
|
$ | 0.05 | $ | 0.11 | ||||
Basic
and diluted weighted average shares outstanding
|
20,805,000 | 20,805,000 |
See
accompanying notes to consolidated financial statement
F-2
UXON
HOLDINGS, INC.
onsolidated
Statements of Changes in Stockholders’ Equity
(US
Dollars)
Accumulated
|
||||||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||||||
Common
|
Common
|
Paid in
|
Retained
|
Comprehensive
|
||||||||||||||||||||
Shares
|
stock
|
Capital
|
Earnings
|
Income
|
Total
|
|||||||||||||||||||
Balance,
March 31 2007
|
20,805,000 | $ | 20,805 | $ | 3,562,906 | $ | 1,494,795 | $ | 167,635 | $ | 5,246,141 | |||||||||||||
Net
income
|
- | - | - | 2,343,548 | - | 2,343,548 | ||||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | - | 576,612 | 576,612 | ||||||||||||||||||
Balance,
March 31 2008
|
20,805,000 | 20,805 | 3,562,906 | 3,838,343 | 744,247 | 8,166,301 | ||||||||||||||||||
Net
income
|
- | - | - | 972,179 | - | 972,179 | ||||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | - | 211,348 | 211,348 | ||||||||||||||||||
Balance,
March 31 2009
|
20,805,000 | $ | 20,805 | $ | 3,562,906 | $ | 4,810,522 | $ | 955,595 | $ | 9,349,828 |
See
accompanying notes to consolidated financial statement
F-3
LUXON
HOLDINGS, INC.
Consolidated
Statements of Cash Flows
(US
Dollars)
Year ended
|
||||||||
March 31,
|
March 31,
|
|||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 972,179 | $ | 2,343,548 | ||||
Adjustments
to reconcile net income to net cash provided by (used in)
operations:
|
||||||||
Depreciation
and amortization
|
166,679 | 144,761 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(55,234 | ) | (1,161,891 | ) | ||||
Advances
to suppliers
|
(1,606 | ) | 21,270 | |||||
Prepaid
expenses & others
|
12,406 | (13,268 | ) | |||||
Inventories
|
143,435 | 96,169 | ||||||
Accounts
payable
|
(235,079 | ) | 142,842 | |||||
Advances
from customers
|
(3,483 | ) | (30,933 | ) | ||||
Taxes
payable
|
(223,152 | ) | (22,906 | ) | ||||
Accrued
expenses and other liabilities
|
25,858 | 196,696 | ||||||
Net
cash provided by operating activities
|
802,003 | 1,716,288 | ||||||
Cash flows from investing
activities:
|
||||||||
Fixed
asset additions
|
(93,164 | ) | (26,647 | ) | ||||
Net
cash provided by (used in) investing activities
|
(93,164 | ) | (26,647 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Repayment
of automobile loan
|
- | (69,145 | ) | |||||
Net
cash provided by (used in) financing activities
|
- | (69,145 | ) | |||||
Effect
of exchange rate changes on cash
|
82,939 | 188,723 | ||||||
Increase
in cash and cash equivalents
|
791,778 | 1,809,219 | ||||||
Cash
and cash equivalents,beginning of period
|
3,506,249 | 1,697,030 | ||||||
Cash
and cash equivalents,end of period
|
$ | 4,298,027 | $ | 3,506,249 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Interest
paid in cash
|
$ | 580 | $ | 4,984 | ||||
Income
taxes paid in cash
|
$ | 440,099 | $ | 9,195 |
See
accompanying notes to consolidated financial statement
F-4
1.
|
Nature of
Operations
|
Luxon
Holdings, Inc. (Luxon) was incorporated in Nevada, USA on February 17, 2006 by
Liaoyuan Yinyuan Aluminum Alloy Company Limited, “Yinyuan”, to become the
holding company of Yinyuan.
Yinyuan
was incorporated in Jilin Province, China on July 15, 2002 and owned by Jilin
Province Tianxin Economic and Trade Ltd. (a PRC Company) and Mr. Gao Ge. On
March 6, 2006, Luxon issued 11 million shares of its common stock to Yinyuan’s
shareholder in exchange for 100% of ownership. Simultaneously, a $1.25 million
cash dividend was declared.
As a
result of this transaction, Yinyuan became a wholly-foreign owned enterprise
(“WFOE”) under PRC law during March 2006. The transaction was accounted for as a
recapitalization of Yinyuan. The accounting is identical to that resulting from
a reverse acquisition, except that no goodwill or other intangible should be
recorded. The recapitalization is considered to be a capital transaction in
substance, rather than a business combination. No assets or liabilities were
transferred from Luxon to Yinyuan in the recapitalization transaction, as the
recapitalization transaction was accounted for at historical cost basis, and
that the financial statements provided reflected the historical financial
statements of Yinyuan.
2.
|
Basis of
Presentation
|
The
consolidated financial statements include the accounts of Luxon and Yinyuan
together “the Company”. All material intercompany accounts and transactions have
been eliminated in consolidation.
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“US GAAP”). This basis differs from that used in the statutory accounts of
Yinyuan, which were prepared in accordance with the accounting principles and
relevant financial regulations applicable to enterprises in the PRC. All
necessary adjustments have been made to present the financial statements in
accordance with US GAAP.
3.
|
Summary of Significant
Accounting Policies
|
(1)
|
Economic
and Political Ricks
|
The
Company faces a number of risks and challenges as a result of having primary
operations and markets in the PRC. Changing political climates in the PRC could
have a significant effect on the Company’s business.
(2)
|
Restrictions
on Transfer of Assets Out of the
PRC
|
Dividend
payments by Yinyuan are limited by certain statutory regulations in the PRC. No
dividends may be paid by Yinyuan without first receiving prior approval from the
Foreign Currency Exchange Management Bureau. Dividend payments are restricted to
85% of profits, after tax. However, no such restrictions exist with respect to
loans or advances.
(3)
|
Cash
and Cash Equivalents
|
For
purposes of the statements of cash flows, cash and cash equivalents include cash
on hand and demand deposits held by banks. Cash deposits in PRC banks are not
insured by any government agency or entity. Cash deposits in US banks are
guaranteed by the Federal Deposit Insurance Corporation to a maximum of
$250,000. At March 31, 2009 and 2008, the Company had $6,757 and $792,867 in two
US banks.
(4)
|
Revenue
Recognition
|
Our
revenue recognition policy dictates that certain conditions have to be met in
order to realize and record such revenue; conditions such as (1) Persuasive
evidence of an arrangement exists, this means that there is an executed sale
order agreement in existence with our customer which specifies at minimum the
parties to the agreement, the type of products and/or scope of service to be
performed, (2) The price is fixed, (3) Delivery has occurred or services have
been rendered, which means that the agreed upon products and/or services have
been delivered, and (4) Collectibility is reasonably assured, which means
regular management reviews of customer’s current financial condition and recent
successful collection efforts.
F-5
There are
two main revenue models within our organization: one; manufacturing revenue
which involves the production of aluminum alloy ingots, and two; processing
revenue which is to provide processing services of aluminum alloy
ingots.
The major
difference between these two business models is the ownership of raw
materials. In the case of manufacturing revenue, the Company uses its
capital to purchase the principal raw materials to be used in the production and
retains ownership of these raw materials until they become finished goods and
valid delivery has been made to our customer. In the case of processing revenue,
the principal raw materials used to manufacture aluminum ingots are delivered to
the Company by the customer, and are owned by the customer throughout the entire
process.
Manufacturing
revenue
According
to EITF 99-19 indicators for gross revenue reporting are listed as
follows:
i. The
Company is the primary obligor in the arrangement.
ii. The
Company has general inventory risk.
iii. The
Company has latitude in establishing prices.
iv. The
Company is involved in the determination of product
specifications.
v. The
Company has physical loss inventory risk, after customer order or during
shipping.
vi. The
Company changes the product or perform part of the service
Primary
and scrap aluminum are the most important raw material for aluminum ingot
manufacturing. During years ended 2009 and 2008, we purchased scrap aluminum
from one of our major vendor, Jilin Midas Aluminum Co., Ltd., ”Jilin Midas”, who
is also our major customer.
As
transactions with Jilin Midas, are not on a commission or fee basis, the Company
records revenue from Jilin Midas on a gross rather than net basis based on the
above indicators.
Processing
revenue
a.
|
Raw
materials utilized in service arrangements must be delivered to our
facilities by our customers before manufacturing may begin, and that there
are no circumstances under which these raw materials are sold to a
customer to whom we also provide the service of manufacturing, where the
raw materials are already in our possession prior to negotiating the
service.
|
b.
|
Revenues
associated with processing revenue do not reflect the value of the
principal raw materials that are owned and provided by our
customers.
|
(5)
|
Accounts
receivable
|
Trade
accounts receivable are recognized and carried at original invoice amount less
an allowance for any uncollectible amounts. Management reviews past due accounts
on a regular basis and determines collectability based on a customer’s current
financial condition and recent payment history, and the Company’s success in
recent collection efforts. An estimate for doubtful accounts is made when
collection of the full amount becomes questionable. No such amount was deemed
necessary at March 31, 2009 and 2008.
At March
31, 2009 and 2008, customer accounts receivable balance exceeding 10% of the
total balance are as follows:
March 31, 2009
|
March 31, 2008
|
|||||||||||||||
Customers
|
Amount
|
Percentage
|
Amount
|
Percentage
|
||||||||||||
Jilin
Midas Aluminium Co., Ltd.
|
$ | 1,377,565 | 97.81 | % | $ | - | - | |||||||||
Chongqing
Long Aluminium Co., Ltd.
|
- | - | 658,657 | 50.03 | % | |||||||||||
Neimenggu
Yutian Co., Ltd.
|
- | - | 630,856 | 47.92 | % | |||||||||||
Others
|
30,901 | 2.19 | % | 26,961 | 2.05 | % | ||||||||||
Total
|
$ | 1,408,466 | 2.19 | % | $ | 1,316,474 | 100.00 | % |
F-6
(6)
|
Property,
Plant, and Equipment
|
Property,
plant and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method over the useful lives of the assets. Amortization of leasehold
improvements is calculated on a straight-line basis over the life of the asset
or the term of the lease, whichever is shorter. Major renewals and betterments
are capitalized and depreciated; maintenance and repairs that do not extend the
life of the respective assets are charged to expense as incurred. Upon disposal
of assets, the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is included in income. Depreciation related to
property and equipment used in production is reported in cost of
sales. Property and equipment are depreciated over their estimated useful
lives as follows:
Buildings
|
40
years
|
Machinery
and equipment
|
15
years
|
Automobiles
|
5
years
|
Computer
equipment
|
3-5
years
|
Furniture
and fixtures
|
3-5
years
|
March 31, 2009
|
March 31, 2008
|
|||||||
Buildings
|
$ | 1,934,714 | $ | 1,882,559 | ||||
Machinery
and equipment
|
1,179,907 | 1,157,374 | ||||||
Automobiles
|
176,905 | 98,111 | ||||||
Computers
|
33,572 | 43,635 | ||||||
Furniture
and fixtures
|
87,612 | 50,859 | ||||||
Total
|
3,412,710 | 3,232,538 | ||||||
Accumulated
depreciation
|
(774,444 | ) | (599,126 | ) | ||||
Net
property, plant and equipment
|
$ | 2,638,266 | $ | 2,633,412 |
March 31, 2009
|
March 31, 2008
|
|||||||
Depreciation
expenses during the year:
|
||||||||
General
and administrative
|
$ | 47,330 | $ | 25,897 | ||||
Cost
of revenues
|
111,854 | 111,972 | ||||||
Total
|
$ | 159,184 | $ | 137,869 |
Long-term
assets of the Company are reviewed annually to assess whether the carrying value
has become impaired, according to the guidelines established in Statement of
Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.” The Company also evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. No impairment of assets was recorded in the
periods reported.
(7)
|
Intangible
Assets - Land Use Rights
|
We
adopted the provisions of Statement of Financial Accounting Standards (“SFAS”)
No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), effective January
1, 2002. According to the laws of the PRC, the government owns all of the
land in the PRC. Companies or individuals are authorized to possess and use the
land only through land use rights granted by the PRC government. Land use right
is amortized using the straight-line method over the lease term of 50 years. At
March 31, 2009 and 2008, land use right balance totaled $354,088 and $351,874,
respectively. Amortization expense for the years ended March 31, 2009
and 2008 was $7,495 and $6,892, respectively.
(8)
|
Inventories
|
Inventories
consist of raw materials and work in process for the production of the Company’s
products, as well as finished goods. The inventories are valued at
the lower of cost or market using the weighted average
method. Impairment and changes in market value are evaluated on a per
item basis. If the cost of the inventory exceeds the market value evaluation
based on total inventory, provisions are made for the difference between the
cost and the market value. Provision for potential obsolete or slow
moving inventory is made based on analysis of inventory levels, age of inventory
and future sales forecasts. Inventories consisted of the
following:
F-7
|
March 31, 2009
|
March 31, 2008
|
||||||
Raw
materials
|
$ | 445,910 | $ | 426,743 | ||||
Work
in process
|
81,369 | 163,477 | ||||||
Finished
goods
|
21,193 | 83,759 | ||||||
Total
|
$ | 548,472 | $ | 673,979 |
(9)
|
Foreign
Currency and Comprehensive Income
|
On July
21,2005, the PRC changed its foreign currency exchange policy from a fixed
RMB/USD exchange rate into a flexible rate under the control of the PRC’s
government. The accompanying financial statements are presented in US dollars.
The functional currency is the Renminbi(“RMB”) of the PRC. The financial
statements are translated into US dollars from RMB at year-end exchange rates
for assets and liabilities, and weighted average exchange rates for revenues and
expenses. Capital accounts are translated at their historical exchange rates
when the capital transactions occurred.
RMB is
not freely convertible into the currency of other nations. All such exchange
transactions must take place through authorized institutions. There is no
guarantee the RMB amounts could have been, or could be, converted into US
dollars at rates used in translation.
(10)
|
Income
Taxes
|
The
Company accounts for its income taxes in accordance with SFAS No.109, which
requires recognition of deferred tax assets and liabilities and their respective
tax bases and any tax credit carry forwards available. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The
Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”) on April 1, 2007. FIN48 provides detailed guidance
for the financial statement recognition, measurement and disclosure of uncertain
tax provisions recognized in the financial statements in accordance with SFAS
No. 109. The adoption of FIN48 had no material impact on the Company’s financial
position and did not result in unrecognized income tax benefits being
recorded.
(11)
|
Estimates
|
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting
period. Actual results could differ from those
estimates.
(12)
|
Risks
and Uncertainties
|
The
Company’s products are subject to market pricing pressure which could impact the
Company’s gross margin and the recoverability of the recorded inventory value.
Management monitors its inventory quantities in an effort to minimize the impact
on its results of operations resulting from decreasing sales prices. No estimate
can be made of possible losses that could result from future sales price
reductions.
(13)
|
Research
and Development
|
Research
and development costs are charged to expense as incurred. Research and
development costs consist primarily of remuneration for research and development
staff, depreciation and maintenance expenses of research and development
equipment, and material and testing costs for research and development. The
Company incurred no such
expenses for neither of
the years ended March 31, 2009 and 2008.
(14)
|
Shipping
and Handling
|
The
Company’s shipping and handling costs for purchasing raw materials were charged
to cost of revenues. Shipping and handling amounts billed to customers in
related sales transactions are included in sales revenues.
F-8
(15)
|
Segment
Reporting
|
Statement
of Financial Accounting Standards No. 131 (SFAS 131), “Disclosure about Segments
of an Enterprise and Related Information” requires use of the management
approach model for segment reporting. The management approach model is based on
the way a company's management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure, or any
other manner in which management disaggregates a company.
In
accordance with Statement of Financial Accounting Standards No. 131 “Disclosures
about Segments of an Enterprise and Related Information”, the Company has
reviewed its business activities and determined that multiple segments do not
exist to be reported.
(16)
|
Advertising
and Promotion Expense
|
Advertising
and promotional costs are expensed as incurred. The Company incurred no such
expenses for neither of the years ended March 31, 2009 and 2008.
(17)
|
Fair
Value of Financial Instruments
|
Statement
of Financial Accounting Standards No. 107, “Disclosures about Fair Value of
Financial Instruments”, requires that the Company disclose estimated fair values
of financial instruments. The carrying amounts reported in the statements of
financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value due to the
short-term maturity of these instruments.
The fair
values of all other assets and liabilities do not differ materially from their
carrying amounts. None of the financial instruments held are derivative
financial instruments and none were acquired or held for trading purposes in
2009 and 2008.
4.
|
Advances to
Suppliers
|
Advances
to suppliers represent the cash paid in advance for purchasing raw materials or
inventory which is to stabilize the raw material unit cost. At March
31, 2009 and 2008, advances to suppliers balance totaled $6,991 and $5,231,
respectively
5.
|
Long-term
Investment
|
During
December 2004, Yinyuan invested $525,101 in Liaoyuan City Credit Cooperative
Corp. Ltd. for 2.7% of ownership. Dividends received are recognized as
investment income. On October 17, 2007 Liaoyuan City Credit Cooperative Corp.
Ltd., Changchun City Commercial Bank and Jilin City Commercial Bank merged as
“Bank of Jilin”. After the merger, Yinyuan owns 0.162% ownership. At
March 31, 2009 and 2008, long-term investment balance totaled $636,040 and
$618,895, respectively. The Company, plans to hold this as a long-term
investment. Investment income for the years ended March 31, 2009 and
2008 was $0 and $0, respectively.
6.
|
Related Party Loan
Payable
|
The
Company borrowed $15,000 from Stephen C. Lee, CEO of Luxon Holdings, Inc. on
March 24, 2009. The loan term is one year with an interest rate of 6%
per year. The repayment date of principal and accrued interest is
March 24, 2010. If payment is not made according to the terms, then
the Company shall pay a late fee of $300.
7.
|
Sales, Major Customer &
Supplier
|
Major
Customer:
Major
customers, and the approximate percentage of revenues for each, During the years
sales revenue from our major customers are as follows:
For
the year ended
|
||||||||
March 31, 2009
|
March 31, 2008
|
|||||||
Customer
A (Jilin Midas)
|
90.71 | % | 87.62 | % |
F-9
Major
Supplier:
Scrap
aluminum and primary aluminum are the most important raw materials for aluminum
ingot production. During the years raw material purchase
form our major suppliers are as follows:
For
the year ended
|
||||||||
March 31, 2009
|
March 31, 2008
|
|||||||
Supplier
A (Jilin Midas)
|
55.45 | % | 63.10 | % |
8.
|
Employee Benefit
Plans
|
Yinyuan
has adopted a defined benefit pension plan covering all eligible employees. The
plan provides for salary reduction contributions of 1% to 8% of an eligible
employee’s compensation. Employer matching contributions are equal to a
specified percentage of the participant’s salary deductions. Yinyuan contributed
$44,980 and $34,227 for the years ended March 31, 2009 and 2008,
respectively.
9.
|
Leases
|
The
Company leases an office building under a non-cancelable forty-nine month lease
commencing in May, 2006 and ending in May, 2010. Future minimum lease payments
are as follows:
For the
year ended March 31:
2010
|
$ | 51,749 | ||
2011
|
8,694 | |||
$ | 60,443 |
10.
|
Income
Tax
|
Luxon was
incorporated in the United States of America and is subject to U.S. tax law.
Except for the minimum tax liability, no provisions for income taxes have been
made as the Company has no U.S. taxable income for the years ended March 31,
2009 and 2008, respectively. The applicable income tax rate for Luxon for the
years ended March 31, 2009 and 2008 is 33%.
Pursuant
to the laws and regulations in the PRC, Yinyuan,is a
wholly-foreign-owned-enterprise (“WFOE”) in the PRC. As such, Yinyuan’s income
taxes will be exempted in the first two calendar years (starting from March 1,
2006, at the inception of becoming a WFOE and ending on December 31, 2007) and
reduced by 50% in the next three years (in calendar year 2008, 2009 and
2010).
On March
16, 2007, the National People’s Congress of China passed the new Enterprise
Income Tax Law (EIT Law), and on December 6, 2007, the State Council of China
issued the Implementation Regulations for the EIT Law which took effect on
January 1, 2008. The EIT Law and Implementation Regulations
Rules impose a unified EIT of 25% on all domestic-invested enterprises and
Foreign Invested Entities, or FIEs, unless they qualify under certain limited
exceptions.
The Company,
as a WFOE is expected to qualify under the previous exemption and reduction
rules, and continue to enjoy a favorable income tax rate at a reduced rate
of 50% of the new unified EIT of 25% in effect during fiscal year 2008
through 2010 as determined by the PRC government and the regional tax
authorities.
The
provision for income taxes consists of the following:
Income tax expenses:
|
March 31, 2009
|
March 31, 2008
|
||||||
Current
PRC tax
|
$ | 261,533 | $ | 205,091 | ||||
Current
US tax
|
1,600 | 800 | ||||||
Deferred
|
- | - | ||||||
Total
|
$ | 263,133 | $ | 205,891 |
F-10
11.
|
Contingencies
|
The
Company has not, historically, carried any property or casualty insurance. No
amounts have been accrued for any liability that could arise from the lack of
insurance. Management believes the chances of such an obligation arising are
remote.
12.
|
Stock
Issuance
|
On July
7, 2006, the Company issued 9 million shares of common stock to “Ogston Group
Limited” for $1.45 million. On October 5, 2006 in conjunction with a private
placement, the Company issued 805,000 shares of common stock for $1.61
million.
13.
|
Basic and Diluted Earnings Per
Share
|
The
Company computes net earnings per share in accordance with SFAS No. 128,
"Earnings per Share". SFAS No. 128 requires presentation of both basic and
diluted earnings per share (EPS) on the face of the income statement. In
computing Diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted EPS excludes all dilutive potential shares if
their effect is anti-dilutive.
March 31, 2009
|
March 31, 2008
|
|||||||
Numerator
earnings
|
$ |
972,179
|
$ |
2,343,548
|
||||
Denominator:
|
||||||||
Weighted-average
shares used to compute basic EPS
|
20,805,000
|
20,805,000
|
||||||
Basic
and Diluted earnings per common share
|
$ |
0.05
|
$ |
0.11
|
14.
|
Recent Accounting
Pronouncements
|
In
April 2009, the FASB issued Staff Position (“FSP”) FAS 157-4, Determining Fair
Value When the Volume or Level of Activity for the Asset or Liability Had
Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP
FAS157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value
in accordance with SFAS No. 157 when the volume or level of activity for
the asset or liability has significantly decreased and requires that companies
provide interim and annual disclosures of the inputs and valuation technique(s)
used to measure fair value. FSP FAS 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009 and is to be applied
prospectively. The Company does not expect the adoption of FSP FAS 157-4 to have
a significant impact on its financial statements.
In
April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments. FSP FAS 115-2 and FAS 124-2
amends the other-than-temporary impairment guidance to improve the presentation
and disclosure of other-than-temporary impairments on debt and equity securities
in the financial statements. FSP FAS 115-2 and FAS 124-2 is effective for
interim and annual reporting periods ending after June 15, 2009. The
Company does not expect the adoption of FSP FAS 115-2 and FAS 124-2 to have a
significant impact on its financial statements.
In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 requires
disclosures about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial statements.
FSP FAS 107-1 and APB 28-1 is effective for interim and annual reporting periods
ending after June 15, 2009. The adoption of FSP 107-1 and APB 28-1 will
have no impact on the Company’s financial statements.
In
November 2008, the Emerging Issues Task Force (“EITF”) issued Issue
No. 08-7, ACCOUNTING FOR DEFENSIVE INTANGIBLE ASSETS (“EITF 08-7”). EITF
08-7 applies to all acquired intangible assets in which the acquirer does not
intend to actively use the asset but intends to hold (lock up) the asset to
prevent its competitors from obtaining access to the asset (a defensive asset),
assets that the acquirer will never actually use, as well as assets that will be
used by the acquirer during a transition period when the intention of the
acquirer is to discontinue the use of those assets. EITF 08-7 is effective as of
January 1, 2009. The Company does not expect the adoption of EITF 08-7 to
have a material impact on its financial statements.
F-11
In
June 2008, the FASB issued FASB Staff Position Emerging Issues Task
Force (EITF) No. 03-6-1, DETERMINING WHETHER INSTRUMENTS GRANTED IN
SHARE-BASED PAYMENT TRANSACTIONS ARE PARTICIPATING SECURITIES (“FSP EITF No.
03-6-1”). Under FSP EITF No. 03-6-1, unvested share-based payment
awards that contain rights to receive nonforfeitable dividends (whether paid or
unpaid) are participating securities, and should be included in the two-class
method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years
beginning after December 15, 2008, and interim periods within those years,
and is not expected to have a significant impact on the Company’s financial
statements.
In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements that are presented in conformity with
generally accepted accounting principles in the United States. This Statement is
effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles. The
Company does not expect the implementation of this statement to have an impact
on its results of operations or financial position.
In
March 2008, The Financial Accounting Standards Board (“FASB”) issued FASB
Statement No. 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 has not completed its
evaluation of the potential impact, if any, of the adoption of SFAS No. 161 on
its consolidated financial position, results of operations and cash
flows.
In
February 2008, the FASB issued Staff Position No. FAS 157-2, which provides for
a one-year deferral of the effective date of SFAS No. 157, Fair Value
Measurements, for non-financial assets and liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis. The Company is evaluating the impact
of this standard as it relates to the Company’s financial position and results
of operations.
In
December 2007, the SEC published the Staff Accounting Bulletin (“SAB”)
No. 110, which amends SAB No. 107 by extending the usage of a
“simplified” method, as discussed in SAB No. 107, in developing an estimate
of expected term of “plain vanilla” share options in accordance with SFAS
No. 123 (revised 2004), Share-Based Payment. In particular, the SEC
indicated in SAB 107 that it will accept a company’s election to use the
simplified method, regardless of whether the company has sufficient information
to make more refined estimates of expected term. The Company does not expect
that the adoption of this EITF will have a material impact on its consolidated
results of operations or financial position.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations, (“SFAS No. 141(R)”), and SFAS No. 160, Non controlling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51
(“SFAS No. 160”). These new standards are the U.S. GAAP outcome of a joint
project with the International Accounting Standards Board (“IASB”). SFAS
No. 141(R) and SFAS No. 160 introduce significant changes in the
accounting for and reporting of business acquisitions and noncontrolling
interests in a subsidiary. SFAS No. 141(R) and SFAS No. 160 continue
the movement toward the greater use of fair values in financial reporting and
increased transparency through expanded disclosures. SFAS No. 141(R)
changes how business acquisitions are accounted for and will impact financial
statements at the acquisition date and in subsequent periods. SFAS No. 160
requires noncontrolling interests (previously referred to as minority interests)
to be reported as a component of equity, which changes the accounting for
transactions with noncontrolling interest holders. SFAS No. 141(R) and SFAS
No. 160 are effective for our fiscal year 2009. The Company is currently
evaluating the impact of SFAS No. 141(R) on its consolidated financial
statements.
F-12
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PROSPECTUS
LUXON
HOLDINGS INC.
Dated
February 4,
2009
Selling
shareholders are offering up to 1,954,000 shares of common stock. The selling
shareholders will offer their shares at $2.50 per share until our shares are
quoted on the OTC Bulletin Board and thereafter at prevailing market prices or
privately negotiated prices.
Our
common stock is not now listed on any national securities exchange, the NASDAQ
stock market or the OTC Bulletin Board.
Dealer Prospectus Delivery
Obligation
Until
(90 days from the date of this prospectus) all dealers that effect
transactions in these securities, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
Part
II-INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Our
Articles of Incorporation provide that no director or officer shall be
personally liable to the Company or its stockholders for monetary damages for
any breach of fiduciary duty by such person as a director or officer, except for
the payment of dividends in violation of Nevada law. Our Bylaws provide,
in pertinent part, that the Company shall indemnify any person made a party to
or involved in any civil, criminal or administrative action, suit or proceeding
by reason of the fact that such person is or was a director or officer of the
Company, or of any corporation which such person served as such at the request
of the Company, against expenses reasonably incurred by, or imposed on, such
person in connection with, or resulting from, the exercise of such action, suit,
proceeding or appeal thereon, except with respect to matters as to which it is
adjudged in such action, suit or proceeding that such person was liable to the
Company, or such other corporation, for negligence or misconduct in the
performance of such persons duties as a director or officer of the Company.
The determination of the rights of such indemnification and the amount
thereof may be made, at the option of the person to be indemnified, by (1) order
of the Court or administrative body or agency having jurisdiction over the
matter for which indemnification is being sought; (2) resolution adopted by a
majority of a quorum of our disinterested directors; (3) if there is no such
quorum, resolution adopted by a majority of the committee of stockholders and
disinterested directors of the Company; (4) resolution adopted by a majority of
the quorum of directors entitled to vote at any meeting; or (5) Order of any
Court having jurisdiction over the Company. Such right of indemnification
is not exclusive of any other right which such director or officer may have, and
without limiting the generality of such statement, they are entitled to their
respective rights of indemnification under any bylaws, agreement, vote of
stockholders, provision of law, or otherwise in addition to their rights under
our Bylaws.
With
regard to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person of the Corporation in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by us is against
public policy as expressed in the Securities Act of 1933, as amended, and will
be governed by the final adjudication of such case.
68
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table is an itemization of all expenses, without consideration to
future contingencies, incurred or expected to be incurred by us in connection
with the issuance and distribution of the securities being offered by this
prospectus. Items marked with an asterisk (*) represent estimated expenses. We
have agreed to pay all the costs and expenses of this offering. Selling security
holders will pay no offering expenses.
ITEM
|
AMOUNT
|
|||
SEC
Registration Fee*
|
$
|
175
|
||
Legal
Fees and Expenses
|
30,000
|
|||
Accounting
Fees and Expenses*
|
50,000
|
|||
Miscellaneous*
|
10,000
|
|||
Total*
|
$
|
90,175
|
*
Estimated Figure
RECENT
SALES OF UNREGISTERED SECURITIES
On July
7, 2006, the Company issued 9 million shares of common stock to “Ogston Group
Limited,” a BVI company for $ 1.45 million.
On
October 5, 2006 in conjunction with a private placement, the Company issued
805,000 shares of common stock at a price of $2.00 per share to 6 U.S. investors
for $1.61 million.
We relied
upon Section 4(2) of the Securities Act of 1933, as amended for the above
issuances to U.S. citizens and residents. We believed that Section 4(2) was
available because:
|
¨
|
None
of these issuances involved underwriters, underwriting discounts or
commissions;
|
|
¨
|
We
placed restrictive legends on all certificates
issued;
|
|
¨
|
No
sales were made by general solicitation or
advertising;
|
|
¨
|
The
distributions were made only to investors who were accredited as defined
in Regulation D.
|
In
connection with the above transactions, although some of the investors may have
also been accredited, we provided the following to all investors:
|
¨
|
Access
to all our books and records.
|
|
¨
|
Access
to all material contracts and documents relating to our
operations.
|
|
¨
|
The
opportunity to obtain any additional information, to the extent we
possessed such information, necessary to verify the accuracy of the
information to which the investors were given
access.
|
Prospective
investors were invited to review at our offices at any reasonable hour, after
reasonable advance notice, any materials available to us concerning our
business. Prospective Investors were also invited to visit our
offices.
EXHIBITS
Item
2
1 Share
Exchange Agreement
Item
3
1
Articles of Incorporation of Luxon Holdings Inc.
2 Bylaws
of Luxon Holdings Inc.
3
Organizational Documents of Subsidiary Yinyuan Aluminum Alloy
Company
69
Item
4
1 Form
of common stock Certificate of the Luxon Holdings Inc.(1)
Item
5
1 Legal
Opinion of Williams Law Group, P.A.
Item
21
1.
Subsidiary - Yinyuan Aluminum Alloy Company
Item
23
1
Consent of Child, Van Wagoner & Bradshaw, PLLC.
2
Consent of Williams Law Group, P.A. (included in Exhibit 5.1)
All other
Exhibits called for by Rule 601 of Regulation S-K are not applicable to this
filing.
(1)
Information pertaining to our common stock is contained in our Articles of
Incorporation and Bylaws.
UNDERTAKINGS
|
a.
|
The
undersigned registrant hereby
undertakes:
|
1.
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
|
i.
|
To
include any prospectus required by section
10(a)(3) of the Securities Act of
1933;
|
ii.
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
|
iii.
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement;
|
2.
|
That,
for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
|
3.
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
|
4.
|
That,
for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities: The undersigned registrant undertakes that in a primary
offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will be
considered to offer or sell such securities to such
purchaser:
|
70
i.
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
ii.
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
iii.
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
iv.
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act, the Registrant has duly caused this
Registration Statement to be signed on our behalf by the undersigned, thereunto
duly authorized, in City of Industry, California on November 10,
2009.
Luxon
Holdings Inc.
Title
|
Name
|
Date
|
Signature
|
|||
Principal
Executive Officer
|
Stephen
C. Lee
|
November
10, 2009
|
/s/
Stephen C. Lee
|
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the date
indicated.
Name
|
Signature
|
Position
|
Date
|
|||
William
Z Wang
|
/s/
William Z Wang
|
Chairman/Director
|
November
10, 2009
|
|||
Stephen
C. Lee
|
/s/
Stephen C. Lee
|
CEO/Director
|
November
10, 2009
|
|||
Wenyu
Liang
|
/s/
Wenyu Liang
|
CFO/Principal
Financial
Officer/Principal
Accounting Officer
|
November
10, 2009
|
|||
Xiaoguang
Yang
|
/s/
Xiaoguang Yang
|
Director
|
November
10, 2009
|
71